UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of September 2019
Commission File Number: 001-14550
China Eastern Airlines Corporation Limited
(Translation of Registrant’s name into English)
Board Secretariat’s Office
5/F, Block A2, Northern District, CEA Building
36 Hongxiang 3rd Road, Minhang District
Shanghai, China 200335
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: ☒ Form 20-F ☐ Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: ☐ Yes ☒ No
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
China Eastern Airlines Corporation Limited | ||||||
(Registrant) | ||||||
Date September 3, 2019 | By | /s/ Wang Jian | ||||
Name: | Wang Jian | |||||
Title: | Company Secretary |
2
Certain statements contained in this announcement may be regarded as “forward-looking statements” within the meaning of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s filings with the U.S. Securities and Exchange Commission. The forward-looking statements included in this announcement represent the Company’s views as of the date of this announcement. While the Company anticipates that subsequent events and developments may cause the Company’s views to change, the Company specifically disclaims any obligation to update these forward-looking statements, unless required by applicable laws. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this announcement.
3
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
2019 INTERIM RESULTS ANNOUNCEMENT
The board of directors (the “Board”) of China Eastern Airlines Corporation Limited (the “Company”) hereby presents the interim financial information of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2019 prepared in accordance with International Financial Reporting Standards (“IFRS”) (which were reviewed and approved by the Board and the audit and risk management committee of the Company (the “Audit and Risk Management Committee”) on 30 August 2019), with comparative figures for the corresponding period in 2018.
The interim financial information of the Group for the six months ended 30 June 2019 is not necessarily indicative of annual or future results of the Group. Investors should not place undue reliance on the interim financial information of the Group for the six months ended 30 June 2019.
4
INTERIM FINANCIAL INFORMATION
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the six months ended 30 June 2019
For the six months | ||||||||||
ended 30 June | ||||||||||
2019 | 2018 | |||||||||
Notes | RMB million | RMB million | ||||||||
(Unaudited) | (Unaudited) | |||||||||
Revenue |
5 | 58,859 | 54,500 | |||||||
Other operating income and gains |
6 | 3,407 | 3,390 | |||||||
Operating expenses |
||||||||||
Aircraft fuel |
(16,625 | ) | (15,252 | ) | ||||||
Take-off and landing charges |
(7,840 | ) | (7,097 | ) | ||||||
Depreciation and amortisation |
(10,818 | ) | (7,534 | ) | ||||||
Wages, salaries and benefits |
(11,171 | ) | (9,831 | ) | ||||||
Aircraft maintenance |
(1,891 | ) | (1,649 | ) | ||||||
Impairment charges |
— | (4 | ) | |||||||
Impairment losses on financial assets |
(3 | ) | (2 | ) | ||||||
Food and beverages |
(1,822 | ) | (1,665 | ) | ||||||
Low value and short-term lease rentals |
(265 | ) | — | |||||||
Aircraft operating lease rentals |
— | (2,016 | ) | |||||||
Other operating lease rentals |
— | (473 | ) | |||||||
Selling and marketing expenses |
(2,040 | ) | (1,813 | ) | ||||||
Civil aviation development fund |
(1,205 | ) | (1,093 | ) | ||||||
Ground services and other expenses |
(1,343 | ) | (1,651 | ) | ||||||
Fair value changes of financial asset at fair value through profit or loss |
18 | (30 | ) | |||||||
Indirect operating expenses |
(2,105 | ) | (2,334 | ) | ||||||
|
|
|
|
|||||||
Total operating expenses |
(57,110 | ) | (52,444 | ) | ||||||
|
|
|
|
|||||||
Operating profit |
5,156 | 5,446 | ||||||||
Share of results of associates |
167 | 57 | ||||||||
Share of results of joint ventures |
25 | 28 | ||||||||
Finance income |
45 | 52 | ||||||||
Finance costs |
7 | (2,685 | ) | (2,416 | ) | |||||
|
|
|
|
|||||||
Profit before income tax |
2,708 | 3,167 | ||||||||
Income tax expense |
8 | (576 | ) | (665 | ) | |||||
|
|
|
|
|||||||
Profit for the period |
2,132 | 2,502 | ||||||||
|
|
|
|
5
INTERIM FINANCIAL INFORMATION
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (continued)
For the six months ended 30 June 2019
For the six months | ||||||||||||
ended 30 June | ||||||||||||
2019 | 2018 | |||||||||||
Notes | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Other comprehensive income |
||||||||||||
Other comprehensive income that may be reclassified to profit or loss in subsequent periods: |
||||||||||||
Cash flow hedges, net of tax |
(61 | ) | 110 | |||||||||
|
|
|
|
|||||||||
Net other comprehensive income that may be reclassified to profit or loss in subsequent periods |
(61 | ) | 110 | |||||||||
|
|
|
|
|||||||||
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods: |
||||||||||||
Fair value changes of equity instruments designated at fair value through other comprehensive income, net of tax |
10 | (7 | ) | |||||||||
Share of other comprehensive income of an associate, net of tax |
3 | (16 | ) | |||||||||
Actuarial (losses)/gains on the post-retirement benefit obligations, net of tax |
13 | (126 | ) | |||||||||
|
|
|
|
|||||||||
Net other comprehensive income that will not be reclassified to profit or loss in subsequent periods |
26 | (149 | ) | |||||||||
|
|
|
|
|||||||||
Other comprehensive income, net of tax |
(35 | ) | (39 | ) | ||||||||
|
|
|
|
|||||||||
Total comprehensive income for the period |
2,097 | 2,463 | ||||||||||
|
|
|
|
|||||||||
Profit attributable to: |
||||||||||||
Equity holders of the Company |
1,941 | 2,279 | ||||||||||
Non-controlling interests |
191 | 223 | ||||||||||
|
|
|
|
|||||||||
Profit for the period |
2,132 | 2,502 | ||||||||||
|
|
|
|
|||||||||
Total comprehensive income attributable to: |
||||||||||||
Equity holders of the Company |
1,912 | 2,240 | ||||||||||
Non-controlling interests |
185 | 223 | ||||||||||
|
|
|
|
|||||||||
Total comprehensive income for the period |
2,097 | 2,463 | ||||||||||
|
|
|
|
|||||||||
Earnings per share attributable to the equity holders of the Company during the period |
||||||||||||
— Basic and diluted (RMB) |
11 | 0.13 | 0.16 | |||||||||
|
|
|
|
6
INTERIM FINANCIAL INFORMATION
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 2019
30 June | 31 December | |||||||||
2019 | 2018 | |||||||||
Notes | RMB million | RMB million | ||||||||
(Unaudited) | (Audited) | |||||||||
Non-current assets |
||||||||||
Property, plant and equipment |
13 | 91,929 | 180,104 | |||||||
Investment properties |
669 | 724 | ||||||||
Right-of-use assets |
133,840 | — | ||||||||
Prepayments for land use rights |
— | 1,387 | ||||||||
Intangible assets |
14 | 11,626 | 11,609 | |||||||
Advanced payments on acquisition of aircraft |
15 | 18,228 | 21,942 | |||||||
Investments in associates |
1,942 | 1,696 | ||||||||
Investments in joint ventures |
693 | 577 | ||||||||
Equity instruments designated at fair value through other comprehensive income |
1,259 | 1,247 | ||||||||
Derivative financial instruments |
49 | 222 | ||||||||
Other non-current assets |
3,082 | 3,370 | ||||||||
Deferred tax assets |
705 | 207 | ||||||||
|
|
|
|
|||||||
264,022 | 223,085 | |||||||||
|
|
|
|
|||||||
Current assets |
||||||||||
Flight equipment spare parts |
2,160 | 1,950 | ||||||||
Trade and notes receivables |
16 | 2,197 | 1,436 | |||||||
Financial asset at fair value through profit or loss |
114 | 96 | ||||||||
Prepayments and other receivables |
12,615 | 11,776 | ||||||||
Derivative financial instruments |
81 | 1 | ||||||||
Restricted bank deposits and short-term bank deposits |
8 | 16 | ||||||||
Cash and cash equivalents |
951 | 646 | ||||||||
Assets held for sale |
11 | 11 | ||||||||
|
|
|
|
|||||||
18,137 | 15,932 | |||||||||
|
|
|
|
|||||||
Current liabilities |
||||||||||
Trade and bills payables |
17 | 2,860 | 4,040 | |||||||
Contract liabilities |
8,422 | 8,811 | ||||||||
Other payables and accruals |
22,633 | 21,143 | ||||||||
Current portion of lease liabilities |
18 | 14,581 | — | |||||||
Current portion of obligations under finance leases |
— | 9,364 | ||||||||
Current portion of borrowings |
19 | 32,755 | 29,259 | |||||||
Income tax payable |
145 | 273 | ||||||||
Current portion of provision for return condition checks for aircraft under leases |
212 | 145 | ||||||||
Derivative financial instruments |
16 | 29 | ||||||||
|
|
|
|
|||||||
81,624 | 73,064 | |||||||||
|
|
|
|
|||||||
Net current liabilities |
(63,487 | ) | (57,132 | ) | ||||||
|
|
|
|
|||||||
Total assets less current liabilities |
200,535 | 165,953 | ||||||||
|
|
|
|
7
INTERIM FINANCIAL INFORMATION
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
30 June 2019
30 June | 31 December | |||||||||||
2019 | 2018 | |||||||||||
Notes | RMB million | RMB million | ||||||||||
(Unaudited) | (Audited) | |||||||||||
Non-current liabilities |
||||||||||||
Lease liabilities |
18 | 98,345 | — | |||||||||
Obligations under finance leases |
— | 68,063 | ||||||||||
Borrowings |
19 | 24,801 | 25,867 | |||||||||
Provision for return condition checks for aircraft under leases |
9,096 | 2,761 | ||||||||||
Contract liabilities |
1,584 | 1,585 | ||||||||||
Derivative financial instruments |
3 | — | ||||||||||
Post-retirement benefit obligations |
2,478 | 2,544 | ||||||||||
Other long-term liabilities |
2,439 | 3,448 | ||||||||||
Deferred tax liabilities |
— | 84 | ||||||||||
|
|
|
|
|||||||||
138,746 | 104,352 | |||||||||||
|
|
|
|
|||||||||
Net assets |
61,789 | 61,601 | ||||||||||
|
|
|
|
|||||||||
Equity |
||||||||||||
Equity attributable to the equity holders of the Company |
||||||||||||
— Share capital |
20 | 14,467 | 14,467 | |||||||||
— Reserves |
43,788 | 43,541 | ||||||||||
|
|
|
|
|||||||||
58,255 | 58,008 | |||||||||||
|
|
|
|
|||||||||
Non-controlling interests |
3,534 | 3,593 | ||||||||||
|
|
|
|
|||||||||
Total equity |
61,789 | 61,601 | ||||||||||
|
|
|
|
8
INTERIM FINANCIAL INFORMATION
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2019
Attributable to equity holders of the Company | ||||||||||||||||||||||||
Non- | ||||||||||||||||||||||||
Share | Other | Retained | controlling | Total | ||||||||||||||||||||
capital | reserves | profits | Subtotal | interests | equity | |||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||
At 31 December 2018 (audited) |
14,467 | 27,045 | 16,496 | 58,008 | 3,593 | 61,601 | ||||||||||||||||||
Effect of adoption of IFRS 16 |
— | — | (1,665 | ) | (1,665 | ) | (170 | ) | (1,835 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At 1 January 2019 (restated) (unaudited) |
14,467 | 27,045 | 14,831 | 56,343 | 3,423 | 59,766 | ||||||||||||||||||
Profit for the period |
— | — | 1,941 | 1,941 | 191 | 2,132 | ||||||||||||||||||
Other comprehensive income |
— | (29 | ) | — | (29 | ) | (6 | ) | (35 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive income for the period |
— | (29 | ) | 1,941 | 1,912 | 185 | 2,097 | |||||||||||||||||
Dividends paid to non-controlling interests |
— | — | — | — | (74 | ) | (74 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At 30 June 2019 (unaudited) |
14,467 | 27,016 | * | 16,772 | * | 58,255 | 3,534 | 61,789 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* | These reserve accounts comprise the unaudited consolidated reserve of RMB43,788 million in the unaudited interim condensed consolidated statement of financial position (31 December 2018: RMB43,541 million). |
Attributable to equity holders of the Company | ||||||||||||||||||||||||
Non- | ||||||||||||||||||||||||
Share | Other | Retained | controlling | Total | ||||||||||||||||||||
capital | reserves | profits | Subtotal | interests | equity | |||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||
At 1 January 2018 (audited) |
14,467 | 27,355 | 14,566 | 56,388 | 3,421 | 59,809 | ||||||||||||||||||
Profit for the period |
— | — | 2,279 | 2,279 | 223 | 2,502 | ||||||||||||||||||
Other comprehensive income |
— | (39 | ) | — | (39 | ) | — | (39 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive income for the period |
— | (39 | ) | 2,279 | 2,240 | 223 | 2,463 | |||||||||||||||||
Final 2017 dividend declared |
— | — | (738 | ) | (738 | ) | — | (738 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At 30 June 2018 (unaudited) |
14,467 | 27,316 | 16,107 | 57,890 | 3,644 | 61,534 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
9
INTERIM FINANCIAL INFORMATION
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2019
For the six months | ||||||||
ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities |
||||||||
Profit before tax |
2,708 | 3,167 | ||||||
Adjustments to reconcile profit before tax to net cash flows: |
||||||||
Depreciation of property, plant and equipment |
4,194 | 7,207 | ||||||
Depreciation of right-of-use assets |
6,270 | — | ||||||
Depreciation of investment properties |
13 | 6 | ||||||
Amortisation of intangible assets |
63 | 81 | ||||||
Amortisation of lease prepayments |
— | 24 | ||||||
Amortisation of other long-term assets |
278 | 216 | ||||||
Impairment loss on financial assets, net |
3 | 2 | ||||||
Loss on disposal of property, plant and equipment |
6 | 10 | ||||||
Fair value adjustment of financial asset at fair value through profit or loss |
(18 | ) | 30 | |||||
Fair value adjustment of derivative financial instrument |
— | (273 | ) | |||||
Share of results of associates and joint ventures |
(192 | ) | (85 | ) | ||||
Gain on disposal of investment in a subsidiary |
(64 | ) | — | |||||
Dividend income from financial asset at fair value through profit or loss |
(3 | ) | (5 | ) | ||||
Dividend income from equity instrument designated at fair value through other comprehensive income |
(3 | ) | — | |||||
Net foreign exchange losses |
271 | 768 | ||||||
Interest income |
— | (52 | ) | |||||
Interest expense |
2,489 | 1,870 | ||||||
Provisions for flight equipment spare parts |
— | 4 | ||||||
|
|
|
|
|||||
Increase in flight equipment spare parts |
(210 | ) | (29 | ) | ||||
Decrease/(increase) in trade and other receivables and prepayments |
408 | (3,752 | ) | |||||
Decrease/(increase) in trade and other payables |
(2,516 | ) | 3,277 | |||||
|
|
|
|
|||||
Cash generated from operations |
13,697 | 12,466 | ||||||
|
|
|
|
|||||
Income tax paid |
(946 | ) | (1,829 | ) | ||||
|
|
|
|
|||||
Net cash flows from operating activities |
12,751 | 10,637 | ||||||
|
|
|
|
10
INTERIM FINANCIAL INFORMATION
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
For the six months ended 30 June 2019
For the six months | ||||||||
ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from investing activities |
||||||||
Additions of property, plant and equipment |
(2,611 | ) | (4,326 | ) | ||||
Additions of right-of-use assets |
(2,406 | ) | — | |||||
Additions to intangible assets |
(83 | ) | (86 | ) | ||||
Advanced payments on acquisition of aircraft |
(4,099 | ) | (6,780 | ) | ||||
Investment in joint ventures |
(102 | ) | — | |||||
Investment in an associate |
— | (16 | ) | |||||
Disposal of a subsidiary |
(90 | ) | (11 | ) | ||||
Proceeds from disposal of property, plant and equipment |
53 | 579 | ||||||
Proceeds from novation of purchase rights |
1,836 | 644 | ||||||
Proceeds from disposal of intangible assets |
2 | — | ||||||
Interest received |
— | 52 | ||||||
Dividends received |
92 | 57 | ||||||
Settlement relating to derivative financial instruments |
(42 | ) | — | |||||
Proceeds from repayment of loan to a joint venture |
2 | — | ||||||
Loan to a joint venture |
— | (22 | ) | |||||
|
|
|
|
|||||
Net cash flows used in investing activities |
(7,448 | ) | (9,909 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities |
||||||||
Proceeds from draw-down of short-term bank loans |
1,892 | 12,537 | ||||||
Proceeds from draw-down of long-term bank loans |
300 | — | ||||||
Proceeds from issuance of short-term debentures |
25,500 | 10,500 | ||||||
Proceeds from issuance of long-term debentures and bonds |
3,000 | 2,971 | ||||||
Proceeds from draw-down of long-term bank loans and other financing activities |
5,539 | 11,046 | ||||||
Repayments of short-term debentures |
(14,500 | ) | (14,000 | ) | ||||
Repayments of short-term bank loans |
(7,230 | ) | (17,886 | ) | ||||
Repayments of long-term bank loans |
(3,592 | ) | (530 | ) | ||||
Repayments of long-term debentures and bonds |
(3,000 | ) | — | |||||
Repayments of principal of lease payments |
(10,070 | ) | — | |||||
Repayments of principal of finance lease obligations |
— | (4,282 | ) | |||||
Interest paid |
(2,825 | ) | (2,227 | ) | ||||
(Net) settlement relating to derivative financial instruments |
32 | (384 | ) | |||||
Dividends paid to non-controlling interests of subsidiaries |
(45 | ) | — | |||||
|
|
|
|
|||||
Net cash flows used in financing activities |
(4,999 | ) | (2,255 | ) | ||||
|
|
|
|
|||||
Net increase/(decrease) in cash and cash equivalents |
304 | (1,527 | ) | |||||
Cash and cash equivalents at beginning of period |
646 | 4,616 | ||||||
Effect of foreign exchange rate changes |
1 | 50 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at 30 June |
951 | 3,139 | ||||||
|
|
|
|
11
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
30 June 2019
1. | CORPORATE AND GROUP INFORMATION |
China Eastern Airlines Corporation Limited (the “Company”), a joint stock company limited by shares, was established in the People’s Republic of China (the “PRC”) on 14 April 1995. The address of the Company’s registered office is 66 Airport Street, Pudong International Airport, Shanghai, the PRC. The Company and its subsidiaries (together, the “Group”) are principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery, tour operations and other extended transportation services.
In the opinion of the directors, the holding company and ultimate holding company of the Company is China Eastern Air Holding Company Limited (“CEA Holding”), a state-owned enterprise established in the PRC.
The A shares, H shares and American Depositary Shares are listed on the Shanghai Stock Exchange, the Stock Exchange of Hong Kong Limited and the New York Stock Exchange, respectively.
The unaudited interim condensed consolidated financial statements were approved for issue by the Company’s Board on 30 August 2019.
2. | BASIS OF PREPARATION |
The unaudited interim condensed consolidated financial information, comprising interim condensed consolidated statement of financial position as at 30 June 2019, interim condensed consolidated statement of profit or loss and other comprehensive income, interim condensed consolidated statement of changes in equity and interim condensed consolidated statement of cash flows for six months ended 30 June 2019 (collectively referred to as the “interim financial information”), has been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting”. The interim condensed consolidated financial information does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual consolidated financial statements for the year ended 31 December 2018.
As at 30 June 2019, the Group’s current liabilities exceeded its current assets by approximately RMB63.49 billion. In preparing the interim financial information, the Board conducts adequate and detailed review over the Group’s going concern ability based on the current financial situation.
The Board has taken actions to deal with the situation that current liabilities exceeded its current assets, and the Board is confident that the Group has obtained adequate credit facility from the banks to support the floating capital. As at 30 June 2019, the Group had total unutilised credit facilities of approximately RMB47.40 billion from banks.
Based on the bank facility obtained by the Group, the past record of the financing and the good working relationship with major banks and financial institutions, the Board considers that the Group will be able to obtain sufficient financing to enable it to operate, as well as to meet its liabilities as and when they become due, and the capital expenditure requirements for the upcoming twelve months. Accordingly, the Board believes that it is appropriate to prepare the financial information on a going concern basis without including any adjustments that would be required should the Company and the Group fail to continue as a going concern.
3. | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES |
The accounting policies adopted in the preparation of the interim condensed consolidated financial information are consistent with those applied in the preparation of the Group’s annual consolidated financial information for the year ended 31 December 2018, except for the adoption of the new and revised International Financial Reporting Standards (“IFRSs”) effective as of 1 January 2019.
12
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
3. | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) |
Amendments to IFRS 9 | Prepayment Features with Negative Compensation | |
IFRS 16 | Leases | |
Amendments to IAS 19 | Plan Amendment, Curtailment or Settlement | |
Amendments to IAS 28 | Long-term Interests in Associates and Joint Ventures | |
IFRIC-Int 23 | Uncertainty over Income Tax Treatments | |
Annual Improvements |
Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 |
Other than as explained below regarding the impact of IFRS 16 Leases, the new and revised standards are not relevant to the preparation of the Group’s interim condensed consolidated financial information. The nature and impact of the new and revised IFRS are described below:
IFRS 16 replaces IAS 17 Leases, IFRIC-Int 4 Determining whether an Arrangement contains a Lease, SIC-Int 15 Operating Leases — Incentives and SIC-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model. Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have any financial impact on leases where the Group is the lessor.
The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initial adoption as an adjustment to the opening balance of retained earnings at 1 January 2019, and the comparative information for 2018 was not restated and continues to be reported under IAS 17.
New definition of a lease
Under IFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC-Int 4 at the date of initial application. Contracts that were not identified as leases under IAS 17 and IFRIC-Int 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their standard-alone prices. A practical expedient is available to a lessee, which the Group has adopted, not to separate non-lease components and to account for the lease and the associated non-lease components (e.g., property management services for leases of properties) as a single lease component.
As a lessee – Leases previously classified as operating leases
Nature of the effect of adoption of IFRS 16
The Group has lease contracts for various items of aircraft, engines, buildings and other equipment. As a lessee, the Group previously classified leases as either finance leases or operating leases based on the assessment of whether the lease transferred substantially all the rewards and risks of ownership of assets to the Group. Under IFRS 16, the Group applies a single approach to recognise and measure right-of-use assets and lease liabilities for all leases, except for two elective exemptions for leases of low value assets (elected on a lease by lease basis) and short-term leases (elected by class of underlying asset). The Group has elected not to recognise right-of-use assets and lease liabilities for (i) leases of low- value assets; and (ii) leases, that at the commencement date, have a lease term of 12 months or less. Instead, the Group recognises the lease payments associated with those leases as an expense on a straight-line basis over the lease term.
13
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
3. | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) |
Impacts on transition
Lease liabilities at 1 January 2019 were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at 1 January 2019 and included in lease liabilities.
For aircraft and engine lease, the right-of-use assets amounting to RMB31,510 million were recognised based on the carrying amount as if the standard had always been applied, except for the incremental borrowing rate where the Group applied the incremental borrowing rate at 1 January 2019. For the other leases, the right-of-use assets were measured at the amount of the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to the lease recognised in the statement of financial position immediately before 1 January 2019. All these assets were assessed for any impairment based on IAS 36 on that date. The Group elected to present the right-of-use assets separately in the statement of financial position. This includes the lease assets recognised previously under finance leases of RMB94,416 million that were reclassified from property, plant and equipment.
The Group has used the following elective practical expedients when applying IFRS 16 at 1 January 2019:
• | Applied the short-term lease exemptions to leases with a lease term that ends within 12 months from the date of initial application |
• | Used hindsight in determining the lease term where the contract contains options to extend/terminate the lease |
• | Applied a single discount rate to a portfolio of leases with reasonably similar characteristics |
• | Excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application |
The impacts arising from the adoption of IFRS 16 as at 1 January 2019 are as follows:
Increase/(decrease) | ||||
RMB million | ||||
(Unaudited) | ||||
Assets |
||||
Increase in right-of-use assets |
127,821 | |||
Decrease in property, plant and equipment |
(94,416 | ) | ||
Decrease in prepayments for land use rights |
(1,387 | ) | ||
Decrease in prepayments and other receivables |
(403 | ) | ||
Increase in deferred tax assets |
495 | |||
|
|
|||
Increase in total assets |
32,110 | |||
|
|
|||
Liabilities |
||||
Decrease in current portion of obligations under finance leases |
(9,364 | ) | ||
Increase in current portion of lease liabilities |
14,549 | |||
Decrease in obligations under finance leases |
(68,063 | ) | ||
Increase in lease liabilities |
94,333 | |||
Increase in provision for return condition checks for aircraft under leases |
3,689 | |||
Decrease in other long-term liabilities |
(1,115 | ) | ||
Decrease in deferred tax liabilities |
(84 | ) | ||
|
|
|||
Increase in total liabilities |
33,945 | |||
|
|
|||
Equity |
||||
Decrease in retained earnings |
(1,665 | ) | ||
Decrease in non-controlling interests |
(170 | ) | ||
|
|
|||
Decrease in total equity |
(1,835 | ) | ||
|
|
14
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
3. | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) |
The lease liabilities as at 1 January 2019 reconciled to the operating lease commitments as at 31 December 2018 is as follows:
RMB million | ||||
(Unaudited) | ||||
Operating lease commitments as at 31 December 2018 |
37,278 | |||
Weighted average incremental borrowing rate as at 1 January 2019 |
4.09 | % | ||
|
|
|||
Discounted operating lease commitments as at 1 January 2019 |
31,662 | |||
Less: Commitments relating to short-term leases and those leases with a remaining lease term ending on or before 31 December 2019 |
206 | |||
Commitments relating to leases of low-value assets |
1 | |||
Add: Commitments relating to leases previously classified as finance leases |
77,427 | |||
|
|
|||
Lease liabilities as at 1 January 2019 |
108,882 | |||
|
|
Summary of new accounting policies
The accounting policy for leases as disclosed in the annual financial statements for the year ended 31 December 2018 is replaced with the following new accounting policies upon adoption of IFRS 16 from 1 January 2019:
Right-of-use assets
Right-of-use assets are recognised at the commencement date of the lease. 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 recognised, initial direct costs incurred, lease payments made at or before the commencement date, and an estimate of costs to be incurred in restoring the underlying asset to the condition required by the terms and conditions of the lease less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life and the lease term. When a right-of-use asset meets the definition of investment property, it is included in investment properties. The corresponding right-of-use asset is initially measured at cost, and subsequently measured at historical cost less accumulated depreciation and provision for any impairment in value, in accordance with the Group’s policy for ‘investment properties’.
Lease liabilities
Lease liabilities are recognised 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 variable lease payments that do not depend on an index or a rate are recognised 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 the incremental borrowing rate at the lease commencement date if 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 future lease payments arising from change in an index or rate, a change in the lease term, a change in the in-substance fixed lease payments or a change in assessment to purchase the underlying asset.
15
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
3. | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) |
Amounts recognised in the interim condensed consolidated statement of financial position and profit or loss
The carrying amounts of the Group’s right-of-use assets and lease liabilities, and the movement during the period are as follow:
Right-of-use assets | ||||||||||||||||
Aircraft | Lease | |||||||||||||||
and engines | Others | Sub-total | Liabilities | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
As at 1 January 2019 |
125,926 | 1,895 | 127,821 | 108,882 | ||||||||||||
Additions |
17,781 | 61 | 17,842 | 13,993 | ||||||||||||
Depreciation charge |
(6,141 | ) | (129 | ) | (6,270 | ) | — | |||||||||
Transfer to property, plant and equipment |
(5,531 | ) | — | (5,531 | ) | — | ||||||||||
Disposal |
(12 | ) | — | (12 | ) | — | ||||||||||
Interest Expense |
— | — | — | 1,923 | ||||||||||||
Payments |
— | — | — | (11,993 | ) | |||||||||||
Effect of foreign exchange rate changes, net |
— | — | — | 131 | ||||||||||||
Disposal of a subsidiary |
— | (10 | ) | (10 | ) | (10 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
As at 30 June 2019 |
132,023 | 1,817 | 133,840 | 112,926 | ||||||||||||
|
|
|
|
|
|
|
|
The Group recognised rental expenses from short-term leases of RMB262 million and leases of low-value assets of RMB3 million and rental income from subleasing right-of-use assets of RMB44 million for the six months ended 30 June 2019.
4. | OPERATING SEGMENT INFORMATION |
(a) | CODM, office of the General Manager, reviews the Group’s internal reporting in order to assess performance and allocate resources. |
The Group has one reportable operating segment, reported as “airline transportation operations”, which comprises the provision of passenger, cargo, mail delivery, ground service and cargo handling services.
Other services including primarily tour operations, air catering and other miscellaneous services are not included within the airline transportation operations segment, as their internal reports are separately provided to the CODM. The results of these operations are included in the “other segments” column.
Inter-segment transactions are entered into under normal commercial terms and conditions that would be available to unrelated third parties.
16
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
4. | OPERATING SEGMENT INFORMATION (continued) |
(a) | CODM, office of the General Manager, reviews the Group’s internal reporting in order to assess performance and allocate resources. (continued) |
In accordance with IFRS 8, segment disclosure has been presented in a manner that is consistent with the information used by the Group’s CODM. The Group’s CODM monitors the results, assets and liabilities attributable to each reportable segment based on financial results prepared under the PRC Accounting Standards for Business Enterprises (the “PRC Accounting Standards”), which differ from IFRS in certain aspects. The amount of each material reconciling items from the Group’s reportable segment revenues and profit before income tax, arising from different accounting policies are set out in Note 4(c) below.
Six months ended 30 June 2019 | ||||||||||||||||||||
Airline | ||||||||||||||||||||
transportation | Other | |||||||||||||||||||
operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||
Segment revenue |
||||||||||||||||||||
Reportable segment revenue from external customers |
57,639 | 1,145 | — | — | 58,784 | |||||||||||||||
Inter-segment sales |
— | 581 | (581 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Reportable segment revenue |
57,639 | 1,726 | (581 | ) | — | 58,784 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Reportable segment profit before income tax |
2,176 | 272 | — | 262 | 2,710 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other segment information |
||||||||||||||||||||
Depreciation and amortisation |
10,684 | 132 | — | — | 10,816 | |||||||||||||||
Impairment charges/Impairment losses on financial assets |
3 | — | — | — | 3 | |||||||||||||||
Interest income |
50 | 162 | (167 | ) | — | 45 | ||||||||||||||
Interest expenses |
2,533 | 123 | (167 | ) | — | 2,489 | ||||||||||||||
Capital expenditure |
19,159 | 194 | — | — | 19,353 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six months ended 30 June 2018 | ||||||||||||||||||||
Airline | ||||||||||||||||||||
transportation | Other | |||||||||||||||||||
operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||
Segment revenue |
||||||||||||||||||||
Reportable segment revenue from external customers |
52,533 | 1,889 | — | — | 54,422 | |||||||||||||||
Inter-segment sales |
— | 379 | (379 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Reportable segment revenue |
52,533 | 2,268 | (379 | ) | — | 54,422 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Reportable segment profit before income tax |
2,512 | 326 | — | 333 | 3,171 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other segment information |
||||||||||||||||||||
Depreciation and amortisation |
7,415 | 115 | — | — | 7,530 | |||||||||||||||
Impairment charges/Impairment losses on financial assets |
5 | 1 | — | — | 6 | |||||||||||||||
Interest income |
54 | 164 | (166 | ) | — | 52 | ||||||||||||||
Interest expenses |
1,880 | 156 | (166 | ) | — | 1,870 | ||||||||||||||
Capital expenditure |
13,088 | 598 | — | — | 13,686 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
17
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
4. | OPERATING SEGMENT INFORMATION (continued) |
(a) | CODM, office of the General Manager, reviews the Group’s internal reporting in order to assess performance and allocate resources. (continued) |
Airline | ||||||||||||||||||||
transportation | Other | |||||||||||||||||||
operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||
At 30 June 2019 |
||||||||||||||||||||
Reportable segment assets |
267,448 | 17,858 | (9,540 | ) | 4,143 | 279,909 | ||||||||||||||
Reportable segment liabilities |
214,714 | 15,175 | (9,540 | ) | 18 | 220,367 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Airline | ||||||||||||||||||||
transportation | Other | |||||||||||||||||||
operations | segments | Eliminations | Unallocated* | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Audited) | (Audited) | (Audited) | (Audited) | (Audited) | ||||||||||||||||
At 31 December 2018 |
||||||||||||||||||||
Reportable segment assets |
221,208 | 19,255 | (7,543 | ) | 3,845 | 236,765 | ||||||||||||||
Reportable segment liabilities |
168,095 | 16,748 | (7,543 | ) | 113 | 177,413 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
* | Unallocated assets primarily represent investments in associates and joint ventures, derivative financial instruments, financial asset at fair value through profit or loss and equity instruments designated at fair value through other comprehensive income. Unallocated results primarily represent the share of results of associates and joint ventures, fair value changes of derivative financial instruments and dividend income relating to equity instrument at fair value through profit or loss. |
(b) | The Group’s business operates in three main geographical areas, even though they are managed on a worldwide basis. |
The Group’s revenues by geographical area are analysed based on the following criteria:
1) | Traffic revenue from services within the Mainland China (the PRC excluding the Hong Kong Special Administrative Region (“Hong Kong”), Macau Special Administrative Region (“Macau”) and Taiwan, collectively known as “Regional”) is classified as domestic operations. Traffic revenue from inbound and outbound services between overseas markets excluding Regional is classified as international operations. |
2) | Revenue from ticket handling services, ground services, cargo handling service and other miscellaneous services are classified on the basis of where the services are performed. |
For the six months ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |
39,028 | 36,459 | ||||||
International |
17,667 | 16,111 | ||||||
Regional (Hong Kong, Macau and Taiwan) |
2,164 | 1,930 | ||||||
|
|
|
|
|||||
58,859 | 54,500 | |||||||
|
|
|
|
3) | The major revenue-earning assets of the Group are its aircraft, all of which are registered in the PRC. Since the Group’s aircraft are deployed flexibly across its route network, there is no suitable basis of allocating such assets and the related liabilities by geographic area and hence segment non-current assets and capital expenditure by geographic area are not presented. Except the aircraft, most non-current assets (except financial instruments) are registered and located in the PRC. |
18
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
4. | OPERATING SEGMENT INFORMATION (continued) |
(c) | Reconciliation of reportable segment revenues, profit, assets and liabilities to the consolidated figures as reported in the consolidated financial statements: |
For the six months ended 30 June | ||||||||||||
2019 | 2018 | |||||||||||
Note | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Revenue |
||||||||||||
Reportable segment revenue |
58,784 | 54,422 | ||||||||||
— Reclassification of taxes relating to the expired tickets |
(i) | 75 | 78 | |||||||||
|
|
|
|
|||||||||
Consolidated revenue |
58,859 | 54,500 | ||||||||||
|
|
|
|
|||||||||
For the six months ended 30 June | ||||||||||||
2019 | 2018 | |||||||||||
Note | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Profit before income tax |
||||||||||||
Reportable segment profit |
2,710 | 3,171 | ||||||||||
— Differences in depreciation charges for aircraft and engines due to different depreciation lives |
(ii) | (2 | ) | (4 | ) | |||||||
|
|
|
|
|||||||||
Consolidated profit before income tax |
2,708 | 3,167 | ||||||||||
|
|
|
|
|||||||||
30 June 2019 | 31 December 2018 | |||||||||||
Notes | RMB million | RMB million | ||||||||||
(Unaudited) | (Audited) | |||||||||||
Assets |
||||||||||||
Reportable segment assets |
279,909 | 236,765 | ||||||||||
— Differences in depreciation charges for aircraft and engines due to different depreciation lives |
(ii) | 8 | 10 | |||||||||
— Difference in intangible asset arising from the acquisition of Shanghai Airlines |
(iii) | 2,242 | 2,242 | |||||||||
|
|
|
|
|||||||||
Consolidated assets |
282,159 | 239,017 | ||||||||||
|
|
|
|
|||||||||
30 June 2019 | 31 December 2018 | |||||||||||
RMB million | RMB million | |||||||||||
(Unaudited) | (Audited) | |||||||||||
Liabilities |
||||||||||||
Reportable segment liabilities |
220,367 | 177,413 | ||||||||||
— Others |
3 | 3 | ||||||||||
|
|
|
|
|||||||||
Consolidated liabilities |
220,370 | 177,416 | ||||||||||
|
|
|
|
19
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
4. | OPERATING SEGMENT INFORMATION (continued) |
Notes:
(i) | The difference represents the different classification of tax relating to the expired tickets under the PRC Accounting Standards and IFRS. |
(ii) | The difference is attributable to the differences in the useful lives and residual values of aircraft and engines adopted for depreciation purposes in prior years under the PRC Accounting Standards and IFRS. Despite the depreciation policies of these assets which have been unified under IFRS and the PRC Accounting Standards in recent years, the changes were applied prospectively as changes in accounting estimates which result in the differences in the carrying amounts and related depreciation charges under IFRS and the PRC Accounting Standards. |
(iii) | The difference represents the different measurement of the fair value of acquisition cost of the shares from Shanghai Airlines between the PRC Accounting standards and IFRS, which results in the different measurement of goodwill. |
(d) | Seasonality of operations |
The civil aviation industry is subject to seasonal fluctuations, with peak demand during the holiday season in the second half of the year. As such, the revenues and results of the Group in the first half of the year are generally lower than those in the second half of the year.
5. | REVENUE |
An analysis of revenue is as follows:
For the six months ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue from contracts with customers |
||||||||
Traffic revenues |
55,323 | 50,790 | ||||||
Tour operations income |
897 | 1,182 | ||||||
Ground service income |
518 | 625 | ||||||
Commission income |
52 | 46 | ||||||
Ticket cancellation fee |
1,082 | 991 | ||||||
Others |
907 | 850 | ||||||
Revenue from other sources |
||||||||
Gross rental income |
80 | 16 | ||||||
|
|
|
|
|||||
58,859 | 54,500 | |||||||
|
|
|
|
20
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
5. | REVENUE (continued) |
Disaggregated revenue information for revenue from contracts with customers
For the six months ended 30 June 2019 | ||||||||||||
Airline | ||||||||||||
transportation | Others | |||||||||||
Segments | operations | operations | Total | |||||||||
RMB million | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Type of goods or services |
||||||||||||
Traffic revenues |
||||||||||||
— Passenger |
53,581 | — | 53,581 | |||||||||
— Cargo and mail |
1,742 | — | 1,742 | |||||||||
Tour operations income |
— | 897 | 897 | |||||||||
Ground service income |
518 | — | 518 | |||||||||
Commission income |
52 | — | 52 | |||||||||
Ticket cancellation fee |
1,082 | — | 1,082 | |||||||||
Others |
659 | 248 | 907 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue from contracts with customers |
57,634 | 1,145 | 58,779 | |||||||||
|
|
|
|
|
|
|||||||
Geographical markets |
||||||||||||
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |
37,803 | 1,145 | 38,948 | |||||||||
International |
17,667 | — | 17,667 | |||||||||
Regional (Hong Kong, Macau and Taiwan) |
2,164 | — | 2,164 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue from contracts with customers |
57,634 | 1,145 | 58,779 | |||||||||
|
|
|
|
|
|
|||||||
For the six months ended 30 June 2018 | ||||||||||||
Airline | ||||||||||||
transportation | Others | |||||||||||
Segments | operations | operations | Total | |||||||||
RMB million | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Type of goods or services |
||||||||||||
Traffic revenues |
||||||||||||
— Passenger |
49,045 | — | 49,045 | |||||||||
— Cargo and mail |
1,745 | — | 1,745 | |||||||||
Tour operations income |
— | 1,182 | 1,182 | |||||||||
Ground service income |
625 | — | 625 | |||||||||
Commission income |
46 | — | 46 | |||||||||
Ticket cancellation fee |
991 | — | 991 | |||||||||
Others |
159 | 691 | 850 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue from contracts with customers |
52,611 | 1,873 | 54,484 | |||||||||
|
|
|
|
|
|
|||||||
Geographical markets |
||||||||||||
Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |
34,570 | 1,873 | 36,443 | |||||||||
International |
16,111 | — | 16,111 | |||||||||
Regional (Hong Kong, Macau and Taiwan) |
1,930 | — | 1,930 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue from contracts with customers |
52,611 | 1,873 | 54,484 | |||||||||
|
|
|
|
|
|
21
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
6. | OTHER OPERATING INCOME AND GAINS |
For the six months ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Co-operation routes income (note (a)) |
2,302 | 2,164 | ||||||
Routes subsidy income (note (b)) |
382 | 441 | ||||||
Other subsidy income (note (c)) |
292 | 210 | ||||||
Gain on disposal of property, plant and equipment |
3 | 5 | ||||||
Dividend income from financial asset at fair value through profit or loss |
3 | 5 | ||||||
Dividend income from equity investments designated at fair value through other comprehensive income |
3 | — | ||||||
Compensation from ticket sales agents |
127 | 154 | ||||||
Fair value changes of derivative financial instruments |
— | 273 | ||||||
Gain on disposal of a subsidiary |
64 | — | ||||||
Others |
231 | 138 | ||||||
|
|
|
|
|||||
3,407 | 3,390 | |||||||
|
|
|
|
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. |
(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 and other contingencies related to subsidies that were recognised for the six months ended 30 June 2019 and 2018. |
22
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
7. | FINANCE COSTS |
For the six months ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Interest on bank borrowings |
646 | 814 | ||||||
Interest relating to lease liabilities |
1,923 | 1,176 | ||||||
Interest relating to post-retirement benefit obligations |
60 | 48 | ||||||
Interest on bonds and debentures |
241 | 230 | ||||||
Interest relating to interest rate swap contracts |
(35 | ) | 13 | |||||
Less: amounts capitalised into advanced payments on acquisition of aircraft (Note (a)) (Note 15) |
(346 | ) | (411 | ) | ||||
|
|
|
|
|||||
2,489 | 1,870 | |||||||
Foreign exchange losses, net (note (b)) |
196 | 588 | ||||||
Less: amounts capitalised into advanced payments on acquisition of aircraft (Note 15) |
— | (42 | ) | |||||
|
|
|
|
|||||
2,685 | 2,416 | |||||||
|
|
|
|
Notes:
(a) | The weighted average interest rate used for interest capitalization is 3.52% per annum for the six months ended 30 June 2019 (for the six months ended 30 June 2018: 3.50%). |
(b) | The exchange losses primarily related to the translation of the Group’s foreign currency denominated borrowings and lease liabilities for the six months ended 30 June 2019. |
23
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
8. | INCOME TAX |
Income tax charged to profit or loss was as follows:
For the six months ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Current |
562 | 750 | ||||||
Deferred |
14 | (85 | ) | |||||
|
|
|
|
|||||
576 | 665 | |||||||
|
|
|
|
Pursuant to the “Notice of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on Issues Concerning Relevant Tax Policies for Enhancing the Implementation of Western Region Development Strategy” (Cai Shui [2011] No. 58), and other series of tax regulations, enterprises located in the western regions and engaged in the industrial activities as listed in the “Catalogue of Encouraged Industries in Western Regions”, will be entitled to a reduced corporate income tax rate of 15% from 2011 to 2020 upon approval from 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 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% (2018:16.5%). Eastern E-commerce, a subsidiary of the Company, qualifying for High and New Technology Enterprise (HNTE) status pursuant to the “Administrative measures for the determination of high and new technology enterprises” (Guokehuofa [2016] No. 32), has been entitled to a reduced corporate income tax rate of 15% from 1 January 2018 as approved by the tax authorities.
The Company and its subsidiaries, except for CEA Yunnan, Eastern E-commerce, Sichuan branch, Gansu branch, Xibei branch and those incorporated in Hong Kong, are generally subject to the PRC standard corporate income tax rate of 25% (2018: 25%).
24
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
9. | DISPOSAL OF A SUBSIDIARY |
On 19 March 2019, the Company and Greenland Holdings Corporation Limited (“Greenland Holdings”) entered into a capital injection and share expansion agreement. According to the agreement, Greenland Holdings agreed to inject capital into Shanghai Airlines Tours International (Group) Co., Ltd. (“Shanghai Airlines Tours”), previously a wholly-owned subsidiary of the Company, and subscribe its newly issued shares with monetary capital in an aggregate amount of RMB251 million. As of 17 May 2019, the capital injection and share expansion has been completed. After that, the Company’s equity interest in Shanghai Airlines Tours was diluted to 35%, and Greenland Holdings held 65% of the equity interest in Shanghai Airlines Tours.
The details of the assets and liabilities disposed of relating to the disposal of a subsidiary are summarised as follows:
At date of disposal | ||||
RMB million | ||||
(Unaudited) | ||||
Net assets disposed of: |
||||
Property, plant and equipment |
26 | |||
Right-of-use assets |
10 | |||
Investments in associates |
10 | |||
Other non-current assets |
2 | |||
Prepayments and other receivables |
278 | |||
Restricted bank deposits and short-term bank deposits |
251 | |||
Trade and notes receivables |
115 | |||
Cash and cash equivalents |
90 | |||
Trade and bills payables |
(79 | ) | ||
Contract liabilities |
(284 | ) | ||
Other payables and accruals |
(378 | ) | ||
Lease liabilities |
(10 | ) | ||
|
|
|||
Net assets |
31 | |||
Gain on disposal of a subsidiary |
64 | |||
|
|
|||
Satisfied by: |
||||
Investment in an associate |
95 | |||
|
|
An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:
2019 | ||||
RMB million | ||||
(Unaudited) | ||||
Cash consideration |
— | |||
Cash and bank balances in a subsidiary disposed of |
90 | |||
|
|
|||
Net outflow of cash and cash equivalents in respect of the disposal of a subsidiary |
(90 | ) | ||
|
|
10. | DIVIDEND |
The Board has not recommended any dividend for the six months ended 30 June 2019 (for the six months ended 30 June 2018: Nil).
25
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
11. | EARNINGS PER SHARE |
The calculation of basic earnings per share is based on the unaudited consolidated profit attributable to equity holders of the Company of approximately RMB1,941 million and the weighted average number of shares of 14,467 million in issue during the six months ended 30 June 2019. The Company had no potentially dilutive ordinary shares in issue for the six months ended 30 June 2019 (for the six months ended 30 June 2018: Nil).
12. | PROFIT APPROPRIATION |
No appropriation to the statutory reserves has been made for the six months ended 30 June 2019 (for the six months ended 30 June 2018: Nil). Such appropriations will be made at year end in accordance with the relevant PRC regulations and the Articles of Association of individual group companies.
13. | PROPERTY, PLANT AND EQUIPMENT |
Aircraft, engines | ||||||||||||
and flight | ||||||||||||
equipment | Others | Total | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Carrying amount at 31 December 2018 |
162,981 | 17,123 | 180,104 | |||||||||
Effect of adoption of IFRS 16 |
(94,416 | ) | — | (94,416 | ) | |||||||
|
|
|
|
|
|
|||||||
Carrying amount at 1 January 2019 |
68,565 | 17,123 | 85,688 | |||||||||
Transfers from advanced payments on acquisition of aircraft (Note 15) |
343 | — | 343 | |||||||||
Other additions |
2,226 | 2,193 | 4,419 | |||||||||
Transfer from investment properties |
— | 39 | 39 | |||||||||
Transfer from other non-current assets |
5,531 | 176 | 5,707 | |||||||||
Depreciation charges |
(3,590 | ) | (604 | ) | (4,194 | ) | ||||||
Disposal of a subsidiary |
— | (26 | ) | (26 | ) | |||||||
Disposals |
(32 | ) | (15 | ) | (47 | ) | ||||||
|
|
|
|
|
|
|||||||
Carrying amount at 30 June 2019 |
73,043 | 18,886 | 91,929 | |||||||||
|
|
|
|
|
|
|||||||
Aircraft, engines | ||||||||||||
and flight | ||||||||||||
equipment | Others | Total | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Carrying amount at 1 January 2018 |
153,754 | 13,102 | 166,856 | |||||||||
Transfers from advanced payments on acquisition of aircraft (Note 15) |
4,754 | — | 4,754 | |||||||||
Other additions |
4,872 | 2,368 | 7,240 | |||||||||
Transfer from investment properties |
— | 9 | 9 | |||||||||
Transfer from other non-current assets |
— | 293 | 293 | |||||||||
Depreciation charges |
(6,697 | ) | (510 | ) | (7,207 | ) | ||||||
Assets included in held for sale |
(103 | ) | — | (103 | ) | |||||||
Disposals |
(558 | ) | (31 | ) | (589 | ) | ||||||
|
|
|
|
|
|
|||||||
Carrying amount at 30 June 2018 |
156,022 | 15,231 | 171,253 | |||||||||
|
|
|
|
|
|
26
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
14. | INTANGIBLE ASSETS |
Goodwill | ||||||||||||
(Note) | Others | Total | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Carrying amount at 1 January 2019 |
11,270 | 339 | 11,609 | |||||||||
Additions |
— | 82 | 82 | |||||||||
Amortisation |
— | (63 | ) | (63 | ) | |||||||
Disposal |
— | (2 | ) | (2 | ) | |||||||
|
|
|
|
|
|
|||||||
Carrying amount at 30 June 2019 |
11,270 | 356 | 11,626 | |||||||||
|
|
|
|
|
|
|||||||
Goodwill | ||||||||||||
(Note) | Others | Total | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Carrying amount at 1 January 2018 |
11,270 | 326 | 11,596 | |||||||||
Additions |
— | 87 | 87 | |||||||||
Amortisation |
— | (81 | ) | (81 | ) | |||||||
|
|
|
|
|
|
|||||||
Carrying amount at 30 June 2018 |
11,270 | 332 | 11,602 | |||||||||
|
|
|
|
|
|
Notes:
The balance represents goodwill arising from the acquisition of Shanghai Airlines. Goodwill is attributable to strengthening the competitiveness of the Group’s airline transportation operations, attaining synergy through integration of the resources and providing the evolution of Shanghai international air transportation centre. For the purpose of impairment assessment, goodwill was allocated to the CGU that the Group operates and benefits from the acquisition.
15. | ADVANCED PAYMENTS ON ACQUISITION OF AIRCRAFT |
For the six months ended 30 June | ||||||||
2019 | 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
At 1 January |
21,942 | 24,752 | ||||||
Additions |
3,753 | 5,487 | ||||||
Interest capitalised (Note 7) |
346 | 453 | ||||||
Transfer to property, plant and equipment (Note 13) |
(343 | ) | (4,754 | ) | ||||
Transfer to right-of-use assets |
(7,470 | ) | — | |||||
|
|
|
|
|||||
At 30 June |
18,228 | 25,938 | ||||||
|
|
|
|
27
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
16. | TRADE AND NOTES RECEIVABLES |
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Trade receivables |
2,283 | 1,525 | ||||||
Notes receivable |
— | 4 | ||||||
|
|
|
|
|||||
2,283 | 1,529 | |||||||
Impairment |
(86 | ) | (93 | ) | ||||
|
|
|
|
|||||
2,197 | 1,436 | |||||||
|
|
|
|
An ageing analysis of the trade receivables as at the end of the reporting period, based on the invoice/billing date and net of loss allowance, is as follows:
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Within 90 days |
2,116 | 1,354 | ||||||
91 to 180 days |
27 | 52 | ||||||
181 to 365 days |
30 | 11 | ||||||
Over 365 days |
24 | 15 | ||||||
|
|
|
|
|||||
2,197 | 1,432 | |||||||
|
|
|
|
17. | TRADE AND BILLS PAYABLES |
An ageing analysis of the trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows:
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Within 90 days |
2,509 | 3,594 | ||||||
91 to 180 days |
73 | 49 | ||||||
181 to 365 days |
93 | 157 | ||||||
1 to 2 years |
119 | 100 | ||||||
Over 2 years |
66 | 140 | ||||||
|
|
|
|
|||||
2,860 | 4,040 | |||||||
|
|
|
|
28
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
18. | LEASE LIABILITIES |
Present values | ||||||||
Minimum lease | of minimum | |||||||
payments | lease payments | |||||||
30 June 2019 | 30 June 2019 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Unaudited) | |||||||
Within one year |
18,863 | |||||||
In the second year |
17,672 | |||||||
In the third to fifth years, inclusive |
46,045 | |||||||
After the fifth year |
51,103 | |||||||
|
|
|||||||
Total |
133,683 | 112,926 | ||||||
Less: amounts repayable within one year |
(18,863 | ) | (14,581 | ) | ||||
|
|
|
|
|||||
Non-current portion |
114,820 | 98,345 | ||||||
|
|
|
|
19. | BORROWINGS |
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Non-current |
||||||||
Long-term bank borrowings |
||||||||
— secured |
3,456 | 3,934 | ||||||
— unsecured |
832 | 4,556 | ||||||
Guaranteed bonds |
13,513 | 13,377 | ||||||
Unsecured bonds |
7,000 | 4,000 | ||||||
|
|
|
|
|||||
24,801 | 25,867 | |||||||
|
|
|
|
|||||
Current |
||||||||
Current portion of long-term bank borrowings |
||||||||
— secured |
949 | 997 | ||||||
— unsecured |
1,014 | 76 | ||||||
Current portion of guaranteed bonds |
711 | 732 | ||||||
Current portion of unsecured bonds |
1,825 | 4,834 | ||||||
Short-term bank borrowings |
||||||||
— unsecured |
2,756 | 8,120 | ||||||
Short-term debentures |
25,500 | 14,500 | ||||||
|
|
|
|
|||||
32,755 | 29,259 | |||||||
|
|
|
|
|||||
57,556 | 55,126 | |||||||
|
|
|
|
29
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
20. | SHARE CAPITAL |
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Registered, issued and fully paid of RMB1.00 each |
||||||||
A shares listed on The Shanghai Stock Exchange (“A Shares”) |
9,808 | 9,808 | ||||||
H shares listed on The Stock Exchange of Hong Kong Limited (“H Shares”) |
4,659 | 4,659 | ||||||
|
|
|
|
|||||
14,467 | 14,467 | |||||||
|
|
|
|
Pursuant to articles 49 and 50 of the Company’s articles of association, both the listed A shares and listed H shares are registered ordinary shares and carry equal rights.
21. | COMMITMENTS |
The Group had the following capital commitments at the end of the reporting period:
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Contracted for: |
||||||||
— Aircraft, engines and flight equipment (Note) |
51,550 | 70,998 | ||||||
— Other property, plant and equipment |
4,600 | 6,481 | ||||||
— Investments |
590 | 590 | ||||||
|
|
|
|
|||||
56,740 | 78,069 | |||||||
|
|
|
|
Note:
Contracted expenditures for the above aircraft, engines and flight equipment, including deposits prior to delivery, subject to future inflation increase built into the contracts were expected to be paid as follows:
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Within one year |
23,093 | 29,187 | ||||||
In the second year |
17,389 | 24,735 | ||||||
In the third year |
8,467 | 11,809 | ||||||
In the fourth year |
2,008 | 4,674 | ||||||
Over four years |
593 | 593 | ||||||
|
|
|
|
|||||
51,550 | 70,998 | |||||||
|
|
|
|
The above capital commitments represent the future outflow of cash or other resources.
30
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS |
The Group is controlled by CEA Holding, which directly owns 35.06% of the Company’s shares as at 30 June 2019 (2018: 35.06 %). In addition, through CES Global Holdings (Hong Kong) Limited and CES Finance Holding Co., Limited, two wholly-owned subsidiaries of CEA Holding, CEA Holding indirectly owns additional shares of the Company of approximately 18.15% and 3.16% respectively as at 30 June 2019 (2018: 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.
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”) |
Associate of the Company | |
Eastern Aviation Import & Export Co., Ltd. and its subsidiaries |
||
(“Eastern Import & Export”) |
Associate of the Company | |
Shanghai Pratt & Whitney Aircraft Engine Maintenance Co., Ltd. (“Shanghai P&W”) |
Associate of the Company | |
Eastern Aviation Advertising Service Co., Ltd. (“Eastern Advertising”) |
Associate of the Company | |
Shanghai Collins Aviation Maintenance Service Co., Ltd. (“Collins Aviation”) |
Associate of the Company | |
CAE Melbourne Flight Training Pty Limited (“CAE Melbourne”) |
Joint venture of the Company | |
Shanghai Eastern Union Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”) |
Joint venture of the Company | |
Shanghai Technologies Aerospace Co., Ltd. (“Technologies Aerospace”) |
Joint venture of the Company | |
Eastern China Kaiya System Integration Co., Ltd. (“China Kaiya”) |
Joint venture of the Company | |
Shanghai Hute Aviation Technology Co., Ltd. (“Shanghai Hute”) |
Joint venture of the Company | |
CEA Development Co., Limited and its subsidiaries (“CEA Development”) |
Controlled by the same parent company | |
China Eastern Air Catering Investment Co., Limited and its subsidiaries (“Eastern Air Catering”) |
Controlled by the same parent company | |
CES International Financial Leasing Corporation Limited and its subsidiaries (“CES Lease Company”) |
Controlled by the same parent company | |
Shanghai Eastern Airlines Investment Co., Ltd. (“Eastern Investment”) |
Controlled by the same parent company | |
Shanghai Eastern Airlines Logistics Co., Ltd. and its subsidiaries (“Eastern Logistics”) |
Controlled by the same parent company |
31
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS (continued) |
(a) | Nature of related parties that do not control or controlled by the Group: (continued) |
Name of related party | Relationship with the Group | |
Eastern Airlines Industry Investment Company Limited (“Eastern Airlines Industry Investment”) |
Controlled by the same parent company | |
CES Finance Holding Co., Limited (“CES Finance”) |
Controlled by the same parent company and a substantial shareholder of the Company | |
CES Global Holdings (Hong Kong) Limited (“CES Global”) |
Controlled by the same parent company and a substantial shareholder of the Company | |
Hong Kong Securities Clearing Company Ltd. (“HKSCC”) |
A substantial shareholder of the Company | |
TravelSky Technology Limited (“TravelSky”) |
A director and vice president of the Company is a director of Travelsky | |
China Aviation Supplies Holding Company and its subsidiaries (“CASC”) |
A director and vice president of the Company is a director of CASC | |
Air France-KLM Group (“AFK”) |
A director and vice president of the Company is a director of AFK |
(b) | Related party transactions |
For the six months | ||||||||||||
Pricing policy | ended 30 June | |||||||||||
Nature of transaction | Related party | and decision | 2019 | 2018 | ||||||||
process | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Purchase of goods and services |
||||||||||||
Payments on food and beverages* |
Eastern Air Catering | (i) | 756 | 634 | ||||||||
CEA development | (i) | — | 30 | |||||||||
Eastern Import & Export | (i) | 35 | 34 | |||||||||
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) | 94 | 94 | ||||||||
Repairs and maintenance expense |
Shanghai P&W | (i) | 685 | 1,347 | ||||||||
for aircraft and engines |
Technologies Aerospace | (i) | 110 | 129 | ||||||||
Wheels & Brakes | (i) | 69 | 64 | |||||||||
Shanghai Hute | (i) | 43 | 34 | |||||||||
Payments on cabin cleaning services |
Eastern Advertising | (i) | 10 | 9 | ||||||||
Advertising expense* |
Eastern Advertising | (i) | 10 | 9 | ||||||||
Payments on system services |
China Kaiya | (i) | 7 | 6 | ||||||||
Equipment maintenance fee* |
Collins Aviation | (i) | 7 | 13 | ||||||||
CEA Development | (i) | 63 | 17 |
32
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS (continued) |
(b) | Related party transactions (continued) |
For the six months | ||||||||||||
Pricing policy | ended 30 June | |||||||||||
Nature of transaction | Related party | and decision | 2019 | 2018 | ||||||||
process | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Purchase of goods and services |
||||||||||||
Automobile maintenance service, aircraft maintenance, providing transportation automobile and other products* |
CEA Development | (i) | 3 | 31 | ||||||||
Property management and green maintenance expenses* |
CEA Development | (i) | 50 | 63 | ||||||||
Payments on hotel accommodation service* |
CEA Development | (i) | 41 | 66 | ||||||||
Civil aviation information network services** |
TravelSky | (i) | 361 | 333 | ||||||||
Flight equipment spare parts maintenance** |
CASC | (i) | 66 | 51 | ||||||||
Flight training fee |
CAE Melbourne | (i) | 23 | 30 | ||||||||
Payments on aviation transportation cooperation and support services** |
AFK | (i) | 247 | 209 | ||||||||
Land and building rental* |
CEA Holding | (i) | 17 | 27 | ||||||||
Payments on logistics services |
Eastern Import & Export | (i) | 49 | 48 | ||||||||
Bellyhold space operation cost* |
Eastern Logistics | (i) | 139 | 80 | ||||||||
Bellyhold space management* |
Eastern Logistics | (i) | — | 32 | ||||||||
Transfer of pilots |
Eastern Logistics | (i) | 2 | 22 | ||||||||
Cargo terminal business support services* |
Eastern Logistics | (i) | 281 | 8 |
33
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS (continued) |
(b) | Related party transactions (continued) |
For the six months | ||||||||||||
Pricing policy | ended 30 June | |||||||||||
Nature of transaction | Related party | and decision | 2019 | 2018 | ||||||||
process | RMB million | RMB million | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Provision of services |
||||||||||||
Contractual income from bellyhold space* |
Eastern Logistics | (i) | 1,741 | 912 | ||||||||
Freight logistics support services* |
Eastern Logistics | (i) | 68 | 50 | ||||||||
Media royalty fee |
Eastern Advertising | (i) | 7 | 8 | ||||||||
Aviation transportation cooperation and support services** |
AFK | (i) | 304 | 440 | ||||||||
Lease Payments |
||||||||||||
Lease Payments* |
CES Lease Company | (ii) | 2,478 | — | ||||||||
Payments on finance leases* |
CES Lease Company | (ii) | — | 1,808 | ||||||||
Payments on operating leases* |
CES Lease Company | (ii) | — | 58 | ||||||||
Interest expense |
||||||||||||
Interest expense on loans |
CEA Holding | (iii) | 11 | 2 | ||||||||
Eastern Air Finance | (iii) | 1 | — | |||||||||
Interest income |
||||||||||||
Interest income on deposits |
Eastern Air Finance | (iii) | 10 | 31 |
34
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS (continued) |
(b) | Related party transactions (continued) |
(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. |
(iv) | The Group’s pricing policies on transfer of equity or disposal of investments are mutually agreed based on the valuation prices. |
* | These related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”). |
** | This related party transaction constitutes a continuing connected transaction pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange. |
During the six months ended 30 June 2019 and 2018, 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.
(c) | Balances with related parties |
(i) | Amounts due from related parties |
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Trade and notes receivables |
||||||||
Eastern Logistics |
143 | — | ||||||
Eastern Air Catering |
1 | 1 | ||||||
Others |
5 | — | ||||||
|
|
|
|
|||||
149 | 1 | |||||||
|
|
|
|
35
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS (continued) |
(c) | Balances with related parties (continued) |
(i) | Amounts due from related parties (continued) |
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Prepayments and other receivables |
||||||||
Eastern Import & Export |
346 | 133 | ||||||
Technologies Aerospace |
31 | 31 | ||||||
Eastern Air Catering |
1 | 16 | ||||||
Eastern Advertising |
— | 28 | ||||||
CEA Development |
2 | 7 | ||||||
CEA Holding |
9 | 25 | ||||||
CASC |
13 | 12 | ||||||
CES Global |
— | 3 | ||||||
Others |
32 | 23 | ||||||
|
|
|
|
|||||
434 | 278 | |||||||
|
|
|
|
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 |
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Trade and bills payables |
||||||||
Eastern Import & Export |
66 | 229 | ||||||
Eastern Logistics |
— | 167 | ||||||
Eastern Air Catering |
— | 272 | ||||||
Technologies Aerospace |
7 | 141 | ||||||
CEA development |
24 | 15 | ||||||
Collins Aviation |
7 | 1 | ||||||
CEA Holding |
15 | 13 | ||||||
CASC |
6 | 18 | ||||||
Shanghai Hute |
9 | 15 | ||||||
TravelSky |
— | 333 | ||||||
Wheels & Brakes |
11 | 14 | ||||||
Others |
1 | 1 | ||||||
|
|
|
|
|||||
146 | 1,219 | |||||||
|
|
|
|
36
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS (continued) |
(c) | Balances with related parties (continued) |
(ii) | Amounts due from related parties (continued) |
30 June 2019 | 31 December 2018 | |||||||
RMB million | RMB million | |||||||
(Unaudited) | (Audited) | |||||||
Other payables and accruals |
||||||||
Eastern Import & Export |
352 | 129 | ||||||
Shanghai P&W |
386 | 315 | ||||||
Eastern Air Catering |
379 | 1 | ||||||
CEA Holding |
53 | 104 | ||||||
Technologies Aerospace |
90 | — | ||||||
CEA Development |
3 | 49 | ||||||
TravelSky |
361 | — | ||||||
Eastern Advertising |
— | 3 | ||||||
China Kaiya |
— | 2 | ||||||
CAE Melbourne |
199 | 311 | ||||||
Eastern Investment |
1 | 10 | ||||||
CES Lease Company |
151 | 164 | ||||||
CASC |
2 | 2 | ||||||
Others |
13 | 3 | ||||||
|
|
|
|
|||||
1,990 | 1,093 | |||||||
|
|
|
|
|||||
Contract liabilities |
||||||||
CASC |
6 | — | ||||||
Eastern Logistics |
— | 6 | ||||||
|
|
|
|
|||||
6 | 6 | |||||||
|
|
|
|
|||||
Lease liabilities |
||||||||
CES Lease Company |
40,055 | — | ||||||
|
|
|
|
|||||
Obligations under finance leases |
||||||||
CES Lease Company |
— | 30,190 | ||||||
|
|
|
|
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.
37
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
22. | RELATED PARTY TRANSACTIONS (continued) |
(c) | Balances with related parties (continued) |
(iii) | Short-term deposits, loan and borrowings with related parties |
Average interest rate | ||||||||||||||||
For the six months | ||||||||||||||||
ended 30 June | ||||||||||||||||
30 June | 31 December | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
RMB million | RMB million | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Audited) | |||||||||||||
Short-term deposits (included in cash and cash equivalents) |
||||||||||||||||
Eastern Air Finance |
0.35 | % | 0.35 | % | 245 | 282 | ||||||||||
Short-term borrowings Eastern Air Finance |
3.48 | % | — | 556 | — | |||||||||||
Long-term borrowings CEA Holding |
3.73 | % | 3.70 | % | 828 | 528 | ||||||||||
Loan to joint venture CAE Melbourne |
8.00 | % | 8.00 | % | 17 | 20 |
(d) | Guarantees by the holding company |
As at 30 June 2019, bonds of the Group guaranteed by CEA Holding amounted to RMB7.8 billion (2018: RMB7.8 billion).
38
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
23. | 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:
30 June 2019 | 31 December 2018 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
amounts | Fair values | amounts | Fair values | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
(Unaudited) | (Unaudited) | (Audited) | (Audited) | |||||||||||||
Financial assets |
||||||||||||||||
Equity investments designated at fair value through other comprehensive income |
1,259 | 1,259 | 1,247 | 1,247 | ||||||||||||
Financial asset at fair value through profit and loss |
114 | 114 | 96 | 96 | ||||||||||||
Derivative financial assets |
130 | 130 | 223 | 223 | ||||||||||||
Deposits relating to aircraft held under leases included in other non-current assets |
190 | 179 | 190 | 167 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,693 | 1,682 | 1,756 | 1,733 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities |
||||||||||||||||
Derivative financial liabilities |
19 | 19 | 29 | 29 | ||||||||||||
Long-term borrowings |
29,300 | 29,209 | 32,506 | 32,560 | ||||||||||||
Lease liabilities |
112,926 | 109,715 | — | — | ||||||||||||
Obligations under finance leases |
— | — | 68,063 | 64,521 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
142,245 | 138,943 | 109,962 | 107,385 | |||||||||||||
|
|
|
|
|
|
|
|
39
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
23. | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Management has assessed that the fair values of cash and cash equivalents, restricted bank deposits and short-term bank deposits, trade and notes receivables, trade and bills payables, financial assets included in prepayments and other receivables, financial liabilities included in other payables and accruals, short-term bank borrowings and short-term guaranteed bonds approximate to their carrying amounts largely due to the short-term maturities of these instruments.
The fair values of the deposits relating to aircraft held under operating leases included in other non-current assets, long-term borrowings and 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 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. The carrying amounts of forward currency contracts and interest rate swaps are the same as their fair values.
As at 30 June 2019, the marked to market value of the derivative asset position is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognised at fair value.
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 calculates an appropriate price multiple, such as enterprise value to earnings before interest, taxes, depreciation and amortisation (“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.
40
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
23. | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Below is a summary of significant unobservable inputs to the valuation of financial instruments together with a quantitative sensitivity analysis as at 30 June 2019 and 31 December 2018:
Significant | Sensitivity of fair | |||||||||||||||
Valuation | unobservable | value to the | ||||||||||||||
technique | input | Range | input | |||||||||||||
Unlisted equity investments |
Valuation | Discount for | 30 June 2019: | 1% (31 December | ||||||||||||
multiples | lack of | 19% to 38% | 2018: 1%) | |||||||||||||
marketability | (31 December | increase/ | ||||||||||||||
2018: 19% | decrease in | |||||||||||||||
to 41%) | multiple would | |||||||||||||||
result in increase/ | ||||||||||||||||
decrease in fair | ||||||||||||||||
value by | ||||||||||||||||
RMB12 million | ||||||||||||||||
(31 December | ||||||||||||||||
2018: | ||||||||||||||||
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.
41
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
23. | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Fair value hierarchy
The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:
Assets and liabilities measured at fair value:
As at 30 June 2019
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 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Assets |
||||||||||||||||
Equity investments designated at fair value through other comprehensive income |
401 | — | 858 | 1,259 | ||||||||||||
Derivative financial assets |
||||||||||||||||
— Interest rate swaps |
— | 49 | — | 49 | ||||||||||||
— Forward currency contracts |
— | 81 | — | 81 | ||||||||||||
Financial asset at fair value through profit or loss |
114 | — | — | 114 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
515 | 130 | 858 | 1,503 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Derivative financial liabilities |
||||||||||||||||
— Interest rate swaps |
— | 3 | — | 3 | ||||||||||||
— Forward currency contracts |
— | 16 | — | 16 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
— | 19 | — | 19 | |||||||||||||
|
|
|
|
|
|
|
|
42
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
23. | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Fair value hierarchy (continued)
Assets and liabilities measured at fair value: (continued)
As at 31 December 2018
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 | |||||||||||||
(Audited) | (Audited) | (Audited) | (Audited) | |||||||||||||
Assets |
||||||||||||||||
Equity investments designated at fair value through other comprehensive income |
510 | — | 737 | 1,247 | ||||||||||||
Derivative financial assets |
||||||||||||||||
— Interest rate swaps |
— | 223 | — | 223 | ||||||||||||
Financial asset at fair value through profit or loss |
96 | — | — | 96 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
606 | 223 | 737 | 1,566 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Derivative financial liabilities |
||||||||||||||||
— Forward currency contracts |
— | 29 | — | 29 | ||||||||||||
|
|
|
|
|
|
|
|
During the period, 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 (six months ended 30 June 2018: Nil).
43
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION (continued)
30 June 2019
23. | FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued) |
Fair value hierarchy (continued)
Assets and liabilities for which fair values are disclosed:
As at 30 June 2019
|
||||||||||||||||
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 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Assets |
||||||||||||||||
Deposits relating to aircraft held under operating leases included in other non-current assets |
— | 179 | — | 179 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Long-term borrowings |
2,874 | 26,335 | — | 29,209 | ||||||||||||
Lease liabilities |
— | 109,715 | — | 109,715 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,874 | 136,050 | — | 138,924 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
As at 31 December 2018 | ||||||||||||||||
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 | |||||||||||||
(Audited) | (Audited) | (Audited) | (Audited) | |||||||||||||
Assets |
||||||||||||||||
Deposits relating to aircraft held under operating leases included in other non-current assets |
— | 167 | — | 167 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Long-term borrowings |
2,861 | 29,699 | — | 32,560 | ||||||||||||
Obligations under finance leases |
— | 74,796 | — | 74,796 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,861 | 104,495 | — | 107,356 | |||||||||||||
|
|
|
|
|
|
|
|
44
SUMMARY OF OPERATING DATA
For the six months ended 30 June | ||||||||||||
2019 | 2018 | Change | ||||||||||
Passenger transportation data |
||||||||||||
ASK (available seat – kilometres) (millions) |
131,476.46 | 119,134.68 | 10.36 | % | ||||||||
— Domestic routes |
83,678.57 | 74,574.31 | 12.21 | % | ||||||||
— International routes |
44,385.66 | 41,438.31 | 7.11 | % | ||||||||
— Regional routes |
3,412.23 | 3,122.06 | 9.29 | % | ||||||||
RPK (revenue passenger – kilometres) (millions) |
108,681.66 | 98,256.55 | 10.61 | % | ||||||||
— Domestic routes |
69,804.19 | 62,498.00 | 11.69 | % | ||||||||
— International routes |
36,067.31 | 33,198.52 | 8.64 | % | ||||||||
— Regional routes |
2,810.16 | 2,560.03 | 9.77 | % | ||||||||
Number of passengers carried (thousands) |
64,007.74 | 58,935.66 | 8.61 | % | ||||||||
— Domestic routes |
53,214.00 | 49,037.32 | 8.52 | % | ||||||||
— International routes |
8,725.00 | 8,026.85 | 8.70 | % | ||||||||
— Regional routes |
2,068.74 | 1,871.50 | 10.54 | % | ||||||||
Passenger load factor (%) |
82.66 | 82.48 | 0.19 | pts | ||||||||
— Domestic routes |
83.42 | 83.81 | -0.39 | pts | ||||||||
— International routes |
81.26 | 80.12 | 1.14 | pts | ||||||||
— Regional routes |
82.36 | 82.00 | 0.36 | pts | ||||||||
Passenger – kilometres yield (RMB) (including fuel surcharge)Note |
0.514 | 0.521 | -1.34 | % | ||||||||
— Domestic routes |
0.533 | 0.547 | -2.56 | % | ||||||||
— International routes |
0.459 | 0.458 | 0.22 | % | ||||||||
— Regional routes |
0.755 | 0.713 | 5.89 | % | ||||||||
Passenger – kilometres yield (RMB) (excluding fuel surcharge)Note |
0.477 | 0.486 | -1.85 | % | ||||||||
— Domestic routes |
0.531 | 0.546 | -2.75 | % | ||||||||
— International routes |
0.358 | 0.358 | 0.00 | % | ||||||||
— Regional routes |
0.674 | 0.658 | 2.43 | % |
45
For the six months ended 30 June | ||||||||||||
2019 | 2018 | Change | ||||||||||
Freight transportation data |
||||||||||||
AFTK (available freight tonne – kilometres) (millions) |
4,449.05 | 3,897.76 | 14.14 | % | ||||||||
— Domestic routes |
1,590.11 | 1,378.40 | 15.36 | % | ||||||||
— International routes |
2,751.29 | 2,422.52 | 13.57 | % | ||||||||
— Regional routes |
107.65 | 96.83 | 11.17 | % | ||||||||
RFTK (revenue freight tonne – kilometres) (millions) |
1,327.06 | 1,247.94 | 6.34 | % | ||||||||
— Domestic routes |
441.14 | 427.70 | 3.14 | % | ||||||||
— International routes |
871.11 | 803.52 | 8.41 | % | ||||||||
— Regional routes |
14.81 | 16.72 | -11.42 | % | ||||||||
Weight of freight carried (million kg) |
448.01 | 439.84 | 1.86 | % | ||||||||
— Domestic routes |
312.51 | 311.12 | 0.45 | % | ||||||||
— International routes |
122.95 | 114.44 | 7.44 | % | ||||||||
— Regional routes |
12.55 | 14.29 | -12.19 | % | ||||||||
Freight load factor (%) |
29.83 | 32.02 | -2.19 | pts | ||||||||
— Domestic routes |
27.74 | 31.03 | -3.29 | pts | ||||||||
— International routes |
31.66 | 33.17 | -1.51 | pts | ||||||||
— Regional routes |
13.76 | 17.26 | -3.51 | pts | ||||||||
Freight tonne – kilometres yield (RMB) (including fuel surcharge)Note |
1.313 | 1.398 | -6.08 | % | ||||||||
— Domestic routes |
1.077 | 1.174 | -8.26 | % | ||||||||
— International routes |
1.368 | 1.435 | -4.67 | % | ||||||||
— Regional routes |
5.064 | 5.383 | -5.93 | % | ||||||||
Freight tonne – kilometres yield (RMB) (excluding fuel surcharge)Note |
1.313 | 1.365 | -3.81 | % | ||||||||
— Domestic routes |
1.077 | 1.127 | -4.44 | % | ||||||||
— International routes |
1.368 | 1.414 | -3.25 | % | ||||||||
— Regional routes |
5.064 | 5.144 | -1.56 | % |
46
For the six months ended 30 June | ||||||||||||
2019 | 2018 | Change | ||||||||||
Consolidated data |
||||||||||||
ATK (available tonne – kilometres) (millions) |
16,281.93 | 14,619.88 | 11.37 | % | ||||||||
— Domestic routes |
9,121.18 | 8,090.09 | 12.75 | % | ||||||||
— International routes |
6,746.00 | 6,151.97 | 9.66 | % | ||||||||
— Regional routes |
414.75 | 377.82 | 9.77 | % | ||||||||
RTK (revenue tonne – kilometres) (millions) |
10,914.44 | 9,925.09 | 9.97 | % | ||||||||
— Domestic routes |
6,606.33 | 5,953.66 | 10.96 | % | ||||||||
— International routes |
4,045.83 | 3,729.24 | 8.49 | % | ||||||||
— Regional routes |
262.28 | 242.19 | 8.29 | % | ||||||||
Overall load factor (%) |
67.03 | 67.89 | -0.85 | pts | ||||||||
— Domestic routes |
72.43 | 73.59 | -1.16 | pts | ||||||||
— International routes |
59.97 | 60.62 | -0.64 | pts | ||||||||
— Regional routes |
63.24 | 64.10 | -0.86 | pts | ||||||||
Revenue tonne – kilometres yield (RMB) (including fuel surcharge)Note |
5.280 | 5.335 | -1.03 | % | ||||||||
— Domestic routes |
5.704 | 5.823 | -2.04 | % | ||||||||
— International routes |
4.386 | 4.389 | -0.07 | % | ||||||||
— Regional routes |
8.373 | 7.911 | 5.84 | % | ||||||||
Revenue tonne – kilometres yield (RMB) (excluding fuel surcharge)Note |
4.912 | 4.979 | -1.35 | % | ||||||||
— Domestic routes |
5.684 | 5.814 | -2.24 | % | ||||||||
— International routes |
3.484 | 3.496 | -0.34 | % | ||||||||
— Regional routes |
7.507 | 7.308 | 2.72 | % |
Note: | In calculating unit revenue index, the relevant revenue includes income generated from co-operation routes. |
47
FLEET STRUCTURE
The Group has been continuously optimising its fleet structure in recent years. In the first half of 2019, the Group introduced a total of 25 aircraft of major models and a total of one aircraft retired. With the introduction of new aircraft models including A350-900, B787-9 and A320NEO, the Group’s fleet age structure has maintained to be young.
As at 30 June 2019, the Group operated a fleet of 719 aircraft, which included 704 passenger aircraft and 15 business aircraft self-owned and held under trust.
Fleet structure as at 30 June 2019
(Units)
Under | Under | Average | ||||||||||||||||||||
Self- | finance | operating | Sub- | fleet age | ||||||||||||||||||
No. | Model | owned | lease | lease | total | (years) | ||||||||||||||||
1 | B777-300ER | 10 | 10 | 0 | 20 | 3.4 | ||||||||||||||||
2 | B787-9 | 0 | 8 | 0 | 8 | 0.5 | ||||||||||||||||
3 | A350-900 | 0 | 6 | 0 | 6 | 0.4 | ||||||||||||||||
4 | A330 Series | 22 | 29 | 5 | 56 | 5.6 | ||||||||||||||||
Total number of wide-body aircraft |
32 | 53 | 5 | 90 | 4.3 | |||||||||||||||||
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|
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5 | A320 Series | 129 | 119 | 68 | 316 | 7.0 | ||||||||||||||||
6 | B737 Series | 84 | 91 | 123 | 298 | 5.5 | ||||||||||||||||
Total number of narrow-body aircraft |
213 | 210 | 191 | 614 | 6.3 | |||||||||||||||||
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|
|
|
|
|
|
|
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Total number of passenger aircraft |
245 | 263 | 196 | 704 | 6.1 | |||||||||||||||||
|
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|
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|
|
|
|||||||||||||
Total number of business aircraft held under trust |
15 | |||||||||||||||||||||
|
|
|||||||||||||||||||||
Total number of aircraft |
719 | |||||||||||||||||||||
|
|
Notes:
1. | A330 series aircraft include A330-200 and A330-300 aircraft; |
2. | A320 series aircraft include A319, A320, A320NEO and A321 aircraft; and |
3. | B737 series aircraft include B737-700, B737-800 and B737 MAX 8 aircraft. Considering the safety risks of B737 MAX 8, the Group suspended the commercial operation of 14 aircraft of such model. |
48
REPORT OF THE BOARD
In the first half of 2019, the global economy slowed down and faced with increasing instabilities and uncertainties. In China, the economy remained generally stable and maintained steady growth, whilst also facing the pressure of downturn. The global aviation industry continued to grow with a deceleration in growth rate. China’s civil aviation industry continued to maintain a more rapid growth rate, while at the same time it is also facing challenges such as significant weakening of momentum of global economic growth, significant intensifying of trade friction, increase in volatility for industry growth and increase in fluctuations of exchange rates.
Amid the complex and complicated situation, the Group adhered to maintaining a steady progress, proactively tackled risks and challenges, ensured a stable and controlled safety situation, strengthened hub construction and marketing, enhanced fine operations and service quality, actively explored external cooperation and steadily advanced major projects such as the construction of the Beijing Daxing International Airport CEA Base and the S1 Satellite Hall of Shanghai Pudong International Airport as well as the non-public issuance of shares, making good progress in various works.
In the first half of 2019, the Group served 64.0077 million passengers, representing a year-on-year increase of 8.61%. Revenue amounted to RMB58,859 million, representing a year-on-year increase of 8.00%. In the first half of 2019, the Company’s net profit attributable to shareholders of the parent company amounted to RMB1,941 million, representing a year-on-year decrease of 14.83%.
• | Safe Operation |
The Group consistently prioritises safety work and always values safe operation and the stability of safety situation. The Group firmly ensured the mainline of “prevention of risks, mitigation of potential hazards and avoidance of accidents” and further enhanced its safety and risk prevention and control system. The Group strengthened the safety supervision on key units, enhanced the investigation and control of potential safety hazards and further implemented the accountability system for safe operation. The Group conducted safety and emergency drills and launched the coordinated emergency platform to improve the efficiency of emergency response; scientifically analysed and properly handled the potential safety hazards of the B737 MAX8 model and suspended the commercial operation of such model.
In the first half of 2019, the Group’s fleet had 1,195,900 safe flying hours in total, which increased by 9.06% over the same period last year. The Group’s fleet had 486,500 take-off and landing flights, which have increased by 7.42% over the same period last year.
49
• | Hub Network |
Focusing on the hub network, the Group optimised the route network layout and operating efforts, with an emphasis on enhancing its market share and influence in the core market. In the first half of 2019, the Group’s market shares in Shanghai, Beijing, Kunming and Xi’an hubs were 40.62%, 18.53%, 37.75% and 29.03%, respectively. Through the scientific matching of route capacity and the optimisation of transit connection, the effect of hub network has gradually appeared. The domestic and international transits of the Shanghai Pudong and Kunming hubs have shown a growing trend. In the Shanghai Pudong hub, the number of passengers for OD (Origin and Destination) interline transits increased by 12.38% over the same period last year and transit revenue increased by 16.01% over the same period last year. In the Kunming hub, the number of passengers for domestic-international transits increased by 26.00% over the same period last year.
The Group focused on the national strategy of “Yangtze River Delta Integration”, aiming at strengthening the construction of a core hub in Shanghai and serving the coordinated development of the construction of “Five Centers” in Shanghai and the regional economy. In the first half of 2019, the Group introduced new international routes such as Shanghai — Budapest, — Hanamaki, — Yangon and — Mandalay and new domestic routes such as Shanghai — Xinyang and — Wudangshan, and arranged more flights for international, regional and domestic routes such as Shanghai — Madrid, — Prague, — Dubai, — Macau, — Chengdu and — Hohhot. The Group actively prepared for the commencement of operation of the S1 Satellite Hall of Shanghai Pudong International Airport to enhance the value and competitive edges of Shanghai as a core hub. The Group actively seized operational resources in Pudong Airport, coordinated the planning of ground service procedures and comprehensively upgraded the baggage sorting system. In the second half of 2019, upon the commencement of operation of the S1 Satellite Hall of Shanghai Pudong International Airport, passengers’ travel experience will be optimised through the significant improvement of frontal bay rate of the Group’s flights, the enhanced convenience of interline check-in and the significant reduction of international and domestic transit time.
Surrounding the integration strategy of Beijing-Tianjin-Hebei, the Group successfully completed the construction and acceptance of the phase I construction project of Beijing Daxing International Airport CEA Base, and continuously improved the route network planning of Beijing Daxing International Airport and the operational plan for the new base to actively prepare for the commencement of operation in the new base. In the future, the Group’s Beijing hub will coordinate with the Shanghai core hub to form a coupled route network layout. China Eastern Airlines and Shanghai Airlines, being the full-service brands of the Group, will focus on developing domestic routes, high-yield routes in the neighbouring regions (Japan, South Korea and regional routes, etc.) and international long-haul routes. China United Airlines, being the low-cost airline brand of the Group, will primarily focus on the network of domestic second and third-tier cities complemented with first-tier cities to form a market layout with complementary advantages and coordinated development. The Group will work with its major partners to design hub flight schedule at Beijing Daxing International Airport to optimise flight transit connection. The Beijing-Shanghai express route (Shanghai Hongqiao — Beijing Capital), which the Group focuses on, will continue to operate at Beijing Capital International Airport.
The Group actively seized the opportunities for building new airports in Qingdao and Chengdu to consolidate and increase its market share in key markets. The planned passenger throughput of Chengdu Tianfu Airport and Qingdao Jiaodong Airport in 2025 is 45 million and 35 million, respectively. In the first half of the year, the Group steadily promoted the construction of CEA Base in Qingdao Jiaodong Airport and Chengdu Tianfu Airport, allocated production facilities in advance and planned the route network in advance, so as to elevate the development potential of the Group in Qingdao and Chengdu markets.
50
As at the end of June 2019, through the connection of route network with the SkyTeam Airline Alliance members, the route network of the Group reached 1,150 destinations in 175 countries.
• | Fine Operations and Lean Management |
The Group strengthened its fine operations to improve the quality of flight operations. The Group placed emphasis on increasing flight on-time rate and strengthening the construction of service system. The Group realised the visualised tracking of flight operations and quick handling of non-scheduled flights and comprehensively improved the digital management of flight operations. The Group developed a dynamic monitoring system for the quality of flight operations to ensure the quality of route operations. Using the Beijing-Shanghai boutique route as a benchmark, the Group established a quality standards system for flight operations based on quantitative indicators. In the first half of 2019, the flight on-time rate of the Group was 81.15%, representing an increase of 0.60 percentage points over the same period last year.
The Group strengthened the analysis of big data for transportation capacity, freight rate and income to improve the operational capability and operational quality of routes. The Group expanded the functional application of the intelligent income management system and sales management system and strengthened the scientific analysis of customer structure and market trends to enhance the fine control of cabins and freight rates.
Through lean management, the Group continuously reduced unit operating costs and improved operational efficiency. The Group reduced fuel costs from the aspects of introduction of new models, route design, flight operations and take-offs and landings, and in the first half of the year, fuel consumption per tonne-kilometre decreased by 2.40% over the same period last year. The Group enhanced its self-maintenance capability of aviation equipment and improved the procedures for aircraft return and maintenance to reduce unit maintenance costs. The Group further enhanced the comprehensive budget management system, strengthened the centralised management of capital, improved the efficiency of capital utilisation and broadened its financing channels to reduce finance costs.
• | Products and Marketing |
The Group actively constructed a brand freight rate product system to explore the growth potential of auxiliary revenue. The Group sold auxiliary products such as baggage and seat selection according to different cabins to meet the differentiated needs of passengers and increase the proportion of auxiliary revenue to total revenue. The Group completed the launch of brand freight rate products for 63 direct routes to Southeast Asia, Hong Kong and Macau, and the auxiliary revenue from upgrades, seat selection and baggage showed a rising trend.
51
The Group attached great importance to the maintenance and expansion of sales channels and customers. The Group strengthened its cooperation with channels such as TMC (Travel Management Companies) and OTA (Online Travel Agencies), and sales revenue from TMC increased by 25.3% over the same period last year. The Group enhanced the application of the NDC (New Distribution Capability) systemNote 1 and broadened the sales channels of auxiliary products. Currently, the Group sells auxiliary products such as preferred seats on the Company’s official website and major OTC channels. The Group actively explored customer resources and enhanced the service experience of the Group’s customers. There were a total of 8,206 the Group’s customers, and revenue from the Group’s customers increased by 10.54% over the same period last year. The Group actively maintained and developed frequent flyer members. As at the end of June 2019, the number of frequent flyer members of the Group’s “Eastern Miles” programme reached 41.1 million, representing an increase of 13.53% over the same period last year.
In the first half of 2019, the Group completed a total of 131,476 million seat-kilometres, representing a year-on-year increase of 10.36%. Passenger revenue amounted to RMB53,581 million, representing a year-on-year increase of 9.25%. Passenger load factor of the Group amounted to 82.66%, representing a year-on-year increase of 0.18 percentage points.
• | Customer Service |
The Group takes passenger safety as its priority and adapts to passengers’ needs to provide sincere services and enhance service quality. The Group standardised and optimised the service standards for high-end members to foster the integration of cabin safety and quiet, peaceful and comfortable passenger services. The Group continuously optimised in-flight meal standards and innovated catering products. The Group’s “Lingyan” brand was awarded the new batch of “Shanghai Brand”Note 2 certification.
The Group focuses on “intelligent travel” to enhance the digital service experience of passengers. The Group is the first PRC enterprise to use RFID passive permanent electronic baggage tag, which enables global baggage tracking, streamlines baggage check and inquiry procedures and enables efficient and convenient “paperless” baggage services. The Group launched the artificial intelligence customer service system, which enables multiple intelligent interactive service scenarios and improves the efficiency of basic business processing. In- flight WIFI covered all 90 wide-body aircraft of the Group. The fleet size with and the number of users of in-flight internet connection have maintained the leading position in the domestic industry. The Group continuously promoted self-check-in services. Domestic self-check-in rate reached 81.5%, representing an increase of 4.1 percentage points over the same period last year, and international self-check-in rate reached 34.9%, representing an increase of 2.4 percentage points over the same period last year, achieving leading standards in China.
Note 1: | The distribution system based on NDC model can realise the seamless connection of the retail business of various aviation products between airlines and corporate customers, TMC and travel agencies, and can mitigate the current distribution restrictions of product differentiation of different sales channels and inconsistent market time in the aviation industry, offering passengers with a great variety of aviation products and a transparent shopping experience. |
Note 2: | The “Shanghai Brand” certification is a brand standard system independently established by Shanghai City in accordance with the “market-led, corporate-involved and internationally mutual-recognised” principle and based on the local standard of “Shanghai brand evaluation general requirements”. |
52
• | External Partnerships |
The Group strengthened the comprehensive cooperation with strategic partners and core partners to improve the operational capabilities of international routes and enhance the quality of cooperation. The Group and Delta Air Lines, Inc. (“Delta”) continued to intensify bilateral cooperation in the aspects of revenue from cooperation (including mutual sales revenue and revenue from SPA (special allocation agreements), etc.), experience of travellers, communication between personnel and cooperation for expansion and development, and revenue from cooperation increased by approximately 30% over the same period last year. The Group further strengthened the business cooperation with Air France-KLM (“AFK”) and introduced new jointly-operated routes such as Kunming — Paris, Wuhan — Paris and Qingdao — Paris. The Group expanded businesses such as mutual sales and SPA cooperation with Juneyao Airlines Co., Ltd. (“Juneyao Airlines”). Leveraging on the commencement of operation of the S1 Satellite Hall of Shanghai Pudong International Airport and Beijing Daxing International Airport, the Group worked with partners such as AFK, Delta and Juneyao Airlines to plan for the optimisation of network connection as well as establishment of ground service and procedure standards. The Group carried out in-depth cooperation with Qantas Airways Limited (“Qantas”) in the areas of code-sharing, capacity allocation and joint marketing to improve the efficiency of the Group’s interline transit in Australia. The Group promoted the anti-monopoly approval for its joint operation with Japan Airlines Co., Ltd. and strengthened the cooperation between the two parties on route network and capacity sharing to reinforce its market position on routes to Japan. The Group commenced a new code-sharing business with LATAM Airlines Group S.A. to expand the code-sharing with existing partners such as Delta, AFK, Juneyao Airlines and Qantas, with a total of 170 new routes added. As at the end of June 2019, the Group’s code-sharing involved 329 destinations, 956 routes and 4,128 flights, representing a year-on-year increase of 9.67%, 19.95% and 14.38%, respectively.
• | Reform and Development |
The Group attaches importance to reforms and actively promotes system, mechanism and institutional reform and the transformation and development of low-cost airline, and continuously enhances the role of reform and transformation in improving production and operation.
For system, mechanism and institutional reform, the Group continuously intensified the institutional reform of its marketing services. In the first half of 2019, China United Airlines Co., Ltd. (“China United Airlines”), being a wholly-owned subsidiary of the Group, was selected as part of the national mixed ownership reform pilot project; and China Eastern Business Jet Co., Ltd., our another wholly-owned subsidiary, was actively considering transformation and development.
For low-cost airline, China United Airlines focused on improving direct sales capability and increasing auxiliary revenue to further promote the low-cost development strategy. China United Airlines launched new media and self-media marketing through diversified marketing methods and improved its direct sales capability by enhancing its mobile direct sales platform. Its direct sales revenue amounted to RMB2,110 million, representing a year-on-year increase of 14.36%, and accounted for 74.80% of total revenue, representing a year-on-year increase of 2.00 percentage points. Through the online sales promotion of duty-free products, upgrade products and sky mall products, the source of auxiliary revenue was broadened. Focusing on the commencement of operation of the new base in Beijing Daxing International Airport, China United Airlines steadily promoted various work on the transition, relocation and preparation for operation.
53
• | Capital Utilisation |
On 29 August 2019, the Group successfully completed the non-public issuance of 517,677,777 H shares to Shanghai Juneyao Airlines Hong Kong Limited, a wholly-owned subsidiary of Juneyao Airlines (the “Non-public Issuance of H Shares”), and steadily proceeded the non-public issuance of A shares to Juneyao Airlines and Shanghai Juneyao (Group) Co., Ltd. (“JuneYao Group”), its controlling shareholder, and China Structural Reform Fund Corporation Limited, introducing Juneyao Airlines and JuneYao Group, its controlling shareholder, as strategic investors. Eastern Airlines Industry Investment Company Limited (“Eastern Airlines Industry Investment”), a wholly-owned subsidiary of China Eastern Air Holding Company Limited (“CEA Holding”), the controlling shareholder of the Company, is also steadily proceeding the work of the subscription of the non-public issuance of A shares of Juneyao Airlines. Upon the completion of the above issuance, Eastern Airlines Industry Investment will hold 15% of the shares of Juneyao Airlines, and Juneyao Airlines and JuneYao Group will hold approximately 10% of the shares of the Company in aggregate.
The cross-shareholding between CEA Holding and JuneYao Group is significant in further enhancing and deepening the strategic partnership between the two parties as well as establishing Shanghai as an aviation hub and promoting the “construction of five centers” in Shanghai together by the parties, benefitting the Group and Juneyao Airlines in further raising their competitiveness and sustainable development abilities.
• | Corporate Governance and Corporate Culture |
The Group constantly improves its corporate governance in strict compliance with domestic and overseas listing rules and the requirements of laws and regulations. The Group has revised its major regulations such as the articles of association, rules for procedures for general meetings and rules for the meetings of the board of directors, so as to further enhance the standard of corporate governance. The Group gives full play to party building work, integrating party building work into corporate governance, providing a solid guarantee for the Group’s reform and development.
Surrounding the development objective of “Establishing a World-class and Happy CEA”, the Group continuously fostered the construction of corporate culture and promoted the joint construction and sharing between the Company and its employees. Through solving various issues that affect the immediate interests of employees, the Group showed concern and care for employees and created harmonious labour relations, enhancing employees’ sense of belonging, recognition and loyalty.
54
• | Internal Risk Control and Establishment of Law-based Governance |
Focusing on the main business of aviation, the Group prevented and mitigated major risks. The Group attaches importance to comprehensive risk management and intensified the construction of internal risk control system by conducting special audits on key business areas. The Group strengthened the management of capital assets and prevented key risks such as capital recovery, overseas operations and financial market volatility. The Group prevented network security risks and created a closed system for information security. The security monitoring covered core system applications such as marketing, services, operations and flight maintenance. Through multiple network protection measures, the Group protected passenger and corporate information. The Group built 35 types of network security models and more than 27 types of business security models to improve the detection of network security and business anomalies.
The Group steadily promoted the construction of a “Law-based CEA” to ensure the lawful and compliant operation of the Company. Focusing on its internationalisation strategy, the Group strengthened the prevention of legal risks of overseas business. The Group continuously strengthened contract management and litigation management to safeguard the Group’s legitimate rights and interests.
• | Social Responsibilities and Honorary Awards |
The Group insisted on the five development visions of “Innovation, Coordination, Green Development, Openness and Sharing” and actively engaged in economic, social and environmental responsibilities. The Group practiced on the vision of green development and carried out the construction of an ecological and environmental management system focusing on pollution prevention and control. The Group continuously strengthened energy conservation and emission reduction in both the air and the ground, improved the fine control of aviation fuel consumption and promoted the application of new technologies for energy conservation and emission reduction. Centering on targeted poverty alleviation, the Group focused on industry poverty alleviation and paid attention to the effectiveness of poverty alleviation funds, and carried out poverty alleviation through multiple means such as fixed-point poverty alleviation, love donation and student aid. The large-scale charitable programme “Love at CEA” continued to spread positive messages to the society. In the first half of 2019, the Group launched 825 projects in total with 14,650 employees participating in, and served 44,080 people for 68,320 hours of volunteer services.
In the first half of 2019, the Group was awarded as the “Best China Airline” in the “TTG China Travel Awards” for the fifth consecutive year, recognised as one of the “Top 50 Most Valuable Chinese Brands” by Wire & Plastic Products Group (WPP), a global brand communication group, awarded as one of the “World’s 500 Most Valuable Brands” by Brand Finance, a brand appraisal organization from the United Kingdom, and awarded as one of the 2019 BrandZ “Top 100 Most Valuable Chinese Brands”. The Group’s 2018 Annual Report won the Gold Award for Cover Photo Design in the airlines category from the International Annual Report Competition (ARC) Awards and the Silver Award for Design in the transportation and logistics class from the 2018 LACP Vision AwardsNote.
Note: | The International Annual Report Competition (ARC) Awards is hosted by MerComm, Inc. The award is honoured as the “Oscar for Annual Report”. It aims to recognise top-level works of global companies and organisations, and is an industry-acclaimed international award, reference: https://www.lacp.com/competition.htm. The Vision Awards annual report competition founded and hosted by LACP is an industry-acclaimed and one of the most celebrated annual report award in the world, reference: https://www.mercommawards.com/arc/awardWinners/categoryWinners. htm. |
55
Operating Revenues
In the first half of 2019, the Group’s revenue from main operations amounted to RMB58,859 million, representing an increase of 8.00% from the same period last year. In particular, traffic revenue amounted to RMB55,323 million, representing an increase of 8.92% from the same period last year, and other revenue amounted to RMB3,536 million, representing a decrease of 4.69% from the same period last year.
The Group’s traffic revenue includes passenger revenue and cargo revenue.
In the first half of 2019, the Group’s passenger revenue amounted to RMB53,581 million, representing an increase of 9.25% from the same period last year, and accounted for 96.85% of the Group’s traffic revenue. Passenger traffic volume was 108,681.66 million passenger-kilometres, representing an increase of 10.61% from the same period last year.
The passenger revenue of domestic routes amounted to RMB35,256 million, representing an increase of 8.63% from the same period last year, and accounted for 65.80% of the passenger revenue. The passenger traffic volume was 69,804.19 million passenger-kilometres, representing an increase of 11.69% from the same period last year.
The passenger revenue of international routes amounted to RMB16,237 million, representing an increase of 9.90% from the same period last year, and accounted for 30.30% of the passenger revenue. The passenger traffic volume was 36,067.31 million passenger-kilometres, representing an increase of 8.64% from the same period last year.
The passenger revenue of regional routes amounted to RMB2,088 million, representing an increase of 15.04% from the same period last year, and accounted for 3.90% of the passenger revenue. The passenger traffic volume was 2,810.16 million passenger-kilometres, representing an increase of 9.77% from the same period last year.
In the first half of 2019, the Group’s cargo and mail traffic revenues amounted to RMB1,742 million, accounted for 3.15% of the Group’s traffic revenue. Cargo and mail traffic volume was 1,327.06 million tonne-kilometres, representing an increase of 6.34% from the same period last year.
Operating Expenses
In the first half of 2019, the Group’s total operating expenses was RMB57,110 million, representing an increase of 8.90% from the same period last year. Under the influence of further expansion of the Group’s operational scale and the rapid growth in the passenger traffic volume and the number of passengers carried, the Group’s various costs such as take-off and landing costs, salaries and benefits, catering supply and selling and marketing expenses increased from the same period last year.
56
Analysis of the changes in items under operating expenses of the Group is set out as follows:
Aircraft fuel costs accounted for the most substantial part of the Group’s operating expenses. In the first half of 2019, the Group’s aircraft fuel costs amounted to RMB16,625 million, representing an increase of 9.00% from the same period last year, and was primarily due to an increase in the volume of refuelling of 8.72% from the same period last year for the Group, leading to an increase in aircraft fuel costs by RMB1,330 million. The average price of fuel remained basically the same as compared to the same period last year.
In the first half of 2019, the Group’s take-off and landing charges amounted to RMB7,840 million, representing an increase of 10.47% from the same period last year, and was primarily due to the increase in the number of take-offs and landings of the Group from the same period last year.
In the first half of 2019, the Group’s depreciation and amortisation amounted to RMB10,818 million, representing an increase of 43.59% from the same period last year, and was primarily due to the inclusion of aircraft assets under operating leases into right-of-use assets and the corresponding increase in provision for depreciation as affected by the implementation of the new accounting standards on leases.
In the first half of 2019, the Group’s wages, salaries and benefits amounted to RMB11,171 million, representing an increase of 13.63% from the same period last year, and was primarily due to the combined effect of the increase in the number of aircrew and aircraft maintenance personnel of the Group and the increase in flight hours.
In the first half of 2019, the Group’s aircraft maintenance expenses amounted to RMB1,891 million, representing an increase of 14.68% from the same period last year, and was primarily due to the cyclical impact of aircraft and engine repair.
In the first half of 2019, the Group’s catering supply expenses were RMB1,822 million, representing an increase of 9.43% from the same period last year, and was primarily due to the increase in the number of passengers in carriage of the Group and the rise in the standards required for the provision of catering.
In the first half of 2019, the Group’s low-value and short-term lease rentals amounted to RMB265 million. In the first half of 2018, aircraft operating lease rentals amounted to RMB2,016 million, and other operating lease rentals amounted to RMB473 million. The decrease of lease rentals was primarily due to the implementation of the new accounting standards on leases.
In the first half of 2019, the Group’s selling and marketing expenses were RMB2,040 million, representing an increase of 12.52% from the same period last year, and was primarily due to the expansion of business scale of the Group, which led to an increase in selling expenses accordingly.
In the first half of 2019, the Group’s civil aviation development fund paid to the Civil Aviation Administration of China (“CAAC”) amounted to RMB1,205 million, representing an increase of 10.25% from the same period last year, and was primarily due to the increase in the length of miles flown by the Group.
57
In the first half of 2019, the Group’s ground service and other expenses were RMB1,343 million, representing a decrease of 18.66% from the same period last year, and was primarily due to the decrease in other expenses as a result of the Group’s disposal of 65% of equity interests in Shanghai Airlines Tours International (Group) Co., Limited, a subsidiary of the Company.
In the first half of 2019, the Group’s indirect operating expenses were RMB2,105 million, representing a decrease of 9.81% from the same period last year, and was primarily due to the strict control of controllable expenses by the Company.
Other Operating Income and Gains
In the first half of 2019, the Group’s other operating income amounted to RMB3,407 million, representing an increase of 0.50% from the same period last year.
Finance Income/Costs
In the first half of 2019, the Group’s finance income was RMB45 million, representing a decrease of RMB7 million from the same period last year. Finance costs amounted to RMB2,685 million, representing an increase of RMB269 million from the same period last year, and was primarily due to the increase in interest costs for lease liabilities as a result of the implementation of the new accounting standards on leases.
Profit
In the first half of 2019, net profit attributable to equity holders of the Company was RMB1,941 million, representing a decrease of 14.83% from the same period last year. The earnings per share attributable to the equity holders of the Company were RMB0.1342.
Liquidity and Capital Structure
As at 30 June 2019, the Group had total assets of RMB282,159 million, representing an increase of 18.05% from 31 December 2018. Its debt ratio was 78.10%, representing a 3.87 percentage point increase from 31 December 2018.
In particular, the Group’s total current assets amounted to RMB18,137 million, accounted for 6.43% of the total assets and represented an increase of 13.84% from 31 December 2018. The Group’s non-current assets amounted to RMB264,022 million, accounted for 93.57% of the total assets and represented an increase of 18.35% from 31 December 2018.
As at 30 June 2019, the Group had total liabilities of RMB220,370 million, comprising current liabilities of RMB81,624 million which accounted for 37.04% of total liabilities, and non-current liabilities of RMB138,746 million which accounted for 62.96% of total liabilities.
Among the current liabilities, interest-bearing liabilities (short-term bank borrowings, super short-term debentures, long-term bank borrowings due within one year, bonds payable due within one year and lease liabilities due within one year) amounted to RMB47,340 million, representing an increase of 22.55% from 31 December 2018.
58
Among the non-current liabilities, interest-bearing liabilities (long-term bank borrowings, bonds payable and lease liabilities) amounted to RMB123,164 million, representing an increase of 31.10% from 31 December 2018.
In the first half of 2019, the Group proactively adjusted the currency structure of obligations of the Company in response to the currency exchange fluctuations, so as to lower its exchange rate risk. As at 30 June 2019, the breakdown of the Group’s interest-bearing obligations by currencies is as follows:
Unit: RMB million
RMB equivalent | ||||||||||||||||||||
As at 30 June 2019 | As at 31 December 2018 | Movement | ||||||||||||||||||
Amount | (%) | Amount | (%) | (%) | ||||||||||||||||
Currency |
||||||||||||||||||||
USD |
48,882 | 28.67 | 28,515 | 21.51 | 71.43 | % | ||||||||||||||
RMB |
110,277 | 64.68 | 92,497 | 69.77 | 19.22 | % | ||||||||||||||
Others |
11,345 | 6.65 | 11,567 | 8.72 | -1.92 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
170,504 | 100.00 | 132,579 | 100.00 | 28.61 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
Interest-bearing obligations denominated in USD had a relatively large fluctuation, primarily due to the implementation of the new accounting standards on leases.
As at 30 June 2019, the Group’s interest-bearing liabilities included long-term and short-term bank borrowings, bonds payable and super short-term debentures equivalent to RMB57,578 million, representing an increase of 4.40% from RMB55,152 million as at 31 December 2018. The breakdown by currencies is as follows:
Unit: RMB million
RMB equivalent | ||||||||||||
As at | As at | |||||||||||
30 June 2019 | 31 December 2018 | Movement (%) | ||||||||||
Currency |
||||||||||||
USD |
1,110 | 3,139 | -64.64 | % | ||||||||
SGD |
2,540 | 2,503 | 1.48 | % | ||||||||
EUR |
3,313 | 3,566 | -7.09 | % | ||||||||
KRW |
1,040 | 1,072 | -2.99 | % | ||||||||
JPY |
3,191 | 3,094 | 3.14 | % | ||||||||
RMB |
46,384 | 41,778 | 11.02 | % | ||||||||
|
|
|
|
|
|
|||||||
Total |
57,578 | 55,152 | 4.40 | % | ||||||||
|
|
|
|
|
|
59
As at 30 June 2019, the Group’s interest-bearing liabilities included lease liabilities equivalent to RMB112,926 million, representing an increase of 45.85% from RMB77,427 million as at 31 December 2018. The breakdown by currencies is as follows:
Unit: RMB million
RMB equivalent | ||||||||||||
As at | As at | |||||||||||
30 June 2019 | 31 December 2018 | Movement (%) | ||||||||||
Currency |
||||||||||||
USD |
47,772 | 25,376 | 88.26 | % | ||||||||
SGD |
454 | 514 | -11.67 | % | ||||||||
JPY |
218 | 226 | -3.54 | % | ||||||||
HKD |
535 | 592 | -9.63 | % | ||||||||
Others |
54 | — | — | |||||||||
RMB |
63,893 | 50,719 | 25.97 | % | ||||||||
|
|
|
|
|
|
|||||||
Total |
112,926 | 77,427 | 45.85 | % | ||||||||
|
|
|
|
|
|
Interest Rate Fluctuation
The Group’s total interest-bearing liabilities (including long-term and short-term bank borrowings, lease liabilities, bonds payable and super short-term debentures) as at 30 June 2019 and 31 December 2018 were equivalent to RMB170,504 million and RMB132,579 million, respectively, of which short-term interest-bearing liabilities accounted for 27.76% and 29.14%, respectively. The majority of the Group’s long-term interest-bearing liabilities were subject to floating interest rates. Both the short-term interest-bearing liabilities and long-term interest-bearing liabilities were affected by fluctuations in current market interest rates.
The Group’s interest-bearing liabilities were primarily denominated in USD and RMB. As at 30 June 2019 and 31 December 2018, the Group’s liabilities denominated in USD accounted for 28.67% and 21.51%, respectively, of total interest-bearing liabilities while liabilities denominated in RMB accounted for 64.68% and 69.77%, respectively, of total interest-bearing liabilities. Fluctuations in the USD and RMB interest rates have a relatively significant impact on the Group’s finance costs. As at 30 June 2019 and 31 December 2018, the outstanding interest rate swap contracts held by the Group amounted to a notional amount of USD993 million and USD1,102 million, respectively. These contracts will expire between the second half of 2019 and 2025.
Exchange Rate Fluctuation
As at 30 June 2019, the Group’s total interest-bearing liabilities denominated in foreign currencies amounted to RMB60,227 million, of which USD liabilities accounted for 81.16%. Therefore, a significant fluctuation in exchange rates will subject the Group to significant foreign exchange loss or gain arising from the exchange of foreign currency denominated liabilities, which affects the profitability and development of the Group. The Group typically uses hedging contracts for foreign currencies to reduce the foreign exchange risks for capital expenditure paid in foreign currencies. As at 30 June 2019 and 31 December 2018, the outstanding foreign currency hedging contracts held by the Group amounted to a notional amount of USD1,013 million and USD655 million, respectively, and will expire in 2019.
60
In the first half of 2019, the Group’s net exchange losses amounted to RMB196 million as compared to the net exchange losses of RMB546 million in the first half of 2018, representing a decrease of 64.10% from the same period last year.
Fluctuation of Jet Fuel Prices
In the first half of 2019, if the average price of jet fuel had increased or decreased by 5%, jet fuel costs of the Group would have increased or decreased by approximately RMB831 million, assuming all other variables remain constant.
In the first half of 2019, the Group did not conduct any jet fuel hedging activities.
Pledges on Assets and Contingent Liabilities
As at 30 June 2019, the value of the Group’s assets used to secure certain bank loans was equivalent to RMB8,708 million, representing a decrease of 25.90% from RMB11,752 million as at 31 December 2018.
As at 30 June 2019, the Group had no significant contingent liabilities.
Human Resources
As at 30 June 2019, the Group had 78,290 employees, the majority of whom were located in China. The wages of the Group’s employees primarily consisted of basic salaries and performance bonuses.
COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS WHICH MAY HAVE A SIGNIFICANT IMPACT ON THE COMPANY
As at 30 June 2019, the Board was not aware of any significant matters which may cause impact on the Group or any non-compliance with the laws and regulations which may have a significant impact on the Group.
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OUTLOOK FOR THE SECOND HALF OF 2019
The Group would like to bring to the attention of readers of this report that this report contains certain forward-looking statements, including a general outlook of international and domestic economies and the aviation industry, and descriptions of the Group’s future operating plans for the second half of 2019 and beyond. Such forward-looking statements are subject to many uncertainties and risks. The actual events that occur may be different from forward-looking statements of the Group which, therefore, do not constitute any commitment by the Group to the future operating results.
Looking forward to the second half of 2019, the international situation is experiencing profound and complex changes and the significantly intensified trade friction. Along with the increase in geopolitical risks, increase in exchange rate volatility risks, uncertainties and instabilities are increasing. As the momentum for global economic growth weakened, the key economic indicators of certain developed and emerging markets have experienced a significant slowdown or fall back. China’s economic development is also encountering new risks and challenges, whilst also facing increasing pressure of economic downturn. However, China’s development is still in a key period with strategic opportunities, and the economy will remain favourable in the long term. The civil aviation industry still remains a rapid growth rate, and the international market and mass market continue to expand. Meanwhile, the in-depth implementation of the “Yangtze River Delta Integration” development strategy as well as the commencement of operation of Beijing Daxing International Airport and the S1 Satellite Hall of Shanghai Pudong International Airport will bring new development potentials to the Group.
In the second half of 2019, the Group will focus on the following tasks:
I. | Attach importance to safe operation and improve the level of safety management — establish a safety performance monitoring platform to strengthen operational risk management and control; enhance analysis through big data to develop targeted training programmes for pilots; establish an aircraft engine health management platform to improve the operational management and control capabilities of large fleet; and actively strengthen risk prevention and control through new technologies to continuously improve the level of safety management. |
II. | Strengthen fine operations and improve route revenue quality — ensure sufficient capacity during peak seasons to seize market opportunities in peak seasons; deepen the route network connection in the core hubs of Beijing and Shanghai, the aviation products connection and the connection of services with partners; continuously strengthen cost reduction and efficiency enhancement, scientifically match models, routes, networks and capacity to improve aircraft utilisation rate and route revenue quality; and intensify the construction of the “brand freight rate” product system to increase sales revenue from non-airline point and revenue from auxiliary operations such as upgrade, baggage and seat selection. |
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III. | Offer sincere services and optimise the travel experience of passengers — further intensify the construction of a service system with flight on-time rate as the core to achieve accurate flight time; increase the frontal bay rate at hub airports, especially the average frontal bay rate of international long-haul routes; improve the handling system for non-scheduled flights; expand the function of the artificial intelligence customer service system and develop common intelligent customer service scenarios; promote the whole-journey baggage tracking system and full coverage of permanent electronic baggage tag in the Group; and fully support the second China International Import Expo. |
IV. | Intensify reform and development and promote the establishment of major projects — promote the mixed ownership reform of its subsidiaries and stimulate the vitality for change; does its best for the commencement of operation of the new base in Beijing Daxing International Airport and the S1 Satellite Hall of Pudong International Airport; strengthen and intensify the strategic cooperation with Juneyao Airlines and JuneYao Group in the fields of marketing, flight maintenance, service guarantee and resource sharing, etc. |
V. | Enhance risk awareness and prevent and mitigate major risks — strengthen cost management to reduce financial costs; optimise debt structure to prevent financial risks; enhance passenger information protection to prevent information system security risks; strengthen compliance management to enhance overseas legal risk management and control; adhere to the concept of green development and promote the concept of energy-saving and emission reduction to prevent environmental pollution risks; and continue to conduct comprehensive risk management assessments and special audits for key areas and major risks. |
63
FLEET PLAN
Introduction and Retirement Plan of Aircraft for the Second Half of 2019 to 2021
(Units) | ||||||||||||||||||||||||
Model | Second Half of 2019 | 2020 | 2021 | |||||||||||||||||||||
Introduction | Retirement | Introduction | Retirement | Introduction | Retirement | |||||||||||||||||||
A350 Series |
1 | — | 4 | — | 4 | — | ||||||||||||||||||
A330 Series |
— | — | — | — | — | — | ||||||||||||||||||
A320 Series |
16 | — | 30 | 1 | — | 6 | ||||||||||||||||||
B777 Series |
— | — | — | — | — | — | ||||||||||||||||||
B787 Series |
2 | — | 3 | — | 2 | — | ||||||||||||||||||
B737 Series |
16 | — | 24 | 12 | 12 | 8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
35 | — | 61 | 13 | 18 | 14 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Notes: | 1. | As at 30 June 2019, according to confirmed orders, the Group planned to introduce 5 aircraft and retire 29 aircraft in 2022 and future years; | ||
2. | The B737 series aircraft planned to be introduced by the Group in the second half of 2019 include 10 B737MAX8 aircraft, and the B737 series aircraft planned to be introduced by the Group in 2020 include 24 B737MAX8 aircraft; and | |||
3. | The abovementioned models, quantity and timing for the future introduction and retirement of aircraft of the Group will be subject to adjustment based on market conditions and flight capacity allocation of the Group. |
SIGNIFICANT EVENTS
1. As at 30 June 2019, the share structure of the Group is set out as follows:
Total number of shares |
Approximate percentage in shareholding (%) |
|||||||||
I | A shares | 9,808,485,682 | 67.80 | |||||||
1. Listed shares with trading moratorium | — | — | ||||||||
2. Listed shares without trading moratorium | 9,808,485,682 | 67.80 | ||||||||
II | H shares | 4,659,100,000 | 32.20 | |||||||
III | Total number of shares | 14,467,585,682 | 100.00 |
Notes:
(1) | As at 30 June 2019, all A shares of the Company were listed shares without trading moratorium. The total number of H shares of the Company was 4,659,100,000 shares, and the total number of shares of the Company was 14,467,585,682 shares. |
(2) | As at the date of this announcement, the Company’s Non-public Issuance of H Shares has completed. The total number of H shares of the Company is 5,176,777,777 shares, and the total number of shares of the Company is 14,985,263,459 shares. |
64
2. | Non-Public Issuance of A Shares and Non-Public Issuance of H Shares |
The application for the non-public issuance of A shares by the Company received the approval from the China Securities Regulatory Commission (the “CSRC”) on 14 June 2019, and the application for the non-public issuance of H shares by the Company received the approval from the CSRC on 1 August 2019. On 21 August 2019, the Company determined the issue price for the Non-public Issuance of H Shares of the Company as being HK$4.29 per H share. On 29 August 2019, the Company completed the Non-public Issuance of H Shares. The Company is currently orderly proceeding the work of the non-public issuance of A shares. For details, please refer to the announcements of the Company published on the website of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) on 14 June, 1 August, 21 August and 29 August 2019.
3. | Dividends |
The Board did not recommend the payment of an interim dividend for the half year ended 30 June 2019.
4. | Purchase, Sale or Redemption of Securities |
During the first half of 2019, neither the Company nor its subsidiaries purchased, sold or redeemed any of its listed securities (“securities”, having the meaning ascribed thereto under Section 1 of Appendix 16 to the Listing Rules).
5. | Material Litigation |
During the six months ended 30 June 2019, the Group was not involved in any material litigation, arbitration or claim.
6. | Corporate Governance |
The Board has reviewed the relevant provisions and corporate governance practices under the codes of corporate governance adopted by the Group, and is of the view that the Group’s corporate governance practices during the six months ended 30 June 2019 met the requirements under the code provisions in the Corporate Governance Code set out in Appendix 14 of the Listing Rules (the “Code”).
Pursuant to the latest regulations promulgated by the CSRC, the Shanghai Stock Exchange and the Hong Kong Stock Exchange and in line with the Company’s development needs, the Company comprehensively reviewed the relevant regulations regarding the Board and securities affairs, revised the Company’s articles of association, rules for procedures for general meetings, rules for meetings of the Supervisory Committee, detailed working rules for the Audit and Risk Management Committee, detailed working rules for the Nominations and Remuneration Committee, detailed working rules for the Planning and Development Committee and detailed working rules for the Aviation Safety and Environment Committee etc., to effectively safeguard the standardised operation of the Company.
65
To further strengthen the awareness of compliance among the directors, supervisors and senior management of the Company, and to enhance their understanding and application of the relevant rules, the Company has comprehensively reviewed and implemented written monitoring rules for the operation of listed companies promulgated by regulatory bodies including the CSRC, the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange, as well as the latest development of the relevant laws, rules and regulations regarding the duties and responsibilities of directors, supervisors and senior management of a listed company, and arranged training and learning sessions.
During the year ended 30 June 2019, the Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules as the securities transactions code for the directors of the Company (the “Directors”). Having made specific enquiries to all the Directors, it is the Company’s understanding that the Directors have complied with the requirements as set forth in the Model Code regarding Directors’ securities transactions.
7. | Audit and Risk Management Committee |
The Audit and Risk Management Committee has reviewed with the management of the Company the accounting principles and methods adopted by the Group, and has discussed with the Board the internal controls and financial reporting issues, including a review of the consolidated results for the six months ended 30 June 2019 prepared in accordance with IFRS.
The Audit and Risk Management Committee has no disagreement with the accounting principles and methods adopted by the Company.
8. | Changes in Personnel |
Cessation
Name | Date of Cessation | Reason for Change | Position | |||
Ma Xulun | 1 February 2019 | Work arrangement | Vice chairman, Director, president, chairman and member of the Planning and Development Committee of the Board, chairman and member of the Aviation Safety and Environment Committee of the Board | |||
Guo Junxiu | 15 February 2019 | Work arrangement | Chief legal adviser | |||
Tang Bing | 15 March 2019 | Work arrangement | Vice president |
66
Appointment
Name | Date of Appointment | Reason for Change | Position | |||
Li Yangmin | 15 March 2019 | Appointed by the Board | President | |||
22 May 2019 | Elected at the general meeting | Director | ||||
22 May 2019 | Appointed by the Board | Vice chairman, chairman and member of the Aviation Safety and Environment Committee of the Board | ||||
Tang Bing | 22 May 2019 | Elected at the general meeting | Director | |||
22 May 2019 | Appointed by the Board | Chairman and member of the Planning and Development Committee of the Board |
For details, please refer to the announcements of the Company published on the website of the Hong Kong Stock Exchange on 1 February, 15 February, 15 March and 22 May 2019.
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9. | Change of Particulars of Directors or Supervisors under Rule 13.51B(1) of the Listing Rules |
Name | Name of shareholders or other entities |
Position(s) held | Date of appointment |
Date of cessation | ||||
Li Yangmin | CEA Holding |
Deputy general manager | August 2016 | February 2019 | ||||
Director, general manager | February 2019 | |||||||
Central State-owned Enterprises Poverty Regional Industrial Investment Fund Co., Ltd. |
Supervisor | April 2019 | August 2019 | |||||
Tang Bing | CEA Holding |
Deputy general manager | December 2016 | February 2019 | ||||
Director | February 2019 | |||||||
Sichuan Airlines Co., Ltd. |
Vice chairman | August 2010 | August 2019 | |||||
Eastern (Shantou) Economic Development Co., Ltd. |
Chairman | February 2012 | August 2019 | |||||
Air France-KLM |
Director | October 2017 | July 2019 | |||||
Shanghai Eastern Airlines Investment Co., Limited |
Chairman | January 2018 | July 2019 | |||||
Li Ruoshan | Jiangsu Zhongnan Construction Group Co., Ltd. |
Director | May 2015 | May 2019 | ||||
Shanghai No.1 Pharmacy Co., Ltd. |
Independent director | June 2019 | ||||||
Shao Ruiqing | Shanghai Carthane Co., Ltd. |
Independent director | August 2016 | August 2019 | ||||
Shanghai International Port (Group) Co., Ltd. |
Independent director | July 2019 | ||||||
Cai Hongping | China Oceanwide Holdings Limited |
Independent non- executive director | November 2014 | May 2019 | ||||
China Minmetals Corporation |
External director | December 2015 | July 2019 | |||||
Shanghai Pudong Development Bank Co., Ltd. |
Independent director | April 2019 |
68
Name | Name of shareholders or other entities |
Position(s) held | Date of appointment |
Date of cessation | ||||
Yuan Jun | Eastern Airlines Industry Investment |
Director | November 2016 | January 2019 | ||||
Xi Sheng | China Eastern Air Catering Investment Co., Limited |
Chairman of the supervisory committee | March 2010 | August 2019 | ||||
Eastern Aviation Import & Export Co., Ltd. |
Chairman of the supervisory committee | March 2010 | June 2019 | |||||
Shanghai Eastern Airlines Investment Co., Limited |
Supervisor | March 2010 | July 2019 | |||||
CES Finance Holding Co., Limited |
Supervisor | April 2010 | June 2019 | |||||
Eastern Airlines Industry Investment |
Chairman | November 2016 | February 2019 | |||||
Eastern Airlines Industry Investment (Hong Kong) Company Limited |
Chairman | July 2017 | April 2019 | |||||
China Air Express Co., Ltd. |
Vice chairman | March 2018 | July 2019 | |||||
Shanghai Shine-link International Logistics Co., Ltd. |
Director | March 2018 | July 2019 | |||||
Li Jinde | CEA Holding |
Head of strategic development division | December 2017 | April 2019 | ||||
China Eastern Air Catering Investment Co., Limited |
Director | January 2018 | August 2019 | |||||
CEA Development Co., Limited |
Director | January 2018 | August 2019 | |||||
CES Finance Holding Co., Limited |
Director | January 2018 | June 2019 | |||||
Eastern Airlines Industry Investment |
Director | January 2018 | June 2019 | |||||
Shanghai Eastern Airlines Investment Co., Limited |
Director | January 2018 | July 2019 | |||||
CES International Financial Leasing Corporation Limited |
Chairman | March 2019 |
69
Name | Name of shareholders or other entities |
Position(s) held | Date of appointment |
Date of cessation | ||||
Wu Yongliang | Shanghai Airlines Tours International (Group) Co., Ltd. |
Executive director | January 2013 | May 2019 | ||||
Sichuan Airlines Co., Ltd. |
Vice chairman | August 2019 | ||||||
Feng Liang | Eastern (Shantou) Economic Development Co., Ltd. |
Chairman | August 2019 | |||||
Feng Dehua | CEA Holding |
Deputy head of party disciplinary inspection group | September 2014 | January 2019 | ||||
China Eastern Airlines Wuhan Limited |
Chairman | April 2018 | May 2019 | |||||
Jiang Jiang | China Eastern Airlines Wuhan Limited |
Chairman | May 2019 | |||||
Wang Jian | Eastern Airlines Industry Investment |
Director, general manager | November 2016 | February 2019 | ||||
Eastern Airlines Industry Investment |
Chairman | February 2019 | ||||||
Eastern Airlines Industry Investment (Hong Kong) Company Limited |
Director, general manager | July 2017 | April 2019 | |||||
Eastern Airlines Industry Investment (Hong Kong) Company Limited |
Chairman | April 2019 | ||||||
Air France-KLM |
Director | July 2019 | ||||||
Ma Xulun | China Eastern Air Holding Company Limited |
Director, general manager, deputy secretary of party committee | December 2016 | January 2019 |
10. | Miscellaneous |
The Company makes reference to the following:
(1) | On 18 January 2019, the Board considered and approved that the Company shall provide, within the period from the effective date of the resolution of the Board to 31 December 2019, guarantee in the total amount of up to RMB1 billion to four wholly-owned subsidiaries namely China United Airlines, Shanghai Eastern Flight Training Co., Ltd., Eastern Business Airlines Service Co., Ltd. and China Eastern Airlines Technology Co., Ltd., or their respective wholly-owned subsidiaries; and agreed that Shanghai Airlines Tours International (Group) Co., Ltd. shall provide guarantee in a total amount of RMB10 million to Shanghai Dongmei Air Travel Co., Ltd., its wholly-owned subsidiary, 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. For details, please refer to the announcement of the Company published on the website of the Hong Kong Stock Exchange on 18 January 2019. |
70
(2) | On 21 February 2019, the Company novated the purchase rights of two B737-800 aircraft to CES International Financial Leasing Corporation Limited and leased the two aircraft under operating leases. On 12 April 2019, the Company novated the purchase rights of three B737-800 aircraft to CES International Financial Leasing Corporation Limited and leased the three aircraft under operating leases. For details, please refer to the announcements of the Company published on the website of the Hong Kong Stock Exchange on 21 February and 12 April 2019. |
(3) | On 20 August 2019, the Company completed the public-issued corporate bonds with an aggregate amount of RMB3 billion, coupon rate of 3.60% and bond term of five years to qualified investors. Such public-issued corporate bonds were listed on the Shanghai Stock Exchange on 28 August 2019. For details, please refer to the announcements of the Company published on the website of the Hong Kong Stock Exchange on 15 August, 19 August, 21 August and 27 August 2019. |
(4) | On 30 August 2019, the Board considered and approved the “resolution for the amendment of certain provisions of rules and regulations of the Company such as the articles of association” to amend the Company’s articles of association, rules for procedures for general meetings, detailed working rules for the Audit and Risk Management Committee, detailed working rules for the Nominations and Remuneration Committee, detailed working rules for the Planning and Development Committee and detailed working rules for the Aviation Safety and Environment Committee. On the same date, the supervisory committee of the Company considered and approved the resolution for the amendment of the rules for meetings of the supervisory committee to amend the rules for meetings of the supervisory committee of the Company. The resolutions regarding amendments to the certain provisions of the Company’s articles of association, rules for procedures for general meetings and rules for meetings of the supervisory committee are still subject to consideration at the general meeting of the Company. For details, please refer to the announcement of the Company published on the website of the Hong Kong Stock Exchange on 30 August 2019. |
(5) | On 30 August 2019, the Board considered and approved the resolution in relation to the daily connected transactions for 2020-2022 to approve the continuing connected transactions, including financial services, import and export services, catering supply and other services, flight complementary services, property leasing and construction and management agency services, advertising agency services, aircraft finance lease services, aircraft and engines operating lease services, freight logistics support services, bellyhold space contractual operation services, Air France-KLM aviation transportation cooperation and support services, aviation information technology services and aviation supplies maintenance services, and the caps for the transactions for 2020–2022, between the Company and its connected parties. The aforementioned continuing connected transactions are still subject to consideration at the general meeting of the Company. For details, please refer to the announcement of the Company published on the website of the Hong Kong Stock Exchange on 30 August 2019. |
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(6) | The estimated transaction caps for the continuing connected transactions, which were considered and approved by the Board and at the general meetings of the Company, and their actual amounts incurred up to 30 June 2019, are set out as follows: |
Unit: RMB thousand
Actual amount | 2019 | |||||||
incurred up to | estimated | |||||||
30 June 2019 | transaction caps | |||||||
Approved category |
||||||||
Financial services (balance) |
||||||||
— balance of deposit |
245,317 | 13,000,000 | ||||||
— balance of loans |
556,409 | 13,000,000 | ||||||
Import and export services |
93,836 | 570,000 | ||||||
Catering supply services |
756,449 | 1,900,000 | ||||||
Flight support services |
157,043 | 810,000 | ||||||
Property leasing |
17,135 | 90,000 | ||||||
Advertising agency services |
10,182 | 85,000 | ||||||
Aircraft finance lease services (note 1) |
7,813,566 | |
USD2,616 million or equivalent RMB |
| ||||
Aircraft operating lease services (note 2) |
19,645 | 1,400,000 | ||||||
Aircraft operating lease services (note 3) |
718,742 | 8,000,000 | ||||||
Freight logistics support services (the Company provides services to Eastern Airline Logistics Co., Limited (“Eastern Logistics”)) |
68,358 | 470,000 | ||||||
Cargo terminal business support services (Eastern Logistics provides services to the Company) |
281,493 | 750,000 | ||||||
Bellyhold space contractual operation |
||||||||
— contractual fee received |
1,741,280 | 4,000,000 | ||||||
— operation cost paid |
139,302 | 353,000 | ||||||
AIR FRANCE-KLM aviation transportation cooperation and support services (pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange) |
||||||||
— amount received |
304,422 | 1,230,000 | ||||||
— amount paid |
246,894 | 1,200,000 | ||||||
Aviation information technology services (pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange) |
361,274 | 1,155,000 | ||||||
Aviation supplies maintenance services (pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange) |
66,159 | 530,000 |
Note 1: | The actual amount incurred in the first half of 2019 represents the total lease amount (principal and interest) plus service charge for the new finance lease aircraft in the first half of 2019; |
Note 2: | The actual amount incurred in the first half of 2019 represents the lease amount paid during in the first half of 2019 for the operating lease aircraft; and |
Note 3: | The actual amount incurred in the first half of 2019 represents the total lease amount of all lease terms for the new operating lease aircraft and engines in the first half of 2019. |
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By order of the Board
CHINA EASTERN AIRLINES CORPORATION LIMITED
Liu Shaoyong
Chairman
Shanghai, the People’s Republic of China
30 August 2019
As at the date of this announcement, the directors of the Company are as follows: Liu Shaoyong (Chairman), Li Yangmin (Vice Chairman), Tang Bing (Director), Lin Wanli (Independent non-executive Director), Li Ruoshan (Independent non- executive Director), Ma Weihua (Independent non-executive Director), Shao Ruiqing (Independent non-executive Director), Cai Hongping (Independent non-executive Director) and Yuan Jun (Employee representative Director).
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