6-K 1 d759927d6k.htm FORM 6-K Form 6-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

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

under the Securities Exchange Act of 1934

For the month of 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.

 

LOGO

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
2015–2017 Cycle

   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  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
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  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total number of passenger aircraft

     245        263        196        704        6.1  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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
  

 

 

    

 

 

    

 

 

 

 

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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.

 

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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.

 

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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.

 

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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.

 

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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

 

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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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