SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F



| |  ̈ | REGISTRATION STATEMENT PURSUANT TO
SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------------------



OR



| | x | ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------

For the fiscal year ended December 31,
2012



OR



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



| |  ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------



Commission file number 1-14550







(Exact Name of Registrant as Specified in
Its Charter)



|China Eastern Airlines Corporation Limited      |  | The People’s Republic of China                 
|----------------------------------------------- |  | -----------------------------------------------
|(Translation of Registrant’s Name Into English) |  | (Jurisdiction of Incorporation or Organization)



Kong Gang San Lu, Number 92

Shanghai, 200335

People’s Republic of China

Tel: (8621) 6268-6268

Fax: (8621) 6268-6116

(Address and Contact Details of the Board
Secretariat's Office)

Securities registered or to be registered
pursuant to Section 12(b) of the Act:



|                                               |  | Name of Each Exchange       
|---------------------------------------------- |  | ----------------------------
|Title of Each Class                            |  | on which Registered         
|American Depositary Shares                     |  | The New York Stock Exchange 
|Ordinary H Shares, par value RMB1.00 per share |  | The New York Stock Exchange*



* Not for trading, but only in connection
with the registration of American Depositary Shares. The Ordinary H

Shares are also listed and traded on The
Stock Exchange of Hong Kong Limited.



Securities registered or to be registered
pursuant to Section 12(g) of the Act:



None

(Title of Class)

Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:



None

(Title of Class)

Indicate the number of outstanding shares
of each of the issuer’s classes of capital or common stock as of the close

of the period covered by the annual report.



As of December 31,
2012, 7,782,213,860 Ordinary Domestic Shares, par value RMB1.00 per share, were issued and outstanding, and 3,494,325,000 Ordinary
H Shares par value RMB1.00 per share, were issued and outstanding. H Shares are Ordinary Shares of the Company listed on The Stock
Exchange of Hong Kong Limited. Each American Depositary Share represents 50 Ordinary H Shares.



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈Nox



If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ̈Nox



Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesxNo ̈



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ̈Nox



Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

|Large Accelerated Filer ̈ | Accelerated Filerx | Non-Accelerated Filer ̈
|------------------------ | ------------------ | ----------------------



Indicate by check
mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

|U.S. 
GAAP ̈ | International Financial Reporting Standards as issued by the International Accounting Standards
 Boardx | Other ̈
|----------- | ------------------------------------------------------------------------------------------------------- | ------



If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow. Item 17 ̈Item 18 ̈



If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ̈Nox











|          |                                                                              | Page No.
|--------- | ---------------------------------------------------------------------------- | --------
|          |                                                                              |         
|          | PART I                                                                       |         
|          |                                                                              |         
|Item 1.   | Identity of Directors, Senior Management and Advisers                        | 4       
|Item 2.   | Offer Statistics and Expected Timetable                                      | 4       
|Item 3.   | Key Information                                                              | 4       
|Item 4.   | Information on the Company                                                   | 15      
|Item 4A.  | Unresolved Staff Comments                                                    | 29      
|Item 5.   | Operating and Financial Review and Prospects                                 | 29      
|Item 6.   | Directors, Senior Management and Employees                                   | 40      
|Item 7.   | Major Shareholders and Related Party Transactions                            | 45      
|Item 8.   | Financial Information                                                        | 50      
|Item 9.   | The Offer and Listing                                                        | 51      
|Item 10.  | Additional Information                                                       | 52      
|Item 11.  | Quantitative and Qualitative Disclosures About Market Risk                   | 62      
|Item 12.  | Description of Securities Other than Equity Securities                       | 63      
|          |                                                                              |         
|          | PART II                                                                      |         
|          |                                                                              |         
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 63      
|Item 14.  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 63      
|Item 15.  | Controls and Procedures                                                      | 64      
|Item 16A. | Audit Committee Financial Expert                                             | 64      
|Item 16B. | Code of Ethics                                                               | 64      
|Item 16C. | Principal Accountant Fees and Services                                       | 65      
|Item 16D. | Exemptions from the Listing Standards for Audit Committees                   | 65      
|Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 65      
|Item 16F  | Changes in Registrant’s Certifying Accountant                                | 65      
|Item 16G  | Corporate Governance                                                         | 65      
|Item 16H  | Mine Safety Disclosures                                                      | 66      
|          |                                                                              |         
|          | PART III                                                                     |         
|          |                                                                              |         
|Item 17.  | Financial Statements                                                         | 66      
|Item 18.  | Financial Statements                                                         | 66      
|Item 19.  | Exhibits                                                                     | 66      



2







SUPPLEMENTAL INFORMATION AND EXCHANGE
RATES



In this Annual Report,
unless otherwise specified, the term “dollars”, “U.S. dollars” or “US$” refers to United States
dollars, the lawful currency of the United States of America, or the United States or the U.S.; the term “Renminbi”
or “RMB” refers to Renminbi, the lawful currency of The People’s Republic of China, or China or the PRC; and
the term “Hong Kong dollars” or “HK$” refers to Hong Kong dollars, the lawful currency of the Hong Kong
Special Administrative Region of China, or Hong Kong.



In this Annual Report,
the term “we”, “us”, “our” or “our Company” refers
to China Eastern Airlines Corporation Limited, a joint stock limited company incorporated under the laws of the PRC on April 14,
1995, and our subsidiaries (collectively, the “Group”), or, in respect of references to any time prior to the incorporation
of China Eastern Airlines Corporation Limited, the core airline business carried on by its predecessor, China Eastern Airlines,
which was assumed by China Eastern Airlines Corporation Limited pursuant to the restructuring described in this Annual Report.
The term “CEA Holding” refers to our parent, China Eastern Air Holding Company, which was established on October 11,
2002 as a result of the merger of our former controlling shareholder, Eastern Air Group Company, or EA Group, with China Northwest
Airlines Company and Yunnan Airlines Company.



For the purpose of
this Annual Report, references to The People’s Republic of China, China and the PRC do not include Hong Kong, Taiwan, or
the Macau Special Administrative Region of China, or Macau.



See “Item 3.
Key Information — Exchange Rate Information” for details of exchange rates.



CAUTIONARY STATEMENT WITH RESPECT TO
FORWARD-LOOKING STATEMENTS



Certain information
contained in this Annual Report may be deemed to constitute forward-looking statements. These forward-looking statements include,
without limitation, statements relating to:





| | · | the impact of changes in the policies of the Civil Aviation Administration of China, or the CAAC,
regarding route rights;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | the impact of the CAAC policies regarding the restructuring of the airline industry in China;
| | - | ---------------------------------------------------------------------------------------------



| | · | the impact of macroeconomic fluctuations (including the fluctuations of oil prices, and interest
and exchange rates);
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | certain statements with respect to trends in prices, volumes, operations, margins, risk management,
overall market trends and exchange rates;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | our fleet development plans, including, without limitation, related financing, schedule, intended
use and planned disposition;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | our expansion plan of the cargo operations;
| | - | -------------------------------------------



| | · | our expansion plans, including possible acquisition of other airlines;
| | - | ----------------------------------------------------------------------



| | · | our marketing plans, including the establishment of additional sales offices;
| | - | -----------------------------------------------------------------------------



| | · | our plan to add new pilots; and
| | - | -------------------------------



| | · | the impact of unusual events on our business and operations.
| | - | ------------------------------------------------------------



The words or phrases
“aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”,
“expect”, “going forward”, “intend”, “may”, “ought to”, “plan”,
“potential”, “predict”, “project”, “seek”, “should”, “will”,
“would”, and similar expressions, as they relate to our Company or its management, are intended to identify “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
and Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are based on current plans and estimates,
and speak only as of the date they are made. We undertake no obligation to update or revise any forward-looking statement in light
of new information, future events or otherwise. Forward-looking statements are, by their nature, subject to inherent risks and
uncertainties, some of which are beyond our control, and are based on assumptions and analyses made by us in light of our experience
and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe
are appropriate in particular circumstances. We caution you that a number of important factors could cause actual outcomes to differ,
or to differ materially, from those expressed in any forward-looking statement, including, without limitation:





| | · | changes in political, economic, legal and social conditions in China;
| | - | ---------------------------------------------------------------------



| | · | any changes in the regulatory policies of the CAAC;
| | - | ---------------------------------------------------



| | · | the development of the high-speed rail network in the PRC;
| | - | ----------------------------------------------------------



| | · | fluctuations of interest rates and foreign exchange rates;
| | - | ----------------------------------------------------------



| | · | the availability of qualified flight personnel and airport facilities;
| | - | ----------------------------------------------------------------------



| | · | the effects of competition on the demand for and price of our services;
| | - | -----------------------------------------------------------------------



| | · | the availability and cost of aviation fuel, including but not limited to pricing trends and risks
associated with fuel hedging;
| | - | -------------------------------------------------------------------------------------------------------------------------------



3









| | · | fluctuations of interest rates and foreign exchange rates;
| | - | ----------------------------------------------------------



| | · | any significant depreciation of Renminbi or Hong Kong dollars against U.S. dollars, Japanese yen
or Euro, the currencies in which the majority of our borrowings are denominated;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to obtain adequate financing, including any required external debt and acceptable bank
guarantees; and
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | general economic conditions in markets where our Company operates.
| | - | ------------------------------------------------------------------



GLOSSARY OF TECHNICAL
TERMS



|Capacity measurements                             |  |                                                                                                                                                                      
|------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                  |  |                                                                                                                                                                      
|ATK (available tonne-kilometers)                  |  | the number of tonnes of capacity available for the carriage of revenue load (passengers and cargo) multiplied by the distance flown                                  
|                                                  |  |                                                                                                                                                                      
|ASK (available seat kilometers)                   |  | the number of seats made available for sale multiplied by the distance flown                                                                                         
|                                                  |  |                                                                                                                                                                      
|AFTK (available freight tonne-kilometers)         |  | the number of tonnes of capacity available for the carriage of cargo and mail multiplied by the distance flown                                                       
|                                                  |  |                                                                                                                                                                      
|Traffic measurements                              |  |                                                                                                                                                                      
|                                                  |  |                                                                                                                                                                      
|revenue passenger-kilometers or RPK               |  | the number of passengers carried multiplied by the distance flown                                                                                                    
|                                                  |  |                                                                                                                                                                      
|revenue freight tonne-kilometers or RFTK          |  | cargo and mail load in tonnes multiplied by the distance flown                                                                                                       
|                                                  |  |                                                                                                                                                                      
|revenue passenger tonne-kilometers or RPTK        |  | passenger load in tonnes multiplied by the distance flown                                                                                                            
|                                                  |  |                                                                                                                                                                      
|revenue tonne-kilometers or RTK                   |  | load (passenger and cargo) in tonnes multiplied by the distance flown                                                                                                
|                                                  |  |                                                                                                                                                                      
|Load factors                                      |  |                                                                                                                                                                      
|                                                  |  |                                                                                                                                                                      
|overall load factor                               |  | tonne-kilometers expressed as a percentage of ATK                                                                                                                    
|                                                  |  |                                                                                                                                                                      
|passenger load factor                             |  | passenger-kilometers expressed as a percentage of ASK                                                                                                                
|                                                  |  |                                                                                                                                                                      
|break-even load factor                            |  | the load factor required to equate traffic revenue with our operating costs assuming that our total operating surplus is attributable to scheduled traffic operations
|                                                  |  |                                                                                                                                                                      
|Yield and cost measurements                       |  |                                                                                                                                                                      
|                                                  |  |                                                                                                                                                                      
|passenger yield (revenue per passenger-kilometer) |  | revenue from passenger operations divided by passenger-kilometers                                                                                                    
|                                                  |  |                                                                                                                                                                      
|cargo yield (revenue per cargo tonne-kilometer)   |  | revenue from cargo operations divided by cargo tonne-kilometers                                                                                                      
|                                                  |  |                                                                                                                                                                      
|average yield (revenue per total tonne-kilometer) |  | revenue from airline operations divided by tonne-kilometers                                                                                                          
|                                                  |  |                                                                                                                                                                      
|unit cost                                         |  | operating expenses divided by ATK                                                                                                                                    
|                                                  |  |                                                                                                                                                                      
|Tonne                                             |  | a metric ton, equivalent to 2,204.6 lbs                                                                                                                              



PART I



| | Item 1. | Identity of Directors, Senior Management and Advisers
| | ------- | -----------------------------------------------------



Not applicable.



| | Item 2. | Offer Statistics and Expected Timetable
| | ------- | ---------------------------------------



Not applicable.



| | Item 3. | Key Information
| | ------- | ---------------



| | A. | Selected Financial Data
| | -- | -----------------------



The selected financial
data from the consolidated income statements for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 and the selected
financial data from the balance sheets as of December 31, 2008, 2009, 2010, 2011 and 2012 have been derived from our audited consolidated
financial statements, which have been prepared in accordance with International Financial Reporting Standards, or IFRS, as adopted
by the International Accounting Standards Board, or IASB, and audited by PricewaterhouseCoopers, an independent registered public
accounting firm in Hong Kong. PricewaterhouseCoopers’ reports in respect of the consolidated income statements for the years
ended December 31, 2010, 2011 and 2012 and the consolidated balance sheets as of December 31, 2011 and 2012 and the related footnotes
are included in this Annual Report.



4







Pursuant to SEC Release
33-8879 “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial
Reporting Standards without Reconciliation to U.S. GAAP” eliminating the requirement for foreign private issuers to reconcile
their financial statements to U.S. GAAP, we prepare our financial statements based on IFRS and no longer provide a reconciliation
between IFRS and U.S. GAAP.



The following information
should be read in conjunction with, and is qualified in its entirety by our audited consolidated financial statements included
in this Annual Report.



|                                                                                    |  |                                                 |         |   |      |  |         | Year Ended December 31, |  |  |         |  
|----------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ---- |  | ------- | ----------------------- |  |  | ------- | -
|                                                                                    |  | 2008                                            |         |   | 2009 |  |         | 2010                    |  |  | 2011    |  
|                                                                                    |  | RMB                                             |         |   | RMB  |  |         | RMB                     |  |  | RMB     |  
|                                                                                    |  | (in millions, except per share or per ADS data) |         |   |      | 
|Consolidated Income Statement Data (IFRS):                                          |  |                                                 |         |   |      |  |         |                         |  |  |         |  
|Revenues                                                                            |  |                                                 | 41,073  |   |      |  | 38,989  |                         |  |  | 73,804  |  
|Other operating income                                                              |  |                                                 | 672     |   |      |  | 1,288   |                         |  |  | 658     |  
|Operating expenses                                                                  |  |                                                 | (56,828 | ) |      |  | (38,456 | )                       |  |  | (68,765 | )
|Operating profit / (loss)                                                           |  |                                                 | (15,083 | ) |      |  | 1,821   |                         |  |  | 5,697   |  
|Finance income / (costs), net                                                       |  |                                                 | (267    | ) |      |  | (1,549  | )                       |  |  | (347    | )
|Profit / (loss) before income tax                                                   |  |                                                 | (15,256 | ) |      |  | 249     |                         |  |  | 5,418   |  
|Profit / (loss) for the year attributable to the equity shareholders of the Company |  |                                                 | (15,269 | ) |      |  | 169     |                         |  |  | 4,958   |  
|Basic and fully diluted earnings / (loss) per share (2)                             |  |                                                 | (3.14   | ) |      |  | 0.03    |                         |  |  | 0.44    |  
|Basic and fully diluted earnings / (loss) per ADS                                   |  |                                                 | (313.72 | ) |      |  | 2.63    |                         |  |  | 22.24   |  



| | (1) | Effective
                                                           January 1, 2012, the pilot program for the transformation from business tax to value-added tax regarding the
                                                           transportation industry and certain modern service industries has affected certain operating data in 2012. See "Item 5A.
                                                           —                                                            Operating Results — 2012 Compared to 2011 —
                                                           Revenues".
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As at December 31,
2012, the pilot program affected   our revenues (excluding tax) which decreased by RMB2,954 million, while operating expenses
decreased by RMB3,132 million, and total profit increased by RMB178 million.





| | (2) | The calculation of earnings/(loss) per share for 2008 is based on the consolidated profit/(loss)
attributable to the equity shareholders of the Company and 4,866,950,000 shares outstanding. The calculation of earnings per share
for 2009 is based on the consolidated profit attributable to the equity shareholders of the Company divided by the weighted average
number of 6,436,828,000 shares outstanding. The calculation of earnings per share for 2010 is based on the consolidated profit
attributable to the equity shareholders of the Company divided by the weighted average number of 11,149,426,000 shares outstanding.
The calculation of earnings per share for 2011 and 2012 is based on consolidated profit attributable to the equity shareholders
of the Company divided by the weighted average number of 11,276,538,860 shares outstanding.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                                                                        |  |      |         |   |      |  |         |      |  |  | As of December 31, |  
|--------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- |  | ------- | ---- |  |  | ------------------ | -
|                                                                                        |  | 2008 |         |   | 2009 |  |         | 2010 |  |  | 2011               |  
|                                                                                        |  | RMB  |         |   | RMB  |  |         | RMB  |  |  | RMB                |  
|                                                                                        |  |      |         |   |      |  |         |      |  |  | (in millions)      |  
|Consolidated Balance Sheet Data (IFRS):                                                 |  |      |         |   |      |  |         |      |  |  |                    |  
|Cash and cash equivalents                                                               |  |      | 3,451   |   |      |  | 1,735   |      |  |  | 3,078              |  
|Net current liabilities                                                                 |  |      | (43,458 | ) |      |  | (28,648 | )    |  |  | (27,184            | )
|Non-current assets                                                                      |  |      | 62,652  |   |      |  | 64,988  |      |  |  | 91,254             |  
|Long term borrowings, including current portion                                         |  |      | (15,628 | ) |      |  | (16,928 | )    |  |  | (27,373            | )
|Obligations under finance leases, including current portion                             |  |      | (20,809 | ) |      |  | (19,370 | )    |  |  | (19,208            | )
|Total share capital and reserves attributable to the equity shareholders of the Company |  |      | (13,097 | ) |      |  | 1,235   |      |  |  | 15,271             |  
|Non-current liabilities                                                                 |  |      | (31,833 | ) |      |  | (34,665 | )    |  |  | (47,508            | )
|Total assets less current liabilities                                                   |  |      | 16,204  |   |      |  | 36,341  |      |  |  | 64,069             |  





| | (1) | The income statement and balance sheet data as of and for the years ended December 31, 2010, 2011
and 2012 include the operating results of Shanghai Airlines.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rate Information



We present our historical
consolidated financial statements in Renminbi. For the convenience of the reader, certain pricing information is presented in U.S.
dollars and certain contractual and other amounts that are in Renminbi or Hong Kong dollars amounts include a U.S. dollar equivalent.
Unless otherwise noted, all translations from RMB to U.S. dollars, from Hong Kong dollars to U.S. dollars, from U.S. dollars to
RMB and from U.S. dollars to Hong Kong dollars in this Annual Report were made at the rate of RMB6.2301 to US$1.00 and HK$7.7507
to US$1.00, the exchange rate set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve Board
on December 31, 2012. We make no representation that the Renminbi, Hong Kong dollar or U.S. dollar amounts referred to in this
Annual Report could have been or could be converted into U.S. dollars, Hong Kong dollars or Renminbi, as the case may be, at any
particular rate or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation
of the conversion of RMB into foreign exchange and through restrictions on foreign trade.



On April 19,
2013, the exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board were RMB6.1772=US$1.00 and
HK$7.7637=US$1.00. The following table sets forth information concerning exchange rates between the RMB, Hong Kong dollar and
the U.S. dollar for the periods indicated. The source of these rates is the Federal Reserve Statistical Release.



5







|                                  | RMB per US$1.00 (1) |  |  | HK$ per US$1.00 (1)
|--------------------------------- | ------------------- |  |  | -------------------
|                                  | High                |  |  | Low                
|                                  |                     |  |  |                    
|January 2011                      | 6.6364              |  |  |                    
|February 2011                     | 6.5965              |  |  |                    
|March 2011                        | 6.5743              |  |  |                    
|April 2011                        | 6.5477              |  |  |                    
|May 2011                          | 6.5073              |  |  |                    
|June 2011                         | 6.4830              |  |  |                    
|July 2011                         | 6.4720              |  |  |                    
|August 2011                       | 6.4401              |  |  |                    
|September 2011                    | 6.3975              |  |  |                    
|October 2011                      | 6.3825              |  |  |                    
|November 2011                     | 6.3839              |  |  |                    
|December 2011                     | 6.3733              |  |  |                    
|January 2012                      | 6.3330              |  |  |                    
|February 2012                     | 6.3120              |  |  |                    
|March 2012                        | 6.3323              |  |  |                    
|April 2012                        | 6.3123              |  |  |                    
|May 2012                          | 6.3684              |  |  |                    
|June 2012                         | 6.3702              |  |  |                    
|July 2012                         | 6.3879              |  |  |                    
|August 2012                       | 6.3738              |  |  |                    
|September 2012                    | 6.3489              |  |  |                    
|October 2012                      | 6.2877              |  |  |                    
|November 2012                     | 6.2454              |  |  |                    
|December 2012                     | 6.2502              |  |  |                    
|January 2013                      | 6.2303              |  |  |                    
|February 2013                     | 6.2438              |  |  |                    
|March 2013                        | 6.2246              |  |  |                    
|April 2013 (up to April 19, 2013) | 6.2078              |  |  |                    



The following table
sets forth the average rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for each of the periods
indicated. For all periods prior to January 1, 2009, the exchange rate refers to the noon buying rate as reported by the Federal
Reserve Bank of New York. For periods beginning on or after January 1, 2009, the exchange rate refers to the exchange rate as set
forth in the G. 5A statistical release of the Federal Reserve Board.



|     |  | RMB per     |        |  | HK$ per | 
|---- |  | ----------- | ------ |  | ------- | 
|     |  | US$1.00 (1) |        |  | US$1.00 | 
|2008 |  |             | 6.9193 |  |         | 
|2009 |  |             | 6.8307 |  |         | 
|2010 |  |             | 6.7696 |  |         | 
|2011 |  |             | 6.4630 |  |         | 
|2012 |  |             | 6.3093 |  |         | 








Source: Federal Reserve
Statistical Release



| | (1) | Averages are based on daily noon buying rates for cable transfers in New York City certified for
customs purposes by the Federal Reserve Bank of New York.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Selected Operating Data



The following table
sets forth certain operating data of our Company for the five years ended December 31, 2012, which are not audited. All references
in this Annual Report to our cargo operations, cargo statistics or cargo revenues include figures for cargo and mail.



|                                                               |  | Year Ended December 31, |         
|-------------------------------------------------------------- |  | ----------------------- | --------
|                                                               |  | 2008                    |         
|Selected Airline Operating Data:                               |  |                         |         
|Capacity:                                                      |  |                         |         
|ATK (millions)                                                 |  |                         | 11,642.2
|ASK (millions)                                                 |  |                         | 75,964.3
|AFTK (millions)                                                |  |                         | 4,805.4 
|Traffic:                                                       |  |                         |         
|Revenue passenger-kilometers (millions)                        |  |                         | 53,785.3
|Revenue tonne-kilometers (millions)                            |  |                         | 7,219.0 
|Revenue freight tonne-kilometers (millions)                    |  |                         | 2,420.1 
|Kilometers flown (millions)                                    |  |                         | 467.0   
|Hours flown (thousands)                                        |  |                         | 755.2   
|Number of passengers carried (thousands)                       |  |                         | 37,231.5
|Weight of cargo carried (millions of kilograms)                |  |                         | 889.5   
|                                                               |  |                         |         
|Average distance flown (kilometers per passenger)              |  |                         | 1,444.6 
|Load Factor:                                                   |  |                         |         
|Overall load factor (%)                                        |  |                         | 62.0    
|Passenger load factor (%)                                      |  |                         | 70.8    
|Yield and Cost Statistics (RMB):                               |  |                         |         
|Passenger yield (passenger revenue/ passenger-kilometers)      |  |                         | 0.62    
|Cargo yield (cargo revenue/cargo tonne-kilometers)             |  |                         | 2.21    
|Average yield (passenger and cargo revenue/ tonne- kilometers) |  |                         | 5.38    
|Unit cost (operating expenses/ATK)                             |  |                         | 4.88    



6







| | B. | Capitalization and Indebtedness
| | -- | -------------------------------



Not applicable.



| | C. | Reasons for the Offer and Use of Proceeds
| | -- | -----------------------------------------



Not applicable.



| | D. | Risk Factors
| | -- | ------------



Risks Relating to the PRC



Changes in the
economic policies of the PRC government may materially affect our business, financial condition and results of operations.



Since the late 1970s,
the PRC government has been reforming the Chinese economic system. These reforms have resulted in significant economic growth and
social progress. These policies and measures, however, may from time to time be modified or revised. Adverse changes in economic
and social conditions in China, in the policies of the PRC government or in the laws and regulations of China, if any, may have
a material adverse effect on the overall economic growth of China and investments in the domestic airline industry. These developments,
in turn, may have a material adverse effect on our business, financial condition and results of operations.



Foreign exchange
regulations in the PRC may result in fluctuations of the Renminbi and affect our ability to pay any dividends or to satisfy our
foreign exchange liabilities.



A significant
portion of our revenue and operating expenses are denominated in Renminbi, while a portion of our revenue, capital
expenditures and debts are denominated in U.S. dollars and other foreign currencies. The Renminbi is currently freely
convertible under the current account, which includes dividends, trade and service-related foreign currency transactions, but
not under the capital account, which includes foreign direct investment, unless the prior approval of the State
Administration of Foreign Exchange of the PRC (the "SAFE"), is obtained. As a foreign invested enterprise approved by the PRC
Ministry of Commerce ("MOFCOM"), we can purchase foreign currency without the approval of SAFE for settlement of current
account transactions, including payment of dividends, by providing commercial documents evidencing these transactions. We can
also retain foreign exchange in our current accounts, subject to a maximum amount approved by SAFE, to satisfy foreign
currency liabilities or to pay dividends. The relevant PRC government authorities may limit or eliminate our ability to
purchase and retain foreign currencies in the future. Foreign currency transactions under the capital account are still
subject to limitations and require approvals from SAFE. This may affect our ability to obtain foreign exchange through debt
or equity financing, including by means of loans or capital contributions. We cannot assure you that we will be able to
obtain sufficient foreign exchange to pay dividends for overseas shareholders, if any, or satisfy our foreign
exchange liabilities.



Furthermore, the
value of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among
other things, PRC government policies, domestic and international economies, political conditions and the supply and demand
of currency. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar.
Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain
foreign currencies. This change in policy resulted in an appreciation in the value of the Renminbi against the U.S. dollar of
approximately 7.0% in 2008. While there was no material appreciation of the value of Renminbi against the U.S. dollar in
2009, the value of the Renminbi against the U.S. dollar appreciated by approximately 3.0% in 2010 and by approximately 5.1%
in 2011. In May 2007, the PRC government widened the daily trading band of the Renminbi against a basket of certain foreign
currencies from 0.3% to 0.5%. In April 2012, the People's Bank of China (the “PBOC”) further widened the daily
trading band of the Renminbi against the U.S. dollar, and the Renminbi can appreciate or depreciate by 1.0% from the PBOC
central parity rate, effective April 16, 2012. It is possible that the PRC government could adopt a more flexible currency
policy, which could result in further and more significant revaluations of the Renminbi against the U.S. dollar or any other
foreign currency. Any resulting fluctuations in exchange rates as a result of such policy changes may have an adverse effect
on our financial condition and results of operations.



Our operations
may be affected by rising inflation rates within the PRC.



Inflation rates within
the PRC have been on a sharp uptrend in recent years. The PRC government has undertaken numerous monetary tightening measures,
including raising interest rates and reserve requirement ratios, and curbing bank lending, to slow down economic excessive growth
and control price rises. Increasing inflationary rates are due to many factors beyond our control, such as rising food prices,
rising production and labor costs, high lending levels, PRC and foreign governmental policy and regulations, and movements in exchange
rates and interest rates. PRC inflation rates have been in a general downtrend after peaking in the middle of 2011, and increased
to 3.6% as of March 2012. The national consumer price index increased by 2.6% in 2012 compared to 2011. We cannot assure you that
inflation rates will not continue to increase in the future. If inflation rates rise beyond our expectations, the costs of our
business operations may become significantly higher than we have anticipated, and we may be unable to pass on such higher costs
to consumers in amounts that are sufficient to cover those increasing operating costs. As a result, further inflationary pressures
within the PRC may have a material adverse effect on our business, financial condition and results of operations, as well as our
liquidity and profitability.



Any withdrawal
of, or changes to, tax incentives in the PRC may adversely affect our results of operations and financial condition.



Prior to January
1, 2008, except for a number of preferential tax treatment schemes available to various enterprises, industries and locations,
business enterprises in China were subject to an enterprise income tax rate of 33% under the relevant PRC Enterprise Income
Tax Law. On March 16, 2007, China passed a new enterprise income tax law, or the EIT Law, which took effect on January 1,
2008. The EIT Law imposes a uniform income tax rate of 25% for domestic enterprises and foreign invested enterprises. Business
enterprises enjoying preferential tax treatment that was extended for a fixed term prior to January 1, 2008 will still be entitled
to such treatment until such fixed term expires. Certain of our subsidiaries are entitled to preferential tax treatment, allowing
us to enjoy a lower effective tax rate that would not otherwise be available to us. Since January 1, 2010, our revenue from the
provision of international transportation services have been exempted from business tax, in accordance with a notice jointly issued
by the PRC finance and tax authorities. To the extent that there are any withdrawals of, or changes in, our preferential tax treatment
or tax exemptions from which we benefit, or increases in the applicable effective tax rate, our tax liability may increase correspondingly.



7







Uncertainties
embodied in the PRC legal system may limit certain legal protection available to investors.



The PRC legal system
is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little
precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general. Legislation over the past 20 years has significantly enhanced the protection afforded to foreign investment
in China. However, the interpretation and enforcement of some of these laws, regulations and other legal requirements involve uncertainties
that may limit the legal protection available to investors. Such uncertainties arise as the legal system in the PRC is continuing
to evolve. Even where adequate laws exist in the PRC, the enforcement of existing laws or contracts based on existing laws may
be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment
by a court of another jurisdiction. In addition, the PRC legal system is based on written statutes and their interpretation, and
prior court decisions may be cited as reference but have limited roles as precedents. As such, any litigation in the PRC may be
protracted and result in substantial costs and diversion of our resources and management attention. We have full or majority board
control over the management and operation of all of our subsidiaries established in the PRC. The control over these PRC entities
and the exercise of shareholder rights are subject to their respective articles of association and PRC laws applicable to foreign-invested
enterprises in the PRC, which may be different from the laws of other developed jurisdictions.



The PRC has not developed
a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities
in the PRC. The relative inexperience of the PRC’s judiciary in many cases also creates additional uncertainty as to the
outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies reflecting
domestic political changes. Furthermore, because these laws and regulations are relatively new, and because of the limited volume
of published decisions and their non-binding nature, the interpretation, implementation and enforcement of these laws and regulations
involve uncertainties due to the lack of established practice available for reference. We cannot predict the effect of future legal
development in the PRC, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof,
or the inconsistencies between local rules and regulations and national law. In addition, the PRC legal system is based in part
on government policies and internal rules (some of which are not published on a timely basis or at all) that may have retroactive
effect. As a result, we may not be aware of a violation of these policies and rules until sometime after the violation has occurred.
This may also limit the remedies available to investors and to us in the event of any claims or disputes with third parties.



The audit report
included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board
and, as such, you are deprived of the benefits of such inspection.



Auditors of companies
that are registered with the US Securities and Exchange Commission and traded publicly in the United States, including our independent
registered public accounting firm, must be registered with the United States Public Company Accounting Oversight Board (the “PCAOB”)
and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the
laws of the United States and professional standards in connection with their audits of financial statements filed with the SEC.
Because we have substantial operations within the PRC and the PCAOB is currently unable to conduct inspections of the work of our
auditors as it relates to those operations without the approval of the Chinese authorities, our auditor’s work related to
our operations in China is not currently inspected by the PCAOB.



This lack of PCAOB
inspections of audit work performed in China prevents the PCAOB from regularly evaluating audit work of any auditors that was performed
in China including that performed by our auditors. As a result, investors are deprived of the full benefits of PCAOB inspections
of auditors.



The inability of the
PCAOB to conduct inspections of audit work performed in China makes it more difficult to evaluate the effectiveness of our auditor’s
audit procedures as compared to auditors in other jurisdictions that are subject to PCAOB inspections on all of their work. Investors
may lose confidence in our reported financial information and procedures and the quality of our financial statements.



Proceedings instituted
recently by the SEC against five PRC-based accounting firms, including an independent registered public accounting firm which has
a substantial role in the audit of our Company, could result in financial statements being determined to not be in compliance with
the requirements of the Exchange Act.



Proceedings instituted
recently by the SEC against five PRC-based accounting firms, including an independent registered public accounting firm which has
a substantial role in the audit of our Company, could result in financial statements being determined to not be in compliance with
the requirements of the Securities Exchange Act of 1934. In December 2012, the SEC instituted administrative proceedings against
five PRC-based accounting firms, including an independent registered public accounting firm which has had a substantial role in
the audit of our company, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations
thereunder by failing to provide to the SEC the firms’ work papers related to their audits of certain PRC-based companies
that are publicly traded in the United States and which are the subject of certain ongoing SEC investigations.



China Eastern Airlines
has not been and is not currently the subject of any SEC investigations, nor are we involved in the proceedings brought by the
SEC against these accounting firms. However, if the SEC is successful in the proceedings against these accounting firms, the independent
registered public accounting firm, which has had a substantial role in the audit of our Company, could lose temporarily or permanently
the ability to practice before the SEC. While we cannot predict the outcome of SEC proceedings, if these accounting firms were
denied, temporarily or permanently, the ability to practice before the SEC, and we are unable to find timely another registered
public accounting firm which can perform such substantial auditing role of our Company, our financial statements could be determined
to not be in compliance with the requirements for financial statements of public companies registered under the Exchange Act. Such
a determination could have a material adverse effect on our Company's reputation and share price of the ADSs. In extreme circumstances
where we are unable to rectify this situation, our ADSs could ultimately be delisted from the New York Stock Exchange or we could
be required to withdraw our registration with the SEC, or both, which would effectively terminate the trading of our ADSs in the
United States.



Risks Relating
to the Aviation Industry



Our business is
subject to extensive government regulation.



The Chinese civil
aviation industry is subject to a high degree of regulation by the CAAC. Regulatory policies issued or implemented by the CAAC
encompass virtually every aspect of airline operations, including, among other things:



| | · | route allocation;
| | - | -----------------



| | · | pricing of domestic airfares;
| | - | -----------------------------



| | · | the administration of air traffic control
systems and certain airports;
| | - | -----------------------------------------------------------------------



| | · | jet fuel pricing;
| | - | -----------------



| | · | air carrier certifications and air operator
certification; and
| | - | --------------------------------------------------------------



8







| | · | aircraft registration and aircraft airworthiness
certification.
| | - | ---------------------------------------------------------------



Our ability to provide
services on international routes is subject to a variety of bilateral civil air transport agreements between China and other countries,
international aviation conventions and local aviation laws. As a result of government regulations, we may face significant constraints
on our flexibility and ability to expand our business operations or to maximize our profitability.



The continued
effects of the global recession could affect air travel.



The airline industry
is highly cyclical, and the level of demand for air travel is correlated to the strength of domestic and global economies. Robust
demand for our air transportation services depends largely on favorable general economic conditions, including the strength of
global and local economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business
credit. In 2008 and 2009, the economies of the United States, Europe and certain countries in Asia experienced a severe and prolonged
recession and China experienced a slowdown in overall economic growth, which led to a reduction in economic activity. As a result,
we continued to experience significantly weaker demand for air travel, especially internationally, in 2009. To respond to this
external environment, we reduced our international flights and reallocated our capacity by focusing more on the domestic market.



Although international
air travel generally recovered in 2010 to 2011 due to the gradual global economic recovery, ongoing events in 2012 such as the
continued instability of European financial markets and sovereign debt crisis in the Euro Zone, as well as the continued political
instability and regional turmoil disputes in the Middle East, may continue to materially and adversely affect economic activity
and financial markets, which would have an overall effect on international air travel, and would also weaken demand for air travel
to and from those areas.



Furthermore, the
risk remains that the global economy, including the PRC economy, may continue to suffer from the continued effects of the
global recession and the PRC government may have to readjust its macroeconomic control measures accordingly, causing the
growth or demand for our air transport services to slow down, which may negatively affect our business, financial condition
and results of operations.



In addition, while
the PRC government has instituted certain initiatives in response to the slowdown in the PRC economy, a rapid increase in liquidity
in the market as a result of fiscal stimulus measures resulted in the PRC government implementing a number of measures to control
such increase, including adjusting interest rates. These foregoing factors and any further declines in economic activity may reduce
domestic or international demand and the speed at which domestic or international capacity grows may slow down significantly, which
would have a material adverse effect on our revenues, results of operations and liquidity. For example, our cargo business is highly
dependent upon servicing the logistics needs of the semi-conductor industry. A slowdown in this particular industry could adversely
affect this segment of our business.



Our operations
are dependent on Chinese aviation infrastructure, which is currently under development and may be insufficient.



The rapid increase
in air traffic volume in China in recent years has put pressure on many components of the PRC airline industry, including air traffic
control systems, the availability of qualified flight personnel and airport facilities. Our ability to provide safe air transportation
depends on the availability of qualified and experienced pilots in China and the improvement of maintenance services, national
air traffic control and navigational systems and ground control operations at PRC airports. If any of these is not available or
is inadequate, our ability to provide safe air transportation will be compromised and our business, financial condition and results
of operations may be materially and adversely affected.



Our results of
operations tend to be volatile and fluctuate due to seasonality.



The aviation industry
is characterized by annual high and low travel seasons. Our operating revenue is substantially dependent on the passenger and cargo
traffic volume carried, which is subject to seasonal and other changes in traffic patterns, the availability of appropriate time
slots for our flights and alternative routes, the degree of competition from other airlines and alternate means of transportation,
as well as other factors that may influence passenger travel demand and cargo and mail volume. As a result, our results tend to
be volatile and subject to rapid and unexpected change.



We expect to face
substantial competition from the rapid development of the Chinese rail network.



The PRC government
is aggressively implementing the expansion of its high-speed rail network, which will provide train services at a speed of up to
350km per hour connecting major cities such as Beijing, Shanghai, Wuhan, Qingdao, Guangzhou, Dalian and Hong Kong. The expansion
of the coverage of this network and improvements in railway service quality, increased passenger capacity and stations located
closer to urban centers than competing airports could enhance the relative competitiveness of the railway service and affect our
market share on some of our key routes, in particular our routes of between 500km to 800km. Increased competition and pricing pressures
from railway service may have an adverse effect on our business, financial condition and results of operations.



Limitations on
foreign ownership of PRC airline companies may affect our access to funding in the international equity capital markets or pursuing
business opportunities.



The current CAAC policies
limit foreign ownership in a PRC airline. Under these limits, non-PRC residents and Hong Kong, Macau or Taiwan residents cannot
hold a majority equity interest in a PRC airline company. As of December 31, 2012, approximately 30.99% of our total outstanding
shares were held by non-PRC, Hong Kong, Macau or Taiwan residents or legal entities (excluding the qualified foreign institutional
investors that are approved to invest in the A Share market of the PRC). As a result, our access to funding in the international
equity capital markets may be limited. This restriction may also limit the opportunities available to our Company to obtain funding
or other benefits through the creation of equity-based strategic alliances with foreign carriers. We cannot assure you that the
CAAC will increase these limits in the near future or at all.



Any jet fuel shortages
or any increase in domestic or international jet fuel prices may materially and adversely affect our financial condition and results
of operations.



The availability,
price volatility and cost of jet fuel has a significant impact on our financial condition and results of operations. In the past,
jet fuel shortages have occurred in China and, on limited occasions, required us to delay or cancel flights. Although jet fuel
shortages have not occurred since the end of 1993, we cannot assure you that jet fuel shortages will not occur in the future. Fuel
prices continue to be susceptible to, among other factors, political unrest in various parts of the world, Organization of Petroleum
Exporting Countries policies, the rapid growth of the economies of certain countries, including China and India, the levels of
inventory carried by industries, the amounts of reserves built by governments, disruptions to production and refining facilities
and weather conditions. The fuel efficiency of our aircraft decreases as they advance in age which results in an overall increase
in our aviation fuel costs. These and other factors that impact the global supply and demand for aviation fuel may affect our financial
performance due to its sensitivity to fuel prices.



9







From 2011 to 2012,
our fuel expenses increased by 2.2%, partially as a result of the expansion of our scale of operations, an increase of 2.1% in
the average weighted price of jet fuel in 2012 compared to 2011 and our implementation of the policy of transformation from business
tax to value-added tax in 2012. Jet fuel prices were volatile in 2011 and into 2012, with heightened political tensions and continued
political instability and turmoil in certain Middle Eastern countries. While there was a slight increase during the first quarter
of 2012, fuel prices began decreasing and reached its lowest point in July 2012 since January 2012. However, from August to October,
fuel prices gradually returned to the same price level as in the first quarter of 2012. In addition, the NDRC has adjusted gasoline
and diesel prices in China from time to time, taking into account changes in international oil prices, thereby affecting aviation
fuel prices. As such, we cannot assure you that jet fuel prices will not further fluctuate in the future. Due to the highly competitive
nature of the airline industry, we may be unable to fully or effectively pass on to our customers any increased jet fuel costs
we may encounter in the future.



The airline industry
is subject to increasing environmental regulations, which lead to increased costs and affect profitability.



In recent years, regulatory
authorities in China and other countries have issued a number of directives and other regulations to address, among other things,
aircraft noise and aircraft engine emissions, the use and handling of hazardous materials, aircraft age and environmental contamination
remedial clean-up measures. These requirements impose high fees, taxes and substantial ongoing compliance costs on airlines, particularly
as new aircraft brought into service will have to meet the environmental requirements during their entire service life.



We have significant
expenditures with respect to environmental compliance, which may affect our operations and financial condition. For example, we
implemented a low-carbon emissions scheme, through which over 90% of our planes are flying in accordance with the scheme, which
aligns with our environmentally-friendly growth strategy to minimize the environmental impact of our operations. We expedited the
application of new civil aviation technologies, continuously focused on the development of renewable resources and concentrated
on the invention and application of new technologies and applications to achieve “greener” flying. We are working with
China National Petroleum Corporation (“CNPC”) to conduct experimental research on bio-fuels, which is being developed
as a possible alternative to kerosene jet fuel and could lead to reduced carbon dioxide emissions of 30%. However, these measures
have resulted in significant costs and expenditures. We expect to continue to incur significant costs and expenditures on an ongoing
basis to comply with environmental regulations, which could restrict our ability to modify or expand facilities or continue operations,
or could require us to install additional costly pollution control equipment.



We operate in
a highly competitive industry.



We face intense competition
in each of the domestic, regional and international markets that we serve. In our domestic markets, we compete against all airline
companies that have the same routes, including smaller domestic airline companies that operate with costs that are lower than ours.
In our regional and international markets, we compete against international airline companies that have significantly longer operating
histories, greater name recognition, more resources or larger sales networks than we do, or utilize more developed reservation
systems than ours. See the section headed “Item 4. Information on the Company — Business Overview — Competition”
for more details. The public’s perception of the safety records of Chinese airlines also materially and adversely affects
our ability to compete against our international competitors. In response to competition, we have, from time to time in the past,
lowered our airfares for certain of our routes, and we may do the same in the future. Increased competition and pricing pressures
from competition may have a material adverse effect on our financial condition and results of operations.



Risks Relating to the Company



We utilize fuel
hedging arrangements which may result in losses.



Fuel
costs constitute a significant portion of our operating costs and, in 2012, accounted for approximately 36.1% of our total operating
costs. Foreign fuel prices were mainly affected by supply and demand
dynamics in the global market, while domestic jet fuel prices are primarily controlled by PRC government authorities such as the
NDRC and CAAC. We generally alleviate the pressure from the rise in operating costs arising from the increase in aviation fuel
by imposing fuel surcharges which, however, are subject to government regulations. In order to control fuel costs, we also enter
into fuel hedging transactions using financial derivative products linked to the price of underlying assets such as United States
WTI crude oil and Singapore jet fuel during previous years.



In the beginning
of 2009, the PRC government required prior approval from the PRC government before we can enter into fuel hedging contracts. In
October 2011, we have obtained approval from the PRC government to allow us to enter into overseas fuel hedging contracts. For
the year ended December 31, 2011, we hedged 17.0% of our annual fuel consumption. However, these hedging strategies may not always
be effective and high fluctuations in aviation fuel prices exceeding the locked-in price ranges may result in losses. Significant
declines in fuel prices may substantially increase the costs associated with our fuel hedging arrangements. In addition, where
we seek to manage the risk of fuel price increases by using derivative contracts, we cannot assure you that, at any given point
in time, our fuel hedging transactions will provide any particular level of protection against increased fuel costs. All crude
oil option contracts signed in past years were settled by December 31, 2012.



Our indebtedness
and other obligations may have a material adverse effect on our liquidity and operations.



We have a substantial
amount of debt, lease and other obligations, and will continue to have a substantial amount of debt, lease and other obligations
in the future. During a period of time between the end of 2008 and April 2009, the amount of our total liabilities exceeded our
total assets. In 2012, we added a total of 31 aircraft to our fleet, by purchase or finance lease (excluding operating lease),
including five A321 aircraft, ten A320 aircraft, six A330-200 aircraft, seven A319 aircraft, two B737-700 aircraft and one B737-800
aircraft. See the section headed “Item 4. Information on the Company — Property, Plant and Equipment — Fleet.”
As of December 31, 2012, our total liabilities were RMB99,265.2 million and our accumulated losses were RMB5,426.1 million. As
of the same date, our current liabilities exceeded our current assets by RMB35,948.2 million. Our total bank borrowings amounted
to RMB45,736.1 million and among which our short-term bank loans and short-term debentures outstanding totaled RMB12,880.0 million
as of December 31, 2012. Our substantial indebtedness and other obligations could materially and adversely affect our business
and operations, including requiring us to dedicate additional cash flow from operations to the payment of principal and interest
on indebtedness, thereby reducing the funds available for operations, maintenance and service improvements and future business
opportunities, increasing our vulnerability to economic recessions, reducing our flexibility in responding to changing business
and economic conditions, placing us at a disadvantage when compared to competitors that have less debt, limiting our ability to
arrange for additional financing for working capital, capital expenditures and other general corporate purposes, at all or on terms
that are acceptable to us and limiting our ability to satisfy payment of our existing indebtedness and other obligations under
our indebtedness.



Moreover, we are largely
dependent upon cash flows generated from our operations and external financing (including short-term bank loans) to meet our debt
repayment obligations and working capital requirements, which may reduce the funds available for other business purposes. If our
operating cash flow is materially and adversely affected by factors such as increased competition, a significant decrease in demand
for our services, or a significant increase in jet fuel prices, our liquidity would be materially and adversely affected. We have
arranged financing with domestic and foreign banks in China as necessary to meet our working capital requirements. We have also
tried to ensure our liquidity by structuring a substantial portion of our short-term bank loans to be rolled over upon maturity.
These efforts, however, may ultimately prove insufficient. Our ability to obtain financing may be affected by our financial position
and leverage, our credit rating and investor perception of the aviation industry, as well as by prevailing economic conditions
and the cost of financing in general. If we are unable to obtain adequate financing for our capital requirements, our liquidity
and operations would be materially and adversely affected.



10







In addition, the airline
industry overall is characterized by a high degree of operating leverage. Due to high fixed costs, including payments made in connection
with aircraft leases, and landing and infrastructure fees which are set by government authorities and not within our control, the
expenses relating to the operation of any given flight do not vary proportionately with the number of passengers carried, while
revenues generated from a particular flight are directly related to the number of passengers carried and the fare structure of
the flight. Accordingly, a decrease in revenues may result in a proportionately higher decrease in profits.



We may not be
able to secure future financing at terms acceptable to us or at all.



We require significant
amounts of external financing to meet our capital commitments for acquiring and upgrading aircraft and flight equipment and for
other general corporate needs. As of December 31, 2012, we had total credit facilities of RMB41.2 billion from various banks, of
which credit facilities of RMB27.1 billion are not utilized. We expect to roll over these bank facilities in future years. In addition,
we generally acquire aircraft through either long-term capital leases or operating leases. In the past, we have obtained guarantees
from Chinese banks in respect of payments under our foreign loan and capital lease obligations. However, we cannot assure you that
we will be able to roll over our bank facilities or continue to obtain bank guarantees in the future. The unavailability of credit
facilities or guarantees from Chinese banks or the increased cost of such guarantees may materially and adversely affect our ability
to borrow additional funds or enter into international aircraft lease financings or other additional financing on acceptable terms.
Although we have secured financing for our aircraft delivered in 2012, we are still in the process of obtaining financing for some
aircraft we have scheduled for delivery in future years. In addition, if we are not able to arrange financing for our aircraft
on order, we may seek to defer aircraft deliveries or use cash from operating or other sources to acquire the aircraft.



Our ability to obtain
financing may also be impaired by our financial position, our leverage and our credit rating. In addition, factors beyond our control,
such as recent global market and economic conditions, volatile oil prices, and the tightening of credit markets may result in a
diminished availability of financing and increased volatility in credit and equity markets, which may materially adversely affect
our ability to secure financing at reasonable costs or at all. If we are unable to obtain financing for a significant portion of
our capital requirements, our ability to expand our operations, purchase new aircraft, pursue business opportunities we believe
to be desirable, withstand a continuing or future downturn in our business, or respond to increased competition or changing economic
conditions may be impaired. We have and in the future will likely continue to have substantial debts. As a result, the interest
cost associated with these debts might impair our future profitability and cause our earnings to be subject to a higher degree
of volatility.



We are subject
to exchange rate fluctuation risk.



We operate our business
in many countries and territories. We generate revenue in different currencies, and our foreign currency liabilities are typically
much higher than our foreign currency assets. Our purchases and leases of aircraft are mainly priced and settled in currencies
such as U.S. dollars. Fluctuations in exchange rates will affect our costs incurred from foreign purchases such as aircraft, flight
equipment and aviation fuel, and take-off and landing charges in foreign airports. As of December 31, 2012, our total interest-bearing
liabilities denominated in foreign currencies converted to Renminbi amounted to RMB53,767 million, of which the U.S. dollar liabilities
accounted for 93.66%. Therefore, in circumstances with large fluctuations in exchange rates, the exchange loss arising on the translation
of foreign currency denominated liabilities will be greater, which in turn affects our profitability and development. We usually
use hedging contracts for foreign currencies to reduce the risks in exchange rates for foreign currency revenue from ticket sales
and expenses which are to be paid in foreign currencies. Foreign currency hedging mainly involves the sales of Japanese Yen or
the purchase of U.S. dollars at fixed exchange rates. As of December 31, 2012, foreign currency hedging contracts held by us which
are still open amounted to a notional amount of US$58 million (December 31, 2011: US$46 million), which will expire between 2013
and 2017.



Our Group recorded
an increase in net exchange gains during the reporting period. As of December 31, 2011 and 2012, our Group’s exchange gains
were RMB1,872 million and RMB148 million, respectively. As a result of the large value of existing net foreign currency liabilities
denominated in U.S. dollars, the Group’s results will be adversely affected if the Renminbi depreciates against the U.S.
dollar or the rate of appreciation of the Renminbi against the U.S. dollar decreases in the future. Our foreign exchange fluctuation
risks are also subject to other factors beyond our control. See "Item 3D. Risk Factors - Risks Relating to the PRC - Foreign
exchange regulations in the PRC may result in fluctuations of the Renminbi and affect our ability to pay any dividends or to satisfy
our foreign exchange liabilities."



We are subject
to interest rate fluctuation risk.



Our total interest-bearing
liabilities (including long-term and short-term loans and finance leases payable) as of December 31, 2011 and 2012 were RMB62,035
million and RMB67,594 million, respectively, of which short-term liabilities accounted for 33.3% and 37.4%, respectively, and long-term
liabilities accounted for 66.7% and 62.6%, respectively. A portion of the long-term interest-bearing liabilities carried variable
interest rates. Both our variable and fixed rate obligations were affected by fluctuations in current market interest rates.



Our interest-bearing
liabilities were mainly denominated in U.S. dollars and Renminbi. As of December 31, 2011 and 2012, our liabilities denominated
in U.S. dollars accounted for 69.1% and 74.5%, respectively, of our total liabilities, while liabilities denominated in Renminbi
accounted for 28.8% and 20.5%, respectively, of our total liabilities. Fluctuations in U.S. dollar and Renminbi interest rates
have significantly affected our financing costs. A substantial majority of our borrowings denominated in Renminbi are linked to
benchmark five-year lending rates published by the PBOC. From April 2006 to December 2007, the PBOC raised the benchmark five-year
lending rate seven times from 6.39% to 7.83%. Beginning in September 2008, the PBOC decreased the benchmark five-year lending rate
five times from 7.83% in September 2008 to 5.94% in December 2008. Since then, the PBOC has raised the benchmark five-year lending
rate five times from 5.94% to 7.05% in July 2011, but was reduced twice to 6.55% in July 2012. A substantial majority of our borrowings
denominated in U.S. dollars are linked to floating LIBOR rates which decreased overall in 2011 and increased overall in 2012. The
relevant lending rates may further increase in the future as a result of reasons beyond our control, and may adversely affect our
business, prospects, cash flows, financial condition and results of operations. In addition, we expect to issue bonds and notes
or enter into additional loan agreements and aircraft leases in the future to fund our operations and capital expenditures, and
the cost of financing for these obligations will depend greatly on market interest rates.



We may suffer
losses in the event of an accident or incident involving our aircraft or the aircraft of any other airline.



As an airline company
operating a large jet fleet, we are subject to risks relating to the provision of aviation services. An accident or incident involving
one of our aircraft could result in delays, require repair or replacement of a damaged aircraft, which could result in consequential
temporary or permanent loss from service and/or significant liability to injured passengers and others. Unforeseeable or unpredictable
events such as inclement weather, mechanical failures, human error, aircraft defects and other force majeure events may affect
flight safety, which could result in accidents and/or incidents of passenger injuries or deaths that could lead to significant
injury and loss claims. Although we believe that we currently maintain liability insurance in amounts and of the types generally
consistent with industry practice, the amounts of such coverage may not be adequate to fully cover the costs related to the accident
or incident, which could result in harm to our results of operations and financial condition. In addition, any aircraft accident
or incident, even if fully insured, could cause a public perception that we are not as safe or reliable as other airlines, which
would harm our competitive position and result in a decrease in our operating revenues. Moreover, a major accident or incident
involving the aircraft of any of our competitors may cause demand for air travel in general to decrease, which would adversely
affect our results of operations and financial condition.



11







Our insurance
coverage and costs have increased substantially, and could have an adverse effect on our operations.



As a result of the
events of September 11, 2001, aviation insurers have significantly reduced the maximum amount of insurance coverage available to
commercial air carriers for liability to persons other than employees or passengers for claims resulting from acts of terrorism,
war or similar events, or war-risk coverage. At the same time, they have significantly increased the premiums for such coverage,
as well as for aviation insurance in general. In response to the reduced insurance coverage from aviation insurers, the PRC government
has provided insurance coverage to PRC airlines for third party war liability claims. Such insurance provided by the government
is subject to annual review and approval by the government. We renew our insurance policies on a yearly basis. However, if the
insurance carriers further reduce the amount of insurance coverage available or increase the premium for such coverage when we
renew our insurance coverage and/or if the PRC government declines to renew our insurance coverage, our financial condition and
results of operations may be materially and adversely affected.



We may experience
difficulty integrating our acquisitions, which could result in a material adverse effect on our operations and financial condition.



We may from time to
time expand our business through acquisitions of airline companies or airline-related businesses. For example, we entered into
an agreement with Shanghai Airlines Co., Ltd. (“Shanghai Airlines”) on July 10, 2009 to issue a maximum of 1,694,838,860
A Shares to the shareholders of Shanghai Airlines in exchange for all the existing issued shares of Shanghai Airlines. The acquisition
price was RMB9,118 million, which was determined based on the quoted market price of our shares issued as of the date nearest to
the acquisition date, with adjustments to reflect specific restrictions to certain shares that were issued. On January 28, 2010,
we completed the exchange of 1,694,838,860 A Shares for all existing issued shares of Shanghai Airlines. In addition, on December
20, 2010, our subsidiary, China Cargo Airlines, entered into separate acquisition agreements with Great Wall Airlines and Shanghai
Cargo Airlines to acquire each carrier’s cargo business and related assets. China Cargo Airlines also purchased relevant
business and assets from Shanghai International Freight Airlines Co., Ltd. These acquisitions and the acquisition of Great Wall
Airlines have obtained the approval from CAAC, NDRC, and MOFCOM, and were completed on June 1, 2011. In addition, we entered into
an equity transfer agreement on August 22, 2012 with our controlling shareholder, CEA Holding, by which we acquired the remaining
20% of the equity interest in China United Airlines Co., Ltd. (“China United Airlines”) for a consideration of RMB83.95
million (the "China United Airlines Acquisition") from CEA Holding. China United Airlines primarily provides domestic
passenger and freight air transportation services, and is now a wholly-owned subsidiary of our Company.



We are devoting significant
resources to the integration of our operations in order to achieve the anticipated synergies and benefits of the absorption and
acquisitions mentioned above. See “Item 4. Information on the Company” for details. However, such acquisitions involve
uncertainties and a number of risks, including:



| | · | difficulty with integrating the assets,
operations and technologies of the acquired airline companies or airline-related businesses, including their employees, corporate
cultures, managerial systems, processes and procedures and management information systems and services;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | complying with the laws, regulations and
policies that are applicable to the acquired businesses;
| | - | -------------------------------------------------------------------------------------------------



| | · | failure to achieve the anticipated synergies,
cost savings or revenue-enhancing opportunities resulting from the acquisition of such airline companies or airline-related businesses;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | managing relationships with employees,
customers and business partners during the course of integration of new businesses;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | · | attracting, training and motivating members
of our management and workforce;
| | - | ----------------------------------------------------------------------------



| | · | accessing our debt, equity or other capital
resources to fund acquisitions, which may divert financial resources otherwise available for other purposes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | diverting significant management attention
and resources from our other businesses;
| | - | -----------------------------------------------------------------------------------



| | · | strengthening our operational, financial
and management controls, particularly those of our newly acquired assets and subsidiaries, to maintain the reliability of our reporting
processes;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | difficulty with exercising control and
supervision over the newly acquired operations, including failure to implement and communicate our safety management procedures
resulting in additional safety hazards and risks;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | increased financial pressure resulting
from the assumption of recorded and unrecorded liabilities of the acquired airline companies or airline-related businesses; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the risk that any such acquisitions may
not complete due to failure to obtain the required government approvals.
| | - | ----------------------------------------------------------------------------------------------------------------



We cannot assure you
that we will not have difficulties in assimilating the operations, technologies, services and products of newly acquired companies
or businesses. Moreover, the continued integration of Shanghai Airlines, China United Airlines and other acquisitions into our
Company depends significantly on integrating the pre-absorption Shanghai Airlines, China United Airlines and other acquired employee
groups with our employee groups and on maintaining productive employee relations. In the event that we are unable to efficiently
and effectively integrate newly acquired companies or airline-related businesses into our Company, we may be unable to achieve
the objectives or anticipated synergies of such acquisitions and such acquisitions may adversely impact the operations and financial
results of our existing businesses.



Our planned joint
venture airline with Jetstar Airways (a wholly owned subsidiary of Qantas Airlines), Jetstar Hong Kong, may not proceed and if
it does proceed, may not be successful.



On March 23, 2012,
we entered into a binding memorandum of understanding (the “MOU”) with Jetstar Airways Pty Limited, a wholly owned
subsidiary of Qantas Airlines (“Jetstar Airways”), to establish a joint venture that consists of a new low-cost airline
to be based in Hong Kong, Jetstar Hong Kong Airways (“Jetstar Hong Kong”). We and Jetstar Airways have made equal initial
capital contributions of US$57.5 million each, and Jetstar Hong Kong will have a total initial capital of US$115 million. Depending
on certain terms and conditions, we and Jetstar Airways will equally contribute capital amounts to increase the capital of Jetstar
Hong Kong to US$198 million. Under the terms of the MOU, we and Jetstar Airways will have equal equity interests in Jetstar Hong
Kong. On August 24, 2012, Eastern Air Overseas (Hong Kong) Corporation Limited (“EAO”) (a wholly owned Hong Kong-based
subsidiary of the Company) entered into a shareholders’ agreement (the “Shareholders’ Agreement”) with
Jetstar International Group Holdings Co., Limited (“JIGH”), a wholly owned Hong Kong-based subsidiary of Qantas Airlines,
pursuant to which EAO and JIGH formally agreed to establish Jetstar Hong Kong. In September 2012, Jetstar Hong Kong obtained the
Certificate of Incorporation in Hong Kong.



12







However, the establishment
of Jetstar Hong Kong remains subject to the execution of certain agreements and the receipt of other relevant regulatory and governmental
approvals. As such, we cannot assure you that we and Jetstar Airways will proceed, or will be able to execute such agreements and
obtain such approvals and form Jetstar Hong Kong within the timeframe contemplated by the MOU. In addition, Jetstar Hong Kong may
not be able to secure the relevant licenses and approvals for its operations, or which are necessary for it to commence operations.



In addition, even
if we and Jetstar Airways decide to proceed with the definitive agreements for the establishment of Jetstar Hong Kong, and before
Jetstar Hong Kong can actually commence operations, it will need to:



| | · | secure the relevant licenses, permits
and approvals for its operations;
| | - | -----------------------------------------------------------------------



| | · | establish suitable route networks, which
involves securing the necessary airport time slots, landing rights and related approvals and clearances for routes and flight times;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | acquire the necessary aircraft fleet,
through acquisitions or leases, to support its operations;
| | - | ------------------------------------------------------------------------------------------------



| | · | comply with the relevant laws and regulations;
| | - | ----------------------------------------------



| | · | identify and acquire suitable facilities
and properties and secure land use rights; and
| | - | ---------------------------------------------------------------------------------------



| | · | hire competent and qualified management,
flight crew, ground personnel and employees.
| | - | -------------------------------------------------------------------------------------



We cannot assure you
that we will be able to complete these tasks in a timely manner, within the expected budget, or at all. Failure to do so could
result in a material adverse effect on the business, financial condition and reputation of Jetstar Hong Kong and possibly our own.
In addition, given the intended geographic coverage of Jetstar Hong Kong, overlapping coverage and competition on some routes may
occur, which could affect our market share on certain routes. In addition, there is intense competition in the PRC from existing
carriers, who generally service the same routes that are contemplated for Jetstar Hong Kong. We cannot assure you that Jetstar
Hong Kong will be able to adequately compete against these existing carriers, which may have better brand recognition, financial
resources, developed route networks, fares and product offerings.



Furthermore, we do
not have experience operating in the low-cost market and may therefore be required to rely on our joint venture partner, Jetstar
Airways, for its expertise, experience and knowledge with respect to the daily operations of a low-cost carrier. The overall success
of this venture is uncertain, and we cannot assure you that Jetstar Hong Kong will be profitable or successful or that its results
of operations will not materially adversely affect our results of operations and financial condition.



We may be unable
to retain key management personnel or pilots.



We are dependent on
the experience and industry knowledge of our key management and pilots, and there can be no assurance that we will be able to retain
them. Any inability to retain our key management employees or pilots, or attract and retain additional qualified management employees
or pilots, could have a negative impact on us.



Our controlling
shareholder, CEA Holding, holds a majority interest in our Company, and its interests may not be aligned with other shareholders.



Most of the major
airline companies in China are currently majority-owned either by the central government of China or by provincial or municipal
governments in China. CEA Holding currently holds directly or indirectly 59.93% of our Company’s equity interests on behalf
of the PRC government. As a result, CEA Holding could potentially elect the majority of our Board of Directors and otherwise be
able to control us. CEA Holding also has sufficient voting control to effect transactions without the concurrence of our minority
shareholders. The interests of the PRC government as the ultimate controlling person of our Company and most of the other major
PRC airlines could conflict with the interests of our minority shareholders. Although the CAAC currently has a policy of equal
treatment of all PRC airlines, we cannot assure you that the CAAC will not favor other PRC airlines over our Company.



As a controlling
shareholder, CEA Holding has the ability to exercise a controlling influence over our business and affairs, including, but not
limited to, decisions with respect to:



| | · | mergers or other business combinations;
| | - | ---------------------------------------



| | · | the acquisition or disposition of assets;
| | - | -----------------------------------------



| | · | the issuance of any additional shares
or other equity securities;
| | - | -----------------------------------------------------------------



| | · | the timing and amount of dividend payments;
and
| | - | -----------------------------------------------



| | · | the management of our Company.
| | - | ------------------------------



We engage in related
party transactions, which may result in conflict of interests.



We have engaged in,
from time to time, and may continue to engage in, in the future, a variety of transactions with CEA Holding and its various members,
from whom we receive a number of important services, including support for in-flight catering and assistance with importation of
aircraft, flight equipment and spare parts. Our transactions with CEA Holding and its members are conducted through a series of
arm’s length contracts, which we have entered into with CEA Holding and its members in the ordinary course of business. However,
because we are controlled by CEA Holding and CEA Holding may have interests that are different from our interests, we cannot assure
you that CEA Holding will not take actions that will serve its interests or the interests of its members over our interests.



13







We may not be
able to accurately report our financial results or prevent fraud if we fail to maintain effective internal controls over financial
reporting, resulting in adverse investor perception, which in turn could have a material adverse effect on our reputation and the
performance of our shares and ADSs.



We are required under
relevant United States securities rules and regulations to disclose in the reports that we file or submit under the Exchange Act
to the United States Securities and Exchange Commission, including our annual report on Form 20-F, a management report assessing
the effectiveness of our internal control over financial reporting as of the end of the fiscal year. Our registered public accounting
firm is also required to provide an attestation report on the effectiveness of our internal controls over financial reporting.
Our management concluded that our internal controls over financial reporting were effective as of December 31, 2012. However, we
may discover other deficiencies or material weaknesses in the course of our future evaluation of our internal controls over financial
reporting and we may be unable to address and rectify such deficiencies in a timely manner. Any failure to maintain effective internal
controls over financial reporting could lead to a decline in investor confidence in the reliability of our financial statements,
thereby adversely affecting our business, operations, and reputation, including negatively affecting our market performance in
the securities markets and decreasing potential opportunities to obtain financing in the capital markets.



As part of our business
strategy, we have adopted various measures for the internationalization of our business and to enhance our competitiveness in the
international long-distance flight routes. Due to the differences in certain legal and market environments, we have encountered
certain challenges during the course of developing our overseas business. We have also discovered that an individual overseas sales
department had certain deficiencies in implementing its internal controls. We have already adopted and will continue to implement
measures in order to enhance the internal control of our overseas offices and to ensure the continued development of our overseas
business.



We are currently
involved in legal proceedings, the outcome of which is uncertain.



On November 21, 2004,
a CRJ-200 Bombardier-supplied aircraft then owned and operated by China Eastern Air Yunnan Company, or CEA Yunnan, crashed shortly
after leaving Baotou city in the Inner Mongolia Autonomous Region. All 53 people aboard died in the aircraft accident. In 2005,
family members of the deceased sued, among other defendants, our Company in a U.S. court for compensation, the amount of which
had not been determined. In July 2007, the Superior Court of the State of California ordered the action stayed on the grounds of
forum non conveniens in order to permit proceedings in the PRC. In February 2009, the Court of Appeal of California dismissed
the plaintiffs’ appeal and affirmed the original order. On March 16, 2009, the plaintiffs sued the Company in the Beijing
No. 2 Intermediate People’s Court. Legal documents including summons, prosecution notifications and others have been served
on the Company, and trial began on October 10, 2012. We cannot assure you that the court will rule in favor of our Company with
respect to the procedure or substance of the litigation, or what amount of damages may be assessed against us should the court
find in favor of the plaintiffs.



Any failure or
disruption of our computer, communications, flight equipment or other technology systems could have an adverse impact on our business
operations, profitability, reputation and customer services.



We rely heavily on
computer, communications, flight equipment and other technology systems to operate our business and enhance customer service. Substantially
all of our tickets are issued to passengers as electronic tickets, and we depend on our computerized reservation system to be able
to issue, track and accept these electronic tickets. In addition, we rely on other automated systems for crew scheduling, flight
dispatch and other operational needs. These systems could be disrupted due to various events, including natural disasters, power
failures, terrorist attacks, equipment failures, software failures, computer viruses, and other events beyond our control. We cannot
assure you that the measures we have taken to reduce the risk of some of these potential disruptions are adequate to prevent disruptions
or failures of these systems. Any substantial or repeated failure or disruption in or breach of these systems could result in the
loss of important data and/or delays in our flights, and could have an adverse impact on our business operations, profitability,
reputation and customer services, including resulting in liability on our part to pay compensation to customers.



Interruptions
or disruptions in service at one or more of our primary market airports could have an adverse impact on us.



Our business is heavily
dependent on our operations at our primary market airports in Shanghai, namely, Hongqiao International Airport and Pudong International
Airport and our regional hub airports in Xi’an and Kunming. Each of these operations includes flights that gather and distribute
traffic from markets in the geographic region around the primary market to other major cities. A significant interruption or disruption
in service at one or more of our primary market airports could adversely impact our operations.



Any adverse public
health developments, including SARS, avian flu, or influenza A (H1N1), or the occurrence of natural disasters may, among other
things, lead to travel restrictions and reduced levels of economic activity in the affected areas, which may in turn significantly
reduce demand for our services and have a material adverse effect on our financial condition and results of operations.



Adverse public health
epidemics or pandemics could disrupt businesses and the national economies of China and other countries where we do business. The
outbreak of Severe Acute Respiratory Syndrome, or SARS, in early 2003 led to a significant decline in travel volumes and business
activities and substantially affected businesses in Asia. Moreover, some Asian countries, including China, have encountered incidents
of the H5N1 strain of avian flu, many of which have resulted in fatalities. In addition, outbreaks of, and sporadic human infection
with, influenza A (H1N1) in 2009, a highly contagious acute respiratory disease, were reported in Mexico and an increasing number
of countries around the world, some cases resulting in fatalities. In addition, in April 2013, there has been an ongoing outbreak
of the H7N9 strain of avian flu, which has largely been centered in eastern China, and has resulted in fatalities in that region,
including Shanghai. We are unable to predict the potential impact, if any, that the outbreak of influenza A (H1N1) or any other
serious contagious disease or the effects of another outbreak of SARS or any strain of avian flu may have on our business.



Natural disasters,
such as earthquakes, snowstorms, floods or volcanic eruptions such as that of Eyjafjallajökull in Iceland in April and May
of 2010 and the natural disasters in Japan in early 2011 may disrupt or seriously affect air travel activity. Any period of sustained
disruption to the airline industry may have a material adverse effect on our business, financial condition and results of operations.



Terrorist
attacks or the fear of such attacks, even if not made directly on the airline industry, could negatively affect the Company and
the airline industry as a whole. The travel industry continues to face on-going security concerns and cost burdens.



The aviation industry
as a whole has been beset with high-profile terrorist attacks, most notably on September 11, 2001 in the United States. The CAAC
has also implemented increased security measures in relation to the potential threat of terrorist attacks. Terrorist attacks, even
if not made directly towards us or on the airline industry, or the fear of or the precautions taken in anticipation of such attacks
(including elevated threat warnings or selective cancellation or redirection of flights) could materially and adversely affect
us and the airline industry. In addition, potential or actual terrorist attacks may result in substantial flight disruption costs
caused by grounding of fleet, significant increase of security costs and associated passenger inconvenience, increased insurance
costs, substantially higher ticket refunds and significantly decreased traffic and RPK.



14







| | Item 4. | Information on the Company
| | ------- | --------------------------



| | A. | History and Development of the Company
| | -- | --------------------------------------



Our registered office
is located at 66 Airport Street, Pudong International Airport, Shanghai, China, 201202. Our principal executive office and mailing
address is Kong Gang San Lu, Number 92, Shanghai, 200335, China. The telephone number of our principal executive office is (86-21)
6268-6268 and the fax number for the Board Secretariat’s office is (86-21) 6268-6116. We currently do not have an agent for
service of process in the United States.



Our Company was
established on April 14, 1995 under the laws of China as a company limited by shares in connection with the restructuring of our
predecessor and our initial public offering. Our predecessor was one of the six original airlines established in 1988 as part
of the decentralization of the airline industry in China undertaken in connection with China’s overall economic reform efforts.
Prior to 1988, the CAAC was responsible for all aspects of civil aviation in China, including the regulation and operation of
China’s airlines and airports. In connection with our initial public offering, our predecessor was restructured into two
separate legal entities, our Company and EA Group. According to the restructuring arrangement, by operation of law, our Company
succeeded to substantially all of the assets and liabilities relating to the airline business of our predecessor. EA Group succeeded
to our predecessor’s assets and liabilities that do not directly relate to the airline operations and do not compete with
our businesses. Assets transferred to EA Group included our predecessor’s equity interests in companies engaged in import
and export, real estate, advertising, in-flight catering, tourism and certain other businesses. In connection with the restructuring,
we entered into various agreements with EA Group and its subsidiaries for the provision of certain services to our Company. CEA
Holding assumed the rights and liabilities of EA Group under these agreements after it was formed by merging EA Group, Yunnan
Airlines Company and China Northwest Airlines Company in October 2002. See “Item 7. Major Shareholders and Related Party
Transactions” for more details. The following chart sets forth the organizational structure of our Company and our significant
subsidiaries as of April 20, 2013:







In February 1997, we completed our initial public offering of 1,566,950,000 ordinary H Shares,
par value RMB1.00 per share, and listed our ordinary H Shares on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock
Exchange, and American Depositary Shares, or ADSs, representing our H Shares, on the New York Stock Exchange. In October 1997,
we completed a public offering of 300,000,000 new ordinary domestic shares in the form of A Shares to public shareholders in China
and listed such new shares on the Shanghai Stock Exchange. H Shares are our ordinary shares listed on the Hong Kong Stock Exchange,
and A Shares are our ordinary shares listed on the Shanghai Stock Exchange. Our H Shares and A Shares are identical in respect
of all rights and preferences, except that the listed A Shares may only be held by Chinese domestic investors and certain qualified
foreign institutional investors. For information regarding our share capital structure, see “Item 10.B Memorandum and Articles
of Association – Description of Shares.” In addition, dividends on the A Shares are payable in Renminbi.



Since our initial
public offering, we have expanded our operations through acquisitions and joint ventures. In July 1998, our Company and China Ocean
Shipping (Group) Company jointly established China Cargo Airlines Co., Ltd., which specializes in the air freight business. In
addition, we purchased from EA Group the assets and liabilities relating to airline operations of China General Aviation Company.
China General Aviation Company was based in Shanxi Province in China and served primarily the northern region of China. Moreover,
we completed our acquisition of Air Great Wall in June 2001 and established our Ningbo Branch following the acquisition. Air Great
Wall was based in Ningbo, Zhejiang Province in China and served primarily the southeastern region of China.



In August 2002, our
Company, jointly with Wuhan Municipal State-owned Assets Management Committee Office and two other independent third parties, established
China Eastern Airlines Wuhan Limited, or CEA Wuhan, in which our Company held a 40% equity interest. CEA Wuhan’s operating
results were consolidated with ours from January 2006, when we obtained control of CEA Wuhan. In March 2006, we completed our acquisition
of a 38% equity interest and a 18% equity interest in CEA Wuhan from Wuhan Municipal State-owned Assets Supervision and Administration
Committee and Shanghai Junyao Aviation Investment Company Limited, respectively, for an aggregate consideration of approximately
RMB418 million. In 2012, the existed shareholders of CEA Wuhan and certain new shareholders decided to increase the registered
capital of CEA Wuhan from RMB600 million to RMB1,750 million. As of December 31, 2012, we contributed capital of RMB525 million
in cash, among which RMB237 million was recognized as registered capital and RMB288 million was credited to the share premium of
CEA Wuhan; and the other investors have contributed capital of RMB300 million, among which RMB288 million was recognized as registered
capital and RMB12 million was recognized as share premium of CEA Wuhan. Upon completion of aforementioned capital injections, our
share percentage in CEA Wuhan will be 60%. CEA Wuhan primarily serves the market in Central China.



15







Pursuant to the CAAC’s
airline industry restructuring plan, EA Group merged with Yunnan Airlines Company and China Northwest Airlines Company and formed
CEA Holding in October 2002. Yunnan Airlines Company and China Northwest Airlines Company were restructured as wholly-owned subsidiaries
of CEA Holding after the merger and renamed as China Eastern Air Yunnan Company, or CEA Yunnan, and China Eastern Air Northwest
Company, or CEA Northwest, respectively. CEA Northwest is based in Xi’an, Shaanxi Province in China and serves primarily
the southwestern region of China.



In order to further
expand our business and enhance our market competitiveness, we acquired from CEA Holding certain selected assets and liabilities
relating to the aviation businesses of CEA Yunnan and CEA Northwest on May 12, 2005. The certain selected assets acquired by our
Company included aircraft, engines and aviation equipment and facilities, certain employees and operating contracts, and other
fixed and current assets (whether owned or leased assets). We assumed and took over the aviation operations and businesses previously
carried out by CEA Yunnan and CEA Northwest in accordance with the Acquisition Agreement. The air routes of CEA Yunnan and CEA
Northwest were also injected into our Company with such assets and liabilities.



On March 14,
2006, we entered into an official sponsorship agreement with the Bureau of 2010 Expo Shanghai (the “Bureau”), which
designated our Company as the exclusive airline passenger carrier in China to sponsor the 2010 Shanghai Expo. Pursuant to the agreement,
we were entitled to a number of rights, including the use of the Bureau’s logos and trademarks and the slogan “Better
City, Better Life”, and priority to purchase advertising space at the Expo site. We were also able to enjoy the privileges
of being a market development participant of the World Expo.



On December 10, 2008,
we entered into an A Share Subscription Agreement with CEA Holding for CEA Holding to subscribe for new A shares to be issued by
our Company, and entered into an H Share Subscription Agreement with CES Global for CES Global to subscribe for new H shares to
be issued by our Company. Both of these agreements were amended on December 29, 2008. Under the amended agreements, we agreed to
issue 1,437,375,000 new A shares to CEA Holding and 1,437,375,000 new H shares to CES Global for an agreed-upon subscription price.
On February 26, 2009, we received the approval for the non-public issuances of the A and H shares in a class meeting of A Share
Shareholders, a class meeting of H Share Shareholders, and an extraordinary general meeting of shareholders. We completed the issuances
of 1,437,375,000 new A Shares to CES Holding and 1,437,375,000 new H shares to CES Global on June 25, 2009 and June 26, 2009, respectively.
See “Item 7.B. Related Party Transactions – Subscription Agreements with CEA Holding, CES Global and CES Finance.”



On July 10, 2009,
our Board approved an issuance of 1,350,000,000 new A shares of the Company to a limited number of specific investors, including
CEA Holding, and the issuance of 490,000,000 new H shares of the Company to CES Global. The issuances of the A shares and H shares
were completed on December 23, 2009 and December 10, 2009, respectively. See “Item 7.B. Related Party Transactions –
Subscription Agreements with CEA Holding, CES Global and CES Finance.”



On July 10, 2009,
we entered into an absorption agreement with Shanghai Airlines in relation to the proposed acquisition of Shanghai Airlines. The
proposed acquisition was approved in a shareholders meeting of our Company on October 9, 2009. On December 30, 2009, we received
approval of our proposed acquisition of Shanghai Airlines from the China Securities Regulatory Commission, or the CSRC. On January
28, 2010, we issued 1,694,838,860 A shares to the shareholders of Shanghai Airlines in exchange for all existing issued shares
of Shanghai Airlines. In 2010, we integrated the operations of Shanghai Airlines by undertaking and completing various post-acquisition
administrative measures, such as the transfer and registration of properties and other assets, as well as the integration of each
respective airline’s frequent flyer mileage programs. As of the filing date, certain post-acquisition measures are still
in progress. Because our Company and Shanghai Airlines were each airline carriers based in Shanghai with overlapping route operations,
we believe that our acquisition of Shanghai Airlines will strengthen our market positioning in the growing air transportation market
in China through cost synergies, the creation of economies of scale and improved optimization of route plans, flight schedules
and route networks. In addition, we expect the improved operational efficiency and our increased competitiveness resulting from
the combination of our Company and Shanghai Airlines will facilitate the promotion of Shanghai as a vital transportation hub in
the international air transportation market.



On July 26, 2010,
the State-owned Assets Supervision and Administration Commission of the People’s Government of Yunnan Province, or Yunnan
SASAC, entered into an agreement with our Company to jointly establish Eastern Airlines Yunnan Limited Corporation, or EA Yunnan.
We will contribute 65% of the registered capital of EA Yunnan, with the remaining 35% contributed by Yunnan SASAC. As of December
31, 2012, we have completed our capital contribution while Yunnan SASAC has not yet completed its capital contribtion. EA Yunnan
will focus on the provision of general civil aviation transportation and maintenance services. We believe that EA Yunnan will allow
us to further enhance the existing provision of aviation services in Yunnan Province and surrounding regions in eastern China,
and enhance our overall competitiveness and business development in the area.



On December 20, 2010,
China Cargo Airlines, a subsidiary of our Company, as purchaser, and Great Wall Airlines, as vendor, entered into an agreement
for the acquisition of the assets, being all valuable business carried on by, and all valuable assets of, Great Wall Airlines,
at RMB386.9 million (subject to adjustments). The acquisition aligns with the development strategy of our Company and enhances
China Cargo Airlines’ capability for sustainable development, while avoiding horizontal competition. China Cargo Airlines
also purchased relevant business and assets from Shanghai International Freight Airlines Co., Ltd. Both acquisitions have obtained
the requisite approvals from CAAC, NDRC, and MOC, and were completed on June 1, 2011.



On August 11, 2011,
our wholly-owned subsidiary Eastern Air Overseas (Hong Kong) Corporation Limited issued offshore CNY-denominated bonds in an amount
of CNY2.5 billion at 4% due 2014 and are listed on the Singapore Exchange Securities Trading Limited (the “SGX-ST”).
Our Company guaranteed the bond issue.



On March 23, 2012,
we entered into a binding MOU with Jetstar Airways, a wholly owned subsidiary of Qantas, to establish a joint venture that will
consist of a new low-cost airline to be based in Hong Kong, Jetstar Airways. On August 24, 2012, EAO, a wholly owned Hong Kong-based
subsidiary of the Company, entered into a Shareholders’ Agreement with JIGH, a wholly owned Hong Kong-based subsidiary of
Qantas Airlines, pursuant to which EAO and JIGH formally agreed to establish Jetstar Hong Kong. We and Jetstar Airways have made
equal initial capital contributions of US$57.5 million each, and the joint venture, Jetstar Hong Kong, will has a total initial
capital of US$115 million. Depending on certain terms and conditions, we and Jetstar Airways will each contribute equal capital
amounts to increase the capital of Jetstar Hong Kong to US$198 million. Under the terms of the MOU and Shareholders Agreement,
we and Jetstar Airways will hold equal equity interests in Jetstar Hong Kong. In September 2012, Jetstar Hong Kong received the
Certificate of Incorporation issued by the relevant Hong Kong government authorities.



On April 27, 2012,
the Board resolved and approved to issue short-term commercial paper in the aggregate principal amount of not more than RMB10 billion
and for a term of not more than 270 days for each issuance, which can be issued in multiple tranches on a rolling basis. On September
13, 2012, we issued the first tranche of short-term commercial paper in the amount of RMB4 billion at 4.1%, due within 270 days
of the issuance. The use of proceeds from this issuance were to repay bank loans, improve our financing structure and replenish
short-term working capital.



On June 12, 2012,
the Board resolved and approved to issue corporate bonds in the aggregate principal amount of not more than RMB8.8 billion and
for a term of not more than ten years for a single or multiple issuances. We received CSRC approval for this issuance on December
12, 2012. On March 20, 2013, we issued the first tranche of corporate bonds in the amount of RMB4.8 billion at 5.05% due 2023.
The use of proceeds from this issuance were to repay bank loans, improve our financing structure and replenish short-term working
capital.



16









On September 11,
2012, the Board resolved and approved the “Proposal for the non-public issuance of A Shares to specific placees by China
Eastern Airlines Corporation Limited” and the “Proposal for the non-public issuance of H Shares to specific placees
by China Eastern Airlines Corporation Limited,” according to which, (i) CEA Holdings and CES Finance would subscribe in cash
for 241,547,927 and 457,317,073 new A Shares, respectively, at the subscription price of RMB3.28 per share; and (ii) CES Global
would subscribe in cash for 698,865,000 new H Shares (nominal value of RMB1.00 each) at the subscription price of HK$2.32 per share.
On January 31, 2013, the CSRC approved our proposed issue of no more than 698,865,000 new H Shares with a nominal value of RMB1.00
each. The Public Offering Review Committee of CSRC reviewed and conditionally approved our application relating to the non-public
issue of new A Shares of the Company on February 25, 2012.



The table below
sets forth details of our operating fleet as of December 31, 2010, 2011 and 2012:





|           |  | No. of Aircraft Owned And under Finance Leases |     |  | No. of Aircraft under Operating Leases |  |     | No. of Aircraft Owned and under Finance Leases |  |  | No. of Aircraft under Operating Leases |  |  | No. of Aircraft Owned and under Finance Leases |     |  | No. of Aircraft under Operating Leases | 
|---------- |  | ---------------------------------------------- | --- |  | -------------------------------------- |  | --- | ---------------------------------------------- |  |  | -------------------------------------- |  |  | ---------------------------------------------- | --- |  | -------------------------------------- | 
|           |  | 2010                                           |     |  | 2011                                   |  |     | 2012                                           | 
|A340-600   |  |                                                | 5   |  |                                        |  | —   |                                                |  |  | 5                                      |  |  |                                                | —   |  |                                        | 
|A340-300   |  |                                                | 5   |  |                                        |  | —   |                                                |  |  | 5                                      |  |  |                                                | —   |  |                                        | 
|A330-300   |  |                                                | 8   |  |                                        |  | 7   |                                                |  |  | 8                                      |  |  |                                                | 7   |  |                                        | 
|A330-200   |  |                                                | 2   |  |                                        |  | 3   |                                                |  |  | 4                                      |  |  |                                                | 3   |  |                                        | 
|A300-600R  |  |                                                | 7   |  |                                        |  | —   |                                                |  |  | 7                                      |  |  |                                                | —   |  |                                        | 
|A321       |  |                                                | 20  |  |                                        |  | —   |                                                |  |  | 22                                     |  |  |                                                | —   |  |                                        | 
|A320       |  |                                                | 71  |  |                                        |  | 24  |                                                |  |  | 88                                     |  |  |                                                | 24  |  |                                        | 
|A319       |  |                                                | 5   |  |                                        |  | 10  |                                                |  |  | 5                                      |  |  |                                                | 10  |  |                                        | 
|B737-800   |  |                                                | 15  |  |                                        |  | 46  |                                                |  |  | 16                                     |  |  |                                                | 48  |  |                                        | 
|B737-700   |  |                                                | 33  |  |                                        |  | 19  |                                                |  |  | 35                                     |  |  |                                                | 19  |  |                                        | 
|B737-300   |  |                                                | 16  |  |                                        |  | —   |                                                |  |  | 16                                     |  |  |                                                | —   |  |                                        | 
|B757-200   |  |                                                | 5   |  |                                        |  | 5   |                                                |  |  | 5                                      |  |  |                                                | 5   |  |                                        | 
|B767       |  |                                                | 9   |  |                                        |  | 1   |                                                |  |  | 6                                      |  |  |                                                | 1   |  |                                        | 
|EMB-145LR  |  |                                                | 10  |  |                                        |  | —   |                                                |  |  | 10                                     |  |  |                                                | —   |  |                                        | 
|CRJ-200    |  |                                                | 8   |  |                                        |  | 2   |                                                |  |  | 8                                      |  |  |                                                | —   |  |                                        | 
|Hawker800  |  |                                                | 1   |  |                                        |  | —   |                                                |  |  | 1                                      |  |  |                                                | —   |  |                                        | 
|A300-600R  |  |                                                | 3   |  |                                        |  | —   |                                                |  |  | 3                                      |  |  |                                                | —   |  |                                        | 
|B747-400ER |  |                                                | 2   |  |                                        |  | —   |                                                |  |  | 2                                      |  |  |                                                | 3   |  |                                        | 
|MD-11F     |  |                                                | —   |  |                                        |  | 7   |                                                |  |  | —                                      |  |  |                                                | 3   |  |                                        | 
|B757-200F  |  |                                                | —   |  |                                        |  | 2   |                                                |  |  | —                                      |  |  |                                                | 2   |  |                                        | 
|B777F      |  |                                                | —   |  |                                        |  | 4   |                                                |  |  | —                                      |  |  |                                                | 6   |  |                                        | 
|Total      |  |                                                | 225 |  |                                        |  | 130 |                                                |  |  | 246                                    |  |  |                                                | 131 |  |                                        | 



| | B. | Business Overview
| | -- | -----------------



Our Company was one
of the three largest air carriers in China in terms of revenue-tonne-kilometers and number of passengers carried in 2012, and is
an important domestic airline based in and serving Shanghai, which is considered to be the international financial center and the
international shipping center of China. We serve a route network that covers 1,000 domestic and foreign destinations in 187 countries
through Skyteam. We operate primarily from Shanghai’s Hongqiao International Airport and Pudong International Airport, which
collectively ranked the first and second largest airport in terms of cargo and mail traffic and passenger traffic (as measured
in total freight weight and total passenger number in China in 2012), respectively. In 2012, we accounted for 50.2% and 38.4%
of the market share at Hongqiao International Airport and Pudong International Airport, respectively, in terms of flight take-off
and landing statistics, and accounted for 48.2% and 36.6% of the market share at Hongqiao International Airport and Pudong International
Airport, respectively, in terms of passenger throughput.



We have received
many awards, recognitions and accolades through the years. We were recognized as one of the “Most Innovative PRC Companies”
by Fortune Magazine in 2011, and our “China Eastern Airlines” brand was awarded China’s Famous Trademark
by the State Administration for Industry and Commerce in 2011. In addition, in 2012 we received various recognitions and awards,
including “Golden Tripod Prize”, which was the highest award awarded at the 8th Annual Meeting of China’s Securities
Market, Golden Bauhinia Award for "The Listed Company with Best Brand Value 2012" by China Securities, "2012 Best
Mid-Cap Company and Best Managed Company in China" by Asiamoney Magazine ,“Top 50 Most Valuable Chinese Brands"
by WPP, a global brand communication and public relations firm, “2012 TOP 25 CSR (Corporate Social Responsibility) Ranking”
by Fortune China Magazine, “2012 China State-owned Listed Enterprise Social Responsibility Rankings Top 20” by Southern
Weekly, “The Best Board of Directors of State-owned Listed Holding Companies of China Top 20” by various major financial
media, including Moneyweek, “Healthy China – Best Employee Health & Benefit Unit” by Health Times, a major
newspaper in China focusing on health and lifestyle, and Tsinghua University, “Internal Audit Leading Enterprises in terms
of Risk Management and Internal Audit” by China Institute of Internal Audit, “Best 100 Employer” by Zhilian Zhaopin,
a major online recruiting website in China, and “The World’s Most Improved Airline” by SKYTRAX, a United Kingdom-based
aviation research organization.



Compared to 2011,
our traffic volume (as measured in RTKs) increased by 7.5%, from 13,402 million in 2011 to 14,406 million in 2012. Our passenger
traffic volume (as measured in revenue passenger-kilometers, or RPKs) increased from 100,895 million in 2011 to 109,113 million
in 2012, or 8.1%. Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTKs) increased by 6.3%,
from 4,421 million in 2011 to 4,701 million in 2012.



17







Our Operations by Activity



The following table
sets forth our traffic revenues by activity for each of the three years ended December 31, 2012:



|                       |  | Year Ended December 31, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2010                    |       
|                       |  | (Millions               |       
|                       |  | of RMB)                 |       
|Traffic revenues       |  |                         |       
|Passenger              |  |                         | 54,625
|Cargo and mail         |  |                         | 5,810 
|Fuel surcharges        |  |                         | 6,956 
|Total traffic revenues |  |                         | 67,391



Passenger Operations



The following table
sets forth certain passenger operating statistics of our Company by route for each of the three years ended December 31, 2012:



|                                        |  | Year Ended December 31, |        
|--------------------------------------- |  | ----------------------- | -------
|                                        |  | 2010                    |        
|Passenger Traffic (in RPKs) (millions)  |  |                         | 93,153 
|Domestic                                |  |                         | 66,310 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 4,074  
|International                           |  |                         | 22,769 
|                                        |  |                         |        
|Passenger Capacity (in ASKs) (millions) |  |                         | 119,451
|Domestic                                |  |                         | 83,421 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 5,576  
|International                           |  |                         | 30,453 
|                                        |  |                         |        
|Passenger Yield (RMB)                   |  |                         | 0.63   
|Domestic                                |  |                         | 0.64   
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 0.78   
|International                           |  |                         | 0.60   
|                                        |  |                         |        
|Passenger Load Factor (%)               |  |                         | 77.98  
|Domestic                                |  |                         | 79.49  
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 73.05  
|International                           |  |                         | 74.77  



The primary focus
of our business is the provision of domestic, regional and international passenger airline services. Currently we serve a route
network that covers 1,000 domestic and foreign destinations in 187 countries through SkyTeam.



Our domestic routes
generated approximately 70.2% of our passenger revenues. Our most heavily traveled domestic routes generally link Shanghai to the
large commercial and business centers of China, such as Beijing, Guangzhou and Shenzhen.



We also operated approximately
21 flight routes between mainland China and Hong Kong. In addition, we operated approximately 19 routes between mainland China
and Taiwan and two routes between China and Macau. Our regional routes accounted for approximately 4.5% of our passenger revenues
in 2012. In April 2010, we entered into a strategic framework agreement with China Airlines of Taiwan to cooperate on routes to
and from the PRC and Taiwan.



In 2012, we introduced
several new international routes, including Shanghai-to-Cairns, Zhengzhou-to-Shanghai-to-Osaka, Wuhan-to-Pudong-to-Shizuoka, Qingdao-to-Wuhan-Singapore,
Hangzhou-to-Phuket and Hangzhou-to-Bangkok. We have also increased the number of flights for certain international routes during
peak travel seasons. In addition, due to the change of relationship between China and Japan, certain flights and jet fleet resources
that were originally allocated for routes to and from Chinese and Japanese destinations were diverted and re-allocated to China-to-Southeast
Asia routes. Revenues derived from our operations on international routes accounted for approximately 25.3% of our passenger revenues.



Most of our international
and regional flights and a substantial portion of our domestic flights either originate or terminate in Shanghai, the central hub
of our route network. Our operations in Shanghai are conducted primarily at Hongqiao International Airport and Pudong International
Airport. Most of our international flights to or from Shanghai originate or terminate at Pudong International Airport. Pudong International
Airport is located approximately 30 kilometers from the central business district of Shanghai. We moved our operations at Hongqiao
International Airport to terminal two of Hongqiao International Airport on March 16, 2010.



We operate most of
our flights through our three hubs located in eastern, northwestern and southwestern China, namely Shanghai, Xi’an and Kunming,
respectively. With Shanghai as our main hub and Xi’an and Kunming as our regional hubs, we believe that we will benefit from
the level of development and growth opportunities in eastern, northern and western China as a whole by providing direct services
between various cities in those regions and between those regions and other major cities in China. We have steadily fostered the
construction of flight system for these core hubs by introducing new flight destinations and increasing the frequency of certain
flights, thereby enhancing our transfer and connection capability in these hub markets. By the end of 2012, we established a preliminary
flight frequency of “four-in-four-out” at Shanghai Pudong International Airport, with “four-in-four-out”
currently also being established at Kunming Airport, both of which are expected to increase the transfer and connection services
via Kunming to Southeast Asia, South Asia and Western Asia. Xi’an Airport is also in the process of establishing a “three-in-three-out”
flight frequency.



We will also continue
to develop our operations in Beijing and Guangzhou as our principal bases for northern China and southern China, respectively.
In particular, we have actively strengthened our position in the Beijing market. Facing the relatively saturated time slot resources
of flights at Beijing Capital International Airport, we integrated China United Airlines, the sole operator of Beijing Nanyuan
Airport and the Hebei Branch of the Company, to establish the new China United Airlines, which has fully utilized the time slots
at Nanyuan Airport. China United Airlines has added six B737 aircraft, which has led to increased flight frequency from Beijing
Nanyuan Airport to Shenzhen, Xiamen and Changsha, and has enhanced our market share in Beijing market.



18







Cargo and Mail
Operations



The following table
sets forth certain cargo and mail operating statistics of our Company by route for each of the three years ended December 31, 2012:



|                                              |  | Year Ended December 31, |      
|--------------------------------------------- |  | ----------------------- | -----
|                                              |  | 2010                    |      
|Cargo and Mail Traffic (in RFTKs) (millions)  |  |                         | 4,308
|Domestic                                      |  |                         | 980  
|Regional (Hong Kong, Macau and Taiwan)        |  |                         | 155  
|International                                 |  |                         | 3,173
|                                              |  |                         |      
|Cargo and Mail Capacity (in AFTKs) (millions) |  |                         | 7,137
|Domestic                                      |  |                         | 2,031
|Regional (Hong Kong, Macau and Taiwan)        |  |                         | 313  
|International                                 |  |                         | 4,792
|                                              |  |                         |      
|Cargo and Mail Yield (RMB)                    |  |                         | 1.95 
|Domestic                                      |  |                         | 1.28 
|Regional (Hong Kong, Macau and Taiwan)        |  |                         | 4.54 
|International                                 |  |                         | 2.04 
|                                              |  |                         |      
|Cargo and Mail Load Factor (%)                |  |                         | 60.37
|Domestic                                      |  |                         | 48.27
|Regional (Hong Kong, Macau and Taiwan)        |  |                         | 49.59
|International                                 |  |                         | 66.20



We are required to
obtain from the CAAC the right to carry passengers or cargo on any domestic or international route. Our cargo and mail business
generally utilizes the same route network used by our passenger airline business. We carry cargo and mail on our freight aircraft
as well as in available cargo space on our passenger aircraft. Our most significant cargo and mail routes are international routes.



The development of
cargo operations is an important part of our Company’s growth strategy. We have three MD-11F, two B757-200F, three B747-400ER
and six B777F freight aircraft under operating leases for cargo and mail operations. We also have three A300-600R aircraft as well
as two B747-400ER freighters for our cargo operations. In December 2010, China Cargo Airlines entered into a purchase agreement
to acquire the relevant air cargo assets of Great Wall Airlines. China Cargo Airlines also purchased relevant business and assets
from Shanghai International Freight Airlines Co., Ltd. Both acquisitions have obtained the requisite approvals from CAAC, NDRC,
and MOC, and were completed on May 31, 2011. After the completion of these acquisitions and reorganizations, the New China Cargo
Airlines, which is 51% owned by us, officially began its operation on May 1, 2011 and became the largest air cargo transportation
company in the PRC in terms of cargo and mail capacity.



Our Operations by Geographical Segment



Our revenues (net
of business tax) by geographical segment are analyzed based on the following criteria:



| | · | Traffic revenue from services within the PRC (excluding Hong Kong,
Macau and Taiwan, collectively, “Regional”) is classified as domestic operations. Traffic revenue from inbound and
outbound services between the PRC, regional or overseas markets is attributed to the segments based on the origin and destination
of each flight segment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue from ticket handling services, airport ground services and
other miscellaneous services are classified on the basis of where the services are performed.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



The
following table sets forth our revenues by geographical segment for each of the three years ended December 31, 2012:



|                                       |  | 2010              |        |  | 2011              |  |        | 2012              | 
|-------------------------------------- |  | ----------------- | ------ |  | ----------------- |  | ------ | ----------------- | 
|                                       |  | (millions of RMB) |        |  | (millions of RMB) |  |        | (millions of RMB) | 
|Domestic                               |  |                   | 49,692 |  |                   |  | 56,014 |                   | 
|Regional (Hong Kong, Macau and Taiwan) |  |                   | 3,901  |  |                   |  | 3,771  |                   | 
|International                          |  |                   | 20,211 |  |                   |  | 22,618 |                   | 
|Total                                  |  |                   | 73,804 |  |                   |  | 82,403 |                   | 



Regulation



The PRC Civil Aviation
Law provides the framework for regulation of many important aspects of civil aviation activities in China, including:



| | · | the administration of airports and air traffic control systems;
| | - | ---------------------------------------------------------------



| | · | aircraft registration and aircraft airworthiness certification;
| | - | ---------------------------------------------------------------



| | · | operational safety standards; and
| | - | ---------------------------------



| | · | the liabilities of carriers.
| | - | ----------------------------



The Chinese airline
industry is also subject to a high degree of regulation by the CAAC. Regulations issued or implemented by the CAAC encompass virtually
every aspect of airline operations, including route allocation, domestic airfare, licensing of pilots, operational safety standards,
aircraft acquisition, aircraft airworthiness certification, fuel prices, standards for aircraft maintenance and air traffic control
and standards for airport operations. Although China’s airlines operate under the supervision and regulation of the CAAC,
they are accorded a significant degree of operational autonomy. These areas of operational autonomy include:



| | · | whether to apply for any route;
| | - | -------------------------------



| | · | the allocation of aircraft among routes;
| | - | ----------------------------------------



| | · | the airfare pricing for the international and regional passenger routes;
| | - | ------------------------------------------------------------------------



| | · | the airfare pricing within the limit provided by the CAAC for the
domestic passenger routes;
| | - | --------------------------------------------------------------------------------------------





19









| | · | the acquisition of aircraft and spare parts;
| | - | --------------------------------------------



| | · | the training and supervision of personnel; and
| | - | ----------------------------------------------



| | · | many other areas of day-to-day operations.
| | - | ------------------------------------------



Although we have generally
been allocated adequate routes in the past to accommodate our expansion plans and other changes in our operations, those routes
are subject to allocation and re-allocation in response to changes in governmental policies or otherwise at the discretion of the
CAAC. Consequently, we cannot assure you that our route structure will be adequate to satisfy our expansion plans.



The CAAC has established
regulatory policies intended to promote controlled growth of the Chinese airline industry. We believe those policies will be beneficial
to the development of and prospects for the Chinese airline industry as a whole. Nevertheless, those regulatory policies could
limit our flexibility to respond to changes in market conditions, competition or our cost structure. Moreover, while our Company
generally benefits from regulatory policies that are beneficial to the airline industry in China as a whole, the implementation
of specific regulatory policies may from time to time materially and adversely affect our business operations.



Because our Company
provides services on international routes, we are also subject to a variety of bilateral civil air transport agreements between
China and other countries. In addition, China is a contracting state as well as a permanent member of the International Civil Aviation
Organization, an agency of the United Nations established in 1947 to assist in the planning and development of the international
air transportation. The International Civil Aviation Organization establishes technical standards for the international airline
industry. China is also a party to a number of other international aviation conventions. The business operations of our Company
are also subject to these international aviation conventions, as well as certain foreign country aviation regulations and local
aviation laws with respect to route allocation, landing rights and related flight operation regulation.



Domestic
Route Rights



Chinese airlines must
obtain from the CAAC the right to carry passengers or cargo on any domestic route. The CAAC’s policy on domestic route rights
is to assign routes to the airline or airlines suitable for a particular route. The CAAC will take into account whether an applicant
for a route is based at the point of origin or termination of a particular route. This policy benefits airlines, such as our Company,
that have a hub located at each of the active air traffic centers in China. The CAAC also considers other factors that will make
a particular airline suitable for an additional route, including the applicant’s safety record, previous on-time performance
and level of service and availability of aircraft and pilots. The CAAC will consider the market conditions applicable to any given
route before such route is allocated to one or more airlines. Generally, the CAAC will permit additional airlines to service a
route that is already being serviced only when there is strong demand for a particular route relative to the available supply.
The CAAC’s current general policy is to require the passenger load factor of one or two airlines on a particular route to
reach a certain level before another carrier is permitted to commence operations on such route.



Regional Route
Rights



Hong Kong routes and
the corresponding landing rights were formerly derived from the Sino-British air services agreement. In February 2000, the PRC
government, acting through the CAAC, and Hong Kong signed the Air Transportation Arrangement between mainland China and Hong Kong.
The Air Transportation Arrangement provides for equal opportunity for airlines based in Hong Kong and mainland China. Competition
from airlines based in Hong Kong increased after the execution of the Air Transportation Arrangement. The CAAC normally will not
allocate an international route or a Hong Kong route to more than one domestic airline unless certain criteria, including minimum
load factors on existing flights, are met. There is more than one Chinese airline company on certain of our Hong Kong routes.



The CAAC and the Economic
Development and Labor Bureau of Hong Kong entered into an agreement in 2007 to further expand the Air Transportation Arrangement.
This agreement increases the routes between Hong Kong and mainland China to expand coverage to most major cities in mainland China.
The capacity limits for passenger and/or cargo services on most routes will also be gradually lifted. Beginning in 2007, each side
designated three airline companies to operate passenger and/or cargo flights and another airline company to operate all-cargo flights
on the majority of the routes between Hong Kong and mainland China.



Prior to 2003, there
was no direct air link between mainland China and Taiwan. Following a series of limited chartered flights operated between a number
of mainland Chinese cities and Taiwan, from July 2008, 36 direct flights between Taiwan and mainland China were permitted on weekends
from Fridays through Mondays on a regular basis. On December 15, 2008, mainland China and Taiwan commenced direct air and sea transport
and postal services, ending a nearly six-decade ban on regular links between the two sides since 1949. Under a historic agreement
signed by the governments of mainland China and Taiwan in early November 2008, the new air links expanded from weekend charters
to a daily service, with the two sides operating a total of 108 flights per week in 2008 and approximately 270 and 370 regular
direct flights per week in 2009 and 2010, respectively. Mainland China and Taiwan agreed to increase flight destinations for air
links between the two sides in mainland China to 33 airports in various PRC cities in 2010, while flight destinations in Taiwan
continue to include eight airports in various cities in Taiwan. At the end of 2011, the two sides agreed to increase the total
number of flights to 616 per week and to increase the total number of destination airports in mainland China and Taiwan to 50.
The two sides also previously agreed to launch chartered cargo flights between two terminals in mainland China, namely, Shanghai
Pudong and Guangzhou airports, and two terminals in Taiwan, namely, Taoyuan and Kaohsiung airports.



International
Route Rights



International route
rights, along with the corresponding landing rights, are derived from air services agreements negotiated between the PRC government,
acting through the CAAC, and the government of the relevant foreign country. Each government grants to the other the right to designate
one or more domestic airlines to operate scheduled services between certain points within each country. The CAAC awards the relevant
route to an airline based on various criteria, including:



| | · | availability of appropriate aircraft and flight personnel;
| | - | ----------------------------------------------------------



| | · | safety record;
| | - | --------------



| | · | on-time performance; and
| | - | ------------------------



| | · | hub location.
| | - | -------------



20







Although hub location
is an important criterion, an airline may be awarded a route which does not originate from an airport where it has a hub. The route
rights awarded do not have a fixed expiry date and can be terminated at the discretion of the CAAC.



Airfare Pricing
Policy



The PRC Civil Aviation
Law provides that airfares for domestic routes are determined jointly by the CAAC and the agency of the State Council responsible
for price control, primarily based upon average airline operating costs and market conditions. From February 1999 to March 2001,
all domestic airlines were required to adhere to unified domestic airfares published by the CAAC from time to time and discounted
sales were prohibited. In 2001, the CAAC gradually relaxed its control over domestic airfare pricing and, effective March 1, 2001,
domestic airlines were permitted to offer discounts on several major domestic routes.



On March 17, 2004,
China’s State Council approved the Pricing Reform Plan for the Domestic Civil Aviation Industry, or the Pricing Reform Plan,
effective April 20, 2004. Pursuant to the Pricing Reform Plan, the governmental authorities responsible for price control no longer
directly set the airfares for domestic routes, but indirectly control the airfares for domestic routes by setting basic airfare
levels and permitted ranges within which the actual fares charged by Chinese airlines can deviate from such basic airfare levels.
Chinese airlines are able to set their own airfares for their domestic routes within the permitted ranges and adopt more flexible
sales policies to promote their services.



The CAAC and the National
Development and Reform Commission, or NDRC, jointly publish pricing guidelines from time to time, which set forth the basic airfare
levels and permitted ranges. Pursuant to the current pricing guidelines, the basic airfares for most domestic routes are the published
airfares implemented by Chinese airlines immediately prior to the approval of the Pricing Reform Plan. Except for certain domestic
routes, the actual airfare set by each Chinese airline for its domestic routes cannot be 25% higher or 45% lower than the basic
airfare. Domestic routes that are not subject to the deviation range restrictions include short-haul routes between cities in the
same province or autonomous region, or between a municipality and adjacent provinces, autonomous regions or another municipality.
Certain tourist routes and routes served by only one Chinese airline are not subject to the bottom range restriction. The CAAC
and the NDRC will announce the routes that are not subject to the deviation range restrictions through the airfare information
system known as Airtis.net. Chinese airlines may apply to the CAAC and the NDRC for exemption from the bottom range restriction
for a particular route. Chinese airlines are also required to file the actual airfare they set for their domestic routes within
the ranges through Airtis.net 30 days prior to its implementation.



The CAAC and the NDRC
will regularly review the average operating costs of Chinese airlines, and may adjust the basic airfare for particular domestic
routes which, in their view, is not at a reasonable level. The CAAC and NDRC issued a notice on April 13, 2010, effective on June
1, 2010, pursuant to which airlines may set first-class and business-class airfares in accordance with market prices, subject to
relevant PRC laws. Such pricing must be filed 30 days before effectiveness with the CAAC and NDRC. We expect that, as this and
other reforms continue into 2010, we will have more flexibility in operating our aviation business in the future. The promotion
by Chinese regulators of a regulated and orderly market and a fair and positive competition mechanism will also provide a favorable
environment for the growth of our business.



Under the PRC Civil
Aviation Law, maximum airfares on regional and international routes are set in accordance with the terms of the air services agreements
pursuant to which these routes are operated. In the absence of an air services agreement, airfares are set by the airlines themselves
or by the CAAC with reference to comparable market prices, taking into account the international airfare standards established
through the coordination of the International Air Transport Association, which organizes periodic air traffic conferences for the
purpose of coordinating international airfares. Discounts are permitted on regional and international routes. For the airline industry
in China as a whole, the airfare per kilometer is substantially higher for regional and international routes than for domestic
routes.



Acquisition of
Aircraft and Spare Parts



Our Company is permitted
to import aircraft, aircraft spare parts and other equipment for our own use from manufacturers through EAIEC, which is 55% owned
by CEA Holding and 45% owned by our Company. This gives us freedom in rationalizing our maintenance practices by allowing us to
maintain a relatively lower overall inventory level of aircraft parts and equipment than we otherwise would have to maintain. We
are still required to obtain an approval from the NDRC for any import of aircraft. We generally pay a commission to EAIEC in connection
with these imports.



Domestic Fuel
Supply and Pricing



The Civil Aviation
Oil Supply Company, or CAOSC, which is supervised by SASAC, is currently the dominant civil aviation fuel supply company in China.
We currently purchase a significant portion of our domestic fuel supply from CAOSC. The PRC government determines the fuel price
at which the CAOSC acquires fuel from domestic suppliers and the CAAC issues a guidance price. The retail price at which the CAOSC
resells fuel to airline customers is set within a specified range based on this guidance price.



In 2005, the
NDRC, the CAAC and the China Air Transport Association jointly launched the linkage mechanism for aviation fuel prices and transportation
prices by airline companies. The fuel surcharge standards for domestic passenger routes were adjusted according to a series of
notices regarding the adjustments of passenger fuel surcharges on domestic routes issued by the NDRC and CAAC from 2006 to 2008.
In the second half of 2008, international crude oil prices decreased significantly, leading the NDRC and the CAAC to release an
announcement on January 14, 2009 to suspend fuel surcharges for domestic passenger routes with effect from January 15, 2009. A
Notice Concerning the Relevant Issues on Establishment Linkage Mechanism for Passenger Fuel Surcharges on Domestic Routes and the
Price of Domestic Aviation Coal Oil Fuel (the “2009 Notice”) by NDRC and CAAC, with effect from November 14, 2009,
provided that fuel surcharges shall be charged by the airlines, at the airline’s discretion, but within certain limits for
imposing fuel surcharges as set forth in the 2009 Notice. On March 31, 2010, the NDRC and CAAC issued the Notice Regarding the
Publication of Passenger Fuel Surcharges Rate on Domestic Routes, which reduced the standard fuel surcharge by 3.1% for domestic
routes. In addition, on March 31, 2011, the NDRC and CAAC issued another similar notice, which further adjusted the standard fuel
surcharge downwards. From August 1, 2011, according to the Announcement on the Linking Mechanism for Fuel Surcharges and Aviation
Coal Oil Fuel, issued by the NDRC and CAAC, the rate of domestic route fuel surcharges will be adjusted each month if the difference
in consolidated purchase costs for domestic aviation coal oil fuel exceeds RMB250 per ton.



Safety



The CAAC has made
the continued improvement of air traffic safety in China a high priority. The CAAC is responsible for the establishment of operational
safety, maintenance and training standards for all Chinese airlines, which have been formulated based on international standards.
Each Chinese airline is required to provide flight safety reports to the CAAC, including reports of flight incidents or accidents
involving its aircraft which occurred during the relevant reporting period and other safety related problems. The CAAC conducts
safety inspections on each airline periodically.



The CAAC oversees
the training of most Chinese airline pilots through its operation of the pilot training college. The CAAC implements a unified
pilot certification process applicable to all Chinese airline pilots and is responsible for the issuance, renewal, suspension and
cancellation of pilot licenses. Each pilot is required to pass the CAAC-administered examinations before obtaining a pilot license
and is subject to an annual examination in order to have such certification renewed.



21







All aircraft operated
by Chinese airlines, other than a limited number of leased aircraft registered in foreign countries, are required to be registered
with the CAAC. All of our aircraft are registered with the CAAC. All aircraft operated by Chinese airlines must have a valid certificate
of airworthiness issued and annually renewed by the CAAC. In addition, maintenance permits are issued to a Chinese airline only
after the maintenance capabilities of that Chinese airline have been examined and assessed by the CAAC. These maintenance permits
are renewed annually. All aircraft operated by Chinese airlines may be maintained and repaired only by CAAC certified maintenance
facilities, whether located within or outside China. Aircraft maintenance personnel must be certified by the CAAC before assuming
aircraft maintenance posts.



In early 2013, the
CAAC amended the original Civil Aviation Incidents Standards and published the new Civil Aviation Incidents Standards (MH/T2001-2013),
which became effective as of March 1, 2013. We will ensure our relevant employees implement the new standards, which will enable
us to enhance our daily operations. For more information on the safety standards and measures implemented by us, see “–
Maintenance and Safety – Safety.”



Security



The CAAC establishes
and oversees the implementation of security standards and regulations based on the PRC laws and standards established by international
civil aviation organizations. Each airline is required to submit to the CAAC an aviation security handbook describing specific
security procedures established by the airline for the day-to-day operations and security training for staff. Such security procedures
must be formulated based on the relevant CAAC regulations. Chinese airlines that operate international routes must also adopt security
measures in accordance with the requirements of the relevant international agreements and applicable local laws. We believe that
our Company is in compliance with all applicable security regulations.



Noise and Environmental
Regulation



All airlines and airports
in China are required to comply with noise and environmental regulations of the State Environmental Protection Agency that are
modeled on international standards. The CAAC regulations allow Chinese airports to refuse take-off and landing rights to any aircraft
that does not comply with State noise regulations. We believe that our Company is in compliance with all applicable noise and environmental
regulations.



Chinese Airport
Policy



Prior to September
2003, all civilian airports in China were operated directly by the CAAC or by provincial or municipal governments. In September
2003, as part of the restructuring of the aviation industry in China, the CAAC transferred 93 civilian airports to provincial or
municipal governments. The CAAC retained the authority to determine the take-off and landing charges, as well as charges on airlines
for the use of airports and airport services. Prior to 2004, Chinese airlines were generally required to collect from their passengers
on behalf of the CAAC a levy for contribution to the civil aviation infrastructure fund, which was used for improving China’s
civilian airport facilities. Our revenue for the previous years is shown net of this levy. In 2003, the levy was 5% of domestic
airfares and 2% of international airfares. The levy was waived by the CAAC from May 1, 2003 to December 31, 2003. With effect from
September 2004, the civil aviation infrastructure levies, now paid to the Ministry of Finance, have been reflected in air fares
of Chinese airlines rather than collected as a separate levy.



On December 28, 2007,
the CAAC and the NDRC released the Implementing Scheme for the Civil Aviation Airport Charges Reform Implementation Plan, which
was implemented on March 1, 2008. This new plan divides airport charges into three parts: charges related to airline businesses;
charges related to important non-airline items; and other non-airline charges. The charges related to airline businesses and important
non-airline items must follow the national guided prices, in which the standard prices are rarely increased, while reduced rates
can be negotiated between the airport or the service provider and the users. The plan grants us the right to negotiate with airports
on the airport charges.



The civil aviation
infrastructure levy was paid to the Ministry of Finance and refunded again from July 1, 2008 to June 30, 2009, according to one
of the ten measures announced by the CAAC in December 2008 in response to the global economic downturn. The refunded levy for China’s
aviation industry will amount to approximately RMB4,000 million in total. The ten measures also include measures to enhance safety,
reduce taxes, invest in infrastructure and optimize the airspace and air routes.



Limitation on
Foreign Ownership



The CAAC’s present
policies limit foreign ownership in Chinese airlines. Under these limits, non-Chinese residents and Hong Kong, Macau or Taiwan
residents cannot individually or together hold a majority of our total outstanding shares. As of December 31, 2012, approximately
30.99% of our total outstanding shares were held by non-Chinese residents and Hong Kong, Macau or Taiwan residents or legal entities
(excluding the qualified foreign institutional investors that are approved to invest in the A Share market of the PRC). For PRC
air transportation companies, pursuant to the Catalog of Industries for Guiding Foreign Investment, jointly promulgated by the
NDRC and MOC on December 24, 2011, Chinese investors should be the controlling shareholders of a PRC air transportation company.



Competition



Domestic



Our Company competes
against our domestic competitors primarily on the basis of safety, quality of service and frequency of scheduled flights. With
the combination of our dominant position in Shanghai, our route network and our continued commitment to safety and service quality,
we believe that our Company is well-positioned to compete against our domestic competitors in the growing airline industry in China.
However, domestic competition from other Chinese airlines has been increasing recently as our competitors have increased capacity
and expanded operations by adding new routes or additional flights to existing routes and acquiring other airlines. In addition,
we have faced intense competition from entrants to our domestic markets as new investments into China’s civil aviation industry
have been made following the CAAC’s relaxation of certain private-sector investment rules in July 2005. In December 2008,
the CAAC announced ten measures to protect and encourage the domestic aviation industry, one of which provides that no new Chinese
airlines will be licensed to incorporate and operate aviation businesses before 2010. In October 2010, the CAAC announced that
the suspension of approvals for new Chinese airlines companies would continue for an indefinite time period. However, if the restriction
is lifted in the future, we expect that competition from other Chinese airlines on our routes will further intensify.



There are currently
over 30 Chinese airlines in mainland China, and our Company competes with many of them on various domestic routes. All of these
airlines operate under the regulatory supervision of the CAAC. Our Company, Air China Limited, or Air China, which is based in
Beijing and listed on the Hong Kong Stock Exchange and the London Stock Exchange, and China Southern Airlines Company Limited,
or China Southern, which is based in Guangzhou and listed on the Hong Kong Stock Exchange and the New York Stock Exchange, are
the three leading air carriers in China, both in terms of revenue tonne-kilometers and size of operations.



22







Each of the domestic
airlines competes against other airlines operating the same routes or flying indirect routes to the same destinations. Our principal
competitors in the domestic market are China Southern and Air China, which also provide transportation services on some of our
routes, principally routes originating from the major air transportation hubs in China, such as Shanghai, Guangzhou and Beijing.
Some of these routes are among our most heavily traveled routes. Since most of the major domestic airlines operate routes from
their respective hubs to Shanghai, our Company also competes against virtually all of the major domestic airlines on these routes.
In addition, we are facing increasing competition from certain low-cost carriers, such as Spring Airlines, in the domestic market.
Spring Airlines competes with us, as it operates daily domestic routes to certain destinations such as Harbin, Shenyang, Guangzhou,
Xiamen, Sanya, Kunming and Chongqing, which are covered in our domestic routes. However, we believe we are well-positioned to compete
against domestic low-cost carriers due to our expansive route network, competitive pricing, greater availability of flight services
to these destinations and strong brand name.



We also face competition
from other domestic carriers in our air cargo business. However, we believe our absorption of Shanghai Airlines in early 2010 will
strengthen our market positioning within the domestic market, particularly with respect to routes to and from Shanghai. In addition,
we believe that relevant air cargo assets of Shanghai Airlines, Great Wall Airlines and Shanghai International Freight Airlines
Co., Ltd. have strengthened our competitive position in the domestic air cargo sector. We have also recently initiated a strategy
to accelerate the transition of our role from air cargo transportation enterprise to aviation and logistics services provider.
On December 26, 2012, we established China Eastern Airlines Logistic Company by merging China Cargo Airlines and Eastern Logistics,
which we believe will facilitate our development of services with respect to courier, logistics solutions and aviation trade and
on-site logistics services platforms.



Domestic Rail



The PRC government
is aggressively implementing the expansion of its domestic high-speed rail network, which will provide train services at a speed
of up to 350km per hour connecting major cities such as Beijing, Shanghai, Wuhan, Qingdao, Guangzhou, Dalian and Hong Kong. The
expansion of the coverage of this network and improvements in railway service quality, increased passenger capacity and stations
located closer to urban centers than competing airports could enhance the relative competitiveness of the railway service and affect
our market share on some of our key routes, in particular our routes of between 500km to 800km. The high-speed railway connecting
Beijing and Shanghai commenced operations in July 2011, and has substantially affected our Beijing and Shanghai routes, as well
as routes between Shanghai and Jinan, Beijing and Nanjing, Shanghai and Xuzhou, Shanghai and Tianjin and Beijing and Changzhou.



With a PRC national
high-speed railway network expected to be established and fully functional sometime in 2013, we will inevitably face increasing
competition and pricing pressures from this railway service. Therefore, we have been taking active measures in decreasing the number
of short-haul routes that overlap with such high-speed train routes, as well as adjusting certain airfare prices on affected routes,
facilitating “air-to-railway” transfers and allocating flight resources to alternative routes or medium-to-long-haul
routes that have higher profitability, higher demand and lessened competition. We expect to continue exploring cooperation opportunities
with domestic railway authorities, while maintaining and strengthening our other competitive advantages, which include providing
high quality services, increasing our pre-sale product promotions and developing our transfer services.



Regional





Our Hong Kong routes
are highly competitive. The primary competitor on our Hong Kong routes is Cathay Pacific Airways ("Cathay"), and Hong
Kong Dragon Airlines Limited ("Dragonair"). We currently operate approximately 21 flight routes between Chinese cities
and Hong Kong. Cathay and Dragonair compete with us on several of these routes, particularly the Shanghai-Hong Kong route. We also
face competition from Spring Airlines on our ShanghaiHong Kong, Hangzhou-Hong Kong, Nanjing-Hong Kong and Shanghai-Macau routes.
The Air Transportation Arrangement signed between the PRC government and the administrative government of Hong Kong in February
2000 provides for equal opportunity for airlines based in Hong Kong and mainland China. As a result, Dragonair has increased the
frequency of its flights on several of our Hong Kong routes, resulting in intensified competition. Our Company also faces competition
from Dragonair in our Hong Kong cargo operations. Cathay, which owns Dragonair, also cooperates with Air China and operates all
passenger services of Cathay and Air China between Hong Kong and mainland China as joint venture routes under code-share and revenue
and cost-pooling arrangements. This may further intensify the competition on the routes between Hong Kong and mainland China and
impose greater competitive pressure on the other airline companies operating on these routes.





Prior to 2003, there
was no direct air link between mainland China and Taiwan. As such, our operations on the regional routes benefited from traffic
between Hong Kong and mainland China ultimately originating in Taiwan. Following a series of limited chartered flights operated
between a number of mainland Chinese cities and Taiwan, from July 2008, 36 direct flights between Taiwan and mainland China were
permitted on weekends from Fridays through Mondays on a regular basis. On December 15, 2008, mainland China and Taiwan commenced
direct air and sea transport and postal services, ending a nearly six-decade ban on regular links between the two sides since 1949.
Under a historic agreement signed by mainland China and Taiwan in early November 2008, the new air links expanded from weekend
charters to a daily service, 108 flights per week in 2008 and approximately 270 and 370 regular direct flights per week in 2009
and 2010, respectively. At the end of 2011, the two sides agreed to increase the total number of flights to 616 per week and to
increase the total number of destination airports in mainland China and Taiwan to 50. The two sides also previously agreed to launch
chartered cargo flights between two terminals in mainland China, namely, Shanghai Pudong and Guangzhou airports, and two terminals
in Taiwan, namely, Taoyuan and Kaohsiung airports. Previously, a substantial number of our passengers travelled on our Hong Kong
routes in order to connect flights to and/or from Taiwan. However, with the increasing availability of direct flights between mainland
China and Taiwan, we may experience a significant decline in passenger traffic volumes on our Hong Kong routes and, as such, our
revenues derived from operating such routes could be materially and adversely affected. We currently operate flights to Taipei
from Shanghai, Nanjing, Xi’an, Kunming, Wuhan, Hefei, Nanchang, Ningbo, Taiyuan, Shijiazhuang and Qingdao. Through our absorption
of Shanghai Airlines in 2010, we have added three additional direct routes to Taipei from Shanghai, Tianjin and Nanjing. In addition,
we signed a strategic framework agreement in April 2010 with China Airlines of Taiwan to cooperate on routes to and from the PRC
and Taiwan. However, as one of the several airlines offering Taiwan-mainland China direct flight services, we cannot assure you
that our Company has obtained or will continue to be allocated sufficient Taiwan-mainland China routes or that the yields on these
routes would be adequate to offset any material adverse effect on our revenues derived from operating our Hong Kong routes.



We previously competed
with Air Macau on the Shanghai Pudong-Macau route but ceased to operate that route in October 2008. Air Macau’s routes also
provide an alternative to our Hong Kong routes for passengers travelling between Taiwan and mainland China.



International



We compete with Air
China, China Southern and many other well-established foreign carriers on our international routes. Most of our international competitors
are very well-known international carriers and are substantially larger than we are and have substantially greater financial resources
than we do. Many of our international competitors also have significantly longer operating histories and greater name recognition
than we do. Some international passengers, who may perceive these airlines to be safer and provide better service than Chinese
airlines in general, may prefer to travel on these airlines. In addition, many of our international competitors have more extensive
sales networks and utilize more developed reservation systems than ours, or engage in promotional activities, such as frequent
flyer programs, that may be more popular than ours and effectively enhance their ability to attract international passengers.



23







We also face significant
competition in our international cargo operations. Moreover, China and the United States entered into an air service agreement
on July 24, 2004. Pursuant to this agreement, five additional airlines from each country are allowed to serve the China-U.S. market
over the next few years. Another air transport agreement was signed between China and the United States on July 9, 2007 in order
to increase travel and tourism and promote cultural, business and governmental exchanges between China and the United States, as
well as to promote the ultimate objective of full liberalization of the bilateral air transport market. A trade services agreement
was also signed between China and ASEAN countries in January 2007 and became effective in July 2007 to remove the restrictions
on China’s entry into foreign freight markets.



Air China operates
the largest number of international routes among all Chinese airlines. Beijing, the hub of Air China’s operations, is the
destination for most international flights to China. We primarily compete with Air China, All Nippon Airways, Japan Airlines, and
Spring Airlines on our passenger routes to Japan. On our Korean routes, we compete with China Southern Airlines, Air China and
Asiana Airlines and Korean Air. Our principal competitors on our flights to Southeast Asia include Thai Airways International,
Singapore Airlines, Malaysia Airlines, Air Asia and Vietnam Airlines. On our passenger flights to the United States, our principal
competitors include Delta Air Lines, United Airlines, American Airlines, Air China and Air Canada. On our European routes, our
competitors include Air China, the Air France-KLM Group, Virgin Atlantic Airways, British Airways, Lufthansa German Airlines and
Alitalia. We compete with Air China, China Southern Airlines and Qantas Airways on our Australian routes. We compete in the international
market on the basis of price, service quality, frequency of scheduled flights and convenient sales arrangements. To improve our
competitive position in international markets, we have established additional dedicated overseas sales offices, launched our own
frequent flyer program, participated in “Asia Miles”, a popular frequent flyer program in Asia, and entered into code-sharing
arrangements with a number of foreign airlines. We have also improved our online reservation and payment system. In 2012, we implemented
code-sharing programs covering 274 destinations along 429 routes with SkyTeam member airlines. See “ – Marketing and
Sales – SkyTeam Alliance.”



In addition, in June
2011, we joined SkyTeam, an international airlines alliance and frequent flyer mileage program that includes, among others, international
carriers such as Delta, China Southern, Alitalia, Air France and KLM. As a member of SkyTeam alliance, our Elite members can enjoy
over 525 lounges world-wide.



Maintenance and Safety



The rapid increase
in air traffic volume in China in recent years has put pressure on many components of China’s airline industry, including
air traffic control systems, the availability of qualified flight personnel and airport facilities. In recent years, the CAAC has
placed increasing emphasis on the safety of airline operations in China and has implemented a number of measures aimed at improving
the safety record of the airlines. Our ability to provide safe air transportation in the future depends on the availability of
qualified and experienced pilots in China and the improvement of maintenance services, national air traffic control and navigational
systems and ground control operations at Chinese airports. We have a good safety record and regard the safety of our flights as
the most important component of our operations.



Maintenance Capability



Through our cooperation
with service providers and ventures with other companies, we currently perform regular repair and maintenance checks on all of
our aircraft, which include D1 checks, C checks and other maintenance services for certain aircraft and other flight equipment.
We also perform certain maintenance services for other Chinese airlines. Our primary aircraft maintenance base is at Hongqiao International
Airport. In 2011, we commenced use of a newly constructed wide-body aviation hangar at Hongqiao International Airport, which can
accommodate the maintenance of two of our wide-body aircraft and one narrow-body aircraft. We have additional maintenance bases
at Pudong International Airport and some of our provincial hubs. Our maintenance staff in Shanghai supervises the operation of
our regional maintenance facilities. We employed approximately 12,698 workers as maintenance and engineering personnel as of December
31, 2012. Some of our aircraft maintenance personnel have participated in the manufacturer training and support programs sponsored
by Airbus and Boeing. In order to enhance our maintenance capabilities and to reduce our maintenance costs, we have, over the past
few years, acquired additional maintenance equipment, tools and fixtures and other assets, such as airborne testing and aircraft
data recovery and analysis equipment. Our avionics equipment is primarily maintained and repaired at our electronic maintenance
equipment center located in Shanghai.



We entered into
a joint venture with Honeywell International Inc., formerly Allied Signal Inc., in Shanghai for the purpose of performing maintenance
and repairs on aircraft wheel assemblies and brakes. Since October 1997, we have operated a maintenance hangar at Hongqiao International
Airport which has the capacity to house two wide-body aircraft. Our Company and Rockwell Collins International Inc. of the United
States have also co-established Collins Aviation Maintenance Service Shanghai Limited, which is primarily engaged in the provision
of repair and maintenance services for avionics and aircraft in-flight entertainment facilities in China. Our Company and Rockwell
Collins International Inc. hold 35% and 65%, respectively, of the equity interests in the joint venture. Moreover, in November
2002, our Company, jointly with Aircraft Engineering Investment Limited, established Shanghai Eastern Aircraft Maintenance Limited,
in which our Company holds 60% of the equity interests, to provide supplemental avionics and other maintenance services to our
Company. STA, which was established in 2004 by our Company and Singapore Technologies Aerospace Ltd. under a joint venture agreement
dated March 10, 2003, also provides us with aircraft maintenance, repair and overhaul services.



On November 6, 2007,
we entered into a joint venture with United Technologies Corp., or UTC, to establish Shanghai Pratt & Whitney Aircraft Engine
Maintenance Co., Ltd., or Pratt & Whitney, for the purpose of performing maintenance and repairs on aircraft engines. Our Company
and UTC contributed US$20,145,000 and US$19,355,000, respectively, to the registered capital and hold 51% and 49%, respectively,
of the equity interests in the joint venture. Moreover, after our absorption of Shanghai Airlines, we took over its 15% equity
interest in Boeing Shanghai Aviation Services Co., Ltd. (“Boeing Shanghai”). As of December 31, 2012, Boeing (China)
Investment Co., Ltd., Shanghai Airport (Group) Co., Ltd. and Boeing (Asia) Services Investment Limited hold 35.3%, 25.0% and 24.7%,
respectively, of the remaining equity interest. Boeing Shanghai was founded in 2006 with a registered capital of US$85,000,000,
and operates a maintenance hangar with the capacity to provide aircraft modification and maintenance services for two wide-body
aircraft and one narrow-body aircraft and provides aircraft modification and maintenance services. In addition, we also hold 50%
of Shanghai Airlines’ previous equity interest in Shanghai Hute Aviation Technology Co., Ltd. (“Shanghai Hute”).
The remaining equity interest is held by Sichuan Haite High-Tech Co., Ltd. Shanghai Hute was founded in 2003 with a registered
capital of RMB30,000,000, and provides maintenance services for aviation equipment. The enhancement of our maintenance capabilities
allows our Company to perform various maintenance operations in-house and continue to maintain lower spare parts inventory levels.



Safety



The provision of safe
and reliable air services for all of our customers is one of our primary operational objectives. We implement uniform safety standards
and safety-related training programs in all operations. Our flight safety management division monitors and supervises our Company’s
flight safety. We have had a flight safety committee since the commencement of our business, comprised of members of our senior
management, to formulate policies and implement routine safety checks at our Shanghai headquarters and all provincial hubs. The
flight safety committee meets monthly to review our overall operation safety record during the most recent quarter and to adopt
measures to improve flight safety based upon these reviews. We have also implemented an employee incentive program, using a system
of monetary rewards and discipline, to encourage compliance with the CAAC safety standards and our safety procedures. We periodically
evaluate the skills, experience and safety records of our pilots in order to maintain strict control over the quality of our pilot
crews. In 2011, we were awarded the “Flight Safety Five-star Award” by CAAC for our commitment to aviation and operations
safety.



24







In 2012, we continued
to strengthen our Safety Management System ("SMS"). We issued work implementation plans that provided specific measures
to address risks such as lighting strikes, hard aircraft landings and communication systems failures. In addition, we established
the Nantong Airport training base to provide additional training programs for our flight crews. Furthermore, we formulated the
“Assessment and Remuneration Packages of Star-rating flight Crew Members”, which commenced star-rating assessment of
all flight crew members in terms of flight safety, flight quality, discipline and provision of services.



The management of
each of our provincial hub operations is responsible for the flight safety operations at the respective hub under the supervision
of our flight safety management division. We prepare monthly safety bulletins detailing recent developments in safety practices
and procedures and distribute them to each of our flight crew, the maintenance department and the flight safety management department.
The CAAC also requires our Company to prepare and submit semi-annual and annual flight safety reports.



All of our jet passenger
aircraft pilots participated in the manufacturer training and support programs sponsored by Airbus and Boeing and are required
to undergo recurrent flight simulator training and to participate in a flight theory course periodically. We use flight simulators
for A300-600R, A320 and A330/340 aircraft at our own training facility, the training facility located in the CAAC training center
or overseas training facilities.



Cyber-security



With respect to our
internal policies on cyber-security and internet safety, we have established an information safety management system and issued
internal regulations on cyber-security, internal hardware and data safety systems to prevent loss of information due to cyber-security
incidents, network outages or hardware incidents. We also plan to implement measures relating to the office environment information
safety management and information system emergency management, information system access control, protection from any malicious
software, management of information exchange tools and internal review and audit of information safety risks. Furthermore, we have
entered into a strategic cooperation plan with the China Information Technology Security Evaluation Center by which their trained
engineers evaluate our internal data security policies and cyber-security measures. In 2012, we established and announced two internal
regulations relating to cyber-security, namely, China Eastern Airlines Information Security Management Regulation, and China
Eastern Airlines Information System Application and Development Safety Regulation, which we believe will strengthen our information
safety management systems and overall cyber-security defenses. During the year ended December 31, 2012, we did not experience any
material cyber-security incidents or related losses.



Fuel Supplies



Fuel costs represented
approximately 36.10% of our operating expenses in 2012. We currently purchase a significant portion of the aviation fuel for our
domestic routes from regional branches of the CAOSC. Fuel costs in China are affected by costs at domestic refineries and limitations
in the transportation infrastructure, as well as by insufficient storage facilities for aviation fuel in certain regions of China.
Fuel prices at six designated major airports in China, namely, the airports in Shanghai Pudong, Shanghai Hongqiao, Beijing, Guangzhou,
Shenzhen and Tianjin, are set and adjusted once a month by the CAAC in accordance with prevailing fuel prices on the international
market. For our international routes, we purchase a portion of our aviation fuel from foreign fuel suppliers located at the destinations
of these routes, generally at international market prices.



In 2012, we consumed
approximately 4.2 million tonnes of fuel, an increase of 7.2% from 2011. Our aviation fuel expenditures reached RMB29,872 million
(based on value-added tax), representing an increase of 2.20% from RMB29,229 million last year, as a result of the expansion of
our operations and an increase of approximately 2.14% in the average weighted price of aviation fuel in 2012. We implemented the
policy of transformation from business tax to value-added tax in 2012. If calculated in line with the business tax, aviation fuel
costs for 2012 grew by 9.52% from last year, and the increase in price of jet fuel increased aviation fuel expenditures by approximately
RMB671 million. The increase in aviation fuel consumption resulted in an increase in aviation fuel expenditures of approximately
RMB2,111 million. Jet fuel prices were volatile in 2011 and into 2012, with heightened political tensions between certain Middle
Eastern countries and the United States, as well as continued political instability and turmoil in certain Middle Eastern countries.
While there was a slight increase during the first quarter of 2012, fuel prices began decreasing and reached its lowest point in
July 2012 since January 2012. However, from August to October, the fuel prices gradually returned to the same price level as in
the first quarter of 2012. We cannot assure you that fuel prices will not further fluctuate in the future. Further, due to the
highly competitive nature of the airline industry and government regulation on airfare pricing, we may be unable to fully or effectively
pass on to our customers any increased fuel costs we may encounter in the future. However, we intend to continue focusing on enhancing
our jet fuel procurement policies and developing additional internal cost-control measures, which include streamlining the number
of aircraft models in our fleet and optimizing route structures, which we believe will enable us to control our fuel costs.



Ground Facilities and Services



The center of our
operations is Shanghai, one of China’s principal air transportation hubs. Our Shanghai operations are based at Hongqiao International
Airport and Pudong International Airport. We currently also operate from various other airports in China, including Yaoqiang Airport
in Jinan, Lukou Airport in Nanjing, Liuting Airport in Qingdao, Luogang Airport in Hefei, Changbei Airport in Nanchang, Wushu Airport
in Taiyuan, Zhengding Airport in Shijiazhuang, Lishe Airport in Ningbo, Tianhe Airport in Wuhan, Wujiaba Airport in Kunming and
Xianyang Airport in Xi’an. We own hangars, aircraft parking and other airport service facilities at these airports, and also
provide ground services in these locations. We lease from CEA Holding certain buildings at Hongqiao International Airport where
our principal executive offices are located.



We have our own ground
services and other operational services, such as aircraft cleaning and refueling and the handling of passengers and cargo for our
operations at Hongqiao International Airport and Pudong International Airport. We also provide ground services for many other airlines
that operate to and from Hongqiao International Airport and Pudong International Airport.



In-flight meals and
other catering services for our Shanghai-originated flights are provided primarily by Shanghai Eastern Air Catering Limited Liability
Company, a joint venture company affiliated with CEA Holding. We generally contract with local catering companies for flights originating
from other airports.



We incur certain airport
usage fees and other charges for services performed by the airports from which we operate flights, such as air traffic control
charges, take-off and landing fees, aircraft parking fees and fees payable in connection with the use of passenger waiting rooms
and check-in counter space. At domestic airports, such fees are generally charged at rates prescribed by the CAAC, which are lower
than rates generally in effect at airports outside China.



25







Marketing And Sales



Passenger Operations



Our marketing strategy
with respect to passenger operations is primarily aimed at increasing our market share for all categories of air travelers. With
respect to our Hong Kong and international routes, we are permitted to market our services on the basis of price. We have limited
flexibility in setting our airfares for domestic routes and adjust our domestic airfares in response to market demand. As part
of our overall marketing strategy, we emphasize our commitment to safety and service quality. We believe that emphasis on safety
is a critical component of our ability to compete successfully.



We have also adopted
customized strategies to market our services to particular travelers. We seek to establish long-term customer relationships with
business entities that have significant air travel requirements. In order to attract and retain business travelers, we focus on
the frequency of flights between major business centers, convenient transit services and an extensive sales network. We launched
our initial frequent flyer program in 1998 and joined the “Asia Miles” frequent flyer program in April 2001 to attract
and retain travelers. In August 2003, we upgraded and rebranded our frequent flyer program to “Eastern Miles” and introduced
a series of new services, including, among others, instant registration of membership and mileage, online registration of mileage,
and accumulation of mileage on expenses at certain hotels, restaurants and other service providers that are our strategic partners.
As a result of our continual efforts to develop the “Eastern Miles” program, the number of members of the frequent
flyer program reached over 18 million in 2012. The special services hotline “95530” call center was established and
came into operation in 2004. In addition, in 2012, we further expanded our marketing efforts to certain travelers by offering four
frequent-flyer products that target different levels of demand and consumption, which include the "Eastern Premium",
which provides concierge-style services to business travelers; "Eastern Privileges", which provide door-to-door services
for potential high-net worth travelers; "Eastern Far Reach", which provides services to special-needs travelers; and
"Eastern Shuttle", which provides travelers bound for Yunnan with itinerary design, transit and other value-added services.



In light of the expansion
of national high-speed railway network, we have cooperated with the Shanghai Railway Bureau to launch “Air-Rail Pass Transportation”
products in 13 cities in the Yangtze River Delta including Nanjing, Hangzhou and Suzhou in 2012. Our domestic and international
flights together with its high-speed railway products at Shanghai Hongqiao International Airport and Shanghai Pudong International
Airport have formed a air-rail two-way transportation product, which has helped us broaden our customer resources. Meanwhile, in
response to the low seasons, we have launched travel products such as “Journey to the Three Regions in Southern China”
(Yunnan, Hainan and Jiangnan) and “Journey to the West” (trip to greater western China via Xi’an), which has
effectively enhanced passenger load factor for flights during low seasons.



In terms of our customer
resources, we have actively explored and expanded our customer base of high-end business travelers to accelerate the development
of group clients. In 2012, we added over 200 group clients, of which 15 are global group clients, and the total number of our group
clients amounts to over 4,500. In addition, we have fully promoted the expansion of Eastern Miles membership. In order to attract
more members and to provide members with better experience in terms of diversity, comprehensiveness and flexibility, we have strengthened
our cooperation with retail store owners by increasing the number of co-operative stores to 74, covering various industries such
as financial services, hotel, car rental and health services. Our Eastern Miles members may accumulate and redeem points in these
retail stores and the total number of exchangeable goods through this program has increased to over 850 items. By the end of 2012,
we had over 3 million new Eastern Miles members, with a total of 18 million members.



Our advertising, marketing
and other promotional activities include the use of radio, television and print advertisements. We plan to continue to use advertising
and promotional campaigns to increase sales on new routes and competitive routes.



Ticket Booking
Systems



In 2002 and again
in 2012, we upgraded our online ticket booking and payment system to facilitate customer purchases of tickets via the Internet.
In 2012, we also expedited the construction of nine overseas websites in a variety of languages. Currently, our global website
covers North America, Australia, Europe and Asia Pacific. We continue to encourage our customers to book and purchase tickets via
the Internet by initiating various promotional campaigns and upgrading and expanding the services offered by our online sales system.
In 2012, we introduced "China Eastern Mobile E", a smartphone application that provides mobile flight booking, flight
status and online checking services, which we believe will provide our customers with additional convenient, value-added services.



We also maintain an
extensive domestic network of sales agents and representatives in order to promote in-person ticket sales and to assist customers.
The majority of our airline tickets are sold by domestic and international sales agents. Our tickets are sold throughout China
through over 8,400 large and mid-sized sales agencies and travel agencies who have contractual relationships with us. Currently,
our direct domestic ticket sales are handled primarily through employees based at our ticket counters located at airports such
as Hongqiao International Airport and Pudong International Airport in Shanghai and in Anhui, Zhejiang, Shandong and Yunnan provinces,
as well as at airports in Beijing, Chengdu, Fuzhou, Guangzhou, Hangzhou, Shenzhen, Xiamen and Yantai. Direct sales are also promoted
through the availability of our telephone reservation and confirmation services. In addition to our domestic sales agents located
in various cities in mainland China, Hong Kong, Macau and Taiwan, we maintain overseas sales or representative offices worldwide,
including: (i) North American locations such as Honolulu, Los Angeles, New York, San Francisco and Vancouver; (ii) European and
Middle Eastern locations such as Frankfurt, Hamburg London, Moscow, Paris, Rome, Madrid, Brussels and Munich; (iii) Asia-Pacific
locations such as Seoul, Tokyo, Osaka, Nagoya, Fukuoka, Hiroshima, Sapporo, Niigata, Fukushima, Okinawa, Shizuoka, Kanazawa, Toyama,
Nagasaki, Kagoshima, Okayama, Matsuyama, Singapore, Bangkok, Phuket, New Delhi, Kolkata, Kuala Lumpur, Ho Chi Minh, Bali, Dubai,
Dhaka, Phnom Penh, Siem Reap, Vientiane, Yangon, Mandalay, Kathmandu and Maldives; and (iv) Australian locations such as Melbourne
and Sydney. We maintain around 50 overseas sales or representative offices as of December 31, 2012.



As of June 1, 2008,
we stopped issuing paper tickets for air travel in accordance with a mandate from the International Air Transport Association (“IATA”).
The IATA represents approximately 240 airlines and comprises approximately 94% of scheduled international air traffic. As a result
of the mandate, we now issue electronic itineraries and receipts as well as electronic tickets to our passengers. We believe the
transition to 100% electronic ticketing will decrease administrative costs and increase flexibility and travel options for passengers
in addition to benefiting the environment through the reduced need for paper. All of our direct passenger ticket sales are recorded
on our computer systems. Most Chinese airlines, including us, are required to use the passenger reservation service system provided
by the CAAC’s computer information management center, which is linked with the computer systems of major Chinese commercial
airlines. We have also entered into membership agreements with several international reservation systems, including ABACUS, the
largest computer reservation system in southeast Asia, TOPAS of Korea, SABRE, GALILEO and WORLDSPAN of the United States, AMADEUS
of Europe, INFINI and AXESS of Japan and Sirena-Travel of Russia, which have made it easier for customers and sales agents to make
reservations and purchase tickets for our international flights.



SkyTeam Alliance



We officially joined
SkyTeam, an international airlines alliance and frequent flyer mileage program that includes international carriers such as, among
others, Delta, China Southern, Alitalia, Air France and KLM, on June 21, 2011. As of the date of this Annual Report, we have entered
into frequent flyer and airport lounges agreements with 19 SkyTeam member airlines and implemented code-sharing programs covering
274 destinations along 429 routes with SkyTeam member airlines, as well as 130 destinations along 142 routes with non-SkyTeam member
airlines, which has further broadened the coverage of the Group’s route network.



26







By connecting to the
route networks of other SkyTeam member airlines, we are able to offer its passengers seamless transit to over 1000 destinations
in 187 countries under a single plane ticket with direct luggage services. Passengers may also enjoy the comfort of more than 490
VIP airport lounges of SkyTeam around the world. The entry of our Company as well as Shanghai Airlines into SkyTeam became effective
on June 21, 2011. We believe this will be another benefit for our passengers, as they will be afforded additional flight options
and frequent flyer mileage benefits through our SkyTeam alliance partners. In addition, our Company will benefit from possible
codeshare and cooperative flight options, reduced costs and increased alliance-related marketing and promotion overseas.



Cargo Operations



We maintain a network
of cargo sales agents domestically and internationally. We and our cooperative partners in our cargo operations have established
domestic cargo sales offices in Beijing, Shanghai, Xiamen and other major transportation hubs in China, and international cargo
sales offices in various locations in the U.S., Europe and the Asia-Pacific Region. In 2005, we established our northern China,
southern China, southeastern China and overseas sales management centers to improve coordination among our sales offices. In addition,
we work closely with two major international freight forwarders, DHL Global Forwarding Co., Ltd. (“DHL Global”) and
E.I. Freight Forwarding Co., Ltd. (“EI”), to operate international cargo lines that originate from Shanghai. We have
entered into global rewards agreements with DHL Global and EI, granting them certain incentive rewards for increases in freight
volume.



In 2012, we established
a global freight transportation command center, which enables us to fully control and manage our operations at over 58 freight
terminals, as well as implemented certain international quality benchmarks in accordance with Cargo2000, a quality control management
standard for international aviation freight transportation operations, which we will believe will enable us to strengthen the cargo
transportation services that we are able to provide.



Our subsidiary, China
Cargo Airlines, formally signed a letter of intent on June 6, 2012 to join SkyTeam Cargo, currently the world’s only airline
cargo alliance, which will enable it to further expand its cargo network coverage, strengthen its transit capacity, provide better
and more efficient ground services, while lowering operational costs. We expect China Cargo Airlines to receive formal SkyTeam
Cargo membership in late 2013.



Tourism
and Travel Services, Logistics Services and Ancillary Activities



In addition to our
airline operations, we also generate commission revenues from tickets sold on behalf of other airlines. Commission rates for these
sales are determined by the CAAC and are based on the price of the tickets sold. In December 2003, we acquired 10% of SEDC’s
then equity interest and 35% of CEA Holding’s then equity interest in Shanghai Dong Mei Aviation Travel Corporation Limited,
a company that is primarily engaged in the business of selling air tickets, hotel reservation, travel agency and other related
services.



With our subsidiary,
Shanghai Airlines, we derive revenue from tourism and travel services through Shanghai Airlines Tours International (Group) Co.,
Ltd. (“Shanghai Tours”). Shanghai Tours provides various business and leisure travel services, including inbound, outbound
and domestic travel, conference and exhibition planning, flight chartering and plane ticket reservation, tour bus and hotel reservation
and other related services. Shanghai Tours is a member of the China Association of Travel Services and Shanghai Association of
Tourism (International and Domestic Travel Services divisions), as well as a member of Shanghai Association of Quality, and has
been admitted into many international travel organizations including the IATA. Shanghai Tours has won several awards as a travel
services provider, as well as awards and honors for its professional staff and vacation package offerings.



We also derive revenues
from the provision of airport ground services for airlines operating to or from Hongqiao International Airport and Pudong International
Airport, including aircraft cleaning, loading, unloading, storage and ground transportation of cargo and passenger luggage. At
present we are the principal provider of these services at Hongqiao International Airport and Pudong International Airport. We
provide these services to foreign carriers generally pursuant to one-year renewable contracts. In 2012, we generated net revenues
of approximately RMB2,119 million from our airport ground services and cargo handling services (2011:RMB2,383 million; 2010:RMB2,631 million).



We have other ancillary
activities, including investments in other industrial projects and provision consulting services under Shanghai Eastern Airlines
Investment Co., Ltd. Along with CEA Holding, we also established China Eastern Real Estate Investment Co., Ltd., which is primarily
engaged in the real estate business, including the development and sales of commercial premises and property leasing in Shanghai,
China.



In 2012, we leveraged
on our internal resources to establish a business platform that provides diversified logistics and management solutions and services
under the Shanghai Eastern Airlines Logistics Co., Ltd. ("Eastern Logistics"), which includes the integrated operations
of China Cargo Airlines and Shanghai Far Eastern Airlines Logistics Co., Ltd. Eastern Logistics is expected to engage in shipping
agency, ground cargo handling, logistics, road freight transport (general freight), warehousing and property management. We believe
Eastern Logistics will enable us to develop new revenue sources and diversify our ancillary operations, while responding to customer
demand for one-stop cargo transportation and logistics services. See "Item 7. Major Shareholders and Related Party Transactions."



Patents
and Trademarks



We own or have obtained
licenses to use various domestic and foreign patents, patent applications and trademarks related to our business. While patents,
patent applications and trademarks are important to our competitive position, no single one is material to us as a whole.  In
addition, we own various trademarks related to our business. The most important trademark is the service trademark of China Eastern
Airlines Corporation Limited. All of our trademarks are registered in China.



Insurance



The CAAC purchases
fleet insurance from PICC Property and Casualty Company Limited ("PICC"), and China Pacific Property Insurance Company
Ltd., on behalf of all Chinese airlines. PICC has reinsured a substantial portion of its aircraft insurance business through Lloyd’s
of London. The fleet insurance is subject to certain deductibles. The premium payable in connection with the insurance is allocated
among all Chinese airlines based on the aircraft owned or leased by these airlines. Under the relevant PRC laws, the maximum civil
liability of Chinese airlines for injuries to passengers traveling on domestic flights has been increased to RMB400,000 per passenger
in March 2006, for which our Company also purchases insurance. As of July 31, 2006, the Convention for the Unification of Certain
Rules for International Carriage by Air of 1999, or Montreal Convention, became effective in China. Under the Montreal Convention,
carriers of international flights are strictly liable for proven damages up to 100,000 Special Drawing Rights and beyond that,
carriers are only able to exclude liability if they can prove that the damage was not due to negligence or other wrongful act of
the carrier (and its agents) or if the damage solely arose from the negligence or other wrongful act of a third party. We believe
that we maintain adequate insurance coverage for the civil liability that can be imposed due to injuries to passengers under Chinese
law, the Montreal Convention and any agreement we are subject to. We also maintain hull all risk, hull war risk and aircraft legal
liability insurance, including third party liability insurance, of the types and in amounts customary for Chinese airlines. See
also “Item 3. Key Information — Risk Factors — Risks Relating to the Company — Our insurance coverage and
costs have increased substantially, and could have an adverse effect on our operations” for more information on our Company’s
insurance coverage.”



27







C. Organizational Structure



See the section headed “Item 4. Information
on the Company — History and Development of the Company”.



D. Property, Plant And Equipment



Fleet



As of December 31,
2012, we operated a fleet of 428 aircraft, including 397 passenger aircraft, most with a seating capacity of over 100 seats, 19
freighters and 12 business aircraft in custody. In 2012, we completed: (i) the purchase and finance-lease of a total of 31 aircraft,
including five A321 aircraft, ten A320 aircraft, six A330–200 aircraft, seven A319 aircraft, two B737–700 aircraft
and one B737–800 aircraft; (ii) the operating- lease of 18 aircraft, including nine A320 aircraft and nine B737–800
aircraft; and (iii) the retirement of ten aircraft, including disposal of five A340–300 aircraft and one Hawker800 aircraft;
and surrender of the lease of two A319 aircraft, one B737–800 aircraft and one B737–700 aircraft.



On April 27, 2012,
we entered into a purchase agreement with Boeing Company in Shanghai, China regarding the purchase of 20 Boeing B777- 300ER aircraft.
On the same date, we entered into a disposal agreement with Boeing Company regarding the disposal of five Airbus A340-600 aircraft.
On November 23, 2012, we entered into a purchase agreement with Airbus SAS in Shanghai, China regarding the purchase of 60 Airbus
A320 series aircraft. On the same date, we entered into a disposal agreement with Airbus SAS regarding the disposal of eight CRJ
aircraft and ten EMB aircraft. For details, please refer to the announcements furnished to the SEC on Form 6-K dated April 27,
2012 and November 23, 2012. We plan to continue to expand our scale in 2013 and to adjust and optimize our route network, thereby
increasing our competitiveness and ability to create more attractive products and services to meet the needs of the market.



Existing Fleet



As of December 31,
2012, we had a fleet of 428 aircraft, including 397 passenger aircraft each with a seating capacity of over 100 seats, 19 freighters
and 12 business aircraft in custody. The following table sets forth the details of our fleet as of December 31, 2012:





|                                                  |  | Total Number of Aircraft |                |  | Number of Aircraft Owned and under Finance Lease |  |     | Aircraft under Operating Lease |  |  | Average Number of Seats |  |  | AverageAge (inyears) (1) |    
|------------------------------------------------- |  | ------------------------ | -------------- |  | ------------------------------------------------ |  | --- | ------------------------------ |  |  | ----------------------- |  |  | ------------------------ | ---
|Jet Passenger Aircraft:                           |  |                          |                |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    
|Wide-body:                                        |  |                          |                |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    
|A340-600                                          |  |                          | 5              |  |                                                  |  | 5   |                                |  |  | —                       |  |  |                          | 322
|A330-300                                          |  |                          | 15             |  |                                                  |  | 8   |                                |  |  | 7                       |  |  |                          | 300
|A330-200                                          |  |                          | 7              |  |                                                  |  | 10  |                                |  |  | 3                       |  |  |                          | 264
|A300-600R                                         |  |                          | 7              |  |                                                  |  | 7   |                                |  |  | —                       |  |  |                          | 271
|B767                                              |  |                          | 7              |  |                                                  |  | 6   |                                |  |  | 1                       |  |  |                          | 253
|Narrow-body:                                      |  |                          |                |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    
|A321                                              |  |                          | 27             |  |                                                  |  | 27  |                                |  |  | —                       |  |  |                          | 177
|A320                                              |  |                          | 131            |  |                                                  |  | 98  |                                |  |  | 33                      |  |  |                          | 158
|A319                                              |  |                          | 20             |  |                                                  |  | 12  |                                |  |  | 8                       |  |  |                          | 122
|B737-800                                          |  |                          | 73             |  |                                                  |  | 17  |                                |  |  | 56                      |  |  |                          | 164
|B737-700                                          |  |                          | 55             |  |                                                  |  | 37  |                                |  |  | 18                      |  |  |                          | 134
|B757-200                                          |  |                          | 10             |  |                                                  |  | 5   |                                |  |  | 5                       |  |  |                          | 184
|B737-300                                          |  |                          | 16             |  |                                                  |  | 16  |                                |  |  | —                       |  |  |                          | 136
|EMB 145LR                                         |  |                          | 10             |  |                                                  |  | 10  |                                |  |  | —                       |  |  |                          | 50 
|CRJ-200                                           |  |                          | 8              |  |                                                  |  | 8   |                                |  |  | —                       |  |  |                          | 50 
|Total Passenger Aircraft:                         |  |                          | 397            |  |                                                  |  | 266 |                                |  |  | 131                     |  |  |                          | N/A
|                                                  |  |                          |                |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    
|Cargo Aircraft:                                   |  |                          |                |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    
|MD-11F                                            |  |                          | 3              |  |                                                  |  | —   |                                |  |  | 3                       |  |  |                          | —  
|A300-600R                                         |  |                          | 3              |  |                                                  |  | 3   |                                |  |  | —                       |  |  |                          | —  
|B747                                              |  |                          | 5              |  |                                                  |  | 2   |                                |  |  | 3                       |  |  |                          | —  
|B757-200F                                         |  |                          | 2              |  |                                                  |  | —   |                                |  |  | 2                       |  |  |                          | —  
|B777F                                             |  |                          | 6              |  |                                                  |  | —   |                                |  |  | 6                       |  |  |                          | —  
|Total Cargo Aircraft:                             |  |                          | 19             |  |                                                  |  | 5   |                                |  |  | 14                      |  |  |                          | N/A
|Total number of passenger aircraft and freighters |  |                          | 416            |  |                                                  |  | 271 |                                |  |  | 145                     |  |  |                          | N/A
|                                                  |  |                          | No. of custody |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    
|Business Aircraft                                 |  |                          | 12             |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    
|Total Fleet                                       |  |                          | 428            |  |                                                  |  |     |                                |  |  |                         |  |  |                          |    



| | (1) | The average aircraft age is weighted by the number of available seats.
| | --- | ----------------------------------------------------------------------



28







Our daily average
aircraft utilization rate was 9.8 hours in 2012, remaining the same as in 2011. The table below sets forth the daily average utilization
rates of our jet passenger aircraft for each of the three years ended December 31, 2012:



|                                 |  | 2010       |      |  | 2011 |  |      | 2012 | 
|-------------------------------- |  | ---------- | ---- |  | ---- |  | ---- | ---- | 
|                                 |  | (in hours) |      |  |      |  |      |      | 
|Wide-body:                       |  |            |      |  |      |  |      |      | 
|A340-600                         |  |            | 11.9 |  |      |  | 12.0 |      | 
|A330-300                         |  |            | 9.4  |  |      |  | 9.4  |      | 
|A330-200                         |  |            | 13.8 |  |      |  | 14   |      | 
|A300-600                         |  |            | 8.5  |  |      |  | 8.1  |      | 
|B767-300                         |  |            | 9.1  |  |      |  | 10.2 |      | 
|Narrow-body:                     |  |            |      |  |      |  |      |      | 
|A321                             |  |            | 9.6  |  |      |  | 9.5  |      | 
|A320                             |  |            | 10   |  |      |  | 10.3 |      | 
|A319                             |  |            | 9.5  |  |      |  | 9.2  |      | 
|B737-800                         |  |            | 10.3 |  |      |  | 10.1 |      | 
|B737-700                         |  |            | 9.7  |  |      |  | 9.9  |      | 
|B737-300                         |  |            | 9.3  |  |      |  | 9.4  |      | 
|EMB 145                          |  |            | 8.3  |  |      |  | 9.7  |      | 
|CRJ-200                          |  |            | 6.6  |  |      |  | 6.7  |      | 
|B757-200                         |  |            | 8.9  |  |      |  | 8.3  |      | 
|Total Passenger Aircraft Average |  |            | 9.7  |  |      |  | 9.8  |      | 



Most of our jet passenger
aircraft were manufactured by either Airbus or Boeing. Our Airbus A340-600 aircraft are primarily used for our routes to the United
States, Europe, Korea and other international destinations, including Los Angeles, New York, London, Paris, Seoul, and Bangkok,
and on major domestic routes to cities. Our Airbus A330 aircraft are primarily used for our Beijing-Shanghai and Singapore, Australia,
India, Japan and Korea routes. Our Airbus A320 and Boeing B737 aircraft are suitable for middle and short distance flights and
are primarily used for our domestic routes. Our Airbus A320 aircraft are also used primarily on our Hong Kong routes. Our EMB145LR
and CRJ-200 aircraft are mainly used on our domestic short-distance routes.



Our MD-11F, A300-600R,
B777F and B747-400ER aircraft are used for our cargo operations and carry cargo to the United States, Europe and Japan.



Future Fleet Development



Our aircraft acquisition
program focuses on aircraft that will modernize and rationalize our fleet to better meet the anticipated requirements of our route
structure, taking into account aircraft size and fuel efficiency. Our aircraft acquisition program, however, is subject to the
approval of the CAAC and the NDRC. The following table summarizes our currently anticipated introduction and retirement of aircraft
from 2013 to 2017 as of December 31, 2012:





|                  |  | 2013E        |    |  | 2014E      |  |    | 2015E        |  |  | 2016E      |  |  | 2017E        |   
|----------------- |  | ------------ | -- |  | ---------- |  | -- | ------------ |  |  | ---------- |  |  | ------------ | --
|Model             |  | Introduction |    |  | Retirement |  |    | Introduction |  |  | Retirement |  |  | Introduction |   
|A320 Series       |  |              | 22 |  |            |  | 4  |              |  |  | 26         |  |  |              | - 
|A330 Series       |  |              | 8  |  |            |  | -  |              |  |  | 8          |  |  |              | - 
|A340 Series       |  |              | -  |  |            |  | -  |              |  |  | -          |  |  |              | 1 
|B737NG            |  |              | 26 |  |            |  | 5  |              |  |  | 24         |  |  |              | - 
|B757              |  |              | -  |  |            |  | -  |              |  |  | -          |  |  |              | 1 
|B777-300ER        |  |              | -  |  |            |  | -  |              |  |  | 4          |  |  |              | - 
|Regional Aircraft |  |              | -  |  |            |  | -  |              |  |  | -          |  |  |              | 8 
|A300-600F         |  |              | -  |  |            |  | 3  |              |  |  | -          |  |  |              | - 
|B747              |  |              | -  |  |            |  | -  |              |  |  | -          |  |  |              | 1 
|B757F             |  |              | -  |  |            |  | -  |              |  |  | -          |  |  |              | - 
|MD11              |  |              | -  |  |            |  | 2  |              |  |  | -          |  |  |              | - 
|Total             |  |              | 56 |  |            |  | 14 |              |  |  | 62         |  |  |              | 11



The actual quantity
and time for the introduction and retirement of any of these aircraft or any additional aircraft may depend on such factors as
general economic conditions, the levels of prevailing interest rates, foreign exchange rates, the level of inflation, credit conditions
in the domestic and international markets, conditions in the aviation industry in China and globally, our financial condition and
results of operations, our financing requirements, the terms of any financing arrangements, such as finance leases, and other capital
requirements. We believe that our aircraft acquisition plan will help us accomplish our expansion plans while maintaining an efficient
fleet and ensuring alternative sources of supply.



Fleet Financing
Arrangements



We generally acquire
aircraft through either long-term capital leases or operating leases. Under the terms of most capital leases, we generally are
obligated to make lease payments that finance most of the purchase price of the aircraft over the lease term. Upon the expiration
of the lease term, we must either purchase the aircraft at a specified price or pay any amount by which such price exceeds the
proceeds from the disposition of the aircraft to third parties. Alternatively, some capital leases provide for ownership of the
aircraft to pass to us upon satisfaction of the final lease payment. Under capital leases, aircraft are generally leased for approximately
the whole of their estimated working life, and the leases are either non-cancelable or cancelable only on a payment of a major
penalty by the lessee. As a result, we bear substantially all of the economic risks and rewards of ownership of the aircraft held
under capital leases. Operating leases, however, are customarily cancelable by the lessee on short notice and without major penalty.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases.



Operating Facilities



Our Company (including
subsidiaries and branches) had operations on 39 parcels of land, occupying a total area of approximately 1.8 million square meters,
as of December 31, 2012. In addition, as of December 31, 2012, our Company (including subsidiaries and branches) owned approximately
1,618 buildings with a total gross floor area of approximately 639,802.37 square meters. Our Company and major subsidiaries have
obtained the land use rights certificates and building ownership certificates for certain parcels of land and buildings, and are
currently in the process of applying for the certificates with respect to the remaining parcels and buildings.



Item 4A.               
Unresolved Staff Comments



None.



Item 5.                 
Operating and Financial Review and Prospects



You should read the
following discussion in conjunction with our audited consolidated financial statements, together with the related notes, included
elsewhere in this Annual Report. Our consolidated financial statements have been prepared in accordance with IFRS. This discussion
may include forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those
set forth under “Item 3. Key information — D. Risk Factors” or in other parts of this Annual Report.



29







Overview



Our primary business
is the provision of domestic, regional (which includes Hong Kong, Macau and Taiwan) and international passenger and cargo airline
services. Our overall capacity on an available tonne kilometer, or ATK, basis increased by 5.7%, from 18,662.5 ATKs in 2011 to
19,721.4 ATKs in 2012, and our passenger capacity on an available seat kilometer, or ASK, basis increased by 6.9%, from 127,890.8
ASKs in 2011 to 136,724.0 ASKs in 2012. Total traffic on a revenue tonne kilometer, or RTK, basis increased by 7.5%, from 13,402.1
RTKs in 2011 to 14,406.5 RTKs in 2012.



The historical results
of operations discussed in this Annual Report may not be indicative of our future operating performance. Like those of other airlines,
our operations depend substantially on overall passenger and cargo traffic volumes and are subject to seasonal and other variations
that may influence passenger travel demand and cargo volume and may not be under our control, including unusual political events,
changes in the domestic and global economies and other unforeseen events. Our operations will be affected by, among other things,
fluctuations in aviation fuel prices, aircraft acquisition and leasing costs, maintenance expenses, take-off and landing charges,
wages, salaries and benefits, other operating expenses and the rates of income taxes paid.



Our financial
performance is also significantly affected by factors associated with operating in a highly regulated industry, as well as a number
of other external variables, including political and economic conditions in China, competition, foreign exchange fluctuations and
public perceptions of the safety of air travel with Chinese airlines. Because nearly every aspect of our airline operations is
subject to the regulation of the CAAC, our operating revenues and expenses are directly affected by the CAAC regulations with respect
to, among other things, domestic airfares, level of commissions paid to sales agents, the aviation fuel price, take-off and landing
charges and route allocations. The nature and extent of airline competition and the ability of Chinese airlines to expand are also
significantly affected by various CAAC regulations and policies. Changes in the CAAC’s regulatory policies, or in the implementation
of such policies, are therefore likely to have a significant impact on our future operations.



Operating Segments



The Company presents
segment information in a manner that is similar to the management’s internal reporting. The Company is principally engaged
in the operation of civil aviation, including the provision of passenger, cargo and other extended transportation services and
are managed as a single business unit. The Company has one reportable operating segment, reported as “airline transportation
operations”. See Note 7 to our audited consolidated financial statements.



Acquisitions



We entered into an
agreement with Shanghai Airlines on July 10, 2009 to issue a maximum of 1,694,838,860 A Shares to the shareholders of Shanghai
Airlines in exchange for all existing issued shares of Shanghai Airlines. The acquisition price was RMB9,118 million, which was
determined based on the quoted market price of our shares issued as of the date nearest to the acquisition date, with adjustments
to reflect specific restrictions to certain shares that were issued. On January 28, 2010, we completed the exchange of 1,694,838,860
A Shares for all existing issued shares of Shanghai Airlines and Shanghai Airlines became a wholly-owned subsidiary of our Company.



| | A. | Operating
Results
| | -- | -----------------



The following tables set forth our summary
income statement and balance sheet data as of and for the years indicated:



|                                                                                     |  |      |         |   | Year Ended December 31,              | 
|------------------------------------------------------------------------------------ |  | ---- | ------- | - | ------------------------------------ | 
|                                                                                     |  | 2008 |         |   | 2009                                 | 
|                                                                                     |  | RMB  |         |   | RMB                                  | 
|                                                                                     |  |      |         |   | (in millions, except per share data) | 
|Summary Income Statement Data (IFRS)                                                 |  |      |         |   |                                      | 
|Revenues                                                                             |  |      | 41,073  |   |                                      | 
|Other operating income                                                               |  |      | 672     |   |                                      | 
|Operating expenses                                                                   |  |      | (56,828 | ) |                                      | 
|Operating profit/(loss)                                                              |  |      | (15,083 | ) |                                      | 
|Finance (costs)/income, net                                                          |  |      | (267    | ) |                                      | 
|Profit/(loss) before income tax                                                      |  |      | (15,256 | ) |                                      | 
|Profit/(loss) for the year attributable to the equity shareholders of the Company    |  |      | (15,269 | ) |                                      | 
|Earnings/(loss) per share attributable to the equity shareholders of the Company (1) |  |      | (3.14   | ) |                                      | 
|                                                                                     |  |      |         |   |                                      | 





|                                                                                        |  | As of December 31, |        
|--------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                        |  | 2008               |        
|                                                                                        |  | RMB                |        
|                                                                                        |  | (in millions)      |        
|Summary Balance Sheet Data (IFRS)                                                       |  |                    |        
|Cash and cash equivalents                                                               |  |                    | 3,451  
|Net current liabilities                                                                 |  |                    | (43,458
|Non-current assets                                                                      |  |                    | 62,652 
|Long term borrowings, including current portion                                         |  |                    | (15,628
|Obligations under finance leases, including current portion                             |  |                    | (20,809
|Total share capital and reserves attributable to the equity shareholders of the Company |  |                    | (13,097
|Non-current liabilities                                                                 |  |                    | (31,833
|Total assets less current liabilities                                                   |  |                    | 16,204 



| | (1) | The calculation of loss per share for 2008 is based on the consolidated loss attributable to the equity shareholders of the
Company and 4,866,950,000 shares in issue. The calculation of earnings per share for 2009 is based on the consolidated profit attributable
to the equity shareholders of the Company divided by the weighted average number of shares of 6,436,828,000; The calculation of
earnings per share for 2010 is based on the consolidated profit attributable to the equity shareholders of the Company divided
by the weighted average number of 11,149,426,000 ordinary shares outstanding. The calculation of earnings per share for 2011 and
2012 are based on consolidated profit attributable to the equity shareholders of the Company divided by the weighted average number
of 11,276,538,860 ordinary shares outstanding.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30







2012
Compared to 2011



Revenues



Our revenues increased
by 3.5%, from RMB82,403 million in 2011 to RMB85,253 million in 2012 (net of the applicable PRC business tax). Revenues increased
in our passenger business operation, primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled
flights, while revenue decreased in our cargo and mail business operation, primarily due to a general slowdown of the global economy
that affected cargo demand and, consequently, our cargo volumes.



In 2012, we transported
a total of 73,077 million passengers, representing an increase of 6.3%, from 68,725 million passengers in 2011. Our total passenger
traffic (as measured in RPKs) increased by 8.1%, from 100,895 million passenger-kilometers in 2011 to 109,113 million passenger-kilometers
in 2012 and our total cargo and mail traffic (as measured in RFTKs) increased by 6.3%, from 4,421 million freight tonne-kilometers
in 2011 to 4,701 million freight tonne-kilometers in 2012. Our average yield for our passenger operations decreased by 4.4%, from
RMB0.68 per passenger-kilometer in 2011 to RMB0.65 per passenger-kilometer in 2012 primarily due to increased yields resulting
the PRC transportation industry-wise conversion from business tax to value-added tax, effective January 1, 2012.



Our average yield
for our cargo and mail operations decreased by 6.4%, from RMB1.83 per tonne-kilometer in 2011 to RMB1.71 per tonne-kilometer in
2012, primarily due to the general slowdown of the global economy that affected cargo demand and, consequently, our cargo volumes.



The following chart
sets forth our revenue breakdown for 2011 and 2012:





|                                                 |  |                         |        |  |          |  |        | 2012 vs. 2011 | 
|------------------------------------------------ |  | ----------------------- | ------ |  | -------- |  | ------ | ------------- | 
|                                                 |  | Year Ended December 31, |        |  | Increase |  |        | % Increase    | 
|                                                 |  | 2011                    |        |  | 2012     |  |        | (Decrease)    | 
|                                                 |  | (in millions of RMB)    |       
|Traffic revenues (1)                             |  |                         | 76,514 |  |          |  | 79,444 |               | 
|Passenger                                        |  |                         | 68,434 |  |          |  | 71,419 |               | 
|Passenger revenue excluding fuel surcharges      |  |                         | 60,383 |  |          |  | 61,038 |               | 
|Fuel surcharges                                  |  |                         | 8,051  |  |          |  | 10,381 |               | 
|Cargo and mail                                   |  |                         | 8,080  |  |          |  | 8,025  |               | 
|Cargo and mail revenue excluding fuel surcharges |  |                         | 5,482  |  |          |  | 5,237  |               | 
|Fuel surcharges                                  |  |                         | 2,598  |  |          |  | 2,788  |               | 
|Others (2)                                       |  |                         | 5,889  |  |          |  | 5,809  |               | 
|Total Operating Revenue                          |  |                         | 82,403 |  |          |  | 85,253 |               | 







| | (1) | Before January 1, 2012, the major elements of our revenues were subject to business tax levied
at rates of 3% or 5%. Pursuant to the Notice of Exemption of Business Tax on the Provision of International Transportation Services
(Cai Shui [2010] No. 8), jointly issued by the MOF and the SAT, our revenues from the provision of international transportation
services were exempt from business tax as of January 1, 2010. Pursuant to the Notice of the Pilot Program for the Transformation
of Transportation and Certain Modern Service Industries in Shanghai from Business Tax (“BT”) to Value Added Tax (“VAT”)(Cai Shui [2011] No. 111), issued by the MOF and SAT (the "Shanghai Notice"), traffic revenue of the Company and
subsidiaries located in Shanghai and other revenues (including ground service income, cargo handling income, commission income
and certain other income) generated in Shanghai are subjected to VAT levied at rates of 11% or 6% from January 1, 2012, rather
than BT rates.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pursuant to the Notice of
the Pilot Program for the Transformation of Transportation and Certain Modern Service Industries from BT to VAT in Beijing and
Eight Other Provinces and Cities (Cai Shui [2012] No.71), issued by MOF and SAT (the "Beijing Notice" and collectively
with the Shanghai Notice, the "Notices"), traffic revenue and other revenues (including ground service income, cargo
handling income, commission income and certain other income) generated by subsidiaries located in Beijing and other eight provinces/cities
included in the notice are subjected to VAT levied at rates of 11% or 6% with different effective date ranging from September 1,
2012 to December 1, 2012.



VAT generated
from purchase of fuel, take-off and landing services, food and beverages, property, plant and equipment, and certain BT paid
by the branches of the Company that are beyond the scope of the Notices can be used to deduct the VAT output generated
from taxable revenue. The traffic revenue and other revenue generated from operations located in other locations of China
will continue to be subject to BT at rates of 3% or 5%. As a result of the implementation of aforementioned Notices and
changes from BT to VAT, the relevant results of operations from the affected portions of our operations have been changed to
VAT   from BT. As such, our revenues for the year ended December 31, 2012 decreased by RMB2,954 million and our
operating expenses decreased by RMB3,132 million, which resulted in an increase in profit before income tax of RMB178 million
for the year ended December 31, 2012. BT incurred and offset against revenues for the year ended December 31, 2012 amounted
to approximately RMB670 million (2011: approximately RMB1,803 million).



| | (2) | Includes ground service income, cargo handling income, commission income and others.
| | --- | ------------------------------------------------------------------------------------



Passenger revenues



Our passenger traffic
revenues increased by RMB2,985 million, or 4.4%, from RMB68,434 million in 2011 to RMB71,419 million in 2012. This increase was
primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights.



Our domestic passenger
traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues), which accounted for 70.2% of our total passenger traffic
revenues in 2012, increased by 2.4%, from RMB48,963 million in 2011 to RMB50,141 million in 2012. The increase was primarily due
to increased flight capacity on domestic routes and steady demand from the continued growth of the PRC economy. Compared to 2011,
our domestic passenger traffic (as measured in RPKs) increased by 7.4%, from 70,933 million in 2011 to 76,156 million in 2012.
The number of passengers carried on domestic routes increased by 6.1%, from 58.8 million in 2011 to 62.4 million in 2012. Our passenger-kilometers
yield for domestic routes decreased from RMB0.69 per passenger-kilometer in 2011 to RMB0.66 per passenger-kilometer in 2012.



Our regional passenger
traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) which accounted for 4.5% of our total passenger
traffic revenues in 2012, increased by 4.7%, from RMB3,078 million in 2011 to RMB3,221 million in 2012. The increase was primarily
due to increased ticket prices, which led to a increase of 1.1%, from 3,811 million in 2011 to 3,852 million in 2012, in our regional
passenger traffic (as measured in RPKs). The number of passengers carried on Hong Kong, Macau and Taiwan routes increased by 3.6%,
from 2.7 million in 2011 to 2.8 million in 2012. Our passenger-kilometers yield for regional routes increased from RMB0.81 per
passenger-kilometer in 2011 to RMB0.84 per passenger-kilometer in 2012.



31







International passenger
traffic revenues, which accounted for 25.3% of our total passenger traffic revenues in 2012, increased by 10.2%, from RMB16,393
million in 2011 to RMB18,056 million in 2012. The increase was primarily due to increased international passenger demand, increased
aircraft utilization rates and increase in our scheduled flights on international routes. Our international passenger traffic (as
measured in RPKs) increased by 11.3% in 2011, from 26,151 million in 2011 to 29,105 million in 2012. The number of passengers carried
on international routes increased by 9.1%, from 7.2 million in 2011 to 7.9 million in 2012. Our passenger-kilometers yield for
international routes decreased from RMB0.63 per passenger-kilometer in 2011 to RMB0.62 per passenger-kilometer in 2012.



Cargo and mail
revenues



Our cargo and mail
traffic revenues decreased by 0.7%, from RMB8,080 million in 2011 to RMB8,025 million in 2012, which accounted for 9.4% of our
total operating revenues in 2012. Revenue from cargo and mail traffic via belly-hold cargo space on the Company’s passenger
aircraft was RMB2,389 million, which accounted for 29.8% of total freight revenue and 3.0% of total traffic revenue in 2012. Cargo
and mail yield decreased from RMB1.83 in 2011 to RMB1.71 in 2012 per cargo tonne-kilometer, or 6.56% compared to the same period
in 2011, primarily as a result of the general slowdown of the global economy that affected cargo volumes.



Our domestic cargo
and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues), which accounted for 16.6% of our total
cargo and mail traffic revenues in 2012, decreased by 1.3%, from RMB1,350 million in 2011 to RMB1,332 million in 2012. This decrease
was primarily due to the increased competition from other cargo carriers which resulted in decreased shipping fees and cargo and
mail volume. Our freight tonne-kilometers yield for domestic routes remained RMB1.44 per tonne-kilometer in 2011 and 2012.



Our regional cargo
and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), which accounted for 5.7%
of our total cargo and mail traffic revenues in 2012, decreased by 30.9%, from RMB666 million in 2011 to RMB461 million in 2012.
This decrease was primarily due to decreased demand in the regional cargo and mail freight market as a result of the general slowdown
of the regional freight market. Our freight tonne-kilometers yield for regional routes decreased from RMB4.49 per tonne-kilometer
to RMB3.94 per tonne-kilometer.



International cargo
and mail traffic revenues, which accounted for 77.7% of our total cargo and mail traffic revenues in 2012, increased by 2.6%, from
RMB6,064 million in 2011 to RMB6,233 million in 2012, due to increased demand in the international freight market as a result of
the gradual recovery of global economy. Our prices for cargo and mail transportation on international routes also decreased as
our freight tonne-kilometers yield for international routes decreased from RMB1.82 per tonne-kilometer in 2011 to RMB1.70 per tonne-kilometer
in 2012.



Other revenues



We also generated
revenues from other services, including airport ground services, cargo handling services and ticket handling services. These services
include loading and unloading of cargo, aircraft cleaning and ground transportation of cargo and passenger luggage for aircraft
arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are currently the
principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport. Our total
other revenues decreased by 1.4%, from RMB5,889 million in 2011 to RMB5,809 million in 2012.



Operating Expenses



The following chart
sets forth a breakdown of our operating expenses for the years ended December 31, 2011 and 2012:





|                                                                  |  |                         |        |   |          |  |        | 2012 vs. 2011 | 
|----------------------------------------------------------------- |  | ----------------------- | ------ | - | -------- |  | ------ | ------------- | 
|                                                                  |  | Year Ended December 31, |        |   | Increase |  |        | % increase    | 
|                                                                  |  | 2011                    |        |   | 2012     |  |        | (decrease)    | 
|                                                                  |  | (in millions of RMB)    |       
|Operating Expenses:                                               |  |                         |        |   |          |  |        |               | 
|Aircraft fuel expenses                                            |  |                         | 29,229 |   |          |  | 29,872 |               | 
|Gain on fair value movements of derivatives financial instruments |  |                         | (87    | ) |          |  | (25    | )             | 
|Takeoff and landing charges                                       |  |                         | 8,350  |   |          |  | 9,066  |               | 
|Depreciation and amortization                                     |  |                         | 6,966  |   |          |  | 7,557  |               | 
|Wages, salaries and benefits                                      |  |                         | 8,665  |   |          |  | 10,059 |               | 
|Office, administration and others                                 |  |                         | 8,854  |   |          |  | 8,983  |               | 
|Aircraft maintenance                                              |  |                         | 4,406  |   |          |  | 4,433  |               | 
|Aircraft operating lease expenses                                 |  |                         | 4,128  |   |          |  | 4,438  |               | 
|Impairment losses for assets                                      |  |                         | 638    |   |          |  | (13    | )             | 
|Selling and marketing expenses                                    |  |                         | 3,740  |   |          |  | 3,727  |               | 
|Other                                                             |  |                         | 4,403  |   |          |  | 4,648  |               | 
|Total Operating Expense                                           |  |                         | 79,292 |   |          |  | 82,745 |               | 





(1)   Due
to the implementation of the pilot program for the transformation from business tax to value-added tax regarding the transportation
industry, certain expenses in 2012 are not comparable to the corresponding expenses in 2011.



Our total operating
expenses increased by 4.4%, from RMB79,292 million in 2011 to RMB82,745 million in 2012 primarily due to the expansion of our business
which is in line with the increase of our fleet size. Our total operating expenses as a percentage of our revenues slightly increased
from 96.2% in 2011 to 97.1% in 2012.



Aircraft
fuel expenses increased by 2.2%, from RMB29,229 million in 2011 to RMB29,872 million (based on value-added tax) in 2012.
The increase was primarily due to our business expansion and the increase of average aircraft fuel price by 2.1% compared
with that of 2011. In 2012, we consumed a total of approximately 4.2 million tonnes of aviation fuel, representing an
increase of 7.2% compared to 2011. Aircraft fuel expenses accounted for 36.1% of our total operating expenses in 2012, as
compared to 36.9% in 2011. We implemented a policy of transforming business tax to value-added tax in 2012. If calculated in
line with the business tax, aviation fuel costs for 2012 will be increased by 9.5% from 2011, and the impact of the increase
in the jet fuel price on aviation fuel expenditures was  approximately RMB671 million. The increase in aviation fuel
consumption resulted in an increase in aviation fuel expenditures of approximately RMB2,111 million.



Changes in fair value
of financial derivatives decreased from a gain of RMB87 million in 2011 to a gain of RMB25 million in 2012. The difference was
mainly due to the decrease in gains arising from fair value movement of crude oil option contracts, which was resulted from a decrease
in the notional amount of unsettled crude oil option. In 2012, the net gain on change in fair value of crude oil option contracts
(inclusive of cash outflow upon settlement) was approximately RMB9 million. In 2012, the fair value movements of financial derivatives
charged to the income statement accounted for 0.03% of our total operating expenses.Take-off and landing charges, which accounted
for 11.0% of our total operating expenses in 2012, increased by 8.6%, from RMB8,350 million in 2011 to RMB9,066 million in 2012,
primarily due to an increase in the number of take-off and landings, as well as an increase in average unit price of take-off and
landing charges.



32







Depreciation and
amortization increased by 8.5%, from RMB6,966 in 2011 to RMB7,557 million in 2012, primarily due to the addition of new aircraft
and engines by the Group in 2012, resulting in a greater base number for depreciation and amortisation.



Wages, salaries and
benefits, which accounted for 12.2% of our total operating expenses in 2012, increased by 16.1%, from RMB8,665 million in 2011
to RMB10,059 million in 2012, primarily due to an increase in the number of staff and the increase in hours flown.



Office, administration
and other expenses increased by 1.5%, from RMB8,854 million in 2011 to RMB8,983 million in 2012, primarily due to the expansion
of our overall business operations and an increase in the number of staff.



Aircraft maintenance
expenses, which accounted for 5.4% of our total operating expenses in 2012, increased by 0.6%, from RMB4,406 million in 2011 to
RMB4,433 million in 2012, primarily due to an increase in the number of aircraft held through an operating lease in 2012.



Aircraft operating
lease expenses increased by 7.5%, from RMB4,128 million in 2011 to RMB4,438 million in 2012, primarily due to an increase in the
number of aircraft that we operate under operating leases.



Impairment losses
for assets decreased by 102.0%, from a loss of RMB638 million in 2011 to a reversal of RMB13 million in 2012.



Selling and marketing
expenses, which accounted for 4.5% of our total operating expenses in 2012, decreased by 0.33%, from RMB3,740 million in 2011 to
RMB3,727 million in 2012.



Other Operating
Income



Our other operating
income and other gains were primarily generated from government subsidies. The total amount of our other operating income and other
gains increased from RMB1,061 million in 2011 to RMB1,720 million in 2012, primarily due to an increase in government subsidy income
in 2012. Other government subsidies represent subsidies granted to us by the PRC government and local governments as well as other
subsidies granted by various local municipalities to encourage our Company to operate certain routes to cities where these municipalities
are located.



Net Finance Costs



In 2012, our finance
income was RMB349 million, a decrease of RMB1,675 million from the same period last year, primarily due to the minimal appreciation
of the Renminbi against the U.S. dollar in 2012, which had substantially appreciated in 2011. Finance costs amounted to RMB1,697
million, an increase of RMB235 million, primarily due to an increase in interest expenses arising from increased borrowings and
finance leases.



Profit attributable
to the equity shareholders of the Company



As a result of the
foregoing, the net profit attributable to the equity shareholders of the Company decreased to RMB2,954 million in 2012, or 35.5%,
as compared to a net profit of RMB4,576 million in 2011.



Fixed Assets



Our Company had approximately
RMB82,519 million of fixed assets and construction in progress as of December 31, 2012, including, among other assets, aircraft,
engines and flight equipment, representing a 11.9% increase from RMB73,758 million in 2011.



2011
Compared to 2010



Revenues



Our revenues increased
by 11.7%, from RMB73,804 million in 2010 to RMB82,403 million in 2011 (net of the applicable PRC business tax). Revenues increased
in our passenger business operation, primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled
flights, while revenue decreased in our cargo and mail business operation, primarily due to the general slowdown of the global
economy that affected cargo volumes.



In 2011, we transported
a total of 68,725 million passengers, representing an increase of 5.8%, from 64,930 million passengers in 2010. Our total passenger
traffic (as measured in RPKs) increased by 8.3%, from 93,153 million passenger-kilometers in 2010 to 100,895 million passenger-kilometers
in 2011 and our total cargo and mail traffic (as measured in RFTKs) increased by 2.6%, from 4,308 million freight tonne-kilometers
in 2010 to 4,421 million freight tonne-kilometers in 2011. Our average yield for our passenger operations increased by 7.9%, from
RMB0.63 per passenger-kilometer in 2010 to RMB0.68 per passenger-kilometer in 2011 primarily due to increased passenger demand,
aircraft utilization rates and increase in scheduled flights.



Our average yield
for our cargo and mail operations decreased by 6.2%, from RMB1.95per tonne-kilometer in 2010 to RMB1.83 per tonne-kilometer in
2011, primarily due to the general slowdown of the global economy that affected cargo volumes.



The following chart
sets forth our revenue breakdown for 2010 and 2011:





|                                                 |  |                         |        |  | 2011 vs. 2010 | 
|------------------------------------------------ |  | ----------------------- | ------ |  | ------------- | 
|                                                 |  | Year Ended December 31, |        |  | Increase      | 
|                                                 |  | 2010                    |        |  | 2011          | 
|                                                 |  | (in millions of RMB)    |       
|Traffic revenues (1)                             |  |                         | 67,391 |  |               | 
|Passenger                                        |  |                         | 58,968 |  |               | 
|Passenger revenue excluding fuel surcharges      |  |                         | 54,625 |  |               | 
|Fuel surcharges                                  |  |                         | 4,343  |  |               | 
|Cargo and mail                                   |  |                         | 8,423  |  |               | 
|Cargo and mail revenue excluding fuel surcharges |  |                         | 5,810  |  |               | 
|Fuel surcharges                                  |  |                         | 2,613  |  |               | 
|Others (2)                                       |  |                         | 6,413  |  |               | 
|Total Operating Revenue                          |  |                         | 73,804 |  |               | 









| | (1) | Pursuant to relevant tax rules and regulations in the PRC, the major elements of the Company’s traffic revenues, commission income, ground service income, cargo handling income and other revenues are subject to business tax levied at rates of 3% or 5%. Pursuant to the notice of exemption of business tax on the provision of international transportation services (Cai Shui [2010] No. 8), jointly issued by the Ministry of Finance and the State Tax Bureau, our revenues from the provision of international transportation services were exempt from business tax as of 1 January 2010. The business tax incurred and set off against the above revenues for the year ended December 31, 2011 amounted to approximately RMB1,803 million (2010: RMB1,463 million).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





33









| | (2) | Includes ground service income, cargo handling income, commission income and others.
| | --- | ------------------------------------------------------------------------------------



Passenger revenues



Our passenger traffic
revenues increased by RMB9,466 million, or 16.1%, from RMB58,968 million in 2010 to RMB68,434 million in 2011. The increase was
primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights.



Our domestic
passenger traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues), which accounted for 71.6% of our total passenger
traffic revenues in 2011, increased by 16.2%, from RMB42,143 million in 2010 to RMB48,963 million in 2011. The increase was primarily
due to increased ticket prices, increased flight capacity on domestic routes and steady demand from the continued growth of the
PRC economy. Compared to 2010, our domestic passenger traffic (as measured in RPKs) increased by 7.0%, from 66,310 million in 2010
to 70,933 million in 2011. The number of passengers carried on domestic routes increased by 6.0%, from 55.5 million in 2010 to
58.8 million in 2011. Our passenger-kilometers yield for domestic routes increased from RMB0.64 per passenger-kilometer in 2010
to RMB0.69 per passenger-kilometer in 2011.



Our regional passenger
traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) which accounted for 4.5% of our total passenger
traffic revenues in 2011, decreased by 3.1%, from RMB3,176 million in 2010 to RMB3,078 million in 2011. The decrease was primarily
due to reduced flight capacity on our Hong Kong routes resulting from reduced flights to and from Hong Kong, as well as increased
competition on our Hong Kong routes, which led to a decrease of 6.5%, from 4,074 million in 2010 to 3,811 million in 2011, in our
regional passenger traffic (as measured in RPKs). The number of passengers carried on Hong Kong, Macau and Taiwan routes decreased
by 5.5%, from 2.9 million in 2010 to 2.7 million in 2011. Our passenger-kilometers yield for regional routes increased from RMB0.78
per passenger-kilometer in 2010 to RMB0.81 per passenger-kilometer in 2011.



International passenger
traffic revenues, which accounted for 24.0% of our total passenger traffic revenues in 2011, increased by 20.1%, from RMB13,650
million in 2010 to RMB16,393 million in 2011. The increase was primarily due to increased international passenger demand, increased
aircraft utilization rates and increase in our scheduled flights on international routes. Our international passenger traffic (as
measured in RPKs) increased by 14.9% in 2011, from 22,769 million in 2010 to 26,151 million in 2011. The number of passengers carried
on international routes increased by 9.8%, from 6.6 million in 2010 to 7.2 million in 2011. Our passenger-kilometers yield for
international routes increased from RMB0.60 per passenger-kilometer in 2010 to RMB0.63 per passenger-kilometer in 2011.



Cargo and mail
revenues



Our cargo and mail
traffic revenues decreased by 4.1%, from RMB8,423 million in 2010 to RMB8,080 million in 2011, which accounted for 10.6% of our
total traffic revenues in 2011. Revenue from cargo and mail traffic via belly-hold cargo space on the Company’s passenger
aircraft was RMB2,998 million, which accounted for 37.1% of total freight revenue and 3.9% of total traffic revenue in 2011. Cargo
and mail yield decreased from RMB1.95 in 2010 to RMB1.83 in 2011 per cargo tonne-kilometer, or 6.2% compared to the same period
in 2010, primarily as a result of the general slowdown of the global economy that affected cargo volumes.



Our domestic cargo
and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues), which accounted for 16.7% of our total
cargo and mail traffic revenues in 2011, increased by 7.4%, from RMB1,257 million in 2010 to RMB1,350 million in 2011. This increase
was primarily due to the continued economic growth in China which resulted in increased cargo and mail volume and demand. Our freight
tonne-kilometers yield for domestic routes increased from RMB1.28 per tonne-kilometer in 2010 to RMB1.44 per tonne-kilometer in
2011.



Our regional cargo
and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), which accounted for 8.2%
of our total cargo and mail traffic revenues in 2011, decreased by 5.7%, from RMB706 million in 2010 to RMB666 million in 2011.
This decrease was primarily due to decreased demand in the regional cargo and mail freight market as a result of the general slowdown
of the regional freight market. Our freight tonne-kilometers yield for regional routes decreased from RMB4.54 per tonne-kilometer
to RMB4.49 per tonne-kilometer.



International cargo
and mail traffic revenues, which accounted for 75.1% of our total cargo and mail traffic revenues in 2011, decreased by 6.1%, from
RMB6,460 million in 2010 to RMB6,064 million in 2011, due to reduced demand in the international freight market as a result of
decreased global economic activity . Our prices for cargo and mail transportation on international routes also increased as our
freight tonne-kilometers yield for international routes decreased from RMB2.04 per tonne-kilometer in 2010 to RMB1.82 per tonne-kilometer
in 2011.



Other revenues



We also generated
revenues from other services, including airport ground services, cargo handling services and ticket handling services. These services
include loading and unloading of cargo, aircraft cleaning and ground transportation of cargo and passenger luggage for aircraft
arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are currently the
principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport. Our total
other revenues decreased by 10.4%, from RMB6,413 million in 2010 to RMB5,749 million in 2011, as a result of decreased cargo handling
income.



Operating
Expenses



The following chart
sets forth a breakdown of our operating expenses for the years 2010 and 2011:





|                                                                  |  |                         |        |   |          |  |        | 2011 vs. 2010 | 
|----------------------------------------------------------------- |  | ----------------------- | ------ | - | -------- |  | ------ | ------------- | 
|                                                                  |  | Year Ended December 31, |        |   | Increase |  |        | % increase    | 
|                                                                  |  | 2010                    |        |   | 2011     |  |        | (decrease)    | 
|                                                                  |  | (in millions of RMB)    |       
|Operating Expenses:                                               |  |                         |        |   |          |  |        |               | 
|Aircraft fuel expenses                                            |  |                         | 21,606 |   |          |  | 29,229 |               | 
|Gain on fair value movements of derivatives financial instruments |  |                         | (833   | ) |          |  | (87    | )             | 
|Takeoff and landing charges                                       |  |                         | 7,455  |   |          |  | 8,350  |               | 
|Depreciation and amortization                                     |  |                         | 6,758  |   |          |  | 6,966  |               | 
|Wages, salaries and benefits                                      |  |                         | 8,941  |   |          |  | 8,665  |               | 
|Office, administration and others                                 |  |                         | 8,588  |   |          |  | 8,854  |               | 
|Aircraft maintenance                                              |  |                         | 4,614  |   |          |  | 4,406  |               | 
|Aircraft operating lease expenses                                 |  |                         | 3,976  |   |          |  | 4,128  |               | 
|Impairment losses for assets                                      |  |                         | 405    |   |          |  | 638    |               | 
|Selling and marketing expenses                                    |  |                         | 3,324  |   |          |  | 3,740  |               | 
|Other                                                             |  |                         | 3,931  |   |          |  | 4,403  |               | 
|Total Operating Expense                                           |  |                         | 68,765 |   |          |  | 79,292 |               | 







34







Our total operating
expenses increased by 15.3%, from RMB68,765 million in 2010 to RMB79,292 million in 2011 primarily due to the substantial increase
of the aircraft fuel expenses. Our total operating expenses as a percentage of our revenues increased from 93.2% in 2010 to 96.2%
in 2011.



Aircraft fuel expenses
increased by 35.3%, from RMB21,606 million in 2010 to RMB29,229 million in 2011. The increase was primarily due to our business
expansion and the increase of average aircraft fuel price by 27.4% compared with that of 2010. In 2011, we consumed a total of
approximately 3.9 million tonnes of aviation fuel, representing an increase of 6.2% compared to 2010. Aircraft fuel expenses accounted
for 31.4% of our total operating expenses in 2011, as compared to 36.9% in 2010.



Changes in fair value
of financial derivatives decreased from a gain of RMB833 million in 2010 to a gain of RMB87 million in 2011. The difference was
mainly due to the decrease in gains arising from fair value movement of crude oil option contracts, which was resulted from a decrease
in the notional amount of unsettled crude oil option. In 2011, the net gain on change in fair value of crude oil option contracts
(inclusive of cash outflow upon settlement) was approximately RMB67 million. In 2011, the fair value movements of financial derivatives
charged to the income statement accounted for 0.1% of our total operating expenses.



Take-off and landing
charges, which accounted for 10.5% of our total operating expenses in 2011, increased by 12.0%, from RMB7,455 million in 2010 to
RMB8,350 million in 2011, primarily due to an increase in scheduled flights.



Depreciation and amortization
increased by 3.1%, from RMB6,758 in 2010 to RMB6,966 million in 2011, primarily due to increased number of aircraft in our fleet
and increased aircraft utilization rates, which resulted in the corresponding costs.



Wages, salaries and
benefits, which accounted for 10.9% of our total operating expenses in 2011, decreased by 3.1%, from RMB8,941 million in 2010 to
RMB8,665 million in 2011, primarily due to reduced staff bonuses resulting from reduced operating profits in 2011, as well as various
cost-saving measures that we implemented.



Office, administration
and other expenses increased by 3.1%, from RMB8,588 million in 2010 to RMB8,854 million in 2011, primarily due to the expansion
of our overall business operations.



Aircraft maintenance
expenses, which accounted for 5.6% of our total operating expenses in 2011, decreased by 4.5%, from RMB4,614 million in 2010 to
RMB4,406 million in 2011, primarily due to the reduced number of aircraft and engines that required scheduled major overhaul services.



Aircraft operating
lease expenses increased by 3.8%, from RMB3,976 million in 2010 to RMB4,128 million in 2011, primarily due to an increase in the
number of aircraft that we operate under operating leases.



Impairment losses
for assets increased by 57.5%, from a loss of RMB405 million in 2010 to a loss of RMB638 million in 2011, primarily due to impairment
provisions made for certain aircraft to be disposed of in 2012, which referenced the contracted selling price less costs to sell.
We have planned to dispose of these aircraft in an effort to increase the operational efficiency of, and reduce the related maintenance
fees for, our fleet.



Selling and
marketing expenses, which accounted for 4.7% of our total operating expenses in 2011, increased by 12.5%, from RMB3,324 million
in 2010 to RMB3,740 million in 2011, primarily a result of increases in ticketing system service fees and agency handling fees
due to increases in traffic revenue.



Other Operating
Income



Our other operating
income and other gains were primarily generated from government subsidies and gains on disposal of aircraft and relevant assets.
The total amount of our other operating income and other gains increased from RMB658 million in 2010 to RMB1,061 million in 2011,
primarily due to an increase in government subsidy income in 2011. Other government subsidies represent subsidies granted to us
by the PRC government and local government as well as other subsidies granted by various local municipalities to encourage our
Company to operate certain routes to cities where these municipalities are located.



Net Finance Costs



Our finance costs
(net of finance income) decreased by 2.6%, from RMB1,502 million in 2010 to RMB1,463 million in 2011, primarily due to improvement
in our capital structure and a reduction on the interest rates of our foreign currency borrowings. Approximately 69.1% of our indebtedness
is U.S. dollar denominated borrowings, which are generally tied to LIBOR rates. In 2011, our finance income was RMB2,024 million,
primarily due to the increase in exchange gain resulting from the appreciation of the Renminbi against the U.S. dollar.



Profit / (Loss)
attributable to the equity shareholders of the Company



As a result of the
foregoing, the net profit attributable to the equity shareholders of the Company increased to RMB4,576 million in 2011, representing
a 7.7% decrease as compared to a net profit of RMB4,958 million in 2010.



Fixed Assets



Our Company had approximately
RMB73,758 million of fixed assets and construction in progress as of December 31, 2011, including, among other assets, aircraft,
engines and flight equipment, representing a 7.2% increase from RMB68,822 million in 2010.



| | B. | Liquidity and Capital Resources
| | -- | -------------------------------



We typically finance
our working capital requirements through a combination of funds generated from operations, short-term bank loans and the issuance
of corporate bonds. As a result, our liquidity could be materially and adversely affected to the extent there is a significant
decrease in demand for our services or if there is any delay in obtaining bank loans.



35







As of December 31,
2010, 2011 and 2012, we had RMB3,078 million, RMB3,861 million and RMB2,512 million, respectively, in cash and cash equivalents;
RMB38,566 million, RMB41,775 million and RMB45,736 million, respectively, in outstanding borrowings; and RMB1,486 million, RMB278
million and RMB69 million, respectively, in restricted bank deposits. Our cash and cash equivalents primarily consist of cash on
hand and deposits that are placed with banks and other financial institutions. We plan to use the remaining available cash for
other capital expenditures, including expenditures for aircraft, engines and related equipment, as well as for working capital
and other day-to-day operating purposes.



As of December 31,
2012, our accumulated losses amounted to approximately RMB5,426 million. In addition, our current liabilities exceeded our current
assets by approximately RMB35,948 million. As a consequence, our Directors have taken active steps to seek additional sources of
financing to improve our liquidity position. As of December 31, 2012, we had total credit facilities of RMB41.2 billion from various
banks, of which RMB27.1 billion are not utilized. See the discussion below under “– Working Capital and Liabilities”.



We believe that our
current cash, cash equivalents, short-term and long-term borrowings and anticipated cash flow from operations will be sufficient
to meet our anticipated cash needs for working capital and capital expenditures, for at least the next 12 months. We may, however,
require additional cash due to changing business conditions or other future developments, including any investments or acquisitions
that we may decide to pursue.



Cash Flows from Operating Activities



In 2012, we
generated a net cash inflow from operating activities of RMB12,617 million as a result of cash generated from operations of
RMB12,823 million less income tax we paid in 2012. Our cash generated from operations was mainly due to operating profit
before working capital changes of RMB13,770 million and negative changes in working capital of RMB947 million. The operating
profit before working capital changes of RMB13,770 million was a result of the profit before income tax of RMB3,012 million,
mainly adjusted for: (i) depreciation of property, plant and equipment of RMB7,509 million, (ii) interest expenses of
RMB1,697 million, (iii) consumption of flight equipment spare parts of RMB747 million, (iv) provision for return condition
checks for aircraft and engines under operating leases of RMB793 million and partly offset by net foreign exchange gains of
RMB201 million. Negative changes in working capital mainly consisted of (i) an increase in flight equipment and spare parts
of RMB1,176 million, (ii) a decrease in trade payables and notes payables of RMB428 million, (iii) a decrease in other
long-term liabilities of RMB384 million and (iv) a decrease in provision for return condition checks for aircraft and engines
under operating leases of RMB293 million. These negative changes were partly offset by (i) a decrease in restricted bank
deposits and short-term bank deposits of RMB1,168 million, (ii) an increase in trade payables and notes payables of RMB388
million. .



In 2011, we generated
a net cash inflow from operating activities of RMB13,623 million as a result of cash generated from operations of RMB13,781 million
less income tax we paid in 2011. Our cash generated from operations was mainly due to operating profit before working capital changes
of RMB13,751 million and changes in working capital of RMB30 million. The operating profit before working capital changes of RMB13,751
million was a result of the profit before income tax of RMB4,841 million, mainly adjusted for: (i) depreciation of property, plant
and equipment of RMB6,912 million, (ii) interest expenses of RMB1,463 million, (iii) consumption of flight equipment spare parts
of RMB 740 million, (iv) provision for return condition checks for aircraft and engines under operating leases of RMB695 million
and (v) impairment loss of RMB638 million, partly offset by net foreign exchange gains of RMB1,872 million. Changes in working
capital mainly consisted of (i) an increase in other payables and accrued expenses of RMB1,681 million, (ii) an increase in prepayments,
deposits and other receivables of RMB668 million and (iii) an increase in sales in advance of carriage of RMB620 million. These
negative changes were partly offset by (i) a decrease in trade payables and notes payables of RMB1,602 million, (ii) a decrease
in flight equipment and spare parts of RMB1,023 million and (iii) a decrease in provision for return condition checks for aircraft
and engines under operating leases of RMB317 million.



In 2010, we generated
a net cash inflow from operating activities of RMB10,641 million as a result of cash generated from operations of RMB10,740 million
less income tax we paid in 2010. Our cash generated from operations was mainly due to operating profit before working capital changes
of RMB13,585 million and negative changes in working capital of RMB2,845 million. The operating profit before working capital changes
of RMB13,585 million was a result of the profit before income tax of RMB5,418 million, mainly adjusted for: (i) depreciation of
property, plant and equipment of RMB6,727 million, (ii) interest expenses of RMB1,502 million, (iii) consumption of flight equipment
spare parts of RMB601 million, and (iv) provision for return condition checks for aircraft and engines under operating leases of
RMB586 million, partly offset by (i) net foreign exchange gains of RMB1,075 million and (ii) gains arising from fair value movements
of derivative financial instruments of RMB915 million. Negative changes in working capital mainly consisted of (i) a decrease in
trade payables and notes payables of RMB3,418 million, (ii) a decrease in flight equipment and spare parts of RMB777 million and
(iii) a decrease in provision for return condition checks for aircraft and engines under operating leases of RMB306 million. These
negative changes were partly offset by (i) an increase in sales in advance of carriage of RMB847 million and (ii) an increase in
other long-term liabilities of RMB570 million.



Cash Flows from Investing Activities



In 2012, our net cash
outflow from investing activities was RMB11,789 million. Our net cash outflow for investing activities mainly consisted of (i)
advanced payments on acquisition of new aircraft of RMB7,329 million and (ii) increased property, plant and equipment of RMB6,148
million, primarily due to the purchase of 31 aircraft in 2012. These cash outflows were partly offset by (i) proceeds of short-term
deposits with original maturities over three months of RMB958 million, (ii) interest received on bank deposit of RMB216 million,
and (iii) proceeds from disposal of property, plant and equipment of RMB182 million.



In 2011, our net cash
outflow from investing activities was RMB14,939 million. Our net cash outflow for investing activities mainly consisted of (i)
additions of property, plant and equipment of RMB5,368 million, primarily due to the purchase of 24 aircraft in 2011, (ii) advanced
payments on acquisition of new aircraft of RMB8,180 million, and (iii) payment of short-term deposits with original maturity over
three months of RMB1,963 million. These cash outflows were partly offset by (i) proceeds from disposal of non-current assets held
for sale of RMB412 million and (ii) bank deposit interest received of RMB147 million.



In 2010, our net cash
outflow from investing activities was RMB8,633 million. Our net cash outflow for investing activities mainly consisted of (i) additions
of property, plant and equipment of RMB6,523 million, primarily due to the purchase of 25 aircraft in 2010, (ii) advanced payments
on acquisition of new aircraft of RMB3,462 million, and (iii) payment of short-term deposits with original maturity over three
months of RMB434 million. These cash outflows were partly offset by (i) net cash acquired through acquisition of Shanghai Airlines
Co., Ltd, (ii) proceeds from disposal of non-current assets held for sale of RMB430 million and (iii) proceeds from disposal of
property, plant and equipment of RMB102 million.



Cash Flows from Financing Activities



In 2012, our net cash
outflow from financing activities was RMB2,174 million. Our net cash outflow for financing activities mainly consisted of (i) repayments
of short-term bank loans of RMB25,620 million, (ii) repayments of long-term bank loans of RMB8,352 million, (iii) principal repayments
of financial lease obligations of RMB4,095 million, (iv) interest paid of RMB1,937 million, and (v) acquisition of non-controlling
interests of RMB671 million. These cash outflows were partly offset by (i) proceeds from draw down of short-term bank loans of
RMB23,101 million, (ii) proceeds from draw down of long-term bank loans of RMB10,887 million, (iii) proceeds from issuance of short-term
debentures of RMB4,000 million, (iv) capital contribution from non-controlling interests of subsidiaries of RMB454 million and
(v) receipts of restricted bank deposits of RMB236 million.



36







In 2011, our net cash
inflow from financing activities was RMB2,136 million. Our net cash inflow for financing activities mainly consisted of (i) proceeds
from draw down of short-term bank loans of RMB19,647 million, (ii) proceeds from draw down of long-term bank loans of RMB5,693
million, (iii) proceeds from issuance of bonds of RMB2,490 million, (iv) Receipts of restricted bank deposits of RMB1,109 million
and (v) capital contribution from non-controlling interests of subsidiaries of RMB1,005 million. These cash inflows were partly
offset by (i) repayments of short-term bank loans of RMB18,514 million, (ii) repayments of long-term bank loans of RMB5,245 million
and (iii) principal repayments of financial lease obligations of RMB2,191 million.



In 2010, our net cash
outflow from financing activities was RMB652 million. Our net cash outflow for financing activities mainly consisted of (i) repayments
of short-term bank loans of RMB21,943 million, (ii) repayments of long-term bank loans of RMB6,527 million and (iii) principal
repayments of financial lease obligations of RMB2,201 million. These cash outflows were partly offset by (i) proceeds from draw
down of short-term bank loans of RMB20,803 million and (ii) proceeds from draw down of long-term bank loans of RMB11,556 million.



Working Capital
and Liabilities



We have, and in the
future may continue to have, substantial debts. In addition, we generally operate with a working capital deficit. As of December
31, 2012, our current liabilities exceeded our current assets by RMB35,948 million. In comparison, our current liabilities exceeded
our current assets by RMB29,679 million as of December 31, 2011. The increase in our current liabilities in 2012 was primarily
due to the increase in the current portion of borrowings. The decrease in our current assets in 2012 was primarily due to a decrease
in cash and cash equivalents. Short-term loans outstanding totaled RMB11,454 million and RMB12,880 million as of December 31, 2011
and 2012, respectively. Long-term outstanding bank loans totaled RMB30,321 million and RMB32,856 million as of December 31, 2011
and 2012, respectively.



As of December 31,
2012, our long-term debt to equity ratio was 1.34 to 1. The interest expenses associated with these debts may impair our future
profitability. We expect that cash from operations and bank borrowings will be sufficient to meet our operating cash flow requirements,
although events that materially and adversely affect our operating results can also have a negative impact on liquidity.



Our consolidated interest-bearing
borrowings as of December 31, 2011 and 2012 for the purpose of calculating the indebtedness of our Company, were as follows:





|                     |  | As of December 31, |       
|-------------------- |  | ------------------ | ------
|                     |  | 2011               |       
|                     |  | (RMB in millions)  |       
|Secured bank loans   |  |                    | 14,185
|Unsecured bank loans |  |                    | 27,590
|Total                |  |                    | 41,775







The maturity profile
of interest-bearing borrowings of our Company as of December 31, 2011 and 2012 was as follows:





|                                     |  | As of December 31, |       
|------------------------------------ |  | ------------------ | ------
|                                     |  | 2011               |       
|                                     |  | (RMB in millions)  |       
|Within one year                      |  |                    | 18,171
|In the second year                   |  |                    | 8,408 
|In the third to fifth year inclusive |  |                    | 9,392 
|After the fifth year                 |  |                    | 5,804 
|Total                                |  |                    | 41,775







As of December 31,
2012, our interest rates relating to short-term borrowings ranged from 1.1% to 6.6%, while our fixed interest rates on our interest-bearing
borrowings for long-term bank loans ranged from 4.84% to 6.4%. Our bank loans are denominated in Renminbi, U.S. dollars and Euro.
As of December 31, 2012, our total bank loans denominated in Renminbi amounted to RMB13,827 million, while our total bank loans
denominated in U.S. dollars amounted to USD5,028 million. On August 11, 2011, our wholly-owned subsidiary Eastern Air Overseas
(Hong Kong) Corporation Limited issued offshore CNY-denominated bonds in an amount of CNY2.5 billion at 4% due 2014, listed on
the SGX-ST. Our Company guaranteed the bond issue. See Note 33 to the consolidated financial statements for more information on
our borrowings.



We have entered into
credit facility agreements to meet our future working capital needs. However, our ability to obtain financing may be affected by:
(i) our results of operations, financial condition, cash flows and credit ratings; (ii) costs of financing in line with prevailing
economic conditions and the status of the global financial markets; and (iii) our ability to obtain PRC government approvals required
to access domestic or international financing or to undertake any project involving significant capital investment, which may include
one or more approvals from the NDRC, SAFE, MOFCOM and/or the CSRC depending on the circumstances. If we are unable to obtain financing,
for whatever reason, for a significant portion of our capital requirements, our ability to acquire new aircraft and to expand our
operations may be materially and adversely affected.



Capital Expenditures



As of December 31,
2012, according to the relevant agreements, we expect our capital expenditures for aircraft, engines and related equipment to be
in aggregate approximately RMB172,092 million, including RMB26,321 million in 2013 and RMB44,435 million in 2014, in each case
subject to contractually stipulated increases or any increase relating to inflation. We plan to finance our other capital commitments
through a combination of funds generated from operations, existing credit facilities, bank loans, leasing arrangements and other
external financing arrangements.



C.    Research and Development, Patents and
Licenses, etc.



None.



D.    Trend Information



Other than as disclosed
elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from
January 1, 2012 to December 31, 2012 that are reasonably likely to have a material effect on our net revenues, income, profitability,
liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating
results or financial conditions.



37







E.    Off-balance Sheet Arrangements



We have not entered
into any off-balance sheet arrangements other than our operating lease arrangements:



| | · | We have not entered into any financial guarantees or other commitments to guarantee the payment
obligations of any unconsolidated entity;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | We have not entered into any obligations under any derivative contracts that are indexed to our
own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We do not have any retained or contingent interest in assets transferred to an unconsolidated entity
that serves as credit, liquidity or market risk support to such entity.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F.    Tabular Disclosure of Contractual Obligations



Contractual Obligations and Commercial
Commitments



The following tables
set forth selected information regarding our outstanding contractual and commercial commitments as of December 31, 2012:



|                                        |  | Total |         |  | Less Than 1 Year |  |        | 1-2 Years |  |  | 2-5 Years |  |  | More Than 5 Years |        
|--------------------------------------- |  | ----- | ------- |  | ---------------- |  | ------ | --------- |  |  | --------- |  |  | ----------------- | -------
|Long-Term Debt (1)                      |  |       | 32,856  |  |                  |  | 9,760  |           |  |  | 7,273     |  |  |                   | 7,905  
|Capital Leases (2)                      |  |       | 21,858  |  |                  |  | 2,605  |           |  |  | 2,704     |  |  |                   | 7,925  
|Operating Leases (3)                    |  |       | 24,580  |  |                  |  | 4,074  |           |  |  | 3,682     |  |  |                   | 8,313  
|Unconditional Purchase Obligations (4)  |  |       | 172,092 |  |                  |  | 26,321 |           |  |  | 44,435    |  |  |                   | 101,336
|Other Long-term Obligations (5)(6)      |  |       | 1,636   |  |                  |  | —      |           |  |  | —         |  |  |                   | —      
|Post-retirement Benefit Obligations (5) |  |       | 3,260   |  |                  |  | —      |           |  |  | —         |  |  |                   | —      
|Deferred Tax Liabilities (5)            |  |       | 29      |  |                  |  | —      |           |  |  | —         |  |  |                   | —      
|Short-term Bank Loans (7)               |  |       | 12,880  |  |                  |  | 12,880 |           |  |  | —         |  |  |                   | —      
|Interest Obligations                    |  |       | 5,239   |  |                  |  | 1,450  |           |  |  | 864       |  |  |                   | 1,702  
|Under Finance Leases                    |  |       | 1,920   |  |                  |  | 399    |           |  |  | 356       |  |  |                   | 761    
|Under Bank Loans                        |  |       | 3,319   |  |                  |  | 1,051  |           |  |  | 508       |  |  |                   | 941    
|Fixed Rate                              |  |       | 349     |  |                  |  | 241    |           |  |  | 108       |  |  |                   | -      
|Variable Rate (8)                       |  |       | 2,970   |  |                  |  | 810    |           |  |  | 400       |  |  |                   | 941    
|Total                                   |  |       | 274,430 |  |                  |  | 57,090 |           |  |  | 58,958    |  |  |                   | 127,181



| | (1) | Excludes interest.
| | --- | ------------------



| | (2) | Primarily comprise amounts paid/due under leases for the acquisition of aircraft.
| | --- | ---------------------------------------------------------------------------------



| | (3) | Primarily comprise amounts paid/due under leases for the rental of aircraft, engines and flight
equipment.
| | --- | ----------------------------------------------------------------------------------------------------------



| | (4) | Primarily comprise capital expenditures.
| | --- | ----------------------------------------



| | (5) | Figures of payments due by period are not available.
| | --- | ----------------------------------------------------



| | (6) | Other long-term obligations include long-term duties and levies payable, and fair value of unredeemed
points awarded under our Group’s frequent flyer programs.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Short-term bank loans are generally repayable within one year. As of December 31, 2012, the weighted
average interest rate of our short-term bank loans was 5.0% per annum (2011: 4.6%).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | For our variable rate loans, interest rates range from six month LIBOR + 0.03% to six months LIBOR
+ 5.3%. Interest obligations relating to variable rate loans are calculated based on the relevant LIBOR rates as of December 31,
2012. A 25 basis points increase in the interest rate would increase interest expenses by RMB123 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                               |  | Total Amounts Committed |        |  | Amount of Commitment Expiration Per Period | 
|---------------------------------------------- |  | ----------------------- | ------ |  | ------------------------------------------ | 
|Other Commercial Commitments/Credit Facilities |  |                         |        |  | Less Than 1 Year                           | 
|                                               |  | (RMB in millions)       |       
|Lines of Credit                                |  |                         | 27,082 |  |                                            | 
|Standby Letters of Credit                      |  |                         | —      |  |                                            | 
|Guarantees                                     |  |                         | —      |  |                                            | 
|Total                                          |  |                         | 27,082 |  |                                            | 



Critical Accounting Estimates and Judgments



Estimates and judgments used
in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions
concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.



Revenue
recognition







The Group recognizes traffic
revenues in accordance with the accounting policy stated in Note 2(e) to the financial statements. Unused tickets are recognized
in traffic revenues based on current estimates. Management annually evaluates the balance in the SIAC and records any adjustments,
which can be material, in the period the evaluation is completed.



These adjustments result from
differences between the estimates of certain revenue transactions and the timing of recognizing revenue for any unused air tickets
and the related sales price, and are impacted by various factors, including a complex pricing structure and interline agreements
throughout the industry, which affect the timing of revenue recognition.



38







Frequent
flyer program



The Group operates frequent
flyer programs that provide travel awards to program members based on accumulated miles. A portion of passenger revenue attributable
to the award of frequent flyer benefits is deferred and recognized when the miles have been redeemed or have expired. The deferment
of revenue is estimated based on historical trends of redemptions, which is then used to project the expected utilization of these
benefits and estimated fair values of the unredeemed miles. Different judgments or estimates could significantly affect the estimated
provision for frequent flyer programs and the results of operations.



Provision
for costs of return condition checks for aircraft under operating leases



Provision for the estimated
costs of return condition checks for aircraft under operating leases is made based on the estimated costs for such return condition
checks and taking into account anticipated flying hours, flying cycle and timeframe between each overhaul. These judgments or estimates
are based on historical experience on returning similar airframe models, actual costs incurred and aircraft status. Different judgments
or estimates could significantly affect the estimated provision for costs of return condition checks.



Retirement
benefits



The Group operates and maintains
defined retirement benefit plans which provide retirees with benefits including transportation subsidies, social activity subsidies
as well as other welfare. The cost of providing the aforementioned benefits in the defined retirement benefit plan is actuarially
determined and recognized over the employees’ service period by utilizing various actuarial assumptions and using the projected
unit credit method in accordance with the accounting policy stated in Note 2(y) to the financial statements. These assumptions
include, without limitation, the selection of discount rate, annual rate of increase of per capita benefit payment and employees’
turnover rate. The discount rate is based on management’s review of government bonds. The annual rate of increase of benefit
payments is based on the general local economic conditions. The employees’ turnover rate is based on historical trends of
the Group. Additional information regarding the retirement benefit plans is disclosed in Note 37 to the financial statements.



Deferred
income tax



In assessing the amount of deferred tax assets that
need to be recognized in accordance with the accounting policy stated in Note 2(j) to the financial statements, the Group considers
future taxable income and ongoing prudent and feasible tax planning strategies. In the event that the Group’s estimates of
projected future taxable income and benefits from available tax strategies are changed, or changes in current tax regulations are
enacted that would impact the timing or extent of the Group’s ability to utilize the tax benefits of net operating loss carry
forwards in the future, adjustments to the recorded amount of net deferred tax assets and taxation expense would be made.



Provision
for flight equipment spare parts



Provision for flight equipment
spare parts is made based on the difference between the carrying amount and the net realizable value. The net realizable value
is estimated based on current market condition, historical experience and Company’s future operation plan for the aircraft
and related spare parts. The net realizable value may be adjusted significantly due to the change of market condition and the future
plan for the aircraft and related spare parts.



Depreciation
of property, plant and equipment



Depreciation of components related
to airframe and engine overhaul costs are based on the Group’s historical experience with similar airframe and engine models
and taking into account anticipated overhauls costs, timeframe between each overhaul, ratio of actual flying hours and estimated
flying hours between overhauls. Different judgments or estimates could significantly affect the estimated depreciation charge and
the results of operations.



Except for components related
to airframe and engine overhaul costs, other property, plant and equipment are depreciated on a straight-line basis over the estimated
useful lives, after taking into account the estimated residual value. The useful lives are based on the Group’s historical
experience with similar assets and taking into account anticipated technological changes. The Group reviews the estimated useful
lives of assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period.
The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.



Estimated
impairment of property, plant and equipment and intangible assets



The Group tests whether property,
plant and equipment and intangible assets have been impaired in accordance with the accounting policy stated in Note 2(k) and Note
2(m) to the financial statements. The recoverable amounts of cash generating units have been determined based on fair value less
cost to sell and value-in-use calculations. Value-in-use calculations use cash flow projections based on financial budgets approved
by management and certain key assumptions, such as passenger-kilometers yield level, load factor, aircraft utilization rate and
discount rates, etc.



Taxation



We had carried forward
tax losses of approximately RMB6,169 million as of December 31, 2012, which can be used to set off against future taxable income
between 2013 and 2017.



Prior to 2008, the
Company and certain of its subsidiaries located in Pudong District, Shanghai, were entitled to a reduced rate of 15% pursuant to
the preferential tax policy in Pudong District, Shanghai. Under China’s EIT Law, which was approved by the National People’s
Congress on March 16, 2007 and became effective from January 1, 2008, the Company and its Pudong subsidiaries are entitled to a
transitional arrangement to gradually increase the applicable corporate income tax rate to 25% over the next five years from 2008.
For the year ended December 31, 2012, the corporate income tax rate applicable to the Company and these subsidiaries was 25%. The
net deferred tax position of the Company and its subsidiaries as of December 31, 2012 is insignificant and the change in tax rate
has no material impact on our deferred tax position. Except for those subsidiaries that are incorporated in Hong Kong and therefore
subject to a Hong Kong corporate income tax rate of 16.5%, other subsidiaries of the Company are generally subject to the PRC standard
income tax rate of 25%.



39







Inflation



In recent years, China
has been experiencing increasing levels of inflation. According to the National Bureau of Statistics of China, China’s overall
national inflation rate, as represented by the general consumer price index, increased by approximately 3.3% in 2010, 5.4% in 2011
and in 2.6% in 2012. Although neither inflation nor deflation in the past had any material adverse impact on our results of operations,
we cannot assure you that the deflation or inflation of the Chinese economy in the future would not materially and adversely affect
our financial condition and results of operations.



New Pronouncements



The following standards,
amendments and interpretations to existing standards, which have been published and are relevant to our Company’s operations,
are mandatory for accounting periods beginning on or after January 1, 2013 or later periods. These new/revised standards and interpretations
were not expected to have material impact on the Group’s or the Company’s financial statements.



| | · | IAS 19 (Amendment) (effective from 1 January
2013)
| | - | --------------------------------------------------



| | · | IFRS 9 ‘Financial Instruments’
(effective from January 1, 2013)
| | - | ---------------------------------------------------------------



| | · | IFRS 10 “Consolidated financial
statements” (effective from 1 January 2013)
| | - | ---------------------------------------------------------------------------



| | · | IFRS 13 “Fair value measurement”
(effective from 1 January 2013)
| | - | ----------------------------------------------------------------



| | · | IAS 1 “Financial statements presentation”
(Amendment) (effective from 1 July 2013)
| | - | ----------------------------------------------------------------------------------



| | · | IFRS 11 “Joint arrangement”
(effective from 1 January 2013)
| | - | -----------------------------------------------------------



| | · | IAS 28 “Associates and joint ventures”
(Revised 2011) (effective from 1 January 2013)
| | - | -------------------------------------------------------------------------------------



| | · | IFRS 12 “Disclosure of interests
in other entities” (effective from 1 January 2013)
| | - | -----------------------------------------------------------------------------------



| | · | IAS 27 “Separate financial statements”
(revised 2011) (effective from 1 January 2013)
| | - | -------------------------------------------------------------------------------------



G.    Safe Harbor



See the section headed “Cautionary
Statement With Respect To Forward-Looking Statements”.



Item 6.               
Directors, Senior Management and Employees



A.    Directors and Senior Management



The following table
sets forth certain information concerning our current Directors, supervisors and senior management members. Except as disclosed
below, none of our Directors, supervisors or members of our senior management was selected or chosen as a result of any arrangement
or understanding with any major shareholders, customers, suppliers or others. There is no family relationship between any Director,
supervisor or senior management member and any other Director, supervisor or senior management member of our Company.





|Name             |  | Age |  | Shares Owned (1) |  | Position                                   
|---------------- |  | --- |  | ---------------- |  | -------------------------------------------
|Liu Shaoyong     |  | 54  |  | -                |  | Chairman of the Board of Directors         
|Ma Xulun         |  | 49  |  | -                |  | Director, President and Vice Chairman      
|Xu Zhao          |  | 44  |  | -                |  | Director                                   
|Gu Jiadan        |  | 57  |  | -                |  | Director                                   
|Li Yangmin       |  | 50  |  | 3,960 A Shares   |  | Director and Vice President                
|Tang Bing        |  | 46  |  | -                |  | Director and Vice President                
|Luo Zhuping      |  | 60  |  | 11,616 A Shares  |  | Director                                   
|Sandy Ke-Yaw Liu |  | 65  |  | -                |  | Independent Non-executive Director         
|Wu Xiaogen       |  | 47  |  | -                |  | Independent Non-executive Director         
|Ji Weidong       |  | 56  |  | -                |  | Independent Non-executive Director         
|Shao Ruiqing     |  | 56  |  | -                |  | Independent Non-executive Director         
|Yu Faming        |  | 59  |  | -                |  | Chairman of the Supervisory Committee      
|Xi Sheng         |  | 50  |  |                  |  | Supervisor                                 
|Liu Jiashun      |  | 56  |  | 3,960 A Shares   |  | Supervisor                                 
|Feng Jinxiong    |  | 51  |  | -                |  | Supervisor                                 
|Yan Taisheng     |  | 59  |  | -                |  | Supervisor                                 
|Shu Mingjiang    |  | 45  |  | -                |  | Vice President                             
|Wu Yongliang     |  | 50  |  | 3,696 A Shares   |  | Vice President and Chief Financial Officer 
|Tian Liuwen      |  | 54  |  | -                |  | Vice President                             
|Wang Jian        |  | 40  |  | -                |  | Board Secretary and Joint Company Secretary



Directors



Mr. LIU Shaoyong
is currently the Chairman of the Company and president and deputy party secretary of CEA Holding. Mr. Liu joined the civil aviation
industry in 1978 and was appointed as vice president of China General Aviation Corporation, deputy director of Shanxi Provincial
Civil Aviation Administration of the PRC, general manager of the Shanxi Branch of the Company, and director general of Flight Standard
Department of CAAC. Mr. Liu served as President of the Company from December 2000 to October 2002, vice minister of the CAAC from
October 2002 to August 2004, president of China Southern Air Holding Company from August 2004 to December 2008, chairman of China
Southern Airlines Co., Ltd. (a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange) from November 2004
to December 2008. In December 2008, Mr. Liu was appointed as president and deputy party secretary of CEA Holding, and became the
Chairman of the Company since 3 February 2009. Mr. Liu is also currently the board member of International Air Transport Association,
the board member of Association for Relations Across the Taiwan Straits and the vice chairman of the first session of the supervisory
committee of China’s Listed Companies Association. Mr. Liu graduated from the China Civil Aviation Flight College and obtained
an Executive Master of Business Administration (EMBA) degree from Tsinghua University. Mr. Liu holds the title of commanding pilot.



40







Mr. MA Xulun
is currently the Vice Chairman, President and Deputy Party Secretary of the Company, and party secretary of CEA Holding. Mr. Ma
was previously vice president of China Commodities Storing and Transportation Corporation, deputy director general of the Finance
Department of the CAAC and vice president of Air China International Corporation Limited. In 2002, after the restructuring of civil
aviation industry he was appointed as vice president of general affairs of Air China International Corporation Limited. Later on,
Mr. Ma served as president and deputy party secretary of Air China International Corporation Limited (a company listed on the Shanghai
Stock Exchange and the Hong Kong Stock Exchange) from September 2004 to January 2007. Mr. Ma became a party member of China National
Aviation Holding Company from December 2004 to December 2008, and deputy general manager of China National Aviation Holding Company
from January 2007 to December 2008. In December 2008, Mr. Ma was appointed as President and Deputy Party Secretary of the Company
and deputy party secretary of CEA Holding. Since February 2009, Mr. Ma has become a Director of the Company. Mr. Ma served as party
secretary of CEA Holding and Vice Chairman of the Company with effect from November 2011. Mr Ma is also currently the Deputy Director-
General of Association of Shanghai Listed Companies. Mr. Ma graduated from Shanxi University of Finance and Economics and Huazhong
University of Science and Technology. Mr. Ma holds a master’s degree and is a certified accountant.



Mr. XU Zhao
is currently a Director of the Company, and the chief accountant of CEA Holding. Mr. Xu served as engineer and accountant of Dongfeng
Motor Group Company Limited, manager of the finance department of Shanghai Yanhua High Technology Limited Company, and chief financial
officer of Shaanxi Heavy Duty Automobile Co., Limited. Since November 2006, Mr. Xu has served as the chief accountant of CEA Holding.
He was a Supervisor of the Company from June 2007 to November 2011. Mr. Xu was appointed as an independent non-executive director
of Yingde Gases Group Company Limited (a company listed on the Hong Kong Stock Exchange) with effect from September 2009. He has
served as a Director of the Company since June 2012. Mr. Xu graduated from Chongqing University, majoring in moulding, and The
Chinese University of Hong Kong, majoring in accounting, and holds a master’s degree. Mr. Xu is qualified as an engineer
and an accountant, and is a certified public accountant in the PRC.



Mr. GU Jiadanis
currently a Director of the Company, and vice president and a party member of CEA Holding. Mr. Gu was the assistant to president,
and the general manager and the party secretary of the commerce department of Shanghai Airlines Co., Ltd. From May 2005 to August
2009, he was a party member and vice president of Shanghai Airlines Co., Ltd.. From August 2009 to January 2010, he was the acting
president of Shanghai Airlines Co., Ltd.. From January 2010 to July 2011, he was vice president and a party member of CEA Holding
and the party secretary of Shanghai Airlines. Since July 2011, Mr. Gu has served as the vice president and a party member of CEA
Holding. He was appointed a Director of the Company with effect from June 2012. Mr. Gu Jiadan holds a master’s degree and
is a senior economist.



Mr. LI Yangmin
is currently a Director, Party Secretary and Vice President of the Company, and a party member of CEA Holding. Mr. Li joined the
civil aviation industry in 1985. He was previously deputy general manager of the aircraft maintenance base and the manager of air
route department of Northwest Company, general manager of the aircraft maintenance base of China Eastern Air Northwest Company
and vice president of China Eastern Air Northwest Company. Since October 2005, he has also been a Vice President of the Company.
He served as Safety Director of the Company from July 2010 to December 2012. He has become a party member of CEA Holding since
May 2011. He was appointed the Party Secretary and Director of the Company with effect from June 2011. He was the chairman of China
Cargo Airlines, a subsidiary of the Company, from February 2012 to January 2013. Mr. Li graduated from Northwestern Polytechnical
University with a master’s degree. He is a qualified senior engineer.



Mr. TANG Bing
is currently a Director, Vice President of the Company, and party member of CEA Holding. Mr. Tang joined the civil aviation industry
in 1993. He served as vice executive president (general manager in China Office) of MTU Maintenance Zhuhai Co., Ltd., office director
of China Southern Airlines Holding Company and president of Chongqing Airlines Company Limited. From December 2007 to May 2009,
he served as chief engineer and general manager of the Aircraft Engineering Department of China Southern Airlines Company Limited
(a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange). From May 2009 to December 2009, he was appointed
as president of the Beijing Branch of the Company and was the president of Shanghai Airlines from January 2010 to December 2011.
He was appointed as the chairman of Shanghai Airlines in January 2012. He served as a Vice President of the Company since February
2010, and was appointed a party member of CEA Holding in May 2011 and a Director of the Company in June 2012. Mr. Tang graduated
from Nanjing University of Aeronautics and Astronautics majoring in electrical technology. He obtained a Master of Business Administration
(MBA) degree from the Administration Institute of Sun Yat-sen University and an EMBA degree from the School of Economics and Management
of Tsinghua University.



Mr. LUO Zhuping
is currently a Director of the Company. Mr. Luo joined CEA in 1988. He was Deputy Chief and then Chief of the Enterprise Management
Department and Deputy Head of the Share System Office of China Eastern Airlines. He served as the Board Secretary of the Company
for 15 years from December 1996 to April 2012. He was also the Head of the Board Secretariat of the Company from 1997 to 2008.
He was appointed a Director of the Company with effect from June 2004. Mr. Luo has been responsible for domestic and overseas exchange
listing and capital management of the Company since 1993. He has gained rich experience in certain value-added measures of an enterprise,
such as enterprise reform, stock issuance, corporate governance, merger and acquisition and reorganization. Mr. Luo graduated from
Anhui University majoring in Philosophy and Law. He also holds a Master in Global Economics from Eastern China Normal University.
He participated in the training program for senior managers of large scale enterprises organized in the U.S. by the State Economic
and Trade Commission and Morgan Stanley.



Mr. Sandy Ke-Yaw
LIU is currently an Independent Non-executive Director of the Company. Mr. Sandy Ke-Yaw Liu joined the civil aviation industry
in Taiwan in 1969. He served in China Airlines in various capacities, including airport manager in Honolulu Airport, marketing
director for the Americas, general manager for Hawaii District, regional director for Europe, director of corporate planning and
director of marketing planning in its Corporate Office in Taiwan. With China Airlines, he also served as vice president for marketing
and sales and vice president for commerce, and president in the Corporate Office. In addition, Mr. Liu served as a director of
Taiwan Mandarin Airlines, Taiwan Far Eastern Air Transport, Taiwan China Pacific Catering Service and Taiwan Taoyuan International
Airport Service Company, as well as chairman of Taiwan Air Cargo Terminal. He relocated to Hong Kong to act as chief operating
officer for the Asia Region in Expeditors International of Washington, Inc., a global logistics company. Mr. Liu graduated from
Taiwan Shih Hsin University and attended advanced study programs at Stanford University in 1990 and 1993.



Mr. WU Xiaogen
is currently an Independent Non-executive Director of the Company. Mr. Wu previously served as assistant to the general manager
and deputy general manager of the securities department of China Jingu International Trust Investment Company Limited, deputy general
manager of the securities management department and general manager of the institutional management department of China Technology
International Trust Investment Company, and head of the audit teaching and research unit and deputy dean of the School of Accountancy
of Central University of Finance and Economics. He was chief accountant of China First Heavy Industries from November 2004 to June
2010. He has been a professional external director for central enterprises since June 2010 and holds the title of researcher. Mr.
Wu served as an independent non-executive director of China Petroleum & Chemical Corporation (a company listed on the Shanghai
Stock Exchange and the Hong Kong Stock Exchange) from May 2010 to May 2012. Mr. Wu is also a director and a member of the Ethics
Committee of the Chinese Institute of Certified Public Accountants, an external director of China National Machinery Industry Corporation
and an external director of China Three Gorges Corporation. Mr. Wu graduated from the Department of Economics and Management of
the Central University of Finance and Economics and also obtained a Doctoral Degree in Economics.



Mr. JI Weidong
is currently an Independent Non-executive Director of the Company. Mr. Ji was an associate professor and professor at the School
of Law of Kobe University, Japan. Since 2008, he has been the dean and chair professor of Koguan Law School of Shanghai Jiao Tong
University. In addition, he is currently an honorary professor at Kobe University, Japan. Mr. Ji graduated from the Department
of Law of Peking University. Mr. Ji completed his Master and Doctoral Degrees in Law at the Graduate School of Kyoto University,
Japan and obtained his doctoral degree from Kyoto University, Japan. From September 1991 to July 1992, he was a visiting scholar
at Stanford Law School.



41







Mr. SHAO Ruiqing
is currently an Independent Non-executive Director of the Company. Mr. Shao was deputy dean and dean of the School of Economics
and Management of Shanghai Maritime University. He served as deputy dean at Shanghai Lixin University of Commerce since March 2004,
and was also a professor in accounting and mentor to doctoral students. From June 2007 to August 2011, Mr. Shao served as an external
supervisor of China Merchants Bank Co., Ltd. (a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange).
Mr. Shao served as an independent nonexecutive director of SAIC Motor Corporation Limited (a company listed on the Shanghai Stock
Exchange) from June 2008 to May 2012. Mr. Shao was awarded the special allowance by the State Council of the PRC in 1995. He is
currently a consultative committee member of the Ministry of Transport of the PRC, as an expert in finance and accounting. Mr.
Shao graduated from Shanghai Maritime University, Shanghai University of Finance and Economics and Tongji University with a Bachelor
Degree in Economics, and Master and Doctoral Degrees in Management. Mr. Shao has spent two and a half years studying and being
senior visiting scholar in the U.K. and Australia.



Supervisory
Committee



As required by the
PRC Company Law and our Articles of Association, our Company has a supervisory committee (the “Supervisory Committee”),
whose primary duty is the supervision of our senior management, including our Board of Directors, managers and senior officers.
The Supervisory Committee consists of five supervisors.



Mr. YU Faming
is currently the Chairman of the Supervisory Committee of the Company, and a party member and the head of party disciplinary inspection
group of CEA Holding. Mr. Yu served as deputy head of the Survey and Research Department of the Policy Research Office of the Ministry
of Labor and Human Resources of the PRC, head of the Integration Division of the Department of Policy and Regulation of the Ministry
of Labour of the PRC, deputy head of the Labor Science Research Institute of the Ministry of Labor of the PRC, deputy head and
head of the Labor Science Research Institute of the Ministry of Labor Protection of the PRC and head of the Training and Employment
Department of the Ministry of Labor Protection of the PRC. From June 2008 to May 2011, he served as head of the Employment Department
of the Ministry of Human Resources and Social Security of the PRC. Since May 2011, he has been party member and head of party disciplinary
inspection group of CEA Holding. Since June 2011, he has served as the Chairman of the Supervisory Committee of the Company. Mr.
Yu graduated from Shandong University majoring in philosophy. He holds the title of associate research fellow.



Mr. XI Shengis
currently a Supervisor of the Company and chief auditor of CEA Holding. Mr. Xi served as the deputy head of the foreign affairs
department II of the foreign funds utilization and application audit department and the head of the liaison and reception office
of the foreign affairs department of the National Audit Office of the PRC and the deputy head of the PRC Audit Institute. He was
also the head of the fixed assets investment audit department of the National Audit Office of the PRC, and the party secretary
and a special commissioner of the Harbin office of the National Audit Office of the PRC. He served as the head of the personnel
and education department of the National Audit Office of the PRC from January 2007 to September 2009. He was the head of the audit
department of CEA Holding from September 2009 to November 2012. Mr. Xi has served as the chief auditor of CEA Holding since September
2009. Mr. Xi is also the council member of China Institute of Internal Audit and a member of International Institute of Internal
Auditors. Mr. Xi graduated from Jiangxi University of Finance and Economics with undergraduate education background. He is a senior
auditor.



Mr. LIU Jiashun
is currently a Supervisor of the Company. Mr. Liu was party secretary, deputy president and secretary of the disciplinary committee
of China Aviation Fuel Hainan Company, as well as chairman of the board and president of Hainan Nanyang Air Transport Co., Ltd.
He was also the chief director in charge of fuel supply engineering at Haikou’s Meilan Airport and served as a director of
Meilan Airport Co., Ltd. and the vice chairman of the board and president of Meiya Company. From 1999 to 2007 he was deputy party
secretary, and subsequently the secretary of the disciplinary committee of China Aviation Fuel East China Company and he served
as the general manager of Shanghai Pudong Airport Fuel Co., Ltd from 2006 to March 2009. Since October 2009, Mr. Liu has served
as the party secretary of China Aviation Fuel Huadong Company). He was appointed a Supervisor of the Company in 2000. Mr. Liu received
post-graduate education and is qualified as a senior political work instructor.



Mr. FENG Jinxiong
is currently a Supervisor and General Manager of the Audit Department of the Company and a deputy general manager of the Audit
Department of CEA Holding. Mr. Feng joined the civil aviation industry in 1982, and served as Deputy Head and Head of the Planning
Department of the Company, head of the Finance Department and deputy chief accountant of CEA Holding, Manager of the Human Resources
Department of the Company, vice president of CES Finance Holding Co. Ltd, and Deputy General Manager of the Shanghai Security Department
of the Company. He also served as president of the China Eastern Airlines Wuhan Co., Ltd. from 2007 to 2009. Since February 2009,
he has been General Manager of the Audit Department of the Company. He has been a Supervisor of the Company since March 2009. Mr.
Feng graduated from the Civil Aviation University of China and the Graduate School of the Chinese Academy of Social Sciences, holding
a master’s degree.



Mr. YAN Taisheng
is currently a Supervisor and the Vice Chairman of the Labor Union of the Company. Mr. Yan joined the civil aviation industry in
1973, and served as Chief of the Board Secretariat of the General Office of the Company, general manager of Shanghai Civil Aviation
Dong Da Industry Company and Deputy Head and Head of the General Office of the Labor Union of the Company. He has been the Vice
Chairman of the Labor Union of the Company since 2005. He served as a Supervisor since March 2009. Mr. Yan graduated from East
China Normal University.



Senior Management



Mr. SHU Mingjiang
is currently a Vice President of the Company. Mr. Shu joined the civil aviation industry in 1989. He served as vice president of
general affairs of Shanghai Eastern Flight Training Co., Ltd., a subsidiary of the Company, Deputy Head of the Safety Monitoring
Division, Vice Manager and subsequently Manager of the Safety Monitoring Department of the Company, Deputy General Manager of the
Shanghai Flight Division of the Company and Vice President of the Yunnan Branch of the Company. From November 2006 to December
2009, he was the Chief Pilot and General Manager of the Operating Control Division of the Company. From December 2009 to November
2011, Mr. Shu was President of the Beijing Branch of the Company. He has been a Vice President of the Company since December 2011.
Mr. Shu graduated from the Flight College of Civil Aviation Flight University of China, majoring in aviation flying, and obtained
a Master in Flight Safety Management jointly held by Civil Aviation University of China, ENAC, France and ENSICA, France, and an
Executive Master of Business Administration (EMBA) degree from School of Management of Fudan University.



Mr. WU Yongliang
is currently a Vice President and Chief Financial Officer of the Company. Mr. Wu joined the civil aviation industry in 1984 and
served as Deputy Head and subsequently Head of the Finance Department of the Company, Head of Planning and Finance Department of
the Company and head of the Finance Department of CEA Holding. From 2001 to March 2009, he served as deputy chief accountant and
head of the Finance Department of CEA Holding. From April 2009 onwards, he has served as Chief Financial Officer of the Company.
He has been a Vice President of the Company since December 2011. Mr. Wu graduated from the Faculty of Economic Management of Civil
Aviation University of China, majoring in planning and finance. He also graduated from Fudan University, majoring in business administration
(MBA). Mr. Wu was awarded the postgraduate qualification and is a certified accountant.



42







Mr. TIAN
Liuwen is currently a Vice President of the Company and president of Shanghai Airlines. Mr. Tian served as manager of the Beijing
Sales Department under the Marketing and Sales Division of China General Aviation Corporation. He was also the Head of the General
Manager Office and Chairman of the Labour Union and Deputy General Manager of the Shanxi Branch of the Company. From June 2002
to January 2008, he was the Vice President and subsequently President of the Hebei Branch of the Company. From April 2005 to January
2008, he was President of the Beijing Base of the Company. He served as general manager of China Eastern Airlines Jiangsu Co.,
Ltd, a subsidiary of the Company, since January 2008. Since December 2011, he has been Vice President of the Company and president
of Shanghai Airlines. He obtained an EMBA degree from Nanjing University and is qualified as senior economist.



Mr. WANG Jian
is currently the Board Secretary, Joint Company Secretary and the Head of the Board secretariat of the Company. Mr. Wang joined
the Company in 1995 and served as Deputy Head of the Company’s office and Deputy General Manager of the Shanghai Business
Office of the Company. From September 2006 to May 2009, he was the deputy general manager in the Shanghai Base of China Southern
Airlines Company Limited (a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange). Since May 2009, he
has served as the Head of the Board secretariat of the Company. He was a representative of the Company’s Securities affairs
from May 2009 to April 2012. He was appointed as the Board Secretary and Joint Company Secretary of the Company in April 2012.
Mr. Wang graduated from Shanghai Jiao Tong University and has an MBA postgraduate degree from East China University of Science
and Technology and an EMBA degree from Tsinghua University as well as a qualification certificate for board secretaries of listed
companies issued by the Shanghai Stock Exchange.



MR. NGAI Wai Fung
is currently a Joint Company Secretary of the Company. Mr. Ngai is a fellow and vice president of the Hong Kong Institute of Chartered
Secretaries, and a fellow of the Institute of Chartered Secretaries and Administrators in the United Kingdom. Mr. Ngai is currently
a director and chief executive officer of SW Corporate Services Group Limited. Mr. Ngai has become an adjunct professor of the
Faculty of Law of Hong Kong Shue Yan University in September 2012. He was appointed as a non-official member of the Working Group
on Professional Services of the Economic Development Commission by the chief executive of the Hong Kong Special Administrative
Region and also a committee member of Qualification and Examination Board by the Hong Kong Institute of Certified Public Accounts
in January 2013. He used to serve as joint company secretary in several companies and has rich experience in being a company secretary,
as well as in enterprise management, legal matters, finance and corporate governance. He is also a member of the Hong Kong Institute
of Certified Public Accountants and a fellow of the Association of Chartered Certified Accountants in the United Kingdom. In April
2012, Mr. Ngai was appointed as the Joint Company Secretary of the Company. Mr. Ngai has a Doctorate in Finance from the Shanghai
University of Finance and Economics, a Master in Corporate Finance from the Hong Kong Polytechnic University, an MBA from Andrews
University in the United States and a Bachelor’s degree (Honors) in Law from the University of Wolverhampton in the United
Kingdom.



| | B. | Compensation
| | -- | ------------



The aggregate amount
of cash compensation paid by us to our Directors, supervisors and the senior management during 2012 for services performed as Directors,
supervisors and officers or employees of our Company was approximately RMB6.7 million. In addition, Directors and supervisors who
are also officers or employees of our Company receive certain other in-kind benefits which are provided to all of our employees.
Our Company does not have any bonus or profit sharing plan or any stock option plan.



Details of the emoluments
paid to our Directors, supervisors and senior management for the year 2012 are as follows:



|                                    |  | 2012                    |      
|----------------------------------- |  | ----------------------- | -----
|Name and Principal Position         |  | Salaries and allowances |      
|                                    |  | RMB’000                 |      
|Directors                           |  |                         |      
|Liu Shaoyong*                       |  |                         | —    
|Ma Xulun                            |  |                         | 697  
|Xu Zhao*&**                         |  |                         | —    
|Gu Jiadan*&**                       |  |                         | —    
|Li Yangmin                          |  |                         | 625  
|Tang Bing**                         |  |                         | 592  
|Luo Zhuping                         |  |                         | 402  
|Independent non-executive Directors |  |                         |      
|Wu Xiaogen                          |  |                         | —    
|Ji Weidong                          |  |                         | 120  
|Shao Ruiqing                        |  |                         | 120  
|Sandy Ke-Yaw Liu                    |  |                         | 97   
|Supervisors                         |  |                         |      
|Yu Faming*                          |  |                         | —    
|Xi Sheng*&**                        |  |                         | —    
|Liu Jiashun                         |  |                         | —    
|Feng Jinxiong                       |  |                         | 396  
|Yan Taisheng                        |  |                         | 344  
|Senior Management                   |  |                         |      
|Tang Bing                           |  |                         | 592  
|Shu Mingjiang                       |  |                         | 1,268
|Wu Yongliang                        |  |                         | 544  
|Tian Liuwen                         |  |                         | 544  
|Wang Jian**                         |  |                         | 386  
|Total                               |  |                         | 6,727



| | * | Certain Directors and supervisors of our Company received emoluments from CEA Holding, our parent
company, part of which is in respect of their services to our Company and our subsidiaries. No apportionment has been made as it
is impracticable to apportion this amount between their services to our Company and their services to CEA Holding.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ** | These directors, supervisors and senior management of the Company were newly appointed during the
year ended December 31, 2012.
| | -- | -------------------------------------------------------------------------------------------------------------------------------



During the year ended
December 31, 2012, no Directors or supervisors waived their compensation.



43







| | C. | Board Practices
| | -- | ---------------



All of our Directors
and supervisors serve a term of three years or until such later date as their successors are elected or appointed. Directors and
supervisors may serve consecutive terms. Two of the supervisors are employee representatives appointed by our employees, and the
rest are appointed by the shareholders. The following table sets forth the number of years our current Directors, executive officers
and supervisors have held their positions and the expiration of their current term.





|Name             |  | Position                                    |  | Held Position Since |  | Expiration of Term
|---------------- |  | ------------------------------------------- |  | ------------------- |  | ------------------
|Liu Shaoyong     |  | Chairman of the Board of Directors          |  | June 28, 2010       |  | June 28, 2013     
|Ma Xulun         |  | Vice Chairman                               |  | November 11, 2011   |  | June 28, 2013     
|                 |  | President                                   |  | June 28, 2010       |  | June 28, 2013     
|Xu Zhao          |  | Director                                    |  | June 28, 2012       |  | June 28, 2013     
|Gu Jiadan        |  | Director                                    |  | June 28, 2012       |  | June 28, 2013     
|Li Yangmin       |  | Director                                    |  | June 29, 2011       |  | June 28, 2013     
|                 |  | Vice President                              |  | June 28, 2010       |  | June 28, 2013     
|Tang Bing        |  | Director                                    |  | June 28, 2012       |  | June 28, 2013     
|                 |  | Vice President                              |  | June 28, 2010       |  | June 28, 2013     
|Luo Zhuping      |  | Director                                    |  | June 28, 2010       |  | June 28, 2013     
|Sandy Ke-Yaw Liu |  | Independent non-executive Director          |  | June 28, 2010       |  | June 28, 2013     
|Wu Xiaogen       |  | Independent non-executive Director          |  | June 28, 2010       |  | June 28, 2013     
|Ji Weidong       |  | Independent non-executive Director          |  | June 28, 2010       |  | June 28, 2013     
|Shao Ruiqing     |  | Independent non-executive Director          |  | June 28, 2010       |  | June 28, 2013     
|Yu Faming        |  | Chairman of the Supervisory Committee       |  | June 29, 2011       |  | June 28, 2013     
|Xi Sheng         |  | Supervisor                                  |  | June 28, 2012       |  | June 28, 2013     
|Liu Jiashun      |  | Supervisor                                  |  | June 28, 2010       |  | June 28, 2013     
|Feng Jinxiong    |  | Supervisor                                  |  | June 28, 2010       |  | June 28, 2013     
|Yan Taisheng     |  | Supervisor                                  |  | June 28, 2010       |  | June 28, 2013     
|Shu Mingjiang    |  | Vice President                              |  | December 13, 2011   |  | June 28, 2013     
|Wu Yongliang     |  | Vice President                              |  | December 13, 2011   |  | June 28, 2013     
|                 |  | Chief Financial Officer                     |  | June 28, 2010       |  | June 28, 2013     
|Tian Liuwen      |  | Vice President                              |  | December 13, 2011   |  | June 28, 2013     
|Wang Jian        |  | Board Secretary and Joint Company Secretary |  | April 6, 2012       |  | June 28, 2013     



None of our Directors,
supervisors or members of our senior management has entered into any agreement or reached any understanding with us requiring our
Company to pay any benefits as a result of termination of their services.



Audit and Risk Management Committee



Our Board of Directors
established the audit committee in August 2000 in accordance with the listing rules of the Hong Kong Stock Exchange. On August
10, 2009, our Board of Directors approved a resolution to change the audit committee to the audit and risk management committee.
On March 19, 2010, the Board of our Company approved the appointment of Mr. Wu Xiaogen and Mr. Ji Weidong to serve as members of
the audit and risk management committee, whereas Mr. Hu Honggao and Mr. Zhou Ruijin ceased to be members of the audit and risk
management committee. Mr. Shao Ruiqing serves as the chairman of the audit and risk management committee. All of the members of
the audit and risk management committee are independent non-executive directors. Our audit and risk management committee satisfies
the requirements of Rule 10A-3 of the Exchange Act and NYSE Rule 303A.06 relating to audit committees, including the requirements
relating to independence of the audit committee members.



The audit and risk
management committee is authorized to, among other things, examine our internal control system, review auditing procedures and
financial reports with our auditors, evaluate the overall risk management and corporate governance of our Company and prepare relevant
recommendations to our Board of Directors. Subject to the approval of the shareholders’ meeting, the audit and risk management
committee of our Company is also directly responsible for the appointment, compensation, retention and oversight of our external
auditors, including resolving disagreements between management and the auditor regarding financial reporting. The external auditors
report directly to the audit and risk management committee. The audit and risk management committee holds at least three meetings
each year. The audit and risk management committee has established procedures for the receipt, retention and treatment of complaints
received by our Company regarding accounting, internal controls or auditing matters, and procedures for the confidential, anonymous
submission by employees of concerns regarding questionable accounting or auditing matters. The audit and risk management committee
has the authority to engage independent counsel and other advisors, as it determines necessary, to carry out its duties. Our Company
provides appropriate funding, as determined by the audit and risk management committee, for payment of compensation to the external
auditors, advisors employed by the audit committee, if any, and ordinary administrative expenses of the audit committee that are
necessary or appropriate in carrying out its duties. The audit and risk management committee held eight meetings in 2012.



Nominations
and Remuneration Committee





On June 29, 2007,
the fifth session of the Board of the Company held the first meeting for 2007 and initially appointed Mr. Zhou Ruijin, Mr. Luo
Chaogeng and Mr. Wu Baiwang as the remuneration and appraisal committee of the Company (the “Remuneration and Appraisal Committee”),
and Mr. Zhou Ruijin was elected as the chairman of the Remuneration and Appraisal Committee. On March 19, 2010, the Board of the
Company passed a resolution to merge the Nominations Committee of our Company and the Remuneration and Appraisal Committee to form
the Nominations and Remuneration Committee. On March 19, 2010, the Board approved the appointment of Mr. Liu Shaoyong, Mr. Sandy
Ke-Yaw Liu and Mr. Ji Weidong as the members of the Nominations and Remuneration Committee of the fifth session of the Board. Mr.
Liu Shaoyong was elected as the chairman of the Nominations and Remuneration Committee. On April 27, 2012, we amended the Detailed
Working Rules for the Nominations and Remuneration Committee, with retroactive effect from April 1, 2012. For remuneration related
matters considered and approved by the Nominations and Remuneration Committee, duties of the Chairman shall be performed by an
independent non-executive director from among the members of the Nominations and Remuneration Committee. See the announcement furnished
to the SEC on Form 6-K dated April 27, 2012.







The Nominations and
Remuneration committee is authorized to determine standards and procedures for the nomination of Directors and senior management
of the Company, examine the remuneration policies of Directors and senior management of the Company, review the performance of
our Directors and senior management as well as determine their annual compensation level. The Nominations and Remuneration Committee
submits to our Board of Directors or shareholders’ meeting for approval compensation plans and oversee the implementation
of approved compensation plans. The Nominations and Remuneration Committee may consult financial, legal or other outside professional
firms in carrying out its duties. Prior to the establishment of the Nominations and Remuneration Committee, the Remuneration and
Appraisal Committee did not hold any meetings in 2009. Under the guidance of the Remuneration and Appraisal Committee, we renewed
liability insurance for our Directors, supervisors and senior management in August 2009. The Nominations and Remuneration Committee
held five meetings in 2012.





44









We follow our home
country practice in relation to the composition of our Nominations and Remuneration Committee in reliance on the exemption provided
under NYSE Corporate Governance Rule 303A.00 available to foreign private issuers. Our home country practice does not require us
to establish a remuneration committee composed entirely of independent directors.





Planning and Development Committee



As of December 31,
2012, the three members of the Planning and Development Committee were Mr. Li Yangmin, Mr. Luo Zhuping and Mr. Shao Ruiqing. Mr.
Li Yangmin is the Chairman of the committee. On June 29, 2011, the Board of our Company approved the appointment of Mr. Li Yangmin
to serve as a member and the Chairman of the Planning and Development Committee, whereas Mr. Luo Chaogeng ceased to be the member
of the Planning and Development Committee.



The Planning and Development
Committee, a specialized committee under our Board of Directors, is responsible for studying, considering, and developing plans
and making recommendations with regard to the long-term development plans and material investment decisions of the Company. The
members of the committee also oversee the implementation of such plans. The Planning and Development Committee held seven meetings
in 2012.



Aviation Safety and Environment Committee



As of December 31,
2012, the three members of the Aviation Safety and Environment Committee were Mr. Ma Xulun, Mr. Sandy, Ke-Yaw Liu and Mr. Li Yangmin.
Mr. Ma Xulun is the Chairman of the committee. On June 29, 2011, the Board of our Company approved the appointment of Mr. Li Yangmin
to serve as a member of the Aviation Safety and Environment Committee, whereas Mr. Luo Chaogeng ceased to be the member of the
Aviation Safety and Environment Committee.



The Aviation Safety
and Environment Committee, a specialized committee under our Board of Directors, is responsible for consistent implementation of
relevant laws or regulations regarding national aviation safety and environmental protection, examining and overseeing the aviation
safety management of the Company, studying, considering and making recommendations with regard to aviation safety duty plans and
significant issues resulting from related safety duties as well as implementing such safety duty plans. In addition, the Aviation
Safety and Environment Committee performs studies, and makes recommendations on significant environmental protection issues, including
carbon emissions on our domestic and international aviation routes and carbon emission programs, and overseeing their implementation.
The Aviation Safety and Environment Committee held two meetings in 2012.



| | D. | Employees
| | -- | ---------



Through arrangements
with CEA Holding and others, we provide certain benefits to our employees, including housing, retirement benefits and hospital,
maternity, disability and dependent medical care benefits. Our Company does not have any bonus or profit sharing plan or any stock
option plan. See Notes 37 and 38 to our audited consolidated financial statements. Our employees are members of a labor association
which represents employees with respect to labor disputes and certain other employee matters. We believe that we maintain good
relations with our employees and with their labor association.



The table below
sets forth the number of our employees as of December 31, 2010, 2011 and 2012, respectively:



|                           |  | As of December 31, |       
|-------------------------- |  | ------------------ | ------
|                           |  | 2010               |       
|Pilots                     |  |                    | 4,587 
|Flight attendants          |  |                    | 7,200 
|Maintenance personnel      |  |                    | 10,446
|Sales and marketing        |  |                    | 4,105 
|Management and others (1)  |  |                    | 30,758
|Management                 |  |                    | 6,259 
|Ground Services and others |  |                    | 24,499
|Total                      |  |                    | 57,096



| | (1) | Others include outsourced non-skilled and semi-skilled personnel employed by third-party employment
staffing companies and other entities. These personnel remain employees of their respective employment staffing company or other
entity.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



E.    Share Ownership



See Item 6.A and Item 6.B above.



Item 7.               
Major Shareholders and Related Party Transactions



A.    Major Shareholders



The following table
sets forth certain information regarding ownership of our capital stock as of December 31, 2012 by all persons who were known to
us to be the beneficial owners of 5% or more of our capital stock:



|Title of Class    |  | Identity of Person or Group |  | Amount Owned |               |  | Percent of Class |  |       | Percent of Total Shares | 
|----------------- |  | --------------------------- |  | ------------ | ------------- |  | ---------------- |  | ----- | ----------------------- | 
|Domestic A Shares |  | CEA Holding                 |  |              | 4,831,375,000 |  |                  |  | 62.08 | %                       | 
|H Shares          |  | CEA Holding (1)             |  |              | 1,927,375,000 |  |                  |  | 55.16 | %                       | 
|H Shares          |  | HKSCC Nominees Limited (2)  |  |              | 3,478,100,299 |  |                  |  | 99.54 | %                       | 



| | (1) | Such H shares were held by CES Global Holdings (Hong Kong) Limited (“CES Global”),
in the capacity of beneficial owner, which in turn was 100% held by CEA Holding.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | As custodian of the Depositary for American Depositary Shares representing H Shares. Amount of
shares owned by HKSCC Nominees Limited also includes 1,927,375,000 H shares held by CES Global, of which 1,437,375,000 H shares
are subject to a trading moratorium until June 26, 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45







As of December 31,
2012, CEA Holding directly or indirectly held 59.93% of our issued and outstanding capital stock, and neither it nor HKSCC Nominees
Limited has any voting rights different from those of other shareholders. We are not aware of any arrangement which may at a subsequent
date result in a change of control of our Company.



As of December 31,
2012, there were 3,494,325,000 H Shares issued and outstanding. As of December 31, 2012 and April 19, 2013, there were,
respectively, 42 and 41 registered holders of American depositary receipts evidencing 1,194,494 and 1,089,374 ADSs, respectively.
Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial
holders of ADSs or the number of ADSs beneficially held by U.S. persons.



Our Company is currently
a majority-owned subsidiary of CEA Holding. CEA Holding itself is a wholly state-owned enterprise under the administrative control
of China State-owned Assets Supervision and Administration Commission, or SASAC. CEA Holding’s shareholding in our Company
is in the form of ordinary domestic shares, through which it, under the supervision of the SASAC, enjoys shareholders’ rights
and benefits on behalf of the PRC government.



B.    Related Party Transactions



Relationship with CEA Holding and Associated Companies



We enter into transactions
from time to time with CEA Holding and its subsidiaries. For a description of such transactions, see Note 46 to our audited consolidated
financial statements.



Related
Business Transactions



As our Company and
EA Group and its subsidiaries were a single group prior to the restructuring in 2002, certain arrangements among us have continued
after the restructuring and the establishment of CEA Holding. Although we do not currently intend to enter into any equivalent
contracts with third parties, each of these arrangements is non-exclusive.



Eastern Aviation Import and Export Corporation
(“ EAIEC”), a 55% owned subsidiary of CEA Holding



Import and Export
Agency Services



On October 15, 2010,
the Company entered into an agreement relating to the renewal of the existing import and export agency agreement with the with
EAIEC on substantially the same terms, pursuant to which EAIEC and its subsidiaries will from time to time as its agent provide
us with agency services for the import and export of aircraft and related raw materials, accessories, machinery and equipment required
in our daily airlines operations and civil aviation business. The Import and Export Agency Renewal Agreement will be effective
for a term of three years commencing from January 1, 2011 to December 31, 2013. The agreement is subject to renewal.



For the year ended
December 31, 2012, we paid handling charges to EAIEC of approximately RMB78.8 million. We currently have certain balances with
EAIEC, which are unsecured, interest-free and have no fixed term of repayment. See Note 46(b) to our audited consolidated financial
statements for more details.



SA Import and Export
Disposal



On July 28, 2010,
Shanghai Airlines and Shanghai Airlines Tours, International (Group) Co., Ltd., or Shanghai Tours, entered into the SA Import and
Export Share Transfer Agreement with EAIEC, pursuant to which Shanghai Airlines agreed to sell and EAIEC agreed to purchase the
SA Import & Export Equity Interests, representing 89.7% of the entire issued share capital of SA Import & Export, and Shanghai
Tours agreed to sell and EAIEC agreed to purchase the SA Import & Export Equity Interests II, representing 10.3% of the entire
issued share capital of SA Import & Export.



Eastern Aviation Advertising Service
Co., Ltd. (“ Eastern Aviation Advertising”), a 55% owned subsidiary of CEA Holding



Advertising Service
Agreement



On April 29, 2008,
we entered into an agreement to renew our agreement entered into with Eastern Aviation Advertising dated May 12, 2005 regarding
the provision of advertising services on substantially the same terms, for an additional term of three years commencing from July
1, 2008. On October 15, 2010, we entered into an agreement relating to the renewal of the existing Advertising Services Agreement
with Eastern Aviation Advertising on substantially the same terms, pursuant to which Eastern Aviation Advertising and its subsidiaries
will, from time to time, provide us with multi-media advertising services to promote its business and to organize promotional functions
and campaigns to enhance its reputation in the civil aviation industry. The advertising services renewal agreement will be effective
for a term of three years, commencing from January 1, 2011 to December 31, 2013. For the year ended December 31, 2012, we paid
to Eastern Aviation Advertising approximately RMB38.8 million for advertising services.



Media Resources
Agreement



On March 24, 2010,
our Company and Eastern Aviation Advertising, which is 55% owned by CEA Holding, entered into an exclusive media resources agreement
in which we granted Eastern Aviation Advertising the exclusive rights to operate the media resources of the Company. Pursuant to
the agreement, Eastern Aviation Advertising will have the exclusive rights to: (i) distribute in-flight reading materials; (ii)
operate aircraft cabin-based, in-flight and facilities advertising; and (iii) purchase in-flight entertainment programming from
third parties or to self-produce such programming. The term of this agreement is for three years, commencing March 24, 2010, with
the relevant terms to increase the fees payable to the Company in accordance with the expansion of the Company’s aircraft
fleet.



On October 15, 2010,
we entered into an agreement relating to the renewal of the existing Media Resources Agreement with Eastern Aviation Advertising
on substantially the same terms, pursuant to which we agreed to grant Eastern Aviation Advertising and its subsidiaries exclusive
rights to operate our media resources. The Media Resources Renewal Agreement will be effective for a term of three years, commencing
from January 1, 2011 to December 31, 2013. For the year ended December 31, 2012, Eastern Aviation Advertising paid approximately
RMB36.0 million for media royalty fee.



SA Media Disposal



On July 28, 2010,
Shanghai Airlines and Shanghai Tours entered into the SA Media Share Transfer Agreement with Eastern Aviation Advertising, pursuant
to which Shanghai Airlines agreed to sell and Eastern Aviation Advertising agreed to purchase the SA Media Equity Interests I,
representing 49% of the entire issued share capital of SA Media, and Shanghai Tours agreed to sell and Eastern Aviation Advertising
agreed to purchase the SA Media Equity Interests II, representing 51% of the entire issued share capital of SA Media.



46







China Eastern
Air Catering Investment Co., Ltd. (“CEA Catering”), a 55% owned subsidiary of CEA Holding with the remaining 45% by
our Company



Catering Service
Agreements



On May 12, 2005, our
Company entered into certain catering service agreements with a number of subsidiaries of CEA Catering (including Shanghai Eastern
Air Catering Co., Ltd.) regarding the provision of in-flight catering services (including the supply of in-flight meals and beverages,
cutlery and tableware) and related storage and complementary services required in our Company’s daily airline operations
and civil aviation business.



On April 29, 2008,
we entered into a service agreement with CEA Catering in substantially the same terms to supersede our agreements dated May 12,
2005. The agreement, regarding the provision of in-flight catering services (including the supply of in-flight meals and beverages,
cutlery and tableware) and related storage and complementary services required in our Company’s daily airline operations
and civil aviation business, was for a term of three years commencing from July 1, 2008.



On October 15, 2010,
the Company entered into an agreement relating to the renewal of the existing catering services agreement with the CEA Catering
on substantially the same terms pursuant to which CEA Catering and the subsidiaries of CEA Catering will from time to time provide
our Group with in-flight catering services (including the supply of in-flight meals and beverages, cutlery and tableware) and related
storage and complementary services required in the daily airline operations and civil aviation business of our Group. CEA Catering
and its subsidiaries provide their services in accordance with the specifications and schedules as from time to time specified
by the relevant member(s) of our Group to accommodate its operation needs. The catering services renewal agreement will be effective
for a term of three years, commencing from January 1, 2011 to December 31, 2013. For the year ended December 31, 2012, we paid
approximately RMB783.4 million to the subsidiaries of CEA Catering for the supply of in-flight meals and other services.



SA Catering Disposal



On July 28, 2010,
Shanghai Airlines and SA Industry entered into the SA Catering Share Transfer Agreement with CEA Catering, pursuant to which Shanghai
Airlines agreed to sell and CEA Catering agreed to purchase the SA Catering Equity Interests I, representing 50% of the entire
issued share capital of SA Catering, and SA Industry agreed to sell and CEA Catering agreed to purchase the SA Catering Equity
Interests II, representing 20% of the entire issued share capital of SA Catering.



Eastern Air Group Finance Co., Ltd.,
(“Eastern Finance”), a 53.75% owned subsidiary of CEA Holding



Our Company and Eastern
Finance have entered into a financial services agreement dated May 12, 2005 to supersede our agreement with Eastern Finance dated
January 8, 1997, regarding the provision of deposit services, loan and financing services and certain other financial services
such as the provision of trust loans, financial guarantees and credit facilities and credit references for a term of three years
commencing from July 1, 2005. The agreement is subject to renewal. Pursuant to this agreement, we may place deposits with, and
obtain loans from, Eastern Finance.



Pursuant to the financial
services agreement, Eastern Finance shall deposit all monies deposited by our Company under the agreement with commercial bank(s)
in China, including, for example, Industrial and Commercial Bank of China, China Construction Bank, Agriculture Bank of China and
Bank of Communications. Eastern Finance has also undertaken under the financial services agreement that all outstanding loans it
provides to CEA Holding and its subsidiaries (other than our Company) will not at any time and from time to time exceed the aggregate
amount of its equity capital, surplus reserves and deposits received from other parties.



On April 29, 2008,
we entered into a financial services agreement to renew our agreement dated May 12, 2005 regarding the provision of deposit services,
loan and financing services and certain other financial services such as the provision of trust loans, financial guarantees and
credit facilities and credit references, in substantially the same terms, for an additional term of three years commencing from
July 1, 2008.



On October 15, 2010,
the Company entered into an agreement relating to the renewal of the existing financial services agreement with the Eastern Finance,
pursuant to which the Eastern Finance and its subsidiaries will from time to time provide us with a range of financial services
including: (i) deposit services; (ii) loan and financing services; and (iii) other financial services such as the provision of
trust loans, financial guarantees and credit references (the scope of “other financial services” is not limited and
different services may be provided to us as and when they are needed). The financial services renewal agreement will be effective
for a term of three years commencing from January 1, 2011 to December 31, 2013.



As of December
31, 2012, we had short-term deposits amounting to RMB1,451.5 million placed with Eastern Finance, which paid interest to us at
0.39% per annum. In addition, our Company had short-term loans of RMB675.4 million from Eastern Finance. During the year ended
December 31, 2012, the weighted average interest rate on the loan was 4.98% per annum. As of December 31, 2012, we had long-term
loans of RMB165.0 million with Eastern Finance, which had had a weighted average interest rate of 5.64% per annum.



On January 16, 2013, the Company entered
into a supplemental agreement with Eastern Finance to further regulate the balances of the our deposits and loans with the Eastern
Finance and its subsidiaries on a pre-condition that the agreed maximum daily balance of each of the deposits and the loans under
the financial services agreement dated October 15, 2010 remains unchanged. For details, please refer to the our announcement filed
with the SEC dated January 16, 2013.



CEA Development Co. (“CEA Development”),
a 95% owned subsidiary of CEA Holding



On October 28, 2008,
our Company and CEA Development Co. entered into an automobile repair service agreement, pursuant to which CEA Development Co.
will, from time to time, provide maintenance and repair services for our automobiles that are used in our ground services and daily
operations for a term commencing from January 1, 2008 to December 31, 2010. On April 29, 2008, we entered into a service agreement
with Shanghai Eastern Aviation Equipment Manufacturing Corporation, or SEAEMC, a wholly owned subsidiary of CEA Development Co.,
to renew our agreement with SEAEMC dated May 12, 2005, in substantially the same terms. The agreement regarding the provision of
comprehensive services in relation to maintenance, repair and overhaul of aircraft and aviation equipment, and procurement of related
equipment and materials required in our daily operations extends for an additional term of three years commencing from July 1,
2008.



On October 15, 2010,
the Company entered into an agreement relating to the consolidation and renewal of the existing maintenance services agreement
and the existing automobile repairing services agreement on substantially the same terms with CEA Development Co. pursuant to which
CEA Development Co. and its subsidiaries will from time to time provide certain services to the Company, including: (i) maintenance
and repair services to the Company’s automobiles that are used in ground services and daily operations; (ii) comprehensive
services in relation to maintenance, repair and overhaul of aircraft and aviation equipment, and procurement of related equipment
and materials required in the daily operations of our Group; (iii) various special vehicles and equipment for airline use, such
as air stairs, freight cars, luggage trailers, garbage truck, food cars, freight containers, freight board; and (iv) aircraft on-board
supplies. The maintenance and repair services renewal agreement will be effective for a term of three years commencing from January
1, 2011 to December 31, 2013. For the year ended December 31, 2012, production and maintenance services fees paid to CEA Development
Entity amounted were approximately RMB121.9 million.



47







Great Wall Airlines, a non-wholly owned
subsidiary of CEA Holding



On December 20, 2010,
China Cargo Airlines, a subsidiary of our Company, as purchaser, and Great Wall Airlines, as vendor, entered into a purchase agreement
for the acquisition of the assets, being all valuable business carried on by, and all valuable assets of, Great Wall Airlines,
at RMB386.9 million (subject to adjustments). The acquisition obtained the approval from CAAC, NDRC and MOFCOM, and was completed
on June 1, 2011. The acquisition is to align with the development strategy of our Company and enhances China Cargo Airlines’
capability for sustainable development, while avoiding horizontal competition.



Shanghai Eastern Airlines Investment
Co., Ltd. (“Shanghai Eastern Investment”), a wholly-owned subsidiary of CEA Holding



On November 4, 2011,
our Company entered into an agreement with Shanghai Eastern Investment, pursuant to which Shanghai Eastern Investment acquired
5% of the entire issued share capital of CEA Real Estate Investment Co., Ltd. (“CEA Real Estate”), an entity held by
our Company, for a consideration of RMB100.7 million. The terms and conditions of the transaction were agreed to after arm’s
length negotiations between the parties. The transaction was conducted in accordance to the requirements of the relevant laws and
regulations of the PRC and the relevant requirements of the China Securities Regulatory Commission. We believe this transaction
will not only lower the risks of our external investments but will also allow us to focus more on our core aviation business and
related businesses. For the year ended December 31, 2012, we received approximately RMB93,7 million from Shanghai Eastern Investment
for the disposal of 5% of the entire share capital of CEA Real Estate.



Shanghai Dongmei Aviation Tourism Co.,
Ltd. (“Shanghai Dongmei”), a 72.84% owned subsidiary of CEA Holding



On May 12, 2005, our
Company entered into certain sales agency services agreements with several subsidiaries of CEA Holding regarding the sales of our
air tickets by such subsidiaries of CEA Holding as our sales agents and the provision of complementary services for a term of three
years commencing from July 1, 2005. The agreement is subject to renewal. Under such agreements, the sales agents charge commissions
at rates with reference to those prescribed by the CAAC and the International Aviation Transportation Association, as determined
following arm’s length negotiations. Such commissions are payable monthly in arrears. The parties will perform an annual
review of the then prevailing commission rate before December 31 of each calendar year, and agree on any required adjustments to
such commission rate in respect of the next calendar year.



On April 29,
2008, we entered into certain sales agency service agreements to renew our agreements dated May 12, 2005 regarding the sales of
our air tickets by certain subsidiaries of CEA Holding as our sales agents and the provision of complementary services, in substantially
the same terms, for an additional term of three years commencing from July 1, 2008.



On October 15, 2010,
our Company entered into an agreement relating to the renewal of the existing sales agency services agreements with Shanghai Dongmei
on substantially the same terms, pursuant to which the Shanghai Dongmei Entities will from time to time provide our Group as its
agents with services for sale of air tickets and the provision of complementary services required in the daily airline operations
and civil aviation business of our Group. The Sales Agency Services Renewal Agreement will be effective for a term of three years
commencing from January 1, 2011 to December 31, 2013.



On December 27, 2012,
Shanghai Airlines Tours, International (Group) Co., Ltd. (“Shanghai Tours”), a wholly-owned subsidiary of the Company,
entered into an equity transfer agreement with Eastern Air Tourism Investment Group Co., Ltd (“Eastern Tourism”) and
Shanghai Dongmei Aviation Travel Co., Ltd (“Shanghai Dongmei”), pursuant to which Shanghai Tours agreed to acquire
the entired equity interests in Xi’an Dongmei Aviation Travel Co., Ltd (“Xi’an Dongmei”) from Eastern Tourism
and Shanghai Dongmei in consideration of RMB3,300,400 in total (the “Xi’an Dongmei Acquisition”).



On December 27, 2012,
Shanghai Tours entered into an equity transfer agreement with Eastern Tourism and Shanghai Dongmei, pursuant to which Shanghai
Tours agreed to acquire the entired equity interests of Kunming Dongmei Aviation Travel Co., Ltd (“Kunming Dongmei”)
from Eastern Tourism and Shanghai Dongmei in consideration of RMB10,551,000 in total (the “Kunming Dongmei Acquisition”).
For the year ended December 31, 2012, we paid to Shanghai Dongmei, Kunming Dongmei and Xi’an Dongmei an aggregate amount
of approximately RMB19.8 million of commissions for the agency services of air tickets sales.



On January 10, 2013,
Shanghai Tours entered into an equity transfer agreement with Eastern Tourism, pursuant to which Shanghai Tours agreed to acquire
the entire equity interests of Shanghai Eastern Air International Travel Service Co., Ltd (“Eastern Travel”) from Eastern
Tourism in consideration of RMB11,876,200 in total (the “Eastern Travel Acquisition”). Based on the valuation prices,
we paid RMB13,9 million for the Eastern Travel Acquisition for the year ended December 31, 2012.



Eastern Tourism is
a wholly-owned subsidiary of CEA Holding, which in turn is a controlling shareholder of the Company. Eastern Tourism is thus a
connected person of the Company under the Listing Rules. Shanghai Dongmei is interested as to 72.84% by, and is thus an associate
of, CEA Holding. Shanghai Dongmei is thus a connected person of the Company under the Listing Rules. Therefore, each of the Xi’an
Dongmei Acquisition, the Kunming Dongmei Acquisition and the Eastern Travel Acquisition constitutes a connected transaction of
the Company. The main purpose of Xi’an Dongmei Acquisition, the Kunming Dongmei Acquisition and the Eastern Travel Acquisition
is to reorganize and intergrade the tourism business of the Group. For details, please refer to the announcements of the Company
issued in Hon g Kong dated January 10, 2013.



Shanghai Aviation Import & Export
Com. Ltd. (“SA Import & Export”), which is indirectly held as to 55% by CEA Holding and 45% by our Company



On December 6, 2012,
we entered into an agreement with SA Import & Export, pursuant to which we agreed to purchase and SA Import & Export agreed
to sell the 13.98% of the entire issued share capital of Shanghai Tours held by SA Import & Export. Shanghai Tours was previously
directly held as to 86.02% by our Company and 13.98% by SA Import & Export, and after completion of the acquisition, it has
become a wholly-owned subsidiary of our Company. We paid to SA Import & Export RMB20.7 million for the acquisition as of December
31, 2012.



The main purpose of
the acquisition is to resolve the issue of intra-group competition. The acquisition is not expected to have a material impact on
our normal operations and financial condition. The terms and conditions of the acquisition are agreed after arm’s length
negotiations between the parties.



Property Leases



Our Company and EA
Group had entered into an office lease agreement dated January 7, 1997 in respect of office premises located at Kong Gang San Lu,
Number 92, Shanghai, China. The lease term is one year and renewable by the parties, subject to mutual agreement with respect to
rental terms. The total rental payment is approximately RMB158,342 per month. In addition, our Company and EA Group had entered
into a staff dormitory lease agreement dated December 31, 1996, pursuant to which EA Group had agreed to enter into lease arrangements
with our employees for dormitories in Shanghai, Anhui Province, Shandong Province and Jiangxi Province. The term of the lease and
the rental payments are set in accordance with Chinese regulations and the rate prescribed by the Shanghai Municipal Government.
CEA Holding has assumed EA Group’s rights and liabilities under those lease agreements after its establishment.



48







On May 12, 2005, we
entered into a property leasing agreement with CEA Holding, CEA Northwest and CEA Yunnan for a term of three years, subject to
renewal of another three years.



On April 29, 2008,
we entered into an agreement to renew the property leasing agreement dated May 12, 2005 for an additional term of three years commencing
July 1, 2008. Pursuant to the agreement, we will renew our lease on all properties covered by the previous property leasing agreement
entered into on May 12, 2005, except that where we previously leased 81 building properties and related construction, infrastructure
and facilities, we will instead lease 77 building properties and related construction, infrastructure and facilities covering an
aggregate floor area of approximately 452,949 square meters. In addition, CEA Holding will be the only counterparty in the property
leasing renewal agreement. Under the property leasing renewal agreement, our Company will pay annual rentals of approximately RMB55.1
million.



On October 15, 2010,
the Company entered into an agreement relating to the renewal of the existing property leasing agreement with CEA Holding on substantially
the same terms. Pursuant to this property leasing renewal agreement, we leased from CEA Holding, for our use in daily business
operations: (i) 33 land properties owned by CEA Northwest, covering an aggregate site area of approximately 692,539 square meters
primarily located in Xi’an, Xianyang and Lanzhou, with a total of 225 building properties and related construction, infrastructure
and facilities occupying an aggregate floor area of approximately 269,148 square meters; (ii) seven land properties owned by CEA
Yunnan, covering an aggregate site area of approximately 420,768 square meters primarily located in Kunming, together with a total
of 77 building properties and related construction, infrastructure and facilities occupying an aggregate floor area of approximately
452,949 square meters; (iii) building properties and related construction, infrastructure and facilities owned by CEA Holding,
occupying an aggregate floor area of approximately 8,853 square meters located in Shijiazhuang; building properties and related
construction, infrastructure and facilities owned by CEA Holding, occupying an aggregate floor area of approximately 63,552 square
meters located in Taiyuan; (iv) seven building properties and related construction, infrastructure and facilities owned by CEA
Holding, occupying an aggregate floor area of approximately 13,195 square meters located in Shanghai; (v) 29 guest rooms and two
suites at the Eastern Hotel owned by CEA Holding, occupying an aggregate floor area of approximately 1,500 square meters located
in Shanghai; and (vi) other property facilities owned by CEA Holding and/or its subsidiaries that are leased to us from time to
time for various operational needs. Under the property leasing agreement, we are required to pay annual rental payments to CEA
Holding. The rentals are payable half-yearly in advance, and are subject to review and adjustments provided that the adjustments
shall not exceed the applicable inflation rates published by the relevant local PRC authorities. The Property Leasing Renewal Agreement
will be effective for a term of three years commencing from January 1, 2011 to December 31, 2013.



For the year ended
December 31, 2012, we paid a rental of RMB66.76 million under this property leasing renewal agreement.



Guarantee by CEA Holding



As of December 31,
2012, certain unsecured long-term bank loans of our Group with an aggregate amount of RMB95 million were guaranteed by CEA Holding.
See Note 46(d) to our audited consolidated financial statements.



Subscription
Agreements with CEA Holding, CES Global and CES Finance



On December 10, 2008,
CEA Holding entered into an A Share Subscription Agreement (the “Original A Share Subscription Agreement”) with our
Company to subscribe for new A shares to be issued by our Company. Simultaneously with entering into the Original A Share Subscription
Agreement, CES Global entered into an H Share Subscription Agreement with our Company (the “Original H Share Subscription
Agreement”) to subscribe for new H shares to be issued by our Company. Subsequently, the parties made amendments to certain
terms of the Original A Share Subscription Agreement and the Original H Share Subscription Agreement; and on December 29, 2008,
CEA Holding entered into a revised A Share Subscription Agreement with our Company to subscribe in cash for 1,437,375,000 new A
shares in our Company at the subscription price of RMB3.87 per share with a total subscription price of approximately RMB5,563
million, and CES Global entered into a revised H Share Subscription Agreement with our Company to subscribe in cash for 1,437,375,000
new H shares in our Company at the subscription price of RMB1.00 per share with a total subscription price of approximately RMB1,437
million, respectively. The Original A Share Subscription Agreement and the Original H Share Subscription Agreement were cancelled
accordingly.



On February 26, 2009,
we convened a class meeting of A Share Shareholders, a class meeting of H Share Shareholders, and an extraordinary general meeting
of shareholders, at which special resolutions were passed to approve both the non-public issuance of 1,437,375,000 new A Shares
at subscription price of approximately RMB5,563 million to CEA Holding and the issuance of 1,437,375,000 new H Shares at subscription
price of approximately RMB1,437 million to CES Global. On May 22, 2009, we had received an approval issued by CSRC dated May 19,
2009 in relation to our proposed issue of 1,437,375,000 new H Shares at a price of RMB1.00 per share to CES Global. In June 2009,
the CSRC approved the non-public issuance of 1,437,375,000 new A Shares. We issued 1,437,375,000 new A Shares to CES Holding and
1,437,375,000 new H shares to CES Global on June 25, 2009 and June 26, 2009, respectively.



On July 10, 2009,
our Board approved an issuance of not more than 1,350,000,000 new A shares of the Company to 10 or less specific investors and
the issuance of not more than 490,000,000 new H shares of the Company to CES Global. As part of this contemplated new A share issuance,
CEA Holding entered into a subscription agreement with the Company on July 10, 2009, pursuant to which CEA Holding would subscribe
in cash for not more than 490,000,000 new A shares at a subscription price of not less than RMB4.75 per A share. CES Global entered
into another subscription agreement with the Company on the same day, pursuant to which CES Global would subscribe in cash for
not more than 490,000,000 new H shares at the subscription price of not less than HK$1.40 per H share. The issuances of the A shares
to CEA Holding and H shares to CES Global were completed on December 23, 2009 and December 10, 2009, respectively.



On September 11, 2012,
CEA Holding and CES Finance entered into an A Shares Subscription Agreement with our Company. Pursuant to the A Shares Subscription
Agreement: (i) CEA Holding, at the subscription price of RMB3.28 per share, subscribed in cash for 241,547,927 new A Shares with
a total subscription price of RMB792,277,200.56; and (ii) CES Finance, at the subscription price of RMB3.28 per share, subscribed
in cash for 457,317,073 new A Shares with a total subscription price of RMB1,499,999,999.44.



Simultaneously with
the entering into of the A Shares Subscription Agreement, CES Global entered into the H Shares Subscription Agreement with the
Company. Pursuant to the H Shares Subscription Agreement, CES Global, at the subscription price of HK$2.32 per share, subscribed
in cash for 698,865,000 new H Shares with a total subscription price of HK$1,621,366,800.



Both CES Finance and
CES Global are wholly-owned subsidiaries of CEA Holding. The subscriptions will significantly enhance the capital structure and
financial position of our Company by improving our balance sheet and leverage ratios, and thus strengthen the core competitiveness
and risk-resistance capability of our Company. The terms and conditions of the Subscriptions are agreed after arm’s length
negotiations between the parties. For details, please refer to the announcement furnished to the SEC on Form 6-K dated September
24, 2012.



49







Equity Transfer Agreements with CEA
Holding



On October 29, 2010,
the Company entered into two equity transfer agreements with CEA Holding in Shanghai. Pursuant to these agreements, the Company
acquired 5% of the equity interest in Flight Training Company and 14.14% of the equity interest in Eastern Airlines Hotel held
by CEA Holding by way of cash. The acquisition prices were determined on the basis of the appraised net asset value as of June
30, 2010, being the record date in respect of their respective valuations. The resolutions in respect of the said connected transactions
were unanimously approved by the independent directors of the Company present at the meeting, who also expressed their independent
opinions.



Upon the completion
of the equity transfers under these connected transactions, Flight Training Company and Eastern Airlines Hotel will become wholly-owned
subsidiaries of the Company. The Company will be able to direct and manage Flight Training Company and Eastern Airlines Hotel in
a more flexible manner, so as to ensure that they better serve the Company’s requirements by providing protection and services
to the air crew and to endeavor to open up external markets.



On August 22, 2012,
we entered into an agreement with CEA Holding, pursuant to which we agreed to purchase and CEA Holding agreed to sell means 20%
of the entire issued share capital of the China United Airlines held by CEA Holding. China United Airlines was held 80% by the
Company and 20% by CEA Holding before the transaction. After the completion of the acquisition, China United Airlines has become
our wholly-owned subsidiary, which will enable us to manage and conduct internal integration of the Group. The terms and conditions
of the acquisition are agreed after arm's length negotiations between the parties.



Subscription Agreement with China Ocean Shipping
(Group) Company ("COSCO"), which is a substantial shareholder of Shanghai Eastern Airlines Logistics Co., Ltd., which in turn
is a subsidiary of the Company



On December 6,
2012, we entered into an agreement with COSCO, pursuant to which we agreed to purchase and COSCO agreed to sell 29.7% of the
entire issued share capital of Shanghai Eastern Airlines Logistics Co., Ltd. held by COSCO. On the same day, we also entered
into an agreement with China Cargo Airlines Co., Ltd., or China Cargo, pursuant to which we agreed to purchase and China
Cargo agreed to sell its 1% equity interests in Shanghai Eastern  Airlines Logistics Co., Ltd. COSCO is a substantial shareholder of
Shanghai Eastern  Airlines Logistics Co., Ltd., which in turn is a subsidiary of the Company, and COSCO is thus a connected person of
the Company.



COSCO is principally
engaged in the business of global passenger and cargo shipping, charter booking, voyage charter, time charter, leasing, ship building,
purchase and sale of ships, container manufacturing and repairing and accessory making, warehousing, forwarding, multimodal transport
and door-to-door transport, and other approved overseas futures business.



Shanghai Eastern  Airlines Logistics
Co., Ltd. is principally engaged in the business of shipping agency, ground cargo handling, road freight transport (general freight),
warehousing and property management. In order to integrate the freight transportation business of the Group, expand the business
of air-ground transportation, and provide “end-to-end, door-to-door” service, we acquired the equity interests in Shanghai
Eastern  Airlines Logistics Co., Ltd. held by COSCO and China Cargo. After the completion of the acquisitions, Shanghai Eastern  Airlines Logistics
Co., Ltd. has become a wholly-owned subsidiary of the Company.



The terms and conditions
of the acquisitions are agreed after arm's length negotiations between the parties. The resolution regarding considering and approving
the acquisitions has been passed at the 2012 fifth regular meeting of the Board held on October 30, 2012.



| | C. | Interests of Experts and Counsel
| | -- | --------------------------------



Not applicable.



Item 8.        Financial
Information



| | A. | Consolidated Statements and Other Financial Information
| | -- | -------------------------------------------------------



Financial Statements



You should read “Item
18. Financial Statements” for information regarding our audited consolidated financial statements and other financial information.



Legal Proceedings



We are involved in
routine litigation and other proceedings in the ordinary course of our business. We do not believe that any of these proceedings
are likely to be material to our business operations, financial condition or results of operations. In 2005, the family members
of certain victims in the aircraft accident (the aircraft was then owned and operated by China Eastern Air Yunnan Company), which
occurred in Baotou city in the Inner Mongolia Autonomous Region on November 21, 2004, sued, among other defendants, our Company
in a U.S. court for compensation, the amount of which has not been determined. As of December 31, 2006, we had filed a motion to
contest the claim in the U.S. court because we expressly did not assume the legal liability of such incident in our acquisition
of certain selected assets relating to the aviation business of CEA Yunnan. In July 2007, the Superior Court of the State of California
ordered the action stayed on the grounds of forum non conveniens in order to permit proceedings in the PRC. Following the
plaintiffs’ appeals, in February 2009 the Court of Appeal of California affirmed the original order. On March 16, 2009, the
plaintiffs sued the Company in the Beijing No. 2 Intermediate People’s Court. Legal documents including summons, prosecution
notifications and related materials have been served on our Company and trial began on October 10, 2012. The management of our
Group believes that any outcome for this case will not have an adverse effect on the financial condition and results of operations
of our Company. Save as disclosed above, we were not involved in any other new material litigation in the period of this report.



Dividends and Dividend Policy



For the fiscal years
ended December 31, 2008, 2009, 2010, 2011 and 2012, our Board of Directors did not recommend any dividend payouts due to our total
accumulated losses of RMB18,082 million, RMB17,913 million, RMB12,956 million, RMB8,380 million and RMB5,426 million, respectively.
The Directors expect the balance of accumulated losses will be carried forward to next year. Under PRC law, we cannot convert funds
from the common reserve to increase our share capital during this period.



Our Board declares
dividends, if any, in Renminbi with respect to H Shares on a per share basis and pays such dividends in HK dollars. Any final dividend
for a fiscal year is subject to shareholders’ approval. BNYM, as depositary, converts the HK dollar dividend payments and
distributes them to holders of ADSs in U.S. dollars, less expenses of conversion. Under the Company Law of the PRC and our Articles
of Association, all of our shareholders have equal rights to dividends and distributions. The holders of the H Shares share proportionately
on a per share basis in all dividends and other distributions declared by our Board, if any, based on the foreign exchange conversion
rate published by the People’s Bank of China, or PBOC, on the date of the distribution of the cash dividend.





50









We believe that our
dividend policy strikes a balance between two important goals providing our shareholders with a competitive return on investment
and assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives. The declaration of dividends
is subject to the discretion of our Board, which takes into account the following factors:



| | · | our financial results;
| | - | ----------------------



| | · | capital requirements;
| | - | ---------------------



| | · | contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries
to us;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | our shareholders interests;
| | - | ---------------------------



| | · | the effect on our creditworthiness;
| | - | -----------------------------------



| | · | general business and economic conditions; and
| | - | ---------------------------------------------



| | · | other factors our Board may deem relevant.
| | - | ------------------------------------------



Pursuant to PRC laws
and regulations, dividends may only be distributed after allowance has been made for: (i) recovery of losses, if any and (ii) allocations
to the statutory surplus reserve. The allocations to the statutory surplus reserve is 10% of our net profit determined in accordance
with PRC Generally Accepted Accounting Principles. Our distributable profits for the current fiscal year will be equal to our net
profits determined in accordance with IFRS, less allocations to the statutory surplus reserve.



| | B. | Significant Changes
| | -- | -------------------



Significant Post Financial Statements Events



Not applicable.





| | Item 9. | The Offer and Listing
| | ------- | ---------------------





| | A. | Offer and Listing Details
| | -- | -------------------------



The principal trading market for our H Shares is the Hong Kong Stock Exchange. The ADSs, each representing
50 H Shares, have been issued by The Bank of New York Mellon (“BNYM”) as the Depositary and are listed on the New York
Stock Exchange. Prior to our initial public offering and subsequent listings on the New York Stock Exchange and the Hong Kong Stock
Exchange on February 4 and 5, 1997, respectively, there was no market for our H Shares or ADSs. Our publicly traded domestic shares,
or A shares, have been listed on the Shanghai Stock Exchange since November 5, 1997.



As of December 31,
2012, there were 3,494,325,000H Shares issued and outstanding. As of December 31, 2012 and April 19, 2013, there were, respectively,
42 and 41 registered holders of American depositary receipts evidencing 1,194,494 and 1,089,374, ADSs, respectively. Since
certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial holders
of ADSs or the number of ADSs beneficially held by U.S. persons. A total of 7,782,213,860 domestic ordinary shares were also outstanding
as of December 31, 2012.



The table below sets
forth certain market information relating to the trading prices of our H Shares and ADSs in respect of the period from 2008 to
April 19, 2013.



|                                  |  | Hong Kong Stock Exchange |      |  | New York Stock Exchange | 
|--------------------------------- |  | ------------------------ | ---- |  | ----------------------- | 
|                                  |  | Price Per H Share  (HK$) |      |  | Price Per ADS (US$)     | 
|                                  |  | High                     |      |  | Low                     | 
|2008                              |  |                          | 8.11 |  |                         | 
|2009                              |  |                          | 3.12 |  |                         | 
|2010                              |  |                          | 5.38 |  |                         | 
|First Quarter 2010                |  |                          | 4.10 |  |                         | 
|Second Quarter 2010               |  |                          | 4.51 |  |                         | 
|Third Quarter 2010                |  |                          | 4.83 |  |                         | 
|Fourth Quarter 2010               |  |                          | 5.38 |  |                         | 
|2011                              |  |                          | 4.46 |  |                         | 
|First Quarter 2011                |  |                          | 4.46 |  |                         | 
|Second Quarter 2011               |  |                          | 3.79 |  |                         | 
|Third Quarter 2011                |  |                          | 4.09 |  |                         | 
|Fourth Quarter 2011               |  |                          | 3.39 |  |                         | 
|January 2012                      |  |                          | 2.95 |  |                         | 
|February 2012                     |  |                          | 3.15 |  |                         | 
|March 2012                        |  |                          | 3.03 |  |                         | 
|April 2012                        |  |                          | 2.59 |  |                         | 
|May 2012                          |  |                          | 2.77 |  |                         | 
|June 2012                         |  |                          | 2.62 |  |                         | 
|July 2012                         |  |                          | 2.77 |  |                         | 
|August 2012                       |  |                          | 2.77 |  |                         | 
|September 2012                    |  |                          | 2.48 |  |                         | 
|October 2012                      |  |                          | 2.85 |  |                         | 
|November 2012                     |  |                          | 2.93 |  |                         | 
|December 2012                     |  |                          | 3.21 |  |                         | 
|January 2013                      |  |                          | 3.73 |  |                         | 
|February 2013                     |  |                          | 3.66 |  |                         | 
|March 2013                        |  |                          | 3.58 |  |                         | 
|April 2013 (up to April 19, 2013) |  |                          | 3.48 |  |                         | 



51







| | B. | Plan
of Distribution
| | -- | --------------------



Not applicable.



| | C. | Markets
| | -- | -------



Our H shares are listed
for trading on the Hong Kong Stock Exchange (Code: 00670), our ADSs are listed for trading on the New York Stock Exchange under
the symbol “CEA” and our A shares are listed for trading on the Shanghai Stock Exchange (Code: 600115).



| | D. | Selling Shareholders
| | -- | --------------------



Not applicable.



| | E. | Dilution
| | -- | --------



Not applicable.



| | F. | Expenses of the Issue
| | -- | ---------------------



Not applicable.



| | Item 10. | Additional Information
| | -------- | ----------------------



| | A. | Share Capital
| | -- | -------------



Not applicable.



| | B. | Memorandum and Articles of Association
| | -- | --------------------------------------



The following is a
brief summary of certain provisions of our Articles of Association, as amended. Such summary does not purport to be complete. For
further information, you and your advisors should refer to the text of our Articles of Association, as amended, and to the texts
of applicable laws and regulations. A copy of the English translation of our Articles of Association, as amended on November 9,
2012, is attached as an exhibit to this Annual Report on Form 20-F.



Selected Summary of the Articles
of Association



We are a joint stock
limited company established in accordance with the “Company Law of the People’s Republic of China” (the “Company
Law”), the “State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares
Overseas by Companies Limited by Share” (the “Special Regulations”) and other relevant laws and regulations of
the State. We were established by way of promotion with the approval under the document “Ti Gai Sheng” 1994 No. 140
of the PRC State Commission for Restructuring the Economic System. We are registered with and have obtained a business license
from China’s State Administration Bureau of Industry and Commerce on April 14, 1995. Our business license number is: 10001767-8.
We changed our registration with Shanghai Administration for Industry and Commerce on October 18, 2002. The number of our Company’s
business license is: Qi Gu Hu Zong Zi No. 032138.



We were incorporated
in the PRC for the purpose of providing the public with safe, punctual, comfortable, fast and convenient air transport services
and other ancillary services, to enhance the cost-effectiveness of the services and to protect the lawful rights and interests
of shareholders.



Board of Directors



The Board of Directors
shall consist of eleven (11) directors, who are to be elected at the shareholders’ general meeting and will hold a term of
office for three (3) years. At least one-third of the members of the Board of Directors shall be independent directors. The Directors
are not required to hold shares of our Company.



Directors who are
directly or indirectly materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement
with our Company (other than his contract of service with our Company) shall declare the nature and extent of his interests to
the Board of Directors at the earliest opportunity, whether or not the contract, transaction or arrangement or proposal therefore
is otherwise subject to the approval of the Board of Directors.



In accordance with
our Articles, a director shall abstain from voting at a board meeting the purpose of which is to approve contracts, transactions
or arrangements that such director or any of his or her associates (as defined in the relevant rules governing the listing of securities)
has a material interest. Such director shall not be counted in the quorum for the relevant board meeting.



Unless the interested
director discloses his interests in accordance with our Articles of Association and the contract, transaction or arrangement is
approved by the Board of Directors at a meeting in which the interested director is not counted in the quorum and refrains from
voting, a contract, transaction or arrangement in which that director is materially interested is voidable at the instance of our
Company except as against a bona fide party thereto acting without notice of the breach of duty by the interested director. A director
is also deemed to be interested in a contract, transaction or arrangement in which an associate of the director is interested.



Our Articles provide
that our Company shall not in any manner pay taxes for or on behalf of a director or make directly or indirectly a loan to or provide
any guarantee in connection with the making of a loan to a director of our Company or of our Company’s holding company or
any of their respective associates. However, the following transactions are not subject to such prohibition: (1) the provision
by our Company of a loan or a guarantee of a loan to a company which is a subsidiary of our Company; (2) the provision by our Company
of a loan or a guarantee in connection with the making of a loan or any other funds to any of its directors, administrative officers
to meet expenditure incurred or to be incurred by him for the purposes of our Company or for the purpose of enabling him to perform
his duties properly, in accordance with the terms of a service contract approved by the shareholders in general meeting; (3) our
Company may make a loan to or provide a guarantee in connection with the making of a loan to any of the relevant directors or their
respective associates in the ordinary course of its business on normal commercial terms, provided that the ordinary course of business
of our Company includes the lending of money or the giving of guarantees.



52







Our Articles
do not contain any requirements for (i) the directors’ power to vote compensation to themselves or any members of their body,
in the absence of an independent quorum or (ii) the directors to retire by a specified age.



Description of the Shares



As of December 31,
2012, our share capital structure was as follows: 11,276,538,860 ordinary shares of which (a) 5,120,263,860 A shares subject to
trading moratorium, which represented 45.4% of our share capital, were held by CEA Holding and Jin Jiang International Holdings
Company Limited; (b) 2,661,950,000 A shares, which represented 23.6% of our share capital, were issued to investors in China; and
(c) 3,494,325,000 H shares, which represented 31.0% of our share capital, were issued to foreign investors including CES Global,
a wholly owned subsidiary of CEA Holding.



Our ordinary shareholders
shall enjoy the following rights:



| | (i) | the right to dividends and other distributions in proportion to the number of shares held;
| | --- | ------------------------------------------------------------------------------------------



| | (ii) | the right to attend or appoint a proxy to attend Shareholders’ general meetings and to vote thereat;
| | ---- | ----------------------------------------------------------------------------------------------------



| | (iii) | the right of supervisory management over the Company’s business operations, and the right to present proposals or enquiries;
| | ----- | ----------------------------------------------------------------------------------------------------------------------------



| | (iv) | the right to transfer shares in accordance with laws, administrative regulations and provisions of these Articles of Association;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------



| | (v) | the right to obtain relevant information in accordance with the provisions of these Articles of Association, including:
| | --- | -----------------------------------------------------------------------------------------------------------------------



| | (1) | the right to obtain a copy of these Articles of Association, subject to payment of the cost of such copy;
| | --- | ---------------------------------------------------------------------------------------------------------



| | (2) | the right to inspect and copy, subject to payment of a reasonable charge;
| | --- | -------------------------------------------------------------------------



| | (vi) | all parts of the register of shareholders;
| | ---- | ------------------------------------------



| | (vii) | personal particulars of each of the Company’s directors, supervisors, general manager, deputy general managers and other
senior administrative officers, including:
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (aa) | present name and alias and any former name or alias;
| | ---- | ----------------------------------------------------



| | (bb) | principal address (residence);
| | ---- | ------------------------------



| | (cc) | nationality;
| | ---- | ------------



| | (dd) | primary and all other part-time occupations and duties;
| | ---- | -------------------------------------------------------



| | (ee) | identification documents and their relevant numbers;
| | ---- | ----------------------------------------------------



| | (viii) | state of the Company’s share capital;
| | ------ | -------------------------------------



| | (ix) | reports showing the aggregate par value, quantity, highest and lowest price paid in respect of each class of shares repurchased
by the Company since the end of the last accounting year and the aggregate amount paid by the Company for this purpose;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (x) | minutes of Shareholders’ general meetings and the accountant’s report,
| | --- | ----------------------------------------------------------------------



| | (xi) | in the event of the termination or liquidation of the Company, to participate in the distribution of surplus assets of the
Company in accordance with the number of shares held; or
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xii) | other rights conferred by laws, administrative regulations and these Articles of Association.
| | ----- | ---------------------------------------------------------------------------------------------



A shareholder
(including a proxy), when voting at a Shareholders’ general meeting, may exercise such voting rights in accordance with the
number of shares carrying the right to vote and each share shall have one vote. Resolutions of shareholders’ general meetings
shall be divided into ordinary resolutions and special resolutions. To adopt an ordinary resolution, votes representing more than
one half of the voting rights represented by the shareholders (including proxies) present at the meeting must be exercised in favor
of the resolution in order for it to be passed. To adopt a special resolution, votes representing more than two-thirds of the voting
rights represented by the shareholders (including proxies) present at the meeting must be exercised in favor of the resolution
in order for it to be passed. Our ordinary shareholders are entitled to the right to dividends and other distributions in proportion
to the number of shares held, and they are not liable for making any further contribution to the share capital other than as agreed
by the subscriber of the relevant shares on subscription. Our Articles provide that a controlling shareholder (as defined in the
Articles) shall not approve certain matters which will be prejudicial to the interests of all or some of other shareholders by
exercising his/her voting rights.



The Listing Agreement
between us and the Hong Kong Stock Exchange further provides that we may not permit amendments to certain sections of the Articles
of Association subject to the Mandatory Provisions for the Articles of Association of Companies Listed Overseas promulgated by
the State Council Securities Commission and the State Restructuring Commission on August 27, 1994 (the “Mandatory Provisions”).
These sections include provisions relating to (i) varying the rights of existing classes of shares; (ii) voting rights; (iii) our
power to purchase our own shares; (iv) rights of minority shareholders; and (v) procedures upon liquidation. In addition, certain
amendments to the Articles of Association require the approval and assent of relevant PRC authorities.



Shareholders’ Meetings



Shareholders’
general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings
shall be convened by the Board of Directors. Annual general meetings are held once every year and within six (6) months from the
end of the preceding financial year. The Board of Directors shall convene an extraordinary general meeting within two (2) months
of the occurrence of any one of the following events:



| | (i) | where the number of Directors is less than the number of Directors required by the Company Law or two-thirds of the number
of Directors specified in these Articles of Association;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | where the unrecovered losses of the Company amount to one-third of the total amount of its share capital;
| | ---- | ---------------------------------------------------------------------------------------------------------



53







| | (iii) | where shareholder(s) holding 10 per cent or more of the Company’s issued and outstanding shares carrying voting rights
request(s) in writing the convening of an extraordinary general meeting; or
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | when deemed necessary by the Board of Directors or as requested by the supervisory committee.
| | ---- | ---------------------------------------------------------------------------------------------



When we convene a
shareholders’ general meeting, written notice of the meeting shall be given forty five (45) days before the date of the meeting
to notify all of the shareholders in the share register of the matters to be considered and the date and place of the meeting.
A shareholder who intends to attend the meeting shall deliver his written reply concerning the attendance of the meeting to us
twenty (20) days before the date of the meeting. When we convene a shareholders’ annual general meeting, shareholders holding
three per cent or more of the total voting shares of the Company shall have the right to propose new motions in writing, and we
shall place those matters in the proposed motions within the scope of functions and powers of the Shareholders’ general meeting
on the agenda.



Shareholders’ Rights



Set forth below is
certain information relating to the H Shares, including a brief summary of certain provisions of the Articles, and selected laws
and regulations applicable to us.



Sources of Shareholders’ Rights



The rights and obligations
of holders of H Shares and other provisions relating to shareholder protection are principally provided in the Articles of Association
and the PRC Company Law. The Articles of Association incorporate mandatory provisions in accordance with the Mandatory Provisions.
We are further subject to management ordinances applicable to the listed companies in Hong Kong SAR and the United States, as our
H Shares are listed on the Hong Kong Stock Exchange and the New York Stock Exchange (in the form of ADSs).



In addition, for so
long as the H Shares are listed on the Hong Kong Stock Exchange, we are subject to the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (the “HKSE Rules”), the Securities and Futures Ordinance of Hong Kong (the
“SFO”) and the Hong Kong Code on Takeovers and Mergers and Share Repurchases.



Unless otherwise
specified, all rights, obligations and protections discussed below are derived from the Articles of Association, the PRC Company
Law and abovementioned laws and regulations.



Significant Differences in the H Shares
and A Shares



Holders of H Shares
and A Shares, with minor exceptions, are entitled to the same economic and voting rights. The Articles of Association provide that
dividends or other payments payable to H Share holders shall be declared and calculated in Renminbi and paid in Renminbi, while
those to A Share holders shall be declared and calculated in Renminbi and paid in the local currency at the place where such A
Shares are listed (if there is more than one place of listing, then the principal place of listing as determined by the Board of
Directors). In addition, the H Shares can only be traded by investors of Taiwan, Hong Kong, Macau and any country other than the
PRC, while A Shares may be traded only by investors within the territory of the PRC.



Restrictions on Transferability and
the Share Register



H Shares may be traded
only among investors who are not PRC persons, and may not be sold to PRC investors. There are no restrictions on the ability of
investors who are not PRC residents to hold H Shares.



Pursuant to the Articles
of Association, we may refuse to register a transfer of H Shares unless:



| | (1) | a fee (for each instrument of transfer) of two Hong Kong dollars and fifty cents or any higher fee as agreed by the Stock Exchange
has been paid to us for registration of any transfer or any other document which is related to or will affect ownership of or change
of ownership of the shares;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | the instrument of transfer only involves H Shares;
| | --- | --------------------------------------------------



| | (3) | the stamp duty chargeable on the instrument of transfer has been paid;
| | --- | ----------------------------------------------------------------------



| | (4) | the relevant share certificate and upon the reasonable request of the Board of Directors any evidence in relation to the right
of the transferor to transfer the shares have been submitted;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | if it is intended to transfer the shares to joint owners, then the maximum number of joint owners shall not exceed four (4);
or
| | --- | -------------------------------------------------------------------------------------------------------------------------------



| | (6) | we do not have any lien on the relevant shares.
| | --- | -----------------------------------------------



If we refuse to register
any transfer of shares, we shall within two months of the formal application for the transfer provide the transferor and the transferee
with a notice of refusal to register such transfer. No changes in the shareholders’ register due to the transfer of shares
may be made within thirty (30) days before the date of a Shareholders’ general meeting or within five (5) days before the
record date established for the purpose of distributing a dividend.



Merger and Acquisitions



In the event of the
merger or division of our Company, a plan shall be presented by our Board of Directors and shall be approved in accordance with
the procedures stipulated in our Articles of Association and then the relevant examining and approving formalities shall be processed
as required by law. A shareholder who objects to the plan of merger or division shall have the right to demand that we or the shareholders
who consent to the plan of merger or division acquire such dissenting shareholders’ shareholding at a fair price. The contents
of the resolution of merger or division of our Company shall be made into special documents for shareholders’ inspection.



Repurchase of Shares



We may, with approval
according to the procedures provided in these Articles of Association and subject to the approval of the relevant governing authority
of the State, repurchase our issued shares under the following circumstances:



| | (i) | cancellation of shares for the reduction of capital;
| | --- | ----------------------------------------------------



54







| | (ii) | merging with another company that holds shares in our Company; or
| | ---- | -----------------------------------------------------------------



| | (iii) | other circumstances permitted by relevant laws and administrative regulations.
| | ----- | ------------------------------------------------------------------------------



We shall not repurchase
our issued shares except under the circumstances stated above.



We may, with the approval
of the relevant State governing authority for repurchasing shares, conduct the repurchase in one of the following ways:



| | (i) | making a pro rata general offer of repurchase to all our shareholders;
| | --- | ----------------------------------------------------------------------



| | (ii) | repurchasing shares through public dealing on a stock exchange; or
| | ---- | ------------------------------------------------------------------



| | (iii) | repurchasing shares by an off-market agreement off of a stock exchange.
| | ----- | -----------------------------------------------------------------------



Interested Shareholders



Articles 88 and 89
of our Articles of Association provide the following:



Article 88: the following
circumstances shall be deemed to be a variation or abrogation of the class rights of a class:



| | (i) | to increase or decrease the number of shares of such class, or increase or decrease the number of shares of a class having
voting or equity rights or privileges equal or superior to those of the shares of that class;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | to effect an exchange of all or part of the shares of such class into shares of another class or to effect an exchange or create
a right of exchange of all or part of the shares of another class into the shares of such class;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of such class;
| | ----- | -------------------------------------------------------------------------------------------------------------------



| | (iv) | to reduce or remove a dividend preference or a liquidation preference attached to shares of such class;
| | ---- | -------------------------------------------------------------------------------------------------------



| | (v) | to add, remove or reduce conversion privileges, options, voting rights, transfer or pre-emptive rights, or rights to acquire
securities of the Company attached to shares of such class;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | to remove or reduce rights to receive payment payable by the Company in particular currencies attached to shares of such class;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------



| | (vii) | to create a new class of shares having voting or equity rights or privileges equal or superior to those of the shares of such
class;
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------



| | (viii) | to restrict the transfer or ownership of the shares of such class or add to such restrictions;
| | ------ | ----------------------------------------------------------------------------------------------



| | (ix) | to allot and issue rights to subscribe for, or convert into, shares in the Company of such class or another class;
| | ---- | ------------------------------------------------------------------------------------------------------------------



| | (x) | to increase the rights or privileges of shares of another class;
| | --- | ----------------------------------------------------------------



| | (xi) | to restructure the Company where the proposed restructuring will result in different classes of shareholders bearing a disproportionate
burden of such proposed restructuring;
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xii) | to vary or abrogate the provisions of this Chapter.
| | ----- | ---------------------------------------------------



Article 89. Shareholders
of the affected class, whether or not otherwise having the right to vote at Shareholders’ general meetings, shall nevertheless
have the right to vote at class meetings in respect of matters concerning sub-paragraphs (2) to (8), (11) and (12) of Article 88,
but interested shareholder(s) shall not be entitled to vote at class meetings.



The meaning of “interested
shareholder(s)” as mentioned in the preceding paragraph is:



| | (i) | in the case of a repurchase of shares by offers to all shareholders or public dealing on a stock exchange under Article 30,
a “controlling shareholder” within the meaning of Article 53;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | in the case of a repurchase of shares by an off-market contract under Article 30, a holder of the shares to which the proposed
contract relates; and
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | in the case of a restructuring of the Company, a shareholder within a class who bears less than a proportionate obligation
imposed on that class under the proposed restructuring or who has an interest in the proposed restructuring different from the
interest of shareholders of that class.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Ownership Threshold



There are no ownership
thresholds above which shareholder ownership is required to be disclosed.



Changes in Capital



Article 78(1) provides
that any increase or reduction in share capital shall be resolved by a special resolution at a shareholders’ general meeting.



Changes in Registered Capital



The Company may reduce
its registered share capital. It shall do so in accordance with the Company Law, any other relevant regulatory provisions and the
Articles of Association.



55









Recent Amendments to the Articles
of Association



On February 2, 2010,
our shareholders approved amendments to the Articles of Association, which was amended, respectively, as follows:



Article 20: “As approved
by the China Securities Regulatory Commission, the total amount of shares of the Company is 11,276,538,860 shares.”



Article 21: “The Company
has issued a total of 11,276,538,860 ordinary shares, comprising a total of 7,782,213,860 A shares, representing 69.01% of the
total share capital of the Company, a total of 3,494,325,000 H shares, representing 30.99% of the total share capital of the Company.”



Article 24: “The Company’s
registered capital is Renminbi 11,276,538,860.”



The CSRC has enacted
regulations in recent years which affect the corporate governance of PRC listed companies and the PRC Company Law has also been
amended in various areas. As such, the Board proposed to amend certain provisions in our Articles of Association in accordance
with the rules and regulations applicable to our Company. Such amendments relate to the general provisions of the Articles of Association,
reduction of capital and repurchase of shares, shareholders and register of shareholders, shareholders’ general meeting,
board of directors, supervisory committee, financial and accounting systems and profit distribution, merger and division and dissolution
and liquidation of our Company. All such amendments were approved at our Annual General Meeting that took place on June 13, 2010.



On November 9, 2012,
our shareholders approved further amendments to the Articles of Association, which was amended, respectively, as follows:



Article 146: “The financial
statements of the Company shall, in addition to being prepared in accordance with PRC accounting standards and regulations, be
prepared in accordance with either international accounting standards, or that of the place outside the PRC where the Company’s
shares are listed. If there is any material difference between the financial statements prepared respectively in accordance with
the two accounting standards, such difference shall be stated in the financial statements. When the Company is to distribute its
after-tax profits, the lower of the after-tax profits as shown in the two financial statements shall be adopted. According to the
relevant laws and regulations, profit distribution by the Company shall be based on the distributable profit of the Company (non-consolidated
statements). ”



Article 157: “The Company’s
profit distribution policy should pay close attention to ensuring a reasonable return of investment to investors, and such profit
distribution policy should maintain continuity and stability. The Company shall reasonably distribute cash dividends according
to laws and regulations and requirements of securities regulatory authorities, as well as the Company’s own operating performance
and financial condition. ”



Article 157 (A): “Profit
distribution manner: The Company may distribute dividends by way of cash, shares, a combination of cash and shares or in other
reasonable manner in compliance with laws and regulations. ”



Article 157 (B): “Procedures
for decision-making on profit distribution by the Company: After the end of each accounting year, the board of directors shall
carefully study and examine the profit distribution plan and listen fully to the views of independent directors. The independent
directors shall fulfill their responsibilities and play their roles to give specific views. After consideration and approval by
the board of directors, the profit distribution plan shall be proposed to the general meeting for voting. Implementation of the
profit distribution plan shall be subject to consideration and approval at the general meeting. The board of directors of the Company
shall finish distributing the profit within two months after the general meeting is held. ”



When considering the profit
distribution plan at the general meeting of the Company, the board of directors shall communicate and exchange opinions with shareholders,
especially minority shareholders, in a proactive manner, fully consider the opinions and requests from minority shareholders and
respond to the issues which are of concern to them on a timely basis.



Article 157 (C): “Amendments
to profit distribution policy of the Company: The board of directors of the Company shall carefully study and examine and strictly
follow the decision-making procedures in the event that the profit distribution policy needs to be adjusted by reason of any changes
in PRC laws and regulations and regulatory policies, or significant changes of external operating environment or operating condition
of the Company. In the event of amendments to the profit distribution policy of the Company, the board of directors shall consider
the revised plan and the independent directors shall express their independent opinions thereon. Such amendments shall be disclosed
to the public upon consideration and approval at the general meeting. ”



Article 157 (D): “Conditions
and proportion of distribution of cash dividends by the Company:

Proposal and implementation
of cash dividends distribution by the Company shall be subject to the following conditions:



(1) The Company records a profit
for the year, and the audit institution issues an unqualified audited report o n the Company’s financial statements for that
particular year;



(2) The distributable profit
(i.e. the after-tax profit of the Company after making up for losses, allocation to the statutory common reserve fund and discretionary
common reserve fund) realized by the Company for the year is positive in value;



(3) The Company has sufficient
cash flow, and distribution of cash dividends will not affect the Company’s normal operation and sustainable development.



Provided that the Company is
in good operating condition and has sufficient cash flow to meet the needs for its normal operation and sustainable development,
the Company will proactively distribute cash dividends in return to its shareholders, and the accumulated profit distribution made
in cash by the Company in the latest three years shall not be less than 30% of the average annual distributable profit in the latest
three years. In the event that the said payout ratio of cash dividends cannot be met due to special reasons, the board of directors
may adjust the payout ratio of dividends according to actual circumstances and state the reasons therefor. ”



Article 157 (E): “Conditions
of profit distribution by way of share dividends by the Company:

Provided that reasonable scale
of share capital and shareholding structure of the Company are ensured, the Company may consider distributing profits by way of
share dividends according to its profitability, cash flow position and business growth for the year. ”



Article 157 (F): “Intervals
for profit distribution by the Company: Provided that the conditions of profit distribution are met and the Company’s normal
operation and sustainable development are ensured, the Company shall generally distribute profit on an annual basis. The board
of directors of the Company may also propose interim profit distribution based on the profitability and capital position of the
Company. ”



56







Article 157 (G): “Information
disclosure if the Company fails to distribute cash dividends: In the event that the board of directors of the Company does not
propose any profit distribution plan, the board of directors of the Company shall disclose the reasons therefor and the use of
such retained funds that would have been otherwise available for distribution in its periodic report. ”



| | C. | Material Contracts
| | -- | ------------------



For a summary of any
material contracts entered into by our Company or any of our consolidated subsidiaries outside of the ordinary course of business
during the last two years, see “Item 4. Information on the Company”, “Item 5. Operating and Financial Review
and Prospects” and “Item 7. Major Shareholders and Related Party Transactions”.



In addition, we entered
into the following agreements to purchase aircraft or to issue new shares, which are filed with this Annual Report as exhibits:



| | · | an aircraft purchase agreement, dated as of December 30, 2010, between
our Company and Airbus SAS regarding the purchase of 50 A320 aircraft.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | Boeing 787 Aircraft Delivery Delay Settlement Agreement, dated as
of September 15, 2011, between our Company and the Boeing Company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | A330 Family Aircraft Purchase Agreement, dated as of October 17, 2011,
between our Company and Airbus SAS.
| | - | ----------------------------------------------------------------------------------------------------------



| | · | Buyback Agreement relating to Five Airbus A340-300 Aircraft, dated
as of October 17, 2011, between our Company and Airbus SAS.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | Aircraft Sale and Purchase Agreement relating to the disposal of Eight
(8) Bombardier CRJ-200 Aircraft and Ten (10) Embraer ERJ-145 Aircraft, dated November 23, 2012, among our Company, Airbus SAS,
China Eastern Aviation Import and Export Corporation, China Eastern Airlines, Wuhan Company, China Eastern Yunnan Airlines, China
Eastern Airlines Jiangsu Ltd. and Shanghai Airlines Company Limited.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Amendment No. 2 to the A 320 Family Purchase Agreement dated December
30, 2010, dated November 23, 2012, between our Company and Airbus SAS.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | Acquisition Agreement for Used Aircraft relating to Five (5) Airbus
Model A340-642 Aircraft, dated April 27, 2012, between our Company and Boeing Aircraft Holding Company
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Purchase Agreement Number PA-03746 relating to Boeing Model 777-300ER Aircraft, dated April 27, 2012, between our Company and
the Boeing Company
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | D. | Exchange Controls
| | -- | -----------------



The Renminbi is not
currently a freely convertible currency. SAFE, under the authority of PBOC, controls the conversion of Renminbi into foreign currency.
Prior to January 1, 1994, Renminbi could be converted to foreign currency through the Bank of China or other authorized institutions
at official rates fixed daily by SAFE. Renminbi could also be converted at swap centers open to Chinese enterprises and foreign
invested enterprises, or FIEs, subject to SAFE approval of each foreign currency trade, at exchange rates negotiated by the parties
for each transaction. Effective January 1, 1994, a unitary exchange rate system was introduced in China, replacing the dual-rate
system previously in effect. In connection with the creation of a unitary exchange rate, the PRC government announced the establishment
of an inter-bank foreign exchange market, the China Foreign Exchange Trading System, or CFETS, and the phasing out of the swap
centers. Effective December 1, 1998, the swap centers were abolished by the PRC government.



On July 21, 2005,
the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy,
the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change
in policy has resulted in a significant appreciation of the Renminbi against the U.S. dollar. While the international reaction
to Renminbi revaluation has generally been positive, there remains significant international pressure on the PRC government to
adopt an even more flexible currency policy, which could result in a further and more significant appreciation of Renminbi against
the U.S. dollar.



In general, under
existing foreign exchange regulations, domestic enterprises operating in China must price and sell their goods and services in
China in Renminbi. Any foreign exchange received by such enterprises must be sold to authorized foreign exchange banks in China.
A significant portion of our revenue and operating expenses are denominated in Renminbi, while a portion of our revenue, capital
expenditures and debts are denominated in U.S. dollars and other foreign currencies. Renminbi is currently freely convertible under
the current account, which includes dividends, trade and service-related foreign currency transactions, but not under the capital
account, which includes foreign direct investment, unless the prior approval of the SAFE, is obtained. As a foreign investment
enterprise approved by the MOC, we can purchase foreign currency without the approval of SAFE for settlement of current account
transactions, including payment of dividends, by providing commercial documents evidencing these transactions. We can also retain
foreign exchange in our current accounts, subject to a maximum amount approved by SAFE, to satisfy foreign currency liabilities
or to pay dividends. However, the relevant PRC government authorities may limit or eliminate our ability to purchase and retain
foreign currencies in the future. Foreign currency transactions under the capital account are still subject to limitations and
require approvals from SAFE. This may affect our ability to obtain foreign exchange through debt or equity financing, including
by means of loans or capital contributions. We cannot assure you that we will be able to obtain sufficient foreign exchange to
pay dividends or satisfy our foreign exchange liabilities.



| | E. | Taxation
| | -- | --------



The taxation of income
and capital gains of holders of H Shares or ADSs is subject to the laws and practices of China and of jurisdictions in which holders
of H Shares or ADSs are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions is
based on current law and practice, is subject to change and does not constitute legal or tax advice. The discussion does not deal
with all possible tax consequences relating to an investment in the H Shares or ADSs. In particular, the discussion does not address
the tax consequences under state, local and other laws, such as non-U.S. federal laws. Accordingly, you should consult your own
tax adviser regarding the tax consequences of an investment in the H Shares and ADSs. The discussion is based upon laws and relevant
interpretations in effect as of the date of this Annual Report, all of which are subject to change.



57







Hong Kong Taxation



The following discussion
summarizes the material Hong Kong tax provisions relating to the ownership of H shares or ADSs purchased in connection with the
global offering and held by you.



Dividends



Under current Hong
Kong Inland Revenue Department practice, no Hong Kong tax is payable by the recipient in respect of dividends paid by us.



Taxation of
Capital Gains



No Hong Kong tax is
imposed on capital gains arising from the sale of property (such as H shares) acquired and held as investment assets. However,
if a person carries on a trade, profession or business in Hong Kong (e.g., trading and dealing in securities) and derives trading
gains from that trade, profession or business in or from Hong Kong, Hong Kong profits tax will be payable. Gains from sales of
H shares effected on the Hong Kong Stock Exchange are considered to derive from or arise in Hong Kong for this purpose. Hong Kong
profits tax is currently charged at the rate of 16.5% for corporations and at the rate of 15% for individuals.



No Hong Kong tax liability
will arise on capital or trading gains arising from the sale of ADSs where the purchase and sale is effected outside Hong Kong,
e.g. on the NYSE.



Hong Kong
Stamp Duty



Hong Kong stamp duty
is payable by each of the seller and the purchaser for every sold note and every bought note created for every sale and purchase
of the H shares. Stamp duty is charged at the total rate of 0.2% (0.1% for each of sold note and bought note) of the value of the
H shares transferred (the buyer and seller each paying half of such stamp duty). In addition, a fixed duty of HK$5 is currently
payable on an instrument of transfer of H shares. If one of the parties to a sale is a non-resident of Hong Kong and does not pay
the required stamp duty, the stamp duty not paid will be assessed on the instrument of transfer (if any), and the transferee will
be liable for payment of such stamp duty.



If the withdrawal
of H shares when ADSs are surrendered or the issuance of ADSs when H shares are deposited results in a change of beneficial ownership
in the H shares under Hong Kong law, Hong Kong stamp duty at the rate described above for sale and purchase transaction will apply.
The issuance of ADSs for deposited H shares issued directly to the depositary or for the account of the depositary should not lead
to a Hong Kong stamp duty liability. Holders of the ADSs are not liable for the Hong Kong stamp duty on transfers of ADSs outside
of Hong Kong so long as the transfers do not result in a change of beneficial interest in the H shares under Hong Kong law.



Hong Kong Estate
Duty



Hong Kong estate duty
was abolished with respect to persons passing away on or after February 11, 2006.



China Taxation



The following is a
general summary of certain Chinese tax consequences of the acquisition, ownership and disposition of the H Shares and ADSs. This
summary does not purport to address all material tax consequences of the ownership of Shares or ADSs, and does not take into account
the specific circumstances of any particular investors. This summary is based on the tax laws of China as in effect on the date
of this Annual Report, as well as on the U.S.-China Treaty, all of which are subject to change (or changes in interpretation),
possibly with retroactive effect.



In general, and taking
into account the earlier assumptions, for Chinese tax purposes, holders of ADRs evidencing ADSs will be treated as the owners of
the H Shares represented by those ADSs, and exchanges of H Shares for ADSs, and ADSs for H Shares, will not be subject to Chinese
tax.



Taxation of
Dividends by China



Individual investors



The Provisional Regulations
of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System, or the Provisional Regulations, provide
that dividends from Chinese companies are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20%. However,
the Chinese State Tax Bureau issued, on July 21, 1993, a Notice Concerning the Taxation of Gains on Transfer and Dividends from
Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals Numbered Guo Shui Fa
[1993] No. 045, or No. 45 Document which provides that dividends from a Chinese company on shares listed on an overseas stock exchange,
or Overseas Shares, such as H Shares (including H Shares represented by ADSs), would not be subject to Chinese withholding tax.
The relevant tax authority has not collected withholding tax on dividend payments on Overseas Shares.



Nevertheless, No.45
Document was abolished on January 4, 2011 and the Chinese State Tax Bureau issued, on June 28, 2011, a Notice on Issues Concerning
the Levy of Individual Income Tax Following the Abolishment of the Document Numbered Guo Shui Fa [1993] No. 045, according to which
dividends from a Chinese company are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20% unless otherwise
provided in applicable tax treaties between PRC and jurisdiction in which the relevant non-resident shareholder resides. The tax
rate of dividends income tax applicable to Hong Kong residents and U.S. residents is 10% of the gross amount of interest.



Enterprises



Under the newly enacted
PRC Enterprise Income Tax Law, or the EIT Law, and the implementation regulations to the EIT Law, effective January 1, 2008, PRC
income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises”,
which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the
relevant income is not effectively connected with the establishment or place of business. The rate could be reduced or eliminated
pursuant to an applicable double taxation treaty.



Tax Treaties



Non-Chinese investors
resident in countries which have entered into double-taxation treaties with China may be entitled to a reduction of the withholding
tax imposed on the payment of dividends to non-Chinese investors of our Company. China currently has double-taxation treaties with
a number of other countries, including Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United
Kingdom and the United States.



58







Under the U.S.-China
Treaty, China may tax a dividend paid by our Company to a U.S. holder of H Shares or ADSs only up to a maximum of 10% of the gross
amount of such dividend.



Taxation of
Capital Gains by China



Individual Investors



The Tax Notice provides
that gains realized upon the sale of Overseas Shares are not subject to taxes on capital gains. Although the Ministry of Finance
has been empowered to collect a tax of 20% on gains derived from the sale of equity shares, a joint notice issued in February 1996
by the Ministry of Finance and the State Tax Bureau indicated that no capital gains tax would be imposed on gains from the sale
of shares until the Ministry of Finance and the State Tax Bureau promulgate new rules. Therefore, holders of H Shares or ADSs have
not been subject to taxation on gains realized upon the sale or disposition of such shares currently. However, holders of H Shares
or ADSs could become subject to a 20% capital gains tax in the future, unless reduced or eliminated pursuant to an applicable double
taxation treaty.



Under the U.S.-China
Treaty, China may only tax gains from the sale or disposition by a U.S. holder of H Shares or ADSs representing an interest in
the company of 25% or more.



Enterprises



Under the EIT Law
and the implementation regulations to the EIT Law, gains realized upon the sale of Overseas Shares by “non-resident enterprises”
may be subject to PRC taxation at the rate of 10% (or lower treaty rate).



Chinese Stamp
Tax



Chinese stamp tax
imposed on the transfer of shares of Chinese publicly traded companies under the Share System Tax Regulations should not apply
to the acquisition or disposition by non-Chinese investors of H Shares or ADSs outside of China by virtue of the Provisional Regulations
of The People’s Republic of China Concerning Stamp Tax, which provides that Chinese stamp tax is imposed only on documents
executed or received within China or that should be considered as having been executed or received within China.



United States Federal
Income Taxation



Each potential investor
is strongly urged to consult his or her own tax advisor to determine the particular United States federal, state, local, treaty
and foreign tax consequences of acquiring, owning or disposing of the H Shares or ADSs.



The following is a
general discussion of material United States federal income tax consequences of purchasing, owning and disposing of the H Shares
or ADSs if you are a U.S. Holder, as defined below, and hold the H Shares or ADSs as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986 as amended (the “Code”). This discussion does not address all of the tax
consequences relating to the purchase, ownership and disposition of the H Shares or ADSs, and does not take into account U.S. Holders
(defined below) who may be subject to special rules including:



| | · | tax-exempt entities;
| | - | --------------------



| | · | banks, financial institutions, and insurance companies;
| | - | -------------------------------------------------------



| | · | real estate investment trusts, regulated investment companies and
grantor trusts;
| | - | ---------------------------------------------------------------------------------



| | · | dealers or traders in securities, commodities or currencies;
| | - | ------------------------------------------------------------



| | · | U.S. Holders that own, actually or constructively, 10% or more of
our voting stock;
| | - | -----------------------------------------------------------------------------------



| | · | persons who receive the H Shares or ADSs as compensation for services;
| | - | ----------------------------------------------------------------------



| | · | U.S. Holders that hold the H Shares or ADSs as part of a straddle
or a hedging or conversion transaction;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | certain U.S. expatriates;
| | - | -------------------------



| | · | dual resident corporations; or
| | - | ------------------------------



| | · | U.S. Holders whose functional currency is not the U.S. dollar.
| | - | --------------------------------------------------------------



Moreover, this description
does not address United States federal estate, gift or alternative minimum taxes or any state or local tax consequences of the
acquisition, ownership and disposition of the H Shares or ADSs.



This discussion is
based on the Code, its legislative history, final, temporary and proposed United States Treasury regulations promulgated thereunder,
published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation,
possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the
assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.



You are a “U.S.
Holder” if you are a beneficial owner of H Shares or ADSs and are:



| | · | an individual citizen or resident of the United States for United
States federal income tax purposes;
| | - | -----------------------------------------------------------------------------------------------------



| | · | a corporation, or other entity treated as a corporation for United
States federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate the income of which is subject to United States federal
income tax without regard to its source; or
| | - | -------------------------------------------------------------------------------------------------------------



| | · | a trust if (i) a court within the United States is able to exercise
primary supervision over its administration, and one or more U.S. persons have the authority to control all of the substantial
decisions of such trust, or (ii) such trust has a valid election in effect to be treated as a United States person for U.S. federal
income tax purposes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





59









If a partnership (including
any entity treated as a partnership for United States federal tax purposes) is a beneficial owner of the H Shares or ADSs, the
treatment of the partner in such partnership will generally depend upon the status of the partner and the activities of the partnership.
If an investor is a partner in a partnership that holds H Shares or ADSs, such investor should consult its tax advisor.



In general, if you
hold ADRs evidencing ADSs, you will be treated as the owner of the H Shares represented by the ADSs. Exchanges of H shares for
ADRs, and ADRs for H shares, generally will not be subject to United States federal income tax.



INVESTORS SHOULD CONSULT THEIR TAX ADVISORS
AS TO THE PARTICULAR TAX CONSIDERATIONS APPLICABLE TO THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE H SHARES
OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS OR NON-U.S. TAX LAWS, ANY CHANGES IN APPLICABLE
TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.



Distributions on the H Shares or ADSs



Subject to the discussions
below under “— Passive Foreign Investment Company”, the gross amount of any distribution (without reduction for
any PRC tax withheld) we make on the H Shares or ADSs out of our current or accumulated earnings and profits (as determined for
United States federal income tax purposes) will be includible in your gross income as ordinary dividend income when the distribution
is actually or constructively received by you, or by the depositary in the case of ADSs. Distributions that exceed our current
and accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H Shares
or ADSs and thereafter as capital gain. We, however, may not calculate earnings and profits in accordance with U.S. tax principles.
Accordingly, all distributions by us to U.S. Holders will generally be treated as dividends. Any dividend will not be eligible
for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from United
States corporations. The amount of any distribution of property other than cash will be the fair market value of such property
on the date of such distribution.



Subject to certain
exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual, trust or estate
in a taxable year beginning after December 31, 2012 with respect to the H Shares or ADSs will be subject to taxation at a maximum
rate of 15% if the dividends are “qualified dividends.” Dividends paid on H Shares or ADSs will be treated as qualified
dividends if either (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal
Revenue Service, or IRS, has approved for the purposes of the qualified dividend rules, or (ii) the dividends are with respect
to ADSs readily tradable on a U.S. securities market, provided that we were not, in the year prior to the year in which the dividend
was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company, or PFIC. The Agreement
Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance
of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the “Treaty”) has been approved
for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the Treaty. We are considered a qualified
foreign corporation with respect to the ADSs because our ADSs are listed on the New York Stock Exchange. Finally, based on our
audited financial statements and relevant market data, we believe that we did not satisfy the definition for PFIC status for U.S.
federal income tax purposes with respect to our 2012 taxable year. In addition, based on our audited financial statements and our
current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market data,
we do not anticipate becoming a PFIC for our 2013 taxable year or any future year. However, our status in the current year and
future years will depend on our income and assets (which for this purpose depends in part on the market value of the H Shares or
ADSs) in those years. See the discussion below under “— Passive Foreign Investment Company”.



Holders of H Shares
or ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own
particular circumstances.



If we make a distribution
paid in HK dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/U.S.
dollar rate on the date such distribution is received by you or by the depositary, regardless of whether you or the depositary
convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from
the date the dividend payment is includible in your income to the date you or the depositary convert the distribution into U.S.
dollars will be treated as ordinary income or loss from U.S. sources.



Subject to various
limitations, any PRC tax withheld from distributions in accordance with the Treaty will be deductible or creditable against your
United States federal income tax liability. Dividends paid by us generally will constitute income from sources outside the United
States for U.S. foreign tax credit limitation purposes and will be categorized as “passive category income” or, in
the case of certain U.S. Holders as “general category income” for U.S. foreign tax credit purposes.



In the event we are
required to withhold PRC income tax on dividends paid to U.S. Holders on the H Shares or ADSs (see discussion under “China
Taxation”), you may be able to claim a reduced 10% rate of PRC withholding tax if you are eligible for benefits under the
Treaty. You should consult your own tax advisor about the eligibility for reduction of PRC withholding tax.



You may not be able
to claim a foreign tax credit (and instead may claim a deduction) for non-United States taxes imposed on dividends paid on the
H Shares or ADSs if you (i) have held the H Shares or ADSs for less than a specified minimum period during which you are not protected
from risk of loss with respect to such shares, or (ii) are obligated to make payments related to the dividends (for example, pursuant
to a short sale). The rules relating to the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors
regarding the effect of these rules in their particular circumstance.



Sale, Exchange or Other Disposition



Subject to the discussions
below under “— Passive Foreign Investment Company”, upon a sale, exchange or other disposition of the H Shares
or ADSs, you will generally recognize capital gain or loss for United States federal income tax purposes in an amount equal to
the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H Shares
or ADSs determined on (i) the date of receipt of payment in the case of a cash basis U.S. Holder and (ii) the date of disposition
in the case of an accrual basis U.S. Holder. If Shares are treated as traded on an “established securities market”,
a cash basis taxpayer or, if it so elects, an accrual basis taxpayer, will determine the U.S. dollar value of the amount realized
by translating the amount received at the spot rate of exchange on the settlement date of the sale. A U.S. Holder will have a tax
basis in the foreign currency received equal to the U.S. dollar amount realized. Any currency exchange gain or loss realized on
a subsequent conversion of the foreign currency into U.S. dollars for a different amount generally will be treated as ordinary
income or loss from sources within the United States. However, if such foreign currency is converted into U.S. dollars on the date
received by the U.S. Holder, a cash basis or electing accrual basis U.S. Holder should not recognize any gain or loss on such conversion.



60







Any gain or loss will
generally be United States source gain or loss for foreign tax credit limitation purposes and as a result of the U.S. foreign tax
credit limitation, foreign taxes, if any, imposed upon capital gains in respect of H Shares or ADSs may not be currently creditable.
Under the Treaty, however, if any PRC tax was to be imposed on any gain from the disposition of H Shares or ADSs, the gain may
be treated as PRC-source income. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign
withholding tax is imposed on a disposition of H Shares or ADSs, including the availability of the foreign tax credit under their
particular circumstances.



Passive Foreign Investment Company



In general, a foreign
corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and
assets of subsidiaries:



| | · | 75% or more of its gross income consists of passive income, such as
dividends, interest, rents, royalties, and gains from the sale of assets that give rise to such income; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 50% or more of the average quarterly value of its assets consists
of assets that produce, or are held for the production of, passive income.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



Passive income does
not include rents and royalties derived from the active conduct of a trade or business. If we own at least 25% (by value) of the
stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other
corporation’s assets and receiving our proportionate share of the other corporation’s income.



Based on the composition
of our assets and income and the current expectations regarding the price of the H Shares and ADSs, we believe that we should not
be treated as a PFIC for U.S. federal income tax purposes with respect to our 2012 taxable year and we do not intend or anticipate
becoming a PFIC for any future taxable year. The determination of PFIC status is a factual determination that must be made annually
at the close of each taxable year and therefore, there can be no certainty as to our status in this regard until the close of the
2012 taxable year. Changes in the nature of our income or assets or a decrease in the trading price of the H Shares or ADSs may
cause us to be considered a PFIC in the current or any subsequent year.



If we were a PFIC
in any taxable year that you held the H Shares or ADSs, you generally would be subject to special rules with respect to “excess
distributions” made by us on the H Shares or ADSs and with respect to gain from your disposition of the H Shares or ADSs.
An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H
Shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of
the three preceding years, or your holding period for the H Shares or ADSs. Generally, you would be required to allocate any excess
distribution or gain from the disposition of the H Shares or ADSs ratably over your holding period for the H Shares or ADSs. The
portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which
we became a PFIC, would be taxed at the highest United States federal income tax rate on ordinary income in effect for such taxable
year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been
due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior
taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included
in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income. If we were a
PFIC in any year during a U.S. Holder’s holding period, we would generally be treated as a PFIC for each subsequent year
absent a “purging” election by the U.S. Holder.



These adverse tax
consequences may be avoided if the U.S. Holder is eligible to and does elect to annually mark-to-market the H Shares or ADSs. If
a U.S. Holder makes a mark-to-market election, such holder will generally include as ordinary income the excess, if any, of the
fair market value of the H Shares or ADSs at the end of each taxable year over their adjusted basis, and will be permitted an ordinary
loss in respect of the excess, if any, of the adjusted basis of the H Shares or ADSs over their fair market value at the end of
the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election).
Any gain recognized on the sale or other disposition of the H Shares or ADSs will be treated as ordinary income. The mark-to-market
election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities
on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable Treasury
regulations. The H Shares or ADSs may qualify as “marketable stock” because the ADSs are listed on the New York Stock
Exchange.



A U.S. Holder’s
adjusted tax basis in the H Shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount
of any deductions under the mark-to-market rules. If a U.S. Holder makes a mark-to-market election it will be effective for the
taxable year for which the election is made and all subsequent taxable years unless the H Shares or ADSs are no longer regularly
traded on a qualified exchange or the IRS consents to the revocation of the election. U.S. Holders are urged to consult their tax
advisors about the availability of the mark-to-market election, and whether making the election would be advisable in their particular
circumstances.



Alternatively, a timely
election to treat us as a qualified electing fund could be made to avoid the foregoing rules with respect to excess distributions
and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements
that would permit you to make a qualified electing fund election.



If you own the
H Shares or ADSs during any year that we are a PFIC, you must file IRS Form 8621. The reduced tax rate for dividend income, as
discussed above under “— Distributions on the H Shares or ADSs,” is not applicable to a dividend paid by us if
we are a PFIC for either our taxable year in which the dividend is paid or the preceding year. We encourage you to consult your
own tax advisor concerning the United States federal income tax consequences of holding the H Shares or ADSs that would arise if
we were considered a PFIC.



Additional Taxes After 2012



For taxable years
beginning after December 31, 2012, U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds
generally will be subject to a 3.8% Medicare contribution tax on unearned income, including, among other things, dividends on,
and capital gains from the sale or other taxable disposition of, the H Shares or ADSs, subject to certain limitations and exceptions.
U.S. Holders should consult their own tax advisors regarding the effect, if any, of such tax on their ownership and disposition
of our securities.



Backup Withholding and Information Reporting



In general, information
reporting requirements will apply to dividends in respect of the H Shares or ADSs or the proceeds of the sale, exchange, or redemption
of the H Shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt
recipients, including corporations. In addition, you may, under some circumstances, be subject to “backup withholding”
(currently at a 28% rate) with respect to dividends paid on the H Shares or ADSs or the proceeds of any sale, exchange or transfer
of the H Shares or ADSs, unless you



| | · | are a corporation or fall within various other exempt categories,
and, when required, demonstrate this fact; or
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | provide a correct taxpayer identification number on a properly completed
IRS Form W-9 or a substitute form, certify that you are exempt from backup withholding and otherwise comply with applicable requirements
of the backup withholding rules.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



61







Any amount withheld
under the backup withholding rules generally will be creditable against your United States federal income tax liability provided
that you furnish the required information to the IRS in a timely manner. If you do not provide a correct taxpayer identification
number you may be subject to penalties imposed by the IRS.



For taxable years
beginning after March 18, 2010, new legislation requires certain U.S. Holders who are individuals to report information relating
to stock of a non-U.S. person, subject to certain exceptions (including an exception for stock held in custodial accounts maintained
by a U.S. financial institution). U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this legislation
on their ownership and disposition of the H Shares or ADSs.



| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement by Experts
| | -- | --------------------



Not applicable.



| | H. | Documents on Display
| | -- | --------------------



You may read and copy
documents referred to in this Annual Report on Form 20-F that have been filed with the U.S. Securities and Exchange Commission
at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms and their copy charges. The SEC also maintains a website at http://www.sec.gov
that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.



As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy
statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.



The SEC allows us
to “incorporate by reference” the information we file with the SEC. This means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered
to be part of this Annual Report on Form 20-F.



| | I. | Subsidiary Information
| | -- | ----------------------



For a listing of our
significant subsidiaries, see “Item 4. Information on the Company — History and Development of the Company”.



| | Item 11. | Quantitative and Qualitative Disclosures about Market
Risk
| | -------- | ----------------------------------------------------------



Interest Rate Risk



Our debts include
both fixed-rate and variable-rate long-term loans and other loans. As a result, we are subject to the market risk of fluctuation
of interest rates which may affect the estimated fair value of our debt liabilities or result in losses in cash flow. We use interest
rate swaps to reduce risks related to changes in market interest rates. As of December 31, 2012, the notional amount of the outstanding
interest rate swap agreements was approximately US$929 million. The fair value of the outstanding interest rate swap agreements
was approximately US$(47) million. These interest rate swap agreements will expire between 2013 and 2021. If the interest rate
had been 25 basic points higher with all other variables held constant, interest expenses on our floating rate instruments would
have increased by RMB119.0 million in 2011 and RMB122.5 million in 2012.



Foreign Currency Exchange Rate Risk



Although we derive
most of our income from China in Renminbi, our financial lease obligations as well as certain bank loans are denominated in U.S.
dollars, Japanese yen, Euro or Renminbi. Pursuant to current foreign exchange regulations in China, we may retain our foreign currency
earnings generated from ticket sales made in our overseas offices subject to the approval of SAFE. We use forward contracts to
reduce risks related to changes in currency exchange rates in respect of ticket sales and expenses denominated in foreign currencies.
As of December 31, 2012, the notional amount and fair value of the outstanding currency forward contracts was approximately US$58
million and US$(4) million, respectively, which will expire between 2013 and 2017.



Pursuant to IFRS,
our monetary assets and liabilities denominated in foreign currencies are required to be translated into Renminbi at the year end
at exchange rates announced by PBOC. Transactions in currencies other than the Renminbi during the year are converted into Renminbi
at the applicable rates of exchange prevailing at the dates of the transaction. Transaction gains and losses are recognized in
our profit and loss account. In 2011 and 2012, we had foreign exchange gains of RMB1,872 million and RMB148 million, respectively.
Any fluctuation of the exchange rates between Renminbi and foreign currencies may materially and adversely affect our financial
condition and results of operations. Following the measures introduced by the PRC government in July 2005 to reform the Renminbi
exchange rate regime, the Renminbi has appreciated significantly against certain foreign currencies, including the U.S. dollar
and Japanese yen. The following table shows the effect on our profit and loss account as a result of the impact on our non-Renminbi
denominated monetary assets and liabilities as of December 31, 2012 as a consequence of a fluctuation in value of the following
major foreign currencies.



|                               |  | Profit and Loss Account (Decrease)/Increase |        
|------------------------------ |  | ------------------------------------------- | -------
|U.S. dollar depreciates by 1%  |  |                                             | 483,962
|Japanese yen depreciates by 1% |  |                                             | (2,042 
|Euro depreciates by 1%         |  |                                             | 7,429  



Fuel Hedging Risk



In order to control
fuel costs, we entered into fuel hedging transactions using financial derivative products linked to the price of underlying assets
such as United States WTI crude oil and Singapore jet fuel. In the face of continuing increases in fuel prices, we reduced the
impact of the fluctuation in aviation fuel prices through various financial derivative instruments. For 2011, we hedged 17.0% of
our annual fuel consumption.



62







We engage in aviation
fuel hedging for the purpose of locking in aviation fuel costs. By selecting appropriate instruments, we lock in costs within a
hedged price range. However, high fluctuations in aviation fuel prices exceeding the locked-in price ranges has resulted in our
Company incurring actual realized and unrealized settlement losses. If the oil price had increased or decreased by 5% compared
to the closing price as of December 31, 2012, the fair value gain as of December 31, 2012 would have increased or decreased by
approximately RMB1,494 million. All crude oil option contracts signed in past years were settled before December 31, 2012.



| | Item 12. | Description of Securities Other than Equity Securities
| | -------- | ------------------------------------------------------



| | A. | Debt Securities
| | -- | ---------------



Not applicable.



| | B. | Warrants and Rights
| | -- | -------------------



Not applicable.



| | C. | Other Securities
| | -- | ----------------



Not applicable.



| | D. | American Depositary Shares
| | -- | --------------------------



Our ADSs, each representing
50 H shares, are traded on the New York Stock Exchange under the symbol “CEA.” The ADSs are evidenced by American Depositary
Receipts, or ADRs, issued by BNYM, as depositary under the Deposit Agreement, dated as of February 5, 1997, among the Company,
BNYM and holders and beneficial owners of ADSs. ADS holders are required to pay the following service fees to BNYM:



|  | Service                                                                                                                                          |  | Fees (in U.S. dollars)                                                                                                                                                                    
|- | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property                                        |  | US$5.00 (or less) per ADSs (or portion of 100 ADSs)                                                                                                                                       
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates                                                |  | Cancellation fees                                                                                                                                                                         
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | Any cash distribution to ADS registered holders                                                                                                  |  | N/A                                                                                                                                                                                       
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders      |  | A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs                                 
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | Depositary services                                                                                                                              |  | N/A                                                                                                                                                                                       
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares |  | Registration or transfer fees                                                                                                                                                             
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)                                                      |  | Expenses of the depositary                                                                                                                                                                
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | Converting foreign currency to U.S. dollars                                                                                                      |  | Foreign exchange fees                                                                                                                                                                     
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | As necessary                                                                                                                                     |  | Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes
|  |                                                                                                                                                  |  |                                                                                                                                                                                           
|· | As necessary                                                                                                                                     |  | Any charges incurred by the depositary or its agents for servicing the deposited securities                                                                                               



For the past annual
period, from January 1, 2012 to December 31, 2012, the Company received from the depositary an aggregate of US$77,658.31 for continuing
stock exchange annual listing fees and reimbursement fees, and waived standard out-of-pocket maintenance costs for the ADRs (consisting
of administrative expenses) of US$130,065.05.



BNYM, as depositary,
has agreed to reimburse the Company for expenses incurred in the future in relation to the establishment and maintenance of the
ADS program, which include standard out-of-pocket expenses such as postage and envelopes for mailing annual and interim financial
reports and all related administrative and documentary expenses. BNYM has agreed to reimburse the Company annually for certain
investor relationship programs and promotional activities. There are limits as to the amount of reimbursable expenses and this
amount is not necessarily commensurate with the amount of fees BNYM collects from ADS investors. BNYM collects fees for delivery
and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. BNYM collects
fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable
property to pay fees. BNYM may also collect its annual fee by deducting cash distributions or by directly billing investors, or
by charging the book-entry system accounts of participants acting for investors.



PART II



| | Item 13. | Defaults, Dividend Arrearages and Delinquencies
| | -------- | -----------------------------------------------



None.



| | Item 14. | Material Modifications to the Rights of Security Holders
and Use Of Proceeds
| | -------- | ----------------------------------------------------------------------------



On August 10, 2010,
we effected an ADS split whereby each ADS now represents 50 H shares. There was no change to the rights and preferences of the
underlying H shares.



63







| | Item 15. | Controls and Procedures
| | -------- | -----------------------



Evaluation of Disclosure Controls and Procedures



Under the
supervision and with the participation of our President and Chief Financial Officer, our management conducted an evaluation
of the effectiveness of our Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31,
2012 the end of the fiscal year covered by this Annual Report. Our management, with the participation of President and
Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, have concluded that as
of the end of the period covered by this Form 20-F, our disclosure controls and procedures were effective to ensure
that material information required to be disclosed in the reports that we file and furnish under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and regulations.



Disclosure controls
and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules and forms and that such information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including
our President and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosures.



Management’s Report on Internal Control over Financial
Reporting



Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) and have designed internal control over financial reporting or caused internal control over financial reporting
to be designed under our supervision in order to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles,
as applicable. Under the supervision and with the participation of our President and our Chief Financial Officer, our management
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012 based upon
the criteria in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on that evaluation, our management has concluded that our internal control over financial reporting was effective
as of December 31, 2012 in providing reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles.



Due to its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.



Attestation Report of the Registered Public Accounting Firm



The effectiveness
of our internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers, an independent
registered public accounting firm, as stated in their report which is included herein.



Changes in Internal Control over Financial Reporting



During 2012, we have
implemented certain measures to enhance our internal controls over financial reporting, which include the following initiatives:





| | · | To enhance our overall management of financial matters, we issued
our internal regulations “Capital Authorization Management Policy” and amended “Financial Derivatives Risk Management
Policy”.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We performed risk analysis to improve certain areas of existing accounting
and financial reporting policies, inspected key accounting controls and journal entries, studied 175 internal control-related working
procedures and conducted regular inspections according to our Internal Control Manual.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | To strengthen the financial control of our overseas operating branches,
we completed inspections of our operating branches and offices in Paris, Frankfurt, Tokyo, Hong Kong, Singapore, Kuala Lumpur,
Bangkok, Vancouver, New York and Sydney, and rectified on time potential issues we found during the inspections.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our subsidiary, China United Airlines, established the Oracle financial management system, in line
with that of our Company; Our subsidiary, Shanghai Airlines, established the TravelSky settlement system, in line with that of
our Company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We expanded the application of our SAP system to integrate multiple business processes and functions
into one comprehensive system, which we believe reduced risks relating to duplication, mistakes and inconsistent data.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Item 16A. | Audit Committee Financial Expert
| | --------- | --------------------------------



Our Board of Directors
has determined that Mr. Shao Ruiqing, the chairman of our audit committee, is an independent financial expert serving on our audit
committee, given his experience in the academic aspects of accounting and notable achievements in accounting education and academic
research. Mr. Shao is independent of the Board of Directors, senior management, Supervisors or substantial shareholders of our
Company.



| | Item 16B. | Code of Ethics
| | --------- | --------------



We have adopted a code of ethics that
applies to our Directors, supervisors, President, Chief Financial Officer and other senior managers of our Company. We have
filed this code of ethics as Exhibit 11.1 to this annual Report.  A copy of our
code of ethics will be provided to any person free of charge upon written request to Wang Jian, Secretary Office of the Board
of Directors, China Eastern Airlines Corporation Limited at Kong Gang San Lu, Number 92, Shanghai 200335, the People’s
Republic of China.





64











|Item 16C. | Principal Accountant Fees and Services
|--------- | --------------------------------------



The following table
sets forth the aggregate audit fees, audit-related fees and tax fees of our principal accountants, PricewaterhouseCoopers, and
all other fees billed for products and services provided by our principal accountants other than the audit fees, audit-related
fees and tax fees for each of the two years ended December 31, 2011 and 2012:



|     |  | Audit Fees |            |  | Audit- Related Fees |  |           | Tax Fees |  |  | All Other Fees | 
|---- |  | ---------- | ---------- |  | ------------------- |  | --------- | -------- |  |  | -------------- | 
|     |  | (RMB)      |            |  | (RMB)               |  |           | (RMB)    |  |  | (RMB)          | 
|2011 |  |            | 16,400,000 |  |                     |  | 1,100,000 |          |  |  | 108,000        | 
|2012 |  |            | 14,380,000 |  |                     |  | 2,900,000 |          |  |  | 108,000        | 



Before our principal
accountants were engaged by our Company or our subsidiaries to render audit or non-audit services, the engagements were approved
by our audit committee.



Audit Fees



Audit fees primarily
consist of fees for the audits of the Company’s financial statements prepared under both of IFRS & PRC Accounting Standards
for Business Enterprises as of and for the years ended December 31, 2011 and 2012.



Audit-Related Fees



Audit-related fees
for the fiscal year ended December 31, 2012 primarily consist of fees for and services provided in connection with the Company's
bond offerings and proposed non-public offerings. Audit-related fees for the fiscal year ended December 31, 2011 primarily consist
of fees for and services provided in connection with the Company’s bond offerings.



Tax Fees



Tax fees primarily
consist of fees for tax compliance services.



|Item 16D. | Exemptions from the Listing Standards for Audit Committees
|--------- | ----------------------------------------------------------



Not applicable.



|Item 16E. | Purchase of Equity Securities by the Issuer and Affiliated Purchasers
|--------- | ---------------------------------------------------------------------



The Company and its
affiliates have not purchased any issued shares of the Company during 2012 and up to the date of this Annual Report. However, on
November 9, 2012, we held an extraordinary general meeting to approve, among other things, the proposals for the non-public issuance
of A Shares and H Shares to specific placees.





A total of 698,865,000
new A Shares are expected to be issued to CEA Holding and CES Finance with a total subscription price of RMB1,499,999,999.44. In
addition, 698,865,000 new H Shares are expected to be issued to CES Global with a subscription price of HK$1,621,366,800. The A
Shares and H Shares subscriptions and the completion thereof will ultimately require approval from the relevant governmental and
regulatory authorities such as CSRC.





|Item 16F. | Changes in Registrant’s Certifying Accountant
|--------- | ---------------------------------------------



There has not been a change in the Company’s certifying
accountant during 2011 and 2012.





(a) Change of Principal Accountant



On
March 26, 2013, the Board approved not to re-appoint our independent registered public accounting firm, PricewaterhouseCoopers
Zhong Tian CPAs Limited ("PwC") as the Company’s PRC auditors and PricewaterhouseCoopersas the Company’s
international auditors for the year 2013, due to the relevant regulations issued by the MOF and the SASAC in December 2011.The
relevant regulations restrict and limit the number of years that audit services can be continuously provided by an accounting firm
to a PRC state-owned enterprise and its subsidiaries.



The independent audit
reports of PwC as to our consolidated financial statements for the two fiscal years ended December 31, 2011 and 2012 did not contain
any adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified in any way as to any uncertainty, audit
scope, or accounting principles.



During
the two fiscal years ended December 31, 2011 and 2012 and up to April 24, 2013, there were no disagreements (as
that term is used in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to Item 16F) with PwC on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the satisfaction of PwC, would have caused PwC to make reference to the subject matter of the disagreements in its reports on the
consolidated financial statements during the end of such fiscal years.



During the two fiscal
years ended December 31, 2011 and 2012 and up to April 24, 2013, there were no “reportable events” (defined below)
requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F. As used herein, the term “reportable event” means
any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F.



We have provided PwC
with a copy of the disclosures under Item 16F(a) as included herein and have requested that PwC furnish us with a letter addressed
to the SEC stating whether PwC agrees with the foregoing statements. A copy of the letter dated April 24, 2013, furnished by PwC
in response to that request was filed as Exhibit 13.3 to this Form 20-F.



(b) Engagement of New Principal Accountant



On March 26, 2013,
the Board agreed to appoint Ernst & Young Hua Ming LLP ("E&Y") and Ernst & Young as the Company’s auditors
for financial reports prepared for the PRC and the United States and Hong Kong, respectively for the year ended December 31, 2013.
The proposed change of auditors is subject to the consideration and approval by the shareholders of the Company at the annual general
meeting expected to be held in June 2013.



During the two fiscal
years ended December 31, 2011 and 2012 and up to April 24, 2013, we have not, and have not authorized anyone on our behalf, to
consult with E&Y with respect to either: (i) the application of accounting principles to a specified transaction, either completed
or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written
report nor oral advice was provided to us that E&Y concluded was an important factor considered by us in reaching a decision
as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a "disagreement"
with PwC (as that term is used in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to Item 16F) or a "reportable
event" (as described in Item 16F (a)(1)(v) of Form 20-F).





|Item 16G. | Corporate Governance
|--------- | --------------------



The NYSE has imposed
a series of corporate governance listing standards for companies listed on the NYSE in Section 303A of its listing rules. However,
the NYSE provides that listed companies that are foreign private issuers, subject to certain limitations and conditions, are permitted
to follow “home country” practice in lieu of the provisions of Section 303A of the NYSE Listed Company Manual. To qualify
for this exemption, a listed foreign private issuer must disclose any significant differences between their corporate governance
practices and the requirements of the NYSE corporate governance standards.



As a foreign private
issuer, we are subject to more than one set of corporate governance requirements. In the table below, we set out material differences
between our corporate governance practices and the NYSE’s corporate governance requirements as set out in Section 303A of
the Listed Company Manual:



65







|                                                                                                |  | NYSE Listed CompanyManual Requirements onCorporate Governance                                                                                                                                                                                                                                                                                                                           |  | Company’s Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Majority independent requirement of the Board of Directors                                      |  | Section 303A.01 of the Listed Company Manual requires that listed companies must have a majority of independent Directors.                                                                                                                                                                                                                                                              |  | We currently have four independent Directors out of a total of eleven Directors. The standards for establishing independence set forth under the Independent Director Guidance of the PRC differ, to some extent, from those set forth in the NYSE Listed Company Manual.                                                                                                                                                                                                                                                                                             
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Non-management directors must meet at regularly scheduled executive sessions without management |  | Section 303A.03 of the Listed Company Manual requires non-management directors of each listed company to meet at regularly scheduled executive sessions without management participation.                                                                                                                                                                                               |  | There is no identical corporate governance requirement in the PRC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Nominating/Corporate Governance Committee                                                       |  | Section 303A.04 of the Listed Company Manual requires that (i) listed companies must have a nominating/corporate governance committee composed entirely of independent directors and (ii) the nominating/corporate governance committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee. |  | The Company has established a nomination committee. As of December 31, 2012, the Nominations and Remuneration
Committee consists of three members, two of which are independent non-executive Directors of the Company. The merger of the Nomination
Committee and the Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary
meeting of the Board of the Company held on March 19, 2010.                                                                                                                    
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                         |  | The Nominations and Remuneration Committee is a specialized committee under the Board. It is responsible
for the discussion in regard to nominees, standards and procedures for selecting directors and senior management of the Company
and making recommendations; responsible for studying and examining the remuneration policy and solutions of directors and senior
management of the Company; responsible for studying the performance appraisal standards for directors and senior management of
the Company, conducting appraisals and making recommendation.
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Compensation Committee                                                                          |  | Section 303A.05 of the Listed Company Manual requires that listed companies must (i) have a compensation committee composed entirely of independent directors and (ii) the compensation committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee.                                       |  | The Company has established a remuneration and appraisal committee. As of December 31, 2012, the Nominations
and Remuneration Committee consists of three members, two of which are independent non-executive Directors of the Company. The
merger of the Nomination Committee and the Remuneration and Appraisal Committee into the Nominations and Remuneration Committee
was agreed at the ordinary meeting of the Board of the Company held on March 19, 2010.                                                                                                    
|                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Code of Business Conduct and Ethics                                                             |  | Section 303A.10 requires a listed company to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers from the code for directors or executive officers.                                                                                                                                                       |  | As required under the Sarbanes-Oxley Act of 2002, the Company has adopted a code of ethics that is applicable to the Company’s Directors, Supervisors, President, Chief Financial Officer and other senior managers.                                                                                                                                                                                                                                                                                                                                                  



In addition, we have
posted a description of such differences under the section entitled “Report of Directors” of our 2012 Hong Kong Annual
Report, which can be accessed through the following link on our website:



http://en.ceair.com/mu/en/gydh/tzzgx/dqbg/hkdqbg/2012hkdqbge/index.html



|Item 16H. | Mine Safety Disclosures
|--------- | -----------------------



Not applicable.



PART III



|Item 17. | Financial Statements
|-------- | --------------------



We have elected to provide the financial statements and related
information specified in Item 18 in lieu of Item 17.



|Item 18. | Financial Statements
|-------- | --------------------



Reference is made to pages F-1 to F-96.



|Item 19. | Exhibits
|-------- | --------



| | (a) | See Item 18 for a list of the financial statements filed as part of this Annual Report.
| | --- | ---------------------------------------------------------------------------------------



| | (b) | Exhibits to this Annual Report:
| | --- | -------------------------------



66







Exhibit Index



|Exhibits |  | Description                                                                                                                                                                                                                                                    
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1      |  | Articles of Association as amended on November 9, 2012 (English
    translation). (10)                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                
|2.1      |  | Specimen Certificate for the H Shares. (1)                                                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                
|2.2      |  | Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and Owners and Beneficial Owners from time to time of American Depositary Receipts. (2)                                                                                   
|         |  |                                                                                                                                                                                                                                                                
|4.1      |  | Office Space Lease Agreement between our Company and Eastern Air Group Company (together with English translation). (1)                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                
|4.10     |  | Amendment No. 9 to the A320 Purchase Agreement, dated as of April 21, 2005, between our Company and Airbus SAS. (3) (9)                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                
|4.11     |  | Assets Transfer Agreement, dated as of May 12, 2005, between our Company, CEA Holding, CEA Northwest and CEA Yunnan (English translation). (3)                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                
|4.12     |  | Aircraft Purchase Agreement, dated as of August 8, 2005, between our Company and The Boeing Company. (4) (9)                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                
|4.13     |  | Aircraft Purchase Agreement, dated as of December 20, 2005, as amended by a supplemental agreement dated as of April 10, 2006, between our Company and The Boeing Company. (4) (9)                                                                             
|         |  |                                                                                                                                                                                                                                                                
|4.14     |  | Amendment No. 10 to the A320 Purchase Agreement, dated as of June 26, 2006, between our Company and Airbus SAS. (4) (9)                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                
|4.15     |  | Aircraft Purchase Agreement, dated as of January 30, 2008, between our Company and The Boeing Company. (5) (8)                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                
|4.16     |  | Share Issue and Subscription Agreement, dated as of December 29, 2008, between our Company and CES Global Holdings (Hong Kong) Limited, in relation to the placing of 1,437,375,000 new H shares to CES Global Holdings (Hong Kong) Limited by our Company. (6)
|         |  |                                                                                                                                                                                                                                                                
|4.17     |  | Share Issue and Subscription Agreement, dated as of December 29, 2008, between our Company and CES Global Holdings (Hong Kong) Limited, in relation to the placing of 1,437,375,000 new A shares to China Eastern Air Holding Company by our Company. (6)      
|         |  |                                                                                                                                                                                                                                                                
|4.18     |  | Aircraft Purchase Agreement, dated as of June 15, 2009, between our Company and Airbus SAS. (7) (9)                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                
|4.19     |  | Share Subscription Agreement, dated as of July 10, 2009, between our Company and CES Global, in relation to the placing of 490,000,000 new H shares to CES Global. (7)                                                                                         
|         |  |                                                                                                                                                                                                                                                                
|4.20     |  | Share Subscription Agreement, dated as of July 10, 2009, between our Company and CEA Holding, in relation to the placing of 490,000,000 new A shares to CEA Holding. (7)                                                                                       
|         |  |                                                                                                                                                                                                                                                                
|4.21     |  | Agreement in relation to the absorption of Shanghai Airlines by way of Share Exchange by our Company, dated as of July 10, 2009. (7)                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                
|4.22     |  | Aircraft Purchase Agreement, dated as of December 23, 2009, between our Company and Airbus SAS. (7) (9)                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                
|4.23     |  | A320 Family Aircraft Purchase Agreement, dated as of December 30, 2010, between our Company and Airbus SAS. (8) (9)                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                
|4.24     |  | Boeing 787 Aircraft Delivery Delay Settlement Agreement, dated as of September 15,2011, between our Company and the Boeing Company. (9)                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                
|4.25     |  | A330 Family Aircraft Purchase Agreement, dated as of October 17, 2011, between our Company and Airbus SAS. (9)                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                
|4.26     |  | Buyback Agreement relating to Five Airbus A340-300 Aircraft,
        dated as of October 17, 2011, between our Company and Airbus SAS. (9)                                                                                                                     
|4.27     |  | Aircraft Sale and Purchase Agreement relating to the
        disposal of eight Bombardier CRJ-200 Aircraft and ten Embraer ERJ-145 Aircraft, dated November 23, 2012, among our Company,
        Airbus SAS and other parties. (11)                            
|4.28     |  | Amendment No. 2 to the A 320 Family Purchase Agreement
        dated December 30, 2010, dated November 23, 2012, between our Company and Airbus SAS. (11)                                                                                                      
|4.29     |  | Acquisition Agreement for Used Aircraft relating to
        five Airbus Model A340-642 Aircraft, dated April 27, 2012, between our Company and Boeing Aircraft Holding Company. (11)                                                                           
|4.30     |  | Purchase Agreement Number PA-03746 relating to Boeing
        Model 777-300ER Aircraft, dated April 27, 2012, between our Company and the Boeing Company. (11)                                                                                                 
|8.1      |  | List of Subsidiaries (as of April 20, 2013).                                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                
|11.1     |  | Code of Ethics (English translation). (5)                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                
|12.1     |  | Certification of the President pursuant to Rule
    13a-14(a).                                                                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                
|12.2     |  | Certification of the Chief Financial Officer pursuant to Rule
    13a-14(a).                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                
|13.1     |  | Certification of the President pursuant to Rule
    13a-14(b).                                                                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                
|13.2     |  | Certification of the Chief Financial Officer pursuant to Rule
    13a-14(b).                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                
|13.3     |  | Letter from PWC to  the Securities and Exchange Commission with respect to the disclosures under Item 16F(a).                                                                                                                                                  



67









| | (1) | Incorporated
by reference to our Registration Statement on Form F-1 (File No. 333-6260), filed with the Securities and Exchange Commission
on January 9, 1997.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Incorporated
by reference to our Registration Statement on Form F-6 (File No. 333-6284), filed with the Securities and Exchange Commission
with respect to American Depositary Shares representing our H Shares.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Incorporated
by reference to our annual report on Form 20-F (File No. 001-14550), filed with the Securities and Exchange Commission on June
24, 2005.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Incorporated
by reference to our annual report on Form 20-F (File No. 001-14550), filed with the Securities and Exchange Commission on July
7, 2006.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Incorporated
by reference to our annual report on Form 20-F (File No. 001-14550), filed with the Securities and Exchange Commission on June
24, 2008.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Incorporated
by reference to our annual report on Form 20-F (File No.001-14550), filed with the Securities and Exchange Commission on June
11, 2009.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Incorporated
by reference to our annual report on Form 20-F (File No.001-14550), filed with the Securities and Exchange Commission on June
24, 2010.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Incorporated
by reference to our annual report on Form 20-F (File No.001-14550), filed with the Securities and Exchange Commission on June
29, 2011.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Incorporated
by reference to our annual report on Form 20-F (File No.001-14550), filed with the Securities and Exchange Commission on April
24, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Incorporated by reference to our announcement furnished to the Securities and Exchange Commission on
                                                                                                                                                                               Form 6-K
                                                                                                                                                                               dated
                                                                                                                                                                               November
                                                                                                                                                                               13, 2012.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | Portions
of this document have been omitted pursuant to a confidential treatment request, and the full, unredacted document has been separately
submitted to the Securities and Exchange Commission with a confidential treatment request.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SIGNATURES



The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual
Report on its behalf.



|CHINA EASTERN AIRLINES CORPORATION LIMITED |                                          
|------------------------------------------ | -----------------------------------------
|                                           |                                          
|By:                                        | /s/ Liu Shaoyong                         
|                                           | Name: Liu Shaoyong                       
|                                           | Title: Chairman of the Board of Directors



Date:
April 24, 2013



68









CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED



DECEMBER 31, 2012, 2011 AND 2010











INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                    |  | Page
|--------------------------------------------------------------------------------------------------- |  | ----
|CONSOLIDATED FINANCIAL STATEMENTS OF CHINA EASTERN AIRLINES CORPORATION LIMITED                     |  |     
|Report of Independent Registered Public Accounting Firm                                             |  | F-1 
|Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2012 |  | F-2 
|Consolidated Balance Sheets as of December 31, 2012 and 2011                                        |  | F-4 
|Consolidated Statements of Cash flows for each of the three years ended December 31, 2012           |  | F-6 
|Consolidated Statements of Changes in Equity for each of the three years ended December 31, 2012    |  | F-8 
|Notes to the Consolidated Financial Statements                                                      |  | F-11











Report of Independent Registered Public
Accounting Firm



To the Board of Directors and Shareholders
of China Eastern Airlines Corporation Limited:



In our opinion, the accompanying
consolidated balance sheets and the related consolidated statements of comprehensive income, of changes in equity and of cash
flows present fairly, in all material respects, the financial position of China Eastern Airlines Corporation Limited
(“the Company”) and its subsidiaries (collectively referred to as the “Group”) at December 31, 2012
and 2011, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2012 in conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements
and on the Company’s internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.



A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, April 24, 2013



F-1







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

FOR THE YEARS ENDED DECEMBER 31, 2012,
2011 AND 2010

(Amounts in thousands except for per
share data)



|                                                                 |  |      |  | Year ended December 31, |            
|---------------------------------------------------------------- |  | ---- |  | ----------------------- | -----------
|                                                                 |  |      |  | 2012                    |            
|                                                                 |  | Note |  | RMB’000                 |            
|                                                                 |  |      |  |                         |            
|Revenues                                                         |  | 5    |  |                         | 85,253,317 
|Other operating income                                           |  | 6    |  |                         | 1,719,626  
|Operating expenses                                               |  |      |  |                         |            
|Aircraft fuel                                                    |  |      |  |                         | (29,871,506
|Gain on fair value movementsof derivatives financial instruments |  | 8    |  |                         | 24,831     
|Take-off and landing charges                                     |  |      |  |                         | (9,065,649 
|Depreciation and amortization                                    |  |      |  |                         | (7,556,910 
|Wages, salaries and benefits                                     |  | 9    |  |                         | (10,059,043
|Aircraft maintenance                                             |  |      |  |                         | (4,432,741 
|Impairment reversals/(charges)                                   |  | 10   |  |                         | 13,467     
|Food and beverages                                               |  |      |  |                         | (2,031,425 
|Aircraft operating lease rentals                                 |  |      |  |                         | (4,438,169 
|Other operating lease rentals                                    |  |      |  |                         | (609,111   
|Selling and marketing expenses                                   |  |      |  |                         | (3,727,437 
|Civil aviation infrastructure levies                             |  |      |  |                         | (1,414,457 
|Ground services and other charges                                |  |      |  |                         | (594,057   
|Office, administrative and other expenses                        |  |      |  |                         | (8,982,628 
|Total operating expenses                                         |  |      |  |                         | (82,744,835
|Operating profit                                                 |  | 11   |  |                         | 4,228,108  
|Share of results of associates                                   |  | 22   |  |                         | 103,209    
|Share of results of jointly controlled entities                  |  | 23   |  |                         | 29,960     
|Finance income                                                   |  | 12   |  |                         | 348,601    
|Finance costs                                                    |  | 13   |  |                         | (1,697,474 
|Profit before income tax                                         |  |      |  |                         | 3,012,404  
|Income tax                                                       |  | 14   |  |                         | (204,801   
|Profit for the year                                              |  |      |  |                         | 2,807,603  



F-2







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2012,
2011 AND 2010

(Amounts in thousands except for per
share data)



|                                                                                          |  |      |  | Year ended December 31, |          
|----------------------------------------------------------------------------------------- |  | ---- |  | ----------------------- | ---------
|                                                                                          |  |      |  | 2012                    |          
|                                                                                          |  | Note |  | RMB’000                 |          
|                                                                                          |  |      |  |                         |          
|Other comprehensive (loss)/income for the year                                            |  |      |  |                         |          
|Cash flow hedges, net of tax                                                              |  | 39   |  |                         | (9,211   
|Fair value movements of available-for-sale investments                                    |  |      |  |                         | (389     
|Fair value movements of available-for-sale investments held by associates                 |  | 22   |  |                         | 2,188    
|Total comprehensive income for the year                                                   |  |      |  |                         | 2,800,191
|Profit attributable to:                                                                   |  |      |  |                         |          
|Equity shareholders of the Company                                                        |  |      |  |                         | 2,953,645
|Non-controlling interests                                                                 |  |      |  |                         | (146,042 
|                                                                                          |  |      |  |                         | 2,807,603
|Total comprehensive income attributable to                                                |  |      |  |                         |          
|Equity shareholders of the Company                                                        |  |      |  |                         | 2,946,271
|Non-controlling interests                                                                 |  |      |  |                         | (146,080 
|                                                                                          |  |      |  |                         | 2,800,191
|Earnings per share attributable to the equity shareholders of the Company during the year |  |      |  |                         |          
|– Basic and diluted (RMB)                                                                 |  | 17   |  |                         | 0.26     



The accompanying notes are an integral
part of these consolidated financial statements.



|          |  |      |  | 2012    |   |  | 2011    |  |   | 2010    | 
|--------- |  | ---- |  | ------- | - |  | ------- |  | - | ------- | 
|          |  | Note |  | RMB’000 |   |  | RMB’000 |  |   | RMB’000 | 
|          |  |      |  |         |   |  |         |  |   |         | 
|Dividends |  | 15   |  |         | - |  |         |  | - |         | 



F-3







CHINA EASTERN AIRLINES CORPORATION LIMITED

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2012 AND 2011

(Amounts in thousands)



|                                                                                             |  |      |  | December 31, |            
|-------------------------------------------------------------------------------------------- |  | ---- |  | ------------ | -----------
|                                                                                             |  |      |  | 2012         |            
|                                                                                             |  | Note |  | RMB’000      |            
|                                                                                             |  |      |  |              |            
|Non-current assets                                                                           |  |      |  |              |            
|                                                                                             |  |      |  |              |            
|Intangible assets                                                                            |  | 18   |  |              | 11,449,099 
|Property, plant and equipment                                                                |  | 19   |  |              | 82,518,761 
|Lease prepayments                                                                            |  | 20   |  |              | 1,781,846  
|Advanced payments on acquisition of aircraft                                                 |  | 21   |  |              | 11,894,891 
|Investments in associates                                                                    |  | 22   |  |              | 833,472    
|Investments in jointly controlled entities                                                   |  | 23   |  |              | 418,159    
|Available-for-sale financial assets                                                          |  |      |  |              | 234,690    
|Other long-term assets                                                                       |  | 24   |  |              | 1,958,256  
|Deferred tax assets                                                                          |  | 36   |  |              | 54,561     
|Derivative assets                                                                            |  | 39   |  |              | -          
|                                                                                             |  |      |  |              | 111,143,735
|Current assets                                                                               |  |      |  |              |            
|                                                                                             |  |      |  |              |            
|Flight equipment spare parts                                                                 |  | 25   |  |              | 2,087,978  
|Trade receivables                                                                            |  | 26   |  |              | 2,962,181  
|Prepayments and other receivables                                                            |  | 27   |  |              | 3,368,648  
|Derivative assets                                                                            |  | 39   |  |              | 18,074     
|Restricted bank deposits and short-term bank deposits                                        |  | 28   |  |              | 1,726,251  
|Cash and cash equivalents                                                                    |  | 29   |  |              | 2,511,696  
|Assets held for sale                                                                         |  | 43   |  |              | -          
|                                                                                             |  |      |  |              | 12,674,828 
|Current liabilities                                                                          |  |      |  |              |            
|                                                                                             |  |      |  |              |            
|Sales in advance of carriage                                                                 |  |      |  |              | 3,094,427  
|Trade payables and notes payable                                                             |  | 30   |  |              | 3,075,325  
|Other payables and accrued expenses                                                          |  | 31   |  |              | 16,256,225 
|Current portion of obligations under finance leases                                          |  | 32   |  |              | 2,605,269  
|Current portion of borrowings                                                                |  | 33   |  |              | 22,639,955 
|Income tax payable                                                                           |  |      |  |              | 181,788    
|Current portion of provision for return condition checks for aircraft under operating leases |  | 34   |  |              | 734,205    
|Derivative liabilities                                                                       |  | 39   |  |              | 35,813     
|                                                                                             |  |      |  |              | 48,623,007 
|Net current liabilities                                                                      |  |      |  |              | (35,948,179
|Total assets less current liabilities                                                        |  |      |  |              | 75,195,556 



F-4







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF DECEMBER 31, 2012 AND 2011

(Amounts in thousands)



|                                                                            |  |       |  | December 31, |           
|--------------------------------------------------------------------------- |  | ----- |  | ------------ | ----------
|                                                                            |  |       |  | 2012         |           
|                                                                            |  | Note  |  | RMB’000      |           
|                                                                            |  |       |  |              |           
|Non-current liabilities                                                     |  |       |  |              |           
|                                                                            |  |       |  |              |           
|Obligations under finance leases                                            |  | 32    |  |              | 19,252,709
|Borrowings                                                                  |  | 33    |  |              | 23,096,163
|Provision for return condition checks for aircraft under operating leases   |  | 34    |  |              | 3,064,557 
|Other long-term liabilities                                                 |  | 35    |  |              | 1,635,537 
|Deferred tax liabilities                                                    |  | 36    |  |              | 29,326    
|Post-retirement benefit obligations                                         |  | 37(b) |  |              | 3,259,529 
|Derivative liabilities                                                      |  | 39    |  |              | 304,338   
|                                                                            |  |       |  |              | 50,642,159
|Net assets                                                                  |  |       |  |              | 24,553,397
|                                                                            |  |       |  |              |           
|Equity                                                                      |  |       |  |              |           
|Capital and reserves attributable to the equity shareholders of the Company |  |       |  |              |           
|Share capital                                                               |  | 41    |  |              | 11,276,539
|Reserves                                                                    |  | 42    |  |              | 11,649,259
|                                                                            |  |       |  |              | 22,925,798
|Non-controlling interests                                                   |  |       |  |              | 1,627,599 
|Total equity                                                                |  |       |  |              | 24,553,397



The accompanying notes are an integral
part of these consolidated financial statements.



F-5







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012,
2011 AND 2010

(Amounts in thousands)



|                                                                                                             |  |       |  | Year ended December 31, |            
|------------------------------------------------------------------------------------------------------------ |  | ----- |  | ----------------------- | -----------
|                                                                                                             |  |       |  | 2012                    |            
|                                                                                                             |  | Note  |  | RMB’000                 |            
|                                                                                                             |  |       |  |                         |            
|Cash flows from operating activities                                                                         |  |       |  |                         |            
|Cash generated from operations                                                                               |  | 44(a) |  |                         | 12,822,835 
|Income tax paid                                                                                              |  |       |  |                         | (205,476   
|Net cash inflow from operating activities                                                                    |  |       |  |                         | 12,617,359 
|                                                                                                             |  |       |  |                         |            
|Cash flows from investing activities                                                                         |  |       |  |                         |            
|                                                                                                             |  |       |  |                         |            
|Additions of property, plant and equipment                                                                   |  |       |  |                         | (6,148,139 
|Payments of short-term deposits with original maturity over three months                                     |  |       |  |                         | -          
|Advanced payments on acquisition of aircraft                                                                 |  | 21    |  |                         | (7,328,529 
|Disposal of subsidiaries                                                                                     |  |       |  |                         | -          
|Investment in available-for-sale financial assets                                                            |  |       |  |                         | -          
|Acquisition of cargo business of Great Wall Airlines Co., Ltd. (“Great Wall Airlines”), net of cash acquired |  |       |  |                         | (87,316    
|Net cash acquired through acquisition of Shanghai Airlines Co., Ltd. (“Shanghai Airlines”)                   |  |       |  |                         | -          
|Proceeds from disposal of assets held for sale                                                               |  |       |  |                         | 209,586    
|Proceeds from disposal of property, plant and equipment                                                      |  |       |  |                         | 181,246    
|Proceeds of short-term deposits with original maturity over three months                                     |  | 28    |  |                         | 958,489    
|Interest received                                                                                            |  |       |  |                         | 215,789    
|Dividends received                                                                                           |  |       |  |                         | 112,446    
|Proceeds from disposal of interests in an associate                                                          |  |       |  |                         | 2,439      
|Proceeds from disposal of interests in available-for -sale financial assets                                  |  |       |  |                         | 94,890     
|Net cash outflow from investing activities                                                                   |  |       |  |                         | (11,789,099



F-6







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2012,
2011 AND 2010

(Amounts in thousands)



|                                                                    |  |      |  | Year ended December 31, |            
|------------------------------------------------------------------- |  | ---- |  | ----------------------- | -----------
|                                                                    |  |      |  | 2012                    |            
|                                                                    |  | Note |  | RMB’000                 |            
|                                                                    |  |      |  |                         |            
|Cash flows from financing activities                                |  |      |  |                         |            
|Proceeds from draw down of short-term bank loans                    |  |      |  |                         | 23,101,136 
|Proceeds from issuance of short-term debentures and bonds           |  |      |  |                         | 4,000,000  
|Repayments of short-term bank loans                                 |  |      |  |                         | (25,619,898
|Proceeds from draw down of long-term bank loans                     |  |      |  |                         | 10,887,474 
|Repayments of long-term bank loans                                  |  |      |  |                         | (8,352,313 
|Principal repayments of finance lease obligations                   |  |      |  |                         | (4,094,636 
|Receipts/(payments) of restricted bank deposits                     |  |      |  |                         | 236,475    
|Interest paid                                                       |  |      |  |                         | (1,936,842 
|Capital contribution from non-controlling interests of subsidiaries |  |      |  |                         | 453,850    
|Acquisition of non-controlling    interests in subsidiaries         |  |      |  |                         | (670,956   
|Dividends paid to non-controlling interests of subsidiaries         |  |      |  |                         | (178,580   
|Net cash (outflow)/inflow from financing activities                 |  |      |  |                         | (2,174,290 
|Net (decrease)/increase in cash and cash equivalents                |  |      |  |                         | (1,346,030 
|Cash and cash equivalents at January 1                              |  |      |  |                         | 3,860,973  
|Exchange adjustments                                                |  |      |  |                         | (3,247     
|Cash and cash equivalents at December 31                            |  | 29   |  |                         | 2,511,696  



Notes to consolidated cash flow statements
is set out in Note 44 to the financial statements.



The accompanying notes are an integral
part of these consolidated financial statements.



F-7







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2010,
2011 AND 2012

(Amounts in thousands)





|                                                                                |  | Attributable to equity shareholders of the Company |            |  |                |  |            |                     | 
|------------------------------------------------------------------------------- |  | -------------------------------------------------- | ---------- |  | -------------- |  | ---------- | ------------------- | 
|                                                                                |  | Share capital                                      |            |  | Other reserves |  |            | Accumulated  losses | 
|                                                                                |  | RMB’000                                            |            |  | RMB’000        |  |            | RMB’000             | 
|                                                                                |  |                                                    |            |  |                |  |            |                     | 
|Balance at January 1, 2010                                                      |  |                                                    | 9,581,700  |  |                |  | 9,566,349  |                     | 
|                                                                                |  |                                                    |            |  |                |  |            |                     | 
|Total comprehensive income for the year                                         |  |                                                    | -          |  |                |  | (16,007    | )                   | 
|- Profit for the  year                                                          |  |                                                    | -          |  |                |  | -          |                     | 
|- Other   comprehensive loss                                                    |  |                                                    | -          |  |                |  | (16,007    | )                   | 
|Issuance of new shares for the acquisition of Shanghai Airlines                 |  |                                                    | 1,694,839  |  |                |  | 7,399,913  |                     | 
|Non-controlling interests addition through the acquisition of Shanghai Airlines |  |                                                    | -          |  |                |  | -          |                     | 
|Dividend paid to non-controlling interests in subsidiaries                      |  |                                                    | -          |  |                |  | -          |                     | 
|Capital contribution by non-controlling interests in subsidiaries               |  |                                                    | -          |  |                |  | -          |                     | 
|Disposal of subsidiaries                                                        |  |                                                    | -          |  |                |  | -          |                     | 
|Balance at December 31, 2010                                                    |  |                                                    | 11,276,539 |  |                |  | 16,950,255 |                     | 



F-8







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010,
2011 AND 2012

(Amounts in thousands)



|                                                                                               |  | Attributable to equity
    shareholders of the Company |            |  |                |  |            |                     | 
|---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | ---------- |  | -------------- |  | ---------- | ------------------- | 
|                                                                                               |  | Share capital                                          |            |  | Other reserves |  |            | Accumulated  losses | 
|                                                                                               |  | RMB’000                                                |            |  | RMB’000        |  |            | RMB’000             | 
|                                                                                               |  |                                                        |            |  |                |  |            |                     | 
|Balance at January 1, 2011                                                                     |  |                                                        | 11,276,539 |  |                |  | 16,950,255 |                     | 
|                                                                                               |  |                                                        |            |  |                |  |            |                     | 
|Total comprehensive income for the year                                                        |  |                                                        | -          |  |                |  | (134,661   | )                   | 
|- Profit for the year                                                                          |  |                                                        | -          |  |                |  | -          |                     | 
|- Other comprehensive loss                                                                     |  |                                                        | -          |  |                |  | (134,661   | )                   | 
|Accumulated losses shared by non-controlling interests after capital injection in a subsidiary |  |                                                        | -          |  |                |  | 426,439    |                     | 
|Dividend paid to non-controlling interests in subsidiaries                                     |  |                                                        | -          |  |                |  | -          |                     | 
|Capital contribution by non-controlling interests in subsidiaries                              |  |                                                        | -          |  |                |  | -          |                     | 
|Acquisition of non-controlling interests in subsidiaries                                       |  |                                                        | -          |  |                |  | (12,905    | )                   | 
|Balance at December 31, 2011                                                                   |  |                                                        | 11,276,539 |  |                |  | 17,229,128 |                     | 



F-9







CHINA EASTERN AIRLINES CORPORATION LIMITED



CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010,
2011 AND 2012

(Amounts in thousands)



|                                                                  |  | Attributable to equity shareholders of the Company |            |  |                |  |            |                    | 
|----------------------------------------------------------------- |  | -------------------------------------------------- | ---------- |  | -------------- |  | ---------- | ------------------ | 
|                                                                  |  | Share capital                                      |            |  | Other reserves |  |            | Accumulated
losses | 
|                                                                  |  | RMB’000                                            |            |  | RMB’000        |  |            | RMB’000            | 
|                                                                  |  |                                                    |            |  |                |  |            |                    | 
|Balance at January 1, 2012                                        |  |                                                    | 11,276,539 |  |                |  | 17,229,128 |                    | 
|                                                                  |  |                                                    |            |  |                |  |            |                    | 
|Total comprehensive income for the year                           |  |                                                    | -          |  |                |  | (7,374     | )                  | 
|- Profit for the year                                             |  |                                                    | -          |  |                |  | -          |                    | 
|- Other comprehensive loss                                        |  |                                                    | -          |  |                |  | (7,374     | )                  | 
|Dividend paid to non-controlling interests in subsidiaries        |  |                                                    | -          |  |                |  | -          |                    | 
|Capital contribution by non-controlling interests in subsidiaries |  |                                                    | -          |  |                |  | -          |                    | 
|Acquisition of non-controlling interests in subsidiaries          |  |                                                    | -          |  |                |  | (490,151   | )                  | 
|Others                                                            |  |                                                    | -          |  |                |  | 343,786    |                    | 
|Balance at December 31, 2012                                      |  |                                                    | 11,276,539 |  |                |  | 17,075,389 |                    | 



The accompanying
notes are an integral part of these consolidated financial statements



F-10







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. | CORPORATE INFORMATION
|-- | ---------------------



China Eastern Airlines Corporation
Limited (the “Company”), a joint stock company limited by shares was incorporated in the People’s Republic of
China (the “PRC”) on April 14, 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.



The Company is majority owned
by China Eastern Air Holding Company (“CEA Holding”), a state-owned enterprise incorporated in the PRC.



The Company’s shares are
traded on Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and The New York Stock Exchange.



These financial statements were
approved for issue by the Company’s Board of Directors (the “Board”) on March 26, 2013.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



The principal accounting policies
applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all
the years presented, unless otherwise stated.



| | (a) | Basis of preparation
| | --- | --------------------



The financial statements of the Group have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard
Board and the disclosure requirements of the Hong Kong Companies Ordinance. The financial statements have been prepared under the
historical cost convention, as modified by the revaluation of available-for-sale financial assets, and financial assets and financial
liabilities (including derivative instruments) at fair value through profit or loss.



| | (i) | Going concern
        
        As at December 31, 2012, the Group’s
        accumulated losses were approximately RMB5.43 billion and its current liabilities exceeded its current assets by approximately
        RMB35.95 billion. For the year ended December 31, 2012, cash and cash equivalents of the Group decreased by RMB1.35 billion. In
        preparing the financial statements, the Board considers the adequacy of cash inflows from operations and financing to meet its
        financial obligations as and when they fall due.
        
        As at December 31, 2012, the Group had
        total unutilized credit facilities of approximately RMB27.09 billion from banks. The Board believes that, based on experience to
        date, it is likely that these facilities will be rolled over in future years if required.
        
        With the cash inflows from operations and
        available credit facilities, the Board considers that the Group will be able to obtain sufficient financing to enable it to operate,
        as well as to meet its liabilities as and when they become due, and the capital expenditure requirements for the upcoming twelve
        months. Accordingly, the Board believes that it is appropriate to prepare these financial statements on a going concern basis without
        including any adjustments that would be required should the Group fail to continue as a going concern.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-11







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------



| | (a) | Basis of preparation (continued)
| | --- | --------------------------------



| | (ii) | New and amended standards adopted by the Group                                                                                                                                                                               
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                              
| |      | The Group has adopted the following new standards and amendments to existing standards which are relevant for the Group’s existed business and mandatory for the first time for the financial year beginning January 1, 2012:



| | § | Amendments to IFRS 7, Financial instruments: Disclosures – Transfer of
    financial assets: this amendment promotes transparency in the reporting of transfer transactions and improve users’
    understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on the
    Company’s financial position. The Group did not have any significant transfers of financial assets in previous year or
    the current year which require disclosures in current accounting year under the amendments and these amendments have had no
    material impact on the Group.                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | § | Amendment related to IAS12, “Income taxes”. Currently IAS 12, 'Income taxes' requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40 “Investment Property”. Hence, this amendment introduces an exception to the existing principle for the measurement of deferred taxassets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, 'Income tax - recovery of revalued non-depreciable assets', would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is accordingly withdrawn. This improvement has no material impact on the Group.



F-12







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------



| | (a) | Basis of preparation (continued)
| | --- | --------------------------------



| | (iii) | New and amended standards, and interpretations mandatory for the first time for the financial year beginning  January 1, 2012 but not currently relevant to the Group
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | IFRS 1 (Amendment) | First-time Adoption of IFRSs - Limited Exemptions from Comparative IFRS 7 Disclosures for First-time Adopters
| | ------------------ | -------------------------------------------------------------------------------------------------------------
| |                    |                                                                                                              
| | IFRS 1 (Amendment) | First time adoption on hyperinflation and fixed dates                                                        



F-13







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------



| | (a) | Basis of preparation (continued)
| | --- | --------------------------------



| | (iv) | New standards, amendments and interpretations to existing standards have been issued but not yet effective for the financial year beginning January 1, 2012 and which are relevant for the Group’s operations
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following standards and amendments
to existing standards have been published and are mandatory for the Group’s accounting periods beginning on after January
1, 2013, but the Group has not early adopted them:



| | § | IAS 19 (Amendment) (effective from January 1, 2013). This amendment eliminates the corridor approach and calculates finance costs on a net funding basis. "Remeasurements" replace "actuarial gains and losses" and include the difference between actual investment returns and the return implied by the net interest cost and any effect of an asset ceiling. They are recognized in other comprehensive income and not recycled to income. The "corridor" method and the option to recognize immediately in the income statement are no longer available. This will increase balance sheet volatility for many entities. The Group will apply the standard retrospectively from January 1, 2013 and the "actuarial gains and losses" will be recognized in other comprehensive income. As at December 31, 2012, the Unrecognized actuarial losses is RMB2.89 billion.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IFRS 9 ‘Financial Instruments’ (effective from January 1, 2013). The standard addresses classification and measurement of financial assets, introducing the following changes: (i) Introduces a single model that has only two classification categories: amortized cost and fair value, which are driven by the entity’s business model for managing the financial assets and the contractual characteristics of the financial assets. (ii) Removes the requirement to separate embedded derivatives from financial asset hosts, and requires a hybrid contract to be classified in its entirety at either amortized cost or fair value. (iii) Prohibits reclassifications except in rare circumstances when the entity’s business model changes and the changes apply prospectively. (iv) Provides specific guidance for contractually linked instruments that create concentrations of credit risk, which is often the case with investment tranches in a securitization. (v) Indicates that all equity investments should be measured at fair value. However, management has an option to present in other comprehensive income unrealized and realized fair value gains and losses on equity investments that are not held for trading. (vi) Removes the cost exemption for unquoted equities and derivatives on unquoted equities but provides guidance on when cost may be an appropriate estimate of fair value. The management is in the process of evaluating the impact of IFRS 9 on the Group and will apply the standard from January 1, 2013.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IFRS 10 “Consolidated financial statements” (effective from January 1, 2013). The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entity (an entity that controls one or more other entities) to present consolidated financial statements. Defines the principle of control, and establishes controls as the basis for consolidation. Set out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. Sets out the accounting requirements for the preparation of consolidated financial statements. The management is in the process of evaluating the impact of IFRS 10 on the Group and will apply the standard from January 1, 2013.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IFRS 13 “Fair value measurement” (effective from January 1, 2013). IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and United States Generally Accepted Accounting Principles (“US GAAP”), do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The management is in the process of evaluating the impact of IFRS 13 on the Group and will apply the standard from January 1, 2013.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IAS 1(Amendment) (effective from July 1, 2013) “Financial statements presentation” regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in “other comprehensive income” (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. The Group will apply the standard from July 1, 2013 and it is not expected to have material impact on the Group’s financial statement.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-14







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------



| | (a) | Basis of preparation (continued)
| | --- | --------------------------------



| | (iv) | New standards, amendments and interpretations to existing standards have been issued but not yet effective for the financial year beginning January 1, 2012 and which are relevant for the Group’s operations(continued)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IFRS 11 (effective from January 1, 2013) “Joint arrangement”. IFRS 11 is a more realistic reflection of joint arrangement by focusing on the right and obligation of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operation has right to assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operation has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidationof joint ventures is no longer allowed. The Group will apply the standard from January 1, 2013 and it is not expected to have material impact on the Group’s  financial statement.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IAS 28 (Revised 2011) (effective from January 1, 2013) “Associates and joint ventures”. The amendment includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. The management is in the process of evaluating the impact of IAS 28 on the Group and will apply the standard from January 1, 2013.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IFRS 12 (effective from January 1, 2013) “Disclosure of interests in other entities”. The amendment includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The management is in the process of evaluating the impact of IFRS 12 on the Group and will apply the standard from January 1, 2013.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | IAS 27 (revised 2011) (effective from January 1, 2013) “Separate financial statements”. The amendment includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. The management is in the process of evaluating the impact of IAS 27 on the Group andwill apply the standard from January 1, 2013.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Consolidation
| | --- | -------------



The Group’s consolidated
financial statements include the financial statements of the Company and all of its subsidiaries made up to December 31.



| | (i) | Subsidiaries
| | --- | ------------



Subsidiaries are all entities
(including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally
accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that
are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also
assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and
operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group’s
voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial
and operating policies, etc.



Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.



The Group applies the acquisition
method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is
the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. The Group
recognizes any non-controlling interest in the acquiree on an acquisition- by-acquisition basis, either at fair value or at the
non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets.



Acquisition-related costs are
expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date.



F-15







If the business combination
is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree
is remeasured to fair value at the acquisition date through profit or loss.



Any contingent consideration
to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the
contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 either in profit or
loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and
its subsequent settlement is accounted for within equity.



Investments in subsidiaries
are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration
amendments. Cost also includes direct attributable costs of investment.



Goodwill is initially measured
as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable
assets acquired and liabilities assumed (Note (k)(i)). If this consideration is lower than the fair value of the net assets of
the subsidiary acquired, the difference is recognized in profit or loss.



Inter-company transactions,
balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from inter-company
transactions that are recognized in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary
to ensure consistency with the policies adopted by the Group.



F-16







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------



| | (b) | Consolidation (continued)
| | --- | -------------------------



| | (ii) | Changes in ownership interests in subsidiaries without change of control
| | ---- | ------------------------------------------------------------------------



Transactions with non-controlling
interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with
the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired
of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests
are also recorded in equity.



| | (iii) | Disposal of subsidiaries
| | ----- | ------------------------



When the Group ceases to have
control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change
in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized
in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related
assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit
or loss.



F-17







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------



| | (b) | Consolidation (continued)
| | --- | -------------------------



| | (iv) | Associates
| | ---- | ----------



Associates are all entities
over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of
the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized
at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment
loss.



The Group’s share of its
associates’ post-acquisition profits or losses is recognized in the consolidated income statement, and its share of post-acquisition
movements in other comprehensive income is recognized in reserves. The cumulative post-acquisition movements are adjusted against
the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in
the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations
or made payments on behalf of the associate.



Unrealized gains on transactions
between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses
are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with the policies adopted by the Group.



Dilution gains and losses in
associates are recognized in the consolidated income statement.



In the Company’s balance
sheet, the investments in associates are stated at cost less provision for impairment losses (Note 2(n)). The results of associates
are accounted for by the Company on the basis of dividend received and receivable.



| | (v) | Jointly controlled entities
| | --- | ---------------------------



A jointly controlled entity
is an entity in which the Group has joint control over its economic activity established under a contractual arrangement. The Group’s
investments in jointly controlled entities includes goodwill (net of any accumulated impairment loss) identified on acquisition.



The Group’s interests
in jointly controlled entities are accounted for by the equity method of accounting based on the audited financial statements or
management accounts of the jointly controlled entities. The Group’s share of its jointly controlled entities’ post-acquisition
profits or losses is recognized in the consolidated income statement, and its share of post-acquisition movements is adjusted against
the carrying amount of the investment. When the Group’s share of losses in a jointly controlled entity equals or exceeds
its interest in that entity, including any other unsecured receivables, the Group does not recognize further losses, unless it
has incurred obligations or made payments on behalf of the jointly controlled entity.



The Group recognizes the portion
of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The
Group does not recognize its share of profits or losses from the joint venture that result from the Group’s purchase of assets
from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognized immediately
if the loss provides evidence of a reduction in the net realizable value of current assets, or an impairment loss.



In the Company’s balance
sheet, the investments in jointly controlled entities are stated at cost less provision for impairment losses (Note 2(n)). The
results of jointly controlled entities are accounted for by the Company on the basis of dividend received and receivable.



F-18













CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (c) | Segmental reporting
| | --- | -------------------



Operating segments are reported
in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM,
who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the office
of the General Manager that makes strategic decisions.



| | (d) | Foreign currency translation
| | --- | ----------------------------



| | (i) | Functional and presentation
currency
| | --- | ------------------------------------



Items included in the financial
statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the
entity operates (the “functional currency”). The financial statements are presented in Chinese Renminbi (“RMB”),
which is the functional and presentation currency of the Group’s entities.



| | (ii) | Transactions and balances
| | ---- | -------------------------



Foreign currency transactions
are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other
comprehensive income as qualifying cash flow hedges or qualifying net investment hedges.



Foreign exchange gains and losses
that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or costs’.



| | (e) | Revenue recognition and
sales in advance of carriage
| | --- | ----------------------------------------------------



Revenue comprises the fair value of the consideration
received or receivable for the sale of goods and the provision of services in the ordinary course of the Group’s activities.
Revenue is shown net of business taxes or value-added taxes, returns, rebates and discounts and after eliminating sales within
the Group.



The Group recognizes revenue when the amount of revenue
can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been
met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable
until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into
consideration the type of customer, the type of transaction and the specifics of each arrangement.



The Group operates frequent
flyer programs that provide travel awards to program members based on accumulated miles. A portion of passengers revenue attributable
to the award of frequent flyer benefits is deferred and recognized when the miles have been redeemed or have expired.



F-19







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (e) | Revenue recognition and
sales in advance of carriage (continued)
| | --- | ----------------------------------------------------------------



| | (i) | Traffic revenues
| | --- | ----------------



Passenger, cargo and mail revenues
are recognized as traffic revenues when the transportation services are provided. The value of sold but unused tickets is recognized
as sales in advance of carriage (“SIAC”).



| | (ii) | Ground service income
| | ---- | ---------------------



Revenues from the provision
of ground services are recognized when the services are rendered.



| | (iii) | Tour operation revenues
| | ----- | -----------------------



Revenues from tour and travel
services and other travel related services are recognized when the services are rendered.



| | (iv) | Cargo handling income
| | ---- | ---------------------



Revenues from the provision
of cargo handling income are recognized when the service are rendered.



| | (v) | Commission income
| | --- | -----------------



Commission income represents
amounts earned from other carriers in respect of sales made by the Group on their behalf, and is recognized in the income statement
upon ticket sales.



| | (vi) | Other revenue
| | ---- | -------------



Revenues from other operating
businesses, including income derived from the provision of freight forwarding, are recognized when the services are rendered.



F-20







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (f) | Government grants
| | --- | -----------------



Grants from the government are
recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply
with all attached conditions.



Government grants relating to
costs are deferred and recognized in the income statement over the period necessary to match them with the costs that they are
intended to compensate.



Government grants relating to
property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income
statement on a straight-line basis over the expected lives of the related assets.



| | (g) | Maintenance and overhaul costs
| | --- | ------------------------------



In respect of aircraft and engines under operating
leases, the Group has obligations to fulfill certain return conditions under the leases. Provision for the estimated cost of these
return condition checks is made on a straight line basis over the term of the leases.



In respect of aircraft and engines owned by the Group
or held under finance leases, overhaul costs are capitalized as a component of property, plant and equipment and are depreciated
over the appropriate maintenance cycles (Note 2(l)).



All other repairs and maintenance
costs are charged to the income statement as and when incurred.



| | (h) | Interest income
| | --- | ---------------



Interest income is recognized
on a time-proportion basis using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying
amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the
instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognized
using the original effective interest rate.



| | (i) | Borrowing costs
| | --- | ---------------



Borrowing costs incurred for
the construction of any qualifying asset, including the interest attributable to loans for advance payments used to finance the
acquisition of aircraft, are capitalized during the period of time that is required to complete and prepare the asset for its intended
use. Other borrowing costs are expensed.



F-21







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (j) | Current and deferred tax
| | --- | ------------------------



The tax expense for the period
comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized
in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly
in equity, respectively.



The current income tax charge
is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the jurisdictions where
the Company and its subsidiaries, associates and jointly controlled entities operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation
and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.



Deferred income tax is recognized,
using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition
of goodwill and deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction
other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred
tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.



Deferred tax assets are recognized
to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.



Deferred income tax is provided
on temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the timing
of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not
reverse in the foreseeable future.



F-22







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (k) | Intangible assets
| | --- | -----------------



| | (i) | Goodwill
| | --- | --------



Goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, associate
or jointly controlled entity at the date of acquisition. Goodwill on acquisition of subsidiaries is included in “intangible
assets”. Goodwill on acquisition of associates and jointly controlled entities is included in “investments in associates”
and “investments in jointly controlled entities” and is tested for impairment as part of the overall balances. Separately
recognized goodwill is tested for impairment at least annually or whenever there is an indication of impairment and carried at
cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the entity sold.



Goodwill is allocated to cash-generating
units for the purpose of impairment testing. The allocation is made to those cash-generating units or Groups of cash-generating
units according to the identified operating segements that are expected to benefit from the business combination in which the goodwill
arose.



| | (ii) | Computer software costs
| | ---- | -----------------------



Acquired computer software licenses
are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized
using the straight-line method over their estimated useful lives of 5 years. Costs associated with developing or maintaining computer
software programs are recognized as expense when incurred.



| | (l) | Deferred pilot recruitment costs
| | --- | --------------------------------



Deferred pilot recruitment costs
represent the cost bore by the Group in connection with securing certain minimum period of employment of pilots and are amortized
on a straight-line basis over the anticipated beneficial period of five years, starting from the pilot joins the Group.



F-23







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (m) | Property, plant and equipment
| | --- | -----------------------------



Property, plant and equipment
is recognized initially at cost which comprises purchase price, and any directly attributable costs of bringing the assets to the
condition for their intended use.



Where parts of an item of property,
plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each
part is depreciated separately.



When each major aircraft overhaul
is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment and is depreciated over
the appropriate maintenance cycles. Components related to airframe overhaul cost, are depreciated on a straight-line basis over
5 to 7.5 years. Components related to engine overhaul costs, are depreciated between each overhaul period using the ratio of actual
flying hours and estimated flying hours between overhauls (equivalent to approximately 2 to 5 years). Upon completion of an overhaul,
any remaining carrying amount of the cost of the previous overhaul is derecognized and charged to the income statement.



Except for components related
to overhaul costs, the depreciation method of which has been described in the preceding paragraph, other depreciation of property,
plant and equipment is calculated using the straight-line method to write down their costs or revalued amounts to their residual
values over their estimated useful lives, as follows:



|Owned and finance leased aircraft and engines | 15 to 20 years
|--------------------------------------------- | --------------
|Other flight equipment, including rotables    | 10 years      
|Buildings                                     | 15 to 45 years
|Other property, plant and equipment           | 5 to 20 years 



The assets’ residual values
and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written
down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.



Gains and losses on disposals
are determined by comparing the proceeds with the assets’ carrying amount and are recognized in the income statement.



Construction in progress represents
buildings under construction and equipment pending installation. This includes the costs of construction or acquisition and interest
capitalized. No depreciation is provided on construction in progress until the asset is completed and ready for use.



F-24







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (n) | Impairment of investments
in subsidiaries, associates, jointly controlled entities and non-financial assets
| | --- | -----------------------------------------------------------------------------------------------------------



Assets that have an indefinite
useful life or which are not yet available for use are not subject to amortization and are tested for impairment at least annually
or whenever there is indication of impairment. Other assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs
to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that have suffered an impairment
are reviewed for possible reversal of the impairment at each balance sheet date.



| | (o) | Assets held for sale
| | --- | --------------------



Non-current assets are classified
as assets held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through
continuing use and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs
to sell and are classified as assets held for sale.



| | (p) | Lease prepayments
| | --- | -----------------



Lease prepayments represent
acquisition costs of land use rights less accumulated amortization. Amortization is provided over the lease period of the land
use rights on a straight-line basis.



| | (q) | Advanced payments on acquisition of aircraft
| | --- | --------------------------------------------



Advanced payments on acquisition
of aircraft represent payments to aircraft manufacturers to secure deliveries of aircraft in future years, including attributable
finance costs, and are included in non-current assets. The balance is transferred to property, plant and equipment upon delivery
of the aircraft.



| | (r) | Flight equipment spare parts
| | --- | ----------------------------



Flight equipment spare parts
are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. The cost of flight
equipment spare parts comprises the purchase price (net of discounts), freight charges, duty and value added tax and other miscellaneous
charges. Net realizable value is the estimated selling price of the flight equipment in the ordinary course of business, less applicable
selling expenses.



| | (s) | Trade receivables
| | --- | -----------------



Trade receivables are recognized
initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered
indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount
of the assets is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement.
When a trade receivable is uncollectible, it is written off against the provision account for trade receivables. Subsequent recoveries
of amounts previously written off are credited in the income statement.



| | (t) | Cash and cash equivalents
| | --- | -------------------------



Cash and cash equivalents includes
cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three
months or less.



F-25







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (u) | Trade payables
| | --- | --------------



Trade payables are obligations to pay for goods or
services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities
if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented
as non-current liabilities.



Trade payables are recognized
initially at fair value and subsequently measured at amortized cost using the effective interest method.



| | (v) | Borrowings
| | --- | ----------



Borrowings are recognized initially at fair value,
net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any differences between the proceeds (net
of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the
effective interest method.



Borrowings are classified as
current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after
the balance sheet date in which case such borrowings are classified as non-current liabilities.



| | (w) | Provisions
| | --- | ----------



Provisions are recognized when the Group has a present
legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle
the obligation; and the amount can be reliably estimated.



Where there are a number of similar obligations,
the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.
A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations
may be small.



Provisions are measured at the
present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of
time is recognized as interest expense.



For the contract under which
the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under
it, the present obligation under the contract is recognized and measured as a provision.



| | (x) | Leases
| | --- | ------



| | (i) | A Group company is the
lessee
| | --- | -----------------------------



Finance leases



The Group leases certain property,
plant and equipment. Leases of property, plant and equipment where the Group has acquired substantially all the risks and rewards
of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of
the fair value of the leased property and the present value of the minimum lease payments.



Each lease payment is allocated
between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other
short-term and other long-term payables. The interest element of the finance cost is charged to the income statement over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased
assets are depreciated using a straight-line basis over their expected useful lives to residual values.



For sale and leaseback transactions
resulting in a finance lease, differences between sales proceeds and net book values are deferred and amortized over the minimum
lease terms.



F-26







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (x) | Leases (continued)
| | --- | ------------------



| | (i) | A Group company is the
lessee (continued)
| | --- | -----------------------------------------



Operating leases



Leases in which a significant
portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis
over the period of the lease.



For sale and leaseback transactions
resulting in an operating lease, differences between sales proceeds and net book values are recognized immediately in the income
statement, except to the extent that any profit or loss is compensated for by future lease payments at above or below market value,
then the profit or loss is deferred and amortized over the period for which the asset is expected to be used.



| | (ii) | A Group company is the
lessor
| | ---- | -----------------------------



Assets leased out under operating
leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives
on a basis consistent with similar property, plant and equipment. Rental income is recognized on a straight-line basis over the
lease term.



| | (y) | Retirement benefits
| | --- | -------------------



The Group participates in defined contribution retirement
schemes regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces.
The contributions to the schemes are charged to the income statement as and when incurred.



In addition, the Group provides retirees with certain
post-retirement benefits including retirement subsidies, transportation subsidies, social function activity subsidies as well as
other welfare. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of
the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized
actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually using the projected unit
credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have
terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined
benefit obligation are charged or credited to the income statement over the employees’ expected average remaining working
lives.



Past-service costs are recognized
immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service
for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis
over the vesting period.



F-27







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (z) | Derivative financial instruments
| | --- | --------------------------------



Derivative financial instruments are initially recognized
in the balance sheet at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair
value. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged.



The Group documents, at the inception of the transaction,
the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking
various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether
the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of
hedged items.



Derivative financial instruments
that do not qualify for hedge accounting are accounted for as trading instruments and any unrealized gains or losses, being changes
in fair value of the derivatives, are recognized in the income statement immediately.



Changes in the fair value of
derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the income statement,
along with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.



Derivative financial instruments
that qualify for hedge accounting and which are designated as a specific hedge of the variability in cash flows of a highly probable
forecast transaction, are accounted for as follows:



| | (i) | the effective portion of any change in fair value of
the derivative financial instrument is recognized directly in equity. Where the forecast transaction or firm commitment results
in the recognition of an asset or a liability, the gains and losses previously deferred in equity are included in the initial
measurement of the cost of the asset or liability. Otherwise, the cumulative gain or loss on the derivative financial instrument
is removedfrom equity and recognized in the income statement in the same period during which
the hedged forecast transaction affects net profit or loss.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | the ineffective portion of any change in fair value is
recognized in the income statement immediately.
| | ---- | ------------------------------------------------------------------------------------------------------



The full fair value of a hedging derivative is classified
as a non-current asset or liability when the remaining maturity of the hedged items is more than 12 months and as a current asset
or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current
asset or liability.



When a hedging instrument expires
or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at
that time remains in equity and is recognized in the income statement when the committed or forecast transaction ultimately occurs.
When a committed or forecast transaction is no longer expected to occur, the cumulative gain or loss that was recorded in equity
is immediately transferred to the income statement.



F-28







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| | -- | ------------------------------------------------------



| | (aa) | Available-for-sale financial assets
| | ---- | -----------------------------------



Investments in securities other
than subsidiaries, associates and jointly controlled entities, being held for non-trading purposes, are classified as available-for-sale
financial assets and are recognized on the trade-date - the date on which the Group commits to purchase or sell the asset. Investments
are initially recognized at fair value plus transaction costs. At each balance sheet date, the fair value is remeasured, with any
resulting gain or loss being recognized directly in other comprehensive income, except for impairment losses. When these investments
are derecognized, the cumulative gain or loss previously recognized directly in equity is recognized in the income statement.



The Group assesses at each balance
sheet date whether there is objective evidence that a financial asset is impaired. In the case of equity securities classified
as available for sale, a significant or prolonged decline in the fair value of the securities below its cost is considered an indicator
that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured
as the difference between the acquisition cost and the current fair value less any impairment loss on that financial asset previously
recognized in the income statement, is removed from equity and recognized in the income statement. Impairment losses recognized
in the income statement on equity instruments are not reversed through the income statement.



| | (ab) | Dividend distribution
| | ---- | ---------------------



Dividend distribution to the
Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are
approved by the Company’s shareholders.



| | (ac) | Share Capital
| | ---- | -------------



Ordinary shares are classified
as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net
of tax, from the proceeds.



F-29







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
| | -- | -------------------------



| | (a) | Financial risk factors
| | --- | ----------------------



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



Risk management is carried out
by a central treasury department (the “Group Treasury”) under policies approved by the Board. The Group Treasury identifies,
evaluates and hedges financial risks in close co-operation with the Group’s operating units. The overall risk management
strategies, as well as written policies covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk,
use of derivative financial instruments and non-derivative financial instruments were approved by the Board.



| | (i) | Foreign currency risk
| | --- | ---------------------



The Group operates its business
in many countries and territories. The Group generates its revenue in different currencies, and its foreign currency liabilities
at the end of the period are much higher than its foreign currency assets. The Group’s major liability item (resulting from
purchases and leases of aircraft) is mainly priced and settled in foreign currencies, primarily US dollars. The Group is exposed
to currency risks from fluctuations in various foreign currency exchange rates against RMB.



RMB is not a freely convertible
currency and is regulated by the PRC government. Limitation on foreign exchange transaction imposed by the PRC government could
cause future exchange rates to vary significantly from current or historical exchange rates.



In addition, fluctuations in
exchange rates will affect the Group’s future costs for purchases of aircraft, flight equipment and aviation fuel, and take-off
and landing charges in foreign airports.



The Group entered into certain
foreign exchange forward option contracts to manage part of these foreign currency risks. Details of foreign currency forward contracts
are disclosed in Note 39(b) to the financial statements.



F-30







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (a) | Financial risk factors (continued)
| | --- | ----------------------------------



| | (i) | Foreign currency risk
(continued)
| | --- | ---------------------------------



The following table details the
Group’s exposure at the balance sheet date to major currency risk.



|                                                       |  | 2012    |             | 2011    | 
|------------------------------------------------------ |  | ------- | ----------- | ------- | 
|                                                       |  | USD     |             | Euro    | 
|                                                       |  | RMB’000 |             | RMB’000 | 
|Trade and other receivables                            |  |         | 1,259,043   |         | 
|Restricted bank deposits and  short-term bank deposits |  |         | 16,082      |         | 
|Cash and cash equivalents                              |  |         | 372,387     |         | 
|Deposits relating to aircraft under operating leases   |  |         | 562,199     |         | 
|Trade and other payables                               |  |         | (248,604    | )       | 
|Obligation under finance
leases                        |  |         | (18,751,982 | )       | 
|Borrowings                                             |  |         | (31,605,345 | )       | 
|Currency derivatives at notional value                 |  |         | 364,559     |         | 
|Net balance sheet
exposure                             |  |         | (48,031,661 | )       | 



The following table indicates
the approximate change in the Group’s profit and loss and other components of consolidated equity in response to a 1% appreciation
of the RMB against the following major currencies at the balance sheet date.



|             |  | 2012                              |         | 2011                                                 | 
|------------ |  | --------------------------------- | ------- | ---------------------------------------------------- | 
|             |  | Effect on profit
        and loss |         | Effect on other
        components of
        equity | 
|             |  | RMB’000                           |         | RMB’000                                              | 
|US dollars   |  |                                   | 483,962 |                                                      | 
|             |  |                                   |         |                                                      | 
|Euro         |  |                                   | (2,042  | )                                                    | 
|             |  |                                   |         |                                                      | 
|Japanese Yen |  |                                   | 7,429   |                                                      | 



F-31







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (a) | Financial risk factors (continued)
| | --- | ----------------------------------



| | (ii) | Interest rate risk
| | ---- | ------------------



The Group’s interest-rate
risk primarily arises from borrowings and obligations under finance leases. Borrowings issued at variable rates expose the Group
to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. The interest
rates and terms of repayment of borrowings made to the Group and interest rate swaps are disclosed in Notes 33 and 39(a) to the
financial statements.



To hedge against the variability
in the cash flows arising from a change in market interest rates, the Group has entered into certain interest rate swaps to swap
variable rates into fixed rates.



The following table details
the interest rate profiles of the Group’s interest-bearing financial instruments at the balance sheet date.



|                                                      |  | 2012    |             | 2011    | 
|----------------------------------------------------- |  | ------- | ----------- | ------- | 
|                                                      |  | RMB’000 |             | RMB’000 | 
|Floating rate instruments                             |  |         |             |         | 
|Cash and cash equivalents                             |  |         | 2,503,079   |         | 
|Restricted bank deposits and short-term bank deposits |  |         | 1,726,251   |         | 
|Borrowings                                            |  |         | (35,256,709 | )       | 
|Obligations under finance leases                      |  |         | (21,857,978 | )       | 
|                                                      |  |         | (52,885,357 | )       | 
|Interest rate swaps at notional amount                |  |         | 5,598,774   |         | 
|                                                      |  |         | (47,286,583 | )       | 



|                                       |  | 2012    |             | 2011    | 
|-------------------------------------- |  | ------- | ----------- | ------- | 
|                                       |  | RMB’000 |             | RMB’000 | 
|Fixed rate instruments                 |  |         |             |         | 
|Borrowings                             |  |         | (10,479,409 | )       | 
|Interest rate swaps at notional amount |  |         | 240,307     |         | 
|                                       |  |         | (10,239,102 | )       | 



F-32







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (a) | Financial risk factors
(continued)
| | --- | ----------------------------------



| | (ii) | Interest rate risk (continued)
| | ---- | ------------------------------



The following table indicates
the approximate change in the Group’s profit and loss and other components of equity, taking into the consideration of the
interest rate swap, if interest rate had been 25 basis points higher with all other variables held constant.



|                          | 2012                                      |   | 2011                                                         |  
|------------------------- | ----------------------------------------- | - | ------------------------------------------------------------ | -
|                          | Effect on
        profit and
        loss |   | Effect on
        other
        components
        of equity |  
|                          | RMB’000                                   |   | RMB’000                                                      |  
|Floating rate instruments | (122,532                                  | ) | (13,997                                                      | )



| | (iii) | Fuel price risk
| | ----- | ---------------



The Group’s results of operations may be significantly
affected by fluctuations in fuel prices which is a significant expense component for the Group. Aircraft fuel accounts for 36%
of the Group’s operating expenses (2011: 37%).



As at December 31, 2012, the Group had no open crude
oil option contracts, and all the contracts signed in past years had been settled before December 31, 2012.



For the year ended December
31, 2012, if fuel price had been 5% higher/lower with all other variables held constant (excluding the impact of crude oil option
contracts), the Group’s fuel cost would have been RMB1,494 million higher/lower.



F-33







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (a) | Financial risk factors (continued)
| | --- | ----------------------------------



| | (iv) | Credit risk
| | ---- | -----------



The Group’s credit risk is primarily attributable
to cash and cash equivalents, deposits and derivative financial instruments with banks and financial institutions, as well as credit
exposures to sales agents.



A significant portion of the Group’s air tickets
are sold by sales agents participating in the Billing and Settlements Plan (“BSP”), a clearing system between airlines
and sales agents organized by the International Air Transportation Association. The balance due from BSP agents amounted to approximately
RMB812 million as at December 31, 2012 (2011: approximately RMB756 million). The credit risk exposure to BSP and the remaining trade
receivables are maintained by the Group on an on-going basis and the allowance for impairment of doubtful debts is within management’s
expectations.



The Group’s cash management policy is to deposit
cash and cash equivalents mainly in state-owned banks and other banks, which are highly rated by international credit rating companies.
The Group also deposits cash and cash equivalents in an associate financial institution owned by its holding company (Note 46(c)(iii)).
The management does not expect any loss to arise from non-performance by these banks and the financial institution.



Transactions in relation to
derivative financial instruments are only carried out with financial institutions of high credit rating. The Group has policies
that limit the amount of credit exposure to any one financial institution. Management does not expect any losses from non-performance
by these banks.



F-34







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (a) | Financial risk factors (continued)
| | --- | ----------------------------------



| | (v) | Liquidity risk
| | --- | --------------



The Group’s primary cash
requirements have been for day-to-day operations, additions of and upgrades to aircraft, engines and flight equipment and payments
on related borrowings. The Group finances its working capital requirements through a combination of funds generated from operations,
bonds and bank loans (both short and long term). The Group generally finances the acquisition of aircraft through long-term finance
leases or bank loans.



The Group operates with a working
capital deficit. As at December 31, 2012, the Group’s net current liabilities amounted to RMB35,948 million (2011: RMB29,679
million). For the year ended December 31, 2012, the Group recorded a net cash inflow from operating activities of RMB12,617 million
(2011: inflow RMB13,623 million), a net cash outflow from investing activities and financing activities of RMB13,963 million (2011:
outflow RMB12,803 million), and a decrease in cash and cash equivalents of RMB1,349 million (2011: increase of RMB820 million).



The Directors of the Company
believe that cash from operations and short and long term borrowings will be sufficient to meet the Group’s operating cash
flow. Due to the dynamic nature of the underlying businesses, the Group’s treasury policy aims at maintaining flexibility
in funding by keeping credit lines available. The Directors of the Company believe that the Group has obtained sufficient general
credit facilities from PRC banks for financing future capital commitments and for working capital purposes (see Note 2(a)).



The table below analyses the
Group’s financial liabilities that will be settled into relevant maturity groupings based on the remaining period at the
balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.



|                                                                         |  | Less than 1
        year |            | Between
        1 and 2
        years |  | Between
        2 and 5
        years |  | Over 5
        years |           
|------------------------------------------------------------------------ |  | ------------------------ | ---------- | ------------------------------------- |  | ------------------------------------- |  | -------------------- | ----------
|                                                                         |  | RMB’000                  |            | RMB’000                               |  | RMB’000                               |  | RMB’000              |           
|At December 31, 2012                                                     |  |                          |            |                                       |  |                                       |  |                      |           
|Borrowings                                                               |  |                          | 23,690,528 |                                       |  | 7,780,344                             |  |                      | 8,846,834 
|Derivative financial instruments                                         |  |                          | 504        |                                       |  | -                                     |  |                      | 122,751   
|Obligations under finance leases                                         |  |                          | 3,004,452  |                                       |  | 3,059,744                             |  |                      | 8,685,669 
|Trade and other payables                                                 |  |                          | 18,871,661 |                                       |  | 71,236                                |  |                      | 329,988   
|Provision for return condition checks for aircraft under operating lease |  |                          | 734,205    |                                       |  | 818,199                               |  |                      | 1,381,893 
|Other long term liability                                                |  |                          | 26,500     |                                       |  | 26,988                                |  |                      | 76,610    
|Total                                                                    |  |                          | 46,327,850 |                                       |  | 11,756,511                            |  |                      | 19,443,745
|                                                                         |  |                          |            |                                       |  |                                       |  |                      |           
|At December 31, 2011                                                     |  |                          |            |                                       |  |                                       |  |                      |           
|Borrowings                                                               |  |                          | 19,129,172 |                                       |  | 8,959,738                             |  |                      | 10,053,089
|Derivative financial instruments                                         |  |                          | 1,099      |                                       |  | 1,987                                 |  |                      | 110,487   
|Obligations under finance leases                                         |  |                          | 2,790,844  |                                       |  | 2,846,797                             |  |                      | 7,836,047 
|Trade and other payables                                                 |  |                          | 18,650,034 |                                       |  | 71,410                                |  |                      | 148,515   
|Other long term liability                                                |  |                          | 115,645    |                                       |  | 117,963                               |  |                      | 324,703   
|Total                                                                    |  |                          | 40,686,794 |                                       |  | 11,997,895                            |  |                      | 18,472,841



F-35







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (b) | Capital risk management
| | --- | -----------------------



The Group’s objectives when managing capital
are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits
for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.



In order to maintain or adjust the capital structure,
the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt.



The Group monitors capital on
the basis of the debt ratio, which is calculated as total liabilities divided by total assets. The debt ratio at December 31, 2012
and 2011 were as follows:



|                  |  | 2012    |             |  | 2011    | 
|----------------- |  | ------- | ----------- |  | ------- | 
|                  |  | RMB’000 |             |  | RMB’000 | 
|Total liabilities |  |         | 99,265,166  |  |         | 
|Total assets      |  |         | 123,818,563 |  |         | 
|Debt ratio        |  |         | 0.80        |  |         | 



| | (c) | Fair value estimation of financial assets and liabilities
| | --- | ---------------------------------------------------------



The table below analyses financial instruments carried
at fair value by valuation method. The different levels have been defined as follows:



| | • | Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1).
| | - | -------------------------------------------------------------------------------------------



| | • | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level 2).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Inputs for the asset or liability that are not based
on observable market data (that is, unobservable inputs) (level 3).
| | - | ------------------------------------------------------------------------------------------------------------------------



F-36







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (c) | Fair value estimation of financial assets and liabilities (continued)
| | --- | ---------------------------------------------------------------------



The following table presents
the Group’s assets and liabilities that are measured at fair value atDecember 31, 2012 and December
31, 2011.



|                                                 |  | Level 1 |       | Level 2 |  | Level 3 |  | Total   |        
|------------------------------------------------ |  | ------- | ----- | ------- |  | ------- |  | ------- | -------
|                                                 |  | RMB’000 |       | RMB’000 |  | RMB’000 |  | RMB’000 |        
|At December 31, 2012                             |  |         |       |         |  |         |  |         |        
|Assets                                           |  |         |       |         |  |         |  |         |        
|Derivative financial instruments                 |  |         |       |         |  |         |  |         |        
|—Forward foreign exchange contracts (Note 39(b)) |  |         | -     |         |  | 18,074  |  |         | -      
|Available-for-sale financial assets              |  |         | 1,955 |         |  | -       |  |         | 232,735
|Total                                            |  |         | 1,955 |         |  | 18,074  |  |         | 232,735
|                                                 |  |         |       |         |  |         |  |         |        
|Liabilities                                      |  |         |       |         |  |         |  |         |        
|Derivative financial instruments                 |  |         |       |         |  |         |  |         |        
|—     Interest
rate swaps (Note 39(a))           |  |         | -     |         |  | 295,005 |  |         | -      
|—Forward foreign exchange contracts (Note 39(b)) |  |         | -     |         |  | 45,146  |  |         | -      
|Total                                            |  |         | -     |         |  | 340,151 |  |         | -      



|                                                 |  | Level 1 |       | Level 2 |  | Level 3 |  | Total   |        
|------------------------------------------------ |  | ------- | ----- | ------- |  | ------- |  | ------- | -------
|                                                 |  | RMB’000 |       | RMB’000 |  | RMB’000 |  | RMB’000 |        
|At December 31, 2011                             |  |         |       |         |  |         |  |         |        
|Assets                                           |  |         |       |         |  |         |  |         |        
|Derivative financial instruments                 |  |         |       |         |  |         |  |         |        
|—     Crude
oil option contracts (Note 39(a))    |  |         | -     |         |  | 4,279   |  |         | -      
|—     Interest
rate swaps (Note 39(b))           |  |         | -     |         |  | 86      |  |         | -      
|Available-for-sale financial assets              |  |         | 2,344 |         |  | -       |  |         | 238,036
|Total                                            |  |         | 2,344 |         |  | 4,365   |  |         | 238,036
|                                                 |  |         |       |         |  |         |  |         |        
|Liabilities                                      |  |         |       |         |  |         |  |         |        
|Derivative financial instruments                 |  |         |       |         |  |         |  |         |        
|—    Interest rate swaps (Note 39(a))            |  |         | -     |         |  | 267,909 |  |         | -      
|—Forward foreign exchange contracts (Note 39(b)) |  |         | -     |         |  | 65,075  |  |         | -      
|Total                                            |  |         | -     |         |  | 332,984 |  |         | -      



F-37







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT
(CONTINUED)
| | -- | -------------------------------------



| | (c) | Fair value estimation of financial assets and liabilities (continued)
| | --- | ---------------------------------------------------------------------



The fair value of financial
instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active
if quoted prices are readily and regularly available from an exchange, dealer, broker, industry Group, pricing service, or regulatory
agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted
market price used for financial assets held by the Group is the current bid price.



The fair value of financial
instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation
techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible
on entity specific estimates. If all significant inputs required to fair value an instrument are observable, these instruments
are included in level 2 of the above table.



If one or more of the significant
inputs is not based on observable market data, the instrument is included in level 3.



Specific valuation techniques
used to value financial instruments include:



| | n | Quoted market prices or dealer quotes for similar instruments.
| | - | --------------------------------------------------------------



| | n | The fair value of interest rate swaps is calculated as the present value of the estimated future
cash flows based on observable yield curves.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | n | The fair value of forward foreign exchange contracts is determined using forward exchange rates
at the balance sheet date, with the resulting value discounted back to present value.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | n | Other techniques, such as discounted cash flow analysis, are used to determine fair value for the
remaining financial instruments.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



F-38













CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 4. | CRITICAL ACCOUNTING ESTIMATES
AND JUDGMENTS
| | -- | -------------------------------------------



Estimates and judgments used
in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions
concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.



| | (a) | Revenue recognition
| | --- | -------------------



The Group recognizes traffic
revenues in accordance with the accounting policy stated in Note 2(e) to the financial statements. Unused tickets are recognized
in traffic revenues based on current estimates. Management annually evaluates the balance in the SIAC and records any adjustments,
which can be material, in the period the evaluation is completed.



These adjustments result from
differences between the estimates of certain revenue transactions and the timing of recognizing revenue for any unused air tickets
and the related sales price, and are impacted by various factors, including a complex pricing structure and interline agreements
throughout the industry, which affect the timing of revenue recognition.



| | (b) | Frequent flyer program
| | --- | ----------------------



The Group operates frequent
flyer programs that provide travel awards to program members based on accumulated miles. A portion of passenger revenue attributable
to the award of frequent flyer benefits is deferred and recognized when the miles have been redeemed or have expired. The deferment
of revenue is estimated based on historical trends of redemptions, which is then used to project the expected utilization of these
benefits and estimated fair values of the unredeemed miles. Different judgments or estimates could significantly affect the estimated
provision for frequent flyer programs and the results of operations.



| | (c) | Provision for costs of return condition checks for aircraft under operating leases
| | --- | ----------------------------------------------------------------------------------



Provision for the estimated
costs of return condition checks for aircraft under operating leases is made based on the estimated costs for such return condition
checks and taking into account anticipated flying hours, flying cycle and timeframe between each overhaul. These judgments or estimates
are based on historical experience on returning similar airframe models, actual costs incurred and aircraft status. Different judgments
or estimates could significantly affect the estimated provision for costs of return condition checks.



| | (d) | Retirement benefits
| | --- | -------------------



The Group operates and maintains
defined retirement benefit plans which provide retirees with benefits including transportation subsidies, social activity subsidies
as well as other welfare. The cost of providing the aforementioned benefits in the defined retirement benefit plan is actuarially
determined and recognized over the employees’ service period by utilizing various actuarial assumptions and using the projected
unit credit method in accordance with the accounting policy stated in Note 2(y) to the financial statements. These assumptions
include, without limitation, the selection of discount rate, annual rate of increase of per capita benefit payment and employees’
turnover rate. The discount rate is based on management’s review of government bonds. The annual rate of increase of benefit
payments is based on the general local economic conditions. The employees’ turnover rate is based on historical trends of
the Group. Additional information regarding the retirement benefit plans is disclosed in Note 37 to the financial statements.



| | (e) | Deferred income tax
| | --- | -------------------



In assessing the amount of deferred tax assets that
need to be recognized in accordance with the accounting policy stated in Note 2(j) to the financial statements, the Group considers
future taxable income and ongoing prudent and feasible tax planning strategies. In the event that the Group’s estimates of
projected future taxable income and benefits from available tax strategies are changed, or changes in current tax regulations are
enacted that would impact the timing or extent of the Group’s ability to utilize the tax benefits of net operating loss carry
forwards in the future, adjustments to the recorded amount of net deferred tax assets and taxation expense would be made.



F-39







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 4. | CRITICAL ACCOUNTING ESTIMATES
AND JUDGMENTS (CONTINUED)
| | -- | -------------------------------------------------------



| | (f) | Provision for flight equipment spare parts
| | --- | ------------------------------------------



Provision for flight equipment
spare parts is made based on the difference between the carrying amount and the net realizable value. The net realizable value
is estimated based on current market condition, historical experience and Company’s future operation plan for the aircraft
and related spare parts. The net realizable value may be adjusted significantly due to the change of market condition and the future
plan for the aircraft and related spare parts.



| | (g) | Depreciation of property, plant and equipment
| | --- | ---------------------------------------------



Depreciation of components related
to airframe and engine overhaul costs are based on the Group’s historical experience with similar airframe and engine models
and taking into account anticipated overhauls costs, timeframe between each overhaul, ratio of actual flying hours and estimated
flying hours between overhauls. Different judgments or estimates could significantly affect the estimated depreciation charge and
the results of operations.



Except for components related
to airframe and engine overhaul costs, other property, plant and equipment are depreciated on a straight-line basis over the estimated
useful lives, after taking into account the estimated residual value. The useful lives are based on the Group’s historical
experience with similar assets and taking into account anticipated technological changes. The Group reviews the estimated useful
lives of assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period.
The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.



| | (h) | Estimated impairment of property, plant and equipment and intangible assets
| | --- | ---------------------------------------------------------------------------



The Group tests whether property,
plant and equipment and intangible assets have been impaired in accordance with the accounting policy stated in Note 2(k) and Note
2(m) to the financial statements. The recoverable amounts of cash generating units have been determined based on fair value less
cost to sell and value-in-use calculations. Value-in-use calculations use cash flow projections based on financial budgets approved
by management and certain key assumptions, such as passenger-kilometers yield level, load factor, aircraft utilization rate and
discount rates, etc.



F-40







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 5. | REVENUES
| | -- | --------



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



|                       |  | Year ended December 31, |           
|---------------------- |  | ----------------------- | ----------
|                       |  | 2012                    |           
|                       |  | RMB’000                 |           
|                       |  |                         |           
|Traffic revenues       |  |                         | 79,444,443
|– Passenger            |  |                         | 71,418,995
|– Cargo and mail       |  |                         | 8,025,448 
|Ground service income  |  |                         | 1,959,107 
|Tour operations income |  |                         | 2,111,051 
|Cargo handling income  |  |                         | 160,328   
|Commission income      |  |                         | 96,418    
|Others                 |  |                         | 1,481,970 
|                       |  |                         | 85,253,317



F-41







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 5. | REVENUES(CONTINUED)
| | -- | -------------------



Note:



Before January 1, 2012, the major
elements of the Group’s revenues were subject to business tax levied at rates of 3% or 5%. The Group’s revenues from
the provision of international transportation services are exempted from business tax from January 1, 2010, pursuant to the notice
of exemption of business tax on the provision of international transportation services (Cai Shui [2010] No. 8) jointly issued by
the Ministry of Finance (“MoF”) and the State Administration of Taxation (“SAT”).



Pursuant to the notice of the
pilot program for the transformation of transportation and certain modern service industries in Shanghai from business tax ("BT")
to Value Added Tax (“VAT”) (Cai Shui [2011] No. 111) issued by MoF and SAT, traffic revenue of the Company and subsidiaries
located in Shanghai and other revenues (including ground service income, cargo handling income, commission income and part of others)
generated in Shanghai are subjected to VAT levied at rates of 11% or 6% from January 1, 2012, instead of BT.



Pursuant to the notice of the
pilot program for the transformation of transportation and certain modern service industries from BT to VAT in Beijing and other
eight provinces/cities (Cai Shui [2012] No.71) issued by MoF and SAT, traffic revenue and other revenues (including ground service
income, cargo handling income, commission income and part of others) generated by subsidiaries located in Beijing and other eight
provinces/cities scoped in the notice are subjected to VAT levied at rates of 11% or 6% with different effective date ranging from
1 September 2012 to 1 December 2012.



The VAT input generated from
purchase of fuel, take-off and landing services, food and beverages, property, plant and equipment, and certain BT paid by the
branches of the Company outside above notice scope can be used to deduct the VAT output generated from taxable revenue.



The traffic revenue and other
revenue generated in other locations of China will continue to be subject to business tax at rates of 3% or 5%.



As a result of the implementation
of aforementioned reform from BT to VAT (i.e. the relevant portion of the Group's operations have been changed to VAT instead of
BT as they were in prior year), revenue of the Group for the year ended December 31, 2012 decreased by RMB2,954 million and operating
expenses of the Group decreased by RMB3,132 million resulting in an increase in profit before income tax of RMB178 million for
the year ended December 31, 2012.



The business tax incurred and
offset against the above Group’s revenues for the year ended December 31, 2012 amounted to approximately RMB670 million (2011:
approximately RMB1,803 million).



F-42







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 6. | OTHER OPERATING INCOME
| | -- | ----------------------



|                              |  | Year ended December 31, |          
|----------------------------- |  | ----------------------- | ---------
|                              |  | 2012                    |          
|                              |  | RMB’000                 |          
|                              |  |                         |          
|Other operating income (Note) |  |                         |          
|- Other government subsidies  |  |                         | 1,719,626
|                              |  |                         | 1,719,626



Note:



Government subsidies represent
(i) subsidies of RMB353 million (2011: RMB78 million) based on certain amount of tax paid granted by governments to the Group;
and (ii) subsidies granted by various local governments to encourage the Group to operate certain routes to cities where these
governments are located.



There are no unfulfilled conditions
and other contingencies related to subsidies that have been recognized for the year ended December 31, 2012.



F-43







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | SEGMENT INFORMATION
| | -- | -------------------



| | (a) | Chief Operating Decision-maker (“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 income.



Other services including primarily tour operations,
air catering and other miscellaneous services are not included within the airline transportation operations segment, as their internal
reports are separately provided to the CODM. The results of these operations are included in the “other segments” column.



Inter-segment transactions are entered into under
normal commercial terms and conditions that would be available to unrelated third parties.



In accordance with IFRS 8, segment
disclosure has been presented in a manner that is consistent with the information used by the Group’s CODM. The Group’s
CODM monitors the results, assets and liabilities attributable to each reportable segment based on financial results prepared under
the PRC Accounting Standards for Business Enterprises (the “PRC Accounting Standards”), which differ from IFRS in certain
aspects. The amount of each material reconciling items from the Group’s reportable segment revenue and profit or loss, arising
from different accounting policies are set out in Note 7(c) below.



The segment results
for the year ended December 31, 2012 are as follows:



|                                                   |  | Airline transportation
 Operations |            |  | Other Segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |        
|-------------------------------------------------- |  | ---------------------------------- | ---------- |  | -------------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | -------
|                                                   |  | RMB’000                            |            |  | RMB’000        |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |        
|Reportable segment revenue from external customers |  |                                    | 83,127,233 |  |                |  | 2,442,017 |             |  |  | -            |   |  |         | -      
|Inter-segment sales                                |  |                                    | -          |  |                |  | 261,631   |             |  |  | (261,631     | ) |  |         | -      
|Reportable segment revenue                         |  |                                    | 83,127,233 |  |                |  | 2,703,648 |             |  |  | (261,631     | ) |  |         | -      
|                                                   |  |                                    |            |  |                |  |           |             |  |  |              |   |  |         |        
|Reportable segment profit before income tax        |  |                                    | 3,176,660  |  |                |  | 104,938   |             |  |  | -            |   |  |         | 234,058
|                                                   |  |                                    |            |  |                |  |           |             |  |  |              |   |  |         |        
|Other segment information                          |  |                                    |            |  |                |  |           |             |  |  |              |   |  |         |        
|Depreciation and amortization                      |  |                                    | 7,892,045  |  |                |  | 114,430   |             |  |  | -            |   |  |         | -      
|Capital expenditure                                |  |                                    | 18,490,801 |  |                |  | 116,212   |             |  |  | -            |   |  |         | -      



F-44







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | 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).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



The segment results
for the year ended December 31, 2011 are as follows:



|                                                   |  | Airline transportation Operations |            |  | Other Segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |        
|-------------------------------------------------- |  | --------------------------------- | ---------- |  | -------------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | -------
|                                                   |  | RMB’000                           |            |  | RMB’000        |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |        
|Reportable segment revenue from external customers |  |                                   | 81,597,560 |  |                |  | 2,376,945 |             |  |  | -            |   |  |         | -      
|Inter-segment sales                                |  |                                   | -          |  |                |  | 201,989   |             |  |  | (201,989     | ) |  |         | -      
|Reportable segment revenue                         |  |                                   | 81,597,560 |  |                |  | 2,578,934 |             |  |  | (201,989     | ) |  |         | -      
|                                                   |  |                                   |            |  |                |  |           |             |  |  |              |   |  |         |        
|Reportable segment profit before income tax        |  |                                   | 4,997,606  |  |                |  | 41,986    |             |  |  | -            |   |  |         | 128,122
|                                                   |  |                                   |            |  |                |  |           |             |  |  |              |   |  |         |        
|Other segment information                          |  |                                   |            |  |                |  |           |             |  |  |              |   |  |         |        
|Depreciation and amortization                      |  |                                   | 7,282,227  |  |                |  | 88,500    |             |  |  | -            |   |  |         | -      
|Impairment losses                                  |  |                                   | 799,105    |  |                |  | 259       |             |  |  | -            |   |  |         | -      
|Capital expenditure                                |  |                                   | 18,159,708 |  |                |  | 91,985    |             |  |  | -            |   |  |         | -      



The segment results
for the year ended December 31, 2010 are as follows:



|                                                   |  | Airline transportation Operations |            |  | Other Segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |        
|-------------------------------------------------- |  | --------------------------------- | ---------- |  | -------------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | -------
|                                                   |  | RMB’000                           |            |  | RMB’000        |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |        
|Reportable segment revenue from external customers |  |                                   | 72,029,550 |  |                |  | 2,928,558 |             |  |  | -            |   |  |         | -      
|Inter-segment sales                                |  |                                   | 427,141    |  |                |  | 295,335   |             |  |  | (722,476     | ) |  |         | -      
|Reportable segment revenue                         |  |                                   | 72,456,691 |  |                |  | 3,223,893 |             |  |  | (722,476     | ) |  |         | -      
|                                                   |  |                                   |            |  |                |  |           |             |  |  |              |   |  |         |        
|Reportable segment profit before income tax        |  |                                   | 5,633,323  |  |                |  | 88,407    |             |  |  | -            |   |  |         | 119,363
|                                                   |  |                                   |            |  |                |  |           |             |  |  |              |   |  |         |        
|Other segment information                          |  |                                   |            |  |                |  |           |             |  |  |              |   |  |         |        
|Depreciation and amortization                      |  |                                   | 6,916,308  |  |                |  | 69,397    |             |  |  | -            |   |  |         | -      
|Impairment losses                                  |  |                                   | 425,772    |  |                |  | 1,289     |             |  |  | -            |   |  |         | -      
|Capital expenditure                                |  |                                   | 22,752,632 |  |                |  | 336,978   |             |  |  | -            |   |  |         | -      



F-45







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | 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).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



The segment assets
and liabilities as at December 31, 2012, 2011 and 2010 are as follows:



|                               |  | Airline transportation  Operations |             |  | Other Segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |          
|------------------------------ |  | ---------------------------------- | ----------- |  | -------------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | ---------
|                               |  | RMB’000                            |             |  | RMB’000        |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |          
|At December 31, 2012           |  |                                    |             |  |                |  |           |             |  |  |              |   |  |         |          
|Reportable segment assets      |  |                                    | 116,461,666 |  |                |  | 4,706,382 |             |  |  | (1,691,890   | ) |  |         | 1,486,321
|Reportable segment liabilities |  |                                    | 94,047,698  |  |                |  | 3,564,029 |             |  |  | (1,691,890   | ) |  |         | -        
|At December 31, 2011           |  |                                    |             |  |                |  |           |             |  |  |              |   |  |         |          
|Reportable segment assets      |  |                                    | 106,818,323 |  |                |  | 4,658,780 |             |  |  | (763,176     | ) |  |         | 1,501,225
|Reportable segment liabilities |  |                                    | 87,272,414  |  |                |  | 3,560,501 |             |  |  | (763,176     | ) |  |         | -        
|At December 31, 2010           |  |                                    |             |  |                |  |           |             |  |  |              |   |  |         |          
|Reportable segment assets      |  |                                    | 97,500,563  |  |                |  | 2,045,617 |             |  |  | (191,907     | ) |  |         | 1,455,844
|Reportable segment liabilities |  |                                    | 83,387,701  |  |                |  | 1,038,146 |             |  |  | (191,907     | ) |  |         | -        



*Unallocated
assets primarily represent investments in associates and jointly controlled entities, and available-for-sale financial assets.
Unallocated results primarily represent the share of results of associates and jointly controlled entities, and also the gain arisen
from available-for-sale financial assets.



F-46







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | SEGMENT INFORMATION (CONTINUED)
| | -- | -------------------------------



| | (b) | The Group’s business segments operate in three main geographical areas, even though they are managed on a worldwide basis.
| | --- | --------------------------------------------------------------------------------------------------------------------------



The Group’s revenues by geographical
are analyzed based on the following criteria:



| | (1) | Traffic revenue from services within 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 generated from international routes (excluding regional routes) 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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                          |  | 2012    |            |  | 2011    |  |            | 2010    | 
|--------------------------------------------------------- |  | ------- | ---------- |  | ------- |  | ---------- | ------- | 
|                                                          |  | RMB’000 |            |  | RMB’000 |  |            | RMB’000 | 
|                                                          |  |         |            |  |         |  |            |         | 
|Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |  |         | 57,612,675 |  |         |  | 57,675,579 |         | 
|Regional (Hong Kong, Macau and Taiwan)                    |  |         | 3,704,064  |  |         |  | 3,771,339  |         | 
|International                                             |  |         | 24,252,511 |  |         |  | 22,527,587 |         | 
|Total                                                     |  |         | 85,569,250 |  |         |  | 83,974,505 |         | 



The major revenue-earning assets
of the Group are its aircraft, all of which are registered in the PRC. Majority of the Group’s other assets are also located
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 geography and hence segment assets and capital expenditure by geography have not been
presented.



| | (c) | Reconciliation of reportable segment revenue, profit, assets and liabilities to the consolidated figures as reported in the consolidated financial statements.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                           |  |  |     |  | 2012    |  |            | 2011    |  |  | 2010       |  
|-------------------------------------------------------------------------- |  |  | --- |  | ------- |  | ---------- | ------- |  |  | ---------- | -
|                                                                           |  |  |     |  | RMB’000 |  |            | RMB’000 |  |  | RMB’000    |  
|Revenue                                                                    |  |  |     |  |         |  |            |         |  |  |            |  
|Reportable segment revenue                                                 |  |  |     |  |         |  | 85,569,250 |         |  |  | 83,974,505 |  
|–Reclassification of business tax and expired sales in advance of carriage |  |  | (i) |  |         |  | (315,933   | )       |  |  | (1,571,375 | )
|Consolidated revenue                                                       |  |  |     |  |         |  | 85,253,317 |         |  |  | 82,403,130 |  



F-47







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | SEGMENT INFORMATION (CONTINUED)
| | -- | -------------------------------



| | (c) | Reconciliation of reportable segment revenue, profit or loss, assets and liabilities to the consolidated figures as reported in the consolidated financial statements (continued).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                     |  |  |       |  | 2012    |  |           | 2011    |  |  | 2010      |  
|------------------------------------------------------------------------------------ |  |  | ----- |  | ------- |  | --------- | ------- |  |  | --------- | -
|                                                                                     |  |  |       |  | RMB’000 |  |           | RMB’000 |  |  | RMB’000   |  
|Profit before income tax                                                             |  |  |       |  |         |  |           |         |  |  |           |  
|Reportable segment profit                                                            |  |  |       |  |         |  | 3,515,656 |         |  |  | 5,167,714 |  
|–Difference in depreciation charges for aircraft due to different depreciation lives |  |  | (ii)  |  |         |  | (21,958   | )       |  |  | (9,288    | )
|–Provision for post-retirement benefits                                              |  |  | (iii) |  |         |  | (401,901  | )       |  |  | (326,145  | )
|–Others                                                                              |  |  |       |  |         |  | (79,393   | )       |  |  | 8,420     |  
|Consolidated profit before income tax                                                |  |  |       |  |         |  | 3,012,404 |         |  |  | 4,840,701 |  



|                                                                                             |  |  |      |  | 2012    |  |             | 2011    |  |  | 2010        |  
|-------------------------------------------------------------------------------------------- |  |  | ---- |  | ------- |  | ----------- | ------- |  |  | ----------- | -
|                                                                                             |  |  |      |  | RMB’000 |  |             | RMB’000 |  |  | RMB’000     |  
|Assets                                                                                       |  |  |      |  |         |  |             |         |  |  |             |  
|Reportable segment assets                                                                    |  |  |      |  |         |  | 120,962,479 |         |  |  | 112,215,152 |  
|–Difference in depreciation charges for aircraft due to different depreciation lives         |  |  | (ii) |  |         |  | 52,901      |         |  |  | 74,859      |  
|–Difference in intangible asset (goodwill) arising from the acquisition of Shanghai Airlines |  |  | (iv) |  |         |  | 2,760,665   |         |  |  | 2,760,665   |  
|–Others                                                                                      |  |  |      |  |         |  | 42,518      |         |  |  | (311,795    | )
|Consolidated total assets                                                                    |  |  |      |  |         |  | 123,818,563 |         |  |  | 114,738,881 |  



|                                        |  |  |       |  | 2012    |  |            | 2011    |  |  | 2010       |  
|--------------------------------------- |  |  | ----- |  | ------- |  | ---------- | ------- |  |  | ---------- | -
|                                        |  |  |       |  | RMB’000 |  |            | RMB’000 |  |  | RMB’000    |  
|Liabilities                             |  |  |       |  |         |  |            |         |  |  |            |  
|Reportable segment liabilities          |  |  |       |  |         |  | 95,919,837 |         |  |  | 90,069,739 |  
|–Provision for post-retirement benefits |  |  | (iii) |  |         |  | 3,345,329  |         |  |  | 2,943,428  |  
|–Others                                 |  |  |       |  |         |  | -          |         |  |  | (79,393    | )
|Consolidated total liabilities          |  |  |       |  |         |  | 99,265,166 |         |  |  | 92,933,774 |  



F-48







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | Segment information (continued)
| | -- | -------------------------------



| | (c) | Reconciliation of reportable segment revenue, profit or loss, assets and liabilities to the consolidated figures as reported in the consolidated financial statements (continued).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Notes:



| | (i) | The difference represents the different classification of business tax and expired sales in advance
of carriage under 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 purpose in prior years under PRC Accounting Standards and IFRS. Despite the depreciation policies
of these assets have been unified under IFRS and the PRC Accounting Standards in recent years, the changes were applied prospectively
as changes in accounting estimates which results in the differences in the carrying amounts and related depreciation changes under
IFRS and PRC Accounting Standards.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | In accordance with the PRC Accounting Standards, certain employees’ post-retirement benefits
are recognized upon payment. Under IFRS, such post-retirement benefits under defined benefit schemes are required to be recognized
over the employees’ service period using projected unit credit method.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | The determination of the fair values of the acquisition
costs and identifiable assets and liabilities of Shanghai Airlines acquired is different under IFRS and the PRC Accounting Standards,
which results in difference in the intangibles/goodwill recognized arising from the acquisition.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-49







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 8. | GAIN ON FAIR VALUE MOVEMENTS
OF DERIVATIVES FINANCIAL INSTRUMENTS
| | -- | -----------------------------------------------------------------



|                                                                               |  | Year ended December 31, |       
|------------------------------------------------------------------------------ |  | ----------------------- | ------
|                                                                               |  | 2012                    |       
|                                                                               |  | RMB’000                 |       
|                                                                               |  |                         |       
|Gain arising from fair value movements of derivatives  financial instruments   |  |                         |       
|- Interest rate swap and forward foreign exchange contracts (Note 39(a) & (b)) |  |                         | 15,755
|- Crude oil option contracts                                                   |  |                         | 9,076 
|                                                                               |  |                         | 24,831



| | 9. | WAGES, SALARIES AND BENEFITS
| | -- | ----------------------------



|                                                     |  | Year ended December 31, |           
|---------------------------------------------------- |  | ----------------------- | ----------
|                                                     |  | 2012                    |           
|                                                     |  | RMB’000                 |           
|                                                     |  |                         |           
|Wages, salaries, bonus and allowances                |  |                         | 7,007,883 
|Employee welfare and benefits                        |  |                         | 428,791   
|Defined contribution retirement schemes (Note 37(a)) |  |                         | 1,262,017 
|Post-retirement benefits (Note 37(b))                |  |                         | 581,775   
|Staff housing fund (Note 38 (a))                     |  |                         | 607,336   
|Staff housing allowance (Note 38 (b))                |  |                         | 171,241   
|                                                     |  |                         | 10,059,043



F-50







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 10. | IMPAIRMENT CHARGES/ (REVERSALS)
| | --- | -------------------------------



|                                                                                         |  | Year ended December 31, |         
|---------------------------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                                         |  | 2012                    |         
|                                                                                         |  | RMB’000                 |         
|                                                                                         |  |                         |         
|Impairment charges on assets held for sale (Note (b))                                    |  |                         | -       
|(Reversal of)/provision for impairment charges on flight equipment spare parts(Note (a)) |  |                         | (103,337
|Impairment charge on property, plant and equipment                                       |  |                         | 89,870  
|                                                                                         |  |                         | (13,467 



Note:



| | (a) | After acquisition of Shanghai Airlines Co., Ltd. (“Shanghai Airlines”) in 2010, the
Company has reviewed the composition of its aircraft fleet, aiming to simply the models of aircraft and maximizes operation efficiencies.
In 2012, the Company has defined the main model of aircraft for future operation and signed series of contracts to dispose other
models of aircraft between 2014 and 2016. As a consequence, the Company has reassessed the provision for the flight equipment spare
parts in relation to the main models of aircraft and also the spare parts in relation to the aircraft to be disposed, and reversed
provision of RMB103 million during the year ended December 31, 2012 in accordance with the reassessment results.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | In December 2011, the Group management entered into an agreement with a third party to dispose
certain aircraft and related engines in the forthcoming 12 months in view of high maintenance costs of those aircraft. The aircraft
and engines has been classified as assets held for sale at December 31, 2011, and an impairment loss of approximately RMB612 million
was made against those aircraft and engines by reference to the contracted selling price less estimated cost to sell (Note 43).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-51







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 11. | OPERATING PROFIT
| | --- | ----------------



Operating profit is stated after
charging the following items:



|                                                                  |  | Year ended December 31, |          
|----------------------------------------------------------------- |  | ----------------------- | ---------
|                                                                  |  | 2012                    |          
|                                                                  |  | RMB’000                 |          
|                                                                  |  |                         |          
|Amortization of intangible assets                                 |  |                         | 38,404   
|Depreciation of property, plant and equipment                     |  |                         |          
|- Owned                                                           |  |                         | 5,073,307
|- Leased (finance leases)                                         |  |                         | 2,397,541
|Amortization of lease prepayments                                 |  |                         | 47,658   
|Consumption of flight equipment spare parts                       |  |                         | 747,268  
|(Reversal)/provision of impairment of trade and other receivables |  |                         | (6,872   
|Auditors’ remuneration                                            |  |                         | 12,880   



| | 12. | FINANCE INCOME
| | --- | --------------



|                           |  | Year ended December 31, |        
|-------------------------- |  | ----------------------- | -------
|                           |  | 2012                    |        
|                           |  | RMB’000                 |        
|                           |  |                         |        
|Exchange gains, net (Note) |  |                         | 147,836
|Interest income            |  |                         | 200,765
|                           |  |                         | 348,601



Note:



The exchange gain primarily
related to the translation of the Group’s foreign currency denominated borrowings and obligations under finance leases.



F-52







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FINANCE COSTS
| | --- | -------------



|                                                                                    |  | Year ended December 31, |          
|----------------------------------------------------------------------------------- |  | ----------------------- | ---------
|                                                                                    |  | 2012                    |          
|                                                                                    |  | RMB’000                 |          
|                                                                                    |  |                         |          
|Interest on bank borrowings                                                         |  |                         | 1,359,644
|Interest relating to obligations under finance leases                               |  |                         | 411,547  
|Interest on bonds and debentures                                                    |  |                         | 149,425  
|Interest relating to notes payable                                                  |  |                         | 73,855   
|                                                                                    |  |                         | 1,994,471
|Less:  Amounts capitalized into advanced payments on acquisition of aircraft (Note) |  |                         | (296,997 
|Amounts capitalized into construction in progress (Note)                            |  |                         | -        
|                                                                                    |  |                         | 1,697,474



Note:



The average interest rate used
for interest capitalization is 3.73% per annum for the year ended December 31, 2012 (2011: 3.84%, 2010: 3.75%).



| | 14. | INCOME TAX
| | --- | ----------



Income tax charged to the consolidated
income statement is as follows:



|                             |  | Year ended December 31, |        
|---------------------------- |  | ----------------------- | -------
|                             |  | 2012                    |        
|                             |  | RMB’000                 |        
|                             |  |                         |        
|Provision for PRC income tax |  |                         | 214,944
|Deferred taxation (Note 36)  |  |                         | (10,143
|                             |  |                         | 204,801



Prior to 2008, the Company and
certain of its subsidiaries (the “Pudong Subsidiaries”) located in Pudong District, Shanghai, were entitled to a reduced
rate of 15% pursuant to the preferential tax policy in Pudong District, Shanghai. Under the Corporate Income Tax Law of the People’s
Republic of China (the “New CIT Law”), which was approved by the National People’s Congress on 16 March 2007
and became effective from January 1, 2008, the Company and the Pudong Subsidiaries are entitled to a transitional arrangement to
gradually increase the applicable corporate income tax rate to 25% over five years from 2008. For the year ended December 31, 2012,
the corporate income tax rate applicable to the Company and the Pudong Subsidiaries was 25% (2011: 24%, 2010: 22%). Other subsidiaries
of the Company, except for those incorporated in Hong Kong, which are subject to Hong Kong corporate income tax rate of 16.5% (2011:
16.5%, 2010: 16.5%), are generally subject to the PRC standard corporate tax rate of 25 % (2011: 25%, 2010: 25%) under the New
CIT Law.



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 serious of tax regulations, the 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 income tax rate of 15%
from 2011 to 2020 upon approval from tax authorities. In 2012, China Eastern Yunnan Airlines Co., Ltd. (“CEA Yunnan”),
a subsidiary of the Group, obtained approval from tax authorities and enjoy the reduced tax rate of 15% from January 1, 2011.



F-53







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 14. | INCOME TAX (CONTINUED)
| | --- | ----------------------



Tax on the Group’s consolidated
income statement differs from the theoretical amount that would arise using the standard taxation rate of the Company as follows:



|                                                                                                                  |  | Year ended December 31, |          
|----------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------
|                                                                                                                  |  | 2012                    |          
|                                                                                                                  |  | RMB’000                 |          
|                                                                                                                  |  |                         |          
|Profit before income tax                                                                                          |  |                         | 3,012,404
|Adjusted by:                                                                                                      |  |                         |          
|Share of result of associates and jointly controlled entities                                                     |  |                         | (133,169 
|                                                                                                                  |  |                         | 2,879,235
|Tax calculated at the tax rate of 25% (2011: 24%; 2010: 22%)                                                      |  |                         | 719,809  
|Effect attributable to subsidiaries charged at tax rates of 15% or 16.5% (2011: 25% or 16.5%; 2010: 25% or 16.5%) |  |                         | (48,669  
|Income not subject to tax                                                                                         |  |                         | -        
|Expenses not deductible for tax purposes                                                                          |  |                         | 12,989   
|Utilization of previously unrecognized tax losses                                                                 |  |                         | (654,996 
|Unrecognized tax losses for the year                                                                              |  |                         | 210,777  
|Realization deductible temporary differences which were not recognized deferred tax in previous years             |  |                         | -        
|(Realization of)/Unrecognized deductible temporary differences for the year                                       |  |                         | (35,109  
|Tax charge                                                                                                        |  |                         | 204,801  



The Group operates international
flights to overseas destinations. There was no material overseas taxation for the year ended December 31, 2012 and 2011, as there
are avoidance of double tax treaties between the PRC and the corresponding jurisdictions (including Hong Kong) relating to aviation
businesses.



F-54







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | DIVIDEND
| | --- | --------



The Board has not recommended
any dividend for the years ended December 31, 2012, 2011 and 2010.



| | 16. | PROFIT ATTRIBUTABLE TO
EQUITY SHAREHOLDERS OF THE COMPANY
| | --- | ---------------------------------------------------------



The profit attributable to equity
shareholders of the Company is dealt with in the financial statements of the Company to the extent of RMB2,661 million (2011:
RMB4,523 million; 2010: RMB4,422 million).



| | 17. | EARNINGS PER SHARE
| | --- | ------------------



The calculation of basic earnings
per share is based on the profit attributable to equity shareholders of the Company of RMB2,954 million (2011:
RMB4,576 million; 2010: RMB4,958 million)and the weighted average number of shares of 11,276,538,860 (2011:
11,276,538,860; 2010: 11,149,426,000) in issue during the year ended December 31, 2012. The Company has no potentially dilutive
option or other instruments relating to the ordinary shares.



F-55







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 18. | INTANGIBLE ASSETS
| | --- | -----------------



|                         |  | Goodwill (Note (a)) |            |  | Computer software |  |         | Total   | 
|------------------------ |  | ------------------- | ---------- |  | ----------------- |  | ------- | ------- | 
|                         |  | RMB’000             |            |  | RMB’000           |  |         | RMB’000 | 
|                         |  |                     |            |  |                   |  |         |         | 
|Cost                     |  |                     |            |  |                   |  |         |         | 
|At January 1, 2011       |  |                     | 11,269,695 |  |                   |  | 217,411 |         | 
|Additions                |  |                     | -          |  |                   |  | 46,381  |         | 
|At December 31, 2011     |  |                     | 11,269,695 |  |                   |  | 263,792 |         | 
|                         |  |                     |            |  |                   |  |         |         | 
|At January 1, 2012       |  |                     | 11,269,695 |  |                   |  | 263,792 |         | 
|Additions                |  |                     | -          |  |                   |  | 133,913 |         | 
|At December 31, 2012     |  |                     | 11,269,695 |  |                   |  | 397,705 |         | 
|                         |  |                     |            |  |                   |  |         |         | 
|Accumulated amortization |  |                     |            |  |                   |  |         |         | 
|At January 1, 2011       |  |                     | -          |  |                   |  | 153,730 |         | 
|Charge for the year      |  |                     | -          |  |                   |  | 26,167  |         | 
|At December 31, 2011     |  |                     | -          |  |                   |  | 179,897 |         | 
|                         |  |                     |            |  |                   |  |         |         | 
|At January 1, 2012       |  |                     | -          |  |                   |  | 179,897 |         | 
|Charge for the year      |  |                     | -          |  |                   |  | 38,404  |         | 
|At December 31, 2012     |  |                     | -          |  |                   |  | 218,301 |         | 
|                         |  |                     |            |  |                   |  |         |         | 
|Net book amount          |  |                     |            |  |                   |  |         |         | 
|At December 31, 2011     |  |                     | 11,269,695 |  |                   |  | 83,895  |         | 
|                         |  |                     |            |  |                   |  |         |         | 
|At December 31, 2012     |  |                     | 11,269,695 |  |                   |  | 179,404 |         | 



F-56







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 18. | INTANGIBLE ASSETS (CONTINUED)
| | --- | -----------------------------



Notes:



| | (a) | The balance represents the goodwill arising from the acquisition of Shanghai Airlines. The goodwill
is attributable to strengthening the competitiveness of the Group’s airlines operation business, attaining synergy through
integration of the resources and providing the evolution of Shanghai international air transportation center. For the purpose of
impairment assessment, the goodwill is allocated to the airline operation business, the principal cash-generating-unit (“CGU”)
that the Group operates and benefits from the acquisition.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The recoverable amount of the
CGU is principally based on the Company’s fair value, which is determined by reference to the observable quoted market price
of the Company’s shares less the costs of disposal. No impairment for the goodwill is required based on the Company’s
fair value as at the balance sheet date.



F-57







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 19. | PROPERTY, PLANT AND EQUIPMENT
| | --- | -----------------------------



|                                                                      |  | Aircraft, engines and flight equipment |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|--------------------------------------------------------------------- |  | -------------------------------------- | ---------- | - | -------------------------- |  | ---------- | --------- |  |  | ------------------------------------ | - |  | ------------------------- | ---------
|                                                                      |  | Owned                                  |            |   | Held under finance 
leases |  |            | Buildings |  |  | Other property, plant 
and equipment |   |  | Construction in 
progress |          
|                                                                      |  |                                        | RMB’000    |   |                            |  | RMB’000    |           |  |  | RMB’000                              |   |  |                           | RMB’000  
|                                                                      |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|Cost                                                                  |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|At January 1, 2012                                                    |  |                                        | 59,860,668 |   |                            |  | 37,640,743 |           |  |  | 5,237,670                            |   |  |                           | 5,632,102
|Transfers from construction in progress                               |  |                                        | -          |   |                            |  | -          |           |  |  | 1,584,745                            |   |  |                           | 69,657   
|Transfers from advanced payments on acquisition of aircraft (Note 21) |  |                                        | 4,716,802  |   |                            |  | 1,982,177  |           |  |  | -                                    |   |  |                           | -        
|Sales and finance leased back                                         |  |                                        | (1,583,999 | ) |                            |  | 1,583,999  |           |  |  | -                                    |   |  |                           | -        
|Additions                                                             |  |                                        | 5,443,597  |   |                            |  | 2,862,007  |           |  |  | 3,721                                |   |  |                           | 562,357  
|Other decrease                                                        |  |                                        | (25,656    | ) |                            |  | (664,141   | )         |  |  | -                                    |   |  |                           | -        
|Transfer to other long term assets                                    |  |                                        | -          |   |                            |  | -          |           |  |  | -                                    |   |  |                           | -        
|Disposals                                                             |  |                                        | (906,650   | ) |                            |  | (486,316   | )         |  |  | (7,079                               | ) |  |                           | (195,284 
|At December 31, 2012                                                  |  |                                        | 67,504,762 |   |                            |  | 42,918,469 |           |  |  | 6,819,057                            |   |  |                           | 6,068,832
|                                                                      |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|Accumulated depreciation                                              |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|At January 1, 2012                                                    |  |                                        | 22,677,254 |   |                            |  | 8,391,720  |           |  |  | 1,293,602                            |   |  |                           | 3,538,955
|Charge for the year                                                   |  |                                        | 4,394,601  |   |                            |  | 2,397,541  |           |  |  | 234,749                              |   |  |                           | 443,957  
|Sales and finance leased back                                         |  |                                        | (32,363    | ) |                            |  | 32,363     |           |  |  | -                                    |   |  |                           | -        
|Disposals                                                             |  |                                        | (855,457   | ) |                            |  | (486,315   | )         |  |  | (5,062                               | ) |  |                           | (148,301 
|At December 31, 2012                                                  |  |                                        | 26,184,035 |   |                            |  | 10,335,309 |           |  |  | 1,523,289                            |   |  |                           | 3,834,611
|                                                                      |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|Impairment                                                            |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|At January 1, 2012                                                    |  |                                        | 721,101    |   |                            |  | 107,770    |           |  |  | -                                    |   |  |                           | 550      
|Charge for the year                                                   |  |                                        | 89,870     |   |                            |  | -          |           |  |  | -                                    |   |  |                           | -        
|Disposals                                                             |  |                                        | (20,125    | ) |                            |  | -          |           |  |  | -                                    |   |  |                           | -        
|At December 31, 2012                                                  |  |                                        | 790,846    |   |                            |  | 107,770    |           |  |  | -                                    |   |  |                           | 550      
|                                                                      |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|Net book amount                                                       |  |                                        |            |   |                            |  |            |           |  |  |                                      |   |  |                           |          
|At December 31, 2012                                                  |  |                                        | 40,529,881 |   |                            |  | 32,475,390 |           |  |  | 5,295,768                            |   |  |                           | 2,233,671
|At January 1, 2012                                                    |  |                                        | 36,462,313 |   |                            |  | 29,141,253 |           |  |  | 3,944,068                            |   |  |                           | 2,092,597



F-58











CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|19. | PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
|--- | -----------------------------------------





|                                                                          |  | Aircraft, engines and
    flight equipment |            |   |                               |  |            |           |  |  |                                         |   |  |                              |          
|------------------------------------------------------------------------- |  | ------------------------------------------ | ---------- | - | ----------------------------- |  | ---------- | --------- |  |  | --------------------------------------- | - |  | ---------------------------- | ---------
|                                                                          |  | Owned                                      |            |   | Held under finance
    leases |  |            | Buildings |  |  | Other property, plant
    and equipment |   |  | Construction in
    progress |          
|                                                                          |  |                                            | RMB’000    |   |                               |  | RMB’000    |           |  |  | RMB’000                                 |   |  |                              | RMB’000  
|                                                                          |  |                                            |            |   |                               |  |            |           |  |  |                                         |   |  |                              |          
|Cost                                                                      |  |                                            |            |   |                               |  |            |           |  |  |                                         |   |  |                              |          
|At
    January 1, 2011                                                    |  |                                            | 55,025,526 |   |                               |  | 36,728,572 |           |  |  | 4,881,463                               |   |  |                              | 5,256,126
|Transfers
    from construction in progress                               |  |                                            | -          |   |                               |  | -          |           |  |  | 310,006                                 |   |  |                              | 179,927  
|Transfers
    from advanced payments on acquisition of aircraft (Note 21) |  |                                            | 1,591,142  |   |                               |  | 2,230,271  |           |  |  | -                                       |   |  |                              | -        
|Additions                                                                 |  |                                            | 4,022,991  |   |                               |  | 2,967,931  |           |  |  | 78,279                                  |   |  |                              | 533,186  
|Transfer
    to assets held for sale (Note 43)                            |  |                                            | -          |   |                               |  | (3,863,025 | )         |  |  | -                                       |   |  |                              | -        
|Transfer
    to lease prepayments                                         |  |                                            | -          |   |                               |  | -          |           |  |  | -                                       |   |  |                              | -        
|Disposals                                                                 |  |                                            | (778,991   | ) |                               |  | (423,006   | )         |  |  | (32,078                                 | ) |  |                              | (337,137 
|At December
    31, 2011                                                  |  |                                            | 59,860,668 |   |                               |  | 37,640,743 |           |  |  | 5,237,670                               |   |  |                              | 5,632,102
|                                                                          |  |                                            |            |   |                               |  |            |           |  |  |                                         |   |  |                              |          
|Accumulated
    depreciation                                              |  |                                            |            |   |                               |  |            |           |  |  |                                         |   |  |                              |          
|At January 1, 2011                                                        |  |                                            | 19,584,570 |   |                               |  | 8,855,680  |           |  |  | 1,125,373                               |   |  |                              | 3,349,386
|Charge
    for the year                                                   |  |                                            | 3,871,675  |   |                               |  | 2,361,919  |           |  |  | 177,049                                 |   |  |                              | 475,179  
|Transfer
    to assets held for sale (Note 43)                            |  |                                            | -          |   |                               |  | (2,402,873 | )         |  |  | -                                       |   |  |                              | -        
|Disposals                                                                 |  |                                            | (778,991   | ) |                               |  | (423,006   | )         |  |  | (8,820                                  | ) |  |                              | (285,610 
|At December
    31, 2011                                                  |  |                                            | 22,677,254 |   |                               |  | 8,391,720  |           |  |  | 1,293,602                               |   |  |                              | 3,538,955



F-59







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|19. | PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
|--- | -----------------------------------------



|                                                   |  | Aircraft, engines and
    flight equipment |            |  |                               |  |            |           |  |  |                                         |  |  |                              |          
|-------------------------------------------------- |  | ------------------------------------------ | ---------- |  | ----------------------------- |  | ---------- | --------- |  |  | --------------------------------------- |  |  | ---------------------------- | ---------
|                                                   |  | Owned                                      |            |  | Held under finance
    leases |  |            | Buildings |  |  | Other property, plant
    and equipment |  |  | Construction in
    progress |          
|                                                   |  | RMB’000                                    |            |  | RMB’000                       |  |            | RMB’000   |  |  | RMB’000                                 |  |  | RMB’000                      |          
|                                                   |  |                                            |            |  |                               |  |            |           |  |  |                                         |  |  |                              |          
|Impairment                                         |  |                                            |            |  |                               |  |            |           |  |  |                                         |  |  |                              |          
|At January 1, 2011                                 |  |                                            | 721,101    |  |                               |  | 473,393    |           |  |  | -                                       |  |  |                              | 550      
|Transfer
    to assets     held for sale (Note 43) |  |                                            | -          |  |                               |  | (365,623   | )         |  |  | -                                       |  |  |                              | -        
|Disposals                                          |  |                                            | -          |  |                               |  | -          |           |  |  | -                                       |  |  |                              | -        
|At
    December 31, 2012                           |  |                                            | 721,101    |  |                               |  | 107,770    |           |  |  | -                                       |  |  |                              | 550      
|                                                   |  |                                            |            |  |                               |  |            |           |  |  |                                         |  |  |                              |          
|Net
    book amount                                |  |                                            |            |  |                               |  |            |           |  |  |                                         |  |  |                              |          
|At December
    31, 2011                           |  |                                            | 36,462,313 |  |                               |  | 29,141,253 |           |  |  | 3,944,068                               |  |  |                              | 2,092,597
|At January 1, 2011                                 |  |                                            | 34,719,855 |  |                               |  | 27,399,499 |           |  |  | 3,756,090                               |  |  |                              | 1,906,190



Note:



| | (a) | As at December 31, 2012, certain aircraft and buildings
    owned by the Group with an aggregate net book amount of approximately RMB22,544 million (2011: approximately RMB18,317 million,
    2010: approximately RMB20,800 million) were pledged as collateral under certain loan arrangements (Note 33).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|20. | LEASE PREPAYMENTS
|--- | -----------------



|                         |  | December 31, |          
|------------------------ |  | ------------ | ---------
|                         |  | 2012         |          
|                         |  |              | RMB’000  
|                         |  |              |          
|Cost                     |  |              |          
|At January 1             |  |              | 1,796,276
|Additions                |  |              | 358,232  
|Disposals                |  |              | -        
|At December 31           |  |              | 2,154,508
|                         |  |              |          
|Accumulated amortization |  |              |          
|At January 1             |  |              | 325,004  
|Charge for the year      |  |              | 47,658   
|Disposals                |  |              | -        
|At December 31           |  |              | 372,662  
|                         |  |              |          
|Net book amount          |  |              |          
|At December 31           |  |              | 1,781,846



Lease prepayments represent unamortized
prepayments for land use rights.



The Group’s land use
rights are located in the PRC and the majority of these land use rights have terms of 50 years from the date of grant. As at December
31, 2012, the majority of these land use rights had remaining terms ranging from 34 to 50 years (2011: from 35 to 50 years).



F-60







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|21. | ADVANCED PAYMENTS ON ACQUISITION OF AIRCRAFT
|--- | --------------------------------------------



|                                                      |  | December 31, |           
|----------------------------------------------------- |  | ------------ | ----------
|                                                      |  | 2012         |           
|                                                      |  | RMB’000      |           
|At January 1                                          |  |              | 10,968,344
|Payment during the year                               |  |              | 7,328,529 
|Interest capitalized (Note 13)                        |  |              | 296,997   
|Transfers to property,  plant and equipment (Note 19) |  |              | (6,698,979
|At December 31                                        |  |              | 11,894,891



Included in the Group’s
balance as at December 31, 2012, the amount of accumulated interest capitalized was approximately RMB630 million (2011: RMB632
million).



|22. | INVESTMENTS IN ASSOCIATES
|--- | -------------------------



|                              |  | December 31, |        
|----------------------------- |  | ------------ | -------
|                              |  | 2012         |        
|                              |  | RMB’000      |        
|Unlisted investments, at cost |  |              | 620,329
|Share of results/reserves     |  |              | 213,143
|                              |  |              | 833,472



The movement on investments
in associates is as follows:



|                                                                                |  | December 31, |         
|------------------------------------------------------------------------------- |  | ------------ | --------
|                                                                                |  | 2012         |         
|                                                                                |  | RMB’000      |         
|At January 1                                                                    |  |              | 837,589 
|Share of results of associates                                                  |  |              | 103,209 
|Share of revaluation on available-for-sale investments held by an
    associate |  |              | 2,188   
|Disposal of associates                                                          |  |              | (2,439  
|Dividend received/declared during the year                                      |  |              | (107,075
|At December 31                                                                  |  |              | 833,472 



F-61







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|22. | INVESTMENTS IN ASSOCIATES (CONTINUED)
|--- | -------------------------------------



Particulars of the principal
associates which are limited liability companies established and operating in the PRC, are as follows:



|Company                                                                                                                 |  | Place and
        date of
        establishment |                                  | Registered
        capital |  | Attributable
        equity
        interest |  | Principal
        activities |          
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | -------------------------------- | -------------------------- |  | -------------------------------------------- |  | ---------------------------- | ---------
|                                                                                                                        |  |                                                 |                                  | 2012                       |  | 2011                                         |  | 2012                         |          
|                                                                                                                        |  |                                                 |                                  | RMB’000                    |  | RMB’000                                      |  |                              |          
|                                                                                                                        |  |                                                 |                                  |                            |  |                                              |  |                              |          
|Eastern
    Air Group Finance Co., Ltd.  (“Eastern Finance”)                                                            |  |                                                 | PRC
        December 6, 1995     |                            |  | 400,000                                      |  |                              | 400,000  
|                                                                                                                        |  |                                                 |                                  |                            |  |                                              |  |                              |          
|China Eastern
    Air Catering Investment Co., Ltd.                                                                     |  |                                                 | PRC
        November 17, 2003    |                            |  | 350,000                                      |  |                              | 350,000  
|                                                                                                                        |  |                                                 |                                  |                            |  |                                              |  |                              |          
|Shanghai Pratt &
        Whitney Aircraft Engine Maintenance Company Limited
        (“Shanghai P&W”)
        (Note(a)) |  |                                                 | PRC
        March 28, 2008       |                            |  | USD39,500                                    |  |                              | USD39,500
|                                                                                                                        |  |                                                 |                                  |                            |  |                                              |  |                              |          
|New Shanghai
    International Tower Co., Ltd.                                                                          |  |                                                 | PRC
        November 17, 1992    |                            |  | 166,575                                      |  |                              | 166,575  
|                                                                                                                        |  |                                                 |                                  |                            |  |                                              |  |                              |          
|Eastern
    Aviation Import & Export Co., Ltd (“Eastern Import & Export”)                                               |  |                                                 | PRC
        June
        9, 1993 |                            |  | 80,000                                       |  |                              | 80,000   
|                                                                                                                        |  |                                                 |                                  |                            |  |                                              |  |                              |          
|Shanghai
    Dongmei Aviation Travel Co., Ltd. (“Dongmei Travel”)                                                       |  |                                                 | PRC
        October 17, 2004     |                            |  | 51,369                                       |  |                              | 51,369   
|                                                                                                                        |  |                                                 |                                  |                            |  |                                              |  |                              |          
|Eastern
    Aviation Advertising Service Co., Ltd. (“Eastern Advertising”)                                              |  |                                                 | PRC
        March 4,1986         |                            |  | 50,000                                       |  |                              | 50,000   



F-62







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|22. | INVESTMENTS IN ASSOCIATES (CONTINUED)
|--- | -------------------------------------



|Company                                                   |  | Place and
        date of
        establishment |                                | Registered
        capital |  | Attributable
        equity
        interest |  | Principal
        activities |         
|--------------------------------------------------------- |  | ----------------------------------------------- | ------------------------------ | -------------------------- |  | -------------------------------------------- |  | ---------------------------- | --------
|                                                          |  |                                                 |                                | 2012                       |  | 2011                                         |  | 2012                         |         
|                                                          |  |                                                 |                                | RMB’000                    |  | RMB’000                                      |  |                              |         
|                                                          |  |                                                 |                                |                            |  |                                              |  |                              |         
|Shanghai
    Hongpu Civil Airport Communication Co., Ltd. |  |                                                 | PRC
        October 18, 2002   |                            |  | 25,000                                       |  |                              | 25,000  
|                                                          |  |                                                 |                                |                            |  |                                              |  |                              |         
|Collins
    Aviation Maintenance Service Shanghai Ltd.    |  |                                                 | PRC
        September 27, 2002 |                            |  | USD7,000                                     |  |                              | USD7,000



Notes:



| | (a) | In 2008, the Company entered
                                                                 into an agreement with United Technologies International Corporation
                                                                 (“Technologies International”) to establish Shanghai
                                                                 Pratt & Whitney Aircraft Engine Maintenance Company Limited
                                                                 (”Shanghai P&W”). Shanghai P&W has a registered
                                                                 capital of USD40 million in which the Company holds 51% interests.
                                                                 According to the shareholder’s agreement, Technologies
                                                                 International has the power to govern the financial and operating
                                                                 policies and in this respect the Company accounts for Shanghai
                                                                 P&W as an associate.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The Group’s aggregated
                                                                 share of the revenues, results, assets and liabilities of its
                                                                 associates are as follows:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|     |  | Assets  |           |  | Liabilities |  |           | Revenues |  |  | Profit    | 
|---- |  | ------- | --------- |  | ----------- |  | --------- | -------- |  |  | --------- | 
|     |  | RMB’000 |           |  | RMB’000     |  |           | RMB’000  |  |  | RMB’000   | 
|     |  |         |           |  |             |  |           |          |  |  |           | 
|2012 |  |         | 4,021,663 |  |             |  | 3,188,191 |          |  |  | 2,973,719 | 
|2011 |  |         | 3,728,129 |  |             |  | 2,890,540 |          |  |  | 2,417,786 | 



F-63







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|23. | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES
|--- | ------------------------------------------



|                              |  | 2012    |         |  | 2011    | 
|----------------------------- |  | ------- | ------- |  | ------- | 
|                              |  | RMB’000 |         |  | RMB’000 | 
|Unlisted investments, at cost |  |         | 323,238 |  |         | 
|Share of results/reserves     |  |         | 94,921  |  |         | 
|                              |  |         | 418,159 |  |         | 



The movement on investments
in jointly controlled entities is as follows:



|                                           |  | 2012    |         |   | 2011    | 
|------------------------------------------ |  | ------- | ------- | - | ------- | 
|                                           |  | RMB’000 |         |   | RMB’000 | 
|At January 1                               |  |         | 423,256 |   |         | 
|Share of results                           |  |         | 29,960  |   |         | 
|Dividend received/declared during the year |  |         | (35,057 | ) |         | 
|At December 31                             |  |         | 418,159 |   |         | 



Particulars of the principal jointly controlled
entities, all of which are limited liability companies established and operating in the PRC, are as follows:



|Company                                                                                                                    |  | Place and
        date of
        establishment |                                | Paid-up
        capital |  | Attributable
        equity
        interest |  | Principal
        activities |          
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------------------------------ | ----------------------- |  | -------------------------------------------- |  | ---------------------------- | ---------
|                                                                                                                           |  |                                                 |                                | 2012                    |  | 2011                                         |  | 2012                         |          
|                                                                                                                           |  |                                                 |                                | RMB’000                 |  | RMB’000                                      |  |                              |          
|                                                                                                                           |  |                                                 |                                |                         |  |                                              |  |                              |          
|Shanghai
    Technologies Aerospace Co., Ltd. (“Technologies Aerospace”) (Note (a))                                        |  |                                                 | PRC
        September 28, 2004 |                         |  | USD73,000                                    |  |                              | USD73,000
|                                                                                                                           |  |                                                 |                                |                         |  |                                              |  |                              |          
|Shanghai Eastern
    Union Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co., Ltd (“Wheels & Brakes”) |  |                                                 | PRC
        December 28, 1995  |                         |  | USD2,100                                     |  |                              | USD2,100 
|                                                                                                                           |  |                                                 |                                |                         |  |                                              |  |                              |          
|Eastern
    China Kaiya System Integration Co., Ltd.                                                                       |  |                                                 | PRC
        May 21, 1999       |                         |  | RMB10,000                                    |  |                              | RMB10,000



F-64







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|23. | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (CONTINUED)
|--- | ------------------------------------------------------



Notes:



| | (a) | Under a Joint Venture Agreement with the joint venture partner of Technologies
    Aerospace dated March 10, 2003, the Company has agreed to share control over the economic activities of Technologies Aerospace.
    Any strategic financial and operating decisions relating to the activities of Technologies Aerospace require the unanimous
    consent of the Company and the joint venture partner.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The Group’s aggregated share of the revenues,
    results, assets and liabilities of its jointly controlled entities is as follows:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



|     |  | Assets  |         |  | Liabilities |  |         | Revenues |  |  | Profit  | 
|---- |  | ------- | ------- |  | ----------- |  | ------- | -------- |  |  | ------- | 
|     |  | RMB’000 |         |  | RMB’000     |  |         | RMB’000  |  |  | RMB’000 | 
|2012 |  |         | 494,042 |  |             |  | 75,883  |          |  |  | 312,600 | 
|2011 |  |         | 524,573 |  |             |  | 101,317 |          |  |  | 287,822 | 



F-65







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|24. | OTHER LONG-TERM ASSETS
|--- | ----------------------



|                                                                |  | December 31, |          
|--------------------------------------------------------------- |  | ------------ | ---------
|                                                                |  | 2012         |          
|                                                                |  | RMB’000      |          
|Deposits relating to aircraft under operating leases (Note (a)) |  |              | 807,543  
|Deferred pilot recruitment costs(Note (b))                      |  |              | 869,082  
|Other long-term assets                                          |  |              | 281,631  
|                                                                |  |              | 1,958,256



Notes:



| | (a) | The fair value of deposits relating to aircraft held
    under operating leases of the Group is approximately RMB722 million  (2011: RMB685million), which is determined using the expected future refunds discounted at market interest rates at the year end.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Deferred pilot recruitment costs represent the cost bore by the Group in connection
    with securing certain minimum period of employment of pilots and are amortized on a straight-line basis over the anticipated
    beneficial period of five years, starting from the pilot joins the Group.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|25. | FLIGHT EQUIPMENT SPARE PARTS
|--- | ----------------------------



|                                |  | December 31, |          
|------------------------------- |  | ------------ | ---------
|                                |  | 2012         |          
|                                |  | RMB’000      |          
|Flight equipment spare parts    |  |              | 2,765,291
|Less: provision for spare parts |  |              | (677,313 
|                                |  |              | 2,087,978



Provision for flight equipment spare parts is made
based on the difference between the carrying amount and the net realizable value. The net realizable value is estimated based
on current market condition, historical experience and Company’s future operation plan for the aircraft and related spare
parts.



|                                                                      |  | December 31, |         
|--------------------------------------------------------------------- |  | ------------ | --------
|                                                                      |  | 2012         |         
|                                                                      |  | RMB’000      |         
|At January 1                                                          |  |              | 950,844 
|Provision written off in relation to disposal of spare parts          |  |              | (170,194
|Provision for/(reversal of) impairment of spare parts(Note 10(a)&(b)) |  |              | (103,337
|At December 31                                                        |  |              | 677,313 



F-66







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|26. | TRADE RECEIVABLES
|--- | -----------------



The credit terms given to trade
customers are determined on an individual basis, with the credit periods generally ranging from half a month to two months.



The aging analysis of trade
receivables is as follows:



|                                              |  | December 31, |          
|--------------------------------------------- |  | ------------ | ---------
|                                              |  | 2012         |          
|                                              |  | RMB’000      |          
|Within 90 days                                |  |              | 2,851,736
|91 to 180 days                                |  |              | 68,488   
|181 to 365 days                               |  |              | 35,995   
|Over 365 days                                 |  |              | 208,770  
|                                              |  |              | 3,164,989
|Less: provision for impairment of receivables |  |              | (202,808 
|Trade receivables                             |  |              | 2,962,181



Balances with related companies
included in trade receivables are summarized in Note 46(c)(i).



The carrying amounts of the
trade receivables approximate their fair value.



Trade receivables that were
neither overdue nor impaired relate to a large number of independent sales agents for whom there is no recent history of default.



As at December 31, 2012, trade
receivables of RMB137 million (2011: RMB101 million) were past due but not impaired. These relate to a number of independent sales
agents for whom there is no recent history of default. The Group holds cash deposits of RMB680 million (2011: RMB627 million)
from these agents. The ageing analysis of these trade receivables is as follows:



|                |  | December 31, |        
|--------------- |  | ------------ | -------
|                |  | 2012         |        
|                |  | RMB’000      |        
|Within 90 days  |  |              | 48,017 
|91 to 180 days  |  |              | 52,997 
|181 to 365 days |  |              | 35,995 
|                |  |              | 137,009



As at December 31, 2012, trade
receivables of RMB167 million (2011: RMB198 million) were impaired and fully provided for. The remaining impaired trade receivables
relate to customers that were in financial difficulties and only a portion of the receivables is expected to be recovered. The
factors considered by management in determining the impairment are described in Note 2(s).



F-67







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|26. | TRADE RECEIVABLES (CONTINUED)
|--- | -----------------------------



The ageing of impaired receivables
is as follows:



|                         |  | December 31, |        
|------------------------ |  | ------------ | -------
|                         |  | 2012         |        
|                         |  | RMB’000      |        
|181 to 365 days over due |  |              | 15,490 
|1 to 2 years overdue     |  |              | 22,714 
|Over 2 years overdue     |  |              | 186,057
|                         |  |              | 224,261



Movements on the Group’s
provision for impairment of trade receivables are as follows:



|                                                         |  | 2012    |         |   | 2011    | 
|-------------------------------------------------------- |  | ------- | ------- | - | ------- | 
|                                                         |  | RMB’000 |         |   | RMB’000 | 
|At January 1                                             |  |         | 233,055 |   |         | 
|Receivables written off during the year as uncollectible |  |         | (30,064 | ) |         | 
|Provision for/(reversal of) impairment of receivables    |  |         | (183    | ) |         | 
|At December 31                                           |  |         | 202,808 |   |         | 



The net impact of creation
and release of provisions for impaired receivables have been included in ‘Provision for impairment of trade and other receivables’
in the income statement (Note 11). Amounts charged to the allowance account are generally written off, when there is no expectation
of recovering additional cash.



The carrying amounts of the
Group’s trade receivables are denominated in the following currencies:



|                 |  | December 31, |          
|---------------- |  | ------------ | ---------
|                 |  | 2012         |          
|                 |  | RMB’000      |          
|Currency         |  |              |          
|Renminbi         |  |              | 2,510,514
|Japanese Yen     |  |              | 161,020  
|US Dollars       |  |              | 119,362  
|Euro             |  |              | 156,354  
|HK Dollars       |  |              | 66,565   
|Other currencies |  |              | 151,174  
|                 |  |              | 3,164,989



The maximum exposure to credit
risk at the reporting date is the carrying amount of receivable shown above.



F-68







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|27. | PREPAYMENTS AND OTHER RECEIVABLES
|--- | ---------------------------------



|                                                   |  | December 31, |          
|-------------------------------------------------- |  | ------------ | ---------
|                                                   |  | 2012         |          
|                                                   |  | RMB’000      |          
|VAT recoverable                                    |  |              | 920,135  
|Rebate receivables on aircraft acquisitions        |  |              | 676,126  
|Amounts due from related companies (Note 46(c)(i)) |  |              | 402,844  
|Prepaid aircraft operating lease rentals           |  |              | 314,600  
|Rental deposits                                    |  |              | 236,508  
|Others                                             |  |              | 1,106,486
|Subtotal                                           |  |              | 3,656,699
|Less: bad debt provision                           |  |              | (288,051 
|                                                   |  |              | 3,368,648



|28. | RESTRICTED BANK DEPOSITS AND SHORT-TERM BANK DEPOSITS
|--- | -----------------------------------------------------



|                                                                            |  | 2012    |           |  | 2011    | 
|--------------------------------------------------------------------------- |  | ------- | --------- |  | ------- | 
|                                                                            |  | RMB’000 |           |  | RMB’000 | 
|Bank deposits with original maturity over three months but less than a year |  |         | 1,657,568 |  |         | 
|Restricted bank deposits                                                    |  |         | 68,683    |  |         | 
|                                                                            |  |         | 1,726,251 |  |         | 



Notes:



As at December 31, 2012, the
deposits are primarily denominated in RMB and bore effective interest rates ranging from 2.85% to 4.65% per annum (2011: 0.5%
to 5.3% per annum).







F-69









CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. | RESTRICTED BANK DEPOSITS AND SHORT-TERM BANK DEPOSITS
    (CONTINUED)
|--- | ---------------------------------------------------------------------



The carrying amounts of the
Group’s restricted bank deposits and short-term bank deposits are denominated in the following currencies:



|                 |  | December 31, |          
|---------------- |  | ------------ | ---------
|                 |  | 2012         |          
|                 |  | RMB’000      |          
|Renminbi         |  |              | 1,625,891
|Japanese Yen     |  |              | 39,724   
|US Dollars       |  |              | 16,082   
|HK Dollars       |  |              | 15,973   
|Euro             |  |              | 9,818    
|Other currencies |  |              | 18,763   
|                 |  |              | 1,726,251



|29. | CASH AND CASH EQUIVALENTS
|--- | -------------------------



The carrying amounts
of the Group’s cash and cash equivalents are denominated in the following currencies:



|                  |  | December 31, |          
|----------------- |  | ------------ | ---------
|                  |  | 2012         |          
|                  |  | RMB’000      |          
|Renminbi          |  |              | 1,933,933
|US Dollars        |  |              | 372,388  
|Euro              |  |              | 38,172   
|Japanese Yen      |  |              | 30,451   
|Hong Kong Dollars |  |              | 25,528   
|Others            |  |              | 111,224  
|                  |  |              | 2,511,696



|30. | TRADE PAYABLES AND NOTES PAYABLE
|--- | --------------------------------



The aging analysis
of trade payables and notes payable is as follows:



|                |  | December 31, |          
|--------------- |  | ------------ | ---------
|                |  | 2012         |          
|                |  | RMB’000      |          
|Within 90 days  |  |              | 1,473,087
|91 to 180 days  |  |              | 397,815  
|181 to 365 days |  |              | 675,630  
|1 to 2 years    |  |              | 378,922  
|Over 2 years    |  |              | 149,871  
|                |  |              | 3,075,325



As at December 31, 2012, the
trade payables and notes payable balances of the Group included amounts due to related companies of RMB1,950 million (2011: RMB1,216
million)(Note 46(c)(ii)).



As at December 31, 2012, notes
payable amounted to RMB250 million (2011: RMB48 million), which were unsecured, bore effective interest rates ranging from 4.65%
to 4.68% per annum (2011: 6% to 8%) and are repayable within six months.



F-70







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|31. | OTHER PAYABLES AND ACCRUED EXPENSES
|--- | -----------------------------------



|                                                                    |  | December 31, |           
|------------------------------------------------------------------- |  | ------------ | ----------
|                                                                    |  | 2012         |           
|                                                                    |  | RMB’000      |           
|Accrued salaries, wages and benefits                                |  |              | 2,210,517 
|Accrued take-off and landing charges                                |  |              | 2,127,855 
|Accrued fuel cost                                                   |  |              | 2,175,948 
|Accrued expenses related to aircraft overhaul conducted             |  |              | 1,675,056 
|Duties and levies payable                                           |  |              | 1,574,574 
|Other accrued operating expenses                                    |  |              | 2,038,930 
|Deposits received from ticket sales agents                          |  |              | 680,318   
|Current portion of other long-term liabilities (Note 35)            |  |              | 314,996   
|Staff housing allowance (Note 38(b))                                |  |              | 391,358   
|Amounts due to related companies (Note 46(c) (ii))                  |  |              | 194,884   
|Current portion of post-retirement benefit obligations (Note 37(b)) |  |              | 85,800    
|Other payables                                                      |  |              | 2,785,989 
|                                                                    |  |              | 16,256,225



|32. | OBLIGATIONS UNDER FINANCE LEASES
|--- | --------------------------------



As at December 31, 2012, the
Group had 98 aircrafts (2011: 80 aircrafts) under finance leases. Under the terms of the leases, the Group has the option to purchase,
at or near the end of the lease terms, certain aircraft at either fair market value or a percentage of the respective lessors’
defined cost of the aircraft. The obligations under finance leases are principally denominated in US Dollars.



The future minimum lease payments
(including interest), and the present value of the minimum lease payments under finance leases are as follows:



|                                         |  | December 31, 2012      |            |   | December 31, 2011 | 
|---------------------------------------- |  | ---------------------- | ---------- | - | ----------------- | 
|                                         |  | Minimum lease payments |            |   | Interest          | 
|                                         |  | RMB’000                |            |   | RMB’000           | 
|Within one year                          |  |                        | 3,004,452  |   |                   | 
|In the second year                       |  |                        | 3,059,744  |   |                   | 
|In the third to fifth year inclusive     |  |                        | 8,685,669  |   |                   | 
|After the fifth year                     |  |                        | 9,027,940  |   |                   | 
|Total                                    |  |                        | 23,777,805 |   |                   | 
|Less:   amount repayable within one year |  |                        | (3,004,452 | ) |                   | 
|Long-term portion                        |  |                        | 20,773,353 |   |                   | 



The fair value of obligations
under finance leases of the Group is RMB22,883million (2011: RMB20,866 million), which is determined using the expected future
payments discounted at market interest rates prevailing at the year end.



F-71







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|33. | BORROWINGS
|--- | ----------



|                                         |  | December 31, |           
|---------------------------------------- |  | ------------ | ----------
|                                         |  | 2012         |           
|                                         |  | RMB’000      |           
|Non-current                              |  |              |           
|Long-term bank borrowings                |  |              |           
|– secured(Note (a))                      |  |              | 15,780,892
|– unsecured(Note (b))                    |  |              | 4,815,271 
|Guaranteed bonds (Note (c))              |  |              | 2,500,000 
|                                         |  |              | 23,096,163
|                                         |  |              |           
|Current                                  |  |              |           
|Long-term bank borrowings                |  |              |           
|– secured(Note (a))                      |  |              | 2,612,055 
|– unsecured(Note (b))                    |  |              | 7,147,656 
|Short-term bank borrowings               |  |              |           
|– secured(Note (a))                      |  |              | -         
|– unsecured(Note (b))                    |  |              | 8,880,244 
|Short-term debentures (Note (d))         |  |              | 4,000,000 
|                                         |  |              | 22,639,955
|Total borrowings                         |  |              | 45,736,118
|                                         |  |              |           
|The borrowings are repayable as follows: |  |              |           
|Within one year                          |  |              | 22,639,955
|In the second year                       |  |              | 7,272,821 
|In the third to fifth year inclusive     |  |              | 7,905,631 
|After the fifth year                     |  |              | 7,917,711 
|Total borrowings                         |  |              | 45,736,118



Notes:



| | (a) | As at December 31, 2012, the secured
                                                               bank borrowings of the Group were pledged by the related aircrafts
                                                               and buildings with an aggregate net book amount of RMB22,544 million
                                                               (2011: RMB18,317 million) (Note 19).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Certain unsecured bank borrowings
                                                               of the Group totaling of RMB95 million (2011: RMB228 million) were
                                                               guaranteed by CEA Holding (Note 46(c)).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | On August 1, 2011, Eastern Air
                                                               Overseas (Hong Kong) Corporation Limited(“Eastern Air Overseas
                                                               HK), a wholly owned subsidiary of the Company, issued three-year
                                                               guaranteed bonds with a principal amount of RMB2.5 billion, at
                                                               an issue price equal to the face value of the bonds. The bonds
                                                               bear interest at the rate of 4% per annum, which is payable semi-annually.
                                                               The principle of the bonds will mature and be repayable on August
                                                               8, 2014.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company has unconditionally
and irrevocably guaranteed the due payment and performance of the above bonds.



| | (d) | On September 13, 2012, the Company
                                                               issued short-term debentures with a principal of RMB4 billion.
                                                               The debentures bear interest at the rate of 4.1% per annum. The
                                                               principal and interest will mature and repayable on June 10, 2013.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-72







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|33. | BORROWINGS (CONTINUED)
|--- | ----------------------



The terms of the long-term
borrowings are summarized as follows:



|Currency                   |  | Interest rate and final maturities                                                             |  | 2012    |            |  | 2011    | 
|-------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ------- | ---------- |  | ------- | 
|                           |  |                                                                                                |  | RMB’000 |            |  | RMB’000 | 
|RMB denominated            |  | Interest rate ranging from 4.86% to 6.4% with final maturities through to 2020                 |  |         | 3,953,340  |  |         | 
|                           |  |                                                                                                |  |         |            |  |         | 
|USD denominated            |  | Interest rate ranging from LIBOR 6+0.03% to LIBOR 6+5.3% with final maturities through to 2022 |  |         | 26,402,534 |  |         | 
|Guaranteed bonds           |  |                                                                                                |  |         |            |  |         | 
|RMB denominated            |  | interest rate of 4.00% with final maturities through to 2014                                   |  |         | 2,500,000  |  |         | 
|Total long-term borrowings |  |                                                                                                |  |         | 32,855,874 |  |         | 



Notes:



The fair value of long-term
borrowings of the Group is RMB 32,881 million (2011: RMB30,363 million), which is determined using the expected future payments
discounted at prevailing market interest rates available to the Group for financial instruments with substantially the same terms
and characteristics at the balance sheet date.



Short-term borrowings of the
Group are repayable within one year. As at December 31, 2012, the interest rates relating to such borrowings ranged from 1.11%
to 6.56% per annum (2011: 1.30 % to 6.31% per annum).



The carrying amounts of the
borrowings are denominated in the following currencies:



|             |  | 2012    |            |  | 2011    | 
|------------ |  | ------- | ---------- |  | ------- | 
|             |  | RMB’000 |            |  | RMB’000 | 
|Renminbi     |  |         | 13,827,340 |  |         | 
|US Dollars   |  |         | 31,605,345 |  |         | 
|Japanese Yen |  |         | 303,433    |  |         | 
|             |  |         | 45,736,118 |  |         | 



F-73







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|34. | PROVISION
    FOR RETURN CONDITION CHECKS FOR AIRCRAFT UNDER OPERATING LEASES
|--- | -----------------------------------------------------------------------------



|                      |  | December 31, |          
|--------------------- |  | ------------ | ---------
|                      |  | 2012         |          
|                      |  | RMB’000      |          
|At January 1          |  |              | 3,299,126
|Additional provisions |  |              | 872,770  
|Utilization           |  |              | (373,134 
|At December 31        |  |              | 3,798,762
|Less: current portion |  |              | (734,205 
|Long-term portion     |  |              | 3,064,557



In respect of aircraft and engines under operating
leases, the Group has obligations to fulfill certain return conditions under the leases. The balance as at December 31, 2012 represents
the provision for the estimated cost of these return condition checks which is made on a straight line basis over the term of
the leases.



|35. | OTHER LONG-TERM LIABILITIES
|--- | ---------------------------



|                                                                                 |  | December 31, |          
|-------------------------------------------------------------------------------- |  | ------------ | ---------
|                                                                                 |  | 2012         |          
|                                                                                 |  | RMB’000      |          
|Fair value of unredeemed points awarded under the Group’s frequent flyer program |  |              | 1,624,248
|Long-term duties and levies payable rating to finance leases                     |  |              | 209,727  
|Other long-term payables                                                         |  |              | 116,558  
|                                                                                 |  |              | 1,950,533
|Less: Current portion included in other payables and accrued expenses(Note:31)   |  |              | (314,996 
|Long-term portion                                                                |  |              | 1,635,537



F-74







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|36. | Deferred taxation
|--- | -----------------



Deferred income tax assets
and liabilities are offset when there is a legally enforceable right of offsetting and when the deferred income taxes relate to
the same authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheets:



|                                                        |  | December 31, |        
|------------------------------------------------------- |  | ------------ | -------
|                                                        |  | 2012         |        
|                                                        |  | RMB’000      |        
|                                                        |  |              |        
|Deferred tax assets                                     |  |              |        
|– Deferred tax asset to be utilized after 12 months     |  |              | 53,708 
|– Deferred tax asset to be utilized within 12 months    |  |              | 853    
|                                                        |  |              | 54,561 
|Deferred tax liabilities                                |  |              |        
|– Deferred tax liability to be realized after 12 months |  |              | (29,326
|Net deferred tax assets                                 |  |              | 25,235 



Movements in the net deferred
tax assets are as follows:



|                                      |  | 2012    |        |  | 2011    | 
|------------------------------------- |  | ------- | ------ |  | ------- | 
|                                      |  | RMB’000 |        |  | RMB’000 | 
|                                      |  |         |        |  |         | 
|At January 1                          |  |         | 15,092 |  |         | 
|Charged to income statement (Note 14) |  |         | 10,143 |  |         | 
|At December 31                        |  |         | 25,235 |  |         | 



F-75







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|36. | DeferredTAXATION
    (CONTINUED)
|--- | --------------------------------



The deferred tax assets and
liabilities (prior to the offsetting of balances within the same tax jurisdiction) were made up of the taxation effects of the
following:



|                                                               |  | December 31, |         
|-------------------------------------------------------------- |  | ------------ | --------
|                                                               |  | 2012         |         
|                                                               |  | RMB'000      |         
|Deferred tax assets:                                           |  |              |         
|Impairment provision for obsolete flight equipment spare parts |  |              | 40,408  
|Impairment provision for receivables                           |  |              | 23,950  
|Impairment provision for property, plant and equipment         |  |              | 43,222  
|Derivative financial liabilities                               |  |              | 20,339  
|Provision for post-retirement benefits                         |  |              | 196,580 
|                                                               |  |              | 324,499 
|Deferred tax liabilities:                                      |  |              |         
|Depreciation and amortization                                  |  |              | (294,745
|Derivative financial assets                                    |  |              | (4,519  
|                                                               |  |              | (299,264
|                                                               |  |              | 25,235  



Movements of the net deferred
tax assets of the Group for the year:



|                                                                                        |  | At the beginning of the year |          |   | (Charged)/ credited
    to income statement |  |          | At the end of the year | 
|--------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ------------------------------------------- |  | -------- | ---------------------- | 
|                                                                                        |  | RMB’000                      |          |   | RMB’000                                     |  |          | RMB’000                | 
|For the year ended December 31,
    2012                                                |  |                              |          |   |                                             |  |          |                        | 
|Impairment
    provision for obsolete flight equipment spare parts                      |  |                              | 70,071   |   |                                             |  | (29,663  | )                      | 
|Impairment provision
    for receivables                                                |  |                              | 34,745   |   |                                             |  | (10,795  | )                      | 
|Impairment
    provision for property, plant and equipment and construction in progress |  |                              | 78,286   |   |                                             |  | (35,064  | )                      | 
|Derivative
    financial liabilities                                                    |  |                              | 29,201   |   |                                             |  | (8,862   | )                      | 
|Provision for
    post-retirement benefits                                              |  |                              | 230,361  |   |                                             |  | (33,781  | )                      | 
|                                                                                        |  |                              | 442,664  |   |                                             |  | (118,165 | )                      | 
|Depreciation and amortization                                                           |  |                              | (426,481 | ) |                                             |  | 131,736  |                        | 
|Derivative financial
    assets                                                         |  |                              | (1,091   | ) |                                             |  | (3,428   | )                      | 
|                                                                                        |  |                              | (427,572 | ) |                                             |  | 128,308  |                        | 
|Net
    deferred tax assets                                                             |  |                              | 15,092   |   |                                             |  | 10,143   |                        | 



F-76







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|36. | DeferredTAXATION
    (CONTINUED)
|--- | --------------------------------



|                                                                                        |  | At the beginning of the year |          |   | (Charged)/ credited
     to income statement |  |          | At the end of the year | 
|--------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | -------------------------------------------- |  | -------- | ---------------------- | 
|                                                                                        |  | RMB’000                      |          |   | RMB’000                                      |  |          | RMB’000                | 
|For the year ended December 31,
    2011                                                |  |                              |          |   |                                              |  |          |                        | 
|Impairment
    provision for obsolete flight equipment spare parts                      |  |                              | 83,365   |   |                                              |  | (13,294  | )                      | 
|Impairment provision
    for receivables                                                |  |                              | 69,063   |   |                                              |  | (34,318  | )                      | 
|Impairment
    provision for property, plant and equipment and construction in progress |  |                              | 128,226  |   |                                              |  | (49,940  | )                      | 
|Provision
    for return condition checks for aircraft under operating leases           |  |                              | 93,740   |   |                                              |  | (93,740  | )                      | 
|Provision for
    frequent flyer programs                                               |  |                              | 44,001   |   |                                              |  | (44,001  | )                      | 
|Derivative
    financial liabilities                                                    |  |                              | 29,526   |   |                                              |  | (325     | )                      | 
|Provision for
    post-retirement benefits                                              |  |                              | 245,026  |   |                                              |  | (14,665  | )                      | 
|                                                                                        |  |                              | 692,947  |   |                                              |  | (250,283 | )                      | 
|Depreciation
    and amortization                                                       |  |                              | (652,521 | ) |                                              |  | 226,040  |                        | 
|Derivative financial
    assets                                                         |  |                              | (17,052  | ) |                                              |  | 15,961   |                        | 
|                                                                                        |  |                              | (669,573 | ) |                                              |  | 242,001  |                        | 
|Net
    deferred tax assets                                                             |  |                              | 23,374   |   |                                              |  | (8,282   | )                      | 



As at the balance sheet date,
the Group had following balances in respect of which no deferred tax asset has been recognized:



|                                       |  | December 31,      |          
|-------------------------------------- |  | ----------------- | ---------
|                                       |  | 2012              |          
|                                       |  | Deferred taxation |          
|                                       |  | RMB’000           |          
|                                       |  |                   |          
|Tax losses carried forward             |  |                   | 1,542,223
|Other deductible temporary differences |  |                   | 970,616  
|Total unrecognized deferred tax assets |  |                   | 2,512,839



In accordance with the PRC
tax law, tax losses can be carried forward, for a period of five years, to offset against future taxable income. The Group’s
tax losses carried forward will expire between 2013 and 2017.



As at December 31, 2012, management
carried out an assessment to determine whether future taxable profits will be available to utilize the tax losses and deductible
temporary differences. As there are still uncertainties around the Group’s future operation results, such as future fuel
prices and market competition, management assessed that there are significant uncertainties that future taxable profits will be
available and the deferred tax assets arisen from aforementioned tax losses and deductible temporary difference were not recognized.



F-77







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|37. | RETIREMENT BENEFIT PLANS AND POST-RETIREMENT BENEFITS
|--- | -----------------------------------------------------



| | (a) | Defined contribution retirement schemes
| | --- | ---------------------------------------



| | (i) | Pension
| | --- | -------



The Group companies participate
in defined contribution retirement schemes organized by municipal governments of various provinces in which the Group companies
operate. Substantially all of the Group’s PRC employees are eligible to participate in the Group companies’ retirement
schemes. The Group companies are required to make annual contributions to the schemes at rates ranging from 20% to 22% on the
employees’ salary and allowances subject to certain ceiling as set up by the relevant municipal governments. Employees are
required to contribute to the schemes at rates ranging from 7% to 8% of their salaries. For the year ended December 31, 2012, the
Group’s pension cost charged to the consolidated income statement amounted to RMB871 million (2011: RMB768 million).



| | (ii) | Medical insurance
| | ---- | -----------------



Majority of the Group’s
PRC employees participate in the medical insurance schemes organized by municipal governments, under which the Group companies
and their employees are required to contribute to the schemes approximately 12% and 2%, respectively, of the employee’s
basic salaries subject to certain ceiling as set up by the relevant municipal governments. For those employees who participate
in these schemes, the Group has no other obligation for the payment of medical expense beyond the annual contributions. For the
year ended December 31, 2012, the Group’s medical insurance contributions charged to the consolidated income statement amounted
to RMB391 million (2011: RMB374 million).



| | (b) | Post-retirement benefits
| | --- | ------------------------



In addition to the above defined
contribution retirement schemes, the Group provides retirees with other post-retirement benefits, including transportation subsidies,
social function activities subsidies and other welfares. The expected cost of providing these post-retirement benefits is actuarially
determined and recognized by using the projected unit credit method, which involves a number of assumptions and estimates, including
inflation rate, discount rate and employees’ turnover ratio.



The post-retirement benefit
obligations recognized in the balance sheets are as follows:



|                                                              |  | December 31, |           
|------------------------------------------------------------- |  | ------------ | ----------
|                                                              |  | 2012         |           
|                                                              |  | RMB’000      |           
|Present value of funded post- retirement benefit obligations  |  |              | 343,871   
|Fair value of plan assets                                     |  |              | (89,819   
|Present value of unfunded post-retirement benefit obligations |  |              | 5,979,600 
|Unrecognized actuarial losses                                 |  |              | (2,888,323
|Post-retirement benefit obligations                           |  |              | 3,345,329 
|Less: current portion (Note 31)                               |  |              | (85,800   
|Long-term portion                                             |  |              | 3,259,529 



F-78











CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 37. | RETIREMENT BENEFIT PLANS AND POST-RETIREMENT BENEFITS (CONTINUED)
| | --- | -----------------------------------------------------------------



| | (b) | Post-retirement benefits (continued)
| | --- | ------------------------------------



Changes in post-retirement benefit
obligations are as follows:



|                                      |  | 2012    |           |   | 2011    | 
|------------------------------------- |  | ------- | --------- | - | ------- | 
|                                      |  | RMB’000 |           |   | RMB’000 | 
|At January 1                          |  |         | 2,943,428 |   |         | 
|Costs charged in the income statement |  |         | 581,775   |   |         | 
|Payments                              |  |         | (179,874  | ) |         | 
|At December 31                        |  |         | 3,345,329 |   |         | 



The costs of post-retirement
benefits are recognized under wages, salaries and benefits in the income statements as follows:



|                                  |  | 2012    |         |   | 2011    |  |         | 2010    | 
|--------------------------------- |  | ------- | ------- | - | ------- |  | ------- | ------- | 
|                                  |  | RMB’000 |         |   | RMB’000 |  |         | RMB’000 | 
|Current service cost              |  |         | 193,936 |   |         |  | 170,493 |         | 
|Interest cost                     |  |         | 270,177 |   |         |  | 224,064 |         | 
|Actuarial losses recognized       |  |         | 124,184 |   |         |  | 90,643  |         | 
|Estimated return on planned asset |  |         | (6,522  | ) |         |  | (6,698  | )       | 
|Total (Note 9)                    |  |         | 581,775 |   |         |  | 478,502 |         | 



The principal actuarial assumptions
at the balance sheet date are as follows:



|                                                      |  | 2012 |           |   | 2011 | 
|----------------------------------------------------- |  | ---- | --------- | - | ---- | 
|Discount rate                                         |  |      | 4.30-4.35 | % |      | 
|Annual rate of increase of per capita benefit payment |  |      | 3.00-5.00 | % |      | 
|Employee turnover rate                                |  |      | 3.00-3.25 | % |      | 
|Mortality rate                                        |  |      | 9.83      | % |      | 
|Medical inflation rate                                |  |      | 5.00      | % |      | 



F-79







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 38. | STAFF HOUSING BENEFITS
| | --- | ----------------------



| | (a) | Staff housing fund
| | --- | ------------------



In accordance with the PRC housing
reform regulations, the Group is required to contribute to the State-sponsored housing fund for its employees at rates ranging
from 7% to 15% (2011: 7% to 15%) of the specified salary amounts of its PRC employees. At the same time, the employees are required
to contribute an amount equal to the Group’s contribution. The employees are entitled to claim the entire sum of the fund
contributed under certain specified withdrawal circumstances. For the year ended December 31, 2012, the Group’s contributions
to the housing funds amounted to RMB607 million (2011: RMB545 million) which has been charged to the consolidated income statement.
The staff housing fund payable as at December 31, 2012 is RMB52 million (2011: RMB28 million). The Group has no legal or constructive
obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating
to employee service in the current and prior periods.



| | (b) | Staff housing allowances
| | --- | ------------------------



The Group also provides staff
housing allowances in cash to eligible employees. The total entitlement of an eligible employee is principally vested over a period
of 20 years. Upon an eligible employee’s resignation or retirement, his or her entitlement would cease and any unpaid entitlement
related to past service up to the date of resignation or retirement would be paid. As at December 31, 2012, the present obligation
of the provision for employee’s staff housing allowances is RMB391 million (2011: RMB390 million).



For the year ended December
31, 2012, the staff housing benefit amounted to RMB171 million (2011: RMB171 million) which has been charged to the consolidated
income statement.



F-80







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 39. | DERIVATIVE FINANCIAL INSTRUMENTS
| | --- | --------------------------------



|                                              |  | Assets  |         |   | Liabilities | 
|--------------------------------------------- |  | ------- | ------- | - | ----------- | 
|                                              |  | 2012    |         |   | 2011        | 
|                                              |  | RMB’000 |         |   | RMB’000     | 
|At December 31                                |  |         |         |   |             | 
|Interest rate swaps (Note (a))                |  |         | -       |   |             | 
|Forward foreign exchange contracts (Note (b)) |  |         | 18,074  |   |             | 
|Total                                         |  |         | 18,074  |   |             | 
|Less: current portion                         |  |         |         |   |             | 
|- Interest rate swaps                         |  |         | -       |   |             | 
|- Forward foreign exchange contracts          |  |         | (18,074 | ) |             | 
|                                              |  |         | (18,074 | ) |             | 
|Non-current portion                           |  |         | -       |   |             | 



The maximum exposure to credit
risk at the reporting date is the fair value of the derivative assets in the balance sheet.



Notes:



| | (a) | Interest rate swaps
| | --- | -------------------



The Group uses interest rate
swaps to reduce the risk of changes in market interest rates (Note 3(a)(ii)). The interest rate swaps entered into by the Group
for swapping variable rates, usually referenced to LIBOR, into fixed rates are accounted for as cash flow hedges. Other interest
rate swaps are accounted for as fair value hedges. As at December 31, 2012, the notional amount of the outstanding interest rate
swap agreements was approximately US$929 million (2011: US$695 million). These agreements will expire between 2013 and 2022.



Realized and unrealized gains
and losses arising from the valuation of these interest rate swaps have been dealt with in the income statements as follows:



|                                                                                                          |  | 2012    |          |   | 2011    |  |          | 2010    | 
|--------------------------------------------------------------------------------------------------------- |  | ------- | -------- | - | ------- |  | -------- | ------- | 
|                                                                                                          |  | RMB’000 |          |   | RMB’000 |  |          | RMB’000 | 
|Realized losses (recorded in finance costs)                                                               |  |         | (99,169  | ) |         |  | (118,016 | )       | 
|Unrealized mark to market losses                                                                          |  |         |          |   |         |  |          |         | 
|- cash flow hedges (recognized in equity)                                                                 |  |         | (47,128  | ) |         |  | (133,526 | )       | 
|- fair value hedges
    (recognized in gain on fair value movements of derivatives financial instruments) |  |         | 15,755   |   |         |  | 9,062    |         | 
|                                                                                                          |  |         | (130,542 | ) |         |  | (242,480 | )       | 



F-81







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 39. | DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
| | --- | --------------------------------------------



| | (b) | Forward foreign exchange contracts
| | --- | ----------------------------------



The Group uses forward foreign
exchange contracts to reduce the risk of changes in currency exchange rates in respect of ticket sales and expenses denominated
in foreign currencies (Note 3(a)(i)). The Group’s forward foreign exchange contracts for selling Japanese Yen and purchasing
U.S. dollars at fixed exchange rates are accounted for as cash flow hedges. Other forward foreign exchange contracts are accounted
for as fair value hedges. As at December 31, 2012, the notional amount of the outstanding currency forward contracts was approximately
US$ 58 million (2011: US$46 million), which will expire between 2013 and 2017.



Realized and unrealized gains
and losses arising from the valuation of these contracts have been dealt with in the income statements as follows:



|                                                                                                     |  | 2012    |         |   | 2011    |  |         | 2010    | 
|---------------------------------------------------------------------------------------------------- |  | ------- | ------- | - | ------- |  | ------- | ------- | 
|                                                                                                     |  | RMB’000 |         |   | RMB’000 |  |         | RMB’000 | 
|Realized losses (recorded in finance income)                                                         |  |         | (12,407 | ) |         |  | (10,406 | )       | 
|Unrealized mark to market gains                                                                      |  |         |         |   |         |  |         |         | 
|- cash flow hedges (recognized in equity)                                                            |  |         | 37,917  |   |         |  | 1,080   |         | 
|- fair value hedges (recognized in gain on fair value movements of derivative financial instruments) |  |         | -       |   |         |  | 10,479  |         | 
|                                                                                                     |  |         | 25,510  |   |         |  | 1,153   |         | 



F-82







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 40. | FINANCIAL INSTRUMENTS BY CATEGORY
| | --- | ---------------------------------



|                                                        |  | Loans and receivables |           |  | Assets at fair value through the profitand loss |  |   | Derivatives used forhedging |  |  | Available-for-sale |  |  | Total   |        
|------------------------------------------------------- |  | --------------------- | --------- |  | ----------------------------------------------- |  | - | --------------------------- |  |  | ------------------ |  |  | ------- | -------
|Assets as per balance sheet                             |  | RMB’000               |           |  | RMB’000                                         |  |   | RMB’000                     |  |  | RMB’000            |  |  | RMB’000 |        
|                                                        |  |                       |           |  |                                                 |  |   |                             |  |  |                    |  |  |         |        
|Balances at December 31, 2012                           |  |                       |           |  |                                                 |  |   |                             |  |  |                    |  |  |         |        
|Available-for-sale financial assets                     |  |                       | -         |  |                                                 |  | - |                             |  |  | -                  |  |  |         | 234,690
|Derivative financial instruments                        |  |                       | -         |  |                                                 |  | - |                             |  |  | 18,074             |  |  |         | -      
|Trade receivables                                       |  |                       | 2,962,181 |  |                                                 |  | - |                             |  |  | -                  |  |  |         | -      
|Prepayments and other receivables excluding prepayments |  |                       | 2,544,967 |  |                                                 |  | - |                             |  |  | -                  |  |  |         | -      
|Restricted bank deposits and short-term bank deposits   |  |                       | 1,726,251 |  |                                                 |  | - |                             |  |  | -                  |  |  |         | -      
|Cash and cash equivalents                               |  |                       | 2,511,696 |  |                                                 |  | - |                             |  |  | -                  |  |  |         | -      
|Total                                                   |  |                       | 9,745,095 |  |                                                 |  | - |                             |  |  | 18,074             |  |  |         | 234,690



|                                    |  | Loans and receivables |            |  | Liabilities at fair value through the profitand loss |  |   | Derivatives used forhedging |  |  | Other financial liabilities at amortized cost |  |  | Total   |  
|----------------------------------- |  | --------------------- | ---------- |  | ---------------------------------------------------- |  | - | --------------------------- |  |  | --------------------------------------------- |  |  | ------- | -
|Liabilities as per balance sheet    |  | RMB’000               |            |  | RMB’000                                              |  |   | RMB’000                     |  |  | RMB’000                                       |  |  | RMB’000 |  
|                                    |  |                       |            |  |                                                      |  |   |                             |  |  |                                               |  |  |         |  
|Balances at December 31, 2012       |  |                       |            |  |                                                      |  |   |                             |  |  |                                               |  |  |         |  
|Borrowings                          |  |                       | 45,736,118 |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Obligations under finance leases    |  |                       | 21,857,978 |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Derivative financial instruments    |  |                       | -          |  |                                                      |  | - |                             |  |  | 340,151                                       |  |  |         | -
|Trade payables and notes payable    |  |                       | 3,075,325  |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Other payables and accrued expenses |  |                       | 16,256,225 |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Other long-term liabilities         |  |                       | 209,727    |  |                                                      |  |   |                             |  |  | -                                             |  |  |         |  
|Total                               |  |                       | 87,135,373 |  |                                                      |  | - |                             |  |  | 340,151                                       |  |  |         | -



F-83







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 40. | FINANCIAL INSTRUMENTS BY
CATEGORY (CONTINUED)
| | --- | ---------------------------------------------



|                                                        |  | Loans and receivables |            |  | Assets at fair value through the profitand loss |  |   | Derivatives used forhedging |  |  | Available-for-sale |  |  | Total   |        
|------------------------------------------------------- |  | --------------------- | ---------- |  | ----------------------------------------------- |  | - | --------------------------- |  |  | ------------------ |  |  | ------- | -------
|Assets as per balance sheet                             |  | RMB’000               |            |  | RMB’000                                         |  |   | RMB’000                     |  |  | RMB’000            |  |  | RMB’000 |        
|                                                        |  |                       |            |  |                                                 |  |   |                             |  |  |                    |  |  |         |        
|Balances at December 31, 2011                           |  |                       |            |  |                                                 |  |   |                             |  |  |                    |  |  |         |        
|Available-for-sale financial assets                     |  |                       | -          |  |                                                 |  | - |                             |  |  | -                  |  |  |         | 240,380
|Derivative financial instruments                        |  |                       | -          |  |                                                 |  | - |                             |  |  | 4,365              |  |  |         | -      
|Trade receivables                                       |  |                       | 2,504,026  |  |                                                 |  | - |                             |  |  | -                  |  |  |         | -      
|Prepayments and other receivables excluding prepayments |  |                       | 1,437,444  |  |                                                 |  | - |                             |  |  | -                  |  |  |         | -      
|Restricted bank deposits and short-term bank deposits   |  |                       | 2,894,287  |  |                                                 |  |   |                             |  |  |                    |  |  |         |        
|Cash and cash equivalents                               |  |                       | 3,860,973  |  |                                                 |  | - |                             |  |  | -                  |  |  |         | -      
|Total                                                   |  |                       | 10,696,730 |  |                                                 |  | - |                             |  |  | 4,365              |  |  |         | 240,380



|                                    |  | Loans and receivables |            |  | Liabilities at fair value through the profitand loss |  |   | Derivatives used forhedging |  |  | Other financial liabilities at amortized cost |  |  | Total   |  
|----------------------------------- |  | --------------------- | ---------- |  | ---------------------------------------------------- |  | - | --------------------------- |  |  | --------------------------------------------- |  |  | ------- | -
|Liabilities as per balance sheet    |  | RMB’000               |            |  | RMB’000                                              |  |   | RMB’000                     |  |  | RMB’000                                       |  |  | RMB’000 |  
|                                    |  |                       |            |  |                                                      |  |   |                             |  |  |                                               |  |  |         |  
|Balances at December 31, 2011       |  |                       |            |  |                                                      |  |   |                             |  |  |                                               |  |  |         |  
|Borrowings                          |  |                       | 41,774,593 |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Obligations under finance leases    |  |                       | 20,260,822 |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Derivative financial instruments    |  |                       | -          |  |                                                      |  | - |                             |  |  | 332,984                                       |  |  |         | -
|Trade payables and notes payable    |  |                       | 2,692,624  |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Other payables and accrued expenses |  |                       | 16,267,287 |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Other long-term liabilities         |  |                       | 908,406    |  |                                                      |  | - |                             |  |  | -                                             |  |  |         | -
|Total                               |  |                       | 81,903,732 |  |                                                      |  | - |                             |  |  | 332,984                                       |  |  |         | -



F-84







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 41. | SHARE CAPITAL
| | --- | -------------



|                                                                                               |  | December 31, |           
|---------------------------------------------------------------------------------------------- |  | ------------ | ----------
|                                                                                               |  | 2012         |           
|                                                                                               |  | RMB’000      |           
|Registered, issued and fully paid of RMB1.00 each                                              |  |              |           
|A shares listed on the Shanghai Stock Exchange (“A Shares”)                                    |  |              | 7,782,214 
|— Tradable shares held by CEA
    Holding with trading moratorium                              |  |              | -         
|— Tradable shares held by other
    investors with trading moratorium (Note)                   |  |              | -         
|— Tradable shares without trading moratorium                                                   |  |              | 7,782,214 
|H shares listed on the Stock Exchange of Hong Kong Limited (“H Shares”)                        |  |              | 3,494,325 
|— Tradable shares held by CES Global Holding (Hong Kong) Limited with trading moratorium(Note) |  |              | -         
|— Tradable shares without trading moratorium                                                   |  |              | 3,494,325 
|                                                                                               |  |              |           
|                                                                                               |  |              | 11,276,539



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



Note:



During the year ended December 31, 2012, listed A
shares of 5,120,264 thousand and listed H shares of 1,437,375 thousand with trading moratorium became listed and tradable.



F-85







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 42. | RESERVES
| | --- | --------



|                                                                                               |  | Share premium |            |   | Capital
                                                                                                                                                                                                                              reserve (Note
                                                                                                                                                                                                                                                                                                                                                                                                     (a)) |  |          | Hedging reserve (Note 39) |  |  | Other
                                                                                                                                                                                                                                                                                                                                                      reserve |   |  | Accumulated losses |        |   | Total   | 
|---------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - |  | ------------------ | ------ | - | ------- | 
|                                                                                               |  | RMB’000       |            |   | RMB’000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |          | RMB’000                   |  |  | RMB’000                                                                                                                                                                                                                                                                                                                                                             |   |  | RMB’000            |        |   | RMB’000 | 
|                                                                                               |  |               |            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          |                           |  |  |                                                                                                                                                                                                                                                                                                                                                                     |   |  |                    |        |   |         | 
|At January 1, 2011                                                                             |  |               | 17,747,785 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | (720,057 | )                         |  |  | (154,492                                                                                                                                                                                                                                                                                                                                                            | ) |  |                    | 77,019 |   |         | 
|Unrealized loss on cash flow hedges (Note 39)                                                  |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | (132,446                                                                                                                                                                                                                                                                                                                                                            | ) |  |                    | -      |   |         | 
|Fair value movements of  available for sale investments                                        |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | 486    |   |         | 
|Fair value movements of available for sale investments held by associates                      |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | (2,701 | ) |         | 
|Profit attributable to equity shareholders of the Company                                      |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | -      |   |         | 
|Accumulated losses shared by non-controlling interests after capital injection in a subsidiary |  |               | 426,439    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | -      |   |         | 
|Acquisition of non-controlling interests in subsidiaries                                       |  |               | (12,905    | ) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | -      |   |         | 
|At December 31, 2011                                                                           |  |               | 18,161,319 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | (720,057 | )                         |  |  | (286,938                                                                                                                                                                                                                                                                                                                                                            | ) |  |                    | 74,804 |   |         | 
|                                                                                               |  |               |            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          |                           |  |  |                                                                                                                                                                                                                                                                                                                                                                     |   |  |                    |        |   |         | 
|At January 1, 2012                                                                             |  |               | 18,161,319 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | (720,057 | )                         |  |  | (286,938                                                                                                                                                                                                                                                                                                                                                            | ) |  |                    | 74,804 |   |         | 
|Unrealized loss on cash flow hedges (Note 39)                                                  |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | (9,211                                                                                                                                                                                                                                                                                                                                                              | ) |  |                    | -      |   |         | 
|Fair value movements of  available for sale investments held by associates                     |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | 2,188  |   |         | 
|Fair value movements of available for sale investments                                         |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | (351   | ) |         | 
|Profit attributable to equity shareholders of the Company                                      |  |               | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | -      |   |         | 
|Acquisition of non-controlling interests in subsidiaries                                       |  |               | (490,151   | ) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | -      |   |         | 
|Others                                                                                         |  |               | 343,786    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | -        |                           |  |  | -                                                                                                                                                                                                                                                                                                                                                                   |   |  |                    | -      |   |         | 
|At December 31, 2012                                                                           |  |               | 18,014,954 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | (720,057 | )                         |  |  | (296,149                                                                                                                                                                                                                                                                                                                                                            | ) |  |                    | 76,641 |   |         | 



F-86







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 42. | RESERVES (CONTINUED)
| | --- | --------------------



Notes:



| | (a) | Capital reserve
| | --- | ---------------



Capital reserve represents the
difference between the fair value of the net assets injected and the nominal amount of the Company’s share capital issued
in respect of a Group restructuring carried out in June 1996 for the purpose of the Company’s listing.



| | (b) | Statutory and Discretionary Reserves
| | --- | ------------------------------------



Pursuant to the PRC regulations
and the Companies’ Articles of Association, each of the Group companies is required to transfer 10% of its profit for the
year, after offsetting the accumulated losses, as determined under the PRC Accounting Regulations, to a statutory common reserve
fund until the fund balance exceeds 50% of the Group company’s registered capital. The statutory common reserve fund can
be used to make good previous years’ losses, if any, and to issue new shares to shareholders in proportion to their existing
shareholdings or to increase the par value of the shares currently held by them, provided that the balance after such issue is
not less than 25% of the registered capital.



Each of the Group companies
is permitted to transfer 5% of its profit for the year as determined under the PRC Accounting Regulations, to a discretionary common
reserve fund. The transfer to this reserve is subject to approval at shareholders’ meetings.



No profit appropriation by the
Company to the statutory and discretionary reserve fund was made for the year ended December 31, 2012 (2011: Nil), as the Company
was in accumulated loss position as at December 31, 2012.



| | 43. | ASSETS HELD FOR SALE
| | --- | --------------------



In December 2011, the Group
entered into an agreement with a third party to dispose certain aircraft and related engines in the forthcoming 12 months in consideration
of high maintenance costs of these aircraft. The aircraft and engines with an aggregated carrying value of RMB482 million (after
the impairment loss charge) has been classified as assets held for sale at December 31, 2011. An impairment loss charge of approximately
RMB612 million was made against these aircraft and engines by reference to the contracted selling price (Note 10) for the year
ended December 31, 2011.



The assets held for sale as
at December 31, 2011 were disposed in 2012 and the selling price approximates its carrying value.



F-87







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 44. | NOTE TO CONSOLIDATED CASH FLOW STATEMENT
| | --- | ----------------------------------------



| | (a) | Cash generated from operations
| | --- | ------------------------------



|                                                                           |  | Year ended December 31, |           
|-------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                           |  | 2012                    |           
|                                                                           |  | RMB’000                 |           
|Profit before income tax                                                   |  |                         | 3,012,404 
|Adjustments for:                                                           |  |                         |           
|Depreciation of property, plant and equipment and intangible assets        |  |                         | 7,509,252 
|Gain on disposals of property, plant and equipment                         |  |                         | (101,196  
|Loss on disposals of investment in associates                              |  |                         |           
|Gain on disposals of assets-held-for-sale                                  |  |                         | -         
|Gain on disposals of investment in subsidiaries                            |  |                         | -         
|Share of results of associates                                             |  |                         | (103,209  
|Share of results of jointly controlled entities                            |  |                         | (29,960   
|Amortization of lease prepayments                                          |  |                         | 47,658    
|Net foreign exchange gains                                                 |  |                         | (147,836  
|Gain arising from fair value movements of derivative financial instruments |  |                         | (15,755   
|Consumption of flight equipment spare parts                                |  |                         | 747,268   
|Impairment/(reversal) provision for trade and other receivables            |  |                         | (6,872    
|Provision for post-retirement benefits                                     |  |                         | 581,775   
|Provision for return condition checks for aircraft under operating leases  |  |                         | 792,770   
|Impairment (reversal)/charges                                              |  |                         | (13,467   
|Interest income                                                            |  |                         | (200,765  
|Interest expense                                                           |  |                         | 1,697,474 
|Operating profit before working capital changes                            |  |                         | 13,769,541



F-88







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 44. | NOTE TO CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
| | --- | ----------------------------------------------------



| | (a) | Cash generated from operations (continued)
| | --- | ------------------------------------------



|                                                                          |  | Year ended December 31, |           
|------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                          |  | 2012                    |           
|                                                                          |  | RMB’000                 |           
|Changes in working capital                                                |  |                         |           
|Flight equipment spare parts                                              |  |                         | (1,176,365
|Trade receivables                                                         |  |                         | (427,908  
|Prepayments and other receivables                                         |  |                         | (99,757   
|Restricted bank deposits and short-term bank deposits                     |  |                         | 1,168,036 
|Sales in advance of carriage                                              |  |                         | (103,222  
|Trade payables and notes payables                                         |  |                         | 387,615   
|Other payables and accrued expenses                                       |  |                         | 179,263   
|Other long-term liabilities                                               |  |                         | (383,759  
|Provision for return condition checks for aircraft under operating leases |  |                         | (293,134  
|Staff housing allowances                                                  |  |                         | 40,361    
|Post-retirement benefit obligations                                       |  |                         | (179,873  
|Operating lease deposits                                                  |  |                         | (57,963   
|                                                                          |  |                         | (946,706  
|Cash generated from operations                                            |  |                         | 12,822,835



| | (b) | Non-cash transactions
| | --- | ---------------------



|                                                               |  | Year ended December 31, |          
|-------------------------------------------------------------- |  | ----------------------- | ---------
|                                                               |  | 2012                    |          
|                                                               |  | RMB’000                 |          
|Financing activities not affecting cash:                       |  |                         |          
|Issuances of new shares for acquisition of Shanghai Airlines   |  |                         | -        
|Finance lease obligations incurred for acquisition of aircraft |  |                         | 5,712,958
|                                                               |  |                         | 5,712,958



F-89







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 45. | COMMITMENTS
| | --- | -----------



| | (a) | Capital commitments
| | --- | -------------------



The Group had the following
capital commitments:



|                                                |  | December 31, |            
|----------------------------------------------- |  | ------------ | -----------
|                                                |  | 2012         |            
|                                                |  | RMB’000      |            
|Authorized and contracted for:                  |  |              |            
|- Aircraft, engines and flight equipment (Note) |  |              | 172,092,301
|- Other property, plant and equipment           |  |              | 1,125,000  
|                                                |  |              | 173,217,301
|Authorized but not contracted for:              |  |              |            
|- Other property, plant and equipment           |  |              | 3,132,616  
|- Investment                                    |  |              | 124,800    
|                                                |  |              | 3,257,416  
|                                                |  |              | 176,474,717



Note:



Contracted expenditures for
the above aircraft, engines and flight equipment, including deposits prior to delivery, subject to future inflation increases built
into the contracts were expected to be paid as follows:



|                   |  | December 31, |            
|------------------ |  | ------------ | -----------
|                   |  | 2012         |            
|                   |  | RMB’000      |            
|Within one year    |  |              | 26,320,538 
|In the second year |  |              | 44,435,072 
|In the third year  |  |              | 51,730,954 
|In the fourth year |  |              | 28,830,539 
|Over four years    |  |              | 20,775,198 
|                   |  |              | 172,092,301



F-90







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 45. | COMMITMENTS (CONTIUNED)
| | --- | -----------------------



| | (b) | Operating lease commitments
| | --- | ---------------------------



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



|                                       |  | December 31, |           
|-------------------------------------- |  | ------------ | ----------
|                                       |  | 2012         |           
|                                       |  | RMB’000      |           
|Aircraft, engines and flight equipment |  |              |           
|Within one year                        |  |              | 3,833,550 
|In the second year                     |  |              | 3,504,777 
|In the third to fifth year inclusive   |  |              | 7,900,135 
|After the fifth year                   |  |              | 6,438,693 
|                                       |  |              | 21,677,155
|Land and buildings                     |  |              |           
|Within one year                        |  |              | 240,084   
|In the second year                     |  |              | 176,726   
|In the third to fifth year inclusive   |  |              | 413,229   
|After the fifth year                   |  |              | 2,072,525 
|                                       |  |              | 2,902,564 
|                                       |  |              | 24,579,719







| | (c) | Investment commitments
| | --- | ----------------------



On August 24, 2012, Eastern
Air Overseas (Hong Kong) Corporation Limited (“EAO”) (a wholly owned Hong Kong-based subsidiary of the Company) entered
into a shareholders’ agreement (the “Shareholders’ Agreement”) with Jetstar International Group Holdings
Co., Limited (“JIGH”), a wholly owned Hong Kong-based subsidiary of Qantas Airlines, pursuant to which EAO and JIGH
agreed to establish Jetstar Hong Kong. According to the Shareholders’ Agreement, the share capital of Jetstar Hong Kong was
amounted to USD198 million and will be contributed equally by EAO and JIGH. As at December 31, 2012, the Group had not yet completed
the investment.



F-91







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



The Group is controlled by CEA
Holding, which directly owns 42.84% of the Company’s shares as at December 31, 2012 (2011: 42.84%). In addition, through CES
Global Holding (Hong Kong) Limited, a wholly owned subsidiary of CEA Holding, CEA Holding owns 17.09% of the Company’s shares
as at December 31, 2012 (2011: 17.09%).



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



|Name of related party                                                                |  | Relationship with the Group              | 
|------------------------------------------------------------------------------------ |  | ---------------------------------------- | 
|Eastern Finance                                                                      |  | Controlled by the same parent company    | 
|Kunming Dongmei Aviation Travel Co., Ltd. (“Kunming Dongmei”)                        |  | Controlled by the same parent company    | 
|Dongmei Travel                                                                       |  | Associate of the Company                 | 
|Xian Dongmei Aviation Travel Co., Ltd. (“Xian Dongmei”)                              |  | Controlled by the same parent company    | 
|Eastern Import & Export                                                              |  | Associate of the Company                 | 
|Wheels & Brakes                                                                      |  | Jointly controlled entity of the Company | 
|Technologies Aerospace                                                               |  | Jointly controlled entity of the Company | 
|Shanghai P&W                                                                         |  | Associate of the Company                 | 
|Shanghai Eastern Air Catering Co., Ltd. (“Shanghai Catering”)                        |  | Controlled by the same parent company    | 
|Eastern Advertising                                                                  |  | Associate of the Company                 | 
|CEA Development Co. Ltd. (“CEA Development”)                                         |  | Controlled by the same parent company    | 
|Shanghai Eastern Aviation Equipment Manufacturing Corporation (“Eastern  Aviation”)  |  | Controlled by the same parent company    | 
|Shanghai Hute Aviation Tech. Co. Ltd. (“Shanghai Hute”)                              |  | Controlled by the same parent company    | 
|Shanghai Eastern International Aviation Travel Co., Ltd. (“Eastern Aviation Travel”) |  | Controlled by the same parent company    | 
|Eastern China Kaiya System Integration (“China Kaiya”)                               |  | Controlled by the same parent company    | 
|CEA Northwest Co., Ltd. (“CEA Northwest”)                                            |  | Controlled by the same parent company    | 
|Shanghai Aviation Import & Export Co., Ltd. (“Shanghai Import & Export”)             |  | Associate of the Company                 | 
|Shanghai Eastern Airlines Investment Co., Ltd.(“Eastern investment”)                 |  | Associate of the Company                 | 
|Eastern Airlines Travel Investment(Group) Co., Ltd. (“Eastern Travel”)               |  | Associate of the Company                 | 



F-92







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46. | RELATED PARTY TRANSACTIONS (CONTIUNED)
| | --- | --------------------------------------



| | (b) | Related party transactions
| | --- | --------------------------



|                                                                                                                                                                                    |  |                                        |  | Income/
(expense or payments) |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- |  | ----------------------------- | ----------
|Nature of transaction                                                                                                                                                               |  | Related party                          |  | 2012                          |           
|                                                                                                                                                                                    |  |                                        |  | RMB’000                       |           
|With CEA Holding or companies directly or  indirectly held by CEA Holding:                                                                                                          |  |                                        |  |                               |           
|                                                                                                                                                                                    |  |                                        |  |                               |           
|Interest income on deposits at an average rate of 0.39% per annum (2011: 0.50% per annum)                                                                                           |  | Eastern Finance                        |  |                               | 45,996    
|                                                                                                                                                                                    |  |                                        |  |                               |           
|Interest expense on loans at average rate of 5.49% per annum (2011: 5.39% per annum)                                                                                                |  | Eastern Finance                        |  |                               | (87,457   
|                                                                                                                                                                                    |  | CEA Holding                            |  |                               | -         
|                                                                                                                                                                                    |  |                                        |  |                               |           
|Commission expense on air tickets sold on behalf of the Group, at rates ranging from 3% to 9% of the value of tickets sold **                                                       |  | Kunming Dongmei                        |  |                               | (4,858    
|                                                                                                                                                                                    |  | Dongmei Travel                         |  |                               | (12,438   
|                                                                                                                                                                                    |  |                                        |  |                               |           
|                                                                                                                                                                                    |  | Xian Dongmei                           |  |                               | (2,540    
|                                                                                                                                                                                    |  |                                        |  |                               |           
|Handling charges of 0.1% to 2% for purchase of aircraft, flight equipment, flight equipment spare parts, other property, plant and equipment and repairs for aircraft and engines** |  | Eastern Import & Export                |  |                               | (78,756   
|                                                                                                                                                                                    |  |                                        |  |                               |           
|Repairs and maintenance expense for aircraft and engines **                                                                                                                         |  | Wheels & Brakes                        |  |                               | (58,483   
|                                                                                                                                                                                    |  |                                        |  |                               |           
|                                                                                                                                                                                    |  | Technologies Aerospace                 |  |                               | (194,528  
|                                                                                                                                                                                    |  |                                        |  |                               |           
|                                                                                                                                                                                    |  | Shanghai P&W                           |  |                               | (2,009,050
|                                                                                                                                                                                    |  |                                        |  |                               |           
|Supply of food and beverages*                                                                                                                                                       |  | Shanghai Catering and its subsidiaries |  |                               | (783,384  



F-93







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46. | RELATED PARTY TRANSACTIONS (CONTINUED)
| | --- | --------------------------------------



| | (b) | Related party transactions (continued)
| | --- | --------------------------------------



|                                                                                                               |  |                          |  | Income/ (expense or payments) |         
|-------------------------------------------------------------------------------------------------------------- |  | ------------------------ |  | ----------------------------- | --------
|Nature of transaction                                                                                          |  | Related party            |  | 2012                          |         
|                                                                                                               |  |                          |  | RMB’000                       |         
|Advertising expense **                                                                                         |  | Eastern Advertising      |  |                               | (38,846 
|                                                                                                               |  |                          |  |                               |         
|Media royalty fee **                                                                                           |  | Eastern Advertising      |  |                               | 36,030  
|                                                                                                               |  |                          |  |                               |         
|Automobile maintenance service, aircraft maintenance, providing transportation automobile and other products** |  | CEA Development          |  |                               | (121,854
|                                                                                                               |  |                          |  |                               |         
|Equipment maintenance fee **                                                                                   |  | Eastern Aviation         |  |                               | -       
|                                                                                                               |  |                          |  |                               |         
|                                                                                                               |  | Shanghai Hute            |  |                               | (47,205 
|                                                                                                               |  |                          |  |                               |         
|Land and building rental                                                                                       |  | CEA Holding              |  |                               | (66,763 
|                                                                                                               |  |                          |  |                               |         
|Acquisition of non-controlling interests in subsidiaries                                                       |  | CEA Holding              |  |                               | (83,952 
|                                                                                                               |  |                          |  |                               |         
|                                                                                                               |  | Shanghai Import & Export |  |                               | (20,694 
|                                                                                                               |  |                          |  |                               |         
|Acquisition of  non-controlling interests in associates                                                        |  | Eastern Travel           |  |                               | (13,851 
|                                                                                                               |  |                          |  |                               |         
|Acquisition of cargo business                                                                                  |  | Great Wall Airlines      |  |                               | -       
|                                                                                                               |  |                          |  |                               |         
|Disposal of investment in subsidiaries                                                                         |  | Shanghai Catering        |  |                               | -       
|                                                                                                               |  |                          |  |                               |         
|                                                                                                               |  | Eastern Import & Export  |  |                               | -       
|                                                                                                               |  |                          |  |                               |         
|                                                                                                               |  | Eastern Advertising      |  |                               | -       
|                                                                                                               |  |                          |  |                               |         
|Disposal of investment in an associate***                                                                      |  | Eastern Investment       |  |                               | 93,680  



| | * | The Group’s pricing policies on products purchased from related parties are based on the mutually agreed prices between
contract parties.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | ** | The Group’s pricing policies on services provided by and to related parties are based on the mutually agreed prices between
contract parties.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | *** | The Company’s pricing policies on transfer of equity or dispose of investment are based on the valuation prices.
| | --- | ----------------------------------------------------------------------------------------------------------------



F-94







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46. | RELATED PARTY TRANSACTIONS (CONTINUED)
| | --- | --------------------------------------



| | (c) | Balances with related companies
| | --- | -------------------------------



| | (i) | Amounts due from related companies
| | --- | ----------------------------------



|                                 |  |                         |  | December 31, |        
|-------------------------------- |  | ----------------------- |  | ------------ | -------
|Nature                           |  | Company                 |  | 2012         |        
|                                 |  |                         |  | RMB’000      |        
|Trade receivables                |  | Kunming Dongmei         |  |              | 4,213  
|                                 |  | Eastern Aviation Travel |  |              | -      
|                                 |  | Others                  |  |              | 4,308  
|                                 |  |                         |  |              | 8,521  
|                                 |  |                         |  |              |        
|Prepayments and other receivable |  | Eastern Import & Export |  |              | 370,125
|                                 |  | China Kaiya             |  |              | 19,694 
|                                 |  | Others                  |  |              | 13,025 
|                                 |  |                         |  |              | 402,844



All the amounts due from related companies are trade
in nature, interest free and payable within normal credit terms given to trade customers.



| | (ii) | Amounts due to related companies
| | ---- | --------------------------------



|                                    |  |                         |  | December 31, |          
|----------------------------------- |  | ----------------------- |  | ------------ | ---------
|Nature                              |  | Company                 |  | 2012         |          
|                                    |  |                         |  | RMB’000      |          
|Trade payables and notes payable    |  | Eastern Import & Export |  |              | 1,210,603
|                                    |  | Shanghai P&W            |  |              | 467,885  
|                                    |  | Shanghai Catering       |  |              | 134,696  
|                                    |  | Technologies Aerospace  |  |              | 63,136   
|                                    |  | Others                  |  |              | 73,324   
|                                    |  |                         |  |              | 1,949,644
|                                    |  |                         |  |              |          
|Other payables and accrued expenses |  | CEA Holding             |  |              | 73,020   
|                                    |  | Eastern Import & Export |  |              | 96,861   
|                                    |  | Others                  |  |              | 25,003   
|                                    |  |                         |  |              | 194,884  



Except for the amounts due to
CEA Holding, which are reimbursement in nature, all other amounts due to related companies are trade in nature. All amounts due
to related companies are interest free and payable within normal credit terms given by trade creditors.



F-95







CHINA EASTERN AIRLINES CORPORATION LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46. | RELATED PARTY TRANSACTIONS (CONTINUED)
| | --- | --------------------------------------



| | (c) | Balances with related companies (continued)
| | --- | -------------------------------------------



| | (iii) | Short-term deposits and borrowings with an associate and CEA Holding
| | ----- | --------------------------------------------------------------------



|                                                                                        |  | Average interest rate |      |   | December 31, | 
|--------------------------------------------------------------------------------------- |  | --------------------- | ---- | - | ------------ | 
|                                                                                        |  | 2012                  |      |   | 2011         | 
|                                                                                        |  |                       |      |   |              | 
|Short-term deposits (included in restricted bank deposits and short-term bank deposits) |  |                       |      |   |              | 
|“Eastern Finance”                                                                       |  |                       | 0.39 | % |              | 
|Short-term loans (included in Borrowings)                                               |  |                       |      |   |              | 
|“Eastern Finance”                                                                       |  |                       | 4.98 | % |              | 
|Long-term loans (included in Borrowings)                                                |  |                       |      |   |              | 
|“Eastern Finance”                                                                       |  |                       | 5.64 | % |              | 



| | (d) | Guarantees by holding company
| | --- | -----------------------------



As at December 31, 2012, bank
loans of the Group with an aggregate amount of RMB95 million (2011: RMB228 million) were guaranteed by CEA Holding (Note 33).



| | 47. | ULTIMATE HOLDING COMPANY
| | --- | ------------------------



The Directors regard CEA Holding, a state-owned enterprise
established in the PRC, as being the ultimate holding company.





F-96