SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 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, 2014                                         





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 Road, 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:



|Title of Each Class                            |  | Name of Each Exchangeon 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, 2014,
8,481,078,860 Ordinary Domestic Shares, par value RMB1.00 per share, were issued and outstanding, and 4,193,190,000 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  ̈
No x



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  ̈ No x



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. Yes x No
 ̈



Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of 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  ̈ No x



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 Filer x | 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 Board
        
        x | 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  ̈
No x











|          |                                                                              | Page No.
|--------- | ---------------------------------------------------------------------------- | --------
|          |                                                                              |         
|PART I    |                                                                              |         
|          |                                                                              |         
|Item 1.   | Identity of Directors, Senior Management and Advisers                        | 4       
|          |                                                                              |         
|Item 2.   | Offer Statistics and Expected Timetable                                      | 5       
|          |                                                                              |         
|Item 3.   | Key Information                                                              | 5       
|          |                                                                              |         
|Item 4.   | Information on the Company                                                   | 20      
|          |                                                                              |         
|Item 5.   | Operating and Financial Review and Prospects                                 | 46      
|          |                                                                              |         
|Item 6.   | Directors, Senior Management and Employees                                   | 64      
|          |                                                                              |         
|Item 7.   | Major Shareholders and Related Party Transactions                            | 73      
|          |                                                                              |         
|Item 8.   | Financial Information                                                        | 82      
|          |                                                                              |         
|Item 9.   | The Offer and Listing                                                        | 83      
|          |                                                                              |         
|Item 10.  | Additional Information                                                       | 84      
|          |                                                                              |         
|Item 11.  | Quantitative and Qualitative Disclosures about Market Risk                   | 101     
|          |                                                                              |         
|Item 12.  | Description of Securities Other than Equity Securities                       | 102     
|          |                                                                              |         
|PART II   |                                                                              |         
|          |                                                                              |         
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 103     
|          |                                                                              |         
|Item 14.  | Material Modifications to the Rights of Security Holders and Use Of Proceeds | 103     
|          |                                                                              |         
|Item 15.  | Controls and Procedures                                                      | 103     
|          |                                                                              |         
|Item 16A. | Audit Committee Financial Expert                                             | 104     
|          |                                                                              |         
|Item 16B. | Code of Ethics                                                               | 104     
|          |                                                                              |         
|Item 16C. | Principal Accountant Fees and Services                                       | 104     
|          |                                                                              |         
|Item 16D. | Exemptions from the Listing Standards for Audit Committees                   | 104     
|          |                                                                              |         
|Item 16E. | Purchase of Equity Securities by the Issuer and Affiliated Purchasers        | 105     
|          |                                                                              |         
|Item 16F. | Changes in Registrant's Certifying Accountant                                | 105     
|          |                                                                              |         
|Item 16G. | Corporate Governance                                                         | 106     
|          |                                                                              |         
|Item 16H. | Mine Safety Disclosures                                                      | 108     
|          |                                                                              |         
|PART III  |                                                                              |         
|          |                                                                              |         
|Item 17.  | Financial Statements                                                         | 108     
|          |                                                                              |         
|Item 18.  | Financial Statements                                                         | 108     
|          |                                                                              |         
|Item 19.  | Exhibits                                                                     | 108     



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 or the negatives thereof, 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;
| | - | -----------------------------------------------------------------------



3







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



| | · | 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                
|                                                  |  |                                                                      
|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.



4









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



Not applicable.



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



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



Pursuant to U.S.
Securities and Exchange Commission (“SEC” or “Securities and Exchange Commission”) 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 International Financial
Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB, and no longer provide a
reconciliation between IFRS and U.S. GAAP.



Our consolidated financial
statements as of December 31, 2013 and 2014 and for the years ended December 31, 2012, 2013 and 2014 included in this Annual Report
on Form 20-F have been prepared in accordance with IFRS.



We make an explicit
and unreserved statement of compliance with IFRS with respect to our consolidated financial statements as of December 31,
2013 and 2014 and for the years ended December 31, 2012, 2013 and 2014 included in this Annual Report. Ernst & Young, our
current independent registered public accounting firm in Hong Kong, has issued an unqualified auditors’ report on our
consolidated statement of financial position as of December 31, 2014 and the related consolidated statements of profit or
loss and other comprehensive income, changes in equity and cash flows for the year ended December 31, 2014. The selected
financial data from the consolidated profit or loss and other comprehensive income for the year ended December 31, 2013 and
the selected financial data from the consolidated financial position as of December 31, 2013 have been derived from our
audited consolidated financial statements, which have been prepared in accordance with IFRS, and audited by Ernst & Young
Hua Ming LLP, an independent registered public accounting firm in the PRC. The selected financial data from the consolidated
income statements for the years ended December 31, 2010, 2011 and 2012 and the selected financial data from the balance
sheets as of December 31, 2010, 2011 and 2012 have been derived from our audited consolidated financial statements, which
have been prepared in accordance with IFRS, and audited by PricewaterhouseCoopers, an independent registered public
accounting firm in Hong Kong.



The following tables
present selected consolidated profit or loss and comprehensive income data for the years ended December 31, 2010, 2011, 2012, 2013
and 2014 and selected consolidated statements of financial position data as of December 31, 2010, 2011, 2012, 2013 and 2014 that
were prepared under IFRS. The selected financial information as of December 31, 2013 and 2014 and for the years ended December
31, 2012, 2013 and 2014 has been derived from, and should be read in conjunction with, the audited consolidated financial statements
and their notes included elsewhere in this Annual Report.





|                                                                               |  | Year Ended December 31,                         |        
|------------------------------------------------------------------------------ |  | ----------------------------------------------- | -------
|                                                                               |  | 2010 RMB                                        |        
|                                                                               |  | (in millions, except per share or per ADS data) |        
|Consolidated Statements of Profit or Loss and Other Comprehensive Income Data: |  |                                                 |        
|Revenues                                                                       |  |                                                 | 73,804 
|Other operating income                                                         |  |                                                 | 658    
|Operating expenses                                                             |  |                                                 | (68,664
|Operating profit                                                               |  |                                                 | 5,798  
|Finance income / (costs), net                                                  |  |                                                 | (347   
|Profit before income tax                                                       |  |                                                 | 5,519  
|Profit for the year attributable to the equity shareholders of the Company     |  |                                                 | 5,056  
|Basic and fully diluted earnings per share (1)                                 |  |                                                 | 0.45   
|Basic and fully diluted earnings per ADS                                       |  |                                                 | 22.67  



| | (1) | 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. The calculation of earnings per share for 2013 is based on consolidated profit attributable to the equity shareholders of the Company divided by the weighted average number of 12,091,881,000 shares outstanding. The calculation of earnings per share for 2014 is based on consolidated profit attributable to the equity shareholders of the Company divided by the weighted average number of 12,674,269,000 shares outstanding.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5







|                                                                                        |  | As of December 31, |        
|--------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                        |  | 2010 RMB           |        
|                                                                                        |  | (in millions)      |        
|Consolidated Statements of Financial Position Data:                                     |  |                    |        
|Cash and cash equivalents                                                               |  |                    | 3,078  
|Net current liabilities                                                                 |  |                    | (27,184
|Non-current assets                                                                      |  |                    | 91,293 
|Long term borrowings, including current portion                                         |  |                    | (27,373
|Obligations under finance leases, including current portion                             |  |                    | (19,208
|Total share capital and reserves attributable to the equity shareholders of the Company |  |                    | 12,094 
|Non-current liabilities                                                                 |  |                    | (49,973
|Total assets less current liabilities                                                   |  |                    | 64,109 



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 RMB6.2148 to US$1.00 and HK$7.7616
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, 2014. 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 17, 2015, the
exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board were RMB6.1976=US$1.00 and HK$7.7510=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.



|                                  |  | RMB per US$1.00 (1) |        |  | HK$ per US$1.00 (1) | 
|--------------------------------- |  | ------------------- | ------ |  | ------------------- | 
|                                  |  | High                |        |  | Low                 | 
|                                  |  |                     |        |  |                     | 
|January 2013                      |  |                     | 6.2303 |  |                     | 
|February 2013                     |  |                     | 6.2438 |  |                     | 
|March 2013                        |  |                     | 6.2246 |  |                     | 
|April 2013                        |  |                     | 6.2078 |  |                     | 
|May 2013                          |  |                     | 6.1665 |  |                     | 
|June 2013                         |  |                     | 6.1488 |  |                     | 
|July 2013                         |  |                     | 6.1408 |  |                     | 
|August 2013                       |  |                     | 6.1302 |  |                     | 
|September 2013                    |  |                     | 6.1213 |  |                     | 
|October 2013                      |  |                     | 6.1209 |  |                     | 
|November 2013                     |  |                     | 6.0993 |  |                     | 
|December 2013                     |  |                     | 6.0927 |  |                     | 
|January 2014                      |  |                     | 6.0600 |  |                     | 
|February 2014                     |  |                     | 6.1448 |  |                     | 
|March 2014                        |  |                     | 6.2273 |  |                     | 
|April 2014                        |  |                     | 6.2591 |  |                     | 
|May 2014                          |  |                     | 6.2591 |  |                     | 
|June 2014                         |  |                     | 6.2548 |  |                     | 
|July 2014                         |  |                     | 6.2115 |  |                     | 
|August 2014                       |  |                     | 6.1793 |  |                     | 
|September 2014                    |  |                     | 6.1495 |  |                     | 
|October 2014                      |  |                     | 6.1385 |  |                     | 
|November 2013                     |  |                     | 6.1429 |  |                     | 
|December 2014                     |  |                     | 6.2256 |  |                     | 
|January 2015                      |  |                     | 6.2535 |  |                     | 
|February 2015                     |  |                     | 6.2695 |  |                     | 
|March 2015                        |  |                     | 6.2741 |  |                     | 
|April 2015 (up to April 17, 2015) |  |                     | 6.2152 |  |                     | 



6







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. The exchange rate refers to the exchange rate as set forth in the G. 5A statistical release of the Federal Reserve Board.





|     |  | RMB perUS$1.00 (1) |        |  | HK$ per US$1.00 | 
|---- |  | ------------------ | ------ |  | --------------- | 
|2010 |  |                    | 6.7696 |  |                 | 
|2011 |  |                    | 6.4630 |  |                 | 
|2012 |  |                    | 6.3093 |  |                 | 
|2013 |  |                    | 6.1478 |  |                 | 
|2014 |  |                    | 6.1620 |  |                 | 



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, 2014, which are not audited. All references in
this Annual Report to our cargo operations, statistics or revenues include figures for cargo and mail.



|                                                              |  | Year Ended December 31, |          
|------------------------------------------------------------- |  | ----------------------- | ---------
|                                                              |  | 2010                    |          
|Selected Airline Operating Data:                              |  |                         |          
|Capacity:                                                     |  |                         |          
|ATK (millions)                                                |  |                         | 17,887.4 
|ASK (millions)                                                |  |                         | 119,450.9
|AFTK (millions)                                               |  |                         | 7,136.8  
|Traffic:                                                      |  |                         |          
|Revenue passenger-kilometers (millions)                       |  |                         | 93,152.8 
|Revenue tonne-kilometers (millions)                           |  |                         | 12,599.0 
|Revenue freight tonne-kilometers (millions)                   |  |                         | 4,308.5  
|Hours flown (thousands)                                       |  |                         | 1,195.1  
|Number of passengers carried (thousands)                      |  |                         | 64,930.4 
|Weight of cargo carried (millions of kilograms)               |  |                         | 1,464.9  
|Load Factor:                                                  |  |                         |          
|Overall load factor (%)                                       |  |                         | 70.4     
|Passenger load factor (%)                                     |  |                         | 78.0     
|Yield and Cost Statistics (RMB):                              |  |                         |          
|Passenger yield (passenger revenue/ passenger-kilometers)     |  |                         | 0.63     
|Cargo yield (cargo revenue/cargo tonne-kilometers)            |  |                         | 1.95     
|Average yield (passenger and cargo revenue/ tonne-kilometers) |  |                         | 5.35     
|Unit cost (operating expenses/ATK)                            |  |                         | 3.84     



7







| | 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 and profitability of the domestic airline
industry. These developments, in turn, may have a material adverse effect on our business, financial condition and results of operations.



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



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



Furthermore, the value
of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among other things,
the PRC government policies, domestic and international economic and political conditions and changes in the supply and demand
of the currency. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar.
Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy resulted in appreciation of the Renminbi against the U.S. dollar by approximately 7.0% in 2008.
While there was no material appreciation of Renminbi against the U.S. dollar in 2009, the Renminbi appreciated by approximately
3.0% against the U.S. dollar in 2010 and by approximately 5.1% in 2011. In April 2012, the People's Bank of China (the "PBOC")
widened the daily trading band of the Renminbi against the U.S. dollar, and the Renminbi was allowed to appreciate or depreciate
by 1.0% from the PBOC central parity rate, effective April 16, 2012. In March 2014, the PBOC further widened the daily trading
band of the Renminbi against the U.S. dollar, and the Renminbi was allowed to appreciate or depreciate by 2% against the U.S. dollar
from the daily central parity rate, effective March 17, 2014. It is possible that the PRC government could adopt a more flexible
foreign exchange policy, which could result in further and more significant revaluations of the Renminbi against the U.S. dollar
or any other foreign currency. Any resulting fluctuations in exchange rates as a result of such policy changes may have an adverse
effect on our financial condition and results of operations.



8







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



Inflation rates in the
PRC have been on a sharp uptrend in recent years. The PRC government has undertaken numerous contractionary policies, including
raising interest rates and reserve requirement ratios, and curbing bank lending, to slow down excessive economic growth and control
price hikes. Increase in inflation is due to many factors beyond our control, such as rising production and labor costs, high debts,
changes in the PRC and foreign governmental policy and regulations, and movements in exchange rates and interest rates. 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. In 2013, PRC
inflation rates fluctuated with two peaks of 3.2% in February and October 2013. In 2014, the inflation rates fluctuated with two
peaks in May and July 2014. The national consumer price index was 2.6% in 2013, equal to that of 2012. The national consumer price
index was 2.1% in 2014. 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 anticipated, and we may
be unable to pass on such higher costs to consumers in amounts that are sufficient to cover those increasing operating costs. As
a result, further inflationary pressures in the PRC may have a material adverse effect on our business, financial condition and
results of operations, as well as our liquidity and profitability.



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



Prior to January 1, 2008,
except for a number of preferential tax treatment schemes available to various enterprises, industries and locations, business
enterprises in China were subject to an enterprise income tax rate of 33% under the relevant PRC Enterprise Income Tax Law. On
March 16, 2007, China passed a new enterprise income tax law, or the EIT Law, which took effect on January 1, 2008. 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 has 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 increases in the applicable effective tax rate, withdrawals of,
or changes in, our preferential tax treatment or tax exemptions, our tax liability may increase correspondingly.



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 investors
in China. However, the interpretation and enforcement of some of these laws and regulations involve uncertainties that may limit
the legal protection available to investors. Such uncertainties pervade as the legal system in the PRC continues to evolve. Even
where adequate laws exist in the PRC, the enforcement of the existing laws or contracts may be uncertain and sporadic, and it may
be difficult to obtain swift and equitable enforcement, including enforcing a foreign judgment. In addition, the PRC legal system
is based on written statutes and their interpretation, and prior court decisions may be cited as reference but have limited authority
as precedents. As such, any litigation in the PRC may be protracted and result in substantial costs and diversion of our resources
and management attention. We have full or majority board control over the management and operation of all of our subsidiaries established
in the PRC. The control over these PRC entities and the exercise of shareholder rights are subject to their respective articles
of association and PRC laws applicable to foreign-invested enterprises in the PRC, which may be different from the laws of other
developed jurisdictions.



The PRC has not developed
a fully integrated legal system and certain recently enacted laws and regulations may not sufficiently cover all aspects of economic
activities in the PRC. The relative lack of experience of the PRC's judiciary in many cases also 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, in case of new laws and regulations, the interpretation, implementation and
enforcement of these laws and regulations would involve uncertainties due to the lack of established practice or published court
decisions available for reference. We cannot predict the future legal development in the PRC, including promulgation of new laws,
changes to existing laws or interpretation or enforcement thereof, or inconsistencies between the local rules and regulations and
the national law. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are
not published in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of any violations
until sometime after the violation has occurred. This may also limit the remedies available to investors and to us in the event
of any claims or disputes with third parties.



9







The auditors’
reports included in this annual report are prepared by relying on audit work which is not inspected by the Public Company Accounting
Oversight Board and, as such, investors may be deprived of the benefits of such inspection.



Auditors of
companies that are registered with the SEC and traded publicly in the United States, including our independent registered
public accounting firm, must be registered with the Public Company Accounting Oversight Board (United States), or the PCAOB,
and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with
the laws of the United States and professional standards. Because we have substantial operations within China, our auditor
relied on its China affiliate to perform audits on our consolidated financial statements, and the PCAOB is currently unable
to conduct inspections of the work done by our auditor as it relates to our operations without the approval of the Chinese
authorities, our auditor’s work related to our operations in China is not currently inspected by the PCAOB. This lack
of PCAOB inspection of audit work performed in China prevents the PCAOB from regularly evaluating the audit work performed by
any auditor in China including our auditor. As a result, investors may be deprived of the full benefits of PCAOB
inspections.



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



Proceedings instituted
by the SEC against certain PRC-based accounting firms, including the China affiliate of our independent registered public accounting
firm, could result in financial statements being determined not to be in compliance with the requirements of the Exchange Act.



In December 2012, the
SEC brought administrative proceedings against five accounting firms in China, including the China affiliate of our independent
registered public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain
other China-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued,
censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months.
The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On February 12, 2014, four
of these PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting
firms agreed to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The
settlement requires the firms to follow detailed procedures to provide the SEC with access to the Chinese firms’ audit documents
via the CSRC. If the firms do not follow these procedures, the SEC could impose sanctions such as suspensions, or it could restart
the administrative proceedings.



In the event that the
SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major
PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result
in financial statements being determined not to be in compliance with the requirements of the Exchange Act, and possibly delisting
of the securities. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding
China-based U.S.-listed companies and the market price of our ADSs may be adversely affected.



If theChina
affiliate of our independent registered public accounting firm were denied, even temporarily, the ability to practice before the
SEC and we were unable to find another registered public accounting firm in a timely manner to audit and issue an opinion on our
financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange
Act. Such determination could ultimately lead to our delisting from the NYSE or deregistration from the SEC, or both, which would
substantially reduce or effectively terminate the trading of our ADSs in the United States.



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;
| | - | -----------------------------



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



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



10







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



| | · | 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 slow recovery
of the global economy could affect air travel.



The airline industry is
highly cyclical, and the level of demand for air travel is correlated to the strength of domestic and global economies. Robust
demand for our air transportation services depends largely on favorable general economic conditions, including the strength of
global and local economies, low unemployment, strong consumer confidence and availability of consumer and business credit. In 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 for international routes in 2009. In response to these market
conditions, 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, subsequent events in 2013 and early
2014 such as general market volatility, political instability, regional and geopolitical disputes may continue to materially and
adversely affect economic activity and financial markets globally, which could in turn weaken the demand for international air
travel and adversely affect our business, financial condition and results operations.



In addition, while the
PRC government has instituted and is expected to continue implementing certain initiatives in response to periods of slowdown in
the PRC economy, a rapid increase in liquidity in the market as a result of fiscal stimulus measures led to the PRC government
implementing a number of measures to control such rapid increase, including adjusting interest rates. These foregoing factors and
any further decline in economic activity may reduce domestic or international demand for air travel and our growth in the domestic
and international aviation markets may slow down significantly, which could 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 our cargo business segment.



We operate in a
highly competitive industry.



We face intense competition
in each of the domestic, regional and international markets that we serve. In our domestic market, we compete against all airlines
that have the same routes, including smaller domestic airlines that have lower operating costs. In the regional and international
markets, we compete against international airlines that have significantly longer operating history, better brand recognition,
or more resources, such as large sales network or sophisticated reservation systems. See the section headed "Item 4. Information
on the Company — Business Overview — Competition" for more details. The public's perception of safety of Chinese
airlines could also materially and adversely affect our ability to compete against our international competitors. To stay competitive,
we have, from time to time in the past, lowered our airfares for certain of our routes, and we may continue to do so in the future.
Increased competition and pricing pressures may have a material adverse effect on our financial condition and results of operations.



We 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 rail
network, improvements in railway service quality, increased passenger capacity and urban center accessibility could enhance the
competitiveness of the railway service and negatively affect our market share on some of our key routes, in particular our routes
of between 500km to 800km. Increased competition and pricing pressures from the railway service may have an adverse effect on our
business, financial condition and results of operations.



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



The current CAAC policies
limit foreign ownership of PRC airlines. Under these rules, non-PRC, Hong Kong, Macau or Taiwan residents cannot hold a majority
equity interest in a PRC airline. As of December 31, 2014, approximately 33.08% 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 not increase these
limits on foreign ownership of PRC airlines in the future.



11







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



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



Jet fuel prices were volatile
in 2013 and 2014, with heightened political tensions and continued political instability in certain Middle Eastern countries and
in Crimea bordering Ukraine. In 2014, the average price of fuel decreased by 4.7% compared to that of 2013. Fuel prices have continued
to generally decrease during the first half of 2015.In addition, the National Development and Reform Commission
(the "NDRC") has adjusted gasoline and diesel prices in China from time to time, taking into account the changes in international
oil prices, thereby affecting aviation fuel prices. As such, we cannot assure you that jet fuel prices will not fluctuate further
in the future. Due to the highly competitive nature of the airline industry, we may be unable to fully or effectively pass on to
our customers any future increase in jet fuel costs.



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



In recent years, regulatory
authorities in China and other countries have issued a number of directives and other regulations to address, among other things,
aircraft noise and engine emissions, the use and handling of hazardous materials, aircraft age and environmental contamination
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, which over 90% of our planes are complying with and 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 have worked with China National Petroleum Corporation (the "CNPC")
to conduct experimental research on bio-fuels, which are being developed as a possible alternative to kerosene jet fuel and could
lead to reduced carbon dioxide emissions of 30%. In addition, all of our B737NG and some of our A320 series aircraft newly introduced
are equipped with a winglet or sharklet, an additional lifting surface to reduce fuel consumption and noises. We also took measures
to reduce the impact of our operations on the environment by optimizing our route network and flight schedules as well as installing
energy-saving environmentally friendly engines. However, these measures have resulted in significant costs and expenditures. We
expect to continue to incur significant costs and expenditures on an ongoing basis to comply with environmental regulations, which
could restrict our ability to modify or expand facilities or continue operations.



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



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



12







Risks Relating to the Company



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 fleet, 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 losses from disruption of 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 amount of such coverage may not
be adequate to fully cover the costs related to an accident or incident, which could damage 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 could harm our competitive position and result in a decrease in our operating revenues.
Moreover, a major accident or incident involving an aircraft of our competitors may cause the demand for air travel in general
to decrease. In particular, certain of our competitors in the Asia Pacific region experienced major aircraft accidents and incidents
in 2014, some of which involved destinations and routes that we cover. These accidents and incidents were highly publicized in
the media and may have affected public perception of certain air travel routes. The occurrence of any of the foregoing could adversely
affect our results of operations and financial condition.



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



We have a substantial
amount of debt, lease and other financial obligations, and will continue to do so in the future. During the period between the
end of 2008 and April 2009, the amount of our total liabilities exceeded our total assets. In 2014, we added a total of 75 aircraft
to our fleet, by purchase or finance lease (excluding operating lease), including B777 series for long-haul flights, A330 series
for long and medium-haul flights and A320 series and B737NG series for medium and short-haul flights. On February 28, 2014, we
entered into an agreement with Airbus SAS regarding the purchase of seventy new A320NEO aircraft, which are expected to be delivered
to the Company in stages from 2018 to 2020. On June 13, 2014 we entered into agreements with Boeing Company to purchase eighty
new B737 series aircraft to be delivered in stages from 2016 to 2020.See the section headed "Item 4. Information
on the Company — Property, Plant and Equipment — Fleet." As of December 31, 2014, our total liabilities were RMB134,058
million. As of the same date, our current liabilities exceeded our current assets by RMB42,887 million. Our total interest-bearing
liabilities (including long-term and short-term borrowings, finance leases payable and bonds payable) as of December 31, 2013 and
2014 were RMB73,735 million and RMB97,884 million, respectively, of which short-term liabilities accounted for 35.6% and 34.0%,
respectively. Our substantial indebtedness and other financial obligations could materially and adversely affect our business and
operations, including being required to dedicate additional cash flow from operations to the payment of principal and interest
on our 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 compared to competitors with lower 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.



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 to be 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 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.



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 flight operations 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 disproportionately 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, 2014, we had total unutilized credit facilities of RMB44 billion from various
banks. We expect to roll over these bank facilities in the near future. 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. 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 financing or other additional financing on acceptable terms. Although we have secured financing
for our aircraft delivered in 2014, 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 operations or other sources to acquire the aircraft.



13







Our ability to obtain
financing may also be impaired by our financial position, leverage and 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 limited
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 any 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 costs associated with these
debts might impair our future profitability.



We are subject to
the risk of fuel price fluctuations.



Fuel costs constitute
a significant portion of our operating costs and, in 2014, accounted for approximately 35% of our total operating costs. The fluctuations
of international crude oil prices and adjustments on domestic jet fuel prices by the NDRC have a significant impact on our profitability.
While international crude oil prices generally decreased in the second half of 2014, the results of operation and financial condition
of our Company are still subject to any significant fluctuations that may occur, which are generally due to factors beyond our
control. As such, 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 have also
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 during previous years.



In the beginning of 2009,
the PRC government required prior governmental approval for entering into fuel hedging contracts. In October 2011, we have obtained
approval from the PRC government, allowing us to enter into overseas fuel hedging contracts. For the year ended December 31, 2011,
we hedged 17% 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 decline 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. As of December 31, 2014, we had no open crude oil option contracts,
and all the contracts signed in past years had been settled before December 31, 2014.



We are subject to
the risk of exchange rate fluctuations.



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 foreign 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, 2014, our total interest-bearing
liabilities denominated in foreign currencies converted to Renminbi amounted to RMB81,679 million, of which the U.S. dollar liabilities
accounted for 97.24% of the total amount. 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 growth. We usually use hedging contracts for foreign currencies to reduce the risk in exchange rate fluctuations for foreign
currency revenue from ticket sales and expenses which are to be paid in foreign currencies. Foreign currency hedging mainly involves
sales of the Japanese Yen or the purchase of U.S. dollars at fixed exchange rates. As of December 31, 2014, foreign currency hedging
contracts held by us which are still open amounted to a notional amount of approximately US$39 million, which will expire between
2015 and 2017, compared with US$38 million as of December 31, 2013.



We recorded net foreign
exchange losses of RMB203 million for 2014, whereas net foreign exchange gains were RMB1,977 million for 2013. As a result of the
large value of existing net foreign currency liabilities denominated in U.S. dollars, our results would 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."



14







We are subject to
the risk of interest rate fluctuations.



Our total interest-bearing
liabilities (including long-term and short-term loans and finance leases payable) as of December 31, 2013 and 2014 were RMB73,736
million and RMB97,884 million, respectively, of which short-term liabilities accounted for 35.6% and 34.0%%, respectively, and
long-term liabilities accounted for 64.4% and 66.0%, respectively, for those years. 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, 2013 and 2014, our liabilities denominated in U.S. dollars
accounted for 75.6% and 81.1%, respectively, of our total liabilities, while liabilities denominated in Renminbi accounted for
20.9% and 16.6%, respectively, of our total liabilities. Fluctuations in the 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. The PBOC raised the benchmark five-year lending rate five times from 5.94% to 7.05% in July
2011, but reduced the rate subsequently twice, on the last occasion to 6.4% in July 2012. The benchmark five-year lending rate
remained steady and did not change during 2013 and into the first quarter of 2014. A substantial majority of our borrowings denominated
in U.S. dollars are linked to floating LIBOR rates which decreased overall in 2011, increased overall in 2012, and decreased overall
in 2013 and 2014.We cannot assure you that the relevant lending rates may not increase in the future for reasons
beyond our control, which 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.



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. 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 insurers further reduce the amount
of insurance coverage available or increase the premiums for such coverage upon renewal and/or if the PRC government declines to
renew our insurance policies, 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 acquisition of airlines 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. In relation to these acquisitions we have obtained the approval
from CAAC, NDRC, and MOFCOM, and the transactions 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 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.



15







On December 27,
2012, our wholly-owned subsidiary, Shanghai Airlines Tours, International (Group) Co., Ltd. (“Shanghai Airlines
Tours”) entered into an agreement with Eastern Tourism and Shanghai Dongmei Aviation Travel Co., Ltd ("Shanghai
Dongmei") to acquire 45% and 55% issued share capital of Xi’an Dongmei Aviation Travel Co., Ltd held by them
respectively for consideration of approximately RMB3.3 million comprising approximately RMB1.5 million payable to Eastern
Tourism and approximately RMB1.8 million payable to Shanghai Dongmei. On December 27, 2012, our wholly-owned subsidiary,
Shanghai Airlines Tours also entered into another agreement with Eastern Tourism and Shanghai Dongmei to acquire 45% and 55%
issued share capital of Kunming Dongmei Aviation Travel Co., Ltd ("Kunming Dongmei") held by them respectively for
consideration of approximately RMB10.6 million comprising RMB4.7 million payable to Eastern Tourism and approximately RMB5.8
million payable to Shanghai Dongmei. On January 10, 2013, Shanghai Airlines Tours entered into an agreement with Eastern
Tourism to acquire the entire issued share capital of Eastern Air International Travel Service Co., Ltd ("Eastern
Travel") held by Eastern Tourism for consideration of approximately RMB11.9 million. On August 15, 2014, Shanghai
Airlines Tours entered into an equity transfer agreement with Eastern Air Tourism pursuant to which, Shanghai Airlines Tours
acquired 72.84% equity interest in Shanghai Dongmei from Eastern Tourism at a consideration of RMB32,147,700. This
acquisition has been completed and Shanghai Dongmei has become our indirect holding subsidiary. On December 22, 2014,
our Company, CEA Holding and CES Finance Holding Co., Ltd ("CES Finance") (as shareholders of Eastern Air Group
Finance Company Limited (“Eastern Air Finance”)) agreed to inject a total of RMB1,500 million into Eastern Air
Finance in proportion according to their respective shareholding in Eastern Air Finance. In February 2015, we  contributed a
pro-rata amount of RMB375 million in cash.



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 airlines or airline-related businesses, including their employees, corporate cultures, managerial systems, processes, procedures and management information systems and services;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



| | · | 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 airlines or airline-related businesses; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



16







Our
planned joint venture 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 will launch 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.



On June 5, 2013, EAO entered
into a restated and amended shareholders’ agreement with JIGH, Go Harvest Investments Limited (the "Shun Tak Investor")
and Jetstar Hong Kong, pursuant to which Shun Tak Investor has become a new strategic shareholder of Jetstar Hong Kong, subject
to completion of necessary filings with the relevant authorities in the PRC, and will hold approximately 33.3% of the total issued
share capital of Jetstar Hong Kong, which is currently in the process of applying for an aviation services license. We cannot assure
you that Jetstar Hong Kong will secure all relevant licenses and approvals for its operations.



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 other 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, sound route networks, competitive fares and product offerings.



Furthermore, we do not
have experience operating in the low-cost airline 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 launch or
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 personnel and pilots, and there can be no assurance that we will be able
to retain them. Any inability to retain our key management employees or pilots, or attract and retain additional qualified management
employees or pilots, could have a negative impact on our operations and profitability.



17







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



Most of the major airlines
in China are currently majority-owned either by the central government or provincial or municipal governments in China. CEA Holding
currently holds directly or indirectly 64.4% of our Company's equity stake 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 shareholder of our Company and most of the other major PRC airlines could conflict with the interests
of our minority shareholders. Although the CAAC currently has a policy of equal treatment of all PRC airlines, we cannot assure
you that the CAAC will not favor other PRC airlines over our Company.



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



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



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



| | · | 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 entered into in the ordinary course of business. However, because we are controlled by CEA Holding and CEA
Holding may have interests that conflict with our interests, we cannot assure you that CEA Holding will not take actions that will
serve its interests over the Company's interests.



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



We are required under
relevant United States securities laws and regulations to disclose in the reports that we file or submit under the Exchange Act
to the SEC, including our annual report on Form 20-F, a management report assessing
the effectiveness of our internal controls over financial reporting at the end of the fiscal year. Our registered public accounting
firm is also required to provide an attestation report on the effectiveness of our internal controls over financial reporting.
Our management concluded that our internal controls over financial reporting were effective as of December 31, 2014. However, we
may discover other deficiencies or material weaknesses in the course of our future evaluation of our internal controls over financial
reporting and we may be unable to address and rectify such deficiencies in a timely manner. Any failure to maintain effective internal
controls over financial reporting could lead to diminished investor confidence in the reliability of our consolidated financial
statements, thereby adversely affecting our business, operations, and reputation, including negatively affecting our performance
in the securities markets and decreasing potential opportunities to obtain financing in the capital markets.



As part of our business
strategy, we have adopted various measures to develop the international side of our business and to enhance our competitiveness
in the international long-distance flight routes. Due to the differences in certain legal and market environments, we have encountered
certain challenges during the course of developing our overseas business. We have already adopted and will continue to implement
measures in order to enhance the internal controls of our overseas offices and to continue the development of our overseas business.



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



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



18









If our efforts to
protect the security of personal information about our customers are unsuccessful, we could be subject to costly government enforcement
actions and private litigation and our reputation may suffer.



The nature of our business
involves the receipt and storage of personal information about our customers. We have a program in place to detect and respond
to data security incidents. To date, all incidents we have encountered have been insignificant. If we commit a significant data
security breach or fail to detect and appropriately respond to a significant data security breach, we could be exposed to government
enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their personal
information, which could cause them to stop using our services. The loss of consumer confidence from a significant data security
breach could hurt our reputation and adversely affect our business, result of operations and financial condition.



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



Our business is heavily
dependent on our operations at our 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 connect our primary
market to other major cities. Any significant interruptions or disruptions of service at one or more of our primary market airports
could adversely impact our operations.



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



Adverse public health
epidemics or pandemics could disrupt businesses and the national economy of China and other countries where we do business. The
outbreak of Severe Acute Respiratory Syndrome, or SARS, in early 2003 led to a significant decline in travel volumes and business
activities and substantially affected businesses in Asia. Moreover, some Asian countries, including China, have encountered incidents
of the H5N1 strain of avian flu, many of which have resulted in fatalities. In addition, outbreaks of, and sporadic human infection
with, influenza A (H1N1) in 2009, a highly contagious acute respiratory disease, were reported in Mexico and an increasing number
of countries around the world, some cases resulting in fatalities. In addition, in April 2013, there has been an ongoing outbreak
of the H7N9 strain of avian flu, which has largely been centered in eastern China, and has resulted in fatalities in that region,
including Shanghai. Furthermore, in 2014, an outbreak of Ebola virus, a highly contagious hemorrhagic fever with a relatively high
fatality rate, in certain African countries resulted in confirmed cases in the United States and Europe. We are unable to predict
the potential impact, if any, that the outbreak of influenza A (H1N1) or any other serious contagious disease or the effects of
another outbreak of SARS, any strain of avian flu or Ebola may have on our business.



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



Terrorist attacks
or the fear of such attacks, even if not made directly on the airline industry, could negatively affect the 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.



19







| | 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 Road, 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, China Eastern
Airlines Corporation Limited was established on April 14, 1995 under the laws of China as a company limited by shares in connection
with the restructuring of our predecessor and our initial public offering. We are commercially known in the industry as China Eastern
Airlines. Our predecessor was one of the six original airlines established in 1988 as part of the decentralization of the airline
industry in China undertaken in connection with China's overall economic reform efforts. Prior to 1988, the CAAC was responsible
for all aspects of civil aviation in China, including the regulation and operation of China's airlines and airports. In connection
with our initial public offering, our predecessor was restructured into two separate legal entities, our Company and EA Group.
According to the restructuring arrangement, by operation of law, our Company succeeded to substantially all of the assets and liabilities
relating to the airline business of our predecessor. EA Group succeeded to our predecessor's assets and liabilities that do not
directly relate to the airline operations and do not compete with our businesses. Assets transferred to EA Group included our predecessor's
equity interests in companies engaged in import and export, real estate, advertising, in-flight catering, tourism and certain other
businesses. In connection with the restructuring, we entered into various agreements with EA Group and its subsidiaries for the
provision of certain services to our Company. CEA Holding assumed the rights and liabilities of EA Group under these agreements
after it was formed by merging EA Group, Yunnan Airlines Company and China Northwest Airlines Company in October 2002. See "Item
7. Major Shareholders and Related Party Transactions" for more details. The following chart sets forth the organizational
structure of our Company and our significant subsidiaries as of December 31, 2014:



20











21







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 Stock Exchange of Hong Kong Limited (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.



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 a 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 was to repay bank loans, improve our financing structure and replenish
our 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 the CSRC approval for this issuance on December
12, 2012. On March 20, 2013, we issued the first tranche of the corporate bonds in the amount of RMB4.8 billion at 5.05% due 2023.
The use of proceeds from this issuance was to repay bank loans, improve our financing structure and replenish our short-term working
capital.



On September 11, 2012,
the Board 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 Holdings (Hong
Kong) Limited, an overseas wholly-owned subsidiary of CEA Holding, ("CES Global") would subscribe in cash for 698,865,000
new H Shares (nominal value of RMB1.00 each) at the subscription price of HK$2.32 per share. On January 31, 2013, the CSRC approved
our proposed issue of no more than 698,865,000 new H Shares with a nominal value of RMB1.00 each. The Public Offering Review Committee
of the CSRC reviewed and conditionally approved our application relating to the non-public issue of new A Shares of the Company
on February 25, 2012.



On December 27, 2012,
our wholly-owned subsidiary, Shanghai Airlines Tours entered into an agreement with Eastern Tourism and Shanghai Dongmei to acquire
45% and 55% issued share capital of Xi’an Dongmei Aviation Travel Co., Ltd held by them respectively for a consideration
of approximately RMB3.3 million comprising approximately RMB1.5 million payable to Eastern Tourism and approximately RMB1.8 million
payable to Shanghai Dongmei.



On December 27, 2012,
our wholly-owned subsidiary, Shanghai Airlines Tours also entered into another agreement with Eastern Tourism and Shanghai Dongmei
to acquire 45% and 55% issued share capital of Kunming Dongmei held by them respectively for a consideration of approximately RMB10.6
million comprising RMB4.7 million payable to Eastern Tourism and approximately RMB5.8 million payable to Shanghai Dongmei.



22







On January 10, 2013, our
wholly-owned subsidiary, Shanghai Airlines Tours entered into an agreement with Eastern Tourism to acquire the entire issued share
capital of Eastern Travel held by Eastern Tourism Investment Group Co., Ltd for consideration of approximately RMB11.9 million.



On April 9, 2013, the
Company obtained an approval from the CSRC, pursuant to which the CSRC approved the non-public issue by the Company for no more
than 698,865,000 new A Shares. On April 16, 2013, the procedures for registration of the new A Shares with the Shanghai Branch
of China Securities Depository & Clearing Co. Ltd. was completed. The 698,865,000 new A Shares, at an issue price of RMB3.28
per share, under this issue are subject to a lock-up period of 36 months from the completion date of the issue and are expected
to be listed on April 17, 2016.



On May 29, 2013, the Company,
EAO, a wholly-owned subsidiary of the Company, entered into a subscription agreement with Deutsche Bank, HSBC, Standard Chartered
Bank (Hong Kong) Limited and Agricultural Bank of China Limited Hong Kong Branch (as joint lead managers) in relation to the issue
of RMB2.2 billion 3.875% guaranteed bonds due 2016 by the Issuer.



On June 5, 2013, EAO entered
into a restated and amended shareholders’ agreement with JIGH, Shun Tak Investor and Jetstar Hong Kong, pursuant to which
Shun Tak Investor has become a new strategic shareholder of Jetstar Hong Kong, subject to completion of necessary filings with
the relevant authorities in the PRC, and would hold approximately 33.3% of the total issued share capital of Jetstar Hong Kong.
The restated and amended shareholders’ agreement has superceded the Shareholders’ Agreement entered into by EAO and
JIGH on August 24, 2012.



We completed the issuance
of the 2013 first tranche of super short-term commercial paper of the Company (“First Tranche SCP”) on June 7,
2013. The issuance amount of First Tranche SCP was RMB4 billion with a maturity of 270 days. The nominal value was RMB100 per unit
and First Tranche SCP had an interest rate of 3.95%. First Tranche SCP was issued to the public in the PRC interbank debenture
market by way of book-building and centralized placing. The proceeds from First Tranche SCP were used principally to replenish
working capital of the Company.



We completed the issuance
of new H Shares on June 21, 2013. A total of 698,865,000 new H Shares were issued, at the price of HK$2.32 per share, to CES Global.



On October 29, 2013, the
Board resolved and approved that the Company inject RMB36 million into CES Media.



On March 6, 2014, EAO, our wholly-owned subsidiary,
issued RMB2.5 billion guaranteed bonds with an interest rate of 4.8% due 2017 to professional investors in Hong Kong, which was
listed on the Hong Kong Stock Exchange.



On May 14, 2014, we completed the issuance of
the 2014 first tranche of super short-term commercial paper, with an issuance amount of RMB4 billion, with a maturity of 270 days,
with the nominal value of RMB100 per unit and an issuance interest rate of 4.95%.



On May 14, 2014, EAO, our wholly-owned subsidiary,
issued an additional RMB800 million guaranteed bonds with an interest rate of 4.8% due 2017 to professional investors in Hong Kong,
which was listed on the Hong Kong Stock Exchange.



On July 17, 2014, EAO, our wholly-owned subsidiary,
and Jetstar Hong Kong, an associated company of the Company, entered into a loan agreement,
pursuant to which EAO will provide a loan of US$60 million to Jetstar Hong Kong at fair market interest rates.



On August 15, 2014, Shanghai Airlines Tours,
our wholly- owned subsidiary, entered into an equity transfer agreement with Eastern Tourism, pursuant to which, Shanghai Airlines
Tours acquired 72.84% equity interest in Shanghai Dongmei from Eastern Tourism with consideration of RMB32,147,700. This acquisition
has been completed and Shanghai Dongmei has become our indirect holding company.



On December 22, 2014, our Company, CEA Holding
and CES Finance (as shareholders of Eastern Air Finance agreed to inject a total of RMB1,500 million into Eastern Air Finance in
proportion according to their respective shareholding in Eastern Air Finance. In February 2015, we contributed a pro-rata amount
of RMB375 million in cash.



On February 9, 2015, we redeemed the 2014 first
tranche of RMB4 billion 4.95% super short-term commercial paper, which was issued on May 14, 2014. The commercial papers had a
maturity of 270 days at a nominal value of RMB100 per unit.



23







On February 12, 2015, we completed the issuance
of the 2015 first tranche of super short-term commercial paper in the amount of RMB3 billion, with a maturity of 180 days and nominal
value of RMB100 per unit and an issuance interest rate of 4.5%.



On March 26, 2015, we completed the issuance
of the 2015 second tranche of super short-term commercial paper in the amount of RMB3 billion, with a maturity of 180 days and
nominal value of RMB100 per unit and an issuance interest rate of 4.5%.



The table below sets forth details of our operating
fleet as of December 31, 2012 and 2013:



|           |  | Number of Aircraft Owned And under Finance Leases |     |  | Number of Aircraft under Operating Leases |  |     | Number of Aircraft Owned and under Finance Leases |  |  | Number of Aircraft under Operating Leases | 
|---------- |  | ------------------------------------------------- | --- |  | ----------------------------------------- |  | --- | ------------------------------------------------- |  |  | ----------------------------------------- | 
|           |  | 2012                                              |     |  | 2013                                      | 
|A340-600   |  |                                                   | 5   |  |                                           |  | —   |                                                   |  |  | 5                                         | 
|A340-300   |  |                                                   | —   |  |                                           |  | —   |                                                   |  |  | —                                         | 
|A330-300   |  |                                                   | 8   |  |                                           |  | 7   |                                                   |  |  | 8                                         | 
|A330-200   |  |                                                   | 10  |  |                                           |  | 3   |                                                   |  |  | 18                                        | 
|A300-600R  |  |                                                   | 7   |  |                                           |  | —   |                                                   |  |  | 7                                         | 
|A321       |  |                                                   | 27  |  |                                           |  | —   |                                                   |  |  | 33                                        | 
|A320       |  |                                                   | 98  |  |                                           |  | 33  |                                                   |  |  | 101                                       | 
|A319       |  |                                                   | 12  |  |                                           |  | 8   |                                                   |  |  | 15                                        | 
|B737-800   |  |                                                   | 17  |  |                                           |  | 56  |                                                   |  |  | 28                                        | 
|B737-700   |  |                                                   | 37  |  |                                           |  | 18  |                                                   |  |  | 42                                        | 
|B737-300   |  |                                                   | 16  |  |                                           |  | —   |                                                   |  |  | 16                                        | 
|B757-200   |  |                                                   | 5   |  |                                           |  | 5   |                                                   |  |  | 5                                         | 
|B767       |  |                                                   | 6   |  |                                           |  | 1   |                                                   |  |  | 6                                         | 
|EMB-145LR  |  |                                                   | 10  |  |                                           |  | —   |                                                   |  |  | 10                                        | 
|CRJ-200    |  |                                                   | 8   |  |                                           |  | —   |                                                   |  |  | 8                                         | 
|Hawker800  |  |                                                   | —   |  |                                           |  | —   |                                                   |  |  | —                                         | 
|A300-600R  |  |                                                   | 3   |  |                                           |  | —   |                                                   |  |  | 1                                         | 
|B747-400ER |  |                                                   | 2   |  |                                           |  | 3   |                                                   |  |  | 2                                         | 
|MD-11F     |  |                                                   | —   |  |                                           |  | 3   |                                                   |  |  | —                                         | 
|B757-200F  |  |                                                   | —   |  |                                           |  | 2   |                                                   |  |  | —                                         | 
|B777F      |  |                                                   | —   |  |                                           |  | 6   |                                                   |  |  | —                                         | 
|Total      |  |                                                   | 271 |  |                                           |  | 145 |                                                   |  |  | 305                                       | 



The table below sets forth
details of our operating fleet as of December 31, 2014:



|                                                  |  | Number of Aircraft Owned and under Finance Lease |     |  | Aircraft under Operating Lease | 
|------------------------------------------------- |  | ------------------------------------------------ | --- |  | ------------------------------ | 
|Jet Passenger Aircraft:                           |  |                                                  |     |  |                                | 
|Wide-body:                                        |  |                                                  |     |  |                                | 
|B777-300ER                                        |  |                                                  | 4   |  |                                | 
|B767                                              |  |                                                  | 6   |  |                                | 
|A340-600                                          |  |                                                  | 4   |  |                                | 
|A330-300                                          |  |                                                  | 9   |  |                                | 
|A330-200                                          |  |                                                  | 25  |  |                                | 
|Narrow-body:                                      |  |                                                  |     |  |                                | 
|A321                                              |  |                                                  | 39  |  |                                | 
|A320                                              |  |                                                  | 113 |  |                                | 
|A319                                              |  |                                                  | 24  |  |                                | 
|B757-200                                          |  |                                                  | 4   |  |                                | 
|B737-800                                          |  |                                                  | 44  |  |                                | 
|B737-700                                          |  |                                                  | 49  |  |                                | 
|B737-300                                          |  |                                                  | 16  |  |                                | 
|EMB 145LR                                         |  |                                                  | 10  |  |                                | 
|Total Passenger Aircraft:                         |  |                                                  | 347 |  |                                | 
|                                                  |  |                                                  |     |  |                                | 
|Cargo Aircraft:                                   |  |                                                  |     |  |                                | 
|B747-400ER                                        |  |                                                  | 2   |  |                                | 
|B757-200F                                         |  |                                                  | -   |  |                                | 
|B777F                                             |  |                                                  | -   |  |                                | 
|Total Cargo Aircraft:                             |  |                                                  | 2   |  |                                | 
|Total number of passenger aircraft and freighters |  |                                                  | 349 |  |                                | 



24









| | 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 2014, and is an
important domestic airline based in and serving Shanghai, which is considered to be the international financial and shipping center
of China. We serve a route network that covers 1,052 domestic and foreign destinations in 177 countries through SkyTeam, an international
airlines alliance. We operate primarily from our core hub in Shanghai and regional hubs in Kunming and Xi’an. In 2014, we
accounted for 48.9%, 37.3%, 41.3% and 30.7% of the total market share at Shanghai Hongqiao International Airport, Shanghai Pudong
International Airport, Kunming Airport and Xi’an Airport, in terms of total flight departures and arrivals, respectively,
and accounted for 47.3%, 34.7%, 37.6% and 30.3% of the total market share at these airports in terms of passenger throughput, respectively.



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 Employers" by zhaopin.com, a major online recruiting website in China,
and "The World's Most Improved Airline" by SKYTRAX, a United Kingdom-based aviation research organization. In 2013, we
received the National 1 May Award Certificate and were honored as one of the 2013 Top Ten Companies with the Best Corporate Social
Responsibility by Fortune China Magazine, “Best Mid-cap Company” by Hong Kong Asiamoney Magazine for the second consecutive
year, “Top 50 Most Valuable Chinese Brands in 2013” by WPP, a global brand communication and public relations firm,
the “Golden Bauhinia Award” of the “Best Listed Company” and “Listed Company with the Best Investor’s
Relations Management” by Ta Kung Pao and one of the “Best 100 Employers” by zhaopin.com. In 2014, Our charity
campaign “Love at China Eastern Airlines” was awarded the Gold Award at the First Chinese Young Volunteers Services
Contest. The “Love at China Eastern Airlines” campaign has organized activities such as visiting welfare and nursing
homes, subsidizing Hope Schools and schools for urban and rural migrant workers’ children and teaching school children with
hearing and speaking impairment, running blood donation programs, and other activities for environmental protection. The campaign
launched 4,649 projects with 248,860 staff and members taking participation, serving a total of 193,187 people in need. Through
interaction with the community, we have established a charity brand image of “delivering love and serving the community”.



In 2014, we were recognized as “Top 50
Most Valuable Chinese Brands” by WPP, a global brand communication firm, as well as being awarded the “China Securities
Golden Bauhinia Award” and ranked first as the “Best Listed Company Award” by Ta Kung Pao in Hong Kong for three
consecutive years; and ranked among top 10 in terms of “Most Competitive Asia Airline 2014” and “Most Popular
Asia Airline 2014” in the 5th World Airline Competitiveness Rankings.



25







Compared to 2013, our
traffic volume (as measured in RTKs) increased by 3.67% from 15,552 million in 2013 to 16,122 million in 2014. Our passenger traffic
volume (as measured in revenue passenger-kilometers, or RPKs) increased by 6.05% from 120,461 million in 2013 to 127,750 million
in 2014. Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTKs) decreased by 1.13% from
4,857 million in 2013 to 4,802 million in 2014.



Our Operations by Activity



The
following table sets forth our traffic revenues by activity for each of the years ended December
31, 2012, 2013 and 2014:



|                       |  | Year Ended December 31, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2012                    |       
|                       |  | (Millions of RMB)       |       
|Traffic revenues       |  |                         |       
|Passenger              |  |                         | 71,419
|Cargo and mail         |  |                         | 8,025 
|Total traffic revenues |  |                         | 79,444



Passenger Operations



The following table sets
forth certain passenger operating statistics of our Company by route for each of the years ended December 31, 2012, 2013 and 2014:



|                                        |  | Year Ended December 31, |        
|--------------------------------------- |  | ----------------------- | -------
|                                        |  | 2012                    |        
|Passenger Traffic (in RPKs) (millions)  |  |                         | 109,113
|Domestic                                |  |                         | 76,156 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 3,852  
|International                           |  |                         | 29,105 
|                                        |  |                         |        
|Passenger Capacity (in ASKs) (millions) |  |                         | 136,724
|Domestic                                |  |                         | 95,168 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 5,084  
|International                           |  |                         | 36,472 
|                                        |  |                         |        
|Passenger Yield (RMB)                   |  |                         | 0.65   
|Domestic                                |  |                         | 0.66   
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 0.84   
|International                           |  |                         | 0.62   
|                                        |  |                         |        
|Passenger Load Factor (%)               |  |                         | 79.81  
|Domestic                                |  |                         | 80.02  
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 75.77  
|International                           |  |                         | 79.80  



The primary focus of our
business is the provision of domestic, regional and international passenger airline services. As of December 31, 2014, we serve
a route network that covers 1,052 domestic and foreign destinations in 177 countries through SkyTeam.



Our domestic routes generated
approximately 68.6% of our passenger revenues in 2014. 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
26 flight routes between mainland China and Hong Kong as of December 31, 2014. In addition, we operated approximately 27 routes
between mainland China and Taiwan and three routes between China and Macau as of December 31, 2014. Our regional routes accounted
for approximately 4.4% of our passenger revenues in 2014.



26







In 2013, we adjusted our
flight capacity allocation in a timely manner and refined pricing and cabin space management according to changes in the market
demand, so as to sustain a steady growth in the passenger transportation business. In respect of our domestic business, with the
enhanced Shanghai core hub, as well as Kunming and Xi’an regional hubs, we continued to optimize our route network and flight
schedules. In respect of our regional (Hong Kong, Macau and Taiwan) business, we maintained our competitiveness by increasing the
frequency of flights and optimization of aircraft models. In respect of our international business, we flexibly adjusted the flight
capacity allocated to routes to Japan according to changes in the Chinese and Japanese markets. At the same time, we seized the
opportunity of the rapid growth in the number of outbound passengers and increased the flight capacity routes to North America,
Europe, Korea and Southeast Asia.



In 2014, with
Shanghai as a core hub and Kunming and Xi’an as regional hubs, we continued to expand our route network to provide
additional connecting opportunities and strengthen our market position in these three major hubs. New routes from Pudong to
Toronto and Auckland were introduced at Shanghai Pudong hub while more frequent flights were added for international routes
to New York, Los Angeles, London and Paris to maximize the coverage of the Shanghai hub network. The Kunming hub launched a
newroute from Kunming to Paris, which is the first inter-continental route in Yunnan
Province, and continued to optimize route network and flight schedules for Kunming to East Asia, Southeast Asia and West
Asia. We proactively utilized aircraft to expand our route network and flight destinations of Xi’an hub were increased
to 70. According to our strategic plan to seize the opportunity for sales in the market, the early termination of leases
regarding A300, 767 and 757 aircraft, the relatively early termination of wide-body aircraft and, in addition, the early
retirement of EMB and one 733 aircraft, in terms of static seat growth, increased by 5.9% in 2014 compared to 2013. Moreover,
aircraft being introduced in the first half of the year was less than those introduced in the second half of the year,
leading to capacity not fully utilized in the peak season of July to August, thus leading to slowing down of the overall
growth in capacity. Apart from the number of static seats, there were more busy airports and bottleneck issues slowed down
the growth of domestic routes of traditional airlines. In particular, the capacity of the Shanghai region did not grow
quickly and was affected by military exercises during the peak season. The routes between China and Southeast Asia was
affected by the Malaysia Airlines Flight 370 incident, the political instability in the region and anti-China atmosphere,
leading to a slow-down of capacity growth. We also experienced competitive pressures from low-cost airlines which also
adversely affected  revenues and capacity.



In 2014, we put in available
seat – kilometers (ASK) of 160,585.07 million passenger-kilometers, representing an increase of 5.6% from 2013. Number of
passengers carried in 2014 was 83.8 million, representing an increase of 6.0% from 2013. Passenger load factor in 2014 was 79.55%,
representing an increase of 0.34% from 2013. Passenger revenue in 2014 amounted to RMB75,261 million, representing an increase
of 3.2% from 2013.



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 a flight
system for these core hubs by introducing new flight destinations and increasing the frequency of certain flights, thereby enhancing
our transfer and connection capability in these hub markets.



In 2013, by increasing
the frequency of flights for express routes and quasi-express routes such as Shanghai to Kunming, Xiamen and Dalian, and international
routes such as Shanghai to Paris, Vancouver and Hawaii, as well as introducing new international flight destinations such as San
Francisco and Manila, we have further enhanced our influence in the Shanghai hub market. Meanwhile, our transit assurance ability
in Shanghai Pudong Airport increased sustainably. The minimum connecting time of the international-domestic transit was reduced
to 90 minutes. Direct tagging of luggage at the same airport in Shanghai for transit passengers and cross-terminal interline transit
between the two terminals at Pudong Airport are available. In addition, 24-hour immigration procedures-free direct transit between
international flights is attained. Leveraging on opportunities arising from the release of time slots at the new Kunming airport,
we allocated more flight capacities in 2014 by increasing the frequency of flights for international routes from Kunming to Vientiane,
Dhaka and Chiang Mai, promoting flying to “South Asia, Southeast Asia and West Asia”, providing full coverage over
routes from Kunming to other provincial capitals in the PRC, as well as increasing the frequency and optimizing the morning and
night flight system of our flights going to Kunming. In 2013, we adjusted the flight plan of Xi’an hub according to its seasonal
features by focusing on the development of plateau routes, introducing a new route from Xi’an to Lijiang and increasing the
frequency of flights for routes from Xi’an to Lhasa and Jiuzhaigou.



In
2014 we established in a sequence 6 on schedule navigation points, namely the Delingha, Daocheng, Luzhou, Luliang, Zhanjiang and
Hanzhong; three international on schedule navigation points including Bangkok, Osaka, Krabi. We also expanded the above-plateau
routes: newly stablished Xi’an - Daocheng Yading, Xi’an - Jiuzhai - Nanjing; frequency
increased: Xi’an - Golmud, Xi’an - Jiuzhai, Xi’an - Lhasa, Xi’an - Delingha, Sining - Lhasa.



27







In 2014, we accounted
for 48.9%, 37.3%, 41.3% and 30.7% of the total market share at Shanghai Hongqiao International Airport, Shanghai Pudong International
Airport, Kunming Airport and Xi’an Airport, respectively, in terms of total flight departures and arrivals, and accounted
for 47.3%, 34.7%, 37.6% and 30.3% of the total market share at Shanghai Hongqiao International Airport, Shanghai Pudong International
Airport, Kunming Airport and Xi’an Airport, respectively, in terms of passenger throughput. We maintained relatively strong
influence in our core markets such as Shanghai, Kunming and Xi’an.



Cargo and Mail Operations



The following table sets
forth certain cargo and mail operating statistics of our Company by route for each of the years ended December 31, 2012, 2013 and
2014:



|                                       |  | Year Ended December 31, |      
|-------------------------------------- |  | ----------------------- | -----
|                                       |  | 2012                    |      
|Cargo and Mail Traffic (in RFTKs)      |  |                         | 4,701
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 923  
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 117  
|International                          |  |                         | 3,661
|                                       |  |                         |      
|Cargo and Mail Capacity (in AFTKs)     |  |                         | 7,416
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 1,966
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 239  
|International                          |  |                         | 5,211
|                                       |  |                         |      
|Cargo and Mail Yield (RMB)             |  |                         | 1.71 
|Domestic                               |  |                         | 1.44 
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 3.94 
|International                          |  |                         | 1.70 
|                                       |  |                         |      
|Cargo and Mail Load Factor (%)         |  |                         | 63.39
|Domestic                               |  |                         | 46.92
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 48.91
|International                          |  |                         | 70.26



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.



In 2014, the global aviation
freight transportation business recovered slowly. We achieved relatively significant improvement in results by controlling flight
capacity and enhancing marketing efforts. We further streamlined our fleet of freighters and terminated the leases of two older
freighters in order to reduce operating costs. By improving the utilization rate of freighters and providing flexible flight capacity
options, our market share in Europe and America was stabilized. We have also established a regional freight hub in Zhengzhou by
launching cargo flights from Zhengzhou to Amsterdam and Chicago and establishing a Zhengzhou-based regulated truck delivery network
which cover 28 locations in China. We also refined our cabin management by enhancing our management on capacity and fares. Meanwhile,
we proactively promoted the transformation of freight transportation and logistics business and expanded value-added businesses
such as logistics integration and express delivery. We established a logistics resources bank which covers 510 suppliers with domestic
suppliers generally covering the entire country. We also completed the layout of international suppliers network in four major
regions, including Shanghai, Europe, America and Southeast Asia. We also proactively participated in cross-border e-commerce business
by providing logistics solutions for cross-border e-commerce and completing self-development of the “cross-border e-commerce
logistics business system”. We enhanced global trading procurement and imported the best and freshest in-season products
from regions such as North America and South America.



Our Operations by Geographical Area



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



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



28







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



The following table sets
forth our revenues by geographical area for each of the three years ended December 31, 2014:



|                                       |  | 2012              |        |  | 2013              |  |        | 2014              | 
|-------------------------------------- |  | ----------------- | ------ |  | ----------------- |  | ------ | ----------------- | 
|                                       |  | (Millions of RMB) |        |  | (Millions of RMB) |  |        | (Millions of RMB) | 
|Domestic                               |  |                   | 57,297 |  |                   |  | 59,563 |                   | 
|Regional (Hong Kong, Macau and Taiwan) |  |                   | 3,704  |  |                   |  | 3,911  |                   | 
|International                          |  |                   | 24,252 |  |                   |  | 24,771 |                   | 
|Total                                  |  |                   | 85,253 |  |                   |  | 88,245 |                   | 



Regulation



The PRC Civil Aviation
Lawprovides 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 the PRC airlines operate under the supervision and regulation of the CAAC, they
are accorded a significant degree of operational autonomy. These areas of operational autonomy include:



| | · | 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;
| | - | --------------------------------------------------------------------------------------------



| | · | 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.



29















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.



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 2012, 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 64. The two sides also previously agreed to launch chartered cargo flights
between two terminals in mainland China, namely, Shanghai Pudong and Guangzhou airports, and two terminals in Taiwan, namely, Taoyuan
and Kaohsiung airports. On August 12, 2013, the two sides agreed to increase the total number of flights to 670 per week and add
three terminals of chartered cargo flights in mainland China, namely, Tianjin, Zhengzhou and Ningbo airports. At the end of 2014,
mainland China and Taiwan agreed to increase the total number of flights to 924 per week and to increase the total number of destination
airports in mainland China to 65.



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:





30







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



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



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



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



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
Lawprovides that airfares for domestic routes are determined jointly by the CAAC and the agency of the State Council responsible
for price control, primarily based upon average airline operating costs and market conditions.



The CAAC and the NDRC
jointly publish pricing guidelines from time to time, which set forth the basic airfare levels and permitted ranges. Pursuant to
the current pricing guidelines, the basic airfares for most domestic routes are the published airfares implemented by Chinese airlines
immediately prior to the approval of the Pricing Reform Plan. Except for certain domestic routes, the actual airfare set by each
Chinese airline for its domestic routes cannot be 25% 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 airfares for
particular domestic routes which, in their view, are not at a reasonable level. The CAAC and NDRC jointly issued a notice on
April 13, 2010, effective on June 1, 2010, pursuant to which airlines may set first-class and business-class airfares in
accordance with market prices, subject to relevant PRC laws. Such pricing must be filed 30 days before effectiveness with the
CAAC and NDRC. Efforts by the Chinese regulators to promote a sale market with fair competition will also help provide a
favorable environment for our business growth.



At
the end of 2014, the CAAC and the NDRC jointly promulgated The Notice on Further Improving the Problems about Civil Aviation Domestic
Air Transport Price Policy, which lifted the control over the civil domestic airlines cargo freight rate and changed
the pricesof specific airlines
from government-oriented pricing to market-oriented pricing.



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 that 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 a sale market with fair competition
flexibility with our inventory management by allowing us to maintain a relatively lower overall inventory level of aircraft
parts and equipment than we otherwise would have to maintain. We are still required to obtain approval from the NDRC and
may be subject to appraisal of the relevant competent authorities for any import of aircraft. We generally pay a commission
to EAIEC in connection with these imports.





31







Domestic Fuel Supply
and Pricing



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



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



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



In early 2013, the CAAC
amended the original Civil Aviation Incidents Standards and published the new Civil
Aviation Incidents Standards which became effective as of March 1, 2013. 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.





32







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 of the PRC (“MOF”), 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 theImplementing 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 MOF 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
amounted to approximately RMB4,000 million in total. The ten measures also include measures to enhance safety, reduce taxes, invest
in infrastructure and optimize the airspace and air routes.



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, 2013, approximately
12.4% 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 new Catalog of Industries for Guiding Foreign Investment, jointly promulgated by
the NDRC and MOC on March 10, 2015, Chinese investors should be the controlling shareholders of a PRC air transportation company
and the total shares held by foreign investment enterprises and its associated enterprises are not
permitted to exceed 25% of the total shares of a Chinese airline.



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.





33







There are currently 25
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.



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. The “Twelfth Five-Year Plan” for civil aviation industry
in China encourages low-cost airlines to enter into major logistics market gradually. In February 2014, CAAC issued Guidance on
Facilitating Low-cost Aviation Development which aims at supporting the development of domestic low-cost airlines. This will further
intensify the competition in domestic aviation market. 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. 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 Shanghai Eastern Airlines Logistics Co., Ltd. ("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 350 km 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 the establishment
of a PRC national high-speed railway network, 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. In addition, in 2013, we developed ground connection services such as Air-Rail Service and Air-Bus Service
and cooperated with Disney, brand hotel groups, and renowned international travel enterprises to develop travel products. 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 26 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 Shanghai-Hong 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.





34







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. At the end of 2013, the two sides agreed to increase
the total number of flights to 786 per week and to increase the total number of destination airports in mainland China and Taiwan
to 54. At the end of 2014, mainland China and Taiwan agreed to increase the total number of flights to 924 per week and to increase
the total number of destination airports in mainland China to 65.



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, Qingdao, Wuxi, Yancheng, Yinchuan and Lijiang. 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. According to the
Ninth Meeting of Cross-strait Air Transportation, the two sides agreed to increase the total number of flights per week in
2014. According to the Tenth Meeting of Cross-strait Air Transportation in 2015,the
two sides agreed to have Changzhou and Shaoshan as two new regular passenger shipping point. We plan to establish the
Changzhou- Taibei route with three flights per week. As the market is expanding for individual
tourist, we aim to target our sales to these customers.



We believe we will benefit
from expanding our market share in Taiwan-mainland China direct flight services as based on the more and more frequent communication
between Taiwan and mainland China. 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 compete with Air Macau
on the Shanghai Pudong-Macau route. Air Macau's routes also provide an alternative to our Hong Kong routes for passengers 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.



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.





35







To improve our competitive
position in international markets, we have established additional dedicated overseas sales offices, launched our own frequent flyer
program, participated in "Asia Miles", a popular frequent flyer program in Asia, and entered into code-sharing arrangements
with a number of foreign airlines. We have also improved our online reservation and payment system. In addition, in June 2011,
we joined SkyTeam, an international airlines alliance and frequent flyer mileage program that includes, among others, international
carriers such as Delta, China Southern, Alitalia, Air France and KLM. As a member of SkyTeam alliance, our Elite members can enjoy
approximately 516 lounges world-wide. In 2013, we implemented code-sharing programs covering 242 routes with 11 SkyTeam member
airlines. See " – Marketing and Sales – SkyTeam Alliance." In the meantime, we also started code-sharing
cooperation with seven non-SkyTeam member airlines, covering more than 150 routes, including Japan Airlines Corporation and Qantas
Airways Limited.In 2014, we proactively promoted international cooperation among members and non-members airlines
of SkyTeam Alliance at various levels and expanded its route network to increase its brand recognition. We implemented transit
service cooperation with China Airlines, Delta Airlines and Air France between different terminals at Shanghai Pudong International
Airport. We facilitate joint sales by optimizing transit connection with Delta Airlines and enhanced co-operations with Air France
by increasing the number of code-share flights. We also comprehensively improved cooperation on the China-Australia route by establishing
joint operation with Qantas.



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 10,542 workers as maintenance and engineering personnel as of December
31, 2014. 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. (“Honeywell”), 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.
We entered into repair agreements of seven types of electronics materials with Honeywell and we expect in the next two years to
save US$338,000 of material repairing costs.





36







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, 2013, Boeing (China) Investment Co., Ltd., Shanghai
Airport (Group) Co., Ltd. and Boeing (Asia) Services Investment Limited hold 35.3%, 25.0% and 24.7%, respectively, of the remaining
equity interest. Boeing Shanghai was founded in 2006 with a registered capital of US$85,000,000, and operates a maintenance hangar
with the capacity to provide aircraft modification and maintenance services for two wide-body aircraft and one narrow-body aircraft
and provides aircraft modification and maintenance services. In addition, we also hold 50% of Shanghai Airlines' previous equity
interest in Shanghai Hute Aviation Technology Co., Ltd. ("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.



Since December 2014, our Company have adopted
an innovative asset management model and established Eastern Airlines Technology Co. Ltd. to explore the transformation of supporting
assets to operational assets.



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.



In 2013, 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.



Regarding the strengthening
of the SMS, we have (i) organized training for the administrators of safety management of all operating units, deepened the understanding
for the construction of SMS, laying the ground work for SMS; (ii) followed our plans and orderly commenced the construction of
the analytical network. We had a number of cooperation meetings, discussing the master framework, which carries the system. We
also introduced the concept of safety indicators for operational progress, rendering safety management more comprehensible; and
(iii) continuously improved the risks database of the relevant routes and airports, strengthening the application of the different
databases on the actual process of operation.



In 2014, we continued
to facilitate the construction and application of the SMS and strictly implementing risk management. We also put greater efforts
in safety inspection and supervision as well as fulfillment of responsibilities in relation to safety enhancement. We enhanced
its flight training management and commenced specialized training covering pilots management and transition to B777-300ER aircraft
to reinforce the foundations of flight safety. Emphasizing technology applications, we established a research institute of flight
safety technology application to provide intellectual support to our ongoing safe operations.



All of our jet passenger
aircraft pilots participated in the manufacturer training and support programs sponsored by Airbus and Boeing and are required
to undergo recurrent flight simulator training and to participate in a flight theory course periodically. We use flight simulators
for A320, A330, A340, B737NG, B737-300, B777, aircraft at our own training facility, the training facility located in the CAAC
training center or overseas training facilities.





37







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
and in 2013, we established and announced another two internal regulations relating to cyber-security, namely, China Eastern Airlines
Information Security Incident Management Regulation and China Eastern Airlines Information System Classification Measures, which
we believe will strengthen our information safety management systems and overall cyber-security defenses. During the year ended
December 31, 2014, we did not experience any material cyber-security incidents or related losses.



In 2014, regarding the
risks in relation to internet security of the aviation section, we took the following preventive measures: (i) putting in place
a monitoring system; (ii) clarifying the responsibilities relating to internet, mainframe computer, operation and maintenance,
product development and management; (iii) having internet security equipment; (iv) having manual inspection and(v) preparing for
emergency response.



In June 2014, we promulgated
documents Class I to V for CEA Information Security Management System, including directions, management requirements, operation
manual and recorded output documents at security level, and passed the ISO27001 (international information security standard) certificate
qualification in November 2014. Our internet security policy were synchronized with the ISO27001.





We did not purchase any
insurance for internet security.



Fuel Supplies



Fuel costs represented
approximately 34.4% of our operating expenses in 2014. 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 2014, we consumed approximately
4.8 million tonnes of fuel, an increase of 4.3% from 2013. Our aviation fuel expenditures in 2014 reached RMB30,238 million, representing
an decrease of 1.4% from RMB30,681 million in 2013, as a result of the expansion of our operations. Jet fuel prices were volatile
in 2013 and 2014, with heightened political tensions and continued political instability and turmoil in certain Middle Eastern
countries. In 2014, the average price of fuel decreased by 4.7% compared to that of 2013. While fuel prices decreased during the
first half of 2014, prices generally increased in 2014 and into early 2015. 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.





38







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.



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 22.8 million in 2014. The special services hotline "95530" call center was established and came into operation
in 2004. In light of the expansion of national high-speed railway network, we have cooperated with the Shanghai Railway Bureau
to launch "Air-Rail Pass Transportation" products. Our domestic and international flights together with 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.



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 2014, we added about 90 group clients, and the total number of our group clients amounts to 1,385. 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, covering various industries such as financial services, hotel, car rental
and health services. By the end of 2014, we had approximately 2.8 million new Eastern Miles members, with a total of over 22.8
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. In 2013,
we introduced a new version of China Eastern Mobile E and increased the application of "China Eastern Mobile E"
to 14 airports. In addition, we introduced “M Website”, a website portal that provides mobile flight booking, flight
status and online checking services and applied several third-party payment platform to our ticket booking system.





39







By September 2014, the
mobile platform realized self-service applications such as mobile check-in of 139 domestic cities plus 3 overseas cities, self
change of arrangement service for irregular flights, Eastern Miles QR code membership and the number of registered members amounted
to 800,000 people with the mobile sales breaking a record of RMB3.60 million in a single day.



We also increased the
success rate of website payment. At the end of September 2014, work regarding the international unified payment channel achieved
the success rate of 62.1% and is still being optimized.



In addition, we updated
the ability for sale activities and self-service. As of July 31, 2014, sale activities via the CEA official website and the mobile
platforms (except limited time special discount during weekend nights) amounted to an accumulated amount of RMB310 million, which
accounted for 4.3% of the total sale via website. As of September 30, 2014, mobile and web check-in had been implemented to support
up to 142 cities domestically and abroad, covering most of our navigation points.



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 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 more than 50 overseas sales or representative offices as of December 31, 2014. 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 84% 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. By the end of 2014, we have entered into frequent flyer
and airport lounges agreements with 12 SkyTeam member airlines and implemented code-sharing programs covering 675 routes, as well
as 195 routes with seven non-SkyTeam member airlines, which has further broadened the coverage of our route network.



By connecting to the route
networks of other SkyTeam member airlines, we are able to offer its passengers seamless transit to 1,052 destinations in 177 countries
under a single plane ticket with direct luggage services as of December 31, 2014. Passengers may also enjoy the comfort of approximately
516 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.





40











Cargo Operations
and Logistics Services



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 2012, we leveraged
on our internal resources to establish a business platform that provides diversified logistics and management solutions and services
through Eastern Logistics, which includes the integrated operations of China Cargo Airlines and Shanghai Far Eastern Airlines Logistics
Co., Ltd. Eastern Logistics is engaged 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."



In response to the deteriorating
aviation freight transportation market condition, we adopted measures such as surrendering and suspending freights, as well as
reducing freight fleet scale significantly. We also adjusted our route network in order to stabilize our share in core markets.
We fully pushed forward our transformation by developing value-added businesses such as logistics and freight expressway e-commerce.
In respect of logistics business, we established six major logistics project teams for areas such as large- scale corporate projects,
medical biotechnology and aviation equipment based on product positioning. We visited major customers to proactively explore demand
for logistics. The development of brand customers and direct selling of major client cooperation projects provided logistics solutions
to large and medium enterprises. In respect of freight expressway e-commerce, the commencement of eaemall.com official website
can utilize the advantages in network and centralized purchasing of Eastern Airlines. Combining with its freight expressway delivery
network, Eastern Airlines is able to provide fresh and direct supply of “from the origins to dining table.” Our subsidiary,
Shanghai Eastern Airlines Express Delivery Company Limited, officially commenced operation of cross-border e-commerce in 2013 in
the Shanghai Free Trade Zone.



On June 5, 2013, our subsidiary,
China Cargo Airlines, officially joined the SkyTeam Freight 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.



In 2014, we focused on
the improvement on customer management, freight management and product management and comprehensively enhanced the operation standard
of traditional air freight. In terms of customer management, we completed the client structure design and the CRM process flow
design; we built the customer relationship management system and established customer incentives policy. We had four new customers,
including FedEx, and commenced strategic cooperation with HKCTS and Sinotrans for our international routes development. Regarding
domestic routes, we strengthened our cooperation with S.F. Express and EMS. Regarding freight rates management, we completed the
new design for the freight rates system and started testing in some of the routines in terms of policy; optimized the monitoring
requirements of rate controls and implemented the construction of the freight rates module for the revenue management system; established
internal real-time information interaction processes and improved the efficiency and accuracy of the benefit analysis and decision-making.
Regarding product management, we completed the system design for the four major products: route network, service guarantee, standardization and customization, comprehensively covering the development needs of freight products and satisfying the sustainable
development of freight products. We expended extensive efforts in the development of route network products and published the route
seeker app, realizing the integration of resources of the entire network.



We also tactically
expanded the network. Through reduction for optimal capacity and flexible purchase of capacity, we continuously consolidated
the Europe and America route network and maintained our leading position in terms of the Europe and America market share. We
also developed the Zhengzhou regional hub, and commenced the Zhengzhou to Amsterdam and Chicago freight route network, and
established the regulated truck delivery networking having Zhengzhou as the center, covering 28 points across the
PRC.



We explored with
full efforts the potential of bellyhold through the introduction of localized products, cargo-flight projects, removal of
routes with"0 and low" income, international return flight expansion projects, implementation of the reward and
punish system which increases volume and income, strengthening of monitoring of external sites and addition of "newly
added" customers, we consolidated the output of external sites and transformation units, leading to an increase of 2.8%
of bellyhold compared to the same period the previous year.





41







Tourism and Travel Services



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



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 2014, we generated net revenues
of approximately RMB2,454 million from our airport ground services and cargo handling services, compared with RMB2,119 million
and RMB2,516 million, respectively, generated from such services in 2012 and 2013.





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. As of December 31, 2014, we own or have obtained licenses to
use 58 trademarks, the number remained stable as of December 31, 2013.



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."



| | 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,
2014, we operated a fleet of 515 aircraft, including 485 passenger aircraft, most with a seating capacity of over 100 seats, 12
freighters and 18 business aircraft in custody. In 2014, we introduced a total of 75 aircraft of four major models including B777
series, B737 series, A330 series and A320 series and surrendered a total of 43 aircraft of various models, including A300 series
and CRJ200 aircraft. With the introduction of B777 series aircraft and the entire retirement of A300 series and CRJ200 aircraft,
the variety of aircraft models of our fleet have been further streamlined and the fleet structure has been made younger.





42







We plan to continue
to expand our scale in the future and to adjust and optimize our route network, thereby increasing our competitiveness and ability
to create more attractive products and services to meet the needs of the market.



Existing Fleet



The following table sets
forth the details of our fleet as of December 31, 2014:



|                                                  |  | Number of Aircraft Owned and under Finance Lease |                |  | Aircraft under Operating Lease |  |     | Total Number of Aircraft |  |  | AverageAge
    (inyears) (1) | 
|------------------------------------------------- |  | ------------------------------------------------ | -------------- |  | ------------------------------ |  | --- | ------------------------ |  |  | ---------------------------- | 
|Jet Passenger Aircraft:                           |  |                                                  |                |  |                                |  |     |                          |  |  |                              | 
|Wide-body:                                        |  |                                                  |                |  |                                |  |     |                          |  |  |                              | 
|B777-300ER                                        |  |                                                  | 4              |  |                                |  | -   |                          |  |  | 4                            | 
|B767                                              |  |                                                  | 6              |  |                                |  | -   |                          |  |  | 6                            | 
|A340-600                                          |  |                                                  | 4              |  |                                |  | -   |                          |  |  | 4                            | 
|A330-300                                          |  |                                                  | 9              |  |                                |  | 7   |                          |  |  | 16                           | 
|A330-200                                          |  |                                                  | 25             |  |                                |  | 3   |                          |  |  | 28                           | 
|Narrow-body:                                      |  |                                                  |                |  |                                |  |     |                          |  |  |                              | 
|A321                                              |  |                                                  | 39             |  |                                |  | -   |                          |  |  | 39                           | 
|A320                                              |  |                                                  | 113            |  |                                |  | 41  |                          |  |  | 154                          | 
|A319                                              |  |                                                  | 24             |  |                                |  | 5   |                          |  |  | 29                           | 
|B757-200                                          |  |                                                  | 4              |  |                                |  | 1   |                          |  |  | 5                            | 
|B737-800                                          |  |                                                  | 44             |  |                                |  | 68  |                          |  |  | 112                          | 
|B737-700                                          |  |                                                  | 49             |  |                                |  | 13  |                          |  |  | 62                           | 
|B737-300                                          |  |                                                  | 16             |  |                                |  | -   |                          |  |  | 16                           | 
|EMB 145LR                                         |  |                                                  | 10             |  |                                |  | -   |                          |  |  | 10                           | 
|Total Passenger Aircraft:                         |  |                                                  | 347            |  |                                |  | 138 |                          |  |  | 485                          | 
|                                                  |  |                                                  |                |  |                                |  |     |                          |  |  |                              | 
|Cargo Aircraft:                                   |  |                                                  |                |  |                                |  |     |                          |  |  |                              | 
|B747-400ER                                        |  |                                                  | 2              |  |                                |  | 2   |                          |  |  | 4                            | 
|B757-200F                                         |  |                                                  | -              |  |                                |  | 2   |                          |  |  | 2                            | 
|B777F                                             |  |                                                  | -              |  |                                |  | 6   |                          |  |  | 6                            | 
|Total Cargo Aircraft:                             |  |                                                  | 2              |  |                                |  | 10  |                          |  |  | 12                           | 
|Total number of passenger aircraft and freighters |  |                                                  | 349            |  |                                |  | 148 |                          |  |  | 497                          | 
|                                                  |  |                                                  | No. of custody |  |                                |  |     |                          |  |  |                              | 
|Business Aircraft                                 |  |                                                  |                |  |                                |  |     |                          |  |  | 18                           | 
|Total Fleet                                       |  |                                                  |                |  |                                |  |     |                          |  |  | 515                          | 



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



Our daily average aircraft
utilization rate was 9.5 hours in 2014, decreasing slightly from 9.8 hours in 2013.





43









The table below sets forth
the daily average utilization rates of our jet passenger aircraft for each of the years ended December 31, 2012 and 2013:



|                                 |  | 2012       |      |  | 2013 | 
|-------------------------------- |  | ---------- | ---- |  | ---- | 
|                                 |  | (in hours) |     
|Wide-body:                       |  |            |      |  |      | 
|A340-600                         |  |            | 12.3 |  |      | 
|A330-300                         |  |            | 9.2  |  |      | 
|A330-200                         |  |            | 13.7 |  |      | 
|A300-600                         |  |            | 7.5  |  |      | 
|B767-300                         |  |            | 10.8 |  |      | 
|Narrow-body:                     |  |            |      |  |      | 
|A321                             |  |            | 9.1  |  |      | 
|A320                             |  |            | 10.3 |  |      | 
|A319                             |  |            | 8.5  |  |      | 
|B737-800                         |  |            | 10.3 |  |      | 
|B737-700                         |  |            | 9.9  |  |      | 
|B737-300                         |  |            | 9.0  |  |      | 
|EMB 145                          |  |            | 9.7  |  |      | 
|CRJ-200                          |  |            | 5.9  |  |      | 
|B757-200                         |  |            | 7.9  |  |      | 
|Total Passenger Aircraft Average |  |            | 9.9  |  |      | 



The table below sets forth
the daily average utilization rates of our jet passenger aircraft for each of the year ended December 31, 2014:



|                                                          |  | 2014       |     
|--------------------------------------------------------- |  | ---------- | ----
|                                                          |  | (in hours) |     
|Jet Passenger Aircraft:                                   |  |            |     
|Wide-body:                                                |  |            |     
|B777-300ER                                                |  |            | 10.7
|B767                                                      |  |            | 8.9 
|A340-600                                                  |  |            | 10.5
|A330-300                                                  |  |            | 9.0 
|A330-200                                                  |  |            | 13.4
|Narrow-body:                                              |  |            |     
|A321                                                      |  |            | 9.2 
|A320                                                      |  |            | 9.9 
|A319                                                      |  |            | 9.2 
|B757-200                                                  |  |            | 9.4 
|B737-800                                                  |  |            | 10.0
|B737-700                                                  |  |            | 10.0
|B737-300                                                  |  |            | 7.0 
|EMB 145LR                                                 |  |            | 5.7 
|Total Passenger Aircraft average                          |  |            | 9.39
|                                                          |  |            |     
|Cargo Aircraft:                                           |  |            |     
|B747-400ER                                                |  |            | 11.7
|B757-200F                                                 |  |            | 3.7 
|B777F                                                     |  |            | 13.9
|Total Cargo Aircraft average                              |  |            | 9.72
|Total number of passenger aircraft and freighters average |  |            | 9.46



Most of our jet
passenger aircraft were manufactured by either Airbus or Boeing.On February 28, 2014, we entered
into an agreement with Airbus SAS in Shanghai, PRC regarding the purchase of seventy new A320NEO aircraft from Airbus SAS, which
are expected to be delivered to us in stages from 2018 to 2020, with the disposal of seven Airbus A300-600 aircraft and certain
spare parts and spare engines. On June 13, 2014, we entered into agreements with Boeing Company in Shanghai, PRC to purchase eighty
new B737 series aircraft from Boeing, which will be delivered to us in stages from 2016 to 2020. On the same day, we entered into
an agreement with Boeing Company regarding the disposal of fifteen B737-300 aircraft and five B757 aircraft to Boeing.





44







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. Our fleet in the future will mainly comprise of models such as B777 Series forlong haul, A330 Series for long-and-medium haul, and A320 Series and B737NG Series for medium-and-short haul. Older aircraft
models of high energy-consumption will be surrendered as appropriate. Details of the expected fleet plan from 2015 to 2016 are
as follows:





|                                   |  | 2015E |              |  | 2016E | 
|---------------------------------- |  | ----- | ------------ |  | ----- | 
|Model                              |  |       | Introduction |  |       | 
|A320 Series                        |  |       | 29           |  |       | 
|A330 Series                        |  |       | 7            |  |       | 
|A340-600                           |  |       | -            |  |       | 
|A300-600                           |  |       | -            |  |       | 
|B777 Series                        |  |       | 5            |  |       | 
|B737NG                             |  |       | 39           |  |       | 
|B737-300                           |  |       | -            |  |       | 
|B737-8Max                          |  |       | -            |  |       | 
|B757                               |  |       | -            |  |       | 
|B767                               |  |       | -            |  |       | 
|CRJ                                |  |       | -            |  |       | 
|EMB-145LR                          |  |       | -            |  |       | 
|Total number of passenger aircraft |  |       | 80           |  |       | 
|A300-600F                          |  |       | -            |  |       | 
|B747F                              |  |       | -            |  |       | 
|B757F                              |  |       | -            |  |       | 
|Total number of freighters         |  |       | -            |  |       | 
|Total                              |  |       | 80           |  |       | 



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 95 parcels of land, occupying a total area of approximately 5.4 million square meters,
as of December 31, 2014. In addition, as of December 31, 2014, our Company (including subsidiaries and branches) owned approximately
1,879 buildings with a total gross floor area of approximately 1.3 million 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.





45







|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.



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 3.8%, from 21,714.8 ATKs in 2013 to
22,538.5 ATKs in 2014, and our passenger capacity on an available seat kilometer, or ASK, basis increased by 5.6%, from 152,075.2
ASKs in 2013 to 160,585.1 ASKs in 2014. Total traffic on a revenue tonne kilometer, or RTK, basis increased by 3.7%, from 15,551.8
RTKs in 2013 to 16,122.4 RTKs in 2014.



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.



Critical Accounting Policies



We prepare our consolidated
financial statements in accordance with IFRS which requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the accounting policies. We have established procedures and processes
to facilitate the making of such judgments in the preparation of our consolidated financial statements. Management has used the
best information available but actual performance may differ from our management's estimates and future changes in key variables
could change future reported amounts in our consolidated financial statements.



Revenue recognition and sales in advance
of carriage



Revenue 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 our activities. Revenue is shown net of business taxes or value-added taxes, returns, rebates and discounts and after
eliminating sales within the Group.



We recognize
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 our 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. We base its estimates on historical results,
taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.



We operate
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.





46







| | (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 (the “SIAC”).



| | (ii) | Ground service income and tour operation revenues
| | ---- | -------------------------------------------------



Revenues from
the provision of ground services, tour, travel services and other travel related services are recognized when the services are
rendered.



| | (iii) | Cargo handling income
| | ----- | ---------------------



Revenues from
the provision of cargo handling income are recognized when the service are rendered.



| | (iv) | Commission income
| | ---- | -----------------



Commission
income represents amounts earned from other carriers in respect of sales made by us on their behalf, and is recognized in the profit
or loss upon ticket sales.



| | (v) | Other revenue
| | --- | -------------



Revenues from
other operating businesses, including income derived from the provision of freight forwarding, are recognized when the services
are rendered.



Intangible assets



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 subsidiaries,
associates or joint ventures at the date of acquisition. Goodwill on acquisition of subsidiaries is included in “intangible
assets”. Goodwill on acquisition of associates and joint ventures is included in “investments in associates”
and “investments in joint ventures” 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 segments that are expected to benefit from the business combination in which the goodwill
arose.



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.



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. Upon completion of an overhaul, any remaining carrying amount of the
cost of the previous overhaul is derecognized and charged to the profit or loss.





47







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 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 reporting 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 profit or loss.



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.



Leases



A Group company is the lessee



Finance leases



We lease certain property, plant and
equipment. Leases of property, plant and equipment where we have acquired substantially all the risks and rewards of ownership
are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value
of the 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 profit or loss over the lease period so
as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are
depreciated using a straight-line basis over their expected useful lives to residual values.



For sale and leaseback transactions
resulting in a finance lease, differences between sales proceeds and net book values are deferred and amortized over the lease
terms.



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 profit or loss on a straight-line basis over the period
of the lease.



For sale and leaseback transactions
resulting in an operating lease, differences between sales proceeds and net book values are recognized immediately in the profit
or loss, 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.





48







A Group company is the lessor



Assets leased out under operating
leases are included in property, plant and equipment in the statement of financial position. They are depreciated over their expected
useful lives on a basis consistent with similar property, plant and equipment. Rental income is recognized on a straight-line basis
over the lease term.



Retirement benefits



We participates
in schemes regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces.
In addition, we initiated an additional defined contribution retirement benefit scheme for employees in 2014. The contributions
to the schemes are charged to profit or loss as and when incurred.

In addition, we
provide retirees with certain post-retirement benefits including retirement subsidies, transportation subsidies, social function
activity subsidies as well as other welfare. The cost of providing benefits under the post-retirement benefit plan is determined
using the projected unit credit actuarial valuation method.

Remeasurements arising
from post-retirement benefit plan, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest)
and the return on plan assets (excluding net interest), are recognized immediately in the consolidated statement of financial position
with a corresponding debit or credit to retained profits through other comprehensive income in the period in which they occur.
Remeasurements are not reclassified to profit or loss in subsequent periods.

Past service costs
are recognized in profit or loss at the earlier of:

| | · | the date of the plan amendment or curtailment; and
| | - | --------------------------------------------------

| | · | the date that we recognize restructuring-related costs
| | - | ------------------------------------------------------



Net
interest is calculated by applying the discount rate to the net defined benefit liability or asset. We recognize the following
changes in the net defined benefit obligation under “Wages, salaries and benefits” in the consolidated statement of
profit or loss and other comprehensive income:

| | · | service costs comprising current service costs, past-service costs, gains and losses on curtailments
and non-routine settlements
| | - | --------------------------------------------------------------------------------------------------------------------------------



Available-for-sale
financial assets



Investments in securities other than
subsidiaries, associates and joint ventures, 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 we commit to purchase or sell the asset. Investments are
initially recognized at fair value plus transaction costs. At each reporting 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 profit or loss.



When the fair value of unlisted equity
investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant
for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in
estimating fair value, such investments are stated at cost less any impairment losses.



We assess at each reporting 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 profit or loss, is removed from equity and recognized in the profit or loss. Impairment losses recognized in the profit
or loss on equity instruments are not reversed through the profit or loss.





49







Current and deferred tax



The tax expense for the period comprises
current and deferred tax. Tax is recognized in the profit or loss, 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 end of each reporting period in the jurisdictions
where the Company and its subsidiaries, associates and joint ventures 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 consolidated 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 end of each
reporting 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 joint ventures, except where the timing of the
reversal of the temporary difference is controlled by us and it is probable that the temporary difference will not reverse in the
foreseeable future.



Going concern



As set out
in Note 2(a)(i) to the consolidated financial statements, our ability to continue operations depends on obtaining the necessary
financing and continued operations to generate sufficient cash flows to meet our liabilities as they fall due and the capital expenditure
requirements for the upcoming twelve months. In the event we are unable to obtain adequate funding, there is uncertainty as to
whether we will be able to continue as a going concern. The consolidated financial statements do not include any adjustments related
to the carrying values and classifications of assets and liabilities that would be necessary should we be unable to continue as
a going concern.



Critical
Accounting Estimates and Judgments



Estimates and judgments
used in preparing the consolidated 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. We make estimates
and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.



Revenue recognition



We recognize traffic revenues in
accordance with the accounting policy stated in Note 2(e) to the consolidated financial statements. Unused tickets are recognized
in traffic revenues based on current estimates. Management periodically 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.



Frequent flyer program



We operate frequent flyer programs
that provide travel awards to program members based on accumulated miles. A portion of passenger's 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.





50







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 time frame between each overhaul. These judgments or estimates
are based on historical experience on returning similar airframe models, actual costs incurred and aircraft status. Different judgments
or estimates could significantly affect the estimated provision for costs of return condition checks.



Retirement benefits

We operates and
maintains a defined retirement benefit plan which provides 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 employee’s service period by utilizing various actuarial assumptions and using
the projected unit credit method in accordance with the accounting policy stated in the financial statements. These assumptions
include, without limitation, the selection of discount rate, annual rate of increase of per capita benefit payment and employee’s
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 our historical trends.

Additional information regarding
the retirement benefit plans is disclosed in Note 37 to the consolidated 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 consolidated financial
statements, we considers future taxable income and ongoing prudent and feasible tax planning strategies. In the event that our
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 our 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 our 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 our 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 our historical experience with
similar assets and taking into account anticipated technological changes. We review 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



We test whether property, plant
and equipment and intangible assets have been impaired in accordance with the accounting policy stated in Note 2(m) and Note 2(k)
to the consolidated financial statements. The recoverable amount of cash generating unit has 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.





51







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.





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



The following tables set
forth our summary consolidated statements of profit or loss and other comprehensive income and financial position data as of and
for the years indicated:



|                                                                                      |  | Year Ended December 31,              |        
|------------------------------------------------------------------------------------- |  | ------------------------------------ | -------
|                                                                                      |  | 2010                                 |        
|                                                                                      |  | RMB                                  |        
|                                                                                      |  | (in millions, except per share data) |        
|Summary Consolidated Statements of Profit or Loss and Other Comprehensive Income Data |  |                                      |        
|Revenues                                                                              |  |                                      | 73,804 
|Other operating income                                                                |  |                                      | 658    
|Operating expenses                                                                    |  |                                      | (68,664
|Operating profit                                                                      |  |                                      | 5,798  
|Finance income / (costs), net                                                         |  |                                      | (347   
|Profit before income tax                                                              |  |                                      | 5,519  
|Profit for the year attributable to the equity shareholders of the Company            |  |                                      | 5,056  
|Basic and fully diluted earnings per share (1)                                        |  |                                      | 0.45   



|                                                                                        |  | As of December 31, |        
|--------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                        |  | 2010               |        
|                                                                                        |  | RMB                |        
|                                                                                        |  | (in millions)      |        
|Summary Consolidated Statements of Financial Position Data                              |  |                    |        
|Cash and cash equivalents                                                               |  |                    | 3,078  
|Net current liabilities                                                                 |  |                    | (27,184
|Non-current assets                                                                      |  |                    | 91,293 
|Long term borrowings, including current portion                                         |  |                    | (27,373
|Obligations under finance leases, including current portion                             |  |                    | (19,208
|Total share capital and reserves attributable to the equity shareholders of the Company |  |                    | 12,094 
|Non-current liabilities                                                                 |  |                    | (49,973
|Total assets less current liabilities                                                   |  |                    | 64,108 





52







| | (1) | 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. The calculation of earnings per share for 2013 is based on consolidated profit attributable to the equity shareholders of the Company divided by the weighted average number of 12,091,881,000 shares outstanding. The calculation of earnings per share for 2014 is based on consolidated profit attributable to the equity shareholders of the Company divided by the weighted average number of 12,674,269,000 shares outstanding.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2014 Compared to 2013



Revenues



Our revenues
increased by 2.2%, from RMB88,245 million in 2013 to RMB90,185 million in 2014. Revenues increased in our passenger business
operations, primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights, which
was partially offset by decreased revenue in our cargo and mail business operations, primarily due to a general
slowdown of the global economy that affected cargo demand and, consequently, our cargo volumes.



In 2014, we transported
a total of 83.8 million passengers, representing an increase of 6.0%, from 79.1 million passengers in 2013. Our total passenger
traffic (as measured in RPKs) increased by 6.1%, from 120,461 million passenger-kilometers in 2013 to 127,750 million passenger-kilometers
in 2014 and our total cargo and mail traffic (as measured in RFTKs) decreased by 1.1%, from 4,857 million freight tonne-kilometers
in 2013 to 4,802 million freight tonne-kilometers in 2014. Our average yield for our passenger operations maintained stable at
RMB0.61 per passenger-kilometer in 2013 and 2014.



Our average yield for
our cargo and mail operations decreased by 1.3%, from RMB1.57 per tonne-kilometer in 2013 to RMB1.55 per tonne-kilometer in 2014,
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 2013 and 2014:



|                        |  |                         |        |  |          |  |        | 2014 vs. 2013 | 
|----------------------- |  | ----------------------- | ------ |  | -------- |  | ------ | ------------- | 
|                        |  | Year Ended December 31, |        |  | Increase |  |        | % Increase    | 
|                        |  | 2013                    |        |  | 2014     |  |        | (Decrease)    | 
|                        |  | (in millions of RMB)    |       
|Traffic revenues        |  |                         | 80,531 |  |          |  | 82,589 |               | 
|Passenger revenue       |  |                         | 72,928 |  |          |  | 75,261 |               | 
|Cargo and mail revenue  |  |                         | 7,603  |  |          |  | 7,328  |               | 
|Others (1)              |  |                         | 7,714  |  |          |  | 7,596  |               | 
|Total Operating Revenue |  |                         | 88,245 |  |          |  | 90,185 |               | 



| | (1) | Includes tour operations income, ground service income,
cargo handling income, commission income and others.
| | --- | ------------------------------------------------------------------------------------------------------------



Passenger revenues



Our passenger traffic
revenues increased by RMB2,333 million, or 3.2%, from RMB72,928 million in 2013 to RMB75,261 million in 2014. 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 68.6% of our total passenger traffic
revenues in 2014, increased by 2.2%, from RMB50,556 million in 2013 to RMB51,647 million in 2014, primarily due to increased flight
capacity on domestic routes and steady demand from the continued growth of the PRC economy. Compared to 2013, our domestic passenger
traffic (as measured in RPKs) increased by 6.5%, from 82,812 million in 2013 to 88,191 million in 2014. The number of passengers
carried on domestic routes increased by 5.8%, from 67.1 million in 2013 to 71.0 million in 2014. Our passenger-kilometers yield
for domestic routes maintained stable at RMB0.61 per passenger-kilometer in 2013 and 2014.





53







Our regional passenger
traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) which accounted for 4.4% of our total passenger
traffic revenues in 2014, decreased by 3.3%, from RMB3,427 million in 2013 to RMB3,313 million in 2014, primarily due to the decrease
in our passenger-kilometers yield for regional routes. The number of passengers carried on Hong Kong, Macau and Taiwan routes increased
by 6.7%, from 3.0 million in 2013 to 3.2 million in 2014. Our passenger-kilometers yield for regional routes decreased from RMB0.85
per passenger-kilometer in 2013 to RMB0.79 per passenger-kilometer in 2014.



International passenger
traffic revenues, which accounted for 27.0% of our total passenger traffic revenues in 2014, increased by 7.2%, from RMB18,945
million in 2013 to RMB20,301 million in 2014. 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 4.7% in 2014, from 33,600 million in 2013 to 35,191 million in 2014. The number of passengers carried
on international routes increased by 7.3%, from 9.0 million in 2013 to 9.6 million in 2014. Our passenger-kilometers yield for
international routes remained relatively stable from RMB0.56 per passenger-kilometer in 2013 to RMB0.59 per passenger-kilometer
in 2014.



Cargo and mail revenues



Our cargo and
mail traffic revenues decreased by 3.6%, from RMB7,603 million in 2013 to RMB7,328 million in 2014, which accounted for 8.1%
of our total operating revenues in 2014. Cargo and mail yield decreased from RMB1.57 in 2013 to RMB1.55 in 2014 per
cargo tonne-kilometer, or 1.3%, as compared to the same period in 2013, primarily as a result of the general slowdown
and volatility 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 15.6% of our total cargo
and mail traffic revenues in 2014, decreased from RMB1,250 million in 2013 to RMB1,142 million in 2014. 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 decreased from RMB1.30 per tonne-kilometer in 2013 to RMB1.27 per
tonne-kilometer in 2014.



Our regional cargo and
mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), which accounted for 6.0% of our
total cargo and mail traffic revenues in 2014, slightly decreased by 3.3%, from RMB458 million in 2013 to RMB443 million in 2014.
Our freight tonne-kilometers yield for regional routes decreased from RMB3.71 per tonne-kilometer in 2013 to RMB3.47 per tonne-kilometer
in 2014.



International cargo and
mail traffic revenues, which accounted for 78.4% of our total cargo and mail traffic revenues in 2014, decreased by 2.6%, from
RMB5,896 million in 2013 to RMB5,743 million in 2014, due to decreased demand in the international cargo and mail freight market
as a result of the general slowdown of the international freight market. Our prices for cargo and mail transportation on international
routes also decreased as our freight tonne-kilometers yield for international routes decreased from RMB1.56 per tonne-kilometer
in 2013 to RMB1.55 per tonne-kilometer in 2014.



Other revenues



We also generated revenues
from other services, including tour operations, airport ground services, cargo handling services and ticket handling services.
These services include loading and unloading of cargo, aircraft cleaning and ground transportation of cargo and passenger luggage
for aircraft arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are
currently the principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport.
Our total other revenues decreased by 1.5%, from RMB7,714 million in 2013 to RMB7,596 million in 2014.





54







Operating Expenses



The following chart sets
forth a breakdown of our operating expenses for the years ended December 31, 2013 and 2014:







|                                                                  |  |                         |        |   | 2014 vs. 2013 | 
|----------------------------------------------------------------- |  | ----------------------- | ------ | - | ------------- | 
|                                                                  |  | Year Ended December 31, |        |   | Increase      | 
|                                                                  |  | 2013                    |        |   | 2014          | 
|                                                                  |  | (in millions of RMB)    |       
|Operating Expenses:                                               |  |                         |        |   |               | 
|Aircraft fuel expenses                                            |  |                         | 30,681 |   |               | 
|Gain on fair value movements of derivatives financial instruments |  |                         | (18    | ) |               | 
|Takeoff and landing charges                                       |  |                         | 9,190  |   |               | 
|Depreciation and amortization                                     |  |                         | 8,226  |   |               | 
|Wages, salaries and benefits                                      |  |                         | 13,454 |   |               | 
|Aircraft maintenance                                              |  |                         | 4,690  |   |               | 
|Impairment (charge)/reversal                                      |  |                         | 186    |   |               | 
|Food and beverages                                                |  |                         | 2,268  |   |               | 
|Aircraft operating lease rentals                                  |  |                         | 4,605  |   |               | 
|Other operating lease rentals                                     |  |                         | 679    |   |               | 
|Selling and marketing expenses                                    |  |                         | 4,139  |   |               | 
|Civil aviation development fund                                   |  |                         | 1,566  |   |               | 
|Ground services and other expenses                                |  |                         | 5,105  |   |               | 
|Indirect operating expenses                                       |  |                         | 4,623  |   |               | 
|Total Operating Expense                                           |  |                         | 89,394 |   |               | 







Our total operating
expenses decreased by 1.8%, from RMB89,394 million in 2013 to RMB87,812 million in 2014 primarily due to a decrease in
aircraft fuel costs, wages, salaries and benefits. Our total operating expenses as a percentage of our revenues increased
from 101.3% in 2013 to 97.4% in 2014.



Aircraft
fuel expenses decreased by 1.4%, from RMB30,681 million in 2013 to RMB30,238 million in 2014. The decrease was primarily due
to the decrease in the average price of fuel in response to general market trends. In
2014, we consumed a total of approximately 4.8 million tonnes of aviation fuel, representing an increase of 4.3% compared to
2013. In 2014, the average price of fuel decreased by 4.7% compared to that of 2013. Aircraft fuel expenses accounted for
34.4% of our total operating expenses in 2014, as compared to 34.3% in 2013.



Changes in fair value
of financial derivatives decreased from a gain of RMB18 million in 2013 to a gain of RMB11 million in 2014. The difference was
mainly due to the decrease in gains arising from fair value movement of interest rate swaps contracts, which was resulted from
a decrease in the notional amount of unsettled interest rate swaps contracts.



Take-off and landing charges,
which accounted for 10.8% of our total operating expenses in 2014, increased by 2.7%, from RMB9,190 million in 2013 to RMB9,440
million in 2014, primarily due to an increase in the number of take-off and landings.





Depreciation and amortization
increased by 11.6%, from RMB8,226 in 2013 to RMB9,183 million in 2014, primarily due to the addition of new aircraft and engines
by the Group in 2014, resulting in a greater base number for depreciation and amortization.



Wages, salaries and benefits, which accounted for 12.8% of our
total operating expenses in 2014, decreased by 16.2%, from RMB13,454 million in 2013 to RMB11,270 million in 2014, primarily due
to the changes in our retirement benefits. Additional information regarding the changes in our retirement benefits is disclosed
in Note 37 to the consolidated financial statements.





Aircraft maintenance expenses,
which accounted for 5.1% of our total operating expenses in 2014, decreased by 5.0%, from RMB4,690 million in 2013 to RMB4,453
million in 2014, primarily due to the enhancement in our  aircraft maintenance abilities and a decrease in the number
of aircraft that underwent material repairs.



Food and beverage
expenses increased by 4.2% from RMB2,268 million in 2013 to RMB2,364 million in 2014, primarily due to an increase in the
number of passengers and scheduled flights.



Aircraft operating lease
rentals decreased by 2.2%, from RMB4,605 million in 2013 to RMB4,502 million in 2014, primarily due to a decrease in the number
of aircraft that we operate under operating leases.

Other
operating lease rentals decreased by 6.2%, from RMB679 million in 2013 to RMB637 million in 2014, primarily due to a
decrease in leasehold properties.

Selling
and marketing expenses, which accounted for 4.7% of our total operating expenses in 2014, decreased by 0.5%, from RMB4,139 million
in 2013 to RMB4,120 million in 2014, primarily due to decreased handling fees charged by ticketing agents.

The amount of civil aviation
infrastructure levies payable to the CAAC increased by 5.7%, from RMB1,566 million in 2013 to RMB1,656 million in 2014, primarily
due to an increase in our miles flown in 2014.





55







Ground
services and other expenses decreased by 2.1%, from RMB5,105 million in 2013 to RMB4,998 million in 2014, primarily due to a decrease in corresponding expenses following a decrease in income generated from tour operations and
ground services.

Indirect operating
expenses increased by 7.0%, from RMB4,623 million in 2013 to RMB4,950 million in 2014, primarily attributable to an increase
in expenses following the expansion of our fleet.



Other Operating
Income



Our other operating
income and other gains were primarily generated from co-operation routes income. The total amount of our other operating
income and other gains increased by 35.2% from RMB2,725 million in 2013 to RMB3,685 million in 2014, primarily due to an
increase in income from co-operation routes 2014. Other co-operation income represented income from co-operation routes
granted to us by the PRC government and local governments as well as other subsidies granted by various local municipalities
and other parties to encourage us to operate certain routes to cities where these municipalities are located.



Net Finance Costs

In
2014, our finance income was RMB88 million, representing a decrease from RMB2,125 million in 2013, primarily due to net exchange losses in 2014 as compared to net exchange gains in 2013. Finance costs amounted to RMB2,160 million, representing
an increase of 39.4%, primarily due to an increase in interest expenses arising from 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 increased to RMB3,410 million
in 2014, or 43.7%, as compared to a net profit of RMB2,373 million in 2013. The increase is mainly due to continuous improvement
of our operating abilities and the decrease of jet fuel prices, as well as adjustments to the retirement benefit policies of our
employees

Fixed Assets



Our Company had approximately
RMB109,439 million of fixed assets and construction in progress as of December 31, 2014, including, among other assets, aircraft,
engines and flight equipment, representing a 18.0% increase from RMB92,783 million in 2013.



2013 Compared to 2012



Revenues



Our revenues increased
by 3.5%, from RMB85,253 million in 2012 to RMB88,245 million in 2013. 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 2013, we transported
a total of 79,094 thousand passengers, representing an increase of 8.2%, from 73,077 thousand passengers in 2012. Our total passenger
traffic (as measured in RPKs) increased by 10.4%, from 109,113 million passenger-kilometers in 2012 to 120,461 million passenger-kilometers
in 2013 and our total cargo and mail traffic (as measured in RFTKs) increased by 3.3%, from 4,701 million freight tonne-kilometers
in 2012 to 4,857 million freight tonne-kilometers in 2013. Our average yield for our passenger operations decreased by 7.5%, from
RMB0.65 per passenger-kilometer in 2012 to RMB0.61 per passenger-kilometer in 2013.



Our average yield for
our cargo and mail operations decreased by 8.3%, from RMB1.71 per tonne-kilometer in 2012 to RMB1.57 per tonne-kilometer in 2013,
primarily due to the general slowdown of the global economy that affected cargo demand and, consequently, our cargo volumes.





56







The following chart sets
forth our revenue breakdown for 2012 and 2013:



|                        |  |                         |        |  |          |  |        | 2013 vs. 2012 | 
|----------------------- |  | ----------------------- | ------ |  | -------- |  | ------ | ------------- | 
|                        |  | Year Ended December 31, |        |  | Increase |  |        | % Increase    | 
|                        |  | 2012                    |        |  | 2013     |  |        | (Decrease)    | 
|                        |  | (in millions of RMB)    |       
|Traffic revenues        |  |                         | 79,444 |  |          |  | 80,531 |               | 
|Passenger revenue       |  |                         | 71,419 |  |          |  | 72,928 |               | 
|Cargo and mail revenue  |  |                         | 8,025  |  |          |  | 7,603  |               | 
|Others (1)              |  |                         | 5,809  |  |          |  | 7,714  |               | 
|Total Operating Revenue |  |                         | 85,253 |  |          |  | 88,245 |               | 



| | (1) | Includes tour operations income, ground service income,
cargo handling income, commission income and others.
| | --- | ------------------------------------------------------------------------------------------------------------



Passenger revenues



Our passenger traffic
revenues increased by RMB1,509 million, or 2.1%, from RMB71,419 million in 2012 to RMB72,928 million in 2013. 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 69.3% of our total passenger traffic
revenues in 2013, increased by 0.8%, from RMB50,141 million in 2012 to RMB50,556 million in 2013, primarily due to increased flight
capacity on domestic routes and steady demand from the continued growth of the PRC economy. Compared to 2012, our domestic passenger
traffic (as measured in RPKs) increased by 8.7%, from 76,156 million in 2012 to 82,812 million in 2013. The number of passengers
carried on domestic routes increased by 7.7%, from 62.4 million in 2012 to 67.1 million in 2013. Our passenger-kilometers yield
for domestic routes decreased from RMB0.66 per passenger-kilometer in 2012 to RMB0.61 per passenger-kilometer in 2013.



Our regional passenger
traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) which accounted for 4.7% of our total passenger
traffic revenues in 2013, increased by 6.4%, from RMB3,221 million in 2012 to RMB3,427 million in 2013. The increase was primarily
due to increased ticket prices, which led to an increase of 5.1%, from 3,852 million in 2012 to 4,049 million in 2013, in our regional
passenger traffic (as measured in RPKs). The number of passengers carried on Hong Kong, Macau and Taiwan routes increased by 5.2%,
from 2.8 million in 2012 to 3.0 million in 2013. Our passenger-kilometers yield for regional routes increased from RMB0.84 per
passenger-kilometer in 2012 to RMB0.85 per passenger-kilometer in 2013.



International passenger
traffic revenues, which accounted for 26.0% of our total passenger traffic revenues in 2013, increased by 4.9%, from RMB18,057
million in 2012 to RMB18,945 million in 2013. 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 15.4% in 2013, from 29,105 million in 2012 to 33,600 million in 2013. The number of passengers carried
on international routes increased by 13.8%, from 7.9 million in 2012 to 9.0 million in 2013. Our passenger-kilometers yield for
international routes decreased from RMB0.62 per passenger-kilometer in 2012 to RMB0.56 per passenger-kilometer in 2013.



Cargo and mail revenues



Our cargo and mail traffic
revenues decreased by 5.3%, from RMB8,025 million in 2012 to RMB7,603 million in 2013, which accounted for 8.6% of our total operating
revenues in 2013. Revenue from cargo and mail traffic via belly-hold cargo space on the Company's passenger aircraft was RMB2,414
million, which accounted for 31.7% of total freight revenue and 3.0% of total traffic revenue in 2013. Cargo and mail yield decreased
from RMB1.71 in 2012 to RMB1.57 in 2013 per cargo tonne-kilometer, or 8.3% compared to the same period in 2012, 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 16.4% of our total cargo
and mail traffic revenues in 2013, decreased by 6.2%, from RMB1,332 million in 2012 to RMB1,250 million in 2013. 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 was RMB1.44 per tonne-kilometer in 2012 and RMB1.30 per tonne-kilometer
in 2013.



Our regional cargo and
mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), which accounted for 6.0% of our
total cargo and mail traffic revenues in 2013, slightly decreased by 0.7%, from RMB461 million in 2012 to RMB458 million in 2013.
Our freight tonne-kilometers yield for regional routes decreased from RMB3.94 per tonne-kilometer to RMB3.71 per tonne-kilometer.





57







International cargo and
mail traffic revenues, which accounted for 77.6% of our total cargo and mail traffic revenues in 2013, decreased by 5.4%, from
RMB6,233 million in 2012 to RMB5,896 million in 2013, due to decreased demand in the international cargo and mail freight market
as a result of the general slowdown of the international freight market. Our prices for cargo and mail transportation on international
routes also decreased as our freight tonne-kilometers yield for international routes decreased from RMB1.70 per tonne-kilometer
in 2012 to RMB1.56 per tonne-kilometer in 2013.



Other revenues



We also generated revenues
from other services, including tour operations, airport ground services, cargo handling services and ticket handling services.
These services include loading and unloading of cargo, aircraft cleaning and ground transportation of cargo and passenger luggage
for aircraft arriving at or departing from Hongqiao International Airport and Pudong International Airport of Shanghai. We are
currently the principal provider of airport ground services at both Hongqiao International Airport and Pudong International Airport.
Our total other revenues increased by 32.8%, from RMB5,809 million in 2012 to RMB7,714 million in 2013.



Operating Expenses



The following chart sets
forth a breakdown of our operating expenses for the years ended December 31, 2012 and 2013:



|                                                                  |  |                         |        |   |          |  |        | 2013 vs. 2012 | 
|----------------------------------------------------------------- |  | ----------------------- | ------ | - | -------- |  | ------ | ------------- | 
|                                                                  |  | Year Ended December 31, |        |   | Increase |  |        | % Increase    | 
|                                                                  |  | 2012                    |        |   | 2013     |  |        | (Decrease)    | 
|                                                                  |  | (in millions of RMB)    |       
|Operating Expenses:                                               |  |                         |        |   |          |  |        |               | 
|Aircraft fuel expenses                                            |  |                         | 29,872 |   |          |  | 30,681 |               | 
|Gain on fair value movements of derivatives financial instruments |  |                         | (25    | ) |          |  | (18    | )             | 
|Takeoff and landing charges                                       |  |                         | 9,066  |   |          |  | 9,190  |               | 
|Depreciation and amortization                                     |  |                         | 7,557  |   |          |  | 8,226  |               | 
|Wages, salaries and benefits                                      |  |                         | 12,303 |   |          |  | 13,454 |               | 
|Aircraft maintenance                                              |  |                         | 4,433  |   |          |  | 4,690  |               | 
|Impairment (charge)/reversal                                      |  |                         | (13)   |   |          |  | 186    |               | 
|Food and beverages                                                |  |                         | 2,031  |   |          |  | 2,268  |               | 
|Aircraft operating lease rentals                                  |  |                         | 4,438  |   |          |  | 4,605  |               | 
|Other operating lease rentals                                     |  |                         | 609    |   |          |  | 679    |               | 
|Selling and marketing expenses                                    |  |                         | 3,727  |   |          |  | 4,139  |               | 
|Civil aviation development fund                                   |  |                         | 1,414  |   |          |  | 1,566  |               | 
|Ground services and other expenses                                |  |                         | 3,305  |   |          |  | 5,105  |               | 
|Indirect operating expenses                                       |  |                         | 4,017  |   |          |  | 4,623  |               | 
|Total Operating Expense                                           |  |                         | 82,734 |   |          |  | 89,394 |               | 



Our total operating expenses
increased by 8.1%, from RMB82,734 million in 2012 to RMB89,394 million in 2013 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 increased from 97.0%
in 2012 to 101.3% in 2013.



Aircraft fuel expenses
increased by 2.7%, from RMB29,872 million in 2012 to RMB30,681 million in 2013. The increase was primarily due to our increased
aviation fuel consumption resulting from our business expansion. In 2013, we consumed a total of approximately 4.6 million tonnes
of aviation fuel, representing an increase of 10.1% compared to 2012. In 2013, the average price of fuel decreased by 6.69% compared
to that of 2012. Aircraft fuel expenses accounted for 34.3% of our total operating expenses in 2013, as compared to 36.1% in 2012.



Changes in fair value
of financial derivatives decreased from a gain of RMB25 million in 2012 to a gain of RMB18 million in 2013. The difference was
mainly due to the decrease in gains arising from fair value movement of interest rate swaps contracts, which was resulted from
a decrease in the notional amount of unsettled interest rate swaps contracts.





58







Take-off and landing charges,
which accounted for 10.3% of our total operating expenses in 2013, increased by 1.4%, from RMB9,066 million in 2012 to RMB9,190
million in 2013, 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.



Depreciation and amortization
increased by 8.9%, from RMB7,557 in 2012 to RMB8,226 million in 2013, primarily due to the addition of new aircraft and engines
by the Group in 2013, resulting in a greater base number for depreciation and amortization.



Wages, salaries and benefits,
which accounted for 14.9% of our total operating expenses in 2013, increased by 9.4%, from RMB12,303million in 2012 to RMB13,454
million in 2013, primarily due to an increase in the number of staff and the increase in hours flown.



Aircraft maintenance expenses,
which accounted for 5.2% of our total operating expenses in 2013, increased by 5.8%, from RMB4,433 million in 2012 to RMB4,690
million in 2013, primarily due to an increase in the number of aircraft under repair in 2013.



Food and beverage expenses
increased by 11.6% from RMB2,031 million in 2012 to RMB2,268 million in 2013, primarily due to an increase in the number of passengers.



Aircraft operating lease
rentals increased by 3.8%, from RMB4,438 million in 2012 to RMB4,605 million in 2013, primarily due to an increase in the number
of aircraft that we operate under operating leases.



Other operating lease
rentals increased by 11.5%, from RMB609 million in 2012 to RMB 679 million in 2013, primarily due to an increase in the leases
for warehouses and VIP lounges at airports.



Selling and marketing
expenses, which accounted for 4.6% of our total operating expenses in 2013, increased by 11.0%, from RMB3,727 million in 2012 to
RMB4,139 million in 2013.



The amount of civil aviation
infrastructure levies payable to the CAAC increased by 10.7%, from RMB1,414 million in 2012 to RMB1,566 million in 2013, primarily
due to an increase in our miles flown in 2013.



Ground services and other
expenses increased by 54.5%, from RMB3,305 million in 2012 to RMB5,105 million in 2013, primarily due to the increase in other
charges arising from the acquisition of Eastern Travel by Shanghai Airlines Tours, our wholly-owned subsidiary, in 2013.



Indirect operating expenses
increased by 20.1%, from RMB4,017 million in 2012 to RMB 4,623 million in 2013, primarily attributable to an increase in expenses
following the expansion of our fleet.



Other Operating
Income



Our other operating income
and other gains were primarily generated from subsidy income. The total amount of our other operating income and other gains increased
by 48.7% from RMB1,833 million in 2012 to RMB2,725 million in 2013, primarily due to an increase in operational routes subsidy
received in 2013. Other subsidy income represented subsidies granted to us by the PRC government and local governments as well
as other subsidies granted by various local municipalities and other parties to encourage our Company to operate certain routes
to cities where these municipalities are located.



Net Finance Costs



In 2013, our finance income
was RMB2,125 million, representing an increase of 509.42% from RMB349 million in 2012, primarily due to the substantial appreciation
of the Renminbi against the U.S. dollar in 2013. Finance costs amounted to RMB1,549 million, representing a decrease of 8.8%, primarily
due to a decrease in interest expenses arising from 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 RMB2,373 million in 2013, or 22.8%, as compared
to a net profit of RMB3,072 million in 2012. The decrease is mainly due to factors such as a decrease in demand of domestic business
customers, the competition from high-speed railway network, routes to Japan being affected by China-Japan relations, the decrease
in our yield at Yunnan market resulting from the release of time slots at the new Kunming Airport and the occurrence of avian flu
(H7N9) which had short-term impact on the Eastern China market, as well as the rigid increase in costs and expenses.





59











Fixed Assets



Our Company had approximately
RMB92,783 million of fixed assets and construction in progress as of December 31, 2013, including, among other assets, aircraft,
engines and flight equipment, representing a 12.4% increase from RMB82,519 million in 2012.



| | 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.



As of December 31,
2012, 2013 and 2014, we had RMB2,512 million, RMB1,995 million and RMB1,355 million, respectively, in cash and cash equivalents;
RMB45,736 million, RMB50,600 million and RMB59,189 million, respectively, in outstanding borrowings; and RMB1,726 million, RMB383
million and RMB38 million, respectively, in restricted bank deposits and short-term 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.



In addition, our current
liabilities exceeded our current assets by approximately RMB42,887 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, 2014, we had total unutilized credit
facilities of RMB44 billion from various banks. 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 2014,
we generated a net cash inflow from operating activities of RMB12,296 million as a result of cash generated from operations
of RMB12,767 million less income tax we paid in 2014. Our cash generated from operations was mainly due to operating
profit before working capital changes of RMB14,500 million and negative changes in working capital of RMB1,733 million.
The operating profit before working capital changes of RMB14,500 million was a result of the profit before income tax of
RMB4,113 million, mainly adjusted for: (i) depreciation of property, plant and equipment of RMB9,125 million, (ii) interest
expenses of RMB1,957 million, (iii) consumption of flight equipment spare parts of RMB712 million, (iv) provision for return
condition checks for aircraft and engines under operating leases of RMB1,122 million, which was partly offset by
post-retirement benefits of RMB2,612 million. Negative changes in working capital mainly consisted of (i) prepayments and
other receivables of RMB1,314 million; (ii) flight equipment and spare parts of RMB750 million, (iii) trade receivables of
RMB345 million, and (iv) provision for return condition checks for aircraft and engines under operating leases of RMB1,455
million. These negative changes were partly offset by (i) SIAC of RMB1,491 million, and (ii) other payables and accrued
expenses of RMB1,024 million.



In 2013,
we generated a net cash inflow from operating activities of RMB10,806 million as a result of cash generated from operations
of RMB11,120 million less income tax we paid in 2013. Our cash generated from operations was mainly due to operating
profit before working capital changes of RMB11,488 million and negative changes in working capital of RMB367 million. The
operating profit before working capital changes of RMB11,488 million was a result of the profit before income tax of RMB2,217
million, mainly adjusted for: (i) depreciation of property, plant and equipment of RMB8,174 million, (ii) interest expenses
of RMB1,549 million, (iii) consumption of flight equipment spare parts of RMB787 million, (iv) provision for return
condition checks for aircraft and engines under operating leases of RMB872 million, which was partly offset by net foreign
exchange gains of RMB1,976 million. Negative changes in working capital mainly consisted of (i) prepayments and other
receivables of RMB2,028 million; (ii) flight equipment and spare parts of RMB984 million, (iii) trade receivables of RMB557
million, and (iv) provision for return condition checks for aircraft and engines under operating leases of RMB453 million.
These negative changes were partly offset by (i) other payables and accrued expenses of RMB1,539 million
and (ii) restricted bank deposits and short-term bank deposits of RMB1,343 million.



60







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 RMB13,894 million and negative changes in working capital of RMB1,071 million. The operating profit before working capital changes
of RMB13,770 million was a result of the profit before income tax of RMB3,136 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 interest income 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) an increase
in restricted bank deposits and short-term bank deposits of RMB1,168 million, and (ii) an increase in trade payables and notes
payables of RMB388 million.



Cash Flows from Investing Activities



In 2014, our net cash
outflow from investing activities was RMB24,033 million. Our net cash outflow for investing activities mainly consisted of (i)
advanced payments on acquisition of new aircraft of RMB20,067 million and (ii) additions of property, plant and equipment of RMB5,828
million. These cash outflows were partly offset by proceeds from disposal of property, plant and equipment of RMB1,623 million.



In 2013, our net cash
outflow from investing activities was RMB17,028 million. Our net cash outflow for investing activities mainly consisted of (i)
advanced payments on acquisition of new aircraft of RMB17,261 million and (ii) additions of property, plant and equipment of RMB1,822
million. These cash outflows were partly offset by (i) proceeds of short-term deposits with original maturities over three months
of RMB1,492 million, and (ii) proceeds from disposal of property, plant and equipment of RMB556 million.



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 assets classified as held for sale of RMB210 million.



Cash Flows from Financing Activities



In 2014, our net cash
inflow from financing activities was RMB11,112 million. Our net cash inflow for financing activities mainly consisted of (i) proceeds
from draw down of short-term bank loans of RMB33,863 million, (ii) proceeds from draw down of long-term bank loans and other financing
activities of RMB16,971 million, (iii) proceeds from issuance of short-term debentures of RMB4,000 million and (iv) proceeds from
issuance of long-term debentures and bonds of RMB3,300 million. These cash inflows were partly offset by (i) repayments of short-term
bank loans of RMB27,810 million, (ii) repayments of long-term bank loans of RMB7,451 million, and (iii) repayments of short-term
debentures of RMB4,000 million.



In 2013, our net cash
inflow from financing activities was RMB5,730 million. Our net cash inflow for financing activities mainly consisted of (i) proceeds
from draw down of short-term bank loans of RMB15,635 million, (ii) proceeds from draw down of long-term bank loans of RMB8,958
million, (iii) proceeds from issuance of long-term debentures and bonds of RMB6,985 million and (iv) proceeds from issuance of
short-term debentures and bonds of RMB4,000 million. These cash inflows were partly offset by (i) repayments of short-term bank
loans of RMB15,823 million, (ii) repayments of long-term bank loans of RMB9,792 million, and (iii) repayments of short-term debts
of RMB4,000 million.



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.



61







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, 2014, our current liabilities exceeded our current assets by RMB42,887 million. In comparison, our current liabilities exceeded
our current assets by RMB40,472 million as of December 31, 2013. The increase in our current liabilities in 2014 was primarily
due to the increase in the current portion of borrowings. The increase in our current assets in 2014 was primarily due to an increase
in prepayments and other receivables and an increase in assets classified as held for sale. Short-term loans outstanding totaled
RMB23,285 million and RMB28,676 million as of December 31, 2013 and 2014, respectively. Long-term outstanding bank loans totaled
RMB27,315 million and RMB30,513 million as of December 31, 2013 and 2014, respectively.



As of December 31,
2014, our long-term debt to equity ratio was 0.96. 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, 2013 and 2014 for the purpose of calculating the indebtedness of our Company, were as follows:



|          |  | As of December 31, |       
|--------- |  | ------------------ | ------
|          |  | 2013               |       
|          |  | (RMB in millions)  |       
|Secured   |  |                    | 14,862
|Unsecured |  |                    | 35,738
|Total     |  |                    | 50,600



The maturity profile
of interest-bearing borrowings of our Company as of December 31, 2013 and 2014 was as follows:



|                                     |  | As of December 31, |       
|------------------------------------ |  | ------------------ | ------
|                                     |  | 2013               |       
|                                     |  | (RMB in millions)  |       
|Within one year                      |  |                    | 23,285
|In the second year                   |  |                    | 6,606 
|In the third to fifth year inclusive |  |                    | 9,952 
|After the fifth year                 |  |                    | 10,757
|Total                                |  |                    | 50,600



As of December 31,
2014, our interest rates relating to short-term borrowings ranged from 1.01% to 5.35%, while our fixed interest rates on our interest-bearing
borrowings for long-term bank loans ranged from 5.535% to 5.99%. Our bank loans are denominated in Renminbi and U.S. dollars. As
of December 31, 2014, our total bank loans denominated in Renminbi amounted to RMB16,205 million, while our total bank loans denominated
in U.S. dollars amounted to US$7,025 million. On March 6, 2014, our wholly-owned subsidiary EAO issued offshore CNY-denominated
bonds in an amount of RMB2.5 billion at 4.8% due 2017, listed on the Hong Kong Stock Exchange. Our Company guaranteed the bond
issue. On May 14, 2014, EAO issued offshore CNY-denominated bonds in an amount of CNY0.8 billion at 4.8% due 2017, listed on the
Hong Kong Stock Exchange. 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, 2014, according to the relevant agreements, we expect our capital expenditures for aircraft, engines and
related equipment to be in aggregate approximately RMB105,011 million, including approximately RMB25,830 million in 2015
and approximately RMB18,249 million in 2016, 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.



62







| | 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, 2014 to December 31, 2014 that are reasonably likely to have a material effect on our net revenues, income, profitability,
liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating
results or financial conditions.



| | E. | Off-balance Sheet Arrangements
| | -- | ------------------------------



We have not entered
into 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, 2014:



|                                        |  | Total |         |  | Less Than 1 Year |  |        | 1-2 Years |  |  | 2-5 Years |  |  | More Than 5 Years |       
|--------------------------------------- |  | ----- | ------- |  | ---------------- |  | ------ | --------- |  |  | --------- |  |  | ----------------- | ------
|Long-Term Debt (1)                      |  |       | 41,210  |  |                  |  | 10,697 |           |  |  | 8,801     |  |  |                   | 10,868
|Capital Leases (2)                      |  |       | 38,695  |  |                  |  | 4,596  |           |  |  | 4,411     |  |  |                   | 11,482
|Operating Leases (3)                    |  |       | 26,671  |  |                  |  | 4,020  |           |  |  | 3,672     |  |  |                   | 8,404 
|Unconditional Purchase Obligations (4)  |  |       | 105,011 |  |                  |  | 25,830 |           |  |  | 18,249    |  |  |                   | 30,952
|Other Long-term Obligations (5)(6)      |  |       | 2,756   |  |                  |  | -      |           |  |  | -         |  |  |                   | -     
|Post-retirement Benefit Obligations (5) |  |       | 2,822   |  |                  |  | -      |           |  |  | -         |  |  |                   | -     
|Deferred Tax Liabilities (5)            |  |       | 26      |  |                  |  | -      |           |  |  | -         |  |  |                   | -     
|Short-term Bank Loans (7)               |  |       | 17,979  |  |                  |  | 17,979 |           |  |  | -         |  |  |                   | -     
|Interest Obligations                    |  |       | 6,870   |  |                  |  | 1,753  |           |  |  | 1,246     |  |  |                   | 2,459 
|Under Finance Leases                    |  |       | 4,369   |  |                  |  | 857    |           |  |  | 763       |  |  |                   | 1,683 
|Under Bank Loans                        |  |       | 2,501   |  |                  |  | 896    |           |  |  | 483       |  |  |                   | 776   
|Fixed Rate                              |  |       | 99      |  |                  |  | 95     |           |  |  | 4         |  |  |                   | -     
|Variable Rate (8)                       |  |       | 2,402   |  |                  |  | 801    |           |  |  | 479       |  |  |                   | 776   
|Total                                   |  |       | 242,130 |  |                  |  | 64,875 |           |  |  | 36,379    |  |  |                   | 66,908



| | (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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



63







| | (7) | Short-term bank loans are
generally repayable within one year. As of December 31, 2014, the weighted average interest rate of our short-term bank loans
was 2.42% per annum (2013: 2.36%).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | For our variable rate loans,
interest rates range from six month LIBOR + 0.55% 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, 2014. A 25 basis points increase in the interest rate would
increase interest expenses by RMB161 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                               |  | Total             |        |  | Amount of Commitment Expiration Per Period | 
|---------------------------------------------- |  | ----------------- | ------ |  | ------------------------------------------ | 
|Other Commercial Commitments/Credit Facilities |  | Amounts Committed |        |  | Less Than 1 Year                           | 
|                                               |  | (RMB in millions) |       
|Lines of Credit                                |  |                   | 44,010 |  |                                            | 
|Standby Letters of Credit                      |  |                   | -      |  |                                            | 
|Guarantees                                     |  |                   | -      |  |                                            | 
|Total                                          |  |                   | 44,010 |  |                                            | 



Taxation



We had carried forward
tax losses of approximately RMB2,275 million as of December 31, 2014, which can be used to set off against future taxable income
between 2015 and 2019.



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, 2014, 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, 2014 was insignificant and the change in tax rate had 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%.



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, was approximately 2.6% in 2012, 2.6% in 2013 and 2.1%
in 2014. 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



For a detailed discussion
of new accounting pronouncements, please see Note 2 to our audited consolidated financial statements.



| | 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.



64







|Name (1)         |  | Age |  | Shares Owned    |  | Position                                   
|---------------- |  | --- |  | --------------- |  | -------------------------------------------
|Liu Shaoyong     |  | 56  |  | -               |  | Chairman of the Board of Directors         
|Ma Xulun         |  | 51  |  | -               |  | President and Vice Chairman                
|Xu Zhao          |  | 46  |  | -               |  | Director                                   
|Gu Jiadan        |  | 59  |  | -               |  | Director                                   
|Li Yangmin       |  | 52  |  | 3,960 A Shares  |  | Director and Vice President                
|Tang Bing        |  | 48  |  | -               |  | Director and Vice President                
|Sandy Ke-Yaw Liu |  | 67  |  | -               |  | Independent Non-executive Director         
|Ji Weidong       |  | 58  |  | -               |  | Independent Non-executive Director         
|Li Ruoshan       |  | 66  |  | -               |  | Independent Non-executive Director         
|Ma Weihua        |  | 67  |  | -               |  | Independent Non-executive Director         
|Yu Faming        |  | 61  |  | -               |  | Chairman of the Supervisory Committee      
|Xi Sheng         |  | 52  |  |                 |  | Supervisor                                 
|Ba Shengji       |  | 57  |  | -               |  | Supervisor                                 
|Feng Jinxiong    |  | 53  |  | -               |  | Supervisor                                 
|Yan Taisheng     |  | 61  |  | -               |  | Supervisor                                 
|Tian Liuwen      |  | 56  |  | -               |  | Vice President                             
|Wu Yongliang     |  | 52  |  | 3,696 A Shares  |  | Vice President and Chief Financial Officer 
|Feng Liang       |  | 51  |  | -               |  | Vice President                             
|Sun Youwen       |  | 55  |  | 62,731 A Shares |  | Vice President                             
|Wang Jian        |  | 42  |  | -               |  | Board Secretary and Joint Company Secretary








Note:

(1) On March 24, 2014, the sixth ordinary
meeting of the seventh session of the Board considered and passed the resolution regarding the change in Vice President of the
Company and appointed Mr. Sun Youwen as a Vice President of the Company. Mr. Shu Mingjiang ceased to be a Vice President of the
Company due to work reallocation. Mr. Shao Ruiqing, due to personal commitments, tendered his resignation as an independent non-executive
director of the Company with effect from April 29, 2014 in accordance with the relevant requirements.



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 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.



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 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 PRC certified accountant.



65







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. 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 Jiadan
is 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 of the commerce department and the party secretary of Shanghai Airlines From May 2005 to August 2009, he
was a party member and vice president of Shanghai Airlines. From August 2009 to January 2010, he was the acting president of Shanghai
Airlines. 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 Branch 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. Mr. Li graduated from
the Civil Aviation University of China and Northwestern Polytechnical University with master's degrees and obtained an Executive
Master of Business Administration (EMBA) degree from Fudan University. He is also a qualified professor-level 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 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, an EMBA degree from the School of Economics and Management of Tsinghua University and a doctoral degree in National
Economics from the Graduate School of Chinese Academy of Social Sciences. He is also a qualified senior engineer.



Mr. 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, and served in China Airlines in various capacities, including airport manager in Honolulu International 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 served as the chief operating officer for the Asia
region of American Expeditors International Logistics Company. Mr. Liu has served as an Independent Non-executive Director of our
Company since June 2009. He graduated from Taiwan Shih Hsin University and attended advanced study programs at Stanford University
in 1990 and 1993.



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 has served as an Independent Nonexecutive
Director of our Company since March 2010. 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.



66







Mr. LI Ruoshan
is currently an Independent Non-executive Director of our Company. Mr. Li was a deputy dean of the School of Economics and a deputy
director of the Accounting Department of the School of Economics of Xiamen University; and a deputy dean of the School of Management,
director of the Accounting Department, and director of the Finance Department of Fudan University. Mr. Li is currently a professor
and PhD supervisor of the Accounting Department of the School of Management of Fudan University. He is also the deputy director
of the Members’ Rights Protection Commission of the Chinese Institute of Certified Public Accountants, the vice president
of the Shanghai Accounting Society and Shanghai Auditing Society, a member of the Consultant Professional Committee for Listed
Companies of the Shanghai Stock Exchange, a consultant professional of the Committee for Accounting Standards of the Ministry of
Finance and an independent director of each of Industrial Bank Co., Ltd. (a company listed on the Shanghai Stock Exchange) and
Xi’an Shaangu Power Co. Ltd. (a company listed on the Shanghai Stock Exchange). Mr. Li served as an independent director
of each of China Pacific Insurance (Group) Co., Ltd. (a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange)
and Guangbo Group Co. Ltd. (a company listed on the Shenzhen Stock Exchange). Mr. Li has served as an Independent Non-executive
Director of our Company since June 2013. In 2010, Mr. Li was awarded the “The Best 10 Independent Directors in China”
by the Shanghai Stock Exchange. Mr. Li graduated from Xiamen University, majoring in Accounting and obtained a Doctoral Degree
in Auditing. He further studied abroad in Belgium and the Massachusetts Institute of Technology in the United States.



Mr. MA Weihua
is currently an Independent Non-executive Director of the Company. Mr. Ma is currently the chairman of Wing Lung Bank Limited in
Hong Kong, a member of the Twelfth National Committee of the Chinese People’s Political Consultative Conference, the vice
chairman of China Chamber of International Commerce, a member of the Standing Council of China Society for Finance and Banking,
the president of One Foundation, an independent director of each of China Petroleum & Chemical Corporation (中國石油化工股份有限公司)
and an independent director of China World Trade Center Co., Ltd. Mr. Ma served as an executive director, president and chief executive
officer of China Merchants Bank Co., Ltd, the chairman of CIGNA & CMC Life Insurance Company Limited and the chairman of China
Merchants Fund Management Co., Ltd. Mr. Ma has served as an Independent Non-executive Director of the Company since October 2013.
Mr. Ma obtained a Doctorate Degree in Economics and is an adjunct professor at several higher educational institutions including
Peking University and Tsinghua University.



Supervisory Committee



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



Mr. YU Faming
is currently the Chairman of 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 Labor 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 Supervisory Committee of the Company. Mr. Yu
graduated from Shandong University majoring in philosophy. He holds the title of associate research fellow.



Mr. XI Sheng
is 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 and a Supervisor of our Company since June 2012. Mr. Xi is also the council member of China Institute of Internal Audit, a
member of International Institute of Internal Auditors and a committee member of international relations committee of the institute.
Mr. Xi graduated from Jiangxi University of Finance and Economics with undergraduate education background. He is a senior auditor,
a Chinese Certified Public Accountant (CPA) and an International Certified Internal Auditor (CIA).



67







Mr. BA Shengji
is currently a Supervisor of the Company and the chairman of the labor union of CEA Holding. Mr. Ba joined the civil aviation industry
in 1978. He served as the section manager and deputy head of the finance department. He was the chief officer of the auditing office
of the Company from March 1997 to October 1997, chief officer of the auditing office of CEA Holding from October 1997 to July 2000,
head of the audit department of CEA Holding from July 2000 to January 2003, chief officer of disciplinary committee office, head
of supervision department and head of auditing department of CEA Holding from January 2003 to May 2003. He served as the deputy
head of party disciplinary inspection group, chief officer of disciplinary committee office, head of supervision department and
head of the audit department of CEA Holding from May 2003 and November 2006. He was the secretary of the disciplinary committee
of the Company from November 2006 to November 2009 and the secretary of the disciplinary committee and chairman of the labor union
of the Company from November 2009 to November 2011. He served as the deputy secretary of the party committee and secretary of the
disciplinary committee of the Company from November 2011 to August 2013. He has served as the chairman of the labor union of CEA
Holding since August 2013. Mr. Ba graduated from Shanghai Television University.



Mr. FENG Jinxiong
is currently a Supervisor and General Manager of the Audit Department of the Company and 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, 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. He has been the head
of the audit department of CEA Holding from May 2014. 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 of our 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 served as the vice chairman of the labor union of the
Company from 2005 to 2014. He served as a Supervisor since March 2009. He has been retired since June 2014. Mr. Yan graduated from
East China Normal University.



Senior Management



Mr. TIAN Liuwen
is currently a Vice President of the Company and a party member of party disciplinary inspection group of CEA Holding. Mr. Tian
served as manager of the Beijing Sales Department under the Marketing and Sales Division of China General Aviation Corporation.
He was also the Head of the General Manager Office and Chairman of the Labor Union and Deputy General Manager of the Shanxi Branch
of the Company. From June 2002 to January 2008, he was the Vice President and subsequently President of the Hebei Branch of the
Company. From April 2005 to January 2008, he was President of the Beijing Base of the Company. He served as general manager of
China Eastern Airlines Jiangsu Co., from January 2008 to December 2011. Since December 2011, he has been Vice President of the
Company. From December 2011 to June 2013, he was the president of Shanghai Airlines. Since June 2014, he has been a party member
of party disciplinary inspection group of CEA Holding. He obtained an EMBA degree from Nanjing University and is qualified as senior
economist.



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.



Mr. FENG Liangis currently a Vice President and the Chief Engineer of the Company. Mr. Feng joined the civil aviation industry in 1986 and
worked in aircraft maintenance base routes department of the Company. From 1999 to 2006, he used to serve as the head of the aircraft
maintenance base engineering technology department, chief engineer of the base and general manager of the base. He also served
as the general manager of China Eastern Air Engineering & Technique after it was established. He has served as the Chief Engineer
of the Company since August 2010. He served as the Chief Security Officer of the Company from December 2012 to December 2014 and
the Vice President of the Company since August 2013. Mr. Feng was graduated from Civil Aviation University of China, majored in
aircraft electrical equipment maintenance and obtained an MBA degree from Shanghai Jiaotong University. He is also a senior engineer.



68







Mr. SUN
Youwen is currently the Vice President of the Company. Mr. Sun joined the civil aviation industry in 1980, and served as
a squadron leader and the leader of the shanghai flight division of the Company. He served as the vice president of China
Eastern Airlines Jiangsu Corporation Limited from April 2007 to November 2009 and the general manager of the shanghai flight
division of the Company from December 2009 to April 2012. He was appointed as the chief pilot of the Company and the general
manager of the shanghai flight division of the Company from April 2012 to July 2014 and has served as the Vice President of
the Company since March 2014. Mr. Sun graduated from the Flight College of Civil Aviation Flight University of China, majored
in aircraft piloting and obtained an Executive Master of Business Administration (EMBA) degree from the Institute of
Management of Fudan University.



Mr. WANG Jian
is currently the Board Secretary, the Head of the Board secretariat of the Company, Joint Company Secretary and Authorized Representative
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. 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,
Joint Company Secretary and Authorized Representative 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.



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



The aggregate amount
of cash compensation paid by us to our Directors, supervisors and the senior management during 2014 for services performed as Directors,
supervisors and officers or employees of our Company was approximately RMB9.3 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.



Details of the emoluments
paid to our Directors, supervisors and senior management for the year 2014 are as follows:



|Name and Principal Position         |  | Total   |      
|----------------------------------- |  | ------- | -----
|                                    |  | RMB'000 |      
|Directors                           |  |         |      
|Liu Shaoyong*                       |  |         | -    
|Ma Xulun                            |  |         | 745  
|Xu Zhao*                            |  |         | -    
|Gu Jiadan*                          |  |         | -    
|Li Yangmin                          |  |         | 669  
|Tang Bing                           |  |         | 632  
|Independent non-executive Directors |  |         |      
|Liu Keya                            |  |         | 120  
|Ji Weidong                          |  |         | 120  
|Shao Ruiqing****                    |  |         | -    
|Li Ruoshan                          |  |         | 120  
|Ma Weihua                           |  |         | 120  
|Supervisors                         |  |         |      
|Yu Faming*                          |  |         | -    
|Xi Sheng*                           |  |         | -    
|Feng Jinxiong                       |  |         | 436  
|Yan Taisheng                        |  |         | 175  
|Ba Shengji*                         |  |         | -    
|Senior Management                   |  |         |      
|Tian Liuwen                         |  |         | 518  
|Wu Yongliang                        |  |         | 504  
|Feng Liang                          |  |         | 491  
|Sun Youwen**                        |  |         | 739  
|Wang Jian                           |  |         | 487  
|Shu Mingjiang***                    |  |         | 262  
|Total                               |  |         | 6,139



| | * | These 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



69







| | ** | Mr. Sun Youwen has been
the senior management of the Company since March 24, 2014. He is a pilot and his remuneration includes air crewman packages.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | *** | Mr. Shu Mingjiang was the
senior management of the Company before March 24, 2014. He is a pilot and his remuneration includes air crewman packages.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | **** | Mr. Shao Ruiqing, due to
personal commitments, tendered his resignation as an independent non-executive director of the Company with effect from April
29, 2014 in accordance with relevant requirement.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the year ended
December 31, 2014, no Directors or supervisors waived their compensation.



| | 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 26, 2013       |  | June 26, 2016     
|Ma Xulun     |  | Vice Chairman                      |  | June 26, 2013       |  | June 26, 2016     
|             |  | President                          |  | June 26, 2013       |  | June 26, 2016     



|Name (1)         |  | Position                                    |  | Held Position Since |  | Expiration of Term
|---------------- |  | ------------------------------------------- |  | ------------------- |  | ------------------
|Xu Zhao          |  | Director                                    |  | June 26, 2013       |  | June 26, 2016     
|Gu Jiadan        |  | Director                                    |  | June 26, 2013       |  | June 26, 2016     
|Li Yangmin       |  | Director                                    |  | June 26, 2013       |  | June 26, 2016     
|                 |  | Vice President                              |  | June 26, 2013       |  | June 26, 2016     
|Tang Bing        |  | Director                                    |  | June 26, 2013       |  | June 26, 2016     
|                 |  | Vice President                              |  | June 26, 2013       |  | June 26, 2016     
|Sandy Ke-Yaw Liu |  | Independent non-executive Director          |  | June 26, 2013       |  | June 26, 2016     
|Ji Weidong       |  | Independent non-executive Director          |  | June 26, 2013       |  | June 26, 2016     
|Li Ruoshan       |  | Independent non-executive Director          |  | June 26, 2013       |  | June 26, 2016     
|Ma Weihua        |  | Independent non-executive Director          |  | October 29, 2013    |  | June 26, 2016     
|Yu Faming        |  | Chairman of the Supervisory Committee       |  | June 26, 2013       |  | June 26, 2016     
|Xi Sheng         |  | Supervisor                                  |  | June 26, 2013       |  | June 26, 2016     
|Ba Shengji       |  | Supervisor                                  |  | June 26, 2013       |  | June 26, 2016     
|Feng Jinxiong    |  | Supervisor                                  |  | June 26, 2013       |  | June 26, 2016     
|Yan Taisheng     |  | Supervisor                                  |  | June 26, 2013       |  | June 26, 2016     
|Tian Liuwen      |  | Vice President                              |  | June 26, 2013       |  | June 26, 2016     
|Wu Yongliang     |  | Vice President                              |  | June 26, 2013       |  | June 26, 2016     
|                 |  | Chief Financial Officer                     |  | June 26, 2013       |  | June 26, 2016     
|Feng Liang       |  | Vice President                              |  | August 27, 2013     |  | June 26, 2016     
|Sun Youwen       |  | Vice President                              |  | March 24, 2014      |  | June 26, 2016     
|Wang Jian        |  | Board Secretary and Joint Company Secretary |  | June 26, 2013       |  | June 26, 2016     
|Ngai Wai Fung    |  | Joint Company Secretary                     |  | June 26, 2013       |  | June 26, 2016     








Note:

(1) On March 24, 2014, the sixth ordinary
meeting of the seventh session of the Board considered and passed the resolution regarding the change in Vice President of the
Company and appointed Mr. Sun Youwen as a Vice President of the Company. Mr. Shu Mingjiang ceased to be a Vice President of the
Company due to work reallocation. Mr. Shao Ruiqing, due to personal commitments, tendered his resignation as an independent non-executive
director of the Company with effect from April 29, 2014 in accordance with the relevant requirements.



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.



70







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.
As of December 31, 2014, our audit and risk management committee comprises Mr. Li Ruoshan, Mr. Ji Weidong and Mr. Xu Zhao as the
members of the Audit and Risk Management Committee and Mr. Li Ruoshan was appointed as the chairman of the Audit and Risk Management
Committee. Mr. Li Ruoshan and Mr. Ji Weidong 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 nine meetings in 2014.



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 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 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. On December 31, 2014, our nominations and remuneration committee comprises Mr. Liu Shaoyong, the Chairman,
Mr. Sandy Ke-Yaw Liu and Mr. Ma Weihua, the independent non-executive Directors.



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, Remuneration and Appraisal
Committee did not hold any meetings in 2009. Under the guidance of Remuneration and Appraisal Committee, we renewed liability insurance
for our Directors, supervisors and senior management in August 2009.The Nominations and Remuneration Committee held
three meetings in 2014.



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.



71







Planning and Development Committee



As of December 31, 2014, the Planning and
Development Committee comprises three members: Mr. Li Yangmin, Mr. Tang Bing and Mr. Ji Weidong, all of whom are Directors. Mr.
Li Yangmin, a Director, is the chairman of the 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 eight meetings
in 2014.



Aviation Safety and Environment Committee



The three members
of the Aviation Safety and Environment Committee are Mr. Ma Xulun, Mr. Sandy, Ke-Yaw Liu and Mr. Li Yangmin. Mr. Ma Xulun is the
Chairman of the 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 meeting in 2014.



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



Our employees are
members of a labor association which represents employees with respect to labor disputes and certain other employee matters. We
believe that we maintain good relations with our employees and with their labor association.



The table below sets
forth the number of our employees as of December 31, 2012, 2013 and 2014, respectively:



|                                          |  | As of December 31, |       
|----------------------------------------- |  | ------------------ | ------
|                                          |  | 2012               |       
|Pilots                                    |  |                    | 5,562 
|Flight attendants and other aircrew staff |  |                    | 10,114
|Maintenance personnel                     |  |                    | 12,698
|Sales and marketing                       |  |                    | 3,960 
|Operation control                         |  |                    | 2,461 
|Information technology                    |  |                    | 502   
|Management                                |  |                    | 5,462 
|Ground Services and others                |  |                    | 25,448
|Total                                     |  |                    | 66,207



As of December 31, 2014, we had 69,849
employees in service. In 2014, the number of the Company's core technical team, core technical personnel and pilots remained stable.
We recruited 838 pilot trainees in 2014. As of October 31, 2014, we completed the recruitment of 205 captains, 49 airline captains
and 465 co-pilots. We arranged for training for 306 new employees in 2014 and continued to provide trainings for our existing employee.
For instance, we provided maintenance and engineering personnel with trainings such as aircraft model training, practical training,
engineering management and quality and safety training.	We outsourced some of our IT services in 2014. See Notes 37 and 38 to
our audited consolidated financial statements for changes in our retirement benefits.



| | E. | Share Ownership
| | -- | ---------------



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



In 2012, we implemented
an H shares appreciation rights scheme, under which H shares appreciation rights were granted to the Directors and senior management
on November 30, 2012 at an exercise price of HK$2.67. The H share appreciation rights granted under this scheme are valid for a
period of 5 years from the date of grant. The lock-up period of the share appreciation rights shall be the 24 months from the date
of grant, during which no share appreciation right shall be exercised. Subject to the satisfaction of performance appraisal indicators,
incentive recipients may exercise their share appreciation rights in equal instalments within three years after the expiration
of the lock-up period. For details, please refer to the our announcements in the 6-K filed with the SEC dated August 29, 2012,
October 19, 2012, November 9, 2012 and November 30, 2012.



72







There was no granting
or exercise of rights under the H shares appreciation rights of our Company during 2013. The first tranche of H shares appreciation
rights, amounting to one third of the total H shares appreciation rights of our Company, was originally planned to be exercised
on December 1, 2014. However, as our Company did not satisfy the exercising conditions in 2013, such tranche expired automatically.



| | Item 7. | 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, 2014 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 (1)             |  |              | 5,530,240,000 |  |                      |  | 65.21 |                             | 
|H Shares          |  | CEA Holding (2)             |  |              | 2,626,240,000 |  |                      |  | 62.63 |                             | 
|H Shares          |  | HKSCC Nominees Limited (3)  |  |              | 4,179,493,198 |  |                      |  | 99.67 |                             | 



Notes:



Based on the information available to the
Directors (including such information as was available on the website of the Hong Kong Stock Exchange) and so far as they are aware
of, as at December 31, 2014:



| | (1) | Among such A shares, 5,072,922,927
A shares were directly held by CEA Holding and 457,317,073 A shares were directly held by CES Finance, which in turn was 100%
held by CEA Holding.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Such H shares were held
by CES Global in the capacity of beneficial owner, which in turn was 100% held by CEA Holding.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (3) | Among the 4,179,493,198 H shares held by
        HKSCC Nominees Limited, 2,626,240,000 H shares (representing approximately 62.85% of the Company’s then total issued H shares)
        were held by CES Global in the capacity of beneficial owner, which in turn was 100% held by CEA Holding.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31,
2014, CEA Holding directly or indirectly held 64.4% 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,
2014, there were 4,193,190,000 H Shares issued and outstanding. As of December 31, 2014 and April 17, 2015, there were, respectively,
41 and 40 registered holders of American depositary receipts evidencing 955,290 and 1,127,039 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 the SASAC. CEA Holding's shareholding in our Company is in
the form of ordinary domestic shares, through which it, under the supervision of the SASAC, enjoys shareholders' rights and benefits
on behalf of the PRC government.



| | B. | Related Party Transactions
| | -- | --------------------------



Relationship with CEA Holding and
Associated Companies



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



73







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,
we 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. On August 30, 2013, we entered into an agreement
relating to the renewal of the existing import and export agency agreement with EAIEC on substantially the same terms, pursuant
to which EAIEC and its subsidiaries will from time to time as its agent provide the Group with agency services for the import and
export of goods, including aircraft and related raw materials, accessories, machinery and equipment, together with related insurance
and financial services, required in the daily airlines operations and civil aviation business of the Group. The Import and Export
Agency Renewal Agreement will be effective for a term of three years commencing from January 1, 2014 to December 31, 2016.



For the year ended
December 31, 2014, we paid handling charges to EAIEC of approximately RMB120 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 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 Airlines 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.



On August 30, 2013,
we entered into an agreement relating to the renewal of the existing advertising services agreement with Eastern Aviation Advertising
on substantially the same terms, pursuant to which Eastern Aviation Advertising and its subsidiaries will from time to time provide
the Group with multi-media advertising services to promote its business and to organize promotional functions and campaigns to
enhance its reputation in the civil aviation industry. The Advertising Services Renewal Agreement will be effective for a term
of three years commencing from January 1, 2014 to December 31, 2016. For the year ended December 31, 2014, we paid to Eastern Aviation
Advertising approximately RMB5 million for advertising services.



Media Resources Agreement
and Agreement with CES Media



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.



74







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.



On September 27, 2013,
we entered into an agreement with CES Media, pursuant to which we and certain of our subsidiaries agreed to transfer the exclusive
rights to use certain media and advertising resources to CES Media and certain of its subsidiaries for a period of 15 years (from
January 1, 2014 to December 31, 2028). CES Media is a subsidiary of and thus an associate of CEA Holding, which in turn is a controlling
shareholder of the Company. For the year ended December 31, 2014, Eastern Aviation Advertising paid approximately RMB16 million
for media royalty fee.



SA Media Disposal



On July 28, 2010,
Shanghai Airlines and Shanghai Airlines 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 Airlines 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.



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



Catering Service Agreements



On 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.



On August 30, 2013,
we entered into an agreement relating to the renewal of the existing catering services agreement with the Eastern Air Catering
Company on substantially the same terms, pursuant to which the Eastern Air Catering Company and its subsidiaries will from time
to time provide the 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 the Group. The Eastern Air Catering Entities provide their services in accordance with the specifications and schedules as from
time to time specified by the relevant member(s) of the Group to accommodate its operation needs. The Catering Services Renewal
Agreement was approved on the extraordinary general meeting of the Company held on 29 October 2013 and will be effective for a
term of three years, commencing from January 1, 2014 to December 31, 2016. For the year ended December 31, 2014, we paid approximately
RMB851 million to the subsidiaries of CEA Catering for the supply of in-flight meals and other services.



75







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 Eastern Finance,
pursuant to which 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.



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 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 in the 6-K filed with the SEC dated January 16, 2013. On August 30, 2013, we entered into an agreement relating
to the renewal of the existing financial services agreement with Eastern Finance and CES Finance, pursuant to which Eastern Finance
and its subsidiaries (each a “Eastern Air Finance Entity” and collectively the “Eastern Air Finance Entities”)
and CES Finance and its subsidiaries (each a “CES Finance Entity” and collectively the “CES Finance Entities”)
will from time to time provide the Group with a range of financial services including: (i) deposit services by Eastern Air Finance
Entities; (ii) loan and financing services by Eastern Air Finance Entities; and (iii) other financial services such as: (a) the
provision of trust loans, financial guarantees, credit references by Eastern Air Finance Entities; and (b) broker services for
future products (e.g. crude oil, foreign exchange and national debt) by CES Finance Entities (the scope of “other financial
services” is not limited and different services may be provided to the Group as and when they are needed). The Financial
Services Renewal Agreement was approved on the extraordinary general meeting of the Company held on October 29, 2013 and will be
effective for a term of three years commencing from January 1, 2014 to December 31, 2016.



As of December 31,
2014, we had deposits amounting to RMB369 million placed with Eastern Finance, which paid interest to us at 0.35% per annum. In
addition, as of December 31, 2014, our Company had loans of RMB198 million from Eastern Finance. During the year ended December
31, 2014, the weighted average interest rate on the loan was 2.26% per annum for short-term loans and 5.73% for long-term loans.



CEA Development Co. ("CEA Development"),
a wholly-owned subsidiary of CEA Holding



On October 28, 2008,
our Company and CEA Development entered into an automobile repair service agreement, pursuant to which CEA Development 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, 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.



76







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 pursuant to which
CEA Development 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.



On August 30, 2013,
we entered into an agreement relating to the renewal of the existing maintenance and repair services agreement with CEA Development
on substantially the same terms, pursuant to which CEA Development and its subsidiaries (each a “CEA Development Entity”
and collectively the “CEA Development Entities”) will from time to time provide certain services to us, including:
(a) maintenance and repair services to our aeroplanes and automobiles that are used in ground services and daily operations; (b)
comprehensive services in relation to maintenance, repair and overhaul of aircraft, aviation equipment and ancillaries; (c) various
special vehicles and equipment for airline use, such as air stairs, freight cars, luggage trailers, garbage truck, aircraft portable
water vehicle, aircraft sewage disposal vehicle, food cars, freight containers, freight board; (d) aircraft on-board supplies;
and (e) warehousing management (the “Maintenance and Repair Services Renewal Agreement”). Maintenance and Repair Services
Renewal Agreement will be effective for a term of three years commencing from January 1, 2014 to December 31, 2016. For the year
ended December 31, 2014, production and maintenance services fees paid to CEA Development Entity amounted were approximately RMB142
million.



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, a wholly- owned subsidiary
of Company



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.



77







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 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 August 30, 2013,
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 Shanghai Dongmei Entities will from time to time provide the Group as its agents
with services for sale of air tickets and with complementary services required in the daily airline operations and civil aviation
business of the Group. The Sales Agency Services Renewal Agreement will be effective for a term of three years commencing from
January 1, 2014 to December 31, 2016. For the year ended December 31, 2014, sales agency services fees paid to Shanghai Dongmei
amounted were approximately RMB 5 million.



On August 15, 2014,
Shanghai Airlines Tours, a subsidiary of our Company, entered into the equity transfer agreement with Eastern Air Tourism Investment
(Group) Co., Ltd. (“Eastern Air Tourism”), pursuant to which, Shanghai Airlines Tours agreed to acquire 72.84%
equity interest in Shanghai Dongmei held by Eastern Air Tourism. This acquisition has been completed and Shanghai Dongmei has become
a subsidiary of the Group with its consolidated financial information consolidated into the Group’s financial statements.
Upon the completion of the acquisition, the provision of sales agency services to the Group by Shanghai Dongmei no longer constitutes
daily connected transactions.



On December 27, 2012,
Shanghai Airlines Tours a wholly-owned subsidiary of the Company, entered into an equity transfer agreement with Eastern Tourism
and Shanghai Dongmei, pursuant to which Shanghai Airlines Tours agreed to acquire the entire 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 Airlines Tours entered into an equity transfer agreement with Eastern Tourism and Shanghai Dongmei, pursuant to which
Shanghai Airlines Tours agreed to acquire the entire equity interests of 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 Airlines Tours entered into an equity transfer agreement with Eastern Tourism, pursuant to which Shanghai Airlines Tours
agreed to acquire the entire equity interests of 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 Xi'an Dongmei
Acquisition, the Kunming Dongmei Acquisition and Eastern Travel Acquisition constitutes a connected transaction of the Company.
The main purpose of Xi'an Dongmei Acquisition, the Kunming Dongmei Acquisition and Eastern Travel Acquisition is to reorganize
and intergrade the tourism business of the Group. For details, please refer to the announcements in the 6-K filed with the SEC
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 Airlines Tours held by SA Import & Export. Shanghai Airlines
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 was 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.



78







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 Road,
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.



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.



On August 30, 2013,
we entered into an agreement relating to the renewal of the existing property leasing agreement with CEA Holding on substantially
the same terms. Pursuant to the Property Leasing Renewal Agreement, the Company will lease from CEA Holding and its subsidiaries
the following properties, for use by the Group in its daily airlines and other business operations:



(a) a maximum of 36
land properties owned by CEA Northwest, covering an aggregate site area of approximately 713,632 square meters together with a
total of 172 building properties and related construction, infrastructure and facilities occupying an aggregate floor area of approximately
240,601 square meters;



(b) a maximum of three
land properties owned by CEA Yunnan, covering an aggregate site area of approximately 43,258 square meters together with a total
of 24 building properties and related construction, infrastructure and facilities occupying an aggregate floor area of approximately
77,401 square meters;



(c) 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;



(d) 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;



79







(e) a total of 7 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;



(f) a total of 33
guest rooms in Eastern Hotel owned by CEA Holding, occupying an aggregate floor area of approximately 1,500 square meters located
in Shanghai; and



(g) other property
facilities owned by CEA Holding as may be leased to the Company from time to time due to the business needs of the Company.



In addition to and
on the terms and conditions to be further agreed, the Company shall lease some of the properties legally owned or leased by the
Group to subsidiaries of CEA Holding as needed by the subsidiaries of CEA Holding. The Property Leasing Renewal Agreement will
be effective for a term of three years commencing from January 1, 2014 to December 31, 2016.



For the year ended
December 31, 2014, we paid a rental of RMB50 million under this property leasing renewal agreement.



Guarantee by
CEA Holding



As of December 31,
2013, bonds of our Group with an aggregate amount of RMB4.8 billion were guaranteed by CEA Holding. As of December 31, 2014, bonds
of our Group guaranteed by CEA Holding were RMB4.8 billion. 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 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 Original
A Share Subscription Agreement and 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.
Original A Share Subscription Agreement and 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.



80







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 financial position 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.



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 Eastern Logistics 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 Eastern Logistics 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 Eastern Logistics COSCO is a substantial shareholder of Eastern Logistics 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.



Eastern Logistics 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 Eastern Logistics held by COSCO and China Cargo. After the completion of the acquisitions, Eastern Logistics 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.



81







| | 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 was not determined. 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. The family members of the 32 victims have reached a settlement with us and applied to the
Beijing Second Intermediate People’s Court to withdraw their actions. On May 31, 2013, the Beijing Second Intermediate People’s
Court accepted the withdrawal. The California Court in the US ruled to terminate the proceedings in the U.S. on October 24, 2013.
Since then, all the local and overseas proceedings with respect to this case have been closed. Accordingly, the management of our
Group believes that there has been no material 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 years
ended December 31, 2010, 2011, 2012 and 2013, our Board of Directors did not recommend any dividend payouts due to our total accumulated
losses of RMB12,855 million, RMB8,039 million, RMB4,967 million, RMB2,595 million, respectively. Under PRC law, we cannot convert
funds from the common reserve to increase our share capital during this period. Based on the
audited financial statements of the Company under the PRC Accounting Standards for Business Enterprises as of and for the
year 2014, the retained earnings of the parent company was RMB21 million as of December 31, 2014. Based on the audited financial
statements of the Company under IFRS as of and for the year 2014, the accumulated loss of the parent company was RMB385 million.
Pursuant to the PRC Company Law and its Articles of Association, the Company must recover its losses incurred in previous years
with its profit for the year before any dividend distributions are made to its shareholders. The basis of dividend distribution
of the Company is the distributable profit of the parent company, which is subject to the principle of adopting the lesser of the
profit after tax under the PRC accounting standards and IFRS. As of December 31, 2014, the Company has been recording accumulated
losses under IFRS. The Board recommended that no dividend be distributed for the year 2014 and no share capital of the Company
be increased through capitalization of its capital reserve.



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. The Bank of New York Mellon (the "BNYM"), as depositary, converts
the HK dollar dividend payments and distributes them to holders of ADSs in U.S. dollars, less expenses of conversion. Under PRC
Company Law and our Articles of Association, all of our shareholders have equal rights to dividends and distributions. The holders
of the H Shares share proportionately on a per share basis in all dividends and other distributions declared by our Board, if any,
based on the foreign exchange conversion rate published by PBOC, on the date of the distribution of the cash dividend.



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



82







| | · | 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 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,
2014, there were 4,193,190,000 H Shares issued and outstanding. As of December 31, 2014 and April 17, 2015, there were, respectively,
41 and 40 registered holders of American depositary receipts evidencing 955,290 and 1,127,039, 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 8,481,078,860 domestic ordinary shares were also outstanding
as of December 31, 2014.



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 2009 to
April 17, 2015.





|                                  |  | Hong Kong Stock Exchange |      |  | New York Stock Exchange | 
|--------------------------------- |  | ------------------------ | ---- |  | ----------------------- | 
|                                  |  | Price Per H Share (HK$)  |      |  | Price Per ADS (US$)     | 
|                                  |  | High                     |      |  | Low                     | 
|2010                              |  |                          | 5.38 |  |                         | 
|2011                              |  |                          | 4.46 |  |                         | 
|2012                              |  |                          | 3.20 |  |                         | 
|2013                              |  |                          | 3.72 |  |                         | 
|First Quarter 2013                |  |                          | 3.72 |  |                         | 
|Second Quarter 2013               |  |                          | 3.46 |  |                         | 
|Third Quarter 2013                |  |                          | 2.73 |  |                         | 
|Fourth Quarter 2013               |  |                          | 3.27 |  |                         | 
|2014                              |  |                          | 4.05 |  |                         | 
|First Quarter 2014                |  |                          | 3.04 |  |                         | 
|Second Quarter 2014               |  |                          | 2.72 |  |                         | 
|Third Quarter 2014                |  |                          | 2.72 |  |                         | 
|Fourth Quarter 2014               |  |                          | 4.05 |  |                         | 
|October 2014                      |  |                          | 2.95 |  |                         | 
|November 2014                     |  |                          | 3.88 |  |                         | 
|December 2014                     |  |                          | 4.05 |  |                         | 
|January 2015                      |  |                          | 4.08 |  |                         | 
|February 2015                     |  |                          | 3.97 |  |                         | 
|March 2015                        |  |                          | 2.72 |  |                         | 
|April 2015 (up to April 17, 2015) |  |                          | 6.80 |  |                         | 







83







| | 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 June
26, 2014, is attached as an exhibit to this Annual Report on Form 20-F (which is incorporated by reference).







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 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.



84







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.



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,
2014, our share capital structure was as follows: 12,674,268,860 ordinary shares of which (a) 698,865,000 A shares subject to trading
moratorium, which represented 5.5% of our share capital, were held by CEA Holding and CES Finance; (b) 7,782,213,860 A shares without
trading moratorium, which represented 61.4% of our share capital, were issued to investors in China; (c) 698,865,000 H shares subject
to trading moratorium, which represented 5.5% of our share capital, were issued to CES Global, a wholly owned subsidiary of CEA
Holding; and (d) 3,494,325,000 H shares without trading moratorium, which represented 27.6% of our share capital.



Our ordinary shareholders
shall enjoy the following rights:



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



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



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



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



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



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



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



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



85







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



| | (1) | present name and alias and any former name or alias;
| | --- | ----------------------------------------------------



| | (2) | principal address (residence);
| | --- | ------------------------------



| | (3) | nationality;
| | --- | ------------



| | (4) | primary and all other part-time occupations and duties;
| | --- | -------------------------------------------------------



| | (5) | 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 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;
| | ---- | ---------------------------------------------------------------------------------------------------------



| | (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
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



86







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



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



Shareholders' Rights



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



Sources of Shareholders' Rights



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



87







| | (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;
| | --- | ----------------------------------------------------



| | (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;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------



88







| | (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 Company Law, any other relevant regulatory provisions and the Articles
of Association.



Recent Amendments to the Articles
of Association



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



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



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



Article 24: "The Company's
registered capital is Renminbi 11,276,538,860."



89











The CSRC has enacted regulations
in recent years which affect the corporate governance of PRC listed companies and 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;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



90







| | (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. "



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



On June 26, 2013, our
shareholders approved further amendments to the Articles of Association to reflect the expansion of our business scope and the
completion of the issue of new shares, as follows:



Article 13: "The scope of business
of the Company shall comply with those items approved by the companies registration authority.



The scope of business of the Company
includes: domestic and approved international and regional business for air transportation of passengers, cargo, mail, luggage
and extended services; general aviation business; maintenance of aviation equipment and machinery; manufacture and maintenance
of aviation equipment; agency business for domestic and overseas airlines and other business related to air transportation; insurance
by-business agency services; e-commerce; in-flight supermarket; wholesale and retail of goods; and other lawful businesses that
can be carried on by a joint stock limited company formed under Company Law."



Article 20: "As approved by
the China Securities Regulatory Commission, the total amount of shares of the Company is 12,674,268,860 shares."



Article 21:" The Company has
issued a total of 12,674,268,860 ordinary shares, comprising a total of 8,481,078,860 A shares, representing 66.92% of the total
share capital of the Company, a total of 4,193,190,000 H shares, representing 33.08% of the total share capital of the Company."



Article 24: "The registered
capital of the Company is RMB12,674,268,860."



According to the relevant
requirements of CSRC and the Shanghai Stock Exchange, our Board of Directors approved at the 2014 second regular meeting that amendments
be made to corresponding terms in the articles of association of our Company in connection with the priority of cash dividends
to share dividends in profit distributions and intervals for cash dividend distributions. Such amendments will be submitted to
the 2013 annual general meeting of our Company for approval.



The amendments to the Articles of
Association are as follows:



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



91







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



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



Article 157(F): “Intervals
for profit distribution by the Company: Provided that the conditions of profit distribution are met and the Company’s normal
operation and sustainable development are ensured, the Company shall generally distribute profit on an annual basis. The board
of directors of the Company may also propose interim profit distribution based on the profitability and capital position of the
Company. Subject to fulfillment of the cash distribution conditions under the articles of association of the Company, the Company
shall implement annual cash distribution once a year in principle.”



On June 26, 2014, our shareholders
approved the above mentioned amendments.



|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, which are filed with this Annual Report as exhibits:



| | · | Purchase Agreement Number PA-4076 relating to Boeing Model 737-8 Aircraft, dated June 13, 2014, between our Company and the Boeing Company.  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                              
| | · | Purchase Agreement Number PA-4077 relating to Boeing Model 737-800 Aircraft, dated June 13, 2014, between our Company and the Boeing Company.
| |   |                                                                                                                                              
| | · | Purchase Agreement relating to Airbus A320NEO Aircraft, date February 28, 2014 between our Company and Airbus SAS.                           



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



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



On July 21, 2005, the
PRC government changed 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.



92







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.



Hong Kong Taxation



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



Dividends



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



Taxation of Capital Gains



Gains
derived from the sale of capital assets are specifically exempt from profits tax. Thus,no
profits tax is imposed on capital gains arising from the sale of property (such as H shares) acquired and held as investment assets.
However, whether or not there has been a sale of a capital asset depends upon the particular circumstances of a case. If a person
carries on a business in Hong Kong of trading and dealing in securities and derives trading gains from that business in Hong Kong,
that person could be subject to profits tax on any assessable gains. Assessable gains include gains derived from the sales of H
shares effected on the Hong Kong Stock Exchange as these gains are considered to derive from Hong Kong. Profits tax is currently
charged at the rate of 16.5% for corporations and at the rate of 15% for unincorporated businesses
(i.e. individuals).



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



Hong Kong Stamp Duty



Stamp duty is payable
by each of the seller and the purchaser for every sold note and every bought note created for every sale and purchase of the H
shares. Stamp duty is levied at the total rate of 0.2% (0.1% for each of sold note and bought note) of the value of the H shares
transferred (the buyer and seller each paying half of such stamp duty). 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 amount of unpaid stamp duty will be assessed on the instrument of transfer (if any), and the transferee will be
liable for payment of such unpaid amount.



93







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



Hong Kong Estate
Duty



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



China Taxation



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



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



Taxation of Dividends
by China



Individual investors



The Provisional Regulations
of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System, or 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 the PRC and the 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.



On October 31, 2014, CSRC,
MOF and STA together promulgated The Notice of the Relevant Tax Policy of the Pilot Program for the Shanghai-Hong Kong Stock Connect
(Hereinafter refer to as Notice 81) which has been effective from November 17, 2014. Pursuant to the Notice 81, for dividends acquired
by mainland individual investors through investment in H-shares listed on the Hong Kong Stock Exchange via Hong Kong-Shanghai Stock
Connect, the H-share company shall apply to China Securities Depository and Clearing Corporation Limited (Hereinafter refer to
as Chinese Clearing). Chinese Clearing shall provide the H-share company with the mainland individual's investor rosters. The H-share
company withholds the individual income tax at the tax rate of 20%. For dividends acquired by mainland securities investment funds
through investment in shares listed on the Hong Kong Stock Exchange via Hong Kong-Shanghai Stock Connect, the individual income
tax shall be collected according to the regulations hereinbefore.



For dividends acquired
by Hong Kong investors' (including enterprises and individuals) through investment in A-shares listed on the Shanghai Stock Exchange,
before Hong Kong Securities Clearing Limited (Hereinafter refer to as Hong Kong Clearing) meet the conditions to provide Chinese
Clearing with detailed data of investors' identity certification and time of shareholding, the different tax policy according to
time of shareholding will temporarily not to be implemented. The listed company shall withhold the income tax at the tax rate of
10% and declare and pay to the tax authorities.



94







Enterprises



Under the newly enacted
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.



In accordance with the
Notice 81, (a) for dividends acquired by mainland enterprise investors through investment in shares listed on the Hong Kong Stock
Exchange via Hong Kong-Shanghai Stock Connect, they will be accounted into the total income and subject to enterprise income tax
according to the laws. Among those, for the dividends acquired by mainland enterprise investors through continuing holding H shares
for 12 months, the enterprise income tax shall be exempted according to the laws; (b) the H-share company listed on the Hong Kong
Stock Exchange shall apply to the Chinese Clearing to offer them the mainland enterprise investor rosters. The H-share company
does not withhold income tax from dividends for mainland enterprise investors. The enterprises shall declare and pay by themselves;
and (c) the mainland enterprise investors may apply for tax credit for dividends already withheld by non-H-share listed companies
on the Hong Kong Stock Exchange when declaring and paying the enterprise tax income.



Tax Treaties



Non-Chinese investors
resident in countries which have entered into double-taxation treaties with China may be entitled to a reduction of the withholding
tax imposed on the payment of dividends 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.



Notice 81 is explicitly
stipulated that for Hong Kong investors who are tax residents of other countries that have signed the tax agreement with China
to regulate the tax rate for dividends income tax to be less than 10%, the enterprise or individual may, by themselves or withholding
agents, apply for the treatment of the tax agreement to the tax authorities of listed companies. After examination and verification,
the tax authorities shall reimburse the difference between the levied tax and the payable tax according to the tax agreement.



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



Taxation of Capital
Gains by China



Individual Investors



According to the Law of
Individual Income Tax and its implementation regulations, holders of H Shares or ADSs who have no domiciles and do not reside in
China or who have no domiciles but have resided in China for less than one year shall be subject to individual income tax on their
income gained within China, unless otherwise reduced or eliminated pursuant to an applicable double taxation treaty.



Notice 81 requires, (a)
from November 17, 2014 to November 16, 2017, the income tax from transfer price difference will be temporarily exempted for mainland
individual investors' investment in shares listed on the Hong Kong Stock Exchange through Hong Kong-Shanghai Stock Connect; (b)
for mainland individual investors, the business tax from transfer price difference in the trading of shares listed on the Hong
Kong Stock Exchange through Hong Kong-Shanghai Stock Connect will be temporarily exempted according to current policy; and (c)
the income tax and the business tax from transfer price difference will be temporarily exempted for Hong Kong individual investors'
investment in A-shares listed on the Shanghai Stock Exchange.



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



Enterprises



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



Pursuant to Notice 81,
the income tax from transfer price difference will be accounted into the total income and subject to enterprise income tax according
to the laws for mainland enterprise investors' investment in shares listed on the Hong Kong Stock Exchange through Hong Kong-Shanghai
Stock Connect. For mainland enterprise investors, the business tax from transfer price difference in the trading of shares listed
on the Hong Kong Stock Exchange through Hong Kong-Shanghai Stock Connect shall be levied and exempted according to current policy.
And the income tax and the business tax from transfer price difference will be temporarily exempted for Hong Kong enterprise investors'
investment in A-shares listed on the Shanghai Stock Exchange.



95







PRC Stamp Tax



Chinese stamp tax imposed
on the transfer of shares of Chinese publicly traded companies under the Share System Tax Regulations should not apply to the acquisition
or disposition 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.



According to Notice 81,
Hong Kong investors shall pay stamp duty according to mainland current tax policy when trading, inheriting, gifting the A-shares
listed on the Shanghai Stock Exchange through Hong Kong-Shanghai Stock Connect.



United States Federal Income Taxation



Each potential investor
is strongly urged to consult his or her own tax advisor to determine the particular U.S. 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 U.S. federal income tax consequences of purchasing, owning and disposing of the H Shares or ADSs if you
are a U.S. Holder, as defined below, and hold the H Shares or ADSs as capital assets within the meaning of Section 1221 of the
U.S. Internal Revenue Code of 1986 as amended (the "Code"). This discussion does not address all of the tax consequences
relating to the purchase, ownership and disposition of the H Shares or ADSs, and does not take into account U.S. Holders (defined
below) who may be subject to special rules including:



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



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



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



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



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



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



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



| | · | persons that generally mark their securities to market for U.S. federal income tax purposes;
| | - | --------------------------------------------------------------------------------------------



| | · | U.S. citizens or tax residents who are residents of the PRC;
| | - | ------------------------------------------------------------



| | · | U.S. citizens or tax residents who are subject to Hong Kong profits tax;
| | - | ------------------------------------------------------------------------



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



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



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



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



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



96







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



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



| | · | a corporation, or other entity treated as a corporation for U.S. 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 U.S. federal income tax without regard to its source; or
| | - | ----------------------------------------------------------------------------------------------------



| | · | a trust if (i) a court within the United States is able to exercise primary supervision over 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 U.S. person for U.S. federal income tax purposes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If a partnership (including
any entity treated as a partnership for U.S. federal tax purposes) is a beneficial owner of the H Shares or ADSs, the treatment
of the partner in such partnership will generally depend upon the status of the partner and the activities of the partnership.
If an investor is a partner in a partnership that holds H Shares or ADSs, such investor should consult its tax advisor.



In general, if you hold
ADRs evidencing ADSs, you will be treated as the owner of the H Shares represented by the ADSs. Exchanges of H shares for ADRs,
and ADRs for H shares, generally will not be subject to U.S. federal income tax.



INVESTORS SHOULD CONSULT THEIR TAX ADVISORS
AS TO THE PARTICULAR TAX CONSIDERATIONS APPLICABLE TO THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE H SHARES
OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS 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 discussion
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
U.S. federal income tax purposes) will be includible in your gross income as ordinary dividend income when the distribution is
actually or constructively received by you, or by the depositary in the case of ADSs. Distributions that exceed our current and
accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H Shares or ADSs
and thereafter as capital gain. We, however, may not calculate earnings and profits in accordance with U.S. tax principles. Accordingly,
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 U.S. corporations in respect of dividends received from U.S. 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 certain non-corporate holders will be subject
to taxation at a maximum rate of 20% if the dividends are "qualified dividends." Dividends paid on H Shares or ADSs will
be treated as qualified dividends if either (i) we are eligible for the benefits of a comprehensive income tax treaty with the
United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend rules, or (ii)
the dividends are with respect to ADSs readily tradable on a U.S. securities market, provided that we were not, in each case, in
the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign
investment company, or PFIC. The Agreement Between the Government of the United States of America and the Government of the People's
Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the "Treaty")
has been approved for the purposes of the qualified dividend rules, and we expect to qualify for benefits under the Treaty. We
are considered a qualified foreign corporation with respect to the ADSs because our ADSs are listed on the New York Stock Exchange.
Finally, based on our audited consolidated financial statements and relevant market data, we believe that we did not satisfy the
definition for PFIC status for U.S. federal income tax purposes with respect to our 2014 taxable year. In addition, based on our
audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources
and nature of our income, and relevant market data, we do not anticipate becoming a PFIC for our 2015 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".



97







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 actually or constructively by you, regardless of whether you convert the
distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date
the dividend payment is includible in your income to the date you convert the distribution into U.S. dollars will be treated as
ordinary income or loss from U.S. sources. If dividends received in HK dollars are converted into U.S. dollars on the day they
are received, the U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend
income.



Subject to various limitations,
any PRC tax withheld from distributions in accordance with the Treaty will be deductible or creditable against your U.S. 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 the "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-U.S. taxes imposed on dividends paid on the H Shares or ADSs if you (i) have
held the H Shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss with respect
to such shares, or (ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale). The rules
relating to the U.S. foreign tax credit are complex and U.S. Holders may be subject to various limitations on the amount of foreign
tax credits that are available. In addition, if the dividends are taxed as qualified dividend income (as discussed above), the
amount of the dividend taken into account for purposes of calculating a U.S. Holder's foreign tax credit limitation will generally
be limited to the gross amount of the taxable dividend, multiplied by the reduced tax rate applicable to qualified dividend income
and divided by the highest tax rate normally applicable to dividends. U.S. Holders should consult their own tax advisors regarding
the effect of these rules in their particular circumstance.



Sale, Exchange or Other Disposition



Subject to the discussion below under "—
Passive Foreign Investment Company", upon a sale, exchange or other disposition of the H Shares or ADSs, you will generally
recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar
value of the amount realized and your tax basis, determined in U.S. dollars, in such H Shares or ADSs.  Generally, gain or
loss recognized upon the sale or other disposition of H Shares or ADSs will be capital gain or loss, will be long-term capital
gain or loss if the U.S. Holder's holding period for such H Shares or ADSs exceeds one year, and will be income or loss from sources
within the United States for foreign tax credit limitation purposes. For non-corporate U.S. Holders, the United States income tax
rate applicable to net long-term capital gain currently will not exceed 20.0%. The deductibility of capital losses is subject to
significant limitations.



A U.S. Holder that receives foreign currency
from a sale or disposition of H Shares or ADSs generally will realize an amount equal to the U.S. dollar value of the foreign currency
determined on (i) the date of receipt of payment in the case of a cash basis U.S. Holder and (ii) the date of disposition in the
case of an accrual basis U.S. Holder. If Shares are treated as traded on an "established securities market", a cash basis
taxpayer or, if it so elects, an accrual basis taxpayer, will determine the U.S. dollar value of the amount realized by translating
the amount received at the spot rate of exchange on the settlement date of the sale. A U.S. Holder will have a tax basis in the
foreign currency received equal to the U.S. dollar amount realized. Any currency exchange gain or loss realized on a subsequent
conversion of the foreign currency into U.S. dollars for a different amount generally 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.



Any gain or loss will
generally be U.S. source gain or loss for foreign tax credit limitation purposes and as a result of the U.S. foreign tax credit
limitation, foreign taxes, if any, imposed upon capital gains in respect of H Shares or ADSs may not be currently creditable. Under
the Treaty, however, if any PRC tax were to be imposed on any gain from the disposition of H Shares or ADSs, the gain could be
treated as PRC-source income. U.S. Holders are urged to consult their tax advisors regarding the interaction of the foreign tax
credit and the Treaty "resourcing" rule.



98







Passive Foreign Investment Company



In general, a foreign
corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and
assets of subsidiaries:



| | · | 75% or more of its gross income consists of passive income, such as dividends, interest, rents, royalties, and gains from the sale of assets that give rise to such income; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 50% or more of the average quarterly value of its gross assets consists of assets that produce, or are held for the production of, passive income.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



"Passive income"
for this purpose includes, for example, dividends, interest, royalties, rents and gains from commodities and securities transactions.
Passive income does not include rents and royalties derived from the active conduct of a trade or business. If the stock of a non-U.S.
corporation is publicly traded for the taxable year, the asset test is applied using the fair market value of the assets for purposes
of measuring such corporation's assets. If we own at least 25% (by value) of the stock of another corporation, we will be treated,
for purposes of the PFIC tests, as owning our proportionate share of the other corporation's assets and receiving our proportionate
share of the other corporation's income for purposes of the PFIC income and asset tests.



Based on the current and
anticipated composition of our assets and income and the current expectations regarding the price of the H Shares and ADSs, we
believe that we were not a PFIC for U.S. federal income tax purposes with respect to our 2014 taxable year and we do not intend
to become or anticipate becoming a PFIC for any future taxable year. However, the determination of PFIC status is a factual determination
that must be made annually at the close of each taxable year and therefore, there can be no certainty as to our status in this
regard until the close of the 2015 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
U.S. federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge
on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years.
The portion of the excess distribution or gain that is not allocated to prior taxable years, together with the portion allocated
to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of
the excess distribution or disposition and taxed as ordinary income. If we were a PFIC in any year during a U.S. Holder's holding
period, we would generally be treated as a PFIC for each subsequent year absent a "purging" election by the U.S. Holder.



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 ADSs should
qualify as "marketable stock" because the ADSs are listed on the New York Stock Exchange. However, the stock of any of
our subsidiaries that were PFICs would not be eligible for the mark-to-market election.



A U.S. Holder's adjusted
tax basis in the H Shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions
under 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.



99







If we were regarded as
a PFIC, a U.S. Holder of H Shares or ADSs generally would be required to file an information return on IRS Form 8621 for any year
in which the holder received a direct or indirect distribution with respect to the H Shares or ADSs, recognized gain on a direct
or indirect disposition of the H Shares or ADSs, or made an election with respect to the H Shares or ADSs, reporting distributions
received and gains realized with respect to the H Shares or ADSs. In addition, pursuant to recently enacted legislation, if we
were regarded as a PFIC, a U.S. Holder would be required to file an annual information return (also on IRS Form 8621) relating
to the holder's ownership of the shares or ADSs. This requirement would be in addition to other reporting requirements applicable
to ownership in a PFIC.



We encourage you to consult
your own tax advisor concerning the U.S. federal income tax consequences of holding the H Shares or ADSs that would arise if we
were considered a PFIC.



Backup Withholding and Information Reporting



In general, information
reporting requirements will apply to dividends in respect of the H Shares or ADSs or the proceeds of the sale, exchange, or redemption
of the H Shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt
recipients, including corporations. In addition, you may, under some circumstances, be subject to "backup withholding”
with respect to dividends paid on the H Shares or ADSs or the proceeds of any sale, exchange or transfer of the H Shares or ADSs,
unless you



| | · | 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; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | provide a properly completed IRS Form W-8BEN, certifying your status as a non-U.S. Holder.
| | - | ------------------------------------------------------------------------------------------



Any amount withheld under
the backup withholding rules generally will be creditable against your U.S. 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.



Certain U.S. Holders may
be required to report information with respect to such holder's interest in “specified foreign financial assets” (as
defined in Section 6038D of the Code), including stock of a non-U.S. corporation that is not held in an account maintained by a
financial institution, if the aggregate value of all such assets exceeds certain dollar thresholds. Persons who are required to
report specified foreign financial assets and fail to do so may be subject to substantial penalties. U.S. Holders are urged to
consult their own tax advisers regarding the foreign financial asset reporting obligations and their possible application to the
holding of 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  Securities and Exchange Commission
at its 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.



100







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, 2014, the notional amount of the outstanding
interest rate swap agreements was approximately US$801 million. The net fair value of the outstanding interest rate swap agreements
was approximately US$14.2 million. These interest rate swap agreements will expire between 2015 and 2024. If the interest rate
had been 25 basis points higher with all other variables held constant, interest expenses on our floating rate instruments would
have increased by RMB107 million in 2013 and RMB161 million in 2014.



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
and 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, 2014, the notional amount and the net fair value of the outstanding currency forward contracts was approximately US$39 million
and US$4.4 million, respectively, which will expire between 2015 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 the 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 or loss account. In 2013 and 2014, we had foreign exchange gains of RMB1,977 million and foreign exchange losses of
RMB203 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, 2014 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%  |  |                                             | 628
|Japanese yen depreciates by 1% |  |                                             | (2 
|Euro depreciates by 1%         |  |                                             | 4  



Fuel Hedging Risk



In order to control fuel
costs, we 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. 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.



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, 2014, the fair value gain as of December 31, 2014 would have increased or decreased by
approximately RMB1,512 million. All crude oil option contracts signed in past years were settled before December 31, 2012.



101







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. BNYM's principle executive office is at 1 Wall Street, Manhattan, New York City,
New York, U.S. ADS holders are required to pay the following service fees to BNYM:



|Service                                                                                                                                          |  | Fees (in U.S. dollars)                                                                                                                                                                    
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property                                        |  | US$5.00 (or less) per ADSs (or portion of 100 ADSs)                                                                                                                                       
|                                                                                                                                                 |  |                                                                                                                                                                                           
|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                                                                                               



102







For the past annual period,
from January 1, 2014 to December 31, 2014, the Company received from the depositary an aggregate of US$32,503.53 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$130,187.52.



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.



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 Exchange
Act, as of the end of the period covered by this Annual Report. Our management, with the participation of President and
Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, have concluded that as
of the end of the period covered by this 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 Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission's rules and regulations.



Disclosure controls and
procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such information required to be disclosed by us in the reports
that we file or submit under Exchange Act is accumulated and communicated to our management, including our President and Chief
Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.



Management's Report on Internal Control over Financial Reporting



Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act 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 consolidated financial statements for external purposes in accordance with generally accepted accounting principles,
as applicable. Under the supervision and with the participation of our President and our Chief Financial Officer, our management
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 based upon
the criteria in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework)(the COSO criteria). Based on that evaluation, our management has concluded that our internal control over financial
reporting was effective as of December 31, 2014 in providing reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes in accordance with IFRS.

103







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, 2014 has been audited by Ernst & Young, an independent registered
public accounting firm in Hong Kong, as stated in their report which is included herein.



Changes in Internal Control over Financial Reporting



During 2014, there have been no changes in our
internal control over financial reporting that occurred during the fiscal year covered by this annual report that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Item 16A.           Audit
Committee Financial Expert



Our Board of Directors
has determined that Mr. Li Ruoshan, the chairman of our audit committee, is an independent financial expert serving on our audit
committee, given his experience in the academic aspects of accounting and notable achievements in accounting education and academic
research. Mr. Li Ruoshan 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 (which is incorporated by reference). A copy of our code
of ethics will be provided to any person free of charge upon written request to Wang Jian, Secretary Office of the Board of Directors,
China Eastern Airlines Corporation Limited at Kong Gang San Road, Number 92, Shanghai 200335, the People's Republic of China.



Item 16C.           Principal
Accountant Fees and Services



The following table sets
forth the aggregate audit fees, audit-related fees and tax fees of our principal accountants, Ernst & Young Hua Ming LLP for
the year ended December 31, 2013 and Ernst & Young for the year ended December 31, 2014, 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:





|     |  | Audit Fees |            |  | Audit-Related Fees |  |   | Tax Fees |  |  | All Other Fees | 
|---- |  | ---------- | ---------- |  | ------------------ |  | - | -------- |  |  | -------------- | 
|     |  | (RMB)      |            |  | (RMB)              |  |   | (RMB)    |  |  | (RMB)          | 
|     |  |            |            |  |                    |  |   |          |  |  |                | 
|2013 |  |            | 14,500,000 |  |                    |  | — |          |  |  | —              | 
|2014 |  |            | 14,500,000 |  |                    |  | — |          |  |  | —              | 







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, 2013 and 2014.



Item 16D.           Exemptions
from the Listing Standards for Audit Committees



Not applicable.



104







Item 16E.           Purchase
of Equity Securities by the Issuer and Affiliated Purchasers



On November 9, 2012, we
held an extraordinary general meeting to approve, among other things, the proposals for the non-public issuance of A Shares and
H Shares to specific placees.



On April 9, 2013, the
Company obtained an approval from the CSRC, pursuant to which the CSRC approved the non-public issue by the Company to CEA Holding
and CES Finance for no more than 698,865,000 new A Shares. On April 16, 2013, the procedures for registration of the new A Shares
with the Shanghai Branch of China Securities Depository & Clearing Co. Ltd. was completed. The 698,865,000 new A Shares, at
an issue price of RMB3.28 per share, under this issue are subject to a lock-up period of 36 months from the completion date of
the issue and are expected to be listed on April 17, 2016.



The issuance of new H Shares was completed
on June 21, 2013. A total of 698,865,000 new H Shares were issued to CES Global at the price of HK$2.32 per share.



Item 16F.           Changes
in Registrant's Certifying Accountant



| | (a) | Change of Principal Accountant
| | --- | ------------------------------



On March 26, 2013, the
Board approved not to re-appoint our independent registered public accounting firm, PricewaterhouseCoopers 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 PricewaterhouseCoopers on 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 PricewaterhouseCoopers 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 PricewaterhouseCoopers,
would have caused PricewaterhouseCoopers 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 PricewaterhouseCoopers
with a copy of the disclosures under Item 16F(a) as included herein and have requested that PricewaterhouseCoopers furnish us
with a letter addressed to the SEC stating whether PricewaterhouseCoopers agrees with the foregoing statements. A copy of the
letter dated April 24, 2013, furnished by PricewaterhouseCoopers in response to that request was filed as Exhibit 13.3 to this
Form 20-F (which is incorporated by reference).







On March 26, 2013, the
Board resolved to propose to appoint Ernst & Young Hua Ming LLP as the Company's independent registered public accounting firm,
which was approved by our shareholders at the annual general meeting held on June 26, 2013.



During the fiscal years
ended December 31, 2011 and 2012 and up to June 26, 2013, we did not consult, and have not authorized anyone on our behalf to
consult Ernst & Young Hua Ming LLP 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 Ernst & Young Hua Ming LLP concluded was an important factor
considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was
either the subject of a "disagreement" (as that term is used in Item 16F (a)(1)(iv) of Form 20-F and the related instructions
to Item 16F) with PricewaterhouseCoopers or a "reportable event" (as described in Item 16F (a)(1)(v) of Form 20-F).



On March 26, 2014, Ernst & Young Hua Ming LLP was
not re-appointed as our independent registered public accounting firm.







The independent audit report
of Ernst & Young Hua Ming LLP on our consolidated financial statements for the fiscal year ended December 31, 2013 did not
contain any adverse opinion or a disclaimer of opinion, nor was such report qualified or modified in any way as to any uncertainty,
audit scope, or accounting principles.



105









During the fiscal year
ended December 31, 2013 and up to June 26, 2014, 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 Ernst & Young Hua Ming LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Ernst
& Young Hua Ming LLP, would have caused Ernst & Young Hua Ming LLP 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 fiscal
year ended December 31, 2013 and up to June 26, 2014, 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 Ernst
& Young Hua Ming LLP with a copy of the disclosures under Item 16F(a) as included herein and have requested that Ernst &
Young Hua Ming LLP furnish us with a letter addressed to the SEC stating whether Ernst & Young Hua Ming LLP agrees with the
foregoing statements. A copy of the letter dated April 22, 2015, furnished by Ernst & Young Hua Ming LLP in response to that
request was filed as Exhibit 13.4 to this Form 20-F.



| | (b) | Engagement of New Principal Accountant
| | --- | --------------------------------------



On March 26,
2014, the Board resolved to appoint Ernst & Young as the Company's independent registered public accounting firm, which was
approved by our shareholders at the annual general meeting held on June 26, 2014.



During the fiscal
year ended December 31, 2013 and up to June 26, 2014, we did not consult, and have not authorized anyone on our behalf to
consult Ernst & Young with respect to any matter that was either the subject of a "disagreement" (as that term
is used in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to Item 16F) with Ernst & Young Hua Ming LLP 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:





|                                                                                                |  | 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.                                                                |  | The is no identical corporate governance requirement in the
    PRC. As a company listed in the PRC, the Company is subject to the requirement under the Independent Director Guidance that
    at least one-third of the Board be independent as determined thereunder. The standards for establishing independence set
    forth under the Independent Director Guidance of the PRC differ, to some extent, from those set forth in the NYSE Listed
    Company Manual. We currently have four independent Directors out of a total of ten Directors.
|                                                                                                |  |                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     





106









|Audit and Risk Management Committee       |  | Sections 303A.06 and 303A.07 of the NYSE
        Listed Company Manual provides that listed companies must have an audit committee composed entirely of independent directors.
        In addition, audit committee members must satisfy the independence requirements set forth in Section 303A.02(a)(ii). The factors
        to be considered for independence include whether the committee member receives any consulting, advisory or other compensatory
        fees from the company and whether such director is affiliated with the listed company or its subsidiary. |  | There is no identical corporate governance
        requirement in the PRC. Under the PRC laws and the applicable listing rules in the PRC, a majority of the members of the audit
        committee must be independent directors. As above, the Audit and Risk Management Committee of the Company is composed of two independent
        non-executive Directors and one Directors.                                                                                                                                                                                 
|----------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                                         |  | We have established a Nominations and Remuneration Committee. As of December 31, 2014, 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 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.                                                                                                                                                                                                                               |  | We have established a Nominations and Remuneration Committee. As of December 31, 2014, 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 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.                                                                                                                                                                                                                                                                                                                                                  



107









In addition, we have posted
a description of such differences under the section entitled "Report of Directors" of our 2014 Hong Kong Annual Report,
which can be accessed through the following link on our website:



http://en.ceair.com/upload/2015/4/16212643157.pdf



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-74.



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:



Exhibit Index



|Exhibits |  | Description                                                                                                                                                                                                          
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                      
|1.1      |  | Articles of Association as amended on June 26, 2014 (English translation). (4)                                                                                                                                       
|         |  |                                                                                                                                                                                                                      
|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      |  | 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.(3) (5)



|4.2 |  | Amendment No. 2 to the A 320 Family Purchase Agreement dated December 30, 2010, dated November 23, 2012, between our Company and Airbus SAS.(3) (5)                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                               
|4.3 |  | 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.(3) (5)
|    |  |                                                                                                                                                                               
|4.4 |  | Purchase Agreement Number PA-03746 relating to Boeing Model 777-300ER Aircraft, dated April 27, 2012, between our Company and the Boeing Company.(3) (5)                      
|    |  |                                                                                                                                                                               
|4.5 |  | Purchase Agreement Number PA-4076 relating to Boeing Model 737-8 Aircraft, dated June 13, 2014, between our Company and the Boeing Company. (5)                               
|    |  |                                                                                                                                                                               
|4.6 |  | Purchase Agreement Number PA-4077 relating to Boeing Model 737-800 Aircraft, dated June 13, 2014, between our Company and the Boeing Company.(5)                              
|    |  |                                                                                                                                                                               
|4.7 |  | Purchase Agreement relating to Airbus A320NEO Aircraft, dated February 28, 2014, between our Company and Airbus SAS.(5)                                                       



108







|8.1  |  | List of Subsidiaries (as of April 22, 2015).                                                 
|---- |  | ---------------------------------------------------------------------------------------------
|     |  |                                                                                              
|11.1 |  | Code of Ethics (English translation).(6)                                                     
|     |  |                                                                                              
|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 PricewaterhouseCoopers with respect to
the disclosures under Item 16F(a).(7)     
|     |  |                                                                                              
|13.4 |  | Letter from Ernst & Young Hua Ming LLP with respect to the disclosures under Item
    16F(a).








Note:





|(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 April 24, 2013.                                                                                    
|    |                                                                                                                                                                                                                                           
|(4) | Incorporated by reference to our announcement furnished to the Securities and Exchange Commission on Form 6-K dated June 26, 2014.                                                                                                        
|    |                                                                                                                                                                                                                                           
|(5) | 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.
|    |                                                                                                                                                                                                                                           
|(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 24, 2008.                                                                                     
|    |                                                                                                                                                                                                                                           
|(7) | Incorporated by reference to our annual report
on Form 20-F (File No. 001-14550), filed with the Securities and Exchange Commission on April 25, 2014.                                                                                    



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 22, 2015



109







CHINA EASTERN
AIRLINES CORPORATION LIMITED



Consolidated
Financial Statements



For The Years
Ended



December 31,
2014, 2013 and 2012





F-1









| | Ernst & Young
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| | ------------------------------------------------------------------------------------------- |  | ------------------------------------------ |  | ----------------------------------------------------------------------------------











Report
of Independent Registered Public Accounting Firm



The Board of Directors
and Shareholders of China Eastern Airlines Corporation Limited



We
have audited the accompanying consolidated statement of financial position of China Eastern Airlines Corporation Limited (the “Company”)
as of December 31, 2014, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity
and cash flows for the year ended December 31, 2014. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.



In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of China Eastern Airlines Corporation Limited at December 31, 2014, and the consolidated results of its operations and its cash
flows for the year ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board.



We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), China Eastern
Airlines Corporation Limited’s internal control over financial reporting as of December 31, 2014, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992
framework) and our report dated April 22, 2015 expressed an unqualified opinion thereon.







/s/ Ernst & Young



Hong Kong

April 22, 2015







F-2









| | Ernst & Young
        22/F, CITIC Tower
        1 Tim Mei Avenue
        Central, Hong Kong |  | 安永會計師事務所
        香港中環添美道1號
        中信大廈22樓 |  | Tel電話: +852 2846
        9888
        Fax傳真: +852 2868
        4432
        ey.com
| | ------------------------------------------------------------------------------------------- |  | ------------------------------------------ |  | ----------------------------------------------------------------------------------





Report of Independent Registered
Public Accounting Firm



The Board of Directors
and Shareholders of China Eastern Airlines Corporation Limited



We
have audited China Eastern Airlines Corporation Limited’s internal control over financial reporting as of December 31, 2014,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (1992 framework) (the COSO criteria). China Eastern Airlines Corporation Limited’s management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying "Management's Report on Internal Control over Financial
Reporting". Our responsibility is to express an opinion on the company’s internal control over financial reporting based
on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.



A company’s
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In
our opinion, China Eastern Airlines Corporation Limited maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2014, based on the COSO criteria.



We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
statement of financial position of China Eastern Airlines Corporation Limited as of December 31, 2014, and the related consolidated
statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year ended December 31,
2014 of China Eastern Airlines Corporation Limited and our report dated April 22, 2015 expressed an unqualified opinion thereon.









/s/ Ernst & Young



Hong Kong

April 22, 2015







F-3











| | Ernst & Young Hua Ming LLP
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        Oriental Plaza
        No.1 East Chang An Avenue
        Dong Cheng District
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        中国北京市东城区东长安街1号
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        邮政编码:100738 |  | Tel电话: +86 10
        5815 3000
        Fax传真: +86 10
        8518 8298
        ey.com
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------







Report of Independent Registered
Public Accounting Firm



The Board of Directors
and Shareholders of China Eastern Airlines Corporation Limited



We
have audited the accompanying consolidated statement of financial position of China Eastern Airlines Corporation Limited (the “Company”)
as of December 31, 2013, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity
and cash flows for the year ended December 31, 2013. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.



In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of the Company at December 31, 2013, and the consolidated results of its operations and its cash flows for the year ended December
31, 2013, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.





/s/ Ernst & Young Hua
Ming LLP



Beijing, The People’s
Republic of China

April 25, 2014







F-4









| | 
| | 







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 statements of
profit or loss and other comprehensive income, of changes in equity and of cash flows present fairly, in all material respects,
the results of China Eastern Airlines Corporation Limited(“the Company”) and its subsidiaries’ operations and
their cash flows for the period ended December 31, 2012 in conformity with International Financial Reporting Standards as issued
by the International Accounting Standards Board. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.









PricewaterhouseCoopers

Certified Public Accountants



Hong Kong

April 24, 2013







PricewaterhouseCoopers, 22/F Prince’s Building, Central,
Hong Kong

T: +852 2289 8888, F: +852 2810 9888, www.pwchk.com









F-5







CONSOLIDATED
STATEMENTS OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE
INCOME

For the years
ended December 31, 2014, 2013 and 2012

(Amounts
in millions except for per share data)



|                                                                                                     |  |       |  | 2014        |         |   | 2013        |  |         | 2012        | 
|---------------------------------------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                                                     |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Revenues                                                                                             |  | 5     |  |             | 90,185  |   |             |  | 88,245  |             | 
|Other operating income                                                                               |  | 6     |  |             | 3,685   |   |             |  | 2,725   |             | 
|Operating expenses                                                                                   |  |       |  |             |         |   |             |  |         |             | 
|Aircraft fuel                                                                                        |  |       |  |             | (30,238 | ) |             |  | (30,681 | )           | 
|Gain on fair value movements of derivative financial instruments                                     |  | 8     |  |             | 11      |   |             |  | 18      |             | 
|Take-off and landing charges                                                                         |  |       |  |             | (9,440  | ) |             |  | (9,190  | )           | 
|Depreciation and amortization                                                                        |  |       |  |             | (9,183  | ) |             |  | (8,226  | )           | 
|Wages, salaries and benefits                                                                         |  | 9     |  |             | (11,270 | ) |             |  | (13,454 | )           | 
|Aircraft maintenance                                                                                 |  |       |  |             | (4,453  | ) |             |  | (4,690  | )           | 
|Impairment (charge)/reversal                                                                         |  | 10    |  |             | (12     | ) |             |  | (186    | )           | 
|Food and beverages                                                                                   |  |       |  |             | (2,364  | ) |             |  | (2,268  | )           | 
|Aircraft operating lease rentals                                                                     |  |       |  |             | (4,502  | ) |             |  | (4,605  | )           | 
|Other operating lease rentals                                                                        |  |       |  |             | (637    | ) |             |  | (679    | )           | 
|Selling and marketing expenses                                                                       |  |       |  |             | (4,120  | ) |             |  | (4,139  | )           | 
|Civil aviation development fund                                                                      |  |       |  |             | (1,656  | ) |             |  | (1,566  | )           | 
|Ground services and other expenses                                                                   |  |       |  |             | (4,998  | ) |             |  | (5,105  | )           | 
|Indirect operating expenses                                                                          |  |       |  |             | (4,950  | ) |             |  | (4,623  | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Total operating expenses                                                                             |  |       |  |             | (87,812 | ) |             |  | (89,394 | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Operating profit                                                                                     |  | 11    |  |             | 6,058   |   |             |  | 1,576   |             | 
|Share of results of associates                                                                       |  | 22    |  |             | 91      |   |             |  | 38      |             | 
|Share of results of joint ventures                                                                   |  | 23    |  |             | 36      |   |             |  | 27      |             | 
|Finance income                                                                                       |  | 12    |  |             | 88      |   |             |  | 2,125   |             | 
|Finance costs                                                                                        |  | 13    |  |             | (2,160  | ) |             |  | (1,549  | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Profit before income tax                                                                             |  |       |  |             | 4,113   |   |             |  | 2,217   |             | 
|Income tax expense                                                                                   |  | 14    |  |             | (573    | ) |             |  | (124    | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Profit for the year                                                                                  |  |       |  |             | 3,540   |   |             |  | 2,093   |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income for the year                                                              |  |       |  |             |         |   |             |  |         |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods:        |  |       |  |             |         |   |             |  |         |             | 
|Cash flow hedges, net of tax                                                                         |  | 39    |  |             | (11     | ) |             |  | 246     |             | 
|Fair value movements of available-for-sale financial assets, net of tax                              |  |       |  |             | 13      |   |             |  | 157     |             | 
|Fair value movements of available-for-sale financial assets held by an associate, net of tax         |  | 22    |  |             | (1      | ) |             |  | (3      | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods     |  |       |  |             | 1       |   |             |  | 400     |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods:    |  |       |  |             |         |   |             |  |         |             | 
|Actuarial (losses)/gains on the post-retirement benefit obligations, net of tax                      |  |       |  |             | (333    | ) |             |  | 467     |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Net other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods |  |       |  |             | (333    | ) |             |  | 467     |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income/(loss), net of tax                                                        |  |       |  |             | (332    | ) |             |  | 867     |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Total comprehensive income for the year                                                              |  |       |  |             | 3,208   |   |             |  | 2,960   |             | 



F-6







CONSOLIDATED
STATEMENTS OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE
INCOME (CONTINUED)

For the year
ended December 31, 2014, 2013 and 2012

(Amounts
in millions except for per share data)



|                                                                                          |  |       |  | 2014        |       |  | 2013        |  |       | 2012        | 
|----------------------------------------------------------------------------------------- |  | ----- |  | ----------- | ----- |  | ----------- |  | ----- | ----------- | 
|                                                                                          |  | Notes |  | RMB million |       |  | RMB million |  |       | RMB million | 
|                                                                                          |  |       |  |             |       |  |             |  |       |             | 
|Profit/(loss) attributable to:                                                            |  |       |  |             |       |  |             |  |       |             | 
|Equity shareholders of the Company                                                        |  |       |  |             | 3,410 |  |             |  | 2,373 |             | 
|Non-controlling interests                                                                 |  |       |  |             | 130   |  |             |  | (280  | )           | 
|                                                                                          |  |       |  |             |       |  |             |  |       |             | 
|Profit for the year                                                                       |  |       |  |             | 3,540 |  |             |  | 2,093 |             | 
|                                                                                          |  |       |  |             |       |  |             |  |       |             | 
|Total comprehensive income/(loss) attributable to:                                        |  |       |  |             |       |  |             |  |       |             | 
|Equity shareholders of the Company                                                        |  |       |  |             | 3,071 |  |             |  | 3,180 |             | 
|Non-controlling interests                                                                 |  |       |  |             | 137   |  |             |  | (220  | )           | 
|                                                                                          |  |       |  |             |       |  |             |  |       |             | 
|Total comprehensive income for the year                                                   |  |       |  |             | 3,208 |  |             |  | 2,960 |             | 
|                                                                                          |  |       |  |             |       |  |             |  |       |             | 
|Earnings per share attributable to the equity shareholders of the Company during the year |  |       |  |             |       |  |             |  |       |             | 
|– Basic and diluted (RMB)                                                                 |  | 17    |  |             | 0.27  |  |             |  | 0.20  |             | 
|                                                                                          |  |       |  |             |       |  |             |  |       |             | 
|Dividends                                                                                 |  | 15    |  |             | -     |  |             |  | -     |             | 



The accompanying notes are an integral
part of these consolidated financial statements.



F-7







CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION

As of December 31, 2014 and 2013

(Amounts
in millions except for per share data)



|                                                                                             |  |       |  | 31 December |         |   | 31 December | 
|-------------------------------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- | 
|                                                                                             |  |       |  | 2014        |         |   | 2013        | 
|                                                                                             |  | Notes |  | RMB million |         |   | RMB million | 
|Non-current assets                                                                           |  |       |  |             |         |   |             | 
|Intangible assets                                                                            |  | 18    |  |             | 11,500  |   |             | 
|Property, plant and equipment                                                                |  | 19    |  |             | 109,439 |   |             | 
|Lease prepayments                                                                            |  | 20    |  |             | 2,206   |   |             | 
|Advanced payments on acquisition of aircraft                                                 |  | 21    |  |             | 20,260  |   |             | 
|Investments in associates                                                                    |  | 22    |  |             | 1,086   |   |             | 
|Investments in joint ventures                                                                |  | 23    |  |             | 505     |   |             | 
|Available-for-sale financial assets                                                          |  |       |  |             | 433     |   |             | 
|Other long-term assets                                                                       |  | 24    |  |             | 1,957   |   |             | 
|Deferred tax assets                                                                          |  | 36    |  |             | 170     |   |             | 
|Derivative financial instruments                                                             |  | 39    |  |             | 30      |   |             | 
|                                                                                             |  |       |  |             |         |   |             | 
|                                                                                             |  |       |  |             | 147,586 |   |             | 
|                                                                                             |  |       |  |             |         |   |             | 
|Current assets                                                                               |  |       |  |             |         |   |             | 
|Flight equipment spare parts                                                                 |  | 25    |  |             | 2,259   |   |             | 
|Trade receivables                                                                            |  | 26    |  |             | 3,862   |   |             | 
|Prepayments and other receivables                                                            |  | 27    |  |             | 6,394   |   |             | 
|Derivative financial instruments                                                             |  | 39    |  |             | 5       |   |             | 
|Restricted bank deposits and short-term bank deposits                                        |  | 28    |  |             | 38      |   |             | 
|Cash and cash equivalents                                                                    |  | 29    |  |             | 1,355   |   |             | 
|Assets classified as held for sale                                                           |  | 43    |  |             | 4,330   |   |             | 
|                                                                                             |  |       |  |             |         |   |             | 
|                                                                                             |  |       |  |             | 18,243  |   |             | 
|                                                                                             |  |       |  |             |         |   |             | 
|Current liabilities                                                                          |  |       |  |             |         |   |             | 
|Sales in advance of carriage                                                                 |  |       |  |             | 5,064   |   |             | 
|Trade and bills payable                                                                      |  | 30    |  |             | 2,083   |   |             | 
|Other payables and accruals                                                                  |  | 31    |  |             | 19,215  |   |             | 
|Current portion of obligations under finance leases                                          |  | 32    |  |             | 4,596   |   |             | 
|Current portion of borrowings                                                                |  | 33    |  |             | 28,676  |   |             | 
|Income tax payable                                                                           |  |       |  |             | 229     |   |             | 
|Current portion of provision for return condition checks for aircraft under operating leases |  | 34    |  |             | 1,267   |   |             | 
|Derivative financial instruments                                                             |  | 39    |  |             | -       |   |             | 
|                                                                                             |  |       |  |             |         |   |             | 
|                                                                                             |  |       |  |             | 61,130  |   |             | 
|                                                                                             |  |       |  |             |         |   |             | 
|Net current liabilities                                                                      |  |       |  |             | (42,887 | ) |             | 
|                                                                                             |  |       |  |             |         |   |             | 
|Total assets less current liabilities                                                        |  |       |  |             | 104,699 |   |             | 



F-8







CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION (CONTINUED)

As of December 31, 2014 and 2013

(Amounts
in millions except for per share data)



|                                                                            |  |       |  | 31 December |        |  | 31 December | 
|--------------------------------------------------------------------------- |  | ----- |  | ----------- | ------ |  | ----------- | 
|                                                                            |  |       |  | 2014        |        |  | 2013        | 
|                                                                            |  | Notes |  | RMB million |        |  | RMB million | 
|                                                                            |  |       |  |             |        |  |             | 
|Non-current liabilities                                                     |  |       |  |             |        |  |             | 
|Obligations under finance leases                                            |  | 32    |  |             | 34,099 |  |             | 
|Borrowings                                                                  |  | 33    |  |             | 30,513 |  |             | 
|Provision for return condition checks for aircraft under operating leases   |  | 34    |  |             | 2,617  |  |             | 
|Other long-term liabilities                                                 |  | 35    |  |             | 2,756  |  |             | 
|Post-retirement benefit obligations                                         |  | 37    |  |             | 2,822  |  |             | 
|Deferred tax liabilities                                                    |  | 36    |  |             | 26     |  |             | 
|Derivative financial instruments                                            |  | 39    |  |             | 95     |  |             | 
|                                                                            |  |       |  |             |        |  |             | 
|                                                                            |  |       |  |             | 72,928 |  |             | 
|                                                                            |  |       |  |             |        |  |             | 
|Net asset                                                                   |  |       |  |             | 31,771 |  |             | 
|                                                                            |  |       |  |             |        |  |             | 
|Equity                                                                      |  |       |  |             |        |  |             | 
|Capital and reserves attributable to the equity shareholders of the Company |  |       |  |             |        |  |             | 
|– Share capital                                                             |  | 41    |  |             | 12,674 |  |             | 
|– Reserves                                                                  |  | 42    |  |             | 17,300 |  |             | 
|                                                                            |  |       |  |             |        |  |             | 
|                                                                            |  |       |  |             | 29,974 |  |             | 
|                                                                            |  |       |  |             |        |  |             | 
|Non-controlling interests                                                   |  |       |  |             | 1,797  |  |             | 
|                                                                            |  |       |  |             |        |  |             | 
|Total equity                                                                |  |       |  |             | 31,771 |  |             | 



The accompanying notes are an integral part
of these consolidated financial statements.



F-9







CONSOLIDATED
STATEMENTS OF CASH FLOWS

For the years ended December 31, 2014, 2013
and 2012

(Amounts
in millions except for per share data)



|                                                                                                                |  |       |  | 2014        |         |   | 2013        |  |         | 2012        | 
|--------------------------------------------------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                                                                |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|                                                                                                                |  |       |  |             |         |   |             |  |         |             | 
|Cash flows from operating activities                                                                            |  |       |  |             |         |   |             |  |         |             | 
|Cash generated from operations                                                                                  |  | 44(a) |  |             | 12,767  |   |             |  | 11,120  |             | 
|Income tax paid                                                                                                 |  |       |  |             | (471    | ) |             |  | (314    | )           | 
|                                                                                                                |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows from operating activities                                                                        |  |       |  |             | 12,296  |   |             |  | 10,806  |             | 
|                                                                                                                |  |       |  |             |         |   |             |  |         |             | 
|Cash flows from investing activities                                                                            |  |       |  |             |         |   |             |  |         |             | 
|Additions of property, plant and equipment                                                                      |  |       |  |             | (5,828  | ) |             |  | (1,822  | )           | 
|Advanced payments on acquisition of aircraft                                                                    |  | 21    |  |             | (20,067 | ) |             |  | (17,261 | )           | 
|Acquisition of cargo business of Great Wall Airlines Co., Ltd. (“Great Wall Airlines”) netting of cash acquired |  |       |  |             | -       |   |             |  | -       |             | 
|Proceeds from disposal of assets classified as held for sale                                                    |  |       |  |             | 344     |   |             |  | -       |             | 
|Proceeds from disposal of property, plant and equipment                                                         |  |       |  |             | 1,623   |   |             |  | 556     |             | 
|Proceeds from disposal of short term deposits                                                                   |  |       |  |             | 132     |   |             |  | 1,492   |             | 
|Purchase of a shareholding in a joint venture                                                                   |  |       |  |             | (58     | ) |             |  | -       |             | 
|Capital injections in associates                                                                                |  |       |  |             | -       |   |             |  | (237    | )           | 
|Acquisition of a subsidiary, net of cash acquired                                                               |  |       |  |             | 16      |   |             |  | (12     | )           | 
|Purchase of investment in available-for-sale financial assets                                                   |  |       |  |             | (7      | ) |             |  | (47     | )           | 
|Interest received                                                                                               |  |       |  |             | 88      |   |             |  | 196     |             | 
|Dividends received                                                                                              |  |       |  |             | 75      |   |             |  | 95      |             | 
|Proceeds from disposal of interest in an associate                                                              |  |       |  |             | -       |   |             |  | 12      |             | 
|Advances of loans to an associate                                                                               |  |       |  |             | (369    | ) |             |  | -       |             | 
|Proceeds from disposal of interest in available-for-sale financial assets                                       |  |       |  |             | 18      |   |             |  | -       |             | 
|                                                                                                                |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows used in investing activities                                                                     |  |       |  |             | (24,033 | ) |             |  | (17,028 | )           | 



F-10







CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)

For the years ended December 31, 2014, 2013
and 2012

(Amounts
in millions except for per share data)



|                                                                               |  |      |  | 2014        |         |   | 2013        |  |         | 2012        | 
|------------------------------------------------------------------------------ |  | ---- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                               |  | Note |  | RMB million |         |   | RMB million |  |         | RMB million | 
|                                                                               |  |      |  |             |         |   |             |  |         |             | 
|Cash flows from financing activities                                           |  |      |  |             |         |   |             |  |         |             | 
|Proceeds from issue of shares                                                  |  |      |  |             | -       |   |             |  | 3,572   |             | 
|Proceeds from draw down of short-term bank loans                               |  |      |  |             | 33,863  |   |             |  | 15,635  |             | 
|Repayments of short-term debentures                                            |  |      |  |             | (4,000  | ) |             |  | (4,000  | )           | 
|Repayments of short-term bank loans                                            |  |      |  |             | (27,810 | ) |             |  | (15,823 | )           | 
|Proceeds from issuance of short-term debentures                                |  |      |  |             | 4,000   |   |             |  | 4,000   |             | 
|Proceeds from issuance of long-term debentures and bonds                       |  |      |  |             | 3,300   |   |             |  | 6,985   |             | 
|Proceeds from government grants                                                |  |      |  |             | 3       |   |             |  | 13      |             | 
|Proceeds from draw down of long-term bank loans and other financing activities |  |      |  |             | 16,971  |   |             |  | 8,958   |             | 
|Repayments of long-term bank loans                                             |  |      |  |             | (7,451  | ) |             |  | (9,792  | )           | 
|Repayments of long-term bonds                                                  |  |      |  |             | (2,500  | ) |             |  | -       |             | 
|Principal repayments of finance lease obligations                              |  |      |  |             | (3,250  | ) |             |  | (2,448  | )           | 
|Receipts of restricted bank deposits                                           |  |      |  |             | -       |   |             |  | -       |             | 
|Interest paid                                                                  |  |      |  |             | (1,994  | ) |             |  | (1,693  | )           | 
|Capital contribution from non-controlling interests of subsidiaries            |  |      |  |             | -       |   |             |  | 406     |             | 
|Acquisition of non-controlling interests in subsidiaries                       |  |      |  |             | -       |   |             |  | (15     | )           | 
|Dividends paid to non-controlling interests of subsidiaries                    |  |      |  |             | (20     | ) |             |  | (68     | )           | 
|                                                                               |  |      |  |             |         |   |             |  |         |             | 
|Net cash flows from/ (used in) financing activities                            |  |      |  |             | 11,112  |   |             |  | 5,730   |             | 
|                                                                               |  |      |  |             |         |   |             |  |         |             | 
|Net decrease in cash and cash equivalents                                      |  |      |  |             | (625    | ) |             |  | (492    | )           | 
|Cash and cash equivalents at beginning of year                                 |  |      |  |             | 1,995   |   |             |  | 2,512   |             | 
|Effect of foreign exchange rate changes                                        |  |      |  |             | (15     | ) |             |  | (25     | )           | 
|                                                                               |  |      |  |             |         |   |             |  |         |             | 
|Cash
and cash equivalents at December 31                                       |  | 29   |  |             | 1,355   |   |             |  | 1,995   |             | 



The accompanying notes are an integral part
of these consolidated financial statements.



F-11







CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY

For the years ended December 31, 2014, 2013
and 2012

(Amounts
in millions except for per share data)



|                                                                      |  | Attributable
    to equity holders of the Company |        |  |             |  |        |                      | 
|--------------------------------------------------------------------- |  | ------------------------------------------------- | ------ |  | ----------- |  | ------ | -------------------- | 
|                                                                      |  | Share                                             |        |  | Other       |  |        | Retained earnings/   | 
|                                                                      |  | capital                                           |        |  | reserves    |  |        | (accumulated losses) | 
|                                                                      |  | RMB million                                       |        |  | RMB million |  |        | RMB million          | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Balance
    at January 1, 2012                                        |  |                                                   | 11,277 |  |             |  | 13,894 |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Total
    comprehensive income for the year                           |  |                                                   | -      |  |             |  | 150    |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|-Profit/(loss)
    for the year                                       |  |                                                   | -      |  |             |  | -      |                      | 
|-Other
    comprehensive income                                       |  |                                                   | -      |  |             |  | 150    |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Capital contribution by
    non-controlling interests in subsidiaries |  |                                                   | -      |  |             |  | -      |                      | 
|Dividends paid to non-controlling
    interests in subsidiaries       |  |                                                   | -      |  |             |  | -      |                      | 
|Acquisition
    of non-controlling interests in subsidiaries          |  |                                                   | -      |  |             |  | (490   | )                    | 
|Issue of shares                                                       |  |                                                   | -      |  |             |  | -      |                      | 
|Others                                                                |  |                                                   | -      |  |             |  | 344    |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Balance
    at December 31, 2012                                      |  |                                                   | 11,277 |  |             |  | 13,898 |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Total
    comprehensive income for the year                           |  |                                                   | -      |  |             |  | 807    |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|-Profit/(loss)
    for the year                                       |  |                                                   | -      |  |             |  | -      |                      | 
|-Other
    comprehensive income                                       |  |                                                   | -      |  |             |  | 807    |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Capital contribution by
    non-controlling interests in subsidiaries |  |                                                   | -      |  |             |  | -      |                      | 
|Dividends paid to non-controlling
    interests in subsidiaries       |  |                                                   | -      |  |             |  | -      |                      | 
|Acquisition of non-controlling
    interests in subsidiaries          |  |                                                   | -      |  |             |  | -      |                      | 
|Issue of shares                                                       |  |                                                   | 1,397  |  |             |  | 2,175  |                      | 
|Others                                                                |  |                                                   | -      |  |             |  | (57    | )                    | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Balance
    at December 31, 2013                                      |  |                                                   | 12,674 |  |             |  | 16,823 |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Total
    comprehensive income for the year                           |  |                                                   | -      |  |             |  | (339   | )                    | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|-Profit
    for the year                                              |  |                                                   | -      |  |             |  | -      |                      | 
|-Other
    comprehensive income                                       |  |                                                   | -      |  |             |  | (339   | )                    | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Dividends paid to non-controlling
    interests in subsidiaries       |  |                                                   | -      |  |             |  | -      |                      | 
|Others                                                                |  |                                                   | -      |  |             |  | 1      |                      | 
|                                                                      |  |                                                   |        |  |             |  |        |                      | 
|Balance
    at December 31, 2014                                      |  |                                                   | 12,674 |  |             |  | 16,485 |                      | 



F-12







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 April 22, 2015.



| | 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
| | --- | --------------------



These
financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standard Board. These financial statements also comply with the applicable requirements
of the Hong Kong Companies Ordinance relating to the preparation of financial statements, which for this financial year and the
comparative period continue to be those of the predecessor Companies Ordinance (Cap. 32), in accordance with transitional and saving
arrangements for Part 9 of the Hong Kong Companies Ordinance (Cap. 622), “Accounts and Audit”, which are set out in
sections 76 to 87 of Schedule 11 to that 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, 2014, the Group’s
current liabilities exceeded its current assets by approximately RMB42.89 billion. In preparing the financial statements, the Board
conducts adequate and detailed review over the Group’ s going concern ability based on the current financial situation.



The Board has taken active actions
to deal with the situation that current liabilities exceeded its current assets, and the Board is confident that they have obtained
adequate credit facility from the banks to support the floating capital. As at December 31, 2014, the Group had total unutilized
credit facility amounting to approximately RMB44 billion from banks.



Based on the bank facility obtained
by the Group, the past record of the financing and the good working relationship with major banks and financial institutions, the
Board considers that the Group will be able to obtain sufficient financing to enable it to operate, as well as to meet its liabilities
as and when they become due, and the capital expenditure requirements for the upcoming twelve months. Accordingly, the Board believes
that it is appropriate to prepare these financial statements on a going concern basis without including any adjustments that would
be required should the Company and the Group fail to continue as a going concern.



| | (ii) | New and amended standards adopted by the Group
| | ---- | ----------------------------------------------



The Group has adopted the following
revised standards and new interpretation for the first time for the current year's financial statements.



|Amendments to IFRS 10, |  | Investment Entities                                              
|---------------------- |  | -----------------------------------------------------------------
|IFRS 12 and            |  |                                                                  
|IAS 27 (2011)          |  |                                                                  
|Amendments to IAS 32   |  | Offsetting Financial Assets and Financial Liabilities            
|Amendments to IAS 39   |  | Novation of Derivatives and Continuation of Hedge Accounting     
|IFRIC-Int 21           |  | Levies                                                           
|Amendment to IFRS 2    |  | Definition of Vesting Condition                                  
|included in Annual     |  |                                                                  
|Improvements 2010-2012 |  |                                                                  
|Cycle                  |  |                                                                  
|Amendment to IFRS 3    |  | Accounting for Contingent Consideration in a Business Combination
|included in Annual     |  |                                                                  
|Improvements 2010-2012 |  |                                                                  
|Cycle                  |  |                                                                  



F-13







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (a) | Basis of preparation (cont’d)
| | --- | -----------------------------



| | (ii) | New and amended standards adopted by the Group (cont’d)
| | ---- | -------------------------------------------------------



|Amendment to IFRS 13   |  | Short-term Receivables and Payables
|---------------------- |  | -----------------------------------
|included in Annual     |  |                                    
|Improvements 2010-2012 |  |                                    
|Amendment to IFRS 1    |  | Meaning of Effective IFRSs         
|included in Annual     |  |                                    
|Improvements 2011-2013 |  |                                    
|Cycle                  |  |                                    



| | (a) | Amendments to IFRS 10 include a definition of an investment entity and provide an exception to
the consolidation requirement for entities that meet the definition of an investment entity. Investment entities are required to
account for subsidiaries at fair value through profit or loss in accordance with IFRS 9 rather than consolidate them. Consequential
amendments were made to IFRS 12 and IAS 27 (2011).The amendments to IFRS 12 also set out the disclosure requirements for investment
entities. The amendments have had no material impact on the Group.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | IAS 32 Amendments clarify the meaning of “currently has a legally enforceable right to set-off”
for offsetting financial assets and financial liabilities. The amendments also clarify the application of the offsetting criteria
in IAS 32 to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
The amendments have had no material impact on the Group.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The IAS 39 Amendments provide an exception to the requirement of discontinuing hedge accounting
in situations where over-the-counter derivatives designated in hedging relationships are directly or indirectly, novated to a central
counterparty as a consequence of laws or regulations, or the introduction of laws or regulations. For continuance of hedge accounting
under this exception, all of the following criteria must be meet: (i) the novations must arise as a consequence of laws or regulations,
or the introduction of laws or regulations; (ii) the parties to the hedging instrument agree that one or more clearing counterparties
replace their original counterparty to become the new counterparty to each of the parties; and (iii) the novations do not result
in changes to the terms of the original derivative other than changes directly attributable to the change in counterparty to achieve
clearing. The amendments have had no material impact on the Group.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. The interpretation also clarifies that a levy liability is accrued
progressively only if the activity that triggers payment occurs over a period of time, in accordance with the relevant legislation.
For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be recognized
before the specified minimum threshold is reached. The interpretation has had no material impact on the Group.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | The IFRS 2 Amendment clarifies various issues relating to the definitions of performance and service
conditions which are vesting conditions, including (i) a performance condition must contain a service condition; (ii) a performance
target must be met while the counterparty is rendering service, (iii) a performance target may relate to the operations or activities
of an entity, or to those of another entity in the same group; (iv) a performance condition may be a market or non-market condition;
and (v) if the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition
is not satisfied. The amendment has had no material impact on the Group.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | The IFRS 3 Amendment clarifies that contingent consideration arrangements arising from a business
combination that are not classified as equity should be subsequently measured at fair value through profit or loss whether or not
they fall within the scope of IFRS 9 or IAS 39. The amendment has had no material impact on the Group.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (g) | The IFRS 13 Amendment clarifies that short-term receivables and payables with no stated interest
rates can be measured at invoice amounts when the effect of discounting is immaterial. The amendment has had no material impact
on the Group.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Issued but not yet effective International Financial Reporting Standards and new disclosure
requirements under the Hong Kong Companies Ordinance not yet adopted
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



The Group has not applied the following
new and revised IFRSs that have been issued but are not yet effective, in these financial statements.



|IFRS 9                |  | Financial Instruments                                                  
|--------------------- |  | -----------------------------------------------------------------------
|Amendments to IFRS 10 |  | Sale or Contribution of Assets between an Investor and its Associate or
|and IAS 28 (2011)     |  | Joint Venture                                                          
|Amendments to IFRS 11 |  | Accounting for Acquisitions of Interests in Joint Operations           
|IFRS 14               |  | Regulatory Deferral Accounts                                           
|IFRS 15               |  | Revenue from Contracts with Customers                                  



F-14







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (a) | Basis of preparation (cont’d)
| | --- | -----------------------------



| | (iii) | Issued but not yet effective International Financial Reporting Standards and new disclosure
requirements under the Hong Kong Companies Ordinance not yet adopted (cont’d)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Amendments to IAS 16        |  | Clarification of Acceptable Methods of Depreciation and Amortization
|--------------------------- |  | --------------------------------------------------------------------
|and IAS 38                  |  |                                                                     
|Amendments to IAS 16        |  | Agriculture: Bearer Plants                                          
|and IAS 41                  |  |                                                                     
|Amendments to IAS 19        |  | Defined Benefit Plans: Employee Contributions                       
|Amendments to IAS 27 (2011) |  | Equity Method in Separate Financial Statements                      
|Annual Improvements         |  | Amendments to a number of IFRSs                                     
|2010-2012 Cycle             |  |                                                                     
|Annual Improvements         |  | Amendments to a number of IFRSs                                     
|2011-2013 Cycle             |  |                                                                     
|Annual Improvements         |  | Amendments to a number of IFRSs                                     
|2012-2014 Cycle             |  |                                                                     



In addition, the Hong Kong Companies
Ordinance (Cap. 622) will affect the presentation and disclosure of certain information in the consolidated financial statements
for the year ending December 31, 2015. The Group is in the process of making an assessment of the impact of these changes.



Further information
about those IFRSs that are expected to be applicable to the Group is as follows:



In September 2014, the IASB issued
the final version of IFRS 9, bringing together all phases of the financial instruments project to replace IAS 39 and all previous
versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting.
The Group expects to adopt IFRS 9 from January 1, 2018. The Group expects that the adoption of IFRS 9 will have an impact on the
classification and measurement of the Group’s financial assets. Further information about the impact will be available nearer
the implementation date of the standard.



The amendments to IFRS 10 and IAS
28 (2011) address an inconsistency between the requirements in IFRS 10 and in IAS 28 (2011) in dealing with the sale or contribution
of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when
the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction
involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognized in the investor’s
profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments
are to be applied prospectively. The Group expects to adopt the amendments from January 1, 2016.



The amendments to IFRS 11 require
that an acquirer of an interest in a joint operation in which the activity of the joint operation constitutes a business must apply
the relevant principles for business combinations in IFRS 3. The amendments also clarify that a previously held interest in a joint
operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained.
In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint
control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply
to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same
joint operation. The amendments are not expected to have any impact on the financial position or performance of the Group upon
adoption on January 1, 2016.



IFRS 15 establishes a new five-step
model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that
reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The principles in IFRS 15 provide a more structured approach for measuring and recognizing revenue. The standard also introduces
extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance
obligations, changes in contract asset and liability account balances between periods and key judgments and estimates. The standard
will supersede all current revenue recognition requirements under IFRSs. The Group expects to adopt IFRS 15 on January 1, 2017
and is currently assessing the impact of IFRS 15 upon adoption.



Amendments to IAS 16 and IAS 38 clarify
the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating business
(of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-based
method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize
intangible assets. The amendments are to be applied prospectively. The amendments are not expected to have any impact on the financial
position or performance of the Group upon adoption on January 1, 2016 as the Group has not used a revenue-based method for the
calculation of depreciation of its non-current assets.



The Annual Improvements to IFRSs 2010-2012
Cycle issued in January 2014 sets out amendments to a number of IFRSs. Except for those described in note 2(a)(ii), the Group expects
to adopt the amendments from 1 January 2015. None of the amendments are expected to have a significant financial impact on the
Group. Details of the amendment most applicable to the Group are as follows:



F-15







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (a) | Basis of preparation (cont’d)
| | --- | -----------------------------



| | (iv) | Issued but not yet effective International Financial Reporting Standards and new disclosure
requirements under the Hong Kong Companies Ordinance not yet adopted (cont’d)
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



IFRS 8 Operating Segments: Clarifies
that an entity must disclose the judgments made by management in applying the aggregation criteria in IFRS 8, including a brief
description of operating segments that have been aggregated and the economic characteristics used to assess whether the segments
are similar. The amendments also clarify that a reconciliation of segment assets to total assets is only required to be disclosed
if the reconciliation is reported to the chief operating decision maker.



| | (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
| | --- | ------------



A subsidiary is an entity (including
a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed to, or has the rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated 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.



If the business combination is achieved
in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss
is recognized in profit or loss.



Any contingent consideration to
be transferred by the 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 includes direct attributable costs of investment.



Goodwill is initially measured at
cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interests and
any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired
and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired,
the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.



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







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (b) | Consolidation (cont’d)
| | --- | ----------------------



The following is a list of
principal subsidiaries as at December 31, 2014:



|Company name                                                                                            |  | Place of
    establishment and  operation and date  of establishment |  | Registered Capital |       |  | Attributable equity
    interest |     |       | Principal activities
|------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------- |  | ------------------ | ----- |  | -------------------------------- | --- | ----- | --------------------
|                                                                                                        |  |                                                                      |  | 2014               |       |  | 2013                             |     |       | 2014                
|                                                                                                        |  |                                                                      |  | million            |       |  | million                          |     |       |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|China Eastern Airlines Jiangsu Co., Ltd. (“CEA
    Jiangsu”)                                            |  | PRC May 3, 1993                                                      |  | RMB                | 2,000 |  |                                  | RMB | 2,000 |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|China Eastern Airlines Wuhan Co., Ltd. (“CEA Wuhan”)                                                    |  | PRC August 16, 2002                                                  |  | RMB                | 1,750 |  |                                  | RMB | 1,750 |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|Shanghai Eastern Flight Training Co., Ltd. (“Flight Training”)                                          |  | PRC December 18, 1995                                                |  | RMB                | 694   |  |                                  | RMB | 608   |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|Shanghai Airlines Co., Ltd.                                                                             |  | PRC March 16, 2010                                                   |  | RMB                | 500   |  |                                  | RMB | 500   |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|China Cargo Airlines Co., Ltd. (“China Cargo”)                                                          |  | PRC July 22, 1998                                                    |  | RMB                | 3,000 |  |                                  | RMB | 3,000 |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|China Eastern Airlines Technology Ltd. (“Eastern
    Technology”)                                       |  | PRC November 19, 2014                                                |  | RMB                | 4,300 |  |                                  |     | -     |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|Shanghai Eastern Airlines Logistics Co., Ltd. (“Eastern Logistics”)                                     |  | PRC August 23, 2004                                                  |  | RMB                | 1,150 |  |                                  | RMB | 1,150 |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|Eastern Business Airlines Service Co., Ltd.(“ Eastern
    Business Airlines Service”)                   |  | PRC September 27, 2008                                               |  | RMB                | 50    |  |                                  | RMB | 50    |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|China Eastern Airlines Yunnan Co., Ltd. (“CEA Yunnan”)                                                  |  | PRC August 2, 2011                                                   |  | RMB                | 3,662 |  |                                  | RMB | 3,662 |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|Eastern Air Overseas(Hong Kong) Corporation Limited.(“ Eastern
    Air Overseas”)                       |  | Hong Kong June 10, 2011                                              |  | HKD                | 30    |  |                                  | HKD | 30    |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|China United Airlines Co., Ltd.(“United Airlines”)                                                      |  | PRC September 21, 1984                                               |  | RMB                | 1,320 |  |                                  | RMB | 1,320 |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|Eastern Airlines Hotel Co., Ltd.                                                                        |  | PRC March 18, 1998                                                   |  | RMB                | 70    |  |                                  | RMB | 70    |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|Shanghai Airlines Tours International (Group) Co., Ltd. (“Shanghai
    Airlines Tours”)                 |  | PRC August 29, 1992                                                  |  | RMB                | 50    |  |                                  | RMB | 50    |                     
|                                                                                                        |  |                                                                      |  |                    |       |  |                                  |     |       |                     
|China Eastern Airlines Application Development  Center
    Co., Ltd. (“Application Development Center”) |  | PRC November 21, 2011                                                |  | RMB                | 498   |  |                                  | RMB | 498   |                     



F-17







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (b) | Consolidation (cont’d)
| | --- | ----------------------



Details
of the Group’s subsidiaries that have material non-controlling interests are set out below:



|                                                                 |  | 2014 |       |   | 2013 | 
|---------------------------------------------------------------- |  | ---- | ----- | - | ---- | 
|Percentage of equity interest held by non-controlling interests: |  |      |       |   |      | 
|CEA Jiangsu                                                      |  |      | 37.44 | % |      | 
|CEA Yunnan                                                       |  |      | 9.64  | % |      | 
|CEA Wuhan                                                        |  |      | 40.00 | % |      | 
|China Cargo                                                      |  |      | 49.00 | % |      | 



|                                                                   |  | 2014        |      |   | 2013        | 
|------------------------------------------------------------------ |  | ----------- | ---- | - | ----------- | 
|Profit/(loss) for the year allocated to non-controlling interests: |  | RMB million |      |   | RMB million | 
|CEA Jiangsu                                                        |  |             | 156  |   |             | 
|CEA Yunnan                                                         |  |             | 31   |   |             | 
|CEA Wuhan                                                          |  |             | 137  |   |             | 
|China Cargo                                                        |  |             | (160 | ) |             | 



|                                             |  | 2014        |    |  | 2013        | 
|-------------------------------------------- |  | ----------- | -- |  | ----------- | 
|Dividends paid to non-controlling interests: |  | RMB million |    |  | RMB million | 
|CEA Jiangsu                                  |  |             | 20 |  |             | 



|                                                                          |  | 2014        |      |   | 2013        | 
|------------------------------------------------------------------------- |  | ----------- | ---- | - | ----------- | 
|Accumulated balances of non-controlling interests at the reporting dates: |  | RMB million |      |   | RMB million | 
|CEA Jiangsu                                                               |  |             | 966  |   |             | 
|CEA Yunnan                                                                |  |             | 379  |   |             | 
|CEA Wuhan                                                                 |  |             | 865  |   |             | 
|China Cargo                                                               |  |             | (378 | ) |             | 



The following tables illustrate
the summarized financial information of the above subsidiaries. The amounts disclosed are before any inter-company elimination:



|                                                     |  | CEA Jiangsu |       |   | CEA Yunnan  |  |        | CEA Wuhan   |  |  | China Cargo |  
|---------------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ------ | ----------- |  |  | ----------- | -
|2014                                                 |  | RMB million |       |   | RMB million |  |        | RMB million |  |  | RMB million |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Revenue                                              |  |             | 6,435 |   |             |  | 9,133  |             |  |  | 3,346       |  
|Total expenses                                       |  |             | 6,019 |   |             |  | 8,812  |             |  |  | 3,003       |  
|Profit/(loss) for the year                           |  |             | 416   |   |             |  | 321    |             |  |  | 343         |  
|Total comprehensive income/(loss)for the year        |  |             | 332   |   |             |  | 321    |             |  |  | 302         |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Current assets                                       |  |             | 1,666 |   |             |  | 1,730  |             |  |  | 1,036       |  
|Non-current assets                                   |  |             | 6,347 |   |             |  | 10,385 |             |  |  | 3,134       |  
|Current liabilities                                  |  |             | 2,241 |   |             |  | 3,240  |             |  |  | 855         |  
|Non-current liabilities                              |  |             | 3,192 |   |             |  | 4,941  |             |  |  | 1,153       |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Net cash flows from/(used in) operating activities   |  |             | 812   |   |             |  | 1,162  |             |  |  | 188         |  
|Net cash flows used in                               |  |             |       |   |             |  |        |             |  |  |             |  
|investing activities                                 |  |             | (454  | ) |             |  | (849   | )           |  |  | (2          | )
|Net cash flows (used in)/from                        |  |             |       |   |             |  |        |             |  |  |             |  
|financing activities                                 |  |             | (402  | ) |             |  | (541   | )           |  |  | (152        | )
|Effect of foreign exchange rate changes, net         |  |             | -     |   |             |  | (25    | )           |  |  | -           |  
|Net (decrease)/increase in cash and cash equivalents |  |             | (44   | ) |             |  | (253   | )           |  |  | 34          |  



F-18







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (b) | Consolidation (cont’d)
| | --- | ----------------------



|                                                     |  | CEA Jiangsu |       |   | CEA Yunnan  |  |        | CEA Wuhan   |  |  | China Cargo |  
|---------------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ------ | ----------- |  |  | ----------- | -
|2013                                                 |  | RMB million |       |   | RMB million |  |        | RMB million |  |  | RMB million |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Revenue                                              |  |             | 6,111 |   |             |  | 8,901  |             |  |  | 3,140       |  
|Total expenses                                       |  |             | 5,882 |   |             |  | 8,583  |             |  |  | 2,744       |  
|Profit/(loss) for the year                           |  |             | 229   |   |             |  | 318    |             |  |  | 396         |  
|Total comprehensive income/(loss) for the year       |  |             | 302   |   |             |  | 318    |             |  |  | 449         |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Current assets                                       |  |             | 1,058 |   |             |  | 514    |             |  |  | 1,524       |  
|Non-current assets                                   |  |             | 5,708 |   |             |  | 8,373  |             |  |  | 2,329       |  
|Current liabilities                                  |  |             | 2,124 |   |             |  | 2,100  |             |  |  | 926         |  
|Non-current liabilities                              |  |             | 2,232 |   |             |  | 3,175  |             |  |  | 946         |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Net cash flows from/(used in) operating activities   |  |             | 824   |   |             |  | 1,924  |             |  |  | 346         |  
|Net cash flows (used in)/from investing activities   |  |             | (395  | ) |             |  | (1,645 | )           |  |  | (1,206      | )
|Net cash flows (used in)/from financing activities   |  |             | (449  | ) |             |  | (466   | )           |  |  | 871         |  
|Effect of foreign exchange rate changes, net         |  |             | (1    | ) |             |  | (1     | )           |  |  | -           |  
|Net (decrease)/increase in cash and cash equivalents |  |             | (21   | ) |             |  | (188   | )           |  |  | 11          |  



| | (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.



| | (iv) | Investments in associates and joint ventures
| | ---- | --------------------------------------------



An associate is an entity in which
the Group has a long-term interest of generally not less than 20% of the equity voting rights and over which it is in a position
to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions
of the investee, but is not control or joint control over those policies.



F-19







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (c) | Consolidation (cont’d)
| | --- | ----------------------



| | (iv) | Investments in associates and joint ventures (cont’d)
| | ---- | -----------------------------------------------------



A joint venture is a type of joint
arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture.
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control.



The Group's share of the post-acquisition
results and other comprehensive income of associates and joint ventures is included in the consolidated statements of profit or
loss and other comprehensive income. In addition, when there has been a change recognized directly in the equity of the associate
or joint venture, the Group recognizes its share of any changes, when applicable, in the consolidated statements of changes in
equity. Unrealized gains and losses resulting from transactions between the Group and its associates or joint ventures are eliminated
to the extent of the Group’s investments in the associates or joint ventures, except where unrealized losses provide evidence
of an impairment of the asset transferred. Goodwill arising from the acquisition of associates or joint ventures is included as
part of the Group's investments in associates or joint ventures.



If an investment in an associate
becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues
to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint
control over the joint venture, the Group measures and recognizes any retained investment at its fair value. Any difference between
the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of
the retained investment and proceeds from disposal is recognized in profit or loss.



The
results of associates and joint ventures are included in the Company's statements of profit or loss and other
comprehensive income to the extent of dividends received and receivable. The Company's investments in associates and joint ventures
are treated as non-current assets and are stated at cost less any impairment losses.



When an investment in an associate
or a joint venture is classified as held for sale, it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations.



| | (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 company's functional and presentation currency.



| | (ii) | Transactions and balances
| | ---- | -------------------------



Foreign currency transactions are translated
into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the profit or loss, 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 profit or loss within ‘finance income’ or ‘finance
costs’.



| | (e) | Revenue recognition and sales in advance of carriage
| | --- | ----------------------------------------------------



Revenue comprises the fair value
of the consideration received or receivable for the provision of services and the sale of goods 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.



F-20







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (e) | Revenue recognition and sales in advance of carriage (cont’d)
| | --- | -------------------------------------------------------------



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.



| | (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 and tour operation revenues
| | ---- | -------------------------------------------------



Revenues from the provision of ground
services, tour, travel services and other travel related services are recognized when the services are rendered.



| | (iii) | Cargo handling income
| | ----- | ---------------------



Revenues from the provision of cargo
handling income are recognized when the service are rendered.



| | (iv) | 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 profit or loss upon
ticket sales.



| | (v) | Other revenue
| | --- | -------------



Revenues from other operating businesses,
including income derived from the provision of freight forwarding, are recognized when the services are rendered.



| | (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 profit or loss 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 profit or loss
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.



All other repairs and maintenance
costs are charged to the profit or loss as and when incurred.



F-21







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (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 directly attributable
to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of
time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. The capitalization of such
borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the
temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs
capitalized. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest
and other costs that an entity incurs in connection with the borrowing of funds.



| | (j) | Current and deferred tax
| | --- | ------------------------



The tax expense for the period
comprises current and deferred tax. Tax is recognized in the profit or loss, 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 end of the reporting period in the jurisdictions
where the Company and its subsidiaries, associates and joint ventures 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 consolidated 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 end of the
reporting period 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 joint ventures, 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.



| | (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 subsidiaries,
associates or joint ventures at the date of acquisition. Goodwill on acquisition of subsidiaries is included in “intangible
assets”. Goodwill on acquisition of associates and joint ventures is included in “investments in associates”
and “investments in joint ventures” 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 segments 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.



F-22







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (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 when the pilot joins the Group.



| | (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. Upon completion of an overhaul, any remaining carrying amount of the
cost of the previous overhaul is derecognized and charged to the profit or loss.



Except for components related to
overhaul costs, the depreciation method of which has been described in the preceding paragraph, other depreciation of property,
plant and equipment is calculated using the straight-line method to write down their costs 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 reporting 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 profit or loss.



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.



| | (n) | Impairment of investments in subsidiaries, associates, joint ventures 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 impairment
are reviewed for possible reversal of the impairment at each reporting period date.



| | (o) | Assets classified as 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.



F-23







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (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 profit or loss.
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 profit or loss.



| | (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.



| | (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 profit or loss 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 end
of each reporting period 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.

F-24







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (x) | Leases (cont’d)
| | --- | ---------------



| | (i) | A Group company is the lessee (cont’d)
| | --- | --------------------------------------



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 profit or loss over the lease period so
as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are
depreciated using a straight-line basis over their expected useful lives to residual values.



For sale and leaseback transactions
resulting in a finance lease, differences between sales proceeds and net book values are deferred and amortized over the lease
terms.



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 profit or loss on a straight-line basis over the period
of the lease.



For sale and leaseback transactions
resulting in an operating lease, differences between sales proceeds and net book values are recognized immediately in the profit
or loss, 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 statement of financial position. They are depreciated over their expected
useful lives on a basis consistent with similar property, plant and equipment. Rental income is recognized on a straight-line basis
over the lease term.



| | (y) | Retirement benefits
| | --- | -------------------



The Group participates in schemes
regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces. In addition,
the Group initiated an additional defined contribution retirement benefit scheme for employees in 2014. The contributions to the
schemes are charged to profit or loss 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 cost of providing benefits under the post-retirement benefit plan is determined using the
projected unit credit actuarial valuation method.



Remeasurements arising from post-retirement
benefit plan, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on
plan assets (excluding net interest), are recognized immediately in the consolidated statement of financial position with a corresponding
debit or credit to retained profits through other comprehensive income in the period in which they occur. Remeasurements are not
reclassified to profit or loss in subsequent periods.



Past service
costs are recognized in profit or loss at the earlier of:



| | • | the date of the plan amendment or curtailment; and
| | - | --------------------------------------------------

| | • | the date that the Group recognizes restructuring-related costs
| | - | --------------------------------------------------------------



Net interest
is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes
in the net defined benefit obligation under “Wages, salaries and benefits” in the consolidated statements of profit
or loss and other comprehensive income:



| | • | service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | (z) | Derivative financial instruments
| | --- | --------------------------------



Derivative financial instruments
are initially recognized in the statements of financial position 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.



F-25







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | -- | ---------------------------------------------------



| | (z) | Derivative financial instruments (cont’d)
| | --- | -----------------------------------------



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 profit or loss immediately. Changes in the fair value of derivatives that
are designated and qualify as fair value hedges and that are highly effective, are recorded in the profit or loss, along with any
changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.



Derivative financial instruments
that qualify for hedge accounting and which are designated as a specific hedge of the variability in cash flows of a highly probable
forecast transaction, are accounted for as follows:



| | (i) | 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 removed from equity and recognized in the profit or loss
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 profit or loss 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 profit or loss when the committed or forecast transaction ultimately occurs.
When a committed or forecast transaction is no longer expected to occur, the cumulative gain or loss that was recorded in equity
is immediately transferred to the profit or loss.



| | (aa) | Available-for-sale financial assets
| | ---- | -----------------------------------



Investments in securities other
than subsidiaries, associates and joint ventures, 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 reporting 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 profit or loss.



When the fair value of unlisted
equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant
for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in
estimating fair value, such investments are stated at cost less any impairment losses.



The Group assesses at each reporting
period 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 profit or loss, is removed from equity and recognized in the profit or loss. Impairment losses recognized in
the profit or loss on equity instruments are not reversed through the profit or loss.



| | (ab) | Dividend distribution
| | ---- | ---------------------



Dividend distribution to the Company’s
shareholders is recognized as a liability in the consolidated financial statements in the period in which the dividends are approved
by the Company’s shareholders.



| | (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-26







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 programme focuses on the
unpredictability of financial markets and seeks to minimized 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 cooperation 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 (mainly resulting
from purchases 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 contracts to manage part of these foreign currency risks. Details of foreign currency forward contracts are disclosed
in Note39 (b) to the financial statements.



The following tables detail the Group’s
exposure at the reporting dates to major currency risk:



|                                                                 |  | 2014        |        
|---------------------------------------------------------------- |  | ----------- | -------
|                                                                 |  | USD         |        
|                                                                 |  | RMB million |        
|                                                                 |  |             |        
|Trade and other receivables                                      |  |             | 1,684  
|Cash and cash equivalents                                        |  |             | 490    
|Deposits relating to aircraft under operating leases             |  |             | 482    
|Other long-term assets                                           |  |             | 46     
|Trade and other payables                                         |  |             | (30    
|Obligations under finance leases                                 |  |             | (36,437
|Borrowings                                                       |  |             | (42,984
|Interest rate swap at notional value                             |  |             | 4,901  
|Currency derivatives at notional value                           |  |             | 239    
|                                                                 |  |             |        
|Net exposure in the consolidated statement of financial position |  |             | (71,609



F-27







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT (cont’d)
| | -- | ----------------------------------



| | (a) | Financial risk factors (cont’d)
| | --- | -------------------------------



| | (i) | Foreign currency risk (cont’d)
| | --- | ------------------------------



|                                                                 |  | 2013        |        
|---------------------------------------------------------------- |  | ----------- | -------
|                                                                 |  | USD         |        
|                                                                 |  | RMB million |        
|                                                                 |  |             |        
|Trade and other receivables                                      |  |             | 713    
|Restricted bank deposits and short-term bank deposits            |  |             | 182    
|Cash and cash equivalents                                        |  |             | 282    
|Deposits relating to aircraft under operating leases             |  |             | 668    
|Trade and other payables                                         |  |             | (902   
|Obligations under finance leases                                 |  |             | (20,541
|Borrowings                                                       |  |             | (35,215
|Interest rate swap at notional value                             |  |             | 5,146  
|Currency derivatives at notional value                           |  |             | 234    
|                                                                 |  |             |        
|Net exposure in the consolidated statement of financial position |  |             | (49,433



The following tables indicate the
approximate change in the Group’s statements of profit or loss and other comprehensive income and the consolidated statements
of changes in equity in response to a 1% appreciation of the RMB against the following major currencies at the reporting dates:



|             |  | 2014           |     |   | 2013             | 
|------------ |  | -------------- | --- | - | ---------------- | 
|             |  |                |     |   | Effect on        | 
|             |  | Effect on      |     |   | other components | 
|             |  | profit or loss |     |   | of equity        | 
|             |  | RMB million    |     |   | RMB million      | 
|             |  |                |     |   |                  | 
|US dollars   |  |                | 628 |   |                  | 
|Euro         |  |                | (2  | ) |                  | 
|Japanese Yen |  |                | 4   |   |                  | 



| | (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 and finance leases issued at fixed rates expose the Group to fair value interest-rate
risk. The Group determines the proportion of borrowings and finance leases issued at variable rates and fixed rates based on the
market environment.



The Group’s finance department
has been monitoring the level of interest rates. The increase in the interest rates will increase the interest costs of new borrowings
and current borrowings issued at variable rates, which will further impact the performance of the Group. To hedge against the variability
in the cash flows arising from a change in market interest rates, the Group has entered into certain interest rate swaps to swap
variable rates into fixed rates. The interest rates and terms of repayment of borrowings made by the Group and interest rate swaps
are disclosed in Notes 33 and 39(a) to the consolidated financial statements.



The following tables detail the interest
rate profiles of the Group’s interest-bearing financial instruments at the end of each reporting period:



|                                                      |  | 2014        |         |   | 2013        | 
|----------------------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                                      |  | RMB million |         |   | RMB million | 
|Floating rate instruments                             |  |             |         |   |             | 
|Cash and cash equivalents                             |  |             | 1,355   |   |             | 
|Restricted bank deposits and short-term bank deposits |  |             | 38      |   |             | 
|Borrowings                                            |  |             | (37,302 | ) |             | 
|Obligations under finance leases                      |  |             | (38,695 | ) |             | 
|                                                      |  |             |         |   |             | 
|                                                      |  |             | (74,604 | ) |             | 
|                                                      |  |             |         |   |             | 
|Interest rate swap at notional amount                 |  |             | 4,791   |   |             | 
|                                                      |  |             |         |   |             | 
|                                                      |  |             | (69,813 | ) |             | 



F-28







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT (cont’d)
| | -- | ----------------------------------



| | (a) | Financial risk factors (cont’d)
| | --- | -------------------------------



| | (ii) | Interest rate risk (cont’d)
| | ---- | ---------------------------



|                                      |  | 2014        |         |   | 2013        | 
|------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                      |  | RMB million |         |   | RMB million | 
|                                      |  |             |         |   |             | 
|Fixed rate instruments                |  |             |         |   |             | 
|Borrowings                            |  |             | (21,887 | ) |             | 
|Interest rate swap at notional amount |  |             | 110     |   |             | 
|                                      |  |             |         |   |             | 
|                                      |  |             | (21,777 | ) |             | 



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:



|                          |  | 2014           |      |   | 2013             | 
|------------------------- |  | -------------- | ---- | - | ---------------- | 
|                          |  |                |      |   | Effect on        | 
|                          |  | Effect on      |      |   | other components | 
|                          |  | profit or loss |      |   | of equity        | 
|                          |  | RMB million    |      |   | RMB million      | 
|                          |  |                |      |   |                  | 
|Floating rate instruments |  |                | (161 | ) |                  | 



| | (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
accounted for 34% of the Group’s operating expenses (2013: 34%).



As at December 31, 2014, the Group
had no open crude oil option contracts, and all the contracts signed in past years had been settled before December 31, 2014.



For the year ended December 31, 2014,
if fuel price had been 5% higher/lower with all other variables held constant, the Group’s fuel cost would have been RMB1,512
million higher/lower(2013:1,534 million higher/lower).



| | (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 RMB848 million as at December 31, 2014 (2013: approximately RMB995 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-29







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT (cont’d)
| | -- | ----------------------------------



| | (a) | Financial risk factors (cont’d)
| | --- | -------------------------------



| | (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 repayments of related
borrowings. The Group finances its working capital requirements through a combination of funds generated from operations and bank
loans (both short-term 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, 2014, the Group’s net current liabilities amounted to RMB42,887 million (2013: RMB40,472
million). For the year ended December 31, 2014, the Group recorded a net cash inflow from operating activities of RMB12,296 million
(2013: inflow RMB10,806 million), a net cash outflow from investing activities and financing activities of RMB12,921 million (2013:
outflow RMB11,298 million), and an decrease in cash and cash equivalents of RMB625 million (2013: decrease of RMB492 million).



The Directors of the Company believe
that cash from operations and bank loans 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 statements of financial position to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows.



|                                 |  | Less than   |        |  | Between       |  |        | Between       |  |  | Over        | 
|-------------------------------- |  | ----------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ----------- | 
|                                 |  | 1 year      |        |  | 1 and 2 years |  |        | 2 and 5 years |  |  | 5 years     | 
|                                 |  | RMB million |        |  | RMB million   |  |        | RMB million   |  |  | RMB million | 
|At December 31, 2014             |  |             |        |  |               |  |        |               |  |  |             | 
|Borrowings                       |  |             | 30,204 |  |               |  | 9,751  |               |  |  | 12,532      | 
|Derivative financial instruments |  |             | -      |  |               |  | 18     |               |  |  | 59          | 
|Obligations under finance leases |  |             | 5,453  |  |               |  | 5,174  |               |  |  | 13,165      | 
|Trade and other payables         |  |             | 14,163 |  |               |  | -      |               |  |  | -           | 
|                                 |  |             |        |  |               |  |        |               |  |  |             | 
|Total                            |  |             | 49,820 |  |               |  | 14,943 |               |  |  | 25,756      | 



|                                 |  | Less than   |        |  | Between       |  |        | Between       |  |  | Over        | 
|-------------------------------- |  | ----------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ----------- | 
|                                 |  | 1 year      |        |  | 1 and 2 years |  |        | 2 and 5 years |  |  | 5 years     | 
|                                 |  | RMB million |        |  | RMB million   |  |        | RMB million   |  |  | RMB million | 
|At December 31, 2013             |  |             |        |  |               |  |        |               |  |  |             | 
|Borrowings                       |  |             | 24,646 |  |               |  | 7,299  |               |  |  | 11,504      | 
|Derivative financial instruments |  |             | 3      |  |               |  | -      |               |  |  | 118         | 
|Obligations under finance leases |  |             | 3,446  |  |               |  | 3,375  |               |  |  | 9,752       | 
|Trade and other payables         |  |             | 15,758 |  |               |  | -      |               |  |  | -           | 
|                                 |  |             |        |  |               |  |        |               |  |  |             | 
|Total                            |  |             | 43,853 |  |               |  | 10,674 |               |  |  | 21,374      | 



F-30







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT (cont’d)
| | -- | ----------------------------------



| | (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, 2014 and 2013
were as follows:



|                  |  | 2014        |         |  | 2013        | 
|----------------- |  | ----------- | ------- |  | ----------- | 
|                  |  | RMB million |         |  | RMB million | 
|                  |  |             |         |  |             | 
|Total liabilities |  |             | 134,058 |  |             | 
|Total assets      |  |             | 165,829 |  |             | 
|Debt ratio        |  |             | 0.81    |  |             | 



| | (c) | Fair value estimation of financial assets and liabilities
| | --- | ---------------------------------------------------------



| | i) | Financial instruments not measured at fair value
| | -- | ------------------------------------------------



The carrying amounts and fair values
of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values,
were as follows:



Group



|                                                                                             |  | 2014             |        |  | 2013        | 
|-------------------------------------------------------------------------------------------- |  | ---------------- | ------ |  | ----------- | 
|                                                                                             |  | Carrying amounts |        |  | Fair values | 
|                                                                                             |  | RMB million      |        |  | RMB million | 
|Financial assets                                                                             |  |                  |        |  |             | 
|Deposits relating to aircraft held under operating leases included in other long term assets |  |                  | 482    |  |             | 
|                                                                                             |  |                  |        |  |             | 
|Financial liabilities                                                                        |  |                  |        |  |             | 
|Long-term bank borrowings                                                                    |  |                  | 30,925 |  |             | 
|Obligations under finance leases                                                             |  |                  | 38,695 |  |             | 
|                                                                                             |  |                  |        |  |             | 
|                                                                                             |  |                  | 69,620 |  |             | 



Management assessed cash and cash
equivalents, restricted bank deposits and short-term bank deposits, trade receivables, trade and bills payable, short-term debentures
and short-term guaranteed bonds. Given their short term nature, their carrying amounts approximated to the fair values.



The fair values of the deposits
relating to aircraft held under operating leases, long-term bank borrowings and obligations under finance leases have been measured
using significant observable inputs and calculated by discounting the expected future cash flows using rates currently available
for instruments with similar terms, credit risk and remaining maturities.



| | ii) | Financial instruments measured at fair value
| | --- | --------------------------------------------



| |  | The Group enters into derivative financial instruments with various counterparties, principally
financial institutions with high credit ratings. Derivative financial instruments, including forward currency contracts and interest
rate swaps, are measured using valuation techniques similar to forward pricing and swap models, using present value calculations.
The models incorporate various market observable inputs including the foreign exchange spot and forward rates and interest rate
curves. As at December 31, 2014, the marked to market value of the derivative asset position is net of a credit valuation adjustment
attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge
effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognized at fair value.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-31







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT (cont’d)
| | -- | ----------------------------------



| | (c) | Fair value estimation of financial assets and liabilities (cont’d)
| | --- | ------------------------------------------------------------------



Fair value hierarchy

The following
tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:



Assets
and liabilities measured at fair value:



|As at December 31, 2014                          |  | Fair value measurement using |     |  |             | 
|------------------------------------------------ |  | ---------------------------- | --- |  | ----------- | 
|                                                 |  | Quoted prices                |     |  | Significant | 
|                                                 |  | in active                    |     |  | observable  | 
|                                                 |  | markets                      |     |  | inputs      | 
|                                                 |  | (Level 1)                    |     |  | (Level 2)   | 
|                                                 |  | RMB million                  |     |  | RMB million | 
|Assets                                           |  |                              |     |  |             | 
|Derivative financial instruments                 |  |                              |     |  |             | 
|-Forward foreign exchange contracts (Note 39(b)) |  |                              | -   |  |             | 
|-Interest rate swaps (Note 39(a))                |  |                              | -   |  |             | 
|Available-for-sale financial assets              |  |                              | 195 |  |             | 
|                                                 |  |                              |     |  |             | 
|Total                                            |  |                              | 195 |  |             | 
|                                                 |  |                              |     |  |             | 
|Liabilities                                      |  |                              |     |  |             | 
|Derivative financial instruments                 |  |                              |     |  |             | 
|-Interest rate swaps (Note 39(a))                |  |                              | -   |  |             | 



|As at December 31, 2013                          |  | Fair value measurement using |     |  |             | 
|------------------------------------------------ |  | ---------------------------- | --- |  | ----------- | 
|                                                 |  | Quoted prices                |     |  | Significant | 
|                                                 |  | in active                    |     |  | observable  | 
|                                                 |  | markets                      |     |  | inputs      | 
|                                                 |  | (Level 1)                    |     |  | (Level 2)   | 
|                                                 |  | RMB million                  |     |  | RMB million | 
|Assets                                           |  |                              |     |  |             | 
|Derivative financial instruments                 |  |                              |     |  |             | 
|-Forward foreign exchange contracts (Note 39(b)) |  |                              | -   |  |             | 
|-Interest rate swaps (Note 39(a))                |  |                              | -   |  |             | 
|Available-for-sale financial assets              |  |                              | 177 |  |             | 
|                                                 |  |                              |     |  |             | 
|Total                                            |  |                              | 177 |  |             | 
|                                                 |  |                              |     |  |             | 
|Liabilities                                      |  |                              |     |  |             | 
|Derivative financial instruments                 |  |                              |     |  |             | 
|-Interest rate swaps (Note 39(a))                |  |                              | -   |  |             | 
|-Forward foreign exchange contracts (Note 39(b)) |  |                              | -   |  |             | 
|                                                 |  |                              |     |  |             | 
|Total                                            |  |                              | -   |  |             | 



The fair values of financial instruments
traded in active markets were based on quoted market prices at the reporting dates.



The fair value of hedging instruments
and other derivative instruments were determined by using valuation techniques. These valuation techniques use applicable models
and maximize the use of observable market data where it is available and also use quoted market prices or dealer quotes for reference.



Available-for-sale
financial assets are listed A share and listed H share stock investments.



F-32

















NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | FINANCIAL RISK MANAGEMENT (cont’d)
| | -- | ----------------------------------



| | (c) | Fair value estimation of financial assets and liabilities (cont’d)
| | --- | ------------------------------------------------------------------



Assets and liabilities for which
fair values are disclosed:



|As at December 31, 2014                                                                      |  | Fair value measurement using |   |  |             | 
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | - |  | ----------- | 
|                                                                                             |  | Quoted prices                |   |  | Significant | 
|                                                                                             |  | in active                    |   |  | observable  | 
|                                                                                             |  | markets                      |   |  | inputs      | 
|                                                                                             |  | (Level 1)                    |   |  | (Level 2)   | 
|                                                                                             |  | RMB million                  |   |  | RMB million | 
|                                                                                             |  |                              |   |  |             | 
|Assets                                                                                       |  |                              |   |  |             | 
|Deposits relating to aircraft held under operating leases included in other long term assets |  |                              | - |  |             | 
|                                                                                             |  |                              |   |  |             | 
|Liabilities                                                                                  |  |                              |   |  |             | 
|Long-term bank borrowings                                                                    |  |                              | - |  |             | 
|Obligations under finance leases                                                             |  |                              | - |  |             | 
|                                                                                             |  |                              |   |  |             | 
|Total                                                                                        |  |                              | - |  |             | 



|As at December 31, 2013                                                                      |  | Fair value measurement using |   |  |             | 
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | - |  | ----------- | 
|                                                                                             |  | Quoted prices                |   |  | Significant | 
|                                                                                             |  | in active                    |   |  | observable  | 
|                                                                                             |  | markets                      |   |  | inputs      | 
|                                                                                             |  | (Level 1)                    |   |  | (Level 2)   | 
|                                                                                             |  | RMB million                  |   |  | RMB million | 
|                                                                                             |  |                              |   |  |             | 
|Assets                                                                                       |  |                              |   |  |             | 
|Deposits relating to aircraft held under operating leases included in other long term assets |  |                              | - |  |             | 
|                                                                                             |  |                              |   |  |             | 
|Liabilities                                                                                  |  |                              |   |  |             | 
|Long-term bank borrowings                                                                    |  |                              | - |  |             | 
|Obligations under finance leases                                                             |  |                              | - |  |             | 
|                                                                                             |  |                              |   |  |             | 
|Total                                                                                        |  |                              | - |  |             | 



F-33







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|4. | CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
|-- | --------------------------------------------



Estimates and judgments used in
preparing the consolidated 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 consolidated financial statements. Unused tickets are recognized
in traffic revenues based on current estimates. Management periodically 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 passengers’ 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 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 time frame between each overhaul. These judgments or estimates
are based on historical experience on returning similar airframe models, actual costs incurred and aircraft status. Different judgments
or estimates could significantly affect the estimated provision for costs of return condition checks.



| | (d) | Retirement benefits
| | --- | -------------------



The Group operates and maintains
a defined retirement benefit plans which provides 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 employee’s service period by utilizing various actuarial assumptions and using the projected
unit credit method in accordance with the accounting policy stated in Note 2(y) to the consolidated financial statements. These
assumptions include, without limitation, the selection of discount rate, annual rate of increase of per capita benefit payment
and employee’s 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 plan is disclosed in Note 37 to the consolidated 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 consolidated 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-34







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 4. | CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (cont’d)
| | -- | -----------------------------------------------------



| | (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(m) and Note
2(k) to the financial statements. The recoverable amount of cash generating unit has 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-35







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, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2014                    |       
|                       |  | RMB million             |       
|                       |  |                         |       
|Traffic revenues       |  |                         | 82,589
|- Passenger            |  |                         | 75,261
|- Cargo and mail       |  |                         | 7,328 
|Tour operations income |  |                         | 3,047 
|Ground service income  |  |                         | 2,168 
|Cargo handling income  |  |                         | 286   
|Commission income      |  |                         | 94    
|Others                 |  |                         | 2,001 
|                       |  |                         |       
|                       |  |                         | 90,185



Notes:



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 of the PRC(“MoF”) and the State Administration of Taxation of the PRC(“SAT”).



Pursuant to the notice of the pilot
programme for the transformation of transportation and certain modern service industries from business tax (“BT”)
to value added tax (“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 parts
of others) generated by the Company’s 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 September 1, 2012 to December 1, 2012.



Pursuant to the notice of the pilot
programme for the transformation of transportation and certain modern service industries from BT to VAT(Cai Shui [2013] No. 37)
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 by all provinces/cities of China are subjected
to VAT levied at rates of 11% or 6% from August 1, 2013, instead of BT.



|6 | OTHER OPERATING INCOME
|- | ----------------------



|                                                    |  | Year ended December 31, |      
|--------------------------------------------------- |  | ----------------------- | -----
|                                                    |  | 2014                    |      
|                                                    |  | RMB million             |      
|                                                    |  |                         |      
|Other operating income                              |  |                         |      
|– Subsidy income (Note)                             |  |                         | 3,627
|– Gain on disposal of property, plant and equipment |  |                         | 58   
|                                                    |  |                         |      
|                                                    |  |                         | 3,685



Note:



Subsidy income represent (i) subsidies granted by various
local governments based on certain amount of tax paid; and (ii) subsidies granted by various local governments and other parties
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 were recognized for the years ended December 31, 2014, 2013 and 2012.



F-36







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|7 | SEGMENT INFORMATION
|- | -------------------



|(a) | CODM, office of the General Manager, reviews the Group’s internal reporting
in order to assess performance and allocate resources.
|--- | ----------------------------------------------------------------------------------------------------------------------------------





The Group has one reportable operating segment, reported
as “airline transportation operations”, which comprises the provision of passenger, cargo, mail delivery, ground service
and cargo handling 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, 2014 were as follows:



|                                                   |  | Airline        |        |  |             |  |       |             |  |  |              |   |  |             |    
|-------------------------------------------------- |  | -------------- | ------ |  | ----------- |  | ----- | ----------- |  |  | ------------ | - |  | ----------- | ---
|                                                   |  | transportation |        |  | Other       |  |       |             |  |  |              |   |  |             |    
|                                                   |  | operations     |        |  | segments    |  |       | Elimination |  |  | Unallocated* |   |  | Total       |    
|                                                   |  | RMB million    |        |  | RMB million |  |       | RMB million |  |  | RMB million  |   |  | RMB million |    
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |    
|Reportable segment revenue from external customers |  |                | 86,031 |  |             |  | 3,715 |             |  |  | -            |   |  |             | -  
|Inter-segment sales                                |  |                | -      |  |             |  | 343   |             |  |  | (343         | ) |  |             | -  
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |    
|Reportable segment revenue                         |  |                | 86,031 |  |             |  | 4,058 |             |  |  | (343         | ) |  |             | -  
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |    
|Reportable segment profit before income tax        |  |                | 3,946  |  |             |  | 32    |             |  |  | -            |   |  |             | 142
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |    
|Other segment information                          |  |                |        |  |             |  |       |             |  |  |              |   |  |             |    
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |    
|Depreciation and amortization                      |  |                | 9,604  |  |             |  | 131   |             |  |  | -            |   |  |             | -  
|Impairment charges                                 |  |                | 20     |  |             |  | 2     |             |  |  | -            |   |  |             | -  
|Interest income                                    |  |                | 61     |  |             |  | 27    |             |  |  | -            |   |  |             | -  
|Finance expenses                                   |  |                | 1,707  |  |             |  | 250   |             |  |  | -            |   |  |             | -  
|Capital expenditure                                |  |                | 35,922 |  |             |  | 464   |             |  |  | -            |   |  |             | -  



F-37







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|7 | SEGMENT INFORMATION (cont’d)
|- | ----------------------------



The segment results for the year ended
December 31, 2013 were as follows:



|                                                   |  | Airline        |        |  |             |  |       |             |  |  |              |   |  |             |   
|-------------------------------------------------- |  | -------------- | ------ |  | ----------- |  | ----- | ----------- |  |  | ------------ | - |  | ----------- | --
|                                                   |  | transportation |        |  | Other       |  |       |             |  |  |              |   |  |             |   
|                                                   |  | operations     |        |  | segments    |  |       | Elimination |  |  | Unallocated* |   |  | Total**     |   
|                                                   |  | RMB million    |        |  | RMB million |  |       | RMB million |  |  | RMB million  |   |  | RMB million |   
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |   
|Reportable segment revenue from external customers |  |                | 84,248 |  |             |  | 3,861 |             |  |  | -            |   |  |             | - 
|Inter-segment sales                                |  |                | -      |  |             |  | 258   |             |  |  | (258         | ) |  |             | - 
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |   
|Reportable segment revenue                         |  |                | 84,248 |  |             |  | 4,119 |             |  |  | (258         | ) |  |             | - 
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |   
|Reportable segment profit before income tax        |  |                | 2,044  |  |             |  | 93    |             |  |  | -            |   |  |             | 68
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |   
|Other segment information                          |  |                |        |  |             |  |       |             |  |  |              |   |  |             |   
|                                                   |  |                |        |  |             |  |       |             |  |  |              |   |  |             |   
|Depreciation and amortization                      |  |                | 8,470  |  |             |  | 244   |             |  |  | -            |   |  |             | - 
|Impairment charges/(reversal)                      |  |                | 186    |  |             |  | (2    | )           |  |  | -            |   |  |             | - 
|Interest income                                    |  |                | 99     |  |             |  | 49    |             |  |  | -            |   |  |             | - 
|Finance expenses                                   |  |                | 1,368  |  |             |  | 180   |             |  |  | -            |   |  |             | - 
|Capital expenditure                                |  |                | 24,756 |  |             |  | 310   |             |  |  | -            |   |  |             | - 



The segment results for the year ended December
31, 2012 were as follows:



|                                                   |  | Airline        |        |   |             |  |       |             |  |  |              |   |  |             |    
|-------------------------------------------------- |  | -------------- | ------ | - | ----------- |  | ----- | ----------- |  |  | ------------ | - |  | ----------- | ---
|                                                   |  | transportation |        |   | Other       |  |       |             |  |  |              |   |  |             |    
|                                                   |  | operations     |        |   | segments    |  |       | Elimination |  |  | Unallocated* |   |  | Total**     |    
|                                                   |  | RMB million    |        |   | RMB million |  |       | RMB million |  |  | RMB million  |   |  | RMB million |    
|                                                   |  |                |        |   |             |  |       |             |  |  |              |   |  |             |    
|Reportable segment revenue from external customers |  |                | 83,127 |   |             |  | 3,544 |             |  |  | -            |   |  |             | -  
|Inter-segment sales                                |  |                | -      |   |             |  | 262   |             |  |  | (262         | ) |  |             | -  
|                                                   |  |                |        |   |             |  |       |             |  |  |              |   |  |             |    
|Reportable segment revenue                         |  |                | 83,127 |   |             |  | 3,806 |             |  |  | (262         | ) |  |             | -  
|                                                   |  |                |        |   |             |  |       |             |  |  |              |   |  |             |    
|Reportable segment profit before income tax        |  |                | 2,899  |   |             |  | 113   |             |  |  | -            |   |  |             | 234
|                                                   |  |                |        |   |             |  |       |             |  |  |              |   |  |             |    
|Other segment information                          |  |                |        |   |             |  |       |             |  |  |              |   |  |             |    
|                                                   |  |                |        |   |             |  |       |             |  |  |              |   |  |             |    
|Depreciation and amortization                      |  |                | 7,892  |   |             |  | 116   |             |  |  | -            |   |  |             | -  
|Impairment charges/(reversal)                      |  |                | (21    | ) |             |  | 6     |             |  |  | -            |   |  |             | -  
|Interest income                                    |  |                | 124    |   |             |  | 78    |             |  |  | -            |   |  |             | -  
|Finance expenses                                   |  |                | 1,563  |   |             |  | 137   |             |  |  | -            |   |  |             | -  
|Capital expenditure                                |  |                | 18,491 |   |             |  | 116   |             |  |  | -            |   |  |             | -  



The segment assets and liabilities
as at December 31, 2014 and 2013 were as follows:



|                               |  | Airline        |         |  |             |  |       |             |  |  |              |   |  |             |      
|------------------------------ |  | -------------- | ------- |  | ----------- |  | ----- | ----------- |  |  | ------------ | - |  | ----------- | -----
|                               |  | transportation |         |  | Other       |  |       |             |  |  |              |   |  |             |      
|                               |  | operations     |         |  | segments    |  |       | Elimination |  |  | Unallocated* |   |  | Total       |      
|                               |  | RMB million    |         |  | RMB million |  |       | RMB million |  |  | RMB million  |   |  | RMB million |      
|                               |  |                |         |  |             |  |       |             |  |  |              |   |  |             |      
|At December 31, 2014           |  |                |         |  |             |  |       |             |  |  |              |   |  |             |      
|Reportable segment assets      |  |                | 156,786 |  |             |  | 8,679 |             |  |  | (3,947       | ) |  |             | 2,024
|Reportable segment liabilities |  |                | 130,696 |  |             |  | 7,306 |             |  |  | (3,947       | ) |  |             | -    
|                               |  |                |         |  |             |  |       |             |  |  |              |   |  |             |      
|At December 31, 2013 **        |  |                |         |  |             |  |       |             |  |  |              |   |  |             |      
|Reportable segment assets      |  |                | 133,311 |  |             |  | 7,309 |             |  |  | (4,682       | ) |  |             | 1,908
|Reportable segment liabilities |  |                | 109,792 |  |             |  | 6,416 |             |  |  | (4,682       | ) |  |             | -    



F-38







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|7 | SEGMENT INFORMATION (cont’d)
|- | ----------------------------



*Unallocatedassetsprimarilyrepresentinvestmentsinassociatesandjoint
ventures,andavailable-for-salefinancialassets.Unallocatedresultsprimarilyrepresentthe
shareofresultsofassociatesandjoint ventures and available-for-sale financial assets.



** In 2014, the Group acquired a
subsidiary which was under common control of CEA Holding. The acquisition of this subsidiary under common control has been accounted
for using the merger method of accounting in the consolidated financial statements of the Company prepared under PRC Accounting
Standards.



The merger method of accounting
involves incorporating the financial statement items of the consolidating entities or businesses in which the common control combination
occurs as if they had been consolidated from the date when the consolidating entities or businesses first came under the control
of the controlling party.



Hence, the financial statement items
of the Group prepared under PRC Accounting Standards as at December 31, 2013 and 2012 were re-presented to reflect the inclusion
of the acquiree, resulting in the re-presented corresponding information in the Group’s reportable segment as at December
31, 2013 and for the two years ended December 31, 2013 as shown above.



| | (b) | The Group’s business operates in three main geographical areas, even though they are managed
on a worldwide basis.
| | --- | ------------------------------------------------------------------------------------------------------------------



The Group’s revenues
by geographical areas are analysed 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 from inbound and outbound services between
overseas markets excluding Regional is classified as international operations.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | Revenue from ticket handling services, ground services, cargo handling service and other miscellaneous
services are classified on the basis of where the services are performed.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                          |  | 2014        |        |  | 2013        |  |        | 2012        | 
|--------------------------------------------------------- |  | ----------- | ------ |  | ----------- |  | ------ | ----------- | 
|                                                          |  | RMB million |        |  | RMB million |  |        | RMB million | 
|                                                          |  |             |        |  |             |  |        |             | 
|Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |  |             | 60,531 |  |             |  | 59,563 |             | 
|Regional (Hong Kong, Macau and Taiwan)                    |  |             | 3,799  |  |             |  | 3,911  |             | 
|International                                             |  |             | 25,855 |  |             |  | 24,771 |             | 
|                                                          |  |             |        |  |             |  |        |             | 
|Total                                                     |  |             | 90,185 |  |             |  | 88,245 |             | 



The major revenue-earning assets
of the Group are its aircraft, all of which are registered in the PRC. Since the Group’s aircraft are deployed flexibly across
its route network, there is no suitable basis of allocating such assets and the related liabilities by geographic areas and hence
segment non-current assets and capital expenditure by geographic areas are not presented. Except the aircraft, most non-current
assets (except financial instruments) are registered in the PRC.



| | (c) | Reconciliation of reportable segment revenue, profit, assets and liabilities to the consolidated
figures as reported in the consolidated financial statements:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                              |  |  |      |  |  |  | 2014        |   |  |  | 2013**      |   |  |  | 2012**      |  
|----------------------------------------------------------------------------- |  |  | ---- |  |  |  | ----------- | - |  |  | ----------- | - |  |  | ----------- | -
|                                                                              |  |  | Note |  |  |  | RMB million |   |  |  | RMB million |   |  |  | RMB million |  
|                                                                              |  |  |      |  |  |  |             |   |  |  |             |   |  |  |             |  
|Revenue                                                                       |  |  |      |  |  |  |             |   |  |  |             |   |  |  |             |  
|Reportable segment revenue                                                    |  |  |      |  |  |  | 89,746      |   |  |  | 88,109      |   |  |  | 86,671      |  
|- Reclassification of business tax and   expired sales in advance of carriage |  |  | (i)  |  |  |  | 521         |   |  |  | 236         |   |  |  | (316        | )
|- Adjustment of business combination   under common control                   |  |  |      |  |  |  | (82         | ) |  |  | (100        | ) |  |  | (1,102      | )
|                                                                              |  |  |      |  |  |  |             |   |  |  |             |   |  |  |             |  
|Consolidated revenue                                                          |  |  |      |  |  |  | 90,185      |   |  |  | 88,245      |   |  |  | 85,253      |  



F-39







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|7 | SEGMENT INFORMATION (cont’d)
|- | ----------------------------



|                                                                                                        |  |      |  |  | 2014        |   |  |  | 2013**      |   |  |  | 2012**      |  
|------------------------------------------------------------------------------------------------------- |  | ---- |  |  | ----------- | - |  |  | ----------- | - |  |  | ----------- | -
|                                                                                                        |  | Note |  |  | RMB million |   |  |  | RMB million |   |  |  | RMB million |  
|                                                                                                        |  |      |  |  |             |   |  |  |             |   |  |  |             |  
|Profit before income tax                                                                                |  |      |  |  |             |   |  |  |             |   |  |  |             |  
|Reportable segment profit                                                                               |  |      |  |  | 4,120       |   |  |  | 2,205       |   |  |  | 3,246       |  
|- Differences in depreciation charges for    aircraft and engines due to different   depreciation lives |  | (ii) |  |  | (4          | ) |  |  | (3          | ) |  |  | (22         | )
|- Adjustments of business combination   under common control                                            |  |      |  |  | (3          | ) |  |  | 15          |   |  |  | (8          | )
|- Others                                                                                                |  |      |  |  | -           |   |  |  | -           |   |  |  | (79         | )
|                                                                                                        |  |      |  |  |             |   |  |  |             |   |  |  |             |  
|Consolidated profit before income tax                                                                   |  |      |  |  | 4,113       |   |  |  | 2,217       |   |  |  | 3,137       |  



|                                                                                                       |  |       |  |  | 2014        |  |  |  | 2013**      |  
|------------------------------------------------------------------------------------------------------ |  | ----- |  |  | ----------- |  |  |  | ----------- | -
|                                                                                                       |  | Notes |  |  | RMB million |  |  |  | RMB million |  
|                                                                                                       |  |       |  |  |             |  |  |  |             |  
|Assets                                                                                                 |  |       |  |  |             |  |  |  |             |  
|Reportable segment assets                                                                              |  |       |  |  | 163,542     |  |  |  | 137,846     |  
|- Differences in depreciation charges for   aircraft and engines due to different   depreciation lives |  | (ii)  |  |  | 45          |  |  |  | 49          |  
|- Difference in intangible asset arising    from the acquisition of Shanghai   Airlines                |  | (iii) |  |  | 2,242       |  |  |  | 2,242       |  
|- Adjustments of business combination   under common control                                           |  |       |  |  | -           |  |  |  | (69         | )
|                                                                                                       |  |       |  |  |             |  |  |  |             |  
|Consolidated assets                                                                                    |  |       |  |  | 165,829     |  |  |  | 140,068     |  



|                                                             |  |  | 2014        |  |  |  | 2013**      |  
|------------------------------------------------------------ |  |  | ----------- |  |  |  | ----------- | -
|                                                             |  |  | RMB million |  |  |  | RMB million |  
|                                                             |  |  |             |  |  |  |             |  
|Liabilities                                                  |  |  |             |  |  |  |             |  
|Reportable segment liabilities                               |  |  | 134,055     |  |  |  | 111,526     |  
|- Adjustments of business combination   under common control |  |  | 3           |  |  |  | (40         | )
|                                                             |  |  |             |  |  |  |             |  
|Consolidated liabilities                                     |  |  | 134,058     |  |  |  | 111,486     |  



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 result in the differences in the carrying amounts and related depreciation charges under
IFRS and PRC Accounting Standards.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The difference represents the different measurement of the fair value of acquisition cost of the
shares from Shanghai Airlines between PRC Accounting standards and IFRS, which results in the different measurement of goodwill.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-40







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 8 | GAIN ON FAIR VALUE MOVEMENTS OF DERIVATIVES FINANCIAL INSTRUMENTS
| | - | -----------------------------------------------------------------



|                                                                              |  | Year ended December 31, |   
|----------------------------------------------------------------------------- |  | ----------------------- | --
|                                                                              |  | 2014                    |   
|                                                                              |  | RMB million             |   
|                                                                              |  |                         |   
|Gain arising from fair value movements of   derivatives financial instruments |  |                         |   
|- Interest rate swap contracts (Note 39(a))                                   |  |                         | 11
|- Others                                                                      |  |                         | - 
|                                                                              |  |                         |   
|                                                                              |  |                         | 11



| | 9 | WAGES, SALARIES AND BENEFITS
| | - | ----------------------------



|                                                   |  | Year ended December 31, |       
|-------------------------------------------------- |  | ----------------------- | ------
|                                                   |  | 2014                    |       
|                                                   |  | RMB million             |       
|                                                   |  |                         |       
|Wages, salaries, bonus and allowances              |  |                         | 10,853
|Employee welfare and benefits                      |  |                         | 238   
|Pension and medical insurance   (Note 37(a) & (b)) |  |                         | 2,025 
|Post-retirement benefits (Note 37(c))              |  |                         | (2,906
|Staff housing fund (Note 38(a))                    |  |                         | 826   
|Staff housing allowances (Note 38(b))              |  |                         | 234   
|                                                   |  |                         |       
|                                                   |  |                         | 11,270



| | (a) | Directors' remuneration for the year, disclosed pursuant to the Listing Rules and section 78 of
Schedule 11 to the Hong Kong Companies Ordinance (Cap. 622), with reference to section 161 of the predecessor Hong Kong Companies
Ordinance (Cap. 32), is as follows:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                    |  | 2014         |      
|----------------------------------- |  | ------------ | -----
|                                    |  | Salaries and |      
|                                    |  | Allowance    |      
|                                    |  | RMB’000      |      
|                                    |  |              |      
|Executive Directors                 |  |              |      
|Liu Shaoyong*                       |  |              | -    
|Ma Xulun                            |  |              | 745  
|Xu Zhao*                            |  |              | -    
|Gu Jiadan*                          |  |              | -    
|Li Yangmin                          |  |              | 669  
|Tang Bing                           |  |              | 632  
|                                    |  |              |      
|Independent non-executive Directors |  |              |      
|Liu Keya                            |  |              | 120  
|Ji Weidong                          |  |              | 120  
|Shao Ruiqing**                      |  |              | -    
|Li Ruoshan                          |  |              | 120  
|Ma Weihua                           |  |              | 120  
|                                    |  |              |      
|Supervisors                         |  |              |      
|Yu Faming*                          |  |              | -    
|Xi Sheng*                           |  |              | -    
|Feng Jinxiong                       |  |              | 436  
|Yan Taisheng**                      |  |              | 175  
|Ba Shengji*                         |  |              | -    
|                                    |  |              |      
|Total                               |  |              | 3,137



F-41







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 9 | WAGES, SALARIES AND BENEFITS (cont’d)
| | - | -------------------------------------



|                                    |  |              |       |  | 2013    |  |   |         | 
|----------------------------------- |  | ------------ | ----- |  | ------- |  | - | ------- | 
|                                    |  | Salaries and |       |  |         |  |   |         | 
|                                    |  | Allowance    |       |  | Bonus   |  |   | Total   | 
|                                    |  | RMB’000      |       |  | RMB’000 |  |   | RMB’000 | 
|                                    |  |              |       |  |         |  |   |         | 
|Executive Directors                 |  |              |       |  |         |  |   |         | 
|Liu Shaoyong*                       |  |              | -     |  |         |  | - |         | 
|Ma Xulun                            |  |              | 713   |  |         |  | - |         | 
|Xu Zhao*                            |  |              | -     |  |         |  | - |         | 
|Gu Jiadan*                          |  |              | -     |  |         |  | - |         | 
|Li Yangmin                          |  |              | 639   |  |         |  | - |         | 
|Tang Bing                           |  |              | 604   |  |         |  | - |         | 
|Luo Zhuping***                      |  |              | 391   |  |         |  | - |         | 
|                                    |  |              |       |  |         |  |   |         | 
|Independent non-executive Directors |  |              |       |  |         |  |   |         | 
|Liu Keya                            |  |              | 120   |  |         |  | - |         | 
|Wu Xiaogen***                       |  |              | -     |  |         |  | - |         | 
|Ji Weidong                          |  |              | 120   |  |         |  | - |         | 
|Shao Ruiqing                        |  |              | 120   |  |         |  | - |         | 
|Li Ruoshan****                      |  |              | 60    |  |         |  | - |         | 
|Ma Weihua****                       |  |              | 30    |  |         |  | - |         | 
|                                    |  |              |       |  |         |  |   |         | 
|Supervisors                         |  |              |       |  |         |  |   |         | 
|Yu Faming*                          |  |              | -     |  |         |  | - |         | 
|Xi Sheng*                           |  |              | -     |  |         |  | - |         | 
|Liu Jiashun***                      |  |              | -     |  |         |  | - |         | 
|Feng Jinxiong                       |  |              | 422   |  |         |  | - |         | 
|Yan Taisheng                        |  |              | 384   |  |         |  | - |         | 
|Ba Shengji****                      |  |              | 325   |  |         |  | - |         | 
|                                    |  |              |       |  |         |  |   |         | 
|Total                               |  |              | 3,928 |  |         |  | - |         | 



|                                    |  | 2012         |      
|----------------------------------- |  | ------------ | -----
|                                    |  | Salaries and |      
|                                    |  | Allowance    |      
|                                    |  | RMB’000      |      
|                                    |  |              |      
|Executive Directors                 |  |              |      
|Liu Shaoyong*                       |  |              | -    
|Ma Xulun                            |  |              | 697  
|Xu Zhao*&*****                      |  |              | -    
|Gu Jiadan*&*****                    |  |              | -    
|Li Yangmin                          |  |              | 625  
|Tang Bing*****                      |  |              | 592  
|Luo Zhuping                         |  |              | 402  
|                                    |  |              |      
|Independent non-executive Directors |  |              |      
|Liu Keya                            |  |              | 97   
|Wu Xiaogen                          |  |              | -    
|Ji Weidong                          |  |              | 120  
|Shao Ruiqing                        |  |              | 120  
|                                    |  |              |      
|Supervisors                         |  |              |      
|Yu Faming*                          |  |              | -    
|Xi Sheng*&*****                     |  |              | -    
|Liu Jiashun                         |  |              | -    
|Feng Jinxiong                       |  |              | 396  
|Yan Taisheng                        |  |              | 344  
|                                    |  |              |      
|Total                               |  |              | 3,393



*These directors and officials of
the Company received emoluments from CEA Holding, the parent company, part of which were in respect of their services to the Company
and its subsidiaries. No apportionment has been made as it is impracticable to apportion this amount between their services to
the Group and their services to CEA Holding.



**These directors and officials of
the Company retired or resigned during the year ended December 31, 2014.



***These directors and officials of
the Company retired or resigned during the year ended December 31, 2013.



****These directors and officials of
the Company were newly appointed during the year ended December 31, 2013.





***** These directors and officials of the Company were newly
appointed during the year ended December 31, 2012.







During the years
ended December 31, 2014, 2013 and 2012, no directors and supervisors waived their emoluments.



F-42









NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 9 | WAGES,
                                         SALARIES AND BENEFITS (cont’d)
| | - | ------------------------------------------------------------------------------



| | (b) | Five
                                         highest paid individuals
| | --- | ----------------------------------------------------------------------



None
of the Company’s directors and supervisors was among the five highest paid individuals in the Group for the year ended December
31, 2014 (2013 and 2012: Nil). The emoluments payable to the five highest paid individuals were as follows:



|                                          |  | 2014    |       |  | 2013    |  |       | 2012    | 
|----------------------------------------- |  | ------- | ----- |  | ------- |  | ----- | ------- | 
|                                          |  | RMB’000 |       |  | RMB’000 |  |       | RMB’000 | 
|Wages, salaries,
    bonus and allowances |  |         | 7,817 |  |         |  | 7,393 |         | 



The
emoluments fell within the following bands:

|                             |  | Number of individuals |  
|---------------------------- |  | --------------------- | -
|                             |  | 2014                  |  
|                             |  |                       |  
|Nil to HK$2,000,000          |  |                       | 4
|HK$2,000,000 to HK$2,500,000 |  |                       | 1
|                             |  |                       |  
|                             |  |                       | 5



During
the year ended December 31, 2014, no emoluments were paid by the Group to the directors, supervisors and the five highest paid
individuals as an inducement to join or upon joining the Group, or as a compensation for loss of office (2013 and 2012: Nil).



| | 10 | IMPAIRMENT
                                         CHARGE/(REVERSAL)
| | -- | ---------------------------------------------------------------------



|                                                                                    |  | Year ended December 31, |   
|----------------------------------------------------------------------------------- |  | ----------------------- | --
|                                                                                    |  | 2014                    |   
|                                                                                    |  | RMB million             |   
|                                                                                    |  |                         |   
|Accrual/ (reversal) of impairment charge on flight equipment spare parts (Note (a)) |  |                         | 9 
|Impairment charges on assets classified as held for sale (Note (b))                 |  |                         | - 
|Impairment charges on property, plant and equipment                                 |  |                         | 3 
|Impairment charges on other long-term assets (Note (c))                             |  |                         | - 
|Impairment charges on available-for-sale financial assets                           |  |                         | - 
|                                                                                    |  |                         |   
|                                                                                    |  |                         | 12



Note:



| | (a) | After
                                         acquisition of Shanghai Airlines Co., Ltd. in 2010, the Company has reviewed the composition
                                         of its aircraft fleet, aiming to simplify the models of aircraft and maximize 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
                                         2012, the Group entered into an agreement with a third party to dispose certain aircraft
                                         and related engines. The aircraft and engines to be sold in the next 12 months were recognized
                                         as assets classified as held for sale at December 31, 2013, and an impairment loss of
                                         approximately RMB50 million was made against those aircraft and engines by reference
                                         to the contracted selling price less estimated cost to sell (Note 43).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | An
                                         impairment loss of approximately RMB114 million was made against other long-term assets
                                         of a subsidiary for the year ended December 31, 2013 by reference to the projected future
                                         cash flows of respective cash-generating-unit (“CGU”).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-43







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 11 | OPERATING
PROFIT
| | -- | ----------------



Operating
profit is stated after charging/(crediting) the following items:



|                                                                        |  | Year ended December 31, |      
|----------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                        |  | 2014                    |      
|                                                                        |  | RMB million             |      
|                                                                        |  |                         |      
|Amortization of intangible assets                                       |  |                         | 69   
|Depreciation of property, plant and equipment                           |  |                         |      
|– owned                                                                 |  |                         | 5,688
|– leased (finance leases)                                               |  |                         | 3,368
|Amortization of lease prepayments                                       |  |                         | 58   
|Consumption of flight equipment spare parts                             |  |                         | 712  
|Provision for / (reversal of) impairment of trade and other receivables |  |                         | 10   
|Auditors’ remuneration                                                  |  |                         | 15   



| | 12 | FINANCE
INCOME
| | -- | --------------



|                           |  | Year ended December 31, |   
|-------------------------- |  | ----------------------- | --
|                           |  | 2014                    |   
|                           |  | RMB million             |   
|                           |  |                         |   
|Exchange gains, net (Note) |  |                         | - 
|Interest income            |  |                         | 88
|                           |  |                         |   
|                           |  |                         | 88



Note:



The
exchange gain primarily related to the translation of the Group’s foreign currency denominated borrowings and obligations
under finance leases.



| | 13 | FINANCE
                                         COSTS
| | -- | ------------------------------------------------------



|                                                                                      |  | Year ended December 31, |      
|------------------------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                                      |  | 2014                    |      
|                                                                                      |  | RMB million             |      
|                                                                                      |  |                         |      
|Interest on bank borrowings                                                           |  |                         | 1,257
|Interest relating to obligations under finance leases and post-retirement benefits    |  |                         | 722  
|Interest on bonds and debentures                                                      |  |                         | 509  
|Interest relating to bills payable                                                    |  |                         | 92   
|                                                                                      |  |                         |      
|                                                                                      |  |                         | 2,580
|                                                                                      |  |                         |      
|Exchange losses, net (Note(b))                                                        |  |                         | 203  
|                                                                                      |  |                         |      
|Less: amounts capitalized into advanced payments on acquisition of aircraft (Note(a)) |  |                         | (606 
|amounts capitalized into construction in progress (Note(a))                           |  |                         | (17  
|                                                                                      |  |                         |      
|                                                                                      |  |                         | 2,160

Note:



| | (a) | The
                                         average interest rate used for interest capitalization was 2.69% per annum for the year
                                         ended December 31, 2014 (2013: 2.75%; 2012:3.73%).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The
                                         exchange loss primarily related to the translation of the Group’s foreign currency
                                         denominated borrowings and obligations under finance leases.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-44







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 14 | INCOME
                                         TAX EXPENSE
| | -- | -----------------------------------------------------------



| |  | Income
                                         tax charged/(credited) to the profit or loss was as follows:
| |  | ------------------------------------------------------------------------------------------------------------



|                             |  | Year ended December 31, |    
|---------------------------- |  | ----------------------- | ---
|                             |  | 2014                    |    
|                             |  | RMB million             |    
|                             |  |                         |    
|Provision for PRC income tax |  |                         | 484
|Deferred taxation (Note 36)  |  |                         | 89 
|                             |  |                         |    
|                             |  |                         | 573



Pursuant
to the “Notice of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs
on Issues Concerning Relevant Tax Policies for Enhancing the Implementation of Western Region Development Strategy” (Cai
Shui [2011] No.58), and other series of tax regulations, 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 enjoys the reduced tax rate
of 15% from January 1, 2011.



The
Company and subsidiaries except for those incorporated in Hong Kong, which are subject to Hong Kong corporate income tax rate
of 16.5% (2013: 16.5%;2012:16.5%),
are generally subject to the PRC standard corporate tax rate of 25% (2013: 25%; 2012: 25%).



Tax
on the Group’s consolidated profit or loss differed from the theoretical amount that would arise using the standard taxation
rate of the Company as follows:



|                                                                                                                  |  | Year ended December 31, |      
|----------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                                                                  |  | 2014                    |      
|                                                                                                                  |  | RMB million             |      
|                                                                                                                  |  |                         |      
|Profit before income tax                                                                                          |  |                         | 4,113
|Adjusted by:                                                                                                      |  |                         |      
|Share of result of associates and joint ventures                                                                  |  |                         | (127 
|                                                                                                                  |  |                         |      
|                                                                                                                  |  |                         | 3,986
|                                                                                                                  |  |                         |      
|Tax calculated at the tax rate of 25% (2013: 25%; 2012:25%)                                                       |  |                         | 997  
|Effect attributable to subsidiaries charged at tax rates of 15% or 16.5% (2013: 15% or 16.5%; 2012: 15% or 16.5%) |  |                         | (41  
|Expenses not deductible for tax purposes                                                                          |  |                         | 88   
|Effect in respect of post-retirement benefit plan                                                                 |  |                         | (560 
|Utilization of previously unrecognized tax losses                                                                 |  |                         | -    
|Unrecognized tax losses for the year                                                                              |  |                         | 86   
|Unrecognized/realization of deductible temporary differences for the year                                         |  |                         | 3    
|                                                                                                                  |  |                         |      
|Tax charge                                                                                                        |  |                         | 573  
|                                                                                                                  |  |                         |      
|Effective tax rate                                                                                                |  |                         | 13.93



The
Group operates international flights to overseas destinations. There was no material overseas taxation for the years ended December
31, 2014, 2013 and 2012, as there are avoidance of double tax treaties between the PRC and the corresponding jurisdictions (including
Hong Kong) relating to aviation businesses.



| | 15 | DIVIDENDS
| | -- | ---------



The
Board has not recommended any dividend for the years ended December 31, 2014, 2013 and 2012.



| | 16 | PROFIT
                                         ATTRIBUTABLE TO OWNERS OF THE COMPANY
| | -- | -------------------------------------------------------------------------------------



The
profit attributable to owners of the Company is dealt with in the financial statements of the Company to the extent of RMB2,043
million (2013: RMB674 million; 2012: RMB2,767 million).



| | 17 | EARNINGS
                                         PER SHARE
| | -- | -----------------------------------------------------------



The
calculation of basic earnings per share was based on the profit attributable to equity shareholders of the Company of RMB3,410
million (2013: RMB2,373 million; 2012: RMB3,072 million) and the weighted average number of shares of issue of 12,674,269,000
(2013: 12,091,881,000; 2012: 11,276,538,860) in issue during the year ended December 31, 2014. The Company had no potentially
dilutive option or other instruments relating to the ordinary shares.



F-45







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 18 | INTANGIBLE
ASSETS
| | -- | -----------------



|                         |  | Goodwill    |        |  | Computer    |  |     |             | 
|------------------------ |  | ----------- | ------ |  | ----------- |  | --- | ----------- | 
|                         |  | (Note)      |        |  | software    |  |     | Total       | 
|                         |  | RMB million |        |  | RMB million |  |     | RMB million | 
|                         |  |             |        |  |             |  |     |             | 
|Cost                     |  |             |        |  |             |  |     |             | 
|At January 1, 2013       |  |             | 11,270 |  |             |  | 398 |             | 
|Additions                |  |             | -      |  |             |  | 98  |             | 
|Disposals                |  |             | -      |  |             |  | (1  | )           | 
|At December 31, 2013     |  |             | 11,270 |  |             |  | 495 |             | 
|Additions                |  |             | -      |  |             |  | 79  |             | 
|At December 31, 2014     |  |             | 11,270 |  |             |  | 574 |             | 
|                         |  |             |        |  |             |  |     |             | 
|Accumulated amortization |  |             |        |  |             |  |     |             | 
|At January 1, 2013       |  |             | -      |  |             |  | 218 |             | 
|Charge for the year      |  |             | -      |  |             |  | 57  |             | 
|At December 31, 2013     |  |             | -      |  |             |  | 275 |             | 
|Charge for the year      |  |             | -      |  |             |  | 69  |             | 
|At December 31, 2014     |  |             | -      |  |             |  | 344 |             | 
|                         |  |             |        |  |             |  |     |             | 
|Net book amount          |  |             |        |  |             |  |     |             | 
|At December 31, 2013     |  |             | 11,270 |  |             |  | 220 |             | 
|At December 31, 2014     |  |             | 11,270 |  |             |  | 230 |             | 



Note:



The
balance represents goodwill arising from the acquisition of Shanghai Airlines. Goodwill is attributable to strengthening the competitiveness
of the Group’s airline transportation operations, attaining synergy through integration of the resources and providing the
evolution of Shanghai international air transportation center. For the purpose of impairment assessment, goodwill was allocated
to the principal CGU that the Group operates and benefits from the acquisition.



In 2014, the
recoverable amount of the CGU has been determined based on a value-in-use calculation using cash flow projection based on
a financial budget approved by senior management. The discount rate applied to the cash flow projection is 13%. The growth
rate used to extrapolate the cash flows of the above cash-generating unit beyond the five-year period is 5%, which includes
the effect of inflation. No impairment for the goodwill was required based on the value-in-use calculation as at the
reporting period date.



F-46







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 19 | PROPERTY,
PLANT AND EQUIPMENT
| | -- | -----------------------------



|                                                                          |  | Aircraft,
    engines and flight equipment |        |   |                               |  |        | Other property, |  |  |                    |   |  |                              |      
|------------------------------------------------------------------------- |  | ------------------------------------------ | ------ | - | ----------------------------- |  | ------ | --------------- |  |  | ------------------ | - |  | ---------------------------- | -----
|                                                                          |  | Owned                                      |        |   | Held under
    finance leases |  |        | Buildings       |  |  | Plantand equipment |   |  | Construction
    in progress |      
|                                                                          |  | RMB
    million                            |        |   | RMB
    million               |  |        | RMB
    million |  |  | RMB
    million    |   |  | RMB
    million              |      
|Cost                                                                      |  |                                            |        |   |                               |  |        |                 |  |  |                    |   |  |                              |      
|At
    January 1, 2014                                                    |  |                                            | 76,671 |   |                               |  | 47,668 |                 |  |  | 7,486              |   |  |                              | 6,435
|Transfers
    from construction in progress                               |  |                                            | 19     |   |                               |  | -      |                 |  |  | 814                |   |  |                              | 249  
|Transfers from advanced payments on acquisition
    of aircraft (Note 21) |  |                                            | 4,267  |   |                               |  | 12,442 |                 |  |  | -                  |   |  |                              | -    
|Additions                                                                 |  |                                            | 2,262  |   |                               |  | 11,029 |                 |  |  | 5                  |   |  |                              | 545  
|Transfer
    to assets classified as held for sale                        |  |                                            | (5,634 | ) |                               |  | (2,706 | )               |  |  | -                  |   |  |                              | -    
|Transfer
    to other long-term assets                                    |  |                                            | -      |   |                               |  | -      |                 |  |  | -                  |   |  |                              | -    
|Disposals                                                                 |  |                                            | (6,129 | ) |                               |  | (862   | )               |  |  | (69                | ) |  |                              | (228 
|At
    December 31, 2014                                                  |  |                                            | 71,456 |   |                               |  | 67,571 |                 |  |  | 8,236              |   |  |                              | 7,001
|                                                                          |  |                                            |        |   |                               |  |        |                 |  |  |                    |   |  |                              |      
|Accumulated
    depreciation                                              |  |                                            |        |   |                               |  |        |                 |  |  |                    |   |  |                              |      
|At January
    1, 2014                                                    |  |                                            | 28,858 |   |                               |  | 11,862 |                 |  |  | 1,769              |   |  |                              | 4,130
|Charge
    for the year                                                   |  |                                            | 4,919  |   |                               |  | 3,368  |                 |  |  | 277                |   |  |                              | 492  
|Transfer
    to assets classified as held for sale                        |  |                                            | (2,691 | ) |                               |  | (1,319 | )               |  |  | -                  |   |  |                              | -    
|Disposals                                                                 |  |                                            | (4,282 | ) |                               |  | (658   | )               |  |  | (33                | ) |  |                              | (192 
|At
    December 31, 2014                                                  |  |                                            | 26,804 |   |                               |  | 13,253 |                 |  |  | 2,013              |   |  |                              | 4,430
|                                                                          |  |                                            |        |   |                               |  |        |                 |  |  |                    |   |  |                              |      
|Impairment                                                                |  |                                            |        |   |                               |  |        |                 |  |  |                    |   |  |                              |      
|At January
    1, 2014                                                    |  |                                            | 798    |   |                               |  | 108    |                 |  |  | -                  |   |  |                              | 8    
|Charge
    for the year                                                   |  |                                            | 3      |   |                               |  | -      |                 |  |  | -                  |   |  |                              | -    
|Disposals                                                                 |  |                                            | (475   | ) |                               |  | -      |                 |  |  | -                  |   |  |                              | (1   
|At
    December 31, 2014                                                  |  |                                            | 326    |   |                               |  | 108    |                 |  |  | -                  |   |  |                              | 7    
|                                                                          |  |                                            |        |   |                               |  |        |                 |  |  |                    |   |  |                              |      
|Net
    book amount                                                       |  |                                            |        |   |                               |  |        |                 |  |  |                    |   |  |                              |      
|At
    December 31, 2014                                                  |  |                                            | 44,326 |   |                               |  | 54,210 |                 |  |  | 6,223              |   |  |                              | 2,564
|At
    January 1, 2014                                                    |  |                                            | 47,015 |   |                               |  | 35,698 |                 |  |  | 5,717              |   |  |                              | 2,297



F-47







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 19 | PROPERTY,
PLANT AND EQUIPMENT (cont’d)
| | -- | --------------------------------------



|                                                                      |  | Aircraft, engines and flight equipment |        |   |                           |  |        | Other property, |  |  |                     |   |  |                          |      
|--------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------- |  | ------ | --------------- |  |  | ------------------- | - |  | ------------------------ | -----
|                                                                      |  | Owned                                  |        |   | Held under finance leases |  |        | Buildings       |  |  | plant and equipment |   |  | Construction in progress |      
|                                                                      |  | RMB million                            |        |   | RMB million               |  |        | RMB million     |  |  | RMB million         |   |  | RMB million              |      
|Cost                                                                  |  |                                        |        |   |                           |  |        |                 |  |  |                     |   |  |                          |      
|At January 1, 2013                                                    |  |                                        | 67,505 |   |                           |  | 42,918 |                 |  |  | 6,819               |   |  |                          | 6,069
|Transfers from construction in progress                               |  |                                        | -      |   |                           |  | -      |                 |  |  | 662                 |   |  |                          | 93   
|Transfers from advanced payments on acquisition of aircraft (Note 21) |  |                                        | 10,100 |   |                           |  | 3,144  |                 |  |  | -                   |   |  |                          | -    
|Additions                                                             |  |                                        | 2,444  |   |                           |  | 2,342  |                 |  |  | 8                   |   |  |                          | 472  
|Transfer to assets classified as held for sale                        |  |                                        | (625   | ) |                           |  | -      |                 |  |  | -                   |   |  |                          | -    
|Transfer to other long-term assets                                    |  |                                        | -      |   |                           |  | -      |                 |  |  | -                   |   |  |                          | -    
|Disposals                                                             |  |                                        | (2,753 | ) |                           |  | (736   | )               |  |  | (3                  | ) |  |                          | (199 
|At December 31, 2013                                                  |  |                                        | 76,671 |   |                           |  | 47,668 |                 |  |  | 7,486               |   |  |                          | 6,435
|                                                                      |  |                                        |        |   |                           |  |        |                 |  |  |                     |   |  |                          |      
|Accumulated depreciation                                              |  |                                        |        |   |                           |  |        |                 |  |  |                     |   |  |                          |      
|At January 1, 2013                                                    |  |                                        | 26,184 |   |                           |  | 10,335 |                 |  |  | 1,523               |   |  |                          | 3,835
|Charge for the year                                                   |  |                                        | 5,270  |   |                           |  | 2,203  |                 |  |  | 246                 |   |  |                          | 398  
|Transfer to assets classified as held for sale                        |  |                                        | (231   | ) |                           |  | -      |                 |  |  | -                   |   |  |                          | -    
|Disposals                                                             |  |                                        | (2,365 | ) |                           |  | (676   | )               |  |  | -                   |   |  |                          | (103 
|At December 31, 2013                                                  |  |                                        | 28,858 |   |                           |  | 11,862 |                 |  |  | 1,769               |   |  |                          | 4,130
|                                                                      |  |                                        |        |   |                           |  |        |                 |  |  |                     |   |  |                          |      
|Impairment                                                            |  |                                        |        |   |                           |  |        |                 |  |  |                     |   |  |                          |      
|At January 1, 2013                                                    |  |                                        | 791    |   |                           |  | 108    |                 |  |  | -                   |   |  |                          | 1    
|Charge for the year                                                   |  |                                        | 7      |   |                           |  | -      |                 |  |  | -                   |   |  |                          | 7    
|At December 31, 2013                                                  |  |                                        | 798    |   |                           |  | 108    |                 |  |  | -                   |   |  |                          | 8    
|                                                                      |  |                                        |        |   |                           |  |        |                 |  |  |                     |   |  |                          |      
|Net book amount                                                       |  |                                        |        |   |                           |  |        |                 |  |  |                     |   |  |                          |      
|At December 31, 2013                                                  |  |                                        | 47,015 |   |                           |  | 35,698 |                 |  |  | 5,717               |   |  |                          | 2,297
|At January 1, 2013                                                    |  |                                        | 40,530 |   |                           |  | 32,475 |                 |  |  | 5,296               |   |  |                          | 2,233



Note:

As
at December 31, 2014, certain aircraft and buildings owned by the Group with an aggregate net book amount of approximately RMB
23,117million (2013: approximately RMB 24,306 million, 2012: approximately RMB 22,544 million) were pledged as collateral under
certain loan arrangements (Note 33).



F-48







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 20 | LEASE
                                         PREPAYMENTS
| | -- | ----------------------------------------------------------

|                         |  | December 31, |      
|------------------------ |  | ------------ | -----
|                         |  | 2014         |      
|                         |  | RMB million  |      
|                         |  |              |      
|Cost                     |  |              |      
|At January 1             |  |              | 2,577
|Additions                |  |              | 109  
|Disposals                |  |              | -    
|At December 31           |  |              | 2,686
|                         |  |              |      
|Accumulated amortization |  |              |      
|At January 1             |  |              | 422  
|Charge for the year      |  |              | 58   
|Disposals                |  |              | -    
|At December 31           |  |              | 480  
|                         |  |              |      
|Net book amount          |  |              |      
|At December 31           |  |              | 2,206



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, 2014, the majority of these land use rights had remaining terms ranging from 32 to 50 years
(2013: from 33 to 50 years).



| | 21 | ADVANCED
                                         PAYMENTS ON ACQUISITION OF AIRCRAFT
| | -- | -------------------------------------------------------------------------------------



|                                                     |  | December 31, |        
|---------------------------------------------------- |  | ------------ | -------
|                                                     |  | 2014         |        
|                                                     |  | RMB million  |        
|                                                     |  |              |        
|                                                     |  |              |        
|At January 1                                         |  |              | 16,296 
|Payment during the year                              |  |              | 20,067 
|Interest capitalized (Note 13)                       |  |              | 606    
|Transfers to property, plant and equipment (Note 19) |  |              | (16,709
|                                                     |  |              |        
|At December 31                                       |  |              | 20,260 



Included
in the Group’s balances as at December 31, 2014, the amounts of accumulated interest capitalized were approximately RMB467
million (2013: RMB504 million).



| | 22 | INVESTMENTS
                                         IN ASSOCIATES
| | -- | ------------------------------------------------------------------



|                              |  | December 31, |      
|----------------------------- |  | ------------ | -----
|                              |  | 2014         |      
|                              |  | RMB million  |      
|                              |  |              |      
|Unlisted investments, at cost |  |              | 853  
|Share of results/ reserves    |  |              | 233  
|                              |  |              |      
|                              |  |              | 1,086



The
movements on investments in associates were as follows:



|                                                                                 |  | December 31, |      
|-------------------------------------------------------------------------------- |  | ------------ | -----
|                                                                                 |  | 2014         |      
|                                                                                 |  | RMB million  |      
|                                                                                 |  |              |      
|At January 1                                                                     |  |              | 1,064
|Addition through the acquisition of associates                                   |  |              | 18   
|Share of results of associates                                                   |  |              | 91   
|Share of revaluation on available-for-sale financial assets held by an associate |  |              | (1   
|Disposal of associates                                                           |  |              | (18  
|Dividend received during the year                                                |  |              | (68  
|                                                                                 |  |              |      
|At December 31                                                                   |  |              | 1,086



F-49







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 22 | INVESTMENTS
IN ASSOCIATES (cont’d)
| | -- | ----------------------------------



Particulars
of the principal associates, which are limited liability companies established and operating in the PRC, are as follows:





|Company name                                                                                 |  | Place ofestablishment andoperation and dateof establishment |  | Registered capital |         | Attributableequity interest |      |         | Principal activities
|-------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- |  | ------------------ | ------- | --------------------------- | ---- | ------- | --------------------
|                                                                                             |  |                                                             |  | 2014               |         |                             | 2013 |         | 2014                
|                                                                                             |  |                                                             |  |                    | million |                             |      | million |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|Eastern
    Air Group Finance Co., Ltd. (“Eastern Finance”)                                  |  | PRCDecember 6, 1995                                         |  | RMB                | 500     |                             | RMB  | 400     |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|China Eastern Air Catering Investment Co., Ltd.                                              |  | PRCNovember 17, 2003                                        |  | RMB                | 350     |                             | RMB  | 350     |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|Shanghai Pratt & Whitney Aircraft Engine Maintenance Company Limited (“Shanghai P&W”) (Note) |  | PRCMarch 28, 2008                                           |  | USD                | 40      |                             | USD  | 40      |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|New Shanghai International Tower Co., Ltd.                                                   |  | PRCNovember 17, 1992                                        |  | RMB                | 167     |                             | RMB  | 167     |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|Eastern Aviation Import & Export Co., Ltd. (“Eastern Import & Export”)                       |  | PRCJune 9, 1993                                             |  | RMB                | 80      |                             | RMB  | 80      |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|Eastern Aviation Advertising Service Co., Ltd. (“Eastern Advertising”)                       |  | PRCMarch 4, 1986                                            |  | RMB                | 200     |                             | RMB  | 200     |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|Collins Aviation
Maintenance Service Shanghai Ltd. (“Collins Aviation”)                      |  | PRCSeptember 27, 2002                                       |  | USD                | 7       |                             | USD  | 7       |                     
|                                                                                             |  |                                                             |  |                    |         |                             |      |         |                     
|Jetstar Hong Kong Airways                                                                    |  | Hong KongSeptember 4, 2012                                  |  |                    |         |                             |      |         |                     
|Ltd(“Jetstar”).                                                                              |  |                                                             |  | USD                | 198     |                             | USD  | 198     |                     





Note:



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 approximately USD40 million in which the Company holds a 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.



F-50







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 22 | INVESTMENTS
IN ASSOCIATES (cont’d)
| | -- | ----------------------------------



| |  | The
                                         following table illustrates the aggregate financial information of the Group’s
                                         associates that were not individually material:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                       |  | 2014        |       |   | 2013        | 
|---------------------------------------------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                                                       |  | RMB million |       |   | RMB million | 
|                                                                       |  |             |       |   |             | 
|Share of the associates’ profit for the year                           |  |             | 91    |   |             | 
|Share of the associates’ other comprehensive loss                      |  |             | (1    | ) |             | 
|Share of the associates’ total comprehensive income                    |  |             | 90    |   |             | 
|Aggregate carrying amount of the Group’s investments in the associates |  |             | 1,086 |   |             | 



| | 23 | INVESTMENTS
IN JOINT VENTURES
| | -- | -----------------------------



|                              |  | 2014        |     |  | 2013        | 
|----------------------------- |  | ----------- | --- |  | ----------- | 
|                              |  | RMB million |     |  | RMB million | 
|                              |  |             |     |  |             | 
|Unlisted investments, at cost |  |             | 352 |  |             | 
|Share of results/reserves     |  |             | 153 |  |             | 
|                              |  |             |     |  |             | 
|                              |  |             | 505 |  |             | 



The
movements on investments in jointly ventures were as follows:



|                                                    |  | 2014        |     |   | 2013        | 
|--------------------------------------------------- |  | ----------- | --- | - | ----------- | 
|                                                    |  | RMB million |     |   | RMB million | 
|                                                    |  |             |     |   |             | 
|At January 1                                        |  |             | 433 |   |             | 
|Addition through the acquisition of a joint venture |  |             | 58  |   |             | 
|Share of results                                    |  |             | 36  |   |             | 
|Dividend received/declared during the year          |  |             | (22 | ) |             | 
|                                                    |  |             |     |   |             | 
|At December 31                                      |  |             | 505 |   |             | 



Particulars
of the principal joint ventures, except for CAE Melbourne Flight Training Pty Ltd., all of which are limited liability companies
established and operating in the PRC, are as follows:



|Company name                                                                                                            |  | Place of establishment and operation and date of establishment |  | Paid-up capital |    |  | Attributable equity interest |     |    | Principal activities
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- |  | --------------- | -- |  | ---------------------------- | --- | -- | --------------------
|                                                                                                                        |  |                                                                |  | 2014            |    |  | 2013                         |     |    | 2014                
|                                                                                                                        |  |                                                                |  | million         |    |  | million                      |     |    |                     
|                                                                                                                        |  |                                                                |  |                 |    |  |                              |     |    |                     
|Shanghai Technologies Aerospace Co., Ltd. (“Technologies Aerospace”) (Note)                                             |  | PRC September 28, 2004                                         |  | USD             | 73 |  |                              | USD | 73 |                     
|Shanghai Eastern Union Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”) |  | PRC December 28, 1995                                          |  | USD             | 2  |  |                              | USD | 2  |                     
|Eastern China
    Kaiya System Integration Co., Ltd. (“China Kaiya”)                                                    |  | PRC May 21, 1999                                               |  | RMB             | 10 |  |                              | RMB | 10 |                     
|CAE Melbourne
    Flight Training Pty Ltd.                                                                              |  | Australia March 9, 2007                                        |  | AUD             | 11 |  |                              | AUD | 11 |                     
|Shanghai Hute Aviation Tech. Co. Ltd. (“Shanghai Hute”)                                                                 |  | PRC April 9, 2003                                              |  | RMB             | 30 |  |                              | RMB | 30 |                     



F-51







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 23 | INVESTMENTS
IN JOINT VENTURES (cont’d)
| | -- | --------------------------------------



Note:



Under
a Joint Venture Agreement with joint venture partner of Technologies Aerospace dated March 10, 2003, the Company 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.



The
following table illustrates the aggregate financial information of the Group’s joint ventures that were not individually
material:



|                                                                           |  | 2014        |     |  | 2013        | 
|-------------------------------------------------------------------------- |  | ----------- | --- |  | ----------- | 
|                                                                           |  | RMB million |     |  | RMB million | 
|                                                                           |  |             |     |  |             | 
|Share of the joint ventures’ profit for the year                           |  |             | 36  |  |             | 
|Share of the joint ventures’ total comprehensive income                    |  |             | 36  |  |             | 
|Aggregate carrying amount of the Group’s investments in the joint ventures |  |             | 505 |  |             | 





| | 24 | OTHER
                                         LONG-TERM ASSETS
| | -- | ---------------------------------------------------------------



|                                                          |  | December 31, |      
|--------------------------------------------------------- |  | ------------ | -----
|                                                          |  | 2014         |      
|                                                          |  | RMB million  |      
|Deposits relating to aircraft held under operating leases |  |              | 482  
|Deferred pilot recruitment costs (Note)                   |  |              | 1,140
|Other long-term assets                                    |  |              | 335  
|                                                          |  |              |      
|                                                          |  |              | 1,957



Note:



Deferred
pilot recruitment costs mainly represent the cost bore by the Group in connection with securing certain minimum periods of employment
of pilots and are amortized on a straight-line basis over the anticipated beneficial period of five years, starting from when
the pilot joints the Group.



| | 25 | FLIGHT
                                         EQUIPMENT SPARE PARTS
| | -- | ---------------------------------------------------------------------



|                                |  | December 31, |      
|------------------------------- |  | ------------ | -----
|                                |  | 2014         |      
|                                |  | RMB million  |      
|                                |  |              |      
|Flight equipment spare parts    |  |              | 2,924
|Less: provision for spare parts |  |              | (665 
|                                |  |              |      
|                                |  |              | 2,259



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 was estimated based on current market condition, historical experience and Company’s future operation
plan for the aircraft and related spare parts.



|                                                             |  | December 31, |    
|------------------------------------------------------------ |  | ------------ | ---
|                                                             |  | 2014         |    
|                                                             |  | RMB million  |    
|                                                             |  |              |    
|At January 1                                                 |  |              | 657
|Accrual (Note 10)                                            |  |              | 9  
|Provision written off in relation to disposal of spare parts |  |              | (1 
|Reversal of impairment of spare parts (Note 10)              |  |              | -  
|                                                             |  |              |    
|At December 31                                               |  |              | 665



F-52







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 26 | TRADE
RECEIVABLES
| | -- | -----------------



The
credit terms given to trade customers are determined on an individual basis.



The
aging analysis of trade receivables was as follows:



|                                              |  | December 31, |      
|--------------------------------------------- |  | ------------ | -----
|                                              |  | 2014         |      
|                                              |  | RMB million  |      
|                                              |  |              |      
|Within 90 days                                |  |              | 1,539
|91 to 180 days                                |  |              | 1,774
|181 to 365 days                               |  |              | 456  
|Over 365 days                                 |  |              | 299  
|                                              |  |              | 4,068
|Less: provision for impairment of receivables |  |              | (206 
|                                              |  |              |      
|Trade receivables                             |  |              | 3,862



Balances
with related companies included in trade receivables are summarized in Note 46(c)(i).



The
carrying amounts of the trade receivables approximated their fair value.



Trade
receivables that were neither overdue nor impaired relate to a large number of independent sales agents for whom there are no
recent history of default.



As
at December 31, 2014, trade receivables of RMB262 million (2013: RMB295 million) were past due but not impaired. These relate
to a number of independent sales agents for whom there are no recent history of default. The Group holds cash deposits of RMB462
million (2013: RMB447 million) from these agents. The aging analysis of these trade receivables was as follows:



|                |  | December 31, |    
|--------------- |  | ------------ | ---
|                |  | 2014         |    
|                |  | RMB million  |    
|                |  |              |    
|Within 90 days  |  |              | 161
|91 to 180 days  |  |              | 40 
|181 to 365 days |  |              | 61 
|                |  |              |    
|                |  |              | 262



As
at December 31, 2014, trade receivables of RMB155 million (2013: RMB154 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-53







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 26 | TRADE
                                         RECEIVABLES (cont’d)
| | -- | -------------------------------------------------------------------



The
aging of impaired receivables was as follows:

|                        |  | December 31, |    
|----------------------- |  | ------------ | ---
|                        |  | 2014         |    
|                        |  | RMB million  |    
|181 to 365 days overdue |  |              | 41 
|1 to 2 years overdue    |  |              | 59 
|Over 2 years overdue    |  |              | 192
|                        |  |              |    
|                        |  |              | 292



Movements
on the Group’s provision for impairment of trade receivables were as follows:



|                                                         |  | 2014        |     |   | 2013        | 
|-------------------------------------------------------- |  | ----------- | --- | - | ----------- | 
|                                                         |  | RMB million |     |   | RMB million | 
|                                                         |  |             |     |   |             | 
|At January 1                                             |  |             | 198 |   |             | 
|Receivables written off during the year as uncollectible |  |             | (1  | ) |             | 
|Provision for/ (reversal of) impairment of receivables   |  |             | 9   |   |             | 
|                                                         |  |             |     |   |             | 
|At December 31                                           |  |             | 206 |   |             | 



The
net impact of creation and release of provisions for impaired receivables have been included in ‘Provision for/(reversal
of) impairment of trade and other receivables’ in the profit or loss (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 were denominated in the following currencies:



|                  |  | December 31, |      
|----------------- |  | ------------ | -----
|                  |  | 2014         |      
|                  |  | RMB million  |      
|                  |  |              |      
|Currency          |  |              |      
|Renminbi          |  |              | 3,844
|Japanese Yen      |  |              | 7    
|US Dollars        |  |              | 61   
|Euro              |  |              | 97   
|Hong Kong Dollars |  |              | 2    
|Other currencies  |  |              | 57   
|                  |  |              |      
|                  |  |              | 4,068



The
maximum exposure to credit risk at the reporting date was the carrying amount of receivable shown above.



| | 27 | PREPAYMENTS
                                         AND OTHER RECEIVABLES
| | -- | --------------------------------------------------------------------------



|                                                   |  | December 31, |      
|-------------------------------------------------- |  | ------------ | -----
|                                                   |  | 2014         |      
|                                                   |  | RMB million  |      
|                                                   |  |              |      
|VAT recoverable                                    |  |              | 1,750
|Rebate receivables on aircraft acquisitions        |  |              | 1,253
|Amounts due from related companies (Note 46(c)(i)) |  |              | 169  
|Prepaid aircraft operating lease rentals           |  |              | 333  
|Rental deposits                                    |  |              | 271  
|Others                                             |  |              | 2,910
|                                                   |  |              |      
|Subtotal                                           |  |              | 6,686
|Less: bad debt provision                           |  |              | (292 
|                                                   |  |              |      
|                                                   |  |              | 6,394



F-54







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 28 | RESTRICTED
                                         BANK DEPOSITS AND SHORT-TERM BANK DEPOSITS
| | -- | ----------------------------------------------------------------------------------------------



|                                                                            |  | December 31, |   
|--------------------------------------------------------------------------- |  | ------------ | --
|                                                                            |  | 2014         |   
|                                                                            |  | RMB million  |   
|                                                                            |  |              |   
|Bank deposits with original maturity over three months but less than a year |  |              | - 
|Bank deposits with original maturity over a year                            |  |              | 4 
|Restricted bank deposits                                                    |  |              | 34
|                                                                            |  |              |   
|                                                                            |  |              | 38



Note:

As
at December 31, 2014, the deposits bore effective interest rates ranging from 0.35% to 3.5% per annum (2013: from 0.35 % to 4.65%
per annum).



The
carrying amounts of the Group’s restricted bank deposits and short-term bank deposits were denominated in the following
currencies:



|                 |  | December 31, |   
|---------------- |  | ------------ | --
|                 |  | 2014         |   
|                 |  | RMB million  |   
|                 |  |              |   
|Renminbi         |  |              | 38
|US Dollars       |  |              | - 
|Other currencies |  |              | - 
|                 |  |              |   
|                 |  |              | 38



| | 29 | CASH
                                         AND CASH EQUIVALENTS
| | -- | ------------------------------------------------------------------



The
carrying amounts of the Group’s cash and cash equivalents were denominated in the following currencies:



|                  |  | December 31, |      
|----------------- |  | ------------ | -----
|                  |  | 2014         |      
|                  |  | RMB million  |      
|                  |  |              |      
|Renminbi          |  |              | 711  
|US Dollars        |  |              | 490  
|Euro              |  |              | 45   
|Japanese Yen      |  |              | 16   
|Hong Kong Dollars |  |              | 23   
|Other currencies  |  |              | 70   
|                  |  |              |      
|                  |  |              | 1,355



| | 30 | TRADE
                                         AND BILLS PAYABLE
| | -- | ----------------------------------------------------------------



The
aging analyses of trade and bills payable was as follows:



|                |  | December 31, |      
|--------------- |  | ------------ | -----
|                |  | 2014         |      
|                |  | RMB million  |      
|                |  |              |      
|Within 90 days  |  |              | 764  
|91 to 180 days  |  |              | 309  
|181 to 365 days |  |              | 240  
|1 to 2 years    |  |              | 420  
|Over 2 years    |  |              | 350  
|                |  |              |      
|                |  |              | 2,083



As
at December 31, 2014, the trade and bills payable balances of the Group included amounts due to related companies of RMB186 million
(2013: RMB996 million) (Note 46(c)(ii)).



As
at December 31, 2014, bills payable was nil (2013: RMB40 million).



F-55







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 31 | OTHER
                                         PAYABLES AND ACCRUALS
| | -- | --------------------------------------------------------------------



|                                                                    |  | December 31, |       
|------------------------------------------------------------------- |  | ------------ | ------
|                                                                    |  | 2014         |       
|                                                                    |  | RMB million  |       
|                                                                    |  |              |       
|Accrued salaries, wages and benefits                                |  |              | 2,826 
|Accrued take-off and landing charges                                |  |              | 1,661 
|Accrued fuel cost                                                   |  |              | 1,879 
|Accrued expenses related to aircraft overhaul                       |  |              | 1,807 
|Duties and levies payable                                           |  |              | 1,617 
|Other accrued operating expenses                                    |  |              | 3,777 
|Deposits received from ticket sales agents                          |  |              | 867   
|Current portion of other long-term liabilities (Note 35)            |  |              | 585   
|Staff housing allowance (Note 38(b))                                |  |              | 315   
|Amounts due to related companies (Note 46(c)(ii))                   |  |              | 1,483 
|Current portion of post-retirement benefit obligations (Note 37(c)) |  |              | 210   
|Other payables                                                      |  |              | 2,188 
|                                                                    |  |              |       
|                                                                    |  |              | 19,215



| | 32 | OBLIGATIONS
                                         UNDER FINANCE LEASES
| | -- | -------------------------------------------------------------------------



As
at December 31, 2014, the Group had 167 aircrafts (2013: 111 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 were
as follows:



|                                       |  | December 31,2014       |        |   | December 31,2013                         | 
|-------------------------------------- |  | ---------------------- | ------ | - | ---------------------------------------- | 
|                                       |  | Minimum lease payments |        |   | Present values of minimum lease payments | 
|                                       |  | RMB million            |        |   | RMB million                              | 
|                                       |  |                        |        |   |                                          | 
|Within one year                        |  |                        | 5,453  |   |                                          | 
|In the second year                     |  |                        | 5,174  |   |                                          | 
|In the third to fifth years, inclusive |  |                        | 13,165 |   |                                          | 
|After the fifth year                   |  |                        | 19,272 |   |                                          | 
|                                       |  |                        |        |   |                                          | 
|Total                                  |  |                        | 43,064 |   |                                          | 
|Less:                                  |  |                        |        |   |                                          | 
|amount repayable within one year       |  |                        | (5,453 | ) |                                          | 
|                                       |  |                        |        |   |                                          | 
|Long-term portion                      |  |                        | 37,611 |   |                                          | 



F-56







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 33 | BORROWINGS
| | -- | ----------

|                                             |  | December 31, |       
|-------------------------------------------- |  | ------------ | ------
|                                             |  | 2014         |       
|                                             |  | RMB million  |       
|                                             |  |              |       
|Non-current                                  |  |              |       
|Long-term bank borrowings                    |  |              |       
|– secured (Note (a))                         |  |              | 14,725
|– unsecured                                  |  |              | 5,503 
|Guaranteed bonds (Note (b))                  |  |              | 10,285
|                                             |  |              | 30,513
|                                             |  |              |       
|Current                                      |  |              |       
|Current portion of long-term bank borrowings |  |              |       
|– secured (Note (a))                         |  |              | 2,254 
|– unsecured                                  |  |              | 8,443 
|Short-term bank borrowings                   |  |              |       
|– unsecured                                  |  |              | 13,979
|Short-term debentures (Note (c))             |  |              | 4,000 
|Guaranteed bonds (Note (b))                  |  |              | -     
|                                             |  |              | 28,676
|                                             |  |              |       
|Total borrowings                             |  |              | 59,189
|                                             |  |              |       
|The borrowings are repayable as follows:     |  |              |       
|                                             |  |              |       
|Within one year                              |  |              | 28,676
|In the second year                           |  |              | 8,801 
|In the third to fifth year inclusive         |  |              | 10,868
|After the fifth year                         |  |              | 10,844
|                                             |  |              |       
|Total borrowings                             |  |              | 59,189



Notes:



| | (a) | As
                                         at December 31, 2014, the secured bank borrowings of the Group were pledged by the related
                                         aircraft and buildings with an aggregate net book amount of RMB23,117 million (2013:
                                         RMB24,306 million) (Note 19).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On
                                         August 8, 2011,Easter Air Overseas, 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 bore interest at the rate of 4% per annum,
                                         which was payable semi-annually. The principal of the bonds was repayable on August 8,
                                         2014. The Company had unconditionally and irrevocably guaranteed the due payment and
                                         performance of the above bonds.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On
                                         March 18, 2013, the Company issued ten-year guaranteed bonds with a principal amount
                                         of RMB4.8 billion, at an issue price equal to the face value of the bonds. The bonds
                                         bear interest at the rate of 5.05% per annum, which is payable annually. The principal
                                         of the bonds will mature and be repayable on March 18, 2023. CEA Holding has unconditionally
                                         and irrevocably guaranteed the due payment and performance of the above bonds.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On
                                         June 5, 2013, Eastern Air Overseas issued three-year guaranteed bonds with a principal
                                         amount of RMB2.2 billion, at an issue price equal to the face value of the bonds. The
                                         bonds bear interest at the rate of 3.875% per annum, which is payable semi-annually.
                                         The principal of the bonds will mature and become repayable on June 5, 2016. The Company
                                         has unconditionally and irrevocably guaranteed the due payment and performance of the
                                         above bonds.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On
                                         March 6, 2014, Eastern Air Overseas 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 4.80% per annum, which is payable semi-annually. The
                                         principal of the bonds will mature and become repayable on March 13, 2017. The Company
                                         has unconditionally and irrevocably guaranteed the due payment and performance of the
                                         above bonds.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | On May 14, 2014,
                              Eastern Air Overseas issued three-year guaranteed bonds with a principal amount of RMB0.8 billion, at an issue price equal to
                              the face value of the bonds. The bonds bear interest at the rate of 4.80% per annum, which is payable semi-annually. The
                              principal of the bonds will mature and become repayable on May 14, 2017. The Company has unconditionally and irrevocably
                              guaranteed the due payment and performance of the above bonds.                                                                                                                                 





| | (c) | On
                                         May 14, 2014, the Company issued short-term debentures with a principal of RMB4 billion
                                         with a maturity of 270 days. The debentures bear interest at the rate of 4.95% per annum.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-57









NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 33 | BORROWINGS (cont’d)
| | -- | -------------------



The terms of the long-term borrowings
were summarized as follows:



|                           |  | Interest rate and final                                                                                      |  | 2014        |        |  | 2013        | 
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----------- | ------ |  | ----------- | 
|Currency                   |  | Maturities                                                                                                   |  | RMB million |        |  | RMB million | 
|                           |  |                                                                                                              |  |             |        |  |             | 
|Long-term bank borrowings  |  |                                                                                                              |  |             |        |  |             | 
|                           |  |                                                                                                              |  |             |        |  |             | 
|RMB denominated            |  | interest rates ranging from 5.535% to 5.99% with final maturities through to 2023                            |  |             | 420    |  |             | 
|                           |  |                                                                                                              |  |             |        |  |             | 
|USD denominated            |  | interest rates ranging from 6 months libor +0.55% to 6 months libor +5.3% with final maturities through 2024 |  |             | 30,505 |  |             | 
|                           |  |                                                                                                              |  |             |        |  |             | 
|Guaranteed bonds           |  |                                                                                                              |  |             |        |  |             | 
|                           |  |                                                                                                              |  |             |        |  |             | 
|RMB denominated            |  | interest rates ranging from 3.875% to 5.05% with final maturities through 2023                               |  |             | 10,285 |  |             | 
|                           |  |                                                                                                              |  |             |        |  |             | 
|Total long-term borrowings |  |                                                                                                              |  |             | 41,210 |  |             | 



Short-term borrowings of the Group
are repayable within one year. As at December 31, 2014, the interest rates relating to such borrowings ranged from 1.01% to 5.35%
per annum (2013: 1.69% to 4.80% per annum).



The carrying amounts of the borrowings
were denominated in the following currencies:



|           |  | December 31, |       
|---------- |  | ------------ | ------
|           |  | 2014         |       
|           |  | RMB million  |       
|           |  |              |       
|Renminbi   |  |              | 16,205
|US Dollars |  |              | 42,984
|           |  |              |       
|           |  |              | 59,189



| | 34 | PROVISION FOR RETURN CONDITION CHECKS FOR AIRCRAFT UNDER OPERATING LEASES
| | -- | -------------------------------------------------------------------------



|                      |  | December 31, |       
|--------------------- |  | ------------ | ------
|                      |  | 2014         |       
|                      |  | RMB million  |       
|                      |  |              |       
|At January 1          |  |              | 4,217 
|Additional provisions |  |              | 1,122 
|Utilization           |  |              | (1,455
|                      |  |              |       
|At December 31        |  |              | 3,884 
|Less: current portion |  |              | (1,267
|                      |  |              |       
|Long-term portion     |  |              | 2,617 



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, 2014 and 2013 represented the provision for the estimated cost of these return condition checks which is made on a straight
line basis over the term of the leases.



F-58







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 35 | OTHER LONG-TERM LIABILITIES
| | -- | ---------------------------



|                                                                                 |  | December 31, |      
|-------------------------------------------------------------------------------- |  | ------------ | -----
|                                                                                 |  | 2014         |      
|                                                                                 |  | RMB million  |      
|                                                                                 |  |              |      
|Fair value of unredeemed points awarded under the Group’s frequent flyer program |  |              | 1,720
|Long-term duties and levies payable relating to finance leases                   |  |              | 1,120
|Other long-term payables                                                         |  |              | 501  
|                                                                                 |  |              |      
|                                                                                 |  |              | 3,341
|                                                                                 |  |              |      
|Less: current portion included in other payables and accrued expenses (Note 31)  |  |              | (585 
|                                                                                 |  |              |      
|Long-term portion                                                                |  |              | 2,756



| | 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 statements of financial position:



|                                                        |  | December 31, |    
|------------------------------------------------------- |  | ------------ | ---
|                                                        |  | 2014         |    
|                                                        |  | RMB million  |    
|Deferred tax assets                                     |  |              |    
|– Deferred tax asset to be utilized after 12 months     |  |              | -  
|– Deferred tax asset to be utilized within 12 months    |  |              | 170
|                                                        |  |              |    
|                                                        |  |              | 170
|                                                        |  |              |    
|Deferred tax liabilities                                |  |              |    
|– Deferred tax liability to be realized after 12 months |  |              | (26
|                                                        |  |              |    
|Net deferred tax assets                                 |  |              | 144



Movements in the net deferred tax
assets were as follows:



|                                               |  | 2014        |      |   | 2013        | 
|---------------------------------------------- |  | ----------- | ---- | - | ----------- | 
|                                               |  | RMB million |      |   | RMB million | 
|                                               |  |             |      |   |             | 
|At January 1                                   |  |             | 360  |   |             | 
|(Charged)/credited to profit or loss (Note 14) |  |             | (89  | ) |             | 
|(Charged)/credited to OCI                      |  |             | (127 | ) |             | 
|                                               |  |             |      |   |             | 
|At December 31                                 |  |             | 144  |   |             | 



F-59









NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 36 | DEFERRED TAXATION (cont’d)
| | -- | --------------------------



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, |     
|-------------------------------------------------------------- |  | ------------ | ----
|                                                               |  | 2014         |     
|                                                               |  | RMB million  |     
|                                                               |  |              |     
|Deferred tax assets:                                           |  |              |     
|Impairment provision for obsolete flight equipment spare parts |  |              | 32  
|Impairment provision for receivables                           |  |              | 23  
|Impairment provision for property, plant and equipment         |  |              | 23  
|Derivative financial instruments                               |  |              | 9   
|Provision for wages                                            |  |              | 183 
|Provision for post-retirement benefits                         |  |              | -   
|                                                               |  |              |     
|Tax losses                                                     |  |              | 96  
|                                                               |  |              | 366 
|                                                               |  |              |     
|Deferred tax liabilities:                                      |  |              |     
|Depreciation and amortization                                  |  |              | (208
|Available-for-sale financial assets                            |  |              | (5  
|Derivative financial instruments                               |  |              | (9  
|                                                               |  |              | (222
|                                                               |  |              |     
|                                                               |  |              | 144 



Movements of the net deferred tax
assets of the Group for the year:



|                                                               |  | At the       |      |   | (Charged)/     |  |      |             |  |  | At the      |  
|-------------------------------------------------------------- |  | ------------ | ---- | - | -------------- |  | ---- | ----------- |  |  | ----------- | -
|                                                               |  | beginning of |      |   | credited to    |  |      | Charged     |  |  | end of      |  
|                                                               |  | the year     |      |   | profit or loss |  |      | to OCI      |  |  | the year    |  
|                                                               |  | RMB million  |      |   | RMB million    |  |      | RMB million |  |  | RMB million |  
|                                                               |  |              |      |   |                |  |      |             |  |  |             |  
|For the year ended December 31, 2014                           |  |              |      |   |                |  |      |             |  |  |             |  
|Impairment provision for obsolete flight equipment spare parts |  |              | 24   |   |                |  | 8    |             |  |  | -           |  
|Impairment provision for receivables                           |  |              | 20   |   |                |  | 3    |             |  |  | -           |  
|Impairment provision for property, plant and equipment         |  |              | 39   |   |                |  | (16  | )           |  |  | -           |  
|Derivative financial instruments                               |  |              | 17   |   |                |  | (8   | )           |  |  | -           |  
|Provision for wages                                            |  |              | 146  |   |                |  | 37   |             |  |  | -           |  
|Provision for post-retirement benefits                         |  |              | 426  |   |                |  | (304 | )           |  |  | (122        | )
|Tax losses                                                     |  |              | -    |   |                |  | 96   |             |  |  | -           |  
|                                                               |  |              | 672  |   |                |  | (184 | )           |  |  | (122        | )
|                                                               |  |              |      |   |                |  |      |             |  |  |             |  
|Depreciation and amortization                                  |  |              | (295 | ) |                |  | 87   |             |  |  | -           |  
|Available-for-sale financial assets                            |  |              | -    |   |                |  | -    |             |  |  | (5          | )
|Derivative financial instruments                               |  |              | (17  | ) |                |  | 8    |             |  |  | -           |  
|                                                               |  |              | (312 | ) |                |  | 95   |             |  |  | (5          | )
|                                                               |  |              |      |   |                |  |      |             |  |  |             |  
|Net deferred tax assets                                        |  |              | 360  |   |                |  | (89  | )           |  |  | (127        | )



|                                                               |  | At the       |      |   | (Charged)/     |  |     |             |  |  | At the      | 
|-------------------------------------------------------------- |  | ------------ | ---- | - | -------------- |  | --- | ----------- |  |  | ----------- | 
|                                                               |  | beginning of |      |   | credited to    |  |     | Credited    |  |  | end of      | 
|                                                               |  | the year     |      |   | profit or loss |  |     | to OCI      |  |  | the year    | 
|                                                               |  | RMB million  |      |   | RMB million    |  |     | RMB million |  |  | RMB million | 
|                                                               |  |              |      |   |                |  |     |             |  |  |             | 
|For the year ended December 31, 2013                           |  |              |      |   |                |  |     |             |  |  |             | 
|Impairment provision for obsolete flight equipment spare parts |  |              | 41   |   |                |  | (17 | )           |  |  | -           | 
|Impairment provision for receivables                           |  |              | 24   |   |                |  | (4  | )           |  |  | -           | 
|Impairment provision for property, plant and equipment         |  |              | 43   |   |                |  | (4  | )           |  |  | -           | 
|Derivative financial instruments                               |  |              | 20   |   |                |  | (3  | )           |  |  | -           | 
|Provision for wages                                            |  |              | -    |   |                |  | 146 |             |  |  | -           | 
|Provision for post-retirement benefits                         |  |              | 267  |   |                |  | 117 |             |  |  | 42          | 
|                                                               |  |              | 395  |   |                |  | 235 |             |  |  | 42          | 
|                                                               |  |              |      |   |                |  |     |             |  |  |             | 
|Depreciation and amortization                                  |  |              | (295 | ) |                |  | -   |             |  |  | -           | 
|Derivative financial instruments                               |  |              | (5   | ) |                |  | (12 | )           |  |  | -           | 
|                                                               |  |              | (300 | ) |                |  | (12 | )           |  |  | -           | 
|                                                               |  |              |      |   |                |  |     |             |  |  |             | 
|Net deferred tax assets                                        |  |              | 95   |   |                |  | 223 |             |  |  | 42          | 



F-60









NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 36 | DEFERRED TAXATION (cont’d)
| | -- | --------------------------



As at the reporting period date,
the Group had following balances in respect of which no deferred tax assets have been recognized:



|                                       |  | December 31, |      
|-------------------------------------- |  | ------------ | -----
|                                       |  | 2014         |      
|                                       |  | Deferred     |      
|                                       |  | taxation     |      
|                                       |  | RMB million  |      
|                                       |  |              |      
|Tax losses carried forward             |  |              | 473  
|Other deductible temporary differences |  |              | 671  
|Total unrecognized deferred tax assets |  |              | 1,144



| |  | 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 2015 and 2019.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As at December 31, 2014, 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 differences were not recognized.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 37 | PENSION, MEDICAL INSURANCE AND POST-RETIREMENT BENEFITS
| | -- | -------------------------------------------------------



| | (a) | 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 14% 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 of 8% of their salaries. In
addition, the Group companies initiated an additional defined contribution retirement benefit scheme for employees in 2014. For
the year ended December 31, 2014, the Group’s pension costs charged to the profit or loss amounted to RMB 1,492 million (2013:
RMB1,005 million; 2012: RMB871 million).



| | (b) | 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
6% and 12%, respectively, of the employee’s basic salaries subject to certain ceiling as set up by the relevant municipal
governments. For the year ended December 31, 2014, the Group’s medical insurance contributions charged to the profit or loss
amounted to RMB 533 million (2013: RMB478 million; 2012: RMB391 million).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Post-retirement benefits
| | --- | ------------------------



In addition
to the above 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 employee turnover rate, etc.



The Company
and other subsidiaries do not require contributions to be made to the separately administered fund.



The plan is
exposed to interest rate risk, the risk of changes in the life expectancy for pensioners and securities market risk.



The most recent
actuarial valuation of the post-retirement benefit obligations was carried out at December 31, 2014 with assistance from a third
party consultant using the projected unit credit actuarial valuation method.



F-61









NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 37 | RETIREMENT BENEFIT PLANS AND POST-RETIREMENT BENEFITS
(cont’d)
| | -- | --------------------------------------------------------------



The post-retirement benefit obligations
recognized in the consolidated statements of financial position were as follows:



|                                    |  | 2014        |       |   | 2013        | 
|----------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                    |  | RMB million |       |   | RMB million | 
|                                    |  |             |       |   |             | 
|Post-retirement benefit obligations |  |             | 3,032 |   |             | 
|Less: current portion               |  |             | (210  | ) |             | 
|                                    |  |             |       |   |             | 
|Long-term portion                   |  |             | 2,822 |   |             | 



The principal
actuarial assumptions utilized as at the end of the reporting periods were as follows:



|                                                         |  | 2014 |                        |   | 2013 | 
|-------------------------------------------------------- |  | ---- | ---------------------- | - | ---- | 
|                                                         |  |      |                        |   |      | 
|Discount rates for post-retirement benefits              |  |      | 3.40%-4.20             | % |      | 
|Mortality rate                                           |  |      | China Insurance        |   |      | 
|                                                         |  |      | Life Mortality         |   |      | 
|                                                         |  |      | Table (2000-2003). CL3 |   |      | 
|                                                         |  |      | for Male and CL4       |   |      | 
|                                                         |  |      | for Female             |   |      | 
|Annual increase rate of medical expenses due to age      |  |      | 2.50                   | % |      | 
|Annual increase rate of post-retirement medical expenses |  |      | 7.00                   | % |      | 
|Inflation rate of pension benefits                       |  |      | 3.00                   | % |      | 



A quantitative
sensitivity analysis for significant assumptions as at December 31, 2014 is shown below:



|                                           |  |          |      |  | Increase/      |  |     |          |  |  | Increase/      | 
|------------------------------------------ |  | -------- | ---- |  | -------------- |  | --- | -------- |  |  | -------------- | 
|                                           |  |          |      |  | (decrease)     |  |     |          |  |  | (decrease)     | 
|                                           |  |          |      |  | in net defined |  |     |          |  |  | in net defined | 
|                                           |  | Increase |      |  | benefit        |  |     | Decrease |  |  | benefit        | 
|                                           |  | in rate  |      |  | obligation     |  |     | in rate  |  |  | obligation     | 
|                                           |  | %        |      |  | RMB million    |  |     | %        |  |  | RMB million    | 
|                                           |  |          |      |  |                |  |     |          |  |  |                | 
|Discount rate for post-retirement benefits |  |          | 0.25 |  |                |  | (88 | )        |  |  | 0.25           | 
|Annual increase rate of pension benefits   |  |          | 1.00 |  |                |  | 314 |          |  |  | 1.00           | 
|Annual increase rate of medical expenses   |  |          | 1.00 |  |                |  | 57  |          |  |  | 1.00           | 



| |  | The sensitivity analyses above have been determined based on a method that extrapolates the impact
on net post-retirement benefit obligations as a result of reasonable changes in key assumptions occurring at the end of the reporting
periods.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Expected contributions to be made in the future years out of the post-retirement benefit obligations
were as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------



|                          |  | 2014        |       |  | 2013        | 
|------------------------- |  | ----------- | ----- |  | ----------- | 
|                          |  | RMB million |       |  | RMB million | 
|                          |  |             |       |  |             | 
|Within the next 12 months |  |             | 210   |  |             | 
|Between 2 and 5 years     |  |             | 820   |  |             | 
|Between 5 and 10 years    |  |             | 966   |  |             | 
|Over 10 years             |  |             | 3,370 |  |             | 
|                          |  |             |       |  |             | 
|Total expected payments   |  |             | 5,366 |  |             | 



The average
duration of the post-retirement benefit obligations at the end of 2014 was 12 years (2013: 19 years).



F-62









NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 37 | RETIREMENT BENEFIT PLANS AND POST-RETIREMENT BENEFITS
(cont’d)
| | -- | --------------------------------------------------------------



The movements in the defined
benefit obligations and the fair value of plan assets were as follows:



|2014                            |  |             |       |   |                                                       |  |     |                                                                |  |  |             |  |  |             |        |   |              |  |        |              |  |  |             |  |  |               |     |  |             |  |      |             | 
|------------------------------- |  | ----------- | ----- | - | ----------------------------------------------------- |  | --- | -------------------------------------------------------------- |  |  | ----------- |  |  | ----------- | ------ | - | ------------ |  | ------ | ------------ |  |  | ----------- |  |  | ------------- | --- |  | ----------- |  | ---- | ----------- | 
|                                |  |             |       |   | Pension cost
    charged/(credited) to profit or loss |  |     | Remeasurement
    (gains)/losses in other comprehensive income |  |  |             |  |  |             |        |   |             
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |  |  |             |        |   | Actuarial    |  |        | Actuarial    |  |  |             |  |  |               |     |  |             |  |      |             | 
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |  |  |             |        |   | changes      |  |        | changes      |  |  |             |  |  | Sub-total     |     |  |             |  |      |             | 
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |  |  | Sub-total   |        |   | arising from |  |        | arising from |  |  |             |  |  | included      |     |  |             |  |      |             | 
|                                |  |             |       |   | Service cost/                                         |  |     |                                                                |  |  |             |  |  | included    |        |   | changes in   |  |        | changes in   |  |  |             |  |  | in other      |     |  |             |  |      |             | 
|                                |  | January 1   |       |   | investment                                            |  |     | Net                                                            |  |  | Curtailment |  |  | in profit   |        |   | financial    |  |        | demographic  |  |  | Experience  |  |  | comprehensive |     |  | Benefit     |  |      | December 31 | 
|                                |  | 2014        |       |   | income                                                |  |     | interest                                                       |  |  | (Note)      |  |  | or loss     |        |   | assumptions  |  |        | assumptions  |  |  | adjustments |  |  | income        |     |  | settled     |  |      | 2014        | 
|                                |  | RMB million |       |   | RMB million                                           |  |     | RMB million                                                    |  |  | RMB million |  |  | RMB million |        |   | RMB million  |  |        | RMB million  |  |  | RMB million |  |  | RMB million   |     |  | RMB million |  |      | RMB million | 
|Defined benefit
    obligations |  |             | 5,941 |   |                                                       |  | 223 |                                                                |  |  | 294         |  |  |             | (3,251 | ) |              |  | (2,734 | )            |  |  | -           |  |  |               | 407 |  |             |  | (195 | )           | 
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |  |  |             |        |   |              |  |        |              |  |  |             |  |  |               |     |  |             |  |      |             | 
|Fair
    value of plan assets   |  |             | (122  | ) |                                                       |  | -   |                                                                |  |  | -           |  |  |             | 122    |   |              |  | 122    |              |  |  | -           |  |  |               | -   |  |             |  | -    |             | 
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |  |  |             |        |   |              |  |        |              |  |  |             |  |  |               |     |  |             |  |      |             | 
|Benefit
    liability           |  |             | 5,819 |   |                                                       |  | 223 |                                                                |  |  | 294         |  |  |             | (3,129 | ) |              |  | (2,612 | )            |  |  | -           |  |  |               | 407 |  |             |  | (195 | )           | 



|2013                            |  |             |       |   |                                                       |  |     |                                                                |  |  |             |   |  |              |    
|------------------------------- |  | ----------- | ----- | - | ----------------------------------------------------- |  | --- | -------------------------------------------------------------- |  |  | ----------- | - |  | ------------ | ---
|                                |  |             |       |   | Pension cost
    charged/(credited) to profit or loss |  |     | Remeasurement
    (gains)/losses in other comprehensive income |  |  |             |   |  |              |    
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |   |  | Actuarial    |    
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |   |  | changes      |    
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  | Sub-total   |   |  | arising from |    
|                                |  |             |       |   | Service cost/                                         |  |     |                                                                |  |  | included    |   |  | changes in   |    
|                                |  | January 1   |       |   | investment                                            |  |     | Net                                                            |  |  | in profit   |   |  | financial    |    
|                                |  | 2013        |       |   | income                                                |  |     | interest                                                       |  |  | or loss     |   |  | assumptions  |    
|                                |  | RMB million |       |   | RMB million                                           |  |     | RMB million                                                    |  |  | RMB million |   |  | RMB million  |    
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |   |  |              |    
|Defined
    benefit obligations |  |             | 6,324 |   |                                                       |  | (60 | )                                                              |  |  | 276         |   |  |              | 217
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |   |  |              |    
|Fair
    value of plan assets   |  |             | (90   | ) |                                                       |  | (28 | )                                                              |  |  | (5          | ) |  |              | (34
|                                |  |             |       |   |                                                       |  |     |                                                                |  |  |             |   |  |              |    
|Benefit
    liability           |  |             | 6,234 |   |                                                       |  | (88 | )                                                              |  |  | 271         |   |  |              | 183



Note: In 2014, pursuant
to the relevant approvals, the aforesaid defined benefit plan relating to the employees of the Group was curtailed. As a
result, defined benefit liability of RMB3,129 million was reversed and credited to the profit or loss for the current
year.



F-63









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% to15% (2013: 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, 2014, the Group’s contributions to the housing funds amounted to RMB 826 million (2013: RMB718
million; 2012: RMB607 million) which was charged to the consolidated profit or loss. The staff housing fund payable as at December
31, 2014 is RMB 81 million (2013: RMB84 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, 2014, the present obligation of the provision for employee’s staff housing allowances is
RMB315 million (2013: RMB360 million). For the year ended December 31, 2014, the staff housing benefit amounted to RMB 317 million
(2013: RMB218 million; 2012: RMB171 million) which was charged to the consolidated profit or loss.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 39 | DERIVATIVE FINANCIAL INSTRUMENTS
| | -- | --------------------------------



|                                              |  | Assets      |    |   | Liabilities | 
|--------------------------------------------- |  | ----------- | -- | - | ----------- | 
|                                              |  | 2014        |    |   | 2013        | 
|                                              |  | RMB million |    |   | RMB million | 
|                                              |  |             |    |   |             | 
|At December 31,                               |  |             |    |   |             | 
|Interest rate swaps (Note (a))                |  |             | 8  |   |             | 
|Forward foreign exchange contracts (Note (b)) |  |             | 27 |   |             | 
|Total                                         |  |             | 35 |   |             | 
|                                              |  |             |    |   |             | 
|Less: current portion                         |  |             |    |   |             | 
|– Forward foreign exchange contracts          |  |             | (5 | ) |             | 
|                                              |  |             |    |   |             | 
|Non-current portion                           |  |             | 30 |   |             | 



| |  | The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets
in the statement of financial position.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 floating interest 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, 2014, the notional amount of the outstanding interest rate swap agreements was approximately US$801 million (2013:
US$844 million). These agreements will expire between 2015 and 2024.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Realized and unrealized gains and losses arising from the valuation of these interest rate swaps
have been dealt with in the consolidated statement of profit or loss and other comprehensive income as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                     |  | 2014        |     |   | 2013        |  |     | 2012        | 
|---------------------------------------------------------------------------------------------------- |  | ----------- | --- | - | ----------- |  | --- | ----------- | 
|                                                                                                     |  | RMB million |     |   | RMB million |  |     | RMB million | 
|                                                                                                     |  |             |     |   |             |  |     |             | 
|Realized losses (recorded in finance costs)                                                          |  |             | (80 | ) |             |  | (73 | )           | 
|Unrealized mark to market losses                                                                     |  |             |     |   |             |  |     |             | 
|– cash flow hedges (recognized in OCI)                                                               |  |             | (28 | ) |             |  | 209 |             | 
|– fair value hedges (recognized in gain on fair value movements of derivative financial instruments) |  |             | 11  |   |             |  | 16  |             | 
|                                                                                                     |  |             |     |   |             |  |     |             | 
|                                                                                                     |  |             | (97 | ) |             |  | 152 |             | 



F-64









NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 39 | DERIVATIVES FINANCIAL INSTRUMENTS (cont’d)
| | -- | ------------------------------------------



| | (b) | Foreign exchange forward contracts
| | --- | ----------------------------------



| |  | The Group uses foreign exchange forward
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 foreign exchange forward contracts for selling foreign currency (i.e. Japanese
Yen) and purchasing U.S. dollars at fixed exchange rates are accounted for as cash flow hedges. Other foreign exchange forward
contracts are accounted for as fair value hedges. As at December 31, 2014, the notional amount of the outstanding currency forward
contracts was approximately US$39 million (2013: US$38 million), which will expire between 2015 and 2017.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Realized and unrealized gains and losses arising from the valuation of these contracts have been
dealt with in the consolidated statements of profit or loss and other comprehensive income as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                       |  | 2014        |    |   | 2013        |  |    | 2012        | 
|---------------------------------------------------------------------- |  | ----------- | -- | - | ----------- |  | -- | ----------- | 
|                                                                       |  | RMB million |    |   | RMB million |  |    | RMB million | 
|                                                                       |  |             |    |   |             |  |    |             | 
|Realized (losses)/gains (recorded in finance (costs)/income)           |  |             | (2 | ) |             |  | 39 |             | 
|Unrealized mark to market gains – cash flow hedges (recognized in OCI) |  |             | 17 |   |             |  | 37 |             | 
|                                                                       |  |             |    |   |             |  |    |             | 
|                                                                       |  |             | 15 |   |             |  | 76 |             | 



| | 40 | FINANCIAL INSTRUMENTS BY CATEGORY
| | -- | ---------------------------------



|                                                        |  | Loans and Receivables |       |  | Assets at fair value through the profit and loss |  |   | Derivatives used for hedging |  |  | Available  for sale |  |  | Total       |    
|------------------------------------------------------- |  | --------------------- | ----- |  | ------------------------------------------------ |  | - | ---------------------------- |  |  | ------------------- |  |  | ----------- | ---
|                                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |             |    
|                                                        |  | RMB million           |       |  | RMB million                                      |  |   | RMB million                  |  |  | RMB million         |  |  | RMB million |    
|Financial assets                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |             |    
|                                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |             |    
|Balance, December 31, 2014                              |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |             |    
|Available-for-sale financial assets                     |  |                       | -     |  |                                                  |  | - |                              |  |  | -                   |  |  |             | 433
|Derivative financial instruments                        |  |                       | -     |  |                                                  |  | - |                              |  |  | 35                  |  |  |             | -  
|Trade receivables                                       |  |                       | 3,862 |  |                                                  |  | - |                              |  |  | -                   |  |  |             | -  
|Prepayments and other receivables excluding prepayments |  |                       | 1,313 |  |                                                  |  | - |                              |  |  | -                   |  |  |             | -  
|Restricted bank deposits and short-term bank deposits   |  |                       | 38    |  |                                                  |  | - |                              |  |  | -                   |  |  |             | -  
|Cash and cash equivalents                               |  |                       | 1,355 |  |                                                  |  | - |                              |  |  | -                   |  |  |             | -  
|Other long-term assets                                  |  |                       | 528   |  |                                                  |  | - |                              |  |  | -                   |  |  |             | -  
|                                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |             |    
|Total                                                   |  |                       | 7,096 |  |                                                  |  | - |                              |  |  | 35                  |  |  |             | 433



|                                    |  | Loans and Receivables |         |  | Liabilities at fair value through the profit and loss |  |   | Derivatives used for hedging |  |  | Other financial liabilities at amortized cost |  |  | Total       |  
|----------------------------------- |  | --------------------- | ------- |  | ----------------------------------------------------- |  | - | ---------------------------- |  |  | --------------------------------------------- |  |  | ----------- | -
|                                    |  |                       |         |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|                                    |  | RMB million           |         |  | RMB million                                           |  |   | RMB million                  |  |  | RMB million                                   |  |  | RMB million |  
|Financial liabilities               |  |                       |         |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|                                    |  |                       |         |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|Balance, December 31, 2014          |  |                       |         |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|Borrowings                          |  |                       | 59,189  |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|Obligations under finance leases    |  |                       | 38,695  |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|Derivative financial instruments    |  |                       | -       |  |                                                       |  | 8 |                              |  |  | 87                                            |  |  |             | -
|Trade and bills payable             |  |                       | 2,083   |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|Other payables and accrued expenses |  |                       | 12,818  |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|                                    |  |                       |         |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|Total                               |  |                       | 112,785 |  |                                                       |  | 8 |                              |  |  | 87                                            |  |  |             | -



F-65









NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 40 | FINANCIAL INSTRUMENTS BY CATEGORY (cont’d)
| | -- | ------------------------------------------



|                                                        |  | Loans and Receivables |       |  | Assets at fair value through the profit and loss |  |   | Derivatives used for hedging |  |  | Available  for sale |  |  | Total        |    
|------------------------------------------------------- |  | --------------------- | ----- |  | ------------------------------------------------ |  | - | ---------------------------- |  |  | ------------------- |  |  | ------------ | ---
|                                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |              |    
|                                                        |  | RMB  million          |       |  | RMB million                                      |  |   | RMB million                  |  |  | RMB million         |  |  | RMB  million |    
|Financial assets                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |              |    
|                                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |              |    
|Balance, December 31, 2013                              |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |              |    
|Available-for-sale financial assets                     |  |                       | -     |  |                                                  |  | - |                              |  |  | -                   |  |  |              | 411
|Derivative financial instruments                        |  |                       | -     |  |                                                  |  | - |                              |  |  | 68                  |  |  |              | -  
|Trade receivables                                       |  |                       | 3,525 |  |                                                  |  | - |                              |  |  | -                   |  |  |              | -  
|Prepayments and other receivables excluding prepayments |  |                       | 1,940 |  |                                                  |  | - |                              |  |  | -                   |  |  |              | -  
|Restricted bank deposits and short-term bank deposits   |  |                       | 383   |  |                                                  |  | - |                              |  |  | -                   |  |  |              | -  
|Cash and cash equivalents                               |  |                       | 1,995 |  |                                                  |  | - |                              |  |  | -                   |  |  |              | -  
|Other long-term assets                                  |  |                       | 1,030 |  |                                                  |  | - |                              |  |  | -                   |  |  |              | -  
|                                                        |  |                       |       |  |                                                  |  |   |                              |  |  |                     |  |  |              |    
|Total                                                   |  |                       | 8,873 |  |                                                  |  | - |                              |  |  | 68                  |  |  |              | 411



|                                    |  | Loans and Receivables |        |  | Liabilities at fair value through the profit and loss |  |   | Derivatives used for hedging |  |  | Other financial liabilities at amortized cost |  |  | Total       |  
|----------------------------------- |  | --------------------- | ------ |  | ----------------------------------------------------- |  | - | ---------------------------- |  |  | --------------------------------------------- |  |  | ----------- | -
|                                    |  |                       |        |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|                                    |  | RMB million           |        |  | RMB million                                           |  |   | RMB million                  |  |  | RMB million                                   |  |  | RMB million |  
|Financial liabilities               |  |                       |        |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|                                    |  |                       |        |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|Balance, December 31, 2013          |  |                       |        |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|Borrowings                          |  |                       | 50,600 |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|Obligations under finance leases    |  |                       | 23,135 |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|Derivative financial instruments    |  |                       | -      |  |                                                       |  | - |                              |  |  | 127                                           |  |  |             | -
|Trade and bills payable             |  |                       | 3,463  |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|Other payables and accrued expenses |  |                       | 12,296 |  |                                                       |  | - |                              |  |  | -                                             |  |  |             | -
|                                    |  |                       |        |  |                                                       |  |   |                              |  |  |                                               |  |  |             |  
|Total                               |  |                       | 89,494 |  |                                                       |  | - |                              |  |  | 127                                           |  |  |             | -



| | 41 | ISSUED CAPITAL
| | -- | --------------



|                                                                                                              |  | December 31, |       
|------------------------------------------------------------------------------------------------------------- |  | ------------ | ------
|                                                                                                              |  | 2014         |       
|                                                                                                              |  | RMB million  |       
|                                                                                                              |  |              |       
|Registered, issued and fully paid of RMB1.00 each A shares listed on The Shanghai Stock Exchange (“A Shares”) |  |              | 8,481 
|-Tradable shares held by CEA Holding with trading moratorium (Note)                                           |  |              | 242   
|-Tradable shares held by CES Finance Holding Co., Ltd. with trading moratorium (Note)                         |  |              | 457   
|-Tradable shares without trading moratorium                                                                   |  |              | 7,782 
|                                                                                                              |  |              |       
|H shares listed on The Stock Exchange of Hong Kong Limited (“H Shares”)                                       |  |              | 4,193 
|-Tradable shares held by CES Global Holding (Hong Kong) Limited with trading moratorium (Note) 699            |  |              | 699   
|-Tradable shares without trading moratorium                                                                   |  |              | 3,494 
|                                                                                                              |  |              |       
|                                                                                                              |  |              | 12,674



Pursuant to articles 49 and 50 of
the Company’s Articles of Association, both the listed A shares and the listed H shares are registered ordinary shares and
carry equal rights.



Note:

Newly issued shares during 2013 are
all shares with trading moratorium.



F-66









NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 42 | RESERVES
| | -- | --------



|                                                                               |  |             |        |  | Capital     |  |      | Hedging     |  |  |             |   |  |                      |        |   |             | 
|------------------------------------------------------------------------------ |  | ----------- | ------ |  | ----------- |  | ---- | ----------- |  |  | ----------- | - |  | -------------------- | ------ | - | ----------- | 
|                                                                               |  | Share       |        |  | reserve     |  |      | reserve     |  |  | Other       |   |  | Retained earnings/   |       
|                                                                               |  | Premium     |        |  | (Note (a))  |  |      | (Note 39)   |  |  | reserve     |   |  | (Accumulated losses) |        |   | Total       | 
|                                                                               |  | RMB million |        |  | RMB million |  |      | RMB million |  |  | RMB million |   |  | RMB million          |        |   | RMB million | 
|                                                                               |  |             |        |  |             |  |      |             |  |  |             |   |  |                      |        |   |             | 
|At January 1, 2013                                                             |  |             | 18,015 |  |             |  | (720 | )           |  |  | (296        | ) |  |                      | (3,101 | ) |             | 
|Unrealized gain on cashflow hedges (Note 39)                                   |  |             | -      |  |             |  | -    |             |  |  | 246         |   |  |                      | -      |   |             | 
|Fair value movements of available-for-sale financial assets held by associates |  |             | -      |  |             |  | -    |             |  |  | -           |   |  |                      | (3     | ) |             | 
|Fair value movements of available-for-sale financial assets                    |  |             | -      |  |             |  | -    |             |  |  | -           |   |  |                      | 149    |   |             | 
|Actuarial gain on post-retirement benefit obligations                          |  |             | -      |  |             |  | -    |             |  |  | -           |   |  |                      | 416    |   |             | 
|Profit attributable to equity shareholders of the Company                      |  |             | -      |  |             |  | -    |             |  |  | -           |   |  |                      | -      |   |             | 
|Issue of shares                                                                |  |             | 2,175  |  |             |  | -    |             |  |  | -           |   |  |                      | -      |   |             | 
|Others                                                                         |  |             | -      |  |             |  | (58  | )           |  |  | -           |   |  |                      | -      |   |             | 
|                                                                               |  |             |        |  |             |  |      |             |  |  |             |   |  |                      |        |   |             | 
|At December 31, 2013                                                           |  |             | 20,190 |  |             |  | (778 | )           |  |  | (50         | ) |  |                      | (2,539 | ) |             | 
|                                                                               |  |             |        |  |             |  |      |             |  |  |             |   |  |                      |        |   |             | 
|Unrealized loss on cashflow hedges (Note 39)                                   |  |             | -      |  |             |  | -    |             |  |  | (11         | ) |  |                      | -      |   |             | 
|Fair value movements of available-for-sale financial assets                    |  |             | -      |  |             |  | -    |             |  |  | -           |   |  |                      | 14     |   |             | 
|Actuarial loss on post-retirement benefit obligations                          |  |             | -      |  |             |  | -    |             |  |  | -           |   |  |                      | (341   | ) |             | 
|Profit attributable to equity shareholders of the Company                      |  |             | -      |  |             |  | -    |             |  |  | -           |   |  |                      | -      |   |             | 
|                                                                               |  |             |        |  |             |  |      |             |  |  |             |   |  |                      |        |   |             | 
|At December 31, 2014                                                           |  |             | 20,190 |  |             |  | (778 | )           |  |  | (61         | ) |  |                      | (2,866 | ) |             | 



Note:



| | (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.



| | 43 | ASSETS CLASSIFIED AS HELD FOR SALE
| | -- | ----------------------------------



The Group entered into several agreements
with third parties to dispose certain aircraft and related engines. The aircraft and engines to be sold in the next 12 months with
an aggregated carrying value of RMB4,330 million have been recognized as assets classified as held for sale by the Group as at
December 31, 2014. There was no impairment loss by reference to the contracted selling price less estimated cost to sell for the
year ended December 31, 2014.



In December 2012, the Group entered
into an agreement with a third party to dispose certain aircraft and related engines. The aircraft and engines with an aggregated
carrying value of RMB344 million (after the impairment loss charge) ceased operation in 2013 and have been recognized as assets
classified as held for sale at December 31, 2013. An impairment loss of approximately RMB50 million was made against these aircraft
and engines by reference to the contracted selling price less estimated cost to sell (Note 10) for the year ended December 31,
2013. The abovementioned aircraft and engines were sold in the year ended December 31, 2014.



F-67







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 44 | NOTE TO STATEMENTS OF CONSOLIDATED CASH FLOWS
| | -- | ---------------------------------------------



(a)	 Cash generated from
operations



|                                                                           |  | Year ended December 31. |       
|-------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                           |  | 2014                    |       
|                                                                           |  | RMB million             |       
|                                                                           |  |                         |       
|Profit before income tax                                                   |  |                         | 4,113 
|Adjustments for:                                                           |  |                         |       
|Depreciation of property, plant and equipment and intangible assets        |  |                         | 9,125 
|Losses/(gains) on disposals of property, plant and equipment               |  |                         | 25    
|Gain on disposals of investment in associates                              |  |                         | -     
|Share of results of associates                                             |  |                         | (91   
|Share of results of joint ventures                                         |  |                         | (36   
|Amortization of lease prepayments                                          |  |                         | 58    
|Net foreign exchange losses/(gains)                                        |  |                         | 203   
|Gain arising from fair value movements of derivative financial instruments |  |                         | (11   
|Consumption of flight equipment spare parts                                |  |                         | 712   
|Impairment charge/(reversal) for trade and other receivables               |  |                         | 11    
|(Reversal of)/provision for post-retirement benefits                       |  |                         | (2,612
|Provision for return condition checks for aircraft under operating leases  |  |                         | 1,122 
|Impairment charges/(reversals)                                             |  |                         | 12    
|Interest income                                                            |  |                         | (88   
|Interest expense                                                           |  |                         | 1,957 
|                                                                           |  |                         |       
|Operating profit before working capital changes                            |  |                         | 14,500
|                                                                           |  |                         |       
|Changes in working capital                                                 |  |                         |       
|Flight equipment spare parts                                               |  |                         | (750  
|Trade receivables                                                          |  |                         | (345  
|Prepayments and other receivables                                          |  |                         | (1,314
|Restricted bank deposits and short-term bank deposits                      |  |                         | 345   
|Sales in advance of carriage                                               |  |                         | 1,491 
|Trade and bills payable                                                    |  |                         | (720  
|Other payables and accruals                                                |  |                         | 1,024 
|Other long-term liabilities                                                |  |                         | 145   
|Provision for return condition checks for aircraft under operating leases  |  |                         | (1,455
|Staff housing allowances                                                   |  |                         | 45    
|Post-retirement benefit obligations                                        |  |                         | (387  
|Operating lease deposits                                                   |  |                         | 188   
|                                                                           |  |                         |       
|Cash generated from operations                                             |  |                         | 12,767



| | (b)  Non-cash transactions
| | --------------------------



|                                                               |  | Year ended December 31. |       
|-------------------------------------------------------------- |  | ----------------------- | ------
|                                                               |  | 2014                    |       
|                                                               |  | RMB million             |       
|                                                               |  |                         |       
|Financing activities not affecting cash:                       |  |                         |       
|Finance lease obligations incurred for acquisition of aircraft |  |                         | 19,905



F-68







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 45 | COMMITMENTS
| | -- | -----------



| | (a) | Capital commitments
| | --- | -------------------



The Group
had the following capital commitments:



|                                                |  | December 31, |        
|----------------------------------------------- |  | ------------ | -------
|                                                |  | 2014         |        
|                                                |  | RMB million  |        
|                                                |  |              |        
|Authorized and contracted for:                  |  |              |        
|– Aircraft, engines and flight equipment (Note) |  |              | 105,011
|– Other property, plant and equipment           |  |              | 3,108  
|– Investment                                    |  |              | 38     
|                                                |  |              | 108,157
|                                                |  |              |        
|Authorized but not contracted for:              |  |              |        
|– Other property, plant and equipment           |  |              | 26,182 
|– Investment                                    |  |              | 1,000  
|                                                |  |              | 27,182 
|                                                |  |              |        
|                                                |  |              | 135,339



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, |        
|------------------ |  | ------------ | -------
|                   |  | 2014         |        
|                   |  | RMB million  |        
|                   |  |              |        
|Within one year    |  |              | 25,830 
|In the second year |  |              | 18,249 
|In the third year  |  |              | 14,833 
|In the fourth year |  |              | 16,119 
|Over four years    |  |              | 29,980 
|                   |  |              |        
|                   |  |              | 105,011



| | (b) | Operating lease commitments
| | --- | ---------------------------



As at each reporting date, the Group
had commitments under operating leases to pay future minimum lease rentals as follows:



|                                       |  | December 31, |       
|-------------------------------------- |  | ------------ | ------
|                                       |  | 2014         |       
|                                       |  | RMB million  |       
|Aircraft, engines and flight equipment |  |              |       
|Within one year                        |  |              | 3,818 
|In the second year                     |  |              | 3,508 
|In the third to fifth year inclusive   |  |              | 8,022 
|After the fifth year                   |  |              | 8,682 
|                                       |  |              | 24,030
|                                       |  |              |       
|Land and buildings                     |  |              |       
|Within one year                        |  |              | 202   
|In the second year                     |  |              | 164   
|In the third to fifth year inclusive   |  |              | 382   
|After the fifth year                   |  |              | 1,983 
|                                       |  |              | 2,731 
|                                       |  |              |       
|                                       |  |              | 26,761



F-69







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46 | RELATED PARTY TRANSACTIONS
| | -- | --------------------------



The
Group is controlled by CEA Holding, which directly owns 40.03% of the Company’s shares as at December 31, 2014 (2013:
40.03%; 2012:  42.84%). In addition, through CES Global Holding (Hong Kong) Limited, and CES Finance Holding Co., Ltd., two
wholly owned subsidiaries of CEA Holding, CEA Holding owns 20.72% and 3.61% of the Company’s shares respectively as at
December 31,2014 (2013: 20.72% and 3.61%; 2012: 17.09% and nil).



The Company is a state-owned enterprise
established in the PRC and is controlled by the PRC government, which also owns a significant portion of the productive assets
in the PRC. In accordance with IAS 24 "Related Party Disclosures", government-related entities and their subsidiaries,
directly or indirectly controlled, jointly controlled or significantly influenced by the PRC government are defined as related
parties of the Group. On that basis, related parties include CEA Holding and its subsidiaries (other than the Group), other government-related
entities and their subsidiaries ("Other State Owned Enterprises"), other entities and corporations over which the Company
is able to control or exercise significant influence and key management personnel of the Company as well as their close family
members.



For the purposes of the related
party transaction disclosures, the directors of the Company believe that meaningful information in respect of related party transactions
has been adequately disclosed below in addition to the transactions detailed elsewhere in these financial statements.



| | (a) | Nature of related parties that do not control or controlled by the Group:
| | --- | -------------------------------------------------------------------------



|Name of related party                                                                                                    |  | Relationship with the Group                                                                                
|------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------
|                                                                                                                         |  |                                                                                                            
|Eastern Finance                                                                                                          |  | Associate of the Company                                                                                   
|Kunming Dongmei Aviation Travel Co., Ltd. (“Kunming Dongmei”)                                                            |  | Controlled by the same parent company                                                                      
|Shanghai Dongmei Air Travel Co., Ltd. (“Shanghai Dongmei”)                                                               |  | Associate of the Company (it was acquired by the Group and became a wholly-owned subsidiary in August 2014)
|Xian Dongmei Aviation Travel Co., Ltd. (“Xian Dongmei”)                                                                  |  | Controlled by the same parent company                                                                      
|Eastern Import & Export                                                                                                  |  | Associate of the Company                                                                                   
|Wheels & Brakes                                                                                                          |  | Joint controlled entity of the Company                                                                     
|Technologies Aerospace                                                                                                   |  | Joint 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 Hute Aviation Tech. Co. Ltd. (“Shanghai Hute”)                                                                  |  | Joint controlled entity of the Company                                                                     
|Shanghai Hang Lv International Freight Forwarding
        Co., Ltd. (“Hang
        Lv International Freight Forwarding”) |  | Controlled by the same parent company                                                                      
|Eastern China Kaiya System Integration (“China Kaiya”)                                                                   |  | Joint controlled entity of the Company                                                                     
|Shanghai Aviation Import & Export Co.,
        Ltd. (“Shanghai Import &
        Export”)                                 |  | Associate of the Company                                                                                   
|Shanghai Eastern Airlines Investment Co., Ltd.
        (“Eastern
        Investment”)                                    |  | Controlled by the same parent company                                                                      
|Eastern Airlines Tourism Investment (Group)
        Co., Ltd. (“Eastern
        Tourism”)                                |  | Controlled by the same parent company                                                                      
|Jetstar                                                                                                                  |  | Associate of the Company                                                                                   
|Collins Aviation Maintenance Services (Shanghai) Limited (“Collins Aviation”)                                            |  | Associate of the Company                                                                                   



F-70







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (b)  Related party transaction
| | ------------------------------



|                                                                          |  |                          |  | Pricing policy |  | Income/(expense or payments) |       
|------------------------------------------------------------------------- |  | ------------------------ |  | -------------- |  | ---------------------------- | ------
|                                                                          |  |                          |  | and decision   |  | 2014                         |       
|Nature of transactions                                                    |  | Related party            |  | Process        |  | RMB million                  |       
|                                                                          |  |                          |  |                |  |                              |       
|With CEA Holding or companies directly or indirectly held by CEA Holding: |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Interest income on deposits at an                                         |  | Eastern Finance          |  | (iv)           |  |                              | 21    
|average rate of 0.35% per annum                                           |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Interest income on loans at an                                            |  | Jetstar                  |  | (vi)           |  |                              | 10    
|average rate of 6.00% per annum                                           |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Commission expense on air tickets                                         |  | Shanghai Dongmei         |  | (ii)           |  |                              | (5    
|sold on behalf of the Group, at                                           |  | Kunming Dongmei          |  |                |  |                              | -     
|rates ranging from 3% to 9% of                                            |  | Xian Dongmei             |  |                |  |                              | -     
|the value of tickets sold*                                                |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Handling charges of 0.1% to 2%                                            |  | Eastern Import & Export  |  | (ii)           |  |                              | (120  
|for purchase of aircraft, flight                                          |  |                          |  |                |  |                              |       
|equipment, flight equipment spare                                         |  |                          |  |                |  |                              |       
|parts, other property, plant and                                          |  |                          |  |                |  |                              |       
|flight equipment and repairs                                              |  |                          |  |                |  |                              |       
|for aircraft and engines*                                                 |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Repairs and maintenance expense                                           |  | Wheels & Brakes          |  | (ii)           |  |                              | (81   
|for aircraft and engines                                                  |  | Technologies Aerospace   |  | (ii)           |  |                              | (188  
|                                                                          |  | Shanghai P&W             |  | (ii)           |  |                              | (1,804
|                                                                          |  |                          |  |                |  |                              |       
|Supply of system services                                                 |  | China Kaiya              |  | (ii)           |  |                              | (36   
|                                                                          |  |                          |  |                |  |                              |       
|Supply of food and beverages*                                             |  | Shanghai Catering and    |  | (i)            |  |                              | (851  
|                                                                          |  | its subsidiaries         |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Advertising expense*                                                      |  | Eastern Advertising      |  | (ii)           |  |                              | (5    
|                                                                          |  |                          |  |                |  |                              |       
|Media royalty fee*                                                        |  | Eastern Advertising      |  | (iii)          |  |                              | 16    
|                                                                          |  |                          |  |                |  |                              |       
|Automobile maintenance service,                                           |  | CEA Development          |  | (ii)           |  |                              | (142  
|aircraft maintenance, providing                                           |  |                          |  |                |  |                              |       
|transportation automobile and                                             |  |                          |  |                |  |                              |       
|other products*                                                           |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Equipment maintenance fee                                                 |  | Shanghai Hute            |  | (ii)           |  |                              | (66   
|                                                                          |  | Collins Aviation         |  | (ii)           |  |                              | (46   
|                                                                          |  |                          |  |                |  |                              |       
|Property management and                                                   |  | Eastern Investment       |  | (ii)           |  |                              | (4    
|green maintenance expenses*                                               |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Supply of hotel accommodation                                             |  | Eastern Tourism          |  | (ii)           |  |                              | (1    
|service*                                                                  |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Land and building rental*                                                 |  | CEA Holding              |  | (ii)           |  |                              | (50   
|                                                                          |  |                          |  |                |  |                              |       
|Acquisition of a subsidiary*                                              |  | Eastern Tourism          |  | (v)            |  |                              | (32   
|                                                                          |  |                          |  |                |  |                              |       
|Acquisition of non-controlling                                            |  | CEA Holding              |  | (v)            |  |                              | -     
|interests in subsidiaries                                                 |  | Shanghai Import & Export |  | (v)            |  |                              | -     
|                                                                          |  |                          |  |                |  |                              |       
|Acquisition of non-controlling                                            |  | Eastern Tourism          |  | (v)            |  |                              | -     
|interests in associates                                                   |  |                          |  |                |  |                              |       
|                                                                          |  |                          |  |                |  |                              |       
|Disposal of investment in an associate                                    |  | Eastern Investment       |  | (v)            |  |                              | -     



F-71







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



(b)		Related party transaction(cont’d)



(i)The Group’s
pricing policies on products purchased from related parties are mutually agreed based on market prices between contract parties.



(ii)The
Group’s pricing policies on services provided by related parties are mutually agreed based on the market prices between contract
parties.



(iii)
The Group’s pricing policies on services provided to related parties
are mutually agreed based on the market prices between contract parties.



(iv)
The Group’s pricing policies on related party interest rate are mutually
agreed based on benchmark interest rates between contract parties.



(v)
The Company’s pricing policies on transfer of equity or dispose of
investment are based on the valuation prices.



(vi)
The Group’s pricing policies on related party interest rate are mutually
agreed based on market interest rates between contract parties.



F-72







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (c) | Balances with related companies
| | --- | -------------------------------



(i) Amounts
due from related companies



|                                  |  |                                              |  | December 31, |    
|--------------------------------- |  | -------------------------------------------- |  | ------------ | ---
|Nature                            |  | Company                                      |  | 2014         |    
|                                  |  |                                              |  | RMB million  |    
|                                  |  |                                              |  |              |    
|Trade receivables                 |  | Hang Lv International Freight
    Forwarding |  |              | -  
|                                  |  | Others                                       |  |              | 1  
|                                  |  |                                              |  |              | 1  
|                                  |  |                                              |  |              |    
|Prepayments and other receivables |  | Eastern Import & Export                      |  |              | 123
|                                  |  | Collins Aviation                             |  |              | 16 
|                                  |  | China Kaiya                                  |  |              | 14 
|                                  |  | Others                                       |  |              | 16 
|                                  |  |                                              |  |              | 169



All the amounts due from related
companies are trade in nature, interest free and payable within normal credit trade customers.



(ii) Amounts due to related companies



|                            |  |                         |  | December 31, |      
|--------------------------- |  | ----------------------- |  | ------------ | -----
|Nature                      |  | Company                 |  | 2014         |      
|                            |  |                         |  | RMB million  |      
|                            |  |                         |  |              |      
|Trade and bills payable     |  | Eastern Import & Export |  |              | 112  
|                            |  | Shanghai Catering       |  |              | 38   
|                            |  | Technologies Aerospace  |  |              | 4    
|                            |  | Others                  |  |              | 32   
|                            |  |                         |  |              | 186  
|                            |  |                         |  |              |      
|Other payables and accruals |  | Eastern Import & Export |  |              | 652  
|                            |  | Shanghai P&W            |  |              | 255  
|                            |  | Shanghai Catering       |  |              | 154  
|                            |  | CEA Holding             |  |              | 97   
|                            |  | Collins Aviation        |  |              | 15   
|                            |  | China Kaiya             |  |              | 12   
|                            |  | Shanghai Hute           |  |              | 59   
|                            |  | Technologies Aerospace  |  |              | 157  
|                            |  | CEA  Development        |  |              | 50   
|                            |  | Others                  |  |              | 32   
|                            |  |                         |  |              | 1,483



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.



(iii) Short-term deposits and borrowings
with associates and CEA Holding



|                                                                                                       |  | Average interest rate |      |   | December 31, | 
|------------------------------------------------------------------------------------------------------ |  | --------------------- | ---- | - | ------------ | 
|                                                                                                       |  | 2014                  |      |   | 2013         | 
|                                                                                                       |  |                       |      |   |              | 
|                                                                                                       |  |                       |      |   |              | 
|Short-term deposits(included in restricted bank depositsand short-term bank deposits)“Eastern Finance” |  |                       | 0.35 | % |              | 
|Short-term loans (included in borrowings)“Eastern Finance”                                             |  |                       | 2.26 | % |              | 
|Long-term loans(included in borrowings)“Eastern Finance”                                               |  |                       | 5.73 | % |              | 
|Loans(Note)   (included in prepayments and other receivables)“Jetstar”                                 |  |                       | 6.00 | % |              | 



F-73







NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS



| | 46 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (c) | Balances with related companies (cont’d)
| | --- | ----------------------------------------



Note: In July 2014, Eastern Air
Overseas signed a loan contract with Jetstar, an associate of the Company. According to the contract, Eastern Air Overseas offered
a loan of USD 60 million at market interest rate for Jetstar. The principal of the loan will be repayable on April 30, 2015.



| | (d) | Guarantees by holding company
| | --- | -----------------------------



As at December 31, 2014, bonds of
the Group guaranteed by CEA Holding were RMB4.8 billion (2013: RMB4.8 billion) (Note 33).



| | (e) | Key management compensation
| | --- | ---------------------------



The compensation paid or payable to
key management for employee services mainly comprised of salaries and other short-term employee benefits and was analyzed as below:



|                                      |  | 2014        |   |  | 2013        |  |   | 2012        | 
|------------------------------------- |  | ----------- | - |  | ----------- |  | - | ----------- | 
|                                      |  | RMB million |   |  | RMB million |  |   | RMB million | 
|                                      |  |             |   |  |             |  |   |             | 
|Directors and supervisors (Note 9(a)) |  |             | 3 |  |             |  | 4 |             | 
|Senior management                     |  |             | 3 |  |             |  | 3 |             | 
|                                      |  |             |   |  |             |  |   |             | 
|                                      |  |             | 6 |  |             |  | 7 |             | 



*These related party transactions
also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the listing rules.



| | 47 | ULTIMATE HOLDING COMPANY
| | -- | ------------------------



The Directors regard CEA Holding,
a state-owned enterprise established in the PRC, as being the ultimate holding company.



| | 48 | EVENTS AFTER THE REPORTING PERIOD
| | -- | ---------------------------------



In December 2014, the Company entered
into a capital injection agreement pursuant to which the Company, CEA Holding and CES Finance would inject and increase the registered
capital of CEA Finance by RMB1,500 million in proportion according to their respective shareholding. The Company contributed a
pro-rata amount of RMB375 million in February 2015.



On each of February 12, 2015 and March
26, 2015, the Company issued short-term debentures with a principal of RMB3 billion with a maturity of 180 days. The debentures
bear interest at the rate of 4.5% per annum.



F-74