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, 2013



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



* Not for trading, but only in connection
with the registration of American Depositary Shares. The Ordinary H Shares are also listed and traded on The Stock Exchange of
Hong Kong Limited.



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



None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:



None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period
covered by the annual report.



As of December 31,
2013, 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    |                                                                              | 6       
|          |                                                                              |         
|Item 1.   | Identity of Directors, Senior Management and Advisers                        | 6       
|          |                                                                              |         
|Item 2.   | Offer Statistics and Expected Timetable                                      | 6       
|          |                                                                              |         
|Item 3.   | Key Information                                                              | 6       
|          |                                                                              |         
|Item 4.   | Information on the Company                                                   | 26      
|          |                                                                              |         
|Item 5.   | Operating and Financial Review and Prospects                                 | 53      
|          |                                                                              |         
|Item 6.   | Directors, Senior Management and Employees                                   | 77      
|          |                                                                              |         
|Item 7.   | Major Shareholders and Related Party Transactions                            | 88      
|          |                                                                              |         
|Item 8.   | Financial Information                                                        | 99      
|          |                                                                              |         
|Item 9.   | The Offer and Listing                                                        | 100     
|          |                                                                              |         
|Item 10.  | Additional Information                                                       | 102     
|          |                                                                              |         
|Item 11.  | Quantitative and Qualitative Disclosures about Market Risk                   | 121     
|          |                                                                              |         
|Item 12.  | Description of Securities Other than Equity Securities                       | 122     
|          |                                                                              |         
|PART II   |                                                                              | 123     
|          |                                                                              |         
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 123     
|          |                                                                              |         
|Item 14.  | Material Modifications to the Rights of Security Holders and Use Of Proceeds | 123     
|          |                                                                              |         
|Item 15.  | Controls and Procedures                                                      | 124     
|          |                                                                              |         
|Item 16A. | Audit Committee Financial Expert                                             | 125     
|          |                                                                              |         
|Item 16B. | Code of Ethics                                                               | 125     
|          |                                                                              |         
|Item 16C. | Principal Accountant Fees and Services                                       | 125     
|          |                                                                              |         
|Item 16D. | Exemptions from the Listing Standards for Audit Committees                   | 126     
|          |                                                                              |         
|Item 16E. | Purchase of Equity Securities by the Issuer and Affiliated Purchasers        | 126     
|          |                                                                              |         
|Item 16F. | Changes in Registrant's Certifying Accountant                                | 126     
|          |                                                                              |         
|Item 16G. | Corporate Governance                                                         | 127     
|          |                                                                              |         
|Item 16H. | Mine Safety Disclosures                                                      | 129     
|          |                                                                              |         
|PART III  |                                                                              | 129     
|          |                                                                              |         
|Item 17.  | Financial Statements                                                         | 129     
|          |                                                                              |         
|Item 18.  | Financial Statements                                                         | 129     
|          |                                                                              |         
|Item 19.  | Exhibits                                                                     | 129     













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.
| | - | ------------------------------------------------------------



4







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



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



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



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



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



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



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



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



| | · | 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                     



5







|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.



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



Not applicable.



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



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



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



6







Our consolidated financial statements as
of December 31, 2012 and 2013 and for the years ended December 31, 2011, 2012 and 2013 included in this Annual Report on Form 20-F
have been prepared in accordance with IFRS, which includes all International Accounting Standards and Interpretations, as issued
by the International Accounting Standards Board, or the IASB. Asdiscussed in Note 2(a)(ii)
to our consolidated financial statements,we changed the method
of accounting for defined benefit plan effective January 1, 2013 to comply with the new requirements of IAS 19 (2011).As
a result, all deferred actuarial gains and losses as at December 31, 2012 and January 1, 2012 recognized in other comprehensive
income ("OCI") and the actuarial gains and losses recognized in the profit or loss for the years ended December 31, 2012
and 2011 were adjusted to OCI. In addition, the interest cost and expected return on plan assets recorded in 2012 and 2011 have
been replaced by net interest amounts.



We make an explicit and unreserved statement of compliance with IFRS with respect to our consolidated
financial statements as of December 31, 2012 and 2013 and for the years ended December 31, 2011, 2012 and 2013 included in this
Annual Report. Ernst & Young Hua Ming LLP, our current independent registered
public accounting firm, has issued an unqualified auditor's report on our consolidated statement of financial position 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. The selected financial data from the consolidated income statements for the years ended December
31, 2009, 2010, 2011 and 2012 and the selected financial data from the balance sheets as of December 31, 2009, 2010, 2011 and 2012
have been derived from our audited consolidated financial statements, which have been prepared in accordance with International
Financial Reporting Standards, or IFRS, as adopted by the International Accounting Standards Board, or IASB, and audited by PricewaterhouseCoopers,
an independent registered public accounting firm in Hong Kong. PricewaterhouseCoopers’ reports in respect of the consolidated
income statements for the years ended December 31, 2011 and 2012 and the consolidated balance sheets as of December 31, 2012 and
the related footnotes are included in this Annual Report.



The following tables
present selected consolidated profit or loss and comprehensive income data for the years ended December 31, 2009, 2010, 2011, 2012
and 2013 and selected consolidated statements of financial position data as of December 31, 2009, 2010, 2011, 2012 and 2013 that
were prepared under IFRS. Due to the adoption of the new requirements of IAS 19 (2011) during the current year, the accounting
treatment and presentation of certain items and balances in the consolidated financial statements as of December 31, 2009, 2010,
2011 and 2012 and the years then ended were revised. The selected financial information as of December 31, 2012 and 2013 and for
the years ended December 31, 2011, 2012 and 2013 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.



7







|                                                                               |  | Year Ended December 31,                         |        
|------------------------------------------------------------------------------ |  | ----------------------------------------------- | -------
|                                                                               |  | 2009 RMB (Restated)                             |        
|                                                                               |  | (in millions, except per share or per ADS data) |        
|Consolidated Statements of Profit or Loss and Other Comprehensive Income Data: |  |                                                 |        
|Revenues                                                                       |  |                                                 | 38,989 
|Other operating income                                                         |  |                                                 | 1,288  
|Operating expenses                                                             |  |                                                 | (38,340
|Operating profit                                                               |  |                                                 | 1,937  
|Finance income / (costs), net                                                  |  |                                                 | (1,549 
|Profit before income tax                                                       |  |                                                 | 365    
|Profit for the year attributable to the equity shareholders of the Company     |  |                                                 | 280    
|Basic and fully diluted earnings per share (1)                                 |  |                                                 | 0.04   
|Basic and fully diluted earnings per ADS                                       |  |                                                 | 2.18   



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



|                                                                                        |  | As of December 31,  |        
|--------------------------------------------------------------------------------------- |  | ------------------- | -------
|                                                                                        |  | 2009 RMB (Restated) |        
|                                                                                        |  | (in millions)       |        
|Consolidated Statements of Financial Position Data:                                     |  |                     |        
|Cash and cash equivalents                                                               |  |                     | 1,735  
|Net current liabilities                                                                 |  |                     | (28,648
|Non-current assets                                                                      |  |                     | 65,035 
|Long term borrowings, including current portion                                         |  |                     | (16,928
|Obligations under finance leases, including current portion                             |  |                     | (19,370
|Total share capital and reserves attributable to the equity shareholders of the Company |  |                     | (1,287 
|Non-current liabilities                                                                 |  |                     | (37,306
|Total assets less current liabilities                                                   |  |                     | 36,387 



8







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 RMB6.0537 to US$1.00 and HK$7.7539
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, 2013. 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 18, 2014, the exchange rates as set forth in the H.10
statistical release of the Federal Reserve Board were RMB6.2240=US$1.00 and HK$7.7539=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 2012                      |  |                     | 6.3330 |  |                     | 
|February 2012                     |  |                     | 6.3120 |  |                     | 
|March 2012                        |  |                     | 6.3323 |  |                     | 
|April 2012                        |  |                     | 6.3123 |  |                     | 
|May 2012                          |  |                     | 6.3684 |  |                     | 
|June 2012                         |  |                     | 6.3702 |  |                     | 
|July 2012                         |  |                     | 6.3879 |  |                     | 
|August 2012                       |  |                     | 6.3738 |  |                     | 
|September 2012                    |  |                     | 6.3489 |  |                     | 
|October 2012                      |  |                     | 6.2877 |  |                     | 
|November 2012                     |  |                     | 6.2454 |  |                     | 
|December 2012                     |  |                     | 6.2502 |  |                     | 
|January 2013                      |  |                     | 6.2303 |  |                     | 
|February 2013                     |  |                     | 6.2438 |  |                     | 
|March 2013                        |  |                     | 6.2246 |  |                     | 
|April 2013                        |  |                     | 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 (up to April 18, 2014) |  |                     | 6.2240 |  |                     | 



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.



9







|     |  | RMB perUS$1.00 (1) |        |  | HK$ per US$1.00 | 
|---- |  | ------------------ | ------ |  | --------------- | 
|2009 |  |                    | 6.8307 |  |                 | 
|2010 |  |                    | 6.7696 |  |                 | 
|2011 |  |                    | 6.4630 |  |                 | 
|2012 |  |                    | 6.3093 |  |                 | 
|2013 |  |                    | 6.1478 |  |                 | 










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, 2013, which are not audited. All references
in this Annual Report to our cargo operations, cargo statistics or cargo revenues include figures for cargo and mail.



|                                                               |  | Year Ended December 31, |         
|-------------------------------------------------------------- |  | ----------------------- | --------
|                                                               |  | 2009                    |         
|Selected Airline Operating Data:                               |  |                         |         
|Capacity:                                                      |  |                         |         
|ATK (millions)                                                 |  |                         | 12,505.5
|ASK (millions)                                                 |  |                         | 84,456.4
|AFTK (millions)                                                |  |                         | 4,904.5 
|Traffic:                                                       |  |                         |         
|Revenue passenger-kilometers (millions)                        |  |                         | 60,942.1
|Revenue tonne-kilometers (millions)                            |  |                         | 7,908.7 
|Revenue freight tonne-kilometers (millions)                    |  |                         | 2,474.2 
|Hours flown (thousands)                                        |  |                         | 838.3   
|Number of passengers carried (thousands)                       |  |                         | 44,043.0
|Weight of cargo carried (millions of kilograms)                |  |                         | 943.9   
|Load Factor:                                                   |  |                         |         
|Overall load factor (%)                                        |  |                         | 63.2    
|Passenger load factor (%)                                      |  |                         | 72.2    
|Yield and Cost Statistics (RMB):                               |  |                         |         
|Passenger yield (passenger revenue/ passenger-kilometers)      |  |                         | 0.54    
|Cargo yield (cargo revenue/cargo tonne-kilometers)             |  |                         | 1.67    
|Average yield (passenger and cargo revenue/ tonne- kilometers) |  |                         | 4.67    
|Unit cost (operating expenses/ATK) (Restated)                  |  |                         | 3.07    



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



Not applicable.



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



Not applicable.



10







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



Risks Relating to the PRC



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



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



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



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



Furthermore, the value
of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among other things,
PRC government policies, domestic and international economies, political conditions and the supply and demand of currency. On July
21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy,
the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change
in policy resulted in an appreciation in the value of the Renminbi against the U.S. dollar of approximately 7.0% in 2008. While
there was no material appreciation of the value of Renminbi against the U.S. dollar in 2009, the value of the Renminbi against
the U.S. dollar appreciated by approximately 3.0% in 2010 and by approximately 5.1% in 2011. In 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 currency policy, which could result in further and more significant revaluations of the Renminbi against
the U.S. dollar or any other foreign currency. Any resulting fluctuations in exchange rates as a result of such policy changes
may have an adverse effect on our financial condition and results of operations.



11







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



Inflation rates within
the PRC have been on a sharp uptrend in recent years. The PRC government has undertaken numerous monetary tightening measures,
including raising interest rates and reserve requirement ratios, and curbing bank lending, to slow down economic excessive growth
and control price rises. Increasing inflationary rates are due to many factors beyond our control, such as rising food prices,
rising production and labor costs, high lending levels, PRC and foreign governmental policy and regulations, and movements in exchange
rates and interest rates. PRC inflation rates have been in a general downtrend after peaking in the middle of 2011, and increased
to 3.6% as of March 2012. In 2013, PRC inflation rates fluctuated with two peaks of 3.2% in February and October 2013. The national
consumer price index was 2.6% in 2013, equal to that of 2012. We cannot assure you that inflation rates will not continue to increase
in the future. If inflation rates rise beyond our expectations, the costs of our business operations may become significantly higher
than we have anticipated, and we may be unable to pass on such higher costs to consumers in amounts that are sufficient to cover
those increasing operating costs. As a result, further inflationary pressures within the PRC may have a material adverse effect
on our business, financial condition and results of operations, as well as our liquidity and profitability.



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



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



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



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



12







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



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



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



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



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



13







Proceedings
instituted recently by the SEC against five PRC-based accounting firms could result in our consolidated financial statements being
determined to not be in compliance with the requirements of the Exchange Act.



In
December 2012, the SEC brought administrative proceedings against five accounting firms in China, 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
for potential accounting fraud. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting
firms and suspending four of the five 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. The four firms which are subject to the six month
suspension from practicing before the SEC have recently appealed the initial administrative law decision to the SEC. The sanction
will not become effective until after a full appeal process is concluded and a final decision is issued by the SEC. The accounting
firms can also further appeal the final decision of the SEC through the federal appellate courts. We were not and are not subject
to any SEC investigations, nor are we involved in the proceedings brought by the SEC against the accounting firms. However, the
independent registered public accounting firms that issue the audit reports included in our annual reports filed with the SEC is
each affiliated to one of the four accounting firms subject to the six month suspension from practicing before the SEC in the initial
administrative law decision and we may therefore be adversely affected by the outcome of the proceedings, along with other U.S.-listed
companies audited by these accounting firms. On May 24, 2013, the PCAOB announced that it had entered into a Memorandum of Understanding
on Enforcement Cooperation with the China Securities Regulatory Commission, or the CSRC and the Ministry of Finance, which establishes
a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in the
United States and China. However, it is not clear how these recent developments could affect the SEC’s final decision in
the case against the five accounting firms or any subsequent appeal to courts that the accounting firms may initiate. Therefore,
it is difficult to determine the final outcome of the administrative proceedings and the potential consequences thereof.



If
our independent registered public accounting firms were denied, temporarily, the ability to practice before the SEC and we were
unable to timely find another registered public accounting firm to audit and issue an opinion on our consolidated financial statements,
our consolidated financial statements could be determined to not be in compliance with the requirements of the Exchange Act. Such
a determination could ultimately lead to the delisting of our ADSs 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;
| | - | -----------------------------



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



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



| | · | 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 levels, strong consumer confidence levels and the availability of consumer and business
credit. In 2008 and 2009, the economies of the United States, Europe and certain countries in Asia experienced a severe and prolonged
recession and China experienced a slowdown in overall economic growth, which led to a reduction in economic activity. As a result,
we continued to experience significantly weaker demand for air travel, especially internationally, in 2009. To respond to this
external environment, we reduced our international flights and reallocated our capacity by focusing more on the domestic market.



14







Although international
air travel generally recovered in 2010 to 2011 due to the gradual global economic recovery, ongoing events in 2013 and early 2014
such as continued political instability and regional turmoil disputes may continue to materially and adversely affect economic
activity and financial markets, which would have an overall effect on international air travel, and would also weaken demand for
air travel to and from those areas.



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



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



We operate
in a highly competitive industry.



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



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



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



15







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



The current CAAC policies
limit foreign ownership in a PRC airline. Under these limits, non-PRC residents and Hong Kong, Macau or Taiwan residents cannot
hold a majority equity interest in a PRC airline company. As of December 31, 2013, approximately 12.4% of our total outstanding
shares were held by non-PRC, Hong Kong, Macau or Taiwan residents or legal entities (excluding the qualified foreign institutional
investors that are approved to invest in the A Share market of the PRC). As a result, our access to funding in the international
equity capital markets may be limited. This restriction may also limit the opportunities available to our Company to obtain funding
or other benefits through the creation of equity-based strategic alliances with foreign carriers. We cannot assure you that the
CAAC will increase these limits in the near future or at all.



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



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



Jet fuel prices were
volatile in 2012 and 2013, with heightened political tensions and continued political instability and turmoil in certain Middle
Eastern countries. In 2013, the average price of fuel decreased by 6.7% compared to that of 2012. While fuel prices decreased during
the first half of 2013, prices generally increased in 2013 and into early 2014. In addition, the National Development and Reform
Commission ("NDRC") has adjusted gasoline and diesel prices in China from time to time, taking into account changes in
international oil prices, thereby affecting aviation fuel prices. As such, we cannot assure you that jet fuel prices will not further
fluctuate in the future. Due to the highly competitive nature of the airline industry, we may be unable to fully or effectively
pass on to our customers any increased jet fuel costs we may encounter in the future.



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



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



16







We have significant
expenditures with respect to environmental compliance, which may affect our operations and financial condition. For example, we
implemented a low-carbon emissions scheme, through which over 90% of our planes are flying in accordance with the scheme, which
aligns with our environmentally-friendly growth strategy to minimize the environmental impact of our operations. We expedited the
application of new civil aviation technologies, continuously focused on the development of renewable resources and concentrated
on the invention and application of new technologies and applications to achieve "greener" flying. We have worked with
China National Petroleum Corporation ("CNPC") to conduct experimental research on bio-fuels, which is being developed
as a possible alternative to kerosene jet fuel and could lead to reduced carbon dioxide emissions of 30%. In addition, all of our
B737NG and some of our A320 series aircraft newly introduced are equipped with 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 environment by optimizing
our route network and flight schedule 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,
or could require us to install additional costly pollution control equipment.



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



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



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



17







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



We have a substantial
amount of debt, lease and other obligations, and will continue to have a substantial amount of debt, lease and other obligations
in the future. During a period of time between the end of 2008 and April 2009, the amount of our total liabilities exceeded our
total assets. In 2013, we added a total of 58 aircraft to our fleet, by purchase or finance lease (excluding operating lease),
including A330 Series for long-and-medium haul, A320 Series for medium-and-short haul and B737NG.. On February 28, 2014, we purchased
from Airbus SAS 70 A320NEO aircraft. See the section headed "Item 4. Information on the Company — Property, Plant and
Equipment — Fleet." As of December 31, 2013, our total liabilities were RMB111,485.8 million and our accumulated losses
were RMB2,595 million. As of the same date, our current liabilities exceeded our current assets by RMB40,471.8 million. Our total
interest-bearing liabilities (including long-term and short-term borrowings, finance leases payable and bonds payable) as at December
31, 2012 and 2013 were RMB67,594 million and RMB73,736 million, respectively, of which short-term liabilities accounted for 37.4%
and 35.6%, respectively. Our substantial indebtedness and other obligations could materially and adversely affect our business
and operations, including requiring us to dedicate additional cash flow from operations to the payment of principal and interest
on indebtedness, thereby reducing the funds available for operations, maintenance and service improvements and future business
opportunities, increasing our vulnerability to economic recessions, reducing our flexibility in responding to changing business
and economic conditions, placing us at a disadvantage when compared to competitors that have less debt, limiting our ability to
arrange for additional financing for working capital, capital expenditures and other general corporate purposes, at all or on terms
that are acceptable to us and limiting our ability to satisfy payment of our existing indebtedness and other obligations under
our indebtedness.



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



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



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



We require significant
amounts of external financing to meet our capital commitments for acquiring and upgrading aircraft and flight equipment and for
other general corporate needs. As of December 31, 2013, we had total credit facilities of RMB43.5 billion from various banks, of
which credit facilities of RMB37.6 billion are not utilized. We expect to roll over these bank facilities in future years. In addition,
we generally acquire aircraft through either long-term capital leases or operating leases. In the past, we have obtained guarantees
from Chinese banks in respect of payments under our foreign loan and capital lease obligations. However, we cannot assure you that
we will be able to roll over our bank facilities or continue to obtain bank guarantees in the future. The unavailability of credit
facilities or guarantees from Chinese banks or the increased cost of such guarantees may materially and adversely affect our ability
to borrow additional funds or enter into international aircraft lease financings or other additional financing on acceptable terms.
Although we have secured financing for our aircraft delivered in 2013, we are still in the process of obtaining financing for some
aircraft we have scheduled for delivery in future years. In addition, if we are not able to arrange financing for our aircraft
on order, we may seek to defer aircraft deliveries or use cash from operating or other sources to acquire the aircraft.



18







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



We are
subject to fluctuation of fuel prices risk.



Fuel costs constitute
a significant portion of our operating costs and, in 2013, accounted for approximately 34.3% 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. We generally alleviate the pressure from the rise in operating costs arising from the increase in aviation
fuel by imposing fuel surcharges which, however, are subject to government regulations. In order to control fuel costs, we also
enter into fuel hedging transactions using financial derivative products linked to the price of underlying assets such as United
States WTI crude oil and Singapore jet fuel during previous years.



In the beginning of
2009, the PRC government required prior approval from the PRC government before we can enter into fuel hedging contracts. In October
2011, we have obtained approval from the PRC government to allow us to enter into overseas fuel hedging contracts. For the year
ended December 31, 2011, we hedged 17.0% of our annual fuel consumption. However, these hedging strategies may not always be effective
and high fluctuations in aviation fuel prices exceeding the locked-in price ranges may result in losses. Significant declines in
fuel prices may substantially increase the costs associated with our fuel hedging arrangements. In addition, where we seek to manage
the risk of fuel price increases by using derivative contracts, we cannot assure you that, at any given point in time, our fuel
hedging transactions will provide any particular level of protection against increased fuel costs. All crude oil option contracts
signed in past years were settled by December 31, 2012. In 2013, we did not engage in any aviation fuel hedging activities.



We are
subject to exchange rate fluctuation risk.



We operate our business
in many countries and territories. We generate revenue in different currencies, and our foreign currency liabilities are typically
much higher than our foreign currency assets. Our purchases and leases of aircraft are mainly priced and settled in currencies
such as U.S. dollars. Fluctuations in exchange rates will affect our costs incurred from foreign purchases such as aircraft, flight
equipment and aviation fuel, and take-off and landing charges in foreign airports. As of December 31, 2013, our total interest-bearing
liabilities denominated in foreign currencies converted to Renminbi amounted to RMB58,349 million, of which the U.S. dollar liabilities
accounted for 95.6%. Therefore, in circumstances with large fluctuations in exchange rates, the exchange loss arising on the translation
of foreign currency denominated liabilities will be greater, which in turn affects our profitability and development. We usually
use hedging contracts for foreign currencies to reduce the risks in exchange rates for foreign currency revenue from ticket sales
and expenses which are to be paid in foreign currencies. Foreign currency hedging mainly involves the sales of Japanese Yen or
the purchase of U.S. dollars at fixed exchange rates. Compared with US$58 million as of December 31, 2012, as of December 31, 2013,
foreign currency hedging contracts held by us which are still open amounted to a notional amount of US$38 million, which will expire
between 2014 and 2017.



19







We recorded an increase
in net exchange gains during the reporting period. As of December 31, 2012 and 2013, our exchange gains were RMB148 million and
RMB1,976 million, respectively. As a result of the large value of existing net foreign currency liabilities denominated in U.S.
dollars, our results will be adversely affected if the Renminbi depreciates against the U.S. dollar or the rate of appreciation
of the Renminbi against the U.S. dollar decreases in the future. Our foreign exchange fluctuation risks are also subject to other
factors beyond our control. See "Item 3D. Risk Factors - Risks Relating to the PRC - Foreign exchange regulations in the PRC
may result in fluctuations of the Renminbi and affect our ability to pay any dividends or to satisfy our foreign exchange liabilities."



We are
subject to interest rate fluctuation risk.



Our total interest-bearing
liabilities (including long-term and short-term loans and finance leases payable) as of December 31, 2012 and 2013 were RMB67,594
million and RMB73,736 million, respectively, of which short-term liabilities accounted for 37.4% and 35.6%, respectively, and long-term
liabilities accounted for 62.6% and 64.4%, respectively. A portion of the long-term interest-bearing liabilities carried variable
interest rates. Both our variable and fixed rate obligations were affected by fluctuations in current market interest rates.



Our interest-bearing
liabilities were mainly denominated in U.S. dollars and Renminbi. As of December 31, 2012 and 2013, our liabilities denominated
in U.S. dollars accounted for 74.5% and 75.6%, respectively, of our total liabilities, while liabilities denominated in Renminbi
accounted for 20.5% and 20.9%, respectively, of our total liabilities. Fluctuations in U.S. dollar and Renminbi interest rates
have significantly affected our financing costs. A substantial majority of our borrowings denominated in Renminbi are linked to
benchmark five-year lending rates published by the PBOC. From April 2006 to December 2007, the PBOC raised the benchmark five-year
lending rate seven times from 6.39% to 7.83%. Beginning in September 2008, the PBOC decreased the benchmark five-year lending rate
five times from 7.83% in September 2008 to 5.94% in December 2008. 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 6.40% 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. We cannot assure you that the relevant lending rates may not increase in the future as
a result of 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, or war-risk coverage. At the same time, they have significantly increased the premiums for such coverage,
as well as for aviation insurance in general. In response to the reduced insurance coverage from aviation insurers, the PRC government
has provided insurance coverage to PRC airlines for third party war liability claims. Such insurance provided by the government
is subject to annual review and approval by the government. We renew our insurance policies on a yearly basis. However, if the
insurance carriers further reduce the amount of insurance coverage available or increase the premium for such coverage when we
renew our insurance coverage and/or if the PRC government declines to renew our insurance coverage, our financial condition and
results of operations may be materially and adversely affected.



20







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



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



On December 27, 2012,
our wholly-owned subsidiary, Shanghai Airlines Tours, International (Group) Co., Ltd. entered into an agreement with Eastern Air
Tourism Investment Group Co., Ltd ("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 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, International (Group)
Co., Ltd. also entered into another agreement with Eastern Tourism, Ltd and Shanghai Dongmei to acquire 45% and 55% issued share
capital of Kunming Dongmei Aviation Travel Co., Ltd held by them respectively for a consideration of approximately RMB10.6 million
comprising RMB4.7 million payable to Eastern Tourism and approximately RMB5.8 million payable to Shanghai Dongmei. On January 10,
2013, our wholly-owned subsidiary, Shanghai Airlines Tours, International (Group) Co., Ltd. entered into an agreement with Eastern
Tourism to acquire the entire issued share capital of Eastern Air International Travel Service Co., Ltd held by Eastern Tourism
Investment Group Co., Ltd for a consideration of approximately RMB11.9 million.



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



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



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



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



21







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



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



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



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



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



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



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



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



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



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



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



On June 5, 2013, EAO
entered into a restated and amended shareholders’ agreement with JIGH, Go Harvest Investments Limited ("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 licence. We cannot assure
you that Jetstar Hong Kong will secure all relevant licenses and approvals for its operations, or which are necessary for it to
commence operations.



22







In addition, before
Jetstar Hong Kong can actually commence operations, it will need to:



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



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



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



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



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



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



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



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



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



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



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



Most of the major
airline companies in China are currently majority-owned either by the central government of China or by provincial or municipal
governments in China. CEA Holding currently holds directly or indirectly 64.4% of our Company's equity interests on behalf of the
PRC government. As a result, CEA Holding could potentially elect the majority of our Board of Directors and otherwise be able to
control us. CEA Holding also has sufficient voting control to effect transactions without the concurrence of our minority shareholders.
The interests of the PRC government as the ultimate controlling person of our Company and most of the other major PRC airlines
could conflict with the interests of our minority shareholders. Although the CAAC currently has a policy of equal treatment of
all PRC airlines, we cannot assure you that the CAAC will not favor other PRC airlines over our Company.



23







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



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



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



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



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



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



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



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



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



We are required under
relevant United States securities rules and regulations to disclose in the reports that we file or submit under the Exchange Act
to the United States Securities and Exchange Commission, including our annual report on Form 20-F, a management report assessing
the effectiveness of our internal control over financial reporting as of the end of the fiscal year. Our registered public accounting
firm is also required to provide an attestation report on the effectiveness of our internal controls over financial reporting.
Our management concluded that our internal controls over financial reporting were effective as of December 31, 2013. However, we
may discover other deficiencies or material weaknesses in the course of our future evaluation of our internal controls over financial
reporting and we may be unable to address and rectify such deficiencies in a timely manner. Any failure to maintain effective internal
controls over financial reporting could lead to a decline in investor confidence in the reliability of our consolidated financial
statements, thereby adversely affecting our business, operations, and reputation, including negatively affecting our market performance
in the securities markets and decreasing potential opportunities to obtain financing in the capital markets.



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



24







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



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



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



The nature of our
business involves the receipt and storage of personal information about our guests. We have a program in place to detect and respond
to data security incidents. To date, all incidents we have experienced have been insignificant. If we experience 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 guests could lose confidence in our ability to protect
their personal information, which could cause them to discontinue or decline usage of our services. The loss of confidence from
a significant data security breach could hurt our reputation and significantly affect our business, result of operations and financial
condition.



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



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



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



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



25







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.



| | 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 was established
on April 14, 1995 under the laws of China as a company limited by shares in connection with the restructuring of our predecessor
and our initial public offering. Our predecessor was one of the six original airlines established in 1988 as part of the decentralization
of the airline industry in China undertaken in connection with China's overall economic reform efforts. Prior to 1988, the CAAC
was responsible for all aspects of civil aviation in China, including the regulation and operation of China's airlines and airports.
In connection with our initial public offering, our predecessor was restructured into two separate legal entities, our Company
and EA Group. According to the restructuring arrangement, by operation of law, our Company succeeded to substantially all of the
assets and liabilities relating to the airline business of our predecessor. EA Group succeeded to our predecessor's assets and
liabilities that do not directly relate to the airline operations and do not compete with our businesses. Assets transferred to
EA Group included our predecessor's equity interests in companies engaged in import and export, real estate, advertising, in-flight
catering, tourism and certain other businesses. In connection with the restructuring, we entered into various agreements with EA
Group and its subsidiaries for the provision of certain services to our Company. CEA Holding assumed the rights and liabilities
of EA Group under these agreements after it was formed by merging EA Group, Yunnan Airlines Company and China Northwest Airlines
Company in October 2002. See "Item 7. Major Shareholders and Related Party Transactions" for more details. The following
chart sets forth the organizational structure of our Company and our significant subsidiaries as of April 20, 2014:



26



















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



Since our initial
public offering, we have expanded our operations through acquisitions and joint ventures.



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



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



27







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



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 Holding Co., Ltd ("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 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, International (Group) Co., Ltd. entered into an agreement with Eastern Air
Tourism Investment Group Co., Ltd ("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 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, International (Group) Co., Ltd. also entered into another agreement with
Eastern Tourism, Ltd and Shanghai Dongmei to acquire 45% and 55% issued share capital of Kunming Dongmei Aviation Travel Co., Ltd
held by them respectively for a consideration of approximately RMB10.6 million comprising RMB4.7 million payable to Eastern Tourism
and approximately RMB5.8 million payable to Shanghai Dongmei.



On January 10, 2013,
our wholly-owned subsidiary, Shanghai Airlines Tours, International (Group) Co., Ltd. entered into an agreement with Eastern Tourism
to acquire the entire issued share capital of Eastern Air International Travel Service Co., Ltd held by Eastern Tourism Investment
Group Co., Ltd for a 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, Eastern Air Overseas (Hong Kong) Corporation Limited (the "Issuer"), 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.



28







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 (the “First Tranche SCP”) on June 7,
2013. The issuance amount of the First Tranche SCP was RMB4 billion with a maturity of 270 days. The nominal value was RMB100 per
unit and the First Trances SCP had an interest rate of 3.95%. The First Tranche SCP was issued to the public in the PRC interbank
debenture market by way of book-building and centralised placing. The proceeds from the First Tranche SCP were used principally
to replenish corporate 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.



The table below sets
forth details of our operating fleet as of December 31, 2011, 2012 and 2013:



|           |  | No.of Aircraft Owned And under Finance Leases |     |  | No.of Aircraft under Operating Leases |  |     | No.of Aircraft Owned and under Finance Leases |  |  | No.of Aircraft under Operating Leases |  |  | No.of Aircraft Owned and under Finance Leases |     |  | No.of Aircraft under Operating Leases | 
|---------- |  | --------------------------------------------- | --- |  | ------------------------------------- |  | --- | --------------------------------------------- |  |  | ------------------------------------- |  |  | --------------------------------------------- | --- |  | ------------------------------------- | 
|           |  | 2011                                          |     |  | 2012                                  |  |     | 2013                                          | 
|A340-600   |  |                                               | 5   |  |                                       |  | —   |                                               |  |  | 5                                     |  |  |                                               | —   |  |                                       | 
|A340-300   |  |                                               | 5   |  |                                       |  | —   |                                               |  |  | —                                     |  |  |                                               | —   |  |                                       | 
|A330-300   |  |                                               | 8   |  |                                       |  | 7   |                                               |  |  | 8                                     |  |  |                                               | 7   |  |                                       | 
|A330-200   |  |                                               | 4   |  |                                       |  | 3   |                                               |  |  | 10                                    |  |  |                                               | 3   |  |                                       | 
|A300-600R  |  |                                               | 7   |  |                                       |  | —   |                                               |  |  | 7                                     |  |  |                                               | —   |  |                                       | 
|A321       |  |                                               | 22  |  |                                       |  | —   |                                               |  |  | 27                                    |  |  |                                               | —   |  |                                       | 
|A320       |  |                                               | 88  |  |                                       |  | 24  |                                               |  |  | 98                                    |  |  |                                               | 33  |  |                                       | 
|A319       |  |                                               | 5   |  |                                       |  | 10  |                                               |  |  | 12                                    |  |  |                                               | 8   |  |                                       | 
|B737-800   |  |                                               | 16  |  |                                       |  | 48  |                                               |  |  | 17                                    |  |  |                                               | 56  |  |                                       | 
|B737-700   |  |                                               | 35  |  |                                       |  | 19  |                                               |  |  | 37                                    |  |  |                                               | 18  |  |                                       | 
|B737-300   |  |                                               | 16  |  |                                       |  | —   |                                               |  |  | 16                                    |  |  |                                               | —   |  |                                       | 
|B757-200   |  |                                               | 5   |  |                                       |  | 5   |                                               |  |  | 5                                     |  |  |                                               | 5   |  |                                       | 
|B767       |  |                                               | 6   |  |                                       |  | 1   |                                               |  |  | 6                                     |  |  |                                               | 1   |  |                                       | 
|EMB-145LR  |  |                                               | 10  |  |                                       |  | —   |                                               |  |  | 10                                    |  |  |                                               | —   |  |                                       | 
|CRJ-200    |  |                                               | 8   |  |                                       |  | —   |                                               |  |  | 8                                     |  |  |                                               | —   |  |                                       | 
|Hawker800  |  |                                               | 1   |  |                                       |  | —   |                                               |  |  | —                                     |  |  |                                               | —   |  |                                       | 
|A300-600R  |  |                                               | 3   |  |                                       |  | —   |                                               |  |  | 3                                     |  |  |                                               | —   |  |                                       | 
|B747-400ER |  |                                               | 2   |  |                                       |  | 3   |                                               |  |  | 2                                     |  |  |                                               | 3   |  |                                       | 
|MD-11F     |  |                                               | —   |  |                                       |  | 3   |                                               |  |  | —                                     |  |  |                                               | 3   |  |                                       | 
|B757-200F  |  |                                               | —   |  |                                       |  | 2   |                                               |  |  | —                                     |  |  |                                               | 2   |  |                                       | 
|B777F      |  |                                               | —   |  |                                       |  | 6   |                                               |  |  | —                                     |  |  |                                               | 6   |  |                                       | 
|Total      |  |                                               | 246 |  |                                       |  | 131 |                                               |  |  | 271                                   |  |  |                                               | 145 |  |                                       | 



29







| | 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 2013, and is
an important domestic airline based in and serving Shanghai, which is considered to be the international financial center and the
international shipping center of China. We serve a route network that covers 1024 domestic and foreign destinations in 178 countries
through Skyteam. We operate primarily from our core hub in Shanghai and regional hubs in Kunming and Xi’an. In 2013, we accounted
for 48.7%, 37.7%, 44.4% and 31.3% 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 47.4%, 35.4%, 41.2% and 31.5% 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 Employer" by Zhilian Zhaopin, a major online
recruiting website in China, and "The World's Most Improved Airline" by SKYTRAX, a United Kingdom-based aviation research
organization. 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 “Top 100 Employers” by zhaopin.com.



Compared to 2012,
our traffic volume (as measured in RTKs) increased by 8.0% from 14,406 million in 2012 to 15,552 million in 2013. Our passenger
traffic volume (as measured in revenue passenger-kilometers, or RPKs) increased by 10.4% from 109,113 million in 2012 to 120,461
million in 2013. Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTKs) increased by 3.3%
from 4,701 million in 2012 to 4,857 million in 2013.



30







Our Operations by Activity



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



|                       |  | Year Ended December 31, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2011                    |       
|                       |  | (Millions of RMB)       |       
|Traffic revenues       |  |                         |       
|Passenger              |  |                         | 68,434
|Cargo and mail         |  |                         | 8,080 
|Total traffic revenues |  |                         | 76,514



Passenger
Operations



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



|                                        |  | Year Ended December 31, |        
|--------------------------------------- |  | ----------------------- | -------
|                                        |  | 2011                    |        
|Passenger Traffic (in RPKs) (millions)  |  |                         | 100,895
|Domestic                                |  |                         | 70,933 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 3,811  
|International                           |  |                         | 26,151 
|                                        |  |                         |        
|Passenger Capacity (in ASKs) (millions) |  |                         | 127,891
|Domestic                                |  |                         | 88,013 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 5,193  
|International                           |  |                         | 34,685 
|                                        |  |                         |        
|Passenger Yield (RMB)                   |  |                         | 0.68   
|Domestic                                |  |                         | 0.69   
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 0.81   
|International                           |  |                         | 0.63   
|                                        |  |                         |        
|Passenger Load Factor (%)               |  |                         | 78.89  
|Domestic                                |  |                         | 80.59  
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 73.39  
|International                           |  |                         | 75.40  



The primary focus
of our business is the provision of domestic, regional and international passenger airline services. Currently we serve a route
network that covers 1,024 domestic and foreign destinations in 178 countries through SkyTeam.



Our domestic routes
generated approximately 69.3% of our passenger revenues in 2013. 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
24 flight routes between mainland China and Hong Kong. In addition, we operated approximately 25 routes between mainland China
and Taiwan and three routes between China and Macau. Our regional routes accounted for approximately 4.7% of our passenger revenues
in 2013.



31







In 2013, we adjusted
our flight capacity allocation in a timely manner and maintained refine pricing and cabin space management according to changes
in the market demand, so as to sustain a steady growth in passenger transportation business. In respect of our domestic business,
with the enhanced constructions of Shanghai core hub, as well as Kunming and Xi’an regional hubs, we continued to optimize
our route network and flight schedule. In respect of our regional (Hong Kong, Macau and Taiwan) business, we maintained our competitiveness
and influence of routes in Hong Kong, Macau and Taiwan region 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 Chinese and Japanese markets. At the same time, we seized the opportunity of the rapid growth in the number of outbound
passengers and increase the flight capacity routes to North American, European, Korean and Southeast Asian. In 2013, we put in
available seat – kilometres (ASK) of 152,075.22 million passenger-kilometres, representing an increase of 11.2% from 2012.
Number of passengers carried in 2013 was 79.0937 million, representing an increase of 8.2% from 2012. Passenger load factor in
2013 was 79.21%, representing a decrease of 0.60 percentage point from 2012. Passenger revenue in 2013 amounted to RMB72,928 million,
representing an increase of 2.1% from 2012.



We operate most of
our flights through our three hubs located in eastern, northwestern and southwestern China, namely Shanghai, Xi'an and Kunming,
respectively. With Shanghai as our main hub and Xi'an and Kunming as our regional hubs, we believe that we will benefit from the
level of development and growth opportunities in eastern, northern and western China as a whole by providing direct services between
various cities in those regions and between those regions and other major cities in China. We have steadily fostered the construction
of flight system for these core hubs by introducing new flight destinations and increasing the frequency of certain flights, thereby
enhancing our transfer and connection capability in these hub markets.



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 2013 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 2013, we accounted
for 48.7%, 37.7%, 44.4% and 31.3% of the total market share at Shanghai Hongqiao International Airport, Shanghai Pudong International
Airport, Kunming Airport and Xi’an Airport, respectively, in terms of total flight departures and arrivals, and accounted
for 47.4%, 35.4%, 41.2% and 31.5% 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.



32







Cargo
and Mail Operations



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



|                                       |  | Year Ended December 31, |      
|-------------------------------------- |  | ----------------------- | -----
|                                       |  | 2011                    |      
|Cargo and Mail Traffic (in RFTKs)      |  |                         | 4,421
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 934  
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 148  
|International                          |  |                         | 3,338
|                                       |  |                         |      
|Cargo and Mail Capacity (in AFTKs)     |  |                         | 7,152
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 1,987
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 312  
|International                          |  |                         | 4,853
|                                       |  |                         |      
|Cargo and Mail Yield (RMB)             |  |                         | 1.83 
|Domestic                               |  |                         | 1.44 
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 4.49 
|International                          |  |                         | 1.82 
|                                       |  |                         |      
|Cargo and Mail Load Factor (%)         |  |                         | 61.81
|Domestic                               |  |                         | 47.01
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 47.60
|International                          |  |                         | 68.78



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.



Global aviation freight
transportation industry was still at the trough stage in 2013. Some of the domestic express delivery corporations started to enter
into the aviation freight transportation industry. Therefore, market competition was intensified and we were facing more difficulties
in our freight transportation business. 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.



33







China Cargo Airlines
Co., Ltd. (“China Cargo”) Airlines officially joined the SkyTeam Freight Alliance on June 5, 2013 and is proactively
participating in the cooperation of the alliance.



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,
"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 area.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue from ticket handling services, airport ground services, cargo handling service and other
miscellaneous services are 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, 2013:



|                                       |  | 2011              |        |  | 2012              |  |        | 2013              | 
|-------------------------------------- |  | ----------------- | ------ |  | ----------------- |  | ------ | ----------------- | 
|                                       |  | (Millions of RMB) |        |  | (Millions of RMB) |  |        | (Millions of RMB) | 
|Domestic                               |  |                   | 56,014 |  |                   |  | 57,297 |                   | 
|Regional (Hong Kong, Macau and Taiwan) |  |                   | 3,771  |  |                   |  | 3,704  |                   | 
|International                          |  |                   | 22,618 |  |                   |  | 24,252 |                   | 
|Total                                  |  |                   | 82,403 |  |                   |  | 85,253 |                   | 



Regulation



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



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



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



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



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



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



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



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



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



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



34







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



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



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



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



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



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



Domestic
Route Rights



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



Regional
Route Rights



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



35







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.



International
Route Rights



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



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



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



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



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



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



Airfare
Pricing Policy



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



36







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 airfare for particular domestic
routes which, in their view, is 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. The promotion by Chinese
regulators of a regulated and orderly market and a fair and positive competition mechanism will also provide a favorable environment
for the growth of our business.



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



Acquisition
of Aircraft and Spare Parts



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



Domestic
Fuel Supply and Pricing



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



37







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



Safety



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



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



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



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



Security



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



38







Noise
and Environmental Regulation



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



Chinese
Airport Policy



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



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



The civil aviation
infrastructure levy was paid to the Ministry of Finance and refunded again from July 1, 2008 to June 30, 2009, according to one
of the ten measures announced by the CAAC in December 2008 in response to the global economic downturn. The refunded levy for China's
aviation industry 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 Catalog of Industries for Guiding Foreign Investment, jointly promulgated by the
NDRC and MOC on December 24, 2011, Chinese investors should be the controlling shareholders of a PRC air transportation company.



39







Competition



Domestic



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



There are currently
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 airway companies 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.



40











Domestic
Rail



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



With 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 24 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.



41







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. 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 Nineth Meeting of Cross-strait
Air Transportation, the two sides agreed to increase the total number of flights per week in 2014, among which, we plan to increase
another 15 flights per week and other six PRC airline companies, including China Southern and Air China, plan to increase another
42 flights per week in aggregate. We believe we will benefit from expanding our maket 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.



42









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 530 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.



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 10,933 workers as maintenance and engineering personnel as of December
31, 2013. 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.



43









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



On November 6, 2007,
we entered into a joint venture with United Technologies Corp., or UTC, to establish Shanghai Pratt & Whitney Aircraft Engine
Maintenance Co., Ltd., or Pratt & Whitney, for the purpose of performing maintenance and repairs on aircraft engines. Our Company
and UTC contributed US$20,145,000 and US$19,355,000, respectively, to the registered capital and hold 51% and 49%, respectively,
of the equity interests in the joint venture. Moreover, after our absorption of Shanghai Airlines, we took over its 15% equity
interest in Boeing Shanghai Aviation Services Co., Ltd. ("Boeing Shanghai"). As of December 31, 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.



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.



44







All of our jet passenger
aircraft pilots participated in the manufacturer training and support programs sponsored by Airbus and Boeing and are required
to undergo recurrent flight simulator training and to participate in a flight theory course periodically. We use flight simulators
for A300,A320,A330, A340, 737NG, 737-300, 777, EMB145 aircraft at our own training facility, the training facility located in the
CAAC training center or overseas training facilities.



Cyber-security



With respect to our
internal policies on cyber-security and internet safety, we have established an information safety management system and issued
internal regulations on cyber-security, internal hardware and data safety systems to prevent loss of information due to cyber-security
incidents, network outages or hardware incidents. We also plan to implement measures relating to the office environment information
safety management and information system emergency management, information system access control, protection from any malicious
software, management of information exchange tools and internal review and audit of information safety risks. Furthermore, we have
entered into a strategic cooperation plan with the China Information Technology Security Evaluation Center by which their trained
engineers evaluate our internal data security policies and cyber-security measures. In 2012, we established and announced two internal
regulations relating to cyber-security, namely, China Eastern Airlines Information Security Management Regulation and China
Eastern Airlines Information System Application and Development Safety Regulation 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 Meassures, which we believe will strengthen
our information safety management systems and overall cyber-security defenses. During the year ended December 31, 2013, we did
not experience any material cyber-security incidents or related losses.



Fuel Supplies



Fuel costs represented
approximately 34.3% of our operating expenses in 2013. 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 2013, we consumed
approximately 4.6 million tonnes of fuel, an increase of 10.1% from 2012. Our aviation fuel expenditures reached RMB30,681 million,
representing an increase of 2.7% from RMB29,872 million last year, as a result of the expansion of our operations. Jet fuel prices
were volatile in 2012 and 2013, with heightened political tensions and continued political instability and turmoil in certain Middle
Eastern countries. In 2013, the average price of fuel decreased by 6.7% compared to that of 2012. While fuel prices decreased during
the first half of 2013, prices generally increased in 2013 and into early 2014. 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.



45









Ground Facilities and Services



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



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



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



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



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 20 million in 2013. 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.



46









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 2013, we added about 500 group clients, and the total number of our group clients amounts to 4,989. 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 2013, we had approximately 2 million new Eastern Miles members, with a total of over 20 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 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.



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 around 50 overseas sales or representative offices as of December 31, 2013. 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.



47









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 2013, we have entered into frequent
flyer and airport lounges agreements with 11 SkyTeam member airlines and implemented code-sharing programs covering 242 routes,
as well as 150 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 1,024 destinations in
178 countries under a single plane ticket with direct luggage services. Passengers may also enjoy the comfort of approximately
530 VIP airport lounges of SkyTeam around the world. The entry of our Company as well as Shanghai Airlines into SkyTeam became
effective on June 21, 2011. We believe this will be another benefit for our passengers, as they will be afforded additional flight
options and frequent flyer mileage benefits through our SkyTeam alliance partners. In addition, our Company will benefit from possible
codeshare and cooperative flight options, reduced costs and increased alliance-related marketing and promotion overseas.



Cargo
Operations 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.



48









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.



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



We also derive revenues
from the provision of airport ground services for airlines operating to or from Hongqiao International Airport and Pudong International
Airport, including aircraft cleaning, loading, unloading, storage and ground transportation of cargo and passenger luggage. At
present we are the principal provider of these services at Hongqiao International Airport and Pudong International Airport. We
provide these services to foreign carriers generally pursuant to one-year renewable contracts. In 2013, we generated net revenues
of approximately RMB2,781 million from our airport ground services and cargo handling services, compared with RMB2,383 million
and RMB2,119 million, respectively, generated from such services in 2011 and 2012.



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, 2013, we own or have obtained licenses to
use 58 trademarks, representintg an increase of seven trademarks from the number of trademarks ad of December 31, 2012.



49









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,
2013, we operated a fleet of 478 aircraft, including 451 passenger aircraft, most with a seating capacity of over 100 seats, 14
freighters and 13 business aircraft in custody. In 2013, we introduced a total of 58 new aircraft, including A330 Series for long-and-medium
haul, A320 Series for medium-and-short haul and B737NG. We surrendered nine aircraft, including four passenger aircraft of A320,
B737–700 and B757-200 models, and five freighters of MD-11 and A300-600R models.



On February 28, 2014,
we entered into a purchase agreement with Airbus SAS in Shanghai regarding the purchase of seventy A320NEO aircraft. The aircraft
are expected to be delivered to us in stages from 2018 to 2020. On the same date, we entered into a disposal agreement with Airbus
SAS regarding the disposal of seven Airbus A300-600 aircraft and certain spare parts and spare engines. 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.



50









Existing
Fleet



The following table
sets forth the details of our fleet as of December 31, 2013:



|                                                  |  | Total Number of Aircraft |                |  | Number of Aircraft Owned and under Finance Lease |  |     | Aircraft under Operating Lease |  |  | AverageAge(inyears) (1) | 
|------------------------------------------------- |  | ------------------------ | -------------- |  | ------------------------------------------------ |  | --- | ------------------------------ |  |  | ----------------------- | 
|Jet Passenger Aircraft:                           |  |                          |                |  |                                                  |  |     |                                |  |  |                         | 
|Wide-body:                                        |  |                          |                |  |                                                  |  |     |                                |  |  |                         | 
|A340-600                                          |  |                          | 5              |  |                                                  |  | 5   |                                |  |  | —                       | 
|A330-300                                          |  |                          | 15             |  |                                                  |  | 8   |                                |  |  | 7                       | 
|A330-200                                          |  |                          | 21             |  |                                                  |  | 18  |                                |  |  | 3                       | 
|A300-600R                                         |  |                          |                |  |                                                  |  | 7   |                                |  |  | —                       | 
|B767                                              |  |                          | 7              |  |                                                  |  | 6   |                                |  |  | 1                       | 
|Narrow-body:                                      |  |                          |                |  |                                                  |  |     |                                |  |  |                         | 
|A321                                              |  |                          | 33             |  |                                                  |  | 33  |                                |  |  | —                       | 
|A320                                              |  |                          | 145            |  |                                                  |  | 101 |                                |  |  | 44                      | 
|A319                                              |  |                          | 23             |  |                                                  |  | 15  |                                |  |  | 8                       | 
|B737-800                                          |  |                          | 94             |  |                                                  |  | 28  |                                |  |  | 66                      | 
|B737-700                                          |  |                          | 59             |  |                                                  |  | 42  |                                |  |  | 17                      | 
|B757-200                                          |  |                          | 8              |  |                                                  |  | 5   |                                |  |  | 3                       | 
|B737-300                                          |  |                          | 16             |  |                                                  |  | 16  |                                |  |  | —                       | 
|EMB 145LR                                         |  |                          | 10             |  |                                                  |  | 10  |                                |  |  | —                       | 
|CRJ-200                                           |  |                          | 8              |  |                                                  |  | 8   |                                |  |  | —                       | 
|Total Passenger Aircraft:                         |  |                          | 451            |  |                                                  |  | 302 |                                |  |  | 149                     | 
|                                                  |  |                          |                |  |                                                  |  |     |                                |  |  |                         | 
|Cargo Aircraft:                                   |  |                          |                |  |                                                  |  |     |                                |  |  |                         | 
|A300-600R                                         |  |                          | 1              |  |                                                  |  | 1   |                                |  |  | —                       | 
|B747-400ER                                        |  |                          | 5              |  |                                                  |  | 2   |                                |  |  | 3                       | 
|B757-200F                                         |  |                          | 2              |  |                                                  |  | —   |                                |  |  | 2                       | 
|B777F                                             |  |                          | 6              |  |                                                  |  | —   |                                |  |  | 6                       | 
|Total Cargo Aircraft:                             |  |                          | 14             |  |                                                  |  | 3   |                                |  |  | 11                      | 
|Total number of passenger aircraft and freighters |  |                          | 465            |  |                                                  |  | 305 |                                |  |  | 160                     | 
|                                                  |  |                          | No. of custody |  |                                                  |  |     |                                |  |  |                         | 
|Business Aircraft                                 |  |                          | 13             |  |                                                  |  |     |                                |  |  |                         | 
|Total Fleet                                       |  |                          | 478            |  |                                                  |  |     |                                |  |  |                         | 



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



Our daily average
aircraft utilization rate was 9.8 hours in 2013, decreasing slightly from 9.9 hours in 2012. The table below sets forth the daily
average utilization rates of our jet passenger aircraft for each of the three years ended December 31, 2013:



|                                 |  | 2011       |      |  | 2012 |  |      | 2013 | 
|-------------------------------- |  | ---------- | ---- |  | ---- |  | ---- | ---- | 
|                                 |  | (in hours) |      |  |      |  |      |      | 
|Wide-body:                       |  |            |      |  |      |  |      |      | 
|A340-600                         |  |            | 12.0 |  |      |  | 12.3 |      | 
|A330-300                         |  |            | 9.4  |  |      |  | 9.2  |      | 
|A330-200                         |  |            | 14   |  |      |  | 13.7 |      | 
|A300-600                         |  |            | 8.1  |  |      |  | 7.5  |      | 
|B767-300                         |  |            | 10.2 |  |      |  | 10.8 |      | 
|Narrow-body:                     |  |            |      |  |      |  |      |      | 
|A321                             |  |            | 9.5  |  |      |  | 9.1  |      | 
|A320                             |  |            | 10.3 |  |      |  | 10.3 |      | 
|A319                             |  |            | 9.2  |  |      |  | 8.5  |      | 
|B737-800                         |  |            | 10.1 |  |      |  | 10.3 |      | 
|B737-700                         |  |            | 9.9  |  |      |  | 9.9  |      | 
|B737-300                         |  |            | 9.4  |  |      |  | 9.0  |      | 
|EMB 145                          |  |            | 9.7  |  |      |  | 9.7  |      | 
|CRJ-200                          |  |            | 6.7  |  |      |  | 5.9  |      | 
|B757-200                         |  |            | 8.3  |  |      |  | 7.9  |      | 
|Total Passenger Aircraft Average |  |            | 9.8  |  |      |  | 9.9  |      | 



51







Most of our
jet passenger aircraft were manufactured by either Airbus or Boeing.In 2013,
we introduced 58 new aircraft, including A330 Series for long-and-mediumhaul,
A320 Series for medium-and-short haul and B737NG. We surrendered nine aircraft, four of which were passenger aircraft of A320,
B737–700 and B757-200 models and five of which were freighters of MD-11 and A300-600R models.



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



Future
Fleet Development



Our aircraft acquisition program
focuses on aircraft that will modernize and rationalize our fleet to better meet the anticipated requirements of our route structure,
taking into account aircraft size and fuel efficiency. Our aircraft acquisition program, however, is subject to the approval of
the CAAC and the NDRC. 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 2014 to 2018 are as follows:





|                                   |  | 2014E        |    |  |  | 2015E      |    |  |  | 2016E        |    |  |  | 2017E      |    |  |  | 2018E        |   
|---------------------------------- |  | ------------ | -- |  |  | ---------- | -- |  |  | ------------ | -- |  |  | ---------- | -- |  |  | ------------ | --
|Model                              |  | Introduction |    |  |  | Retirement |    |  |  | Introduction |    |  |  | Retirement |    |  |  | Introduction |   
|A320 Series                        |  |              | 34 |  |  |            | 16 |  |  |              | 26 |  |  |            | 9  |  |  |              | 25
|A330 Series                        |  |              | 8  |  |  |            | -  |  |  |              | 7  |  |  |            | -  |  |  |              | - 
|A340-600                           |  |              | -  |  |  |            | 1  |  |  |              | -  |  |  |            | 4  |  |  |              | - 
|A300-600                           |  |              | -  |  |  |            | 7  |  |  |              | -  |  |  |            | -  |  |  |              | - 
|B777 Series                        |  |              | 4  |  |  |            | -  |  |  |              | 5  |  |  |            | -  |  |  |              | 5 
|B737NG                             |  |              | 27 |  |  |            | 7  |  |  |              | 37 |  |  |            | 10 |  |  |              | 15
|B757                               |  |              | -  |  |  |            | 2  |  |  |              | -  |  |  |            | 1  |  |  |              | - 
|B767                               |  |              | -  |  |  |            | 1  |  |  |              | -  |  |  |            | -  |  |  |              | - 
|CRJ                                |  |              | -  |  |  |            | 8  |  |  |              | -  |  |  |            | -  |  |  |              | - 
|EMB-145LR                          |  |              | -  |  |  |            | -  |  |  |              | -  |  |  |            | 5  |  |  |              | - 
|Total number of passenger aircraft |  |              | 73 |  |  |            | 42 |  |  |              | 75 |  |  |            | 29 |  |  |              | 45
|A300-600F                          |  |              | -  |  |  |            | 1  |  |  |              | -  |  |  |            | -  |  |  |              | - 
|B747F                              |  |              | -  |  |  |            | 1  |  |  |              | -  |  |  |            | 1  |  |  |              | - 
|Total number of freighters         |  |              | -  |  |  |            | 2  |  |  |              | -  |  |  |            | 1  |  |  |              | - 
|Total                              |  |              | 73 |  |  |            | 44 |  |  |              | 75 |  |  |            | 30 |  |  |              | 45





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.



52







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 million square meters,
as of December 31, 2013. In addition, as of December 31, 2013, our Company (including subsidiaries and branches) owned approximately
1,879 buildings with a total gross floor area of approximately 1.25 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.



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 10.1%, from 19,721.4 ATKs in 2012 to
21,714.8 ATKs in 2013, and our passenger capacity on an available seat kilometer, or ASK, basis increased by 11.2%, from 136,724.0
ASKs in 2012 to 152,075.2 ASKs in 2013. Total traffic on a revenue tonne kilometer, or RTK, basis increased by 8.0%, from 14,406.5
RTKs in 2012 to 15,551.8 RTKs in 2013.



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.



53







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 as issued by the IASB, 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.



(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.



54









(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.



55









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.



56









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.



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 participate in schemes regarding
pension and medical benefits for employees organized by the municipal governments of the relevant provinces. The contributions
to the schemes are charged to 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. Except that Shanghai Airlines Co., Ltd. maintained a separately administrated fund, the remaining defined
post-retirement benefits are unfunded. The cost of providing benefits under the post-retirement benefit plan is determined using
the projected unit credit actuarial valuation method.



Remeasurements arising from
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 statements 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 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
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | • | net interest expense or income
| | - | ------------------------------



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.



57









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.



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.



58









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 goingconcern. 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.



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.



59









Retirement benefits



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



60









Operating Segments



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



Acquisitions



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



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



The following tables set forth our summary
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,              |        
|------------------------------------------------------------------------------------- |  | ------------------------------------ | -------
|                                                                                      |  | 2009                                 |        
|                                                                                      |  | RMB                                  |        
|                                                                                      |  | (Restated*)                          |        
|                                                                                      |  | (in millions, except per share data) |        
|Summary Consolidated Statements of Profit or Loss and Other Comprehensive Income Data |  |                                      |        
|Revenues                                                                              |  |                                      | 38,989 
|Other operating income                                                                |  |                                      | 1,288  
|Operating expenses                                                                    |  |                                      | (38,340
|Operating profit                                                                      |  |                                      | 1,937  
|Finance income / (costs), net                                                         |  |                                      | (1,549 
|Profit before income tax                                                              |  |                                      | 365    
|Profit for the year attributable to the equity shareholders of the Company            |  |                                      | 280    
|Basic and fully diluted earnings per share (1)                                        |  |                                      | 0.04   
|                                                                                      |  |                                      |        



|                                                                                        |  | As of December 31, |        
|--------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                        |  | 2009               |        
|                                                                                        |  | RMB                |        
|                                                                                        |  | (Restated*)        |        
|                                                                                        |  | (in millions)      |        
|Summary Consolidated Statements of Financial Position Data                              |  |                    |        
|Cash and cash equivalents                                                               |  |                    | 1,735  
|Net current liabilities                                                                 |  |                    | (28,648
|Non-current assets                                                                      |  |                    | 65,035 
|Long term borrowings, including current portion                                         |  |                    | (16,928
|Obligations under finance leases, including current portion                             |  |                    | (19,370
|Total share capital and reserves attributable to the equity shareholders of the Company |  |                    | (1,287 
|Non-current liabilities                                                                 |  |                    | (37,306
|Total assets less current liabilities                                                   |  |                    | 36,388 



61









* As discussed in Note 2(a)(ii) to our
consolidated financial statements, we changed the method of accounting for defined benefit plan effective January 1, 2013 to comply
with the new requirements of IAS 19 (2011). As a result, the accounting treatment and presentation of certain items and balances
in the consolidated financial statements as of December 31, 2009, 2010, 2011 and 2012 and for the years then ended were revised.



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



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.



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.



62









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.



63









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.



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:





|                                                                  |  |                         |        |   |          |  |        | 2013vs.2012 | 
|----------------------------------------------------------------- |  | ----------------------- | ------ | - | -------- |  | ------ | ----------- | 
|                                                                  |  | Year Ended December 31, |        |   | Increase |  |        | %Increase   | 
|                                                                  |  | 2012                    |        |   | 2013     |  |        | (Decrease)  | 
|                                                                  |  | (Restated)              |        |   |          |  |        |             | 
|                                                                  |  | (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  |             | 
|Food and beverages                                                |  |                         | 2,032  |   |          |  | 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                                       |  |                         | 4,003  |   |          |  | 4,809  |             | 
|Total Operating Expense                                           |  |                         | 82,734 |   |          |  | 89,394 |             | 







64







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.



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 amortisation.



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 RMB2,032 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 679million 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 Shanghai Eastern Air International Travel Service Co., Ltd ("Eastern Travel")
by Shanghai Tours, our wholly-owned subsidiary, in 2013.



65







Other operating expenses,
comprising impairment charges and reversals and indirect operating expenses, increased by 20.1%, from RMB4,003 million in 2012
to RMB 4,809 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 RMB2,124 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.



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.



2012 Compared to 2011



Revenues



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



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



66









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



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



|                        |  |                         |        |  |          |  |        | 2012vs.2011 | 
|----------------------- |  | ----------------------- | ------ |  | -------- |  | ------ | ----------- | 
|                        |  | Year Ended December 31, |        |  | Increase |  |        | %Increase   | 
|                        |  | 2011                    |        |  | 2012     |  |        | (Decrease)  | 
|                        |  | (in millions of RMB)    |       
|Traffic revenues (1)    |  |                         | 76,514 |  |          |  | 79,444 |             | 
|Passenger               |  |                         | 68,434 |  |          |  | 71,419 |             | 
|Cargo and mail          |  |                         | 8,080  |  |          |  | 8,025  |             | 
|Others (2)              |  |                         | 5,889  |  |          |  | 5,809  |             | 
|Total Operating Revenue |  |                         | 82,403 |  |          |  | 85,253 |             | 



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



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



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



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



Passenger revenues



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



67







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



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



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



Cargo and mail revenues



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



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



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



68









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



Other revenues



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



Operating
Expenses



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



|                                                                  |  |                         |        |   |            |  |        | 2012vs.2011 | 
|----------------------------------------------------------------- |  | ----------------------- | ------ | - | ---------- |  | ------ | ----------- | 
|                                                                  |  | Year Ended December 31, |        |   | Increase   |  |        | %Increase   | 
|                                                                  |  | 2011                    |        |   | 2012       |  |        | (decrease)  | 
|                                                                  |  | (Restated)              |        |   | (Restated) |  |        |             | 
|                                                                  |  | (in millions of RMB)    |       
|Operating Expenses:                                               |  |                         |        |   |            |  |        |             | 
|Aircraft fuel expenses                                            |  |                         | 29,229 |   |            |  | 29,872 |             | 
|Gain on fair value movements of derivatives financial instruments |  |                         | (87    | ) |            |  | (25    | )           | 
|Takeoff and landing charges                                       |  |                         | 8,350  |   |            |  | 9,066  |             | 
|Depreciation and amortization                                     |  |                         | 6,966  |   |            |  | 7,557  |             | 
|Wages, salaries and benefits                                      |  |                         | 10,426 |   |            |  | 12,303 |             | 
|Aircraft maintenance                                              |  |                         | 4,407  |   |            |  | 4,433  |             | 
|Food and beverages                                                |  |                         | 2,022  |   |            |  | 2,032  |             | 
|Aircraft operating lease rentals                                  |  |                         | 4,128  |   |            |  | 4,438  |             | 
|Other operating lease rentals                                     |  |                         | 492    |   |            |  | 609    |             | 
|Selling and marketing expenses                                    |  |                         | 3,740  |   |            |  | 3,727  |             | 
|Civil aviation development fund                                   |  |                         | 1,321  |   |            |  | 1,414  |             | 
|Ground services and other expenses                                |  |                         | 3,274  |   |            |  | 3,305  |             | 
|Indirect operating expenses                                       |  |                         | 4,981  |   |            |  | 4,003  |             | 
|Total Operating Expense                                           |  |                         | 79,249 |   |            |  | 82,734 |             | 





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



Our total operating
expenses increased by 4.4%, from RMB79,249 million in 2011 to RMB82,734 million in 2012 primarily due to the expansion of our business
which is in line with the increase of our fleet size. Our total operating expenses as a percentage of our revenues slightly increased
from 96.2% in 2011 to 97.0% in 2012.



69









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



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



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



Wages, salaries and
benefits, which accounted for 14.87% of our total operating expenses in 2012, increased by 18.0%, from RMB10,426 million in 2011
to RMB12,303 million in 2012, primarily due to an increase in the number of staff and the increase in hours flown.



Aircraft maintenance
expenses, which accounted for 5.6% of our total operating expenses in 2012, increased by 0.6%, from RMB4,407 million in 2011 to
RMB4,433 million in 2012, primarily due to an increase in the number of aircraft held through operating leases in 2012.



Food and beverage
expenses increased by 0.5% from RMB2,022 million in 2011 to RMB2,032 million in 2012, primarily due to an increase in the number
of passengers.



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



Other operating lease
rentals increased by 23.8%, from RMB492 million in 2011 to RMB 609 million in 2012, primarily due to an increase in the leases
for warehouses and VIP lounges at airports.



Selling and marketing
expenses, which accounted for 4.7% of our total operating expenses in 2012, decreased by 0.33%, from RMB3,740 million in 2011 to
RMB3,727 million in 2012.



The amount of civil
aviation infrastructure levies payable to the CAAC increased by 7.0%, from RMB1,321 million in 2011 to RMB1,414 million in 2012,
primarily due to an increase in our miles flown in 2012.



Ground services and
other expenses increased by 0.9%, from RMB3,274 million in 2011 to RMB3,305 million in 2012.



Other operating expenses,
comprising impairment charges and reversals and indirect operating expenses decreased by 19.6%, from RMB4,981 million in 2012 to
RMB4,003 million in 2012, primarily because the impairment charge/ (reversal)for assets from a loss of RMB638 million in 2011 to
a reversal of RMB13 million in 2012.



70









Other
Operating Income



Our other operating
income and other gains were primarily generated from government subsidies. The total amount of our other operating income and other
gains increased from RMB1,109 million in 2011 to RMB1,833 million in 2012, primarily due to an increase in government subsidy income
in 2012. Other government subsidies represent subsidies granted to us by the PRC government and local governments as well as other
subsidies granted by various local municipalities to encourage our Company to operate certain routes to cities where these municipalities
are located.



Net Finance
Costs



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



Profit
attributable to the equity shareholders of the Company



As a result of the
foregoing, the net profit attributable to the equity shareholders of the Company decreased to RMB3,072 million in 2012, or 34.1%,
as compared to a net profit of RMB4,661 million in 2011.



Fixed
Assets



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



| | 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,
2011, 2012 and 2013, we had RMB3,861 million, RMB2,512 million and RMB1,995 million, respectively, in cash and cash equivalents;
RMB41,775 million, RMB45,736 million and RMB50,600 million, respectively, in outstanding borrowings; and RMB2,894 million, RMB1,726
million RMB383 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.



As of December 31,
2013, our accumulated losses amounted to approximately RMB2,595 million. In addition, our current liabilities exceeded our current
assets by approximately RMB40,472 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, 2013, we had total credit facilities of RMB43.5 billion from various
banks, of which RMB37.6 billion are not utilized. See the discussion below under "– Working Capital and Liabilities".



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



71







Cash Flows from Operating Activities



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 and 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) restricted bank deposits and short-term bank deposits of RMB1,343
million, and (ii) other payables and accrued expenses of RMB1,539 million.



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.



In 2011, we generated
a net cash inflow from operating activities of RMB13,623 million as a result of cash generated from operations of RMB13,781 million
less income tax we paid in 2011. Our cash generated from operations was mainly due to operating profit before working capital changes
of RMB13,842 million and changes in working capital of RMB219 million. The operating profit before working capital changes of RMB13,842
million was a result of the profit before income tax of RMB4,931 million, mainly adjusted for: (i) depreciation of property, plant
and equipment of RMB6,912 million, (ii) interest expenses of RMB1,463 million, (iii) consumption of flight equipment spare parts
of RMB 740 million, (iv) provision for return condition checks for aircraft and engines under operating leases of RMB695 million
and (v) impairment loss of RMB638 million, partly offset by net foreign exchange gains of RMB1,872 million. Changes in working
capital mainly consisted of (i) an increase in other payables and accrued expenses of RMB1,681 million, (ii) an increase in prepayments,
deposits and other receivables of RMB1,605 million and (iii) an increase in sales in advance of carriage of RMB620 million. These
negative changes were partly offset by (i) a decrease in trade payables and notes payables of RMB1,602 million, (ii) a decrease
in flight equipment and spare parts of RMB1,023 million and (iii) a decrease in provision for return condition checks for aircraft
and engines under operating leases of RMB317 million.



72







Cash Flows from Investing Activities



In 2013, our net cash
outflow from investing activities was RMB17,028 million. Our net cash outflow for investing activities mainly consisted of (i)
advance 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)
advance 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.



In 2011, our net cash outflow from investing
activities was RMB14,939 million. Our net cash outflow for investing activities mainly consisted of (i) additions of property,
plant and equipment of RMB5,414 million, primarily due to the purchase of 24 aircraft in 2011, (ii) advance payments on acquisition
of new aircraft of RMB8,180 million, and (iii) payment of short-term deposits with original maturity over three months of RMB1,963
million. These cash outflows were partly offset by (i) proceeds from disposal of non-current assets held for sale of RMB412 million
and (ii) bank deposit interest received of RMB147 million.



Cash Flows from Financing Activities



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 RMB15,635 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.



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



73







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, 2013, our current liabilities exceeded our current assets by RMB40,472 million. In comparison, our current liabilities exceeded
our current assets by RMB35,948 million as of December 31, 2012. The increase in our current liabilities in 2013 was primarily
due to the increase in the current portion of provision for return condition checks for aircraft under operating leases. The decrease
in our current assets in 2013 was primarily due to a decrease in restricted bank deposits and short-term bank deposits. Short-term
loans outstanding totaled RMB22,640 million and RMB23,285 million as of December 31, 2012 and 2013, respectively. Long-term outstanding
bank loans totaled RMB23,096 million and RMB27,315 million as of December 31, 2012 and 2013, respectively.



As of December 31,
2013, our long-term debt to equity ratio was 1.27 to 1. The interest expenses associated with these debts may impair our future
profitability. We expect that cash from operations and bank borrowings will be sufficient to meet our operating cash flow requirements,
although events that materially and adversely affect our operating results can also have a negative impact on liquidity.



Our consolidated interest-bearing
borrowings as of December 31, 2012 and 2013 for the purpose of calculating the indebtedness of our Company, were as follows:



|                     |  | As of December 31, |       
|-------------------- |  | ------------------ | ------
|                     |  | 2012               |       
|                     |  | (RMB in millions)  |       
|Secured bank loans   |  |                    | 18,393
|Unsecured bank loans |  |                    | 27,343
|Total                |  |                    | 45,736



The maturity profile
of interest-bearing borrowings of our Company as of December 31, 2012 and 2013 was as follows:



|                                     |  | As of December 31, |       
|------------------------------------ |  | ------------------ | ------
|                                     |  | 2012               |       
|                                     |  | (RMB in millions)  |       
|Within one year                      |  |                    | 22,640
|In the second year                   |  |                    | 7,273 
|In the third to fifth year inclusive |  |                    | 7,905 
|After the fifth year                 |  |                    | 7,918 
|Total                                |  |                    | 45,736



As of December 31,
2013, our interest rates relating to short-term borrowings ranged from 1.69% to 4.80%, while our fixed interest rates on our interest-bearing
borrowings for long-term bank loans ranged from 3.875% to 6.40%. Our bank loans are denominated in Renminbi and U.S. dollars. As
of December 31, 2013, our total bank loans denominated in Renminbi amounted to RMB15,386 million, while our total bank loans denominated
in U.S. dollars amounted to USD5,776 million. On March 6, 2014, our wholly-owned subsidiary Eastern Air Overseas (Hong Kong) Corporation
Limited issued offshore CNY-denominated bonds in an amount of CNY2.5 billion at 4.8% 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.



74







Capital Expenditures



As of December 31,
2013, according to the relevant agreements, we expect our capital expenditures for aircraft, engines and related equipment to be
in aggregate approximately RMB140,640 million, including RMB44,673 million in 2014 and RMB50,179 million in 2015, in each case
subject to contractually stipulated increases or any increase relating to inflation. We plan to finance our other capital commitments
through a combination of funds generated from operations, existing credit facilities, bank loans, leasing arrangements and other
external financing arrangements.



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



None.



| | D. | Trend Information
| | -- | -----------------



Other than as disclosed
elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from
January 1, 2013 to December 31, 2013 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, 2013:



|                                        |  | Total |         |  | Less Than 1 Year |  |        | 1-2 Years |  |  | 2-5 Years |  |  | More Than 5 Years |       
|--------------------------------------- |  | ----- | ------- |  | ---------------- |  | ------ | --------- |  |  | --------- |  |  | ----------------- | ------
|Long-Term Debt (1)                      |  |       | 38,676  |  |                  |  | 11,360 |           |  |  | 6,606     |  |  |                   | 9,952 
|Capital Leases (2)                      |  |       | 23,135  |  |                  |  | 2,980  |           |  |  | 2,965     |  |  |                   | 8,651 
|Operating Leases (3)                    |  |       | 25,183  |  |                  |  | 4,477  |           |  |  | 3,880     |  |  |                   | 9,066 
|Unconditional Purchase Obligations (4)  |  |       | 140,640 |  |                  |  | 44,673 |           |  |  | 50,179    |  |  |                   | 45,788
|Other Long-term Obligations (5)(6)      |  |       | 2,402   |  |                  |  | -      |           |  |  | -         |  |  |                   | -     
|Post-retirement Benefit Obligations (5) |  |       | 5,615   |  |                  |  | -      |           |  |  | -         |  |  |                   | -     
|Deferred Tax Liabilities (5)            |  |       | 30      |  |                  |  | -      |           |  |  | -         |  |  |                   | -     
|Short-term Bank Loans (7)               |  |       | 11,925  |  |                  |  | 11,925 |           |  |  | -         |  |  |                   | -     
|Interest Obligations                    |  |       | 4,723   |  |                  |  | 1,212  |           |  |  | 887       |  |  |                   | 1,851 
|Under Finance Leases                    |  |       | 2,394   |  |                  |  | 466    |           |  |  | 410       |  |  |                   | 1,101 
|Under Bank Loans                        |  |       | 2,329   |  |                  |  | 746    |           |  |  | 477       |  |  |                   | 750   
|Fixed Rate                              |  |       | 30      |  |                  |  | 26     |           |  |  | 3         |  |  |                   | 1     
|Variable Rate (8)                       |  |       | 2,299   |  |                  |  | 720    |           |  |  | 474       |  |  |                   | 749   
|Total                                   |  |       | 252,329 |  |                  |  | 76,627 |           |  |  | 64,517    |  |  |                   | 75,308



75







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



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



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



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



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



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



| | (7) | Short-term bank loans are generally repayable within one year. As of December 31, 2013, the weighted
average interest rate of our short-term bank loans was 2.36% per annum (2012: 5.0%).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | For our variable rate loans, interest rates range from six month LIBOR + 0.05% 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,
2013. A 25 basis points increase in the interest rate would increase interest expenses by RMB266 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                               |  | Total Amounts Committed |        |  | Amount of Commitment Expiration Per Period | 
|---------------------------------------------- |  | ----------------------- | ------ |  | ------------------------------------------ | 
|Other Commercial Commitments/Credit Facilities |  |                         |        |  | Less Than 1 Year                           | 
|                                               |  | (RMB in millions)       |       
|Lines of Credit                                |  |                         | 37,564 |  |                                            | 
|Standby Letters of Credit                      |  |                         | -      |  |                                            | 
|Guarantees                                     |  |                         | -      |  |                                            | 
|Total                                          |  |                         | 37,564 |  |                                            | 



Taxation



We had carried forward
tax losses of approximately RMB5,239 million as of December 31, 2013, which can be used to set off against future taxable income
between 2014 and 2018.



76









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, 2013, 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, 2013 is 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 5.4% in 2011, 2.6% in 2012 and 2.6%
in 2013. 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.



|Name             |  | Age |  | SharesOwned     |  | Position                                   
|---------------- |  | --- |  | --------------- |  | -------------------------------------------
|Liu Shaoyong     |  | 55  |  | -               |  | Chairman of the Board of Directors         
|Ma Xulun         |  | 50  |  | -               |  | President and Vice Chairman                
|Xu Zhao          |  | 45  |  | -               |  | Director                                   
|Gu Jiadan        |  | 58  |  | -               |  | Director                                   
|Li Yangmin       |  | 51  |  | 3,960 A Shares  |  | Director and Vice President                
|Tang Bing        |  | 47  |  | -               |  | Director and Vice President                
|Sandy Ke-Yaw Liu |  | 66  |  | -               |  | Independent Non-executive Director         
|Ji Weidong       |  | 57  |  | -               |  | Independent Non-executive Director         
|Shao Ruiqing*    |  | 57  |  | -               |  | Independent Non-executive Director         
|Li Ruoshan       |  | 65  |  | -               |  | Independent Non-executive Director         
|Ma Weihua        |  | 66  |  | -               |  | Independent Non-executive Director         
|Yu Faming        |  | 60  |  | -               |  | Chairman of the Supervisory Committee      
|Xi Sheng         |  | 51  |  |                 |  | Supervisor                                 
|Ba Shengji       |  | 56  |  | -               |  | Supervisor                                 
|Feng Jinxiong    |  | 52  |  | -               |  | Supervisor                                 
|Yan Taisheng     |  | 60  |  | -               |  | Supervisor                                 
|Wu Yongliang     |  | 51  |  | 3,696 A Shares  |  | Vice President and Chief Financial Officer 
|Tian Liuwen      |  | 55  |  | -               |  | Vice President                             
|Feng Liang       |  | 50  |  | -               |  | Vice President                             
|Sun Youwen       |  | 54  |  | 83,531 A Shares |  | Vice President                             
|Wang Jian        |  | 41  |  | -               |  | Board Secretary and Joint Company Secretary



77







*Mr.
Shao Ruiqing has applied for resignation from his duties as an independent non-executive Director, the chairman and a committee
member of the audit and risk management committee and a committee member of the planning and development committee of the Board,
with effect upon the election of a new committee member and the new chairman of the audit and risk management committee by our
Company.



Directors



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



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 certified accountant.



Mr. XU Zhao
is currently a Director of the Company, and the chief accountant of CEA Holding. Mr. Xu served as engineer and accountant of Dongfeng
Motor Group Company Limited, manager of the finance department of Shanghai Yanhua High Technology Limited Company, and chief financial
officer of Shaanxi Heavy Duty Automobile Co., Limited. Since November 2006, Mr. Xu has served as the chief accountant of CEA Holding.
He was a Supervisor of the Company from June 2007 to November 2011. Mr. Xu was an independent non-executive director of Yingde
Gases Group Company Limited (a company listed on the Hong Kong Stock Exchange) from September 2009 to December 2013. 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.



78









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



Mr. LI Yangmin
is currently a Director, Party Secretary and Vice President of the Company, and a party member of CEA Holding. Mr. Li joined the
civil aviation industry in 1985. He was previously deputy general manager of the aircraft maintenance base and the manager of air
route department of Northwest Company, general manager of the aircraft maintenance base of China Eastern Air Northwest Company
and vice president of China Eastern Air Northwest 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 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 Hong Kong 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.



79









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.



Mr. SHAO Ruiqing
is currently an Independent Non-executive Director of the Company. Mr. Shao was deputy dean and dean of the School of Economics
and Management of Shanghai Maritime University. He served as deputy dean at Shanghai Lixin University of Commerce since March 2004,
and was also a professor in accounting and mentor to doctoral students. From June 2007 to August 2011, Mr. Shao served as an external
supervisor of China Merchants Bank Co., Ltd. (a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange).
Mr. Shao served as an independent non-executive director of SAIC Motor Corporation Limited (a company listed on the Shanghai Stock
Exchange) from June 2008 to May 2012. Mr. Shao has served as an Independent Non-executive Director of our Company since June 2010.
Mr. Shao was awarded the special allowance by the State Council of the PRC in 1995. He is currently a consultative committee member
of the Ministry of Transport of the PRC, as an expert in finance and accounting. Mr. Shao graduated from Shanghai Maritime University,
Shanghai University of Finance and Economics and Tongji University with a Bachelor Degree in Economics, and Master and Doctoral
Degrees in Management. Mr. Shao has spent two and a half years studying and being senior visiting scholar in the U.K. and Australia.



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.



80













Mr. MA Weihua
is currently an Independent Non-executive Director of our Company. Mr. Ma was an executive director, president and chief executive
officer of China Merchants Bank Co., Ltd. (a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange), the
chairman of CIGNA & CMC Life Insurance Co., Ltd. and the chairman of China Merchants Fund Management Co., Ltd. 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, the executive deputy chairman of China Enterprise
Directors Association, a member of the Standing Council of China Society for Finance and Banking, a director of Shenzhen Soft Science
Development Foundation, an independent director of each of China Petroleum & Chemical Corporation (a company listed on the
Shanghai Stock Exchange and the Hong Kong Stock Exchange), Winox Holdings Limited (a company listed on the Hong Kong Stock Exchange)
and China Resources Land Limited (a company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange). Mr. Ma has
served as an Independent Non-executive Director of our 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.
The Supervisory Committee consists of five supervisors.



Mr. YU Faming
is currently the Chairman of the Supervisory Committee of the Company, and a party member and the head of party disciplinary inspection
group of CEA Holding. Mr. Yu served as deputy head of the Survey and Research Department of the Policy Research Office of the Ministry
of Labor and Human Resources of the PRC, head of the Integration Division of the Department of Policy and Regulation of the Ministry
of 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 the Supervisory Committee of the Company. Mr.
Yu graduated from Shandong University majoring in philosophy. He holds the title of associate research fellow.



Mr. XI 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, the
vice chairman of Shanghai Institute of Internal Auditors, 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).



81







Mr. BA Shengji
is currently a Supervisor of our 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 and the chief officer of the auditing office
of our Company, chief officer of the auditing office, head of the audit department, chief officer of disciplinary committee office,
head of supervision department and deputy head of party disciplinary inspection group of CEA Holding. He was the secretary of the
disciplinary committee of our Company from November 2006 to November 2009 and the secretary of the disciplinary committee and chairman
of the labor union of our Company from November 2009 to November 2011. He served as the deputy secretary of the party committee
and secretary of the disciplinary committee of our 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 a deputy general manager of the Audit
Department of CEA Holding. Mr. Feng joined the civil aviation industry in 1982, and served as Deputy Head and Head of the Planning
Department of the Company, head of the Finance Department and deputy chief accountant of CEA Holding, Manager of the Human Resources
Department of the Company, vice president of CES Finance Holding Co. Ltd, and Deputy General Manager of the Shanghai Security Department
of the Company. He also served as president of the China Eastern Airlines Wuhan Co., Ltd. from 2007 to 2009. Since February 2009,
he has been General Manager of the Audit Department of the Company. He has been a Supervisor of the Company since March 2009. Mr.
Feng graduated from the Civil Aviation University of China and the Graduate School of the Chinese Academy of Social Sciences, holding
a master's degree.



Mr. YAN Taisheng
is currently a Supervisor and the vice vhairman of the labor union 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 has been the vice
chairman of the labor union of the Company since 2005. He served as a Supervisor since March 2009. Mr. Yan graduated from East
China Normal University.



Senior Management



Mr. 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. TIAN Liuwen
is currently a Vice President of the Company. 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., Ltd, a subsidiary of the Company, since
January 2008. From December 2011 to June 2013, he served as the general manager of Shanghai Airlines; and from January 2012 to
December 2013, he was a director of Shanghai Airlines. Since December 2011, he has been Vice President of the Company and president
of Shanghai Airlines. He obtained an EMBA degree from Nanjing University and is qualified as senior economist.



82







Mr. FENG Liangis currently a Vice President, the Chief Engineer and the Chief Security Officer 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, the Chief Security Officer of the Company since December
2012 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.



Mr. SUN Youwen
is currently the Vice President of the Company, the chief pilot and the general manager of the shanghai flight division 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 has
been appointed as the chief pilot of the Company and the general manager of the shanghai flight division of the Company since April
2012 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 driving 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 Authorised 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 Authorised 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 2013 for services performed as Directors,
supervisors and officers or employees of our Company was approximately RMB7.3 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 2013 are as follows:



83







|Name and Principal Position         |  | Total   |        
|----------------------------------- |  | ------- | -------
|                                    |  | RMB'000 |        
|Directors                           |  |         |        
|Liu Shaoyong*                       |  |         | -      
|Ma Xulun                            |  |         | 713.0  
|Xu Zhao*                            |  |         | -      
|Gu Jiadan*                          |  |         | -      
|Li Yangmin                          |  |         | 638.6  
|Tang Bing                           |  |         | 603.9  
|Luo Zhuping***                      |  |         | 391.4  
|Independent non-executive Directors |  |         |        
|Wu Xiaogen***                       |  |         | -      
|Ji Weidong                          |  |         | 120.0  
|Shao Ruiqing                        |  |         | 120.0  
|Sandy Ke-Yaw Liu                    |  |         | 120.0  
|Li Ruoshan**                        |  |         | 60.0   
|Ma Weihua**                         |  |         | 30.0   
|Supervisors                         |  |         |        
|Yu Faming*                          |  |         | -      
|Xi Sheng*                           |  |         | -      
|Liu Jiashun                         |  |         | -      
|Feng Jinxiong                       |  |         | 421.9  
|Yan Taisheng                        |  |         | 384.3  
|Ba Shengji**                        |  |         | 324.8  
|Senior Management                   |  |         |        
|Shu Mingjiang****                   |  |         | 1149.1 
|Wu Yongliang                        |  |         | 640.9  
|Tian Liuwen                         |  |         | 641.7  
|Feng Liang**                        |  |         | 360.5  
|Wang Jian                           |  |         | 538.9  
|Total                               |  |         | 7,259.0



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



| | ** | These directors, supervisors and senior management of the Company were newly appointed during the
year ended December 31, 2013.
| | -- | -------------------------------------------------------------------------------------------------------------------------------



| | *** | Mr. Luo Zhuping and Mr. Wu Xiaogen were the directors of the Company before June 26, 2013.
| | --- | ------------------------------------------------------------------------------------------



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



During the year ended
December 31, 2013, 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     



84







|Name             |  | 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     
|Shao Ruiqing     |  | 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     
|Wu Yongliang     |  | Vice President                              |  | June 26, 2013       |  | June 26, 2016     
|                 |  | Chief Financial Officer                     |  | June 26, 2013       |  | June 26, 2016     
|Tian Liuwen      |  | Vice President                              |  | 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     



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



Audit and Risk Management Committee



Our Board of Directors
established the audit committee in August 2000 in accordance with the listing rules of the Hong Kong Stock Exchange. On June 26,
2013, our Board of Directors approved the appointment of Mr. Shao Ruiqing, Mr. Ji Weidong and Mr. Li Ruoshan as the members of
the Audit and Risk Management Committee and Mr. Shao Ruiqing was appointed as the chairman of the Audit and Risk Management Committee.
All of the members of the audit and risk management committee are independent non-executive directors. Our audit and risk management
committee satisfies the requirements of Rule 10A-3 of the Exchange Act and NYSE Rule 303A.06 relating to audit committees, including
the requirements relating to independence of the audit committee members. On April 2, 2014, Mr. Shao Ruiqing applied for resignation
from his duties as the chairman and a committee member of the Audit and Risk Management Committee. The resignation of Mr. Shao
will take effect upon the election of a new member and chairman of the Audit and Risk Management Committee by our Company.



85







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 seven meetings in 2013.



Nominations and Remuneration Committee



On June 29, 2007,
the fifth session of the Board of the Company held the first meeting for 2007 and initially appointed Mr. Zhou Ruijin, Mr. Luo
Chaogeng and Mr. Wu Baiwang as the remuneration and appraisal committee of the Company (the "Remuneration and Appraisal Committee"),
and Mr. Zhou Ruijin was elected as the chairman of the Remuneration and Appraisal Committee. On March 19, 2010, the Board of the
Company passed a resolution to merge the Nominations Committee of our Company and the Remuneration and Appraisal Committee to form
the Nominations and Remuneration Committee. On March 19, 2010, the Board approved the appointment of Mr. Liu Shaoyong, Mr. Sandy
Ke-Yaw Liu and Mr. Ji Weidong as the members of the Nominations and Remuneration Committee of the fifth session of the Board. Mr.
Liu Shaoyong was elected as the chairman of the Nominations and Remuneration Committee. On April 27, 2012, we amended the Detailed
Working Rules for the Nominations and Remuneration Committee, with retroactive effect from April 1, 2012. For remuneration related
matters considered and approved by the Nominations and Remuneration Committee, duties of the Chairman shall be performed by an
independent non-executive director from among the members of the Nominations and Remuneration Committee. See the announcement furnished
to the SEC on Form 6-K dated April 27, 2012. On June 26, 2013, our Board of Directors approved that Mr. Liu Shaoyong, the Chairman,
Mr. Sandy Ke-Yaw Liu and Mr. Ji Weidong, the independent non-executive Directors be appointed as the members of the Nominations
and Remuneration Committee, and Mr. Liu Shaoyong be appointed as the chairman of the Nominations and Remuneration Committee.



The Nominations and
Remuneration committee is authorized to determine standards and procedures for the nomination of Directors and senior management
of the Company, examine the remuneration policies of Directors and senior management of the Company, review the performance of
our Directors and senior management as well as determine their annual compensation level. The Nominations and Remuneration Committee
submits to our Board of Directors or shareholders' meeting for approval compensation plans and oversee the implementation of approved
compensation plans. The Nominations and Remuneration Committee may consult financial, legal or other outside professional firms
in carrying out its duties. Prior to the establishment of the Nominations and Remuneration Committee, the Remuneration and Appraisal
Committee did not hold any meetings in 2009. Under the guidance of the Remuneration and Appraisal Committee, we renewed liability
insurance for our Directors, supervisors and senior management in August 2009.The Nominations and Remuneration Committee
held six meetings in 2013.



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



Planning and Development Committee



The three members
of the Planning and Development Committee are Mr. Li Yangmin, Mr. Tang Bing and Mr. Shao Ruiqing. Mr. Li Yangmin is the Chairman
of the committee. On April 2, 2014, Mr. Shao Ruiqing applied for resignation from his duties as a committee member of the Planning
and Development Committee. The resignation of Mr. Shao will take effect upon the election of a new member and chairman of the Planning
and Development Committee by our Company.



86







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 nine meetings
in 2013.



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 one meeting in 2013.



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



Through arrangements
with CEA Holding and others, we provide certain benefits to our employees, including housing, retirement benefits and hospital,
maternity, disability and dependent medical care benefits. See Notes 37 and 38 to our audited consolidated financial statements.
Our employees are members of a labor association which represents employees with respect to labor disputes and certain other employee
matters. We believe that we maintain good relations with our employees and with their labor association.



The table below sets
forth the number of our employees as of December 31, 2011, 2012 and 2013, respectively:



|                                          |  | As of December 31, |       
|----------------------------------------- |  | ------------------ | ------
|                                          |  | 2011               |       
|Pilots                                    |  |                    | 4,601 
|Flight attendants and other aircrew staff |  |                    | 7,327 
|Maintenance personnel                     |  |                    | 10,635
|Sales and marketing                       |  |                    | 4,183 
|Operation control(1)                      |  |                    | -     
|Information technology(1)                 |  |                    | -     
|Management                                |  |                    | 6,291 
|Ground Services and others                |  |                    | 26,835
|Total                                     |  |                    | 59,872



Notes:



(1)         Wedid not have such categories of employees in 2011. Our maintenance personnel in 2011 included operation control and information
technology staff.



87







| | 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.



There was no granting
or exercise of rights under the H shares appreciation rights of our Company during 2013.



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, 2013 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)  |  |              | 4,178,383,298 |  |                      |  | 99.65 |                             | 



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, 2013:



| | (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 4,178,383,298 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,
2013, 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,
2013, there were 4,193,190,000 H Shares issued and outstanding. As of December 31, 2013 and April 20, 2014, there were, respectively,
42 and 42 registered holders of American depositary receipts evidencing 1,328,634 and 1,540,414 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.



88







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



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



Relationship with CEA Holding and
Associated Companies



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



Related Business Transactions



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



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



Import and Export Agency
Services



On October 15, 2010,
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, 2013, we paid handling charges to EAIEC of approximately RMB105.3 million. We currently have certain balances with
EAIEC, which are unsecured, interest-free and have no fixed term of repayment. See Note 46(b) to our audited consolidated financial
statements for more details.



SA Import and Export Disposal



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



89







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



Advertising Service Agreement



On April 29, 2008,
we entered into an agreement to renew our agreement entered into with Eastern Aviation Advertising dated May 12, 2005 regarding
the provision of advertising services on substantially the same terms, for an additional term of three years commencing from July
1, 2008. On October 15, 2010, we entered into an agreement relating to the renewal of the existing Advertising Services Agreement
with Eastern Aviation Advertising on substantially the same terms, pursuant to which Eastern Aviation Advertising and its subsidiaries
will, from time to time, provide us with multi-media advertising services to promote its business and to organize promotional functions
and campaigns to enhance its reputation in the civil aviation industry. The advertising services renewal agreement will be effective
for a term of three years, commencing from January 1, 2011 to December 31, 2013. For the year ended December 31, 2013, we paid
to Eastern Aviation Advertising approximately RMB10.1 million for advertising services.



On August 30, 2013,
we entered into an agreement relating to the renewal of the existing advertising services agreement with the Eastern Aviation Advertising
on substantially the same terms, pursuant to which the 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 organise 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.



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.



On October 15, 2010,
we entered into an agreement relating to the renewal of the existing Media Resources Agreement with Eastern Aviation Advertising
on substantially the same terms, pursuant to which we agreed to grant Eastern Aviation Advertising and its subsidiaries exclusive
rights to operate our media resources. The Media Resources Renewal Agreement will be effective for a term of three years, commencing
from January 1, 2011 to December 31, 2013. For the year ended December 31, 2013, Eastern Aviation Advertising paid approximately
RMB14.9 million for media royalty fee.



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.



90







SA Media Disposal



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



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



Catering Service Agreements



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



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



On October 15, 2010,
the Company entered into an agreement relating to the renewal of the existing catering services agreement with the CEA Catering
on substantially the same terms pursuant to which CEA Catering and the subsidiaries of CEA Catering will from time to time provide
our Group with in-flight catering services (including the supply of in-flight meals and beverages, cutlery and tableware) and related
storage and complementary services required in the daily airline operations and civil aviation business of our Group. CEA Catering
and its subsidiaries provide their services in accordance with the specifications and schedules as from time to time specified
by the relevant member(s) of our Group to accommodate its operation needs. The catering services renewal agreement will be effective
for a term of three years, commencing from January 1, 2011 to December 31, 2013. For the year ended December 31, 2013, we paid
approximately RMB919.1 million to the subsidiaries of CEA Catering for the supply of in-flight meals and other services.



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.



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.



91







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



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



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



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



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



On January 16, 2013,
the Company entered into a supplemental agreement with Eastern Finance to further regulate the balances of the our deposits and
loans with the Eastern Finance and its subsidiaries on a pre-condition that the agreed maximum daily balance of each of the deposits
and the loans under the financial services agreement dated October 15, 2010 remains unchanged. For details, please refer to the
our announcement 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 the Eastern Air
Finance Entities; (ii) loan and financing services by the Eastern Air Finance Entities; and (iii) other financial services such
as: (a) the provision of trust loans, financial guarantees, credit references by the Eastern Air Finance Entities; and (b) broker
services for future products (e.g. crude oil, foreign exchange and national debt) by the CES Finance Entities (the scope of “other
financial services” is not limited and different services may be provided to the 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,
2013, we had deposits amounting to RMB620.4 million placed with Eastern Finance, which paid interest to us at 0.39% per annum.
In addition, as of December 31, 2013, our Company had loans of RMB1,586.1 million from Eastern Finance. During the year ended December
31, 2013, the weighted average interest rate on the loan was 4.67% per annum.



92







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



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



On October 15, 2010,
the Company entered into an agreement relating to the consolidation and renewal of the existing maintenance services agreement
and the existing automobile repairing services agreement on substantially the same terms with CEA Development Co. pursuant to which
CEA Development Co. and its subsidiaries will from time to time provide certain services to the Company, including: (i) maintenance
and repair services to the Company's automobiles that are used in ground services and daily operations; (ii) comprehensive services
in relation to maintenance, repair and overhaul of aircraft and aviation equipment, and procurement of related equipment and materials
required in the daily operations of our Group; (iii) various special vehicles and equipment for airline use, such as air stairs,
freight cars, luggage trailers, garbage truck, food cars, freight containers, freight board; and (iv) aircraft on-board supplies.
The maintenance and repair services renewal agreement will be effective for a term of three years commencing from January 1, 2011
to December 31, 2013. For the year ended December 31, 2013, production and maintenance services fees paid to CEA Development Entity
amounted were approximately RMB142.6 million.



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”). The Maintenance and Repair
Services Renewal Agreement will be effective for a term of three years commencing from January 1, 2014 to December 31, 2016.



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.



93







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



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



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



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



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



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



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



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



On January 10, 2013,
Shanghai Tours entered into an equity transfer agreement with Eastern Tourism, pursuant to which Shanghai Tours agreed to acquire
the entire equity interests of 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.



94







Eastern Tourism is
a wholly-owned subsidiary of CEA Holding, which in turn is a controlling shareholder of the Company. Eastern Tourism is thus a
connected person of the Company under the Listing Rules. Shanghai Dongmei is interested as to 72.84% by, and is thus an associate
of, CEA Holding. Shanghai Dongmei is thus a connected person of the Company under the Listing Rules. Therefore, each of the Xi'an
Dongmei Acquisition, the Kunming Dongmei Acquisition and the Eastern Travel Acquisition constitutes a connected transaction of
the Company. The main purpose of Xi'an Dongmei Acquisition, the Kunming Dongmei Acquisition and the Eastern Travel Acquisition
is to reorganize and intergrade the tourism business of the Group. For details, please refer to the announcements 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 Tours held by SA Import & Export. Shanghai Tours was previously
directly held as to 86.02% by our Company and 13.98% by SA Import & Export, and after completion of the acquisition, it has
become a wholly-owned subsidiary of our Company. We paid to SA Import & Export RMB20.7 million for the acquisition as of December
31, 2012.



The main purpose of
the acquisition 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.



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.



95







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 metres together with a
total of 172 building properties and related construction, infrastructure and facilities occupying an aggregate floor area of approximately
240,601 square metres;



(b) a maximum of 3
land properties owned by CEA Yunnan, covering an aggregate site area of approximately 43,258 square metres together with a total
of 24 building properties and related construction, infrastructure and facilities occupying an aggregate floor area of approximately
77,401 square metres;



(c) building properties
and related construction, infrastructure and facilities owned by CEA Holding, occupying an aggregate floor area of approximately
8,853 square metres 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 metres located in Taiyuan;



(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 metres 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 metres 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.



96







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, 2013, we paid a rental of RMB59.1 million under this property leasing renewal agreement.



Guarantee by
CEA Holding



As of December 31,
2012, certain unsecured long-term bank loans of our Group with an aggregate amount of RMB95 million were guaranteed by CEA Holding.
As of December 31, 2013, bank loans of our Group guaranteed by CEA Holding were nil. See Note 46(d) to our audited consolidated
financial statements.



Subscription Agreements with CEA
Holding, CES Global and CES Finance



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



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



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



97







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



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



Both CES Finance and
CES Global are wholly-owned subsidiaries of CEA Holding. The subscriptions will significantly enhance the capital structure and
financial position of our Company by improving our 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 Shanghai Eastern Airlines Logistics Co.,
Ltd., which in turn is a subsidiary of the Company



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



98







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



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



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



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



Not applicable.



Item 8.          Financial
Information



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



Financial Statements



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



Legal Proceedings



We are involved in
routine litigation and other proceedings in the ordinary course of our business. We do not believe that any of these proceedings
are likely to be material to our business operations, financial condition or results of operations. In 2005, the family members
of certain victims in the aircraft accident (the aircraft was then owned and operated by China Eastern Air Yunnan Company), which
occurred in Baotou city in the Inner Mongolia Autonomous Region on November 21, 2004, sued, among other defendants, our Company
in a U.S. court for compensation, the amount of which 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. The management of our Group believes
that any outcome for this case will not have an adverse effect on the financial condition and results of operations of our Company.
Save as disclosed above, we were not involved in any other new material litigation in the period of this report.



Dividends and Dividend Policy



For the fiscal years
ended December 31, 2009, 2010, 2011, 2012 and 2013, our Board of Directors did not recommend any dividend payouts due to our total
accumulated losses of RMB17,797 million, RMB12,855 million, RMB8,039 million, RMB4,967 million and RMB2,595 million, respectively.
The Directors expect the balance of accumulated losses will be carried forward to next year. Under PRC law, we cannot convert funds
from the common reserve to increase our share capital during this period.



99







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



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



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



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



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



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



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



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



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



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



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



Significant Post Financial Statements Events



Not applicable.



Item 9.          The
Offer and Listing



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



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



100







As of December 31,
2013, there were 4,193,190,000 H Shares issued and outstanding. As of December 31, 2013 and April 20, 2014, there were, respectively,
42 and 42 registered holders of American depositary receipts evidencing 1,328,634 and 1,540,414, 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, 2013.



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 21, 2014.



|                                  |  | Hong Kong Stock Exchange |      |  | New York Stock Exchange | 
|--------------------------------- |  | ------------------------ | ---- |  | ----------------------- | 
|                                  |  | Price Per HShare (HK$)   |      |  | Price Per ADS (US$)     | 
|                                  |  | High                     |      |  | Low                     | 
|2009                              |  |                          | 3.12 |  |                         | 
|2010                              |  |                          | 5.38 |  |                         | 
|2011                              |  |                          | 4.46 |  |                         | 
|First Quarter 2011                |  |                          | 4.46 |  |                         | 
|Second Quarter 2011               |  |                          | 3.79 |  |                         | 
|Third Quarter 2011                |  |                          | 4.09 |  |                         | 
|Fourth Quarter 2011               |  |                          | 3.39 |  |                         | 
|2012                              |  |                          | 3.20 |  |                         | 
|First Quarter 2012                |  |                          | 3.13 |  |                         | 
|Second Quarter 2012               |  |                          | 2.73 |  |                         | 
|Third Quarter 2012                |  |                          | 2.75 |  |                         | 
|Fourth Quarter 2012               |  |                          | 3.20 |  |                         | 
|January 2013                      |  |                          | 3.72 |  |                         | 
|February 2013                     |  |                          | 3.65 |  |                         | 
|March 2013                        |  |                          | 3.51 |  |                         | 
|April 2013                        |  |                          | 3.46 |  |                         | 
|May 2013                          |  |                          | 3.22 |  |                         | 
|June 2013                         |  |                          | 2.55 |  |                         | 
|July 2013                         |  |                          | 2.50 |  |                         | 
|August 2013                       |  |                          | 2.60 |  |                         | 
|September 2013                    |  |                          | 2.73 |  |                         | 
|October 2013                      |  |                          | 2.82 |  |                         | 
|November 2013                     |  |                          | 3.27 |  |                         | 
|December 2013                     |  |                          | 3.19 |  |                         | 
|January 2014                      |  |                          | 3.00 |  |                         | 
|February 2014                     |  |                          | 3.04 |  |                         | 
|March 2014                        |  |                          | 2.82 |  |                         | 
|April 2014 (up to April 21, 2013) |  |                          | 2.74 |  |                         | 





| | 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.



101







| | 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, 2013,
is attached as an exhibit to this Annual Report on Form 20-F.



Selected Summary of the Articles
of Association



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



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



Board of Directors



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



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



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



102







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,
2013, 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;
| | ---- | ------------------------------------------



103







| | (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:



104







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



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



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



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



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



Shareholders' Rights



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



Sources of Shareholders' Rights



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



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



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



Significant Differences in the H Shares
and A Shares



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



105







Restrictions on Transferability and
the Share Register



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



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



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



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



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



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



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



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



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



Merger and Acquisitions



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



Repurchase of Shares



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



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



| | (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.



106







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



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



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



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



Interested Shareholders



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



107







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



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



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



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



Ownership Threshold



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



Changes in Capital



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



Changes in Registered Capital



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



Recent Amendments to the Articles
of Association



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



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



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



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



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



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



108







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



109







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



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



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



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



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



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



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 the 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."



110







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



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



The amendments to the Articles
of Association are as follows:



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



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



| | 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:



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



111







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



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



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



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



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



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



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



112







| | 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 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.



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.



113







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.



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.



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.



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.



114







Taxation
of Capital Gains by China



Individual Investors



According to the Law
of Individual Income Tax and its implemetaiton 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.



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



Enterprises



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



Chinese
Stamp Tax



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



United States Federal Income Taxation



Each potential investor
is strongly urged to consult his or her own tax advisor to determine the particular 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;
| | - | --------------------------------------------------------------------------------------------



115







| | · | 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.



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.





116







Distributions on the H Shares or ADSs



Subject to the discussions
below under "— Passive Foreign Investment Company", the gross amount of any distribution (without reduction for
any PRC tax withheld) we make on the H Shares or ADSs out of our current or accumulated earnings and profits (as determined for
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 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 2013 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 2014 taxable year or any future
year. However, our status in the current year and future years will depend on our income and assets (which for this purpose depends
in part on the market value of the H Shares or ADSs) in those years. See the discussion below under "— Passive Foreign
Investment Company".



Holders of H Shares
or ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own
particular circumstances.



If we make a distribution
paid in HK dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/U.S.
dollar rate on the date such distribution is received 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.



117







In the event we are
required to withhold PRC income tax on dividends paid to U.S. Holders on the H Shares or ADSs (see discussion under "China
Taxation"), you may be able to claim a reduced 10% rate of PRC withholding tax if you are eligible for benefits under the
Treaty. You should consult your own tax advisor about the eligibility for reduction of PRC withholding tax.



You may not be able
to claim a foreign tax credit (and instead may claim a deduction) for non-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. U.S. Holders should consult their own tax advisors
regarding the effect of these rules in their particular circumstance.



Sale, Exchange or Other Disposition



Subject to the discussions
below under "— Passive Foreign Investment Company", upon a sale, exchange or other disposition of the H Shares
or ADSs, you will generally recognize capital gain or loss for 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 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 was to be imposed on any gain from the disposition of H Shares or ADSs, the gain may be treated
as PRC-source income. U.S. Holders are urged to consult their tax advisors regarding the interaction of the foreign tax credit
and the Treaty "resourcing" rule. .



Passive Foreign Investment Company



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



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



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



"Passive income"
for this purpose includes, for example, dividends, interest, royalties, rents and gains from commodities and securities transactions.
Passive income does not include rents and royalties derived from the active conduct of a trade or business. If the stock of 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.



118







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 2013 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 2014 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.



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.



119







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.



For taxable years
beginning after March 18, 2010, legislation requires certain U.S. Holders who are individuals to report information relating to
stock of a non-U.S. person, subject to certain exceptions (including an exception for stock held in custodial accounts maintained
by a U.S. financial institution). U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this legislation
on their ownership and disposition of the H Shares or ADSs.



| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement by Experts
| | -- | --------------------



Not applicable.



120







| | H. | Documents on Display
| | -- | --------------------



You may read and copy
documents referred to in this Annual Report on Form 20-F that have been filed with the U.S. Securities and Exchange Commission
at the SEC's public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms and their copy charges. The SEC also maintains a website at http://www.sec.gov
that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.



As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy
statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.



The SEC allows us
to "incorporate by reference" the information we file with the SEC. This means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered
to be part of this Annual Report on Form 20-F.



| | I. | Subsidiary Information
| | -- | ----------------------



For a listing of our
significant subsidiaries, see "Item 4. Information on the Company — History and Development of the Company".



Item 11.         Quantitative
and Qualitative Disclosures about Market Risk



Interest Rate Risk



Our debts include
both fixed-rate and variable-rate long-term loans and other loans. As a result, we are subject to the market risk of fluctuation
of interest rates which may affect the estimated fair value of our debt liabilities or result in losses in cash flow. We use interest
rate swaps to reduce risks related to changes in market interest rates. As of December 31, 2013, the notional amount of the outstanding
interest rate swap agreements was approximately US$844 million. The net fair value of the outstanding interest rate swap agreements
was approximately US$11.4 million. These interest rate swap agreements will expire between 2014 and 2022. If the interest rate
had been 25 basic points higher with all other variables held constant, interest expenses on our floating rate instruments would
have increased by RMB122.5 million in 2012 and RMB106.9 million in 2013.



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, 2013, the notional amount and the net fair value of the outstanding currency forward contracts was approximately US$38 million
and US$1.6 million, respectively, which will expire between 2014 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 2012 and 2013, we had foreign exchange gains of RMB148 million and RMB1,976 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, 2013 as a consequence of a fluctuation in value of the following
major foreign currencies.



121







|                               |  | Profit and Loss Account (Decrease)/Increase |        
|------------------------------ |  | ------------------------------------------- | -------
|U.S. dollar depreciates by 1%  |  |                                             | 548,138
|Japanese yen depreciates by 1% |  |                                             | (1,903 
|Euro depreciates by 1%         |  |                                             | 4,050  



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, 2013, the fair value gain as of December 31, 2013 would have increased or decreased by
approximately RMB1,534 million. All crude oil option contracts signed in past years were settled before December 31, 2012.



Item 12.         Description
of Securities Other than Equity Securities



| | A. | Debt Securities
| | -- | ---------------



Not applicable.



| | B. | Warrants and Rights
| | -- | -------------------



Not applicable.



| | C. | Other Securities
| | -- | ----------------



Not applicable.



| | D. | American Depositary Shares
| | -- | --------------------------



Our ADSs, each representing
50 H shares, are traded on the New York Stock Exchange under the symbol "CEA." The ADSs are evidenced by American Depositary
Receipts, or ADRs, issued by BNYM, as depositary under the Deposit Agreement, dated as of February 5, 1997, among the Company,
BNYM and holders and beneficial owners of ADSs. ADS holders are required to pay the following service fees to BNYM:



122







|Service                                                                                                                                          |  | Fees (in U.S. dollars)                                                                                                                                                                    
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property                                        |  | US$5.00 (or less) per ADSs (or portion of 100 ADSs)                                                                                                                                       
|                                                                                                                                                 |  |                                                                                                                                                                                           
|Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates                                                |  | Cancellation fees                                                                                                                                                                         
|                                                                                                                                                 |  |                                                                                                                                                                                           
|Any cash distribution to ADS registered holders                                                                                                  |  | N/A                                                                                                                                                                                       
|                                                                                                                                                 |  |                                                                                                                                                                                           
|Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders      |  | A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs                                 
|                                                                                                                                                 |  |                                                                                                                                                                                           
|Depositary services                                                                                                                              |  | N/A                                                                                                                                                                                       
|                                                                                                                                                 |  |                                                                                                                                                                                           
|Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares |  | Registration or transfer fees                                                                                                                                                             
|                                                                                                                                                 |  |                                                                                                                                                                                           
|Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)                                                      |  | Expenses of the depositary                                                                                                                                                                
|                                                                                                                                                 |  |                                                                                                                                                                                           
|Converting foreign currency to U.S. dollars                                                                                                      |  | Foreign exchange fees                                                                                                                                                                     
|                                                                                                                                                 |  |                                                                                                                                                                                           
|As necessary                                                                                                                                     |  | Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes
|                                                                                                                                                 |  |                                                                                                                                                                                           
|As necessary                                                                                                                                     |  | Any charges incurred by the depositary or its agents for servicing the deposited securities                                                                                               



For the past annual
period, from January 1, 2013 to December 31, 2013, the Company received from the depositary an aggregate of US$38,344.4 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$130,596.3.



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.



123







Item 15.         Controls
and Procedures



Evaluation of Disclosure Controls and Procedures



Under the supervision
and with the participation of our President and Chief Financial Officer, our management conducted an evaluation of the effectiveness
of our Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the U.S. Securities
Exchange Act of 1934, as amended (the "Exchange Act")), as of 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 the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and regulations.



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



Management's Report on Internal Control over Financial
Reporting



Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) and have designed internal control over financial reporting or caused internal control over financial reporting
to be designed under our supervision in order to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of 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, 2013
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, 2013 in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS.



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, 2013 has been audited by Ernst & Young Hua Ming LLP, an
independent registered public accounting firm, as stated in their report which is included herein.



124







Changes in Internal Control over Financial Reporting



During
2013, 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. Shao Ruiqing, the chairman of our audit committee, is an independent financial expert serving on our audit
committee, given his experience in the academic aspects of accounting and notable achievements in accounting education and academic
research. Mr. Shao is independent of the Board of Directors, senior management, Supervisors or substantial shareholders of our
Company.



Item 16B.           Code
of Ethics



We have adopted a
code of ethics that applies to our Directors, supervisors, President, Chief Financial Officer and other senior managers of our
Company. We have filed this code of ethics as Exhibit 11.1 to this annual Report. A copy of our code of ethics will be provided
to any person free of charge upon written request to Wang Jian, Secretary Office of the Board of Directors, China Eastern Airlines
Corporation Limited at Kong Gang San 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, PricewaterhouseCoopers for the
year ended December 31, 2012, and Ernst & Young Hua Ming LLP for the year ended December 31, 2013, 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)          | 
|2012 |  |            | 14,380,000 |  |                    |  | 2,900,000 |          |  |  | 108,000        | 
|2013 |  |            | 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, 2012 and 2013.



Audit-Related Fees



Audit-related fees
for the fiscal year ended December 31, 2012 primarily consist of fees for and services provided in connection with the Company's
bond offerings and proposed non-public offerings.



Tax Fees



Tax fees primarily
consist of fees for tax compliance services.



125







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



Not applicable.



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



On November 9, 2012,
we held an extraordinary general meeting to approve, among other things, the proposals for 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



There has not been
a change in the Company's certifying accountant during 2011 and 2012.



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





On March 26, 2013, the Board approved not
to re-appoint our independent registered public accounting firm, PricewaterhouseCoopers 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.







126







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



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 April 24, 2013, we did not consulted, 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 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.                                                                |  | We currently have five independent Directors out of a total of eleven Directors. The standards for establishing independence set forth under the Independent Director Guidance of the PRC differ, to some extent, from those set forth in the NYSE Listed Company Manual.
|                                                                                                |  |                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                          
|Non-management directors must meet at regularly scheduled executive sessions without management |  | Section 303A.03 of the Listed Company Manual requires non-management directors of each listed company to meet at regularly scheduled executive sessions without management participation. |  | There is no identical corporate governance requirement in the PRC.                                                                                                                                                                                                       



127







|Nominating/Corporate Governance Committee |  | Section 303A.04 of the Listed Company Manual requires that (i) listed companies must have a nominating/corporate governance committee composed entirely of independent directors and (ii) the nominating/corporate governance committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee. |  | The Company has established a Nominations and Remuneration Committee. As of December 31, 2013, the Nominations and Remuneration Committee consists of three members, two of which are independent non-executive Directors of the Company. The merger of the Nomination Committee and the Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of the Company held on March 19, 2010.                                                                                                  
|----------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                          |  |                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                          |  |                                                                                                                                                                                                                                                                                                                                                                                         |  | The Nominations and Remuneration Committee is a specialized committee under the Board. It is responsible for the discussion in regard to nominees, standards and procedures for selecting directors and senior management of the Company and making recommendations; responsible for studying and examining the remuneration policy and solutions of directors and senior management of the Company; responsible for studying the performance appraisal standards for directors and senior management of the Company, conducting appraisals and making recommendation.
|                                          |  |                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Compensation Committee                    |  | Section 303A.05 of the Listed Company Manual requires that listed companies must (i) have a compensation committee composed entirely of independent directors and (ii) the compensation committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee.                                       |  | The Company has established a Nominations and Remuneration Committee. As of December 31, 2013, the Nominations and Remuneration Committee consists of three members, two of which are independent non-executive Directors of the Company. The merger of the Nomination Committee and the Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of the Company held on March 19, 2010.                                                                                                  



128







|Code of Business Conduct and Ethics |  | Section 303A.10 requires a listed company to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers from the code for directors or executive officers. |  | As required under the Sarbanes-Oxley Act of 2002, the Company has adopted a code of ethics that is applicable to the Company’s Directors, Supervisors, President, Chief Financial Officer and other senior managers.
|----------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we have
posted a description of such differences under the section entitled "Report of Directors" of our 2013 Hong Kong Annual
Report, which can be accessed through the following link on our website:





http://en.ceair.com/upload/2014/4/2013nby.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-73.



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, 2013 (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)



129







|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)                      
|     |  |                                                                                                                                                                               
|8.1  |  | List of Subsidiaries (as of April 20, 2014).                                                                                                                                  
|     |  |                                                                                                                                                                               
|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 PWC with respect to the disclosures under Item 16F(a).                                                                                                            
|     |  |                                                                                                                                                                               



| | (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, 2013.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



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



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 25, 2014



130









CHINA EASTERN AIRLINES CORPORATION LIMITED



Consolidated Financial Statements



For The Years Ended



December 31, 2013, 2012 and 2011



F-1



















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 statements 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 audits.



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.



As
discussed in Note 2(a)(ii) to the consolidated financial statements, the Company changed its method of accounting for defined benefit
plan effective January 1, 2013.



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, 2013, 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 25, 2014 expressed an unqualified opinion thereon.





/s/ Ernst & Young Hua
Ming LLP

Beijing, The People’s
Republic of China

April 25, 2014







F-2



















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, 2013,
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, 2013, 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, 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
and our report dated April 25, 2014 expressed an unqualified opinion thereon.





/s/ Ernst & Young Hua
Ming LLP

Beijing, The People’s
Republic of China

April 25, 2014









F-3



















| | 
| | 
| | 
| | 











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 statement of financial
position and the related 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 financial position of China Eastern Airlines Corporation Limited (“the
Company”) and its subsidiaries at December 31, 2012 and the results of their operations and their cash flows for each of
the two years in 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.







/s/ PricewaterhouseCoopers

Certified Public Accountants



Hong Kong

April 24, 2013

















F-4











CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
AND OTHER

COMPREHENSIVE INCOME

For the
years ended December 31, 2013, 2012 and 2011

(Amounts in thousands except for per share
data)



|                                                                                                     |  |      |  | 2013    |             |   | 2012      |  |             | 2011      | 
|---------------------------------------------------------------------------------------------------- |  | ---- |  | ------- | ----------- | - | --------- |  | ----------- | --------- | 
|                                                                                                     |  |      |  | RMB’000 |             |   | RMB’000   |  |             | RMB’000   | 
|                                                                                                     |  | Note |  |         |             |   | Restated* |  |             | Restated* | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Revenues                                                                                             |  | 5    |  |         | 88,245,000  |   |           |  | 85,253,317  |           | 
|Other operating income                                                                               |  | 6    |  |         | 2,725,361   |   |           |  | 1,832,754   |           | 
|Operating expenses                                                                                   |  |      |  |         |             |   |           |  |             |           | 
|Aircraft fuel                                                                                        |  |      |  |         | (30,681,401 | ) |           |  | (29,871,506 | )         | 
|Gain on fair value movements of derivative financial instruments                                     |  | 8    |  |         | 18,338      |   |           |  | 24,831      |           | 
|Take-off and landing charges                                                                         |  |      |  |         | (9,189,527  | ) |           |  | (9,065,649  | )         | 
|Depreciation and amortization                                                                        |  |      |  |         | (8,226,198  | ) |           |  | (7,556,910  | )         | 
|Wages, salaries and benefits                                                                         |  | 9    |  |         | (13,453,784 | ) |           |  | (12,302,858 | )         | 
|Aircraft maintenance                                                                                 |  |      |  |         | (4,690,109  | ) |           |  | (4,432,741  | )         | 
|Impairment (charge)/reversal                                                                         |  | 10   |  |         | (185,857    | ) |           |  | 13,467      |           | 
|Food and beverages                                                                                   |  |      |  |         | (2,268,312  | ) |           |  | (2,031,425  | )         | 
|Aircraft operating lease rentals                                                                     |  |      |  |         | (4,605,460  | ) |           |  | (4,438,169  | )         | 
|Other operating lease rentals                                                                        |  |      |  |         | (678,928    | ) |           |  | (609,111    | )         | 
|Selling and marketing expenses                                                                       |  |      |  |         | (4,138,907  | ) |           |  | (3,727,437  | )         | 
|Civil aviation development fund                                                                      |  |      |  |         | (1,565,624  | ) |           |  | (1,414,457  | )         | 
|Ground services and other expenses                                                                   |  |      |  |         | (5,105,060  | ) |           |  | (3,305,303  | )         | 
|Indirect operating expenses                                                                          |  |      |  |         | (4,623,173  | ) |           |  | (4,016,511  | )         | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Total operating expenses                                                                             |  |      |  |         | (89,394,002 | ) |           |  | (82,733,779 | )         | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Operating profit                                                                                     |  | 11   |  |         | 1,576,359   |   |           |  | 4,352,292   |           | 
|Share of results of associates                                                                       |  | 22   |  |         | 38,335      |   |           |  | 103,209     |           | 
|Share of results of joint ventures                                                                   |  | 23   |  |         | 26,588      |   |           |  | 29,960      |           | 
|Finance income                                                                                       |  | 12   |  |         | 2,124,440   |   |           |  | 348,601     |           | 
|Finance costs                                                                                        |  | 13   |  |         | (1,548,622  | ) |           |  | (1,697,474  | )         | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Profit before income tax                                                                             |  |      |  |         | 2,217,100   |   |           |  | 3,136,588   |           | 
|Income tax expense                                                                                   |  | 14   |  |         | (124,281    | ) |           |  | (207,407    | )         | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Profit for the year                                                                                  |  |      |  |         | 2,092,819   |   |           |  | 2,929,181   |           | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|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   |  |         | 245,942     |   |           |  | (9,211      | )         | 
|Fair value movements of available-for-sale financial assets, net of tax                              |  |      |  |         | 156,578     |   |           |  | (389        | )         | 
|Fair value movements of available-for-sale financial assets held by an associate, net of tax         |  | 22   |  |         | (2,931      | ) |           |  | 2,188       |           | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods     |  |      |  |         | 399,589     |   |           |  | (7,412      | )         | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods:    |  |      |  |         |             |   |           |  |             |           | 
|Actuarial gains/(losses) on the post-retirement benefit obligations, net of tax                      |  |      |  |         | 467,476     |   |           |  | 139,312     |           | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Net other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods |  |      |  |         | 467,476     |   |           |  | 139,312     |           | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Other comprehensive income/(loss), net of tax                                                        |  |      |  |         | 867,065     |   |           |  | 131,900     |           | 
|                                                                                                     |  |      |  |         |             |   |           |  |             |           | 
|Total comprehensive income for the year                                                              |  |      |  |         | 2,959,884   |   |           |  | 3,061,081   |           | 



F-5







CONSOLIDATED
STATEMENTS OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE
INCOME (CONTINUED)

For the
year ended December 31, 2013, 2012 and 2011

(Amounts in thousands except for per share
data)



|                                                                                          |  |      |  | 2013    |           |   | 2012      |  |           | 2011      | 
|----------------------------------------------------------------------------------------- |  | ---- |  | ------- | --------- | - | --------- |  | --------- | --------- | 
|                                                                                          |  |      |  | RMB’000 |           |   | RMB’000   |  |           | RMB’000   | 
|                                                                                          |  | Note |  |         |           |   | Restated* |  |           | Restated* | 
|                                                                                          |  |      |  |         |           |   |           |  |           |           | 
|Profit/(loss) attributable to:                                                            |  |      |  |         |           |   |           |  |           |           | 
|Equity shareholders of the Company                                                        |  |      |  |         | 2,372,571 |   |           |  | 3,071,514 |           | 
|Non-controlling interests                                                                 |  |      |  |         | (279,752  | ) |           |  | (142,333  | )         | 
|                                                                                          |  |      |  |         |           |   |           |  |           |           | 
|Profit for the year                                                                       |  |      |  |         | 2,092,819 |   |           |  | 2,929,181 |           | 
|                                                                                          |  |      |  |         |           |   |           |  |           |           | 
|Total comprehensive income/(loss) attributable to:                                        |  |      |  |         |           |   |           |  |           |           | 
|Equity shareholders of the Company                                                        |  |      |  |         | 3,180,134 |   |           |  | 3,221,378 |           | 
|Non-controlling interests                                                                 |  |      |  |         | (220,250  | ) |           |  | (160,297  | )         | 
|                                                                                          |  |      |  |         |           |   |           |  |           |           | 
|Total comprehensive income for the year                                                   |  |      |  |         | 2,959,884 |   |           |  | 3,061,081 |           | 
|                                                                                          |  |      |  |         |           |   |           |  |           |           | 
|Earnings per share attributable to the equity shareholders of the Company during the year |  |      |  |         |           |   |           |  |           |           | 
|– Basic and diluted (RMB)                                                                 |  | 17   |  |         | 0.20      |   |           |  | 0.27      |           | 
|                                                                                          |  |      |  |         |           |   |           |  |           |           | 
|Dividends                                                                                 |  | 15   |  |         | -         |   |           |  | -         |           | 



| | * | Certain amounts shown here do not correspond
to the 2012 and 2011 consolidated financial statements and
reflect adjustments made, refer to Note 2(a)(ii).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-6







CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION

As of December 31, 2013 and 2012 and January
1, 2012

(Amounts in thousands except for per share
data)



|                                                                                             |  |      |  | December 31, |             |   | December 31, |  |             | January 1, | 
|-------------------------------------------------------------------------------------------- |  | ---- |  | ------------ | ----------- | - | ------------ |  | ----------- | ---------- | 
|                                                                                             |  |      |  | 2013         |             |   | 2012         |  |             | 2012       | 
|                                                                                             |  |      |  | RMB’000      |             |   | RMB’000      |  |             | RMB’000    | 
|                                                                                             |  | Note |  |              |             |   | Restated*    |  |             | Restated*  | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|Non-current assets                                                                           |  |      |  |              |             |   |              |  |             |            | 
|Intangible assets                                                                            |  | 18   |  |              | 11,490,107  |   |              |  | 11,449,099  |            | 
|Property, plant and equipment                                                                |  | 19   |  |              | 92,782,602  |   |              |  | 82,518,761  |            | 
|Lease prepayments                                                                            |  | 20   |  |              | 2,154,644   |   |              |  | 1,781,846   |            | 
|Advanced payments on acquisition of aircraft                                                 |  | 21   |  |              | 16,296,281  |   |              |  | 11,894,891  |            | 
|Investments in associates                                                                    |  | 22   |  |              | 1,064,408   |   |              |  | 833,472     |            | 
|Investments in joint ventures                                                                |  | 23   |  |              | 433,024     |   |              |  | 418,159     |            | 
|Available-for-sale financial assets                                                          |  |      |  |              | 410,737     |   |              |  | 234,690     |            | 
|Other long-term assets                                                                       |  | 24   |  |              | 2,369,150   |   |              |  | 1,958,256   |            | 
|Deferred tax assets                                                                          |  | 36   |  |              | 389,466     |   |              |  | 124,658     |            | 
|Derivative financial instruments                                                             |  | 39   |  |              | 67,709      |   |              |  | -           |            | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|                                                                                             |  |      |  |              | 127,458,128 |   |              |  | 111,213,832 |            | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|Current assets                                                                               |  |      |  |              |             |   |              |  |             |            | 
|Flight equipment spare parts                                                                 |  | 25   |  |              | 2,305,412   |   |              |  | 2,087,978   |            | 
|Trade receivables                                                                            |  | 26   |  |              | 3,524,546   |   |              |  | 2,962,181   |            | 
|Prepayments and other receivables                                                            |  | 27   |  |              | 4,058,167   |   |              |  | 3,368,648   |            | 
|Derivative financial instruments                                                             |  | 39   |  |              | -           |   |              |  | 18,074      |            | 
|Restricted bank deposits and short-term bank deposits                                        |  | 28   |  |              | 383,063     |   |              |  | 1,726,251   |            | 
|Cash and cash equivalents                                                                    |  | 29   |  |              | 1,994,978   |   |              |  | 2,511,696   |            | 
|Assets classified as held for sale                                                           |  | 43   |  |              | 343,754     |   |              |  | -           |            | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|                                                                                             |  |      |  |              | 12,609,920  |   |              |  | 12,674,828  |            | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|Current liabilities                                                                          |  |      |  |              |             |   |              |  |             |            | 
|Sales in advance of carriage                                                                 |  |      |  |              | 3,534,525   |   |              |  | 3,094,427   |            | 
|Trade and bills payable                                                                      |  | 30   |  |              | 3,463,016   |   |              |  | 3,075,325   |            | 
|Other payables and accruals                                                                  |  | 31   |  |              | 18,145,874  |   |              |  | 16,256,225  |            | 
|Current portion of obligations  under finance leases                                         |  | 32   |  |              | 2,980,398   |   |              |  | 2,605,269   |            | 
|Current portion of borrowings                                                                |  | 33   |  |              | 23,285,187  |   |              |  | 22,639,955  |            | 
|Income tax payable                                                                           |  |      |  |              | 215,332     |   |              |  | 181,788     |            | 
|Current portion of provision for return condition checks for aircraft under operating leases |  | 34   |  |              | 1,453,985   |   |              |  | 734,205     |            | 
|Derivative financial instruments                                                             |  | 39   |  |              | 3,386       |   |              |  | 35,813      |            | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|                                                                                             |  |      |  |              | 53,081,703  |   |              |  | 48,623,007  |            | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|Net current liabilities                                                                      |  |      |  |              | (40,471,783 | ) |              |  | (35,948,179 | )          | 
|                                                                                             |  |      |  |              |             |   |              |  |             |            | 
|Total assets less current liabilities                                                        |  |      |  |              | 86,986,345  |   |              |  | 75,265,653  |            | 



F-7







CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(CONTINUED)

As of December 31, 2013 and 2012 and January
1, 2012

(Amounts in thousands except for per share
data)



|                                                                            |  |      |  | December 31, |            |  | December 31, |  |            | January 1, | 
|--------------------------------------------------------------------------- |  | ---- |  | ------------ | ---------- |  | ------------ |  | ---------- | ---------- | 
|                                                                            |  |      |  | 2013         |            |  | 2012         |  |            | 2012       | 
|                                                                            |  |      |  | RMB’000      |            |  | RMB’000      |  |            | RMB’000    | 
|                                                                            |  | Note |  |              |            |  | Restated*    |  |            | Restated*  | 
|                                                                            |  |      |  |              |            |  |              |  |            |            | 
|Non-current liabilities                                                     |  |      |  |              |            |  |              |  |            |            | 
|Obligations under finance leases                                            |  | 32   |  |              | 20,154,750 |  |              |  | 19,252,709 |            | 
|Borrowings                                                                  |  | 33   |  |              | 27,315,243 |  |              |  | 23,096,163 |            | 
|Provision for return condition checks for aircraft under operating leases   |  | 34   |  |              | 2,763,181  |  |              |  | 3,064,557  |            | 
|Other long-term liabilities                                                 |  | 35   |  |              | 2,401,876  |  |              |  | 1,635,537  |            | 
|Post-retirement benefit obligations                                         |  | 37   |  |              | 5,615,293  |  |              |  | 6,147,851  |            | 
|Deferred tax liabilities                                                    |  | 36   |  |              | 29,550     |  |              |  | 29,326     |            | 
|Derivative financial instruments                                            |  | 39   |  |              | 124,194    |  |              |  | 304,338    |            | 
|                                                                            |  |      |  |              |            |  |              |  |            |            | 
|                                                                            |  |      |  |              | 58,404,087 |  |              |  | 53,530,481 |            | 
|                                                                            |  |      |  |              |            |  |              |  |            |            | 
|Net asset                                                                   |  |      |  |              | 28,582,258 |  |              |  | 21,735,172 |            | 
|                                                                            |  |      |  |              |            |  |              |  |            |            | 
|Equity                                                                      |  |      |  |              |            |  |              |  |            |            | 
|Capital and reserves attributable to the equity shareholders of the Company |  |      |  |              |            |  |              |  |            |            | 
|– share capital                                                             |  | 41   |  |              | 12,674,269 |  |              |  | 11,276,539 |            | 
|– Reserves                                                                  |  | 42   |  |              | 14,228,047 |  |              |  | 8,930,828  |            | 
|                                                                            |  |      |  |              |            |  |              |  |            |            | 
|                                                                            |  |      |  |              | 26,902,316 |  |              |  | 20,207,367 |            | 
|                                                                            |  |      |  |              |            |  |              |  |            |            | 
|Non-controlling interests                                                   |  |      |  |              | 1,679,942  |  |              |  | 1,527,805  |            | 
|                                                                            |  |      |  |              |            |  |              |  |            |            | 
|Total equity                                                                |  |      |  |              | 28,582,258 |  |              |  | 21,735,172 |            | 



| | * | Certain amounts shown here do not correspond to the 2012 and 2011 consolidated financial statements
and reflect adjustments made, refer to Note 2(a)(ii).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-8







CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2013,
2012 and 2011

(Amounts in thousands except for per share
data)



|                                                                                                                |  |       |  | 2013    |             |   | 2012    |  |             | 2011    | 
|--------------------------------------------------------------------------------------------------------------- |  | ----- |  | ------- | ----------- | - | ------- |  | ----------- | ------- | 
|                                                                                                                |  |       |  | RMB’000 |             |   | RMB’000 |  |             | RMB’000 | 
|                                                                                                                |  | Note  |  |         |             |   |         |  |             |         | 
|Cash flows from operating activities                                                                            |  |       |  |         |             |   |         |  |             |         | 
|Cash generated from operations                                                                                  |  | 44(a) |  |         | 11,120,494  |   |         |  | 12,822,835  |         | 
|Income tax paid                                                                                                 |  |       |  |         | (314,016    | ) |         |  | (205,476    | )       | 
|                                                                                                                |  |       |  |         |             |   |         |  |             |         | 
|Net cash inflow from operating activities                                                                       |  |       |  |         | 10,806,478  |   |         |  | 12,617,359  |         | 
|                                                                                                                |  |       |  |         |             |   |         |  |             |         | 
|Cash flows from investing activities                                                                            |  |       |  |         |             |   |         |  |             |         | 
|Additions of property, plant and equipment                                                                      |  |       |  |         | (1,822,056  | ) |         |  | (6,148,139  | )       | 
|Payment for short-term deposits with original maturity over three months                                        |  |       |  |         | -           |   |         |  | -           |         | 
|Advanced payments on acquisition of aircraft                                                                    |  | 21    |  |         | (17,261,022 | ) |         |  | (7,328,529  | )       | 
|Acquisition of cargo business of Great Wall Airlines Co., Ltd. (“Great Wall Airlines”) netting of cash acquired |  |       |  |         | -           |   |         |  | (87,316     | )       | 
|Proceeds from disposal of assets classified as held for sale                                                    |  |       |  |         | -           |   |         |  | 209,586     |         | 
|Proceeds from disposal of property, plant and equipment                                                         |  |       |  |         | 555,752     |   |         |  | 181,246     |         | 
|Proceeds of short-term deposits with original maturity over three months                                        |  | 28    |  |         | 1,491,654   |   |         |  | 958,489     |         | 
|Capital injections in associates                                                                                |  |       |  |         | (236,725    | ) |         |  | -           |         | 
|Acquisition of a subsidiary                                                                                     |  |       |  |         | (11,876     | ) |         |  | -           |         | 
|Purchase of investment in available-for-salefinancial assets                                                    |  |       |  |         | (47,085     | ) |         |  | -           |         | 
|Interest received                                                                                               |  |       |  |         | 195,760     |   |         |  | 215,789     |         | 
|Dividends received                                                                                              |  |       |  |         | 95,672      |   |         |  | 112,446     |         | 
|Proceeds from disposal of interest in an associate                                                              |  |       |  |         | 12,365      |   |         |  | 2,439       |         | 
|Proceeds from disposal of interest in available-for-sale financial assets                                       |  |       |  |         | -           |   |         |  | 94,890      |         | 
|                                                                                                                |  |       |  |         |             |   |         |  |             |         | 
|Net cash outflow from investing activities                                                                      |  |       |  |         | (17,027,561 | ) |         |  | (11,789,099 | )       | 



F-9







CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the years ended December 31, 2013,
2012 and 2011

(Amounts in thousands except for per share
data)



|                                                                    |  |      |  | 2013    |             |   | 2012    |  |             | 2011    | 
|------------------------------------------------------------------- |  | ---- |  | ------- | ----------- | - | ------- |  | ----------- | ------- | 
|                                                                    |  |      |  | RMB’000 |             |   | RMB’000 |  |             | RMB’000 | 
|                                                                    |  | Note |  |         |             |   |         |  |             |         | 
|                                                                    |  |      |  |         |             |   |         |  |             |         | 
|Cash flows from financing activities                                |  |      |  |         |             |   |         |  |             |         | 
|Proceeds from issue of shares                                       |  |      |  |         | 3,572,391   |   |         |  | -           |         | 
|Proceeds from draw down of short-term bank loans                    |  |      |  |         | 15,634,644  |   |         |  | 23,101,136  |         | 
|Repayments of short-term debts                                      |  |      |  |         | (4,000,000  | ) |         |  | -           |         | 
|Repayments of short-term bank loans                                 |  |      |  |         | (15,823,469 | ) |         |  | (25,619,898 | )       | 
|Proceeds from issuance of short-term debentures and bonds           |  |      |  |         | 4,000,000   |   |         |  | 4,000,000   |         | 
|Proceeds from issuance of long-term debentures and bonds            |  |      |  |         | 6,985,406   |   |         |  | -           |         | 
|Proceeds from government grants                                     |  |      |  |         | 13,095      |   |         |  | -           |         | 
|Proceeds from draw down of long-term bank loans                     |  |      |  |         | 8,957,687   |   |         |  | 10,887,474  |         | 
|Repayments of long-term bank loans                                  |  |      |  |         | (9,792,367  | ) |         |  | (8,352,313  | )       | 
|Principal repayments of finance lease obligations                   |  |      |  |         | (2,447,560  | ) |         |  | (4,094,636  | )       | 
|Receipts of restricted bank deposits                                |  |      |  |         | -           |   |         |  | 236,475     |         | 
|Interest paid                                                       |  |      |  |         | (1,692,806  | ) |         |  | (1,936,842  | )       | 
|Capital contribution from non-controlling interests of subsidiaries |  |      |  |         | 406,000     |   |         |  | 453,850     |         | 
|Acquisition of non-controlling interests in subsidiaries            |  |      |  |         | (14,893     | ) |         |  | (670,956    | )       | 
|Dividends paid to non-controlling interests of subsidiaries         |  |      |  |         | (68,481     | ) |         |  | (178,580    | )       | 
|                                                                    |  |      |  |         |             |   |         |  |             |         | 
|Net cash inflow/(outflow) from financing activities                 |  |      |  |         | 5,729,647   |   |         |  | (2,174,290  | )       | 
|                                                                    |  |      |  |         |             |   |         |  |             |         | 
|Net (decrease)/increase in cash and cash equivalents                |  |      |  |         | (491,436    | ) |         |  | (1,346,030  | )       | 
|Cash and cash equivalents at beginning of year                      |  |      |  |         | 2,511,696   |   |         |  | 3,860,973   |         | 
|Effect of foreign exchange rate changes                             |  |      |  |         | (25,282     | ) |         |  | (3,247      | )       | 
|                                                                    |  |      |  |         |             |   |         |  |             |         | 
|Cash and cash equivalents at December 31                            |  | 29   |  |         | 1,994,978   |   |         |  | 2,511,696   |         | 



Note to consolidated statements of cash
flows is set out in Note 44 to the consolidated financial statements.



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



F-10







CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended December 31, 2013,
2012 and 2011

(Amounts in thousands except for per share
data)



|                                                                                                   |  | Attributable
    to equity holders of the Company |            |  |          |  |            |             | 
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ---------- |  | -------- |  | ---------- | ----------- | 
|                                                                                                   |  | Share                                             |            |  | Other    |  |            | Accumulated | 
|                                                                                                   |  | capital                                           |            |  | reserves |  |            | losses      | 
|                                                                                                   |  | RMB’000                                           |            |  | RMB’000  |  |            | RMB’000     | 
|                                                                                                   |  |                                                   |            |  |          |  |            |             | 
|Balance at January 1, 2011                                                                         |  |                                                   |            |  |          |  |            |             | 
|As previously reported                                                                             |  |                                                   | 11,276,539 |  |          |  | 16,950,255 |             | 
|Prior year adjustments                                                                             |  |                                                   | -          |  |          |  | (2,622,086 | )           | 
|As restated                                                                                        |  |                                                   | 11,276,539 |  |          |  | 14,328,169 |             | 
|                                                                                                   |  |                                                   |            |  |          |  |            |             | 
|Total
    comprehensive income /(loss) for the years (Restated*)                                   |  |                                                   | -          |  |          |  | (847,080   | )           | 
|-Profit
    for the year (Restated*)                                                               |  |                                                   | -          |  |          |  | -          |             | 
|-Other
    comprehensive income/(loss) (Restated*)                                                 |  |                                                   | -          |  |          |  | (847,080   | )           | 
|                                                                                                   |  |                                                   |            |  |          |  |            |             | 
|Accumulated losses shared
    by non-controlling interests after capital injection in a subsidiary |  |                                                   | -          |  |          |  | 426,439    |             | 
|Capital contribution by
    non-controlling interests in subsidiaries                              |  |                                                   | -          |  |          |  | -          |             | 
|Dividends paid to non-controlling
    interests in subsidiaries                                    |  |                                                   | -          |  |          |  | -          |             | 
|Acquisition
    of non-controlling interests in subsidiaries                                       |  |                                                   | -          |  |          |  | (12,905    | )           | 
|                                                                                                   |  |                                                   |            |  |          |  |            |             | 
|Balance at December 31,
    2011 (Restated*)                                                       |  |                                                   | 11,276,539 |  |          |  | 13,894,623 |             | 



|                                                                      |  | Attributable
    to equity holders of the Company |            |  |          |  |            |             | 
|--------------------------------------------------------------------- |  | ------------------------------------------------- | ---------- |  | -------- |  | ---------- | ----------- | 
|                                                                      |  | Share                                             |            |  | Other    |  |            | Accumulated | 
|                                                                      |  | capital                                           |            |  | reserves |  |            | losses      | 
|                                                                      |  | RMB’000                                           |            |  | RMB’000  |  |            | RMB’000     | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|Balance at January 1, 2012                                            |  |                                                   |            |  |          |  |            |             | 
|As previously reported                                                |  |                                                   | 11,276,539 |  |          |  | 17,229,128 |             | 
|Prior year adjustments                                                |  |                                                   | -          |  |          |  | (3,334,505 | )           | 
|As restated                                                           |  |                                                   | 11,276,539 |  |          |  | 13,894,623 |             | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|Total
    comprehensive income /(loss) for the year (Restated*)       |  |                                                   | -          |  |          |  | 149,864    |             | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|-Profit/(loss)
    for the year (Restated*)                           |  |                                                   | -          |  |          |  | -          |             | 
|-Other
    comprehensive income/(loss) (Restated*)                    |  |                                                   | -          |  |          |  | 149,864    |             | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|Capital contribution by
    non-controlling interests in subsidiaries |  |                                                   | -          |  |          |  | -          |             | 
|Dividends paid to non-controlling
    interests in subsidiaries       |  |                                                   | -          |  |          |  | -          |             | 
|Acquisition of non-controlling
    interests in subsidiaries          |  |                                                   | -          |  |          |  | (490,151   | )           | 
|Others                                                                |  |                                                   | -          |  |          |  | 343,786    |             | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|Balance
    at December 31, 2012 (Restated*)                          |  |                                                   | 11,276,539 |  |          |  | 13,898,122 |             | 



F-11







CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(CONTINUED)

For the years ended December 31, 2013,
2012 and 2011

(Amounts in thousands except for per share
data)



|                                                                      |  | Attributable
    to equity holders of the Company |            |  |          |  |            |             | 
|--------------------------------------------------------------------- |  | ------------------------------------------------- | ---------- |  | -------- |  | ---------- | ----------- | 
|                                                                      |  | Share                                             |            |  | Other    |  |            | Accumulated | 
|                                                                      |  | capital                                           |            |  | reserves |  |            | losses      | 
|                                                                      |  | RMB’000                                           |            |  | RMB’000  |  |            | RMB’000     | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|Balance at January 1, 2013                                            |  |                                                   |            |  |          |  |            |             | 
|As previously reported                                                |  |                                                   | 11,276,539 |  |          |  | 17,075,389 |             | 
|Prior year adjustments                                                |  |                                                   | -          |  |          |  | (3,177,267 | )           | 
|As restated                                                           |  |                                                   | 11,276,539 |  |          |  | 13,898,122 |             | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|Total
    comprehensive income for the year                           |  |                                                   | -          |  |          |  | 807,563    |             | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|-Profit/(loss)
    for the year                                       |  |                                                   | -          |  |          |  | -          |             | 
|-Other
    comprehensive income                                       |  |                                                   | -          |  |          |  | 807,563    |             | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|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                                                       |  |                                                   | 1,397,730  |  |          |  | 2,174,661  |             | 
|Others                                                                |  |                                                   | -          |  |          |  | (57,576    | )           | 
|                                                                      |  |                                                   |            |  |          |  |            |             | 
|Balance at December 31,
    2013                                      |  |                                                   | 12,674,269 |  |          |  | 16,822,770 |             | 



| | * | Certain amounts shown here do not correspond
to the 2012 and 2011 consolidated financial statements and
reflect adjustments made, refer to Note 2(a)(ii).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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



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 consolidated
financial statements were approved for issue by the Company’s Board of Directors (the “Board”) on March
26, 2014.



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | -- | ------------------------------------------



| |  | The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Basis of preparation
| | --- | --------------------



The consolidated financial statements
of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standard Board and the disclosure requirements of the Hong Kong Companies Ordinance. The consolidated
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, 2013, the Group’s
accumulated losses were approximately RMB2.59 billion and its current liabilities exceeded its current assets by approximately
RMB40.47 billion. In preparing the consolidated 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, 2013, the Group had total unutilized
credit facility amounting to approximately RMB37.60 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 consolidated 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 new and revised IFRSs for the first time for the current year's consolidated financial statements.



|IFRS 7 Amendments                       |  | Amendments to IFRS 7 Financial Instruments:                        
|--------------------------------------- |  | -------------------------------------------------------------------
|                                        |  | Disclosures – Offsetting Financial Assets and Financial Liabilities
|IFRS 10                                 |  | Consolidated Financial Statements                                  
|IFRS 11                                 |  | JointArrangements                                                  
|IFRS 12                                 |  | Disclosure of Interests in Other Entities                          
|IFRS
10, IFRS 11 and IFRS 12 Amendments |  | Amendments to IFRS 10, IFRS 11 and IFRS 12 – Transaction Guidance  
|IFRS 13                                 |  | Fair Value Measurement                                             
|IAS 1 Amendments                        |  | Amendments to IAS 1 Presentation of Financial Statement            
|                                        |  | – Presentation of Items of Other Comprehensive Income              
|IAS 19 (2011)                           |  | Employee Benefits                                                  
|IAS 27 (2011)                           |  | Separate Financial Statement                                       
|IAS 28 (2011)                           |  | Investments in Associates and Joint Ventures                       
|IAS 36 Amendments                       |  | Amendments to IAS 36 Impairment of Assets – Recoverable Amount     
|                                        |  | Disclosures for Non-Financial Assets (early adopted)               
|Annual Improvements                     |  | Amendments to a number of IFRSs issued in June 2012                
|2009-2011 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)
| | ---- | -------------------------------------------------------



Other than as further explained
below regarding the impact of amendments to IAS 1 and IAS 19 (2011), and certain amendments included in Annual Improvements 2009-2011
Cycle (include other standards as appropriate), the adoption of the new and revised IFRSs has had no significant financial effect
on these consolidated financial statements.



| | · | The IAS 1 Amendments change the grouping
of items presented in other comprehensive income (“OCI”). Items that could be reclassified (or recycled) to
profit or loss at a future point in time (for example, exchange differences on translation of foreign operations, net movement
on cash flow hedges and net loss or gain on available-for-sale financial assets) are presented separately from items which will
never be reclassified (for example, the revaluation of land and buildings). The amendments have affected the presentation only
and have had no impact on the financial position or performance of the Group. The consolidated statement of profit or loss and
other comprehensive income has been restated to reflect the changes.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IAS 19 (2011) changes the accounting for
defined benefit plans. The revised standard removes the choice to defer the recognition of actuarial gains and losses. All actuarial
gains and losses are required to be recognized immediately in OCI. The interest cost and expected return on plan assets used in
the previous version of IAS 19 are replaced with a net interest amount under IAS 19 (2011), which is calculated by applying the
discount rate to the net defined benefit liability or asset at the start of each annual reporting period. Prior to the adoption
of IAS 19 (2011), the Group elected to recognize actuarial gains or losses as income or expense over the expected average remaining
service periods of the employees participating in the defined benefit plan when the net cumulative unrecognized actuarial gains
or losses for the plan at the end of the previous period exceeded 10% of the higher of the present value of the defined benefit
obligation and the fair value of plan assets at that date. Upon the adoption of IAS 19 (2011), all actuarial gains and losses are
recognized in OCI immediately. As a result, all deferred actuarial gains and losses as at December 31, 2012 and January 1, 2012
recognized in OCI and the actuarial gains and losses recognized in the profit or loss for the years ended December 31, 2012 and
2011 were adjusted to OCI. In addition, the interest cost and expected return on plan assets recorded in 2012 and 2011 have been
replaced by net interest amounts.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Furthermore, upon the adoption
of IAS 19 (2011), all past service costs are recognized at the earlier of when an amendment/curtailment occurs and when the related
restructuring or termination costs are recognized. As a result, unvested past service costs can no longer be deferred and recognized
over the future vesting period.



Other than the changes to the
accounting for defined benefit plans, IAS 19 (2011) also changes the timing of recognition for termination benefits and the classification
of short term employee benefits. The revised standard requires termination benefits outside of a wider restructuring to be recognized
only when the offer becomes legally binding and cannot be withdrawn. Under the revised standard, the distinction between short
term and other long term employee benefits is now based on the expected timing of settlement rather than employee entitlement.



The effects of the changes to
the accounting for the Group’s defined benefit plan are summarized below:



Impact on the consolidated statements
of profit or loss and other comprehensive income for the years ended December 31:



|                                         |  | 2013    |         |   | 2012    |  |         | 2011    | 
|---------------------------------------- |  | ------- | ------- | - | ------- |  | ------- | ------- | 
|                                         |  | RMB'000 |         |   | RMB'000 |  |         | RMB'000 | 
|                                         |  |         |         |   |         |  |         |         | 
|Decrease in wages, salaries and benefits |  |         | 227,284 |   |         |  | 124,184 |         | 
|                                         |  |         |         |   |         |  |         |         | 
|Increase in profit before tax            |  |         | 227,284 |   |         |  | 124,184 |         | 
|Increase in income tax expense           |  |         | (16,960 | ) |         |  | (2,606  | )       | 
|                                         |  |         |         |   |         |  |         |         | 
|Increase in profit for the year          |  |         | 210,324 |   |         |  | 121,578 |         | 



F-14







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)
| | ---- | -------------------------------------------------------



|                                                                                     |  | 2013    |                                                     |  | 2012    |  |                                                     | 2011    | 
|------------------------------------------------------------------------------------ |  | ------- | --------------------------------------------------- |  | ------- |  | --------------------------------------------------- | ------- | 
|                                                                                     |  | RMB'000 |                                                     |  | RMB'000 |  |                                                     | RMB'000 | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|Increase/(decrease)
    in remeasurement gain on post-retirement benefit obligations |  |         | 426,170                                             |  |         |  | 127,878                                             |         | 
|Decrease in income
    tax effect                                                    |  |         | 41,306                                              |  |         |  | 11,434                                              |         | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|Increase/(decrease)
    in other comprehensive income for the year, net of tax       |  |         | 467,476                                             |  |         |  | 139,312                                             |         | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|Increase/(decrease)
    in total comprehensive income for the year                   |  |         | 677,800                                             |  |         |  | 260,890                                             |         | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|Increase
    in profit for the year attributable to:                                 |  |         |                                                     |  |         |  |                                                     |         | 
|Equity shareholders
    of the Company                                               |  |         | 193,747                                             |  |         |  | 117,869                                             |         | 
|Non-controlling
    interests                                                        |  |         | 16,577                                              |  |         |  | 3,709                                               |         | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|                                                                                     |  |         | 210,324                                             |  |         |  | 121,578                                             |         | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|Increase/(decrease)
    in total comprehensive income attributable to:               |  |         |                                                     |  |         |  |                                                     |         | 
|Equity shareholders
    of the Company                                               |  |         | 608,864                                             |  |         |  | 275,107                                             |         | 
|Non-controlling
    interests                                                        |  |         | 68,936                                              |  |         |  | (14,217                                             | )       | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|                                                                                     |  |         | 677,800                                             |  |         |  | 260,890                                             |         | 
|                                                                                     |  |         |                                                     |  |         |  |                                                     |         | 
|Increase
in earnings per share attributable to equity shareholders of the Company:   |  |         |                                                     |  |         |  |                                                     |         | 
|Basic
    & diluted                                                                  |  |         | 1.60
                                         cents |  |         |  | 1.05
                                         cents |         | 



Impact on the consolidated
statements of financial position at December 31:



|                                                |  | 2013    |           |  | 2012    | 
|----------------------------------------------- |  | ------- | --------- |  | ------- | 
|                                                |  | RMB'000 |           |  | RMB'000 | 
|                                                |  |         |           |  |         | 
|Increase in deferred tax assets                 |  |         | 90,130    |  |         | 
|                                                |  |         |           |  |         | 
|Increase in non-current assets                  |  |         | 90,130    |  |         | 
|                                                |  |         |           |  |         | 
|Increase in post-retirement benefit obligations |  |         | 2,234,868 |  |         | 
|                                                |  |         |           |  |         | 
|Increase in non-current liabilities             |  |         | 2,234,868 |  |         | 
|                                                |  |         |           |  |         | 
|Decrease in net assets and total equity         |  |         | 2,144,738 |  |         | 



Impact
on the consolidated statement of financial position at January 1:



|                                                |  | 2012    |          
|----------------------------------------------- |  | ------- | ---------
|                                                |  | RMB’000 |          
|                                                |  |         |          
|Increase in deferred tax assets                 |  |         | 61,270   
|                                                |  |         |          
|Increase in non-current assets                  |  |         | 61,270   
|                                                |  |         |          
|Increase in post-retirement benefit obligations |  |         | 3,140,385
|                                                |  |         |          
|Increase in non-current liabilities             |  |         | 3,140,385
|                                                |  |         |          
|Decrease in net assets and total equity         |  |         | 3,079,115



F-15







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



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



|IFRS 9               |  | Financial Instruments                                                  
|-------------------- |  | -----------------------------------------------------------------------
|IFRS 9, IFRS 7 and   |  | Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39           
|IAS 39 Amendments    |  |                                                                        
|IFRS 10, IFRS 12 and |  | Amendments to IFRS 10, IFRS 12 and IAS 27 (2011)                       
|IAS 27 (2011)        |  | – Investment Entities                                                  
|Amendments           |  |                                                                        
|IAS 19 Amendments    |  | Amendments to IAS 19 Employee Benefits – Defined Benefit Plans:        
|                     |  | Employee Contributions                                                 
|IAS 32 Amendments    |  | Amendments to IAS 32 Financial Instruments:                            
|                     |  | Presentation – Offsetting Financial Assets and Financial Liabilities   
|IAS 39 Amendments    |  | Amendments to IAS 39 Financial Instruments: Recognition and Measurement
|                     |  | – Novation of Derivatives and Continuation of Hedge Accounting         
|IFRIC-Int 21         |  | Levies                                                                 



Further information
about those IFRSs is as follows:



| | · | IFRS 9 issued in November 2009 is the
first part of phase 1 of a comprehensive project to entirely replace IAS 39 Financial Instruments: Recognition and Measurement.
This phase focuses on the classification and measurement of financial assets. Instead of classifying financial assets into four
categories, an entity shall classify financial assets as subsequently measured at either amortized cost or fair value, on the basis
of both the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the
financial assets. This aims to improve and simplify the approach for the classification and measurement of financial assets compared
with the requirements of IAS 39.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In November 2010, the International Accounting
Standard Board (“IASB”) issued additions to IFRS 9 to address financial liabilities (the “Additions”) and
incorporated in IFRS 9 the current derecognition principles of financial instruments of IAS 39. Most of the Additions were carried
forward unchanged from IAS 39, while changes were made to the measurement of financial liabilities designated as at fair value
through profit or loss using the fair value option (“FVO”). For these FVO liabilities, the amount of change in the
fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change
in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s
credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. However, loan commitments and financial guarantee
contracts which have been designated under the FVO are scoped out of the Additions.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In December 2013, the IASB added to IFRS
9 the requirements related to hedge accounting and made some related changes to IAS 39 and IFRS 7 which include the corresponding
disclosures about risk management activity for applying hedge accounting. The amendments to IFRS 9 relax the requirements for assessing
hedge effectiveness which result in more risk management strategies being eligible for hedge accounting. The amendments also allow
greater flexibility on the hedged items and relax the rules on using purchased options and non-derivative financial instruments
as hedging instruments. In addition, the amendments to IFRS 9 allow an entity to apply only the improved accounting for own credit
risk-related fair value gains and losses arising on FVO liabilities as introduced in 2010 without applying the other IFRS 9 requirements
at the same time.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IAS 39 is aimed to be replaced by IFRS
9 in its entirety. Before this entire replacement, the guidance in IAS 39 on impairment of financial assets continues to apply.
The previous mandatory effective date of IFRS 9 was removed by the IASB in December 2013 and a mandatory effective date will be
determined after the entire replacement of IAS 39 is completed. However, the standard is available for application now. The Group
will quantify the effect in conjunction with other phases, when the final standard including all phases is issued.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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 Group expects that these amendments will not have any impact on
the Group as the Company is not an investment entity as defined in IFRS 10.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The 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 are not expected to have any impact
on the financial position or performance of the Group upon adoption on January 1, 2014.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-16







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



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



| | (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-17







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, 2013:



|Company
    name                                                                        |  | Place
    of
    establishment and operation and dateof establishment |  | Registered
    Capital |           |  | Attributable
    equity interest |     |           | Principal
    activities
|--------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | ---------------------- | --------- |  | -------------------------------- | --- | --------- | ------------------------
|                                                                                        |  |                                                                       |  | 2013                   |           |  | 2012                             |     |           | 2013                    
|                                                                                        |  |                                                                       |  | RMB’000                |           |  | RMB’000                          |     |           |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|China Eastern Airlines Jiangsu
    Co., Ltd. (“CEA Jiangsu”)                            |  | PRC 3 May 1993                                                        |  |                        | 2,000,000 |  |                                  |     | 2,000,000 |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|China Eastern Airlines Wuhan Co., Ltd. (“CEA
    Wuhan”) (Note (b))                     |  | PRC 16 August 2002                                                    |  |                        | 1,750,000 |  |                                  |     | 1,750,000 |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|Shanghai Eastern Flight Training Co., Ltd.
    (“Flight Training”)                      |  | PRC 18 December 1995                                                  |  |                        | 608,443   |  |                                  |     | 608,443   |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|Shanghai Airlines Co., Ltd.                                                             |  | PRC 16 March 2010                                                     |  |                        | 500,000   |  |                                  |     | 500,000   |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|China Cargo Airlines Co., Ltd. (“China
    Cargo”)                                      |  | PRC 22 July 1998                                                      |  |                        | 3,000,000 |  |                                  |     | 3,000,000 |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|Shanghai Eastern Airlines Logistics Co., Ltd.
    (“Eastern Logistics”)                 |  | PRC 23 August 2004                                                    |  |                        | 1,150,000 |  |                                  |     | 1,150,000 |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|Eastern Business Airlines Service Co.,
    Ltd.                                         |  | PRC 27 September 2008                                                 |  |                        | 50,000    |  |                                  |     | 50,000    |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|China Eastern Airlines Yunnan Co., Ltd.
    (“CEA Yunnan”) (Note (a))                   |  | PRC 2 August 2011                                                     |  |                        | 3,661,540 |  |                                  |     | 3,661,540 |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|Eastern Air Oversea (Hong Kong) Co., Ltd.                                               |  | Hong Kong 10 June 2011                                                |  | HKD                    | 30,000    |  |                                  | HKD | 30,000    |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|China United Airlines Co., Ltd.(“United
    Airlines”)                                  |  | PRC 21 September 1984                                                 |  |                        | 1,320,000 |  |                                  |     | 1,320,000 |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|Eastern Airlines Hotel Co., Ltd.                                                        |  | PRC 18 March 1998                                                     |  |                        | 70,000    |  |                                  |     | 70,000    |                         
|                                                                                        |  |                                                                       |  |                        |           |  |                                  |     |           |                         
|Shanghai Airlines Tours International (Group)
    Co., Ltd. (“Shanghai Airlines Tours”) |  | PRC 29 August 1992                                                    |  |                        | 50,090    |  |                                  |     | 50,090    |                         



Notes:



(a) In 2010, the Company
entered into an agreement with the State-owned Assets Supervision and Administration Commission of the People’s
Government of Yunnan Province (“Yunnan SASAC”) to establish CEA Yunnan with registered capital of RMB3,662
million, in which the Company holds 65% interests. As at December 31, 2013 the Company has contributed all its share of
RMB2,380 million in cash and net assets; Yunnan SASAC has contributed its share of RMB254 million in cash.



(b) In 2012, the existing shareholders
of CEA Wuhan and certain new shareholders decided to increase the registered capital of CEA Wuhan from RMB600 million to RMB1,750
million. In 2012 and 2013, the Company contributed capital of RMB1,050 million in cash, among which RMB474 million was recognized
as registered capital and RMB576 million was credited to the share premium of CEA Wuhan; and the other investors contributed capital
of RMB700 million, among which RMB676 million was recognized as registered capital and RMB24 million was recognized as share premium
of CEA Wuhan. Upon completion of the aforementioned capital injections, the share percentage of the Company in CEA Wuhan was diluted
to 60%.



F-18







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:





|                                                                 |  | 2013 |       |   | 2012 | 
|---------------------------------------------------------------- |  | ---- | ----- | - | ---- | 
|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 | % |      | 



|                                                                   |  | 2013 |          |   | 2012 | 
|------------------------------------------------------------------ |  | ---- | -------- | - | ---- | 
|Profit/(loss) for the year allocated to non-controlling interests: |  |      |          |   |      | 
|CEA Jiangsu                                                        |  |      | 85,753   |   |      | 
|CEA Yunnan                                                         |  |      | 30,698   |   |      | 
|CEA Wuhan                                                          |  |      | 15,845   |   |      | 
|China Cargo                                                        |  |      | (337,691 | ) |      | 



|                                             |  | 2013 |        |  | 2012 | 
|-------------------------------------------- |  | ---- | ------ |  | ---- | 
|Dividends paid to non-controlling interests: |  |      |        |  |      | 
|CEA Jiangsu                                  |  |      | 18,720 |  |      | 



|                                                                          |  | 2013 |          |   | 2012 | 
|------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | 
|Accumulated balances of non-controlling interests at the reporting dates: |  |      |          |   |      | 
|CEA Jiangsu                                                               |  |      | 831,975  |   |      | 
|CEA Yunnan                                                                |  |      | 348,261  |   |      | 
|CEA Wuhan                                                                 |  |      | 701,856  |   |      | 
|China Cargo                                                               |  |      | (235,936 | ) |      | 



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



|                                                          |  | CEA Jiangsu |           |   | CEA Yunnan |  |            | CEA Wuhan |  |  | China Cargo |  
|--------------------------------------------------------- |  | ----------- | --------- | - | ---------- |  | ---------- | --------- |  |  | ----------- | -
|2013                                                      |  |             |           |   |            |  |            |           |  |  |             |  
|                                                          |  |             |           |   |            |  |            |           |  |  |             |  
|Revenue                                                   |  |             | 6,111,089 |   |            |  | 8,901,282  |           |  |  | 3,139,639   |  
|Total expenses                                            |  |             | 5,882,049 |   |            |  | 8,582,834  |           |  |  | 2,743,502   |  
|Profit/(loss) for the year                                |  |             | 229,040   |   |            |  | 318,448    |           |  |  | 396,137     |  
|Total comprehensive income/(loss) for the year            |  |             | 301,725   |   |            |  | 318,448    |           |  |  | 448,682     |  
|                                                          |  |             |           |   |            |  |            |           |  |  |             |  
|Current assets                                            |  |             | 1,057,831 |   |            |  | 513,991    |           |  |  | 1,523,830   |  
|Non-current assets                                        |  |             | 5,707,795 |   |            |  | 8,373,386  |           |  |  | 2,329,228   |  
|Current liabilities                                       |  |             | 2,123,768 |   |            |  | 2,099,789  |           |  |  | 925,762     |  
|Non-current liabilities                                   |  |             | 2,232,246 |   |            |  | 3,174,920  |           |  |  | 946,439     |  
|Net cash flows from/(used in) operating activities        |  |             | 824,405   |   |            |  | 1,924,349  |           |  |  | 346,217     |  
|Net cash flows (used in)/from  investing
    activities   |  |             | (394,882  | ) |            |  | (1,645,456 | )         |  |  | (1,205,877  | )
|Net cash flows (used in)/from financing activities        |  |             | (448,934  | ) |            |  | (465,753   | )         |  |  | 871,119     |  
|Effect of foreign exchange rate changes, net              |  |             | (508      | ) |            |  | (1,421     | )         |  |  | -           |  
|Net (decrease)/increase in
    cash  and cash equivalents |  |             | (19,919   | ) |            |  | (188,281   | )         |  |  | 11,459      |  



F-19







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 |  
|-------------------------------------------------- |  | ----------- | --------- | - | ---------- |  | --------- | --------- |  |  | ----------- | -
|2012                                               |  |             |           |   |            |  |           |           |  |  |             |  
|                                                   |  |             |           |   |            |  |           |           |  |  |             |  
|Revenue                                            |  |             | 6,294,295 |   |            |  | 8,708,863 |           |  |  | 3,371,438   |  
|Total expenses                                     |  |             | 6,119,322 |   |            |  | 8,282,919 |           |  |  | 3,026,264   |  
|Profit/(loss) for the year                         |  |             | 174,973   |   |            |  | 425,944   |           |  |  | 345,174     |  
|Total comprehensive for the year                   |  |             | 162,772   |   |            |  | 425,944   |           |  |  | 351,673     |  
|                                                   |  |             |           |   |            |  |           |           |  |  |             |  
|Current assets                                     |  |             | 1,149,345 |   |            |  | 1,172,427 |           |  |  | 452,044     |  
|Non-current assets                                 |  |             | 5,171,636 |   |            |  | 7,635,406 |           |  |  | 1,791,146   |  
|Current liabilities                                |  |             | 2,114,195 |   |            |  | 2,409,270 |           |  |  | 819,822     |  
|Non-current liabilities                            |  |             | 2,161,854 |   |            |  | 3,072,101 |           |  |  | 944,888     |  
|                                                   |  |             |           |   |            |  |           |           |  |  |             |  
|Net cash flows from/(used in) operating activities |  |             | 500,234   |   |            |  | (355,051  | )         |  |  | (207,676    | )
|Net cash flows used in investing activities        |  |             | (96,948   | ) |            |  | (791,529  | )         |  |  | (46,089     | )
|Net cash flows (used in)/from financing activities |  |             | (450,416  | ) |            |  | 707,690   |           |  |  | 192,362     |  
|Effect of foreign exchange rate changes, net       |  |             | (5        | ) |            |  | (32       | )         |  |  | 21          |  
|Net decrease in cash and cash equivalents          |  |             | (47,135   | ) |            |  | (438,922  | )         |  |  | (61,382     | )





| | (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 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-20







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 consolidated
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 consolidated financial statements are presented in Chinese
Renminbi (“RMB”), which is the functional and presentation currency of the Company and the Group’s entities.



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



Foreign currency transactions are
translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognized in the 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 sale of goods and the provision of services in the ordinary course of the Group’s
activities. Revenue is shown net of business taxes or value-added taxes, returns, rebates and discounts and after eliminating sales
within the Group.



The Group recognizes revenue
when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific
criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to
be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical
results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.



F-21







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 Group has obligations to fulfill
certain return conditions under the checks is made on a straight line basis over the term of the leases.



In respect of aircraft and engines
owned by the Group or held under finance leases, overhaul costs are capitalized as a component of property, plant and equipment
and are depreciated over the appropriate maintenance cycles (Note 2(l)).



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



F-22







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-23







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 the end of each reporting period.



| | (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-24









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-25







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. 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. Except that Shanghai Airlines Co., Ltd. maintained a separately administrated fund, the remaining
defined post-retirement benefits are unfunded. The cost of providing benefits under the post-retirement benefit plan is determined
using the projected unit credit actuarial valuation method.



Remeasurements arising from
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 statements 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
| | - | --------------------------------------------------------------------------------------------------------------------------------

| | • | net interest expense or income
| | - | ------------------------------



Pursuant to relevant requirements
from State-owned Assets Supervision and Administration Commission of the State Council, the People’s Republic of China, the
Group is considering the launch of a new retirement benefit plan in the new future. In anticipation of the transition from the
current post-retirement benefit plan to the new retirement benefit plan, a curtailment on the current post-retirement benefit plan
was structured during the year.



| | (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-26









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 the end
of each reporting period 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-27







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





| | 3. | FINANCIAL RISK MANAGEMENT
| | -- | -------------------------



| | (a) | Financial risk factors
| | --- | ----------------------



The Group’s activities
expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest
rate risk and fuel price risk), credit risk, and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to 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 option contracts to manage part of these foreign currency risks. Details of foreign currency forward contracts
are disclosed in Note 39(b) to the consolidated financial statements.



The following table details the
Group’s exposure at the reporting dates to major currency risk.



|                                                                  |  | 2013    |            
|----------------------------------------------------------------- |  | ------- | -----------
|                                                                  |  | USD     |            
|                                                                  |  | RMB’000 |            
|                                                                  |  |         |            
|Trade and other receivables                                       |  |         | 713,514    
|Restricted bank deposits and short-term bank deposits             |  |         | 180,967    
|Cash and cash equivalents                                         |  |         | 280,800    
|Deposits relating to aircraft under operating leases              |  |         | 667,584    
|Trade and other payables                                          |  |         | (901,750   
|Obligations under finance leases                                  |  |         | (20,540,547
|Borrowings                                                        |  |         | (35,214,340
|Currency derivatives at notional value                            |  |         | 233,700    
|                                                                  |  |         |            
|Net exposure in the consolidated statements of financial position |  |         | (54,580,072



F-28







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





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



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



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



|                                                                  |  | 2012    |            
|----------------------------------------------------------------- |  | ------- | -----------
|                                                                  |  | USD     |            
|                                                                  |  | RMB’000 |            
|                                                                  |  |         |            
|Trade and other receivables                                       |  |         | 1,259,043  
|Restricted bank deposits and short-term bank deposits             |  |         | 16,082     
|Cash and cash equivalents                                         |  |         | 372,387    
|Deposits relating to aircraft under operating leases              |  |         | 562,199    
|Trade and other payables                                          |  |         | (248,604   
|Obligations under finance leases                                  |  |         | (18,751,982
|Borrowings                                                        |  |         | (31,605,345
|Currency derivatives at notional value                            |  |         | 364,559    
|                                                                  |  |         |            
|Net exposure in the consolidated statements of financial position |  |         | (48,031,661



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 end of each reporting
period:



|             |  | 2013           |         |   | 2012             | 
|------------ |  | -------------- | ------- | - | ---------------- | 
|             |  | Effect on      |         |   | Effect on        | 
|             |  | profit or loss |         |   | other components | 
|             |  |                |         |   | of equity        | 
|             |  |                | RMB’000 |   |                  | 
|             |  |                |         |   |                  | 
|US dollars   |  |                | 548,138 |   |                  | 
|Euro         |  |                | (1,903  | ) |                  | 
|Japanese Yen |  |                | 4,050   |   |                  | 



| | (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:



|                                                      |  | 2013    |             |   | 2012    | 
|----------------------------------------------------- |  | ------- | ----------- | - | ------- | 
|                                                      |  | RMB’000 |             |   | RMB’000 | 
|                                                      |  |         |             |   |         | 
|Floating rate instruments                             |  |         |             |   |         | 
|Cash and cash equivalents                             |  |         | 1,994,978   |   |         | 
|Restricted bank deposits and short-term bank deposits |  |         | 383,063     |   |         | 
|Borrowings                                            |  |         | (36,237,597 | ) |         | 
|Obligations under finance leases                      |  |         | (23,135,148 | ) |         | 
|                                                      |  |         |             |   |         | 
|                                                      |  |         | (56,994,704 | ) |         | 
|Interest rate swap at notional amount                 |  |         | 4,971,899   |   |         | 
|                                                      |  |         |             |   |         | 
|                                                      |  |         | (52,022,805 | ) |         | 



F-29







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





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



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



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



|                                      |  | 2013    |             |   | 2012    | 
|------------------------------------- |  | ------- | ----------- | - | ------- | 
|                                      |  | RMB’000 |             |   | RMB’000 | 
|                                      |  |         |             |   |         | 
|Fixed rate instruments                |  |         |             |   |         | 
|Borrowings                            |  |         | (14,362,833 | ) |         | 
|Interest rate swap at notional amount |  |         | 173,080     |   |         | 
|                                      |  |         |             |   |         | 
|                                      |  |         | (14,189,753 | ) |         | 



The following table indicates the
approximate change in the Group’s profit or 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:





|                          |  | 2013           |          |   | 2012             | 
|------------------------- |  | -------------- | -------- | - | ---------------- | 
|                          |  | Effect on      |          |   | Effect on        | 
|                          |  | profit or loss |          |   | other components | 
|                          |  |                |          |   | of equity        | 
|                          |  |                | RMB’000  |   |                  | 
|                          |  |                |          |   |                  | 
|Floating rate instruments |  |                | (106,865 | ) |                  | 



| | (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 (2012: 36%).



As at December 31, 2013, the Group
had no open crude oil option contracts, and all the contracts signed in past years had been settled before December 31, 2013.



For the year ended December 31,
2013, if fuel price had been 5% higher/lower with all other variables held constant, the Group’s fuel cost would have been
RMB1,534 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 RMB995 million as at December 31, 2013 (2012: approximately RMB812 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-30







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, 2013, the Group’s net current liabilities amounted to RMB40,472 million (2012: RMB35,948
million). For the year ended December 31, 2013, the Group recorded a net cash inflow from operating activities of RMB10,806 million
(2012: inflow RMB12,617 million), a net cash outflow from investing activities and financing activities of RMB11,298 million (2012:
outflow RMB13,963 million), and a decrease in cash and cash equivalents of RMB491 million (2012: decrease of RMB1,349 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. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.



|                                 |  | Less than |            |  | Between       |  |            | Between       |  |  | Over       | 
|-------------------------------- |  | --------- | ---------- |  | ------------- |  | ---------- | ------------- |  |  | ---------- | 
|                                 |  | 1 year    |            |  | 1 and 2 years |  |            | 2 and 5 years |  |  | 5 years    | 
|                                 |  | RMB’000   |            |  | RMB’000       |  |            | RMB’000       |  |  | RMB’000    | 
|At December 31, 2013             |  |           |            |  |               |  |            |               |  |  |            | 
|Borrowings                       |  |           | 24,646,045 |  |               |  | 7,298,641  |               |  |  | 11,503,829 | 
|Derivative financial instruments |  |           | 3,386      |  |               |  |            |               |  |  | 118,197    | 
|Obligations under finance leases |  |           | 3,446,098  |  |               |  | 3,374,964  |               |  |  | 9,751,595  | 
|Trade and other payables         |  |           | 15,758,010 |  |               |  | -          |               |  |  | -          | 
|                                 |  |           |            |  |               |  |            |               |  |  |            | 
|Total                            |  |           | 43,853,539 |  |               |  | 10,673,605 |               |  |  | 21,373,621 | 



|                                 |  | Less than |            |  | Between       |  |            | Between       |  |  | Over       | 
|-------------------------------- |  | --------- | ---------- |  | ------------- |  | ---------- | ------------- |  |  | ---------- | 
|                                 |  | 1 year    |            |  | 1 and 2 years |  |            | 2 and 5 years |  |  | 5 years    | 
|                                 |  | RMB’000   |            |  | RMB’000       |  |            | RMB’000       |  |  | RMB’000    | 
|At December 31, 2012             |  |           |            |  |               |  |            |               |  |  |            | 
|Borrowings                       |  |           | 23,690,528 |  |               |  | 7,780,344  |               |  |  | 8,846,834  | 
|Derivative financial instruments |  |           | 504        |  |               |  | -          |               |  |  | 122,751    | 
|Obligations under finance leases |  |           | 3,004,452  |  |               |  | 3,059,744  |               |  |  | 8,685,669  | 
|Trade and other payables         |  |           | 19,331,550 |  |               |  | -          |               |  |  | -          | 
|                                 |  |           |            |  |               |  |            |               |  |  |            | 
|Total                            |  |           | 46,027,034 |  |               |  | 10,840,088 |               |  |  | 17,655,254 | 



F-31











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, 2013
and 2012 were as follows:



|                  |  | 2013    |             |  | 2012     | 
|----------------- |  | ------- | ----------- |  | -------- | 
|                  |  | RMB’000 |             |  | RMB’000  | 
|                  |  |         |             |  | Restated | 
|                  |  |         |             |  |          | 
|Total liabilities |  |         | 111,485,790 |  |          | 
|Total assets      |  |         | 140,068,048 |  |          | 
|Debt ratio        |  |         | 0.80        |  |          | 



| | (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:



|                                                                                             |  | 2013             |            |  | 2012        | 
|-------------------------------------------------------------------------------------------- |  | ---------------- | ---------- |  | ----------- | 
|                                                                                             |  | Carrying amounts |            |  | Fair values | 
|                                                                                             |  |                  |            |  |             | 
|Financial assets                                                                             |  |                  |            |  |             | 
|Deposits relating to aircraft held under operating leases included in other long term assets |  |                  | 669,560    |  |             | 
|                                                                                             |  |                  |            |  |             | 
|Financial Liabilities                                                                        |  |                  |            |  |             | 
|Long-term borrowings                                                                         |  |                  | 29,189,641 |  |             | 
|Obligations under finance leases                                                             |  |                  | 23,135,148 |  |             | 
|                                                                                             |  |                  | 52,324,789 |  |             | 



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, 2013, 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-32







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



As at December 31, 2013



|                                    |  | Fair value measurement using |         |  |             | 
|----------------------------------- |  | ---------------------------- | ------- |  | ----------- | 
|                                    |  | Quoted prices                |         |  | Significant | 
|                                    |  | in active                    |         |  | observable  | 
|                                    |  | markets                      |         |  | inputs      | 
|                                    |  | (Level 1)                    |         |  | (Level 2)   | 
|                                    |  | RMB’000                      |         |  | RMB’000     | 
|                                    |  |                              |         |  |             | 
|Assets                              |  |                              |         |  |             | 
|Derivative financial instruments    |  |                              |         |  |             | 
|-Forward foreign exchange           |  |                              |         |  |             | 
|contracts (Note 39(b))              |  |                              | -       |  |             | 
|-Interest rate                      |  |                              |         |  |             | 
|swaps (Note 39(a))                  |  |                              | -       |  |             | 
|Available-for-sale financial assets |  |                              | 177,036 |  |             | 
|                                    |  |                              |         |  |             | 
|Total                               |  |                              | 177,036 |  |             | 
|                                    |  |                              |         |  |             | 
|Liabilities                         |  |                              |         |  |             | 
|Derivative financial instruments    |  |                              |         |  |             | 
|-Interest rate                      |  |                              |         |  |             | 
|swaps (Note 39(a))                  |  |                              | -       |  |             | 
|-Forward foreign exchange           |  |                              |         |  |             | 
|contracts (Note 39(b))              |  |                              | -       |  |             | 
|                                    |  |                              |         |  |             | 
|Total                               |  |                              | -       |  |             | 



As at December 31, 2012



|                                 |  | Fair value measurement using |       |  |             | 
|-------------------------------- |  | ---------------------------- | ----- |  | ----------- | 
|                                 |  | Quoted prices                |       |  | Significant | 
|                                 |  | in active                    |       |  | observable  | 
|                                 |  | markets                      |       |  | inputs      | 
|                                 |  | (Level 1)                    |       |  | (Level 2)   | 
|                                 |  | RMB’000                      |       |  | RMB’000     | 
|                                 |  |                              |       |  |             | 
|Assets                           |  |                              |       |  |             | 
|Derivative financial instruments |  |                              |       |  |             | 
|-Forward foreign exchange        |  |                              |       |  |             | 
|contracts (Note 39(b))           |  |                              | -     |  |             | 
|Available-for-sale financial     |  |                              |       |  |             | 
|assets                           |  |                              | 1,955 |  |             | 
|                                 |  |                              |       |  |             | 
|Total                            |  |                              | 1,955 |  |             | 
|                                 |  |                              |       |  |             | 
|Liabilities                      |  |                              |       |  |             | 
|Derivative financial instruments |  |                              |       |  |             | 
|-Interest rate                   |  |                              |       |  |             | 
|swaps (Note 39(a))               |  |                              | -     |  |             | 
|-Forward foreign exchange        |  |                              |       |  |             | 
|contracts (Note 39(b))           |  |                              | -     |  |             | 
|                                 |  |                              |       |  |             | 
|Total                            |  |                              | -     |  |             | 



F-33







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



The fair values 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.



| | 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.



The Group monitors sales in
advance of carriage on a periodic basis and recognizes the traffic revenue once the related transportation responsibility is eliminated.
Based on result of the Group’s enhanced monitoring of its international air traffic liabilities, it appeared that the probability
for the Group to render international transportation services for the unused tickets of more than two years is remote. Consequently,
the Group changed recognition of traffic revenue for unused tickets relating to international transportation services from three
years to two years. The change of accounting estimate is prospectively applied from April 1, 2013.



The change in the aforesaid
accounting estimate had effect of increasing the traffic revenues by RMB64.73 million for the Group for the year ended December
31, 2013.



| | (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.



F-34







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



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



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



The Group operates and maintains
defined retirement benefit plans which provide retirees with benefits including transportation subsidies, social activity subsidies
as well as other welfare. The cost of providing the aforementioned benefits in the defined retirement benefit plan is actuarially
determined and recognized over the 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) | 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 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.



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, |           
|---------------------- |  | ----------------------- | ----------
|                       |  | 2013                    |           
|                       |  | RMB’000                 |           
|                       |  |                         |           
|Traffic revenues       |  |                         | 80,530,981
|- Passenger            |  |                         | 72,927,656
|- Cargo and mail       |  |                         | 7,603,325 
|Tour operations income |  |                         | 3,168,948 
|Ground service income  |  |                         | 2,252,923 
|Cargo handling income  |  |                         | 262,893   
|Commission income      |  |                         | 92,507    
|Others                 |  |                         | 1,936,748 
|                       |  |                         |           
|                       |  |                         | 88,245,000



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



| |  | Pursuant to the notice of the pilot programme for the transformation of transportation and certain
modern service industries in Shanghai from business tax (“BT”) to Value Added Tax (“VAT”)
(Cai Shui [2011] No. 111) issued by MoF and SAT, traffic revenue of the Company and subsidiaries located in Shanghai and other
revenues (including ground service income, cargo handling income, commission income and part of others) generated in Shanghai are
subjected to VAT levied at rates of 11% or 6% from January 1, 2012, instead of BT.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Pursuant to the notice of the pilot programme for the transformation of transportation and certain
modern service industries from BT to VAT in Beijing and other eight provinces/cities (Cai Shui [2012] No.71) issued by MoF and
SAT, traffic revenue and other revenues (including ground service income, cargo handling income, commission income and part of
others) generated by subsidiaries located in Beijing and other eight provinces/cities scoped in the notice are subjected to VAT
levied at rates of 11% or 6% with different effective date ranging from 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 in all locations of China (Cai Shui [2013] No.37) issued by MoF and SAT, traffic revenue
and other revenues (including ground service income, cargo handling income, commission income and part of others) generated by
all provinces/cities of China are subjected to VAT levied at rates of 11% or 6% from August 1, 2013, instead of BT.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-36







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



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



|                                                    |  | Year ended December 31, |          
|--------------------------------------------------- |  | ----------------------- | ---------
|                                                    |  | 2013                    |          
|                                                    |  | RMB’000                 |          
|                                                    |  |                         |          
|Other operating income                              |  |                         |          
|– Subsidy income (Note)                             |  |                         | 2,369,773
|– Gain on disposal of property, plant and equipment |  |                         | 355,588  
|                                                    |  |                         |          
|                                                    |  |                         | 2,725,361



| |  | Note:
| |  | -----



| |  | Subsidy income represent (i) subsidies of RMB238 million (2012: RMB353 million, 2011: RMB78 million)
based on certain amount of tax paid granted by various local governments; 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, 2013, 2012 and 2011.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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, 2013 were as follows:



|                                                   |  | Airline        |            |  |          |  |           |             |  |  |              |   |  |         |       
|-------------------------------------------------- |  | -------------- | ---------- |  | -------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | ------
|                                                   |  | transportation |            |  | Other    |  |           |             |  |  |              |   |  |         |       
|                                                   |  | operations     |            |  | segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |       
|                                                   |  | RMB’000        |            |  | RMB’000  |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |       
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |       
|Reportable segment revenue from external customers |  |                | 84,247,756 |  |          |  | 3,761,480 |             |  |  | -            |   |  |         | -     
|Inter-segment sales                                |  |                | -          |  |          |  | 258,310   |             |  |  | (258,310     | ) |  |         | -     
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |       
|Reportable segment revenue                         |  |                | 84,247,756 |  |          |  | 4,019,790 |             |  |  | (258,310     | ) |  |         | -     
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |       
|Reportable segment profit before income tax        |  |                | 2,043,647  |  |          |  | 108,866   |             |  |  | -            |   |  |         | 68,053
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |       
|Other segment information                          |  |                |            |  |          |  |           |             |  |  |              |   |  |         |       
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |       
|Depreciation and amortization                      |  |                | 8,290,653  |  |          |  | 244,025   |             |  |  | -            |   |  |         | -     
|Impairment charge/(reversal)                       |  |                | 185,963    |  |          |  | (2,097    | )           |  |  | -            |   |  |         | -     
|Interest income                                    |  |                | 99,474     |  |          |  | 48,637    |             |  |  | -            |   |  |         | -     
|Finance costs                                      |  |                | 1,368,043  |  |          |  | 180,579   |             |  |  | -            |   |  |         | -     
|Capital expenditure                                |  |                | 24,755,607 |  |          |  | 309,886   |             |  |  | -            |   |  |         | -     



F-37







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



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



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



|                                                   |  | Airline        |            |   |          |  |           |             |  |  |              |   |  |         |        
|-------------------------------------------------- |  | -------------- | ---------- | - | -------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | -------
|                                                   |  | transportation |            |   | Other    |  |           |             |  |  |              |   |  |         |        
|                                                   |  | operations     |            |   | segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |        
|                                                   |  | RMB’000        |            |   | RMB’000  |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |        
|                                                   |  |                |            |   |          |  |           |             |  |  |              |   |  |         |        
|Reportable segment revenue from external customers |  |                | 83,127,233 |   |          |  | 3,282,024 |             |  |  | -            |   |  |         | -      
|Inter-segment sales                                |  |                | -          |   |          |  | 261,631   |             |  |  | (261,631     | ) |  |         | -      
|                                                   |  |                |            |   |          |  |           |             |  |  |              |   |  |         |        
|Reportable segment revenue                         |  |                | 83,127,233 |   |          |  | 3,543,655 |             |  |  | (261,631     | ) |  |         | -      
|                                                   |  |                |            |   |          |  |           |             |  |  |              |   |  |         |        
|Reportable segment profit before income tax        |  |                | 2,898,943  |   |          |  | 105,555   |             |  |  | -            |   |  |         | 234,058
|                                                   |  |                |            |   |          |  |           |             |  |  |              |   |  |         |        
|Other segment information                          |  |                |            |   |          |  |           |             |  |  |              |   |  |         |        
|                                                   |  |                |            |   |          |  |           |             |  |  |              |   |  |         |        
|Depreciation and amortization                      |  |                | 7,892,045  |   |          |  | 114,789   |             |  |  | -            |   |  |         | -      
|Impairment (reversal) /charge                      |  |                | (20,881    | ) |          |  | 954       |             |  |  | -            |   |  |         | -      
|Interest income                                    |  |                | 123,867    |   |          |  | 76,898    |             |  |  | -            |   |  |         | -      
|Finance costs                                      |  |                | 1,562,878  |   |          |  | 134,596   |             |  |  | -            |   |  |         | -      
|Capital expenditure                                |  |                | 18,490,801 |   |          |  | 116,638   |             |  |  | -            |   |  |         | -      



| |  | The segment results for the year ended December 31, 2011 were as follows:
| |  | -------------------------------------------------------------------------



|                                                   |  | Airline        |            |  |          |  |           |             |  |  |              |   |  |         |        
|-------------------------------------------------- |  | -------------- | ---------- |  | -------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | -------
|                                                   |  | transportation |            |  | Other    |  |           |             |  |  |              |   |  |         |        
|                                                   |  | operations     |            |  | segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |        
|                                                   |  | RMB’000        |            |  | RMB’000  |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |        
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |        
|Reportable segment revenue from external customers |  |                | 81,597,560 |  |          |  | 2,906,037 |             |  |  | -            |   |  |         | -      
|Inter-segment sales                                |  |                | -          |  |          |  | 201,989   |             |  |  | (201,989     | ) |  |         | -      
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |        
|Reportable segment revenue                         |  |                | 81,597,560 |  |          |  | 3,108,026 |             |  |  | (201,989     | ) |  |         | -      
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |        
|Reportable segment profit before income tax        |  |                | 4,762,104  |  |          |  | 42,051    |             |  |  | -            |   |  |         | 128,122
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |        
|Other segment information                          |  |                |            |  |          |  |           |             |  |  |              |   |  |         |        
|                                                   |  |                |            |  |          |  |           |             |  |  |              |   |  |         |        
|Depreciation and amortization                      |  |                | 7,282,227  |  |          |  | 88,500    |             |  |  | -            |   |  |         | -      
|Impairment losses                                  |  |                | 799,105    |  |          |  | 750       |             |  |  | -            |   |  |         | -      
|Interest income                                    |  |                | 114,072    |  |          |  | 37,561    |             |  |  | -            |   |  |         | -      
|Finance costs                                      |  |                | 1,390,294  |  |          |  | 72,433    |             |  |  | -            |   |  |         | -      
|Capital expenditure                                |  |                | 18,159,708 |  |          |  | 91,985    |             |  |  | -            |   |  |         | -      



F-38







NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



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



| |  | The segment assets and liabilities as at December 31, 2013, 2012 and 2011 were as follows:
| |  | ------------------------------------------------------------------------------------------



|                               |  | Airline        |             |  |          |  |           |             |  |  |              |   |  |         |          
|------------------------------ |  | -------------- | ----------- |  | -------- |  | --------- | ----------- |  |  | ------------ | - |  | ------- | ---------
|                               |  | transportation |             |  | Other    |  |           |             |  |  |              |   |  |         |          
|                               |  | operations     |             |  | segments |  |           | Elimination |  |  | Unallocated* |   |  | Total   |          
|                               |  | RMB’000        |             |  | RMB’000  |  |           | RMB’000     |  |  | RMB’000      |   |  | RMB’000 |          
|                               |  |                |             |  |          |  |           |             |  |  |              |   |  |         |          
|At December 31, 2013           |  |                |             |  |          |  |           |             |  |  |              |   |  |         |          
|Reportable segment assets      |  |                | 133,310,613 |  |          |  | 7,239,423 |             |  |  | (4,681,692   | ) |  |         | 1,908,169
|Reportable segment liabilities |  |                | 109,792,915 |  |          |  | 6,374,567 |             |  |  | (4,681,692   | ) |  |         | -        
|                               |  |                |             |  |          |  |           |             |  |  |              |   |  |         |          
|At December 31, 2012           |  |                |             |  |          |  |           |             |  |  |              |   |  |         |          
|Reportable segment assets      |  |                | 117,060,855 |  |          |  | 4,815,342 |             |  |  | (1,691,890   | ) |  |         | 1,486,321
|Reportable segment liabilities |  |                | 100,281,349 |  |          |  | 3,636,937 |             |  |  | (1,691,890   | ) |  |         | -        
|                               |  |                |             |  |          |  |           |             |  |  |              |   |  |         |          
|At December 31, 2011           |  |                |             |  |          |  |           |             |  |  |              |   |  |         |          
|Reportable segment assets      |  |                | 107,430,148 |  |          |  | 4,689,860 |             |  |  | (763,176     | ) |  |         | 1,501,225
|Reportable segment liabilities |  |                | 93,356,226  |  |          |  | 3,589,597 |             |  |  | (763,176     | ) |  |         | -        



*Unallocated assets primarily
represent investments in associates and joint ventures, and available-for-sale financial assets. Unallocated results primarily
represent the share of results of associates and joint ventures.



| | (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 analyzed based on the following criteria:



| | 1) | Traffic revenue from services within the PRC (excluding the Hong Kong Special Administrative Region
(“Hong Kong”), Macau Special Administrative Region (“Macau”) and Taiwan, (collectively known
as “Regional”)) is classified as domestic operations. Traffic revenue 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                          |  | 2013    |            |  | 2012    |  |            | 2011    | 
|--------------------------------------------------------- |  | ------- | ---------- |  | ------- |  | ---------- | ------- | 
|                                                          |  | RMB’000 |            |  | RMB’000 |  |            | RMB’000 | 
|                                                          |  |         |            |  |         |  |            |         | 
|Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |  |         | 59,563,056 |  |         |  | 57,296,742 |         | 
|Regional (Hong Kong, Macau and Taiwan)                    |  |         | 3,910,530  |  |         |  | 3,704,064  |         | 
|International                                             |  |         | 24,771,414 |  |         |  | 24,252,511 |         | 
|                                                          |  |         |            |  |         |  |            |         | 
|Total                                                     |  |         | 88,245,000 |  |         |  | 85,253,317 |         | 



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.



F-39







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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



| | (c) | Reconciliation of reportable segment revenue, profit, assets
and liabilities to the consolidated figures as reported in the consolidated financial statements:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                   |  |       |  | 2013    |             |   | 2012     |  |             | 2011     | 
|-------------------------------------------------------------------------------------------------- |  | ----- |  | ------- | ----------- | - | -------- |  | ----------- | -------- | 
|                                                                                                   |  | Note  |  | RMB’000 |             |   | RMB’000  |  |             | RMB’000  | 
|                                                                                                   |  |       |  |         |             |   | Restated |  |             | Restated | 
|Revenue                                                                                            |  |       |  |         |             |   |          |  |             |          | 
|Reportable segment revenue                                                                         |  |       |  |         | 88,009,236  |   |          |  | 86,409,257  |          | 
|- Reclassification of business tax and expired sales in advance of carriage                        |  | (i)   |  |         | 235,764     |   |          |  | (315,933    | )        | 
|- Adjustment of business combination under common control                                          |  |       |  |         | -           |   |          |  | (840,007    | )        | 
|                                                                                                   |  |       |  |         |             |   |          |  |             |          | 
|Consolidated revenue                                                                               |  |       |  |         | 88,245,000  |   |          |  | 85,253,317  |          | 
|                                                                                                   |  |       |  |         |             |   |          |  |             |          | 
|                                                                                                   |  |       |  |         | 2013        |   |          |  | 2012        |          | 
|                                                                                                   |  | Note  |  |         | RMB’000     |   |          |  | RMB’000     |          | 
|                                                                                                   |  |       |  |         |             |   |          |  | Restated    |          | 
|Profit before income tax                                                                           |  |       |  |         |             |   |          |  |             |          | 
|Reportable segment profit                                                                          |  |       |  |         | 2,220,566   |   |          |  | 3,238,556   |          | 
|- Differences in depreciation charges for aircraft and engines due to different depreciation lives |  | (ii)  |  |         | (3,466      | ) |          |  | (21,958     | )        | 
|- Adjustments of business combination under common control                                         |  |       |  |         | -           |   |          |  | (618        | )        | 
|- Others                                                                                           |  |       |  |         | -           |   |          |  | (79,392     | )        | 
|                                                                                                   |  |       |  |         |             |   |          |  |             |          | 
|Consolidated profit before income tax                                                              |  |       |  |         | 2,217,100   |   |          |  | 3,136,588   |          | 
|                                                                                                   |  |       |  |         |             |   |          |  |             |          | 
|                                                                                                   |  |       |  |         | 2013        |   |          |  | 2012        |          | 
|                                                                                                   |  | Note  |  |         | RMB’000     |   |          |  | RMB’000     |          | 
|                                                                                                   |  |       |  |         |             |   |          |  | Restated    |          | 
|Assets                                                                                             |  |       |  |         |             |   |          |  |             |          | 
|Reportable segment assets                                                                          |  |       |  |         | 137,776,513 |   |          |  | 121,670,628 |          | 
|- Differences in depreciation charges for aircraft and engines due to different depreciation lives |  | (ii)  |  |         | 49,434      |   |          |  | 52,901      |          | 
|- Difference in intangible asset arising from the acquisition of Shanghai Airlines                 |  | (iii) |  |         | 2,242,100   |   |          |  | 2,242,100   |          | 
|- Adjustment of business combination under common control                                          |  |       |  |         | -           |   |          |  | (76,969     | )        | 
|- Others                                                                                           |  |       |  |         | 1           |   |          |  | -           |          | 
|                                                                                                   |  |       |  |         |             |   |          |  |             |          | 
|Consolidated assets                                                                                |  |       |  |         | 140,068,048 |   |          |  | 123,888,660 |          | 
|                                                                                                   |  |       |  |         |             |   |          |  |             |          | 
|                                                                                                   |  |       |  |         | 2013        |   |          |  | 2012        |          | 
|                                                                                                   |  | Note  |  |         | RMB’000     |   |          |  | RMB’000     |          | 
|                                                                                                   |  |       |  |         |             |   |          |  | Restated    |          | 
|Liabilities                                                                                        |  |       |  |         |             |   |          |  |             |          | 
|Reportable segment liabilities                                                                     |  |       |  |         | 111,485,790 |   |          |  | 102,226,396 |          | 
|- Adjustment of business combination under common control                                          |  |       |  |         | -           |   |          |  | (72,908     | )        | 
|- Others                                                                                           |  |       |  |         | -           |   |          |  | -           |          | 
|                                                                                                   |  |       |  |         |             |   |          |  |             |          | 
|Consolidated liabilities                                                                           |  |       |  |         | 111,485,790 |   |          |  | 102,153,488 |          | 



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, |       
|--------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                            |  | 2013                    |       
|                                                                            |  | RMB’000                 |       
|                                                                            |  |                         |       
|Gain arising from fair value movements of derivatives financial instruments |  |                         |       
|- Interest rate swap and forward foreign exchange contracts (Note 39(a))    |  |                         | 16,262
|- Others                                                                    |  |                         | 2,076 
|                                                                            |  |                         |       
|                                                                            |  |                         | 18,338



| | 9 | WAGES, SALARIES AND BENEFITS
| | - | ----------------------------



|                                      |  | Year ended December 31, |           
|------------------------------------- |  | ----------------------- | ----------
|                                      |  | 2013                    |           
|                                      |  | RMB’000                 |           
|                                      |  |                         |           
|                                      |  |                         |           
|Wages, salaries, bonus and allowances |  |                         | 10,488,942
|Employee welfare and benefits         |  |                         | 362,689   
|Pension and medical insurance         |  |                         |           
|(Note 37(a) & (b))                    |  |                         | 1,483,000 
|Post-retirement benefits (Note 37(c)) |  |                         | 182,789   
|Staff housing fund (Note 38(a))       |  |                         | 718,484   
|Staff housing allowances (Note 38(b)) |  |                         | 217,880   
|                                      |  |                         |           
|                                      |  |                         | 13,453,784



Details of the emoluments paid
to the Company’s directors and supervisors were as follows:



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



F-41









NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 9 | WAGES, SALARIES AND BENEFITS (cont’d)
| | - | -------------------------------------



|                                    |  | 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



|                                    |  | 2011         |      
|----------------------------------- |  | ------------ | -----
|                                    |  | Salaries and |      
|                                    |  | Allowance    |      
|                                    |  | RMB’000      |      
|                                    |  |              |      
|Executive Directors                 |  |              |      
|Liu Shaoyong*                       |  |              | -    
|Ma Xulun                            |  |              | 670  
|Li Yangmin***                       |  |              | 636  
|Luo Zhuping                         |  |              | 559  
|Li Jun*&**                          |  |              | -    
|Luo Chaogeng*&**                    |  |              | -    
|                                    |  |              |      
|Independent non-executive Directors |  |              |      
|Liu Keya                            |  |              | 97   
|Wu Xiaogen                          |  |              | -    
|Ji Weidong                          |  |              | 120  
|Shao Ruiqing                        |  |              | 120  
|                                    |  |              |      
|Supervisors                         |  |              |      
|Yu Faming*&***                      |  |              | -    
|Feng Jinxiong                       |  |              | 366  
|Yan Taisheng                        |  |              | 317  
|Liu Jiashun*                        |  |              | -    
|Liu Jiangbo*&**                     |  |              | -    
|Xu Zhao*                            |  |              | -    
|                                    |  |              |      
|Total                               |  |              | 2,885



*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 years ended December 31, 2013, 2012 and 2011.



*** These
directors and officials of the Company were newly appointed during the years ended December 31, 2013, 2012 and 2011.



During the
years ended December 31, 2013, 2012 and 2011, no directors and supervisors waived their emoluments.



F-42







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 10 | IMPAIRMENT CHARGE/(REVERSAL)
| | -- | ----------------------------





|                                                                         |  | Year ended December 31, |        
|------------------------------------------------------------------------ |  | ----------------------- | -------
|                                                                         |  | 2013                    |        
|                                                                         |  | RMB’000                 |        
|                                                                         |  |                         |        
|Reversal of impairment charge on flight equipment spare parts (Note (a)) |  |                         | (20,386
|Impairment charges on assets classified as held for sale (Note (b))      |  |                         | 50,039 
|Impairment charges on property, plant and equipment                      |  |                         | 14,801 
|Impairment charges on other long-term assets (Note (c))                  |  |                         | 113,787
|Impairment charges on available-for-sale financial assets                |  |                         | 27,616 
|                                                                         |  |                         |        
|                                                                         |  |                         | 185,857



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 December 2011, 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, 2011, and an impairment loss
of approximately RMB612 million was made against those aircraft and engines by reference to the contracted selling price less estimated
cost to sell.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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, |          
|----------------------------------------------------- |  | ----------------------- | ---------
|                                                      |  | 2013                    |          
|                                                      |  | RMB’000                 |          
|                                                      |  |                         |          
|Amortization of intangible assets                     |  |                         | 56,518   
|Depreciation of property, plant and equipment         |  |                         |          
|– owned                                               |  |                         | 5,914,571
|– leased (finance leases)                             |  |                         | 2,203,189
|Amortization of lease prepayments                     |  |                         | 51,920   
|Consumption of flight equipment spare parts           |  |                         | 755,120  
|Reversal of impairment of trade and other receivables |  |                         | (1,991   
|Auditors’ remuneration                                |  |                         | 14,500   



| | 12 | FINANCE INCOME
| | -- | --------------



|                           |  | Year ended December 31, |          
|-------------------------- |  | ----------------------- | ---------
|                           |  | 2013                    |          
|                           |  | RMB’000                 |          
|                           |  |                         |          
|Exchange gains, net (Note) |  |                         | 1,976,329
|Interest income            |  |                         | 148,111  
|                           |  |                         |          
|                           |  |                         | 2,124,440



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, |          
|---------------------------------------------------------------------------------- |  | ----------------------- | ---------
|                                                                                   |  | 2013                    |          
|                                                                                   |  | RMB’000                 |          
|                                                                                   |  |                         |          
|Interest on bank borrowings                                                        |  |                         | 1,189,803
|Interest relating to obligations under finance leases                              |  |                         | 335,406  
|Interest on bonds and debentures                                                   |  |                         | 339,480  
|Interest relating to bills payable                                                 |  |                         | 74,601   
|                                                                                   |  |                         |          
|                                                                                   |  |                         | 1,939,290
|                                                                                   |  |                         |          
|Less: amounts capitalized into advanced payments on acquisition of aircraft (Note) |  |                         | (384,865 
|amounts capitalised into construction in progress (Note)                           |  |                         | (5,803   
|                                                                                   |  |                         |          
|                                                                                   |  |                         | 1,548,622



Note:



The average interest rate used for interest capitalization was 2.75% per annum for the
year ended December 31, 2013 (2012: 3.73%; 2011: 3.84%).





F-44







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 14 | INCOME TAX
| | -- | ----------



Income
tax charged to the profit or loss was as follows:



|                             |  | Year ended December 31, |         
|---------------------------- |  | ----------------------- | --------
|                             |  | 2013                    |         
|                             |  | RMB’000                 |         
|                             |  |                         |         
|                             |  |                         |         
|Provision for PRC income tax |  |                         | 347,561 
|Deferred taxation (Note 36)  |  |                         | (223,280
|                             |  |                         |         
|                             |  |                         | 124,281 



Prior
to 2008, the Company and certain of its subsidiaries (the “Pudong Subsidiaries”) located in Pudong District,
Shanghai, were entitled to a reduced rate of 15% pursuant to the preferential tax policy in Pudong District, Shanghai. Under
the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), which was approved by
the National People’s Congress on March 16, 2007 and became effective from January 1, 2008 the Company and the Pudong
Subsidiaries are entitled to a transitional arrangement to gradually increase the applicable corporate income tax rate to 25%
over five years from 2008. For the year ended December 31, 2012 the corporate income tax rate applicable to the Company and
the Pudong Subsidiaries was 25% (2011: 24%). Other subsidiaries of the Company, except for those incorporated in Hong Kong,
which are subject to Hong Kong corporate income tax rate of 16.5% (2011: 16.5%), are generally subject to the PRC standard
corporate tax rate of 25% (2011: 25%) under the New CIT Law.



Pursuant
to the “Notice of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs
on Issues Concerning Relevant Tax Policies for Enhancing the Implementation of Western Region Development Strategy” (Cai
Shui [2011] No.58), and other 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% (2012: 16.5%, 2011: 16.5%), are generally subject to the PRC standard corporate tax rate of 25% (2012: 25%, 2011: 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, |          
|------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ---------
|                                                                                                                   |  | 2013                    |          
|                                                                                                                   |  | RMB’000                 |          
|                                                                                                                   |  |                         |          
|                                                                                                                   |  |                         |          
|Profit before income tax                                                                                           |  |                         | 2,217,100
|Adjusted by:                                                                                                       |  |                         |          
|Share of result of associates and joint ventures                                                                   |  |                         | (64,923  
|                                                                                                                   |  |                         |          
|                                                                                                                   |  |                         | 2,152,177
|                                                                                                                   |  |                         |          
|Tax calculated at the tax rate of 25% (2012: 25%; 2011:24%)                                                        |  |                         | 538,044  
|Effect attributable to subsidiaries charged at tax rates of 15% or 16.5% (2012: 15% or 16.5%; 2011: 25% or 16.5%)) |  |                         | (41,660  
|Income not subject to tax                                                                                          |  |                         | -        
|Expenses not deductible for tax purposes                                                                           |  |                         | 19,179   
|Utilization of previously unrecognized tax losses                                                                  |  |                         | (327,427 
|Unrecognized tax losses for the year                                                                               |  |                         | 175,114  
|(Realization of)/unrecognized of deductible temporary differences for the year                                     |  |                         | (238,969 
|                                                                                                                   |  |                         |          
|Tax charge                                                                                                         |  |                         | 124,281  
|                                                                                                                   |  |                         |          
|Effective tax rate                                                                                                 |  |                         | 5.61     



The Group operates international flights to overseas destinations. There was no material overseas taxation for the years ended
December 31, 2013, 2012 and 2011, as there are avoidance of double tax treaties between the PRC and the corresponding jurisdictions
(including Hong Kong) relating to aviation businesses.



| | 15 | DIVIDENDS
| | -- | ---------



The
Board has not recommended any dividend for the years ended December 31, 2013, 2012 and 2011.



F-45







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 16 | PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY
| | -- | ---------------------------------------------------------



The
profit attributable to equity shareholders of the Company is dealt with in the financial statements of the Company to the extent
of RMB674 million (2012: RMB2,767 million (restated); 2011: RMB4,437 million (restated)).



| | 17 | EARNINGS PER SHARE
| | -- | ------------------



The
calculation of basic earnings per share was based on the profit attributable to equity shareholders of the Company of RMB2, 373million
(2012: RMB3,072 million (restated); 2011: RMB4,661 million (restated)) and the weighted average number of shares of 12,091,881,000
(2012: 11,276,538,860; 2011: 11,276,538,860) in issue during the year ended December 31, 2013. The Company had no potentially
dilutive option or other instruments relating to the ordinary shares.



| | 18 | INTANGIBLE ASSETS
| | -- | -----------------



|                         |  | Goodwill |            |  | Computer |  |         |         | 
|------------------------ |  | -------- | ---------- |  | -------- |  | ------- | ------- | 
|                         |  | (Note)   |            |  | software |  |         | Total   | 
|                         |  | RMB’000  |            |  | RMB’000  |  |         | RMB’000 | 
|                         |  |          |            |  |          |  |         |         | 
|Cost                     |  |          |            |  |          |  |         |         | 
|At January 1, 2012       |  |          | 11,269,695 |  |          |  | 263,792 |         | 
|Additions                |  |          | -          |  |          |  | 133,913 |         | 
|At December 31, 2012     |  |          | 11,269,695 |  |          |  | 397,705 |         | 
|                         |  |          |            |  |          |  |         |         | 
|At January 1, 2013       |  |          | 11,269,695 |  |          |  | 397,705 |         | 
|Additions                |  |          | -          |  |          |  | 98,069  |         | 
|Disposals                |  |          | -          |  |          |  | (619    | )       | 
|At December 31, 2013     |  |          | 11,269,695 |  |          |  | 495,155 |         | 
|                         |  |          |            |  |          |  |         |         | 
|Accumulated amortization |  |          |            |  |          |  |         |         | 
|At January 1, 2012       |  |          | -          |  |          |  | 179,897 |         | 
|Charge for the year      |  |          | -          |  |          |  | 38,404  |         | 
|At December 31, 2012     |  |          | -          |  |          |  | 218,301 |         | 
|                         |  |          |            |  |          |  |         |         | 
|At January 1, 2013       |  |          | -          |  |          |  | 218,301 |         | 
|Charge for the year      |  |          | -          |  |          |  | 56,518  |         | 
|Disposals                |  |          | -          |  |          |  | (76     | )       | 
|At December 31, 2013     |  |          | -          |  |          |  | 274,743 |         | 
|                         |  |          |            |  |          |  |         |         | 
|Net book amount          |  |          |            |  |          |  |         |         | 
|At December 31, 2012     |  |          | 11,269,695 |  |          |  | 179,404 |         | 
|At December 31, 2013     |  |          | 11,269,695 |  |          |  | 220,412 |         | 



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 airline transportation operations, the principal CGU that the Group operates and benefits from the acquisition.



The
recoverable amount of the CGU was principally based on the Company’s fair value, which was determined by reference to the
observable quoted market price of the Company’s shares less the costs of disposal. No impairment for the goodwill was required
based on the Company’s fair value as at the reporting dates.



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       |  |  | plant
    and equipment |   |  | Construction in
    progress |          
|                                                                              |  | RMB’000                                    |            |   | RMB’000                   |  |            | RMB’000         |  |  | RMB’000                 |   |  | RMB’000                      |          
|Cost                                                                          |  |                                            |            |   |                           |  |            |                 |  |  |                         |   |  |                              |          
|At January 1, 2013                                                            |  |                                            | 67,504,762 |   |                           |  | 42,918,469 |                 |  |  | 6,819,057               |   |  |                              | 6,068,832
|Transfers from construction in progress                                       |  |                                            | -          |   |                           |  | -          |                 |  |  | 661,783                 |   |  |                              | 93,320   
|Transfers from advanced
    payments     on acquisition of aircraft (Note 21) |  |                                            | 10,100,499 |   |                           |  | 3,143,998  |                 |  |  | -                       |   |  |                              | -        
|Additions                                                                     |  |                                            | 2,443,661  |   |                           |  | 2,341,123  |                 |  |  | 7,862                   |   |  |                              | 472,167  
|Transfer to assets classified as held for sale                                |  |                                            | (624,936   | ) |                           |  | -          |                 |  |  | -                       |   |  |                              | -        
|Transfer to other long-term assets                                            |  |                                            | -          |   |                           |  | -          |                 |  |  | -                       |   |  |                              | -        
|Disposals                                                                     |  |                                            | (2,752,665 | ) |                           |  | (735,723   | )               |  |  | (3,041                  | ) |  |                              | (199,088 
|At December 31, 2013                                                          |  |                                            | 76,671,321 |   |                           |  | 47,667,867 |                 |  |  | 7,485,661               |   |  |                              | 6,435,231
|                                                                              |  |                                            |            |   |                           |  |            |                 |  |  |                         |   |  |                              |          
|Accumulated depreciation                                                      |  |                                            |            |   |                           |  |            |                 |  |  |                         |   |  |                              |          
|At January 1, 2013                                                            |  |                                            | 26,184,035 |   |                           |  | 10,335,309 |                 |  |  | 1,523,289               |   |  |                              | 3,834,611
|Charge for the year                                                           |  |                                            | 5,270,670  |   |                           |  | 2,203,189  |                 |  |  | 246,269                 |   |  |                              | 397,632  
|Transfer to assets classified as held for sale                                |  |                                            | (231,143   | ) |                           |  | -          |                 |  |  | -                       |   |  |                              | -        
|Disposals                                                                     |  |                                            | (2,365,298 | ) |                           |  | (676,161   | )               |  |  | (208                    | ) |  |                              | (102,714 
|At December 31, 2013                                                          |  |                                            | 28,858,264 |   |                           |  | 11,862,337 |                 |  |  | 1,769,350               |   |  |                              | 4,129,529
|                                                                              |  |                                            |            |   |                           |  |            |                 |  |  |                         |   |  |                              |          
|Impairment                                                                    |  |                                            |            |   |                           |  |            |                 |  |  |                         |   |  |                              |          
|At January 1, 2013                                                            |  |                                            | 790,846    |   |                           |  | 107,770    |                 |  |  | -                       |   |  |                              | 550      
|Charge for the year                                                           |  |                                            | 6,975      |   |                           |  | -          |                 |  |  | -                       |   |  |                              | 7,826    
|At December 31, 2013                                                          |  |                                            | 797,821    |   |                           |  | 107,770    |                 |  |  | -                       |   |  |                              | 8,376    
|                                                                              |  |                                            |            |   |                           |  |            |                 |  |  |                         |   |  |                              |          
|Net book amount                                                               |  |                                            |            |   |                           |  |            |                 |  |  |                         |   |  |                              |          
|At December 31, 2013                                                          |  |                                            | 47,015,236 |   |                           |  | 35,697,760 |                 |  |  | 5,716,311               |   |  |                              | 2,297,326
|At January 1, 2013                                                            |  |                                            | 40,529,881 |   |                           |  | 32,475,390 |                 |  |  | 5,295,768               |   |  |                              | 2,233,671



F-47







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 19 | PROPERTY, PLANT AND EQUIPMENT (cont’d)
| | -- | --------------------------------------



|                                                                          |  | Aircraft, engines andflight equipment |            |   |                           |  |            | Other property, |  |  |                     |   |  |                          |          
|------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | ------------------------- |  | ---------- | --------------- |  |  | ------------------- | - |  | ------------------------ | ---------
|                                                                          |  | Owned                                 |            |   | Held under finance leases |  |            | Buildings       |  |  | plant and equipment |   |  | Construction in progress |          
|                                                                          |  | RMB’000                               |            |   | RMB’000                   |  |            | RMB’000         |  |  | RMB’000             |   |  | RMB’000                  |          
|Cost                                                                      |  |                                       |            |   |                           |  |            |                 |  |  |                     |   |  |                          |          
|At January 1, 2012                                                        |  |                                       | 59,860,668 |   |                           |  | 37,640,743 |                 |  |  | 5,237,670           |   |  |                          | 5,632,102
|Transfers from construction in progress                                   |  |                                       | -          |   |                           |  | -          |                 |  |  | 1,584,745           |   |  |                          | 69,657   
|Transfers from advanced payments on acquisition
    of aircraft (Note 21) |  |                                       | 4,716,802  |   |                           |  | 1,982,177  |                 |  |  | -                   |   |  |                          | -        
|Sales and finance leased back                                             |  |                                       | (1,583,999 | ) |                           |  | 1,583,999  |                 |  |  | -                   |   |  |                          | -        
|Additions                                                                 |  |                                       | 5,443,597  |   |                           |  | 2,862,007  |                 |  |  | 3,721               |   |  |                          | 562,357  
|Other decrease                                                            |  |                                       | (25,656    | ) |                           |  | (664,141   | )               |  |  | -                   |   |  |                          | -        
|Transfer to other long-term assets                                        |  |                                       | -          |   |                           |  | -          |                 |  |  | -                   |   |  |                          | -        
|Disposals                                                                 |  |                                       | (906,650   | ) |                           |  | (486,316   | )               |  |  | (7,079              | ) |  |                          | (195,284 
|At December
    31, 2012                                                  |  |                                       | 67,504,762 |   |                           |  | 42,918,469 |                 |  |  | 6,819,057           |   |  |                          | 6,068,832
|                                                                          |  |                                       |            |   |                           |  |            |                 |  |  |                     |   |  |                          |          
|Accumulated depreciation                                                  |  |                                       |            |   |                           |  |            |                 |  |  |                     |   |  |                          |          
|At January 1, 2012                                                        |  |                                       | 22,677,254 |   |                           |  | 8,391,720  |                 |  |  | 1,293,602           |   |  |                          | 3,538,955
|Charge for the year                                                       |  |                                       | 4,394,601  |   |                           |  | 2,397,541  |                 |  |  | 234,749             |   |  |                          | 443,957  
|Sales and finance leased back                                             |  |                                       | (32,363    | ) |                           |  | 32,363     |                 |  |  | -                   |   |  |                          | -        
|Disposals                                                                 |  |                                       | (855,457   | ) |                           |  | (486,315   | )               |  |  | (5,062              | ) |  |                          | (148,301 
|At December
    31, 2012                                                  |  |                                       | 26,184,035 |   |                           |  | 10,335,309 |                 |  |  | 1,523,289           |   |  |                          | 3,834,611
|                                                                          |  |                                       |            |   |                           |  |            |                 |  |  |                     |   |  |                          |          
|Impairment                                                                |  |                                       |            |   |                           |  |            |                 |  |  |                     |   |  |                          |          
|At January 1, 2012                                                        |  |                                       | 721,101    |   |                           |  | 107,770    |                 |  |  | -                   |   |  |                          | 550      
|Charge for the year                                                       |  |                                       | 89,870     |   |                           |  | -          |                 |  |  | -                   |   |  |                          | -        
|Disposals                                                                 |  |                                       | (20,125    | ) |                           |  | -          |                 |  |  | -                   |   |  |                          | -        
|At December
    31, 2012                                                  |  |                                       | 790,846    |   |                           |  | 107,770    |                 |  |  | -                   |   |  |                          | 550      
|                                                                          |  |                                       |            |   |                           |  |            |                 |  |  |                     |   |  |                          |          
|Net book amount                                                           |  |                                       |            |   |                           |  |            |                 |  |  |                     |   |  |                          |          
|At December
    31, 2012                                                  |  |                                       | 40,529,881 |   |                           |  | 32,475,390 |                 |  |  | 5,295,768           |   |  |                          | 2,233,671
|At January 1, 2012                                                        |  |                                       | 36,462,313 |   |                           |  | 29,141,253 |                 |  |  | 3,944,068           |   |  |                          | 2,092,597



Note:



As
at December 31, 2013, certain aircraft and buildings owned by the Group with an aggregate net book amount of approximately RMB24,306
million (2012: approximately RMB22,544 million, 2011: approximately RMB18,317 million) were pledged as collateral under certain
loan arrangements (Note 33).



F-48







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 20 | LEASE PREPAYMENTS
| | -- | -----------------





|                         |  | December 31, |          
|------------------------ |  | ------------ | ---------
|                         |  | 2013         |          
|                         |  | RMB’000      |          
|                         |  |              |          
|Cost                     |  |              |          
|At January 1             |  |              | 2,154,508
|Additions                |  |              | 438,056  
|Disposals                |  |              | (15,425  
|At December 31           |  |              | 2,577,139
|                         |  |              |          
|Accumulated amortization |  |              |          
|At January 1             |  |              | 372,662  
|Charge for the year      |  |              | 51,920   
|Disposals                |  |              | (2,087   
|At December 31           |  |              | 422,495  
|                         |  |              |          
|Net book amount          |  |              |          
|At December 31           |  |              | 2,154,644



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, 2013, the majority of these land use rights had remaining terms ranging from 33 to 50 years
(2012: from 34 to 50 years).



| | 21 | ADVANCED PAYMENTS ON ACQUISITION OF AIRCRAFT
| | -- | --------------------------------------------



|                                                     |  | December 31, |            
|---------------------------------------------------- |  | ------------ | -----------
|                                                     |  | 2013         |            
|                                                     |  | RMB’000      |            
|                                                     |  |              |            
|                                                     |  |              |            
|At January 1                                         |  |              | 11,894,891 
|Payment during the year                              |  |              | 17,261,022 
|Interest capitalized (Note 13)                       |  |              | 384,865    
|Transfers to property, plant and equipment (Note 19) |  |              | (13,244,497
|                                                     |  |              |            
|At December 31                                       |  |              | 16,296,281 



Included
in the Group’s balances as at December 31, 2013, the amounts of accumulated interest capitalized were approximately RMB504
million (2012: RMB630 million).



F-49







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 22 | INVESTMENTS IN ASSOCIATES
| | -- | -------------------------



|                              |  | December 31, |          
|----------------------------- |  | ------------ | ---------
|                              |  | 2013         |          
|                              |  | RMB’000      |          
|                              |  |              |          
|Unlisted investments, at cost |  |              | 852,896  
|Share of results/ reserves    |  |              | 211,512  
|                              |  |              |          
|                              |  |              | 1,064,408



The
movements on investments in associates were as follows:



|                                                                                 |  | December 31, |          
|-------------------------------------------------------------------------------- |  | ------------ | ---------
|                                                                                 |  | 2013         |          
|                                                                                 |  | RMB’000      |          
|                                                                                 |  |              |          
|At January 1                                                                     |  | 833,472      |          
|Addition through the acquisition of associates                                   |  |              | 236,725  
|Share of results of associates                                                   |  |              | 38,335   
|Share of revaluation on available-for-sale financial assets held by an associate |  |              | (2,931   
|Disposal of associates                                                           |  |              | (3,372   
|Dividend received/declared during the year                                       |  |              | (37,821  
|                                                                                 |  |              |          
|At December 31                                                                   |  |              | 1,064,408



Particulars
of the principal associates, 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 |  | Registered capital |         |  | Attributable
    equity interest |     |         | Principal activities
|------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------ |  | ------------------ | ------- |  | -------------------------------- | --- | ------- | --------------------
|                                                                                                 |  |                                                                    |  | 2013               |         |  | 2012                             |     |         | 2013                
|                                                                                                 |  |                                                                    |  | RMB’000            |         |  | RMB’000                          |     |         |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|Eastern Air
    Group Finance Co., Ltd. (“Eastern Finance”)                                      |  | PRC December 6, 1995                                               |  |                    | 400,000 |  |                                  |     | 400,000 |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|China Eastern Air Catering
    Investment Co., Ltd.                                              |  | PRC November 17, 2003                                              |  |                    | 350,000 |  |                                  |     | 350,000 |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|Shanghai Pratt & Whitney
    Aircraft Engine Maintenance Company Limited (“Shanghai P&W”) (Note) |  | PRC March 28, 2008                                                 |  | USD                | 39,500  |  |                                  | USD | 39,500  |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|New Shanghai International
    Tower Co., Ltd.                                                   |  | PRC November 17, 1992                                              |  |                    | 166,575 |  |                                  |     | 166,575 |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|Eastern Aviation Import
    & Export Co., Ltd. (“Eastern Import & Export”)                       |  | PRC June 9, 1993                                                   |  |                    | 80,000  |  |                                  |     | 80,000  |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|Eastern Aviation Advertising
    Service Co., Ltd. (“Eastern Advertising”)                       |  | PRC March 4, 1986                                                  |  |                    | 200,000 |  |                                  |     | 50,000  |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|Collins Aviation Maintenance Service Shanghai
    Ltd.                                           |  | PRC September 27, 2002                                             |  | USD                | 7,000   |  |                                  | USD | 7,000   |                     
|                                                                                                 |  |                                                                    |  |                    |         |  |                                  |     |         |                     
|Jetstar Hong Kong Airways                                                                        |  | Hong Kong                                                          |  | USD                | 198,000 |  |                                  | USD | 198,000 |                     
|Ltd(“Jetstar”).                                                                                  |  | September 4, 2012                                                  |  |                    |         |  |                                  |     |         |                     



F-50







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 22 | INVESTMENTS IN ASSOCIATES (cont’d)
| | -- | ----------------------------------



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.



The following
table illustrates the aggregate financial information of the Group’s associates that were not individually material:



|                                                           |  | 2013    |           |   | 2012    | 
|---------------------------------------------------------- |  | ------- | --------- | - | ------- | 
|                                                           |  | RMB’000 |           |   | RMB’000 | 
|                                                           |  |         |           |   |         | 
|Share of the associates’ profit for the year               |  |         | 38,335    |   |         | 
|Share of the associates’ other comprehensive (loss)/income |  |         | (2,931    | ) |         | 
|Share of the associates’ total comprehensive income        |  |         | 35,404    |   |         | 
|Aggregate carrying amount of the                           |  |         |           |   |         | 
|Group’s investments in the associates                      |  |         | 1,064,408 |   |         | 



| | 23 | INVESTMENTS IN JOINT VENTURES
| | -- | -----------------------------



|                              |  | 2013    |         |  | 2012    | 
|----------------------------- |  | ------- | ------- |  | ------- | 
|                              |  | RMB’000 |         |  | RMB’000 | 
|                              |  |         |         |  |         | 
|Unlisted investments, at cost |  |         | 293,740 |  |         | 
|Share of results/reserves     |  |         | 139,284 |  |         | 
|                              |  |         |         |  |         | 
|                              |  |         | 433,024 |  |         | 



The
movements on investments in jointly ventures were as follows



|                                           |  | 2013    |         |   | 2012    | 
|------------------------------------------ |  | ------- | ------- | - | ------- | 
|                                           |  | RMB’000 |         |   | RMB’000 | 
|                                           |  |         |         |   |         | 
|At January 1                               |  |         | 418,159 |   |         | 
|Share of results                           |  |         | 26,588  |   |         | 
|Disposal of joint ventures                 |  |         | (437    | ) |         | 
|Dividend received/declared during the year |  |         | (11,286 | ) |         | 
|                                           |  |         |         |   |         | 
|At December 31                             |  |         | 433,024 |   |         | 



Particulars
of the principal jointly ventures, 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
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | --------------- | ------ |  | -------------------------------- | --- | ------ | --------------------
|                                                                                                                            |  |                                                                    |  | 2013            |        |  | 2012                             |     |        | 2013                
|                                                                                                                            |  |                                                                    |  | RMB’000         |        |  | RMB’000                          |     |        |                     
|Shanghai Technologies Aerospace
    Co., Ltd. (“Technologies Aerospace”) (Note)                                             |  | PRC September 28, 2004                                             |  | USD             | 73,000 |  |                                  | USD | 73,000 |                     
|Shanghai Eastern Union Aviation Wheels &
    Brakes Maintenance Services Overhaul Engineering Co., Ltd. (“Wheels & Brakes”) |  | PRC December 28, 1995                                              |  | USD             | 2,100  |  |                                  | USD | 2,100  |                     
|Eastern China Kaiya System Integration
    Co., Ltd.                                                                        |  | PRC May 21, 1995                                                   |  |                 | 10,000 |  |                                  |     | 10,000 |                     



F-51











NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 23 | INVESTMENTS IN JOINT
                                         VENTURES (cont’d)
| | -- | -------------------------------------------------------------------------------



| |  | Notes:
| |  | ------



| |  | Under a Joint Venture Agreement
                                         with the 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:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                        |  | 2013    |         |  | 2012    | 
|------------------------------------------------------- |  | ------- | ------- |  | ------- | 
|                                                        |  | RMB’000 |         |  | RMB’000 | 
|                                                        |  |         |         |  |         | 
|Share of the joint ventures’ profit for the year        |  |         | 26,588  |  |         | 
|Share of the joint ventures’ total comprehensive income |  |         | 26,588  |  |         | 
|Aggregate carrying amount of the                        |  |         |         |  |         | 
|Group’s investments in the joint ventures               |  |         | 433,024 |  |         | 



| | 24 | OTHER LONG-TERM
                                         ASSETS
| | -- | ---------------------------------------------------------------



|                                                          |  | December 31, |          
|--------------------------------------------------------- |  | ------------ | ---------
|                                                          |  | 2013         |          
|                                                          |  | RMB’000      |          
|                                                          |  |              |          
|Deposits relating to aircraft held under operating leases |  |              | 669,560  
|Deferred pilot recruitment costs (Note)                   |  |              | 1,111,325
|Other long-term assets                                    |  |              | 588,265  
|                                                          |  |              |          
|                                                          |  |              | 2,369,150



| |  | Notes:
| |  | ------



| |  | 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, |          
|------------------------------- |  | ------------ | ---------
|                                |  | 2013         |          
|                                |  | RMB’000      |          
|                                |  |              |          
|Flight equipment spare parts    |  |              | 2,962,339
|Less: provision for spare parts |  |              | (656,927 
|                                |  |              |          
|                                |  |              | 2,305,412



| |  | 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, |        
|------------------------------------------------------------ |  | ------------ | -------
|                                                             |  | 2013         |        
|                                                             |  | RMB’000      |        
|                                                             |  |              |        
|At January 1                                                 |  |              | 677,313
|Provision written off in relation to disposal of spare parts |  |              | -      
|Reversal of impairment of spare parts (Note 10)              |  |              | (20,386
|                                                             |  |              |        
|At December 31                                               |  |              | 656,927



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, |          
|--------------------------------------------- |  | ------------ | ---------
|                                              |  | 2013         |          
|                                              |  | RMB’000      |          
|                                              |  |              |          
|Within 90 days                                |  |              | 2,771,445
|91 to 180 days                                |  |              | 610,322  
|181 to 365 days                               |  |              | 147,812  
|Over 365 days                                 |  |              | 192,786  
|                                              |  |              | 3,722,365
|Less: provision for impairment of receivables |  |              | (197,819 
|                                              |  |              |          
|Trade receivables                             |  |              | 3,524,546



| |  | 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, 2013, trade
                                         receivables of RMB295 million (2012: RMB137 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 RMB447 million (2012: RMB680 million) from
                                         these agents. The aging analysis of these trade receivables was as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                |  | December 31, |        
|--------------- |  | ------------ | -------
|                |  | 2013         |        
|                |  | RMB’000      |        
|                |  |              |        
|Within 90 days  |  |              | 148,262
|91 to 180 days  |  |              | 88,601 
|181 to 365 days |  |              | 57,744 
|                |  |              |        
|                |  |              | 294,607



| |  | As at December 31, 2013, trade receivables of RMB154 million
                                         (2012: RMB167 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, |        
|----------------------- |  | ------------ | -------
|                        |  | 2013         |        
|                        |  | RMB’000      |        
|181 to 365 days overdue |  |              | 59,210 
|1 to 2 years overdue    |  |              | 28,328 
|Over 2 years overdue    |  |              | 164,458
|                        |  |              |        
|                        |  |              | 251,996



| |  | Movements on the Group’s provision for impairment of
                                         trade receivables were as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------



|                                                         |  | 2013    |         |   | 2012    | 
|-------------------------------------------------------- |  | ------- | ------- | - | ------- | 
|                                                         |  | RMB’000 |         |   | RMB’000 | 
|At January 1                                             |  |         | 203,220 |   |         | 
|Receivables written off during the year as uncollectible |  |         | (679    | ) |         | 
|Reversal of impairment of receivables                    |  |         | (4,722  | ) |         | 
|                                                         |  |         |         |   |         | 
|At December 31                                           |  |         | 197,819 |   |         | 



| |  | The net impact of creation and release of provisions for impaired
                                         receivables have been included in ‘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, |          
|----------------- |  | ------------ | ---------
|                  |  | 2013         |          
|                  |  | RMB’000      |          
|Currency          |  |              |          
|Renminbi          |  |              | 3,229,939
|Japanese Yen      |  |              | 41,074   
|US Dollars        |  |              | 121,017  
|Euro              |  |              | 157,105  
|Hong Kong Dollars |  |              | 63,636   
|Other currencies  |  |              | 109,594  
|                  |  |              |          
|                  |  |              | 3,722,365



| |  | 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, |          
|-------------------------------------------------- |  | ------------ | ---------
|                                                   |  | 2013         |          
|                                                   |  | RMB’000      |          
|                                                   |  |              |          
|VAT recoverable                                    |  |              | 979,013  
|Rebate receivables on aircraft acquisitions        |  |              | 574,235  
|Amounts due from related companies (Note 46(c)(i)) |  |              | 201,432  
|Prepaid aircraft operating lease rentals           |  |              | 304,899  
|Rental deposits                                    |  |              | 300,396  
|Others                                             |  |              | 1,988,974
|                                                   |  |              |          
|Subtotal                                           |  |              | 4,348,949
|Less: bad debt provision                           |  |              | (290,782 
|                                                   |  |              |          
|                                                   |  |              | 4,058,167



F-54







NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS



| | 28 | RESTRICTED BANK DEPOSITS AND SHORT-TERM BANK DEPOSITS
| | -- | -----------------------------------------------------



|                                                                                |  | 2013    |         |  | 2012    | 
|------------------------------------------------------------------------------- |  | ------- | ------- |  | ------- | 
|                                                                                |  | RMB’000 |         |  | RMB’000 | 
|                                                                                |  |         |         |  |         | 
|Bank deposits with original maturity over
    three months but less than a year |  |         | 167,314 |  |         | 
|Restricted bank deposits                                                        |  |         | 215,749 |  |         | 
|                                                                                |  |         |         |  |         | 
|                                                                                |  |         | 383,063 |  |         | 



| |  | Note:
| |  | -----

| |  | As at December 31, 2013, the deposits
                                         bore effective interest rates ranging from 0.35% to 4.65% per annum (2012: from 2.85%
                                         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, |        
|----------------- |  | ------------ | -------
|                  |  | 2013         |        
|                  |  | RMB’000      |        
|                  |  |              |        
|Renminbi          |  |              | 198,170
|Japanese Yen      |  |              | -      
|US Dollars        |  |              | 180,967
|Hong Kong Dollars |  |              | -      
|Euro              |  |              | -      
|Other currencies  |  |              | 3,926  
|                  |  |              |        
|                  |  |              | 383,063



| | 29 | CASH AND CASH EQUIVALENTS
| | -- | -------------------------



| |  | The carrying amounts of the Group’s
                                         cash and cash equivalents are denominated in the following currencies:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



|                  |  | December 31, |          
|----------------- |  | ------------ | ---------
|                  |  | 2013         |          
|                  |  | RMB’000      |          
|                  |  |              |          
|Renminbi          |  |              | 1,493,804
|US Dollars        |  |              | 280,800  
|Euro              |  |              | 31,840   
|Japanese Yen      |  |              | 22,036   
|Hong Kong Dollars |  |              | 31,932   
|Other currencies  |  |              | 134,566  
|                  |  |              |          
|                  |  |              | 1,994,978



| | 30 | TRADE AND BILLS PAYABLE
| | -- | -----------------------



| |  | The aging analyses of trade and bills payable was as follows:
| |  | -------------------------------------------------------------



|                |  | December 31, |          
|--------------- |  | ------------ | ---------
|                |  | 2013         |          
|                |  | RMB’000      |          
|                |  |              |          
|Within 90 days  |  |              | 2,309,391
|91 to 180 days  |  |              | 245,085  
|181 to 365 days |  |              | 416,240  
|1 to 2 years    |  |              | 172,268  
|Over 2 years    |  |              | 320,032  
|                |  |              |          
|                |  |              | 3,463,016



| |  | As at December 31, 2013, the trade
                                         and bills payable balances of the Group included amounts due to related companies of
                                         RMB996 million (2012: RMB1,950 million) (Note 46(c)(ii)).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As at December 31, 2013, bills payable
                                         amounted to RMB40 million (2012: RMB250 million), which were secured and repayable within
                                         six months.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-55







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 31 | OTHER PAYABLES AND ACCRUALS
| | -- | ---------------------------



|                                                                        |  | December 31, |           
|----------------------------------------------------------------------- |  | ------------ | ----------
|                                                                        |  | 2013         |           
|                                                                        |  | RMB’000      |           
|                                                                        |  |              |           
|Accrued salaries, wages and benefits                                    |  |              | 2,459,058 
|Accrued take-off and landing charges                                    |  |              | 1,749,561 
|Accrued fuel cost                                                       |  |              | 2,366,054 
|Accrued expenses related to aircraft overhaul conducted                 |  |              | 1,806,836 
|Duties and levies payable                                               |  |              | 1,539,769 
|Other accrued operating expenses                                        |  |              | 3,181,802 
|Deposits received from ticket sales agents                              |  |              | 780,241   
|Current portion of other long-term liabilities (Note
    35)            |  |              | 368,225   
|Staff housing allowance (Note 38(b))                                    |  |              | 360,197   
|Amounts due to related companies (Note 46(c)(ii))                       |  |              | 702,580   
|Current portion of post-retirement benefit obligations
    (Note 37(c)) |  |              | 203,508   
|Other payables                                                          |  |              | 2,628,043 
|                                                                        |  |              |           
|                                                                        |  |              | 18,145,874



| | 32 | OBLIGATIONS UNDER FINANCE LEASES
| | -- | --------------------------------



| |  | As at December 31, 2013, the Group
                                         had 111 aircrafts (2012: 98 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 31,2013       |            |   | December 31,2012                         | 
|-------------------------------------- |  | ---------------------- | ---------- | - | ---------------------------------------- | 
|                                       |  | Minimum lease Payments |            |   | Present values of minimum lease payments | 
|                                       |  | RMB’000                |            |   | RMB’000                                  | 
|                                       |  |                        |            |   |                                          | 
|Within one year                        |  |                        | 3,446,098  |   |                                          | 
|In the second year                     |  |                        | 3,374,964  |   |                                          | 
|In the third to fifth years, inclusive |  |                        | 9,751,595  |   |                                          | 
|After the fifth year                   |  |                        | 8,956,378  |   |                                          | 
|                                       |  |                        |            |   |                                          | 
|Total                                  |  |                        | 25,529,035 |   |                                          | 
|Less:                                  |  |                        |            |   |                                          | 
|amount repayable within one year       |  |                        | (3,446,098 | ) |                                          | 
|                                       |  |                        |            |   |                                          | 
|Long-term portion                      |  |                        | 22,082,937 |   |                                          | 



F-56











NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 33 | BORROWINGS
| | -- | ----------



|                                             |  | December 31, |           
|-------------------------------------------- |  | ------------ | ----------
|                                             |  | 2013         |           
|                                             |  | RMB’000      |           
|                                             |  |              |           
|Non-current                                  |  |              |           
|Long-term bank borrowings                    |  |              |           
|– secured (Note (a))                         |  |              | 12,743,594
|– unsecured (Note (b))                       |  |              | 7,586,243 
|Guaranteed bonds (Note (c))                  |  |              | 6,985,406 
|                                             |  |              | 27,315,243
|                                             |  |              |           
|Current                                      |  |              |           
|Current portion of long-term bank borrowings |  |              |           
|– secured (Note (a))                         |  |              | 2,118,724 
|– unsecured (Note (b))                       |  |              | 6,741,080 
|Short-term bank borrowings                   |  |              |           
|– unsecured (Note (b))                       |  |              | 7,925,383 
|Short-term debentures (Note (d))             |  |              | 4,000,000 
|Guaranteed bonds (Note (c))                  |  |              | 2,500,000 
|                                             |  |              | 23,285,187
|                                             |  |              |           
|Total borrowings                             |  |              | 50,600,430
|                                             |  |              |           
|The borrowings are repayable as follows:     |  |              |           
|                                             |  |              |           
|Within one year                              |  |              | 23,285,187
|In the second year                           |  |              | 6,605,737 
|In the third to fifth year inclusive         |  |              | 9,951,677 
|After the fifth year                         |  |              | 10,757,829
|                                             |  |              |           
|Total borrowings                             |  |              | 50,600,430



| |  | Notes:
| |  | ------



| | (a) | As at December 31, 2013, the
                                         secured bank borrowings of the Group were pledged by the related aircraft and buildings
                                         with an aggregate net book amount of RMB24,306 million (2012: RMB22,544 million) (Note
                                         19).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Certain unsecured bank borrowings
                                         of the Group guaranteed by CEA Holding was nil (2012: RMB95 million) (Note 46(d)).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | On August 8, 2011, Eastern Air
                                         Overseas (Hong Kong) Corporation Limited (“Eastern Air Overseas HK”), a wholly
                                         owned subsidiary of the Company, issued three-year guaranteed bonds with a principal
                                         amount of RMB2.5 billion, at an issue price equal to the face value of the bonds. The
                                         bonds bear interest at the rate of 4% per annum, which is payable semi-annually. The
                                         principle of the bonds will mature and be repayable on August 8, 2014. The Company has
                                         unconditionally and irrevocably guaranteed the due payment and performance of the above
                                         bonds.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 
| |  | 

| |  | 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 principle 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
                                         HK, 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 principle 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | On June 5, 2013, 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 3.95% 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                                                                                           |  | 2013    |            |  | 2012    | 
|-------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ------- | ---------- |  | ------- | 
|Currency                   |  | maturities                                                                                                        |  | RMB’000 |            |  | RMB’000 | 
|                           |  |                                                                                                                   |  |         |            |  |         | 
|Long-term bank borrowings  |  |                                                                                                                   |  |         |            |  |         | 
|                           |  |                                                                                                                   |  |         |            |  |         | 
|RMB denominated            |  | interest rates ranging from 5.535% to 6.40%
    with final maturities through to 2023                             |  |         | 735,684    |  |         | 
|                           |  |                                                                                                                   |  |         |            |  |         | 
|USD denominated            |  | interest rates ranging from 6 months libor 0.05% to
    6 months libor 5.3% with final maturities through to 2022 |  |         | 28,453,957 |  |         | 
|                           |  |                                                                                                                   |  |         |            |  |         | 
|Guaranteed bonds           |  |                                                                                                                   |  |         |            |  |         | 
|                           |  |                                                                                                                   |  |         |            |  |         | 
|RMB denominated            |  | interest rates ranging from 3.875%
    to 5.05% with final maturities through 2023                                |  |         | 9,485,406  |  |         | 
|                           |  |                                                                                                                   |  |         |            |  |         | 
|Total long-term borrowings |  |                                                                                                                   |  |         | 38,675,047 |  |         | 



| |  | Short-term borrowings of the Group
                                         are repayable within one year. As at December 31, 2013, the interest rates relating to
                                         such borrowings ranged from 1.69% to 4.80% per annum (2012: 1.11% to 6.56% per annum).
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The carrying amounts
of the borrowings were denominated in the following currencies:



|             |  | December 31, |           
|------------ |  | ------------ | ----------
|             |  | 2013         |           
|             |  | RMB’000      |           
|             |  |              |           
|Renminbi     |  |              | 15,386,090
|US Dollars   |  |              | 35,214,340
|Japanese Yen |  |              | -         
|             |  |              |           
|             |  |              | 50,600,430



| | 34 | PROVISION FOR RETURN CONDITION CHECKS FOR AIRCRAFT UNDER OPERATING
                                         LEASES
| | -- | ------------------------------------------------------------------------------------------------------------------



|                      |  | December 31, |           
|--------------------- |  | ------------ | ----------
|                      |  | 2013         |           
|                      |  | RMB’000      |           
|                      |  |              |           
|At January 1          |  |              | 3,798,762 
|Additional provisions |  |              | 871,616   
|Utilization           |  |              | (453,212  
|                      |  |              |           
|At December 31        |  |              | 4,217,166 
|Less: current portion |  |              | (1,453,985
|                      |  |              |           
|Long-term portion     |  |              | 2,763,181 



| |  | 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, 2013 and 2012 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, |          
|------------------------------------------------------------------------------------ |  | ------------ | ---------
|                                                                                     |  | 2013         |          
|                                                                                     |  | RMB’000      |          
|                                                                                     |  |              |          
|Fair value of unredeemed points awarded
    under the Group’s frequent flyer program |  |              | 1,732,406
|Long-term duties and levies payable relating to finance
    leases                   |  |              | 909,368  
|Other long-term payables                                                             |  |              | 128,327  
|                                                                                     |  |              | 2,770,101
|                                                                                     |  |              |          
|Less: current portion included
    in other payables and accrued expenses (Note 31)  |  |              | (368,225 
|                                                                                     |  |              |          
|Long-term portion                                                                    |  |              | 2,401,876



| | 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, |        
|----------------------------------------------------------- |  | ------------ | -------
|                                                            |  | 2013         |        
|                                                            |  | RMB’000      |        
|                                                            |  |              |        
|Deferred tax assets                                         |  |              |        
|– Deferred tax asset to be utilized
    after 12 months     |  |              | 259,411
|– Deferred tax asset to
    be utilized within 12 months    |  |              | 130,055
|                                                            |  |              |        
|                                                            |  |              | 389,466
|                                                            |  |              |        
|Deferred tax liabilities                                    |  |              |        
|– Deferred tax liability
    to be realized after 12 months |  |              | (29,550
|                                                            |  |              |        
|Net deferred tax assets                                     |  |              | 359,916



| |  | Movements in the net deferred tax
                                         assets were as follows:
| |  | --------------------------------------------------------------------------------------------------



|                                     |  | 2013    |         |  | 2012     | 
|------------------------------------ |  | ------- | ------- |  | -------- | 
|                                     |  | RMB’000 |         |  | RMB’000  | 
|                                     |  |         |         |  | Restated | 
|                                     |  |         |         |  |          | 
|At January 1                         |  |         | 95,332  |  |          | 
|Credited to profit or loss (Note 14) |  |         | 223,280 |  |          | 
|Credited to OCI                      |  |         | 41,304  |  |          | 
|                                     |  |         |         |  |          | 
|At December 31                       |  |         | 359,916 |  |          | 



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, |         
|------------------------------------------------------------------ |  | ------------ | --------
|                                                                   |  | 2013         |         
|                                                                   |  | RMB’000      |         
|                                                                   |  |              |         
|Deferred tax assets:                                               |  |              |         
|Impairment provision for obsolete flight
    equipment spare parts |  |              | 23,983  
|Impairment provision for receivables                               |  |              | 19,209  
|Impairment provision for property, plant and equipment             |  |              | 39,461  
|Derivative financial instruments                                   |  |              | 16,927  
|Provision for wages                                                |  |              | 146,431 
|Provision for post-retirement
    benefits                         |  |              | 425,801 
|                                                                   |  |              | 671,812 
|Deferred tax liabilities:                                          |  |              |         
|Depreciation and amortization                                      |  |              | (294,969
|Derivative financial instruments                                   |  |              | (16,927 
|                                                                   |  |              | (311,896
|                                                                   |  |              |         
|                                                                   |  |              | 359,916 



| |  | Movements of the net deferred tax
                                         assets of the Group for the year:
| |  | ------------------------------------------------------------------------------------------------------------



|                                                                   |  | At the       |          |   | (Charged)/     |  |         |          |  |  | At the   | 
|------------------------------------------------------------------ |  | ------------ | -------- | - | -------------- |  | ------- | -------- |  |  | -------- | 
|                                                                   |  | beginning of |          |   | credited to    |  |         | Credited |  |  | end of   | 
|                                                                   |  | the year     |          |   | profit or loss |  |         | to OCI   |  |  | the year | 
|                                                                   |  | RMB’000      |          |   | RMB’000        |  |         | RMB’000  |  |  | RMB’000  | 
|                                                                   |  | Restated     |          |   |                |  |         |          |  |  |          | 
|                                                                   |  |              |          |   |                |  |         |          |  |  |          | 
|For the year ended December
    31, 2013                           |  |              |          |   |                |  |         |          |  |  |          | 
|Impairment
    provision for obsolete flight equipment spare parts |  |              | 40,408   |   |                |  | (16,425 | )        |  |  | -        | 
|Impairment provision for
    receivables                           |  |              | 23,950   |   |                |  | (4,741  | )        |  |  | -        | 
|Impairment provision for
    property, plant and equipment         |  |              | 43,222   |   |                |  | (3,761  | )        |  |  | -        | 
|Derivative financial instruments                                   |  |              | 20,339   |   |                |  | (3,412  | )        |  |  | -        | 
|Provision for wages                                                |  |              | -        |   |                |  | 146,431 |          |  |  | -        | 
|Provision
    for post-retirement benefits                         |  |              | 266,677  |   |                |  | 117,820 |          |  |  | 41,304   | 
|                                                                   |  |              | 394,596  |   |                |  | 235,912 |          |  |  | 41,304   | 
|                                                                   |  |              |          |   |                |  |         |          |  |  |          | 
|Depreciation and amortization                                      |  |              | (294,745 | ) |                |  | (224    | )        |  |  | -        | 
|Derivative
    financial instruments                               |  |              | (4,519   | ) |                |  | (12,408 | )        |  |  | -        | 
|                                                                   |  |              | (299,264 | ) |                |  | (12,632 | )        |  |  | -        | 
|                                                                   |  |              |          |   |                |  |         |          |  |  |          | 
|Net
    deferred tax assets                                        |  |              | 95,332   |   |                |  | 223,280 |          |  |  | 41,304   | 



|                                                                   |  | At the       |          |   | (Charged)/     |  |          |          |  |  | At the   | 
|------------------------------------------------------------------ |  | ------------ | -------- | - | -------------- |  | -------- | -------- |  |  | -------- | 
|                                                                   |  | beginning of |          |   | credited to    |  |          | Credited |  |  | end of   | 
|                                                                   |  | the year     |          |   | profit or loss |  |          | to OCI   |  |  | the year | 
|                                                                   |  | RMB’000      |          |   | RMB’000        |  |          | RMB’000  |  |  | RMB’000  | 
|                                                                   |  | Restated     |          |   | Restated       |  |          | Restated |  |  | Restated | 
|                                                                   |  |              |          |   |                |  |          |          |  |  |          | 
|For the year ended December
    31, 2012                           |  |              |          |   |                |  |          |          |  |  |          | 
|Impairment
    provision for obsolete flight equipment spare parts |  |              | 70,071   |   |                |  | (29,663  | )        |  |  | -        | 
|Impairment provision for
    receivables                           |  |              | 34,745   |   |                |  | (10,795  | )        |  |  | -        | 
|Impairment provision for
    property, plant and equipment         |  |              | 78,286   |   |                |  | (35,064  | )        |  |  | -        | 
|Derivative financial instruments                                   |  |              | 29,201   |   |                |  | (8,862   | )        |  |  | -        | 
|Provision
    for post-retirement benefits                         |  |              | 291,630  |   |                |  | (36,387  | )        |  |  | 11,434   | 
|                                                                   |  |              | 503,933  |   |                |  | (120,771 | )        |  |  | 11,434   | 
|                                                                   |  |              |          |   |                |  |          |          |  |  |          | 
|Depreciation and amortization                                      |  |              | (426,481 | ) |                |  | 131,736  |          |  |  | -        | 
|Derivative
    financial instruments                               |  |              | (1,091   | ) |                |  | (3,428   | )        |  |  | -        | 
|                                                                   |  |              | (427,572 | ) |                |  | 128,308  |          |  |  | -        | 
|                                                                   |  |              |          |   |                |  |          |          |  |  |          | 
|Net
    deferred tax assets                                        |  |              | 76,361   |   |                |  | 7,537    |          |  |  | 11,434   | 



F-60







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 36 | DEFERRED TAXATION
                                         (cont’d)
| | -- | -------------------------------------------------------------------





| |  | As at each reporting date, the Group
                                         had following balances in respect of which no deferred tax assets have been recognized:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                           |  | December
    31, |          
|------------------------------------------ |  | ---------------- | ---------
|                                           |  | 2013             |          
|                                           |  | Deferred         |          
|                                           |  | taxation         |          
|                                           |  | RMB’000          |          
|                                           |  |                  |          
|                                           |  |                  |          
|Tax losses
    carried forward             |  |                  | 1,309,826
|Other
    deductible temporary differences |  |                  | 1,831,626
|Total
    unrecognized deferred tax assets |  |                  | 3,141,452



| |  | 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 2014
                                         and 2018.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As at December 31, 2013, management
                                         carried out an assessment to determine whether future taxable profits will be available
                                         to utilize the tax losses and deductible temporary differences. As there are still uncertainties
                                         around the Group’s future operation results, such as future fuel prices and market
                                         competition, management assessed that there are significant uncertainties that future
                                         taxable profits will be available and the deferred tax assets arisen from aforementioned
                                         tax losses and deductible temporary difference were not recognized.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 20% to 22% on the
employees’ salary and allowances subject to certain ceiling as set up by the relevant municipal governments. Employees are
required to contribute to the schemes at rates ranging from 7% to 8% of their salaries. For the year ended December 31, 2013,
the Group’s pension cost charged to the profit or loss amounted to 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 12% and 2%, respectively, of the employee’s basic salaries
                                         subject to certain ceiling as set up by the relevant municipal governments. For those
                                         employees who participate in these schemes, the Group has no other obligation for the
                                         payment of medical expense beyond the annual contributions. For the year ended December
                                         31, 2013, the Group’s medical insurance contributions charged to the profit or
                                         loss amounted to 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 and etc.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 
| |  | 

| |  | Except that Shanghai Airlines requires
                                         contributions to be made to a separately administered fund, the Company and other subsidiaries
                                         do not require contributions to be made to the separately administered fund. The plan
                                         assets of Shanghai Airlines have the legal form of a foundation and they are administrated
                                         by independent trustees with the assets held separately from those of the Group. The
                                         trustees are responsible for the determination of the investment strategy of the plan.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The trustees review the level of
                                         funding in the plan. Such a review mainly includes investment risk management policy.
                                         The investment portfolio has a mix of 53.45% in bonds, 19.59% in funds, 6.72% in resale
                                         securities, 2.64% in equity and 17.6% other investments.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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, 2013 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:



|                                    |  | 2013    |           |   | 2012     | 
|----------------------------------- |  | ------- | --------- | - | -------- | 
|                                    |  | RMB’000 |           |   | RMB’000  | 
|                                    |  |         |           |   | Restated | 
|                                    |  |         |           |   |          | 
|Post-retirement benefit obligations |  |         | 5,818,801 |   |          | 
|Less: current portion               |  |         | (203,508  | ) |          | 
|                                    |  |         |           |   |          | 
|Long-term portion                   |  |         | 5,615,293 |   |          | 



The principal actuarial assumptions
utilised as at the end of the reporting periods were as follows:





|                                                             |                                                                                               |  | 2013 |      |   | 2012 | 
|------------------------------------------------------------ | --------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | 
|Discount
    rate for internal retirees’ benefits before     |                                                                                               |  |      |      |   |      | 
|normal
    retirement                                        |                                                                                               |  |      | 4.50 | % |      | 
|Discount
    rate for post-retirement benefits               |                                                                                               |  |      | 5.15 | % |      | 
|Employee
    turnover rate                                   |                                                                                               |  |      | 3.00 | % |      | 
|Mortality
    rate                                           | 100% of China Insurance Life Mortality Table (2000-2003).
    CL3 for Male and CL4 for Female |  |      | 9.83 | %
|Annual
    increase rate of medical expenses due to age      |                                                                                               |  |      | 2.50 | % |      | 
|Annual
    increase rate of post-retirement medical expenses |                                                                                               |  |      | 7.00 | % |      | 
|Annual
    salary increase rate of active employees          |                                                                                               |  |      | 0.50 | % |      | 



The actuarial valuation showed
that the market value of plan assets was RMB122.6 million (2012: RMB89.9 million), and that the actuarial value of these assets
represented 35.92% of the benefits that had accrued to qualifying employees.



A quantitative sensitivity
analysis for the Group for significant assumptions as at December 31, 2013 is shown below:



|                                                                           |  |          |      |  | Increase/      |  |          |          |  |  | Increase/      | 
|-------------------------------------------------------------------------- |  | -------- | ---- |  | -------------- |  | -------- | -------- |  |  | -------------- | 
|                                                                           |  |          |      |  | (decrease)     |  |          |          |  |  | (decrease)     | 
|                                                                           |  |          |      |  | in net defined |  |          |          |  |  | in net defined | 
|                                                                           |  | Increase |      |  | benefit        |  |          | Decrease |  |  | benefit        | 
|                                                                           |  | in rate  |      |  | obligation     |  |          | in rate  |  |  | obligation     | 
|                                                                           |  | %        |      |  | RMB’000        |  |          | %        |  |  | RMB’000        | 
|                                                                           |  |          |      |  |                |  |          |          |  |  |                | 
|Discount rate for post-retirement benefits                                 |  |          | 0.25 |  |                |  | (248,630 | )        |  |  | 0.25           | 
|Discount rate for internal retirees' benefits before
    normal retirement |  |          | 0.25 |  |                |  | (248,630 | )        |  |  | 0.25           | 
|Annual increase rate of pension benefits                                   |  |          | 1.00 |  |                |  | 920,537  |          |  |  | 1.00           | 
|Annual increase rate of medical expenses                                   |  |          | 1.00 |  |                |  | 300,978  |          |  |  | 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.



The major categories of the
fair value of the total plan assets of the Group were as follows:



|                     |  | 2013    |         |  | 2012    | 
|-------------------- |  | ------- | ------- |  | ------- | 
|                     |  | RMB'000 |         |  | RMB'000 | 
|                     |  |         |         |  |         | 
|Equity instruments   |  |         | 3,234   |  |         | 
|Debt instruments     |  |         | 65,539  |  |         | 
|Fund investments     |  |         | 24,022  |  |         | 
|Other investments    |  |         | 21,582  |  |         | 
|Resalable securities |  |         | 8,241   |  |         | 
|                     |  |         |         |  |         | 
|Total                |  |         | 122,618 |  |         | 



Expected contributions to be
made in the future years out of the post-retirement defined benefit obligations were as follows:



|                          |  | 2013    |            |  | 2012    | 
|------------------------- |  | ------- | ---------- |  | ------- | 
|                          |  | RMB'000 |            |  | RMB'000 | 
|                          |  |         |            |  |         | 
|Within the next 12 months |  |         | 212,999    |  |         | 
|Between 2 and 5 years     |  |         | 914,989    |  |         | 
|Between 5 and 10 years    |  |         | 1,306,385  |  |         | 
|Over 10 years             |  |         | 15,929,832 |  |         | 
|                          |  |         |            |  |         | 
|Total expected payments   |  |         | 18,364,205 |  |         | 



The average duration of the
post-retirement benefit at the end of 2013 was 19 years (2012: 18.4 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:



2013

|                            |  | Pension
    cost charged/(credited) to profit or loss |           |   | Remeasurement
    (gains)/losses in other comprehensive income |  |         |          |  |  |           |  
|--------------------------- |  | ----------------------------------------------------- | --------- | - | -------------------------------------------------------------- |  | ------- | -------- |  |  | --------- | -
|                            |  |                                                       |           |   |                                                                |  |         |          |  |  |           |  
|                            |  |                                                       |           |   |                                                                |  |         |          |  |  |           |  
|                            |  |                                                       |           |   |                                                                |  |         |          |  |  | Sub-total |  
|                            |  |                                                       |           |   | Service cost/                                                  |  |         |          |  |  | included  |  
|                            |  | January 1                                             |           |   | investment                                                     |  |         | Net      |  |  | in profit |  
|                            |  | 2013                                                  |           |   | income                                                         |  |         | interest |  |  | or loss   |  
|                            |  | RMB'000                                               |           |   | RMB'000                                                        |  |         | RMB'000  |  |  | RMB'000   |  
|                            |  |                                                       |           |   |                                                                |  |         |          |  |  |           |  
|Defined benefit obligations |  |                                                       | 6,323,471 |   |                                                                |  | (59,704 | )        |  |  | 276,484   |  
|                            |  |                                                       |           |   |                                                                |  |         |          |  |  |           |  
|Fair value of plan assets   |  |                                                       | (89,819   | ) |                                                                |  | (28,721 | )        |  |  | (5,270    | )
|                            |  |                                                       |           |   |                                                                |  |         |          |  |  |           |  
|Benefit liability           |  |                                                       | 6,233,652 |   |                                                                |  | (88,425 | )        |  |  | 271,214   |  



2012



|                            |  | Pension cost
    charged to profit or loss (Restated) |           |   | Remeasurement
    (gains)/losses in other comprehensive income (Restated) |  |         |          |  |  |           |  
|--------------------------- |  | ----------------------------------------------------- | --------- | - | ------------------------------------------------------------------------- |  | ------- | -------- |  |  | --------- | -
|                            |  |                                                       |           |   |                                                                           |  |         |          |  |  |           |  
|                            |  |                                                       |           |   |                                                                           |  |         |          |  |  |           |  
|                            |  |                                                       |           |   |                                                                           |  |         |          |  |  | Sub-total |  
|                            |  |                                                       |           |   | Service cost/                                                             |  |         |          |  |  | included  |  
|                            |  | January 1                                             |           |   | investment                                                                |  |         | Net      |  |  | in profit |  
|                            |  | 2012                                                  |           |   | loss                                                                      |  |         | interest |  |  | or loss   |  
|                            |  | RMB'000                                               |           |   | RMB'000                                                                   |  |         | RMB'000  |  |  | RMB'000   |  
|                            |  |                                                       |           |   |                                                                           |  |         |          |  |  |           |  
|Defined benefit obligations |  |                                                       | 6,176,263 |   |                                                                           |  | 186,227 |          |  |  | 270,177   |  
|                            |  |                                                       |           |   |                                                                           |  |         |          |  |  |           |  
|Fair value of plan assets   |  |                                                       | (92,450   | ) |                                                                           |  | 5,100   |          |  |  | (3,913    | )
|                            |  |                                                       |           |   |                                                                           |  |         |          |  |  |           |  
|Benefit liability           |  |                                                       | 6,083,813 |   |                                                                           |  | 191,327 |          |  |  | 266,264   |  



The actual return in plan assets
for 2013 amounted to RMB3.9 million (2012: RMB7.5 million).



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% to 15% (2012: 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, 2013, the Group’s
contributions to the housing funds amounted to RMB718 million (2012: RMB607 million) which was charged to the consolidated profit
or loss. The staff housing fund payable as at December 31, 2013 is RMB84 million (2012: RMB52 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, 2013, the present obligation
of the provision for employee’s staff housing allowances is RMB360 million (2012: RMB391 million). For the year ended December
31, 2013, the staff housing benefit amounted to RMB218 million (2012: RMB171 million) which was charged to the consolidated profit
or loss.



| | 39 | DERIVATIVE FINANCIAL INSTRUMENTS
| | -- | --------------------------------



|                                                  |  | Assets  |        |  | Liabilities | 
|------------------------------------------------- |  | ------- | ------ |  | ----------- | 
|                                                  |  | 2013    |        |  | 2012        | 
|                                                  |  | RMB’000 |        |  | RMB’000     | 
|                                                  |  |         |        |  |             | 
|At December 31,                                   |  |         |        |  |             | 
|Interest rate swaps (Note (a))                    |  |         | 54,902 |  |             | 
|Forward foreign exchange contracts
    (Note (b)) |  |         | 12,807 |  |             | 
|Total                                             |  |         | 67,709 |  |             | 
|                                                  |  |         |        |  |             | 
|Less: current portion                             |  |         |        |  |             | 
|– Forward foreign exchange                        |  |         | -      |  |             | 
|                                                  |  |         |        |  |             | 
|Non-current portion                               |  |         | 67,709 |  |             | 



The maximum exposure to credit
risk at the reporting dates is the fair value of the derivative assets in the statements 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, 2013, the notional amount of the outstanding interest
rate swap agreements was approximately US$844 million (2012: US$929 million). These agreements will expire between 2014 and 2022.



Realized and unrealized gains
and losses arising from the valuation of these interest rate swaps have been dealt with in the consolidated statements of profit
or loss and other comprehensive income as follows:



|                                                                                                         |  | 2013    |         |   | 2012    |  |          | 2011    | 
|-------------------------------------------------------------------------------------------------------- |  | ------- | ------- | - | ------- |  | -------- | ------- | 
|                                                                                                         |  | RMB’000 |         |   | RMB’000 |  |          | RMB’000 | 
|                                                                                                         |  |         |         |   |         |  |          |         | 
|Realized losses (recorded in finance costs)                                                              |  |         | (73,245 | ) |         |  | (99,169  | )       | 
|Unrealized mark to market losses                                                                         |  |         |         |   |         |  |          |         | 
|– cash flow hedges (recognized in OCI)                                                                   |  |         | 209,449 |   |         |  | (47,128  | )       | 
|– fair value hedges (recognized
    in gain on fair value movements of derivative financial instruments) |  |         | 16,262  |   |         |  | 15,755   |         | 
|                                                                                                         |  |         |         |   |         |  |          |         | 
|                                                                                                         |  |         | 152,466 |   |         |  | (130,542 | )       | 



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, 2013, the notional amount of the outstanding currency forward contracts was approximately US$38
million (2012: US$58 million), which will expire between 2014 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:



|                                                                                                         |  | 2013    |        |  | 2012    |  |         | 2011    | 
|-------------------------------------------------------------------------------------------------------- |  | ------- | ------ |  | ------- |  | ------- | ------- | 
|                                                                                                         |  | RMB’000 |        |  | RMB’000 |  |         | RMB’000 | 
|                                                                                                         |  |         |        |  |         |  |         |         | 
|Realized gain/(loss) (recorded in finance income/(costs))                                                |  |         | 39,265 |  |         |  | (12,407 | )       | 
|Unrealized mark to market gains                                                                          |  |         |        |  |         |  |         |         | 
|– cash flow hedges (recognized in OCI)                                                                   |  |         | 36,493 |  |         |  | 37,917  |         | 
|– fair value hedges (recognized
    in gain on fair value movements of derivative financial instruments) |  |         | -      |  |         |  | -       |         | 
|                                                                                                         |  |         |        |  |         |  |         |         | 
|                                                                                                         |  |         | 75,758 |  |         |  | 25,510  |         | 



| | 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’000               |           |  | RMB’000                                              |  |   | RMB’000                      |  |  | RMB’000            |  |  | RMB’000 |        
|Financial assets                                        |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|                                                        |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|Balance, December 31, 2013                              |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|Available-for-sale financial assets                     |  |                       | -         |  |                                                      |  | - |                              |  |  | -                  |  |  |         | 410,737
|Derivative financial instruments                        |  |                       | -         |  |                                                      |  | - |                              |  |  | 67,709             |  |  |         | -      
|Trade receivables                                       |  |                       | 3,524,546 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|Prepayments and other receivables excluding prepayments |  |                       | 1,940,508 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|Restricted bank deposits and short-term bank deposits   |  |                       | 383,063   |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|Cash and cash equivalents                               |  |                       | 1,994,978 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|Other long-term assets                                  |  |                       | 1,030,801 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|                                                        |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|Total                                                   |  |                       | 8,873,896 |  |                                                      |  | - |                              |  |  | 67,709             |  |  |         | 410,737



|                                    |  | Loans and Receivables |            |  | Liabilities at fair value through
    the profit and loss |  |   | Derivatives used for hedging |  |  | Other financial liabilities at amortized
    cost |  |  | Total   |  
|----------------------------------- |  | --------------------- | ---------- |  | --------------------------------------------------------- |  | - | ---------------------------- |  |  | ------------------------------------------------- |  |  | ------- | -
|                                    |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|                                    |  | RMB’000               |            |  | RMB’000                                                   |  |   | RMB’000                      |  |  | RMB’000                                           |  |  | RMB’000 |  
|Financial liabilities               |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|                                    |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|Balance, December 31, 2013          |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|Borrowings                          |  |                       | 50,600,430 |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|Obligations under finance leases    |  |                       | 23,135,148 |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|Derivative financial instruments    |  |                       | -          |  |                                                           |  | - |                              |  |  | 127,580                                           |  |  |         | -
|Trade and bills payable             |  |                       | 3,463,016  |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|Other payables and accrued expenses |  |                       | 12,294,994 |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|                                    |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|Total                               |  |                       | 89,493,588 |  |                                                           |  | - |                              |  |  | 127,580                                           |  |  |         | -



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’000               |           |  | RMB’000                                              |  |   | RMB’000                      |  |  | RMB’000            |  |  | RMB’000 |        
|Financial assets                                        |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|                                                        |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|Balance, December 31, 2012                              |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|Available-for-sale financial assets                     |  |                       | -         |  |                                                      |  | - |                              |  |  | -                  |  |  |         | 234,690
|Derivative financial instruments                        |  |                       | -         |  |                                                      |  | - |                              |  |  | 18,074             |  |  |         | -      
|Trade receivables                                       |  |                       | 2,962,181 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|Prepayments and other receivables excluding prepayments |  |                       | 2,544,967 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|Restricted bank deposits and short-term bank deposits   |  |                       | 1,726,251 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|Cash and cash equivalents                               |  |                       | 2,511,696 |  |                                                      |  | - |                              |  |  | -                  |  |  |         | -      
|                                                        |  |                       |           |  |                                                      |  |   |                              |  |  |                    |  |  |         |        
|Total                                                   |  |                       | 9,745,095 |  |                                                      |  | - |                              |  |  | 18,074             |  |  |         | 234,690



|                                    |  | Loans and Receivables |            |  | Liabilities at fair value through
    the profit and loss |  |   | Derivatives used for hedging |  |  | Other financial liabilities at amortized
    cost |  |  | Total   |  
|----------------------------------- |  | --------------------- | ---------- |  | --------------------------------------------------------- |  | - | ---------------------------- |  |  | ------------------------------------------------- |  |  | ------- | -
|                                    |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|                                    |  | RMB’000               |            |  | RMB’000                                                   |  |   | RMB’000                      |  |  | RMB’000                                           |  |  | RMB’000 |  
|Financial liabilities               |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|                                    |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|Balance,December 31, 2012           |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|Borrowings                          |  |                       | 45,736,118 |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|Obligations under finance leases    |  |                       | 21,857,978 |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|Derivative financial instruments    |  |                       | -          |  |                                                           |  | - |                              |  |  | 340,151                                           |  |  |         | -
|Trade and bills payable             |  |                       | 3,075,325  |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|Other payables and accrued expenses |  |                       | 16,256,225 |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|Other long-term liabilities         |  |                       | 209,727    |  |                                                           |  | - |                              |  |  | -                                                 |  |  |         | -
|                                    |  |                       |            |  |                                                           |  |   |                              |  |  |                                                   |  |  |         |  
|Total                               |  |                       | 87,135,373 |  |                                                           |  | - |                              |  |  | 340,151                                           |  |  |         | -



| | 41 | ISSUED CAPITAL
| | -- | --------------



|                                                                                                   |  | December 31, |           
|-------------------------------------------------------------------------------------------------- |  | ------------ | ----------
|                                                                                                   |  | 2013         |           
|                                                                                                   |  | RMB’000      |           
|                                                                                                   |  |              |           
|Registered, issued and fully paid of RMB1.00 each                                                  |  |              |           
|A shares listed on The Shanghai Stock Exchange
    (“A Shares”)                                    |  |              | 8,481,079 
|-Tradable shares held by CEA Holding with trading moratorium
    (Note)                            |  |              | 241,548   
|-Tradable shares held by CES Finance Holding Co., Ltd.
    with trading moratorium (Note)          |  |              | 457,317   
|-Tradable shares without trading
    moratorium                                                    |  |              | 7,782,214 
|                                                                                                   |  |              |           
|H shares listed on The Stock Exchange of Hong Kong
    Limited (“H Shares”)                        |  |              | 4,193,190 
|-Tradable shares held by CES Global Holding (Hong Kong)
    Limited with trading moratorium (Note) |  |              | 698,865   
|-Tradable shares without trading
    moratorium                                                    |  |              | 3,494,325 
|                                                                                                   |  |              |           
|                                                                                                   |  |              | 12,674,269



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 a trading moratorium.



F-66







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 42 | RESERVES
| | -- | --------



|                                                                                   |  | Share   |            |   | Capital    |  |          | Hedging   |  |  | Other    |   |  | Accumulated |            |   | Total    | 
|---------------------------------------------------------------------------------- |  | ------- | ---------- | - | ---------- |  | -------- | --------- |  |  | -------- | - |  | ----------- | ---------- | - | -------- | 
|                                                                                   |  | Premium |            |   | reserve    |  |          | reserve   |  |  | reserve  |   |  | losses      |            |   |          | 
|                                                                                   |  |         |            |   | (Note (a)) |  |          | (Note 39) |  |  |          |   |  |             |            |   |          | 
|                                                                                   |  | RMB’000 |            |   | RMB’000    |  |          | RMB’000   |  |  | RMB’000  |   |  | RMB’000     |            |   | RMB’000  | 
|                                                                                   |  |         |            |   |            |  |          |           |  |  | Restated |   |  | Restated    |            |   | Restated | 
|                                                                                   |  |         |            |   |            |  |          |           |  |  |          |   |  |             |            |   |          | 
|At January
    1, 2012                                                             |  |         | 18,161,319 |   |            |  | (720,057 | )         |  |  | (286,938 | ) |  |             | (3,259,701 | ) |          | 
|Unrealized loss on cashflow
    hedges (Note 39)                                   |  |         | -          |   |            |  | -        |           |  |  | (9,211   | ) |  |             | -          |   |          | 
|Fair value movements of
    available-for-sale financial assets held by associates |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | 2,188      |   |          | 
|Fair value movements of
    available-for-sale financial assets                    |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | (351       | ) |          | 
|Actuarial gain on post-retirement
    benefit obligations                          |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | 157,238    |   |          | 
|Acquisition of non-controlling
    interests in subsidiaries                       |  |         | (490,151   | ) |            |  | -        |           |  |  | -        |   |  |             | -          |   |          | 
|Profit attributable to
    equity shareholders of the Company                      |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | -          |   |          | 
|Others                                                                             |  |         | 343,786    |   |            |  | -        |           |  |  | -        |   |  |             | -          |   |          | 
|                                                                                   |  |         |            |   |            |  |          |           |  |  |          |   |  |             |            |   |          | 
|At
    December 31, 2012                                                           |  |         | 18,014,954 |   |            |  | (720,057 | )         |  |  | (296,149 | ) |  |             | (3,100,626 | ) |          | 
|                                                                                   |  |         |            |   |            |  |          |           |  |  |          |   |  |             |            |   |          | 
|At January 1, 2013                                                                 |  |         | 18,014,954 |   |            |  | (720,057 | )         |  |  | (296,149 | ) |  |             | (3,100,626 | ) |          | 
|Unrealized gains on cashflow
    hedges (Note 39)                                  |  |         | -          |   |            |  | -        |           |  |  | 245,942  |   |  |             | -          |   |          | 
|Fair value movements of
    available-for-sale financial assets held by associates |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | (2,931     | ) |          | 
|Fair value movements of
    available-for-sale financial assets                    |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | 149,437    |   |          | 
|Actuarial gain on post-retirement
    benefit obligations                          |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | 415,115    |   |          | 
|Profit attributable to
    equity shareholders of the Company                      |  |         | -          |   |            |  | -        |           |  |  | -        |   |  |             | -          |   |          | 
|Issue of shares                                                                    |  |         | 2,174,661  |   |            |  | -        |           |  |  | -        |   |  |             | -          |   |          | 
|Others                                                                             |  |         | -          |   |            |  | (57,576  | )         |  |  | -        |   |  |             | -          |   |          | 
|                                                                                   |  |         |            |   |            |  |          |           |  |  |          |   |  |             |            |   |          | 
|At
    December 31, 2013                                                           |  |         | 20,189,615 |   |            |  | (777,633 | )         |  |  | (50,207  | ) |  |             | (2,539,005 | ) |          | 



Notes:



| | (a) | Capital reserve
| | --- | ---------------



| |  | Capital reserve represents the difference
                                         between the fair value of the net assets injected and the nominal amount of the Company’s
                                         share capital issued in respect of a Group restructuring carried out in June 1996 for
                                         the purpose of the Company’s listing.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 43 | ASSETS CLASSIFIED AS HELD FOR SALE
| | -- | ----------------------------------



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.





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. |           
|------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                          |  | 2013                    |           
|                                                                          |  | RMB’000                 |           
|                                                                          |  |                         |           
|                                                                          |  |                         |           
|Profit before income tax                                                  |  |                         | 2,217,100 
|Adjustments for:                                                          |  |                         |           
|Depreciation of property, plant and equipment and intangible assets       |  |                         | 8,174,278 
|Gain on disposals of property, plant and equipment                        |  |                         | (316,184  
|Gain on disposals of assets classified as held for sale                   |  |                         | -         
|Gain on disposals of investment in subsidiaries                           |  |                         | -         
|Gain on disposals of investment in associates                             |  |                         | (8,555    
|Share of results of associates                                            |  |                         | (38,335   
|Share of results of joint ventures                                        |  |                         | (26,588   
|Amortization of lease prepayments                                         |  |                         | 51,920    
|Net foreign exchange gains                                                |  |                         | (1,976,329
|Gain arising from fair value movements of                                 |  |                         |           
|derivative financial instruments                                          |  |                         | (16,263   
|Consumption of flight equipment spare parts                               |  |                         | 787,423   
|Impairment reversal for trade and                                         |  |                         |           
|other receivables                                                         |  |                         | (1,577    
|Provision for post-retirement benefits                                    |  |                         | 182,789   
|Provision for return condition checks for                                 |  |                         |           
|aircraft under operating leases                                           |  |                         | 871,616   
|Impairment charge/(reversal)                                              |  |                         | 185,857   
|Interest income                                                           |  |                         | (148,111  
|Interest expense                                                          |  |                         | 1,548,622 
|                                                                          |  |                         |           
|Operating profit before working capital changes                           |  |                         | 11,487,663
|                                                                          |  |                         |           
|Changes in working capital                                                |  |                         |           
|Flight equipment spare parts                                              |  |                         | (984,471  
|Trade receivables                                                         |  |                         | (557,376  
|Prepayments and other receivables                                         |  |                         | (2,028,252
|Restricted bank deposits and short-term bank deposits                     |  |                         | 1,343,188 
|Sales in advance of carriage                                              |  |                         | 440,104   
|Trade and bills payables                                                  |  |                         | 387,691   
|Other payables and accrued expenses                                       |  |                         | 1,538,610 
|Other long-term liabilities                                               |  |                         | (94,313   
|Provision for return condition checks for aircraft under operating leases |  |                         | (453,212  
|Staff housing allowances                                                  |  |                         | (10,839   
|Post-retirement benefit obligations                                       |  |                         | (171,468  
|Operating lease deposits                                                  |  |                         | 223,169   
|                                                                          |  |                         |           
|                                                                          |  |                         | (367,169  
|                                                                          |  |                         |           
|Cash generated from operations                                            |  |                         | 11,120,494



| | (b) | Non-cash transactions
| | --- | ---------------------



|                                                               |  | Year ended December 31. |          
|-------------------------------------------------------------- |  | ----------------------- | ---------
|                                                               |  | 2013                    |          
|                                                               |  | RMB’000                 |          
|                                                               |  |                         |          
|Financing activities not affecting cash:                       |  |                         |          
|Finance lease obligations incurred for acquisition of aircraft |  |                         | 4,524,879



F-68







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 45 | COMMITMENTS
| | -- | -----------



| | (a) | Capital commitments
| | --- | -------------------



The Group had the following capital
commitments:





|                                                |  | December 31, |            
|----------------------------------------------- |  | ------------ | -----------
|                                                |  | 2013         |            
|                                                |  | RMB’000      |            
|                                                |  |              |            
|Authorized and contracted for:                  |  |              |            
|– Aircraft, engines and flight equipment (Note) |  |              | 140,639,542
|– Other property, plant and equipment           |  |              | 1,649,106  
|– Investment                                    |  |              | 38,402     
|                                                |  |              | 142,327,050
|                                                |  |              |            
|Authorized but not contracted for:              |  |              |            
|– Other property, plant and equipment           |  |              | 3,421,499  
|– Investment                                    |  |              | -          
|                                                |  |              | 3,421,499  
|                                                |  |              |            
|                                                |  |              | 145,748,549





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, |            
|------------------ |  | ------------ | -----------
|                   |  | 2013         |            
|                   |  | RMB’000      |            
|                   |  |              |            
|Within one year    |  |              | 44,673,462 
|In the second year |  |              | 50,178,735 
|In the third year  |  |              | 27,753,646 
|In the fourth year |  |              | 13,486,290 
|Over four years    |  |              | 4,547,409  
|                   |  |              |            
|                   |  |              | 140,639,542



| | (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, |           
|-------------------------------------- |  | ------------ | ----------
|                                       |  | 2013         |           
|                                       |  | RMB’000      |           
|Aircraft, engines and flight equipment |  |              |           
|Within one year                        |  |              | 4,201,333 
|In the second year                     |  |              | 3,698,437 
|In the third to fifth year inclusive   |  |              | 8,651,235 
|After the fifth year                   |  |              | 5,581,285 
|                                       |  |              | 22,132,290
|                                       |  |              |           
|Land and buildings                     |  |              |           
|Within one year                        |  |              | 275,594   
|In the second year                     |  |              | 181,125   
|In the third to fifth year inclusive   |  |              | 414,552   
|After the fifth year                   |  |              | 2,178,765 
|                                       |  |              | 3,050,036 
|                                       |  |              |           
|                                       |  |              | 25,182,326



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, 2013 (2012: 42.84%). In addition, through
CES Global Holding (Hong Kong) Limited, a wholly owned subsidiary of CEA Holding, CEA Holding owns 20.72% of the Company’s
shares as at December 31, 2013 (2012: 17.09%).



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.



| | (a) | Nature of                                          related parties that do not control or
                                                                                         controlled by the Group:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Name of related party                                                                                    | Relationship with the Group           
|-------------------------------------------------------------------------------------------------------- | --------------------------------------
|                                                                                                         |                                       
|Eastern Finance                                                                                          | Controlled by the same parent company 
|Kunming Dongmei Aviation Travel Co., Ltd. (“Kunming Dongmei”)                                            | Controlled by the same parent company 
|Dongmei Travel                                                                                           | Associate of the Company              
|Xian Dongmei Aviation Travel Co., Ltd. (“Xian Dongmei”)                                                  | Controlled by the same parent company 
|Eastern Import & Export                                                                                  | Associate of the Company              
|Wheels & Brakes                                                                                          | 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”)                                                  | Controlled by the same parent 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”)                                                   | Controlled by the same parent company 
|Shanghai Aviation Import & Export
Co., Ltd. (“Shanghai Import & Export”)                                 | Associate of the Company              
|Shanghai Eastern Airlines Investment
Co., Ltd. (“Eastern Investment”)                                    | Associate of the Company              
|Eastern Air Tourism Investment Group Co.,Ltd.(“Eastern Tourism”)                                         | Controlled by the same parent company 
|Jetstar                                                                                                  | 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   |  | 2013                             |           
|Nature of transactions                                                                                                                                                                            |  | Related
    party                              |  | process        |  | RMB’000                          |           
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|With CEA Holding
    or companies directly or indirectly held by CEA Holding:                                                                                                                     |  |                                                |  |                |  |                                  |           
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Interest
    income on deposits at an average rate of 0.35% per annum (2012: 0.39% per annum)                                                                                                     |  | Eastern Finance                                |  | (iv)           |  |                                  | 25,352    
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Commission expense
    on air tickets sold on behalf of the Group, at rates ranging from 3% to 9% the value of tickets sold                                                                       |  | Dongmei Travel                                 |  | (ii)           |  |                                  | (9,836    
|                                                                                                                                                                                                  |  | Kunming Dongmei                                |  | (ii)           |  |                                  | -         
|                                                                                                                                                                                                  |  | Xian Dongmei                                   |  | (ii)           |  |                                  | -         
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Handling charges of
    0.1% to 2% for purchase of aircrafts, flight equipment, flight equipment spare parts, other property, plant and flight equipment
    and repairs for aircraft and engines |  | Eastern Import & Export                        |  | (ii)           |  |                                  | (105,293  
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Repairs and maintenance
    expense for aircraft and engines                                                                                                                                      |  | Wheels & Brakes                                |  | (ii)           |  |                                  | (72,363   
|                                                                                                                                                                                                  |  | Technologies Aerospace                         |  | (ii)           |  |                                  | (142,163  
|                                                                                                                                                                                                  |  | Shanghai P&W                                   |  | (ii)           |  |                                  | (1,659,500
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Supply of food and beverages                                                                                                                                                                      |  | Shanghai Catering and 
       its subsidiaries |  | (i)            |  |                                  | (919,051  
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Advertising expense                                                                                                                                                                               |  | Eastern Advertising                            |  | (ii)           |  |                                  | (10,099   
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Media royalty fee                                                                                                                                                                                 |  | Eastern Advertising                            |  | (iii)          |  |                                  | 14,908    
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Automobile maintenance
    service aircraft Maintenance, providing transportation automobile and other products                                                                                   |  | CEA Development                                |  | (ii)           |  |                                  | (142,569  
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Equipment maintenance fee                                                                                                                                                                         |  | Shanghai Hute                                  |  | (ii)           |  |                                  | (68,653   
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Land and building rental                                                                                                                                                                          |  | CEA Holding                                    |  | (ii)           |  |                                  | (59,141   
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Acquisition of a subsidiary                                                                                                                                                                       |  | Eastern Tourism                                |  | (v)            |  |                                  | (11,876   
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Acquisition of non-controlling                                                                                                                                                                    |  | CEA Holding                                    |  |                |  |                                  | -         
|interests in subsidiaries                                                                                                                                                                         |  | Shanghai Import & Export                       |  | (v)            |  |                                  | -         
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Acquisition of non-controlling
    interests in associates                                                                                                                                        |  | Eastern Tourism                                |  | (v)            |  |                                  | -         
|                                                                                                                                                                                                  |  |                                                |  |                |  |                                  |           
|Disposal of investment
    in an associate                                                                                                                                                        |  | Eastern Investment                             |  | (v)            |  |                                  | -         



(i)The Group’s
pricing policies on products purchased from related parties are mutually agreed based on the 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.



F-71







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                                  |  | 2013         |        
|                                 |  |                                          |  | RMB’000      |        
|                                 |  |                                          |  |              |        
|Trade receivables                |  | Kunming Dongmei                          |  |              | -      
|                                 |  | Hang Lv International Freight Forwarding |  |              | 793    
|                                 |  | Others                                   |  |              | 672    
|                                 |  |                                          |  |              | 1,465  
|                                 |  |                                          |  |              |        
|Prepayments and other receivable |  | Eastern Import & Export                  |  |              | 169,081
|                                 |  | China Kaiya                              |  |              | 13,960 
|                                 |  | Others                                   |  |              | 18,391 
|                                 |  |                                          |  |              | 201,432



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                 |  | 2013         |        
|                                    |  |                         |  | RMB’000      |        
|                                    |  |                         |  |              |        
|Trade and bills payable             |  | Eastern Import & Export |  |              | 942,442
|                                    |  | Shanghai P&W            |  |              | 4      
|                                    |  | Shanghai Catering       |  |              | 3,916  
|                                    |  | Technologies Aerospace  |  |              | 29,480 
|                                    |  | Others                  |  |              | 20,577 
|                                    |  |                         |  |              | 996,419
|                                    |  |                         |  |              |        
|Other payables and accrued expenses |  | Eastern Import & Export |  |              | 44,748 
|                                    |  | Shanghai P&W            |  |              | 322,986
|                                    |  | Shanghai Catering       |  |              | 223,850
|                                    |  | CEA Holding             |  |              | 62,887 
|                                    |  | Others                  |  |              | 48,109 
|                                    |  |                         |  |              | 702,580



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, | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ---- | - | ------------ | 
|                                                                                                                                                                                                     |  | 2013                  |      |   | 2012         | 
|                                                                                                                                                                                                     |  | RMB’000               |      |   | RMB’000      | 
|                                                                                                                                                                                                     |  |                       |      |   |              | 
|Short-term
                                                                                           deposits (included in restricted bank deposits and short-term bank deposits) “Eastern Finance” |  |                       | 0.39 | % |              | 
|Short-term
loans (included in borrowings) “Eastern Finance”                                                                                                                                          |  |                       | 4.01 | % |              | 
|Long-term
loans (included in borrowings) “Eastern Finance”                                                                                                                                           |  |                       | 5.76 | % |              | 



| | (d) | Guarantees by holding company
| | --- | -----------------------------



As at December 31, 2013, bank
loans of the Group guaranteed by CEA Holding were nil (2012: RMB95 million) (Note 33).



F-72







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 46 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (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:



|                                      |  | 2013    |       |  | 2012    |  |       | 2011    | 
|------------------------------------- |  | ------- | ----- |  | ------- |  | ----- | ------- | 
|                                      |  | RMB’000 |       |  | RMB’000 |  |       | RMB’000 | 
|                                      |  |         |       |  |         |  |       |         | 
|Directors and supervisors (Note 9(a)) |  |         | 3,928 |  |         |  | 3,393 |         | 
|Senior management                     |  |         | 3,331 |  |         |  | 2,742 |         | 
|                                      |  |         | 7,259 |  |         |  | 6,135 |         | 



Those key management are entitled
to the Group’s post-retirement benefit plan, whose amount was not included in the

compensation as set out above.



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



| | (a) | On February 28, 2014, the Company entered into a purchase agreement with Airbus SAS to purchase seventy
brand new Airbus A320NEO aircraft. The Airbus aircraft are expected to be delivered to the Company in stages from 2018 to 2020.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On February 28, 2014, the Company entered into a disposal agreement with Airbus SAS to dispose its
even Airbus A300-600 aircraft and certain spare parts and spare engines.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | On March 6, 2014, the Company issued RMB2.5 billion of 4.8% guaranteed bonds due March 13, 2017. The
closing date was March 13, 2014. The bonds will mature on March 13, 2017. The issue was approved by the shareholders during the
Company's June 29, 2011 meeting.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | According to the meeting of board of directors held on March 26, 2014, it was agreed that the Company
would inject share capital of RMB375 million in Eastern Air Group Finance Company limited based on the exiting shareholding structure
and proportion and the President of the Company was authorized to implement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 49 | COMPARATIVE AMOUNTS
| | -- | -------------------



As further
explained in note 2(a)(ii), due to the adoption of revised IFRS during the current year, the accounting treatment and presentation
of certain items and balances in the consolidated financial statements as of December 31, 2012 and 2011 and for the two years then
ended were revised to comply with the new requirements of IAS19 (2011). A third statement of financial position as at January 1,
2012 was presented in accordance with IAS1. Furthermore, certain comparative amounts were reclassified to conform with the current
year presentation.



F-73