SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F



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

OR



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



For
the fiscal year ended December 31, 2016



OR





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



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



Commission file number 1-14550







(Exact Name of Registrant as Specified in Its Charter)



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



Kong Gang San Road, Number 92

Shanghai, 200335

People's Republic of China

Tel: (8621) 6268-6268

Fax: (8621) 6268-6116

(Address and Contact Details of the Board
Secretariat's Office) Securities 
registered or to be registered pursuant to Section 12(b) of the Act:



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



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

Exchange of Hong
Kong Limited.

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

None

(Title of Class)

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



None

(Title of Class)

Indicate the number of outstanding
shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.



As of December
31, 2016, 9,808,485,682 Ordinary Domestic Shares, par value RMB1.00 per share, were issued and outstanding, and 4,659,100,000 Ordinary
H Shares par value RMB1.00 per share, were issued and outstanding. H Shares are Ordinary Shares of the Company listed on The Stock
Exchange of Hong Kong Limited. Each American Depositary Share represents 50 Ordinary H Shares.



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



If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ̈
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-Tduring the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes ̈
Nox



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



|Large Accelerated Filer ̈ | Accelerated Filer x | Non-Accelerated Filer ̈ | Emerging Growth Companies  ̈
|------------------------ | ------------------- | ---------------------- | ---------------------------



If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards† provided pursuant to Section 13(a) of the Exchange Act.  ̈



† The term “new or revised financial
accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.



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 ̈
Nox










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



2







SUPPLEMENTAL INFORMATION AND EXCHANGE RATES



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



In this
Annual Report, the term "we", "us", "our", "our/the Company", or "our Group"
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, or, in respect of references to any time prior to the incorporation of China Eastern Airlines Corporation
Limited, the core airline business carried on by its predecessor, China Eastern Airlines, which was assumed by China Eastern Airlines
Corporation Limited pursuant to the restructuring described in this Annual Report. The term "CEA Holding" refers to our
parent, China Eastern Air Holding Company, which was established on October 11, 2002 as a result of the merger of our former controlling
shareholder, Eastern Air Group Company, or EA Group, with China Northwest Airlines Company and Yunnan Airlines Company.



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



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



CAUTIONARY STATEMENT WITH
RESPECT TO FORWARD-LOOKING STATEMENTS



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



| | • | 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 we operate.
| | - | --------------------------------------------------------



3







GLOSSARY OF TECHNICAL TERMS



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



PART I



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



Not applicable.



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



Not applicable.



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



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



Pursuant
to U.S. Securities and Exchange Commission (“SEC” or “Securities and Exchange Commission”) Release 33-8879
"Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting
Standards without Reconciliation to U.S. GAAP" eliminating the requirement for foreign private issuers to reconcile their
financial statements to U.S. GAAP, we prepare our financial statements based on International Financial Reporting Standards, or
IFRSs, as issued by the International Accounting Standards Board, or the IASB, and no longer provide a reconciliation between IFRSs
and U.S. GAAP.



Our consolidated financial statements as
of December 31, 2015 and 2016 and for the years ended December 31, 2014, 2015 and 2016 included in this Annual Report on Form 20-F
have been prepared in accordance with IFRSs.



We
make an explicit and unreserved statement of compliance with IFRSs with respect to our consolidated financial statements as of
December 31, 2015 and 2016 and for the years ended December 31, 2014, 2015 and 2016 included in this Annual Report. Ernst &
Young, our current independent registered public accounting firm in Hong Kong, has issued an unqualified auditors’ report
on our consolidated statement of financial position as of December 31, 2014, 2015 and 2016 and the related consolidated statements
of profit or loss and other comprehensive income, changes in equity and cash flows for the years ended December 31, 2014,
2015 and 2016. The selected financial data from the consolidated profit or loss and other comprehensive
income for the years ended December 31, 2014, 2015 and 2016 and the selected financial data from the consolidated financial position
as of December 31, 2014, 2015 and 2016 have been derived from our audited consolidated financial statements, which have been prepared
in accordance with IFRSs, and audited by Ernst & Young, an independent registered public accounting firm in Hong Kong.
The selected financial data from the consolidated profit or loss and other comprehensive income for the year ended December 31,
2013 and the selected financial data from the consolidated financial position as of December 31, 2013 have been derived from our
audited consolidated financial statements, which have been prepared in accordance with IFRSs, and audited by Ernst & Young
Hua Ming LLP, an independent registered public accounting firm in the PRC. The selected financial data from the consolidated income
statements for the years ended December 31, 2012 and the selected financial data from the balance sheets as of December 31, 2012
have been derived from our audited consolidated financial statements, which have been prepared in accordance with IFRSs, and audited
by PricewaterhouseCoopers, an independent registered public accounting firm in Hong Kong.



The
following tables present selected consolidated profit or loss and comprehensive income data for the years ended December 31, 2012,
2013, 2014, 2015 and 2016 and selected consolidated statements of financial position data as of December 31, 2012, 2013, 2014,
2015 and 2016 that were prepared under IFRSs. The selected financial information as of December 31, 2015 and 2016 and for the years
ended December 31, 2014, 2015 and 2016 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.



4







|                                                                                |  | Year Ended December 31,                         |        
|------------------------------------------------------------------------------- |  | ----------------------------------------------- | -------
|                                                                                |  | 2012                                            |        
|                                                                                |  | RMB                                             |        
|                                                                                |  | (in millions, except per share or per ADS data) |        
|Consolidated Statements of Profit or Loss and Other 
Comprehensive Income Data: |  |                                                 |        
|Revenues                                                                        |  |                                                 | 85,253 
|Gain on fair value changes of derivative financial instruments                  |  |                                                 | 25     
|Other operating income and gains                                                |  |                                                 | 1,833  
|Operating expenses                                                              |  |                                                 | (82,759
|Operating profit                                                                |  |                                                 | 4,352  
|Finance income / (costs), net                                                   |  |                                                 | (1,349 
|Profit before income tax                                                        |  |                                                 | 3,137  
|Profit for the year attributable to the equity holders of the Company           |  |                                                 | 3,072  
|Basic and fully diluted earnings per share (1)                                  |  |                                                 | 0.27   
|Basic and fully diluted earnings per ADS                                        |  |                                                 | 13.62  



| | (1) | The calculation of earnings per share for 2012 is based on the net profit attributable to the equity
holders of the Company divided by the weighted average number of 11,276,538,860 ordinary shares in issue. The calculation of earnings
per share for 2013 is based on the net profit attributable to the equity holders of the Company divided by the weighted average
number of 12,091,881,000 ordinary shares in issue. The calculation of earnings per share for 2014 is based on the net profit attributable
to the equity holders of the Company divided by the weighted average number of 12,674,269,000 ordinary shares in issue. The calculation
of earnings per share for 2015 is based on the net profit attributable to the equity holders of the Company divided by the weighted
average number of 12,818,509,000 ordinary shares in issue. The calculation of earnings per share for 2016 is based on the net profit
attributable to the equity holders of the Company divided by the weighted average number of 13,811,136,000 ordinary shares in issue.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                   |  | As of December 31, |        
|---------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                   |  | 2012               |        
|                                                                                   |  | RMB                |        
|                                                                                   |  | (in millions)      |        
|Consolidated Statements of Financial Position Data:                                |  |                    |        
|Cash and cash equivalents                                                          |  |                    | 2,512  
|Net current liabilities                                                            |  |                    | (35,948
|Non-current assets                                                                 |  |                    | 111,214
|Long term borrowings, including current portion                                    |  |                    | (32,856
|Obligations under finance leases, including current portion                        |  |                    | (21,858
|Total share capital and reserves attributable to the equity holders of the Company |  |                    | 20,207 
|Non-current liabilities                                                            |  |                    | (53,530
|Total assets less current liabilities                                              |  |                    | 75,266 
|Total assets                                                                       |  |                    | 123,889
|Net assets                                                                         |  |                    | 21,735 



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 RMB6.9430 to
US$1.00 and HK$7.7534 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 30, 2016. 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
21, 2017, the exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board were RMB6.8845=US$1.00 and
HK$7.7757=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                 | 
|                                  |  |                     |        |  |                     | 
|October 2016                      |  |                     | 6.7819 |  |                     | 
|November 2016                     |  |                     | 6.9195 |  |                     | 
|December 2016                     |  |                     | 6.9580 |  |                     | 
|January 2017                      |  |                     | 6.9575 |  |                     | 
|February 2017                     |  |                     | 6.8821 |  |                     | 
|March 2017                        |  |                     | 6.9132 |  |                     | 
|April 2017 (up to April 21, 2017) |  |                     | 6.8988 |  |                     | 



5







The following table sets forth
the average rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for each of the periods indicated.
The exchange rate refers to the exchange rate as set forth in the G. 5A statistical release of the Federal Reserve Board.



|     |  | RMB per     |        |  | HK$ per | 
|---- |  | ----------- | ------ |  | ------- | 
|     |  | US$1.00 (1) |        |  | US$1.00 | 
|2012 |  |             | 6.3093 |  |         | 
|2013 |  |             | 6.1478 |  |         | 
|2014 |  |             | 6.1620 |  |         | 
|2015 |  |             | 6.2827 |  |         | 
|2016 |  |             | 6.6400 |  |         | 



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 of our operating data for the five years ended December 31, 2016, which is not audited. All references in this Annual Report
to our cargo operations, statistics or revenues include figures for cargo and mail.



|                                                               |  | Year Ended December 31, |          
|-------------------------------------------------------------- |  | ----------------------- | ---------
|                                                               |  | 2012                    |          
|Selected Airline Operating Data:                               |  |                         |          
|Capacity:                                                      |  |                         |          
|ATK (millions)                                                 |  |                         | 19,721.4 
|ASK (millions)                                                 |  |                         | 136,724.0
|AFTK (millions)                                                |  |                         | 7,416.3  
|Traffic:                                                       |  |                         |          
|Revenue passenger-kilometers (millions)                        |  |                         | 109,112.7
|Revenue tonne-kilometers (millions)                            |  |                         | 14,406.5 
|Revenue freight tonne-kilometers (millions)                    |  |                         | 4,700.9  
|Hours flown (thousands)                                        |  |                         | 1,404.5  
|Number of passengers carried (thousands)                       |  |                         | 73,077.1 
|Weight of cargo carried (millions of kilograms)                |  |                         | 1,416.5  
|Load Factor:                                                   |  |                         |          
|Overall load factor (%)                                        |  |                         | 73.1     
|Passenger load factor (%)                                      |  |                         | 79.8     
|Yield and Cost Statistics (including fuel surcharge) (RMB):    |  |                         |          
|Passenger yield (passenger revenue/ passenger- kilometers)     |  |                         | 0.65     
|Cargo yield (cargo revenue/cargo tonne-kilometers)             |  |                         | 1.71     
|Average yield (passenger and cargo revenue/ tonne- kilometers) |  |                         | 5.51     
|Unit cost (operating expenses/ATK)                             |  |                         | 4.20     



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



Not applicable.



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



Not applicable.



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



Risks Relating to the PRC



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



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



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



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



6







Furthermore,
the value of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among other
things, the PRC government policies, domestic and international economic and political conditions and changes in the supply and
demand of the currency. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S.
dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain
foreign currencies. This change in policy resulted in appreciation of the Renminbi against the U.S. dollar by approximately 7.0%
in 2008. While there was no material appreciation of Renminbi against the U.S. dollar in 2009, the Renminbi appreciated by approximately
3.0% against the U.S. dollar in 2010 and by approximately 5.1% in 2011. In April 2012, the 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. On August 11, 2015, the PBOC executed a 2% devaluation in the Renminbi. Within the following two
days, the Renminbi depreciated 3.5% against the U.S. dollar. The Renminbi depreciated 6.7% against the U.S. dollar from January
4, 2016 to December 30, 2016. However, it remains unclear what further fluctuations may occur or what impact this will have on
the value of the Renminbi. It is possible that the PRC government could adopt a more flexible foreign exchange policy, which could
result in further and more significant revaluations of the Renminbi against the U.S. dollar or any other foreign currency. Any
resulting fluctuations in exchange rates as a result of such policy changes may have an adverse effect on our financial condition
and results of operations.



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



Inflation
rates in the PRC have been on a sharp uptrend in recent years. The PRC government has undertaken numerous contractionary policies,
including raising interest rates and reserve requirement ratios, and curbing bank lending, to slow down excessive economic growth
and control price hikes. Increase in inflation is due to many factors beyond our control, such as rising production and labor costs,
high debts, changes in the PRC and foreign governmental policy and regulations, and movements in exchange rates and interest rates.
PRC inflation rates have been in a general downtrend after peaking in the middle of 2011, and increased to 3.6% as of March 2012.
In 2013, PRC inflation rates fluctuated with two peaks of 3.2% in February and October 2013. In 2014, the inflation rates fluctuated
with two peaks in May and July 2014. In 2015, the inflation rates fluctuated, reaching a peak of 2.0% in August 2015. In 2016,
the inflation rates fluctuated, peaking at 2.3% in February, March, April and November 2016. The national consumer price index
was 2.6% in 2013, equal to that of 2012. The national consumer price index was 2.1%, 1.4% and 2.0% in 2014, 2015 and 2016, respectively.
We cannot assure you that inflation rates will not increase in the future. If inflation rates rise beyond our expectations, the
costs of our business operations may become significantly higher than anticipated, and we may be unable to pass on such higher
costs to consumers in amounts that are sufficient to cover those increasing operating costs. As a result, further inflationary
pressures in the PRC may have a material adverse effect on our business, financial condition and results of operations, as well
as our liquidity and profitability.



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



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



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



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



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



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



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



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



7







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



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



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



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



Risks Relating to the Aviation
Industry



Our business is subject to extensive government
regulation.



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



| | • | route allocation;
| | - | -----------------



| | • | pricing of domestic airfares;
| | - | -----------------------------



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



| | • | jet fuel pricing;
| | - | -----------------



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



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





| | • | airport expense policy.
| | - | -----------------------



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 downward trend in domestic and global economy
could affect air travel.



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



In 2016, global
economic growth slowed down. The economic growth rate of China ranked at the top among major economies, with
promising progress being made in adjusting its economic structure and gradually increasing consumption expenditure. As the
standard of household income rises, bringing robust demand for outbound tourism and consumption, the air passenger
transportation market continued to report stable growth. Due to a variety of factors, including the slowdown in the growth
rate of total world trade volume and fierce market competition, the air cargo transportation industry has relatively
underperformed in 2016. In 2016, the air transportation industry continued to benefit from the relatively low international
crude oil prices, but was adversely affected by exchange rate fluctuations, international political volatility and terrorist
incidents overseas.



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



We operate in a highly competitive industry.



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



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



The PRC
government is aggressively implementing the expansion of its high-speed rail network, which has provided train services at a speed
of up to 350 kilometers per hour connecting major cities such as Beijing, Shanghai, Guangzhou and Hong Kong. The expansion of rail
network, improvements in railway service quality, increased passenger capacity and urban center accessibility could enhance the
competitiveness of the railway service and negatively affect our market share on some of our key routes, in particular our routes
of between 500km to 800km. Increased competition and pricing pressures from the railway service may have an adverse effect on our
business, financial condition and results of operations.



8







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



The current
CAAC policies limit foreign ownership of PRC airlines. Under these rules, non-PRC, Hong Kong, Macau or Taiwan residents cannot
hold a majority equity interest in a PRC airline. As of December 31, 2016, approximately 32.20% 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 us to obtain funding or other benefits through
the creation of equity-based strategic alliances with foreign carriers. We cannot assure you that the CAAC will not increase these
limits on foreign ownership of PRC airlines in the future.



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



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



Jet fuel
prices were volatile in 2013 and 2014, with heightened political tensions and continued political instability in certain Middle
Eastern countries and in Crimea bordering Ukraine. In 2014, the average price of fuel decreased by 4.7% compared to 2013. Fuel
prices continued to decrease during 2015. At the beginning of 2016, the price of the jet fuel rebounded after hitting the lowest
price recorded to date. As a result, certain OPEC countries and Russia agreed to restrict production which caused the price of
Brent oil to increase by approximately 5.0%. However, due to the relatively higher jet fuel price in the first half of 2015, the
average price of the jet fuel in 2016 declined, representing a year-on-year decrease of 15.0% (15.1% in the PRC domestic market
and 14.7% in the international market). In 2016, setting aside adjustment factors such as fuel surcharge, if the average price
of jet fuel had increased or decreased by 5%, our jet fuel costs of would have increased or decreased by approximately RMB981 million.
In addition, the National Development and Reform Commission (the "NDRC") adjusts gasoline and diesel prices in China
from time to time, taking into account the changes in international oil prices, thereby affecting aviation fuel prices. In 2016,
we did not engage in any aviation fuel hedging activities. As such, we cannot assure you that jet fuel prices will not fluctuate
further in the future. Due to the highly competitive nature of the airline industry, we may be unable to fully or effectively pass
on to our customers any future increase in jet fuel costs.



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



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



We have
significant expenditures in respect of environmental compliance, which may affect our operations and financial condition. For example,
we implemented a low-carbon emissions scheme, which over 90% of our planes are complying with and aligns with our environmentally-friendly
growth strategy to minimize the environmental impact of our operations. We expedited the application of new civil aviation technologies,
continuously focused on the development of renewable resources and concentrated on the invention and application of new technologies
and applications to achieve "greener" flying. We have worked with the China National Petroleum Corporation (the "CNPC")
to conduct experimental research on bio-fuels, which are being developed as a possible alternative to kerosene jet fuel and could
lead to a 30% reduction in carbon dioxide emissions. In addition, all of our B737NG and some of our A320 series aircraft newly
introduced are equipped with a winglet or sharklet, an additional lifting surface to reduce fuel consumption and noises. We also
took measures to reduce the impact of our operations on the environment by optimizing our route network and flight schedules as
well as installing energy-saving environmentally friendly engines. However, these measures have resulted in significant costs and
expenditures. We expect to continue to incur significant costs and expenditures on an ongoing basis to comply with environmental
regulations, which could restrict our ability to modify or expand facilities or continue operations.



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



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



Risks Relating to the Company



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



As an airline
company operating a large fleet, an accident or incident involving one of our aircraft could result in delays and require repair
or replacement of a damaged aircraft, which could result in consequential temporary or permanent losses from disruption of service
and/or significant liability to injured passengers and others. Unforeseeable or unpredictable events such as inclement weather,
mechanical failures, human error, aircraft defects and other force majeure events may affect flight safety, which could result
in accidents and/or incidents of passenger injuries or deaths that could lead to significant injury and loss claims. Although we
believe that we currently maintain liability insurance in amounts and of the types generally consistent with industry practice,
the amount of such coverage may not be adequate to cover the costs related to an accident or incident in full, which could damage
our results of operations and financial condition. In addition, any aircraft accident or incident, even if fully insured, could
cause a public perception that we are not as safe or reliable as other airlines, which could harm our competitive position and
result in a decrease in our operating revenues. Moreover, a major accident or incident involving an aircraft of our competitors
may cause the demand for air travel in general to decrease. In particular, certain of our competitors in the Asia Pacific region
experienced major aircraft accidents and incidents in 2014, some of which involved destinations and routes that we cover. These
accidents and incidents were highly publicized in the media and may have affected public perception of certain air travel routes.
The occurrence of any of the foregoing could adversely affect our results of operations and financial condition.



9







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



We have
a substantial amount of debt, lease and other financial obligations, and will continue to do so in the future. During the period
between the end of 2008 and April 2009, the amount of our total liabilities exceeded our total assets. In 2014, we added a total
of 75 aircraft to our fleet, by purchase or finance lease (excluding operating lease), including B777 series for long-haul flights,
A330 series for long and medium-haul flights and A320 series and B737NG series for medium and short-haul flights. On February 28,
2014, we entered into an agreement with Airbus SAS regarding the purchase of 70 new A320NEO aircraft, which are expected to be
delivered to us in stages from 2018 to 2020. On June 13, 2014, we entered into agreements with Boeing Company to purchase 80 new
B737 series aircraft, to be delivered in stages from 2016 to 2020. On July 9, 2015, we entered into a purchase agreement with Boeing
Company to purchase 50 new Boeing B737 series aircraft, which are expected to be delivered to us in stages from 2017 to 2019. On
August 14, 2015, we entered into a purchase agreement with Airbus SAS to purchase 15 new Airbus A330 series aircraft,
which are expected to be delivered to us in stages from 2017 to 2018.On April 28, 2016, we entered into an airbus
purchase agreement with Airbus SAS to purchase 20 brand new Airbus A350-900 aircraft. On the same date, we also entered into a
Boeing purchase agreement with Boeing Company to purchase 15 brand new Boeing B787-9 aircraft. See the section headed "Item
4. Information on the Company — Property, Plant and Equipment — Fleet." As of December 31, 2016, our total liabilities
were RMB159,958 million and our current liabilities exceeded our current assets by RMB52,194 million. Our total interest-bearing
liabilities (including long-term and short-term borrowings, finance leases payable and bonds payable) as of December 31, 2015 and
2016 were RMB119,111 million and RMB117,773 million, respectively, of which short-term liabilities accounted for 37.2% and 30.0%,,
respectively. Our substantial indebtedness and other financial obligations could materially and adversely affect our business and
operations, including being required to dedicate additional cash flow from operations to the payment of principal and interest
on our indebtedness, thereby reducing the funds available for operations, maintenance and service improvements and future business
opportunities, increasing our vulnerability to economic recessions, reducing our flexibility in responding to changing business
and economic conditions, placing us at a disadvantage compared to competitors with lower debt, limiting our ability to arrange
for additional financing for working capital, capital expenditures and other general corporate purposes, at all or on terms that
are acceptable to us.



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



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



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



We require
significant amounts of external financing to meet our capital commitments for acquiring and upgrading aircraft and flight equipment
and for other general corporate needs. As of December 31, 2016, we had total unutilized credit facilities of RMB46.38 billion from
various banks. We expect to roll over these bank facilities in the near future. In addition, we generally acquire aircraft through
either long-term capital leases or operating leases. In the past, we have obtained guarantees from Chinese banks in respect of
payments under our foreign loan and capital lease obligations. However, we cannot assure you that we will be able to roll over
our bank facilities or continue to obtain bank guarantees in the future. Unavailability of credit facilities or guarantees from
Chinese banks or the increased cost of such guarantees may materially and adversely affect our ability to borrow additional funds
or enter into international aircraft lease financing or other additional financing on acceptable terms In addition, if we are not
able to arrange financing for our aircraft on order, we may seek to defer aircraft deliveries or use cash from operations or other
sources to acquire the aircraft.



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



We are subject to the risk of fuel price fluctuations.



Aircraft
fuel costs constitute the most significant part of our operating costs. In 2016, our total aircraft fuel cost was RMB19,626 million,
accounting for approximately 21.4% 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. Our results of operation and financial
condition are affected by any significant fluctuations that may occur, which are generally due to factors beyond our control. As
such, we generally alleviate the pressure from the rise in operating costs arising from the increase in aviation fuel by imposing
fuel surcharges, which, however, are subject to government regulations. In order to control fuel costs, we have also entered into
fuel hedging transactions using financial derivative products linked to the price of underlying assets such as United States WTI
crude oil and Singapore jet fuel during previous years.



Since 2009,
the PRC government required prior governmental approval for entering into fuel hedging contracts. We may, from time to time, seek
approval from the PRC government to enter into overseas fuel hedging contracts. However, these hedging strategies may not always
be effective and high fluctuations in aviation fuel prices exceeding the locked-in price ranges may result in losses. Significant
decline in fuel prices may substantially increase the costs associated with such fuel hedging arrangements. In addition, where
we may, from time to time, seek to manage the risk of fuel price increases by using derivative contracts, we cannot assure you
that, at any given point in time, suchfuel hedging transactions will provide any particular level of protection against increased
fuel costs. In 2016, we did not engage in any aviation fuel hedging activitiesand all fuel hedging contracts signed in past years
had been settled before December 31, 2016.



We are subject to the risk of exchange rate
fluctuations.



We operate
our business in many countries and territories. We generate revenue in different currencies, and our foreign currency liabilities
are typically much higher than our foreign currency assets. Our purchases and leases of aircraft are mainly priced and settled
in foreign currencies such as U.S. dollars. Fluctuations in exchange rates will affect our costs incurred from foreign purchases
such as aircraft, flight equipment and aviation fuel, and take-off and landing charges in foreign airports. As of December 31,
2016, our total interest-bearing liabilities denominated in foreign currencies, amounted to RMB59,980 million, of which U.S. dollar
liabilities accounted for 88.14% of the total amount. Therefore, a significant fluctuation in the U.S. dollar exchange rates will
subject us to significant foreign exchange loss/ gain arising from the exchange of foreign currency denominated liabilities, which
would affect our profitability and business development. We typically use hedging contracts for foreign currencies to reduce the
foreign exchange risks for foreign currency revenues generated from flight ticket sales and expenses required to be paid in foreign
currencies. As of December 31, 2016, the outstanding foreign currency hedging contracts held by us amounted to a notional amount
of US$440 million, which will expire in 2017, compared with US$12 million as of December 31, 2015. We use cross currency swap contracts
to reduce the risks from exchange rate and interest rate. Our cross currency swap contracts qualify for hedge accounting. The contracts
are generally for swapping U.S. dollars floating interest rates (“LIBOR”), into Euro floating interest rates (“EURIBOR”).
All the aforementioned contracts were closed out during the reporting period in 2016. In 2016, net cash inflow from our cross currency
swap contracts amounted to RMB5 million. As of December 31, 2016, we did not have any outstanding cross currency swap contracts.



10







We recorded
net foreign exchange losses of RMB3,573 million for 2016, whereas our net foreign exchange losses were RMB4,987 million for 2015.
As a result of the large value of existing net foreign currency liabilities denominated in U.S. dollars, our results would be adversely
affected if the Renminbi depreciates against the U.S. dollar or the rate of appreciation of the Renminbi against the U.S. dollar
decreases in the future. In 2016, we expanded our financing channels by issuing super short-term commercial paper and entering
into financings in RMB, and proactively optimized the mix of currency denomination of our debts. As of December 31, 2016, our proportion
of U.S. dollar-denominated debts decreased to 44.9%. 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 the risk of interest rate
fluctuations.



Our total
interest-bearing liabilities (including long-term and short-term loans and finance leases payable) as of December 31, 2015 and
2016 were RMB119,111 million and RMB117,773 million, respectively, of which short-term liabilities accounted for 37.2% and 30.0%,
respectively, and long-term liabilities accounted for 62.8% and 70.0%, respectively, for those years. A portion of the long-term
interest-bearing liabilities carried variable interest rates. Both our variable and fixed rate obligations were affected by fluctuations
in current market interest rates.



In 2016,
our interest-bearing liabilities were mainly denominated in U.S. dollars and Renminbi. As of December 31, 2016, our total interest-bearing
liabilities denominated in foreign currencies amounted to RMB59,980 million, of which U.S. dollars liabilities accounted for 88.1%
of the total amount. Fluctuations in the U.S. dollar and Renminbi interest rates have significantly affected our financing costs.
A substantial majority of our borrowings denominated in Renminbi are linked to benchmark five-year lending rates published by the
PBOC. The PBOC raised the benchmark five-year lending rate five times from 5.94% to 7.05% in July 2011, but reduced the rate subsequently
twice, on the last occasion to 6.4% in July 2012. The benchmark five-year lending rate remained steady and did not change during
2013 and into the first quarter of 2014. A substantial majority of our borrowings denominated in U.S. dollars are linked to floating
LIBOR rates which increased overall in 2012, decreased overall in 2013 and 2014, and increased overall in 2015 and 2016. We cannot
assure you that the relevant lending rates may not increase in the future for reasons beyond our control, which may adversely affect
our business, prospects, cash flows, financial condition and results of operations. In addition, we expect to issue bonds and notes
or enter into additional loan agreements and aircraft leases in the future to fund our operations and capital expenditures, and
the cost of financing for these obligations will depend greatly on market interest rates.



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



As a result
of the events of September 11, 2001, aviation insurers have significantly reduced the maximum amount of insurance coverage available
to commercial air carriers for liability to persons other than employees or passengers for claims resulting from acts of terrorism,
war or similar events. At the same time, they have significantly increased the premiums for such coverage, as well as for aviation
insurance in general. In response to the reduced insurance coverage from aviation insurers, the PRC government has provided insurance
coverage to PRC airlines for third party war liability claims. Such insurance provided by the government is subject to annual review
and approval by the government. We renew our insurance policies on a yearly basis. However, if the insurers further reduce the
amount of insurance coverage available or increase the premiums for such coverage upon renewal and/or if the PRC government declines
to renew our insurance policies, our financial condition and results of operations may be materially and adversely affected. For
the year ended December 31, 2016, our medical insurance contributions charged to profit or loss amounted to RMB606 million, representing
an increase of 7.6% from RMB563 million in 2015.



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



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



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



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



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



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



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



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



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



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



11







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



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



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



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



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



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



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



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



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



Most of
the major airlines in China are currently majority-owned by either the central government or provincial or municipal governments
in China. As of December 31, 2016, CEA Holding holds directly or indirectly 56.38% of our Company's equity stake on behalf of the
PRC government. As a result, CEA Holding could potentially elect the majority of our Board of Directors and otherwise be able to
control us. CEA Holding also has sufficient voting control to effect transactions without the concurrence of our minority shareholders.
The interests of the PRC government as the ultimate controlling shareholder of our Company and most of the other major PRC airlines
could conflict with the interests of our minority shareholders. Although the CAAC currently has a policy of equal treatment of
all PRC airlines, we cannot assure you that the CAAC will not favor other PRC airlines over our Company.



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



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



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



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



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



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



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



We have
engaged in, from time to time, and may continue to engage in, in the future, a variety of transactions with CEA Holding and its
various members, from whom we receive a number of important services, including support for in-flight catering and assistance with
importation of aircraft, flight equipment and spare parts. Because we are controlled by CEA Holding and CEA Holding may have interests
that conflict with our interests, we cannot assure you that CEA Holding will not take actions that will serve its interests over
the Company's interests.



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



We are
required under relevant United States securities laws and regulations to disclose in the reports that we file or submit under the
Exchange Act to the SEC, including our annual report on Form 20-F, a management report assessing the effectiveness of our internal
controls over financial reporting at the end of the fiscal year. Our registered public accounting firm is also required to provide
an attestation report on the effectiveness of our internal controls over financial reporting. Our management concluded that our
internal controls over financial reporting were effective as of December 31, 2016. However, we may discover other deficiencies
or material weaknesses in the course of our future evaluation of our internal controls over financial reporting and we may be unable
to address and rectify such deficiencies in a timely manner. Any failure to maintain effective internal controls over financial
reporting could lead to diminished investor confidence in the reliability of our consolidated financial statements, thereby adversely
affecting our business, operations, and reputation, including negatively affecting our performance in the securities markets and
decreasing potential opportunities to obtain financing in the capital markets.



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



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



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



12







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



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



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



Our business
is heavily dependent on our operations at our primary market airports in Shanghai, namely, Hongqiao International Airport and Pudong
International Airport and our regional hub airports in Xi'an and Kunming. Each of these operations includes flights that connect
our primary market to other major cities. Any significant interruptions or disruptions of service at one or more of our primary
market airports could adversely impact our operations.



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



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



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



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



The aviation
industry as a whole has been beset with high-profile terrorist attacks, most notably on September 11, 2001 in the United States.
The CAAC has also implemented increased security measures in relation to the potential threat of terrorist attacks. Terrorist attacks,
even if not made directly towards us or on the airline industry, or the fear of or the precautions taken in anticipation of such
attacks (including elevated threat warnings or selective cancellation or redirection of flights) could materially and adversely
affect us and the entire 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. International terrorist attacks
targeting aircraft and airport not only directly threatens our flight safety, aviation security, operational safety and the safety
of overseas institutions and employees, but also brings about on- going adverse impact on the outbound tourism demand for places
where terrorist attacks have taken place.



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



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



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



Our Company,
China Eastern Airlines Corporation Limited was established on April 14, 1995 under the laws of China as a company limited by shares
in connection with the restructuring of our predecessor and our initial public offering. We are commercially known in the industry
as China Eastern Airlines. Our predecessor was one of the six original airlines established in 1988 as part of the decentralization
of the airline industry in China undertaken in connection with China's overall economic reform efforts. Prior to 1988, the CAAC
was responsible for all aspects of civil aviation in China, including the regulation and operation of China's airlines and airports.
In connection with our initial public offering, our predecessor was restructured into two separate legal entities, our Company
and EA Group. According to the restructuring arrangement, by operation of law, our Company succeeded to substantially all of the
assets and liabilities relating to the airline business of our predecessor. EA Group succeeded to our predecessor's assets and
liabilities that do not directly relate to the airline operations and do not compete with our businesses. Assets transferred to
EA Group included our predecessor's equity interests in companies engaged in import and export, real estate, advertising, in-flight
catering, tourism and certain other businesses. In connection with the restructuring, we entered into various agreements with EA
Group and its subsidiaries for the provision of certain services to our Company. CEA Holding assumed the rights and liabilities
of EA Group under these agreements after it was formed by merging EA Group, Yunnan Airlines Company and China Northwest Airlines
Company in October 2002. See "Item 7. Major Shareholders and Related Party Transactions" for more details. The following
chart sets forth the organizational structure of our Company and our significant subsidiaries as of December 31, 2016:



13











* Except for Eastern Air Overseas (Hong Kong) Co., Limited (which was incorporated in Hong Kong), all
other subsidiaries in the above chart were incorporated in the PRC.



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



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



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



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



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



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



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



On April
9, 2013, the Company obtained an approval from the CSRC, pursuant to which the CSRC approved the non-public issue by the Company
for no more than 698,865,000 new A Shares. On April 16, 2013, the procedure 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.



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



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



On July
17, 2014, Eastern Air Overseas (Hong Kong) Corporation Limited ("EAO,") our wholly-owned subsidiary, and Jetstar Hong
Kong Airways Limited ("Jetstar Hong Kong"), an associated company of the Company, entered into a loan agreement, pursuant
to which EAO will provide a loan of US$60 million to Jetstar Hong Kong at fair market interest rates. The principal of the loan
was repaid on April 30, 2015.



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



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



14







On March 29, 2015, China United Airlines, our wholly-owned
subsidiary, fully adopted the low-cost carrier service model.



On May 30,
2015, we received approval from the Ministry of Industry and Information Technology to offer in-flight Wi-Fi services using KU-band
satellite onboard 21 aircraft.



On July
9, 2015 we entered into the B737 Aircraft Purchase Agreement with Boeing Company in Shanghai to purchase fifty B737 series aircraft
from Boeing Company.



On July
27, 2015, we entered into a conditional subscription agreement (“Subscription Agreement”) with Delta Air Lines, Inc.
(“Delta Air Lines”), pursuant to which Delta Air Lines agreed to subscribe for 465,910,000 shares of the newly
issued ordinary H shares of the Company in an amount of HK$3,488,895,000, representing approximately 3.5% of the total share capital
of the Company. On September 9, 2015, we completed the issue of 465,910,000 ordinary H shares to Delta Airlines, with a par value
of RMB1.00 each at an issue price of HK$7.49 per share.



On August
14, 2015, the Board of Directors approved the “Resolution on the Termination of the Proposed Establishment of Jetstar Hong
Kong and its Winding Up”. The Board of Directors considers that the termination of the proposed establishment of Jetstar
Hong Kong will have no material adverse impact on the financial conditions and production and operation of the Company. See the
announcement furnished to the SEC on Form 6-K dated August 17, 2015.



On August 28, 2015, we formally established the foreign
airlines service centre.



On September
1, 2015, Delta Air Lines and we entered into a marketing agreement and a letter of confirmation on the Subscription Agreement.
Pursuant to the marketing agreement, both parties will have greater cooperation in terms of code-share, revenue management, schedule
coordination, sales cooperation, airport facilities sharing, frequent-flyer program, lounge and system investment as well as staff
exchange. Pursuant to the letter of confirmation on the Subscription Agreement, as of September 1, 2015, all conditions precedent
to the Subscription Agreement had been fulfilled except for those conditions that will be fulfilled on the completion date of share
subscription. On September 9, 2015, we completed the issue of 465,910,000 ordinary H shares with a par value of RMB1.00 each at
an issue price of HK$7.49 per share.



On November
6, 2015, the Civil Aviation Administration of China officially announced and granted the “Safe Flight Diamond Award”,
the highest award for flight safety in the PRC civil aviation industry, to the Company.



In January
2016, we received the “Approval for the Non-Public Issuance of A Shares by China Eastern Airlines Corporation Limited”
(Zheng Jian Xu Ke [2016] No. 8) issued by the CSRC, approving us to issue not more than 2,329,192,546 A Shares by way of non-public
issuance.



The material development of our indebtedness is set
out in Note 34 and Note 49 to the consolidated financial statements. The capital expenditure is set out in Item 5 in this Annual Report.



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



|                                                  |  | Number of |     |  |           | 
|------------------------------------------------- |  | --------- | --- |  | --------- | 
|                                                  |  | Aircraft  |     |  |           | 
|                                                  |  | Owned     |     |  |           | 
|                                                  |  | and       |     |  | Number of | 
|                                                  |  | under     |     |  | Aircraft  | 
|                                                  |  | Finance   |     |  | under     | 
|                                                  |  | Leases    |     |  | Operating | 
|                                                  |  | 2014      |     |  | Leases    | 
|                                                  |  |           |     |  |           | 
|Passenger Aircraft:                               |  |           |     |  |           | 
|Wide-body:                                        |  |           |     |  |           | 
|B777-300ER                                        |  |           | 4   |  |           | 
|B767                                              |  |           | 6   |  |           | 
|A340-600                                          |  |           | 4   |  |           | 
|A340-300                                          |  |           | —   |  |           | 
|A330-300                                          |  |           | 9   |  |           | 
|A330-200                                          |  |           | 25  |  |           | 
|A300-600R                                         |  |           | —   |  |           | 
|MD-11F                                            |  |           | —   |  |           | 
|Narrow-body:                                      |  |           |     |  |           | 
|A321                                              |  |           | 39  |  |           | 
|A320                                              |  |           | 113 |  |           | 
|A319                                              |  |           | 24  |  |           | 
|B757-200                                          |  |           | 4   |  |           | 
|B737-800                                          |  |           | 44  |  |           | 
|B737-700                                          |  |           | 49  |  |           | 
|B737-300                                          |  |           | 16  |  |           | 
|EMB 145LR                                         |  |           | 10  |  |           | 
|CRJ-200                                           |  |           | —   |  |           | 
|Hawker 800                                        |  |           | —   |  |           | 
|Total Passenger Aircraft:                         |  |           | 347 |  |           | 
|Cargo Aircraft:                                   |  |           |     |  |           | 
|B747-400F                                         |  |           | 2   |  |           | 
|B757-200F                                         |  |           | —   |  |           | 
|B777F                                             |  |           | —   |  |           | 
|Total Cargo Aircraft:                             |  |           | 2   |  |           | 
|Total number of passenger aircraft and freighters |  |           | 349 |  |           | 



15







The table below sets forth details of our
operating fleet as of December 31, 2015:



|                                                  |  | Number of Aircraft Owned and under Finance Lease |     |  | Aircraft under Operating Lease | 
|------------------------------------------------- |  | ------------------------------------------------ | --- |  | ------------------------------ | 
|Passenger Aircraft:                               |  |                                                  |     |  |                                | 
|Wide-body:                                        |  |                                                  |     |  |                                | 
|B777-300ER                                        |  |                                                  | 9   |  |                                | 
|B767                                              |  |                                                  | 6   |  |                                | 
|A340-600                                          |  |                                                  | —   |  |                                | 
|A330-300                                          |  |                                                  | 11  |  |                                | 
|A330-200                                          |  |                                                  | 30  |  |                                | 
|Narrow-body:                                      |  |                                                  |     |  |                                | 
|A321                                              |  |                                                  | 48  |  |                                | 
|A320                                              |  |                                                  | 122 |  |                                | 
|A319                                              |  |                                                  | 31  |  |                                | 
|B757-200                                          |  |                                                  | —   |  |                                | 
|B737-800                                          |  |                                                  | 71  |  |                                | 
|B737-700                                          |  |                                                  | 55  |  |                                | 
|B737-300                                          |  |                                                  | 5   |  |                                | 
|EMB 145LR                                         |  |                                                  | 6   |  |                                | 
|Total Passenger Aircraft:                         |  |                                                  | 394 |  |                                | 
|                                                  |  |                                                  |     |  |                                | 
|Cargo Aircraft:                                   |  |                                                  |     |  |                                | 
|B747-400F                                         |  |                                                  | 2   |  |                                | 
|B757-200F                                         |  |                                                  | —   |  |                                | 
|B777F                                             |  |                                                  | —   |  |                                | 
|Total Cargo Aircraft:                             |  |                                                  | 2   |  |                                | 
|Total number of passenger aircraft and freighters |  |                                                  | 396 |  |                                | 



The table below sets forth details of our
operating fleet as of December 31, 2016:



|                                                  |  | Number
ofAircraftOwned |     |  | Number of  Aircraft  under  Finance  Lease |  |     | Number of  Aircraft  under  Operating  Lease | 
|------------------------------------------------- |  | ---------------------- | --- |  | ------------------------------------------ |  | --- | -------------------------------------------- | 
|                                                  |  |                        |     |  |                                            |  |     |                                              | 
|Passenger Aircraft:                               |  |                        |     |  |                                            |  |     |                                              | 
|Wide-body:                                        |  |                        |     |  |                                            |  |     |                                              | 
|B777-300ER                                        |  |                        | 9   |  |                                            |  | 7   |                                              | 
|B767                                              |  |                        | 6   |  |                                            |  | —   |                                              | 
|A340-600                                          |  |                        | —   |  |                                            |  | —   |                                              | 
|A330-300                                          |  |                        | 1   |  |                                            |  | 10  |                                              | 
|A330-200                                          |  |                        | 12  |  |                                            |  | 18  |                                              | 
|Narrow-body:                                      |  |                        |     |  |                                            |  |     |                                              | 
|A321                                              |  |                        | 32  |  |                                            |  | 34  |                                              | 
|A320                                              |  |                        | 72  |  |                                            |  | 55  |                                              | 
|A319                                              |  |                        | 9   |  |                                            |  | 24  |                                              | 
|B757-200                                          |  |                        | —   |  |                                            |  | —   |                                              | 
|B737-800                                          |  |                        | 36  |  |                                            |  | 57  |                                              | 
|B737-700                                          |  |                        | 36  |  |                                            |  | 19  |                                              | 
|B737-300                                          |  |                        | —   |  |                                            |  | —   |                                              | 
|EMB 145LR                                         |  |                        | —   |  |                                            |  | —   |                                              | 
|Total Passenger Aircraft:                         |  |                        | 185 |  |                                            |  | 224 |                                              | 
|                                                  |  |                        |     |  |                                            |  |     |                                              | 
|Cargo Aircraft:                                   |  |                        |     |  |                                            |  |     |                                              | 
|B747-400F                                         |  |                        | —   |  |                                            |  | 2   |                                              | 
|B757-200F                                         |  |                        | —   |  |                                            |  | —   |                                              | 
|B777F                                             |  |                        | —   |  |                                            |  | —   |                                              | 
|Total Cargo Aircraft:                             |  |                        | —   |  |                                            |  | 2   |                                              | 
|Total number of passenger aircraft and freighters |  |                        | 213 |  |                                            |  | 226 |                                              | 



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



We were
one of the three largest air carriers in China in terms of revenue, tonne, kilometers and number of passengers carried in 2016,
and is an important domestic airline based in and serving Shanghai, which is considered to be the international financial and shipping
center of China. The primary focus of our business is the operation of civil aviation, including the provision of passenger, cargo,
mail delivery, tour operations and other extended transportation services. As of December 31, 2016, we served a route network that
covers 1,062 domestic and foreign destinations in 177 countries through SkyTeam, an international airlines alliance. We operate
primarily from our core hub in Shanghai and regional hubs in Kunming and Xi’an.



16







We have
received many awards, recognitions and accolades through the years. Fortune Magazine recognized us as one of the "Most Innovative
PRC Companies" in 2011, and our "China Eastern Airlines" brand was awarded "China's Famous Trademark"
by the State Administration for Industry and Commerce in 2011. In addition, in 2012 we received various recognitions and awards,
including "Golden Tripod Prize", which was the highest award awarded at the 8th Annual Meeting of China's Securities
Market, "Golden Bauhinia" Award for "The Listed Company with Best Brand Value 2012" by China Securities, "2012
Best Mid-Cap Company and Best Managed Company in China" by Asiamoney Magazine, "Top 50 Most Valuable Chinese Brands"
by WPP, a global brand communication and public relations firm, "2012 TOP 25 CSR (Corporate Social Responsibility) Ranking"
by Fortune China Magazine, "2012 China State-owned Listed Enterprise Social Responsibility Rankings Top 20" by Southern
Weekly, "The Best Board of Directors of State-owned Listed Holding Companies of China Top 20" by various major financial
media, including Moneyweek, "Healthy China – Best Employee Health & Benefit Unit" by Health Times, a major
newspaper in China focusing on health and lifestyle, and Tsinghua University, "Internal Audit Leading Enterprises in terms
of Risk Management and Internal Audit" by China Institute of Internal Audit, "Best 100 Employers" by zhaopin.com,
a major online recruiting website in China, and "The World's Most Improved Airline" by SKYTRAX, a United Kingdom-based
aviation research organization. In 2013, we received the National 1 May Award Certificate and were honored as one of the "2013
Top Ten Companies with the Best Corporate Social Responsibility" by Fortune China Magazine, “Best Mid-cap Company”
by Hong Kong Asiamoney Magazine for the second consecutive year, “Top 50 Most Valuable Chinese Brands in 2013” by WPP,
a global brand communication and public relations firm, the “Golden Bauhinia Award” of the “Best Listed Company”
and “Listed Company with the Best Investor’s Relations Management” by Ta Kung Pao and one of the “Best
100 Employers” by zhaopin.com. In 2014, our charity campaign “Love at China Eastern Airlines” was awarded the
Gold Award at the First Chinese Young Volunteers Services Contest. The “Love at China Eastern Airlines” campaign has
organized activities such as visiting welfare and nursing homes, subsidizing Hope Schools and schools for urban and rural migrant
workers’ children and teaching school children with hearing and speaking impairment, running blood donation programs, and
other activities for environmental protection. The campaign launched 5,179 projects with 274,979 staff and members taking participation,
serving a total of 233,353 people in need. Through interaction with the community, we have established a charity brand image of
“delivering love and serving the community”. In 2015, “Love at China Eastern Airlines” launched 530 projects
all year round, with 26,119 staff participating, serving a total of 40,166 people.



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



In 2015, we were bestowed a number of
awards, such as “Best China Airline” at the 8th TTG (Asia Media) China Travel Awards, “China Securities Golden
Bauhinia Award – Listed Company with the Most Valuable Brand” for four consecutive years and "Best Innovative
Listed Company" granted by Hong Kong Ta Kung Pao, as well as "2014-2015 Most Respectable Chinese Enterprise" and
"2015 Chinese Best Business Model Innovation Award" by the Economic Observer and 21st Century Business Herald, respectively.



In 2016,
we successively won the 9th TTG China Tourism Awards “Best China Airlines”, and was awarded
“2016 Asian Tourism Red Coral Award – Most Popular Airline Brand”, “Asia Pacific 2016 Excellence Aviation
Award” and “International Carbon Gold Award – Social Citizenship Award” by the 2016 Asian Tourism Industry
Annual Conference, the CAPA Communication Center and the World Environmental Protection (Economy and Environment) Conference respectively.



Compared
to 2015, our traffic volume (as measured in RTKs) increased by 10.6% from 17,820 million in 2015 to 19,712 million in 2016. Our
passenger traffic volume (as measured in revenue passenger-kilometers, or RPKs) increased by 14.5% from 146,342 million in 2015
to 167,529 million in 2016. Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTKs) increased
by 0.2% from 4,865 million in 2015 to 4,875 million in 2016.



Our Operations by Activity



The following table sets forth our traffic revenues
by activity for each of the years ended December 31, 2014, 2015 and 2016:



|                       |  | Year Ended December 31, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2014                    |       
|                       |  | (Millions of            |       
|                       |  | RMB)                    |       
|Traffic revenues       |  |                         |       
|Passenger              |  |                         | 75,261
|Cargo and mail         |  |                         | 7,328 
|Total traffic revenues |  |                         | 82,589



17







Passenger Operations



The following table sets forth
our certain passenger operating statistics by route for each of the years ended December 31, 2014, 2015 and 2016:



|                                        |  | Year Ended December 31, |        
|--------------------------------------- |  | ----------------------- | -------
|                                        |  | 2014                    |        
|Passenger Traffic (in RPKs) (millions)  |  |                         | 127,750
|Domestic                                |  |                         | 88,192 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 4,367  
|International                           |  |                         | 35,191 
|                                        |  |                         |        
|Passenger Capacity (in ASKs) (millions) |  |                         | 160,585
|Domestic                                |  |                         | 110,381
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 5,759  
|International                           |  |                         | 44,445 
|                                        |  |                         |        
|Passenger Yield (RMB)                   |  |                         | 0.61   
|Domestic                                |  |                         | 0.61   
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 0.8    
|International                           |  |                         | 0.59   
|                                        |  |                         |        
|Passenger Load Factor (%)               |  |                         | 79.55  
|Domestic                                |  |                         | 79.90  
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 75.83  
|International                           |  |                         | 79.18  



Our domestic
routes generated approximately 64.8% of our passenger revenues in 2016. 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 have set
up subsidiaries in 15 provinces and cities including Shanghai, Beijing, Yunnan, Shaanxi, Jiangsu, Zhejiang, Anhui, Jiangxi,
Shandong, Hubei, Shanxi, Gansu, Sichuan, Hebei and Guangdong by the end of 2016. Our flight routes include all provincial capital
cities in China and specifically designated cities.



In 2016,
we opened new routes to Prague, St. Petersburg, Amsterdam, Madrid, Chicago and Brisbane, and cancelled routes to Kathmandu from
Shanghai Pudong via Kunming. As of the end of 2016, by connecting to the route networks of other SkyTeam member airlines, our flights
had access to 1,062 destinations in 177 countries.



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



In 2015,
we conducted significant optimization of our fleet structure, and increased our fleet to 551 aircrafts as at the end of 2015, and
the variety of our aircraft models was streamlined to 13 models by the end of 2015. In respect of passenger transportation, we
actively seized the opportunities brought about by international low oil prices and robust demand for outbound tourism, and achieved
impressive growth in passenger transportation by responding proactively to adverse factors such as geopolitical instability around
the globe, terrorist attacks outside China, MERS cases in South Korea and impact on short-haul routes due to formation of a high-speed
railway network in 2015. Efforts have been made to foster the construction of hubs and negotiate time slots in hub and core markets
in order to promote superb connectivity. In respect of freight transportation and logistics, we tightened our cost control, optimized
production structure, broadened marketing channels and strived to stabilize transportation prices in 2015. In 2015, we further
strengthened our cooperation with both member and non-member airlines of SkyTeam Alliance to widen the scope of cooperation and
improve the quality of cooperation. In September 2015, we entered into a strategic partnership with Delta Air Lines to deepen our
cooperation in terms of code-share, cabin sharing and joint sales. By forming an industry-leading route network, both parties implemented
codeshare on 123 routes, including 9 international major routes and 114 domestic routes in the PRC and the USA. Through offering
joint sales to corporate customers, the influential power of the North American corporate customers was increased. As for the European
market, the Group and Air France have realized interline transit services for flights departing and arriving at Shanghai, Dalian,
Paris and Nice. In the Australian market, the joint operation with Qantas was officially commenced to launch codeshare on major
routes such as Shanghai-Sydney and Shanghai- Melbourne routes, in order to launch in-depth cooperative projects including customer
base sharing.



In 2015, we put in available
seat – kilometers (ASK) of 181,792.90 million passenger-kilometers, representing an increase of 13.2% from 2014. Number of
passengers carried in 2015 was 93.8 million, representing an increase of 11.9% from 2014. Passenger load factor in 2015 was 80.5%,
representing an increase of 1.2% from 2014. Passenger revenue in 2015 amounted to RMB78,585 million, representing an increase of
4.4% from 2014.



In 2016, we continued
to update and optimize our fleet structure, introducing new aircrafts continually and retiring outdated model aircrafts. As of
the end of 2016, our average flight age was 5.4 years. We mainly introduce long – haul B777 series aircrafts in trans-Pacific
routes; mid-to-long-haul A330 series aircrafts in China-Europe routes, China-Australia and domestic business routes; A320 series
and B737 series aircrafts in domestic and surrounding countries and regions routes, which we believe enhances the matching level
between fleet models and routes, transportation capacities and relevant markets. In 2016, we continued to deepen and expand our
cooperation with external partners. Relying on the SkyTeam Alliance platform, we continued to enhance our cooperation with member
airlines in the SkyTeam Alliance. In collaboration with Delta Air Lines, based on pre-existing trans-Pacific routes and destinations
in the PRC and the USA, we further extended our network of cooperative routes to Canada, Mexico, Southeast Asian and South American
regions, achieving a total of 252 codeshare routes. In collaboration with Air France-KLM Group (“Air France-KLM”),
based on our jointly operated routes and code-share coverage, we increased our joint marketing efforts to corporate customers in
the French market.



18







In 2016, we proactively
promoted the establishment of transportation hubs with the opening of various international routes for long-haul flights and an
enhanced coverage of our transportation network. With Shanghai as the core hub, we added six international routes for long-haul
flights to our network, connecting Shanghai and Prague, Amsterdam, Madrid, St. Petersburg, Chicago and Brisbane, respectively.
We provided more frequent flight services on routes connecting Shanghai and New York City, Los Angeles, Sydney and Melbourne. We
added routes connecting Kunming and Sydney, Qingdao and San Francisco, Nanjing and Vancouver and Hangzhou and Sydney. Last, we
stabilized the allocation of our flight capacities for Japan, Korea and Southeast Asia markets. As a result of these enhanced transit
connection and expanded transit routes structures, in 2016, we experienced approximately 26.8%, 63.8% and 43.1% year-on-year growth
in passenger flight capacity for Europe, North America and Australia markets, respectively; and our inter-airline transit volume
and revenue grew by 24.2% and 21.4%, respectively. As of the end of 2016, by connecting to the route networks of other SkyTeam
member airlines, our flights had access to 1,062 destinations in 177 countries.



In 2016, we put in
available seat – kilometers (ASK) of 206,249.27 million passenger-kilometers, representing an increase of 13.5% from 2015.
Number of passengers carried in 2016 was 101.74 million, representing an increase of 8.5% from 2015. Passenger load factor in 2016
was 81.2%, representing an increase of 0.7% from 2015. Passenger revenue in 2016 amounted to RMB83,577 million, representing an
increase of 6.4% from 2015.



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



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



In 2015, we enhanced Shanghai core hub and
Xi’an and Kunming regional hubs, and established and extended our aviation transportation network in major markets with high
market influence such as Beijing, Nanjing and Qingdao to cover 1,057 destinations in 179 countries. We strove for additions of
air traffic rights and time slot resources in hub markets and core markets, steadily improved the aircraft utilization rate and
consolidated and expanded market share in the three largest hubs and core markets. Based on the SkyTeam Alliance platform, we enhanced
our strategic cooperation with Delta Air Lines and cooperated with Air France and Qantas to develop a highly efficient and convenient
flight network which covered the whole country and connected to the whole wide world.



In 2016, we further strengthened our Shanghai
core hub and Xi'an and Kunming regional hubs. The aggregated number of transits connecting “origin to destination”
of the three hubs reached 6,075, an increase of 13.8% as compared to last year. In respect of the number of transits connecting
"origin to destination", Pudong reached 4,083, an increase of 17.9% as compared to last year, Kunming reached 1,384,
an increase of 9.1% as compared to last year, and Xi’an reached 608, which was similar to last year. The three hubs transported
4.51 million passengers, an increase of 27.0% as compared to last year. Among them, our Shanghai hub transported 2.99 million passengers,
an increase of 27.2% as compared to last year, comprising 25.6% of transit flights; our Kunming hub transported 1.18 million passengers,
an increase of 18.7% as compared with last year, comprising 16.1% of transit flights; and Xi’an hub transported 340,000 passengers,
an increase of 64.7% as compared to last year, comprising of 6.9% transit flights.



Cargo and Mail Operations



The following table sets forth
certain of our cargo and mail operations statistics by route for each of the years ended December 31, 2014, 2015 and 2016:



|                                       |  | Year Ended December 31, |      
|-------------------------------------- |  | ----------------------- | -----
|                                       |  | 2014                    |      
|Cargo and Mail Traffic (in RFTKs)      |  |                         | 4,803
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 899  
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 128  
|International                          |  |                         | 3,776
|                                       |  |                         |      
|Cargo and Mail Capacity (in AFTKs)     |  |                         | 8,086
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 2,091
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 291  
|International                          |  |                         | 5,704
|                                       |  |                         |      
|Cargo and Mail Yield (RMB)             |  |                         | 1.55 
|Domestic                               |  |                         | 1.27 
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 3.47 
|International                          |  |                         | 1.55 
|                                       |  |                         |      
|Cargo and Mail Load Factor (%)         |  |                         | 59.39
|Domestic                               |  |                         | 42.97
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 43.88
|International                          |  |                         | 66.21



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



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



19







In 2015, Eastern Airlines Logistics
Co., Ltd. (“Eastern Logistics”), one of our subsidiaries, tightened its cost control, optimized production structure,
broadened marketing channels and strived to stabilize transportation prices. In terms of traditional freight transportation operation,
China Cargo Airlines Co., Ltd. ("China Cargo Airlines") streamlined its fleet scale and terminated the leases for three
older freighters, thereby reducing operating costs. Route network of Shanghai hub was optimized to reduce the number of intermediate
points and improve operating efficiency, thus increasing the daily utilization rate of freighters for the whole year by more than
8% as compared to last year. Layout of flight capacity was adjusted based on market demand to stabilize flight capacity for the
core markets in Europe and America. Efforts have also been made to broaden sourcing channels and strengthen cooperation. As such,
the air-freight transit volume increased by nearly 10% as compared to last year. In terms of freight transportation logistics,
Eastern Logistics focused on the construction of the core logistics platform for pharmaceutical logistics and aviation equipment
as well as the establishment of the transit marketing platform to perfect its third-party logistics solution. Distribution channels
of www.eaemall.com have been expanded to construct our rapid supply chain. Through proactively expanding cooperation with cross-border
e-commerce partners, the first chartered aircraft for directly imported goods purchased via cross-border e-commerce in the PRC
came into service, increasing the annual revenue from cross-border logistics by approximately 32% as compared to last year.



As of the
end of 2016, China Cargo Airlines, a controlling subsidiary of Eastern Logistics, operated a total of 9 freighters. On November
29, 2016, we entered into Eastern Logistics equity transfer agreement with Eastern Airlines Industry Investment, in relation to
the transfer of 100% equity interests in Eastern Logistics held by the us to Eastern Airlines Industry Investment. For details,
please refer to our announcements in the Form 6-K filed with the SEC dated November 30, 2016.



Our Operations by Geographical Area



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



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



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



The following table sets forth our revenues by geographical
area for each of the three years ended December 31, 2016:



|                                       |  | 2014         |        |  | 2015         |  |        | 2016         | 
|-------------------------------------- |  | ------------ | ------ |  | ------------ |  | ------ | ------------ | 
|                                       |  | (Millions of |        |  | (Millions of |  |        | (Millions of | 
|                                       |  | RMB)         |        |  | RMB)         |  |        | RMB)         | 
|Domestic                               |  |              | 60,531 |  |              |  | 61,222 |              | 
|Regional (Hong Kong, Macau and Taiwan) |  |              | 3,799  |  |              |  | 3,569  |              | 
|International                          |  |              | 25,855 |  |              |  | 29,178 |              | 
|Total                                  |  |              | 90,185 |  |              |  | 93,969 |              | 



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



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



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



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



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



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



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



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



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



The CAAC
has established regulatory policies intended to promote controlled growth of the Chinese airline industry. We believe those policies
will be beneficial to the development of and prospects for the Chinese airline industry as a whole. Nevertheless, those regulatory
policies could limit our flexibility to respond to changes in market conditions, competition or our cost structure. Moreover, while
we 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.



20







Because
we provide 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. Our business operations 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 us, that have a hub located at each of the active air traffic centers in China. The CAAC also considers other factors that will
make a particular airline suitable for an additional route, including the applicant's safety record, previous on-time performance
and level of service and availability of aircraft and pilots. The CAAC will consider the market conditions applicable to any given
route before such route is allocated to one or more airlines. Generally, the CAAC will permit additional airlines to service a
route that is already being serviced only when there is strong demand for a particular route relative to the available supply.
The CAAC's current general policy is to require the passenger load factor of one or two airlines on a particular route to reach
a certain level before another carrier is permitted to commence operations on such route.



Regional Route Rights



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



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



On December
15, 2008, mainland China and Taiwan commenced direct air and sea transport and postal services, ending a nearly six-decade ban
on regular links between the two sides since 1949. Under a historic agreement signed by the governments of mainland China and Taiwan
in early November 2008, the new air links expanded from weekend charters to a daily service, with the two sides operating a total
of 108 flights per week in 2008 and approximately 270 and 370 regular direct flights per week in 2009 and 2010, respectively. Mainland
China and Taiwan agreed to increase flight destinations for air links between the two sides in mainland China to 33 airports in
various PRC cities in 2010, while flight destinations in Taiwan continue to include eight airports in various cities in Taiwan.
At the end of 2012, the two sides agreed to increase the total number of flights to 616 per week and to increase the total number
of destination airports in mainland China and Taiwan to 64. The two sides also previously agreed to launch chartered cargo flights
between two terminals in mainland China, namely, Shanghai Pudong and Guangzhou airports, and two terminals in Taiwan, namely, Taoyuan
and Kaohsiung airports. On August 12, 2013, the two sides agreed to increase the total number of flights to 670 per week and add
three terminals of chartered cargo flights in mainland China, namely, Tianjin, Zhengzhou and Ningbo airports. At the end of 2014,
mainland China and Taiwan agreed to increase the total number of flights to 924 per week and to increase the total number of destination
airports in mainland China to 65. In April 2015, the fifth batch of Mainland pilot cities was opened for individual tour to Taiwan,
including Haikou, Hohhot, Lanzhou, Yinchuan, Changzhou, Zhoushan, Huizhou, Weihai, Longyan, Guilin and Xuzhou, and the number of
Mainland cities with free line tour to Taiwan has reached 47.



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 that 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.



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% than the basic airfare. Domestic routes that are not
subject to the deviation range restrictions include short-haul routes between cities in the same province or autonomous region,
or between a municipality and adjacent provinces, autonomous regions or another municipality. Certain tourist routes and routes
served by only one Chinese airline are not subject to the bottom range restriction. The CAAC and the NDRC will announce the routes
that are not subject to the deviation range restrictions through the airfare information system known as Airtis.net. Chinese airlines
may apply to the CAAC and the NDRC for exemption from the bottom range restriction for a particular route. Chinese airlines are
also required to file the actual airfare they set for their domestic routes within the ranges through Airtis.net 30 days prior
to its implementation.



The CAAC
and the NDRC will regularly review the average operating costs of Chinese airlines, and may adjust the basic airfares for particular
domestic routes that, in their view, are not at a reasonable level. The CAAC and NDRC jointly issued a notice on April 13, 2010,
effective on June 1, 2010, pursuant to which airlines may set first-class and business-class airfares in accordance with market
prices, subject to relevant PRC laws. Such pricing must be filed 30 days before effectiveness with the CAAC and NDRC. Efforts by
the Chinese regulators to promote a sale market with fair competition will also help provide a favorable environment for our business
growth.



21







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



At the end
of 2015, the CAAC announced the Implementation Opinion on the Reform of Mechanism of Prices and Service Fee in Civil Aviation
Transport, which sets the goal to generally lift the control over the prices and service fee in competitive part of civil aviation
transport by 2017, and to generally set up a basically optimized, scientific, standardized, transparent and market-oriented pricing
regulatory system by 2020.



In October
2016, the CAAC and the NDRC jointly promulgated the Circular on the Further Reform of Passenger Transport Price Policy in Civil
Aviation Domestic Air Transport, which loosened the control over the civil domestic airlines passenger transportation and changed
the prices from government- oriented pricing to market-oriented pricing. According to the circular, the price of routes under 800km
or routes above 800km that are in competition with high-speed rails for passenger transportation can be determined independently.



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 coordinating
international airfares. Discounts are permitted on regional and international routes. For the airline industry in China as a whole,
the airfare per kilometer is substantially higher for regional and international routes than that for domestic routes.



Acquisition of Aircraft and Spare Parts



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



Domestic Fuel Supply and Pricing



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



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



On March
24, 2015, the CAAC and the NDRC jointly promulgated the Notice on Adjustment of the Linking Mechanism for Fuel Surcharges and
Aviation Coal Oil Fuel in Passenger Transport of Domestic Airlines, in which they decided to increase the base price of aviation
coal oil fuel form RMB4,140 per ton to RMB5,000 per ton.



Safety



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



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



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



In early
2013, the CAAC amended the original Civil Aviation Incidents Standards and published the new Civil Aviation Incidents Standards
which became effective as of March 1, 2013. The CAAC amended the Management Rules on Safety Information of Civil Aviation
which became effective on April 4, 2016 and required that related Chinese airlines should arrange a certain number of specialists
that satisfied with special requirements to take charge of the management of safety information. The CAAC promulgated the new Administrative
Provisions on Emergencies of China's Civil Aviation which became effective from April 17, 2016 and formulated the duties and
responsibilities of Chinese airlines on the prevention and emergency preparedness, prediction and early warning, emergency disposal,
handling and other emergency work of civil aviation. 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." In 2016, the CAAC promulgated the new Administrative Provisions on Civil Aviation
Safety Information.As a result, we formulated new internal regulations on aviation safety information to strengthen the safety
of our information system.



22







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 we comply with all applicable security regulations.



Noise and Environmental Regulation



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



Chinese Airport Policy



Prior to
September 2003, all civilian airports in China were operated directly by the CAAC or by provincial or municipal governments. In
September 2003, as part of the restructuring of the aviation industry in China, the CAAC transferred 93 civilian airports to provincial
or municipal governments. The CAAC retained the authority to determine the take-off and landing charges, as well as charges on
airlines for the use of airports and airport services. Prior to 2004, Chinese airlines were generally required to collect from
their passengers on behalf of the CAAC a levy for contribution to the civil aviation infrastructure fund, which was used for improving
China's civilian airport facilities. Our revenue for the previous years is shown net of this levy. In 2003, the levy was 5% of
domestic airfares and 2% of international airfares. The levy was waived by the CAAC from May 1, 2003 to December 31, 2003. With
effect from September 2004, the civil aviation infrastructure levies, now paid to the Ministry of Finance of the PRC (“MOF”),
have been reflected in airfares 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 MOF and refunded again from July 1, 2008 to June 30, 2009, according to one of the
ten measures announced by the CAAC in December 2008 in response to the global economic downturn. The refunded levy for China's
aviation industry amounted to approximately RMB4,000 million in total. The ten measures also include measures to enhance safety,
reduce taxes, invest in infrastructure and optimize the airspace and air routes.



Limitation on Foreign Ownership



The CAAC's
present policies limit foreign ownership in Chinese airlines. Under these limits, non-Chinese residents and Hong Kong, Macau or
Taiwan residents cannot hold a majority of our total outstanding shares individually or together. As of December 31, 2013, approximately
12.4% of our total outstanding shares were held by non-Chinese residents and Hong Kong, Macau or Taiwan residents or legal entities
(excluding the qualified foreign institutional investors that are approved to invest in the A Share market of the PRC). For PRC
air transportation companies, pursuant to the new Catalog of Industries for Guiding Foreign Investment, jointly promulgated by
the NDRC and MOC on March 10, 2015, Chinese investors should be the controlling shareholders of a PRC air transportation company
and the total shares held by foreign investment enterprises and its associated enterprises are not permitted to exceed 25% of the
total shares of a Chinese airline.



Competition



Domestic



We compete
against our domestic competitors primarily based on 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 we are 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 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 more than 50 Chinese airlines in mainland China, and we compete 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, we also compete against virtually all of the major domestic airlines on these routes.
In addition, we are facing increasing competition from certain low-cost carriers, such as Spring Airlines, in the domestic market.
Spring Airlines competes with us, as it operates daily domestic routes to certain destinations such as Harbin, Shenyang, Guangzhou,
Xiamen, Sanya, Kunming and Chongqing, which are covered in our domestic routes. The “Twelfth Five-Year Plan” for civil
aviation industry in China encourages low- cost airlines to enter into major logistics market gradually. In February 2014, CAAC
issued Guidance on Facilitating Low-cost Aviation Development which aims at supporting the development of domestic low-cost airlines.
This will further intensify the competition in domestic aviation market. However, we believe we are well-positioned to compete
against domestic low-cost carriers due to our expansive route network, competitive pricing, greater availability of flight services
to these destinations and strong brand name.



We also
face competition from other domestic carriers in our air cargo business. However, we believe our absorption of Shanghai Airlines
in early 2010 will strengthen our market positioning within the domestic market, particularly with respect to routes to and from
Shanghai. We have also recently initiated a strategy to accelerate the transition of our role from air cargo transportation enterprise
to aviation and logistics services provider. On December 26, 2012, we established China Eastern Airlines Logistic Company by merging
China Cargo Airlines and Shanghai Eastern Airlines Logistics Co., Ltd. ("Eastern Logistics"), which we believe will facilitate
our development of services with respect to courier, logistics solutions and aviation trade and on-site logistics services platforms.
In 2016, due to factors including the slowdown in the growth rate of the total world trade volume and fierce market competition,
the air cargo transportation industry had relatively underperformed. As a result, we sold Eastern Logistics to Eastern Airlines
Industry Investment on February 8, 2017.



23







Domestic Rail



The PRC
government is aggressively implementing the expansion of its domestic high-speed rail network, which has provided train services
at speeds of up to 350 km per hour connecting major cities such as Beijing, Shanghai, Guangzhou 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 competitors on our Hong Kong routes are Cathay Pacific Airways ("Cathay"),
and Hong Kong Dragon Airlines Limited ("Dragonair"). We currently operate approximately 22 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. We also face competition
from Dragonair in our Hong Kong cargo operations. Cathay, which owns Dragonair, also cooperates with Air China and operates all
passenger services of Cathay and Air China between Hong Kong and mainland China as joint venture routes under code-share and revenue
and cost-pooling arrangements. This may further intensify the competition on the routes between Hong Kong and mainland China and
impose greater competitive pressure on the other airline companies operating on these routes.



Prior to
2003, there was no direct air link between mainland China and Taiwan. As such, our operations on the regional routes benefited
from traffic between Hong Kong and mainland China ultimately originating in Taiwan. Following a series of limited chartered flights
operated between a number of mainland Chinese cities and Taiwan, from July 2008, 36 direct flights between Taiwan and mainland
China were permitted on weekends from Fridays through Mondays on a regular basis. On December 15, 2008, mainland China and Taiwan
commenced direct air and sea transport and postal services, ending a nearly six-decade ban on regular links between the two sides
since 1949. Under a historic agreement signed by mainland China and Taiwan in early November 2008, the new air links expanded from
weekend charters to a daily service, 108 flights per week in 2008 and approximately 270 and 370 regular direct flights per week
in 2009 and 2010, respectively. At the end of 2011, the two sides agreed to increase the total number of flights to 616 per week
and to increase the total number of destination airports in mainland China and Taiwan to 50. At the end of 2013, the two sides
agreed to increase the total number of flights to 786 per week and to increase the total number of destination airports in mainland
China and Taiwan to 54. At the end of 2014, mainland China and Taiwan agreed to increase the total number of flights to 924 per
week and to increase the total number of destination airports in mainland China to 65. In April 2015, the fifth batch of Mainland
pilot cities was opened for individual tour to Taiwan, including Haikou, Hohhot, Lanzhou, Yinchuan, Changzhou, Zhoushan, Huizhou,
Weihai, Longyan, Guilin and Xuzhou, and the number of Mainland cities with free line tour to Taiwan has reached 47.



The two
sides also previously agreed to launch chartered cargo flights between two terminals in mainland China, namely, Shanghai Pudong
and Guangzhou airports, and two terminals in Taiwan, namely, Taoyuan and Kaohsiung airports. Previously, a substantial number of
our passengers travelled on our Hong Kong routes in order to connect flights to and/or from Taiwan. However, with the increasing
availability of direct flights between mainland China and Taiwan, we may experience a significant decline in passenger traffic
volumes on our Hong Kong routes and, as such, our revenues derived from operating such routes could be materially and adversely
affected. We currently operate flights to Taipei from Shanghai, Nanjing, Xi'an, Kunming, Wuhan, Hefei, Nanchang, Ningbo, Taiyuan,
Qingdao, Wuxi, Yancheng, Yinchuan and Lijiang. In addition, we signed a strategic framework agreement in April 2010 with China
Airlines of Taiwan to cooperate on routes to and from the PRC and Taiwan. According to the Ninth Meeting of Cross-strait Air Transportation,
the two sides agreed to increase the total number of flights per week in 2014. According to the Tenth Meeting of Cross-strait Air
Transportation in 2015, the two sides agreed to have Changzhou and Shaoshan as two new regular passenger shipping point. We plan
to establish the Changzhou-Taipei route with three flights per week. As the market is expanding for individual tourist, we aim
to target our sales to these customers.



We believe
we will benefit from expanding our market share in Taiwan-mainland China direct flight services as based on the more and more frequent
communication between Taiwan and mainland China. However, as one of the several airlines offering Taiwan-mainland China direct
flight services, we cannot assure you that we will maintain 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 based on price, service quality, frequency of scheduled
flights and convenient sales arrangements.



24







To improve
our competitive position in international markets, we have established additional dedicated overseas sales offices,
launched our own frequent flyer program, participated in "Asia Miles", a popular frequent flyer program in Asia,
and entered into code-sharing arrangements with a number of foreign airlines. We have also improved our online reservation
and payment system. In addition, in June 2011, we joined SkyTeam, an international airlines alliance and frequent flyer
mileage program that includes, among others, international carriers such as Delta, China Southern, Alitalia, Air France and
KLM. As a member of SkyTeam alliance, our Elite members can enjoy approximately 516 lounges worldwide. In 2013, we
implemented code-sharing programs covering 242 routes with 11 SkyTeam member airlines. See " – Marketing and Sales
– SkyTeam Alliance." In the meantime, we also started code-sharing cooperation with seven non-SkyTeam member
airlines, covering more than 150 routes, including Japan Airlines Corporation and Qantas Airways Limited. In 2014, we
proactively promoted international cooperation among members and non-members airlines of SkyTeam Alliance at various levels
and expanded its route network to increase its brand recognition. We implemented transit service cooperation with China
Airlines, Delta Airlines and Air France between different terminals at Shanghai Pudong International Airport Co., Ltd. We
facilitate joint sales by optimizing transit connection with Delta Airlines and enhanced co- operations with Air France by
increasing the number of code-share flights. We also comprehensively improved cooperation on the China-Australia route by
establishing joint operation with Qantas. In 2015, we actively responded to the industry competition, strove for additions of
air traffic rights and time slot resources in hub markets and core markets, steadily improved the aircraft utilization rate
and consolidated and expanded market share in the three largest hubs and core markets. Based on the SkyTeam Alliance
platform, we enhanced our strategic cooperation with Delta Air Lines and cooperated with Air France and Qantas to develop a
highly efficient and convenient flight network, which covered the whole country and connected to the whole world. In 2016, we
proactively promoted the establishment of transportation hubs with the opening of various international routes for long-haul
flights and an enhanced coverage of our transportation network. With Shanghai as the core hub, we added six international
routes for long-haul flights to our network, connecting Shanghai and Prague, Amsterdam, Madrid, St. Petersburg, Chicago and
Brisbane, respectively. We provided more frequent flight services on routes connecting Shanghai and New York City, Los
Angeles, Sydney and Melbourne. We added routes connecting Kunming and Sydney, Qingdao and San Francisco, Nanjing and
Vancouver and Hangzhou and Sydney. Last, we stabilized the allocation of our flight capacities for Japan, Korea and Southeast
Asia markets. As a result of these enhanced transit connection and expanded transit routes structures, in 2016, we
experienced approximately 26.8%, 63.8% and 43.1% year-on-year growth in passenger flight capacity for Europe, North America
and Australia markets, respectively; and our inter-airline transit volume and revenue grew by 24.2% and 21.4%, respectively.
As of the end of 2016, by connecting to the route networks of other SkyTeam member airlines, our flights had access to 1,062
destinations in 177 countries. Meanwhile, we also continued to strengthen our cooperation with airlines which are not members
of the SkyTeam Alliance. Due to our increasingly enhanced cooperation with Qantas Airways in joint sales, and ground services
etc., and focusing around 69 routes, we and Qantas Airways opened up our respective VIP lounges in the PRC and Australia to
each other. Through cooperating with British Airways, Royal Brunei Airlines and China Express Airlines in code sharing,
we optimized our transit connection at London Heathrow Airport and enhanced the level of coverage of our route network
in Southeast Asia.



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 11,621 workers as maintenance and engineering personnel
as of December 31, 2016. 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 acquired additional maintenance equipment, tools and fixtures and other assets over the past few years, such as airborne
testing and aircraft data recovery and analysis equipment. Our avionics equipment is primarily maintained and repaired at our electronic
maintenance equipment center located in Shanghai.



We entered
into a joint venture with Honeywell International Inc. (“Honeywell”), formerly Allied Signal Inc., in Shanghai for
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. We 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. We and
Rockwell Collins International Inc. hold 35% and 65%, respectively, of the equity interests in the joint venture. Moreover, in
November 2002, we, jointly with Aircraft Engineering Investment Limited, established Shanghai Eastern Aircraft Maintenance Limited,
in which we hold 60% of the equity interests, to provide supplemental avionics and other maintenance services to us. STA, which
was established in 2004 by us and Singapore Technologies Aerospace Ltd. under a joint venture agreement dated March 10, 2003, also
provides us with aircraft maintenance, repair and overhaul services. We entered into repair agreements of seven types of electronics
materials with Honeywell and we expect in the next two years to save US$338,000 of material repairing costs.



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 performing maintenance and repairs on aircraft engines. We 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 us to perform various maintenance operations
in-house and continue to maintain lower spare parts inventory levels.



Since December
2014, we have adopted an innovative asset management model and established Eastern Airlines Technology Co. Ltd. ("Eastern
Technology"), a wholly-owned subsidiary specializing in aircraft maintenance, to explore the transformation of supporting
assets to operational assets.



In 2015,
Eastern Technology engaged in aircraft maintenance, raised its standards for aircraft maintenance and construction management to
facilitate our centralized control over aircraft maintenance, and focused on high-end premium operations, such as providing maintenance
services for aircraft for Chinese routes operated by international airlines and sharing of aviation equipment.



In 2016,
other airlines such as Singapore Airlines, AirAsia and Royal Brunei Airlines became customers of Eastern Technology, whose area
of operation expanded to locations including Xi’an, Jinan, Wuhan and Wuxi.



25







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 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 us to prepare and submit semi-annual and annual flight safety reports.



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



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



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



We placed
great emphasis on ensuring safe operation and will continue to do so. In 2015, we established an integrated management and control
model incorporating regional management, safety audit and safety supervision to further improve our safety management and control
system, and pushed ahead the establishment of the Management of Risk Control System (MORCS) to enhance safety risk prevention on
an ongoing basis. We have also promoted phase 2 of the Electronic Flight Bag, focusing on technical difficulties such as operation
of above plateau airports, and has been enhancing our research capability in flying technology, providing psychological support
to our pilots and improving emergency drills to implement in-flight safety requirements strictly.



In 2016,
we further enhanced our safety management system by strengthening the enforcement of safety responsibilities, strengthening our
safety supervision and inspection, strengthening our risk control over special routes and international routes for long-haul flights,
enhancing our operational risk alert abilities, boosting the quality of training for our pilots, improving our system for developing
talents with core skills, enhancing our ability in handling security-related contingencies, and strictly implementing safety requirements
for our flights. In 2016, we had 1,956,100 safe flying hours and 822,400 take-off and landing flights, which is an increase of
8.4% and 6.4%, respectively, over the same period last year.



Cyber-security



With respect
to our internal policies on cyber-security and internet safety, we have established an information safety management system and
issued internal regulations on cyber-security, internal hardware and data safety systems to prevent loss of information due to
cyber-security incidents, network outages or hardware incidents. We also plan to implement measures relating to the office environment
information safety management and information system emergency management, information system access control, protection from any
malicious software, management of information exchange tools and internal review and audit of information safety risks. Furthermore,
we have entered into a strategic cooperation plan with the China Information Technology Security Evaluation Center by which their
trained engineers evaluate our internal data security policies and cyber-security measures. In 2012, we established and announced
two internal regulations relating to cyber-security, namely, China Eastern Airlines Information Security Management Regulation
and China Eastern Airlines Information System Application and Development Safety Regulation and in 2013, we established and announced
another two internal regulations relating to cyber-security, namely, China Eastern Airlines Information Security Incident Management
Regulation and China Eastern Airlines Information System Classification Measures, which we believe will strengthen our information
safety management systems and overall cyber-security defenses. During the year ended December 31, 2014, we did not experience any
material cyber-security incidents or related losses.



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



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



In 2015,
we established a routine inspection system and a contingency mechanism for its reporting website for external security breach.
The data loss prevention (DLP) project was implemented and our information security management system passed the ISO27000 certification.
In the future, we will further improve our security code review and management system; promote the construction of IPS at the internet
portal and the information technology disaster backup centre to elevate the overall protection level on our information system
security.



In 2016,
we conducted information system emergency response training and commissioned the construction of our Xi’an disaster backup
facility. In addition, we implemented security code review and security protection around the boundaries of our internet and data
centre, optimized the multi-dimensional security protection system and elevated the overall security protection level on our information
system.



We did not purchase any insurance for internet security.



Fuel Supplies



Fuel costs
represented approximately 21.4% of our operating expense in 2016. Our aviation fuel expenditure in 2016 was RMB19,626 million,
a decrease of 3.4% from RMB20,312 million in 2015 decrease in average price of fuel. 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.



26







In 2016,
our total aircraft fuel cost was RMB19,626 million, a decrease of 3.5% from RMB20,312 million in 2015. This decrease was primarily
due to a decrease in our average price of fuel by 13.6% as compared with last year, partially offset by an increase in our volume
of refueling by 11.9% as compared with last year. We cannot assure you that fuel prices will not fluctuate in the future. Further,
due to the highly competitive nature of the airline industry and government regulation on airfare pricing, we may be unable to
fully or effectively pass on to our customers any increased fuel costs we may encounter in the future. However, we intend to continue
focusing on enhancing our jet fuel procurement policies and developing additional internal cost-control measures, which include
streamlining the number of aircraft models in our fleet and optimizing route structures, which we believe will enable us to control
our fuel costs.



Ground Facilities and Services



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



Since August
2015, we have been constructing a foreign airline service center and examining the market-oriented operational mechanism for ground
services to explore the transformation of supporting assets into operational assets further.



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 based on price. We have limited
flexibility in setting our airfares for domestic routes and adjust our domestic airfares in response to market demand. As part
of our overall marketing strategy, we emphasize our commitment to safety and service quality. We believe that emphasis on safety
is a critical component of our ability to compete successfully.



We have also
adopted customized strategies to market our services to particular travelers. We seek to establish long-term
customer relationships with business entities that have significant air travel requirements. In order to attract and retain
business travelers, we focus on the frequency of flights between major business centers, convenient transit services and an
extensive sales network. We launched our initial frequent flyer program in 1998 and joined the "Asia Miles"
frequent flyer program in April 2001 to attract and retain travelers. In August 2003, we upgraded and rebranded our frequent
flyer program to "Eastern Miles" and introduced a series of new services, including, among others, instant
registration of membership and mileage, online registration of mileage, and accumulation of mileage on expenses at certain
hotels, restaurants and other service providers that are our strategic partners. As a result of our continual efforts to
develop the "Eastern Miles" program, the number of members of the frequent flyer program reached over 22.8 million
in 2014. The special services hotline "95530" call center was established and came into operation in 2004. In light
of the expansion of national high-speed railway network, we have cooperated with the Shanghai Railway Bureau to
launch "Air-Rail Pass Transportation" products. Our domestic and international flights together with its
high-speed railway products at Shanghai Hongqiao International Airport and Shanghai Pudong International Airport Co., Ltd.,
have formed an air-rail two-way transportation product, which has helped us broaden our customer resources.



In terms
of our customer resources, we have actively explored and expanded our customer base of high-end business travelers to accelerate
the development of group clients. In 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 2015, we had approximately 3.6 million new Eastern Miles members,
with over 26.4 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.



In 2016,
Eastern E-Commerce established an e-commerce platform by integrating our online and offline platforms. Ticket returns, rebooking
and upgrades via multiple channels, such as our official website, mobile application and member website were launched with success,
and a total of 12 updates were made to our mobile application. In addition, we identified cooperative partners in non-aviation
points to further enrich the applications of aviation points and the variety of integrated products offered, with 133 malls and
89 cooperative partners participating in the sales of non-aviation points. As a result, we recorded 106% and 505% year-on-year
growth in our revenues from the sales of mileage points and integrated products, respectively.



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, upgrading and expanding the services offered by our online sales
system. In 2012, we introduced "China Eastern Mobile E", a smartphone application that provides mobile flight booking,
flight status and online checking services, which we believe will provide our customers with additional convenient, value-added
services. In 2013, we introduced a new version of China Eastern Mobile E and increased the application of "China Eastern Mobile
E" to 14 airports. In 2016, we introduced the English version of "China Eastern Mobile E" to our customers. 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 platforms to our ticket booking system.



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



27







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



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



We also
maintain an extensive domestic network of sales agents and representatives in order to promote in-person ticket sales and to assist
customers. The majority of our airline tickets are sold by domestic and international sales agents who have contractual relationships
with us. Currently, our direct domestic ticket sales are handled primarily through employees based at our ticket counters located
at airports such as Hongqiao International Airport and Pudong International Airport in Shanghai and in Anhui, Zhejiang, Shandong
and Yunnan provinces, as well as at airports in Beijing, Chengdu, Fuzhou, Guangzhou, Hangzhou, Shenzhen, Xiamen and Yantai. Direct
sales are also promoted through the availability of our telephone reservation and confirmation services. In addition to our domestic
sales agents located in various cities in mainland China, Hong Kong, Macau and Taiwan, we maintain overseas sales or representative
offices worldwide, including: (i) North American locations such as Honolulu, Los Angeles, New York, San Francisco and Vancouver;
(ii) European and Middle Eastern locations such as Frankfurt, Hamburg London, Moscow, Paris, Rome, Madrid, Brussels and Munich;
(iii) Asia-Pacific locations such as Seoul, Tokyo, Osaka, Nagoya, Fukuoka, Hiroshima, Sapporo, Niigata, Fukushima, Okinawa, Shizuoka,
Kanazawa, Toyama, Nagasaki, Kagoshima, Okayama, Matsuyama, Singapore, Bangkok, Phuket, New Delhi, Kolkata, Kuala Lumpur, Ho Chi
Minh, Bali, Dubai, Dhaka, Phnom Penh, Siem Reap, Vientiane, Yangon, Mandalay, Kathmandu and Maldives; and (iv) Australian locations
such as Melbourne and Sydney. We maintain more than 50 overseas sales or representative offices as of December 31, 2014. As of
June 1, 2008, we stopped issuing paper tickets for air travel in accordance with a mandate from the International Air Transport
Association ("IATA"). The IATA represents approximately 240 airlines and comprises approximately 84% of scheduled international
air traffic. As a result of the mandate, we now issue electronic itineraries and receipts as well as electronic tickets to our
passengers. We believe the transition to 100% electronic ticketing will decrease administrative costs, increase flexibility and
travel options for passengers, in addition to benefiting the environment through the reduced need for paper. All of our direct
passenger ticket sales are recorded on our computer systems. Most Chinese airlines, including us, are required to use the passenger
reservation service system provided by the CAAC's computer information management center, which is linked with the computer systems
of major Chinese commercial airlines. We have also entered into membership agreements with several international reservation systems,
including ABACUS, the largest computer reservation system in southeast Asia, TOPAS of Korea, SABRE, GALILEO and WORLDSPAN of the
United States, AMADEUS of Europe, INFINI and AXESS of Japan and Sirena-Travel of Russia, which have made it easier for customers
and sales agents to make reservations and purchase tickets for our international flights.



SkyTeam Alliance



We officially
joined SkyTeam, an international airlines alliance and frequent flyer mileage program that includes international carriers such
as, among others, Delta, China Southern, Alitalia, Air France and KLM, on June 21, 2011.



By the
end of 2015, we have entered into frequent flyer and airport lounges agreements with 20 SkyTeam member airlines and implemented
code- sharing programs covering 670 routes, as well as 336 routes with non-SkyTeam member airlines, which has further broadened
the coverage of our route network. By the end of 2016, we implemented code-sharing programs with 12 SkyTeam member airlines and
the number of code sharing routes with non-SkyTeam member airlines increased by 52% as compared to last year. We also cooperated
with nine SkyTeam member airlines including Delta, Air France and KLM, China, Alitalia, Garuda Indonesia and Iberia in joint check-ins
for 21 transit points.



By connecting
to the route networks of other SkyTeam member airlines, we are able to offer our passengers seamless transit to 1,062 destinations
in 177 countries under a single plane ticket with direct luggage services as of December 31, 2016. Passengers may also enjoy the
comfort of approximately 672 VIP airport lounges of SkyTeam around the world. 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, we 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 believed Eastern Logistics would 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 proactively. 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 establishment of the official eaemall.com website allows us to capitalize on the advantages in the network and centralized
purchases for our business. Combining with its freight expressway delivery network, Eastern Airlines is able to provide fresh and
direct supply of “from the origins to dining table.” Our subsidiary, Shanghai Eastern Airlines Express Delivery Company
Limited, officially commenced operation of cross-border e-commerce in 2013 in the Shanghai Free Trade Zone.



On June
5, 2013, our subsidiary, China Cargo Airlines, officially joined the SkyTeam Freight Alliance, which will enable it to further
expand its cargo network coverage, strengthen its transit capacity, provide better and more efficient ground services, while lowering
operational costs.



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



28







We also
tactically expanded the network. Through reduction for optimal capacity and flexible purchase of capacity, we continuously consolidated
the Europe and America route network and maintained our leading position in terms of the Europe and America market share.



We explored
with full efforts the potential of bellyhold through the introduction of localized products, cargo-flight projects, removal of
routes with"0 and low" income, international return flight expansion projects, implementation of the reward and punish
system which increases volume and income, strengthening of monitoring of external sites and the addition of "newly added"
customers, we consolidated the output of external sites and transformation units in 2016, resulting in an increase of 2.8% of bellyhold
compared to the same period the previous year.



Tourism and Travel Services



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



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



We also
derive revenues from the provision of airport ground services for airlines operating to or from Hongqiao International Airport
and Pudong International Airport, including aircraft cleaning, loading, unloading, storage and ground transportation of cargo and
passenger luggage. At present we are the principal provider of these services at Hongqiao International Airport and Pudong International
Airport. We provide these services to foreign carriers generally pursuant to one-year renewable contracts. In 2016, we generated
net revenues of approximately RMB3,644 million from our airport ground services and cargo handling and processing services, compared
with RMB3,296 million and RMB2,680 million, respectively, generated from such services in 2015 and 2014.



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, 2016, we own or
have obtained licenses to use 68 trademarks, the number remained stable as of December 31, 2014.



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 we also purchase 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 other 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 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, 2016, we operated a fleet of 596 aircraft, including 572 passenger aircraft, most with a seating capacity of over 100 seats,
9 freighters and 15 business aircraft held under trust. In 2016, we introduced 72 aircraft of various models, including A321, A320,
A319, B737 and B777 series. With the complete retirement of EMB145 and B737-300 series aircraft, the variety of aircraft models
of our fleet has been further streamlined and the fleet structure has been made younger.





29







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



Existing Fleet



The following table sets forth the details of our
fleet as of December 31, 2016:



|                                                  |  | Number of |                |  |           |  |     |             |  |  |            | 
|------------------------------------------------- |  | --------- | -------------- |  | --------- |  | --- | ----------- |  |  | ---------- | 
|                                                  |  | Aircraft  |                |  |           |  |     |             |  |  |            | 
|                                                  |  | Owned     |                |  |           |  |     |             |  |  |            | 
|                                                  |  | and       |                |  | Aircraft  |  |     |             |  |  |            | 
|                                                  |  | under     |                |  | under     |  |     | Total       |  |  | Average    | 
|                                                  |  | Finance   |                |  | Operating |  |     | Number      |  |  | Age (in    | 
|                                                  |  | Lease     |                |  | Lease     |  |     | of Aircraft |  |  | years) (1) | 
|                                                  |  |           |                |  |           |  |     |             |  |  |            | 
|Jet Passenger Aircraft:                           |  |           |                |  |           |  |     |             |  |  |            | 
|Wide-body:                                        |  |           |                |  |           |  |     |             |  |  |            | 
|B777-300ER                                        |  |           | 16             |  |           |  | -   |             |  |  | 16         | 
|B767                                              |  |           | 6              |  |           |  | -   |             |  |  | 6          | 
|A330-300                                          |  |           | 11             |  |           |  | 7   |             |  |  | 18         | 
|A330-200                                          |  |           | 30             |  |           |  | 3   |             |  |  | 33         | 
|Narrow-body:                                      |  |           |                |  |           |  |     |             |  |  |            | 
|A321                                              |  |           | 66             |  |           |  | -   |             |  |  | 66         | 
|A320                                              |  |           | 127            |  |           |  | 36  |             |  |  | 163        | 
|A319                                              |  |           | 33             |  |           |  | 3   |             |  |  | 36         | 
|B737-800                                          |  |           | 93             |  |           |  | 78  |             |  |  | 171        | 
|B737-700                                          |  |           | 55             |  |           |  | 8   |             |  |  | 63         | 
|B737-300(2)                                       |  |           | -              |  |           |  | -   |             |  |  | -          | 
|EMB 145LR(2)                                      |  |           | -              |  |           |  | -   |             |  |  | -          | 
|Total Passenger Aircraft:                         |  |           | 437            |  |           |  | 135 |             |  |  | 572        | 
|                                                  |  |           |                |  |           |  |     |             |  |  |            | 
|Cargo Aircraft:                                   |  |           |                |  |           |  |     |             |  |  |            | 
|B747-400F                                         |  |           | 2              |  |           |  | 1   |             |  |  | 3          | 
|B777F                                             |  |           | -              |  |           |  | 6   |             |  |  | 6          | 
|Total Cargo Aircraft:                             |  |           | 2              |  |           |  | 7   |             |  |  | 9          | 
|Total number of passenger aircraft and freighters |  |           | 439            |  |           |  | 142 |             |  |  | 581        | 
|                                                  |  |           | No. of custody |  |           |  |     |             |  |  |            | 
|Business Aircraft                                 |  |           |                |  |           |  |     |             |  |  | 15         | 
|Total Fleet                                       |  |           |                |  |           |  |     |             |  |  | 596        | 



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



| | (2) | These aircraft were retired from our fleet operation and
were disposed in 2016.
| | --- | -------------------------------------------------------------------------------



Our daily average aircraft utilization rate
was 9.7 hours in 2016, decreasing slightly from 10.0 hours in 2015.



The table below sets forth the daily average utilization
rates of our jet passenger aircraft for each of the years ended December 31, 2014 and 2015:



|2014                             |  | 2015       |     
|-------------------------------- |  | ---------- | ----
|                                 |  | (in hours) |     
|Wide-body:                       |  |            |     
|B777-300ER                       |  |            | 10.7
|B767                             |  |            | 8.9 
|A340-600                         |  |            | 10.5
|A330-300                         |  |            | 9.0 
|A330-200                         |  |            | 13.4
|Narrow-body:                     |  |            |     
|A321                             |  |            | 9.2 
|A320                             |  |            | 9.9 
|A319                             |  |            | 9.2 
|B737-800                         |  |            | 10.0
|B737-700                         |  |            | 10.0
|B737-300                         |  |            | 7.0 
|EMB 145LR                        |  |            | 5.7 
|Total Passenger Aircraft Average |  |            | 9.4 



The table below sets forth the daily average utilization
rates of our jet passenger aircraft for each of the year ended December 31, 2016:



|                                                          |  | 2016       |     
|--------------------------------------------------------- |  | ---------- | ----
|                                                          |  | (in hours) |     
|Jet Passenger Aircraft:                                   |  |            |     
|Wide-body:                                                |  |            |     
|B777-300ER                                                |  |            | 13.1
|B767                                                      |  |            | 8.8 
|A330-300                                                  |  |            | 8.9 
|A330-200                                                  |  |            | 13.5
|Narrow-body:                                              |  |            |     
|A321                                                      |  |            | 9.1 
|A320                                                      |  |            | 9.8 
|A319                                                      |  |            | 9.5 
|B737-800                                                  |  |            | 9.4 
|B737-700                                                  |  |            | 7.8 
|B737-300                                                  |  |            | -   
|Total Passenger Aircraft average                          |  |            | 9.7 
|                                                          |  |            |     
|Cargo Aircraft:                                           |  |            |     
|B747-400F                                                 |  |            | 11.2
|B777F                                                     |  |            | 13.1
|Total Cargo Aircraft average                              |  |            | 12.5
|Total number of passenger aircraft and freighters average |  |            | 9.7 



Most of
our jet passenger aircraft were manufactured by either Airbus or Boeing. On July 9, 2015, we entered into a purchase agreement
with Boeing Company to purchase fifty new Boeing B737 series aircraft which are expected to be delivered to us in stages from 2017
to 2019. On August 14, 2015, we also entered into a purchase agreement with Airbus SAS to purchase fifteen new Airbus A330 series
aircraft, which are expected to be delivered to us in stages from 2017 to 2018. On April 28, 2016, we entered into a purchase agreement
with Boeing Company to purchase 15 B787-9 aircraft, which are expected to be delivered to us in stages from 2018 to 2021. On the
same day, we also entered into a purchase agreement with Airbus SAS to purchase 20Airbus A350-900 series aircraft, which are expected
to be delivered to us in stages from 2018 to 2022.



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 for long 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 2017 to 2018 are as follows:



30







|                                   |  | 2017E |              |  |  | 2018E |           
|---------------------------------- |  | ----- | ------------ |  |  | ----- | ----------
|Model                              |  |       | Introduction |  |  |       | Retirement
|Passenger aircraft                 |  |       |              |  |  |       |           
|A319 Series                        |  |       | -            |  |  |       | 1         
|A320 Series                        |  |       | 16           |  |  |       | -         
|A321 Series                        |  |       | 11           |  |  |       |           
|A330 Series                        |  |       | 7            |  |  |       | -         
|A350 Series                        |  |       | -            |  |  |       | -         
|B787 Series                        |  |       | -            |  |  |       | -         
|B777 Series                        |  |       | 4            |  |  |       | -         
|B767 Series                        |  |       | -            |  |  |       | 2         
|B737 Series                        |  |       | 35           |  |  |       | 15        
|EMB-145LR                          |  |       | -            |  |  |       | -         
|Total number of passenger aircraft |  |       | 73           |  |  |       | 18        
|Freighters                         |  |       |              |  |  |       |           
|B747-400F                          |  |       | -            |  |  |       | -         
|Total number of freighters         |  |       | -            |  |  |       | -         
|Total                              |  |       | 73           |  |  |       | 18        



The actual
quantity and time of 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, and the terms of any financing arrangements, such as finance leases,
and other capital requirements. We believe that our aircraft acquisition plan will help us accomplish our expansion plans while
maintaining an efficient fleet and ensuring alternative sources of supply.



Fleet Financing Arrangements



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



Operating Facilities



We
(including subsidiaries and branches) had operations on 661 parcels of land, occupying a total area of approximately 3.6
million square meters, as of December 31, 2016. In addition, as of December 31, 2016, we (including subsidiaries and
branches) owned approximately 2,204 buildings with a total gross floor area of approximately 1.3 million square meters. We
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. We did not have any environmental issues that may have a material impact on our utilization of the
assets in 2016.



|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 IFRSs. 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 11.1%, from 25,203.0 ATKs in
2015 to 28,002.3 ATKs in 2016, and our passenger capacity on an available seat kilometer, or ASK, basis increased by 13.5%, from
181,792.9 ASKs in 2015 to 206,249.3 ASKs in 2016. Total traffic on a revenue tonne kilometer, or RTK, basis increased by 10.6%,
from 17,820.4 RTKs in 2015 to 19,712.9 RTKs in 2016.



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



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



Critical Accounting Policies



We prepare
our consolidated financial statements in accordance with IFRSs 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.



31







Revenue recognition and sales in advance of
carriage



Revenue comprises the fair value of the
consideration received or receivable for the provision of services and the sale of goods in the ordinary course of our activities.
Revenue is stated net of business taxes or value-added taxes, returns, rebates and discounts and after eliminating sales within
the Group.



Revenue is recognized when it is probable
that the economic benefits will flow to us and when the revenue can be measured reliably, on the following basis:



| | (i) | Traffic revenues
| | --- | ----------------



Passenger, cargo and mail revenues are recognized
as traffic revenues when the transportation services are provided. The value of sold but unused tickets is recognized as sales
in advance of carriage (the “SIAC”).



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



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



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



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



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



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



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



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



| | (vi) | Frequent flyer programs
| | ---- | -----------------------



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.



| | (vii) | Interest income
| | ----- | ---------------



Interest income is recognized on a time-proportion
basis using the effective interest rate method.



The amount of revenue is not considered reliably
measurable until all contingencies relating to the sale have been resolved. We base our estimates on historical results, taking
into consideration the type of customer, the type of transaction and the specifics of each arrangement.



Intangible assets



Goodwill



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 our 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.



After initial
recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or
more frequently if events or changes in circumstances indicate that the carrying value may be impaired. We perform our annual impairment
test of goodwill as at December 31. For the purpose of impairment testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to each of our cash- generating units, or groups of cash-generating units, that are expected to
benefit from the synergies of the combination, irrespective of whether our other assets or liabilities are assigned to those units
or groups of units.



Impairment
is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill
relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount,
an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.



Computer software costs



Acquired
computer software licenses are capitalized based on 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 five years. Costs associated with developing
or maintaining computer software programs are recognized as expenses when incurred.



Others



Others relate
to the capitalized costs incurred to acquire the use right of certain flight schedules (i.e. timeslots for flights’
taking off/landing) in Guangzhou Baiyun International Airport Co., Ltd. and Shanghai Pudong International Airport Co., Ltd.,
respectively. These costs are amortized using the straight-line method over their useful lives of three years.



Property, plant and equipment



Property,
plant and equipment are 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. Residual values, useful lives and the depreciation method are reviewed,
and adjusted if appropriate, at least at each financial year end.



32







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 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 off their costs to their residual
values over their estimated useful lives, as follows:



|Owned and finance leased aircraft and engines | 15 to 20 years | 0% or 5%
|--------------------------------------------- | -------------- | --------
|Other flight equipment, including rotables    | 10
years       | 0%      
|Buildings                                     | 8 to 45 years  | 3% to 5%
|Other property, plant and equipment           | 3
to 20 years  | 3% to 5%



Gains and
losses on disposals are determined by comparing the proceeds with the assets’ carrying amounts and are recognized in profit
or loss.



Construction
in progress represents buildings under construction and equipment pending for installation. This includes the costs of construction
or acquisition and capitalized borrowing cost. No depreciation is provided on construction in progress until the asset is completed
and ready for use.



Leases



(i) As lessee



Finance leases



Leases 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 assets 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 the current portion
of obligation under finance leases and obligations under finance leases, respectively. The interest element of the finance costs
is charged to profit or loss over the lease period 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 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 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 profit or loss is deferred and amortized over the period for which the asset is expected to be used.



(ii) As 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



(i) Defined contribution plans



We participate in schemes regarding pension
and medical benefits for employees organized by the municipal governments of the relevant provinces. Contributions to these schemes
are expensed as incurred.



We also implement an
additional defined contribution pension benefit scheme (annuity) for voluntary eligible employees. Contributions are made
based on a percentage of the employees’ total salaries and are charged to profit or loss as incurred.



(ii) Defined benefit plan



We provide
eligible retirees with certain post-retirement benefits including retirement subsidies, transportation allowance as well as other
welfare. The 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 statement of financial
position with a corresponding debit or credit to equity 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” and “Finance costs” in profit or loss:



33







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



| | • | net interest expense.
| | - | ---------------------



Available-for-sale investments



Available-for-sale
financial investments are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity
investments classified as available for sale are those that are neither classified as held for trading nor designated as at fair
value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period
and which may be sold in response to needs for liquidity or in response to changes in market conditions.



After initial
recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealized gains or losses
recognized as other comprehensive income in the other reserves until the investment is derecognized, at which time the cumulative
gain or loss is recognized in profit or loss in other operating income, or until the investment is determined to be impaired, when
the cumulative gain or loss is reclassified from the other reserves to profit or loss in other gains or losses. Interest and dividends
earned whilst holding the available-for-sale financial investments are reported as finance income and dividend income, respectively
and are recognized in profit or loss as other operating income in accordance with the policies set out for “Revenue recognition
and sales in advance of carriage” above.



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 evaluate
whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When,
in rare circumstances, we are unable to trade these financial assets due to inactive markets, we may elect to reclassify these
financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.



For a financial
asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes
its new amortized cost and any previous gain or loss on that asset that has been recognized in equity is amortized to profit or
loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortized cost
and the maturity amount is also amortized over the remaining life of the asset using the effective interest rate. If the asset
is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss.



Income tax



Income
tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit
or loss, either in other comprehensive income or directly in equity.



Current
tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based
on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration
interpretations and practices prevailing in the countries in which the Group operates.



Deferred
tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes.



Deferred
tax liabilities are recognized for all taxable temporary differences, except:



•               when
the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and



•               in
respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing
of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse
in the foreseeable future.



Deferred
tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible
temporary differences, the carryforward of unused tax credits and unused tax losses can be utilized, except:



•               when
the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit
nor taxable profit or loss; and



•               in
respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred
tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable
future and taxable profit will be available against which the temporary differences can be utilized.



The carrying
amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred
tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.



Deferred
tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or
the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting
period.



Deferred
tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.



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.



34







Revenue recognition



We recognize
traffic revenues in accordance with the accounting policy stated in Note 2.4 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 passengers' revenue
attributable to the award of frequent flyer benefits is deferred and recognized when the miles have been redeemed or 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.



Retirement benefits



We operate
and maintain a defined retirement benefit plan, which provides eligible retirees with benefits including retirement subsidies,
transportation allowance 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 to the financial statements.
These assumptions include, without limitation, the selection of discount rate, annual rate of increase of per capita benefit payment
etc. 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.



Additional information regarding the retirement
benefit plan 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 to the consolidated
financial statements, we consider 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 our ability to utilize the tax benefits of deductible tax
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 changing market conditions and
the future plan for the aircraft and related spare parts.



Depreciation of property, plant and equipment



Depreciation
of components related to 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 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 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.



Impairment of goodwill



We determine
whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating
unit to which the goodwill is allocated. Estimating the value in use requires us to make an estimate of the expected future cash
flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those
cash flows.



Operating Segments



In accordance
with IFRS 8, segment disclosure has been presented in a manner that is consistent with the information used by our CODM. Our 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 IFRSs in
certain aspects. The amount of each material reconciling items from our reportable segment revenue and profit or loss, arising
from different accounting policies are set out in Note 7(c) to our audited consolidated financial statements.



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



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



35







|                                                                                      |  | Year Ended December 31,               |        
|------------------------------------------------------------------------------------- |  | ------------------------------------- | -------
|                                                                                      |  | 2012                                  |        
|                                                                                      |  | RMB                                   |        
|                                                                                      |  | (in mil lions, except per share data) |        
|Summary Consolidated Statements of Profit or Loss and Other Comprehensive Income Data |  |                                       |        
|Revenues                                                                              |  |                                       | 85,253 
|Gain on fair value changes of derivative financial instruments                        |  |                                       | 25     
|Other operating income and gains                                                      |  |                                       | 1,833  
|Operating expenses                                                                    |  |                                       | (82,759
|Operating profit                                                                      |  |                                       | 4,352  
|Finance income / (costs), net                                                         |  |                                       | (1,349 
|Profit before income tax                                                              |  |                                       | 3,137  
|Profit for the year attributable to the equity holders of the Company                 |  |                                       | 3,072  
|Basic and fully diluted earnings per share (1)                                        |  |                                       | 0.27   



|                                                                                   |  | As of December 31, |        
|---------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                   |  | 2012               |        
|                                                                                   |  | RMB                |        
|                                                                                   |  | (in
    millions)  |        
|Summary Consolidated
Statements of Financial Position Data                         |  |                    |        
|Cash and cash equivalents                                                          |  |                    | 2,512  
|Net current liabilities                                                            |  |                    | (35,948
|Non-current assets                                                                 |  |                    | 111,214
|Long term borrowings, including current portion                                    |  |                    | (32,856
|Obligations under finance leases, including current portion                        |  |                    | (21,858
|Total share capital and reserves attributable to the equity holders of the Company |  |                    | 20,207 
|Non-current liabilities                                                            |  |                    | (53,530
|Total assets less current liabilities                                              |  |                    | 75,266 



| | (1) | The calculation of earnings per share for 2012 is based on the net profit attributable to the equity
holders of the Company divided by the weighted average number of 11,276,538,860 ordinary shares in issue. The calculation of earnings
per share for 2013 is based on the net profit attributable to the equity holders of the Company divided by the weighted average
number of 12,091,881,000 ordinary shares in issue. The calculation of earnings per share for 2014 is based on the net profit attributable
to the equity holders of the Company divided by the weighted average number of 12,674,269,000 ordinary shares in issue. The calculation
of earnings per share for 2015 is based on the net profit attributable to the equity holders of the Company divided by the weighted
average number of 12,818,509,000 ordinary shares in issue. The calculation of earnings per share for 2016 is based on the net profit
attributable to the equity holders of the Company divided by the weighted average number of 13,811,136,000 ordinary shares in issue.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2016 Compared to 2015



Revenues



Our revenues
increased by 5.3%, from RMB93,969 million in 2015 to RMB98,904 million in 2016. Revenues increased in our passenger business operations,
primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights, which was partially
offset by decreased revenue in our cargo and mail business operations, primarily due to a general slowdown of the global economy
that affected cargo demand and, consequently, our cargo volumes.



In 2016,
we transported 101.74 million passengers, representing an increase of 8.5%, from 93.8 million passengers in 2015. Our total passenger
traffic (as measured in RPKs) increased by 14.5%, from 146,342 million passenger-kilometers in 2015 to 167,529 million passenger-kilometers
in 2016 and our total cargo and mail traffic (as measured in RFTKs) increased by 0.2%, from 4,865 million freight tonne-kilometers
in 2015 to 4,875 million freight tonne- kilometers in 2016. Our average yield for our passenger operations decreased by 7.2% from
RMB0.56 per passenger-kilometer in 2015 to RMB0.52 in 2016.



Our average
yield for our cargo and mail operations decreased by 6.3%, from RMB1.33 per tonne-kilometer in 2015 to RMB1.25 per tonne-kilometer
in 2016, primarily due to slumping cargo market and increasing competition from logistic companies that affected cargo demand and
shipping fees.



The following chart sets forth
our revenue breakdown for 2015 and 2016:



|                        |  |                        |        |  |          |  |        |            |  |  |            |   | 2016 vs. 2015
|----------------------- |  | ---------------------- | ------ |  | -------- |  | ------ | ---------- |  |  | ---------- | - | -------------
|                        |  | Year Ended December 31 |        |  | Increase |  |        | % Increase | 
|                        |  | 2015                   |        |  | 2016     |  |        | (Decrease) |  |  | (Decrease) |  
|                        |  | (in millions of RMB)   |       
|Traffic revenues        |  |                        | 85,076 |  |          |  | 89,554 |            |  |  | 4,478      |   |              
|Passenger revenue       |  |                        | 78,585 |  |          |  | 83,577 |            |  |  | 4,992      |   |              
|Cargo and mail revenue  |  |                        | 6,491  |  |          |  | 5,977  |            |  |  | (514       | ) |              
|Others (1)              |  |                        | 8,893  |  |          |  | 9,350  |            |  |  | 457        |   |              
|Total Operating Revenue |  |                        | 93,969 |  |          |  | 98,904 |            |  |  | 4,935      |   |              



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



Passenger revenues



Our passenger
traffic revenues increased by RMB4,992 million, or 6.4%, from RMB78,585 million in 2015 to RMB83,577 million in 2016. This increase
was primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights, as well as actively
seizing the opportunities brought by the international low oil prices and robust demand for outbound tourism.



Our domestic
passenger traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues), which accounted for 64.8% of our total passenger
traffic revenues in 2016, increased by 5.1%, from RMB51,523 million in 2015 to 54,137 million in 2016, primarily due to increased
passenger demand. Compared to 2015, our domestic passenger traffic (as measured in RPKs) increased by 8.2%, from 98,304 million
in 2015 to 106,361 million in 2016. The number of passengers carried on domestic routes increased by 7.4%, from 78.4 million in
2015 to 84.2 million in 2016. Our passenger-kilometers yield for domestic routes decreased by 2.6% from RMB0.55 per passenger-kilometer
in 2015 to 0.53 in 2016.



36







Our regional
passenger traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) which accounted for 3.7% of our total
passenger traffic revenues in 2016, decreased by 1.6%, from RMB3,129 million in 2015 to RMB3,078 million in 2016, primarily due
to the decrease in our passenger-kilometers yield for regional routes. The number of passengers carried on Hong Kong, Macau and
Taiwan routes increased by 4.0%, from 3.1 million in 2015 to 3.22 million in 2016. Our passenger-kilometers yield for regional
routes decreased from RMB0.73 per passenger-kilometer in 2015 to 0.71 per passenger-kilometer in 2016.



International
passenger traffic revenues, which accounted for 31.5% of our total passenger traffic revenues in 2016, increased by 10.2%, from
RMB23,933 million in 2015 to RMB26,362 million in 2016. 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 29.6% in 2016, from RMB43,848 million in 2015 to RMB56,821 million in 2016. The number
of passengers carried on international routes increased by 16.8%, from 12.3 million in 2015 to 14.3 million in 2016. Our passenger-kilometers
yield for international routes decreased from RMB0.56 per passenger-kilometer in 2015 to RMB0.47 per passenger-kilometer in 2016.



Cargo and mail revenues



Our cargo
and mail traffic revenues decreased by 7.9%, from RMB6,491 million in 2015 to RMB5,977 million in 2016, which accounted for 6.7%
of our total traffic revenues in 2016. Cargo and mail yield decreased by 6.3% from RMB1.33 in 2015 to RMB1.25 in 2016 per cargo
tonne-kilometer, primarily due to the increased competition from other cargo carriers, which resulted in decreased shipping fees.



Our domestic
cargo and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues), which accounted for 17.2% of our
total cargo and mail traffic revenues in 2016, decreased from RMB1,036 million in 2015 to RMB1,026 million in 2016. This decrease
was primarily due to the increased competition from private owned logistic companies, which resulted in decreased shipping fees
and cargo. Our freight tonne-kilometers yield for domestic routes decreased from RMB1.09 per tonne-kilometer in 2015 to RMB1.07
per tonne-kilometer in 2016.



Our regional
cargo and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), which accounted for
6.3% of our total cargo and mail traffic revenues in 2016, slightly decreased by 1.6%, from RMB380 million in 2015 to RMB374 million
in 2016. Our freight tonne- kilometers yield for regional routes decreased from RMB3.01 per tonne-kilometer in 2015 to RMB2.98
per tonne-kilometer in 2016.



International
cargo and mail traffic revenues, which accounted for 76.5% of our total cargo and mail traffic revenues in 2016, decreased by 9.8%,
from RMB5,075 million in 2015 to RMB4,576 million in 2016, due to increased competition from foreign cargo carriers which resulted
in decreased shipping fees. Our prices for cargo and mail transportation on international routes also decreased as our freight
tonne- kilometers yield for international routes decreased from RMB1.34 per tonne-kilometer in 2015 to RMB1.24 per tonne-kilometer
in 2016.



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 5.1%, from RMB8,893 million in 2015 to 9,350 million in 2016.



Operating Expenses



The following chart sets forth a breakdown of our
operating expenses for the years ended December 31, 2015 and 2016:



|                                   |  |                         |         |   | 2016 vs. 2015 | 
|---------------------------------- |  | ----------------------- | ------- | - | ------------- | 
|                                   |  | Year Ended December 31, |         |   | Increase      | 
|                                   |  | 2015                    |         |   | 2016          | 
|                                   |  | (in millions of RMB)    |        
|Operating Expenses:                |  |                         |         |   |               | 
|Aircraft fuel expenses             |  |                         | (20,312 | ) |               | 
|Takeoff and landing charges        |  |                         | (10,851 | ) |               | 
|Depreciation and amortization      |  |                         | (10,471 | ) |               | 
|Wages, salaries and benefits       |  |                         | (16,459 | ) |               | 
|Aircraft maintenance               |  |                         | (4,304  | ) |               | 
|Impairment charges                 |  |                         | (228    | ) |               | 
|Food and beverages                 |  |                         | (2,469  | ) |               | 
|Aircraft operating lease rentals   |  |                         | (4,254  | ) |               | 
|Other operating lease rentals      |  |                         | (812    | ) |               | 
|Selling and marketing expenses     |  |                         | (3,651  | ) |               | 
|Civil aviation development fund    |  |                         | (1,826  | ) |               | 
|Ground services and other expenses |  |                         | (5,479  | ) |               | 
|Indirect operating expenses        |  |                         | (5,503  | ) |               | 
|Total Operating Expense            |  |                         | (86,619 | ) |               | 



Our total
operating expenses increased by 6.1%, from RMB86,619 million in 2015 to RMB91,889 million in 2016 primarily due to the influence
of further expansion of our operational scale and the rapid growth in the passenger traffic volume and the number of passengers
carried, our various costs such as take-off and landing costs, food and beverages, and depreciation and amortization increased
from the previous year. Our total operating expenses as a percentage of our operating revenues increased from 92.2% in 2015 to
92.9% in 2016.



Aircraft
fuel expenses decreased by 3.4%, from RMB20,312 million in 2015 to RMB19,626 million in 2016. The decrease was primarily due to
the decrease in our average price of fuel by 13.62%, partially offset by an increase in ourvolume of refuelling by 11.9%.



Take-off
and landing charges, which accounted for 13.4% of our total operating expenses in 2016, increased by 13.2%, from RMB10,851 million
in 2015 to RMB12,279 million in 2016, primarily due to the increase in our number of flights and the increase in our number of
take-offs and landings. In particular, the numerous international routes newly launched by us and the increase in our number of
flights for the North American routes led to more frequent international takeoffs and landings of wide-body aircrafts.



Depreciation
and amortization increased by 16.1%, from RMB10,471 million in 2015 to RMB12,154 million in 2016, primarily due to the addition
of 54 aircraft (self owned and under finance leases) to our fleet in 2016. The increase in the number of aircraft and engines led
to an increase in the original value of fixed assets and a corresponding increase in depreciation.



37







Wages,
salaries and benefits, which accounted for 19.7% of our total operating expenses in 2015, increased by 10.2%, from RMB16,459 million
in 2015 to RMB 18,145 million, primarily due to the combined effect of the increase in the number of flight-crew and maintenance
personnel, the increase in flight hours and the rise in the standard flight hour fees. Additional information regarding the changes
in our retirement benefits is disclosed in Note 37 to the consolidated financial statements.



Aircraft
maintenance expenses, which accounted for 5.4% of our total operating expenses in 2016, increased by 15.2%, from RMB4,304 million
in 2015 to RMB4,960 million in 2016, primarily due the net addition of 7 wide-body aircraft and 39 narrow-body aircraft, which
led to an increase in maintenance fees for aircraft and engines. Meanwhile, we fitted our A330 aircraft with in-flight Wi-Fi and
retrofitted equipment such as required navigation performance (RNP) systems in 2016, resulting in an increase in maintenance fees.



Food and
beverage expenses increased by 15.9% from RMB2,469 million in 2015 to RMB2,862 million in 2016, primarily due to the increase in
the number of passengers in carriage, especially the combined effect of the increase in the number of travelers on international
long-haul flights and the higher standards required for the provision of international catering.



Aircraft
operating lease rentals increased by 12.3%, from RMB4,254 million in 2015 to RMB4,779 million in 2016, primarily due to the introduction
of 18 new aircraft under operating leases by us and the retirement of 15 aircraft under operating leases in 2016. Owing to factors
such as the market environment and the commodity price level, the introduction of the new aircraft resulted in a significant increase
in rentals compared to the retired aircraft.



Other operating
lease rentals increased by 6.9%, from RMB812 million in 2015 to RMB868 million in 2016, primarily due to the increase in leasehold
properties (including properties such as counters and VIP lounges).



Selling
and marketing expenses, which accounted for 3.4% of our total operating expenses in 2015, decreased by 14.2%, from RMB3,651 million
in 2015 to RMB3,133 million in 2016, primarily due to the increase in the proportion of direct sales for the year and changes in
the policy on agency causing a decrease in the handling fees of the agency businesses.



The amount
of civil aviation infrastructure levies payable to the CAAC increased by 6.5%, from RMB1,826 million in 2015 to RMB1,945 million
in 2016, primarily due to the increase in the length of miles flown in 2015.



Ground
services and other expenses decreased by 7.7%, from RMB5,479 million in 2015 to RMB5,058 million in 2016, primarily due to the
decrease in the costs of subsidiaries.



Indirect
operating expenses increased by 10.0%, from RMB5,503 million in 2015 to RMB6,051 million in 2016, primarily attributable to the
significant increase in the costs associated with the expansion in the size of our fleet.



Fair Value Changes of Derivative Financial
Instruments



Changes
in fair value of derivative financial instruments decreased from a gain of RMB6 million in 2015 to a gain of RMB2 million in 2016.
The difference was mainly due to the decrease in gains arising from fair value movement of interest rate swaps contracts.



Other Operating Income and Gains



Our other
operating income mainly consists of income from cooperative routes, the rest being income from disposal of fixed assets and income
from government grants. The total amount of our other operating income and gains increased by 3.8% from RMB5,269 million in 2015
to RMB5,469 million in 2016, primarily due to an increase in income from co-operation routes, income from government grants and
gains from disposal of fixed assets. Other co-operation income represented income from co-operation routes granted to us by the
PRC government and local governments as well as other subsidies granted by various local municipalities and other parties to encourage
us to operate certain routes to cities where these municipalities are located.



Net Finance Costs



In 2016,
our finance income was RMB96 million, representing an increase from RMB66 million in 2015, primarily due to an increase in the
interest rates for our deposits which increased our interest income. Finance costs amounted to RMB6,272 million, representing a
decrease of 12.6%, primarily due to the decrease in net exchange losses recognized during the year. In 2016, our exchange losses
amounted to RMB3,543 million, representing a decrease of 29.0%.



Profit Attributable to the Equity Holders of
the Company



As a result
of the foregoing, the net profit attributable to the equity holders of the Company slightly decreased to RMB4,498 million in 2016,
or 0.9%, as compared to a net profit of RMB4,537 million in 2015. The decrease is mainly due to the increase in income tax expense.



Property, Plant and Equipment



We had
approximately RMB153,180 million of property, plant and equipment as of December 31, 2016, including, among other assets, aircraft,
engines and flight equipment, representing a 15.0% increase from RMB133,242 million in 2015. The increase is mainly due to an increase
in the number of aircrafts.



2015 Compared to 2014



Revenues



Our revenues
increased by 4.2%, from RMB90,185 million in 2014 to RMB93,969 million in 2015. Revenues increased in our passenger business operations,
primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights, which was partially
offset by decreased revenue in our cargo and mail business operations, primarily due to a general slowdown of the global economy
that affected cargo demand and, consequently, our cargo volumes.



In 2015,
we transported 93.8 million passengers, representing an increase of 11.9%, from 83.8 million passengers in 2014. Our total passenger
traffic (as measured in RPKs) increased by 14.6%, from 127,750 million passenger-kilometers in 2014 to 146,342 million passenger-kilometers
in 2015 and our total cargo and mail traffic (as measured in RFTKs) increased by 1.31%, from 4,802 million freight tonne-kilometers
in 2014 to 4,865 million freight tonne- kilometers in 2015. Our average yield for passenger operations decreased by 8.2% from RMB0.61
per passenger-kilometer in 2014 to 0.56 in 2015.



Our average
yield for our cargo and mail operations decreased by 14.2%, from RMB1.55 per tonne-kilometer in 2014 to RMB1.33 per tonne-kilometer
in 2015, primarily due to the general slowdown of the global economy that affected cargo demand and, consequently, our cargo volumes.



38







The following chart sets forth
our revenue breakdown for 2014 and 2015:



|                        |  |                        |        |  |          |  |        |            |  |  |            |   |  | 2015 vs. 2014
|----------------------- |  | ---------------------- | ------ |  | -------- |  | ------ | ---------- |  |  | ---------- | - |  | -------------
|                        |  | Year Ended December 31 |        |  | Increase |  |        | % Increase | 
|                        |  | 2014                   |        |  | 2015     |  |        | (Decrease) |  |  | (Decrease) |  
|                        |  | (in millions of RMB)   |       
|Traffic revenues        |  |                        | 82,589 |  |          |  | 85,076 |            |  |  | 2,487      |   |  |              
|Passenger revenue       |  |                        | 75,261 |  |          |  | 78,585 |            |  |  | 3,324      |   |  |              
|Cargo and mail revenue  |  |                        | 7,328  |  |          |  | 6,491  |            |  |  | (837       | ) |  |              
|Others (1)              |  |                        | 7,596  |  |          |  | 8,893  |            |  |  | 1,297      |   |  |              
|Total Operating Revenue |  |                        | 90,185 |  |          |  | 93,969 |            |  |  | 3,784      |   |  |              



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



Passenger revenues



Our passenger
traffic revenues increased by RMB3,324 million, or 4.4%, from RMB75,261 million in 2014 to RMB78,585 million in 2015. This increase
was primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights, as well as actively
seizing the opportunities brought by the international low oil prices and robust demand for outbound tourism.



Our domestic
passenger traffic revenues (excluding Hong Kong, Macau and Taiwan passenger revenues), which accounted for 65.6% of our total passenger
traffic revenues in 2015, decreased by 0.2%, from RMB51,647 million in 2014 to 51,523 million in 2015. which remained relatively
stable. Compared to 2014, our domestic passenger traffic (as measured in RPKs) increased by 11.5%, from 88,191 million in 2014
to 98,304 million in 2015. The number of passengers carried on domestic routes increased by 10.4%, from 71.0 million in 2014 to
78.4 million in 2015. Our passenger-kilometers yield for domestic routes decreased by 9.8% from RMB0.61 per passenger-kilometer
in 2014 to 0.55 in 2015.



Our regional
passenger traffic revenues (representing Hong Kong, Macau and Taiwan passenger revenues) which accounted for 4.0% of our total
passenger traffic revenues in 2015, decreased by 5.6%, from RMB3,313 million in 2014 to RMB3,129 million in 2015, primarily due
to the decrease in our passenger-kilometers yield for regional routes. The number of passengers carried on Hong Kong, Macau and
Taiwan routes decreased by 3.1%, from 3.2 million in 2014 to 3.1 million in 2015. Our passenger-kilometers yield for regional routes
decreased from RMB0.79 per passenger-kilometer in 2014 to 0.75 per passenger-kilometer in 2015.



International
passenger traffic revenues, which accounted for 30.5% of our total passenger traffic revenues in 2015, increased by 17.9%, from
RMB20,301 million in 2014 to RMB23,933 million in 2015. 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 24.6% in 2018, from RMB35,191 million in 2014 to RMB43,848 million in 2015. The number
of passengers carried on international routes increased by 28.1%, from 9.6 million in 2014 to 12.3 million in 2015. Our passenger-kilometers
yield for international routes decreased slightly from RMB0.59 per passenger-kilometer in 2014 to RMB0.56 per passenger-kilometer
in 2015.



Cargo and mail revenues



Our cargo
and mail traffic revenues decreased by 11.4%, from RMB7,328 million in 2014 to RMB6,491 million in 2015, which accounted for 7.6%
of our total traffic revenues in 2015. Cargo and mail yield decreased by 14.2% from RMB1.55 in 2014 to RMB1.33 in 2015 per cargo
tonne-kilometer, primarily as a result of the general slowdown and volatility of the global economy that affected cargo volumes.



Our domestic
cargo and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues), which accounted for 16.0% of our
total cargo and mail traffic revenues in 2015, decreased from RMB1,142 million in 2014 to RMB1,036 million in 2015. This decrease
was primarily due to the increased competition from other cargo carriers, which resulted in decreased shipping fees and cargo and
mail volume. Our freight tonne-kilometers yield for domestic routes decreased from RMB1.27 per tonne-kilometer in 2014 to RMB1.09
per tonne-kilometer in 2015.



Our regional
cargo and mail traffic revenues (representing Hong Kong, Macau and Taiwan cargo and mail traffic revenues), which accounted for
5.9% of our total cargo and mail traffic revenues in 2015, slightly decreased by 14.2%, from RMB443 million in 2014 to RMB380 million
in 2015. Our freight tonne- kilometers yield for regional routes decreased from RMB3.47 per tonne-kilometer in 2014 to RMB3.01
per tonne-kilometer in 2015.



International
cargo and mail traffic revenues, which accounted for 78.2% of our total cargo and mail traffic revenues in 2015, decreased by 11.6%,
from RMB5,743 million in 2014 to RMB5,075 million in 2015, 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 RMB1.55 per
tonne-kilometer in 2014 to RMB1.34 per tonne-kilometer in 2015.



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 17.1%, from RMB7,596 million in 2014 to 8,893 million in 2015.



Operating Expenses



The following chart sets forth a breakdown of our
operating expenses for the years ended December 31, 2014 and 2015:





|                                   |  |                         |        |  |          |  |        | 2015 vs. 2014 | 
|---------------------------------- |  | ----------------------- | ------ |  | -------- |  | ------ | ------------- | 
|                                   |  | Year Ended December 31, |        |  | Increase |  |        | % Increase    | 
|                                   |  | 2014                    |        |  | 2015     |  |        | (Decrease)    | 
|                                   |  | (in millions of RMB)   
|Operating Expenses:                |  |                         |        |  |          |  |        |               | 
|Aircraft fuel expenses             |  |                         | 30,238 |  |          |  | 20,312 |               | 
|Takeoff and landing charges        |  |                         | 9,440  |  |          |  | 10,851 |               | 
|Depreciation and amortization      |  |                         | 9,183  |  |          |  | 10,471 |               | 
|Wages, salaries and benefits       |  |                         | 11,270 |  |          |  | 16,459 |               | 
|Aircraft maintenance               |  |                         | 4,453  |  |          |  | 4,304  |               | 
|Impairment charges                 |  |                         | 12     |  |          |  | 228    |               | 
|Food and beverages                 |  |                         | 2,364  |  |          |  | 2,469  |               | 
|Aircraft operating lease rentals   |  |                         | 4,502  |  |          |  | 4,254  |               | 
|Other operating lease rentals      |  |                         | 637    |  |          |  | 812    |               | 
|Selling and marketing expenses     |  |                         | 4,120  |  |          |  | 3,651  |               | 
|Civil aviation development fund    |  |                         | 1,656  |  |          |  | 1,826  |               | 
|Ground services and other expenses |  |                         | 4,998  |  |          |  | 5,479  |               | 
|Indirect operating expenses        |  |                         | 4,950  |  |          |  | 5,503  |               | 
|Total Operating Expense            |  |                         | 87,823 |  |          |  | 86,619 |               | 



39







Our total
operating expenses decreased by 1.4%, from RMB87,823 million in 2014 to RMB86,619 million in 2015 primarily due to a decrease in
aircraft fuel costs, selling and marketing expenses and aircraft operating lease rentals. Our total operating expenses as a percentage
of our revenues decreased from 97.4% in 2014 to 92.2% in 2015.



Aircraft
fuel expenses decreased by 32.8%, from RMB30,238 million in 2014 to RMB20,312 million in 2015. The decrease was primarily due to
the decrease in the average price of fuel in response to general market trends. In 2015, we consumed of approximately 5.3 million
tonnes of aviation fuel, representing an increase of 11.7% compared to 2014. In 2015, the average price of fuel decreased by 39.9%
compared to that of 2014. Aircraft fuel expenses accounted for 23.5% of our total operating expenses in 2015, as compared to 34.4%
in 2014.



Take-off
and landing charges, which accounted for 12.5% of our total operating expenses in 2015, increased by 15.0%, from RMB9,440 million
in 2014 to RMB10,851 million in 2015, primarily due to an increase in the number of and the standard of fees charged for take-off
and landings.



Depreciation
and amortization increased by 14.0%, from RMB9,183 million in 2014 to RMB10,471 million in 2015, primarily due to an expansion
in its fleet scale and the corresponding increase in the depreciation of assets.



Wages,
salaries and benefits, which accounted for 19.0% of our total operating expenses in 2015, increased by 46.0%, from RMB11,270 million
in 2014 to RMB 16,459 million, primarily due to a gain on settlement in 2014 from the amendment of employee benefit policies made
in 2014. Additional information regarding the changes in our retirement benefits is disclosed in Note 37 to the consolidated financial
statements.



Aircraft
maintenance expenses, which accounted for 5.0% of our total operating expenses in 2015, decreased by 3.3%, from RMB4,453 million
in 2014 to RMB4,304 million in 2015, primarily due to a year-on-year decrease in external aircraft maintenance brought by the improvement
in our own maintenance ability.



Food and
beverage expenses increased by 4.4% from RMB2,364 million in 2014 to RMB2,469 million in 2015, primarily due to an increase in
the number of passengers.



Aircraft
operating lease rentals decreased by 5.5%, from RMB4,502 million in 2014 to RMB4,254 million in 2015, primarily due to a decrease
in the number of aircraft that we operate under operating leases.



Other operating
lease rentals increased by 27.5%, from RMB637 million in 2014 to RMB812 million in 2015, primarily due to an increase in leasehold
properties.



Selling
and marketing expenses, which accounted for 4.2% of our total operating expenses in 2015, decreased by 11.4%, from RMB4,120 million
in 2014 to RMB3,651 million in 2015, primarily due to a year-on-year decrease in the handling fees of agency businesses brought
by the increase in the proportion o direct sales.



The amount
of civil aviation infrastructure levies payable to the CAAC increased by 10.3%, from RMB1,656 million in 2014 to RMB1,826 million
in 2015, primarily due to an increase in our miles flown in 2015.



Ground
services and other expenses increased by 9.6%, from RMB4,998 million in 2014 to RMB5,479 million in 2015, primarily due to the
increased volume of ground services.



Indirect
operating expenses increased by 11.2%, from RMB4,950 million in 2014 to RMB5,503 million in 2015, primarily attributable to an
increase in expenses following the expansion of our fleet.



Fair Value Changes of Derivative Financial
Instruments



Changes
in fair value of derivative financial instruments decreased from a gain of RMB11 million in 2014 to a gain of RMB6 million in 2015.
The difference was mainly due to the decrease in gains arising from fair value movement of interest rate swaps contracts.



Other Operating Income and Gains



Our other
operating income and gains were primarily generated from co-operation routes income. The total amount of our other operating income
and gains increased by 43.0% from RMB3,685 million in 2014 to RMB5,269 million in 2015, primarily due to an increase in income
from co-operation routes, income from government grants and gains from disposal of fixed assets. Other co-operation income represented
income from co-operation routes granted to us by the PRC government and local governments as well as other subsidies granted by
various local municipalities and other parties to encourage us to operate certain routes to cities where these municipalities are
located.



Net Finance Costs



In 2015,
our finance income was RMB66 million, representing a decrease from RMB88 million in 2014, primarily due to a decrease in average
balances of short-term bank deposits. Finance costs amounted to RMB7,176 million, representing an increase of 232.2%, primarily
due to an increase in net exchange losses recognized in 2015 as a result of an appreciation of USD against RMB.



Profit Attributable to the Equity Holders of
the Company



As a result
of the foregoing, the net profit attributable to the equity holders of the Company increased to RMB4,537 million in 2015, or 33.0%,
as compared to a net profit of RMB3,410 million in 2014. The increase is mainly due to continuous improvement of our operating
abilities and the decrease of jet fuel prices.



Property, Plant and Equipment



We had
approximately RMB133,242 million of property, plant and equipment as of December 31, 2015, including, among other assets, aircraft,
engines and flight equipment, representing a 21.8% increase from RMB109,439 million in 2014. The increase is mainly due to an increase
in the number of aircrafts.



Inflation



According to the National Bureau of Statistics of China, China's
overall national inflation rate, as represented by the general consumer price index, was approximately 2.6% in 2013, 2.1% in 2014,
1.4% in 2015, and 2.0% in 2016. 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.



40







| | 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 if there is any delay in obtaining
bank loans or a significant decrease in demand for our services.



As of December
31, 2014, 2015 and 2016, we had RMB1,355 million and RMB9,080 million and RMB1,695 million, respectively, in cash and cash equivalents;
RMB59,189 million, RMB66,712 million and RMB56,732 million, respectively, in outstanding borrowings; and RMB38 million, RMB35 million
and RMB43 million, respectively, in restricted bank deposits and short-term bank deposits. Our cash and cash equivalents primarily
consist of cash on hand and deposits that are placed with banks and other financial institutions. We plan to use the remaining
available cash for other capital expenditures, including expenditures for aircraft, engines and related equipment, as well as for
working capital and other day-to-day operating purposes.



In addition,
our current liabilities exceeded our current assets by approximately RMB52,194 million. Therefore, the directors of the Company
("Directors") have taken active steps to seek additional sources of financing to improve our liquidity position. As of
December 31, 2016, we had total unutilized credit facilities of RMB46.38 billion from various banks. See the discussion below under
"– Working Capital and Liabilities".



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



In 2016,
we generated a net cash inflow from operating activities of RMB24,893 million as a result of cash generated from operations of
RMB26,154 million less income tax we paid in 2016. Our cash generated from operations was mainly due to operating profit before
working capital changes of RMB24,464 million and positive changes in working capital of RMB1,690 million. The operating profit
before working capital changes of RMB24,464 million was a result of the profit before income tax of RMB6,497 million, mainly adjusted
for: (i) depreciation of property, plant and equipment and amortization of other non- current assets of RMB12,345 million, (ii)
net foreign exchange losses of RMB3,246 and (iii) interest expenses of RMB2,641 million. Positive changes in working capital mainly
consisted of (i) sales in advance of carriage of RMB1,836 million and (ii) other payables and accruals of RMB1,424 million, partly
offset by (i) other long-term liabilities of RMB883 million and (ii) prepayments and other receivables of RMB839 million.



In 2015,
we generated a net cash inflow from operating activities of RMB24,325 million as a result of cash generated from operations of
RMB25,535 million less income tax we paid in 2015. Our cash generated from operations was mainly due to operating profit before
working capital changes of RMB23,620 million and positive changes in working capital of RMB1,915 million. The operating profit
before working capital changes of RMB23,620 million was a result of the profit before income tax of RMB5,667 million, mainly adjusted
for: (i) depreciation of property, plant and equipment and amortization of other non- current assets of RMB10,710 million, (ii)
net foreign exchange losses of RMB5,480, and (iii) interest expenses of RMB2,075 million. Positive changes in working capital mainly
consisted of (i) trade and bills payable of RMB1,629 million, and (ii) other long-term liabilities of RMB1,164 million, partly
offset by prepayments and other receivables of RMB2,011 million.



In 2014,
we generated a net cash inflow from operating activities of RMB12,296 million as a result of cash generated from operations of
RMB12,767 million less income tax we paid in 2014. Our cash generated from operations was mainly due to operating profit before
working capital changes of RMB12,665 million and positive changes in working capital of RMB102 million. The operating profit before
working capital changes of RMB12,665 million was a result of the profit before income tax of RMB4,113 million, mainly adjusted
for: (i) depreciation of property, plant and equipment and amortization of other non-current assets of RMB9,056 million, (ii) interest
expenses of RMB1,957 million. Positive changes in working capital mainly consisted of (i) sales in advance of carriage of RMB1,491
million and (ii) other payables and accrued expenses of RMB1,024 million, partly offset by prepayments and other receivables of
RMB1,314 million.



Cash Flows from Investing
Activities



In 2016,
our net cash outflow from investing activities was RMB37,180 million. Our net cash outflow for investing activities mainly consisted
of (i) advanced payments on acquisition of new aircraft of RMB16,864 million and (ii) additions of property, plant and equipment
of RMB21,533 million. These cash outflows were partly offset by (i) proceeds from disposal of assets classified as held for sale
of RMB518 million and (ii) proceeds from disposal of property, plant and equipment of RMB690 million.



In 2015,
our net cash outflow from investing activities was RMB27,800 million. Our net cash outflow for investing activities mainly consisted
of (i) advanced payments on acquisition of new aircraft of RMB24,772 million and (ii) additions of property, plant and equipment
of RMB8,609 million. These cash outflows were partly offset by (i) proceeds from disposal of assets classified as held for sale
of RMB4,227 million and (ii) proceeds from disposal of property, plant and equipment of RMB1,294 million.



In 2014,
our net cash outflow from investing activities was RMB24,033 million. Our net cash outflow for investing activities mainly consisted
of (i) advanced payments on acquisition of new aircraft of RMB20,067 million and (ii) additions of property, plant and equipment
of RMB5,640 million. These cash outflows were partly offset by proceeds from disposal of property, plant and equipment of RMB1,623
million.



Cash Flows from Financing
Activities



In 2016,
our net cash inflow from financing activities was RMB4,634 million. Our net cash inflow for financing activities mainly consisted
of (i) proceeds from draw down of short-term bank loans of RMB39,159 million, (ii) proceeds from draw down of long-term bank loans
and other financing activities of RMB26,545 million, (iii) proceeds from issuance of short-term debentures of RMB47,500 million
and (iv) proceeds from issuance of long-term bonds of RMB12,526 million. These cash inflows were partly offset by (i) repayments
of short-term bank loans of RMB36,728 million, (ii) repayments of long-term bank loans of RMB28,803 million, and (iii) repayments
of short-term debentures of RMB46,000 million.



In 2015,
our net cash inflow from financing activities was RMB11,083 million. Our net cash inflow for financing activities mainly consisted
of (i) proceeds from draw down of short-term bank loans of RMB26,916 million, (ii) proceeds from draw down of long-term bank loans
and other financing activities of RMB24,572 million, and (iii) proceeds from issuance of short-term debentures of RMB21,500 million.
These cash inflows were partly offset by (i) repayments of short-term bank loans of RMB34,767 million, (ii) repayments of long-term
bank loans of RMB10,540 million, and (iii) repayments of short-term debentures of RMB10,000 million.



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



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, 2016, our current liabilities exceeded our current assets by RMB52,194 million. In comparison, our current liabilities
exceeded our current assets by RMB51,309 million as of December 31, 2015. Our current liabilities decreased by 8.5% primarily due
to the decrease in the current portion of borrowings. Our current assets decreased by 31.2% in 2016 primarily due to the decrease
in cash and cash equivalents. Short-term loans outstanding totaled RMB38,214 million and RMB 28,842 as of December 31, 2015 and
2016, respectively. Long-term outstanding bank loans totaled RMB28,498 million and RMB 27,890 million as of December 31, 2015 and
2016, respectively.



41







As of December
31, 2016, our long-term debt to equity ratio was 0.75. 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, 2015 and 2016 for the purpose of calculating the indebtedness were as follows:



|          |  | As of December 31, |       
|--------- |  | ------------------ | ------
|          |  | 2015               |       
|          |  | (RMB in millions)  |       
|Secured   |  |                    | 27,664
|Unsecured |  |                    | 39,048
|Total     |  |                    | 66,712



Our maturity profile of interest-bearing borrowings
as of December 31, 2015 and 2016 was as follows:



|                                     |  | As of December 31, |       
|------------------------------------ |  | ------------------ | ------
|                                     |  | 2015               |       
|                                     |  | (RMB in millions)  |       
|Within one year                      |  |                    | 38,214
|In the second year                   |  |                    | 10,306
|In the third to fifth year inclusive |  |                    | 8,224 
|After the fifth year                 |  |                    | 9,968 
|Total                                |  |                    | 66,712



As of December
31, 2016, our interest rates relating to short-term borrowings ranged from 1.49% to 4.35%, while our fixed interest rates on our
interest-bearing borrowings for long-term bank loans ranged from 3.40% to 4.41%. Our bank loans are denominated in Renminbi and
U.S. dollars. As of December 31, 2016, our total bank loans denominated in Renminbi amounted to RMB57,793 million, while our total
bank loans denominated in U.S. dollars amounted to US$3.3 million. On March 6, 2014, our wholly-owned subsidiary EAO issued offshore
CNY-denominated bonds in an amount of RMB2.5 billion at 4.8% due 2017, listed on the Hong Kong Stock Exchange. We guaranteed the
bond issue. On May 14, 2014, EAO issued offshore CNY- denominated bonds in an amount of CNY0.8 billion at 4.8% due 2017, listed
on the Hong Kong Stock Exchange. We guaranteed the bond issue. See Note 34 to the consolidated financial statements for more information
on our borrowings.



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



Capital Expenditures



As of December
31, 2016, according to the relevant agreements, we expect our capital expenditures for aircraft, engines and related equipment
to be in aggregate approximately RMB123,019 million, including approximately RMB28,384 million in 2017 and approximately RMB32,306
million in 2018, 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, 2016 to December 31, 2016 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42







| | 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, 2016:



|                                        |  |       |         |  |             |  |        |           |  |  |           |  |  | More    |       
|--------------------------------------- |  | ----- | ------- |  | ----------- |  | ------ | --------- |  |  | --------- |  |  | ------- | ------
|                                        |  |       |         |  | Less Than 1 |  |        |           |  |  |           |  |  | Than    |       
|                                        |  | Total |         |  | Year        |  |        | 1-2 Years |  |  | 2-5 Years |  |  | 5 Years |       
|Long-Term Debt (1)                      |  |       | 29,749  |  |             |  | 1,859  |           |  |  | 4,833     |  |  |         | 13,281
|Capital Leases (2)                      |  |       | 61,041  |  |             |  | 6,447  |           |  |  | 6,054     |  |  |         | 18,415
|Operating Leases (3)                    |  |       | 23,889  |  |             |  | 4,176  |           |  |  | 3,349     |  |  |         | 8,027 
|Unconditional Purchase Obligations (4)  |  |       | 123,019 |  |             |  | 28,384 |           |  |  | 32,306    |  |  |         | 47,317
|Other Long-term Obligations (5)(6)      |  |       | 3,874   |  |             |  | -      |           |  |  | -         |  |  |         | -     
|Post-retirement Benefit Obligations (5) |  |       | 2,890   |  |             |  | -      |           |  |  | -         |  |  |         | -     
|Deferred Tax Liabilities (5)            |  |       | 86      |  |             |  | -      |           |  |  | -         |  |  |         | -     
|Short-term Bank Loans (7)               |  |       | 26,983  |  |             |  | 26,983 |           |  |  | -         |  |  |         | -     
|Interest Obligations                    |  |       |         |  |             |  |        |           |  |  |           |  |  |         |       
|Under Finance Leases                    |  |       | 9,790   |  |             |  | 1,677  |           |  |  | 1,471     |  |  |         | 3,490 
|Under Bank Loans                        |  |       | 841     |  |             |  | 485    |           |  |  | 192       |  |  |         | 98    
|Fixed Rate                              |  |       | 240     |  |             |  | 238    |           |  |  | 1         |  |  |         | 1     
|Variable Rate (8)                       |  |       | 601     |  |             |  | 247    |           |  |  | 191       |  |  |         | 97    
|Total                                   |  |       |         |  |             |  |        |           |  |  |           |  |  |         |       



Note

| | (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 frequent flyer programs.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Short-term bank loans are generally repayable within one
year. As of December 31, 2016, the weighted average interest rate of our short-term bank loans was 2.55% per annum (2015: 2.57%).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | For our variable rate loans, interest rates range from
six month LIBOR + 75% to six months LIBOR + 375%. Interest obligations relating to variable rate loans are calculated based on
the relevant LIBOR rates as of December 31, 2016. A 25 basis points increase in the interest rate would increase interest expenses
by RMB140 million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                              |  | Total             |        |  | Amount of Commitment Expiration Per Period | 
|----------------------------- |  | ----------------- | ------ |  | ------------------------------------------ | 
|Other Commercial              |  | Amounts           |        |  | Less Than 1                                | 
|Commitments/Credit Facilities |  | Committed         |        |  | Year                                       | 
|                              |  | (RMB in millions) |       
|Lines of Credit               |  |                   | 46,380 |  |                                            | 
|Standby Letters of Credit     |  |                   | -      |  |                                            | 
|Guarantees                    |  |                   | -      |  |                                            | 
|Total                         |  |                   | 46,380 |  |                                            | 



Taxation



We had
carried forward tax losses of approximately RMB1,637 million as of December 31, 2016, which can be used to set off against future
taxable income between 2017 and 2021.



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 increase the applicable corporate income tax rate gradually to 25% over the next five years from 2008. For the year ended December
31, 2015, the corporate income tax rate applicable to the Company and these subsidiaries was 25%. China Eastern Yunnan Airlines
Co., Ltd. (“CEA Yunnan”), a subsidiary of the Group, obtained approval from tax authorities and has been entitled
to a reduced corporate income tax rate of 15% from January 1, 2011. The Company’s branches located in Sichuan, Gansu and
Xibei also obtained approval from respective tax authorities and are entitled to a reduced corporate income tax rate of 15%. The
Company and subsidiaries except for CEA Yunnan, the Company’s branches located in Sichuan, Gansu and Xibei and those incorporated
in Hong Kong, which are subject to Hong Kong profits tax rate of 16.5%, are generally subject to the PRC standard corporate income
tax rate of 25%.



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 (1)      |  | Age |  | Shares Owned   |  | Position                                  
|------------- |  | --- |  | -------------- |  | ------------------------------------------
|Liu Shaoyong  |  | 58  |  | -              |  | Chairman of the Board of Directors        
|Ma Xulun      |  | 52  |  | -              |  | President and Vice Chairman               
|Li Yangmin    |  | 53  |  | 3,960 A Shares |  | Director and Vice President               
|Xu Zhao       |  | 48  |  | -              |  | Director                                  
|Gu Jiadan     |  | 60  |  | -              |  | Director                                  
|Tang Bing     |  | 50  |  | -              |  | Director and Vice President               
|Tian Liuwen   |  | 57  |  | -              |  | Director and Vice President               
|Li Ruoshan    |  | 68  |  | -              |  | Independent Non-executive Director        
|Ma Weihua     |  | 68  |  | -              |  | Independent Non-executive Director        
|Shao Ruiqing  |  | 59  |  | -              |  | Independent Non-executive Director        
|Cai Hongping  |  | 62  |  | -              |  | Independent Non-executive Director        
|Xi Sheng      |  | 54  |  | -              |  | Chairman of the Supervisory Committee     
|Ba Shengji    |  | 59  |  | -              |  | Supervisor                                
|Hu Jidong     |  | 58  |  | -              |  | Supervisor                                
|Feng Jinxiong |  | 54  |  | -              |  | Supervisor                                
|Jia Shaojun   |  | 49  |  | -              |  | Supervisor                                
|Wu Yongliang  |  | 53  |  | 3,696 A Shares |  | Vice President and Chief Financial Officer
|Feng Liang    |  | 52  |  | -              |  | Vice President                            
|Jiang Jiang   |  | 52  |  | -              |  | Vice President                            
|Wang Jian     |  | 43  |  | -              |  | Board Secretary and Company Secretary     



43







Note:



(1) On June 15, 2016, Mr. Liu
Shaoyong, Mr. Ma Xulun, Mr. Li Yangmin, Mr. Xu Zhao, Mr. Gu Jiadan, Mr Tang Bing and Mr. Tian Liuwen were elected as Directors
of the eighth session of the Board of the Company, Mr. Li Ruoshan, Mr. Ma Weihua, Mr. Shao Ruiqing and Mr. Cai Hongping were elected
as independent non-executive Directors of the eighth session of the Board of the Company, and Mr. Xi Sheng, Mr. Ba Shengji and
Mr. Jia Shaojun were elected as the shareholder supervisors of the eighth session of the Supervisory Committee of the Company at
the 2015 annual general meeting of the Company. On the same day, Mr. Cai Hongping was appointed as a member of the Nominations
and Remuneration Committee of the Board (in replacement of Mr. Shao Ruiqing). Mr. Li Ruoshan was appointed as a member of the Aviation
Safety and Environment Committee (in replacement of Mr. Shao Ruiqing). Mr. Shao Ruiqing was appointed as member of Audit and Risk
Management Committee and the Planning and Development Committee of the Board.



On June 15, 2016, Mr. Hu Jidong
and Mr. Feng Jinxiong were elected as employee's representatives supervisors of the eighth session of the Supervisory Committee
of the Company at the second joint meeting of team leaders in 2016 of the sixth session of the employee's representative's conference
of the Company.



On June 15, 2016, Mr. Wang Jian,
previously a joint company secretary of the Company, was appointed as the Company's company secretary.



On February 22, 2017, the fourth
ordinary meeting of the eighth session of the Board of Directors of the Company appointed Mr. Jiang Jiang as a vice president of
the Company for a term of office in line with the current session of the Board.



Directors



Mr. Liu
Shaoyong, is currently the Chairman of the Company and Chairman and 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., Limited. from November 2004 to December 2008. Mr. Liu served as president and vice party
secretary of CEA Holding from December 2008 to December 2016, and became the Chairman of the Company since February 2009. He served
as the Chairman and party secretary of CEA Holding since December 2016. Mr. Liu is also currently the council member of International
Air Transport Association and the council member of Association for Relations Across the Taiwan Straits. Mr. Liu graduated from
the China Civil Aviation Flight College and obtained an Executive Master of Business Administration degree from Tsinghua University.
Mr. Liu holds the title of commanding pilot.



Mr. Ma
Xulun, is currently the vice chairman and president of the Company, director, and vice party secretary of CEA Holding. Mr.
Ma was previously vice president of China Commodities Storing and Transportation Corporation, deputy director general of the Finance
Department of the CAAC and vice president of Air China Corporation Limited. In 2002, after the restructuring of civil aviation
industry he was appointed as vice president of general affairs of Air China Corporation Limited. Mr. Ma served as president and
deputy party secretary of Air China Corporation Limited 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 vice president of the Company with effect from November 2011. He served as party secretary of CEA Holding from November 2011
to December 2016. He served as director, president and vice party secretary of CEA Holding with effect from December 2016. Mr.
Ma is also currently the vice president of Association of Shanghai Listed Companies. Mr. Ma graduated from Shanxi University of
Finance and Economics and Huazhong University of Science and Technology. Mr. Ma holds a master’s degree and is a PRC certified
accountant.



Mr. Li
Yangmin, is currently a Director, party secretary and vice president of the Company, and vice party secretary and vice president
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 Branch Company and vice president of China Eastern Air Northwest Branch Company. Since October 2005, he has also
been a vice president of the Company. Since July 2010, he served as the Chairman of China Eastern Airlines Yunnan Co., Limited.
He served as Safety Director of the Company from July 2010 to December 2012. He has become a party member of CEA Holding since
May 2011. He was appointed the party secretary and Director of the Company with effect from June 2011. He served as the chairman
of China Cargo Airlines Co., Limited. from February 2012 to January 2013. He served as the executive director of Eastern Airlines
Logistics Co., Limited from December 2012 to June 2016. Since August 2016, he served as vice party secretary and vice president
of CEA Holding. Mr. Li also served as a director of TravelSky Technology Limited and chairman of China Aviation Supplies Co., Limited.
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 degree from Fudan University. He is also a qualified professor-level
senior engineer.



Mr. Xu
Zhao, is currently a Director of the Company, and the chief accountant of CEA Holding. Mr. Xu served as engineer and accountant
of Dongfeng Motor Group Company Limited, manager of the finance department of Shanghai Yanhua High Technology Limited Company,
and chief financial officer of Shaanxi Heavy Duty Automobile Co., Limited. Since November 2006, Mr. Xu has served as the chief
accountant of CEA Holding. He was a Supervisor of the Company from June 2007 to November 2011. He has served as a Director of the
Company since June 2012. Mr. Xu graduated from Chongqing University, majoring in moulding, and The Chinese University of Hong Kong,
majoring in accounting, and holds a master’s degree. Mr. Xu is qualified as an engineer and an accountant, and is a certified
public accountant in the PRC.



Mr. Gu
Jiadan, is currently a Director of the Company. Mr. Gu was the assistant to president, and the general manager of the commerce
department and the party secretary of Shanghai Airlines Co., Limited From May 2005 to August 2009, he was a party member and vice
president of Shanghai Airlines Co., Limited From August 2009 to January 2010, he was the acting president of Shanghai Airlines
Co., Limited. From January 2010 to July 2011, he was vice president and a party member of CEA Holding and the party secretary of
Shanghai Airlines Co., Limited. Mr. Gu has served as the vice president and a party member of CEA Holding from July 2011 to December
2016. He was appointed as a Director of the Company with effect from June 2012. Mr. Gu Jiadan holds a master’s degree and
is a senior economist.



Mr. Tang
Bing, is currently a Director, vice president of the Company, vice president and party member of CEA Holding. Mr. Tang joined
the civil aviation industry in 1993. He served as vice executive president (general manager representing Chinese shareholder) of
MTU Maintenance Zhuhai Co., Limited., 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. 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 the chairman of Shanghai
Airlines since January 2012 and 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. Since December 2016, he served as the vice president of CEA Holding. Mr.
Tang graduated from Nanjing University of Aeronautics and Astronautics majoring in electrical technology. He obtained a Master
of Business Administration degree from the Administration Institute of Sun Yat-sen University, an Executive Master of Business
Administration 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.



44







Mr. Tian
Liuwen, is currently a Director, vice president of the Company and vice president and a party member of CEA Holding. Mr. Tian
served as manager of the Beijing Sales Department under the Marketing and Sales Division of China General Aviation Corporation.
He was also the head of the general manager office and chairman of the labour union and deputy general manager of the Shanxi Branch
of the Company. From June 2002 to January 2008, he was the vice president and subsequently president of the Hebei Branch of the
Company. From April 2005 to January 2008, he was the president of the Beijing Base of the Company. He served as general manager
of China Eastern Airlines Jiangsu Co., from January 2008 to December 2011. Since December 2011, he has been the vice president
of the Company. From December 2011 to June 2013, he was the president of Shanghai Airlines Co., Limited. Since June 2014, he has
been a party member of CEA Holding. Since June 2015, he has been a Director of the Company. Since December 2016, he served as the
vice president of CEA Holding. Mr. Tian obtained an Executive Master of Business Administration degree from Nanjing University
and is qualified as senior economist.



Mr. Li
Ruoshan, is currently an independent Director of the 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, director of the Financial department of Fudan University, a member of the Consultant Professional
Committee for Listed Companies of the Shanghai Stock Exchange and a consultant professional of the Committee for Accounting Standards
of the Ministry of Finance. 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 vice president of the Shanghai Accounting Society and Shanghai Auditing Society. In 2001, 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 the first doctoral degree in auditing in China. He further studied abroad
in the Katholieke Universiteit Leuven in Belgium and the Massachusetts Institute of Technology in the United States.



Mr. Ma
Weihua, is currently an independent Director of the Company. Mr. Ma is currently a member of the Twelfth National Committee
of the Chinese People’s Political Consultative Conference, the director-general of Council of National Fund for Technology
Transfer and Commercialization, a member of the Standing Council of China Society for Finance and Banking. Mr. Ma is currently
an independent director of China World Trade Center Co., Limited, Postal Savings Bank of China Co., Limited and Legend Holdings
Corporation at the same time and the Chairman of the Board of Supervisors of Taikang Life Insurance Co., Limited. Mr. Ma served
as an executive director, president and chief executive officer of China Merchants Bank Co., Limited, the chairman of Wing Lung
Bank Limited in Hong Kong, the chairman of CIGNA & CMC Life Insurance Company Limited and the chairman of China Merchants Fund
Management Co., Limited. Mr. Ma obtained a doctorate degree in economics and is an adjunct professor at several higher educational
institutions including Peking University and Tsinghua University.



Mr. Shao
Ruiqing, is currently an independent Director of the Company. Mr. Shao currently serves as a professor in accounting and a
mentor to doctoral students at the Shanghai Lixin University of Commerce. He served as the deputy dean and dean of the School of
Economics and Management of Shanghai Maritime University, the deputy dean of Shanghai Lixin University of Commerce and the independent
director of China Shipping Haisheng Co., Limited., and SAIC Motor Corp Limited. Mr. Shao served as an independent Director of the
Company from June 2010 to April 2014. 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, as an expert in finance and accounting and the deputy head
of China Association of Communications Accountancy. Mr. Shao graduated from Shanghai Maritime University, Shanghai University of
Finance and Economics and Tongji University with a bachelor’s degree in economics, and master’s 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. Cai
Hongping, is currently an independent director of the Company. Mr. Cai currently serves as the chairman of AGIC Capital. He
worked for the Industrial and Transportation Management Committee of the Shanghai Government and Sinopec Shanghai Petrochemical
Company Limited (“Sinopec Shanghai”)
from 1987 to 1991. He participated in the entire listing process of Sinopec Shanghai in Hong Kong and the United States and is
one of the founders of H shares in China. From 1992 to 1996, he acted as a member of the Overseas Listing Team for Chinese Enterprises
under the Restructuring Committee of the State Council and the chairman of the Joint Committee of Board Secretaries for H Share
Companies in China. He served as a joint director of the investment banking division of Peregrine Investments Holdings Limited
in Asia from 1997 to 2006, chairman of the investment banking division of UBS AG in Asia from 2006 to 2010, chairman of Deutsche
Bank in the Asia Pacific region from 2010 to 2015, independent non-executive director of China Oceanwide Holdings Limited (formerly
known as Hutchinson Harbour Ring Limited, stock code: 715) from November 2014 to present and independent director and chairman
of the audit committee of Minmetals Development Co., Limited from April 2015 to December 2015. He became an external director of
China Minmetals Corporation with effect from December 2015. Mr. Cai graduated from Shanghai Fudan University, majoring in mass
communications.



Supervisory Committee



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



Mr. Xi
Sheng, is currently the chairman of Supervisory Committee 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. Since June 2012, he has been a supervisor of the Company. Since June 2016, he has been the
chairman of Supervisory Committee of the Company. Mr. Xi is also the council member of China Institute of Internal Audit and vice
chairman of executive committee of Asia Internal Audit Organisation. 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).



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



Mr. Hu
Jidong, is currently a supervisor, deputy party secretary and chairman of the labour union of the Company. Mr. Hu joined the
civil aviation industry in 1977. He has been the deputy head of the party promotion department of the Company, deputy head and
head of the party working department of CEA Holding, and head of the party working department of CEA Holding. He was a member of
the party standing committee and chairman of the labour union of the Company from December 2011 to August 2013; deputy party secretary,
secretary of the disciplinary committee, and chairman of the labour union of the Company from August 2013 to August 2014; deputy
party secretary and chairman of the labour union of the Company since August 2014; and supervisor of the Company since June 2016.
Mr. Hu Jidong graduated from Shanghai University with a major in cultural management and Fudan University with a major in administrative
management.



45







Mr. Feng
Jinxiong, is currently a Supervisor and general manager of the Audit Department of the Company and a head of the audit department
of CEA Holding. Mr. Feng joined the civil aviation industry in 1982, and served as deputy head and head of the Planning Department
of the Company, head of the Finance Department and deputy chief accountant of CEA Holding, manager of the Human Resources Department
of the Company, vice president of CES Finance, and deputy general manager of the Shanghai Security Department of the Company. He
also served as president of the China Eastern Airlines Wuhan Co., Limited from 2007 to 2009. Since February 2009, he has been general
manager of the Audit Department of the Company. He has been a Supervisor of the Company since March 2009. He has been the head
of the audit department of CEA Holding from May 2014. Mr. Feng graduated from the Civil Aviation University of China and the Graduate
School of the Chinese Academy of Social Sciences, holding a master’s degree.



Mr. Jia
Shaojun, is currently a supervisor of the Company, and head of the financial department of CEA Holding. Mr. Jia was general
manager of the financial department and secretary of party general branch of the financial department of the Company. He served
as general manager of the finance and accounting department of the Company from December 2011 to November 2012 and head of the
audit department of CEA Holding from November 2012 to May 2014. He has acted as head of the financial department of CEA Holding
since May 2014. He has acted as supervisor of the Company since June 2016. Mr. Jia graduated from Civil Aviation College of China
and Fudan University School of Management, holding an executive MBA degree. He is qualified as a senior accountant.



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 and chief financial officer 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. Mr. Wu was awarded the postgraduate qualification and is a certified accountant.



Mr. Feng
Liang, is currently a vice president and the chief engineer of the Company. Mr. Feng joined the civil aviation industry in
1986 and worked in the 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 in September 2006.
He has served as the chief engineer of the Company since August 2010, the chief security officer of the Company from December 2012
to December 2014 and the vice president of the Company since August 2013. Mr. Feng graduated from Civil Aviation University of
China, majored in aircraft electrical equipment maintenance and obtained an MBA degree from Shanghai Jiao Tong University.



Mr. Jiang
Jiang, is currently a vice president of the Company, and general manager of China Eastern Airlines Wuhan Co., Limited Mr. Jiang
joined the civil aviation industry in 1986, and has worked in the Civil Aviation Industry Airline Corporation and China General
Aviation Corporation. From June 1999 to April 2005, he served as the deputy manager and manager of the flight division of the Shanxi
Branch of the Company. From April 2005 to July 2010, he was the deputy general manager of the Shanxi Branch. From July 2010 to
June 2014, he served as the general manager and the deputy secretary of the party committee of the Shanxi Branch. From June 2014
to December 2016, he served as general manager and the deputy secretary of the party committee of the China Eastern Airlines Wuhan
Co., Limited From December 2016 to February 2017, he has served as the person-in-charge of the safety operation management of the
Company and general manager of China Eastern Airlines Wuhan Co., Limited Since February 2017, he has served as the vice president
of the Company and general manager of China Eastern Airlines Wuhan Co., Limited Mr. Jiang graduated from the Flight College of
Civil Aviation Flight University of China, majored in aviation transportation and obtained an Executive Master of Business Administration
degree from Fudan University. He has the professional title of Level 1 pilot.



Mr. Wang
Jian, aged 42, is currently the Company’s Board secretary and company secretary. 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.
He served as the head of the Board secretariat of the Company and a representative of the Company’s Securities affairs from
May 2009 to April 2012. He served as the Board secretary and the head of the Board secretariat of the Company in April 2012 to
May 2016. From May 2016, he served as a secretary to the Board of the Company. During his term as secretary to the Board and his
relevant work, he designed and promoted to implement several capital and strategic projects of the Company. Mr. Wang graduated
from Shanghai Jiao Tong University and has an Master of Business Administration postgraduate degree from East China University
of Science and Technology and an Executive Master of Business Administration degree from Tsinghua University as well as a qualification
certificate for board secretaries of listed companies issued by the Shanghai Stock Exchange.



Retired Director and Supervisor During the Reporting
Period



Mr. Ji
Weidong, was an independent Director of the Company during the reporting period. Mr. Ji was an associate professor and professor
at the School of Law of Kobe University, Japan. Since 2008, he has been the dean and chair professor of Koguan Law School of Shanghai
Jiao Tong University. In addition, he is currently an honorary professor at Kobe University, Japan. Mr. Ji graduated from the Department
of Law of Peking University. Mr. Ji completed his master’s
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. Yu
Faming, was the chairman of the Supervisory Committee of the Company during the reporting period. Mr. Yu served as deputy head
of the Survey and Research Department of the Policy Research Office of the Ministry of Labour and Human Resources of the PRC, head
of the Integration Division of the Department of Policy and Regulation of the Ministry of Labour and Human Resources of the PRC,
deputy head of the Labour Science Research Institute of the Ministry of Labour of the PRC, deputy head and head of the Labour Science
Research Institute of the Ministry of Labour and Social Security of the PRC and head of the Training and Employment Department
of the Ministry of Labour and Social Security 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. From May 2011 to July 2015, he has been a party member and head
of party disciplinary inspection group of CEA Holding. He has served as the chairman of the Supervisory Committee of the Company
from June 2011 to June 2016. He has been a party member of CEA Holding from July 2015 to February 2016. Mr. Yu graduated from Shandong
University majoring in philosophy. He holds the title of associate research fellow.



Mr. Xu
Haihua, was a supervisor of the Company during the reporting period. Mr. Xu joined the civil aviation industry in 1982. He
served as the deputy secretary of the Party committee and secretary of the disciplinary committee of China Eastern Air Catering
Investment Co., Limited from April 2005 to March 2010. He served as the deputy secretary of the Party committee, secretary of the
disciplinary committee and chairman of the labour union of Eastern Air Tourism Investment Group Co., Limited from April 2010 to
September 2012. He has been the head of the general office of the labour union of the Company from October 2012 to August 2014.
He has been the vice chairman of the labour union of the Company and the Director of the General Office of the labour union from
September 2014 to February 2016. He has been a supervisor of the Company from June 2015 to June 2016. Mr. Xu graduated from Macau
International Public University majoring in business administration and obtained postgraduate qualification.



Mr. Sun
Youwen, was the vice president of the Company during the reporting period. Mr. Sun joined the civil aviation industry in 1980,
and served as a squadron leader and the leader of the Shanghai flight division. He served as the vice president of Eastern Jiangsu
from April 2007 to November 2009 and the general manager of the Shanghai flight division of the Company from December 2009 to April
2012. He was appointed as the chief pilot of the Company and the general manager of the Shanghai flight division of the Company
from April 2012 to March 2014 and has served as the vice president and chief pilot of the Company from March 2014 to July 2014.
He has been a vice president of the Company from July 2014 to February 2017. 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 degree
from the Institute of Management of Fudan University.



46







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



The aggregate
amount of cash compensation paid by us to our Directors, supervisors and the senior management during 2016 for services performed
as Directors, supervisors and officers or employees of our Company was approximately RMB5.9 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 2016 are as follows:





|                                    |  | Total   |      
|----------------------------------- |  | ------- | -----
|Name and Principal Position         |  | RMB'000 |      
|Directors                           |  |         |      
|Liu Shaoyong*                       |  |         | -    
|Ma Xulun*                           |  |         | -    
|Xu Zhao*                            |  |         | -    
|Gu Jiadan*                          |  |         | -    
|Li Yangmin*                         |  |         | -    
|Tang Bing*                          |  |         | -    
|Tian Liuwen*                        |  |         | -    
|Independent non-executive Directors |  |         |      
|Li Ruoshan                          |  |         | 160  
|Ji Weidong***                       |  |         | -    
|Shao Ruiqing                        |  |         | 160  
|Ma Weihua                           |  |         | 160  
|Cai Hongping**                      |  |         | 100  
|Supervisors                         |  |         |      
|Yu Faming*&****                     |  |         | -    
|Xi Sheng*                           |  |         | -    
|Xu Haihua*****                      |  |         | 288  
|Feng Jinxiong                       |  |         | 535  
|Ba Shengji*                         |  |         | -    
|Hu Jidong**                         |  |         | 426  
|Jia Shaojun*&**                     |  |         | -    
|Senior Management                   |  |         |      
|Wu Yongliang                        |  |         | 851  
|Feng Liang                          |  |         | 851  
|Jiang Jiang                         |  |         | -    
|Wang Jian                           |  |         | 806  
|Sun Youwen                          |  |         | 1,597
|Total                               |  |         | 5,934



| | * | These Directors and supervisors of our Company received
emoluments from CEA Holding, our parent company, part of which were 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 us and their services
to CEA Holding. The confirmation of remuneration of the Company’s senior management is based on the System Plan on the Work
Position and Remuneration of China Eastern Airlines Corporation Limited;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ** | These directors and supervisors of the Company were newly
appointed during the year ended December 31, 2016. According to relevant regulations and assessment schemes, a portion of remuneration
payment of the Company’s certain Supervisors and senior management was deferred according to assessment. The deferred remuneration
payment for prior years received in 2016 by Mr. Hu Jidong, a Supervisor, Mr. Wu Yongliang, Vice President and Chief Financial
Officer, Mr. Feng Liang, Vice President and Mr. Sun Youwen (Vice President in the report period) was approximately RMB233,900
per person and deferred remuneration payment for prior years received by Mr. Wang Jian, Board Secretary was approximately RMB220,900;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | *** | Mr. Ji Weidong has filed his retirement during the year ended December 31, 2015 and has fulfilled his responsibility until
new director being appointed by the board in June 2016;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | **** | Mr. Yu Faming retired during the year ended December 31, 2016. Terms of service of Supervisor Mr.
Hu Jidong started from June 15, 2016. Therefore, the remuneration disclosure period is from June to December 2016. Supervisor Mr.
Xu Haihua ceased to be the supervisor of the Company since June 15, 2016. Therefore, the remuneration disclosure period is from
January to June 2016;
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ***** | Mr. Xu Haihua retired during the year ended December 31, 2016. Terms of service of Mr. Jiang Jiang,
Vice President, started from February 22, 2017; Mr. Sun Youwen (Vice President in the reporting period) is a pilot, whose salary
includes the flight service benefits.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the year ended December 31, 2016, 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 during their current term and the expiration of their current term.



47







|Name (1)      |  | Position                              |  | Held Position Since |  | Expiration of Term
|------------- |  | ------------------------------------- |  | ------------------- |  | ------------------
|Liu Shaoyong  |  | Chairman of the Board of Directors    |  | June 15, 2016       |  | June 30, 2019     
|Ma Xulun      |  | Vice Chairman                         |  | June 15, 2016       |  | June 30, 2019     
|              |  | President                             |  | June 15, 2016       |  | June 30, 2019     
|Li Yangmin    |  | Director                              |  | June 15, 2016       |  | June 30, 2019     
|              |  | Vice President                        |  | June 15, 2016       |  | June 30, 2019     
|Xu Zhao       |  | Director                              |  | June 15, 2016       |  | June 30, 2019     
|Gu Jiadan     |  | Director                              |  | June 15, 2016       |  | June 30, 2019     
|Tang Bing     |  | Director                              |  | June 15, 2016       |  | June 30, 2019     
|              |  | Vice President                        |  | June 15, 2016       |  | June 30, 2019     
|Tian Liuwen   |  | Director                              |  | June 15, 2016       |  | June 30, 2019     
|              |  | Vice President                        |  | June 15, 2016       |  | June 30, 2019     
|Li Ruoshan    |  | Independent Non-executive Director    |  | June 15, 2016       |  | June 30, 2019     
|Ma Weihua     |  | Independent Non-executive Director    |  | June 15, 2016       |  | June 30, 2019     
|Shao Ruiqing  |  | Independent Non-executive Director    |  | June 15, 2016       |  | June 30, 2019     
|Cai Hongping  |  | Independent Non-executive Director    |  | June 15, 2016       |  | June 30, 2019     
|Xi Sheng      |  | Chairman of the Supervisory Committee |  | June 15, 2016       |  | June 30, 2019     
|Ba Shengji    |  | Supervisor                            |  | June 15, 2016       |  | June 30, 2019     
|Hu Jidong     |  | Supervisor                            |  | June 15, 2016       |  | June 30, 2019     
|Feng Jinxiong |  | Supervisor                            |  | June 15, 2016       |  | June 30, 2019     
|Jia Shaojun   |  | Supervisor                            |  | June 15, 2016       |  | June 30, 2019     
|Wu Yongliang  |  | Vice President                        |  | June 15, 2016       |  | June 30, 2019     
|              |  | Chief Financial Officer               |  | June 15, 2016       |  | June 30, 2019     
|Feng Liang    |  | Vice President                        |  | June 15, 2016       |  | June 30, 2019     
|Jiang Jiang   |  | Vice President                        |  | February 22, 2017   |  | June 30, 2019     
|Wang Jian     |  | Company Secretary                     |  | June 15, 2016       |  | June 30, 2019     



Note:



(1) On June 15, 2016, Mr. Liu
Shaoyong, Mr. Ma Xulun, Mr. Li Yangmin, Mr. Xu Zhao, Mr. Gu Jiadan, Mr Tang Bing and Mr. Tian Liuwen were elected as Directors
of the eighth session of the Board of the Company, Mr. Li Ruoshan, Mr. Ma Weihua, Mr. Shao Ruiqing and Mr. Cai Hongping were elected
as independent non-executive Directors of the eighth session of the Board of the Company, and Mr. Xi Sheng, Mr. Ba Shengji and
Mr. Jia Shaojun were elected as the shareholder supervisors of the eighth session of the Supervisory Committee of the Company at
the 2015 annual general meeting of the Company. On the same day, Mr. Cai Hongping was appointed as a member of the Nominations
and Remuneration Committee of the Board (in replacement of Mr. Shao Ruiqing). Mr. Li Ruoshan was appointed as a member of the Aviation
Safety and Environment Committee (in replacement of Mr. Shao Ruiqing). Mr. Shao Ruiqing was appointed as member of Audit and Risk
Management Committee and the Planning and Development Committee of the Board.



On June 15, 2016, Mr. Hu Jidong
and Mr. Feng Jinxiong were elected as employee’s representative's supervisors of the eighth session of the Supervisory Committee
of the Company at the second joint meeting of team leaders in 2016 of the sixth session of the employee's representative's conference
of the Company.



On June 15, 2016, Mr. Wang Jian,
previously a joint company secretary of the Company, was appointed as the Company’s company secretary.



On February 22, 2017, the fourth
ordinary meeting of the eighth session of the Board of Directors of the Company appointed Mr. Jiang Jiang as a vice president of
the Company for a term of office in line with the current session of the Board.



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.
Our audit and risk management committee comprises Mr. Li Ruoshan, Mr. Shao Ruiqing and Mr. Xu Zhao as the members of the Audit
and Risk Management Committee and Mr. Li Ruoshan was appointed as the chairman of the Audit and Risk Management Committee. Mr.
Li Ruoshan and Mr. Shao Ruiqing are independent non-executive directors. Mr. Xu Zhao, although as a Director, is not an affiliate
as defined under Rule10A-3, since he (i) is not the beneficial owner, directly or indirectly, of more than 10% of any class of
voting equity securities of China Eastern Airlines Inc.; and (ii) is not an executive officer of either China Eastern Airlines
Inc. or any of its subsidiaries and does not receive any compensation from either China Eastern Airlines Inc. or any of its subsidiaries.
Therefore, Mr. Xu Zhao falls into the safe harbor created by paragraph(e)(1)(ii)(A) under Rule10A-3 and shall be deemed not to
be in “control” for purposes of the definition of “affiliate” under Rule10A-3. Our audit and risk management
committee satisfies the requirements of Rule 10A-3 of the Exchange Act and NYSE Rule 303A.06 relating to audit committees, including
the requirements relating to independence of the audit committee members.



The audit
and risk management committee is authorized to, among other things, examine our internal control, internal audit and risk management
systems, 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 ten meetings in 2016.



Nominations and Remuneration Committee



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



The Nominations
and Remuneration committee is authorized to make recommendations to our Board of Directors regarding its size and composition based
on the relevant provisions of the Company Law and in the light of specific circumstances such as the characteristics of the Company’s
equity structure, determine standards and procedures for the nomination of Directors and senior management of the Company, examine
the remuneration policies of Directors and senior management of the Company, review the performance of our Directors and senior
management as well as determine their annual compensation level. The Nominations and Remuneration Committee submits to our Board
of Directors or shareholders' meeting for approval compensation plans and oversee the implementation of approved compensation plans.
The Nominations and Remuneration Committee may consult financial, legal or other outside professional firms in carrying out its
duties. Prior to the establishment of the Nominations and Remuneration Committee, Remuneration and Appraisal Committee did not
hold any meetings in 2009. Under the guidance of Remuneration and Appraisal Committee, we renewed liability insurance for our Directors,
supervisors and senior management in 2015. The Nominations and Remuneration Committee held four meetings in 2016.



48







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 Planning
and Development Committee comprises three members: Mr. Li Yangmin and Mr. Tang Bing both of whom are Directors, and Mr. Shao Ruiqin,
an independent non-executive director. Mr. Li Yangmin is the chairman of the committee.



The Planning
and Development Committee, a specialized committee under our Board of Directors, is responsible for studying, considering, and
developing plans and making recommendations with regard to the long-term development plans and material investment decisions of
the Company. The members of the committee also oversee the implementation of such plans. The Planning and Development Committee
held seven meetings in 2016.



Aviation Safety and Environment Committee



The Aviation
Safety and Environment Committee comprises Mr. Ma Xulun and Mr. Li Yangmin, both of whom are Directors, and Mr. Li Ruoshan, an
independent non-executive director. Mr. Ma Xulun serves as the chairman of the committee.



The Aviation
Safety and Environment Committee, a specialized committee under the Board of Directors, is responsible for consistent implementation
of relevant laws or regulations regarding national aviation safety and environmental protection, examining and overseeing the aviation
safety management of the Company, studying, considering and making recommendations with regard to aviation safety duty plans and
significant issues resulting from related safety duties as well as implementing such safety duty plans. In addition, the Aviation
Safety and Environment Committee performs studies, and makes recommendations on significant environmental protection issues, including
carbon emissions on our domestic and international aviation routes and carbon emission programs, and overseeing their implementation.
The Aviation Safety and Environment Committee held two meetings in 2016.



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



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



The table below sets forth the number of our employees
as of December 31, 2014, 2015 and 2016, respectively:



|                                          |  | As of December 31, |       
|----------------------------------------- |  | ------------------ | ------
|                                          |  | 2014               |       
|Pilots                                    |  |                    | 6,502 
|Flight attendants and other aircrew staff |  |                    | 12,203
|Maintenance personnel                     |  |                    | 10,542
|Sales and marketing                       |  |                    | 3,892 
|Operation control                         |  |                    | 2,004 
|Information technology                    |  |                    | 670   
|Management                                |  |                    | 4,072 
|Ground Services and others                |  |                    | 30,261
|Total                                     |  |                    | 70,146



In 2016,
we placed great emphasis on employees training by improving the structure of our training system, strengthening frontline training,
intensifying management training and implementing an innovating cultivation model to nurture a team of excellent talents to better
satisfy our business development needs and talent team building requirements. In 2016, we organized 182 sessions of multi-tier
training with a total of 11,249 participants, and optimized the "Sailing Program", a training program for new management
trainees incorporating closed-door training with seminars, experimental and inspirational teaching with 260 participants. Focusing
on major topics such as project management and internet development, we organized management forums and invited domestic and international
renowned scholars to deliver lectures and attend informational exchange sessions. We have developed our own “Lean Six Sigma
Green-belt Program (Ver. 2.0)” with a view to continually optimizing our training system.



See Note 37 to our audited consolidated financial statements for changes in our retirement benefits.



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



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



In 2012,
we implemented an H shares appreciation rights scheme, under which H shares appreciation rights were granted to the Directors and
senior management on November 30, 2012 at an exercise price of HK$2.67. The H share appreciation rights granted under this scheme
are valid for a period of five 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 our announcements in the Form 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. The first tranche of H shares
appreciation rights, amounting to one third of the total H shares appreciation rights of our Company, was originally planned to
be exercised on December 1, 2014. However, as our Company did not satisfy the exercising conditions in 2013, such tranche expired
automatically.



|Item 7. | Major Shareholders and Related Party Transactions
|------- | -------------------------------------------------



| | A. | Major Shareholders
| | -- | ------------------



The following table sets forth
certain information regarding ownership of our capital stock as of December 31, 2016 by all persons who were known to us to be
the beneficial owners of 5% or more of any class of our issued share capital:



|                  |  |                                              |  |              |               |  |                  |  |       | Percent of | 
|----------------- |  | -------------------------------------------- |  | ------------ | ------------- |  | ---------------- |  | ----- | ---------- | 
|                  |  |                                              |  |              |               |  |                  |  |       | Total      | 
|                  |  |                                              |  |              |               |  | Percent of Class |  |       | Shares     | 
|Title of Class    |  | Identity of Person or Group                  |  | Amount Owned |               |  | (%)              |  |       | (%)        | 
|Domestic A Shares |  | CEA Holding (1)                              |  |              | 5,530,240,000 |  |                  |  | 56.38 |            | 
|Domestic A Shares |  | China National Aviation Fuel Holding Company |  |              | 586,300,252   |  |                  |  | 5.98  |            | 
|H Shares          |  | CES Global (2)                               |  |              | 2,626,240,000 |  |                  |  | 56.37 |            | 
|H Shares          |  | HKSCC Nominees Limited (3)                   |  |              | 4,181,677,289 |  |                  |  | 89.75 |            | 
|H Shares          |  | Delta Air Lines (4)                          |  |              | 465,910,000   |  |                  |  | 10.00 |            | 



49







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, as of
December 31, 2016:



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



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



| | (3) | Among the 4,181,677,289 H shares held by HKSCC Nominees
Limited, 2,626,240,000 shares (representing approximately 56.37% of the Group’s then total issued H shares) were held by
CES Global in the capacity of beneficial owner, which in turn were entirely held by CEA Holding.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Those H shares were held by
Delta Air Lines, Inc. in the capacity of beneficial owner, and represented approximately 10.00% of the Group’s then total
issued H shares
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December
31, 2016, CEA Holding directly or indirectly held 56.38% 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, 2016, there were 4,659,100,000 H Shares issued and outstanding. As of December 30, 2016 (December 31, 2016 being
a Saturdary) and April 21, 2017, there were 41 and  40 registered holders, respectively, of American depositary
receipts evidencing 2,009,506 and  1,950,955 ADSs, respectively. Since certain of the ADSs are held by nominees, the above
number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially
held by U.S. persons.



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



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



Relationship with CEA Holding and Associated
Companies



We enter
into transactions from time to time with CEA Holding and its subsidiaries. For a description of such transactions, see Note 47
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
Services (previously known as Import and Export Agency Services)



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 was effective for a term of three years from January 1, 2014
to December 31, 2016.



On August
30, 2016, we entered into an agreement relating to the renewal of the existing Import and Export Agency Agreement with EAIEC, pursuant
to which EAIEC and its subsidiaries will from time to time provide our Group with a range of import and export services including:
(i) 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; (ii) the provision of transportation services as required by our Group in the conduct of foreign trade;
and (iii) provision of aircraft on-board supplies. The Import and Export Services Renewal Agreement (previously known as Import
and Export Agency Renewal Agreement) is effective for a term of three years, from January 1, 2017 to December 31, 2019.



For the
year ended December 31, 2016, we paid handling charges of approximately RMB105 million to EAIEC. We currently have certain balances
with EAIEC, which are unsecured, interest-free and have no fixed term of repayment. See Note 47(b) to our audited consolidated
financial statements for more details.



China Eastern Airlines Media Co. Ltd. ("CEA
Media") (previously known as Eastern Aviation Advertising Service Co., Ltd. ("Eastern Aviation Advertising")), a
55% owned subsidiary of CEA Holding



Advertising
Service Agreement



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



On August
30, 2016, we entered into an agreement relating to the renewal of the Existing Advertising Services Agreement with CEA Media on
substantially the same terms, pursuant to which CEA Media and its subsidiaries will from time to time provide our Group with multi-media
advertising services to promote our Group's business and to organize promotional functions and campaigns to enhance our Group's
reputation in the civil aviation industry. The Advertising Services Renewal Agreement is effective for a term of three years, from
January 1, 2017 to December 31, 2019.



50







For the
year ended December 31, 2016, we paid to Eastern Aviation Advertising approximately RMB36 million for advertising services.



Media Resources
Agreement and Agreement with CES Media



On September
27, 2013, we entered into an agreement with CES Media, pursuant to which we and certain of our subsidiaries agreed to transfer
the exclusive rights to use certain media and advertising resources to CES Media and certain of its subsidiaries for a period of
15 years (from January 1, 2014 to December 31, 2028). CES Media is a subsidiary of and thus an associate of CEA Holding, which
in turn is a controlling shareholder of the Company. For the year ended December 31, 2016, Eastern Aviation Advertising paid approximately
RMB17 million in media royalty fees.



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



Catering
Service Agreements



On 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 would
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 at the extraordinary general meeting of the Company held on October 29, 2013 and was effective for a term
of three years, from January 1, 2014 to December 31, 2016.



On August
30, 2016, we entered into an agreement relating to the renewal of the Existing Catering Services Agreement with CEA Catering, pursuant
to which CEA Catering and its subsidiaries (each an “Eastern Air Catering Entity” and collectively the “Eastern
Air Catering Entities”) will from time to time provide our Group with catering services (including the supply of meals and
beverages, cutlery and tableware) and related storage and complementary services required in the day-to-day airline and ground
operation of our 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 our Group to accommodate the operational needs of our Group.



For the
year ended December 31, 2016, we paid approximately RMB1,054 million to the subsidiaries of CEA Catering for the supply of in-flight
meals and other services.



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



On January
16, 2013, the Company entered into a supplemental agreement with Eastern Finance to further regulate the balances of our deposits
and loans with Eastern Finance and its subsidiaries on a pre-condition that the agreed maximum daily balance of each of the deposits
and the loans under the financial services agreement dated October 15, 2010 remained unchanged. For details, please refer to our
announcement in the Form 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 an “Eastern Air Finance Entity” and collectively the “Eastern Air Finance Entities”)
and CES Finance and its subsidiaries (each a “CES Finance Entity” and collectively the “CES Finance Entities”)
will from time to time provide the Group with a range of financial services including: (i) deposit services by Eastern Air Finance
Entities; (ii) loan and financing services by Eastern Air Finance Entities; and (iii) other financial services such as: (a) the
provision of trust loans, financial guarantees, credit references by Eastern Air Finance Entities; and (b) broker services for
future products (e.g. crude oil, foreign exchange and national debt) by CES Finance Entities (the scope of “other financial
services” is not limited and different services may be provided to the Group as and when they are needed). The Financial
Services Renewal Agreement was approved at the extraordinary general meeting of the Company held on October 29, 2013 and was effective
for a term of three years, from January 1, 2014 to December 31, 2016.



On August
30, 2016, we entered into an agreement relating to the renewal of the Existing Financial Services Agreement with Eastern Finance
and CES Finance, on substantially the same terms, pursuant to which Eastern Finance and its subsidiaries (each an “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”) agreed from time to time provide
our 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 services
such as trust loans, financial guarantees and credit references by the Eastern Air Finance Entities; and (b) the provision of services
such as 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 is effective for a term of three years, from January 1, 2017 to December
31, 2019.



As of December
31, 2016, we had deposits amounting to RMB1,296 million placed with Eastern Finance, which paid interest to us at 0.35% per annum.
In addition, as of December 31, 2016, our Company did not have any loans from Eastern Finance.



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



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”) would from time to time provide certain services, including:
(i) maintenance and repair services to our airplanes and automobiles that are used in ground services and daily operations; (ii)
comprehensive services in relation to maintenance, repair and overhaul of aircraft, aviation equipment and ancillaries; (iii) 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; (iv) aircraft on-board supplies;
and (v) warehousing management (the “Maintenance and Repair Services Renewal Agreement”). Maintenance and Repair Services
Renewal Agreement was effective for a term of three years, from January 1, 2014 to December 31, 2016.



On August
30, 2016, we entered into the Complementary Services Renewal Agreement (previously known as the Existing Maintenance and Repair
Services Agreement) with CEA Development, 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 our Group with a range
of services including: (i) supply of equipment and materials and provision of maintenance and repair services to our automobiles
and equipment; (ii) provision of property management services; (iii) provision of hotel accommodation services; and (iv) other
complementary aviation services. The Complementary Services Renewal Agreement is effective for a term of three years, from January
1, 2017 to December 31, 2019.



For the
year ended December 31, 2016, production and maintenance services fees paid to CEA Development Entity amounted to approximately
RMB97 million.





51







Eastern Air Logistics Co., Ltd. ("Eastern Logistics"),
an indirectly wholly-owned subsidiary of CEA Holding



Disposal of the entire equity interest
in Eastern Air Logistics



On November 29, 2016,
we entered into a disposal agreement with Eastern Airlines Industry Investment Company Limited, pursuant to which, we have conditionally
agreed to sell, and Eastern Airlines Industry Investment Company Limited has conditionally agreed to purchase, their entire equity
interest in Eastern Logistics at a consideration of RMB2,432,544,211.50, determined with reference to the relevant valuation report.
Upon completion of the disposal, Eastern Logistics would cease to be a subsidiary.



Freight Logistics Daily Connected Transactions
Framework Agreement with Eastern Logistics



As Eastern Logistics
would cease to be our subsidiary, each member of the Eastern Logistics Group will become a connected person of us. Therefore, on
November 29, 2016, we entered into the Freight Logistics Daily Connected Transactions Framework Agreement with Eastern Logistics.
We will provide the following services to the Eastern Logistics Group, required for the daily operation of its freight logistics
business: (i) aircraft maintenance and its ancillary support services; (ii) information technology support services; (iii) cleaning
services; (iv) training services; and (v) other daily support services. The Eastern Logistics Group will provide us the following
services required for our daily business operation: (i) apron transfer services, cargo terminal operation services and security
inspection services; and (ii) other daily support services. The Freight Logistics Daily Connected Transactions Framework Agreement
will be effective for a term of three years, commencing from the date on which the entire equity interest in Eastern Logistics
is transferred from us to the Purchaser pursuant to the disposal agreement, and ending on December 31, 2019.



Bellyhold Space Management Agreement



As
Eastern Logistics would cease to be our subsidiary, each member of the Eastern Logistics Group will become a connected person of
us. Moreover, our bellyhold space business will be in competition with the all-cargo aircraft freight business of China Cargo Airlines.
In view of this, within a certain period of time upon completion of the Disposal, entrusted management of bellyhold space will
be arranged by us as a transitional solution to avoid competition. At such time as appropriate, we will negotiate with Eastern
Logistics a thorough solution to the competition problem such as the buyout of the bellyhold space business. Therefore, On January
1, 2017, we entered into the Bellyhold Space Management Agreement with China Cargo Airlines.
Under the Bellyhold Space Management Agreement, China Cargo Airlines is entrusted to manage our bellyhold space freight business,
including the businesses of bellyhold cargo sales, settlement and relevant operational support in all of the passenger flights
under us, our branches and subsidiaries. The Bellyhold Space Management Agreement is effective for a term of three years commencing
January 1, 2017 until December 31, 2019.



Property Leases



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, we leased the following properties from CEA Holding and its
subsidiaries, for use in our daily airline and other business operations:



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



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



(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;



(iv) 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;



(v) a total
of 7 building properties and related construction, infrastructure and facilities owned by CEA Holding, occupying an aggregate floor
area of approximately 13,195 square meters located in Shanghai;



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



(vii) other property facilities owned by CEA Holding
as may be leased to us from time to time, due to our business needs



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



On August 30, 2016, we entered into an
agreement relating to the renewal of the existing property leasing agreement with CEA Holding. Pursuant to the property leasing
renewal agreement, we will lease from CEA Holding and its subsidiaries the following properties, for use in our daily airlines
and other business operations:



(a) altogether 17 land properties owned
by CEA Holding in Lanzhou, Gansu, covering an aggregate site area of approximately 234,989 square metres together with a total
of 81 building properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately
54,290 square metres;



(b) altogether three land properties owned
by CEA Holding in Kunming, Yunnan, covering an aggregate site area of 44,835 square metres together with a total of 24 building
properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 67,992 square
metres;



(c) one building property, construction,
structures and other ancillary facilities owned by CEA Holding in Shijiazhuang, occupying an aggregate floor area of approximately
8,853 square metres;



(d) a total of 67 building properties,
construction, structures and other ancillary facilities owned by CEA Holding in Taiyuan, occupying an aggregate floor area of approximately
45,068 square metres;



(e) a total of 7 building properties,
construction, structures and other ancillary facilities owned by CEA Holding in Shanghai, occupying an aggregate floor area of
approximately 13,195 square metres;



(f) altogether 16 land properties owned
by CEA Northwest, covering an aggregate site area of approximately 393,929 square metres together with a total of 115 building
properties, construction, structures and other ancillary facilities occupying an aggregate floor area of approximately 88,440 square
metres;



(g) a total of altogether 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



52







(h) other land and property facilities owned by CEA Holding
as may be leased to us from time to time due to our business and operational needs.



In addition to the above and on terms
and conditions to be further agreed, we will lease some of the properties legally owned or leased by us 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 from January 1, 2017 to December 31, 2019.



For the year ended December 31, 2016, we paid a rental
fee of RMB54 million under this property leasing renewal agreement.



Guarantee by CEA Holding



As of December
31, 2014, bonds issued by us in an aggregate amount of RMB4.8 billion were guaranteed by CEA Holding. As of December 31, 2015,
bonds issued by us in an aggregate amount of RMB4.8 million guaranteed by CEA Holding. As of December 31, 2016, bonds issued by
us in an aggregate amount of RMB7.8 million guaranteed by CEA Holding. See Note 47(d) to our audited consolidated financial statements.



Agreement in relation to Aircraft Finance Lease
with CEA Leasing



On May
5, 2015, we entered into a master lease agreement with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing
to us in relation to 23 aircraft in accordance with the terms and conditions of the master lease agreement and the relevant implementation
agreements. CES Leasing is a non-wholly owned subsidiary of CEA Holding, which in turn is the controlling shareholder of the Company.



On April
28, 2016, we entered into the 2016 Aircraft Finance Lease Framework Agreement with CES Leasing, pursuant to which CES Leasing agreed
to provide finance leasing to us in relation to the leased aircraft, as and when we consider desirable, in our interests and the
interests of the Shareholders as a whole in accordance with the terms and conditions of the 2016 Aircraft Finance Lease Framework
Agreement and the relevant implementation agreements contemplated thereunder. The 2016 Aircraft Finance Lease Framework Agreement
was effective for a term of one year commencing January 1, 2016.



On April
28, 2016, we entered into the 2017–2019 Aircraft Finance Lease Framework Agreement with CES Leasing, pursuant to which CES
Leasing agreed to provide finance leasing to us in relation to the Leased Aircraft, as and when we consider desirable, in our interests
and the interests of the Shareholders as a whole in accordance with the terms and conditions of the 2017–2019 Aircraft Finance
Lease Framework Agreement and the relevant implementation agreements contemplated thereunder. The 2017–2019 Aircraft Finance
Lease Framework Agreement is effective for a term of three years, from January 1, 2017 to December 31, 2019.



For the
year ended December 31, 2016, we paid a rental fee of RMB2,721 million under the 2016 Aircraft Finance Lease Framework Agreement.



Airline Service Agreement with TravelSky Technology
Limited (“TravelSky”)



On December
11, 2015, the Company entered into the Airline Service Agreement (the “Agreement”) with TravelSky in Shanghai for a
term commencing January 1, 2015 and ending December 31, 2016. Pursuant to the Agreement, TravelSky will provide the Group with
an inventory control system, a computer reservation system, extended reservation services and related products and services, as
well as civil aviation and commercial data network services. The Company will pay the service fees by reference to the standards
set by the CAAC. The annual caps for the daily connected transactions between Travelsky and us in 2015 and 2016 were estimated
to be RMB650 million and RMB730 million. Given that Mr. Li Yangmin, a Director and vice president of the Company is a director
of Travelsky, Travelsky is a related party of us pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange.



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



Not applicable.



|Item 8. | Financial Information
|------- | ---------------------



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



Financial Statements



Please
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.



Dividends and Dividend
Policy



For the
years ended December 31, 2010, 2011, 2012 and 2013, our Board of Directors did not recommend any dividend payouts due to our total
accumulated losses of RMB12,855 million, RMB8,039 million, RMB4,967 million and RMB2,595 million, respectively. Under PRC law,
we cannot convert funds from common reserves to increase our share capital during this period. Based on the audited financial statements
of the Company under the PRC Accounting Standards for Business Enterprises as of and for the year 2014, the retained earnings
of the parent company were RMB21 million as of December 31, 2014. Based on the audited financial statements of the Company under
IFRSs as of and for the year 2014, the accumulated loss of the parent company was RMB385 million. Pursuant to the PRC Company Law
and its Articles of Association, the Company must recover losses incurred in previous years with its profit for the year before
any dividend distributions are made to its shareholders. The basis of dividend distribution of the Company is the distributable
profit of the parent company, which is subject to the principle of adopting the lesser of the profit after tax under the PRC accounting
standards and IFRSs. As of December 31, 2014, the Company has been recording accumulated losses under IFRSs. The Board recommended
that no dividend be distributed for the year 2014 and share capital of the Company not be increased through capitalization of its
capital reserve. Based on the audited financial statements of the Company under the PRC Accounting Standards for Business Enterprises
as of and for the year 2015, the retained profits of the parent company were RMB1,680 million as of December 31, 2015. Based on
the audited financial statements of the Company under IFRSs as of and for the year 2015, the retained profits of the parent company
were RMB1,164 million.



In accordance
with Rule 17 of Measures on the Administration of Securities Issuance and Underwriting by the CSRC, if listed companies with a
plan for issuance of securities have any profit distribution proposal or proposal for capital increase with capital surplus, that
has not yet been submitted to general meeting for voting or has been approved by shareholders’ general meeting but not yet
implemented, the issuance of securities may only proceed after such proposals have been implemented. Given that the Company’s
application for non- public issuance of A shares was approved by the CSRC in January 2016 and will expire on July 5, 2016, if the
Company had implemented profit distribution in 2015, approval for the profit distribution proposal would have been needed at the
2015 general meeting and the non-public issuance of A shares could only be implemented after the implementation of the profit distribution
proposal. This would have narrowed the time frame for the non-public issuance of A shares or would even have made it impossible
to implement, in which case the implementation of the Company’s non-public issuance project and long-term development would
have been severely hampered.



53







In consideration
of factors such as shareholders’ interests and the Company’s development, the profit distribution proposal recommended
by the Board of the Company for the year 2015 is as follows: No profit shall be distributed for the year 2015 and no share capital
of the Company shall be increased with its capital reserve. The Group profit distribution proposal for the year 2015 will be submitted
to the 2015 annual general meeting for consideration. The Board of the Company also intends for, a cash dividend distribution in
the interim period for the year 2016 of not less than 40% of the net profit of the Company of the year 2015 under the PRC Accounting
Standards.



On October
27, 2016, the interim profit distribution plan was approved at the extraordinary general meeting of the Company. The 2016 interim
distribution was approximately RMB737.8 million in cash. Based on our total share capital of 14,467,585,682 shares, the cash distribution
per share was RMB0.051 (before tax) in cash.



On March
30, 2017, the Board considered and approved the 2016 annual profit distribution proposal. It was recommended by the Board that
the 2016 annual distribution be approximately RMB708.9 million in cash. Based on the total share capital of 14,467,585,682 shares
of the Company, the cash distribution per share would be RMB0.049 (before tax) in cash which will be distributed to holders of
A shares of the Company in RMB and to holders of H shares of the Company in HKD.



The independent
non-executive directors of the Company are of the view that the aforesaid annual profit distribution proposal is in line with the
objective situation of the Company, in the long-term interests of the Company and its shareholders, in compliance with relevant
laws, regulations and the articles of association of the Company, and not detrimental to the interests of investors (especially
minority shareholders) of the Company.



The aforesaid
profit distribution proposal of the Group is subject to consideration and approval by the shareholders at the 2016 general meeting
of the Company. If the 2016 annual profit distribution proposal is approved at the general meeting, the Company expects that the
cash distribution will be paid on August 10, 2017.



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



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



| | • | our financial results;
| | - | ----------------------



| | • | capital requirements;
| | - | ---------------------



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



| | • | our shareholders interests;
| | - | ---------------------------



| | • | 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 allocation 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 IFRSs, less allocations to the statutory surplus reserve.



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



Significant Post Financial Statements Events



Not applicable.



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



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



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



As of December 31,
2016, there were 4,659,100,000 H Shares issued and outstanding. As of December 30, 2016 (December 31, 2016 being a
Saturday) and April 21, 2017, there were 41 and 40  registered holders, respectively, of American depositary receipts
evidencing 2,009,506 and  1,950,955 ADSs, respectively. Since nominees hold certain of the ADSs, 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 9,808,485,682 domestic ordinary shares were also outstanding as of December 31, 2016.



54







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 2012 to April 21, 2017.



|                                  |  |                          |      |  | New York Stock | 
|--------------------------------- |  | ------------------------ | ---- |  | -------------- | 
|                                  |  | Hong Kong Stock Exchange |      |  | Exchange       | 
|                                  |  | Price Per H Share        |      |  | Price Per ADS  | 
|                                  |  | (HK$)                    |      |  | (US$)          | 
|                                  |  | High                     |      |  | Low            | 
|Yearly                            |  |                          |      |  |                | 
|2012                              |  |                          | 3.20 |  |                | 
|2013                              |  |                          | 3.72 |  |                | 
|2014                              |  |                          | 4.05 |  |                | 
|2015                              |  |                          | 7.56 |  |                | 
|2016                              |  |                          | 4.87 |  |                | 
|Quarterly                         |  |                          |      |  |                | 
|2015                              |  |                          |      |  |                | 
|First Quarter 2015                |  |                          | 4.08 |  |                | 
|Second Quarter 2015               |  |                          | 7.56 |  |                | 
|Third Quarter 2015                |  |                          | 7.07 |  |                | 
|Fourth Quarter 2015               |  |                          | 5.15 |  |                | 
|2016                              |  |                          |      |  |                | 
|First Quarter 2016                |  |                          | 4.43 |  |                | 
|Second Quarter 2016               |  |                          | 4.87 |  |                | 
|Third Quarter 2016                |  |                          | 4.64 |  |                | 
|Fourth Quarter 2016               |  |                          | 3.84 |  |                | 
|Monthly                           |  |                          |      |  |                | 
|October 2016                      |  |                          | 3.77 |  |                | 
|November 2016                     |  |                          | 3.84 |  |                | 
|December 2016                     |  |                          | 3.80 |  |                | 
|First Quarter 2017                |  |                          |      |  |                | 
|January 2017                      |  |                          | 4.03 |  |                | 
|February 2017                     |  |                          | 4.58 |  |                | 
|March 2017                        |  |                          | 4.99 |  |                | 
|April 2017 (up to April 21, 2017) |  |                          | 4.61 |  |                | 



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



Not applicable.



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



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



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



Not applicable.



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



Not applicable.



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



Not applicable.



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



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



Not applicable.



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



The following
is a brief summary of certain provisions of our Articles of Association, as amended. Such summary does not purport to be complete.
For further information, you and your advisors should refer to the text of our Articles of Association, as amended, and to the
texts of applicable laws and regulations. A copy of the English translation of our Articles of Association, as amended on September
9, 2015, is attached as an exhibit to this Annual Report on Form 20-F (which is incorporated by reference).



Selected Summary of the
Articles of Association



We are
a joint stock limited company established in accordance with the Company Law of the People's Republic of China(the "Company
Law"), the "State Council's Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas
by Companies Limited by Share" (the "Special Regulations") and other relevant laws and regulations of the State.
We are 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 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 to 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 these 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 either 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
is otherwise subject to the approval of the Board of Directors.



55







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 in. Such director shall not be counted in the quorum for the relevant board meeting.



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



Our Articles
provide that our Company shall not in any manner pay taxes for or on behalf of a director or make directly or indirectly a loan
to or provide any guarantee in connection with the making of a loan to a director of our Company or of our Company's holding company
or any of their respective associates. However, the following transactions are not subject to such prohibition: (i) the provision
by our Company of a loan or a guarantee of a loan to a company which is a subsidiary of our Company; (ii) 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;
(iii) 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, 2016, our share capital structure was as follows: 14,467,585,682 ordinary shares of which (a) 1,327,406,822 A shares subject
to trading moratorium, which represented 9.18% of our share capital, were held by Shanghai Licheng Information Technology Consulting
Co., Limited, China National Aviation Fuel Holding Company, China COSCO Shipping Corporation Limited and Caitong Fund Management
Co., Limited, respectively; (b) 8,481,078,860 A shares without trading moratorium, which represented 58.62% of our share capital,
were issued to investors in China; and (c) 4,659,100,000 H shares without trading moratorium, which represented 32.20% 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;
| | ---- | ------------------------------------------



| | (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.



56







Shareholders' Meetings



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



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



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



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



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



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



Shareholders' Rights



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



Sources of Shareholders' Rights



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



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



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



Significant Differences in the H Shares and A Shares



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



Restrictions on Transferability and the Share Register



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



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



| | (1) | a fee (for each instrument of transfer) of HK$2.50 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.



57







Repurchase of Shares



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



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



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



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



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



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



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



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



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



Interested Shareholders



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



Ownership Threshold



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



Changes in Capital



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



58







Changes in Registered Capital



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



Recent Amendments to the Articles of Association



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



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



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



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



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



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



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



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



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



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



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



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



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



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



| | (1) | The Company records a profit for the year, and the audit institution issues an unqualified audited report on the Company's
financial statements for that particular year;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



Provided that a 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. "



59







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



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



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



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



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



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



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



The amendments to the Articles
of Association are as follows:



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



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



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



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



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



On August 28, 2015, the Resolution
on Amendments to Parts of the Terms of the Articles of Association was considered and approved at the seventeenth ordinary meeting
of the seventh session of the Board of the Company. As authorized by the general meeting of the Company, the Board agreed to make
amendments to corresponding terms in the Articles of Association in connection with the changes made to the share capital of the
Company following the completion of the issue of H Shares of the Company to Delta Air Lines.



Article 20: “As approved by the China Securities
Regulatory Commission, the total amount of shares of the Company is 13,140,178,860 shares.”



Article 21: "The Company
has issued a total of 13,140,178,860 ordinary shares, comprising a total of 8,481,078,860 A shares, representing 64.54% of the
total share capital of the Company, a total of 4,659,100,000 H shares, representing 35.46% of the total share capital of the Company."



Article 24: "The registered capital of the
Company is RMB13,140,178,860."



On June 16, 2016, our shareholders approved the
amendments to the Articles of Association in relation to profit distribution.



The amendments to the Articles of Association are
as follows:



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 on the Company’s financial statements for that particular year;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



Provided
that the Company is in good operating condition and has sufficient cash flow to meet the needs for its normal operation and sustainable
development, the Company will proactively distribute cash dividends in return to its shareholders, and the accumulated profit distribution
made in cash by the Company in the latest three years shall not be less than 30% of the average annual distributable profit attributable
to the owners of the parent company in the consolidated statements 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."



60







On July
4, 2016, the Resolution on Amendments to the Articles of Association was considered and approved at the second ordinary meeting
of the eighth session of the Board of the Company, to in order to reflect the changes to the registered capital of the Company
following the closing of the Share Issue.



The amendments to the Articles of Association are
as follows:



Article
20: “As approved by the China Securities Regulatory Commission, the total amount of shares of the Company is 14,467,585,682
shares.”



Article 21: "The Company
has issued a total of 14,467,585,682 ordinary shares, comprising a total of 9,808,485,682 A shares, representing 67.80% of the
total share capital of the Company, a total of 4,659,100,000 H shares, representing 32.20% of the total share capital of the Company."



Article
24: "The registered capital of the Company is RMB14,467,585,682."



| | 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".



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



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



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



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



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



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



Hong Kong Taxation



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



Dividends



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



Taxation of Capital Gains



Gains
derived from the sale of capital assets are specifically exempt from profits tax. Thus,no profits tax is imposed on capital
gains arising from the sale of property (such as H shares) acquired and held as a capital asset. 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 be trading gains derived from Hong Kong. Profits tax is currently charged
at the rate of 16.5% for corporations and at the rate of 15% for unincorporated businesses (i.e. individuals).



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



Hong Kong Stamp Duty



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



61







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



Hong Kong Estate Duty



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



China Taxation



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



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



Taxation of Dividends by China



Individual investors



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



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



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



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



Enterprises



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



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



Tax Treaties



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



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



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



62







Taxation of Capital Gains by China



Individual Investors



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



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



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



Enterprises



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



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



PRC Stamp Tax



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



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



United States Federal Income Taxation



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



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



| | • | tax-exempt entities;
| | - | --------------------



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



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



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



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



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



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



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



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



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



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



| | • | dual resident corporations; or
| | - | ------------------------------



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



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



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



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



63







| | • | 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 it's
administration, and one or more U.S. persons have the authority to control all of the substantial decisions of such trust, or (ii)
such trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



INVESTORS SHOULD CONSULT THEIR
TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS APPLICABLE TO THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE H SHARES OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS OR NON-U.S. TAX LAWS, ANY CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.



Distributions on the H Shares
or ADSs



Subject
to the discussion below under "— Passive Foreign Investment Company", the gross amount of any distribution (without
reduction for any withheld PRC tax) we make on the H Shares or ADSs out of our current or accumulated earnings and profits (as
determined for U.S. federal income tax purposes) will be includible in your gross income as ordinary dividend income when the distribution
is actually or constructively received by you, or by the depositary in the case of ADSs. Distributions that exceed our current
and accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H Shares
or ADSs and thereafter as capital gain. We, however, may not calculate earnings and profits in accordance with U.S. tax principles.
Accordingly, all distributions by us to U.S. Holders will generally be treated as dividends. Any dividend will not be eligible
for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from U.S. corporations.
The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.



Subject
to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by certain non-corporate
holders will be subject to taxation at a maximum rate of 20% if the dividends are "qualified dividends." Dividends paid
on H Shares or ADSs will be treated as qualified dividends if either (i) we are eligible for the benefits of a comprehensive income
tax treaty with the United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend
rules, or (ii) the dividends are, with respect to ADSs, readily tradable on a U.S. securities market, provided that we were not,
in each case, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid,
a passive foreign investment company, or PFIC. The Agreement Between the Government of the United States of America and the Government
of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes
on Income (the "Treaty") has been approved for the purposes of the qualified dividend rules, and we expect to qualify
for benefits under the Treaty. We are considered a qualified foreign corporation with respect to the ADSs because our ADSs are
listed on the New York Stock Exchange. Finally, based on our audited consolidated financial statements and relevant market data,
we believe that we did not satisfy the definition for PFIC status for U.S. federal income tax purposes with respect to our 2016
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 2017 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 advisors 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 actually or constructively received by you, regardless of whether
you convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period
from the date the dividend payment is includible in your income to the date you convert the distribution into U.S. dollars will
be treated as ordinary income or loss from U.S. sources. If dividends received in HK dollars are converted into U.S. dollars on
the day they are received, the U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect
of the dividend income.



Subject
to various limitations, any PRC tax withheld from distributions in accordance with the Treaty will be deductible or creditable
against your U.S. federal income tax liability. Dividends paid by us generally will constitute income from sources outside the
United States for U.S. foreign tax credit limitation purposes and will be categorized as "passive category income" or,
in the case of certain U.S. Holders, as "general category income" for U.S. foreign tax credit purposes.



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



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



Sale, Exchange or Other Disposition



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



64







A U.S.
Holder that receives foreign currency from a sale or disposition of H Shares or ADSs generally will realize an amount equal to
the U.S. dollar value of the foreign currency determined on (i) the date of receipt of payment in the case of a cash basis U.S.
Holder and (ii) the date of disposition in the case of an accrual basis U.S. Holder. If Shares are treated as traded on an "established
securities market", a cash basis taxpayer or, if it so elects, an accrual basis taxpayer, will determine the U.S. dollar value
of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale. A U.S.
Holder will have a tax basis in the foreign currency received equal to the U.S. dollar amount realized. Any currency exchange gain
or loss realized on a subsequent conversion of the foreign currency into U.S. dollars for a different amount generally will be
treated as ordinary income or loss from sources within the United States. However, if such foreign currency is converted into U.S.
dollars on the date received by the U.S. Holder, a cash basis or electing accrual basis U.S. Holder should not recognize any gain
or loss on such conversion.



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



Passive Foreign Investment Company



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



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



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



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



Based on
the current and anticipated composition of our assets and income and the current expectations regarding the price of the H Shares
and ADSs, we believe that we were not a PFIC for U.S. federal income tax purposes with respect to our 2016 taxable year and we
do not intend to become or anticipate becoming a PFIC for the current or 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 2017 taxable year. Changes in the nature of our income or assets
or a decrease in the trading price of the H Shares or ADSs may cause us to be considered a PFIC in the current or any subsequent
year.



If we were
a PFIC in any taxable year that you held the H Shares or ADSs, you generally would be subject to special rules with respect to
"excess distributions" made by us on the H Shares or ADSs and with respect to gain from your disposition of the H Shares
or ADSs. An "excess distribution" generally is defined as the excess of the distributions you receive with respect to
the H Shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter
of the three preceding years, or your holding period for the H Shares or ADSs. Generally, you would be required to allocate any
excess distribution or gain from the disposition of the H Shares or ADSs ratably over your holding period for the H Shares or ADSs.
The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in
which we became a PFIC, would be taxed at the highest U.S. federal income tax rate on ordinary income in effect for such taxable
year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been
due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior
taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included
in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income. If we were a
PFIC in any year during a U.S. Holder's holding period, we would generally be treated as a PFIC for each subsequent year absent
a "purging" election by the U.S. Holder.



These adverse
tax consequences may be avoided if the U.S. Holder is eligible to and does elect to annually mark-to-market the H Shares or ADSs.
If a U.S. Holder makes a mark-to-market election, such holder will generally include as ordinary income the excess, if any, of
the fair market value of the H Shares or ADSs at the end of each taxable year over their adjusted basis, and will be permitted
an ordinary loss in respect of the excess, if any, of the adjusted basis of the H Shares or ADSs over their fair market value at
the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market
election). Any gain recognized on the sale or other disposition of the H Shares or ADSs will be treated as ordinary income. The
mark-to-market election is available only for "marketable stock," which is stock that is traded in other than de minimis
quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable
Treasury regulations. The ADSs should qualify as "marketable stock" because the ADSs are listed on the New York Stock
Exchange. However, the stock of any of our subsidiaries that were PFICs would not be eligible for the mark-to-market election.



A U.S.
Holder's adjusted tax basis in the H Shares or ADSs will be increased by the amount of any income inclusion and decreased by the
amount of any deductions under the mark-to-market rules. If a U.S. Holder makes a mark-to-market election it will be effective
for the taxable year for which the election is made and all subsequent taxable years, unless the H Shares or ADSs are no longer
regularly traded on a qualified exchange or the IRS consents to the revocation of the election. U.S. Holders are urged to consult
their tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable in
their particular circumstances.



Alternatively,
a timely election to treat us as a qualified electing fund could be made to avoid the foregoing rules with respect to excess distributions
and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements
that would permit you to make a qualified electing fund election.



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, 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:



65







| | • | 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, certifying 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 or may
be refunded to the extent they exceed such liability provided that you furnish the required information to the IRS in a timely
manner. If you do not provide a correct taxpayer identification number you may be subject to penalties imposed by the IRS.



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



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



Not applicable.



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



Not applicable.



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



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



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



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, 2016, the notional amount of our outstanding
interest rate swap agreements was approximately US$1,636 million. The net fair value of the outstanding interest rate swap agreements
gave rise to an asset of approximately RMB90 million. These interest rate swap agreements will expire between 2018 and 2025. If
the interest rate had been 25 basis points higher with all other variables held constant, interest expenses on our floating rate
instruments would have increased by RMB148 million in 2015 and RMB140 million in 2016.



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, 2016, the notional amount of the outstanding currency forward contracts was approximately US$440 million, which will
expire in 2017.



Pursuant
to IFRSs, our monetary assets and liabilities denominated in foreign currencies are required to be translated into Renminbi at
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 2015 and 2016, we had foreign exchange losses of RMB5,480 million and RMB3,246 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, 2016 as a consequence of a fluctuation in value
of the following major foreign currencies.



|                               |  | Profit and Loss Account |    
|------------------------------ |  | ----------------------- | ---
|                               |  | (Decrease)/Increase     |    
|U.S. dollar depreciates by 1%  |  |                         | 377
|Japanese yen depreciates by 1% |  |                         | 2  
|Euro depreciates by 1%         |  |                         | 31 
|KRW depreciates by 1%          |  |                         | 6  
|                               |  |                         |    
|Fuel Hedging Risk              |  |                         |    



66







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.



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, 2015, the fair value gain as of December 31, 2016 would have increased or decreased by
approximately RMB981 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. BNYM's principle executive office is at 1 Wall Street, Manhattan,
New York City, New York, U.S. ADS holders are required to pay the following service fees to BNYM:



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



For the
past annual period, from January 1, 2016 to December 31, 2016, the Company received from the depositary an aggregate of US$90,312.05
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$130,048.18.



BNYM, as
depositary, has agreed to reimburse the Company for expenses incurred in the future in relation to the establishment and maintenance
of the ADS program, which include standard out-of-pocket expenses such as postage and envelopes for mailing annual and interim
financial reports and all related administrative and documentary expenses. BNYM has agreed to reimburse the Company annually for
certain investor relationship programs and promotional activities. There are limits as to the amount of reimbursable expenses and
this amount is not necessarily commensurate with the amount of fees BNYM collects from ADS investors. BNYM collects fees for delivery
and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. BNYM collects
fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable
property to pay fees. BNYM may also collect its annual fee by deducting cash distributions or by directly billing investors, or
by charging the book-entry system accounts of participants acting for investors.



PART II



|Item 13. | Defaults, Dividend Arrearages and Delinquencies
|-------- | -----------------------------------------------



None.



|Item 14. | Material Modifications to the Rights of Security Holders and Use Of Proceeds
|-------- | ----------------------------------------------------------------------------



On August
10, 2010, we effected an ADS split whereby each ADS now represents 50 H shares. There was no change to the rights and preferences
of the underlying H shares.



|Item 15. | Controls and Procedures
|-------- | -----------------------



67







Evaluation of Disclosure Controls
and Procedures



Under the
supervision and with the participation of our President and Chief Financial Officer, our management conducted an evaluation of
the effectiveness of our Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act, as of the end of the period covered by this Annual Report. Our management, with the participation of President
and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, have concluded that
as of the end of the period covered by this Form 20-F, our disclosure controls and procedures were effective to ensure that material
information required to be disclosed in the reports that we file and furnish under Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission's rules and regulations.



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



Management's Report on Internal
Control over Financial Reporting



Our management
is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) and has designed internal control procedures over financial reporting or caused internal control
procedures 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, 2016 based upon the criteria in the Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 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, 2016 in providing reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external
purposes in accordance with IFRSs.



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, 2016 has been audited by Ernst & Young, an independent
registered public accounting firm in Hong Kong, as stated in their report which is included herein.



Changes in Internal Control over Financial Reporting



During 2016,
there have been no changes in our internal control over financial reporting that occurred during the fiscal year covered by this
annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



|Item 16A. | Audit Committee Financial Expert
|--------- | --------------------------------



Our Board
of Directors has determined that Mr. Li Ruoshan, the chairman of our audit committee, is an independent financial expert serving
on our audit committee, given his experience in the academic aspects of accounting and notable achievements in accounting education
and academic research. Mr. Li Ruoshan is independent of the Board of Directors, senior management, supervisors or substantial shareholders
of our Company.



|Item 16B. | Code of Ethics
|--------- | --------------



We have
adopted a code of ethics that applies to our Directors, supervisors, President, Chief Financial Officer and other senior managers
of our Company. We have filed this code of ethics as Exhibit 11.1 to this annual report (which is incorporated by reference). A
copy of our code of ethics will be provided to any person free of charge upon written request to Wang Jian, Secretary Office of
the Board of Directors, China Eastern Airlines Corporation Limited at Kong Gang San Road, Number 92, Shanghai 200335, the People's
Republic of China.



|Item 16C. | Principal Accountant Fees and Services
|--------- | --------------------------------------



The following
table sets forth the aggregate audit fees, audit-related fees and tax fees of our principal accountants, Ernst & Young for
the years ended December 31, 2015 and 2016, and all other fees billed for products and services provided by our principal accountants
other than the audit fees and audit-related fees and tax fees:



|     |  | Audit-Related |            |  | All Other | 
|---- |  | ------------- | ---------- |  | --------- | 
|     |  | Audit Fees    |            |  | Fees      | 
|     |  | (RMB)         |            |  | (RMB)     | 
|     |  |               |            |  |           | 
|2015 |  |               | 15,670,000 |  |           | 
|2016 |  |               | 17,790,000 |  |           | 



Before
our principal accountants were engaged by our Company or our subsidiaries to render audit or non-audit services, our audit committee
approved the engagements.



Audit Fees



Audit fees
primarily consist of fees for the audits of the Company's financial statements prepared under both of IFRSs & PRC Accounting
Standards for Business Enterprises as of and for the years ended December 31, 2015 and 2016.



Audit-Related Fees





Audit-Related fees for the year ended December
31, 2016 primarily consist of fees for the verification services of greenhouse gas emissions for Airlines in accordance with EU
commission regulation 600/2012 on the verification of GHG emissions report and the accreditation of verifiers pursuant to Directive
2003/87/EC.



Audit-Related fees for the year ended December 31, 2015
primarily consist of fees for the services provided in connection with the Company’s entering into the Master Lease
Agreement with CES International Financial Leasing Corporation Limited ("CES Leasing").



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



Not applicable.



68







|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 of no more than 698,865,000 new A Shares. On April 16, 2013, the procedure 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 under this issue, at an issue price of RMB3.28 per share, 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
|--------- | ---------------------------------------------



Not applicable.



|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 Company                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                |  | Manual Requirements on                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                |  | Corporate 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.                                                                 |  | There is no identical corporate governance requirement in the PRC. As a company listed in the PRC, the Company is subject to the requirement under the Independent Director  Guidance that at least one-third of the Board be independent as determined thereunder. The      standards for establishing independence set forth under the Independent Director Guidance of the PRC differ, to some extent, from those set forth in the NYSE Listed Company Manual. We currently have four independent directors out of a total of ten Directors.
|                                                                                                |  |                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Non-management directors must meet at regularly scheduled executive sessions without management |  | Section 303A.03 of the Listed Company Manual requires non- management directors of each listed company to meet at regularly scheduled executive sessions without management participation. |  | There is no identical corporate governance requirement in the PRC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



69







|Audit and Risk Management
        Committee |  | Sections 303A.06 and 303A.07 of the NYSE Listed Company Manualprovides that listed companies must have an audit committee composed entirely of independent directors. In addition, audit committee members must satisfy the independence requirements set forth in Section 303A.02(a)(ii). The factors to be considered for independence include whether the committee member receives any consulting, advisory or other compensatory fees from the company and whether such director is affiliated with the listed company or its subsidiary. |  | There is no identical corporate governance requirement in the PRC. Under the PRC laws and the applicable listing rules in the PRC, a majority of the members of the audit committee must be independent directors. As above, the Audit and Risk Management Committee of the Company is composed of two independent non-executive Directors and one Director, which also satisfies the requirement of Sections 303A.06.                                                                                                                                                
|------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|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 merger of the Nomination Committee and Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of the Company held on March 19, 2010. The Nominations and Remuneration Committee currently consists of three members, two of which are independent non-executive directors of the Company.                                                                                                                                                                                           
|                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | The Nominations and Remuneration Committee is a specialized committee under the Board. It is responsible for the discussion in regard to nominees, standards and procedures for selecting directors and senior management of the Company and making recommendations; responsible for studying and examining the remuneration policy and solutions of directors and senior management of the Company; responsible for studying the performance appraisal standards for directors and senior management of the Company, conducting appraisals and making recommendation.
|Compensation Committee                      |  | Section 303A.05 of the Listed Company Manual requires that listed companies must (i) have a compensation committee composed entirely of independent directors and (ii) the compensation committee must have a written charter that addresses the committee’s purposes and responsibilities and an annual performance evaluation of the committee.                                                                                                                                                                                              |  | We have established a Nominations and Remuneration Committee. The merger of the Nomination Committee and Remuneration and Appraisal Committee into the Nominations and Remuneration Committee was agreed at the ordinary meeting of the Board of the Company held on March 19, 2010. The Nominations and Remuneration Committee currently consists of three members, two of which are independent nonexecutive directors of the Company.                                                                                                                              
|                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|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 2016 Hong Kong Annual Report,
which can be accessed through the following link on our website:







http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0424/LTN201704241471.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-82.



|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:
| | --- | -------------------------------



70







Exhibit Index



|Exhibits |  | Description                                                                                                                                                                                                         
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                     
|1.1      |  | Articles of Association as amended on July 4, 2016 (English translation).(4)                                                                                                                                        
|         |  |                                                                                                                                                                                                                     
|2.1      |  | Specimen Certificate for the H Shares.(1)                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                     
|2.2      |  | Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and Owners and Beneficial Owners from time to time of American Depositary Receipts.(2)                                         
|         |  |                                                                                                                                                                                                                     
|4.1      |  | Aircraft Sale and Purchase Agreement relating to the disposal of eight Bombardier CRJ-200 Aircraft and ten Embraer ERJ-145 Aircraft, dated November 23, 2012, among our Company, Airbus SAS and other parties.(3)(5)
|         |  |                                                                                                                                                                                                                     
|4.2      |  | Amendment No. 2 to the A 320 Family Purchase Agreement dated December 30, 2010, dated November 23, 2012, between our Company and Airbus SAS.(3)(5)                                                                  
|         |  |                                                                                                                                                                                                                     
|4.3      |  | Acquisition Agreement for Used Aircraft relating to five Airbus Model A340-642 Aircraft, dated April 27, 2012, between our Company and Boeing Aircraft Holding Company.(3)(5)                                       
|         |  |                                                                                                                                                                                                                     
|4.4      |  | Purchase Agreement Number PA-03746 relating to Boeing Model 777-300ER Aircraft, dated April 27, 2012, between our Company and the Boeing Company.(3)(5)                                                             
|         |  |                                                                                                                                                                                                                     
|4.5      |  | Purchase Agreement Number PA-4076 relating to Boeing Model 737-8 Aircraft, dated June 13, 2014, between our Company and the Boeing Company.(5)(6)                                                                   
|         |  |                                                                                                                                                                                                                     
|4.6      |  | Purchase Agreement Number PA-4077 relating to Boeing Model 737-800 Aircraft, dated June 13, 2014, between our Company and the Boeing Company.(5)(6)                                                                 
|         |  |                                                                                                                                                                                                                     
|4.7      |  | Purchase Agreement relating to Airbus A320NEO Aircraft, dated February 28, 2014, between our Company and Airbus SAS.(5)(6)                                                                                          
|         |  |                                                                                                                                                                                                                     
|4.8      |  | Supplemental Agreement No.1 to Purchase Agreement Number PA-4077 relating to Boeing Model 737-800 Aircraft, dated July 9, 2015, between our Company and the Boeing Company.(5)(7)                                   
|         |  |                                                                                                                                                                                                                     
|8.1      |  | List of Subsidiaries (as of December 31, 2016).                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                     
|11.1     |  | Code of Ethics (English translation).(8)                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                     
|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).                                                                                                                                            



Note:



| | (1) | Incorporated by reference to our Registration Statement
on Form F-1 (File No. 333-6260), filed with the Securities and Exchange Commission on January 9, 1997.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Incorporated by reference to our Registration Statement
on Form F-6 (File No. 333-6284), filed with the Securities and Exchange Commission with respect to American Depositary Shares
representing our H Shares.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Incorporated by reference to our annual report on Form
20-F (File No. 001-14550), filed with the Securities and Exchange Commission on April 24, 2013.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Incorporated by reference to our announcement furnished
to the Securities and Exchange Commission on Form 6-K dated July 5, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



| | (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 April 22, 2015.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Incorporated by reference to our annual report on Form
20-F (File No. 001-14550), filed with the Securities and Exchange Commission on April 25, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Incorporated by reference to our annual report on Form
20-F (File No. 001-14550), filed with the Securities and Exchange Commission on June 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 27, 2017



71









Audited Financial Statements



CHINA EASTERN AIRLINES CORPORATION LIMITED

(Established in the People’s Republic
of China with limited liability)



December 31, 2016, 2015 and 2014



F-1







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



Report of
Independent Registered Public Accounting Firm



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



We
have audited the accompanying consolidated statements of financial position of China Eastern Airlines Corporation Limited
(the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of profit or loss
and other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31,
2016. 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
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.



In our opinion,
the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
China Eastern Airlines Corporation Limited at December 31, 2016 and 2015, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.



We also have audited,
in accordance with the standards of the Public Company Accounting Oversight Board (United States), China Eastern Airlines Corporation
Limited’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated
April 27, 2017 expressed an unqualified opinion thereon.



/s/ Ernst & Young

Hong Kong

April 27, 2017



F-2







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



Report of Independent Registered Public
Accounting Firm



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



We have audited China
Eastern Airlines Corporation Limited’s internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 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, 2016, 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 statements
of financial position of China Eastern Airlines Corporation Limited as of December 31, 2016 and 2015, and the related consolidated
statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the three years in the
period ended December 31, 2016 of China Eastern Airlines Corporation Limited and our report dated April 27, 2017 expressed an unqualified
opinion thereon.



/s/ Ernst & Young

Hong Kong

April 27, 2017



F-3







CONSOLIDATED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the
years ended December 31, 2016, 2015 and 2014

(Amounts
in millions except for per share data)



|                                                                                              |  |       |  | 2016        |         |   | 2015        |  |         | 2014        | 
|--------------------------------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                                              |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|Revenues                                                                                      |  | 5     |  |             | 98,904  |   |             |  | 93,969  |             | 
|Other operating income and gains                                                              |  | 6     |  |             | 5,469   |   |             |  | 5,269   |             | 
|Gain on fair value changes of derivative financial instruments                                |  | 8     |  |             | 2       |   |             |  | 6       |             | 
|                                                                                              |  |       |  |             | 104,375 |   |             |  | 99,244  |             | 
|Operating expenses                                                                            |  |       |  |             |         |   |             |  |         |             | 
|Aircraft fuel                                                                                 |  |       |  |             | (19,626 | ) |             |  | (20,312 | )           | 
|Take-off and landing charges                                                                  |  |       |  |             | (12,279 | ) |             |  | (10,851 | )           | 
|Depreciation and amortization                                                                 |  |       |  |             | (12,154 | ) |             |  | (10,471 | )           | 
|Wages, salaries and benefits                                                                  |  | 9     |  |             | (18,145 | ) |             |  | (16,459 | )           | 
|Aircraft maintenance                                                                          |  |       |  |             | (4,960  | ) |             |  | (4,304  | )           | 
|Impairment charges                                                                            |  | 10    |  |             | (29     | ) |             |  | (228    | )           | 
|Food and beverages                                                                            |  |       |  |             | (2,862  | ) |             |  | (2,469  | )           | 
|Aircraft operating lease rentals                                                              |  |       |  |             | (4,779  | ) |             |  | (4,254  | )           | 
|Other operating lease rentals                                                                 |  |       |  |             | (868    | ) |             |  | (812    | )           | 
|Selling and marketing expenses                                                                |  |       |  |             | (3,133  | ) |             |  | (3,651  | )           | 
|Civil aviation development fund                                                               |  |       |  |             | (1,945  | ) |             |  | (1,826  | )           | 
|Ground services and other expenses                                                            |  |       |  |             | (5,058  | ) |             |  | (5,479  | )           | 
|Indirect operating expenses                                                                   |  |       |  |             | (6,051  | ) |             |  | (5,503  | )           | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Total operating expenses                                                                      |  |       |  |             | (91,889 | ) |             |  | (86,619 | )           | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Operating profit                                                                              |  | 11    |  |             | 12,486  |   |             |  | 12,625  |             | 
|Share of results of associates                                                                |  | 22    |  |             | 148     |   |             |  | 126     |             | 
|Share of results of joint ventures                                                            |  | 23    |  |             | 39      |   |             |  | 26      |             | 
|Finance income                                                                                |  | 12    |  |             | 96      |   |             |  | 66      |             | 
|Finance costs                                                                                 |  | 13    |  |             | (6,272  | ) |             |  | (7,176  | )           | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Profit before income tax                                                                      |  |       |  |             | 6,497   |   |             |  | 5,667   |             | 
|Income tax expense                                                                            |  | 14    |  |             | (1,542  | ) |             |  | (624    | )           | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Profit for the year                                                                           |  |       |  |             | 4,955   |   |             |  | 5,043   |             | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income for the year                                                       |  |       |  |             |         |   |             |  |         |             | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income to be reclassified to profit or loss in subsequent periods:        |  |       |  |             |         |   |             |  |         |             | 
|Cash flow hedges, net of tax                                                                  |  | 39    |  |             | 107     |   |             |  | 10      |             | 
|Fair value changes of available-for-sale investments, net of tax                              |  |       |  |             | 40      |   |             |  | 87      |             | 
|Fair value changes of available-for-sale investments held by an associate, net of tax         |  | 22    |  |             | (1      | ) |             |  | 7       |             | 
|Net other comprehensive income to be reclassified to profit or loss in subsequent periods     |  |       |  |             | 146     |   |             |  | 104     |             | 
|Other comprehensive income not to be reclassified to profit or loss in subsequent periods:    |  |       |  |             |         |   |             |  |         |             | 
|Actuarial (losses)/gains on the post-retirement benefit obligations, net of tax               |  | 37    |  |             | (410    | ) |             |  | 196     |             | 
|Net other comprehensive income not to be reclassified to profit or loss in subsequent periods |  |       |  |             | (410    | ) |             |  | 196     |             | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income, net of tax                                                        |  |       |  |             | (264    | ) |             |  | 300     |             | 
|                                                                                              |  |       |  |             |         |   |             |  |         |             | 
|Total comprehensive income for the year                                                       |  |       |  |             | 4,691   |   |             |  | 5,343   |             | 



F-4







CONSOLIDATED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (CONTINUED)

For the
year ended December 31, 2016, 2015 and 2014

(Amounts
in millions except for per share data)



|                                                                                     |  |       |  | 2016        |       |  | 2015        |  |       | 2014        | 
|------------------------------------------------------------------------------------ |  | ----- |  | ----------- | ----- |  | ----------- |  | ----- | ----------- | 
|                                                                                     |  | Notes |  | RMB million |       |  | RMB million |  |       | RMB million | 
|Profit attributable to:                                                              |  |       |  |             |       |  |             |  |       |             | 
|Equity holders of the Company                                                        |  |       |  |             | 4,498 |  |             |  | 4,537 |             | 
|Non-controlling interests                                                            |  |       |  |             | 457   |  |             |  | 506   |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Profit for the year                                                                  |  |       |  |             | 4,955 |  |             |  | 5,043 |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Total comprehensive income attributable to:                                          |  |       |  |             |       |  |             |  |       |             | 
|Equity holders of the Company                                                        |  |       |  |             | 4,237 |  |             |  | 4,834 |             | 
|Non-controlling interests                                                            |  |       |  |             | 454   |  |             |  | 509   |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Total comprehensive income for the year                                              |  |       |  |             | 4,691 |  |             |  | 5,343 |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Earnings per share attributable to the equity holders of the Company during the year |  |       |  |             |       |  |             |  |       |             | 
|– Basic and diluted (RMB)                                                            |  | 15    |  |             | 0.33  |  |             |  | 0.35  |             | 



F-5







CONSOLIDATED
STATEMENT OF FINANCIAL POSITION

As of December 31, 2016 and 2015

(Amounts
in millions except for per share data)



|                                                                                             |  |       |  | December 31, |         |   | December 31, | 
|-------------------------------------------------------------------------------------------- |  | ----- |  | ------------ | ------- | - | ------------ | 
|                                                                                             |  |       |  | 2016         |         |   | 2015         | 
|                                                                                             |  | Notes |  | RMB million  |         |   | RMB million  | 
|Non-current assets                                                                           |  |       |  |              |         |   |              | 
|Intangible assets                                                                            |  | 17    |  |              | 11,624  |   |              | 
|Property, plant and equipment                                                                |  | 18    |  |              | 153,180 |   |              | 
|Investment properties                                                                        |  | 19    |  |              | 321     |   |              | 
|Lease prepayments                                                                            |  | 20    |  |              | 2,064   |   |              | 
|Advanced payments on acquisition of aircraft                                                 |  | 21    |  |              | 23,357  |   |              | 
|Investments in associates                                                                    |  | 22    |  |              | 1,536   |   |              | 
|Investments in joint ventures                                                                |  | 23    |  |              | 524     |   |              | 
|Available-for-sale investments                                                               |  | 24    |  |              | 645     |   |              | 
|Other non-current assets                                                                     |  | 25    |  |              | 2,969   |   |              | 
|Deferred tax assets                                                                          |  | 38    |  |              | 79      |   |              | 
|Derivative financial instruments                                                             |  | 39    |  |              | 137     |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|                                                                                             |  |       |  |              | 196,436 |   |              | 
|Current assets                                                                               |  |       |  |              |         |   |              | 
|Flight equipment spare parts                                                                 |  | 26    |  |              | 2,248   |   |              | 
|Trade and notes receivables                                                                  |  | 27    |  |              | 2,660   |   |              | 
|Prepayments and other receivables                                                            |  | 28    |  |              | 9,231   |   |              | 
|Derivative financial instruments                                                             |  | 39    |  |              | 11      |   |              | 
|Restricted bank deposits and short-term bank deposits                                        |  | 29    |  |              | 43      |   |              | 
|Cash and cash equivalents                                                                    |  | 30    |  |              | 1,695   |   |              | 
|Assets classified as held for sale                                                           |  | 16    |  |              | -       |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|                                                                                             |  |       |  |              | 15,888  |   |              | 
|Current liabilities                                                                          |  |       |  |              |         |   |              | 
|Sales in advance of carriage                                                                 |  |       |  |              | 7,677   |   |              | 
|Trade and bills payable                                                                      |  | 31    |  |              | 3,376   |   |              | 
|Other payables and accruals                                                                  |  | 32    |  |              | 20,250  |   |              | 
|Current portion of obligations under finance leases                                          |  | 33    |  |              | 6,447   |   |              | 
|Current portion of borrowings                                                                |  | 34    |  |              | 28,842  |   |              | 
|Income tax payable                                                                           |  |       |  |              | 304     |   |              | 
|Current portion of provision for return condition checks for aircraft under operating leases |  | 35    |  |              | 1,175   |   |              | 
|Derivative financial instruments                                                             |  | 39    |  |              | 11      |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|                                                                                             |  |       |  |              | 68,082  |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|Net current liabilities                                                                      |  |       |  |              | (52,194 | ) |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|Total assets less current liabilities                                                        |  |       |  |              | 144,242 |   |              | 



F-6







CONSOLIDATED
STATEMENT OF FINANCIAL POSITION (CONTINUED)

As of December 31, 2016 and 2015

(Amounts
in millions except for per share data)



|                                                                          |  |       |  | 31 December |        |  | 31 December | 
|------------------------------------------------------------------------- |  | ----- |  | ----------- | ------ |  | ----------- | 
|                                                                          |  |       |  | 2016        |        |  | 2015        | 
|                                                                          |  | Notes |  | RMB million |        |  | RMB million | 
|Non-current liabilities                                                   |  |       |  |             |        |  |             | 
|Obligations under finance leases                                          |  | 33    |  |             | 54,594 |  |             | 
|Borrowings                                                                |  | 34    |  |             | 27,890 |  |             | 
|Provision for return condition checks for aircraft under operating leases |  | 35    |  |             | 2,495  |  |             | 
|Other long-term liabilities                                               |  | 36    |  |             | 3,874  |  |             | 
|Post-retirement benefit obligations                                       |  | 37    |  |             | 2,890  |  |             | 
|Deferred tax liabilities                                                  |  | 38    |  |             | 86     |  |             | 
|Derivative financial instruments                                          |  | 39    |  |             | 47     |  |             | 
|                                                                          |  |       |  |             | 91,876 |  |             | 
|Net assets                                                                |  |       |  |             | 52,366 |  |             | 
|                                                                          |  |       |  |             |        |  |             | 
|Equity                                                                    |  |       |  |             |        |  |             | 
|Equity attributable to the equity holders of the Company                  |  |       |  |             |        |  |             | 
|– Share capital                                                           |  | 41    |  |             | 14,467 |  |             | 
|– Reserves                                                                |  | 42    |  |             | 34,983 |  |             | 
|                                                                          |  |       |  |             | 49,450 |  |             | 
|Non-controlling interests                                                 |  |       |  |             | 2,916  |  |             | 
|                                                                          |  |       |  |             |        |  |             | 
|Total equity                                                              |  |       |  |             | 52,366 |  |             | 



F-7







CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY

For the years ended December 31, 2016,
2015 and 2014

(Amounts
in millions except for per share data)



|                                                |  | Attributable
    to equity holders of the Company |        |  |                 |  |        |                      | 
|----------------------------------------------- |  | ------------------------------------------------- | ------ |  | --------------- |  | ------ | -------------------- | 
|                                                |  | Share                                             |        |  | Other           |  |        | Retained profits/    | 
|                                                |  | capital                                           |        |  | reserves        |  |        | (accumulated losses) | 
|                                                |  | RMB
    million                                   |        |  | RMB
    million |  |        | RMB
    million      | 
|                                                |  |                                                   |        |  |                 |  |        |                      | 
|Balance
    at January 1, 2014                  |  |                                                   | 12,674 |  |                 |  | 16,823 |                      | 
|Profit for the year                             |  |                                                   | -      |  |                 |  | -      |                      | 
|Other comprehensive income                      |  |                                                   | -      |  |                 |  | (339   | )                    | 
|Total comprehensive income
    for the year     |  |                                                   | -      |  |                 |  | (339   | )                    | 
|Dividends paid to non-controlling
    interests |  |                                                   | -      |  |                 |  | -      |                      | 
|Others                                          |  |                                                   | -      |  |                 |  | 1      |                      | 
|Balance
    at December 31, 2014                |  |                                                   | 12,674 |  |                 |  | 16,485 |                      | 
|Profit for the year                             |  |                                                   | -      |  |                 |  | -      |                      | 
|Other comprehensive income                      |  |                                                   | -      |  |                 |  | 297    |                      | 
|Total comprehensive income
    for the year     |  |                                                   | -      |  |                 |  | 297    |                      | 
|Issue of shares                                 |  |                                                   | 466    |  |                 |  | 2,389  |                      | 
|Acquisition of non-controlling
    interests    |  |                                                   | -      |  |                 |  | (252   | )                    | 
|Dividends paid to non-controlling
    interests |  |                                                   | -      |  |                 |  | -      |                      | 
|Transfer
    from retained profits              |  |                                                   | -      |  |                 |  | 184    |                      | 
|Balance
    at December 31, 2015                |  |                                                   | 13,140 |  |                 |  | 19,103 | *                    | 
|Profit for the year                             |  |                                                   | -      |  |                 |  | -      |                      | 
|Other comprehensive income                      |  |                                                   | -      |  |                 |  | (261   | )                    | 
|Total comprehensive income
    for the year     |  |                                                   | -      |  |                 |  | (261   | )                    | 
|Issue of shares (Note
    41)                   |  |                                                   | 1,327  |  |                 |  | 7,213  |                      | 
|Interim 2016 dividend                           |  |                                                   | -      |  |                 |  | -      |                      | 
|Dividends paid to non-controlling
    interests |  |                                                   | -      |  |                 |  | -      |                      | 
|Transfer
    from retained profits              |  |                                                   | -      |  |                 |  | 144    |                      | 
|Balance
    at December 31, 2016                |  |                                                   | 14,467 |  |                 |  | 26,199 | *                    | 



| | * | These reserve accounts comprise the consolidated reserves
of RMB34,983 million (2015: RMB24,271 million, 2014: RMB17,300 million) in the consolidated statement of financial position.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-8







CONSOLIDATED
STATEMENT OF CASH FLOWS

For the years ended December 31, 2016,
2015 and 2014

(Amounts
in millions except for per share data)



|                                                                      |  |       |  | 2016        |         |   | 2015        |  |         | 2014        | 
|--------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                      |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|Cash flows from operating activities                                  |  |       |  |             |         |   |             |  |         |             | 
|Cash generated from operations                                        |  | 45(a) |  |             | 26,154  |   |             |  | 25,535  |             | 
|Income tax paid                                                       |  |       |  |             | (1,261  | ) |             |  | (1,210  | )           | 
|                                                                      |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows from operating activities                              |  |       |  |             | 24,893  |   |             |  | 24,325  |             | 
|                                                                      |  |       |  |             |         |   |             |  |         |             | 
|Cash flows from investing activities                                  |  |       |  |             |         |   |             |  |         |             | 
|Additions to property, plant and equipment                            |  |       |  |             | (21,533 | ) |             |  | (8,609  | )           | 
|Additions to lease prepayments                                        |  |       |  |             | (86     | ) |             |  | (82     | )           | 
|Additions to intangible assets                                        |  | 17    |  |             | (232    | ) |             |  | (109    | )           | 
|Advanced payments on acquisition of aircraft                          |  |       |  |             | (16,864 | ) |             |  | (24,772 | )           | 
|Proceeds from disposal of assets classified as held for sale          |  |       |  |             | 518     |   |             |  | 4,227   |             | 
|Proceeds from disposal of property, plant and equipment               |  |       |  |             | 690     |   |             |  | 1,294   |             | 
|Proceeds from disposal of lease payments                              |  |       |  |             | 56      |   |             |  | 47      |             | 
|(Increase)/decrease in restricted and short-term bank deposits        |  |       |  |             | (1      | ) |             |  | 3       |             | 
|Proceeds from disposal of short term deposits                         |  |       |  |             | -       |   |             |  | -       |             | 
|Purchase of a shareholding in a joint venture                         |  |       |  |             | -       |   |             |  | -       |             | 
|Increase in shareholding in associates                                |  |       |  |             | -       |   |             |  | (413    | )           | 
|Gain on disposal of an associate                                      |  |       |  |             | 12      |   |             |  | -       |             | 
|Acquisition of a subsidiary, net of cash acquired                     |  |       |  |             | -       |   |             |  | -       |             | 
|Purchase of available-for-sale investments                            |  |       |  |             | -       |   |             |  | -       |             | 
|Interest received                                                     |  |       |  |             | 96      |   |             |  | 66      |             | 
|Dividends received                                                    |  |       |  |             | 164     |   |             |  | 92      |             | 
|Proceeds from disposal of interest in a subsidiary                    |  |       |  |             | -       |   |             |  | 49      |             | 
|Repayment of loans from an associate                                  |  |       |  |             | -       |   |             |  | 372     |             | 
|Advances of loans to an associate                                     |  |       |  |             | -       |   |             |  | -       |             | 
|Proceeds from disposal of interests in available-for-sale investments |  |       |  |             | -       |   |             |  | 35      |             | 
|                                                                      |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows used in investing activities                           |  |       |  |             | (37,180 | ) |             |  | (27,800 | )           | 





F-9







CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

For the years ended December 31, 2016,
2015 and 2014

(Amounts
in millions except for per share data)



|                                                                           |  |       |  | 2016        |         |   | 2015        |  |         | 2014        | 
|-------------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                           |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|                                                                           |  |       |  |             |         |   |             |  |         |             | 
|Cash flows from financing activities                                       |  |       |  |             |         |   |             |  |         |             | 
|Proceeds from issue of shares                                              |  |       |  |             | 8,540   |   |             |  | 2,855   |             | 
|Proceeds from draw-down of short-term bank loans                           |  |       |  |             | 39,159  |   |             |  | 26,916  |             | 
|Repayments of short-term debentures                                        |  |       |  |             | (46,000 | ) |             |  | (10,000 | )           | 
|Repayments of short-term bank loans                                        |  |       |  |             | (36,728 | ) |             |  | (34,767 | )           | 
|Proceeds from issuance of short-term debentures                            |  |       |  |             | 47,500  |   |             |  | 21,500  |             | 
|Proceeds from issuance of long-term debentures and bonds                   |  |       |  |             | 12,526  |   |             |  | -       |             | 
|Proceeds from government grants                                            |  |       |  |             | -       |   |             |  | -       |             | 
|Proceeds from draw down of long- bank loans and other financing activities |  |       |  |             | 26,545  |   |             |  | 24,572  |             | 
|Repayments of long-term bank loans                                         |  |       |  |             | (28,803 | ) |             |  | (10,540 | )           | 
|Repayments of long-term bonds                                              |  |       |  |             | (5,497  | ) |             |  | -       |             | 
|Principal repayments of finance lease obligations                          |  |       |  |             | (8,606  | ) |             |  | (6,350  | )           | 
|Interest paid                                                              |  |       |  |             | (3,206  | ) |             |  | (3,065  | )           | 
|Dividends paid                                                             |  |       |  |             | (738    | ) |             |  | -       |             | 
|Dividends paid to non-controlling interests of subsidiaries                |  |       |  |             | (58     | ) |             |  | (38     | )           | 
|                                                                           |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows from financing activities                                   |  |       |  |             | 4,634   |   |             |  | 11,083  |             | 
|                                                                           |  |       |  |             |         |   |             |  |         |             | 
|Net (decrease)/increase in cash and cash equivalents                       |  |       |  |             | (7,653  | ) |             |  | 7,608   |             | 
|Cash and cash equivalents at beginning of year                             |  |       |  |             | 9,080   |   |             |  | 1,355   |             | 
|Effect of foreign exchange rate changes                                    |  |       |  |             | 268     |   |             |  | 117     |             | 
|                                                                           |  |       |  |             |         |   |             |  |         |             | 
|Cash and cash equivalents at December 31                                   |  | 30    |  |             | 1,695   |   |             |  | 9,080   |             | 



F-10







| | 1. | CORPORATE AND GROUP INFORMATION
| | -- | -------------------------------



China Eastern Airlines Corporation
Limited (the “Company”), a joint stock company limited by shares, was established in the People’s Republic of
China (the “PRC”) on 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.



In the opinion of the directors, the holding company and ultimate holding company of the Company is China Eastern Air Holding Company (“CEA Holding”), a state-owned enterprise established in the PRC.



The A shares, H shares and American
Depositary Shares are listed on Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and The New York Stock Exchange,
respectively.



These financial
statements were approved and authorized for issue by the Company’s Board of Directors (the “Board”) on April
27, 2017.



Information
about subsidiaries

Particulars
of the Company’s principal subsidiaries are as follows:



|                                                                                      |  | Place ofincorporation/registration and |  | Issuedordinary/registeredshare |       |  | Percentage of equityattributable to the Company |  |       |         
|------------------------------------------------------------------------------------- |  | -------------------------------------- |  | ------------------------------ | ----- |  | ----------------------------------------------- |  | ----- | --------
|Name                                                                                  |  | address                                |  | capital                        |       |  | Direct                                          |  |       | Indirect
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|                                                                                      |  |                                        |  | million                        |       |  |                                                 |  |       |         
|China
    Eastern Airlines Jiangsu Co., Ltd. (“CEA Jiangsu”)                          |  | PRC3
    May 1993                      |  | RMB                            | 2,000 |  |                                                 |  | 62.56 | %       
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|China
    Eastern Airlines Wuhan Co.,Ltd. (“CEA Wuhan”)                               |  | PRC16
    August 2002                  |  | RMB                            | 1,750 |  |                                                 |  | 60    | %       
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|Shanghai
    Eastern Flight Training Co., Ltd. (“Shanghai Flight Training”)           |  | PRC18
    December 1995                |  | RMB                            | 694   |  |                                                 |  | 100   | %       
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|Shanghai
    Airlines Co., Ltd. (“Shanghai Airlines”)                                 |  | PRC16
    March 2010                   |  | RMB                            | 500   |  |                                                 |  | 100   | %       
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|China
    Cargo Airlines Co.,Ltd. (“China Cargo”)                                     |  | PRC22
    July 1998                    |  | RMB                            | 3,000 |  |                                                 |  | -     |         
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|China
    Eastern Airlines Technology Co., Ltd. (“Eastern Technology”)                |  | PRC19
    November 2014                |  | RMB                            | 4,300 |  |                                                 |  | 100   | %       
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|Shanghai
    Eastern Airlines Logistics Co., Ltd. (“Eastern Logistics”)               |  | PRC23
    August 2004                  |  | RMB                            | 1,150 |  |                                                 |  | 100   | %       
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|Eastern
    Business Airlines Service Co., Ltd. (“Eastern Business Airlines Service”) |  | PRC27
    September 2008               |  | RMB                            | 50    |  |                                                 |  | 100   | %       
|                                                                                      |  |                                        |  |                                |       |  |                                                 |  |       |         
|China
    Eastern Airlines Yunnan Co., Ltd. (“CEA Yunnan”)                            |  | PRC2
    August 2011                   |  | RMB                            | 3,662 |  |                                                 |  | 90.36 | %       





F-11







| | 1. | CORPORATE AND GROUP INFORMATION (cont’d)
| | -- | ----------------------------------------



Particulars of the Company’s
principal subsidiaries are as follows: (cont’d)





|                                                                                                       |  | Place and date ofincorporation/registration and |  | Issuedordinary/registeredshare |       |  | Percentage of equityattributable to the Company |  |     |         
|------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------- |  | ------------------------------ | ----- |  | ----------------------------------------------- |  | --- | --------
|Name                                                                                                   |  | business                                        |  | capital                        |       |  | Direct                                          |  |     | Indirect
|                                                                                                       |  |                                                 |  |                                |       |  |                                                 |  |     |         
|                                                                                                       |  |                                                 |  | million                        |       |  |                                                 |  |     |         
|Eastern
    Air Overseas (Hong Kong) Co., Ltd. (“Eastern Air Overseas”)                                |  | Hong
    Kong10 June 2011                       |  | HKD                            | 280   |  |                                                 |  | 100 | %       
|                                                                                                       |  |                                                 |  |                                |       |  |                                                 |  |     |         
|China
    United Airlines Co., Ltd.(“China United Airlines”)                                           |  | PRC21
    September 1984                        |  | RMB                            | 1,320 |  |                                                 |  | 100 | %       
|                                                                                                       |  |                                                 |  |                                |       |  |                                                 |  |     |         
|Eastern
    Airlines Hotel Co., Ltd.                                                                   |  | PRC18
    March 1998                            |  | RMB                            | 70    |  |                                                 |  | 100 | %       
|                                                                                                       |  |                                                 |  |                                |       |  |                                                 |  |     |         
|Shanghai
    Airlines ToursInternational
    (Group) Co., Ltd. (“Shanghai Airlines Tours”)             |  | PRC29
    August 1992                           |  | RMB                            | 50    |  |                                                 |  | 100 | %       
|                                                                                                       |  |                                                 |  |                                |       |  |                                                 |  |     |         
|China
    Eastern Airlines Application Development Center Co., Ltd. (“Application Development Center”) |  | PRC21
    November 2011                         |  | RMB                            | 498   |  |                                                 |  | 100 | %       
|                                                                                                       |  |                                                 |  |                                |       |  |                                                 |  |     |         
|China
    Eastern AirlinesE-Commerce
    Co., Ltd.(“Eastern E-Commerce”)                               |  | PRC1
    December 2014                          |  | RMB                            | 50    |  |                                                 |  | 100 | %       







The above table lists the subsidiaries
of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion
of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars
of excessive length.



All of the subsidiaries of the
Company listed above are limited liability companies.



F-12







| | 2.1 | BASIS OF PREPARATION
| | --- | --------------------



These financial statements
have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) issued by
the International Accounting Standards Board (“IASB”) and the disclosure requirements of the Hong Kong Companies Ordinance.
They have been prepared under the historical cost convention, except for certain available-for-sale investments and derivative
financial instruments which have been measured at fair value. These financial statements are presented in Renminbi (“RMB”)
and all values are rounded to the nearest million except when otherwise indicated.



Basis
of consolidation



The consolidated financial
statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2016. A subsidiary
is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group
is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities
of the investee).



When the Company has, directly
or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:



| | (a) | the contractual arrangement with the other vote holders
of the investee;
| | --- | ------------------------------------------------------------------------

| | (b) | rights arising from other contractual arrangements; and
| | --- | -------------------------------------------------------

| | (c) | the Group’s voting rights and potential voting rights.
| | --- | ------------------------------------------------------



The financial statements of
the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of
subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date
that such control ceases.



Profit or loss and each component
of other comprehensive income are attributed to the equity holders of the Company and to the non-controlling interests, even if
this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.



The Group
reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of
the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is
accounted for as an equity transaction.



If the Group loses control
over a subsidiary, it derecognizes (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount
of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognizes (i) the fair
value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit
in profit or loss. The Group’s share of components previously recognized in other comprehensive income is reclassified to
profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of
the related assets or liabilities.



Going
concern



As at 31 December 2016, the
Group’s current liabilities exceeded its current assets by approximately RMB52.19 billion. In preparing the financial statements,
the Board conducts a detailed review over the Group’s going concern ability based on the current financial situation. The
Board has considered the Group’s available sources of funds as follows:



| | • | The Group’s expected net cash inflows from operating
activities in 2017;
| | - | ------------------------------------------------------------------------

| | • | Unutilized banking facilities of approximately RMB46.38
billion as at 31 December 2016; and
| | - | -------------------------------------------------------------------------------------------

| | • | Other available sources of financing from banks and other
financial institutions given the Group’s credit history.
| | - | ------------------------------------------------------------------------------------------------------------------



The Board considers that the
Group will be able to obtain sufficient financing to enable it to operate, as well as to meet its liabilities as and when they
become due, and the capital expenditure requirements for the upcoming twelve months. Accordingly, the Board believes that it is
appropriate to prepare these financial statements on a going concern basis without including any adjustments that would be required
should the Company and the Group fail to continue as a going concern.



F-13







| | 2.2 | CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
| | --- | ----------------------------------------------



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



|Amendments to IFRS 10,              | Investment Entities: Applying the Consolidation Exception           
|----------------------------------- | --------------------------------------------------------------------
|IFRS 12 and IAS 28                  |                                                                     
|Amendments to IFRS 11               | Accounting for Acquisitions of Interests in Joint Operations        
|IFRS 14                             | Regulatory Deferral Accounts                                        
|Amendments to IAS 1                 | Disclosure Initiative                                               
|Amendments to IAS 16 and IAS 38     | Clarification of Acceptable Methods of Depreciation and Amortization
|Amendments to IAS 16 and IAS 41     | Agriculture: Bearer Plants                                          
|Amendments to IAS 27                | Equity Method in Separate Financial Statements                      
|Annual Improvements 2012-2014 Cycle | Amendments to a number of IFRSs                                     



Except for the amendments to
IFRS 10, IFRS 12 and IAS 28, amendments to IFRS 11, IFRS 14, amendments to IAS 16 and IAS 41, amendments to IAS 27 and certain
amendments included in Annual Improvements 2012-2014 Cycle, which are not relevant to the preparation of the Group’s
financial statements, the nature and the impact of the amendments are described below:



| | (a) | Amendments to IAS 1 include narrow-focus improvements in respect of the presentation and disclosure
in financial statements. The amendments clarify:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | the materiality requirements in IAS 1;
| | --- | --------------------------------------

| | (ii) | that specific line items in the statement of profit or
loss and the statement of financial position may be disaggregated;
| | ---- | -------------------------------------------------------------------------------------------------------------------------

| | (iii) | that entities have flexibility as to the order in which
they present the notes to financial statements; and
| | ----- | -----------------------------------------------------------------------------------------------------------

| | (iv) | that the share of other comprehensive income of associates and joint ventures accounted for using
the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not
be subsequently reclassified to profit or loss.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Furthermore, the amendments
clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement
of profit or loss. The amendments have had no significant impact on the Group’s financial statements.



| | (b) | Amendments to IAS 16 and IAS 38 clarify the principle in IAS 16 and IAS 38 that revenue reflects
a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic
benefits that are consumed through the use of the asset. As a result, a revenue-based method cannot be used to depreciate property,
plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are applied
prospectively. The amendments have had no impact on the financial position or performance of the Group as the Group has not used
a revenue-based method for the calculation of depreciation of its non-current assets.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Annual Improvements to IFRSs 2012-2014 Cyclesets out amendments to a number of IFRSs. Details
of the amendments are as follows:
| | --- | -------------------------------------------------------------------------------------------------------------------------------



| | a. | IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: Clarifies that changes
to a plan of sale or a plan of distribution to owners should not be considered to be a new plan of disposal, rather it is a continuation
of the original plan. Accordingly, there is no change in the application of the requirements in IFRS 5. The amendments also clarify
that changing the disposal method does not change the date of classification of the non-current assets or disposal group held for
sale. The amendments are applied prospectively. The amendments have had no significant impact on the Group’s financial statements.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-14







| | 2.3 | ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING
STANDARDS
| | --- | ------------------------------------------------------------------------



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



|IFRS 9                               | Financial Instruments1                                                                    
|------------------------------------ | ------------------------------------------------------------------------------------------
|IFRS 15                              | Revenue from Contracts with Customers1                                                    
|IFRS 16                              | Leases2                                                                                   
|IFRIC 22                             | Foreign Currency Transactions and Advance Consideration1                                  
|Amendments to IFRS 2                 | Classification and Measurement of Share-based Payment Transactions1                       
|Amendments to IFRS 15                | Clarifications to IFRS 15 Revenue from Contracts with Customers1                          
|Amendments to IFRS
    10 and IAS 28 | Sale or Contribution
    of Assets between an Investor and its Associate or Joint Venture3
|                                     |                                                                                           
|Amendments to IAS 12                 | Recognition of Deferred Tax Assets for Unrealised Losses4                                 
|Amendments to IAS 7                  | Disclosure Initiative4                                                                    
|Amendments to IAS 40                 | Transfers to Investment Property1                                                         
|Amendments to IFRS 4                 | Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts5                    
|Amendments to IFRSs                  | Annual Improvements to IFRS Standards 2014-2016 Cycle6                                    



| | 1 | Effective for annual periods beginning on or after 1 January
2018
| | - | -----------------------------------------------------------------

| | 2 | Effective for annual periods beginning on or after 1 January
2019
| | - | -----------------------------------------------------------------

| | 3 | No mandatory effective date yet determined but available
for adoption
| | - | ---------------------------------------------------------------------

| | 4 | Effective for annual periods beginning on or after 1 January
2017
| | - | -----------------------------------------------------------------

| | 5 | An entity choosing to apply the overlay approach retrospectively
to qualifying financial assets does so when it first applies IFRS 9. An entity choosing to apply the deferral approach does so
for annual periods beginning on or after 1 January 2018.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6 | Effective for annual periods beginning on or after 1 January
2017 or 1 January 2018, as appropriate
| | - | ---------------------------------------------------------------------------------------------------



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



In July 2014, the International
Accounting Standards Board (“IASB”) issued the final version of IFRS 9, bringing together all phases of the financial
instruments project to replace IAS 39 and all previous versions of IFRS 9. The standard introduces new requirements for classification
and measurement, impairment and hedge accounting. The Group expects to adopt IFRS 9 from 1 January 2018. The Group is currently
assessing the impact of the standard upon adoption and expects that the adoption of IFRS 9 will have an impact on the classification
and measurement of the Group’s financial assets.



IFRS 15 establishes a new five-step
model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects
the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles
in IFRS 15 provide a more structured approach for measuring and recognizing revenue. The standard also introduces extensive qualitative
and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations,
changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede
all current revenue recognition requirements under IFRSs and entities may use a full retrospective approach or modified retrospective
approach upon adoption. The Group expects to adopt IFRS 15 on 1 January 2018 and plans to adopt the modified retrospective approach.
Under the new standard, the adoption may have an impact on the allocation method to account for frequent flyer programs, which
would impact the balance of the frequent flyer liability. The Group is currently evaluating other possible impacts from the new
standard on the Group’s financial statements.



IFRS 16 sets out the principles
for the recognition, measurement, presentation and disclosure of leases. For lessee accounting, the standard introduces a single
lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use
the underlying leased asset and a lease liability representing its obligation to make lease payments. For lessor accounting, the
standard substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify
its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group expects to
adopt IFRS 16 on 1 January 2019. Management is still assessing the impact on the financial performance and position of the Group
resulting from the adoption of IFRS 16 for the annual period beginning on 1 January 2019. Based on the Group’s undiscounted
operating lease commitment of RMB23,889 million as set out in Note 46 to the financial statements, the adoption is expected to
have an impact on the financial position and financial performance of the Group and the detailed assessment is still in progress.



Amendments to IAS 12 were issued
with the purpose of addressing the recognition of deferred tax assets for unrealised losses related to debt instruments measured
at fair value, although they also have a broader application for other situations. The amendments clarify that an entity, when
assessing whether taxable profits will be available against which it can utilise a deductible temporary difference, needs to consider
whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible
temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and
explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
The Group expects to adopt the amendments from 1 January 2017. Based on the preliminary analysis, the Group anticipates that the
adoption of IAS 12 in the future is unlikely to have significant impact on the Group’s financial statements.



F-15







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | --- | ------------------------------------------



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.



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.



Adjustments are made to bring
into line any dissimilar accounting policies that may exist. The Group's share of the post-acquisition results and other comprehensive
income of associates and joint ventures is included in the consolidated statement 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 statement 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 premeasured. 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.



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.



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.



Foreign currencies



| | (i) | Functional currency
| | --- | -------------------



Items included in the financial
statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the
entity operates (the “functional currency”). The financial statements are presented in “RMB”, which is
the Company's functional currency.



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



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



Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date
when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated
in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item
whose fair value gain or loss is recognized in other comprehensive income or profit or loss is also recognized in other comprehensive
income or profit or loss, respectively).



Revenue recognition
and sales in advance of carriage



Revenue comprises the fair
value of the consideration received or receivable for the provision of services and the sale of goods in the ordinary course of
the Group’s activities. Revenue is stated net of business taxes or value-added taxes, returns, rebates and discounts and
after eliminating sales within the Group.



Revenue is recognized when
it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following
basis:



F-16







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



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



| | (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 services are recognized when the services 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 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.



| | (vi) | Frequent flyer programs
| | ---- | -----------------------



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.



| | (vii) | Interest income
| | ----- | ---------------



Interest income is recognized
on a time-proportion basis using the effective interest rate method.



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.



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. When
the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs, which it
is intended to compensate are expensed.



Where the grant relates to
an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life
of the relevant asset by equal annual instalments.



Maintenance
and overhaul costs



In respect of aircraft and
engines under operating leases, the Group has obligations to fulfil certain return conditions under the leases. Provision for the
estimated cost of these return condition checks is made on a straight-line basis over the term of the leases.



In respect of aircraft and
engines owned by the Group or held under finance leases, overhaul costs that meet specific recognition criteria are capitalized
as a component of property, plant and equipment and are depreciated over the appropriate maintenance cycles.



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



F-17







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



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.



Income
tax



Income tax comprises current
and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either in
other comprehensive income or directly in equity.



Current tax assets and liabilities
are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and
practices prevailing in the countries in which the Group operates.



Deferred tax is provided, using
the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.



Deferred tax liabilities are
recognized for all taxable temporary differences, except:



| | · | when the deferred tax liability arises
from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in respect of taxable temporary differences
associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences
can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Deferred tax assets are recognized
for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets
are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences,
the carryforward of unused tax credits and unused tax losses can be utilized, except:



| | · | when the deferred tax asset relating to
the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in respect of deductible temporary differences
associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognized to the extent
that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilized.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The carrying amount of deferred
tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets
are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be recovered.



Deferred tax assets and liabilities
are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled,
based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.



Deferred tax assets and deferred
tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities
and the deferred taxes relate to the same taxable entity and the same taxation authority.



F-18







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Intangible
assets



| | (i) | Goodwill
| | --- | --------



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.



After initial recognition,
goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently
if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment
test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected
to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned
to those units or groups of units.



Impairment is determined by
assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where
the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment
loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.



| | (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 expenses when incurred.



| | (iii) | Others
| | ----- | ------



Others relate to the capitalized
costs incurred to acquire the use right of certain flight schedules (i.e. timeslots for flights’ taking off/landing) in Guangzhou
Baiyun International Airport Co., Ltd. and Shanghai Pudong International Airport Co., Ltd. respectively. These costs are amortized
using the straight-line method over their useful lives of 3 years.



F-19







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Deferred pilot recruitment
costs



Deferred pilot recruitment costs
represent the costs borne by the Group in connection with securing a certain minimum period of employment of pilots and are amortized
on a straight-line basis over the anticipated beneficial period of 5 years, starting from the date the pilot joins the Group.



Related parties



A party is considered to be related
to the Group if:



| | (a) | the party is a person or a close member of that person’s family and that person
| | --- | -------------------------------------------------------------------------------



| | (i) | has control or joint control over the Group;
| | --- | --------------------------------------------



| | (ii) | has significant influence over the Group;
| | ---- | -----------------------------------------



| | (iii) | is a member of the key management personnel of the Group or of a parent of the Group;
| | ----- | -------------------------------------------------------------------------------------

or



| | (b) | the party is an entity where any of the following conditions applies:
| | --- | ---------------------------------------------------------------------



| | (i) | the entity and the Group are members of the same group;
| | --- | -------------------------------------------------------



| | (ii) | one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or
fellow subsidiary of the other entity);
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | the entity and the Group are joint ventures of the same third party;
| | ----- | --------------------------------------------------------------------



| | (iv) | one entity is a joint venture of a third entity and the other entity is an associate of the third
entity;
| | ---- | ---------------------------------------------------------------------------------------------------------



| | (v) | the entity is a post-employment benefit plan for the benefit of employees of either the Group or
an entity related to the Group and the sponsoring employers of the post-employment benefit plan;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | the entity is controlled or jointly controlled by a person identified in (a);
| | ---- | -----------------------------------------------------------------------------



| | (vii) | a person identified in (a)(i) has significant influence over the entity or is a member of the key
management personnel of the entity (or of a parent of the entity); and
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (viii) | the entity, or any member of a group of which it is a part, provides key management personnel services
to the Group or to the parent of the Group.
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------



Property, plant and equipment



Property, plant and equipment
are recognized initially at cost which comprises purchase price, and any directly attributable costs of bringing the assets to
the working condition and location 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. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate,
at least at each financial year end.



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 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 off 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                                     | 8 to 45 years 
|Other property, plant and equipment           | 3 to 20 years 



F-20







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Property, plant and equipment
(cont’d)



Gains and losses on disposals
are determined by comparing the proceeds with the assets’ carrying amounts and are recognized in profit or loss.



Construction in progress represents
buildings under construction and equipment pending for installation. This includes the costs of construction or acquisition and
capitalized borrowing cost. No depreciation is provided on construction in progress until the asset is completed and ready for
use.



Investment properties



Investment properties are interests
in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the
definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production
or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties
are measured initially at cost, including transaction costs. After initial recognition, the Group chooses the cost model to measure
all of its investment properties.



Depreciation is calculated on
the straight-line basis to write off the cost to its residual value over its estimated useful life. The estimated useful lives
are as follows:



|Buildings | 30 to 35 years
|--------- | --------------



The carrying amounts of investment
properties measured using the cost method are reviewed for impairment when events or changes in circumstances indicate that the
carrying amounts may not be recoverable.



Any gains or losses on the retirement
or disposal of an investment property are recognized in profit or loss in the year of the retirement or disposal.



Impairment of non-financial
assets



Where an indication of impairment
exists, or when annual impairment testing for an asset is required (other than inventories, construction contract assets, financial
assets, investment properties and non-current assets/a disposal group classified as held for sale), the asset's recoverable amount
is estimated. An asset's recoverable amount is the higher of the asset's or cash-generating unit's value in use and its fair value
less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating
unit to which the asset belongs.



An impairment loss is recognized
only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises
in those expense categories consistent with the function of the impaired asset.



An assessment is made at the
end of each reporting period as to whether there is an indication that previously recognized impairment losses may no longer exist
or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss
of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable
amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization)
had no impairment loss been recognized for the asset in prior years.



Non-current assets and disposal
groups held for sale



Non-current assets and disposal
groups 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. For this to be the case, the asset or disposal group must be available for immediate sale in
its present condition subject only to terms that are usual and customary for the sale of such assets or disposal groups and its
sale must be highly probable. All assets and liabilities of a subsidiary classified as a disposal group are reclassified as held
for sale regardless of whether the Group retains a non-controlling interest in its former subsidiary after the sale.



Non-current assets and disposal
groups classified as held for sale are measured at the lower of their carrying amounts and fair values less costs to sell. Property,
plant and equipment and intangible assets classified as held for sale are not depreciated or amortized.



Lease prepayments



Lease prepayments under operating
leases are initially stated at cost and subsequently recognized on the straight-line basis over the lease terms.



F-21







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



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
borrowing costs, and are included in non-current assets. The balance is transferred to property, plant and equipment upon delivery
of the aircraft.



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 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.



Investments and other financial
assets



Initial recognition and measurement

Financial assets are classified,
at initial recognition, as financial assets at fair value through profit or loss, loans and receivables and available-for-sale
financial investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial
assets are recognized initially, they are measured at fair value plus transaction costs that are attributable to the acquisition
of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.



All regular way purchases and
sales of financial assets are recognized on the trade date, that is, the date that the Group commits to purchase or sell the asset.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally
established by regulation or convention in the marketplace.



Subsequent measurement

The subsequent measurement of
financial assets depends on their classification as follows:



Financial assets at fair value
through profit or loss

Financial assets at fair value
through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at
fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of
sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they
are designated as effective hedging instruments as defined by IAS 39.



Financial assets at fair value
through profit or loss are carried in the statement of financial position at fair value with positive net changes in fair value
presented as other income and gains and negative net changes in fair value presented as finance costs in profit or loss. These
net fair value changes do not include any dividends or interest earned on these financial assets, which are recognized in accordance
with the policies set out for “Revenue recognition and sales in advance of carriage” above.



Financial assets designated upon
initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria
in IAS 39 are satisfied.



Derivatives embedded in host
contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are
not closely related to those of the host contracts and the host contracts are not held for trading or designated as at fair value
through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in profit or
loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows
that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.



Loans and receivables

Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets
are subsequently measured at amortized cost using the effective interest rate method less any allowance for impairment. Amortized
cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral
part of the effective interest rate. The effective interest rate amortization is included in other operating income and gains in
profit or loss. The loss arising from impairment is recognized in profit or loss in finance costs for loans and in impairment charges
for receivables.



F-22







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Investments and other financial
assets (continued)



Available-for-sale financial
investments

Available-for-sale financial
investments are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments
classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through
profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which
may be sold in response to needs for liquidity or in response to changes in market conditions.



After initial recognition, available-for-sale
financial investments are subsequently measured at fair value, with unrealized gains or losses recognized as other comprehensive
income in the other reserves until the investment is derecognized, at which time the cumulative gain or loss is recognized in profit
or loss in other operating income, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified
from the other reserves to profit or loss in other gains or losses. Interest and dividends earned whilst holding the available-for-sale
financial investments are reported as finance income and dividend income, respectively and are recognized in profit or loss as
other operating income in accordance with the policies set out for “Revenue recognition and sales in advance of carriage”
above.



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 evaluates whether the
ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances,
the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial
assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.



For a financial asset reclassified
from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortized
cost and any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining
life of the investment using the effective interest rate. Any difference between the new amortized cost and the maturity amount
is also amortized over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined
to be impaired, then the amount recorded in equity is reclassified to profit or loss.



Derecognition of financial
assets



A financial asset (or, where
applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed
from the Group’s consolidated statement of financial position) when:

| | · | the rights to receive cash flows from
the asset have expired; or
| | - | ----------------------------------------------------------------

| | · | the Group has transferred its rights to
receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to
a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks
and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



When the Group has transferred
its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent
it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all
the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset
to the extent of the Group's continuing involvement. In that case, the Group also recognizes an associated liability. The transferred
asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.



Continuing involvement that takes
the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the
maximum amount of consideration that the Group could be required to repay.



F-23







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Impairment of financial assets



The Group assesses at the end
of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired.
An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated
future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment
may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency
in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable
data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.



Financial assets carried at
amortized cost

For financial assets carried
at amortized cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant,
or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence
of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group
of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment
of impairment.



The amount of any impairment
loss identified is measured as the difference between the asset's carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is
discounted at the financial asset's original effective interest rate (i.e., the effective interest rate computed at initial recognition).



The carrying amount of the asset
is reduced through the use of an allowance account and the loss is recognized in profit or loss. Interest income continues to be
accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring
the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect
of future recovery and all collateral has been realized or has been transferred to the Group.



If, in a subsequent period, the
amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized,
the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered,
the recovery is credited to impairment charges in profit or loss.



Available-for-sale financial
investments

For available-for-sale financial
investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a
group of investments is impaired.



If an available-for-sale asset
is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current
fair value, less any impairment loss previously recognized in profit or loss, is removed from other comprehensive income and recognized
in profit or loss.



In the case of equity investments
classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment
below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged”
against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative
loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that
investment previously recognized in profit or loss – is removed from other comprehensive income and recognized in profit
or loss. Impairment losses on equity instruments classified as available for sale are not reversed through profit or loss. Increases
in their fair value after impairment are recognized directly in other comprehensive income.



The determination of what is
“significant” or “prolonged” requires judgement. In making this judgement, the Group evaluates, among other
factors, the duration or extent to which the fair value of an investment is less than its cost.



F-24







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Financial liabilities



Initial recognition and measurement

Financial liabilities are classified,
at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives
designated as hedging instruments in an effective hedge, as appropriate.



All financial liabilities are
recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.



The Group’s financial liabilities
primarily include trade and other payables, derivative financial instruments and borrowings.



Subsequent measurement

The subsequent measurement of
financial liabilities depends on their classification as follows:



Financial liabilities at fair
value through profit or loss

Financial liabilities at fair
value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition
as at fair value through profit or loss.



Financial liabilities are classified
as held for trading if they are acquired for the purpose of repurchasing in the near term. This category includes derivative financial
instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39.
Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in profit or loss. The net fair value gain or loss recognized in
profit or loss does not include any interest charged on these financial liabilities.



Financial liabilities designated
upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if
the criteria in IAS 39 are satisfied.



Loans and borrowings

After initial recognition, borrowings
are subsequently measured at amortized cost, using the effective interest rate method unless the effect of discounting would be
immaterial, in which case they are stated at cost. Gains and losses are recognized in profit or loss when the liabilities are derecognized
as well as through the effective interest rate amortization process.



Amortized cost is calculated
by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest
rate. The effective interest rate amortization is included in finance costs in profit or loss.



Derecognition of financial
liabilities



A financial liability is derecognized
when the obligation under the liability is discharged or cancelled, or expires.



When an existing financial liability
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability,
and the difference between the respective carrying amounts is recognized in profit or loss.



Cash and cash equivalents



For the purpose of the consolidated
statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments
that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short
maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral
part of the Group's cash management.



For the purpose of the consolidated
statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including assets similar in nature
to cash, which are not restricted as to use.



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; provided that 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.



F-25







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Leases



| | (i) | As lessee
| | --- | ---------



Finance leases



Leases 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 assets 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 the current
portion of obligation under finance leases and obligations under finance leases, respectively. The interest element of the finance
costs is charged to 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 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 profit or
loss, except to the extent that any profit or loss is compensated for by future lease payments at above or below the market value,
then the profit or loss is deferred and amortized over the period for which the asset is expected to be used.



| | (ii) | As 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



| | (i) | Defined contribution plans
| | --- | --------------------------



The Group participates in schemes
regarding pension and medical benefits for employees organized by the municipal governments of the relevant provinces. Contributions
to these schemes are expensed as incurred.



The Group also implemented an
additional defined contribution pension benefit scheme (annuity) for voluntary eligible employees. Contributions are made based
on a percentage of the employees’ total salaries and are charged to profit or loss as incurred.



| | (ii) | Defined benefit plan
| | ---- | --------------------



The Group provides eligible
retirees with certain post-retirement benefits including retirement subsidies, transportation allowance as well as other welfare.
The 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
the post-retirement benefit plan, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest)
and the return on plan assets (excluding net interest), are recognized immediately in the consolidated statement of financial position
with a corresponding debit or credit to equity 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” and “Finance costs” in profit or loss:



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

| | • | net interest expense
| | - | --------------------



F-26







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



Derivative financial instruments
and hedge accounting



Initial recognition and subsequent
measurement

The Group uses derivative financial
instruments, such as forward currency contracts and interest rate swaps, to hedge its foreign currency risk and interest rate risk,
respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract
is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive
and as liabilities when the fair value is negative.



Any gains or losses arising from
changes in fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges,
which is recognized in other comprehensive income and later reclassified to profit or loss when the hedged item affects profit
or loss.



For the purpose of hedge accounting,
hedges are classified as:

| | • | fair value hedges when hedging the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| | • | cash flow hedges when hedging the exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction, or a foreign currency
risk in an unrecognized firm commitment; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | hedges of a net investment in a foreign operation.
| | - | --------------------------------------------------



At the inception of a hedge relationship,
the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk
management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument,
the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument's effectiveness
of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item's fair value or
cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in
fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout
the financial reporting periods for which they were designated.



Hedges which meet the strict
criteria for hedge accounting are accounted for as follows:



Fair value hedges

The change in the fair value
of a hedging derivative is recognized in profit or loss. The change in the fair value of the hedged item attributable to the risk
hedged is recorded as a part of the carrying amount of the hedged item and is also recognized in profit or loss.



For fair value hedges relating
to items carried at amortized cost, the adjustment to carrying value is amortized through profit or loss over the remaining term
of the hedge using the effective interest rate method. Effective interest rate amortization may begin as soon as an adjustment
exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the
risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss.



When an unrecognized firm commitment
is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged
risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit or loss. The changes in the
fair value of the hedging instrument are also recognized in profit or loss.



Cash flow hedges

The effective portion of the
gain or loss on the hedging instrument is recognized directly in other comprehensive income in the hedging reserve, while any ineffective
portion is recognized immediately in profit or loss.



Amounts recognized in other comprehensive
income are transferred to profit or loss when the hedged transaction affects profit or loss, such as when hedged financial income
or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or
non-financial liability, the amounts recognized in other comprehensive income are transferred to the initial carrying amount of
the non-financial asset or non-financial liability.



If the hedging instrument expires
or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as
a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, the amounts previously recognized in other
comprehensive income remain in other comprehensive income until the forecast transaction occurs or the foreign currency firm commitment
is met.



Current versus non-current
classification

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.



F-27







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | ---------------------------------------------------



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.



Fair value measurement



The Group measures its derivative
financial instruments and listed equity investments at fair value at the end of each reporting period. Fair value is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer
the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in
the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the
Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.



A fair value measurement of a
non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in
its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.



The Group uses valuation techniques
that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use
of relevant observable inputs and minimizing the use of unobservable inputs.



All assets and liabilities for
which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described
as follows, based on the lowest level input that is significant to the fair value measurement as a whole:



| | Level 1 – | based on quoted prices (unadjusted) in active markets for identical assets or liabilities
| | --------- | -----------------------------------------------------------------------------------------

| | Level 2 – | based on valuation techniques for which the lowest level input that is significant to the fair
value measurement is observable, either directly or indirectly
| | --------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Level 3 – | based on valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable
| | --------- | --------------------------------------------------------------------------------------------------------------------------------



For assets and liabilities that
are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels
in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement
as a whole) at the end of each reporting period.



Business combinations



Business combinations are accounted
for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum
of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of
the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination,
the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle
their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of
the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related
costs are expensed as incurred.



When the Group acquires a business,
it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the
contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts of the acquiree.



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 acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as an
asset or liability is measured at fair value with changes in fair value recognized in profit or loss. Contingent consideration
that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.



F-28







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



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



The Group’s activities expose
it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate
risk and fuel price risk), credit risk, and liquidity risk. The Group’s overall risk management program focuses on the unpredictability
of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses
derivative financial instruments to manage risk exposures whenever management considers 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 currency risk, interest rate risk, credit risk, use of derivative
financial instruments and non-derivative financial instruments were approved by the Board.



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 USD. The Group is exposed to currency
risks from fluctuations in various foreign currency exchange rates against RMB.



The RMB is not freely convertible
into other currencies, however, under Mainland China's Foreign Exchange Control Regulations and Administration of Settlement, Sale
and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized
to conduct foreign exchange business.



In addition, fluctuations in foreign
currency exchange rates will affect the Group’s future costs for purchases of aircraft, flight equipment and aviation fuel,
and take-off and landing charges in foreign airports.



The Group entered into certain
foreign exchange forward contracts to manage part of these foreign currency risks. As at 31 December 2016, the foreign exchange
forward contracts at notional value were RMB3,052 million . Details of foreign currency forward contracts are disclosed in Note
39 to the financial statements.



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



|                                                     |  | 2016        |        
|---------------------------------------------------- |  | ----------- | -------
|                                                     |  | USD         |        
|                                                     |  | RMB million |        
|                                                     |  |             |        
|Trade and other receivables                          |  |             | 1,575  
|Cash and cash equivalents                            |  |             | 702    
|Deposits relating to aircraft under operating leases |  |             | 140    
|Other non-current assets                             |  |             | 267    
|Trade and other payables                             |  |             | (123   
|Obligations under finance leases                     |  |             | (44,913
|Borrowings                                           |  |             | (7,953 



F-29







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



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



Foreign currency risk
(cont’d)





|                                                     |  | 2015        |        
|---------------------------------------------------- |  | ----------- | -------
|                                                     |  | USD         |        
|                                                     |  | RMB million |        
|                                                     |  |             |        
|Trade and other receivables                          |  |             | 1,684  
|Cash and cash equivalents                            |  |             | 7,755  
|Deposits relating to aircraft under operating leases |  |             | 145    
|Other non-current assets                             |  |             | 322    
|Trade and other payables                             |  |             | (124   
|Obligations under finance leases                     |  |             | (50,342
|Borrowings                                           |  |             | (36,943



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



|                                                      |  | 2016           |           |  | 2015            | 
|----------------------------------------------------- |  | -------------- | --------- |  | --------------- | 
|                                                      |  |                |           |  | Effect on other | 
|                                                      |  | Effect on      |           |  | comprehensive   | 
|                                                      |  | profit or loss |           |  | income          | 
|                                                      |  | RMB million    |           |  | RMB million     | 
|                                                      |  |                |           |  |                 | 
|If RMB (weakens)/strengthens against the US dollars   |  |                | (377)/377 |  |                 | 
|If RMB (weakens)/strengthens against the Euro         |  |                | (31)/31   |  |                 | 
|If RMB (weakens)/strengthens against the Japanese Yen |  |                | (2)/2     |  |                 | 
|If RMB (weakens)/strengthens against KRW              |  |                | (6)/6     |  |                 | 



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 borrowings
and finance leases 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 to the Group and interest rate swaps
are disclosed in Notes 34 and 39(a) to the financial statements.



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



|                                                      |  | 2016        |         |   | 2015        | 
|----------------------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                                      |  | RMB million |         |   | RMB million | 
|Floating rate instruments                             |  |             |         |   |             | 
|Cash and cash equivalents                             |  |             | 1,695   |   |             | 
|Restricted bank deposits and short-term bank deposits |  |             | 43      |   |             | 
|Borrowings                                            |  |             | (15,419 | ) |             | 
|Obligations under finance leases                      |  |             | (61,041 | ) |             | 
|Interest rate swap at notional amount                 |  |             | 11,352  |   |             | 
|Cross currency swap at notional amount                |  |             | -       |   |             | 



F-30







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



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



Interest rate risk
(cont’d)



|                                      |  | 2016        |         |   | 2015        | 
|------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                      |  | RMB million |         |   | RMB million | 
|                                      |  |             |         |   |             | 
|Fixed rate instruments                |  |             |         |   |             | 
|Borrowings                            |  |             | (41,313 | ) |             | 
|Interest rate swap at notional amount |  |             | -       |   |             | 



The following table indicates
the approximate change in the Group’s profit or loss and other comprehensive income, taking the interest rate swap into consideration,
if interest rate had been 25 basis points higher with all other variables held constant:



|                          |  | 2016           |      |   | 2015            | 
|------------------------- |  | -------------- | ---- | - | --------------- | 
|                          |  |                |      |   | Effect on other | 
|                          |  | Effect on      |      |   | comprehensive   | 
|                          |  | profit or loss |      |   | income          | 
|                          |  | RMB million    |      |   | RMB million     | 
|                          |  |                |      |   |                 | 
|Floating rate instruments |  |                | (140 | ) |                 | 



Fuel price risk



The Group’s results of
operations may be significantly affected by fluctuations in fuel prices which is a significant expense component for the Group.
Aircraft fuel accounts for approximate 21% of the Group’s operating expenses (2015: 23%).



As at December 31, 2016, the
Group had no open crude oil option contracts.



For the year ended December
31, 2016, if fuel price had been 5% higher/lower with all other variables held constant, the Group’s fuel cost would have
been RMB981million higher/lower (2015: RMB1,016 million higher/lower).



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 RMB922 million as at December 31, 2016 (2015: approximately RMB752 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 47(c)(iii)). 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 reputable banks and financial institutions. The Group has policies that
limit the amount of credit exposure to any bank and financial institution. Management does not expect any losses from non-performance
by these banks and financial institutions.



F-31







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



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



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 borrowings including bank loans, debentures and bonds (both short-term and long-term). The Group generally finances the acquisition
of aircraft through long-term finance leases or bank loans.



The table below analyses the
Group’s financial liabilities that will be settled into relevant maturity groupings based on the remaining period at the
reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.



|                                 |  | Less than   |        |  |               |  |        |               |  |  | Over        |  |  |             |       
|-------------------------------- |  | ----------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ----------- |  |  | ----------- | ------
|                                 |  | 1 year      |        |  | 1 and 2 years |  |        | 2 and 5 years |  |  | 5 years     |  |  | Total       |       
|                                 |  | RMB million |        |  | RMB million   |  |        | RMB million   |  |  | RMB million |  |  | RMB million |       
|                                 |  |             |        |  |               |  |        |               |  |  |             |  |  |             |       
|At 31 December 2016              |  |             |        |  |               |  |        |               |  |  |             |  |  |             |       
|Borrowings                       |  |             | 30,262 |  |               |  | 5,670  |               |  |  | 14,961      |  |  |             | 10,813
|Derivative financial instruments |  |             | 11     |  |               |  | 33     |               |  |  | 8           |  |  |             | 6     
|Obligations under finance leases |  |             | 8,123  |  |               |  | 7,526  |               |  |  | 21,905      |  |  |             | 33,277
|Trade, bills and other payables  |  |             | 16,318 |  |               |  | -      |               |  |  | -           |  |  |             | -     
|                                 |  |             |        |  |               |  |        |               |  |  |             |  |  |             |       
|Total                            |  |             | 54,714 |  |               |  | 13,229 |               |  |  | 36,874      |  |  |             | 44,096



|                                 |  | Less than   |        |  |               |  |        |               |  |  | Over        |  |  |             |       
|-------------------------------- |  | ----------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ----------- |  |  | ----------- | ------
|                                 |  | 1 year      |        |  | 1 and 2 years |  |        | 2 and 5 years |  |  | 5 years     |  |  | Total       |       
|                                 |  | RMB million |        |  | RMB million   |  |        | RMB million   |  |  | RMB million |  |  | RMB million |       
|                                 |  |             |        |  |               |  |        |               |  |  |             |  |  |             |       
|At 31 December 2015              |  |             |        |  |               |  |        |               |  |  |             |  |  |             |       
|Borrowings                       |  |             | 39,794 |  |               |  | 11,067 |               |  |  | 9,477       |  |  |             | 10,873
|Derivative financial instruments |  |             | 4      |  |               |  | -      |               |  |  | 58          |  |  |             | 39    
|Obligations under finance leases |  |             | 7,377  |  |               |  | 7,101  |               |  |  | 19,183      |  |  |             | 25,167
|Trade, bills and other payables  |  |             | 15,433 |  |               |  | -      |               |  |  | -           |  |  |             | -     
|                                 |  |             |        |  |               |  |        |               |  |  |             |  |  |             |       
|Total                            |  |             | 62,608 |  |               |  | 18,168 |               |  |  | 28,718      |  |  |             | 36,079



F-32







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



| | (b) | Capital risk management
| | --- | -----------------------



The primary objectives of the
Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy
capital ratios in order to support its business and maximize shareholders’ value.



The Group manages its capital
structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying
assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital
to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made
in the objectives, policies or processes for managing capital during the years ended 31 December 2016 and 31 December 2015.



The Group monitors capital on
the basis of the debt ratio, which is calculated as total liabilities divided by total assets. The debt ratios at 31 December 2016
and 2015 were as follows:



|                  |  | 2016        |         |  | 2015        | 
|----------------- |  | ----------- | ------- |  | ----------- | 
|                  |  | RMB million |         |  | RMB million | 
|                  |  |             |         |  |             | 
|Total liabilities |  |             | 159,958 |  |             | 
|Total assets      |  |             | 212,324 |  |             | 
|Debt ratio        |  |             | 0.75    |  |             | 



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



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:



|                                                                                               |  | 2016             |        |  | 2015        | 
|---------------------------------------------------------------------------------------------- |  | ---------------- | ------ |  | ----------- | 
|                                                                                               |  | Carrying amounts |        |  | Fair values | 
|                                                                                               |  | RMB million      |        |  | RMB million | 
|Financial assets                                                                               |  |                  |        |  |             | 
|Deposits relating to aircraft held under operating leases included in other non-current assets |  |                  | 285    |  |             | 
|                                                                                               |  |                  |        |  |             | 
|Financial liabilities                                                                          |  |                  |        |  |             | 
|Long-term bank borrowings                                                                      |  |                  | 27,890 |  |             | 
|Obligations under finance leases                                                               |  |                  | 54,594 |  |             | 
|                                                                                               |  |                  |        |  |             | 
|Total                                                                                          |  |                  | 82,484 |  |             | 



Management has assessed that
the fair values of cash and cash equivalents, restricted bank deposits and short-term bank deposits, trade and notes receivables,
trade and bills payables, financial assets included in prepayments and other receivables, financial liabilities included in other
payables and accruals, short-term bank borrowings and short-term guaranteed bonds approximate to their carrying amounts largely
due to the short term maturities of these instruments.



The fair values of the deposits
relating to aircraft held under operating leases included in other non-current assets, long-term 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.



Financial instruments measured
at fair value



The Group enters into derivative
financial instruments, including forward currency contracts and interest rate swaps with various counterparties, principally financial
institutions with high credit ratings.



Derivative financial instruments
are measured using valuation techniques similar to forward pricing and swap models, using present value calculations. The models
incorporate various market observable inputs including the foreign exchange spot and forward rates and interest rate curves. As
at 31 December 2016, 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-33







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



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



Fair value hierarchy



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



Assets and liabilities
measured at fair value:



|As at December 31, 2016                          |  | Fair value measurement using |    
|------------------------------------------------ |  | ---------------------------- | ---
|                                                 |  | Quoted prices                |    
|                                                 |  | in active                    |    
|                                                 |  | markets                      |    
|                                                 |  | (Level 1)                    |    
|                                                 |  | RMB million                  |    
|                                                 |  |                              |    
|Assets                                           |  |                              |    
|Derivative financial instruments                 |  |                              |    
|-Forward foreign exchange contracts (Note 39(b)) |  |                              | -  
|-Interest rate swaps (Note 39(a))                |  |                              | -  
|Available-for-sale investments                   |  |                              | 538
|                                                 |  |                              |    
|Total                                            |  |                              | 538
|                                                 |  |                              |    
|Liabilities                                      |  |                              |    
|Derivative financial instruments                 |  |                              |    
|-Forward foreign exchange contracts (Note 39(b)) |  |                              | -  
|-Interest rate swaps (Note 39(a))                |  |                              | -  
|                                                 |  |                              |    
|Total                                            |  |                              | -  



|As at December 31, 2015                          |  | Fair value measurement using |    
|------------------------------------------------ |  | ---------------------------- | ---
|                                                 |  | Quoted prices                |    
|                                                 |  | in active                    |    
|                                                 |  | markets                      |    
|                                                 |  | (Level 1)                    |    
|                                                 |  | RMB million                  |    
|                                                 |  |                              |    
|Assets                                           |  |                              |    
|Derivative financial instruments                 |  |                              |    
|-Forward foreign exchange contracts (Note 39(b)) |  |                              | -  
|-Interest rate swaps (Note 39(a))                |  |                              | -  
|-Cross currency swap (Note 39(c))                |  |                              | -  
|Available-for-sale investments                   |  |                              | 317
|                                                 |  |                              |    
|Total                                            |  |                              | 317
|                                                 |  |                              |    
|Liabilities                                      |  |                              |    
|Derivative financial instruments                 |  |                              |    
|-Interest rate swaps (Note 39(a))                |  |                              | -  



The fair value of financial
instruments traded in active markets was based on quoted market prices at the reporting dates. Available-for-sale investments are
listed A share and listed H share stock investments.



The fair values of derivative
financial instruments are 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.



F-34







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



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



Assets and liabilities
for which fair values are disclosed:



|As at December 31, 2016                                                                      |  | Fair value measurement using |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | -
|                                                                                             |  | Quoted prices                |  
|                                                                                             |  | in active                    |  
|                                                                                             |  | markets                      |  
|                                                                                             |  | (Level 1)                    |  
|                                                                                             |  | RMB million                  |  
|                                                                                             |  |                              |  
|Assets                                                                                       |  |                              |  
|Deposits relating to aircraft held under operating leases included in other long-term assets |  |                              | -
|                                                                                             |  |                              |  
|Liabilities                                                                                  |  |                              |  
|Long-term bank borrowings                                                                    |  |                              | -
|Obligations under finance leases                                                             |  |                              | -
|                                                                                             |  |                              |  
|Total                                                                                        |  |                              | -



|As at December 31, 2015                                                                      |  | Fair value measurement using |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | -
|                                                                                             |  | Quoted prices                |  
|                                                                                             |  | in active                    |  
|                                                                                             |  | markets                      |  
|                                                                                             |  | (Level 1)                    |  
|                                                                                             |  | RMB million                  |  
|                                                                                             |  |                              |  
|Assets                                                                                       |  |                              |  
|Deposits relating to aircraft held under operating leases included in other long-term assets |  |                              | -
|                                                                                             |  |                              |  
|Liabilities                                                                                  |  |                              |  
|Long-term bank borrowings                                                                    |  |                              | -
|Obligations under finance leases                                                             |  |                              | -
|                                                                                             |  |                              |  
|Total                                                                                        |  |                              | -



F-35







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



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



| | (a) | Revenue recognition
| | --- | -------------------



The Group recognizes traffic
revenues in accordance with the accounting policy stated in Note 2.4 to the financial statements. Unused tickets are recognized
in traffic revenues based on current estimates. Management periodically evaluates the balance in the SIAC and records any adjustments,
which can be material, in the period the evaluation is completed.



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



| | (b) | Frequent flyer programs
| | --- | -----------------------



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
deferred revenue for frequent flyer programs and the results of operations.



| | (c) | Provision for costs of return condition checks for aircraft under operating leases
| | --- | ----------------------------------------------------------------------------------



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



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



The Group operates and maintains
a defined retirement benefit plan which provides eligible retirees with benefits including retirement subsidies, transportation
allowance 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 2.4 to the financial statements. These
assumptions include, without limitation, the selection of discount rate, annual rate of increase of per capita benefit payment
and etc. 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.



Additional information regarding
the retirement benefit plan is disclosed in Note 37 to the financial statements.



| | (e) | Deferred income tax
| | --- | -------------------



In assessing the amount of deferred
tax assets that need to be recognized in accordance with the accounting policy stated in Note 2.4 to the financial statements,
the Group considers future taxable income and ongoing prudent and feasible tax planning strategies. In the event that the Group’s
estimates of projected future taxable income and benefits from available tax strategies are changed, or changes in current tax
regulations are enacted that would impact the timing or extent of the Group’s ability to utilize the tax benefits of deductible
tax loss carry forwards in the future, adjustments to the recorded amount of net deferred tax assets and taxation expense would
be made.



F-36







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



| | (f) | Provision for flight equipment spare parts
| | --- | ------------------------------------------



Provision for flight equipment
spare parts is made based on the difference between the carrying amount and the net realizable value. The net realizable value
is estimated based on current market condition, historical experience and the 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 overhaul 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 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 2.4 to the
financial statements. The recoverable amount of the 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.



| | (i) | Impairment of goodwill
| | --- | ----------------------



The Group determines whether
goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating unit to
which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash
flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those
cash flows.



F-37







| | 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, |       
|------------------------------------ |  | ----------------------- | ------
|                                     |  | 2016                    |       
|                                     |  | RMB million             |       
|                                     |  |                         |       
|Traffic revenues                     |  |                         | 89,554
|- Passenger                          |  |                         | 83,577
|- Cargo and mail                     |  |                         | 5,977 
|Tour operations income               |  |                         | 3,113 
|Ground service income                |  |                         | 2,850 
|Cargo handling and processing income |  |                         | 794   
|Commission income                    |  |                         | 92    
|Others                               |  |                         | 2,501 
|                                     |  |                         |       
|                                     |  |                         | 98,904



| | 6 | OTHER OPERATING INCOME AND
GAINS
| | - | --------------------------------



|                                                             |  | Year ended December 31, |      
|------------------------------------------------------------ |  | ----------------------- | -----
|                                                             |  | 2016                    |      
|                                                             |  | RMB million             |      
|                                                             |  |                         |      
|Subsidy income (Note (a))                                    |  |                         | 4,531
|Gain on disposal of property, plant and equipment            |  |                         | 158  
|Gain on disposal of lease prepayments                        |  |                         | 3    
|Gain on disposal of available-for-sale investments (Note 24) |  |                         | 95   
|Dividend income from available-for-sale investments          |  |                         | 28   
|Gain on disposal of an associate                             |  |                         | 12   
|Compensation from ticket sales agents                        |  |                         | 228  
|Gain on disposal of investments in subsidiary                |  |                         | -    
|Others (Note (b))                                            |  |                         | 414  
|                                                             |  |                         |      
|                                                             |  |                         | 5,469



Note:



| | (a) | Subsidy income mainly represents (i) subsidies
granted by various local governments based on certain amounts of tax paid;
(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 31 December 2016, 2015 and 2014.



| | (b) | Others mainly represent compensation from transfer of the pilots.
| | --- | -----------------------------------------------------------------



F-38







| | 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 services.



Other services including primarily
tour operations, air catering and other miscellaneous services are not included within the airline transportation operations segment,
as their internal reports are separately provided to the CODM. The results of these operations are included in the “other
segments” column.



Inter-segment transactions are
entered into under normal commercial terms and conditions that would be available to unrelated third parties.



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 IFRSs 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, 2016 were as follows:



|                                                   |  | Airline        |        |  |             |  |       |              |  |  |              |   |  |             |    
|-------------------------------------------------- |  | -------------- | ------ |  | ----------- |  | ----- | ------------ |  |  | ------------ | - |  | ----------- | ---
|                                                   |  | transportation |        |  | Other       |  |       |              |  |  |              |   |  |             |    
|                                                   |  | operations     |        |  | segments    |  |       | Eliminations |  |  | Unallocated* |   |  | Total       |    
|                                                   |  | RMB million    |        |  | RMB million |  |       | RMB million  |  |  | RMB million  |   |  | RMB million |    
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Reportable segment revenue from external customers |  |                | 94,338 |  |             |  | 4,222 |              |  |  | -            |   |  |             | -  
|Inter-segment sales                                |  |                | -      |  |             |  | 782   |              |  |  | (782         | ) |  |             | -  
|Reportable segment revenue                         |  |                | 94,338 |  |             |  | 5,004 |              |  |  | (782         | ) |  |             | -  
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Reportable segment profit before income tax        |  |                | 5,788  |  |             |  | 397   |              |  |  | -            |   |  |             | 322
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Other segment information                          |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Depreciation and amortization                      |  |                | 12,378 |  |             |  | 160   |              |  |  | -            |   |  |             | -  
|Impairment charges                                 |  |                | 22     |  |             |  | 7     |              |  |  | -            |   |  |             | -  
|Interest income                                    |  |                | 100    |  |             |  | 100   |              |  |  | (104         | ) |  |             | -  
|Finance expenses                                   |  |                | 2,553  |  |             |  | 280   |              |  |  | (104         | ) |  |             | -  
|Capital expenditure                                |  |                | 34,631 |  |             |  | 776   |              |  |  | -            |   |  |             | -  



F-39





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



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



The segment results for the year
ended December 31, 2015 were as follows:



|                                                   |  | Airline        |        |  |             |  |       |              |  |  |              |   |  |             |    
|-------------------------------------------------- |  | -------------- | ------ |  | ----------- |  | ----- | ------------ |  |  | ------------ | - |  | ----------- | ---
|                                                   |  | transportation |        |  | Other       |  |       |              |  |  |              |   |  |             |    
|                                                   |  | operations     |        |  | segments    |  |       | Eliminations |  |  | Unallocated* |   |  | Total       |    
|                                                   |  | RMB million    |        |  | RMB million |  |       | RMB million  |  |  | RMB million  |   |  | RMB million |    
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Reportable segment revenue from external customers |  |                | 89,013 |  |             |  | 4,831 |              |  |  | -            |   |  |             | -  
|Inter-segment sales                                |  |                | 555    |  |             |  | 468   |              |  |  | (1,023       | ) |  |             | -  
|Reportable segment revenue                         |  |                | 89,568 |  |             |  | 5,299 |              |  |  | (1,023       | ) |  |             | -  
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Reportable segment profit before income tax        |  |                | 5,327  |  |             |  | 238   |              |  |  | -            |   |  |             | 106
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Other segment information                          |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |    
|Depreciation and amortization                      |  |                | 10,727 |  |             |  | 128   |              |  |  | -            |   |  |             | -  
|Impairment charges                                 |  |                | 93     |  |             |  | 1     |              |  |  | -            |   |  |             | 134
|Interest income                                    |  |                | 69     |  |             |  | 13    |              |  |  | (16          | ) |  |             | -  
|Finance expenses                                   |  |                | 1,935  |  |             |  | 270   |              |  |  | (16          | ) |  |             | -  
|Capital expenditure                                |  |                | 37,706 |  |             |  | 591   |              |  |  | -            |   |  |             | -  



The segment results for the year
ended December 31, 2014 were as follows:



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



The segment assets and liabilities
as at December 31, 2016, 2015 were as follows:



|                               |  | Airline        |         |  |             |  |        |              |  |  |              |   |  |             |      
|------------------------------ |  | -------------- | ------- |  | ----------- |  | ------ | ------------ |  |  | ------------ | - |  | ----------- | -----
|                               |  | transportation |         |  | Other       |  |        |              |  |  |              |   |  |             |      
|                               |  | operations     |         |  | segments    |  |        | Eliminations |  |  | Unallocated* |   |  | Total       |      
|                               |  | RMB million    |         |  | RMB million |  |        | RMB million  |  |  | RMB million  |   |  | RMB million |      
|                               |  |                |         |  |             |  |        |              |  |  |              |   |  |             |      
|At December 31, 2016           |  |                |         |  |             |  |        |              |  |  |              |   |  |             |      
|Reportable segment assets      |  |                | 205,024 |  |             |  | 11,218 |              |  |  | (8,896       | ) |  |             | 2,705
|Reportable segment liabilities |  |                | 159,437 |  |             |  | 9,373  |              |  |  | (8,896       | ) |  |             | 41   
|                               |  |                |         |  |             |  |        |              |  |  |              |   |  |             |      
|At December 31, 2015           |  |                |         |  |             |  |        |              |  |  |              |   |  |             |      
|Reportable segment assets      |  |                | 189,408 |  |             |  | 12,045 |              |  |  | (8,282       | ) |  |             | 2,538
|Reportable segment liabilities |  |                | 156,041 |  |             |  | 10,260 |              |  |  | (8,282       | ) |  |             | 39   



F-40







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



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



| | * | Unallocated assets primarily represent investments in
associates and joint ventures, and available-for-sale investments. Unallocated results primarily represent the share of results
of associates and joint ventures, income relating to available-for-sale investments and impairment charge on available-for-sale
investments.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The Group’s business operates in three main geographical areas, even though they are managed
on a worldwide basis.
| | --- | ------------------------------------------------------------------------------------------------------------------



The Group’s revenues by geographical
area are analysed based on the following criteria:



| | 1) | Traffic revenue from services within the 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                          |  | 2016        |        |  | 2015        |  |        | 2014        | 
|--------------------------------------------------------- |  | ----------- | ------ |  | ----------- |  | ------ | ----------- | 
|                                                          |  | RMB million |        |  | RMB million |  |        | RMB million | 
|                                                          |  |             |        |  |             |  |        |             | 
|Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |  |             | 63,730 |  |             |  | 61,222 |             | 
|Regional (Hong Kong, Macau and Taiwan)                    |  |             | 3,516  |  |             |  | 3,569  |             | 
|International                                             |  |             | 31,658 |  |             |  | 29,178 |             | 
|                                                          |  |             |        |  |             |  |        |             | 
|Total                                                     |  |             | 98,904 |  |             |  | 93,969 |             | 



The major revenue-earning assets
of the Group are its aircraft, all of which are registered in the PRC. Since the Group’s aircraft are deployed flexibly across
its route network, there is no suitable basis of allocating such assets and the related liabilities by geographic area and hence
segment non-current assets and capital expenditure by geographic area are not presented. Except the aircraft, most non-current
assets (except financial instruments) are registered and located in the PRC.



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



|                                                                            |  |      |  | 2016        |        |  | 2015        |  |        | 2014        | 
|--------------------------------------------------------------------------- |  | ---- |  | ----------- | ------ |  | ----------- |  | ------ | ----------- | 
|                                                                            |  | Note |  | RMB million |        |  | RMB million |  |        | RMB million | 
|                                                                            |  |      |  |             |        |  |             |  |        |             | 
|Revenue                                                                     |  |      |  |             |        |  |             |  |        |             | 
|Reportable segment revenue                                                  |  |      |  |             | 98,560 |  |             |  | 93,844 |             | 
|- Reclassification of business tax and expired sales in advance of carriage |  | (i)  |  |             | 344    |  |             |  | 125    |             | 
|- Adjustment of business combination under common control                   |  |      |  |             | -      |  |             |  | -      |             | 
|                                                                            |  |      |  |             |        |  |             |  |        |             | 
|Consolidated revenue                                                        |  |      |  |             | 98,904 |  |             |  | 93,969 |             | 



F-41







| | 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 (cont’d):
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                   |  |      |  | 2016        |       |   | 2015        |  |       | 2014        | 
|-------------------------------------------------------------------------------------------------- |  | ---- |  | ----------- | ----- | - | ----------- |  | ----- | ----------- | 
|                                                                                                   |  | Note |  | RMB million |       |   | RMB million |  |       | RMB million | 
|                                                                                                   |  |      |  |             |       |   |             |  |       |             | 
|Profit before income tax                                                                           |  |      |  |             |       |   |             |  |       |             | 
|Reportable segment profit                                                                          |  |      |  |             | 6,507 |   |             |  | 5,671 |             | 
|- Differences in depreciation charges for aircraft and engines due to different depreciation lives |  | (ii) |  |             | (10   | ) |             |  | (4    | )           | 
|- Adjustments of business combination under common control                                         |  |      |  |             | -     |   |             |  | -     |             | 
|                                                                                                   |  |      |  |             |       |   |             |  |       |             | 
|Consolidated profit before income tax                                                              |  |      |  |             | 6,497 |   |             |  | 5,667 |             | 



|                                                                                                   |  |       |  | 2016        |         |  | 2015        | 
|-------------------------------------------------------------------------------------------------- |  | ----- |  | ----------- | ------- |  | ----------- | 
|                                                                                                   |  | Notes |  | RMB million |         |  | RMB million | 
|                                                                                                   |  |       |  |             |         |  |             | 
|Assets                                                                                             |  |       |  |             |         |  |             | 
|Reportable segment assets                                                                          |  |       |  |             | 210,051 |  |             | 
|- Differences in depreciation charges for aircraft and engines due to different depreciation lives |  | (ii)  |  |             | 31      |  |             | 
|- Difference in intangible asset arising from the acquisition of Shanghai Airlines                 |  | (iii) |  |             | 2,242   |  |             | 
|                                                                                                   |  |       |  |             |         |  |             | 
|Consolidated assets                                                                                |  |       |  |             | 212,324 |  |             | 



|                               |  |  |  | 2016        |         |  | 2015        | 
|------------------------------ |  |  |  | ----------- | ------- |  | ----------- | 
|                               |  |  |  | RMB million |         |  | RMB million | 
|                               |  |  |  |             |         |  |             | 
|Liabilities                    |  |  |  |             |         |  |             | 
|Reportable segment liabilities |  |  |  |             | 159,955 |  |             | 
|- Others                       |  |  |  |             | 3       |  |             | 
|                               |  |  |  |             |         |  |             | 
|Consolidated liabilities       |  |  |  |             | 159,958 |  |             | 



Notes:



| | (i) | The difference represents the different classification of business tax and expired sales in advance
of carriage under the PRC Accounting Standards and IFRSs.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The difference is attributable to the differences in the useful lives and residual values of
                                                               aircraft and engines adopted for depreciation purposes in prior years under the PRC Accounting Standards and IFRSs. Despite
                                                               the depreciation policies of these assets have been unified under IFRSs 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 IFRSs and the PRC Accounting Standards.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The difference represents the different measurement of the fair value of acquisition cost of the
shares from Shanghai Airlines between the PRC Accounting standards and IFRSs, which results in the different measurement of goodwill.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8 | GAIN ON FAIR VALUE CHANGES OF DERIVATIVE FINANCIAL INSTRUMENTS
| | - | --------------------------------------------------------------



|                                          |  | Year ended December 31, |  
|----------------------------------------- |  | ----------------------- | -
|                                          |  | 2016                    |  
|                                          |  | RMB million             |  
|                                          |  |                         |  
|Interest rate swap contracts (Note 39(a)) |  |                         | 2



F-42







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



|                                                 |  | Year ended December 31, |       
|------------------------------------------------ |  | ----------------------- | ------
|                                                 |  | 2016                    |       
|                                                 |  | RMB million             |       
|                                                 |  |                         |       
|Wages, salaries, bonus and allowances            |  |                         | 14,431
|Employee welfare and benefits                    |  |                         | 235   
|Pension and medical insurance (Note 37(a) & (b)) |  |                         | 2,375 
|Post-retirement benefits (Note 37(c))            |  |                         | -     
|Staff housing fund (Note (a))                    |  |                         | 868   
|Staff housing allowances (Note (b))              |  |                         | 236   
|                                                 |  |                         |       
|                                                 |  |                         | 18,145



Notes:



| | (a) | Staff housing fund
| | --- | ------------------



In accordance with the relevant
PRC housing regulations, the Group is required to contribute to the state-sponsored housing fund for its 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. 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.



| | (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.



| | (c) | Emoluments of directors and supervisors
| | --- | ---------------------------------------



Directors' remuneration for
the year, disclosed pursuant to the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and
Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, together with the remuneration of supervisors,
is as follows:



|                                    |  | 2016         |      
|----------------------------------- |  | ------------ | -----
|                                    |  | Salaries and |      
|                                    |  | Allowance    |      
|                                    |  | RMB’000      |      
|                                    |  |              |      
|Executive Directors                 |  |              |      
|Liu Shaoyong*                       |  |              | -    
|Ma Xulun*                           |  |              | -    
|Xu Zhao*                            |  |              | -    
|Gu Jiadan*                          |  |              | -    
|Li Yangmin*                         |  |              | -    
|Tang Bing*                          |  |              | -    
|Tian Liuwen*                        |  |              | -    
|                                    |  |              |      
|Independent non-executive Directors |  |              |      
|Li Ruoshan                          |  |              | 160  
|Ji Weidong****                      |  |              | -    
|Shao Ruiqing                        |  |              | 160  
|Ma Weihua                           |  |              | 160  
|Cai Hongping*****                   |  |              | 100  
|                                    |  |              |      
|Supervisors-                        |  |              |      
|Yu Faming*&******                   |  |              | -    
|Xi Sheng*                           |  |              | -    
|Xu Haihua*******                    |  |              | 288  
|Feng Jinxiong                       |  |              | 535  
|Ba Shengji*                         |  |              | -    
|Hu Jidong*****                      |  |              | 426  
|Jia Shaojun*&*****                  |  |              | -    
|                                    |  |              |      
|Total                               |  |              | 1,829



F-43







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



| | (c) | Emoluments of directors and supervisors(cont’d)
| | --- | -----------------------------------------------



|                                    |  | 2015         |      
|----------------------------------- |  | ------------ | -----
|                                    |  | Salaries and |      
|                                    |  | allowances   |      
|                                    |  | RMB’000      |      
|                                    |  |              |      
|Executive Directors                 |  |              |      
|Liu Shaoyong*                       |  |              | -    
|Ma Xulun                            |  |              | 401  
|Xu Zhao*                            |  |              | -    
|Gu Jiadan*                          |  |              | -    
|Li Yangmin                          |  |              | 365  
|Tang Bing                           |  |              | 358  
|Tian Liuwen***                      |  |              | 419  
|                                    |  |              |      
|Independent non-executive Directors |  |              |      
|Liu Keya**                          |  |              | 72   
|Ji Weidong****                      |  |              | -    
|Shao Ruiqing***                     |  |              | 60   
|Li Ruoshan                          |  |              | 120  
|Ma Weihua                           |  |              | 120  
|                                    |  |              |      
|Supervisors                         |  |              |      
|Yu Faming*                          |  |              | -    
|Xi Sheng*                           |  |              | -    
|Xu Haihua***                        |  |              | 298  
|Feng Jinxiong                       |  |              | 610  
|Ba Shengji*                         |  |              | -    
|                                    |  |              |      
|Total                               |  |              | 2,823



|                                    |  | 2014         |      
|----------------------------------- |  | ------------ | -----
|                                    |  | Salaries and |      
|                                    |  | allowances   |      
|                                    |  | RMB’000      |      
|                                    |  |              |      
|Executive Directors                 |  |              |      
|Liu Shaoyong*                       |  |              | -    
|Ma Xulun                            |  |              | 745  
|Xu Zhao*                            |  |              | -    
|Gu Jiadan*                          |  |              | -    
|Li Yangmin                          |  |              | 669  
|Tang Bing                           |  |              | 632  
|                                    |  |              |      
|Independent non-executive Directors |  |              |      
|Liu Keya                            |  |              | 120  
|Ji Weidong                          |  |              | 120  
|Shao Ruiqing********                |  |              | -    
|Li Ruoshan                          |  |              | 120  
|Ma Weihua                           |  |              | 120  
|                                    |  |              |      
|Supervisors                         |  |              |      
|Yu Faming*                          |  |              | -    
|Xi Sheng*                           |  |              | -    
|Feng Jinxiong                       |  |              | 436  
|Yan Taisheng********                |  |              | 175  
|Ba Shengji*                         |  |              | -    
|                                    |  |              |      
|Total                               |  |              | 3,137





| | * | These directors and supervisors 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ** | Mr. Liu Keya retired during the year ended 31 December 2015.
| | -- | ------------------------------------------------------------



| | *** | These directors and supervisors of the Company were newly appointed during the year ended 31 December
2015.
| | --- | -----------------------------------------------------------------------------------------------------------



F-44







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



| | (c) | Emoluments of directors and supervisors (cont’d)
| | --- | ------------------------------------------------





| | **** | Mr. Ji Weidong has filed his retirement during the year ended 31 December 2015 and has fulfilled
his responsibility until new director being appointed by the board in June 2016.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ***** | These directors and supervisors of the Company were newly appointed during the year ended 31 December
2016.
| | ----- | -----------------------------------------------------------------------------------------------------------



| | ****** | Mr. Yu Faming retired during the year ended 31 December 2016.
| | ------ | -------------------------------------------------------------



| | ******* | Mr. Xu Haihua retired during the year ended 31 December 2016.
| | ------- | -------------------------------------------------------------



| | ******** | These directors and supervisors of the Company retired
during the year ended 31 December 2014.
| | -------- | ----------------------------------------------------------------------------------------------



During the years ended December
31, 2016, 2015 and 2014, no directors and supervisors waived their emoluments



| | (d) | Five highest paid individuals
| | --- | -----------------------------



None of the Company’s
directors and supervisors was among the five highest paid individuals in the Group for the year ended December 31, 2016 (2015 and
2014: Nil). The emoluments payable to the five highest paid individuals were as follows:



|                                      |  | 2016    |       |  | 2015    |  |       | 2014    | 
|------------------------------------- |  | ------- | ----- |  | ------- |  | ----- | ------- | 
|                                      |  | RMB’000 |       |  | RMB’000 |  |       | RMB’000 | 
|                                      |  |         |       |  |         |  |       |         | 
|Wages, salaries, bonus and allowances |  |         | 9,319 |  |         |  | 8,104 |         | 



The number of five highest paid
individuals whose emoluments fell within the following bands is as follows:



|                             |  | Number of individuals |  
|---------------------------- |  | --------------------- | -
|                             |  | 2016                  |  
|                             |  |                       |  
|HK$1,500,001 to HK$2,000,000 |  |                       | -
|HK$2,000,001 to HK$2,500,000 |  |                       | 5
|                             |  |                       |  
|                             |  |                       | 5



During the year ended December
31, 2016, no emoluments were paid by the Group to the directors, supervisors and the five highest paid individuals as an inducement
to join or upon joining the Group, or as a compensation for loss of office (2015 and 2014: Nil).



| | 10 | IMPAIRMENT CHARGES
| | -- | ------------------



|                                                             |  | Year ended December 31, |    
|------------------------------------------------------------ |  | ----------------------- | ---
|                                                             |  | 2016                    |    
|                                                             |  | RMB million             |    
|                                                             |  |                         |    
|Impairment charge on flight equipment spare parts            |  |                         | 10 
|Impairment charges on property, plant and equipment          |  |                         | 29 
|Impairment charge on interests in associates                 |  |                         | -  
|Impairment charge on available-for-sale investments          |  |                         | -  
|Reversal of impairment charge of trade and other receivables |  |                         | (10
|                                                             |  |                         |    
|                                                             |  |                         | 29 



F-45









| | 11 | OPERATING PROFIT
| | -- | ----------------



Operating profit is stated after
charging the following items:



|                                                                               |  | Year ended December 31, |      
|------------------------------------------------------------------------------ |  | ----------------------- | -----
|                                                                               |  | 2016                    |      
|                                                                               |  | RMB million             |      
|                                                                               |  |                         |      
|Amortization of intangible assets                                              |  |                         | 129  
|Depreciation of property, plant and equipment                                  |  |                         |      
|– owned                                                                        |  |                         | 6,388
|– leased (finance leases)                                                      |  |                         | 5,563
|Depreciation of investment properties                                          |  |                         | 11   
|Amortization of long-term deferred assets included in other non-current assets |  |                         | 394  
|Amortization of lease prepayments                                              |  |                         | 63   
|Consumption of flight equipment spare parts                                    |  |                         | 1,198
|Auditors’ remuneration                                                         |  |                         | 18   



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



|                |  | Year ended December 31, |   
|--------------- |  | ----------------------- | --
|                |  | 2016                    |   
|                |  | RMB million             |   
|                |  |                         |   
|Interest income |  |                         | 96



| | 13 | FINANCE COSTS
| | -- | -------------



|                                                                                      |  | Year ended December 31, |      
|------------------------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                                      |  | 2016                    |      
|                                                                                      |  | RMB million             |      
|                                                                                      |  |                         |      
|Interest on bank borrowings                                                           |  |                         | 1,529
|Interest relating to obligations under finance leases and post-retirement benefits    |  |                         | 1,349
|Interest relating to post-retirement benefit obligations                              |  |                         | 88   
|Interest on bonds and debentures                                                      |  |                         | 360  
|Interest relating to interest rate swaps                                              |  |                         | 122  
|                                                                                      |  |                         |      
|                                                                                      |  |                         | 3,448
|                                                                                      |  |                         |      
|Exchange losses, net (Note(b))                                                        |  |                         | 3,573
|                                                                                      |  |                         |      
|Less: amounts capitalized into advanced payments on acquisition of aircraft (Note(a)) |  |                         | (749 
|amounts capitalized into construction in progress (Note(a))                           |  |                         | -    
|                                                                                      |  |                         |      
|                                                                                      |  |                         | 6,272



Note:



| | (a) | The average interest rate used for interest capitalization was 3.25% per annum for the year ended
December 31, 2016 (2015: 3.09%, 2014: 2.69%).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The exchange losses primarily related to the translation of the Group’s foreign currency
denominated borrowings and obligations under finance leases.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



F-46







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



Income tax charged to profit
or loss was as follows:



|                            |  | Year ended December 31, |      
|--------------------------- |  | ----------------------- | -----
|                            |  | 2016                    |      
|                            |  | RMB million             |      
|                            |  |                         |      
|PRC income tax              |  |                         | 1,396
|Deferred taxation (Note 38) |  |                         | 146  
|                            |  |                         |      
|                            |  |                         | 1,542



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 corporate
income tax rate of 15% from 2011 to 2020 upon approval from tax authorities. China Eastern Yunnan Airlines Co., Ltd. (“CEA
Yunnan”), a subsidiary of the Group, obtained approval from tax authorities and has been entitled to a reduced corporate
income tax rate of 15% from January 1, 2011. The Company’s Sichuan branch,
Gansu branch and Xibei branch also obtained approvals from respective tax authorities and are entitled to a reduced corporate
income tax rate of 15%. The subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax rate of 16.5% (2015:16.5%; 2014: 16.5%).





The Company and subsidiaries
except for CEA Yunnan, Sichuan branch, Gansu branch and Xibei branch and those incorporated in Hong Kong, are generally subject
to the PRC standard corporate income tax rate of 25% (2015: 25%; 2014: 25%).



A reconciliation of the tax expense
applicable to profit before tax at the statutory rates for the countries in which the Company and the majority of its subsidiaries
are domiciled to the tax expense at the effective tax rates, and a reconciliation of the statutory tax rates to the effective tax
rates, are as follows:



|                                                             |  | Year ended December 31, |      
|------------------------------------------------------------ |  | ----------------------- | -----
|                                                             |  | 2016                    |      
|                                                             |  | RMB million             |      
|                                                             |  |                         |      
|Profit before income tax                                     |  |                         | 6,497
|                                                             |  |                         |      
|Tax calculated at the tax rate of 25% (2015: 25%; 2014:25%)  |  |                         | 1,624
|Lower tax rates enacted by local authority                   |  |                         | (102 
|Share of results of associates and joint ventures            |  |                         | (47  
|Expenses not deductible for tax                              |  |                         | 117  
|Effect in respect of post-retirement benefit plan            |  |                         | -    
|Utilization of previously unrecognized tax losses            |  |                         | (51  
|Unrecognized tax losses for the year                         |  |                         | 13   
|Utilization of/unrecognized deductible temporary differences |  |                         | (4   
|Utilization of/unrecognized deductible temporary differences |  |                         | (8   
|                                                             |  |                         |      
|Tax charge                                                   |  |                         | 1,542
|                                                             |  |                         |      
|Effective tax rate                                           |  |                         | 23.73



The Group operates international
flights to overseas destinations. There was no material overseas taxation for the years ended December 31, 2016, 2015 and 2014,
as there are avoidance of double tax treaties between the PRC and the corresponding jurisdictions (including Hong Kong) relating
to aviation businesses.



| | 15 | EARNINGS PER SHARE
| | -- | ------------------



The calculation of basic earnings
per share was based on the profit attributable to equity holders of the Company of RMB4,498 million (2015: RMB4,537 million, 2014:
RMB3,410 million) and the weighted average number of shares of 13,811,136,000 (2015: 12,818,509,000 ; 2014: 12,674,269,000) in
issue during the year ended December 31, 2016. The Company had no potentially dilutive options or other instruments relating to
the ordinary shares in issue during the years ended December 31, 2016, 2015 and 2014.



F-47







| | 16 | ASSETS CLASSIFIED AS HELD FOR SALE
| | -- | ----------------------------------



The Group entered into several
agreements with third parties to dispose of certain aircraft and related engines. As at 31 December 2015, the aircraft and engines
were stated at the lower of carrying amount (RMB594 million) and their fair value less cost to sell (RMB622 million). In 2016,
all the aircraft and engines were disposed and there were no aircraft and engines recognized as assets classified as held for sale
as at 31 December 2016.



| | 17 | INTANGIBLE ASSETS
| | -- | -----------------



|                         |  | Goodwill    |        |  | Computer    |  |     | Others      |  |  |             | 
|------------------------ |  | ----------- | ------ |  | ----------- |  | --- | ----------- |  |  | ----------- | 
|                         |  | (Note(a))   |        |  | software    |  |     | (Note(b))   |  |  | Total       | 
|                         |  | RMB million |        |  | RMB million |  |     | RMB million |  |  | RMB million | 
|Cost                     |  |             |        |  |             |  |     |             |  |  |             | 
|At 1 January 2015        |  |             | 11,270 |  |             |  | 574 |             |  |  | -           | 
|Additions                |  |             | -      |  |             |  | 109 |             |  |  | -           | 
|Disposals                |  |             | -      |  |             |  | (4  | )           |  |  | -           | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|At 31 December 2015      |  |             | 11,270 |  |             |  | 679 |             |  |  | -           | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|Additions                |  |             | -      |  |             |  | 133 |             |  |  | 98          | 
|Disposals                |  |             | -      |  |             |  | -   |             |  |  | -           | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|At 31 December 2016      |  |             | 11,270 |  |             |  | 812 |             |  |  | 98          | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|Accumulated amortization |  |             |        |  |             |  |     |             |  |  |             | 
|At 1 January 2015        |  |             | -      |  |             |  | 344 |             |  |  | -           | 
|Charge for the year      |  |             | -      |  |             |  | 85  |             |  |  | -           | 
|Disposals                |  |             | -      |  |             |  | (2  | )           |  |  | -           | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|At 31 December 2015      |  |             | -      |  |             |  | 427 |             |  |  | -           | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|Charge for the year      |  |             | -      |  |             |  | 97  |             |  |  | 32          | 
|Disposals                |  |             | -      |  |             |  | -   |             |  |  | -           | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|At 31 December 2016      |  |             | -      |  |             |  | 524 |             |  |  | 32          | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|Net book amount          |  |             |        |  |             |  |     |             |  |  |             | 
|At 31 December 2015      |  |             | 11,270 |  |             |  | 252 |             |  |  | -           | 
|                         |  |             |        |  |             |  |     |             |  |  |             | 
|At 31 December 2016      |  |             | 11,270 |  |             |  | 288 |             |  |  | 66          | 



Note:



| | (a) | 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 CGU that the Group operates and benefits from the acquisition.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The recoverable amount of the
CGU has been determined based on a value-in-use calculation using cash flow projections based on a financial budget approved by
senior management. The discount rate applied to the cash flow projections is 13% (2015: 13%). The growth rate used to extrapolate
the cash flows of the above cash-generating unit beyond the five-year period is 3% (2015: 3%), which includes the effect of inflation.
No impairment for the goodwill was required based on the value-in-use calculation as at the reporting date.



| | (b) | The balance represents the costs incurred to acquire the use right of certain flight schedules
(i.e. timeslots for flights’ taking off/landing).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



F-48







| | 18 | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------



During the year, the Group recognized
an impairment loss of approximately RMB29 million relating to aircraft, engines and flight equipment (2015: RMB48 million). The
recoverable amounts of these impaired aircraft, engines and flight equipment are determined at the higher of their fair value less
costs to sell and value in use.



As at December 31, 2016, certain
aircraft and buildings owned by the Group with an aggregate net carrying amount of approximately RMB17,559 million (2015: approximately
RMB29,147 million) were pledged as collateral under certain loan arrangements (Note 34).



As at 31 December 2016, the ownership
certificates of buildings with a net carrying amount of RMB1,455 million (31 December 2015: RMB1,514 million) have not been obtained.
The directors of the Company are of the opinion that the Group legally owns and has the rights to use the aforesaid property, plant
and equipment, and that there is no material adverse impact on the overall financial position of the Group.



|                                                                               |  | Aircraft, engines and |        |   |                |  |        |             |  |  |                 |   |  |              |      
|------------------------------------------------------------------------------ |  | --------------------- | ------ | - | -------------- |  | ------ | ----------- |  |  | --------------- | - |  | ------------ | -----
|                                                                               |  | flight equipment      |        |   |                |  |        | Other       |  |  |                 |   |  |              |      
|                                                                               |  |                       |        |   | Held under     |  |        |             |  |  | property, plant |   |  | Construction |      
|                                                                               |  | Owned                 |        |   | finance leases |  |        | Buildings   |  |  | and equipment   |   |  | in progress  |      
|                                                                               |  | RMB million           |        |   | RMB million    |  |        | RMB million |  |  | RMB million     |   |  | RMB million  |      
|Cost                                                                           |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|At 1 January 2016                                                              |  |                       | 80,402 |   |                |  | 89,146 |             |  |  | 7,993           |   |  |              | 7,486
|Transfer from construction in progress                                         |  |                       | -      |   |                |  | -      |             |  |  | 474             |   |  |              | 328  
|Transfer from advanced payments on acquisition of aircraft (Note 21)           |  |                       | 12,236 |   |                |  | 4,354  |             |  |  | -               |   |  |              | -    
|Additions                                                                      |  |                       | 9,411  |   |                |  | 4,485  |             |  |  | 5               |   |  |              | 651  
|Transfer from owned aircraft, engines and flight equipment                     |  |                       | (7,398 | ) |                |  | 7,398  |             |  |  | -               |   |  |              | -    
|Transfer from aircraft, engines and flight equipment held under finance leases |  |                       | 7,245  |   |                |  | (7,245 | )           |  |  | -               |   |  |              | -    
|Transfer to investment properties (Note 19)                                    |  |                       | -      |   |                |  | -      |             |  |  | (58             | ) |  |              | -    
|Transfer to other non-current assets                                           |  |                       | -      |   |                |  | -      |             |  |  | -               |   |  |              | -    
|Disposals                                                                      |  |                       | (2,243 | ) |                |  | (1,074 | )           |  |  | (90             | ) |  |              | (264 
|                                                                               |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|At 31 December 2016                                                            |  |                       | 99,653 |   |                |  | 97,064 |             |  |  | 8,324           |   |  |              | 8,201
|                                                                               |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|Accumulated depreciation                                                       |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|At 1 January 2016                                                              |  |                       | 28,195 |   |                |  | 17,921 |             |  |  | 2,266           |   |  |              | 4,697
|Charge for the year                                                            |  |                       | 5,561  |   |                |  | 5,563  |             |  |  | 273             |   |  |              | 554  
|Transfer from owned aircraft, engines and flight equipment                     |  |                       | (352   | ) |                |  | 352    |             |  |  | -               |   |  |              | -    
|Transfer from aircraft, engines and flight equipment held under finance leases |  |                       | 3,038  |   |                |  | (3,038 | )           |  |  | -               |   |  |              | -    
|Transfer to investment properties (Note 19)                                    |  |                       | -      |   |                |  | -      |             |  |  | (20             | ) |  |              | -    
|Disposals                                                                      |  |                       | (1,858 | ) |                |  | (1,016 | )           |  |  | (69             | ) |  |              | (52  
|                                                                               |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|At 31 December 2016                                                            |  |                       | 34,584 |   |                |  | 19,782 |             |  |  | 2,450           |   |  |              | 5,199
|                                                                               |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|Impairment                                                                     |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|At 1 January 2016                                                              |  |                       | 362    |   |                |  | 108    |             |  |  | -               |   |  |              | 7    
|Charge for the year                                                            |  |                       | 29     |   |                |  | -      |             |  |  | -               |   |  |              | -    
|Disposals                                                                      |  |                       | (61    | ) |                |  | -      |             |  |  | -               |   |  |              | -    
|                                                                               |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|At 31 December 2016                                                            |  |                       | 330    |   |                |  | 108    |             |  |  | -               |   |  |              | 7    
|                                                                               |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|Net book amount                                                                |  |                       |        |   |                |  |        |             |  |  |                 |   |  |              |      
|At 31 December 2016                                                            |  |                       | 64,739 |   |                |  | 77,174 |             |  |  | 5,874           |   |  |              | 2,995
|At 1 January 2016                                                              |  |                       | 51,845 |   |                |  | 71,117 |             |  |  | 5,727           |   |  |              | 2,782







F-49





| | 18 | PROPERTY, PLANT AND EQUIPMENT (cont’d)
| | -- | --------------------------------------



|                                                                         |  | Aircraft,
                                         engines and flight
                                         equipment |        |   |                                                                                                             |  |        | Other property, |  |  |                                                              |   |  |                          |      
|------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------ | ------ | - | ----------------------------------------------------------------------------------------------------------- |  | ------ | --------------- |  |  | ------------------------------------------------------------ | - |  | ------------------------ | -----
|                                                                         |  | Owned                                                                                                                    |        |   | Held
                                         under finance
                                         leases |  |        | Buildings       |  |  | plant and
                                         equipment |   |  | Construction in
progress |      
|                                                                         |  | RMB million                                                                                                              |        |   | RMB million                                                                                                 |  |        | RMB million     |  |  | RMB million                                                  |   |  | RMB million              |      
|Cost                                                                     |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                          |      
|At January
    1, 2015                                                   |  |                                                                                                                          | 71,456 |   |                                                                                                             |  | 67,571 |                 |  |  | 8,236                                                        |   |  |                          | 7,001
|Transfer from construction
    in progress                               |  |                                                                                                                          | -      |   |                                                                                                             |  | -      |                 |  |  | 112                                                          |   |  |                          | 269  
|Transfer from advanced
    payments on acquisition of aircraft (Note 21) |  |                                                                                                                          | 9,615  |   |                                                                                                             |  | 15,224 |                 |  |  | -                                                            |   |  |                          | -    
|Additions                                                                |  |                                                                                                                          | 3,770  |   |                                                                                                             |  | 6,752  |                 |  |  | 57                                                           |   |  |                          | 413  
|Transfer to assets classified
    as held for sale                       |  |                                                                                                                          | (783   | ) |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                          | -    
|Transfer to investment
    properties (Note 19)                          |  |                                                                                                                          | -      |   |                                                                                                             |  | -      |                 |  |  | (344                                                         | ) |  |                          | -    
|Transfer to other non-current
    assets                                 |  |                                                                                                                          | -      |   |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                          | -    
|Disposals                                                                |  |                                                                                                                          | (3,656 | ) |                                                                                                             |  | (401   | )               |  |  | (68                                                          | ) |  |                          | (197 
|At
    December 31, 2015                                                 |  |                                                                                                                          | 80,402 |   |                                                                                                             |  | 89,146 |                 |  |  | 7,993                                                        |   |  |                          | 7,486
|                                                                         |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                          |      
|Accumulated
    depreciation                                             |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                          |      
|At January 1, 2015                                                       |  |                                                                                                                          | 26,804 |   |                                                                                                             |  | 13,253 |                 |  |  | 2,013                                                        |   |  |                          | 4,430
|Charge for the year                                                      |  |                                                                                                                          | 4,565  |   |                                                                                                             |  | 5,061  |                 |  |  | 325                                                          |   |  |                          | 371  
|Transfer to assets classified
    as held for sale                       |  |                                                                                                                          | (292   | ) |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                          | -    
|Transfer to investment
    properties (Note19)                           |  |                                                                                                                          | -      |   |                                                                                                             |  | -      |                 |  |  | (46                                                          | ) |  |                          | -    
|Disposals                                                                |  |                                                                                                                          | (2,882 | ) |                                                                                                             |  | (393   | )               |  |  | (26                                                          | ) |  |                          | (104 
|At
    December 31, 2015                                                 |  |                                                                                                                          | 28,195 |   |                                                                                                             |  | 17,921 |                 |  |  | 2,266                                                        |   |  |                          | 4,697
|                                                                         |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                          |      
|Impairment                                                               |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                          |      
|At January 1, 2015                                                       |  |                                                                                                                          | 326    |   |                                                                                                             |  | 108    |                 |  |  | -                                                            |   |  |                          | 7    
|Charge for the year                                                      |  |                                                                                                                          | 48     |   |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                          | -    
|Disposals                                                                |  |                                                                                                                          | (12    | ) |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                          | -    
|At
    December 31, 2015                                                 |  |                                                                                                                          | 362    |   |                                                                                                             |  | 108    |                 |  |  | -                                                            |   |  |                          | 7    
|                                                                         |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                          |      
|Net
    book amount                                                      |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                          |      
|At
    December 31, 2015                                                 |  |                                                                                                                          | 51,845 |   |                                                                                                             |  | 71,117 |                 |  |  | 5,727                                                        |   |  |                          | 2,782
|At
    January 1, 2015                                                   |  |                                                                                                                          | 44,326 |   |                                                                                                             |  | 54,210 |                 |  |  | 6,223                                                        |   |  |                          | 2,564



F-50







| | 19 | INVESTMENT PROPERTIES
| | -- | ---------------------



|                                                      |  | 2016        |     |   | 2015        | 
|----------------------------------------------------- |  | ----------- | --- | - | ----------- | 
|                                                      |  | RMB million |     |   | RMB million | 
|                                                      |  |             |     |   |             | 
|Cost                                                  |  |             |     |   |             | 
|At 1 January                                          |  |             | 344 |   |             | 
|Transfer from property, plant and equipment (Note 18) |  |             | 58  |   |             | 
|                                                      |  |             |     |   |             | 
|At 31 December                                        |  |             | 402 |   |             | 
|                                                      |  |             |     |   |             | 
|Accumulated depreciation                              |  |             |     |   |             | 
|At 1 January                                          |  |             | (50 | ) |             | 
|Transfer from property, plant and equipment (Note 18) |  |             | (20 | ) |             | 
|Charge for the year                                   |  |             | (11 | ) |             | 
|                                                      |  |             |     |   |             | 
|At 31 December                                        |  |             | (81 | ) |             | 
|                                                      |  |             |     |   |             | 
|Net book amount                                       |  |             |     |   |             | 
|At 31 December                                        |  |             | 321 |   |             | 



As of December 31, 2016, the
fair value of the investment properties was RMB604 million (2015: RMB497 million) according to a valuation performed by an independent
professionally qualified valuer.



The investment properties
are leased to third parties and related parties under operating leases. Rental income totaling RMB37 million (2015: RMB30
million) was received by the Group during the year in respect of the leases.



As
at 31 December 2016, the carrying amount of the investment properties for which the ownership certificates of buildings have not
been obtained was RMB119 million (2015: RMB120 million). The directors
of the Company are of the opinion that the Group legally owns and has the rights to use the aforesaid investment properties, and
that there is no material adverse impact on the overall financial position of the Group.



Fair value hierarchy



The following table illustrates
the fair value measurement hierarchy of the Group’s investment properties:



|As at 31
    December 2016       |  | Fair
    value measurement using |  
|-------------------------------- |  | -------------------------------- | -
|                                 |  | Quoted prices                    |  
|                                 |  | in active                        |  
|                                 |  | markets                          |  
|                                 |  | (Level 1)                        |  
|Not
    measured at fair value   |  |                                  |  
|but
    fair value is disclosed: |  | RMB million                      |  
|                                 |  |                                  |  
|Buildings                        |  |                                  | -



|As at 31
    December 2015       |  | Fair
    value measurement using |  
|-------------------------------- |  | -------------------------------- | -
|                                 |  | Quoted prices                    |  
|                                 |  | in active                        |  
|                                 |  | markets                          |  
|                                 |  | (Level 1)                        |  
|Not
    measured at fair value   |  |                                  |  
|but
    fair value is disclosed: |  | RMB
    million                  |  
|                                 |  |                                  |  
|Buildings                        |  |                                  | -



During the year, there were no
transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2015: Nil).



Below is a summary of the valuation
techniques used and the key inputs to the valuation of investment properties:



|                   |  | Valuation techniques        |  | Significant unobservable inputs                   |  |  | Range or weighted average | 
|------------------ |  | --------------------------- |  | ------------------------------------------------- |  |  | ------------------------- | 
|                   |  |                             |  |                                                   |  |  | 2016                      | 
|Buildings - Plant  |  | Discounted cash flow method |  | Estimated rental value (per s.q.m. and per month) |  |  | RMB11 to RMB154           | 
|                   |  |                             |  | Rent growth (p.a.)                                |  |  | 2% to 6%                  | 
|                   |  |                             |  | Long term vacancy rate                            |  |  | 0% to 5%                  | 
|                   |  |                             |  | Discount rate                                     |  |  | 4% to 6%                  | 
|                   |  |                             |  |                                                   |  |  |                           | 
|Buildings - Office |  | Market Comparison Method    |  | Selling price (per s.q.m.)                        |  |  | RMB19,000 to RMB55,556    | 



F-51







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



|                               |  | 2016        |       |   | 2015        | 
|------------------------------ |  | ----------- | ----- | - | ----------- | 
|                               |  | RMB million |       |   | RMB million | 
|                               |  |             |       |   |             | 
|Carrying amount at 1 January   |  |             | 2,094 |   |             | 
|Recognised during the year     |  |             | (30   | ) |             | 
|                               |  |             |       |   |             | 
|Carrying amount at 31 December |  |             | 2,064 |   |             | 



Lease prepayments represent unamortized
prepayments for land use rights.



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



|                                                    |  | 2016        |         |   | 2015        | 
|--------------------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                                    |  | RMB million |         |   | RMB million | 
|                                                    |  |             |         |   |             | 
|At 1 January                                        |  |             | 21,207  |   |             | 
|Additions                                           |  |             | 17,991  |   |             | 
|Interest capitalized (Note 13)                      |  |             | 749     |   |             | 
|Transfer to property, plant and equipment (Note 18) |  |             | (16,590 | ) |             | 
|                                                    |  |             |         |   |             | 
|At 31 December                                      |  |             | 23,357  |   |             | 



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



|                           |  | 2016        |       |  | 2015        | 
|-------------------------- |  | ----------- | ----- |  | ----------- | 
|                           |  | RMB million |       |  | RMB million | 
|                           |  |             |       |  |             | 
|Unlisted investments, cost |  |             | 1,069 |  |             | 
|Share of net assets        |  |             | 467   |  |             | 
|                           |  |             |       |  |             | 
|                           |  |             | 1,536 |  |             | 



The movements in investments
in associates were as follows:



|                                                                            |  | 2016        |       |   | 2015        | 
|--------------------------------------------------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                                                            |  | RMB million |       |   | RMB million | 
|                                                                            |  |             |       |   |             | 
|At 1 January                                                                |  |             | 1,543 |   |             | 
|Additions                                                                   |  |             | -     |   |             | 
|Share of results of associates                                              |  |             | 148   |   |             | 
|Share of revaluation on available-for-sale investments held by an associate |  |             | (1    | ) |             | 
|Provision for impairment                                                    |  |             | -     |   |             | 
|Dividend declared during the year                                           |  |             | (154  | ) |             | 
|                                                                            |  |             |       |   |             | 
|At 31 December                                                              |  |             | 1,536 |   |             | 



F-52







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



Particulars of the principal
associates, which are limited liability companies, are as follows:



|Company name                                                                           |  | Place of establishment and operation and date of establishment |  | Registered capital |       |  | Attributable equity interest |     |       | Principal activities
|-------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- |  | ------------------ | ----- |  | ---------------------------- | --- | ----- | --------------------
|                                                                                       |  |                                                                |  | 2016               |       |  | 2015                         |     |       | 2016                
|                                                                                       |  |                                                                |  | Million            |       |  | Million                      |     |       |                     
|                                                                                       |  |                                                                |  |                    |       |  |                              |     |       |                     
|Eastern Air Group Finance Co., Ltd. (“Eastern Air Finance Company”)                    |  | PRC 6 December 1995                                            |  | RMB                | 2,000 |  |                              | RMB | 2,000 |                     
|                                                                                       |  |                                                                |  |                    |       |  |                              |     |       |                     
|China Eastern Air Catering Investment Co., Ltd.                                        |  | PRC 17 November 2003                                           |  | RMB                | 350   |  |                              | RMB | 350   |                     
|                                                                                       |  |                                                                |  |                    |       |  |                              |     |       |                     
|Shanghai Pratt & Whitney Aircraft Engine Maintenance Co., Ltd. (“Shanghai P&W”) (Note) |  | PRC 28 March 2008                                              |  | USD                | 40    |  |                              | USD | 40    |                     
|                                                                                       |  |                                                                |  |                    |       |  |                              |     |       |                     
|New Shanghai International Tower Co., Ltd.                                             |  | PRC 17 November 1992                                           |  | RMB                | 167   |  |                              | RMB | 167   |                     
|                                                                                       |  |                                                                |  |                    |       |  |                              |     |       |                     
|Eastern Aviation Import & Export Co., Ltd. (“Eastern Import & Export”)                 |  | PRC 9 June 1993                                                |  | RMB                | 80    |  |                              | RMB | 80    |                     
|                                                                                       |  |                                                                |  |                    |       |  |                              |     |       |                     
|Eastern Aviation Advertising Service Co., Ltd. (“Eastern Advertising”)                 |  | PRC 4 March 1986                                               |  | RMB                | 200   |  |                              | RMB | 200   |                     
|                                                                                       |  |                                                                |  |                    |       |  |                              |     |       |                     
|Shanghai Collins Aviation Maintenance Service Co., Ltd. (“Collins Aviation”)           |  | PRC 27 September 2002                                          |  | USD                | 7     |  |                              | USD | 7     |                     



Note:



In 2008, the Company entered
into an agreement with United Technologies International Corporation (“Technologies International”) to establish Shanghai
P&W. Shanghai P&W has registered capital of approximately USD40 million in which the Company holds a 51% interest. 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:



|                                                                     |  | 2016        |       |   | 2015        | 
|-------------------------------------------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                                                     |  | RMB million |       |   | RMB million | 
|                                                                     |  |             |       |   |             | 
|Share of the associates’ profit for the year                         |  |             | 148   |   |             | 
|Share of the associates’ other comprehensive income                  |  |             | (1    | ) |             | 
|Share of the associates’ total comprehensive income                  |  |             | 147   |   |             | 
|Aggregate carrying amount of the Group’s interests in the associates |  |             | 1,536 |   |             | 



F-53







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



|                              |  | 2016        |     |  | 2015        | 
|----------------------------- |  | ----------- | --- |  | ----------- | 
|                              |  | RMB million |     |  | RMB million | 
|                              |  |             |     |  |             | 
|Unlisted investments, at cost |  |             | 352 |  |             | 
|Share of net assets           |  |             | 172 |  |             | 
|                              |  |             |     |  |             | 
|                              |  |             | 524 |  |             | 



The movements in investments
in joint ventures were as follows:



|                                  |  | 2016        |     |   | 2015        | 
|--------------------------------- |  | ----------- | --- | - | ----------- | 
|                                  |  | RMB million |     |   | RMB million | 
|                                  |  |             |     |   |             | 
|At 1 January                      |  |             | 518 |   |             | 
|Share of results                  |  |             | 39  |   |             | 
|Dividend received during the year |  |             | (33 | ) |             | 
|                                  |  |             |     |   |             | 
|At 31 December                    |  |             | 524 |   |             | 



Particulars of the principal
joint ventures, which are limited liability companies, are as follows:



|Company
    name                                                                                                             |  | Place
                                         of establishment
                                         and operation
                                         and date of
                                         establishment |  | Paid-up
    capital |    |  | Attributable equity
                                         interest |     |    | Principal
    activities
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | -- |  | --------------------------------------------------------------------- | --- | -- | ------------------------
|                                                                                                                             |  |                                                                                                                                                                                                                                    |  | 2016                |    |  | 2015                                                                  |     |    | 2016                    
|                                                                                                                             |  |                                                                                                                                                                                                                                    |  | Million             |    |  | Million                                                               |     |    |                         
|                                                                                                                             |  |                                                                                                                                                                                                                                    |  |                     |    |  |                                                                       |     |    |                         
|Shanghai Technologies
    Aerospace Co., Ltd.  (“Technologies Aerospace”) (Note)                                             |  | PRC September 28, 2004                                                                                                                                                                                                             |  | USD                 | 73 |  |                                                                       | USD | 73 |                         
|                                                                                                                             |  |                                                                                                                                                                                                                                    |  |                     |    |  |                                                                       |     |    |                         
|Shanghai Eastern Union
    Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co.,  Ltd. (“Wheels & Brakes”) |  | PRC December 28, 1995                                                                                                                                                                                                              |  | USD                 | 2  |  |                                                                       | USD | 2  |                         
|Eastern China Kaiya System
    Integration Co., Ltd. (“China Kaiya”)                                                         |  | PRC May 21, 1999                                                                                                                                                                                                                   |  | RMB                 | 10 |  |                                                                       | RMB | 10 |                         
|CAE
    Melbourne Flight Training Pty Ltd. (“CAE Melbourne”)                                                                 |  | Australia March 9, 2007                                                                                                                                                                                                            |  | AUD                 | 11 |  |                                                                       | AUD | 11 |                         
|                                                                                                                             |  |                                                                                                                                                                                                                                    |  |                     |    |  |                                                                       |     |    |                         
|Shanghai Hute Aviation
    Technology Co., Ltd. (“Shanghai Hute”)                                                            |  | PRC April 9, 2003                                                                                                                                                                                                                  |  | RMB                 | 30 |  |                                                                       | RMB | 30 |                         



F-54







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



Note:



Under a joint venture agreement
with a joint venture partner of Technologies Aerospace dated March 10, 2003, the Company has agreed to share the 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:



|                                                        |  | 2016        |     |  | 2015        | 
|------------------------------------------------------- |  | ----------- | --- |  | ----------- | 
|                                                        |  | RMB million |     |  | RMB million | 
|                                                        |  |             |     |  |             | 
|Share of the joint ventures’ profit for the year        |  |             | 39  |  |             | 
|Share of the joint ventures’ total comprehensive income |  |             | 39  |  |             | 
|Aggregate carrying amount of the                        |  |             |     |  |             | 
|Group’s interests in the joint ventures                 |  |             | 524 |  |             | 



| | 24 | AVAILABLE-FOR-SALE INVESTMENTS
| | -- | ------------------------------



|                                                    |  | 2016        |     |  | 2015        | 
|--------------------------------------------------- |  | ----------- | --- |  | ----------- | 
|                                                    |  | RMB million |     |  | RMB million | 
|                                                    |  |             |     |  |             | 
|Listed equity investments, at fair value (Note (a)) |  |             | 538 |  |             | 
|Unlisted equity investments, at cost (Note(b))      |  |             | 107 |  |             | 
|                                                    |  |             |     |  |             | 
|                                                    |  |             | 645 |  |             | 



During the year, the gross gain
in respect of the Group's available-for-sale investments recognized in other comprehensive	income amounted to RMB100 million
(2015: RMB122 million; 2014: RMB18 million).



The above investments consist
of investments in equity securities which were designated as available-for-sale investments	and have no fixed maturity date
or coupon rate.



Note:

| | (a) | In March 2016, Shanghai Pudong Development Bank Co., Ltd. issued 6,846,637 RMB-denominated ordinary
shares (A Shares) by way of non-public issuance to the Company in exchange of the Company’s equity interest in Shanghai International
Trust Corp., Ltd.. The closing price of the shares of the day was 17.84 per share, resulting in an increase in listed equity investments,
at fair value of RMB122 million, a decrease in unlisted equity investments, at cost of RMB27 million and a gain on disposal of
RMB95 million was recorded.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | As at 31 December 2016, certain unlisted equity investments were stated at cost less impairment
because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair value
cannot be measured reliably. The Group does not intend to dispose of them in the near future.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 25 | OTHER NON-CURRENT ASSETS
| | -- | ------------------------



|                                                            |  | December 31, |      
|----------------------------------------------------------- |  | ------------ | -----
|                                                            |  | 2016         |      
|                                                            |  | RMB million  |      
|                                                            |  |              |      
|Deposits relating to aircraft held under operating leases   |  |              | 285  
|Deferred pilot recruitment costs                            |  |              | 1,182
|Rebate receivables on aircraft acquisitions                 |  |              | 83   
|Rental prepayment                                           |  |              | 426  
|Prepayment for acquisition of property, plant and equipment |  |              | 299  
|Other long-term assets                                      |  |              | 694  
|                                                            |  |              |      
|                                                            |  |              | 2,969



| | 26 | FLIGHT EQUIPMENT SPARE PARTS
| | -- | ----------------------------



|                                |  | December 31, |      
|------------------------------- |  | ------------ | -----
|                                |  | 2016         |      
|                                |  | RMB million  |      
|                                |  |              |      
|Flight equipment spare parts    |  |              | 2,713
|Less: provision for spare parts |  |              | (465 
|                                |  |              |      
|                                |  |              | 2,248



F-55







| | 26 | FLIGHT EQUIPMENT SPARE PARTS (cont’d)
| | -- | -------------------------------------



Movements in the Group’s provision
for impairment of flight equipment spare parts were as follows:



|                                                             |  | December 31, |    
|------------------------------------------------------------ |  | ------------ | ---
|                                                             |  | 2016         |    
|                                                             |  | RMB million  |    
|                                                             |  |              |    
|At 1 January                                                 |  |              | 541
|Accrual (Note 10)                                            |  |              | 10 
|Provision written off in relation to disposal of spare parts |  |              | (86
|                                                             |  |              |    
|At 31 December                                               |  |              | 465



| | 27 | TRADE AND NOTES RECEIVABLES
| | -- | ---------------------------



The credit terms given to trade
customers are determined on an individual basis.



|                  |  | 2016        |       |  | 2015        | 
|----------------- |  | ----------- | ----- |  | ----------- | 
|                  |  | RMB million |       |  | RMB million | 
|                  |  |             |       |  |             | 
|Trade receivables |  |             | 2,630 |  |             | 
|Notes receivable  |  |             | 30    |  |             | 
|                  |  |             |       |  |             | 
|At 31 December    |  |             | 2,660 |  |             | 



An aged analysis of the trade
and notes receivables as at the end of the reporting period, based on the invoice date was as follows:



|                                                        |  | 2016        |       |   | 2015        | 
|------------------------------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                                        |  | RMB million |       |   | RMB million | 
|                                                        |  |             |       |   |             | 
|Within 90 days                                          |  |             | 2,324 |   |             | 
|91 to 180 days                                          |  |             | 167   |   |             | 
|181 to 365 days                                         |  |             | 102   |   |             | 
|Over 365 days                                           |  |             | 182   |   |             | 
|                                                        |  |             |       |   |             | 
|                                                        |  |             | 2,775 |   |             | 
|Provision for impairment of trade and notes receivables |  |             | (115  | ) |             | 
|                                                        |  |             |       |   |             | 
|                                                        |  |             | 2,660 |   |             | 



Trade and notes receivables that
were neither overdue nor impaired relate to a large number of independent sales agents for whom there was no recent history of
default.



As at 31 December 2016, trade
and notes receivables of RMB267 million (2015: RMB267 million) were past due but not impaired. The Group holds cash deposits of
RMB764 million (2015: RMB540 million) from these agents. The ageing analysis of these trade and notes receivables was as follows:



|                |  | 2016        |     |  | 2015        | 
|--------------- |  | ----------- | --- |  | ----------- | 
|                |  | RMB million |     |  | RMB million | 
|                |  |             |     |  |             | 
|Past due:       |  |             |     |  |             | 
|Within 90 days  |  |             | 167 |  |             | 
|91 to 180 days  |  |             | 30  |  |             | 
|181 to 365 days |  |             | 70  |  |             | 
|                |  |             |     |  |             | 
|                |  |             | 267 |  |             | 



Movements in the Group’s
provision for impairment of trade and notes receivables were as follows:



|                                                         |  | 2016        |      |   | 2015        | 
|-------------------------------------------------------- |  | ----------- | ---- | - | ----------- | 
|                                                         |  | RMB million |      |   | RMB million | 
|                                                         |  |             |      |   |             | 
|At 1 January                                             |  |             | 216  |   |             | 
|Receivables written off during the year as uncollectible |  |             | (100 | ) |             | 
|(Reversal of)/impairment of losses recognized            |  |             | (1   | ) |             | 
|                                                         |  |             |      |   |             | 
|At 31 December                                           |  |             | 115  |   |             | 



Included in the above provision
for impairment of trade and notes receivables is a provision for individually impaired trade receivables of RMB66 million (2015:
RMB156 million) with a carrying amount before provision of RMB66 million (2015: RMB156 million).



F-56







| | 27 | TRADE AND NOTES RECEIVABLES (cont’d)
| | -- | ------------------------------------



The remaining impaired trade
and notes receivables of RMB258 million as at 31 December 2016 relate to customers that were in financial difficulties or were
in default in interest and/or principal payments and only a portion of the receivables is expected to be recovered.



The net impacts of creation and
release of provisions for impaired receivables have been included in “Impairment charges” in profit or loss (Note 10).
Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.



| | 28 | PREPAYMENTS AND OTHER RECEIVABLES
| | -- | ---------------------------------



|                                                          |  | December 31, |      
|--------------------------------------------------------- |  | ------------ | -----
|                                                          |  | 2016         |      
|                                                          |  | RMB million  |      
|                                                          |  |              |      
|Value added tax recoverable                               |  |              | 1,746
|Prepaid corporate income tax                              |  |              | 283  
|Advance to suppliers                                      |  |              | 2,327
|Prepaid aircraft operating lease rentals                  |  |              | 382  
|Dividend receivable                                       |  |              | -    
|Rebate receivables on aircraft acquisitions               |  |              | 1,489
|Rental deposits                                           |  |              | 233  
|Amounts due from related parties (Note 47(c)(i))          |  |              | 616  
|Deposits relating to aircraft held under operating leases |  |              | 140  
|Others                                                    |  |              | 2,215
|                                                          |  |              |      
|Subtotal                                                  |  |              | 9,431
|Provision for impairment of other receivables             |  |              | (200 
|                                                          |  |              |      
|                                                          |  |              | 9.231



F-57







| | 29 | RESTRICTED BANK DEPOSITS AND SHORT-TERM BANK DEPOSITS
| | -- | -----------------------------------------------------



|                                                 |  | December 31, |   
|------------------------------------------------ |  | ------------ | --
|                                                 |  | 2016         |   
|                                                 |  | RMB million  |   
|                                                 |  |              |   
|Bank deposits with original maturity over a year |  |              | 3 
|Restricted bank deposits                         |  |              | 40
|                                                 |  |              |   
|                                                 |  |              | 43



| | 30 | CASH AND CASH EQUIVALENTS
| | -- | -------------------------



|              |  | 2016        |       |  | 2015        | 
|------------- |  | ----------- | ----- |  | ----------- | 
|              |  | RMB million |       |  | RMB million | 
|              |  |             |       |  |             | 
|Cash          |  |             | 3     |  |             | 
|Bank balances |  |             | 1,692 |  |             | 
|              |  |             |       |  |             | 
|              |  |             | 1,695 |  |             | 



At the end of the reporting period,
the cash and bank balances of the Group denominated in RMB amounted to RMB814 million (2015: RMB1,013 million).The RMB is not freely
convertible into other currencies, however, under Mainland China's Foreign Exchange Control Regulations and Administration of Settlement,
Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized
to conduct foreign exchange business.



Cash at banks earns interest
at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks and financial institutions
with no recent history of default.



| | 31 | TRADE AND BILLS PAYABLES
| | -- | ------------------------



An aged analysis of the trade
and bills payables as at the end of the reporting period was as follows:



|                |  | December 31, |      
|--------------- |  | ------------ | -----
|                |  | 2016         |      
|                |  | RMB million  |      
|                |  |              |      
|Within 90 days  |  |              | 2,994
|91 to 180 days  |  |              | 57   
|181 to 365 days |  |              | 83   
|1 to 2 years    |  |              | 77   
|Over 2 years    |  |              | 165  
|                |  |              |      
|                |  |              | 3,376



As at December 31, 2016, trade
and bills payable balances included amounts due to related parties of RMB214 million (2015: RMB897 million) (Note 47(c)(ii)).



As
at December 31, 2016, bills payable amounted to RMB1,120 million (2015: RMB800
million)



F-58







| | 32 | OTHER PAYABLES AND ACCRUALS
| | -- | ---------------------------



|                                                                    |  | December 31, |       
|------------------------------------------------------------------- |  | ------------ | ------
|                                                                    |  | 2016         |       
|                                                                    |  | RMB million  |       
|                                                                    |  |              |       
|Salaries, wages and benefits                                        |  |              | 3,662 
|Take-off and landing charges                                        |  |              | 2,323 
|Fuel cost                                                           |  |              | 1,774 
|Expenses related to aircraft overhaul conducted                     |  |              | 1,253 
|Advance from customers                                              |  |              | 966   
|Duties and levies payable                                           |  |              | 1,507 
|Other accrued operating expenses                                    |  |              | 1,561 
|Deposits received from ticket sales agents                          |  |              | 764   
|Current portion of other long-term liabilities (Note 36)            |  |              | 635   
|Staff housing allowance                                             |  |              | 363   
|Amounts due to related parties (Note 47(c)(ii))                     |  |              | 2,166 
|Current portion of post-retirement benefit obligations (Note 37(c)) |  |              | 173   
|Others                                                              |  |              | 3,103 
|                                                                    |  |              |       
|                                                                    |  |              | 20,250



| | 33 | OBLIGATIONS UNDER FINANCE LEASES
| | -- | --------------------------------



As at December 31, 2016, the
Group had 226 aircrafts (2015: 213 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:



|                                       |  | Minimum lease payments |        |   | Present values of minimum lease payments |  |        | Minimum lease payments |  |  | Present values of minimum lease payments |  
|-------------------------------------- |  | ---------------------- | ------ | - | ---------------------------------------- |  | ------ | ---------------------- |  |  | ---------------------------------------- | -
|                                       |  | 2016                   |        |   | 2016                                     |  |        | 2015                   |  |  | 2015                                     |  
|                                       |  | RMB million            |        |   | RMB million                              |  |        | RMB million            |  |  | RMB million                              |  
|                                       |  |                        |        |   |                                          |  |        |                        |  |  |                                          |  
|Within one year                        |  |                        | 8,123  |   |                                          |  | 6,447  |                        |  |  | 7,377                                    |  
|In the second year                     |  |                        | 7,526  |   |                                          |  | 6,054  |                        |  |  | 7,101                                    |  
|In the third to fifth years, inclusive |  |                        | 21,905 |   |                                          |  | 18,415 |                        |  |  | 19,183                                   |  
|After the fifth year                   |  |                        | 33,277 |   |                                          |  | 30,125 |                        |  |  | 25,167                                   |  
|                                       |  |                        |        |   |                                          |  |        |                        |  |  |                                          |  
|Total                                  |  |                        | 70,831 |   |                                          |  | 61,041 |                        |  |  | 58,828                                   |  
|                                       |  |                        |        |   |                                          |  |        |                        |  |  |                                          |  
|Less: amount repayable within one year |  |                        | (8,123 | ) |                                          |  | (6,447 | )                      |  |  | (7,377                                   | )
|                                       |  |                        |        |   |                                          |  |        |                        |  |  |                                          |  
|Long-term portion                      |  |                        | 62,708 |   |                                          |  | 54,594 |                        |  |  | 51,451                                   |  



F-59







| | 34 | BORROWINGS
| | -- | ----------



|                                             |  | December 31, |       
|-------------------------------------------- |  | ------------ | ------
|                                             |  | 2016         |       
|                                             |  | RMB million  |       
|                                             |  |              |       
|Non-current                                  |  |              |       
|Long-term bank borrowings                    |  |              |       
|– secured (Note (a))                         |  |              | 7,169 
|– unsecured                                  |  |              | 3,435 
|Guaranteed bonds (Note (b))                  |  |              | 8,476 
|Unsecured bonds (Note (b))                   |  |              | 8,810 
|                                             |  |              |       
|                                             |  |              | 27,890
|                                             |  |              |       
|Current                                      |  |              |       
|Current portion of long-term bank borrowings |  |              |       
|– secured (Note (a))                         |  |              | 1,724 
|– unsecured                                  |  |              | 135   
|Short-term bank borrowings                   |  |              |       
|– unsecured                                  |  |              | 9,983 
|Short-term debentures (Note (c))             |  |              | 17,000
|Guaranteed bonds (Note (b))                  |  |              | -     
|                                             |  |              |       
|                                             |  |              | 28,842
|                                             |  |              |       
|Total borrowings                             |  |              | 56,732
|                                             |  |              |       
|The borrowings are repayable as follows:     |  |              |       
|                                             |  |              |       
|Within one year                              |  |              | 28,842
|In the second year                           |  |              | 4,833 
|In the third to fifth years inclusive        |  |              | 13,281
|After the fifth year                         |  |              | 9,776 
|                                             |  |              |       
|Total borrowings                             |  |              | 56,732



Notes:



| | (a) | As at December 31, 2016, the secured bank borrowings of the Group were pledged by the related aircraft
and buildings with an aggregate carrying amount of RMB17,559 million (2015: RMB29,147 million) (Note 18).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On 18 March 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
are payable annually. The principal of the bonds will mature and be repayable on 18 March 2023. CEA Holding has unconditionally
and irrevocably guaranteed the due payment and performance of the above bonds (Note 47(d)).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On 15 June 2016, the Company
issued three-year medium-term bonds with a principal amount of RMB3 billion, at an issue price equal to the face value of the bonds.
The bonds bear interest at the rate of 3.15% per annum, which are payable annually. The principal of the bonds will mature and
become repayable on 15 June 2019.



On 14 July 2016, the Company
issued five-year medium-term bonds with a principal amount of RMB4 billion, at an issue price equal to the face value of the bonds.
The bonds bear interest at the rate of 3.39% per annum, which are payable annually. The principal of the bonds will mature and
become repayable on 14 July 2021.



On 20 July 2016, the Company
issued three-year medium-term bonds with a principal amount of RMB1.5 billion, at an issue price equal to the face value of the
bonds. The bonds bear interest at the rate of 3.00% per annum, which are payable annually. The principal of the bonds will mature
and become repayable on 20 July 2019.



On 28 September 2016, the Company
issued three-year guaranteed notes with a principal amount of KRW120 billion, at an issue price equal to the face value of the
bonds. The bonds bear interest at the rate of 2.05% per annum, which are payable semi-annually. The principal of the bonds will
mature and become repayable on 28 September 2019. Korean Development Bank has unconditionally and irrevocably guaranteed the due
payment and performance of the above bonds.



On 28 September 2016, the Company
issued three-year notes with a principal amount of KRW55 billion, at an issue price equal to the face value of the bonds. The bonds
bear interest at the rate of 2.85% per annum, which are payable semi-annually. The principal of the bonds will mature and become
repayable on 28 September 2019.



On 24 October 2016, the Company
issued ten-year corporate bonds with a total principal amount of RMB3 billion, of which bonds of RMB1.5 billion bear interest at
the rate of 3.03% per annum and the remaining bonds of RMB1.5 billion bear interest at the rate of 3.30% per annum. The bonds are
payable annually. The principal of the bonds will mature and become repayable on 24 October 2026. CEA Holding has unconditionally
and irrevocably guaranteed the due payment and performance of the above bonds (Note 47(d)).



F-60







| | 34 | BORROWINGS (cont’d)
| | -- | -------------------



| | (c) | On 20 April 2016, the Company issued short-term debentures with a principal of RMB3 billion and
maturity of 270 days. The debentures bear interest at the rate of 2.80% per annum.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On 8 June 2016, the Company
issued short-term debentures with a principal of RMB2 billion and maturity of 270 days. The debentures bear interest at the rate
of 2.80% per annum.



On 21 September 2016, the Company
issued short-term debentures with a principal of RMB3 billion and maturity of 270 days. The debentures bear interest at the rate
of 2.58% per annum.



On 20 October 2016, the Company
issued short-term debentures with a principal of RMB3 billion and maturity of 270 days. The debentures bear interest at the rate
of 2.50% per annum.



On 2 November 2016, the Company
issued short-term debentures with a principal of RMB2 billion and maturity of 176 days. The debentures bear interest at the rate
of 2.81% per annum.



On 8 November 2016, the Company
issued short-term debentures with a principal of RMB2 billion and maturity of 178 days. The debentures bear interest at the rate
of 2.81% per annum.



On 10 November 2016, the Company
issued short-term debentures with a principal of RMB2 billion and maturity of 180 days. The debentures bear interest at the rate
of 2.81% per annum.



The terms of the long-term borrowings
were summarized as follows:



|Interest rate and final maturities |  | 2016                                                                                                                                                                |  |             | 2015   | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | 
|                                   |  |                                                                                                                                                                     |  | RMB million |        | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|Long-term bank borrowings          |  |                                                                                                                                                                     |  |             |        | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|RMB denominated                    |  | interest rates ranging from 3.40% to 4.41% with final maturities through 2021 (2015: 5.75% to 5.90%)                                                                |  |             | 3,278  | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|USD denominated                    |  | interest rates ranging from 6 month libor +0.75% to 6 months libor +3.75% with final maturities through 2025 (2015: 6 months libor +0.50% to 6 months libor +3.75%) |  |             | 4,970  | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|EUR denominated                    |  | interest rates at 3 months Euribor+0.5% with final maturities through 2026 (2015:Nil)                                                                               |  |             | 4,215  | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|Guaranteed bonds                   |  |                                                                                                                                                                     |  |             |        | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|RMB denominated                    |  | interest rates ranging from 3.03% to 5.05% with final maturities through 2026 (2015: 3.88% to 5.05%)                                                                |  |             | 7,792  | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|KRW denominated                    |  | interest rate at 2.05% with final maturities through 2019 (2015:nil)                                                                                                |  |             | 684    | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|Unsecured bonds                    |  |                                                                                                                                                                     |  |             |        | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|RMB denominated                    |  | interest rates ranging from 3.00% to 3.39% with final maturities through 2021 (2015:Nil)                                                                            |  |             | 8,500  | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|KRW denominated                    |  | interest rate at 2.85% with final maturities through 2019 (2015:Nil)                                                                                                |  |             | 310    | 
|                                   |  |                                                                                                                                                                     |  |             |        | 
|Total long term borrowings         |  |                                                                                                                                                                     |  |             | 29,749 | 



Short-term borrowings of the
Group are repayable within one year. As at December 31, 2016, the interest rates relating to such borrowings ranged from 1.49%
to 3.48% per annum (2015: 1.49% to 3.48% per annum).



F-61







| | 35 | PROVISION FOR RETURN CONDITION CHECKS FOR AIRCRAFT UNDER OPERATING LEASES
| | -- | -------------------------------------------------------------------------



|                      |  | December 31, |       
|--------------------- |  | ------------ | ------
|                      |  | 2016         |       
|                      |  | RMB million  |       
|                      |  |              |       
|At 1 January          |  |              | 3,503 
|Accrual               |  |              | 1,010 
|Utilization           |  |              | (843  
|                      |  |              |       
|At 31 December        |  |              | 3,670 
|Less: current portion |  |              | (1,175
|                      |  |              |       
|Long-term portion     |  |              | 2,495 



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, 2016 and 2015 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.



| | 36 | OTHER LONG-TERM LIABILITIES
| | -- | ---------------------------



|                                                                                  |  | December 31, |      
|--------------------------------------------------------------------------------- |  | ------------ | -----
|                                                                                  |  | 2016         |      
|                                                                                  |  | RMB million  |      
|                                                                                  |  |              |      
|Fair value of unredeemed points awarded under the Group’s frequent flyer programs |  |              | 1,750
|Long-term duties and levies payable relating to finance leases                    |  |              | 1,608
|Other long-term payables                                                          |  |              | 1,151
|                                                                                  |  |              |      
|                                                                                  |  |              | 4,509
|Less: current portion included in other payables and accrued expenses (Note 32)   |  |              | (635 
|                                                                                  |  |              |      
|Long-term portion                                                                 |  |              | 3,874



| | 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 this
defined contribution retirement schemes. In addition, the group companies implemented an additional defined contribution retirement
pension scheme for eligible employees in 2016. For the year ended December 31, 2016, the Group’s pension costs charged to
profit or loss amounted to RMB1,769 million (2015: RMB1,479 million; 2014: RMB1,492
million).



| | (b) | Medical insurance
| | --- | -----------------



Majority of the Group’s
PRC employees participate in the medical insurance schemes organized by municipal governments. For the year ended December 31,
2016, the Group’s medical insurance contributions charged to profit or loss amounted to RMB606 million (2015: RMB563 million;
2014: RMB533 million).



| | (c) | Post-retirement benefits
| | --- | ------------------------



In addition to the above schemes,
the Group provides eligible retirees with other post-retirement benefits, including retirement subsidies, transportation allowance
as well as other welfare. 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 etc.



The plan is exposed to interest
rate risk and the risk of changes in the life expectancy for pensioners.



The most recent actuarial valuation
of the post-retirement benefit obligations was carried out at December 31, 2016 with assistance from a third party consultant using
the projected unit credit actuarial valuation method.



F-62







| | 37 | PENSION, MEDICAL INSURANCE AND POST-RETIREMENT BENEFITS (cont’d)
| | -- | ----------------------------------------------------------------



The post-retirement benefit obligations
recognized in the consolidated statement of financial position are as follows:



|                                    |  | 2016        |       |   | 2015        | 
|----------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                    |  | RMB million |       |   | RMB million | 
|                                    |  |             |       |   |             | 
|Post-retirement benefit obligations |  |             | 3,063 |   |             | 
|Less: current portion               |  |             | (173  | ) |             | 
|                                    |  |             |       |   |             | 
|Long-term portion                   |  |             | 2,890 |   |             | 



The principal actuarial assumptions
utilized as at the end of the reporting period are as follows:



|                                                         |  | 2016 |                        |   | 2015 | 
|-------------------------------------------------------- |  | ---- | ---------------------- | - | ---- | 
|                                                         |  |      |                        |   |      | 
|Discount rates for post-retirement benefits              |  |      | 3.50                   | % |      | 
|Mortality rate                                           |  |      | China Insurance        |   |      | 
|                                                         |  |      | Life Mortality         |   |      | 
|                                                         |  |      | Table (2010-2013). CL5 |   |      | 
|                                                         |  |      | for Male and CL6       |   |      | 
|                                                         |  |      | for Female             |   |      | 
|Annual increase rate of post-retirement medical expenses |  |      | 6.50                   | % |      | 
|Inflation rate of pension benefits                       |  |      | 2.50                   | % |      | 



A quantitative sensitivity analysis
for significant assumptions at the end of the reporting period is shown below:



|                                           |  |          |      |  | Increase/       |  |             |          |  |  | Increase/       | 
|------------------------------------------ |  | -------- | ---- |  | --------------- |  | ----------- | -------- |  |  | --------------- | 
|                                           |  |          |      |  | (decrease) in   |  |             |          |  |  | (decrease) in   | 
|                                           |  |          |      |  | post-retirement |  |             |          |  |  | post-retirement | 
|                                           |  | Increase |      |  | benefit         |  |             | Decrease |  |  | benefit         | 
|                                           |  | in rate  |      |  | obligation      |  |             | in rate  |  |  | obligation      | 
|2016                                       |  | %        |      |  | RMB million     |  |             | %        |  |  | RMB million     | 
|                                           |  |          |      |  |                 |  |             |          |  |  |                 | 
|Discount rate for post-retirement benefits |  |          | 0.25 |  |                 |  | (95         | )        |  |  | 0.25            | 
|Annual increase rate of pension benefits   |  |          | 1.00 |  |                 |  | 325         |          |  |  | 1.00            | 
|Annual increase rate of medical expenses   |  |          | 1.00 |  |                 |  | 46          |          |  |  | 1.00            | 
|                                           |  |          |      |  |                 |  |             |          |  |  |                 | 
|2015                                       |  |          | %    |  |                 |  | RMB million |          |  |  | %               | 
|                                           |  |          |      |  |                 |  |             |          |  |  |                 | 
|Discount rate for post-retirement benefits |  |          | 0.25 |  |                 |  | (86         | )        |  |  | 0.25            | 
|Annual increase rate of pension benefits   |  |          | 1.00 |  |                 |  | 292         |          |  |  | 1.00            | 
|Annual increase rate of medical expenses   |  |          | 1.00 |  |                 |  | 41          |          |  |  | 1.00            | 



The sensitivity analysis 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 period.



Expected contributions to be
made in the future years out of the post-retirement benefit obligations were as follows:



|                          |  | 2016        |       |  | 2015        | 
|------------------------- |  | ----------- | ----- |  | ----------- | 
|                          |  | RMB million |       |  | RMB million | 
|                          |  |             |       |  |             | 
|Within the next 12 months |  |             | 173   |  |             | 
|Between 2 and 5 years     |  |             | 706   |  |             | 
|Between 5 and 10 years    |  |             | 894   |  |             | 
|Over 10 years             |  |             | 3,342 |  |             | 
|                          |  |             |       |  |             | 
|Total expected payments   |  |             | 5,115 |  |             | 



The average duration of the post-retirement
benefit obligations at the end of 2016 was 13 years (2015: 13 years).



F-63







| | 37 | PENSION, MEDICAL INSURANCE AND POST-RETIREMENT BENEFITS (cont’d)
| | -- | ----------------------------------------------------------------



The movements in the post-retirement
benefit obligations were as follows:



|2016                                           |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  |              |    |  |              |  |     |             |  |  |               |  |  |             |     |  |              | 
|---------------------------------------------- |  | ----------- | ----- |  | -------------------------------------- |  | - | ---------------------------------------------------------- |  |  | ----------- |  |  | ------------ | -- |  | ------------ |  | --- | ----------- |  |  | ------------- |  |  | ----------- | --- |  | ------------ | 
|                                               |  |             |       |  | Pension cost charged to profit or loss |  |   | Remeasurement (gains)/losses in other comprehensive income |  |  |             |  |  |              |   
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  | Actuarial    |    |  | Actuarial    |  |     |             |  |  |               |  |  |             |     |  |              | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  | changes      |    |  | changes      |  |     |             |  |  | Sub-total     |  |  |             |     |  |              | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  | Sub-total   |  |  | arising from |    |  | arising from |  |     |             |  |  | included      |  |  |             |     |  |              | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  | included    |  |  | changes in   |    |  | changes in   |  |     |             |  |  | in other      |  |  |             |     |  |              | 
|                                               |  | January 1,  |       |  |                                        |  |   | Net                                                        |  |  | in profit   |  |  | financial    |    |  | demographic  |  |     | Experience  |  |  | comprehensive |  |  | Benefit     |     |  | December 31, | 
|                                               |  | 2016        |       |  | Service cost                           |  |   | interest                                                   |  |  | or loss     |  |  | assumptions  |    |  | assumptions  |  |     | adjustments |  |  | income        |  |  | settled     |     |  | 2016         | 
|                                               |  | RMB million |       |  | RMB million                            |  |   | RMB million                                                |  |  | RMB million |  |  | RMB million  |    |  | RMB million  |  |     | RMB million |  |  | RMB million   |  |  | RMB million |     |  | RMB million  | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  |              |    |  |              |  |     |             |  |  |               |  |  |             |     |  |              | 
|Defined benefit obligations/ benefit liability |  |             | 2,750 |  |                                        |  | - |                                                            |  |  | 88          |  |  |              | 88 |  |              |  | (80 | )           |  |  | 373           |  |  |             | 117 |  |              | 



|2015                                           |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  |              |     |  |              |  |   |             |  |  |               |  |  |             |      |   |              | 
|---------------------------------------------- |  | ----------- | ----- |  | -------------------------------------- |  | - | ---------------------------------------------------------- |  |  | ----------- |  |  | ------------ | --- |  | ------------ |  | - | ----------- |  |  | ------------- |  |  | ----------- | ---- | - | ------------ | 
|                                               |  |             |       |  | Pension cost charged to profit or loss |  |   | Remeasurement (gains)/losses in other comprehensive income |  |  |             |  |  |              |    
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  | Actuarial    |     |  | Actuarial    |  |   |             |  |  |               |  |  |             |      |   |              | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  | changes      |     |  | changes      |  |   |             |  |  | Sub-total     |  |  |             |      |   |              | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  | Sub-total   |  |  | arising from |     |  | arising from |  |   |             |  |  | included      |  |  |             |      |   |              | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  | included    |  |  | changes in   |     |  | changes in   |  |   |             |  |  | in other      |  |  |             |      |   |              | 
|                                               |  | January 1,  |       |  |                                        |  |   | Net                                                        |  |  | in profit   |  |  | financial    |     |  | demographic  |  |   | Experience  |  |  | comprehensive |  |  | Benefit     |      |   | December 31, | 
|                                               |  | 2015        |       |  | Service cost                           |  |   | interest                                                   |  |  | or loss     |  |  | assumptions  |     |  | assumptions  |  |   | adjustments |  |  | income        |  |  | settled     |      |   | 2015         | 
|                                               |  | RMB million |       |  | RMB million                            |  |   | RMB million                                                |  |  | RMB million |  |  | RMB million  |     |  | RMB million  |  |   | RMB million |  |  | RMB million   |  |  | RMB million |      |   | RMB million  | 
|                                               |  |             |       |  |                                        |  |   |                                                            |  |  |             |  |  |              |     |  |              |  |   |             |  |  |               |  |  |             |      |   |              | 
|Defined benefit obligations/ benefit liability |  |             | 3,032 |  |                                        |  | - |                                                            |  |  | 114         |  |  |              | 114 |  |              |  | - |             |  |  | 56            |  |  |             | (252 | ) |              | 



F-64







| | 38 | DEFERRED TAXATION
| | -- | -----------------



Deferred 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 consolidated statement of financial position:



|                                      |  | December 31, |    
|------------------------------------- |  | ------------ | ---
|                                      |  | 2016         |    
|                                      |  | RMB million  |    
|                                      |  |              |    
|Deferred tax assets                   |  |              | 79 
|Deferred tax liabilities              |  |              | (86
|                                      |  |              |    
|Net deferred tax (liabilities)/assets |  |              | (7 



Movements in the net deferred
tax (liabilities)/assets were as follows:



|                                               |  | 2016        |      |   | 2015        | 
|---------------------------------------------- |  | ----------- | ---- | - | ----------- | 
|                                               |  | RMB million |      |   | RMB million | 
|                                               |  |             |      |   |             | 
|At 1 January                                   |  |             | 235  |   |             | 
|(Charged)/credited to profit or loss (Note 14) |  |             | (146 | ) |             | 
|Charged to other comprehensive income          |  |             | (96  | ) |             | 
|                                               |  |             |      |   |             | 
|At 31 December                                 |  |             | (7   | ) |             | 



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, |     
|------------------------------------------------------------------ |  | ------------ | ----
|                                                                   |  | 2016         |     
|                                                                   |  | RMB million  |     
|Deferred tax assets:                                               |  |              |     
|Impairment provision for obsolete flight
    equipment spare parts |  |              | 22  
|Impairment provision for receivables                               |  |              | 70  
|Impairment provision for property, plant, and equipment            |  |              | 11  
|Derivative financial instruments                                   |  |              | 15  
|Impairment provision for available-for-sale investments            |  |              | 25  
|Other payables and accruals                                        |  |              | 88  
|Tax losses                                                         |  |              | -   
|Aged payables                                                      |  |              | 7   
|                                                                   |  |              |     
|                                                                   |  |              | 238 
|                                                                   |  |              |     
|Deferred tax liabilities:                                          |  |              |     
|Depreciation and amortization                                      |  |              | (85 
|Available-for-sale investments                                     |  |              | (123
|Derivative financial instruments                                   |  |              | (37 
|                                                                   |  |              |     
|                                                                   |  |              | (245
|                                                                   |  |              |     
|                                                                   |  |              | (7  



F-65







| | 38 | DEFERRED TAXATION (cont’d)
| | -- | --------------------------



Movements in the net deferred
tax assets/(liabilities) of the Group for the year were as follows:



|                                                                   |  |              |      |   |                |  |      | Charged       |  |  |             |  
|------------------------------------------------------------------ |  | ------------ | ---- | - | -------------- |  | ---- | ------------- |  |  | ----------- | -
|                                                                   |  | At the       |      |   | (Charged)/     |  |      | to other      |  |  | At the      |  
|                                                                   |  | beginning of |      |   | credited to    |  |      | comprehensive |  |  | end of      |  
|                                                                   |  | the year     |      |   | profit or loss |  |      | income        |  |  | the year    |  
|                                                                   |  | RMB million  |      |   | RMB million    |  |      | RMB million   |  |  | RMB million |  
|                                                                   |  |              |      |   |                |  |      |               |  |  |             |  
|For the year ended December 31, 2016                               |  |              |      |   |                |  |      |               |  |  |             |  
|Impairment provision for obsolete flight
    equipment spare parts |  |              | 43   |   |                |  | (21  | )             |  |  | -           |  
|Impairment provision for receivables                               |  |              | 80   |   |                |  | (10  | )             |  |  | -           |  
|Impairment provision for property, plant and equipment             |  |              | 26   |   |                |  | (15  | )             |  |  | -           |  
|Derivative financial instruments                                   |  |              | 25   |   |                |  | -    |               |  |  | (10         | )
|Impairment provision for available-for-sale investments            |  |              | 25   |   |                |  | -    |               |  |  | -           |  
|Other payables and accruals                                        |  |              | 89   |   |                |  | (1   | )             |  |  | -           |  
|Tax losses                                                         |  |              | 133  |   |                |  | (133 | )             |  |  | -           |  
|Aged payables                                                      |  |              | -    |   |                |  | 7    |               |  |  | -           |  
|                                                                   |  |              |      |   |                |  |      |               |  |  |             |  
|                                                                   |  |              | 421  |   |                |  | (173 | )             |  |  | (10         | )
|                                                                   |  |              |      |   |                |  |      |               |  |  |             |  
|Depreciation and amortization                                      |  |              | (136 | ) |                |  | 51   |               |  |  | -           |  
|Available-for-sale investments                                     |  |              | (39  | ) |                |  | (24  | )             |  |  | (60         | )
|Derivative financial instruments                                   |  |              | (11  | ) |                |  | -    |               |  |  | (26         | )
|                                                                   |  |              |      |   |                |  |      |               |  |  |             |  
|                                                                   |  |              | (186 | ) |                |  | 27   |               |  |  | (86         | )
|                                                                   |  |              |      |   |                |  |      |               |  |  |             |  
|Net deferred tax assets/(liabilities)                              |  |              | 235  |   |                |  | (146 | )             |  |  | (96         | )



|                                                                   |  |              |      |   |                |  |     | (Charged)/        |  |  |             |  
|------------------------------------------------------------------ |  | ------------ | ---- | - | -------------- |  | --- | ----------------- |  |  | ----------- | -
|                                                                   |  | At the       |      |   | (Charged)/     |  |     | credited to other |  |  | At the      |  
|                                                                   |  | beginning of |      |   | credited to    |  |     | comprehensive     |  |  | end of      |  
|                                                                   |  | the year     |      |   | profit or loss |  |     | income            |  |  | the year    |  
|                                                                   |  | RMB million  |      |   | RMB million    |  |     | RMB million       |  |  | RMB million |  
|                                                                   |  |              |      |   |                |  |     |                   |  |  |             |  
|For the year ended December 31, 2015                               |  |              |      |   |                |  |     |                   |  |  |             |  
|Impairment provision for obsolete flight
    equipment spare parts |  |              | 32   |   |                |  | 11  |                   |  |  | -           |  
|Impairment provision for receivables                               |  |              | 23   |   |                |  | 57  |                   |  |  | -           |  
|Impairment provision for property, plant and equipment             |  |              | 23   |   |                |  | 3   |                   |  |  | -           |  
|Derivative financial instruments                                   |  |              | 9    |   |                |  | (7  | )                 |  |  | 23          |  
|Impairment provision for available-for-sale investments            |  |              | -    |   |                |  | 25  |                   |  |  | -           |  
|Other payables and accruals                                        |  |              | 183  |   |                |  | (94 | )                 |  |  | -           |  
|Tax losses                                                         |  |              | 96   |   |                |  | 37  |                   |  |  | -           |  
|                                                                   |  |              |      |   |                |  |     |                   |  |  |             |  
|                                                                   |  |              | 366  |   |                |  | 32  |                   |  |  | 23          |  
|                                                                   |  |              |      |   |                |  |     |                   |  |  |             |  
|Depreciation and amortization                                      |  |              | (208 | ) |                |  | 72  |                   |  |  | -           |  
|Available-for-sale investments                                     |  |              | (5   | ) |                |  | -   |                   |  |  | (34         | )
|Derivative financial instruments                                   |  |              | (9   | ) |                |  | 9   |                   |  |  | (11         | )
|                                                                   |  |              |      |   |                |  |     |                   |  |  |             |  
|                                                                   |  |              | (222 | ) |                |  | 81  |                   |  |  | (45         | )
|                                                                   |  |              |      |   |                |  |     |                   |  |  |             |  
|Net deferred tax assets                                            |  |              | 144  |   |                |  | 113 |                   |  |  | (22         | )



F-66







| | 38 | DEFERRED TAXATION (cont’d)
| | -- | --------------------------



As at the reporting date, the
Group had the following balances in respect of which deferred tax assets have not been recognized:



|                                       |  | December 31, |    
|-------------------------------------- |  | ------------ | ---
|                                       |  | 2016         |    
|                                       |  | Deferred     |    
|                                       |  | taxation     |    
|                                       |  | RMB million  |    
|                                       |  |              |    
|Tax losses carried forward             |  |              | 409
|Other deductible temporary differences |  |              | 32 
|Total unrecognized deferred tax assets |  |              | 441



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 2017 and 2021.



As at December 31, 2016,
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 operating results,
such as future fuel prices and market competition, management assessed that for certain subsidiaries there are
significant uncertainties that future taxable profits will be available and the deferred tax assets arising from
aforementioned tax losses and deductible temporary differences were not recognized.



F-67







| | 39 | DERIVATIVE FINANCIAL INSTRUMENTS
| | -- | --------------------------------



|                                              |  | Assets      |     |   | Liabilities | 
|--------------------------------------------- |  | ----------- | --- | - | ----------- | 
|                                              |  | 2016        |     |   | 2015        | 
|                                              |  | RMB million |     |   | RMB million | 
|                                              |  |             |     |   |             | 
|At 31 December                                |  |             |     |   |             | 
|Interest rate swaps (Note (a))                |  |             | 137 |   |             | 
|Forward foreign exchange contracts (Note (b)) |  |             | 11  |   |             | 
|Cross currency swap (Note (c))                |  |             | -   |   |             | 
|                                              |  |             |     |   |             | 
|Total                                         |  |             | 148 |   |             | 
|                                              |  |             |     |   |             | 
|Less: current portion                         |  |             |     |   |             | 
|– Interest rate swaps                         |  |             | -   |   |             | 
|– Forward foreign exchange contracts          |  |             | (11 | ) |             | 
|                                              |  |             |     |   |             | 
|                                              |  |             | (11 | ) |             | 
|                                              |  |             |     |   |             | 
|Non-current portion                           |  |             | 137 |   |             | 



Notes:



| | (a) | Interest rate swaps
| | --- | -------------------



The
Group uses interest rate swaps to reduce the risk of changes in market interest rates (Note 3). 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, 2016, the notional amount of
the outstanding interest rate swap agreements was approximately USD1,636 million (2015: USD1,466
million). These agreements will expire between 2018 and 2025.



Realized and unrealized gains
and losses arising from the valuation of these interest rate swaps have been dealt with in the consolidated statement of profit
or loss and other comprehensive income as follows:



|                                                                                                   |  | 2016        |      |   | 2015        |  |      | 2014        | 
|-------------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ----------- |  | ---- | ----------- | 
|                                                                                                   |  | RMB million |      |   | RMB million |  |      | RMB million | 
|                                                                                                   |  |             |      |   |             |  |      |             | 
|Realized losses (recorded in finance costs)                                                        |  |             | (122 | ) |             |  | (134 | )           | 
|Unrealized mark to market gains/(losses)                                                           |  |             |      |   |             |  |      |             | 
|– cash flow hedges (recognized in other comprehensive income)                                      |  |             | 166  |   |             |  | 2    |             | 
|– fair value hedges (recognized in gain on fair value changes of derivative financial instruments) |  |             | 2    |   |             |  | 6    |             | 
|                                                                                                   |  |             |      |   |             |  |      |             | 
|                                                                                                   |  |             | 46   |   |             |  | (126 | )           | 



| | (b) | Forward foreign exchange 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). The Group’s foreign exchange forward contracts for
selling foreign currency (i.e., JPY) and purchasing USD at
fixed exchange rates are accounted for as cash flow hedges. As at December 31, 2016, the notional amount of the outstanding
currency forward contracts was approximately USD440 million (2015: USD12 million), which will expire in 2017.



Realized and unrealized gains
and losses arising from the valuation of these contracts have been dealt with in the consolidated statement of profit or loss and
other comprehensive income as follows:



|                                                              |  | 2016        |     |   | 2015        |  |     | 2014        | 
|------------------------------------------------------------- |  | ----------- | --- | - | ----------- |  | --- | ----------- | 
|                                                              |  | RMB million |     |   | RMB million |  |     | RMB million | 
|                                                              |  |             |     |   |             |  |     |             | 
|Realized gains/(losses) (recorded in finance income/(costs))  |  |             | 5   |   |             |  | 15  |             | 
|Unrealized mark to market (losses)/gains                      |  |             |     |   |             |  |     |             | 
|– cash flow hedges (recognized in other comprehensive income) |  |             | (16 | ) |             |  | (11 | )           | 
|                                                              |  |             |     |   |             |  |     |             | 
|                                                              |  |             | (11 | ) |             |  | 4   |             | 



F-68







| | 39 | DERIVATIVES FINANCIAL INSTRUMENTS (cont’d)
| | -- | ------------------------------------------



| | (c) | Cross currency swap
| | --- | -------------------



The Group uses cross currency
swap to reduce the risk of changes in currency exchange rates and market interest rates. The cross currency swap entered
into by the Group for swapping US dollars floating interest rates (LIBOR) into Euro floating interest rates (EURIBOR), is accounted
for as a cash flow hedge. As at 31 December 2016, there were no outstanding cross currency swap (2015:USD38 million).



Realized and unrealized gain
and loss arising from the valuation of the contract has been dealt with in the consolidated statement of profit or loss and other
comprehensive income as follows:



|                                                              |  | 2016        |    |   | 2015        |  |   | 2014        | 
|------------------------------------------------------------- |  | ----------- | -- | - | ----------- |  | - | ----------- | 
|                                                              |  | RMB million |    |   | RMB million |  |   | RMB million | 
|                                                              |  |             |    |   |             |  |   |             | 
|Realized gains (recorded in finance costs)                    |  |             | 5  |   |             |  | - |             | 
|Unrealized mark to market (losses)/gains                      |  |             |    |   |             |  |   |             | 
|– cash flow hedges (recognized in other comprehensive income) |  |             | (7 | ) |             |  | 7 |             | 
|                                                              |  |             |    |   |             |  |   |             | 
|                                                              |  |             | (2 | ) |             |  | 7 |             | 



| | 40 | FINANCIAL INSTRUMENTS BY CATEGORY
| | -- | ---------------------------------



|                                                      |  | Loans and receivables |       |  | Assets at fair value through profit or loss |  |   | Derivatives used for hedging |  |  | Available
-for-sale |  |  | Total       |    
|----------------------------------------------------- |  | --------------------- | ----- |  | ------------------------------------------- |  | - | ---------------------------- |  |  | ------------------- |  |  | ----------- | ---
|                                                      |  | RMB million           |       |  | RMB million                                 |  |   | RMB million                  |  |  | RMB million         |  |  | RMB million |    
|2016                                                  |  |                       |       |  |                                             |  |   |                              |  |  |                     |  |  |             |    
|                                                      |  |                       |       |  |                                             |  |   |                              |  |  |                     |  |  |             |    
|Financial assets                                      |  |                       |       |  |                                             |  |   |                              |  |  |                     |  |  |             |    
|Available-for-sale investments                        |  |                       | -     |  |                                             |  | - |                              |  |  | -                   |  |  |             | 645
|Derivative financial instruments                      |  |                       | -     |  |                                             |  | - |                              |  |  | 148                 |  |  |             | -  
|Trade and notes receivables                           |  |                       | 2,660 |  |                                             |  | - |                              |  |  | -                   |  |  |             | -  
|Other receivables                                     |  |                       | 2,937 |  |                                             |  | - |                              |  |  | -                   |  |  |             | -  
|Restricted bank deposits and short-term bank deposits |  |                       | 43    |  |                                             |  | - |                              |  |  | -                   |  |  |             | -  
|Cash and cash equivalents                             |  |                       | 1,695 |  |                                             |  | - |                              |  |  | -                   |  |  |             | -  
|Other non-current assets                              |  |                       | 285   |  |                                             |  | - |                              |  |  | -                   |  |  |             | -  
|                                                      |  |                       |       |  |                                             |  |   |                              |  |  |                     |  |  |             |    
|Total                                                 |  |                       | 7,620 |  |                                             |  | - |                              |  |  | 148                 |  |  |             | 645





|                                 |  | Liabilities atfair valuethroughprofit or loss |   |  | Derivativesused forhedging |  |    | Loans andborrowings |  |  | Total       | 
|-------------------------------- |  | --------------------------------------------- | - |  | -------------------------- |  | -- | ------------------- |  |  | ----------- | 
|                                 |  | RMB million                                   |   |  | RMB million                |  |    | RMB million         |  |  | RMB million | 
|2016                             |  |                                               |   |  |                            |  |    |                     |  |  |             | 
|                                 |  |                                               |   |  |                            |  |    |                     |  |  |             | 
|Financial liabilities            |  |                                               |   |  |                            |  |    |                     |  |  |             | 
|Borrowings                       |  |                                               | - |  |                            |  | -  |                     |  |  | 56,732      | 
|Obligations under finance leases |  |                                               | - |  |                            |  | -  |                     |  |  | 61,041      | 
|Derivative financial instruments |  |                                               | - |  |                            |  | 58 |                     |  |  | -           | 
|Trade and bills payables         |  |                                               | - |  |                            |  | -  |                     |  |  | 3,376       | 
|Other payables                   |  |                                               | - |  |                            |  | -  |                     |  |  | 12,942      | 
|                                 |  |                                               |   |  |                            |  |    |                     |  |  |             | 
|Total                            |  |                                               | - |  |                            |  | 58 |                     |  |  | 134,091     | 







F-69







| | 40 | FINANCIAL INSTRUMENTS BY CATEGORY (cont’d)
| | -- | ------------------------------------------



|                                                      |  | Loans and receivables |        |  | Assets at fair value through profit or loss |  |   | Derivatives used for hedging |  |  | Available for sale |  |  | Total       |    
|----------------------------------------------------- |  | --------------------- | ------ |  | ------------------------------------------- |  | - | ---------------------------- |  |  | ------------------ |  |  | ----------- | ---
|                                                      |  | RMB million           |        |  | RMB million                                 |  |   | RMB million                  |  |  | RMB million        |  |  | RMB million |    
|2015                                                  |  |                       |        |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|                                                      |  |                       |        |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|Financial assets                                      |  |                       |        |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|Available-for-sale investments                        |  |                       | -      |  |                                             |  | - |                              |  |  | -                  |  |  |             | 452
|Derivative financial instruments                      |  |                       | -      |  |                                             |  | - |                              |  |  | 45                 |  |  |             | -  
|Trade and notes receivables                           |  |                       | 2,867  |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Other receivables                                     |  |                       | 3,438  |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Restricted bank deposits and short-term bank deposits |  |                       | 35     |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Cash and cash equivalents                             |  |                       | 9,080  |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Other non-current assets                              |  |                       | 338    |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|                                                      |  |                       |        |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|Total                                                 |  |                       | 15,758 |  |                                             |  | - |                              |  |  | 45                 |  |  |             | 452



|                                 |  | Liabilities at fair value through profit or loss |   |  | Derivatives used for hedging |  |    | Loans and borrowings |  |  | Total       | 
|-------------------------------- |  | ------------------------------------------------ | - |  | ---------------------------- |  | -- | -------------------- |  |  | ----------- | 
|                                 |  | RMB million                                      |   |  | RMB million                  |  |    | RMB million          |  |  | RMB million | 
|2015                             |  |                                                  |   |  |                              |  |    |                      |  |  |             | 
|                                 |  |                                                  |   |  |                              |  |    |                      |  |  |             | 
|Financial liabilities            |  |                                                  |   |  |                              |  |    |                      |  |  |             | 
|Borrowings                       |  |                                                  | - |  |                              |  | -  |                      |  |  | 66,712      | 
|Obligations under finance leases |  |                                                  | - |  |                              |  | -  |                      |  |  | 52,399      | 
|Derivative financial instruments |  |                                                  | 2 |  |                              |  | 99 |                      |  |  | -           | 
|Trade and bills payables         |  |                                                  | - |  |                              |  | -  |                      |  |  | 3,712       | 
|Other payables                   |  |                                                  | - |  |                              |  | -  |                      |  |  | 11,721      | 
|                                 |  |                                                  |   |  |                              |  |    |                      |  |  |             | 
|Total                            |  |                                                  | 2 |  |                              |  | 99 |                      |  |  | 134,544     | 



F-70







| | 41 | SHARE CAPITAL
| | -- | -------------



|                                                                        |  |                                                                                                              |       | 2016        |        |  | 2015        | 
|----------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ | ----- | ----------- | ------ |  | ----------- | 
|                                                                        |  |                                                                                                              |       | RMB million |        |  | RMB million | 
|                                                                        |  |                                                                                                              |       |             |        |  |             | 
|Registered, issued and fully paid of RMB1.00 each                       |  |                                                                                                              |       |             |        |  |             | 
|                                                                        |  |                                                                                                              |       |             |        |  |             | 
|A shares listed on The Shanghai Stock Exchange (“A Shares”)             |  |                                                                                                              | 9,808 |             |        |  | 8,481       | 
|-                                                                       |  | Tradable shares held by CEA Holding with trading moratorium                                                  |       |             | -      |  |             | 
|-                                                                       |  | Tradable shares held by CES Finance Holding Co., Ltd. with trading moratorium                                |       |             | -      |  |             | 
|-                                                                       |  | Tradable shares held by Shanghai Licheng Information Technology Consulting Co., Ltd. with trading moratorium |       |             | 466    |  |             | 
|-                                                                       |  | Tradable shares held by China National Aviation Fuel Holding Company with trading moratorium                 |       |             | 466    |  |             | 
|-                                                                       |  | Tradable shares held by China COSCO Shipping Corporation Limited with trading moratorium                     |       |             | 233    |  |             | 
|-                                                                       |  | Tradable shares held by Caitong Fund Management Co., Ltd. with trading moratorium                            |       |             | 162    |  |             | 
|-                                                                       |  | Tradable shares without trading moratorium                                                                   |       |             | 8,481  |  |             | 
|                                                                        |  |                                                                                                              |       |             |        |  |             | 
|H shares listed on The Stock Exchange of Hong Kong Limited (“H Shares”) |  |                                                                                                              | 4,659 |             |        |  | 4,659       | 
|-                                                                       |  | Tradable shares held by CES Global Holdings (Hong Kong) Limited with trading moratorium                      |       |             | -      |  |             | 
|-                                                                       |  | Tradable shares without trading moratorium                                                                   |       |             | 4,659  |  |             | 
|                                                                        |  |                                                                                                              |       |             |        |  |             | 
|                                                                        |  |                                                                                                              |       |             | 14,467 |  |             | 



Pursuant to articles
49 and 50 of the Company’s articles of association, both the listed A shares and listed H shares are registered ordinary
shares and carry equal rights.



A summary of movements in the Company's
share capital is as follows:



|                    |  | Number of       |       
|------------------- |  | --------------- | ------
|                    |  | shares in issue |       
|                    |  |                 |       
|At1 January 2016    |  |                 | 13,140
|Issue of shares     |  |                 | 1,327 
|                    |  |                 |       
|At 31 December 2016 |  |                 | 14,467



F-71







| | 42 | RESERVES
| | -- | --------



|                                                                          |  |             |        |   | Capital     |  |      |             |  |  | Statutory   |   |  |             |     |  |                      |  |        |             | 
|------------------------------------------------------------------------- |  | ----------- | ------ | - | ----------- |  | ---- | ----------- |  |  | ----------- | - |  | ----------- | --- |  | -------------------- |  | ------ | ----------- | 
|                                                                          |  | Share       |        |   | reserve     |  |      | Hedging     |  |  | reserve     |   |  | Other       |     |  | Retained profits/    |  |        |             | 
|                                                                          |  | premium     |        |   | (Note (a))  |  |      | reserve     |  |  | (Note (b))  |   |  | reserves    |     |  | (accumulated losses) |  |        | Total       | 
|                                                                          |  | RMB million |        |   | RMB million |  |      | RMB million |  |  | RMB million |   |  | RMB million |     |  | RMB million          |  |        | RMB million | 
|                                                                          |  |             |        |   |             |  |      |             |  |  |             |   |  |             |     |  |                      |  |        |             | 
|At 1 January 2015                                                         |  |             | 20,190 |   |             |  | (778 | )           |  |  | (61         | ) |  |             | -   |  |                      |  | (2,866 | )           | 
|Unrealized gains on cash flow hedges (Note 39)                            |  |             | -      |   |             |  | -    |             |  |  | 10          |   |  |             | -   |  |                      |  | -      |             | 
|Fair value movements in available-for-sale investments                    |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | 82     |             | 
|Fair value changes of available-for-sale investments held by an associate |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | 7      |             | 
|Actuarial gains on post-retirement benefit obligations                    |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | 198    |             | 
|Acquisition of non-controlling                                            |  |             |        |   |             |  |      |             |  |  |             |   |  |             |     |  |                      |  |        |             | 
|Interests                                                                 |  |             | (252   | ) |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | -      |             | 
|Transfer from retained profits                                            |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | 184 |  |                      |  | -      |             | 
|Issue of shares                                                           |  |             | 2,389  |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | -      |             | 
|Profit for the year                                                       |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | -      |             | 
|                                                                          |  |             |        |   |             |  |      |             |  |  |             |   |  |             |     |  |                      |  |        |             | 
|At 31 December 2015                                                       |  |             | 22,327 |   |             |  | (778 | )           |  |  | (51         | ) |  |             | 184 |  |                      |  | (2,579 | )           | 
|At 1 January 2016                                                         |  |             | 22,327 |   |             |  | (778 | )           |  |  | (51         | ) |  |             | 184 |  |                      |  | (2,579 | )           | 
|Unrealized losses on cash flow hedges (Note 39)                           |  |             | -      |   |             |  | -    |             |  |  | 107         |   |  |             | -   |  |                      |  | -      |             | 
|Fair value movements in available-for-sale investments                    |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | 36     |             | 
|Fair value changes of available-for-sale investments held by an associate |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | (1     | )           | 
|Actuarial losses on post-retirement benefit obligations                   |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | (403   | )           | 
|Transfer from retained profits                                            |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | 144 |  |                      |  | -      |             | 
|Issue of shares                                                           |  |             | 7,213  |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | -      |             | 
|Profit for the year                                                       |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | -      |             | 
|Interim 2016 dividend                                                     |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | -      |             | 
|                                                                          |  |             |        |   |             |  |      |             |  |  |             |   |  |             |     |  |                      |  |        |             | 
|At 31 December 2016                                                       |  |             | 29,540 |   |             |  | (778 | )           |  |  | 56          |   |  |             | 328 |  |                      |  | (2,947 | )           | 



Notes:



| | (a) | Capital reserve
| | --- | ---------------



Capital reserve represents the difference
between the fair value of the net assets injected and the nominal amount of the Company’s share capital issued in respect
of a group restructuring carried out in June 1996 for the purpose of the Company’s listing.



| | (b) | Reserve funds
| | --- | -------------



According to the PRC Company Law, the
Company is required to transfer a portion of the profits to the statutory reserve. The transfer to this reserve must be made before
distribution of dividend to shareholders and when there are retained profits at the end of the financial year.



F-72







| | 43 | DISPOSAL OF A SUBSIDIARY
| | -- | ------------------------



|                                 |  | 2016        |   |  | 2015        | 
|-------------------------------- |  | ----------- | - |  | ----------- | 
|                                 |  | RMB million |   |  | RMB million | 
|                                 |  |             |   |  |             | 
|Net assets disposed of:          |  |             |   |  |             | 
|Cash and bank balances           |  |             | - |  |             | 
|Lease prepayments                |  |             | - |  |             | 
|Other payables and accruals      |  |             | - |  |             | 
|                                 |  |             |   |  |             | 
|Gain on disposal of a subsidiary |  |             | - |  |             | 
|                                 |  |             | - |  |             | 



|              |  | 2016        |   |  | 2015        | 
|------------- |  | ----------- | - |  | ----------- | 
|              |  | RMB million |   |  | RMB million | 
|              |  |             |   |  |             | 
|Satisfied by: |  |             |   |  |             | 
|Cash          |  |             | - |  |             | 



An analysis of the net inflow of
cash and cash equivalents in respect of the disposal of a subsidiary is as follows:



|                                                                                   |  | 2016        |   |  | 2015        | 
|---------------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | 
|                                                                                   |  | RMB million |   |  | RMB million | 
|                                                                                   |  |             |   |  |             | 
|Cash consideration                                                                 |  |             | - |  |             | 
|Cash and bank balances disposed of                                                 |  |             | - |  |             | 
|Net inflow of cash and cash equivalents in respect of the disposal of a subsidiary |  |             | - |  |             | 



F-73







| | 44 | PARTLY-OWNED SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS
| | -- | -----------------------------------------------------------------



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



|                                                                 |  | 2016 |       |   | 2015 | 
|---------------------------------------------------------------- |  | ---- | ----- | - | ---- | 
|Percentage of equity interest held by non-controlling interests: |  |      |       |   |      | 
|CEA Jiangsu                                                      |  |      | 37.44 | % |      | 
|CEA Yunnan                                                       |  |      | 9.64  | % |      | 
|CEA Wuhan                                                        |  |      | 40.00 | % |      | 
|China Cargo                                                      |  |      | 17.00 | % |      | 



|                                                                          |  | 2016        |       |   | 2015        | 
|------------------------------------------------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                                                          |  | RMB million |       |   | RMB million | 
|Profit for the year allocated to non-controlling interests:               |  |             |       |   |             | 
|CEA Jiangsu                                                               |  |             | 191   |   |             | 
|CEA Yunnan                                                                |  |             | 75    |   |             | 
|CEA Wuhan                                                                 |  |             | 173   |   |             | 
|China Cargo                                                               |  |             | 29    |   |             | 
|                                                                          |  |             |       |   |             | 
|Dividends paid to non-controlling interests of CEA Jiangsu                |  |             | 56    |   |             | 
|                                                                          |  |             |       |   |             | 
|Accumulated balances of non-controlling interests at the reporting dates: |  |             |       |   |             | 
|CEA Jiangsu                                                               |  |             | 1,236 |   |             | 
|CEA Yunnan                                                                |  |             | 574   |   |             | 
|CEA Wuhan                                                                 |  |             | 1,249 |   |             | 
|China Cargo                                                               |  |             | (105  | ) |             | 



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 |  
|---------------------------------------------------- |  | ----------- | ------ | - | ----------- |  | ------ | ----------- |  |  | ----------- | -
|                                                     |  | RMB million |        |   | RMB million |  |        | RMB million |  |  | RMB million |  
|                                                     |  |             |        |   |             |  |        |             |  |  |             |  
|2016                                                 |  |             |        |   |             |  |        |             |  |  |             |  
|                                                     |  |             |        |   |             |  |        |             |  |  |             |  
|Revenue                                              |  |             | 7,298  |   |             |  | 9,054  |             |  |  | 3,706       |  
|Total expenses                                       |  |             | 6,787  |   |             |  | 8,280  |             |  |  | 3,273       |  
|Profit for the year                                  |  |             | 511    |   |             |  | 774    |             |  |  | 433         |  
|Total comprehensive income for the year              |  |             | 503    |   |             |  | 774    |             |  |  | 438         |  
|                                                     |  |             |        |   |             |  |        |             |  |  |             |  
|Current assets                                       |  |             | 1,260  |   |             |  | 990    |             |  |  | 79          |  
|Non-current assets                                   |  |             | 8,163  |   |             |  | 16,153 |             |  |  | 6,108       |  
|Current liabilities                                  |  |             | 1,971  |   |             |  | 3,056  |             |  |  | 1,216       |  
|Non-current liabilities                              |  |             | 4,149  |   |             |  | 8,134  |             |  |  | 1,849       |  
|                                                     |  |             |        |   |             |  |        |             |  |  |             |  
|Net cash flows from operating activities             |  |             | 1,937  |   |             |  | 3,178  |             |  |  | (196        | )
|Net cash flows (used in)/from investing activities   |  |             | (675   | ) |             |  | (1,098 | )           |  |  | 428         |  
|Net cash flows used in financing activities          |  |             | (1,301 | ) |             |  | (2,096 | )           |  |  | (241        | )
|Effect of foreign exchange rate changes, net         |  |             | -      |   |             |  | -      |             |  |  | -           |  
|                                                     |  |             |        |   |             |  |        |             |  |  |             |  
|Net (decrease)/increase in cash and cash equivalents |  |             | (39    | ) |             |  | (16    | )           |  |  | (9          | )



F-74







| | 44 | PARTLY-OWNED SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS (cont’d)
| | -- | --------------------------------------------------------------------------



|                                                     |  | CEA Jiangsu |       |   | CEA Yunnan  |  |        | CEA Wuhan   |  |  | China Cargo |  
|---------------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ------ | ----------- |  |  | ----------- | -
|                                                     |  | RMB million |       |   | RMB million |  |        | RMB million |  |  | RMB million |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|2015                                                 |  |             |       |   |             |  |        |             |  |  |             |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Revenue                                              |  |             | 6,431 |   |             |  | 9,518  |             |  |  | 3,486       |  
|Total expenses                                       |  |             | 5,965 |   |             |  | 8,273  |             |  |  | 2,968       |  
|Profit for the year                                  |  |             | 466   |   |             |  | 1,245  |             |  |  | 518         |  
|Total comprehensive income for the year              |  |             | 469   |   |             |  | 1,245  |             |  |  | 521         |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Current assets                                       |  |             | 2,080 |   |             |  | 2,936  |             |  |  | 2,570       |  
|Non-current assets                                   |  |             | 8,149 |   |             |  | 14,880 |             |  |  | 3,412       |  
|Current liabilities                                  |  |             | 2,444 |   |             |  | 4,565  |             |  |  | 1,307       |  
|Non-current liabilities                              |  |             | 4,836 |   |             |  | 8,073  |             |  |  | 1,991       |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Net cash flows from operating activities             |  |             | 574   |   |             |  | 2,293  |             |  |  | 257         |  
|Net cash flows from/(used in) investing activities   |  |             | 74    |   |             |  | (1,371 | )           |  |  | (114        | )
|Net cash flows used in financing activities          |  |             | (617  | ) |             |  | (934   | )           |  |  | (145        | )
|Effect of foreign exchange rate changes, net         |  |             | 1     |   |             |  | 14     |             |  |  | -           |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|Net increase/(decrease) in cash and cash equivalents |  |             | 32    |   |             |  | 2      |             |  |  | (2          | )



F-75







| | 45 | NOTES TO THE STATEMENT OF CONSOLIDATED CASH FLOWS
| | -- | -------------------------------------------------



| | (a) | Cash generated from operations
| | --- | ------------------------------



|                                                                                           |  | Year ended December 31, |       
|------------------------------------------------------------------------------------------ |  | ----------------------- | ------
|                                                                                           |  | 2016                    |       
|                                                                                           |  | RMB million             |       
|                                                                                           |  |                         |       
|Profit before income tax                                                                   |  |                         | 6,497 
|Adjustments for:                                                                           |  |                         |       
|Depreciation of property, plant and equipment and amortization of other non-current assets |  |                         | 12,345
|Amortization of intangible assets                                                          |  |                         | 129   
|Depreciation of investment properties                                                      |  |                         | 11    
|Amortization of lease prepayments                                                          |  |                         | 63    
|(Gains)/losses on disposal of property, plant and equipment                                |  |                         | (74   
|Gain on disposal of lease prepayments                                                      |  |                         | (3    
|Gain on disposal of investments in a subsidiary                                            |  |                         | -     
|Gain on disposal of investment in an associate                                             |  |                         | (12   
|Gain on disposal of available-for-sale investments                                         |  |                         | (95   
|Dividend income from available-for-sale investments                                        |  |                         | (28   
|Share of results of associates                                                             |  |                         | (148  
|Share of results of joint ventures                                                         |  |                         | (39   
|Net foreign exchange losses                                                                |  |                         | 3,246 
|Gain on fair value changes of derivative financial instruments                             |  |                         | (2    
|Reversal of post-retirement benefits                                                       |  |                         | -     
|Impairment charges                                                                         |  |                         | 29    
|Interest income                                                                            |  |                         | (96   
|Interest expense                                                                           |  |                         | 2,641 
|                                                                                           |  |                         |       
|Operating profit before working capital changes                                            |  |                         | 24,464
|                                                                                           |  |                         |       
|Changes in working capital                                                                 |  |                         |       
|Flight equipment spare parts                                                               |  |                         | (202  
|Trade and notes receivables                                                                |  |                         | 208   
|Prepayments and other receivables                                                          |  |                         | (839  
|Restricted bank deposits and short-term bank deposits                                      |  |                         | (8    
|Sales in advance of carriage                                                               |  |                         | 1,836 
|Trade and bills payables                                                                   |  |                         | (336  
|Other payables and accruals                                                                |  |                         | 1,424 
|Staff housing allowances                                                                   |  |                         | (57   
|Other long-term liabilities                                                                |  |                         | (883  
|Post-retirement benefit obligations                                                        |  |                         | 321   
|Provision for return condition checks for aircraft under operating leases                  |  |                         | 167   
|Operating lease deposits                                                                   |  |                         | 59    
|                                                                                           |  |                         |       
|Cash generated from operations                                                             |  |                         | 26,154



| | (b) | Major non-cash transactions
| | --- | ---------------------------



|                                                                |  | Year ended December 31, |      
|--------------------------------------------------------------- |  | ----------------------- | -----
|                                                                |  | 2016                    |      
|                                                                |  | RMB million             |      
|                                                                |  |                         |      
|Finance lease obligations incurred for acquisition of aircrafts |  |                         | 8,838



F-76







| | 46 | COMMITMENTS
| | -- | -----------



| | (a) | Capital commitments
| | --- | -------------------



The Group
had the following capital commitments:



|                                                |  | 2016        |         |  | 2015        | 
|----------------------------------------------- |  | ----------- | ------- |  | ----------- | 
|                                                |  | RMB million |         |  | RMB million | 
|                                                |  |             |         |  |             | 
|Contracted for:                                 |  |             |         |  |             | 
|– Aircraft, engines and flight equipment (Note) |  |             | 123,019 |  |             | 
|– Other property, plant and equipment           |  |             | 9,550   |  |             | 
|– Investment                                    |  |             | 140     |  |             | 
|                                                |  |             |         |  |             | 
|                                                |  |             | 132,709 |  |             | 



Note:



Contracted expenditures for the above aircraft,
engines and flight equipment, including deposits prior to delivery, subject to future inflation increase built into the contracts
were expected to be paid as follows:



|                   |  | 2016        |         |  | 2015        | 
|------------------ |  | ----------- | ------- |  | ----------- | 
|                   |  | RMB million |         |  | RMB million | 
|                   |  |             |         |  |             | 
|Within one year    |  |             | 28,384  |  |             | 
|In the second year |  |             | 32,306  |  |             | 
|In the third year  |  |             | 28,983  |  |             | 
|In the fourth year |  |             | 18,334  |  |             | 
|Over four years    |  |             | 15,012  |  |             | 
|                   |  |             |         |  |             | 
|                   |  |             | 123,019 |  |             | 



The above capital commitments represent the
future outflow of cash or other resources.



| | (b) | Operating lease commitments
| | --- | ---------------------------



As at the reporting date, the
Group had commitments to pay future minimum lease rentals under operating leases as follows:



|                                       |  | 2016        |        |  | 2015        | 
|-------------------------------------- |  | ----------- | ------ |  | ----------- | 
|                                       |  | RMB million |        |  | RMB million | 
|                                       |  |             |        |  |             | 
|Aircraft, engines and flight equipment |  |             |        |  |             | 
|Within one year                        |  |             | 3,814  |  |             | 
|In the second year                     |  |             | 3,124  |  |             | 
|In the third to fifth years, inclusive |  |             | 7,616  |  |             | 
|After the fifth year                   |  |             | 7,605  |  |             | 
|                                       |  |             |        |  |             | 
|                                       |  |             | 22,159 |  |             | 
|                                       |  |             |        |  |             | 
|Land and buildings                     |  |             |        |  |             | 
|Within one year                        |  |             | 362    |  |             | 
|In the second year                     |  |             | 225    |  |             | 
|In the third to fifth years, inclusive |  |             | 411    |  |             | 
|After the fifth year                   |  |             | 732    |  |             | 
|                                       |  |             |        |  |             | 
|                                       |  |             | 1,730  |  |             | 
|                                       |  |             |        |  |             | 
|                                       |  |             | 23,889 |  |             | 



F-77







| | 47 | RELATED PARTY TRANSACTIONS
| | -- | --------------------------



| |  | The Group is controlled by CEA Holding, which directly owns 35.06% of the Company’s
                                                            shares as at 31 December 2016 (2015: 38.61%). In addition, through CES Global Holdings (Hong Kong) Limited and CES Finance
                                                            Holding Co., Ltd., two wholly-owned subsidiaries of CEA Holding, CEA Holding indirectly owns additional shares of
                                                            the Company of approximately                                                             18.15% and 3.16% respectively as at 31 December 2016 (2015: 19.99% and
                                                            3.48%).
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company is a state-owned enterprise established in the PRC and is controlled by the PRC government,
which also owns a significant portion of the productive assets in the PRC. In accordance with IAS 24 "Related Party Disclosures",
government-related entities and their subsidiaries, directly or indirectly controlled, jointly controlled or significantly influenced
by the PRC government are defined as related parties of the Group. On that basis, related parties include CEA Holding and its subsidiaries
(other than the Group), other government-related entities and their subsidiaries ("Other State-owned Enterprises"), other
entities and corporations over which the Company is able to control or exercise significant influence and key management personnel
of the Company as well as their close family members.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the purpose of the related
party transaction disclosures, the directors of the Company believe that meaningful information in respect of related party transactions
has been adequately disclosed.



| | (a) | Nature of related parties that do not control or controlled
by the Group:
| | --- | -------------------------------------------------------------------------





|Name of related party                                                                         |  | Relationship with the Group                                                                         
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|                                                                                              |  |                                                                                                     
|Eastern Air Finance Company                                                                   |  | Associate of the Company                                                                            
|Eastern Import & Export                                                                       |  | Associate of the Company                                                                            
|Shanghai P&W                                                                                  |  | Associate of the Company                                                                            
|Eastern Advertising                                                                           |  | Associate of the Company                                                                            
|Jetstar Hong Kong                                                                             |  | Associate of the Company                                                                            
|Collins Aviation                                                                              |  | Associate of the Company                                                                            
|Shanghai Dongmei Air Travel Co., Ltd. (“Shanghai Dongmei”)                                    |  | Associate of the Company (acquired by the Group and became a wholly-owned subsidiary in August 2014)
|Wheels & Brakes                                                                               |  | Joint venture of the Company                                                                        
|Technologies Aerospace                                                                        |  | Joint venture of the Company                                                                        
|China Kaiya                                                                                   |  | Joint venture of the Company                                                                        
|Shanghai Hute                                                                                 |  | Joint venture of the Company                                                                        
|CEA
    Development Co., Ltd. and its subsidiaries (“CEA Development”)                        |  | Controlled by the same parent company                                                               
|China Eastern Air Catering Investment Co., Ltd. and its subsidiaries (“Eastern Air Catering”) |  | Controlled by the same parent company                                                               
|CES International Financial Leasing Corporation
        Limited (“CES Lease Company”)         |  | Controlled by the same parent company                                                               
|Shanghai Eastern Airlines Investment Co., Ltd. (“Eastern
        Investment”)                 |  | Controlled by the same parent company                                                               
|Eastern Airlines Tourism Investment (Group) Co., Ltd.
        (“Eastern Tourism”)             |  | Controlled by the same parent company                                                               
|Beijing Eastern Airlines Investment Co., Ltd. (“Beijing Dongtou”)                             |  | Controlled by the same parent company
(acquired by the Eastern
 Investment in August 2015)          





|TravelSky Technology Limited (“TravelSky”) |  | A director and vice president of the Company is a director of Travelsky
|------------------------------------------ |  | -----------------------------------------------------------------------







F-78







| | 47 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (b) | Related party transactions
| | --- | --------------------------



|                                                                                                                                                                            |  |                             |  |          |  | Income or receipts/   |       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- |  | -------- |  | --------------------- | ------
|                                                                                                                                                                            |  |                             |  | Pricing  |  | (expense or payments) |       
|                                                                                                                                                                            |  |                             |  | policy   |  | 2016                  |       
|Nature of transaction                                                                                                                                                       |  | Related party               |  | decision |  | RMB million           |       
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|With CEA Holding or companies directly or indirectly held by CEA Holding:                                                                                                   |  |                             |  |          |  |                       |       
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Interest income on deposits                                                                                                                                                 |  | Eastern Air Finance Company |  | (iv)     |  |                       | 23    
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Interest income on loans                                                                                                                                                    |  | Jetstar Hong Kong           |  | (iv)     |  |                       | -     
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Interest expense on loans                                                                                                                                                   |  | Eastern Air Finance Company |  | (iv)     |  |                       | (10   
|                                                                                                                                                                            |  | CEA Holding                 |  | (iv)     |  |                       | (1    
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Commission expense on air tickets sold on behalf of the Group                                                                                                               |  | Shanghai Dongmei            |  | (ii)     |  |                       | -     
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Handling charges for purchase of aircraft, flight equipment, flight equipment spare parts, other property, plant and flight equipment and repairs for aircraft and engines* |  | Eastern Import & Export     |  | (ii)     |  |                       | (105  
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Repairs and maintenance expense for aircraft and engines                                                                                                                    |  | Wheels & Brakes             |  | (ii)     |  |                       | (176  
|                                                                                                                                                                            |  | Technologies Aerospace      |  | (ii)     |  |                       | (252  
|                                                                                                                                                                            |  | Shanghai P&W                |  | (ii)     |  |                       | (2,049
|                                                                                                                                                                            |  | Shanghai Hute               |  | (ii)     |  |                       | (84   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Supply of cabin cleaning services                                                                                                                                           |  | Eastern Advertising         |  | (ii)     |  |                       | (21   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Supply of logistics services                                                                                                                                                |  | Eastern Import & Export     |  | (ii)     |  |                       | (72   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Supply of system services                                                                                                                                                   |  | China Kaiya                 |  | (ii)     |  |                       | (79   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Supply of food and beverages*                                                                                                                                               |  | Eastern Air Catering        |  | (i)      |  |                       | (1,054
|                                                                                                                                                                            |  | CEA development             |  | (i)      |  |                       | (51   
|                                                                                                                                                                            |  | Eastern Import & Export     |  | (i)      |  |                       | (50   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Cargo handling income                                                                                                                                                       |  | Eastern Import & Export     |  | (iii)    |  |                       | 15    
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Advertising expense*                                                                                                                                                        |  | Eastern Advertising         |  | (ii)     |  |                       | (36   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Media royalty fee                                                                                                                                                           |  | Eastern Advertising         |  | (iii)    |  |                       | 17    
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Automobile maintenance service, aircraft maintenance, providing transportation automobile and other products*                                                               |  | CEA Development             |  | (ii)     |  |                       | (86   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Equipment maintenance fee                                                                                                                                                   |  | Shanghai Hute               |  | (ii)     |  |                       | -     
|                                                                                                                                                                            |  | Collins Aviation            |  | (ii)     |  |                       | (30   
|                                                                                                                                                                            |  | CEA Development             |  | (ii)     |  |                       | (11   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Property management and green maintenance expenses*                                                                                                                         |  | Eastern Investment          |  | (ii)     |  |                       | -     
|                                                                                                                                                                            |  | CEA Development             |  | (ii)     |  |                       | (59   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Supply of hotel accommodation service                                                                                                                                       |  | Eastern Tourism             |  | (ii)     |  |                       | -     
|                                                                                                                                                                            |  | CEA Development             |  | (ii)     |  |                       | (91   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Land and building rental*                                                                                                                                                   |  | CEA Holding                 |  | (ii)     |  |                       | (54   
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Acquisition of a subsidiary                                                                                                                                                 |  | Eastern Tourism             |  | (v)      |  |                       | -     
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Disposal of a subsidiary                                                                                                                                                    |  | Eastern Investment          |  | (v)      |  |                       | -     
|                                                                                                                                                                            |  |                             |  |          |  |                       |       
|Payments on finance lease*                                                                                                                                                  |  | CES Lease Company           |  | (ii)     |  |                       | (2,721



F-79







| | 47 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (b) | Related party transactions (cont’d)
| | --- | -----------------------------------



|                                              |  |               |  |          |  | Income or receipts/   |     
|--------------------------------------------- |  | ------------- |  | -------- |  | --------------------- | ----
|                                              |  |               |  | Pricing  |  | (expense or payments) |     
|                                              |  |               |  | policy   |  | 2016                  |     
|Nature of transaction                         |  | Related party |  | decision |  | RMB million           |     
|                                              |  |               |  |          |  |                       |     
|Civil aviation information network services** |  | TravelSky     |  | (ii)     |  |                       | (590
|                                              |  |               |  |          |  |                       |     
|Flight training fee                           |  | CAE Melbourne |  | (ii)     |  |                       | (68 



| | (i) | The Group’s pricing policies on products purchased
from related parties are mutually agreed between contract parties.
| | --- | ---------------------------------------------------------------------------------------------------------------------



| | (ii) | The Group’s pricing policies on services provided
by related parties are mutually agreed between contract parties.
| | ---- | ------------------------------------------------------------------------------------------------------------------



| | (iii) | The Group’s pricing
policies on services provided to related parties are mutually agreed between contract parties.
| | ----- | ------------------------------------------------------------------------------------------------------------------



| | (iv) | The Group’s pricing policies on related party interest
rates are mutually agreed between contract parties by reference to the benchmark interest rates.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------





| | (v) | The Group’s pricing policies on transfer of equity
or disposal of investments are mutually agreed based on the valuation prices.
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | * | These related party transactions also constitute connected transactions or continuing
                                                                 connected transactions as defined in Chapter 14A of the Rules Governing the Listing of Securities on the Stock Exchange
                                                                 (the “Listing Rules”).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ** | This related party transaction constitutes continuing connected
transaction pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



F-80







| | 47 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (c) | Balances with related parties
| | --- | -----------------------------



| |  | (i) Amounts due from related parties
| |  | ------------------------------------



|                                  |  | December 31, |    
|--------------------------------- |  | ------------ | ---
|                                  |  | 2016         |    
|                                  |  | RMB million  |    
|Prepayments and other receivables |  |              |    
|Eastern Import & Export           |  |              | 536
|China Kaiya                       |  |              | -  
|Technologies Aerospace            |  |              | 16 
|Beijing Dongtou                   |  |              | -  
|Eastern Air Catering              |  |              | 57 
|Others                            |  |              | 7  
|                                  |  |              |    
|                                  |  |              | 616



All
the amounts due from related parties are trade in nature, interest-free and payable within normal credit terms.



(ii)
Amounts due to related parties



|                                 |  | December 31, |      
|-------------------------------- |  | ------------ | -----
|                                 |  | 2016         |      
|                                 |  | RMB million  |      
|                                 |  |              |      
|Trade and bills payables         |  |              |      
|                                 |  |              |      
|Eastern Import & Export          |  |              | 85   
|Eastern Air Catering             |  |              | 37   
|Wheels & Brakes                  |  |              | -    
|CEA development                  |  |              | 19   
|Collins Aviation                 |  |              | 2    
|CEA Holding                      |  |              | 3    
|Technologies Aerospace           |  |              | 45   
|TravelSky                        |  |              | -    
|Shanghai Hute                    |  |              | 19   
|Others                           |  |              | 4    
|                                 |  |              |      
|                                 |  |              | 214  
|                                 |  |              |      
|Other payables and accruals      |  |              |      
|Eastern Import & Export          |  |              | 240  
|Shanghai P&W                     |  |              | 324  
|Eastern Air Catering             |  |              | 166  
|CEA Holding                      |  |              | 303  
|Collins Aviation                 |  |              | -    
|Shanghai Hute                    |  |              | 20   
|Technologies Aerospace           |  |              | 29   
|Wheels & Brakes                  |  |              | 26   
|Jetstar Hong Kong                |  |              | -    
|CEA Development                  |  |              | 72   
|TravelSky                        |  |              | 963  
|Eastern Advertising              |  |              | 18   
|Others                           |  |              | 5    
|                                 |  |              |      
|                                 |  |              | 2,166
|Obligations under finance leases |  |              |      
|                                 |  |              |      
|CES Lease Company                |  |              | 5,521



Except
for the amounts due to CES Lease Company, which are related to the aircraft under finance lease,  all other amounts due
to related parties are interest-free and payable within normal credit terms given by trade creditors.



F-81







| | 47 | RELATED PARTY TRANSACTIONS (cont’d)
| | -- | -----------------------------------



| | (c) | Balances with related parties (cont’d)
| | --- | --------------------------------------



(iii) Short-term deposits and
borrowings with associates and CEA Holding



|                                                                                        |  | Average interest rate |      |   | December 31, | 
|--------------------------------------------------------------------------------------- |  | --------------------- | ---- | - | ------------ | 
|                                                                                        |  | 2016                  |      |   | 2015         | 
|                                                                                        |  |                       |      |   |              | 
|                                                                                        |  |                       |      |   |              | 
|Short-term deposits(included in cash and cash equivalents)“Eastern Air Finance Company” |  |                       | 0.35 | % |              | 
|                                                                                        |  |                       |      |   |              | 
|Long-term borrowings
(included in borrowings)“CEA
    Holding”                          |  |                       | 3.48 | % |              | 



| | (d) | Guarantees by holding company
| | --- | -----------------------------



| |  | As at December 31, 2016, bonds of the Group guaranteed by CEA Holding amounted to RMB7.8
                                                              billion (2015: RMB4.8 billion) (Note 34(b)).
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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 was analyzed as
below:



|                          |  | 2016        |   |  | 2015        |  |   | 2014        | 
|------------------------- |  | ----------- | - |  | ----------- |  | - | ----------- | 
|                          |  | RMB million |   |  | RMB million |  |   | RMB million | 
|                          |  |             |   |  |             |  |   |             | 
|Directors and supervisors |  |             | 2 |  |             |  | 3 |             | 
|Senior management         |  |             | 4 |  |             |  | 3 |             | 
|                          |  |             |   |  |             |  |   |             | 
|                          |  |             | 6 |  |             |  | 6 |             | 



| | 48 | DIVIDENDS
| | -- | ---------



|                                                             |  | 2016        |       |  | 2015        |  |   | 2014        | 
|------------------------------------------------------------ |  | ----------- | ----- |  | ----------- |  | - | ----------- | 
|                                                             |  | RMB million |       |  | RMB million |  |   | RMB million | 
|                                                             |  |             |       |  |             |  |   |             | 
|Interim – RMB5.1 cents (2015: Nil) per ordinary share        |  |             | 738   |  |             |  | - |             | 
|Proposed final – RMB4.9 cents (2015: nil) per ordinary share |  |             | 709   |  |             |  | - |             | 
|                                                             |  |             |       |  |             |  |   |             | 
|                                                             |  |             | 1,447 |  |             |  | - |             | 



| |  | The proposed final dividend for the year is subject to the approval of the Company's shareholders
at the forthcoming annual general meeting.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------



| | 49 | EVENTS AFTER THE REPORTING PERIOD
| | -- | ---------------------------------



Up to 27 April 2017,
the Company issued  four phases of short-term debentures with total principal for RMB10.0 billion and the maturity from 60
days to 180 days to institutional investors in the national interbank bond market. The debentures bear interest at the rate
of 3.00% per annum to 3.79% per annum.



On 29 November 2016, the Company
announced the decision of its Board to transfer 100% equity interest in Eastern Logistics, a wholly-owned subsidiary of the Company,
to Eastern Airlines Industry Investment Company, a wholly-owned subsidiary of CEA Holding, based on the result of appraisal conducted
by asset-based approach for a consideration of RMB2,433 million. Eastern Logistics engages in cargo logistics services. The Group
has decided to cease its freight logistics business because it plans to focus relevant resources on operating its air passenger
transportation business in the future. The disposal of Eastern Logistics is subject to shareholders’ approval and was approved
by the shareholders on 17 January 2017. As at 31 December 2016, Eastern Logistics is included in the reportable segment of “airline
transportation operations” in the Note 7 to the financial statements. At of 8 February 2017, the transfer of 100% equity
interest in Eastern Logistics to Eastern Airlines Industry Investment Company Limited and the industrial and commercial registration
of such transfer have been completed. As such, since the completion of the share transfer, Eastern Logistics has ceased to be a
subsidiary of the Company.



F-82