SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 20-F



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

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------
|  | For the fiscal year ended December 31, 2015                                         



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, 2015,
8,481,078,860 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  ̈
No x



If this report is an annual
or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934. Yes  ̈ No x



Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x No
 ̈



Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes  ̈ No x



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



|Large Accelerated Filer ̈ | Accelerated Filer x | Non-Accelerated Filer ̈
|------------------------ | ------------------- | ----------------------



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



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



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



Item 17  ̈
Item 18  ̈



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



Yes  ̈No x









|          |                                                                              | Page No.
|--------- | ---------------------------------------------------------------------------- | --------
|          |                                                                              |         
|PART I    |                                                                              | 4       
|          |                                                                              |         
|Item 1.   | Identity of Directors, Senior Management and Advisers                        | 4       
|          |                                                                              |         
|Item 2.   | Offer Statistics and Expected Timetable                                      | 4       
|          |                                                                              |         
|Item 3.   | Key Information                                                              | 4       
|          |                                                                              |         
|Item 4.   | Information on the Company                                                   | 18      
|          |                                                                              |         
|Item 5.   | Operating and Financial Review and Prospects                                 | 42      
|          |                                                                              |         
|Item 6.   | Directors, Senior Management and Employees                                   | 59      
|          |                                                                              |         
|Item 7.   | Major Shareholders and Related Party Transactions                            | 67      
|          |                                                                              |         
|Item 8.   | Financial Information                                                        | 75      
|          |                                                                              |         
|Item 9.   | The Offer and Listing                                                        | 76      
|          |                                                                              |         
|Item 10.  | Additional Information                                                       | 77      
|          |                                                                              |         
|Item 11.  | Quantitative and Qualitative Disclosures about Market Risk                   | 93      
|          |                                                                              |         
|Item 12.  | Description of Securities Other than Equity Securities                       | 94      
|          |                                                                              |         
|PART II   |                                                                              | 95      
|          |                                                                              |         
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 95      
|          |                                                                              |         
|Item 14.  | Material Modifications to the Rights of Security Holders and Use Of Proceeds | 95      
|          |                                                                              |         
|Item 15.  | Controls and Procedures                                                      | 95      
|          |                                                                              |         
|Item 16A. | Audit Committee Financial Expert                                             | 96      
|          |                                                                              |         
|Item 16B. | Code of Ethics                                                               | 96      
|          |                                                                              |         
|Item 16C. | Principal Accountant Fees and Services                                       | 96      
|          |                                                                              |         
|Item 16D. | Exemptions from the Listing Standards for Audit Committees                   | 96      
|          |                                                                              |         
|Item 16E. | Purchase of Equity Securities by the Issuer and Affiliated Purchasers        | 97      
|          |                                                                              |         
|Item 16F. | Changes in Registrant's Certifying Accountant                                | 97      
|          |                                                                              |         
|Item 16G. | Corporate Governance                                                         | 98      
|          |                                                                              |         
|Item 16H. | Mine Safety Disclosures                                                      | 99      
|          |                                                                              |         
|PART III  |                                                                              | 100     
|          |                                                                              |         
|Item 17.  | Financial Statements                                                         | 100     
|          |                                                                              |         
|Item 18.  | Financial Statements                                                         | 100     
|          |                                                                              |         
|Item 19.  | Exhibits                                                                     | 100     



2







SUPPLEMENTAL INFORMATION AND EXCHANGE RATES



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



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



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



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



CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING
STATEMENTS



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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 IFRS, as issued by the
International Accounting Standards Board, or the IASB, and no longer provide a reconciliation between IFRS and U.S. GAAP.



Our consolidated financial
statements as of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015 included in this Annual Report
on Form 20-F have been prepared in accordance with IFRS.





4







We
make an explicit and unreserved statement of compliance with IFRS with respect to our consolidated financial statements as of December
31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015 included in this Annual Report. Ernst & Young, our
current independent registered public accounting firm in Hong Kong, has issued an unqualified auditors’ report on our consolidated
statement of financial position as of December 31, 2014 and 2015 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 and 2015. The selected financial
data from the consolidated profit or loss and other comprehensive income for the years ended December 31, 2014 and 2015 and the
selected financial data from the consolidated financial position as of December 31, 2014 and 2015 have been derived from our audited
consolidated financial statements, which have been prepared in accordance with IFRS, 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 IFRS, and audited by Ernst & Young Hua Ming LLP, an independent registered public accounting firm
in the PRC. The selected financial data from the consolidated income statements for the years ended December 31, 2011 and 2012
and the selected financial data from the balance sheets as of December 31, 2011 and 2012 have been derived from our audited consolidated
financial statements, which have been prepared in accordance with IFRS, and audited by PricewaterhouseCoopers, an independent registered
public accounting firm in Hong Kong.



The following tables
present selected consolidated profit or loss and comprehensive income data for the years ended December 31, 2011, 2012, 2013, 2014
and 2015 and selected consolidated statements of financial position data as of December 31, 2011, 2012, 2013, 2014 and 2015 that
were prepared under IFRS. The selected financial information as of December 31, 2014 and 2015 and for the years ended December
31, 2013, 2014 and 2015 has been derived from, and should be read in conjunction with, the audited consolidated financial statements
and their notes included elsewhere in this Annual Report.



|                                                                               |  | Year Ended December 31,                         |        
|------------------------------------------------------------------------------ |  | ----------------------------------------------- | -------
|                                                                               |  | 2011 RMB                                        |        
|                                                                               |  | (in millions, except per share or per ADS data) |        
|Consolidated Statements of Profit or Loss and Other Comprehensive Income Data: |  |                                                 |        
|Revenues                                                                       |  |                                                 | 82,403 
|Gain on fair value changes of derivative financial instruments                 |  |                                                 | 87     
|Other operating income and gains                                               |  |                                                 | 1,062  
|Operating expenses                                                             |  |                                                 | (79,288
|Operating profit                                                               |  |                                                 | 4,264  
|Finance income / (costs), net                                                  |  |                                                 | 561    
|Profit before income tax                                                       |  |                                                 | 4,932  
|Profit for the year attributable to the equity holders of the Company          |  |                                                 | 4,661  
|Basic and fully diluted earnings per share (1)                                 |  |                                                 | 0.41   
|Basic and fully diluted earnings per ADS                                       |  |                                                 | 20.67  



| | (1) | The calculation of earnings per share for 2011 and 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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                                                                   |  | As of December 31, |        
|---------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                   |  | 2011 RMB           |        
|                                                                                   |  | (in millions)      |        
|Consolidated Statements of Financial Position Data:                                |  |                    |        
|Cash and cash equivalents                                                          |  |                    | 3,861  
|Net current liabilities                                                            |  |                    | (29,679
|Non-current assets                                                                 |  |                    | 101,092
|Long term borrowings, including current portion                                    |  |                    | (30,321
|Obligations under finance leases, including current portion                        |  |                    | (20,261
|Total share capital and reserves attributable to the equity holders of the Company |  |                    | 17,132 
|Non-current liabilities                                                            |  |                    | (52,687
|Total assets less current liabilities                                              |  |                    | 71,413 





5







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 RMB6.4778 to US$1.00
and HK$7.7507 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Board of Governors of the Federal
Reserve Board on December 31, 2015. 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 15, 2016, the
exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board were RMB6.4730=US$1.00 and HK$7.7547=US$1.00.
The following table sets forth information concerning exchange rates between the RMB, Hong Kong dollar and the U.S. dollar for
the periods indicated. The source of these rates is the Federal Reserve Statistical Release.



|                                  |  | RMB
    per US$1.00 (1) |        |  | HK$
    per US$1.00 (1) | 
|--------------------------------- |  | ----------------------- | ------ |  | ----------------------- | 
|                                  |  | High                    |        |  | Low                     | 
|                                  |  |                         |        |  |                         | 
|January 2014                      |  |                         | 6.0600 |  |                         | 
|February 2014                     |  |                         | 6.1448 |  |                         | 
|March 2014                        |  |                         | 6.2273 |  |                         | 
|April 2014                        |  |                         | 6.2591 |  |                         | 
|May 2014                          |  |                         | 6.2591 |  |                         | 
|June 2014                         |  |                         | 6.2548 |  |                         | 
|July 2014                         |  |                         | 6.2115 |  |                         | 
|August 2014                       |  |                         | 6.1793 |  |                         | 
|September 2014                    |  |                         | 6.1495 |  |                         | 
|October 2014                      |  |                         | 6.1385 |  |                         | 
|November 2014                     |  |                         | 6.1429 |  |                         | 
|December 2014                     |  |                         | 6.2256 |  |                         | 
|January 2015                      |  |                         | 6.2535 |  |                         | 
|February 2015                     |  |                         | 6.2695 |  |                         | 
|March 2015                        |  |                         | 6.2741 |  |                         | 
|April 2015                        |  |                         | 6.2185 |  |                         | 
|May 2015                          |  |                         | 6.2086 |  |                         | 
|June 2015                         |  |                         | 6.2086 |  |                         | 
|July 2015                         |  |                         | 6.2097 |  |                         | 
|August 2015                       |  |                         | 6.4122 |  |                         | 
|September 2015                    |  |                         | 6.3836 |  |                         | 
|October 2015                      |  |                         | 6.3591 |  |                         | 
|November 2015                     |  |                         | 6.3945 |  |                         | 
|December 2015                     |  |                         | 6.4896 |  |                         | 
|January 2016                      |  |                         | 6.5932 |  |                         | 
|February 2016                     |  |                         | 6.5795 |  |                         | 
|March 2016                        |  |                         | 6.5500 |  |                         | 
|April 2016 (up to April 15, 2016) |  |                         | 6.4810 |  |                         | 





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



|     |  | RMB perUS$1.00 (1) |        |  | HK$ per US$1.00 | 
|---- |  | ------------------ | ------ |  | --------------- | 
|2011 |  |                    | 6.4630 |  |                 | 
|2012 |  |                    | 6.3093 |  |                 | 
|2013 |  |                    | 6.1478 |  |                 | 
|2014 |  |                    | 6.1620 |  |                 | 
|2015 |  |                    | 6.2827 |  |                 | 



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





6







Selected Operating Data



The following table sets
forth certain operating data of our Company for the five years ended December 31, 2015, which are not audited. All references in
this Annual Report to our cargo operations, statistics or revenues include figures for cargo and mail.



|                                                              |  | Year Ended December 31, |          
|------------------------------------------------------------- |  | ----------------------- | ---------
|                                                              |  | 2011                    |          
|Selected Airline Operating Data:                              |  |                         |          
|Capacity:                                                     |  |                         |          
|ATK (millions)                                                |  |                         | 18,662.5 
|ASK (millions)                                                |  |                         | 127,890.8
|AFTK (millions)                                               |  |                         | 7,152.3  
|Traffic:                                                      |  |                         |          
|Revenue passenger-kilometers (millions)                       |  |                         | 100,895.1
|Revenue tonne-kilometers (millions)                           |  |                         | 13,402.1 
|Revenue freight tonne-kilometers (millions)                   |  |                         | 4,420.6  
|Hours flown (thousands)                                       |  |                         | 1,288.4  
|Number of passengers carried (thousands)                      |  |                         | 68,725.0 
|Weight of cargo carried (millions of kilograms)               |  |                         | 1,443.1  
|Load Factor:                                                  |  |                         |          
|Overall load factor (%)                                       |  |                         | 71.8     
|Passenger load factor (%)                                     |  |                         | 78.9     
|Yield and Cost Statistics (RMB):                              |  |                         |          
|Passenger yield (passenger revenue/ passenger-kilometers)     |  |                         | 0.68     
|Cargo yield (cargo revenue/cargo tonne-kilometers)            |  |                         | 1.83     
|Average yield (passenger and cargo revenue/ tonne-kilometers) |  |                         | 5.71     
|Unit cost (operating expenses/ATK)                            |  |                         | 4.24     



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



Not applicable.



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



Not applicable.



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





7







Risks Relating to the PRC



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



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



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



A significant portion
of our revenue and operating expenses are denominated in Renminbi, while a portion of our revenue, capital expenditures and debts
are denominated in U.S. dollars and other foreign currencies. The Renminbi is currently freely convertible in the current account,
which includes payment of dividends, trade and service-related foreign currency transactions, but not in the capital account, which
includes foreign direct investment, unless 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 by means of loans or capital
contributions. We cannot assure you that we will be able to obtain sufficient foreign currencies to pay dividends, if any, or satisfy
our foreign currency liabilities.



Furthermore, the value
of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among other things,
the PRC government policies, domestic and international economic and political conditions and changes in the supply and demand
of the currency. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar.
Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy resulted in appreciation of the Renminbi against the U.S. dollar by approximately 7.0% in 2008.
While there was no material appreciation of Renminbi against the U.S. dollar in 2009, the Renminbi appreciated by approximately
3.0% against the U.S. dollar in 2010 and by approximately 5.1% in 2011. In April 2012, the People's Bank of China (the "PBOC")
widened the daily trading band of the Renminbi against the U.S. dollar, and the Renminbi was allowed to appreciate or depreciate
by 1.0% from the PBOC central parity rate, effective April 16, 2012. In March 2014, the PBOC further widened the daily trading
band of the Renminbi against the U.S. dollar, and the Renminbi was allowed to appreciate or depreciate by 2% against the U.S. dollar
from the daily central parity rate, effective March 17, 2014. 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. dollars. 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 with the peaking of 2.0% in August 2015. The national consumer
price index was 2.6% in 2013, equal to that of 2012. The national consumer price index were 2.1% and 1.4% in 2014 and 2015, 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.





8







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



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



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



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



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



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.





9







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



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



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



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



Risks Relating to the Aviation Industry



Our business is
subject to extensive government regulation.



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



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



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



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



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



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



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



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



The slow recovery
of the global economy could affect air travel.



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





International air travel
generally recovered in the recent years. In 2015, the global economy continued to experience weak recovery and economic growth
further slowed down. China’s economy was operating within a reasonable range, with the disposable income of residents growing
faster than the national economic growth. Benefiting from factors such as transformation and upgrade of economic structure and
rising consumption power of Chinese residents, air passenger transportation market continued to grow and demand for outbound tourism
and consumption became robust. However, under the influence of factors including decline in the import and export industry and
intensifying market competition, growth of air freight transportation market slackened. In 2015, the aviation industry benefited
from the international low crude oil prices, but at the same time, it was adversely affected by exchange rate fluctuations. Factors
such as general market volatility, political instability, regional and geopolitical disputes may continue to materially and adversely
affect economic activity and financial markets globally, which could in turn weaken the demand for international air travel and
adversely affect our business, financial condition and results operations.





10







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



We operate in a
highly competitive industry.



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



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



The PRC government is
aggressively implementing the expansion of its high-speed rail network, which has provided train services at a speed of up to 350km
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.



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, 2015, approximately 35.46% of our total outstanding shares were held by non-PRC,
Hong Kong, Macau or Taiwan residents or legal entities (excluding the qualified foreign institutional investors that are approved
to invest in the A Share market of the PRC). As a result, our access to funding in the international equity capital markets may
be limited. This restriction may also limit the opportunities available to our Company to obtain funding or other benefits through
the creation of equity-based strategic alliances with foreign carriers. We cannot assure you that the CAAC will not increase these
limits on foreign ownership of PRC airlines in the future.



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



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



Jet fuel prices were volatile
in 2013 and 2014, with heightened political tensions and continued political instability in certain Middle Eastern countries and
in Crimea bordering Ukraine. In 2014, the average price of fuel decreased by 4.7% compared to that of 2013. Fuel prices have continued
to generally decrease during the first half of 2015.In addition, the National Development and Reform Commission
(the "NDRC") has adjusted gasoline and diesel prices in China from time to time, taking into account the changes in international
oil prices, thereby affecting aviation fuel prices. As of December 31, 2015, setting aside the adjustment in factors such as fuel
surcharge, if the average price of jet fuel had increased or decreased by 5.0%, our jet fuel costs would have increased or decreased
by approximately RMB1,016 million. 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.





11







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



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



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



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



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



Risks Relating to the Company



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



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



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



We have a substantial
amount of debt, lease and other financial obligations, and will continue to do so in the future. During the period between the
end of 2008 and April 2009, the amount of our total liabilities exceeded our total assets. In 2014, we added a total of 75 aircraft
to our fleet, by purchase or finance lease (excluding operating lease), including B777 series for long-haul flights, A330 series
for long and medium-haul flights and A320 series and B737NG series for medium and short-haul flights. On February 28, 2014, we
entered into an agreement with Airbus SAS regarding the purchase of seventy new A320NEO aircraft, which are expected to be delivered
to the Company in stages from 2018 to 2020. On June 13, 2014 we entered into agreements with Boeing Company to purchase eighty
new B737 series aircraft to be delivered in stages from 2016 to 2020. 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 the Company in stages from
2017 to 2019. On August 14, 2015,we entered into a purchase agreement with Airbus SAS to purchase fifteen new Airbus
A330 series aircraft which are expected to be delivered to the Company in stages from 2017 to 2018.See the section
headed "Item 4. Information on the Company — Property, Plant and Equipment — Fleet." As of December 31, 2015,
our total liabilities were RMB158,061 million. As of the same date, our current liabilities exceeded our current assets by RMB51,309
million. Our total interest-bearing liabilities (including long-term and short-term borrowings, finance leases payable and bonds
payable) as of December 31, 2014 and 2015 were RMB97,884 million and RMB119,111 million, respectively, of which short-term liabilities
accounted for 34.0% and 37.2%, 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.





12







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, 2015, we had total unutilized credit facilities of RMB55.2 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 and, in 2015, accounted for approximately 23.4% 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. While international crude oil prices generally decreased in the second half of 2014, the results of
operation and financial condition of our Company are still subject to any significant fluctuations that may occur, which are generally
due to factors beyond our control. As such, we generally alleviate the pressure from the rise in operating costs arising from the
increase in aviation fuel by imposing fuel surcharges which, however, are subject to government regulations. In order to control
fuel costs, we have also entered into fuel hedging transactions using financial derivative products linked to the price of underlying
assets such as United States WTI crude oil and Singapore jet fuel during previous years.



In
the beginning of 2009, the PRC government required prior governmental approval for entering into fuel hedging contracts. In October
2011, we have obtained approval from the PRC government, allowing us to enter into overseas fuel hedging contracts. For the year
ended December 31, 2011, we hedged 17% of our annual fuel consumption. However, these hedging strategies may not always be effective
and high fluctuations in aviation fuel prices exceeding the locked-in price ranges may result in losses. Significant decline in
fuel prices may substantially increase the costs associated with our fuel hedging arrangements. In addition, where we seek to
manage the risk of fuel price increases by using derivative contracts, we cannot assure you that, at any given point in time,
our fuel hedging transactions will provide any particular level of protection against increased fuel costs. As of December 31,
2015, we had no open crude oil option contracts, and all the contracts signed in past years had been settled before December 31,
2015.





13









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, 2015, our total interest-bearing
liabilities denominated in foreign currencies converted to Renminbi amounted to RMB89,342 million, of which the U.S. dollar liabilities
accounted for 97.7% of the total amount. Therefore, in circumstances with large fluctuations in exchange rates, the exchange loss
arising on the translation of foreign currency denominated liabilities will be greater, which in turn affects our profitability
and growth. We usually use hedging contracts for foreign currencies to reduce the risk in exchange rate fluctuations for foreign
currency revenue from ticket sales and expenses which are to be paid in foreign currencies. Foreign currency hedging mainly involves
sales of the Japanese Yen or the purchase of U.S. dollars at fixed exchange rates. We use cross currency swap to reduce the risk
of changes in currency exchange rates and market interest rates (Note 3). The cross currency swap entered into by us for swapping
US dollars floating interest rates (LIBOR) into Euro floating interest rates (EURIBOR), is accounted for as a cash flow hedge.
As of December 31, 2015, the notional amount of the outstanding cross currency swap agreement was approximately US$38 million.
The agreement will expire in 2025. Pleae refer to Note 39 to the consolidated financial statements. As of December 31, 2015, foreign
currency hedging contracts held by us which are still open amounted to a notional amount of approximately US$12 million, which
will expire in 2017, compared with US$39 million as of December 31, 2014.



We recorded net foreign
exchange losses of RMB4,987 million for 2015, whereas net foreign exchange losses were RMB203 million for 2014. 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 early 2016, the Group expanded its financing channels by means of issuing super short-term commercial paper and
acquiring RMB borrowings to bring in RMB finance. As at the end of January and February 2016, the proportion of USD-denominated
debts made up of the Group's interest-bearing debts decreased to 57% and 53%, respectively. 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, 2014 and 2015 were RMB97,884
million and RMB119,111 million, respectively, of which short-term liabilities accounted for 34.0% and 37.2%, respectively, and
long-term liabilities accounted for 66.0% and 62.8%, respectively, for those years. A portion of the long-term interest-bearing
liabilities carried variable interest rates. Both our variable and fixed rate obligations were affected by fluctuations in current
market interest rates.



Our interest-bearing liabilities
were mainly denominated in U.S. dollars and Renminbi. As of December 31, 2014 and 2015, our liabilities denominated in U.S. dollars
accounted for 59.3% and 55.3%, respectively, of our total liabilities, while liabilities denominated in Renminbi accounted for
40.5% and 44.5%, respectively, of our total liabilities. Fluctuations in the U.S. dollar and Renminbi interest rates have significantly
affected our financing costs. A substantial majority of our borrowings denominated in Renminbi are linked to benchmark five-year
lending rates published by the PBOC. The PBOC raised the benchmark five-year lending rate five times from 5.94% to 7.05% in July
2011, but reduced the rate subsequently twice, on the last occasion to 6.4% in July 2012. The benchmark five-year lending rate
remained steady and did not change during 2013 and into the first quarter of 2014. A substantial majority of our borrowings denominated
in U.S. dollars are linked to floating LIBOR rates which increased overall in 2012, decreased overall in 2013 and 2014, and increased
overall in 2015.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.





14







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



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





15







| | · | 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 either by the central government or provincial or municipal governments in China. CEA Holding
currently holds directly or indirectly 62.08% 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.





16







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, 2015. 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.



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.





17







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



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



The aviation industry
as a whole has been beset with high-profile terrorist attacks, most notably on September 11, 2001 in the United States. The CAAC
has also implemented increased security measures in relation to the potential threat of terrorist attacks. Terrorist attacks, even
if not made directly towards us or on the airline industry, or the fear of or the precautions taken in anticipation of such attacks
(including elevated threat warnings or selective cancellation or redirection of flights) could materially and adversely affect
us and the airline industry. In addition, potential or actual terrorist attacks may result in substantial flight disruption costs
caused by grounding of fleet, significant increase of security costs and associated passenger inconvenience, increased insurance
costs, substantially higher ticket refunds and significantly decreased traffic and RPK. 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, 2015:





18











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% issued share capital of Xi’an Dongmei Aviation Travel Co., Ltd held by them respectively for a consideration
of approximately RMB3.3 million comprising approximately RMB1.5 million payable to Eastern Tourism and approximately RMB1.8 million
payable to Shanghai Dongmei.



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



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.





19







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



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.



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 Compnay.
On September 9, 2015, we completed the issue of 465,910,000 ordinary H shares with a par value of RMB1 each at an issue price of
HK$7.49 per share to Delta Air Lines.



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 April 17, 2015.



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



On September 1, 2015,
we and Delta Air Lines 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 which 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 each at an issue price of
HK$7.49 per share to Delta Air Lines.



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 48 to the consolidated financial statements.





20







The table below sets forth details of our
operating fleet as of December 31, 2013 and 2014:



|                                                  |  | Number of Aircraft Owned And under Finance Leases |     |  | Number of Aircraft under Operating Leases |  |     | Number of Aircraft Owned and under Finance Leases |  |  | Number of Aircraft under Operating Leases | 
|------------------------------------------------- |  | ------------------------------------------------- | --- |  | ----------------------------------------- |  | --- | ------------------------------------------------- |  |  | ----------------------------------------- | 
|                                                  |  | 2013                                              |     |  | 2014                                      | 
|Passenger Aircraft:                               |  |                                                   |     |  |                                           |  |     |                                                   |  |  |                                           | 
|Wide-body:                                        |  |                                                   |     |  |                                           |  |     |                                                   |  |  |                                           | 
|B777-300ER                                        |  |                                                   | —   |  |                                           |  | —   |                                                   |  |  | 4                                         | 
|B767                                              |  |                                                   | 6   |  |                                           |  | 1   |                                                   |  |  | 6                                         | 
|A340-600                                          |  |                                                   | 5   |  |                                           |  | —   |                                                   |  |  | 4                                         | 
|A340-300                                          |  |                                                   | —   |  |                                           |  | —   |                                                   |  |  | —                                         | 
|A330-300                                          |  |                                                   | 8   |  |                                           |  | 7   |                                                   |  |  | 9                                         | 
|A330-200                                          |  |                                                   | 18  |  |                                           |  | 3   |                                                   |  |  | 25                                        | 
|A300-600R                                         |  |                                                   | 8   |  |                                           |  | —   |                                                   |  |  | —                                         | 
|MD-11F                                            |  |                                                   | —   |  |                                           |  | —   |                                                   |  |  | —                                         | 
|Narrow-body:                                      |  |                                                   |     |  |                                           |  |     |                                                   |  |  |                                           | 
|A321                                              |  |                                                   | 33  |  |                                           |  | —   |                                                   |  |  | 39                                        | 
|A320                                              |  |                                                   | 101 |  |                                           |  | 44  |                                                   |  |  | 113                                       | 
|A319                                              |  |                                                   | 15  |  |                                           |  | 8   |                                                   |  |  | 24                                        | 
|B757-200                                          |  |                                                   | 5   |  |                                           |  | 3   |                                                   |  |  | 4                                         | 
|B737-800                                          |  |                                                   | 28  |  |                                           |  | 66  |                                                   |  |  | 44                                        | 
|B737-700                                          |  |                                                   | 42  |  |                                           |  | 17  |                                                   |  |  | 49                                        | 
|B737-300                                          |  |                                                   | 16  |  |                                           |  | —   |                                                   |  |  | 16                                        | 
|EMB 145LR                                         |  |                                                   | 10  |  |                                           |  | —   |                                                   |  |  | 10                                        | 
|CRJ-200                                           |  |                                                   | 8   |  |                                           |  | —   |                                                   |  |  | —                                         | 
|Hawker 800                                        |  |                                                   | —   |  |                                           |  | —   |                                                   |  |  | —                                         | 
|Total Passenger Aircraft:                         |  |                                                   | 303 |  |                                           |  | 149 |                                                   |  |  | 347                                       | 
|                                                  |  |                                                   |     |  |                                           |  |     |                                                   |  |  |                                           | 
|Cargo Aircraft:                                   |  |                                                   |     |  |                                           |  |     |                                                   |  |  |                                           | 
|B747-400F                                         |  |                                                   | 2   |  |                                           |  | 3   |                                                   |  |  | 2                                         | 
|B757-200F                                         |  |                                                   | —   |  |                                           |  | 2   |                                                   |  |  | —                                         | 
|B777F                                             |  |                                                   | —   |  |                                           |  | 6   |                                                   |  |  | —                                         | 
|Total Cargo Aircraft:                             |  |                                                   | 2   |  |                                           |  | 11  |                                                   |  |  | 2                                         | 
|Total number of passenger aircraft and freighters |  |                                                   | 305 |  |                                           |  | 160 |                                                   |  |  | 349                                       | 



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 |  |                                | 





21







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



Our Company was one of
the three largest air carriers in China in terms of revenue-tonne-kilometers and number of passengers carried in 2015, 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 provision of domestic, regional and international passenger airline services.
As of December 31, 2015, we served a route network that covers 1,057 domestic and foreign destinations in 179 countries through
SkyTeam, an international airlines alliance. We operate primarily from our core hub in Shanghai and regional hubs in Kunming and
Xi’an.



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



Compared to 2014, our
traffic volume (as measured in RTKs) increased by 10.53% from 16,122 million in 2014 to 17,820 million in 2015. Our passenger traffic
volume (as measured in revenue passenger-kilometers, or RPKs) increased by 14.55% from 127,750 million in 2014 to 146,342 million
in 2015. Our cargo and mail traffic volume (as measured in revenue freight tonne-kilometers, or RFTKs) increased by 1.31% from
4,802 million in 2014 to 4,865 million in 2015.





22







Our Operations by Activity



The following table sets
forth our traffic revenues by activity for each of the years ended December 31, 2013, 2014 and 2015:



|                       |  | Year Ended December 31, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2013                    |       
|                       |  | (Millions of RMB)       |       
|Traffic revenues       |  |                         |       
|Passenger              |  |                         | 72,928
|Cargo and mail         |  |                         | 7,603 
|Total traffic revenues |  |                         | 80,531



Passenger Operations



The following table sets
forth certain passenger operating statistics of our Company by route for each of the years ended December 31, 2013, 2014 and 2015:



|                                        |  | Year Ended December 31, |        
|--------------------------------------- |  | ----------------------- | -------
|                                        |  | 2013                    |        
|Passenger Traffic (in RPKs) (millions)  |  |                         | 120,461
|Domestic                                |  |                         | 82,812 
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 4,049  
|International                           |  |                         | 33,600 
|                                        |  |                         |        
|Passenger Capacity (in ASKs) (millions) |  |                         | 152,075
|Domestic                                |  |                         | 104,459
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 5,435  
|International                           |  |                         | 42,181 
|                                        |  |                         |        
|Passenger Yield (RMB)                   |  |                         | 0.61   
|Domestic                                |  |                         | 0.61   
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 0.85   
|International                           |  |                         | 0.56   
|                                        |  |                         |        
|Passenger Load Factor (%)               |  |                         | 79.21  
|Domestic                                |  |                         | 79.28  
|Regional (Hong Kong, Macau and Taiwan)  |  |                         | 74.51  
|International                           |  |                         | 79.66  



Our domestic routes generated
approximately 65.6% of our passenger revenues in 2015. Our most heavily traveled domestic routes generally link Shanghai to the
large commercial and business centers of China, such as Beijing, Guangzhou and Shenzhen.



We also operated approximately
22 flight routes between mainland China and Hong Kong as of December 31, 2015. In addition, we operated approximately 25 routes
between mainland China and Taiwan and three routes between China and Macau as of December 31, 2015. Our regional routes accounted
for approximately 4.0% of our passenger revenues in 2015.



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



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





23







In
2015, we conducted significant optimization of our fleet structure, and increased our fleet to 551aircraft 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 networkin 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 widenthe scope
of cooperation and improve the quality of cooperation. In September 2015, we entered into a strategic partnership with Delta Air
Lines to further explicitly deepen the 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 2014 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.



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



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



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



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.





24







Cargo and Mail Operations



The following table sets
forth certain cargo and mail operating statistics of our Company by route for each of the years ended December 31, 2013, 2014 and
2015:



|                                       |  | Year Ended December 31, |      
|-------------------------------------- |  | ----------------------- | -----
|                                       |  | 2013                    |      
|Cargo and Mail Traffic (in RFTKs)      |  |                         | 4,857
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 959  
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 123  
|International                          |  |                         | 3,775
|                                       |  |                         |      
|Cargo and Mail Capacity (in AFTKs)     |  |                         | 8,028
|(millions)                             |  |                         |      
|Domestic                               |  |                         | 2,172
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 275  
|International                          |  |                         | 5,581
|                                       |  |                         |      
|Cargo and Mail Yield (RMB)             |  |                         | 1.57 
|Domestic                               |  |                         | 1.30 
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 3.71 
|International                          |  |                         | 1.56 
|                                       |  |                         |      
|Cargo and Mail Load Factor (%)         |  |                         | 60.50
|Domestic                               |  |                         | 44.17
|Regional (Hong Kong, Macau and Taiwan) |  |                         | 44.75
|International                          |  |                         | 67.63



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



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



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. 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 joint 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.





25







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 on the basis of where the services are performed.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table sets
forth our revenues by geographical area for each of the three years ended December 31, 2015:



|                                       |  | 2013              |        |  | 2014              |  |        | 2015              | 
|-------------------------------------- |  | ----------------- | ------ |  | ----------------- |  | ------ | ----------------- | 
|                                       |  | (Millions of RMB) |        |  | (Millions of RMB) |  |        | (Millions of RMB) | 
|Domestic                               |  |                   | 59,563 |  |                   |  | 60,531 |                   | 
|Regional (Hong Kong, Macau and Taiwan) |  |                   | 3,911  |  |                   |  | 3,799  |                   | 
|International                          |  |                   | 24,771 |  |                   |  | 25,855 |                   | 
|Total                                  |  |                   | 88,245 |  |                   |  | 90,185 |                   | 



Regulation



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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





26







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



Domestic Route Rights



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



Regional Route Rights



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



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



On December 15, 2008,
mainland China and Taiwan commenced direct air and sea transport and postal services, ending a nearly six-decade ban on regular
links between the two sides since 1949. Under a historic agreement signed by the governments of mainland China and Taiwan in early
November 2008, the new air links expanded from weekend charters to a daily service, with the two sides operating a total of 108
flights per week in 2008 and approximately 270 and 370 regular direct flights per week in 2009 and 2010, respectively. Mainland
China and Taiwan agreed to increase flight destinations for air links between the two sides in mainland China to 33 airports in
various PRC cities in 2010, while flight destinations in Taiwan continue to include eight airports in various cities in Taiwan.
At the end of 2012, the two sides agreed to increase the total number of flights to 616 per week and to increase the total number
of destination airports in mainland China and Taiwan to 64. The two sides also previously agreed to launch chartered cargo flights
between two terminals in mainland China, namely, Shanghai Pudong and Guangzhou airports, and two terminals in Taiwan, namely, Taoyuan
and Kaohsiung airports. On August 12, 2013, the two sides agreed to increase the total number of flights to 670 per week and add
three terminals of chartered cargo flights in mainland China, namely, Tianjin, Zhengzhou and Ningbo airports. At the end of 2014,
mainland China and Taiwan agreed to increase the total number of flights to 924 per week and to increase the total number of destination
airports in mainland China to 65. 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;
| | - | --------------





27







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



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



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





Airfare Pricing
Policy



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



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



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



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



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



Acquisition of Aircraft
and Spare Parts



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



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.





28







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 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."



Security



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





29







Noise and Environmental
Regulation



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



Chinese Airport
Policy



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



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



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



Limitation on Foreign
Ownership



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



Competition



Domestic



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



There are currently more
than 50 Chinese airlines in mainland China, and our Company competes with many of them on various domestic routes. All of these
airlines operate under the regulatory supervision of the CAAC. Our Company, Air China Limited, or Air China, which is based in
Beijing and listed on the Hong Kong Stock Exchange and the London Stock Exchange, and China Southern Airlines Company Limited,
or China Southern, which is based in Guangzhou and listed on the Hong Kong Stock Exchange and the New York Stock Exchange, are
the three leading air carriers in China, both in terms of revenue tonne-kilometers and size of operations.





30







Each of the domestic
airlines competes against other airlines operating the same routes or flying indirect routes to the same destinations. Our principal
competitors in the domestic market are China Southern and Air China, which also provide transportation services on some of our
routes, principally routes originating from the major air transportation hubs in China, such as Shanghai, Guangzhou and Beijing.
Some of these routes are among our most heavily traveled routes. Since most of the major domestic airlines operate routes from
their respective hubs to Shanghai, our Company also competes against virtually all of the major domestic airlines on these routes.
In addition, we are facing increasing competition from certain low-cost carriers, such as Spring Airlines, in the domestic market.
Spring Airlines competes with us, as it operates daily domestic routes to certain destinations such as Harbin, Shenyang, Guangzhou,
Xiamen, Sanya, Kunming and Chongqing, which are covered in our domestic routes. The “Twelfth Five-Year Plan” for civil
aviation industry in China encourages low-cost airlines to enter into major logistics market gradually. In February 2014, CAAC
issued Guidance on Facilitating Low-cost Aviation Development which aims at supporting the development of domestic low-cost airlines.
This will further intensify the competition in domestic aviation market. However, we believe we are well-positioned to compete
against domestic low-cost carriers due to our expansive route network, competitive pricing, greater availability of flight services
to these destinations and strong brand name.



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



Domestic Rail



The PRC government is
aggressively implementing the expansion of its domestic high-speed rail network, which has provided train services at a speed
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. Our Company also faces
competition from Dragonair in our Hong Kong cargo operations. Cathay, which owns Dragonair, also cooperates with Air China and
operates all passenger services of Cathay and Air China between Hong Kong and mainland China as joint venture routes under code-share
and revenue and cost-pooling arrangements. This may further intensify the competition on the routes between Hong Kong and mainland
China and impose greater competitive pressure on the other airline companies operating on these routes.





31







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 our Company has obtained or will continue to be allocated sufficient Taiwan-mainland China routes or
that the yields on these routes would be adequate to offset any material adverse effect on our revenues derived from operating
our Hong Kong routes.



We compete with Air Macau
on the Shanghai Pudong-Macau route. Air Macau's routes also provide an alternative to our Hong Kong routes for passengers travelling
between Taiwan and mainland China.



International



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



We also face significant
competition in our international cargo operations. Moreover, China and the United States entered into an air service agreement
on July 24, 2004. Pursuant to this agreement, five additional airlines from each country are allowed to serve the China-U.S. market
over the next few years. Another air transport agreement was signed between China and the United States on July 9, 2007 in order
to increase travel and tourism and promote cultural, business and governmental exchanges between China and the United States,
as well as to promote the ultimate objective of full liberalization of the bilateral air transport market. A trade services agreement
was also signed between China and ASEAN countries in January 2007 and became effective in July 2007 to remove the restrictions
on China's entry into foreign freight markets. Air China operates the largest number of international routes among all Chinese
airlines. Beijing, the hub of Air China's operations, is the destination for most international flights to China. We primarily
compete with Air China, All Nippon Airways, Japan Airlines, and Spring Airlines on our passenger routes to Japan. On our Korean
routes, we compete with China Southern Airlines, Air China and Asiana Airlines and Korean Air. Our principal competitors on our
flights to Southeast Asia include Thai Airways International, Singapore Airlines, Malaysia Airlines, Air Asia and Vietnam Airlines.
On our passenger flights to the United States, our principal competitors include Delta Air Lines, United Airlines, American Airlines,
Air China and Air Canada. On our European routes, our competitors include Air China, the Air France-KLM Group, Virgin Atlantic
Airways, British Airways, Lufthansa German Airlines and Alitalia. We compete with Air China, China Southern Airlines and Qantas
Airways on our Australian routes. We compete in the international market on the basis of price, service quality, frequency of
scheduled flights and convenient sales arrangements.





32







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



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 9,687 workers as maintenance and engineering personnel as of
December 31, 2015. Some of our aircraft maintenance personnel have participated in the manufacturer training and support programs
sponsored by Airbus and Boeing. In order to enhance our maintenance capabilities and to reduce our maintenance costs, we have,
over the past few years, acquired additional maintenance equipment, tools and fixtures and other assets, such as airborne testing
and aircraft data recovery and analysis equipment. Our avionics equipment is primarily maintained and repaired at our electronic
maintenance equipment center located in Shanghai.



We entered into a joint
venture with Honeywell International Inc. (“Honeywell”), formerly Allied Signal Inc., in Shanghai for the purpose
of performing maintenance and repairs on aircraft wheel assemblies and brakes. Since October 1997, we have operated a maintenance
hangar at Hongqiao International Airport which has the capacity to house two wide-body aircraft. Our Company and Rockwell Collins
International Inc. of the United States have also co-established Collins Aviation Maintenance Service Shanghai Limited, which
is primarily engaged in the provision of repair and maintenance services for avionics and aircraft in-flight entertainment facilities
in China. Our Company and Rockwell Collins International Inc. hold 35% and 65%, respectively, of the equity interests in the joint
venture. Moreover, in November 2002, our Company, jointly with Aircraft Engineering Investment Limited, established Shanghai Eastern
Aircraft Maintenance Limited, in which our Company holds 60% of the equity interests, to provide supplemental avionics and other
maintenance services to our Company. STA, which was established in 2004 by our Company and Singapore Technologies Aerospace Ltd.
under a joint venture agreement dated March 10, 2003, also provides us with aircraft maintenance, repair and overhaul services.
We entered into repair agreements of seven types of electronics materials with Honeywell and we expect in the next two years to
save US$338,000 of material repairing costs.



On November 6, 2007,
we entered into a joint venture with United Technologies Corp., or UTC, to establish Shanghai Pratt & Whitney Aircraft Engine
Maintenance Co., Ltd., or Pratt & Whitney, for the purpose of performing maintenance and repairs on aircraft engines. Our
Company and UTC contributed US$20,145,000 and US$19,355,000, respectively, to the registered capital and hold 51% and 49%, respectively,
of the equity interests in the joint venture. Moreover, after our absorption of Shanghai Airlines, we took over its 15% equity
interest in Boeing Shanghai Aviation Services Co., Ltd. ("Boeing Shanghai"). As of December 31, 2013, Boeing (China)
Investment Co., Ltd., Shanghai Airport (Group) Co., Ltd. and Boeing (Asia) Services Investment Limited hold 35.3%, 25.0% and 24.7%,
respectively, of the remaining equity interest. Boeing Shanghai was founded in 2006 with a registered capital of US$85,000,000,
and operates a maintenance hangar with the capacity to provide aircraft modification and maintenance services for two wide-body
aircraft and one narrow-body aircraft and provides aircraft modification and maintenance services. In addition, we also hold 50%
of Shanghai Airlines' previous equity interest in Shanghai Hute Aviation Technology Co., Ltd. ("Shanghai Hute"). The
remaining equity interest is held by Sichuan Haite High-Tech Co., Ltd. Shanghai Hute was founded in 2003 with a registered capital
of RMB30,000,000, and provides maintenance services for aviation equipment. The enhancement of our maintenance capabilities allows
our Company to perform various maintenance operations in-house and continue to maintain lower spare parts inventory levels.





33







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



In 2015, Eastern Technology,
our wholly-owned subsidiary 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.



Safety



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



In 2013, we continued
to strengthen our Safety Management System ("SMS"). We issued work implementation plans that provided specific measures
to address risks such as lighting strikes, hard aircraft landings and communication systems failures. In addition, we established
the Nantong Airport training base to provide additional training programs for our flight crews. Furthermore, we formulated the
"Assessment and Remuneration Packages of Star-rating flight Crew Members", which commenced star-rating assessment of
all flight crew members in terms of flight safety, flight quality, discipline and provision of services. The management of each
of our provincial hub operations is responsible for the flight safety operations at the respective hub under the supervision of
our flight safety management division. We prepare monthly safety bulletins detailing recent developments in safety practices and
procedures and distribute them to each of our flight crew, the maintenance department and the flight safety management department.
The CAAC also requires our Company to prepare and submit semi-annual and annual flight safety reports.



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



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



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



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 aboveplateau airports, and has been enhancing our research capability in flying technology, providing psychological
support to our pilots and improving emergency drills to strictly implement in-flight safety requirements. In
September 2015, we were granted the “Safe Flight Diamond Award”, the highest accolade for flight safety in the industry,
by the CAAC.





34







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.



We did not purchase any
insurance for internet security.



Fuel Supplies



Fuel costs represented
approximately 23.4% of our operating expenses in 2015. We currently purchase a significant portion of the aviation fuel for our
domestic routes from regional branches of the CAOSC. Fuel costs in China are affected by costs at domestic refineries and limitations
in the transportation infrastructure, as well as by insufficient storage facilities for aviation fuel in certain regions of China.
Fuel prices at six designated major airports in China, namely, the airports in Shanghai Pudong, Shanghai Hongqiao, Beijing, Guangzhou,
Shenzhen and Tianjin, are set and adjusted once a month by the CAAC in accordance with prevailing fuel prices on the international
market. For our international routes, we purchase a portion of our aviation fuel from foreign fuel suppliers located at the destinations
of these routes, generally at international market prices.



In 2015, we consumed
approximately 5.3 million tonnes of fuel, an increase of 1.7% from 2014. Our aviation fuel expenditures in 2015 reached RMB20,312
million, representing a decrease of 32.8% from RMB30,238 million in 2014, as a result of the decrease in average price of fuel.
In 2015, the average price of fuel decreased by 39.9% compared to that of 2014. We cannot assure you that fuel prices will not
further fluctuate in the future. Further, due to the highly competitive nature of the airline industry and government regulation
on airfare pricing, we may be unable to fully or effectively pass on to our customers any increased fuel costs we may encounter
in the future. However, we intend to continue focusing on enhancing our jet fuel procurement policies and developing additional
internal cost-control measures, which include streamlining the number of aircraft models in our fleet and optimizing route structures,
which we believe will enable us to control our fuel costs.



Ground Facilities and Services



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



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





35







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 centre and examining the market-oriented operational mechanism for ground services
to further explore the transformation of supporting assets into operational assets.



Marketing and Sales



Passenger Operations



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



We have also adopted
customized strategies to market our services to particular travelers. We seek to establish long-term customer relationships with
business entities that have significant air travel requirements. In order to attract and retain business travelers, we focus on
the frequency of flights between major business centers, convenient transit services and an extensive sales network. We launched
our initial frequent flyer program in 1998 and joined the "Asia Miles" frequent flyer program in April 2001 to attract
and retain travelers. In August 2003, we upgraded and rebranded our frequent flyer program to "Eastern Miles" and introduced
a series of new services, including, among others, instant registration of membership and mileage, online registration of mileage,
and accumulation of mileage on expenses at certain hotels, restaurants and other service providers that are our strategic partners.
As a result of our continual efforts to develop the "Eastern Miles" program, the number of members of the frequent flyer
program reached over 22.8 million in 2014. The special services hotline "95530" call center was established and came
into operation in 2004. In light of the expansion of national high-speed railway network, we have cooperated with the Shanghai
Railway Bureau to launch "Air-Rail Pass Transportation" products. Our domestic and international flights together with
its high-speed railway products at Shanghai Hongqiao International Airport and Shanghai Pudong International Airport have formed
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 a total of 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
2015, Eastern E-Commerce, a wholly-owned subsidiary of the Group, focused on five major business segments, including operation
of e-commerce platform, non-aviation points for frequent travelers, points mall and online
floating market, digital marketing and integrated non-aviation products to explore transformation resources, such as customers,
points and offline contact points. The research and development plans for 32 types of integrated products in 10 categories were
formulated to launch 7 types of travel-related services, such as pick-up services, valet parking and tourism services. We frequently
updated our e-commerce platforms, namely our mobile application sales terminal and our official website, to continuously bring
in new service functions and improve customer experience.



Ticket Booking
Systems



In 2002 and again in
2012, we upgraded our online ticket booking and payment system to facilitate customer purchases of tickets via the Internet. In
2012, we also expedited the construction of nine overseas websites in a variety of languages. Currently, our global website covers
North America, Australia, Europe and Asia Pacific. We continue to encourage our customers to book and purchase tickets via the
Internet by initiating various promotional campaigns and upgrading and expanding the services offered by our online sales system.
In 2012, we introduced "China Eastern Mobile E", a smartphone application that provides mobile flight booking, flight
status and online checking services, which we believe will provide our customers with additional convenient, value-added services.
In 2013, we introduced a new version of China Eastern Mobile E and increased the application of "China Eastern Mobile E"
to 14 airports. In addition, we introduced “M Website”, a website portal that provides mobile flight booking, flight
status and online checking services and applied several third-party payment platforms to our ticket booking system.





36







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



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



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



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



SkyTeam Alliance



We officially joined SkyTeam,
an international airlines alliance and frequent flyer mileage program that includes international carriers such as, among others,
Delta, China Southern, Alitalia, Air France and KLM, on June 21, 2011. The entry of our Company as well as Shanghai Airlines into
SkyTeam became effective 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 connecting to the route
networks of other SkyTeam member airlines, we are able to offer its passengers seamless transit to 1,057 destinations in 179 countries
under a single plane ticket with direct luggage services as of December 31, 2015. Passengers may also enjoy the comfort of approximately
636 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, our
Company will benefit from possible codeshare and cooperative flight options, reduced costs and increased alliance-related marketing
and promotion overseas.



Cargo Operations
and Logistics Services



We maintain a network
of cargo sales agents domestically and internationally. We and our cooperative partners in our cargo operations have established
domestic cargo sales offices in Beijing, Shanghai, Xiamen and other major transportation hubs in China, and international cargo
sales offices in various locations in the U.S., Europe and the Asia-Pacific Region. In 2005, we established our northern China,
southern China, southeastern China and overseas sales management centers to improve coordination among our sales offices.





37







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



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



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



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



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



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



In 2015, Eastern Logistics
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. 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 joint 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 thirdparty logistics
solution. Distribution channels of www.eaemall.com have been expanded to construct CEA’s 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 crossborder logistics by
approximately 32% as compared to last year.





38







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 2015, we generated net revenues
of approximately RMB3,296 million from our airport ground services and cargo handling and processing services, compared with RMB2,680
million and RMB2,915 million, respectively, generated from such services in 2014 and 2013.



Patents and Trademarks



We own or have obtained
licenses to use various domestic and foreign patents, patent applications and trademarks related to our business. While patents,
patent applications and trademarks are important to our competitive position, no single one is material to us as a whole. In addition,
we own various trademarks related to our business. The most important trademark is the service trademark of China Eastern Airlines
Corporation Limited. All of our trademarks are registered in China. As of December 31, 2015, we own or have obtained licenses to
use 58 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 our Company also purchases insurance. As of July 31, 2006, the Convention for the Unification of Certain
Rules for International Carriage by Air of 1999, or Montreal Convention, became effective in China. Under the Montreal Convention,
carriers of international flights are strictly liable for proven damages up to 100,000 Special Drawing Rights and beyond that,
carriers are only able to exclude liability if they can prove that the damage was not due to negligence or other wrongful act of
the carrier (and its agents) or if the damage solely arose from the negligence or other wrongful act of a third party. We believe
that we maintain adequate insurance coverage for the civil liability that can be imposed due to injuries to passengers under Chinese
law, the Montreal Convention and any agreement we are subject to. We also maintain hull all risk, hull war risk and aircraft legal
liability insurance, including third party liability insurance, of the types and in amounts customary for Chinese airlines. See
also "Item 3. Key Information — Risk Factors — Risks Relating to the Company — Our insurance coverage and
costs have increased substantially, and could have an adverse effect on our operations" for more information on our Company's
insurance coverage."



| | C. | Organizational Structure
| | -- | ------------------------



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



| | D. | Property, Plant And Equipment
| | -- | -----------------------------



Fleet



As of December 31, 2015,
we operated a fleet of 551 aircraft, including 526 passenger aircraft, most with a seating capacity of over 100 seats, 9 freighters
and 16 business aircraft held under trust. In 2015, we introduced a total of 80 aircraft of major models and a total of 42 aircraft
of various models, including A340-600, B757 series and EMB-145LR retired. With the complete retirement of A340-600 and B757 series
aircraft, the variety of aircraft models of our fleet has been further streamlined and the fleet structure has been made younger.





39







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, 2015:



|                                                  |  | Number of Aircraft Owned and under Finance Lease |                |  | Aircraft under Operating Lease |  |     | Total Number of Aircraft |  |  | AverageAge (inyears) (1) | 
|------------------------------------------------- |  | ------------------------------------------------ | -------------- |  | ------------------------------ |  | --- | ------------------------ |  |  | ------------------------ | 
|Jet Passenger Aircraft:                           |  |                                                  |                |  |                                |  |     |                          |  |  |                          | 
|Wide-body:                                        |  |                                                  |                |  |                                |  |     |                          |  |  |                          | 
|B777-300ER                                        |  |                                                  | 9              |  |                                |  | -   |                          |  |  | 9                        | 
|B767                                              |  |                                                  | 6              |  |                                |  | -   |                          |  |  | 6                        | 
|A330-300                                          |  |                                                  | 11             |  |                                |  | 7   |                          |  |  | 18                       | 
|A330-200                                          |  |                                                  | 30             |  |                                |  | 3   |                          |  |  | 33                       | 
|Narrow-body:                                      |  |                                                  |                |  |                                |  |     |                          |  |  |                          | 
|A321                                              |  |                                                  | 48             |  |                                |  | -   |                          |  |  | 48                       | 
|A320                                              |  |                                                  | 122            |  |                                |  | 38  |                          |  |  | 160                      | 
|A319                                              |  |                                                  | 31             |  |                                |  | 4   |                          |  |  | 35                       | 
|B737-800                                          |  |                                                  | 71             |  |                                |  | 72  |                          |  |  | 143                      | 
|B737-700                                          |  |                                                  | 55             |  |                                |  | 8   |                          |  |  | 63                       | 
|B737-300                                          |  |                                                  | 5              |  |                                |  | -   |                          |  |  | 5                        | 
|EMB 145LR(2)                                      |  |                                                  | 6              |  |                                |  | -   |                          |  |  | 6                        | 
|Total Passenger Aircraft:                         |  |                                                  | 394            |  |                                |  | 132 |                          |  |  | 526                      | 
|                                                  |  |                                                  |                |  |                                |  |     |                          |  |  |                          | 
|Cargo Aircraft:                                   |  |                                                  |                |  |                                |  |     |                          |  |  |                          | 
|B747-400F                                         |  |                                                  | 2              |  |                                |  | 1   |                          |  |  | 3                        | 
|B777F                                             |  |                                                  | -              |  |                                |  | 6   |                          |  |  | 6                        | 
|Total Cargo Aircraft:                             |  |                                                  | 2              |  |                                |  | 7   |                          |  |  | 9                        | 
|Total number of passenger aircraft and freighters |  |                                                  | 396            |  |                                |  | 139 |                          |  |  | 535                      | 
|                                                  |  |                                                  | No. of custody |  |                                |  |     |                          |  |  |                          | 
|Business Aircraft                                 |  |                                                  |                |  |                                |  |     |                          |  |  | 16                       | 
|Total Fleet                                       |  |                                                  |                |  |                                |  |     |                          |  |  | 551                      | 



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



| | (2) | These aircrafts will retire from our Group's fleet operation
and will be disposed in 2016.
| | --- | ------------------------------------------------------------------------------------------



Our daily average aircraft
utilization rate was 10.0 hours in 2015, increasing slightly from 9.4 hours in 2014.



The table below sets forth
the daily average utilization rates of our jet passenger aircraft for each of the years ended December 31, 2013 and 2014:



|                                 |  | 2013       |      |  | 2014 | 
|-------------------------------- |  | ---------- | ---- |  | ---- | 
|                                 |  | (in hours) |     
|Wide-body:                       |  |            |      |  |      | 
|B777-300ER                       |  |            | -    |  |      | 
|B767                             |  |            | -    |  |      | 
|A340-600                         |  |            | 11.8 |  |      | 
|A330-300                         |  |            | 9.0  |  |      | 
|A330-200                         |  |            | 14.3 |  |      | 
|A300-600                         |  |            | 6.8  |  |      | 
|B767-300                         |  |            | 9.6  |  |      | 
|Narrow-body:                     |  |            |      |  |      | 
|A321                             |  |            | 8.9  |  |      | 
|A320                             |  |            | 9.9  |  |      | 
|A319                             |  |            | 9.2  |  |      | 
|B737-800                         |  |            | 10.2 |  |      | 
|B737-700                         |  |            | 9.8  |  |      | 
|B737-300                         |  |            | 8.6  |  |      | 
|EMB 145LR                        |  |            | 8.1  |  |      | 
|Total Passenger Aircraft Average |  |            | 9.8  |  |      | 





40







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



|                                                          |  | 2015       |     
|--------------------------------------------------------- |  | ---------- | ----
|                                                          |  | (in hours) |     
|Jet Passenger Aircraft:                                   |  |            |     
|Wide-body:                                                |  |            |     
|B777-300ER                                                |  |            | 14.0
|B767                                                      |  |            | 8.5 
|A330-300                                                  |  |            | 9.1 
|A330-200                                                  |  |            | 13.5
|Narrow-body:                                              |  |            |     
|A321                                                      |  |            | 9.2 
|A320                                                      |  |            | 10.0
|A319                                                      |  |            | 9.6 
|B737-800                                                  |  |            | 10.1
|B737-700                                                  |  |            | 9.2 
|B737-300                                                  |  |            | 6.6 
|Total Passenger Aircraft average                          |  |            | 10.0
|                                                          |  |            |     
|Cargo Aircraft:                                           |  |            |     
|B747-400F                                                 |  |            | 11.8
|B777F                                                     |  |            | 13.7
|Total Cargo Aircraft average                              |  |            | 13.1
|Total number of passenger aircraft and freighters average |  |            | 10.0



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 the Company 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 the Company in stages from 2017 to
2018.



Future Fleet Development



Our aircraft acquisition
program focuses on aircraft that will modernize and rationalize our fleet to better meet the anticipated requirements of our route
structure, taking into account aircraft size and fuel efficiency. Our aircraft acquisition program, however, is subject to the
approval of the CAAC and the NDRC. Our fleet in the future will mainly comprise of models such as B777 Series forlong haul, A330 Series for long-and-medium haul, and A320 Series and B737NG Series for medium-and-short haul. Older aircraft
models of high energy-consumption will be surrendered as appropriate. Details of the expected fleet plan from 2016 to 2017 are
as follows:



|                                   |  | 2016E        |    |  | 2017E      | 
|---------------------------------- |  | ------------ | -- |  | ---------- | 
|Model                              |  | Introduction |    |  | Retirement | 
|Passenger aircraft                 |  |              |    |  |            | 
|A320 Series                        |  |              | 30 |  |            | 
|A330 Series                        |  |              | -  |  |            | 
|B777 Series                        |  |              | 7  |  |            | 
|B737 Series                        |  |              | 35 |  |            | 
|EMB-145LR                          |  |              | -  |  |            | 
|Total number of passenger aircraft |  |              | 72 |  |            | 
|Freighters                         |  |              |    |  |            | 
|B747-400F                          |  |              | -  |  |            | 
|Total number of freighters         |  |              | -  |  |            | 
|Total                              |  |              | 72 |  |            | 





41







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



Fleet Financing
Arrangements



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



Operating Facilities



Our Company (including
subsidiaries and branches) had operations on 95 parcels of land, occupying a total area of approximately 5.4 million square meters,
as of December 31, 2015. In addition, as of December 31, 2015, our Company (including subsidiaries and branches) owned approximately
1,879 buildings with a total gross floor area of approximately 1.2 million square meters. Our Company and major subsidiaries have
obtained the land use rights certificates and building ownership certificates for certain parcels of land and buildings, and are
currently in the process of applying for the certificates with respect to the remaining parcels and buildings.



|Item 4A. | Unresolved Staff Comments
|-------- | -------------------------



None.



|Item 5. | Operating and Financial Review and Prospects
|------- | --------------------------------------------



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



Overview



Our primary business is
the provision of domestic, regional (which includes Hong Kong, Macau and Taiwan) and international passenger and cargo airline
services. Our overall capacity on an available tonne kilometer, or ATK, basis increased by 11.8%, from 22,538.5 ATKs in 2014 to
25,203 ATKs in 2015, and our passenger capacity on an available seat kilometer, or ASK, basis increased by 13.2%, from 160,585.1
ASKs in 2014 to 181,792.9 ASKs in 2015. Total traffic on a revenue tonne kilometer, or RTK, basis increased by 10.5%, from 16,122.4
RTKs in 2014 to 17,820.43 RTKs in 2015.



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.





42







Critical Accounting Policies



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



Revenue recognition
and sales in advance of carriage



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



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.



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.





43







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 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.



Property, plant
and equipment



Property, plant and equipment
is recognized initially at cost which comprises purchase price, and any directly attributable costs of bringing the assets to the
condition for their intended use.



Where parts of an item
of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the
parts and each part is depreciated separately.



When each major aircraft
overhaul is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment and is depreciated
over the appropriate maintenance cycles. Components related to airframe overhaul cost, are depreciated on a straight-line basis
over 5 to 7.5 years. Components related to engine overhaul costs, are depreciated between each overhaul period using the ratio
of actual flying hours and estimated flying hours between overhauls. Upon completion of an overhaul, any remaining carrying amount
of the cost of the previous overhaul is derecognized and charged to 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%



Residual values, useful
lives and the depreciation method are reviewed, and adjusted if appropriate, at each financial year end. The carrying amount of
an item of property, plant and equipment is written off immediately to its recoverable amount if its carrying amount is greater
than its estimated recoverable amount.



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



Construction in progress
represents buildings under construction and equipment pending 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 capitalised 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 current portion of obligation under finance leases and obligations under finance leases, respectively. The interest element
of the finance cost 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.





44







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.



(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:



| | · | 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



Investments in securities
other than subsidiaries, associates and joint ventures, being held for non-trading purposes, are classified as available-for-sale
investments and are recognized on the trade-date – the date on which we commit to purchase or sell the asset. Investments
are initially recognized at fair value plus transaction costs. At each reporting date, the fair value is remeasured, with any resulting
gain or loss being recognized directly in other comprehensive income, except for impairment losses. When these investments are
derecognized, the cumulative gain or loss previously recognised in other comprehensive income is recognised in profit or loss.





45







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



We assess at each reporting
date whether there is objective evidence that a financial asset is impaired. In the case of equity securities classified as available-for-sale,
a significant or prolonged decline in the fair value of the securities below its cost is considered an indicator that the securities
are impaired. If any such evidence exists for available-for-sale investments, the cumulative loss, measured as the difference between
the acquisition cost and the current fair value less any impairment loss on that financial asset previously recognized in profit
or loss, is removed from equity and recognized in profit or loss. Impairment losses recognized in profit or loss on equity instruments
are not reversed through the profit or loss.



Income tax



Income tax for the period
comprises current and deferred tax. Income tax is recognised in profit or loss, except that it relates to items recognised in other
comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in
equity, respectively.



The current income tax
charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the jurisdictions where
the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.



Deferred tax is provided,
using the liability method, on all temporary differences at the end of reporting period arising between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purpose. However, deferred tax liabilities are not recognised
if they arise from the initial recognition of goodwill and deferred tax is not accounted for if it arises from initial recognition
of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred tax is determined using tax rates that have been enacted or substantively enacted
by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is
settled.



Deferred tax assets are
recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilized.



Deferred tax is provided
on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the
reversal of the temporary difference is controlled by us and it is probable that the temporary difference will not reverse in the
foreseeable future.



Going concern



As set out in Note 2.1
to the consolidated financial statements, our ability to continue operations depends on obtaining the necessary financing and continued
operations to generate sufficient cash flows to meet our liabilities as they fall due and the capital expenditure requirements
for the upcoming twelve months. In the event we are unable to obtain adequate funding, there is uncertainty as to whether we will
be able to continue as a going concern. The consolidated financial statements do not include any adjustments related to the carrying
values and classifications of assets and liabilities that would be necessary should we be unable to continue as a going concern.



Critical
Accounting Estimates and Judgments



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



Revenue recognition



We recognize traffic revenues
in accordance with the accounting policy stated in Note 2 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.





46







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 have expired. The deferment
of revenue is estimated based on historical trends of redemptions, which is then used to project the expected utilization of these
benefits and estimated fair values of the unredeemed miles. Different judgments or estimates could significantly affect the estimated
provision for frequent flyer programs and the results of operations.



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



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



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 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 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 the change of market condition and the future plan for
the aircraft and related spare parts.



Depreciation of
property, plant and equipment



Depreciation of components
related to 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.





47







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 chief operating decision-maker
(“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 IFRS in certain aspects. The Company has one reportable operating segment, reported as "airline transportation
operations." See Note 7 to our audited consolidated financial statements.



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



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



|                                                                                      |  | Year Ended December 31,              |        
|------------------------------------------------------------------------------------- |  | ------------------------------------ | -------
|                                                                                      |  | 2011                                 |        
|                                                                                      |  | RMB                                  |        
|                                                                                      |  | (in millions, except per share data) |        
|Summary Consolidated Statements of Profit or Loss and Other Comprehensive Income Data |  |                                      |        
|Revenues                                                                              |  |                                      | 82,403 
|Gain on fair value changes of derivative financial instruments                        |  |                                      | 87     
|Other operating income and gains                                                      |  |                                      | 1,062  
|Operating expenses                                                                    |  |                                      | (79,288
|Operating profit                                                                      |  |                                      | 4,264  
|Finance income / (costs), net                                                         |  |                                      | 561    
|Profit before income tax                                                              |  |                                      | 4,932  
|Profit for the year attributable to the equity holders of the Company                 |  |                                      | 4,661  
|Basic and fully diluted earnings per share (1)                                        |  |                                      | 0.41   



|                                                                                   |  | As of December 31, |        
|---------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                   |  | 2011               |        
|                                                                                   |  | RMB                |        
|                                                                                   |  | (in millions)      |        
|Summary Consolidated Statements of Financial Position Data                         |  |                    |        
|Cash and cash equivalents                                                          |  |                    | 3,861  
|Net current liabilities                                                            |  |                    | (29,679
|Non-current assets                                                                 |  |                    | 101,092
|Long term borrowings, including current portion                                    |  |                    | (30,321
|Obligations under finance leases, including current portion                        |  |                    | (20,261
|Total share capital and reserves attributable to the equity holders of the Company |  |                    | 17,132 
|Non-current liabilities                                                            |  |                    | (52,687
|Total assets less current liabilities                                              |  |                    | 71,413 



| | (1) | The calculation
of earnings per share for 2011 and 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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48











2015 Compared to 2014



Revenues



Our revenues increased
by 4.2%, from RMB90,185 million in 2014 to 93,969 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
a total of 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 our 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.



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



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



| | (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 35,191 million in 2014 to 43,848 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.



49







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      | 
|                                   |  | 2014                    |        |  | 2015          | 
|                                   |  | (in millions of RMB)    |       
|Operating Expenses:                |  |                         |        |  |               | 
|Aircraft fuel expenses             |  |                         | 30,238 |  |               | 
|Takeoff and landing charges        |  |                         | 9,440  |  |               | 
|Depreciation and amortization      |  |                         | 9,183  |  |               | 
|Wages, salaries and benefits       |  |                         | 11,270 |  |               | 
|Aircraft maintenance               |  |                         | 4,453  |  |               | 
|Impairment charges                 |  |                         | 12     |  |               | 
|Food and beverages                 |  |                         | 2,364  |  |               | 
|Aircraft operating lease rentals   |  |                         | 4,502  |  |               | 
|Other operating lease rentals      |  |                         | 637    |  |               | 
|Selling and marketing expenses     |  |                         | 4,120  |  |               | 
|Civil aviation development fund    |  |                         | 1,656  |  |               | 
|Ground services and other expenses |  |                         | 4,998  |  |               | 
|Indirect operating expenses        |  |                         | 4,950  |  |               | 
|Total Operating Expense            |  |                         | 87,823 |  |               | 



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.



50







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 a total 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.



51







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 recognised 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



Our Company 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.



2014 Compared to 2013



Revenues



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



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



Our average yield
for our cargo and mail operations decreased by 1.3%, from RMB1.57 per tonne-kilometer in 2013 to RMB1.55 per tonne-kilometer in
2014, primarily due to the general slowdown of the global economy that affected cargo demand and, consequently, our cargo volumes.



The following chart
sets forth our revenue breakdown for 2013 and 2014:



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



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



Passenger revenues



Our passenger traffic
revenues increased by RMB2,333 million, or 3.2%, from RMB72,928 million in 2013 to RMB75,261 million in 2014. This increase was
primarily due to increased passenger demand, aircraft utilization rates and increase in scheduled flights.



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



52







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



International passenger
traffic revenues, which accounted for 27.0% of our total passenger traffic revenues in 2014, increased by 7.2%, from RMB18,945
million in 2013 to RMB20,301 million in 2014. The increase was primarily due to increased international passenger demand, increased
aircraft utilization rates and increase in our scheduled flights on international routes. Our international passenger traffic
(as measured in RPKs) increased by 4.7% in 2014, from 33,600 million in 2013 to 35,191 million in 2014. The number of passengers
carried on international routes increased by 6.7%, from 9.0 million in 2013 to 9.6 million in 2014. Our passenger-kilometers yield
for international routes remained relatively stable from RMB0.56 per passenger-kilometer in 2013 to RMB0.59 per passenger-kilometer
in 2014.



Cargo and mail revenues



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



Our domestic cargo
and mail traffic revenues (excluding Hong Kong, Taiwan and Macau cargo and mail revenues), which accounted for 15.6% of our total
cargo and mail traffic revenues in 2014, decreased from RMB1,250 million in 2013 to RMB1,142 million in 2014. This decrease was
primarily due to the increased competition from other cargo carriers which resulted in decreased shipping fees and cargo and mail
volume. Our freight tonne-kilometers yield for domestic routes decreased from RMB1.30 per tonne-kilometer in 2013 to RMB1.27 per
tonne-kilometer in 2014.



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



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



Other revenues



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



Operating Expenses



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



|                                   |  |                         |        |  | 2014 vs. 2013 | 
|---------------------------------- |  | ----------------------- | ------ |  | ------------- | 
|                                   |  | Year Ended December 31, |        |  | Increase      | 
|                                   |  | 2013                    |        |  | 2014          | 
|                                   |  | (in millions of RMB)    |       
|Operating Expenses:                |  |                         |        |  |               | 
|Aircraft fuel expenses             |  |                         | 30,681 |  |               | 
|Takeoff and landing charges        |  |                         | 9,190  |  |               | 
|Depreciation and amortization      |  |                         | 8,226  |  |               | 
|Wages, salaries and benefits       |  |                         | 13,454 |  |               | 
|Aircraft maintenance               |  |                         | 4,690  |  |               | 
|Impairment (charge)/reversal       |  |                         | 186    |  |               | 
|Food and beverages                 |  |                         | 2,268  |  |               | 
|Aircraft operating lease rentals   |  |                         | 4,605  |  |               | 
|Other operating lease rentals      |  |                         | 679    |  |               | 
|Selling and marketing expenses     |  |                         | 4,139  |  |               | 
|Civil aviation development fund    |  |                         | 1,566  |  |               | 
|Ground services and other expenses |  |                         | 5,105  |  |               | 
|Indirect operating expenses        |  |                         | 4,623  |  |               | 
|Total Operating Expense            |  |                         | 89,412 |  |               | 



53







Our total operating
expenses decreased by 1.8%, from RMB89,412 million in 2013 to RMB87,823 million in 2014 primarily due to a decrease in aircraft
fuel costs, wages, salaries and benefits. Our total operating expenses as a percentage of our revenues increased from 101.3% in
2013 to 97.4% in 2014.



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



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



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



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



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



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



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



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



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



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



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



Indirect operating
expenses increased by 7.1%, from RMB4,623 million in 2013 to RMB4,950 million in 2014, primarily attributable to an increase in
expenses following the expansion of our fleet.



Fair Value
Changes of Derivative Financial Instruments



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



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



54







Net Finance
Costs



In 2014, our finance
income was RMB88 million, representing a decrease from RMB2,125 million in 2013, primarily due to net exchange losses in 2014
as compared to net exchange gains in 2013. Finance costs amounted to RMB2,160 million, representing an increase of 39.4%, primarily
due to an increase in interest expenses arising from borrowings and finance leases.



Profit Attributable
to the Equity Holders of the Company



As a result of the
foregoing, the net profit attributable to the equity holders of the Company increased to RMB3,410 million in 2014, or 43.7%, as
compared to a net profit of RMB2,373 million in 2013. The increase is mainly due to continuous improvement of our operating abilities
and the decrease of jet fuel prices, as well as adjustments to the retirement benefit policies of our employees



Property, Plant
and Equipment



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



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



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



As of December 31,
2013, 2014 and 2015, we had RMB1,995 million and RMB1,355 million and RMB9,080 million, respectively, in cash and cash equivalents;
RMB50,600 million, RMB59,189 million and RMB66,712 million, respectively, in outstanding borrowings; and RMB383 million, RMB38
million and RMB35 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 RMB51,309 million. As a consequence, thedirectors of the Company
("Directors") have taken active steps to seek additional sources of financing to improve our liquidity position. As
of December 31, 2015, we had total unutilized credit facilities of RMB55.17 billion from various banks. See the discussion below
under "– Working Capital and Liabilities".



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



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.



55







In 2013, we generated
a net cash inflow from operating activities of RMB10,806 million as a result of cash generated from operations of RMB11,120 million
less income tax we paid in 2013. Our cash generated from operations was mainly due to operating profit before working capital
changes of RMB9,829 million and positive changes in working capital of RMB1,291 million. The operating profit before working capital
changes of RMB9,829 million was a result of the profit before income tax of RMB2,217 million, mainly adjusted for: (i) depreciation
of property, plant and equipment and amortization of other non-current assets of RMB8,117 million and (ii) interest expenses of
RMB1,549 million, which was partly offset by net foreign exchange gains of RMB1,976 million. Positive changes in working capital
mainly consisted of (i) other payables and accruals of RMB1,539 million and (ii) restricted bank deposits and short-term bank
deposits of RMB1,343 million, partly offset by prepayments and other receivables of RMB2,028 million.



Cash Flows from Investing Activities



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.



In 2013, our net
cash outflow from investing activities was RMB17,028 million. Our net cash outflow for investing activities mainly consisted of
(i) advanced payments on acquisition of new aircraft of RMB17,261 million and (ii) additions of property, plant and equipment
of RMB1,286 million. These cash outflows were partly offset by (i) proceeds from disposal of short-term deposits of RMB1,492 million,
and (ii) proceeds from disposal of property, plant and equipment of RMB556 million.



Cash Flows from Financing Activities



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, (iii) proceeds from issuance of short-term debentures of and 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.



In 2013, our net
cash inflow from financing activities was RMB5,730 million. Our net cash inflow for financing activities mainly consisted of (i)
proceeds from draw down of short-term bank loans of RMB15,635 million, (ii) proceeds from draw down of long-term bank loans and
other financial activities of RMB8,958 million, (iii) proceeds from issuance of long-term debentures and bonds of RMB6,985 million
and (iv) proceeds from issuance of short-term debentures of RMB4,000 million. These cash inflows were partly offset by (i) repayments
of short-term bank loans of RMB15,823 million, (ii) repayments of long-term bank loans of RMB9,792 million, and (iii) repayments
of short-term 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, 2015, our current liabilities exceeded our current assets by RMB51,309 million. In comparison, our current liabilities exceeded
our current assets by RMB42,887 million as of December 31, 2014. The increase in our current liabilities in 2015 was primarily
due to the increase in the current portion of borrowings. The increase in our current assets in 2015 was primarily due to an increase
in cash and cash equivalents. Short-term loans outstanding totaled RMB28,676 million and RMB 38,214 as of December 31, 2014 and
2015, respectively. Long-term outstanding bank loans totaled RMB30,513 million and RMB 28,498 million as of December 31, 2014
and 2015, respectively.



As of December 31,
2015, our long-term debt to equity ratio was 0.71. 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.



56







Our consolidated
interest-bearing borrowings as of December 31, 2014 and 2015 for the purpose of calculating the indebtedness of our Company, were
as follows:



|          |  | As of December 31, |       
|--------- |  | ------------------ | ------
|          |  | 2014               |       
|          |  | (RMB in millions)  |       
|Secured   |  |                    | 27,264
|Unsecured |  |                    | 31,925
|Total     |  |                    | 59,189



The maturity profile
of interest-bearing borrowings of our Company as of December 31, 2014 and 2015 was as follows:



|                                     |  | As of December 31, |       
|------------------------------------ |  | ------------------ | ------
|                                     |  | 2014               |       
|                                     |  | (RMB in millions)  |       
|Within one year                      |  |                    | 28,676
|In the second year                   |  |                    | 8,801 
|In the third to fifth year inclusive |  |                    | 10,868
|After the fifth year                 |  |                    | 10,844
|Total                                |  |                    | 59,189



As of December 31,
2015, our interest rates relating to short-term borrowings ranged from 1.49% to 3.48%, while our fixed interest rates on our interest-bearing
borrowings for long-term bank loans ranged from 5.75% to 5.90%. Our bank loans are denominated in Renminbi and U.S. dollars. As
of December 31, 2015, our total bank loans denominated in Renminbi amounted to RMB29,769 million, while our total bank loans denominated
in U.S. dollars amounted to US$5,689 million. On March 6, 2014, our wholly-owned subsidiary EAO issued offshore CNY-denominated
bonds in an amount of RMB2.5 billion at 4.8% due 2017, listed on the Hong Kong Stock Exchange. Our Company guaranteed the bond
issue. On May 14, 2014, EAO issued offshore CNY-denominated bonds in an amount of CNY0.8 billion at 4.8% due 2017, listed on the
Hong Kong Stock Exchange. Our Company guaranteed the bond issue. See Note 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,
2015, according to the relevant agreements, we expect our capital expenditures for aircraft, engines and related equipment to
be in aggregate approximately RMB106,666 million, including approximately RMB23,781 million in 2016 and approximately RMB26,642
million in 2017, 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, 2015 to December 31, 2015 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



57







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



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



| | F. | Tabular
                                         Disclosure of Contractual Obligations
| | -- | --------------------------------------------------------------------------------------



Contractual Obligations and Commercial Commitments



The following tables
set forth selected information regarding our outstanding contractual and commercial commitments as of December 31, 2015:



|                                        |  | Total |         |  | Less Than 1Year |  |        | 1-2 Years |  |  | 2-5 Years |  |  | MoreThan5 Years |       
|--------------------------------------- |  | ----- | ------- |  | --------------- |  | ------ | --------- |  |  | --------- |  |  | --------------- | ------
|Long-Term Debt (1)                      |  |       | 43,675  |  |                 |  | 15,177 |           |  |  | 10,306    |  |  |                 | 8,224 
|Capital Leases (2)                      |  |       | 52,399  |  |                 |  | 6,109  |           |  |  | 5,942     |  |  |                 | 16,679
|Operating Leases (3)                    |  |       | 26,665  |  |                 |  | 4,607  |           |  |  | 3,895     |  |  |                 | 8,372 
|Unconditional Purchase Obligations (4)  |  |       | 106,666 |  |                 |  | 23,781 |           |  |  | 26,642    |  |  |                 | 44,372
|Other Long-term Obligations (5)(6)      |  |       | 3,990   |  |                 |  | -      |           |  |  | -         |  |  |                 | -     
|Post-retirement Benefit Obligations (5) |  |       | 2,569   |  |                 |  | -      |           |  |  | -         |  |  |                 | -     
|Deferred Tax Liabilities (5)            |  |       | 8       |  |                 |  | -      |           |  |  | -         |  |  |                 | -     
|Short-term Bank Loans (7)               |  |       | 23,037  |  |                 |  | 23,037 |           |  |  | -         |  |  |                 | -     
|Interest Obligations                    |  |       | 8,233   |  |                 |  | 2,018  |           |  |  | 1,518     |  |  |                 | 3,031 
|Under Finance Leases                    |  |       | 6,429   |  |                 |  | 1,268  |           |  |  | 1,159     |  |  |                 | 2,504 
|Under Bank Loans                        |  |       | 1,804   |  |                 |  | 750    |           |  |  | 359       |  |  |                 | 527   
|Fixed Rate                              |  |       | 202     |  |                 |  | 142    |           |  |  | 15        |  |  |                 | 33    
|Variable Rate (8)                       |  |       | 1,602   |  |                 |  | 608    |           |  |  | 344       |  |  |                 | 494   
|Total                                   |  |       | 267,242 |  |                 |  | 74,729 |           |  |  | 48,303    |  |  |                 | 80,678



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



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



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



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



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



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



| | (7) | Short-term bank loans are generally
                                         repayable within one year. As of December 31, 2015, the weighted average interest rate
                                         of our short-term bank loans was 2.57% per annum (2014: 2.42%).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | For our variable rate loans, interest
                                         rates range from six month LIBOR + 0.50% to six months LIBOR + 3.75%. Interest obligations
                                         relating to variable rate loans are calculated based on the relevant LIBOR rates as of
                                         December 31, 2015. A 25 basis points increase in the interest rate would increase interest
                                         expenses by RMB148 million.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                              |  | Total             |        |  | Amount of Commitment Expiration Per Period | 
|--------------------------------------------- |  | ----------------- | ------ |  | ------------------------------------------ | 
|Other CommercialCommitments/Credit Facilities |  | AmountsCommitted  |        |  | Less Than 1Year                            | 
|                                              |  | (RMB in millions) |       
|Lines of Credit                               |  |                   | 55,171 |  |                                            | 
|Standby Letters of Credit                     |  |                   | -      |  |                                            | 
|Guarantees                                    |  |                   | -      |  |                                            | 
|Total                                         |  |                   | 55,171 |  |                                            | 



58







Taxation



We had carried forward
tax losses of approximately RMB2,488 million as of December 31, 2015, which can be used to set off against future taxable income
between 2016 and 2020.



Prior to 2008, the
Company and certain of its subsidiaries located in Pudong District, Shanghai, were entitled to a reduced rate of 15% pursuant
to the preferential tax policy in Pudong District, Shanghai. Under China's EIT Law, which was approved by the National People's
Congress on March 16, 2007 and became effective from January 1, 2008, the Company and its Pudong subsidiaries are entitled to
a transitional arrangement to gradually increase the applicable corporate income tax rate to 25% over the next five years from
2008. For the year ended December 31, 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% .



Inflation



In recent years,
China has been experiencing increasing levels of inflation. According to the National Bureau of Statistics of China, China's overall
national inflation rate, as represented by the general consumer price index, was approximately 2.6% in 2012, 2.6% in 2013, 2.1%
in 2014, and 1.4% in 2015. Although neither inflation nor deflation in the past had any material adverse impact on our results
of operations, we cannot assure you that the deflation or inflation of the Chinese economy in the future would not materially
and adversely affect our financial condition and results of operations.



New Pronouncements



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



| | G. | Safe Harbor
| | -- | -----------



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



|Item 6. | Directors, Senior Management and Employees
|------- | ------------------------------------------



| | A. | Directors
                                         and Senior Management
| | -- | ------------------------------------------------------------------------



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



|Name (1)         |  | Age |  | Shares
    Owned |  | Position                                   
|---------------- |  | --- |  | ---------------- |  | -------------------------------------------
|Liu Shaoyong     |  | 57  |  | -                |  | Chairman of the Board of Directors         
|Ma Xulun         |  | 51  |  | -                |  | President and Vice Chairman                
|Xu Zhao          |  | 47  |  | -                |  | Director                                   
|Gu Jiadan        |  | 59  |  | -                |  | Director                                   
|Li Yangmin       |  | 52  |  | 3,960 A Shares   |  | Director and Vice President                
|Tang Bing        |  | 49  |  | -                |  | Director and Vice President                
|Tian Liuwen      |  | 56  |  |                  |  | Director                                   
|Ji Weidong       |  | 58  |  | -                |  | Independent Non-executive Director         
|Li Ruoshan       |  | 67  |  | -                |  | Independent Non-executive Director         
|Ma Weihua        |  | 67  |  | -                |  | Independent Non-executive Director         
|Shao Ruiqing     |  | 58  |  |                  |  | Independent Non-executive Director         
|Yu Faming        |  | 61  |  | -                |  | Chairman of the Supervisory Committee      
|Xi Sheng         |  | 53  |  |                  |  | Supervisor                                 
|Ba Shengji       |  | 58  |  | -                |  | Supervisor                                 
|Feng Jinxiong    |  | 53  |  | -                |  | Supervisor                                 
|Xu Haihua        |  | 54  |  |                  |  | Supervisor                                 
|Wu Yongliang     |  | 52  |  | 3,696 A Shares   |  | Vice President and Chief Financial Officer 
|Feng Liang       |  | 51  |  | -                |  | Vice President                             
|Sun Youwen       |  | 55  |  | 62,731 A Shares  |  | Vice President                             
|Wang Jian        |  | 42  |  | -                |  | Board Secretary and Joint Company Secretary
|Sandy Ke-Yaw Liu |  | 67  |  |                  |  | Independent Non-executive Director         
|Yan Taisheng     |  | 62  |  |                  |  | Supervisor                                 



59







Note:



(1) Mr. Sandy Ke-Yaw Liu, due to expiry
of term of office, ceased to be an independent non-executive director of the Company with effect from June 16, 2015 in accordance
with the relevant requirements. Mr. Yan Taisheng, due to his retirement, ceased to be a supervisor the Company with effect from
June 16, 2015 in accordance with the relevant requirements. Mr. Tian Liuwen was appointed as a director of the Company, and Mr.
Shao Ruiqing was appointed as an independent non-executive director of the Company and elected as a member of the Nomination and
Remuneration Committee and the Aviation Safety and Environment Committee, each with effect from June 16, 2015.



Directors



Mr. Liu Shaoyong,
aged 57, is currently the Chairman of the Company and president of CEA Holding. Mr. Liu joined the civil aviation industry in
1978 and was appointed as vice president of China General Aviation Corporation, deputy director of Shanxi Provincial Civil Aviation
Administration of the PRC, general manager of the Shanxi Branch of the Company, and director general of Flight Standard Department
of CAAC. Mr. Liu served as President of the Company from December 2000 to October 2002, vice minister of the CAAC from October
2002 to August 2004, president of China Southern Air Holding Company from August 2004 to December 2008, chairman of China Southern
Airlines Co., Ltd. from November 2004 to December 2008. In December 2008, Mr. Liu was appointed as president of CEA Holding, and
became the Chairman of the Company since February 2009. Mr. Liu is also currently the board member of International Air Transport
Association and the board 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,
aged 51, is currently the vice chairman, president and deputy party secretary of the Company, and party secretary of CEA Holding.
Mr. Ma was previously vice president of China Commodities Storing and Transportation Corporation, deputy director general of the
Finance Department of the CAAC and vice president of Air China International Corporation Limited. In 2002, after the restructuring
of civil aviation industry he was appointed as vice president of general affairs of Air China International Corporation Limited.
Mr. Ma served as president and deputy party secretary of Air China International 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 party secretary of CEA Holding and vice chairman of the Company with effect
from November 2011. Mr. Ma is also currently the deputy director-general of Association of Shanghai Listed Companies. Mr. Ma graduated
from Shanxi University of Finance and Economics and Huazhong University of Science and Technology. Mr. Ma holds a master’s
degree and is a PRC certified accountant.



Mr. Xu Zhao,
aged 47, 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,
aged 59, is currently a Director of the Company, and vice president and a party member of CEA Holding. Mr. Gu was the assistant
to president, and the general manager of the commerce department and the party secretary of Shanghai Airlines Co., Ltd. From May
2005 to August 2009, he was a party member and vice president of Shanghai Airlines Co., Ltd. From August 2009 to January 2010,
he was the acting president of Shanghai Airlines Co., Ltd. From January 2010 to July 2011, he was vice president and a party member
of CEA Holding and the party secretary of Shanghai Airlines. Since July 2011, Mr. Gu has served as the vice president and a party
member of CEA Holding. He was appointed as a Director of the Company with effect from June 2012. Mr. Gu holds a master’s
degree and is a senior economist.



Mr. Li Yangmin,
aged 52, is currently a Director, party secretary and vice president of the Company, and a party member of CEA Holding. Mr. Li
joined the civil aviation industry in 1985. He was previously deputy general manager of the aircraft maintenance base and the
manager of air route department of Northwest Company, general manager of the aircraft maintenance base of China Eastern Air Northwest
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. 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., Ltd. from February 2012 to January 2013. Mr. Li also served as a director of Travelsky
Technology 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.



60







Mr. Tang Bing,
aged 49, is currently a Director, vice president of the Company, and party member of CEA Holding. Mr. Tang joined the civil aviation
industry in 1993. He served as vice executive president (general manager in China Office) of MTU Maintenance Zhuhai Co., Ltd.,
office director of China Southern Airlines Holding Company and president of Chongqing Airlines Company Limited. From December
2007 to May 2009, he served as chief engineer and general manager of the Aircraft Engineering Department of China Southern Airlines
Company Limited. 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. 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.



Mr. Tian Liuwen,
aged 56, is currently a Director, vice president of the Company 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. Since June 2014, he has been a party member of CEA
Holding. Since June 2015, he has been a Director of the Company. He obtained an Executive Master of Business Administration degree
from Nanjing University and is qualified as senior economist.



Mr. Ji Weidong,
aged 58, is currently an independent non-executive Director of the Company. Mr. Ji was an associate professor and professor at
the School of Law of Kobe University, Japan. Since 2008, he has been the dean and chair professor of Koguan Law School of Shanghai
Jiao Tong University. In addition, he is currently an honorary professor at Kobe University, Japan. Mr. Ji graduated from the
Department of Law of Peking University. Mr. Ji completed his master’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. Li Ruoshan,
aged 67, is currently an independent non-executive 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, and director of the Finance Department of Fudan University. Mr. Li is currently
a professor and PhD supervisor of the Accounting Department of the School of Management of Fudan University. He is also the deputy
director of the Members’ Rights Protection Commission of the Chinese Institute of Certified Public Accountants, the vice
president of the Shanghai Accounting Society and Shanghai Auditing Society, a member of the Consultant Professional Committee
for Listed Companies of the Shanghai Stock Exchange and a consultant professional of the Committee for Accounting Standards of
the Ministry of Finance. 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 Belgium and the Massachusetts Institute of Technology in the United States.



Mr. Ma Weihua,
aged 67, is currently an independent non-executive 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., Ltd. and Guotai Junan Securities Co., Ltd. and the Chairman
of the Board of Supervisors of Taikang Life Insurance Co., Ltd. Mr. Ma served as an executive director, president and chief executive
officer of China Merchants Bank Co., Ltd, 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., Ltd. 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,
aged 58, currently serves as an independent non-executive 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.,Ltd., Shenzhen Guangju Energy Co., Ltd., Jianmin Pharmaceutical Groups
Co., Ltd. and SAIC Motor Corp Ltd. Mr. Shao served as an independent non-executive Director of China Eastern Airlines Corporation
Limited 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. 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.



61







Supervisory Committee



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



Mr. Yu Faming,
aged 61, is currently the chairman of the Supervisory Committee of the Company, and a party member of CEA Holding. 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 party member
and head of party disciplinary inspection group of CEA Holding. He has been a party member of CEA Holding since July 2015. Since
June 2011, he has served as the chairman of the Supervisory Committee of the Company. Mr. Yu graduated from Shandong University
majoring in philosophy. He holds the title of associate research fellow.



Mr. Xi Sheng,
aged 53, is currently a Supervisor of the Company and chief auditor of CEA Holding. Mr. Xi served as the deputy head of the foreign
affairs department II of the foreign funds utilization and application audit department and the head of the liaison and reception
office of the foreign affairs department of the National Audit Office of the PRC and the deputy head of the PRC Audit Institute.
He was also the head of the fixed assets investment audit department of the National Audit Office of the PRC, and the party secretary
and a special commissioner of the Harbin office of the National Audit Office of the PRC. He served as the head of the personnel
and education department of the National Audit Office of the PRC from January 2007 to September 2009. He was the head of the audit
department of CEA Holding from September 2009 to November 2012. Mr. Xi has served as the chief auditor of CEA Holding since September
2009. Since June 2012, he has been a supervisor of the Company. Mr. Xi is also the council member of China Institute of Internal
Audit, a member of International Institute of Internal Auditors, a committee member of international relations committee of the
institute and committee 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,
aged 58, 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. Feng Jinxiong,
aged 53, 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., Ltd. from 2007 to 2009. Since February 2009, he has been
general manager of the Audit Department of the Company. He has been a Supervisor of the Company since March 2009. He has been
the head of the audit department of CEA Holding from May 2014. Mr. Feng graduated from the Civil Aviation University of China
and the Graduate School of the Chinese Academy of Social Sciences, holding a master’s degree.



Mr. Xu Haihua,
aged 54, is currently a supervisor, vice chairman of the labour union and head of the general office of the labour union of the
Company. 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., Ltd. 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 Airlines
Tourism Investment (Group) Co., Ltd. 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 since September 2014. He has been a supervisor of the Company since June 2015.
Mr. Xu graduated from Macau International Public University majoring in business administration and obtained postgraduate qualification.



62







Senior Management



Mr. Wu Yongliang,
aged 52, 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,
aged 51, 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. Sun Youwen,
aged 55, is currently the vice president of the Company. Mr. Sun joined the civil aviation industry in 1980, and served as a squadron
leader and the leader of the Shanghai flight division. He served as the vice president of China Eastern Airlines Jiangsu Corporation
Limited from April 2007 to November 2009 and the general manager of the Shanghai flight division of the Company from December
2009 to April 2012. He was appointed as the chief pilot of the Company and the general manager of the Shanghai flight division
of the Company from April 2012 to 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 since July 2014. Mr. Sun graduated from the Flight College of Civil
Aviation Flight University of China, majored in aircraft driving and obtained an Executive Master of Business Administration degree
from the Institute of Management of Fudan University.



Mr. Wang Jian,
aged 42, is currently the Board secretary and the Head of the Board secretariat of the Company. Mr. Wang joined the Company in
1995 and served as deputy head of the Company’s office and deputy general manager of the Shanghai Business Office of the
Company. From September 2006 to May 2009, he was the deputy general manager in the Shanghai Base of China Southern Airlines Company
Limited. 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 was appointed as the Board secretary and the head of the Board secretariat of the Company
in April 2012. 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. Sandy Ke-Yaw
Liu, aged 67, was an independent non-executive Director of the Company during the reporting period. He joined the civil aviation
industry in Taiwan in 1969 and served in China Airlines in various capacities, including director of corporate planning, director
of marketing planning in its Corporate Office in Taiwan, vice president for marketing and sales and vice president for commerce,
and president in the Corporate Office. In addition, Mr. Liu served as a director of Taiwan Mandarin Airlines, Taiwan Far Eastern
Air Transport, Taiwan China Pacific Catering Service and Taiwan Taoyuan International Airport Service Company, as well as chairman
of Taiwan Air Cargo Terminal. He served as the chief operating officer for the Asia region of America Expeditors International
Logistics Company. Mr. Liu graduated from Taiwan Shih Hsin University and attended advanced study programmes at Stanford University
in 1990 and 1993.



Mr. Yan Taisheng,
aged 62, was a Supervisor of the Company during the reporting period. Mr. Yan joined the civil aviation industry in 1973, and
served as chief of the Board secretariat of the general office of the Company, general manager of Shanghai Civil Aviation Dong
Da Industry Company and deputy head and head of the general office of the labour union of the Company. He was the vice chairman
of the labour union of the Company from 2005 to May 2014, and retired on 1 June 2014. Mr. Yan graduated from East China Normal
University.



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



The aggregate amount
of cash compensation paid by us to our Directors, supervisors and the senior management during 2015 for services performed as
Directors, supervisors and officers or employees of our Company was approximately RMB6,205,000. 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.



63







Details of the emoluments
paid to our Directors, supervisors and senior management for the year 2015 are as follows:



|Name and Principal Position         |  | Total   |      
|----------------------------------- |  | ------- | -----
|                                    |  | RMB'000 |      
|Directors                           |  |         |      
|Liu Shaoyong*                       |  |         | -    
|Ma Xulun                            |  |         | 401  
|Xu Zhao*                            |  |         | -    
|Gu Jiadan*                          |  |         | -    
|Li Yangmin                          |  |         | 365  
|Tang Bing                           |  |         | 358  
|Tian Liuwen***                      |  |         | 419  
|Independent non-executive Directors |  |         |      
|Sandy Ke-Yaw Liu**                  |  |         | 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*                         |  |         | -    
|Senior Management                   |  |         |      
|Wu Yongliang                        |  |         | 697  
|Feng Liang                          |  |         | 723  
|Sun Youwen                          |  |         | 1,283
|Wang Jian                           |  |         | 679  
|Total                               |  |         | 6,205



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



| | ** | Mr.
                                         Liu Keya retired during the year ended December 31, 2015.
| | -- | ------------------------------------------------------------------------------------------------------



| | *** | These
                                         Directors and supervisors of our Company were newly appointed during the year ended December
                                         31, 2015.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | **** | Mr.
                                         Ji Weidong has filed his resignation during the year ended December 31, 2015 but will
                                         fulfil his responsibility until new Director being appointed by the Board.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the year ended
December 31, 2015, no Directors or supervisors waived their compensation.



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



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



|Name         |  | Position                           |  | Held Position Since |  | Expiration of Term
|------------ |  | ---------------------------------- |  | ------------------- |  | ------------------
|Liu Shaoyong |  | Chairman of the Board of Directors |  | June 26, 2013       |  | June 30, 2016     
|Ma Xulun     |  | Vice Chairman                      |  | June 26, 2013       |  | June 30, 2016     
|             |  | President                          |  | June 26, 2013       |  | -                 



64







|Name (1)      |  | Position                                    |  | Held Position Since                 |  | Expiration of Term     
|------------- |  | ------------------------------------------- |  | ----------------------------------- |  | -----------------------
|Xu Zhao       |  | Director                                    |  | June 26, 2013                       |  | June 30, 2016          
|Gu Jiadan     |  | Director                                    |  | June 26, 2013                       |  | June 30, 2016          
|Li Yangmin    |  | Director                                    |  | June 26, 2013                       |  | June 30, 2016          
|Tang Bing     |  | Director                                    |  | June 26, 2013                       |  | June 30, 2016          
|Tian Liuwen   |  | Director
        Vice President             |  | June 16, 2015
        June 26, 2013 |  | June 30, 2016
        -
|Ji Weidong    |  | Independent non-executive Director          |  | June 26, 2013                       |  | June 30, 2016          
|Li Ruoshan    |  | Independent non-executive Director          |  | June 26, 2013                       |  | June 30, 2016          
|Ma Weihua     |  | Independent non-executive Director          |  | October 29, 2013                    |  | June 30, 2016          
|Shao Ruiqing  |  | Independent non-executive Director          |  | June 16, 2015                       |  | June 30, 2016          
|Yu Faming     |  | Chairman of the Supervisory Committee       |  | June 26, 2013                       |  | June 30, 2016          
|Xi Sheng      |  | Supervisor                                  |  | June 26, 2013                       |  | June 30, 2016          
|Ba Shengji    |  | Supervisor                                  |  | June 26, 2013                       |  | June 30, 2016          
|Feng Jinxiong |  | Supervisor                                  |  | June 26, 2013                       |  | June 30, 2016          
|Xu Haihua     |  | Supervisor                                  |  | June 16, 2015                       |  | June 30, 2016          
|Wu Yongliang  |  | Vice President                              |  | June 26, 2013                       |  | June 30, 2016          
|              |  | Chief Financial Officer                     |  | June 26, 2013                       |  | June 30, 2016          
|Feng Liang    |  | Vice President                              |  | August 27, 2013                     |  | June 30, 2016          
|Sun Youwen    |  | Vice President                              |  | March 24, 2014                      |  | June 30, 2016          
|Wang Jian     |  | Board Secretary and Joint Company Secretary |  | June 26, 2013                       |  | June 30, 2016          
|Ngai Wai Fung |  | Joint Company Secretary                     |  | June 26, 2013                       |  | June 30, 2016          



Note:



(1) Mr. Tian Liuwen was elected as a director
of the Company, and Mr. Shao Ruiqing was elected as an independent non-executive director of the Company and elected as a member
of the Nomination and Remuneration Committee and the Aviation Safety and Environment Committee, each with effect from June 16,
2015. Mr. Xu Haihua was elected as an employee representative supervisor of the Company with effect from June 16, 2015.



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. Ji Weidong and Mr. Xu Zhao as the members of the
Audit and Risk Management Committee and Mr. Li Ruoshan was appointed as the chairman of the Audit and Risk Management Committee.
Mr. Li Ruoshan and Mr. Ji Weidong are independent non-executive directors. 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 Rule 10A-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 eight meetings in 2015.



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. Shao Ruiqing, both of whom are independent non-executive directors.



65







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 2015.



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. Ji Weidong, an independent non-executive
director. Mr. Li Yangminis 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 nine meetings
in 2015.



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. Shao Ruiqing, 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 meeting in 2015.



| | 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, 2013, 2014 and 2015, respectively:



|                                          |  | As of December 31, |       
|----------------------------------------- |  | ------------------ | ------
|                                          |  | 2013               |       
|Pilots                                    |  |                    | 5,841 
|Flight attendants and other aircrew staff |  |                    | 11,201
|Maintenance personnel                     |  |                    | 10,933
|Sales and marketing                       |  |                    | 3,573 
|Operation control                         |  |                    | 2,097 
|Information technology                    |  |                    | 645   
|Management                                |  |                    | 4,090 
|Ground Services and others                |  |                    | 30,494
|Total                                     |  |                    | 68,874



66







In 2015, we organized
58 sessions of multi-tier training for a total of 3,549 participants, and activated the “Sailing Program", a training
program for new management trainees incorporating closed-door training with seminars, experiential and inspiring teaching with
220 participants. In 2015, we further improved our cabin crew training system by launching MPL (Multi-Crew Pilots Licence) and
ATPL (Air Transport Pilots Licence) programs as well as optimizing crew resource management (CRM) and threat and error management
(TEM) capabilities.



We outsourced some
of our IT services in 2015. See Note 9 and 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 5 years from the date of grant. The lock-up period of the share appreciation rights shall be the 24 months from the
date of grant, during which no share appreciation right shall be exercised. Subject to the satisfaction of performance appraisal
indicators, incentive recipients may exercise their share appreciation rights in equal instalments within three years after the
expiration of the lock-up period. For details, please refer to our announcements in the 6-K filed with the SEC dated August 29,
2012, October 19, 2012, November 9, 2012 and November 30, 2012.



There was no granting
or exercise of rights under the H shares appreciation rights of our Company during 2013. 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, 2015 by all persons who were known
to us to be the beneficial owners of 5% or more of our capital stock:



|Title of Class    |  | Identity of Person or Group |  | Amount Owned |               |  | Percent of Class(%) |  |       | Percent ofTotalShares(%) | 
|----------------- |  | --------------------------- |  | ------------ | ------------- |  | ------------------- |  | ----- | ------------------------ | 
|Domestic A Shares |  | CEA Holding (1)             |  |              | 5,530,240,000 |  |                     |  | 65.21 |                          | 
|H Shares          |  | CEA Holding (2)             |  |              | 2,626,240,000 |  |                     |  | 56.37 |                          | 
|H Shares          |  | HKSCC Nominees Limited (3)  |  |              | 4,182,669,289 |  |                     |  | 89.77 |                          | 
|H Shares          |  | Delta Air Lines(4)          |  |              | 465,910,000   |  |                     |  | 10    |                          | 



Notes:



Based on the information available to
the Directors (including such information as was available on the website of the Hong Kong Stock Exchange) and so far as they
are aware of, as of December 31, 2015:



| | (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 4,182,669,289 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 in the capacity of beneficial owner, and represented approximately 10.00% of the Group’s then total
    issued H shares                                                                                                                  



As of December 31,
2015, CEA Holding directly or indirectly held 62.08% 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.



67







As of December 31,
2015, there were 4,659,100,000 H Shares issued and outstanding. As of December 31, 2015 and April 22, 2016, there were, respectively,
43 and 42 registered holders of American depositary receipts evidencing 1,953,543 and 2,120,583 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 Agency
Services



On October 15, 2010,
we entered into an agreement relating to the renewal of the existing import and export agency agreement with the with EAIEC on
substantially the same terms, pursuant to which EAIEC and its subsidiaries will from time to time as its agent provide us with
agency services for the import and export of aircraft and related raw materials, accessories, machinery and equipment required
in our daily airlines operations and civil aviation business. The Import and Export Agency Renewal Agreement will be effective
for a term of three years commencing from January 1, 2011 to December 31, 2013. On August 30, 2013, we entered into an agreement
relating to the renewal of the existing import and export agency agreement with EAIEC on substantially the same terms, pursuant
to which EAIEC and its subsidiaries will from time to time as its agent provide the Group with agency services for the import
and export of goods, including aircraft and related raw materials, accessories, machinery and equipment, together with related
insurance and financial services, required in the daily airlines operations and civil aviation business of the Group. The Import
and Export Agency Renewal Agreement is effective for a term of three years commencing from January 1, 2014 to December 31, 2016.



For the year ended
December 31, 2015, we paid handling charges to EAIEC of approximately RMB119 million. 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.



SA Import and Export Disposal



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



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



Advertising Service Agreement



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



68







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 is effective for a term of three
years commencing from January 1, 2014 to December 31, 2016. For the year ended December 31, 2015, we paid to Eastern Aviation
Advertising approximately RMB24 million for advertising services.



Media Resources Agreement
and Agreement with CES Media



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



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



On September 27,
2013, we entered into an agreement with CES Media, pursuant to which we and certain of our subsidiaries agreed to transfer the
exclusive rights to use certain media and advertising resources to CES Media and certain of its subsidiaries for a period of 15
years (from January 1, 2014 to December 31, 2028). CES Media is a subsidiary of and thus an associate of CEA Holding, which in
turn is a controlling shareholder of the Company. For the year ended December 31, 2015, Eastern Aviation Advertising paid approximately
RMB26 million for media royalty fee.



SA Media Disposal



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



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



Catering Service Agreements



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



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



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



On August 30, 2013,
we entered into an agreement relating to the renewal of the existing catering services agreement with the Eastern Air Catering
Company on substantially the same terms, pursuant to which the Eastern Air Catering Company and its subsidiaries will from time
to time provide the Group with in-flight catering services (including the supply of in-flight meals and beverages, cutlery and
tableware) and related storage and complementary services required in the daily airline operations and civil aviation business
of the Group. The Eastern Air Catering Entities provide their services in accordance with the specifications and schedules as
from time to time specified by the relevant member(s) of the Group to accommodate its operation needs. The Catering Services Renewal
Agreement was approved on the extraordinary general meeting of the Company held on 29 October 2013 and is effective for a term
of three years, commencing from January 1, 2014 to December 31, 2016. For the year ended December 31, 2015, we paid approximately
RMB1,058 million to the subsidiaries of CEA Catering for the supply of in-flight meals and other services.



69







SA Catering Disposal



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



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



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



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



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



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



On January 16, 2013,
the Company entered into a supplemental agreement with Eastern Finance to further regulate the balances of our deposits and loans
with Eastern Finance and its subsidiaries on a pre-condition that the agreed maximum daily balance of each of the deposits and
the loans under the financial services agreement dated October 15, 2010 remains unchanged. For details, please refer to our announcement
in the 6-K filed with the SEC dated January 16, 2013. On August 30, 2013, we entered into an agreement relating to the renewal
of the existing financial services agreement with Eastern Finance and CES Finance, pursuant to which Eastern Finance and its subsidiaries
(each a “Eastern Air Finance Entity” and collectively the “Eastern Air Finance Entities”) and CES Finance
and its subsidiaries (each a “CES Finance Entity” and collectively the “CES Finance Entities”) will from
time to time provide the Group with a range of financial services including: (i) deposit services by Eastern Air Finance Entities;
(ii) loan and financing services by Eastern Air Finance Entities; and (iii) other financial services such as: (a) the provision
of trust loans, financial guarantees, credit references by Eastern Air Finance Entities; and (b) broker services for future products
(e.g. crude oil, foreign exchange and national debt) by CES Finance Entities (the scope of “other financial services”
is not limited and different services may be provided to the Group as and when they are needed). The Financial Services Renewal
Agreement was approved on the extraordinary general meeting of the Company held on October 29, 2013 and is effective for a term
of three years commencing from January 1, 2014 to December 31, 2016.



As of December 31,
2015, we had deposits amounting to RMB729 million placed with Eastern Finance, which paid interest to us at 0.35% per annum. In
addition, as of December 31, 2015, our Company did not have any loans from Eastern Finance. During the year ended December 31,
2015, the weighted average interest rate on the loan was 2.07% per annum for short-term loans and 5.54% for long-term loans.



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



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



70







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



On August 30, 2013,
we entered into an agreement relating to the renewal of the existing maintenance and repair services agreement with CEA Development
on substantially the same terms, pursuant to which CEA Development and its subsidiaries (each a “CEA Development Entity”
and collectively the “CEA Development Entities”) will from time to time provide certain services to us, including:
(a) maintenance and repair services to our aeroplanes and automobiles that are used in ground services and daily operations; (b)
comprehensive services in relation to maintenance, repair and overhaul of aircraft, aviation equipment and ancillaries; (c) various
special vehicles and equipment for airline use, such as air stairs, freight cars, luggage trailers, garbage truck, aircraft portable
water vehicle, aircraft sewage disposal vehicle, food cars, freight containers, freight board; (d) aircraft on-board supplies;
and (e) warehousing management (the “Maintenance and Repair Services Renewal Agreement”). Maintenance and Repair Services
Renewal Agreement is effective for a term of three years commencing from January 1, 2014 to December 31, 2016. For the year ended
December 31, 2015, production and maintenance services fees paid to CEA Development Entity amounted were approximately RMB110
million.



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



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



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



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



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



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



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



Property Leases



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



71







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



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



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



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



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



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



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



(d) building properties
and related construction, infrastructure and facilities owned by CEA Holding, occupying an aggregate floor area of approximately
63,552 square meters located in Taiyuan;



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



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



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



72







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



For the year ended
December 31, 2015, we paid a rental of RMB52 million under this property leasing renewal agreement.



Guarantee by
CEA Holding



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



Subscription Agreements with CEA
Holding, CES Global and CES Finance



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



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



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



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



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



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



73







Equity Transfer Agreements with
CEA Holding



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



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



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



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



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



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



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



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



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 the 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.



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
from January 1, 2015 to December 31, 2016. Pursuant to the Agreement, TravelSky will provide the Group with inventory control
system, computer reservation system, extended reservation services and the related products and services as well as civil aviation
and commercial data network services. The Company will pay the services fee by reference to the standards set by the CAAC. The
annual caps for the daily connected transactions with Travelsky of the Company 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 the Company’s related party pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange.



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



Not applicable.



74







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



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



Financial Statements



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



Legal Proceedings



We are involved in
routine litigation and other proceedings in the ordinary course of our business. We do not believe that any of these proceedings
are likely to be material to our business operations, financial condition or results of operations. In 2005, the family members
of certain victims in the aircraft accident (the aircraft was then owned and operated by China Eastern Air Yunnan Company), which
occurred in Baotou city in the Inner Mongolia Autonomous Region on November 21, 2004, sued, among other defendants, our Company
in a U.S. court for compensation, the amount of which was not determined. We had filed a motion to contest the claim in the U.S.
court because we expressly did not assume the legal liability of such incident in our acquisition of certain selected assets relating
to the aviation business of CEA Yunnan. The family members of the 32 victims have reached a settlement with us and applied to
the Beijing Second Intermediate People’s Court to withdraw their actions. On May 31, 2013, the Beijing Second Intermediate
People’s Court accepted the withdrawal. The California Court in the US ruled to terminate the proceedings in the U.S. on
October 24, 2013. Since then, all the local and overseas proceedings with respect to this case have been closed. Accordingly,
the management of our Group believes that there has been no material adverse effect on the financial condition and results of
operations of our Company. Save as disclosed above, we were not involved in any other new material litigation in the period of
this report.



Dividends and Dividend Policy



For the years ended
December 31, 2010, 2011, 2012 and 2013, our Board of Directors did not recommend any dividend payouts due to our total accumulated
losses of RMB12,855 million, RMB8,039 million, RMB4,967 million and RMB2,595 million, respectively. Under PRC law, we cannot convert
funds from the common reserve to increase our share capital during this period. Based on the audited financial statements of the
Company under the PRC Accounting Standards for Business Enterprises as of and for the year 2014, the retained earnings
of the parent company was RMB21 million as of December 31, 2014. Based on the audited financial statements of the Company under
IFRS as of and for the year 2014, the accumulated loss of the parent company was RMB385 million. Pursuant to the PRC Company Law
and its Articles of Association, the Company must recover its losses incurred in previous years with its profit for the year before
any dividend distributions are made to its shareholders. The basis of dividend distribution of the Company is the distributable
profit of the parent company, which is subject to the principle of adopting the lesser of the profit after tax under the PRC accounting
standards and IFRS. As of December 31, 2014, the Company has been recording accumulated losses under IFRS. The Board recommended
that no dividend be distributed for the year 2014 and no share capital of the Company be increased through capitalization of its
capital reserve. Based on the audited financial statements of the Company under the PRC Accounting Standards for Business Enterprisesas 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 IFRS 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 can only be proceeded 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 5 July 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.



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 profit distribution proposal of our Group 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 of the year 2016 by not less than 40% of the net profit of the Company of the year 2015 under
the PRC Accounting Standards.



75







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



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



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



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



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



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



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



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



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



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



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



Significant Post Financial Statements Events



Not applicable.



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



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



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



As
of December 31, 2015, there were 4,659,100,000 H Shares issued and outstanding. As of December 31, 2015 and April 22, 2016, there
were, respectively, 43 and 42 registered holders of American depositary receipts evidencing 1,953,543 and 2,120,583 ADSs, respectively.
Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial
holders of ADSs or the number of ADSs beneficially held by U.S. persons. A total of 8,481,078,860 domestic ordinary shares were
also outstanding as of December 31, 2015.



76







The table below sets
forth certain market information relating to the trading prices of our H Shares and ADSs in respect of the period from 2009 to
April 22, 2016.



|                                  |  | Hong Kong Stock Exchange |      |  | New York Stock Exchange | 
|--------------------------------- |  | ------------------------ | ---- |  | ----------------------- | 
|                                  |  | Price Per H Share(HK$)   |      |  | Price Per ADS(US$)      | 
|                                  |  | High                     |      |  | Low                     | 
|2010                              |  |                          | 5.38 |  |                         | 
|2011                              |  |                          | 4.46 |  |                         | 
|2012                              |  |                          | 3.20 |  |                         | 
|2013                              |  |                          | 3.72 |  |                         | 
|First Quarter 2013                |  |                          | 3.72 |  |                         | 
|Second Quarter 2013               |  |                          | 3.46 |  |                         | 
|Third Quarter 2013                |  |                          | 2.73 |  |                         | 
|Fourth Quarter 2013               |  |                          | 3.27 |  |                         | 
|2014                              |  |                          | 4.05 |  |                         | 
|First Quarter 2014                |  |                          | 3.04 |  |                         | 
|Second Quarter 2014               |  |                          | 2.72 |  |                         | 
|Third Quarter 2014                |  |                          | 2.72 |  |                         | 
|Fourth Quarter 2014               |  |                          | 4.05 |  |                         | 
|October 2014                      |  |                          | 2.95 |  |                         | 
|November 2014                     |  |                          | 3.88 |  |                         | 
|December 2014                     |  |                          | 4.05 |  |                         | 
|January 2015                      |  |                          | 4.08 |  |                         | 
|February 2015                     |  |                          | 3.97 |  |                         | 
|March 2015                        |  |                          | 2.72 |  |                         | 
|April 2015                        |  |                          | 6.80 |  |                         | 
|May 2015                          |  |                          | 6.38 |  |                         | 
|June 2015                         |  |                          | 7.56 |  |                         | 
|July 2015                         |  |                          | 7.07 |  |                         | 
|August 2015                       |  |                          | 6.72 |  |                         | 
|September 2015                    |  |                          | 4.70 |  |                         | 
|October 2015                      |  |                          | 5.15 |  |                         | 
|November 2015                     |  |                          | 5.02 |  |                         | 
|December 2015                     |  |                          | 4.68 |  |                         | 
|January 2016                      |  |                          | 4.43 |  |                         | 
|February 2016                     |  |                          | 3.88 |  |                         | 
|March 2016                        |  |                          | 4.35 |  |                         | 
|April 2016 (up to April 22, 2016) |  |                          | 4.64 |  |                         | 



| | 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).



77







Selected Summary of the Articles
of Association



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



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



Board of Directors



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



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



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



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



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



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



Description of the Shares



As of December 31,
2015, our share capital structure was as follows: 13,140,178,860 ordinary shares of which (a) 698,865,000 A shares subject to
trading moratorium, which represented 5.318% of our share capital, were held by CEA Holding and CES Finance; (b) 7,782,213,860
A shares without trading moratorium, which represented 59.225% of our share capital, were issued to investors in China; (c) 698,865,000
H shares subject to trading moratorium, which represented 5.318% of our share capital, were issued to CES Global, a wholly owned
subsidiary of CEA Holding; and (d) 3,960,235,000 H shares without trading moratorium, which represented 30.138% 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;
| | ---- | --------------------------------------------------------------------------------------------------------



78







| | (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.



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:



79







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



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



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



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



80







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



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



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



Merger and Acquisitions



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



Repurchase of Shares



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



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



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



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



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



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



81







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



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



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



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



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



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



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



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



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



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



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



Ownership Threshold



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



Changes in Capital



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



Changes in Registered Capital



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



Recent Amendments to the Articles
of Association



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



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



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



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



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



82







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. "



83







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



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



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



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



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



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



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



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



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



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



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



The amendments to the Articles
of Association are as follows:



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



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."



84







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 12,674,268,860 shares.”



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 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 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 RMB12,674,268,860."



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



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



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



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



| | · | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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.



85







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.



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



Hong Kong Estate
Duty



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



86







China Taxation



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



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



Taxation of
Dividends by China



Individual investors



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



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



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



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



Enterprises



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



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



87







Tax Treaties



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



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



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



Taxation of
Capital Gains by China



Individual Investors



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



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



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



Enterprises



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



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



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.



88







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:



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



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



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



| | · | a trust if (i) a court within the United States
    is able to exercise primary supervision over its administration, and one or more U.S. persons have the authority to control
    all of the substantial decisions of such trust, or (ii) such trust has a valid election in effect to be treated as a U.S.
    person for U.S. federal income tax purposes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



89







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



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



Distributions on the H Shares or ADSs



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



Subject to certain
exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by certain non-corporate holders
will be subject to taxation at a maximum rate of 20% if the dividends are "qualified dividends." Dividends paid on H
Shares or ADSs will be treated as qualified dividends if either (i) we are eligible for the benefits of a comprehensive income
tax treaty with the United States that the Internal Revenue Service, or IRS, has approved for the purposes of the qualified dividend
rules, or (ii) the dividends are with respect to ADSs readily tradable on a U.S. securities market, provided that we were not,
in each case, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is
paid, a passive foreign investment company, or PFIC. The Agreement Between the Government of the United States of America and
the Government of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect
to Taxes on Income (the "Treaty") has been approved for the purposes of the qualified dividend rules, and we expect
to qualify for benefits under the Treaty. We are considered a qualified foreign corporation with respect to the ADSs because our
ADSs are listed on the New York Stock Exchange. Finally, based on our audited consolidated financial statements and relevant market
data, we believe that we did not satisfy the definition for PFIC status for U.S. federal income tax purposes with respect to our
2015 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 2016 taxable year or any future year. However, our status in the current year and future years will depend on our
income and assets (which for this purpose depends in part on the market value of the H Shares or ADSs) in those years. See the
discussion below under "— Passive Foreign Investment Company".



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



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



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



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.



90







Sale, Exchange or Other Disposition



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



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



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



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 2015 taxable year and we do not intend
to become or anticipate becoming a PFIC for any future taxable year. However, the determination of PFIC status is a factual determination
that must be made annually at the close of each taxable year and therefore, there can be no certainty as to our status in this
regard until the close of the 2016 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.



91







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



| | · | are a corporation or fall within various other exempt
    categories, and, when required, demonstrate this fact; or
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | provide a correct taxpayer identification number
    on a properly completed IRS Form W-9 or a substitute form, certify that you are exempt from backup withholding and otherwise
    comply with applicable requirements of the backup withholding rules; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



92







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 advisers regarding the foreign financial asset reporting obligations and their possible application
to the holding of H Shares or ADSs.



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



Not applicable.



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



Not applicable.



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



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



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



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, 2015, the notional amount of the outstanding
interest rate swap agreements was approximately US$1,466 million. The net fair value of the outstanding interest rate swap agreements
gave rise to a liability of approximately US$79 million. These interest rate swap agreements will expire between 2016 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 RMB161 million in 2014 and RMB148 million in 2015.



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, 2015, the notional amount and the net fair value of the outstanding currency forward contracts was approximately US$12 million
and US$16 million, respectively, which will expire in 2017.



Pursuant to IFRS,
our monetary assets and liabilities denominated in foreign currencies are required to be translated into Renminbi at the year
end at exchange rates announced by the PBOC. Transactions in currencies other than the Renminbi during the year are converted
into Renminbi at the applicable rates of exchange prevailing at the dates of the transaction. Transaction gains and losses are
recognized in our profit or loss account. In 2014 and 2015, we had foreign exchange losses of RMB203 million and RMB4,987 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, 2015 as a consequence of a fluctuation in value
of the following major foreign currencies.



93







|                               |  | Profit and Loss Account(Decrease)/Increase |    
|------------------------------ |  | ------------------------------------------ | ---
|U.S. dollar depreciates by 1%  |  |                                            | 581
|Japanese yen depreciates by 1% |  |                                            | 2  
|Euro depreciates by 1%         |  |                                            | (1 



Fuel Hedging Risk



In order to control
fuel costs, we enter into fuel hedging transactions using financial derivative products linked to the price of underlying assets
such as United States WTI crude oil and Singapore jet fuel. In the face of continuing increases in fuel prices, we reduced the
impact of the fluctuation in aviation fuel prices through various financial derivative instruments.



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, 2015 would have increased or decreased by
approximately RMB1,016 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                                                                                               



94







For the past annual
period, from January 1, 2015 to December 31, 2015, the Company received from the depositary an aggregate of US$12,054.64 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$130,191.56.



BNYM, as depositary,
has agreed to reimburse the Company for expenses incurred in the future in relation to the establishment and maintenance of the
ADS program, which include standard out-of-pocket expenses such as postage and envelopes for mailing annual and interim financial
reports and all related administrative and documentary expenses. BNYM has agreed to reimburse the Company annually for certain
investor relationship programs and promotional activities. There are limits as to the amount of reimbursable expenses and this
amount is not necessarily commensurate with the amount of fees BNYM collects from ADS investors. BNYM collects fees for delivery
and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. BNYM collects
fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable
property to pay fees. BNYM may also collect its annual fee by deducting cash distributions or by directly billing investors, or
by charging the book-entry system accounts of participants acting for investors.



PART II



Item 13.         Defaults,
Dividend Arrearages and Delinquencies



None.



Item 14.         Material
Modifications to the Rights of Security Holders and Use Of Proceeds



On August 10, 2010,
we effected an ADS split whereby each ADS now represents 50 H shares. There was no change to the rights and preferences of the
underlying H shares.



Item 15.         Controls
and Procedures



Evaluation of Disclosure Controls and Procedures



Under the supervision
and with the participation of our President and Chief Financial Officer, our management conducted an evaluation of the effectiveness
of our Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act, as of the end of the period covered by this Annual Report. Our management, with the participation of President and Chief
Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, have concluded that as of the
end of the period covered by this Form 20-F, our disclosure controls and procedures were effective to ensure that material information
required to be disclosed in the reports that we file and furnish under Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's rules and regulations.



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



Management's Report on Internal Control over Financial Reporting



Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) and have designed internal control over financial reporting or caused internal control over financial
reporting to be designed under our supervision in order to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted
accounting principles, as applicable. Under the supervision and with the participation of our President and our Chief Financial
Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December
31, 2015 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, 2015 in providing reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance
with IFRS.



95







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, 2015 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 2015, 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, 2014 and 2015, and all other fees billed for products and services provided by our principal accountants other
than the audit fees, audit-related fees and tax fees:



|     |  | Audit Fees |            |  | Audit-RelatedFees |  |         | Tax Fees |  |  | All OtherFees | 
|---- |  | ---------- | ---------- |  | ----------------- |  | ------- | -------- |  |  | ------------- | 
|     |  | (RMB)      |            |  | (RMB)             |  |         | (RMB)    |  |  | (RMB)         | 
|     |  |            |            |  |                   |  |         |          |  |  |               | 
|2014 |  |            | 14,500,000 |  |                   |  | —       |          |  |  | —             | 
|2015 |  |            | 15,670,000 |  |                   |  | 700,000 |          |  |  | —             | 



Before our principal
accountants were engaged by our Company or our subsidiaries to render audit or non-audit services, the engagements were approved
by our audit committee.



Audit Fees



Audit fees primarily
consist of fees for the audits of the Company's financial statements prepared under both of IFRS & PRC Accounting Standards
for Business Enterprises as of and for the years ended December 31, 2014 and 2015.



Audit-Related Fees



Audit-Related fees
for the year ended December 31, 2015 primarily consist of fees for and 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.



96







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



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



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



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



Item 16F.           Changes
in Registrant's Certifying Accountant



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



On March 26, 2013,
the Board approved not to re-appoint our independent registered public accounting firm, PricewaterhouseCoopers due to the relevant
regulations issued by the MOF and the SASAC in December 2011. The relevant regulations restrict and limit the number of years
that audit services can be continuously provided by an accounting firm to a PRC state-owned enterprise and its subsidiaries.



The independent audit
reports of PricewaterhouseCoopers on our consolidated financial statements for the two fiscal years ended December 31, 2011 and
2012 did not contain any adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified in any way as
to any uncertainty, audit scope, or accounting principles.



During the two fiscal
years ended December 31, 2011 and 2012 and up to April 24, 2013, there were no disagreements (as that term is used in Item 16F
(a)(1)(iv) of Form 20-F and the related instructions to Item 16F) with PricewaterhouseCoopers on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction
of PricewaterhouseCoopers, would have caused PricewaterhouseCoopers to make reference to the subject matter of the disagreements
in its reports on the consolidated financial statements during the end of such fiscal years.



During the two fiscal
years ended December 31, 2011 and 2012 and up to April 24, 2013, there were no "reportable events" (defined below) requiring
disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F. As used herein, the term "reportable event" means any of the
items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F.



We have provided PricewaterhouseCoopers
with a copy of the disclosures under Item 16F(a) as included herein and have requested that PricewaterhouseCoopers furnish us
with a letter addressed to the SEC stating whether PricewaterhouseCoopers agrees with the foregoing statements. A copy of the
letter dated April 24, 2013, furnished by PricewaterhouseCoopers in response to that request was filed as Exhibit 13.3 to this
Form 20-F (which is incorporated by reference).



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



During the fiscal
years ended December 31, 2011 and 2012 and up to June 26, 2013, we did not consult, and have not authorized anyone on our behalf
to consult Ernst & Young Hua Ming LLP with respect to either: (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements,
and neither a written report nor oral advice was provided to us that Ernst & Young Hua Ming LLP concluded was an important
factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter
that was either the subject of a "disagreement" (as that term is used in Item 16F (a)(1)(iv) of Form 20-F and the related
instructions to Item 16F) with PricewaterhouseCoopers or a "reportable event" (as described in Item 16F (a)(1)(v) of
Form 20-F).



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



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



During the fiscal
year ended December 31, 2013 and up to June 26, 2014, there were no disagreements (as that term is used in Item 16F (a)(1)(iv)
of Form 20-F and the related instructions to Item 16F) with Ernst & Young Hua Ming LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction
of Ernst & Young Hua Ming LLP, would have caused Ernst & Young Hua Ming LLP to make reference to the subject matter of
the disagreements in its reports on the consolidated financial statements during the end of such fiscal years.



97







During the fiscal
year ended December 31, 2013 and up to June 26, 2014, there were no "reportable events" (defined below) requiring disclosure
pursuant to Item 16F(a)(1)(v) of Form 20-F. As used herein, the term "reportable event" means any of the items listed
in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F.



We have provided Ernst
& Young Hua Ming LLP with a copy of the disclosures under Item 16F(a) as included herein and have requested that Ernst &
Young Hua Ming LLP furnish us with a letter addressed to the SEC stating whether Ernst & Young Hua Ming LLP agrees with the
foregoing statements. A copy of the letter dated April 22, 2015, furnished by Ernst & Young Hua Ming LLP in response to that
request was filed as Exhibit 13.4 to this Form 20-F.



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



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



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



Item 16G.           Corporate
Governance



The NYSE has imposed
a series of corporate governance listing standards for companies listed on the NYSE in Section 303A of its listing rules. However,
the NYSE provides that listed companies that are foreign private issuers, subject to certain limitations and conditions, are permitted
to follow "home country" practice in lieu of the provisions of Section 303A of the NYSE Listed Company Manual. To qualify
for this exemption, a listed foreign private issuer must disclose any significant differences between their corporate governance
practices and the requirements of the NYSE corporate governance standards.



As a foreign private
issuer, we are subject to more than one set of corporate governance requirements. In the table below, we set out material differences
between our corporate governance practices and the NYSE's corporate governance requirements as set out in Section 303A of the
Listed Company Manual:



|                                                                                                    |  | NYSE Listed CompanyManual Requirements onCorporate Governance                                                                                                                                 |  | Company’s Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                    |  |                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Majority independent requirement of the Board of Directors                                          |  | Section 303A.01 of the Listed Company Manual requires that listed
    companies must have a majority of independent Directors.                                                                |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   





98







|Audit and Risk Management Committee       |  | Sections 303A.06 and 303A.07 of
        the NYSE Listed Company Manual provides that listed companies must have an audit committee composed entirely of
        independent directors. In addition, audit committee members must satisfy the independence requirements set forth in Section
        303A.02(a)(ii). The factors to be considered for independence include whether the committee member receives any consulting,
        advisory or other compensatory fees from the company and whether such director is affiliated with the listed company or
        its subsidiary. |  | There is no identical corporate
        governance requirement in the PRC. Under the PRC laws and the applicable listing rules in the PRC, a majority of the members
        of the audit committee must be independent directors. As above, the Audit and Risk Management Committee of the Company
        is composed of two independent non-executive Directors and one non-executive 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.                                                                                                                                                                                     |  | 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 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 non-executive 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 2015 Hong Kong Annual
Report, which can be accessed through the following link on our website:





http://en.ceair.com/upload/2016/4/2595942436.pdf





Item 16H.           Mine
Safety Disclosures



Not applicable.



99







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:



Exhibit Index



|Exhibits |  | Description                                                                                                                                                                                                              
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                          
|1.1      |  | Articles of Association as amended on September 9, 2015 (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)
|     |  |                                                                                                                                                                                   
|8.1  |  | List of Subsidiaries (as of April 22, 2016).                                                                                                                                      
|     |  |                                                                                                                                                                                   
|11.1 |  | Code of Ethics (English translation).(7)                                                                                                                                          
|     |  |                                                                                                                                                                                   
|12.1 |  | Certification of the President pursuant to Rule 13a-14(a).                                                                                                                        
|     |  |                                                                                                                                                                                   
|12.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).                                                                                                          
|     |  |                                                                                                                                                                                   
|13.1 |  | Certification of the President pursuant to Rule 13a-14(b).                                                                                                                        
|     |  |                                                                                                                                                                                   
|13.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(b).                                                                                                          
|     |  |                                                                                                                                                                                   
|13.3 |  | Letter from PricewaterhouseCoopers with respect to the disclosures under Item 16F(a).(8)                                                                                          
|     |  |                                                                                                                                                                                   
|13.4 |  | Letter from Ernst & Young Hua Ming LLP with respect to the disclosures under Item 16F(a).(6)                                                                                      



100







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 September 9, 2015.                                                                                                        
|    |                                                                                                                                                                                                                                                   
|(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 June 24, 2008.                                                                                         
|    |                                                                                                                                                                                                                                                   
|(8) | Incorporated by reference to our annual report on Form 20-F (File No. 001-14550), filed
    with the Securities and Exchange Commission on April 25, 2014.                                                                                        



SIGNATURES



The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
Annual Report on its behalf.



|CHINA EASTERN AIRLINES CORPORATION LIMITED | 
|------------------------------------------ | 



|By: | /s/ Liu Shaoyong                          | 
|--- | ----------------------------------------- | 
|    | Name: Liu Shaoyong                        | 
|    | Title: Chairman of the Board of Directors | 



Date: April 25, 2016



101









Audited
Financial Statements



CHINA
EASTERN AIRLINES CORPORATION LIMITED

(Established
in the People’s Republic of China with limited liability)



December
31, 2015, 2014 and 2013



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”)and
subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of profit or loss and other comprehensive
income, changes in equity and cash flows for each of the two years in the period ended December 31, 2015. 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 and subsidiaries at December 31, 2015 and 2014, and the consolidated results of
their operations and their cash flows for each of the two years in the period ended December 31, 2015, 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, 2015, 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 25, 2016 expressed an unqualified opinion thereon.



/s/
Ernst & Young

Hong
Kong

April
25, 2016



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, 2015,
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, 2015, 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, 2015 and 2014, and the related
consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the two
years in the period ended December 31, 2015 of China Eastern Airlines Corporation Limited and our report dated April 25, 2016
expressed an unqualified opinion thereon.



/s/
Ernst & Young

Hong
Kong

April
25, 2016



F-3











| | Ernst
        & Young Hua Ming LLP
        Level
        16, Ernst&Young Tower
        Oriental
        Plaza
        No.1
        East Chang An Avenue
        Dong
        Cheng District
        Beijing,
        China 100738 |  | 安永华明会计师事务所(特殊普通合伙)
        中国北京市东城区东长安街1号
        东方广场安永大楼16层
        邮政编码:100738 |  | Tel电话:
        +86 10 5815 3000
        Fax传真:
        +86 10 8518 8298
        ey.com
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------



Report of Independent Registered
Public Accounting Firm



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



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



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



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





/s/ Ernst & Young Hua
Ming LLP



Beijing, The People’s
Republic of China

April 25, 2014





F-4







CONSOLIDATED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For
the years ended December 31, 2015, 2014 and 2013

(Amounts
in millionsexcept
for per share data)



|                                                                                                     |  |       |  | 2015        |         |   | 2014        |  |         | 2013        | 
|---------------------------------------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                                                     |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Revenues                                                                                             |  | 5     |  |             | 93,969  |   |             |  | 90,185  |             | 
|Other operating income and gains                                                                     |  | 6     |  |             | 5,269   |   |             |  | 3,685   |             | 
|Gain on fair value changes of derivative financial instruments                                       |  | 8     |  |             | 6       |   |             |  | 11      |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Operating expenses                                                                                   |  |       |  |             |         |   |             |  |         |             | 
|Aircraft fuel                                                                                        |  |       |  |             | (20,312 | ) |             |  | (30,238 | )           | 
|Take-off and landing charges                                                                         |  |       |  |             | (10,851 | ) |             |  | (9,440  | )           | 
|Depreciation and amortization                                                                        |  |       |  |             | (10,471 | ) |             |  | (9,183  | )           | 
|Wages, salaries and benefits                                                                         |  | 9     |  |             | (16,459 | ) |             |  | (11,270 | )           | 
|Aircraft maintenance                                                                                 |  |       |  |             | (4,304  | ) |             |  | (4,453  | )           | 
|Impairment charges                                                                                   |  | 10    |  |             | (228    | ) |             |  | (12     | )           | 
|Food and beverages                                                                                   |  |       |  |             | (2,469  | ) |             |  | (2,364  | )           | 
|Aircraft operating lease rentals                                                                     |  |       |  |             | (4,254  | ) |             |  | (4,502  | )           | 
|Other operating lease rentals                                                                        |  |       |  |             | (812    | ) |             |  | (637    | )           | 
|Selling and marketing expenses                                                                       |  |       |  |             | (3,651  | ) |             |  | (4,120  | )           | 
|Civil aviation development fund                                                                      |  |       |  |             | (1,826  | ) |             |  | (1,656  | )           | 
|Ground services and other expenses                                                                   |  |       |  |             | (5,479  | ) |             |  | (4,998  | )           | 
|Indirect operating expenses                                                                          |  |       |  |             | (5,503  | ) |             |  | (4,950  | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Total operating expenses                                                                             |  |       |  |             | (86,619 | ) |             |  | (87,823 | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Operating profit                                                                                     |  | 11    |  |             | 12,625  |   |             |  | 6,058   |             | 
|Share of results of associates                                                                       |  | 22    |  |             | 126     |   |             |  | 91      |             | 
|Share of results of joint ventures                                                                   |  | 23    |  |             | 26      |   |             |  | 36      |             | 
|Finance income                                                                                       |  | 12    |  |             | 66      |   |             |  | 88      |             | 
|Finance costs                                                                                        |  | 13    |  |             | (7,176  | ) |             |  | (2,160  | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Profit before income tax                                                                             |  |       |  |             | 5,667   |   |             |  | 4,113   |             | 
|Income tax expense                                                                                   |  | 14    |  |             | (624    | ) |             |  | (573    | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Profit for the year                                                                                  |  |       |  |             | 5,043   |   |             |  | 3,540   |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|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    |  |             | 10      |   |             |  | (11     | )           | 
|Fair value changes of available-for-sale investments, net of tax                                     |  |       |  |             | 87      |   |             |  | 13      |             | 
|Fair value changes of available-for-sale investments held by an associate, net of tax                |  | 22    |  |             | 7       |   |             |  | (1      | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Net other comprehensive income to be reclassified to profit or loss in subsequent periods            |  |       |  |             | 104     |   |             |  | 1       |             | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income not to be reclassified to profit or loss in subsequent periods:           |  |       |  |             |         |   |             |  |         |             | 
|Actuarial gains/(losses) on the post-retirement benefit obligations, net of tax                      |  | 37    |  |             | 196     |   |             |  | (333    | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Net other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods |  |       |  |             | 196     |   |             |  | (333    | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Other comprehensive income/(loss), net of tax                                                        |  |       |  |             | 300     |   |             |  | (332    | )           | 
|                                                                                                     |  |       |  |             |         |   |             |  |         |             | 
|Total comprehensive income for the year                                                              |  |       |  |             | 5,343   |   |             |  | 3,208   |             | 



F-5







CONSOLIDATED
STATEMENT OF PROFIT OR LOSSAND
OTHER COMPREHENSIVE
                                         INCOME (CONTINUED)



| |  | 
| |  | 

For
the year ended December 31, 2015, 2014 and 2013

(Amounts
in millionsexcept
for per share data)



|                                                                                     |  |       |  | 2015        |       |  | 2014        |  |       | 2013        | 
|------------------------------------------------------------------------------------ |  | ----- |  | ----------- | ----- |  | ----------- |  | ----- | ----------- | 
|                                                                                     |  | Notes |  | RMB million |       |  | RMB million |  |       | RMB million | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Profit attributable to:                                                              |  |       |  |             |       |  |             |  |       |             | 
|Equity holders of the Company                                                        |  |       |  |             | 4,537 |  |             |  | 3,410 |             | 
|Non-controlling interests                                                            |  |       |  |             | 506   |  |             |  | 130   |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Profit for the year                                                                  |  |       |  |             | 5,043 |  |             |  | 3,540 |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Total comprehensive income attributable to:                                          |  |       |  |             |       |  |             |  |       |             | 
|Equity holders of the Company                                                        |  |       |  |             | 4,834 |  |             |  | 3,071 |             | 
|Non-controlling interests                                                            |  |       |  |             | 509   |  |             |  | 137   |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Total comprehensive income for the year                                              |  |       |  |             | 5,343 |  |             |  | 3,208 |             | 
|                                                                                     |  |       |  |             |       |  |             |  |       |             | 
|Earnings per share attributable to the equity holders of the Company during the year |  |       |  |             |       |  |             |  |       |             | 
|– Basic and diluted (RMB)                                                            |  | 15    |  |             | 0.35  |  |             |  | 0.27  |             | 



F-6







CONSOLIDATED
STATEMENT OF FINANCIAL POSITION

As of December
31, 2015 and 2014

(Amounts
in millionsexcept
for per share data)



|                                                                                             |  |       |  | December 31, |         |   | December 31, | 
|-------------------------------------------------------------------------------------------- |  | ----- |  | ------------ | ------- | - | ------------ | 
|                                                                                             |  |       |  | 2015         |         |   | 2014         | 
|                                                                                             |  | Notes |  | RMB million  |         |   | RMB million  | 
|                                                                                             |  |       |  |              |         |   |              | 
|Non-current assets                                                                           |  |       |  |              |         |   |              | 
|Intangible assets                                                                            |  | 17    |  |              | 11,522  |   |              | 
|Property, plant and equipment                                                                |  | 18    |  |              | 133,242 |   |              | 
|Investment properties                                                                        |  | 19    |  |              | 294     |   |              | 
|Lease prepayments                                                                            |  | 20    |  |              | 2,094   |   |              | 
|Advanced payments on acquisition of aircraft                                                 |  | 21    |  |              | 21,207  |   |              | 
|Investments in associates                                                                    |  | 22    |  |              | 1,543   |   |              | 
|Investments in joint ventures                                                                |  | 23    |  |              | 518     |   |              | 
|Available-for-sale investments                                                               |  | 24    |  |              | 452     |   |              | 
|Other non-current assets                                                                     |  | 25    |  |              | 3,754   |   |              | 
|Deferred tax assets                                                                          |  | 38    |  |              | 243     |   |              | 
|Derivative financial instruments                                                             |  | 39    |  |              | 45      |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|                                                                                             |  |       |  |              | 174,914 |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|Current assets                                                                               |  |       |  |              |         |   |              | 
|Flight equipment spare parts                                                                 |  | 26    |  |              | 2,056   |   |              | 
|Trade receivables                                                                            |  | 27    |  |              | 2,867   |   |              | 
|Prepayments and other receivables                                                            |  | 28    |  |              | 8,446   |   |              | 
|Derivative financial instruments                                                             |  | 39    |  |              | -       |   |              | 
|Restricted bank deposits and short-term bank deposits                                        |  | 29    |  |              | 35      |   |              | 
|Cash and cash equivalents                                                                    |  | 30    |  |              | 9,080   |   |              | 
|Assets classified as held for sale                                                           |  | 16    |  |              | 594     |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|                                                                                             |  |       |  |              | 23,078  |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|Current liabilities                                                                          |  |       |  |              |         |   |              | 
|Sales in advance of carriage                                                                 |  |       |  |              | 5,841   |   |              | 
|Trade and bills payable                                                                      |  | 31    |  |              | 3,712   |   |              | 
|Other payables and accruals                                                                  |  | 32    |  |              | 19,057  |   |              | 
|Current portion of obligations under finance leases                                          |  | 33    |  |              | 6,109   |   |              | 
|Current portion of borrowings                                                                |  | 34    |  |              | 38,214  |   |              | 
|Income tax payable                                                                           |  |       |  |              | 169     |   |              | 
|Current portion of provision for return condition checks for aircraft under operating leases |  | 35    |  |              | 1,281   |   |              | 
|Derivative financial instruments                                                             |  | 39    |  |              | 4       |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|                                                                                             |  |       |  |              | 74,387  |   |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|Net current liabilities                                                                      |  |       |  |              | (51,309 | ) |              | 
|                                                                                             |  |       |  |              |         |   |              | 
|Total assets less current liabilities                                                        |  |       |  |              | 123,605 |   |              | 



F-7







CONSOLIDATED
STATEMENT OF FINANCIAL POSITION (CONTINUED)

As of December
31, 2015 and 2014

(Amounts
in millionsexcept
for per share data)



|                                                                          |  |       |  | December 31, |        |  | December 31, | 
|------------------------------------------------------------------------- |  | ----- |  | ------------ | ------ |  | ------------ | 
|                                                                          |  |       |  | 2015         |        |  | 2014         | 
|                                                                          |  | Notes |  | RMB million  |        |  | RMB million  | 
|                                                                          |  |       |  |              |        |  |              | 
|Non-current liabilities                                                   |  |       |  |              |        |  |              | 
|Obligations under finance leases                                          |  | 33    |  |              | 46,290 |  |              | 
|Borrowings                                                                |  | 34    |  |              | 28,498 |  |              | 
|Provision for return condition checks for aircraft under operating leases |  | 35    |  |              | 2,222  |  |              | 
|Other long-term liabilities                                               |  | 36    |  |              | 3,990  |  |              | 
|Post-retirement benefit obligations                                       |  | 37    |  |              | 2,569  |  |              | 
|Deferred tax liabilities                                                  |  | 38    |  |              | 8      |  |              | 
|Derivative financial instruments                                          |  | 39    |  |              | 97     |  |              | 
|                                                                          |  |       |  |              |        |  |              | 
|                                                                          |  |       |  |              | 83,674 |  |              | 
|                                                                          |  |       |  |              |        |  |              | 
|Net assets                                                                |  |       |  |              | 39,931 |  |              | 
|                                                                          |  |       |  |              |        |  |              | 
|Equity                                                                    |  |       |  |              |        |  |              | 
|Equity attributable to the equity holders of the Company                  |  |       |  |              |        |  |              | 
|– Share capital                                                           |  | 41    |  |              | 13,140 |  |              | 
|– Reserves                                                                |  | 42    |  |              | 24,271 |  |              | 
|                                                                          |  |       |  |              |        |  |              | 
|                                                                          |  |       |  |              | 37,411 |  |              | 
|                                                                          |  |       |  |              |        |  |              | 
|Non-controlling interests                                                 |  |       |  |              | 2,520  |  |              | 
|                                                                          |  |       |  |              |        |  |              | 
|Total equity                                                              |  |       |  |              | 39,931 |  |              | 



F-8







CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY

For the years
ended December 31, 2015, 2014 and 2013

(Amounts
in millionsexcept
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, 2013                                        |  |                                                   | 11,277 |  |                 |  | 13,898 |                          | 
|                                                                      |  |                                                   |        |  |                 |  |        |                          | 
|Profit/(loss)
    for the year                                        |  |                                                   | -      |  |                 |  | -      |                          | 
|Other comprehensive
    income                                        |  |                                                   | -      |  |                 |  | 807    |                          | 
|Total comprehensive
    income for the year                           |  |                                                   | -      |  |                 |  | 807    |                          | 
|Capital
    contribution by non-controlling interests in subsidiaries |  |                                                   | -      |  |                 |  | -      |                          | 
|Dividends
    paid to non-controlling interests                       |  |                                                   | -      |  |                 |  | -      |                          | 
|Acquisition
    of non-controlling interests in subsidiaries          |  |                                                   | -      |  |                 |  | -      |                          | 
|Issue of
    shares                                                   |  |                                                   | 1,397  |  |                 |  | 2,175  |                          | 
|Others                                                                |  |                                                   | -      |  |                 |  | (57    | )                        | 
|                                                                      |  |                                                   |        |  |                 |  |        |                          | 
|Balance
    at December 31, 2013                                      |  |                                                   | 12,674 |  |                 |  | 16,823 |                          | 
|                                                                      |  |                                                   |        |  |                 |  |        |                          | 
|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 (Note 41)                                         |  |                                                   | 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 | *                        | 



| | * | These reserve
                                         accounts comprise the consolidated reserves of RMB24,271 million (2014: RMB17,300 million,2013:
                                         RMB14,228 million) in the consolidated statement of financial position.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-9







CONSOLIDATED
STATEMENT OF CASH FLOWS

For the years
ended December 31, 2015, 2014 and 2013

(Amounts
in millionsexcept
for per share data)



|                                                                      |  |       |  | 2015        |         |   | 2014        |  |         | 2013        | 
|--------------------------------------------------------------------- |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                      |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|                                                                      |  |       |  |             |         |   |             |  |         |             | 
|Cash flows from operating activities                                  |  |       |  |             |         |   |             |  |         |             | 
|Cash generated from operations                                        |  | 45(a) |  |             | 25,535  |   |             |  | 12,767  |             | 
|Income tax paid                                                       |  |       |  |             | (1,210  | ) |             |  | (471    | )           | 
|                                                                      |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows from operating activities                              |  |       |  |             | 24,325  |   |             |  | 12,296  |             | 
|                                                                      |  |       |  |             |         |   |             |  |         |             | 
|Cash flows from investing activities                                  |  |       |  |             |         |   |             |  |         |             | 
|Additions to property, plant and equipment                            |  |       |  |             | (8,609  | ) |             |  | (5,640  | )           | 
|Additions to lease prepayments                                        |  | 20    |  |             | (82     | ) |             |  | (109    | )           | 
|Additions to intangible assets                                        |  | 17    |  |             | (109    | ) |             |  | (79     | )           | 
|Advanced payments on acquisition of aircraft                          |  | 21    |  |             | (24,772 | ) |             |  | (20,067 | )           | 
|Proceeds from disposal of assets classified as held for sale          |  |       |  |             | 4,227   |   |             |  | 344     |             | 
|Proceeds from disposal of property, plant and equipment               |  |       |  |             | 1,294   |   |             |  | 1,623   |             | 
|Proceeds from disposal of lease payments                              |  |       |  |             | 47      |   |             |  | -       |             | 
|Decrease in restricted and short-term bank deposits                   |  |       |  |             | 3       |   |             |  | -       |             | 
|Proceeds from disposal of short term deposits                         |  |       |  |             | -       |   |             |  | 132     |             | 
|Purchase of a shareholding in a joint venture                         |  |       |  |             | -       |   |             |  | (58     | )           | 
|Increase in shareholding in associates                                |  |       |  |             | (413    | ) |             |  | -       |             | 
|Capital injections in associates                                      |  |       |  |             | -       |   |             |  | -       |             | 
|Acquisition of a subsidiary, net of cash acquired                     |  |       |  |             | -       |   |             |  | 16      |             | 
|Purchase of available-for-sale investments                            |  |       |  |             | -       |   |             |  | (7      | )           | 
|Interest received                                                     |  |       |  |             | 66      |   |             |  | 88      |             | 
|Dividends received                                                    |  |       |  |             | 92      |   |             |  | 75      |             | 
|Proceeds from disposal of interest in an associate                    |  |       |  |             | -       |   |             |  | -       |             | 
|Proceeds from disposal of interest in a subsidiary                    |  |       |  |             | 49      |   |             |  | -       |             | 
|Repayment of loans from an associate                                  |  |       |  |             | 372     |   |             |  | -       |             | 
|Advances of loans to an associate                                     |  |       |  |             | -       |   |             |  | (369    | )           | 
|Proceeds from disposal of interests in available-for-sale investments |  |       |  |             | 35      |   |             |  | 18      |             | 
|                                                                      |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows used in investing activities                           |  |       |  |             | (27,800 | ) |             |  | (24,033 | )           | 



F-10







CONSOLIDATED
STATEMENT OF CASH FLOWS (CONTINUED)

For the years
ended December 31, 2015, 2014 and 2013

(Amounts
in millionsexcept
for per share data)



|                                                                               |  |       |  | 2015        |         |   | 2014        |  |         | 2013        | 
|------------------------------------------------------------------------------ |  | ----- |  | ----------- | ------- | - | ----------- |  | ------- | ----------- | 
|                                                                               |  | Notes |  | RMB million |         |   | RMB million |  |         | RMB million | 
|                                                                               |  |       |  |             |         |   |             |  |         |             | 
|Cash flows from financing activities                                           |  |       |  |             |         |   |             |  |         |             | 
|Proceeds from issue of shares                                                  |  |       |  |             | 2,855   |   |             |  | -       |             | 
|Proceeds from draw-down of short-term bank loans                               |  |       |  |             | 26,916  |   |             |  | 33,863  |             | 
|Repayments of short-term debentures                                            |  |       |  |             | (10,000 | ) |             |  | (4,000  | )           | 
|Repayments of short-term bank loans                                            |  |       |  |             | (34,767 | ) |             |  | (27,810 | )           | 
|Proceeds from issuance of short-term debentures                                |  |       |  |             | 21,500  |   |             |  | 4,000   |             | 
|Proceeds from issuance of long-term debentures and bonds                       |  |       |  |             | -       |   |             |  | 3,300   |             | 
|Proceeds from government grants                                                |  |       |  |             | -       |   |             |  | 3       |             | 
|Proceeds from draw down of long-term bank loans and other financing activities |  |       |  |             | 24,572  |   |             |  | 16,971  |             | 
|Repayments of long-term bank loans                                             |  |       |  |             | (10,540 | ) |             |  | (7,451  | )           | 
|Repayments of long-term bonds                                                  |  |       |  |             | -       |   |             |  | (2,500  | )           | 
|Principal repayments of finance lease obligations                              |  |       |  |             | (6,350  | ) |             |  | (3,250  | )           | 
|Interest paid                                                                  |  |       |  |             | (3,065  | ) |             |  | (1,994  | )           | 
|Capital contribution from non-controlling interests of subsidiaries            |  |       |  |             | -       |   |             |  | -       |             | 
|Acquisition of non-controlling interests in subsidiaries                       |  |       |  |             | -       |   |             |  | -       |             | 
|Dividends paid to non-controlling interests of subsidiaries                    |  |       |  |             | (38     | ) |             |  | (20     | )           | 
|                                                                               |  |       |  |             |         |   |             |  |         |             | 
|Net cash flows from financing activities                                       |  |       |  |             | 11,083  |   |             |  | 11,112  |             | 
|                                                                               |  |       |  |             |         |   |             |  |         |             | 
|Net increase/(decrease) in cash and cash equivalents                           |  |       |  |             | 7,608   |   |             |  | (625    | )           | 
|Cash and cash equivalents at beginning of year                                 |  |       |  |             | 1,355   |   |             |  | 1,995   |             | 
|Effect of foreign exchange rate changes                                        |  |       |  |             | 117     |   |             |  | (15     | )           | 
|                                                                               |  |       |  |             |         |   |             |  |         |             | 
|Cash and cash equivalents                                                      |  |       |  |             |         |   |             |  |         |             | 
|at December 31                                                                 |  | 30    |  |             | 9,080   |   |             |  | 1,355   |             | 



F-11







| | 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 Receipts are listed on the 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 25, 2016.



Information
about subsidiaries

Particulars
of the Company’s principal subsidiaries are as follows:



|                                                                                      |  | Place of incorporation/
    registration and |  | Issued
    ordinary/ registered share |       |  | Percentage of equity
    attributable to the Company |  |       |         
|------------------------------------------------------------------------------------- |  | -------------------------------------------- |  | ------------------------------------- | ----- |  | ---------------------------------------------------- |  | ----- | --------
|Name                                                                                  |  | address                                      |  | capital                               |       |  | Direct                                               |  |       | Indirect
|                                                                                      |  |                                              |  | million                               |       |  |                                                      |  |       |         
|China Eastern Airlines
    Jiangsu Co., Ltd. (“CEA Jiangsu”)                          |  | PRC May 3, 1993                              |  | RMB                                   | 2,000 |  |                                                      |  | 62.56 | %       
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|China Eastern Airlines Wuhan Co.,Ltd.
    (“CEA Wuhan”)                               |  | PRC August 16,
    2002                      |  | RMB                                   | 1,750 |  |                                                      |  | 60    | %       
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|Shanghai Eastern Flight Training
    Co., Ltd. (“Shanghai Flight Training”)           |  | PRC December 18,
    1995                    |  | RMB                                   | 694   |  |                                                      |  | 100   | %       
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|Shanghai Airlines Co., Ltd. (“Shanghai
    Airlines”)                                 |  | PRC March 16,
    2010                       |  | RMB                                   | 500   |  |                                                      |  | 100   | %       
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|China Cargo Airlines Co., Ltd. (“China
    Cargo”)                                    |  | PRC July 22,
    1998                        |  | RMB                                   | 3,000 |  |                                                      |  | -     |         
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|China Eastern Airlines Technology
    Co., Ltd. (“Eastern Technology”)                |  | PRC November 19,
    2014                    |  | RMB                                   | 4,300 |  |                                                      |  | 100   | %       
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|Shanghai Eastern Airlines Logistics
    Co., Ltd. (“Eastern Logistics”)               |  | PRC August 23, 2004                          |  | RMB                                   | 1,150 |  |                                                      |  | 100   | %       
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|Eastern Business Airlines Service
    Co., Ltd. (“Eastern Business Airlines Service”) |  | PRC September 27,
    2008                   |  | RMB                                   | 50    |  |                                                      |  | 100   | %       
|                                                                                      |  |                                              |  |                                       |       |  |                                                      |  |       |         
|China Eastern Airlines Yunnan Co.,
    Ltd. (“CEA Yunnan”)                            |  | PRC August 2,
    2011                       |  | RMB                                   | 3,662 |  |                                                      |  | 90.36 | %       



F-12







| | 1. | CORPORATE
                                         AND GROUP INFORMATION (cont’d)
| | -- | ---------------------------------------------------------------------------------



Particulars
of the Company’s principal subsidiaries are as follows: (cont’d)



|                                                                                                       |  | Place of
    incorporation/
    registration and                                                          |  | Issued
    ordinary/
    registered share |       |  | Percentage of equity
    attributable to the Company |  |     |         
|------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ----- |  | ---------------------------------------------------- |  | --- | --------
|Name                                                                                                   |  | address                                                                                                   |  | capital                                   |       |  | Direct                                               |  |     | Indirect
|                                                                                                       |  |                                                                                                           |  | million                                   |       |  |                                                      |  |     |         
|Eastern
    Air Overseas (Hong Kong) Co., Ltd. (“Eastern Air Overseas”)                                |  | Hong
                                         Kong June
                                         10, 2011 |  | HKD                                       | 30    |  |                                                      |  | 100 | %       
|                                                                                                       |  |                                                                                                           |  |                                           |       |  |                                                      |  |     |         
|China United
    Airlines Co., Ltd.(“China United Airlines”)                                           |  | PRC September
                                         21,1984                                            |  | RMB                                       | 1,320 |  |                                                      |  | 100 | %       
|                                                                                                       |  |                                                                                                           |  |                                           |       |  |                                                      |  |     |         
|Eastern Airlines
    Hotel Co., Ltd.                                                                   |  | PRC March
                                         18, 1998                                               |  | RMB                                       | 70    |  |                                                      |  | 100 | %       
|                                                                                                       |  |                                                                                                           |  |                                           |       |  |                                                      |  |     |         
|Shanghai Airlines
    Tours International (Group) Co., Ltd. (“Shanghai Airlines Tours”)                |  | PRC August
                                         29, 1992                                              |  | RMB                                       | 50    |  |                                                      |  | 100 | %       
|                                                                                                       |  |                                                                                                           |  |                                           |       |  |                                                      |  |     |         
|China Eastern
    Airlines Application Development Center Co., Ltd. (“Application Development Center”) |  | PRC November
                                         21, 2011                                            |  | RMB                                       | 498   |  |                                                      |  | 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.



Allof the PRC- incorporated subsidiaries of the Company listed above are limited liability companies.



F-13







| | 2.1 | BASIS OF PREPARATION
| | --- | --------------------



These
financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRS”)
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 indicate.



Basis
of consolidation



The
consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended December
31, 2015. 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 for subsidiaries 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 December 31, 2015, the Group’s current liabilities exceeded its current assets by approximately RMB51.31 billion. In
preparing the financial statements, the Board conducts an adequate and detailed review over the Group’ s going concern ability
based on the current financial situation.



The
Board has taken active actions to deal with the situation that current liabilities exceeded its current assets and the Board is
confident that they have obtained adequate credit facility from the banks to support the floating capital. As at December 31,
2015, the Group had total unutilized credit facility amounting to approximately RMB55.17 billion from banks.



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



| | 2.2 | CHANGES IN ACCOUNTING POLICIES
AND DISCLOSURES
| | --- | ----------------------------------------------



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



|Amendments
    to IAS 19                         | Defined
    Benefit Plans: Employee Contributions
|------------------------------------------------ | -------------------------------------------------
|Annual
    Improvements to IFRSs 2010–2012 Cycle | Amendments
    to a number of IFRSs              
|Annual
    Improvements to IFRSs 2011–2013 Cycle | Amendments
    to a number of IFRSs              



| |  | The above
                                         new and amended standards have had no material impact on the Group.
| |  | ----------------------------------------------------------------------------------------------------------------------



The
nature and the impact of each amendment is described below:



| | (a) | Amendments
                                         to IAS 19 apply to contributions from employees or third parties to defined benefit plans.
                                         The amendments simplify the accounting for contributions that are independent of the
                                         number of years of employee service, for example, employee contributions that are calculated
                                         according to a fixed percentage of salary. If the amount of the contributions is independent
                                         of the number of years of service, an entity is permitted to recognize such contributions
                                         as a reduction of service cost in the period in which the related service is rendered.
                                         The amendments have had no impact on the Group as the Group’s post-retirement benefit
                                         plan does not require the contributions from employees.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-14







| | 2.2 | CHANGES IN ACCOUNTING POLICIES
AND DISCLOSURES (cont’d)
| | --- | -------------------------------------------------------



| | (b) | The
                                         Annual Improvements to IFRSs 2010-2012 Cycle sets out amendments to a number of
                                         IFRSs. Details of the amendments that are effective for the current year are as follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | IFRS
                                         8 Operating Segments: Clarifies that an entity must disclose the judgments made
                                         by management in applying the aggregation criteria in IFRS 8, including a brief description
                                         of operating segments that have been aggregated and the economic characteristics used
                                         to assess whether the segments are similar. The amendments also clarify that a reconciliation
                                         of segment assets to total assets is only required to be disclosed if the reconciliation
                                         is reported to the chief operating decision maker. The amendments have had no impact
                                         on the Group.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | IAS
                                         16 Property, Plant and Equipment and IAS 38 Intangible Assets: Clarifies
                                         the treatment of gross carrying amount and accumulated depreciation or amortization of
                                         revalued items of property, plant and equipment and intangible assets. The amendments
                                         have had no impact on the Group as the Group does not apply the revaluation model for
                                         the measurement of these assets.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | IAS
                                         24 Related Party Disclosures: Clarifies that a management entity (i.e., an entity
                                         that provides key management personnel services) is a related party subject to related
                                         party disclosure requirements. In addition, an entity that uses a management entity is
                                         required to disclose the expenses incurred for management services. The amendment has
                                         had no impact on the Group as the Group does not receive any management services from
                                         other entities.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The
                                         Annual Improvements to IFRSs 2011-2013 Cycle sets out amendments to a number of
                                         IFRSs. Details of the amendments that are effective for the current year are as follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | IFRS
                                         3 Business Combinations: Clarifies that joint arrangements but not joint ventures
                                         are outside the scope of IFRS 3 and the scope exception applies only to the accounting
                                         in the financial statements of the joint arrangement itself. The amendment is applied
                                         prospectively. The amendments have had no impact on the Group.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | IFRS
                                         13 Fair Value Measurement: Clarifies that the portfolio exception in IFRS 13 can
                                         be applied not only to financial assets and financial liabilities, but also to other
                                         contracts within the scope of IFRS 9 or IAS 39 as applicable. The amendment is applied
                                         prospectively from the beginning of the annual period in which IFRS 13 was initially
                                         applied. The amendment has had no impact on the Group as the Group does not apply the
                                         portfolio exception in IFRS 13.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | IAS
                                         40 Investment Property: Clarifies that IFRS 3, instead of the description of ancillary
                                         services in IAS 40 which differentiates between investment property and owner-occupied
                                         property, is used to determine if the transaction is a purchase of an asset or a business
                                         combination. The amendment is applied prospectively for acquisitions of investment properties.
                                         The amendment has had no impact on the Group as the Group did not purchase any investment
                                         properties during the year.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition, the Company has adopted the amendments to the Listing Rules issued by the Hong Kong Stock Exchange relating to the disclosure
of financial information with reference to the Hong Kong Companies Ordinance (Cap. 622) during the current financial year. The
main impact to the financial statements is on the presentation and disclosure of certain information in the financial statements.



F-15







| | 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
    Instruments3                                                                
|--------------------------------------------- | ------------------------------------------------------------------------------------------
|Amendments
    to IFRS 10 and IAS 28          | Sale
    or Contribution of Assets between an Investor and its Associate or Joint Venture6
|Amendments
    to IFRS 10, IFRS 12 and IAS 28 | Investment
    Entities: Applying the Consolidation Exception1                            
|Amendments
    to IFRS 11                     | Accounting
    for Acquisitions of Interests in Joint Operations1                         
|IFRS
    14                                   | Regulatory
    Deferral Accounts5                                                         
|IFRS
    15                                   | Revenue
    from Contracts with Customers3                                                
|IFRS
    16                                   | Leases4                                                                                   
|Amendments
    to IAS 1                       | Disclosure
    Initiative1                                                                
|Amendments
    to IAS 7                       | Disclosure
    Initiative2                                                                
|Amendments
    to IAS 12                      | Recognition
    of Deferred Tax Assets for Unrealized Losses2                             
|Amendments
    to IAS 16 and IAS 38           | Clarification
    of Acceptable Methods of Depreciation and Amortisation1                 
|Amendments
    to IAS 16 and IAS 41           | Agriculture:
    Bearer Plants1                                                           
|Amendments
    to IAS 27                      | Equity
    Method in Separate Financial Statements1                                       
|Annual
    Improvements 2012-2014 Cycle       | Amendments
    to a number of IFRSs1                                                      



| | 1 | Effective for annual periods
beginning on or after January 1, 2016
| | - | ------------------------------------------------------------------

| | 2 | Effective for annual periods
beginning on or after January 1, 2017
| | - | ------------------------------------------------------------------

| | 3 | Effective for annual periods
beginning on or after January 1, 2018
| | - | ------------------------------------------------------------------

| | 4 | Effective for annual periods
beginning on or after January 1, 2019
| | - | ------------------------------------------------------------------

| | 5 | Effective for an entity that
first adopts IFRSs for its annual financial statements beginning on or after
January 1, 2016 and therefore is not applicable to the Group
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6 | No mandatory effective date
yet determined
| | - | ------------------------------------------



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



IFRS
9 introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt
IFRS 9 from January 1, 2018. The Group is currently assessing the impact of the standard.



F-16







| | 2.3 | ISSUED BUT NOT YET EFFECTIVE
INTERNATIONAL FINANCIAL REPORTING STANDARDS (cont’d)
| | --- | ---------------------------------------------------------------------------------



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



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



IFRS
15 establishes a new five-step model 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 judgments and
estimates. The standard will supersede all current revenue recognition requirements under IFRSs. The Group expects to adopt IFRS
15 on January 1, 2018. The Group is currently assessing the impact of the standard.



IFRS
16 set outs the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure
the lessees and the lessors provide relevant information in a manner that faithfully represents those transactions. 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. Assets
and liabilities arising from a lease are initially measured on a present value basis, and subsequently, a lessee recognizes depreciation
of the right-of-use asset and interest on the lease liability. IFRS 16 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. However, IFRS 16 also requires enhanced disclosures to be provided by lessors. IFRS 16 is effective
for annual periods beginning on or after January 1, 2019. The Group expects to adopt IFRS 16 on January 1, 2019 and is currently
assessing the impact of the standard upon adoption.



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 other comprehensive income
                                         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 and other comprehensive income. The Group expects to adopt the amendments from January 1,
2016. The amendments are not expected to have any significant impact on the Group’s financial statements.



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 to be applied prospectively. The amendments
are not expected to have any significant impact on the financial position or performance of the Group upon adoption on January
1, 2016.



Amendments
to IAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities
arising from financing activities, both from cash flows and non-cash changes. The amendments are mandatory for annual periods
beginning on or after January 1, 2017 and are not expected to have any significant impact on the Group’s financial statements.



F-17







| | 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 remeasured.
Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence
over the associate or joint control over the joint venture, the Group measures and recognizes any retained investment at its fair
value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint
control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.



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
currency translation



| | (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-18







| | 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 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 or deducted from the carrying amount of the asset and
released to profit or loss by way of a reduced depreciation charge.



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-19







| | 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 for the period comprises current and deferred tax. Income tax is recognized in profit or loss, except that it relates to items
recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive
income or directly in equity, respectively.



The
current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in
the jurisdictions where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and
establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.



Deferred
tax is provided, using the liability method, on all temporary differences at the end of reporting period arising between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purpose. However, deferred tax liabilities
are not recognized if they arise from the initial recognition of goodwill and deferred tax is not accounted for if it arises from
initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability
is settled.



Deferred
tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilized.



Deferred
tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the
timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference
will not reverse in the foreseeable future.



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 December 31. 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.



F-20







| | 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 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.



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-21







| | 2.4 | SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (cont’d)
| | --- | ---------------------------------------------------



Property,
plant and equipment (cont’d)



Residual
values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at each financial year end. The carrying
amount of an item of property, plant and equipment is written off immediately to its recoverable amount if its carrying amount
is greater than its estimated recoverable amount.



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 investments in subsidiaries, associates, joint ventures and non-financial assets



Assets
that have indefinite useful lives or which are not yet available for use are not subject to amortization and are tested for impairment
at least annually or whenever there is indication of impairment. Other assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level
for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that
have suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.



Non-current
assets and disposal groups held for sale



Non-current
assets and disposal of 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 represent acquisition costs of land use rights less accumulated amortization. Amortization is provided over the lease
period of the land use rights on a straight-line basis.



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.



F-22







| | 2.4 | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | --------------------------------------------------------------------------------------------



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.



Trade
and other receivables



Trade
and other receivables are non-derivative financial assets with fixed or determined payments that are not quoted in an active trade
market. The Group’s trade and other receivables are recognized initially at fair value and subsequently measured at amortized
cost using the effective interest rate method, less provision for impairment. A provision for impairment of trade and other receivables
is provided when there is objective evidence that the Group will not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy
or financial reorganization, and default or delinquency in payments are considered indicators that the trade and other receivables
are impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the assets is reduced
through the use of an allowance account, and the amount of the loss is recognized in profit or loss. When trade and other receivables
are uncollectible, they are written off against the provision account for trade and other receivables. Subsequent recoveries of
amounts previously written off are credited 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.



Trade
and other payables



Trade
and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less (or in the
normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.



Trade
and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest
rate method.



Borrowings



Borrowings
are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost;
any differences between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over
the period of the borrowings using the effective interest rate method.



Borrowings
are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting date in which case such borrowings are classified as non-current liabilities.



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-23









| | 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 current portion of obligation under finance leases and obligations under finance leases, respectively. The interest
element of the finance cost 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 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-24







| | 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-25







| | 2.4 | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | --------------------------------------------------------------------------------------------



Available-for-sale
investments



Investments
in securities other than subsidiaries, associates and joint ventures, being held for non-trading purposes, are classified as available-for-sale
investments and are recognized on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments
are initially recognized at fair value plus transaction costs. At each reporting date, the fair value is remeasured, with any
resulting gain or loss being recognized in other comprehensive income, except for impairment losses. When these investments are
derecognized, the cumulative gain or loss previously recognized in other comprehensive income is recognized in profit or loss.



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



The
Group assesses at each reporting date whether there is objective evidence that a financial asset is impaired. In the case of equity
securities classified as available for sale, a significant or prolonged decline in the fair value of the securities below its
cost is considered an indicator that the securities are impaired. If any such evidence exists for available-for-sale investments,
the cumulative loss, measured as the difference between the acquisition cost and the current fair value less any impairment loss
on that financial asset previously recognized in profit or loss, is removed from equity and recognized in profit or loss. Impairment
losses recognized in profit or loss on equity instruments are not reversed through profit or loss.



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.



F-26







| | 2.4 | SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
| | --- | --------------------------------------------------------------------------------------------



Business
combination



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.



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-27







| | 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 US
dollars. The Group is exposed to currency risks from fluctuations in various foreign currency exchange rates against RMB.



RMB
is not a freely convertible currency and is regulated by the PRC government. Limitation on foreign exchange transactions imposed
by the PRC government could cause future exchange rates to vary significantly from current or historical exchange rates.



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 and cross currency swap to manage part of these foreign currency
risks. As at December 31, 2015, the currency derivatives at notional value and cross currency swap at notional value were RMB78
million and RMB244 million, respectively. Details of foreign currency forward contracts and cross currency swap are disclosed
in Note 39 to the financial statements.



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



|                                                     |  | 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



F-28







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



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



Foreign
currency risk(cont’d)



|                                                     |  | 2014        |        
|---------------------------------------------------- |  | ----------- | -------
|                                                     |  | USD         |        
|                                                     |  | RMB million |        
|                                                     |  |             |        
|Trade and other receivables                          |  |             | 1,684  
|Cash and cash equivalents                            |  |             | 490    
|Deposits relating to aircraft under operating leases |  |             | 482    
|Other non-current assets                             |  |             | 46     
|Trade and other payables                             |  |             | (30    
|Obligations under finance leases                     |  |             | (36,437
|Borrowings                                           |  |             | (42,984



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:





|                                                           |  | 2015           |           |  | 2014            | 
|---------------------------------------------------------- |  | -------------- | --------- |  | --------------- | 
|                                                           |  | Effect on      |           |  | Effect on other | 
|                                                           |  | profit or loss |           |  | comprehensive   | 
|                                                           |  |                |           |  | income          | 
|                                                           |  | RMB million    |           |  | RMB million     | 
|                                                           |  |                |           |  |                 | 
|If the RMB (weakens) /strengthens against the US dollar    |  |                | (581)/581 |  |                 | 
|If the RMB (weakens) /strengthens against the Euro         |  |                | 1/(1)     |  |                 | 
|If the RMB (weakens) /strengthens against the Japanese Yen |  |                | (2)/2     |  |                 | 



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:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                      |  | 2015        |         |   | 2014        | 
|----------------------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                                      |  | RMB million |         |   | RMB million | 
|Floating rate instruments                             |  |             |         |   |             | 
|Cash and cash equivalents                             |  |             | 9,080   |   |             | 
|Restricted bank deposits and short-term bank deposits |  |             | 35      |   |             | 
|Bills payable included in trade and bills payable     |  |             | (800    | ) |             | 
|Borrowings                                            |  |             | (34,823 | ) |             | 
|Obligations under finance leases                      |  |             | (52,399 | ) |             | 
|Interest rate swap at notional amount                 |  |             | 9,474   |   |             | 
|Cross currency swap at notional amount                |  |             | 244     |   |             | 



F-29







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



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



Interest
rate risk (cont’d)



|                                      |  | 2015        |         |   | 2014        | 
|------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                      |  | RMB million |         |   | RMB million | 
|                                      |  |             |         |   |             | 
|Fixed rate instruments                |  |             |         |   |             | 
|Borrowings                            |  |             | (31,889 | ) |             | 
|Interest rate swap at notional amount |  |             | 48      |   |             | 



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:



|                          |  | 2015           |      |   | 2014            | 
|------------------------- |  | -------------- | ---- | - | --------------- | 
|                          |  | Effect on      |      |   | Effect on other | 
|                          |  | profit or loss |      |   | comprehensive   | 
|                          |  |                |      |   | income          | 
|                          |  | RMB million    |      |   | RMB million     | 
|                          |  |                |      |   |                 | 
|Floating rate instruments |  |                | (148 | ) |                 | 



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
                                         23% of the Group’s operating expenses (2014: 34%).
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
at December 31, 2015, the Group had no open crude oil option contracts.



| |  | For the
                                         year ended December 31, 2015, if fuel price had been 5% higher/lower with all other variables
                                         held constant, the Group’s fuel cost would have been RMB1,016 million higher/lower
                                         (2014: RMB1,512 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 RMB752 million as at December 31, 2015
                                         (2014: approximately RMB848 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-30









| | 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
Group operates with a working capital deficit. As at December 31, 2015, the Group’s net current liabilities amounted to RMB51,309
million (2014: RMB42,887 million). For the year ended December 31, 2015, the Group recorded a net cash inflow from operating activities
of RMB24,325 million (2014: inflow RMB12,296 million),
a net cash outflow from investing activities and financing activities of RMB16,717 million (2014: outflow RMB12,921 million), and
an increase in cash and cash equivalents of RMB7,608 million (2014: decrease of RMB625 million).



The Directors of the Company believe
that cash from operations and bank loans will be sufficient to meet the Group’s operating cash flow. Due to the dynamic nature
of the underlying businesses, the Group’s treasury policy aims at maintaining flexibility in funding by keeping credit lines
available. The Directors of the Company believe that the Group has obtained sufficient general credit facilities from the PRC banks
for financing future capital commitments and for working capital purposes (see Note 2.1).



| |  | 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   |        |  | Between       |  |        | Between       |  |  | Over        | 
|-------------------------------- |  | ----------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ----------- | 
|                                 |  | 1 year      |        |  | 1 and 2 years |  |        | 2 and 5 years |  |  | 5 years     | 
|                                 |  | RMB million |        |  | RMB million   |  |        | RMB million   |  |  | RMB million | 
|At December 31, 2015             |  |             |        |  |               |  |        |               |  |  |             | 
|Borrowings                       |  |             | 39,794 |  |               |  | 11,067 |               |  |  | 9,477       | 
|Derivative financial instruments |  |             | 4      |  |               |  | -      |               |  |  | 58          | 
|Obligations under finance leases |  |             | 7,377  |  |               |  | 7,101  |               |  |  | 19,183      | 
|Trade, bills and other payables  |  |             | 15,433 |  |               |  | -      |               |  |  | -           | 
|                                 |  |             |        |  |               |  |        |               |  |  |             | 
|Total                            |  |             | 62,608 |  |               |  | 18,168 |               |  |  | 28,718      | 



|                                 |  | Less than   |        |  | Between       |  |        | Between       |  |  | Over        | 
|-------------------------------- |  | ----------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ----------- | 
|                                 |  | 1 year      |        |  | 1 and 2 years |  |        | 2 and 5 years |  |  | 5 years     | 
|                                 |  | RMB million |        |  | RMB million   |  |        | RMB million   |  |  | RMB million | 
|At December 31, 2014             |  |             |        |  |               |  |        |               |  |  |             | 
|Borrowings                       |  |             | 30,204 |  |               |  | 9,751  |               |  |  | 12,532      | 
|Derivative financial instruments |  |             | -      |  |               |  | 18     |               |  |  | 59          | 
|Obligations under finance leases |  |             | 5,453  |  |               |  | 5,174  |               |  |  | 13,165      | 
|Trade, bills and other payables  |  |             | 14,901 |  |               |  | -      |               |  |  | -           | 
|                                 |  |             |        |  |               |  |        |               |  |  |             | 
|Total                            |  |             | 50,558 |  |               |  | 14,943 |               |  |  | 25,756      | 



F-31







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



| | (b) | Capital risk management
| | --- | -----------------------



The Group’s
objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of
capital.



In order to maintain or adjust
the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce
debt.



The Group monitors capital on
the basis of the debt ratio, which is calculated as total liabilities divided by total assets. The debt ratios at December 31,
2015 and 2014 were as follows:



|                  |  | 2015        |         |  | 2014        | 
|----------------- |  | ----------- | ------- |  | ----------- | 
|                  |  | RMB million |         |  | RMB million | 
|                  |  |             |         |  |             | 
|Total liabilities |  |             | 158,061 |  |             | 
|Total assets      |  |             | 197,992 |  |             | 
|Debt ratio        |  |             | 0.80    |  |             | 



| | (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:



|                                                                                               |  | 2015             |        |  | 2014        | 
|---------------------------------------------------------------------------------------------- |  | ---------------- | ------ |  | ----------- | 
|                                                                                               |  | Carrying amounts |        |  | Fair values | 
|                                                                                               |  | RMB million      |        |  | RMB million | 
|Financial assets                                                                               |  |                  |        |  |             | 
|Deposits relating to aircraft held under operating leases included in other non-current assets |  |                  | 338    |  |             | 
|                                                                                               |  |                  |        |  |             | 
|Financial liabilities                                                                          |  |                  |        |  |             | 
|Long-term bank borrowings                                                                      |  |                  | 33,386 |  |             | 
|Obligations under finance leases                                                               |  |                  | 52,399 |  |             | 
|                                                                                               |  |                  |        |  |             | 
|Total                                                                                          |  |                  | 85,785 |  |             | 



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



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 with various counterparties, principally
financial institutions with high credit ratings. Derivative financial instruments, including forward currency contracts, interest
rate swaps, cross currency swap are measured using valuation techniques similar to forward pricing and swap models, using present
value calculations. The models incorporate various market observable inputs including the foreign exchange spot and forward rates
and interest rate curves. As at December 31, 2015, the marked to market value of the derivative asset position is net of a credit
valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material
effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognized
at fair value.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-32







| | 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, 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))                |  |                              | -  



|As at December 31, 2014                          |  | 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                   |  |                              | 195
|                                                 |  |                              |    
|Total                                            |  |                              | 195
|                                                 |  |                              |    
|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-33







| | 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, 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                                                                                        |  |                              | -



|As at December 31, 2014                                                                      |  | 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-34







| | 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 program
| | --- | ----------------------



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



| | (c) | Provision for costs of return condition checks for aircraft under operating leases
| | --- | ----------------------------------------------------------------------------------



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



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



The Group operates and maintains
a defined retirement benefit 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-35







| | 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-36







| | 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, |       
|------------------------------------ |  | ----------------------- | ------
|                                     |  | 2015                    |       
|                                     |  | RMB million             |       
|                                     |  |                         |       
|Traffic revenues                     |  |                         | 85,076
|- Passenger                          |  |                         | 78,585
|- Cargo and mail                     |  |                         | 6,491 
|Tour operations income               |  |                         | 3,491 
|Ground service income                |  |                         | 2,546 
|Cargo handling and processing income |  |                         | 750   
|Commission income                    |  |                         | 78    
|Others                               |  |                         | 2,028 
|                                     |  |                         |       
|                                     |  |                         | 93,969



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



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



| | 6 | OTHER
OPERATING INCOME AND GAINS
| | - | --------------------------------



|                                                    |  | Year ended December 31, |      
|--------------------------------------------------- |  | ----------------------- | -----
|                                                    |  | 2015                    |      
|                                                    |  | RMB million             |      
|                                                    |  |                         |      
|Subsidy income (Note 1)                             |  |                         | 4,131
|Gain on disposal of property, plant and equipment   |  |                         | 399  
|Gain on disposal of available-for-sale investments  |  |                         | 33   
|Dividend income from available-for-sale investments |  |                         | 13   
|Others (Note 2)                                     |  |                         | 693  
|                                                    |  |                         | 5,269



| |  | Note 1:
| |  | -------



Subsidy
income mainly represent (i) subsidies granted by various local governments based on certain amounts of tax paid; and (ii) subsidies
granted by various local governments and other parties to encourage the Group to operate certain routes to cities where these governments
are located.



| |  | There are no unfulfilled conditions and other contingencies related to subsidies that were recognized
for the years ended December 31, 2015, 2014 and 2013.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Note 2:
| |  | -------



| |  | Others mainly represent (i) compensation from ticket sales agents; (ii) gain on disposal of investments
in a subsidiary; and (iii) compensation from transfer of the pilots.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-37







| | 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 IFRS in certain
aspects. The amount of each material reconciling items from the Group’s reportable segment revenue and profit or loss, arising
from different accounting policies are set out in Note 7(c) below.



| |  | The segment results for the year ended December 31, 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   |              |  |  | -            |   |  |             | -  



F-38







| | 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, 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 results for the year ended December 31, 2013 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 |  |                | 84,248 |  |             |  | 3,861 |              |  |  | -            |   |  |             | - 
|Inter-segment sales                                |  |                | -      |  |             |  | 258   |              |  |  | (258         | ) |  |             | - 
|Reportable segment revenue                         |  |                | 84,248 |  |             |  | 4,119 |              |  |  | (258         | ) |  |             | - 
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |   
|Reportable segment profit before income tax        |  |                | 2,044  |  |             |  | 93    |              |  |  | -            |   |  |             | 68
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |   
|Other segment information                          |  |                |        |  |             |  |       |              |  |  |              |   |  |             |   
|                                                   |  |                |        |  |             |  |       |              |  |  |              |   |  |             |   
|Depreciation and amortization                      |  |                | 8,470  |  |             |  | 244   |              |  |  | -            |   |  |             | - 
|Impairment charges/(reversal)                      |  |                | 186    |  |             |  | (2    | )            |  |  | -            |   |  |             | - 
|Interest income                                    |  |                | 99     |  |             |  | 49    |              |  |  | -            |   |  |             | - 
|Finance expenses                                   |  |                | 1,368  |  |             |  | 180   |              |  |  | -            |   |  |             | - 
|Capital expenditure                                |  |                | 24,756 |  |             |  | 310   |              |  |  | -            |   |  |             | - 



| |  | The segment assets and liabilities as at December 31, 2015, 2014 were as follows:
| |  | ---------------------------------------------------------------------------------



|                               |  | Airline        |         |  |             |  |        |              |  |  |              |   |  |             |      
|------------------------------ |  | -------------- | ------- |  | ----------- |  | ------ | ------------ |  |  | ------------ | - |  | ----------- | -----
|                               |  | transportation |         |  | Other       |  |        |              |  |  |              |   |  |             |      
|                               |  | operations     |         |  | segments    |  |        | Eliminations |  |  | Unallocated* |   |  | Total       |      
|                               |  | RMB million    |         |  | RMB million |  |        | RMB million  |  |  | RMB million  |   |  | RMB million |      
|                               |  |                |         |  |             |  |        |              |  |  |              |   |  |             |      
|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   
|                               |  |                |         |  |             |  |        |              |  |  |              |   |  |             |      
|At December 31, 2014           |  |                |         |  |             |  |        |              |  |  |              |   |  |             |      
|Reportable segment assets      |  |                | 156,786 |  |             |  | 8,679  |              |  |  | (3,947       | ) |  |             | 2,024
|Reportable segment liabilities |  |                | 130,696 |  |             |  | 7,306  |              |  |  | (3,947       | ) |  |             | -    



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



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



|                                                          |  | 2015        |        |  | 2014        |  |        | 2013        | 
|--------------------------------------------------------- |  | ----------- | ------ |  | ----------- |  | ------ | ----------- | 
|                                                          |  | RMB million |        |  | RMB million |  |        | RMB million | 
|                                                          |  |             |        |  |             |  |        |             | 
|Domestic (the PRC, excluding Hong Kong, Macau and Taiwan) |  |             | 61,222 |  |             |  | 60,531 |             | 
|Regional (Hong Kong, Macau and Taiwan)                    |  |             | 3,569  |  |             |  | 3,799  |             | 
|International                                             |  |             | 29,178 |  |             |  | 25,855 |             | 
|                                                          |  |             |        |  |             |  |        |             | 
|Total                                                     |  |             | 93,969 |  |             |  | 90,185 |             | 



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:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                            |  |      |  | 2015        |        |  | 2014        |  |        | 2013        | 
|--------------------------------------------------------------------------- |  | ---- |  | ----------- | ------ |  | ----------- |  | ------ | ----------- | 
|                                                                            |  | Note |  | RMB million |        |  | RMB million |  |        | RMB million | 
|                                                                            |  |      |  |             |        |  |             |  |        |             | 
|Revenue                                                                     |  |      |  |             |        |  |             |  |        |             | 
|Reportable segment revenue                                                  |  |      |  |             | 93,844 |  |             |  | 89,746 |             | 
|- Reclassification of business tax and expired sales in advance of carriage |  | (i)  |  |             | 125    |  |             |  | 521    |             | 
|- Adjustment of business combination under common control                   |  |      |  |             | -      |  |             |  | (82    | )           | 
|                                                                            |  |      |  |             |        |  |             |  |        |             | 
|Consolidated revenue                                                        |  |      |  |             | 93,969 |  |             |  | 90,185 |             | 



F-40







| | 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):
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                   |  |      |  | 2015        |       |   | 2014        |  |       | 2013        | 
|-------------------------------------------------------------------------------------------------- |  | ---- |  | ----------- | ----- | - | ----------- |  | ----- | ----------- | 
|                                                                                                   |  | Note |  | RMB million |       |   | RMB million |  |       | RMB million | 
|                                                                                                   |  |      |  |             |       |   |             |  |       |             | 
|Profit before income tax                                                                           |  |      |  |             |       |   |             |  |       |             | 
|Reportable segment profit                                                                          |  |      |  |             | 5,671 |   |             |  | 4,120 |             | 
|- Differences in depreciation charges for aircraft and engines due to different depreciation lives |  | (ii) |  |             | (4    | ) |             |  | (4    | )           | 
|- Adjustments of business combination under common control                                         |  |      |  |             | -     |   |             |  | (3    | )           | 
|                                                                                                   |  |      |  |             |       |   |             |  |       |             | 
|Consolidated profit before income tax                                                              |  |      |  |             | 5,667 |   |             |  | 4,113 |             | 



|                                                                                                   |  |       |  |  |  |  | 2015        |  |         | 2014        | 
|-------------------------------------------------------------------------------------------------- |  | ----- |  |  |  |  | ----------- |  | ------- | ----------- | 
|                                                                                                   |  | Notes |  |  |  |  | RMB million |  |         | RMB million | 
|                                                                                                   |  |       |  |  |  |  |             |  |         |             | 
|Assets                                                                                             |  |       |  |  |  |  |             |  |         |             | 
|Reportable segment assets                                                                          |  |       |  |  |  |  |             |  | 195,709 |             | 
|- Differences in depreciation charges for aircraft and engines due to different depreciation lives |  | (ii)  |  |  |  |  |             |  | 41      |             | 
|- Difference in intangible asset arising from the acquisition of Shanghai Airlines                 |  | (iii) |  |  |  |  |             |  | 2,242   |             | 
|                                                                                                   |  |       |  |  |  |  |             |  |         |             | 
|Consolidated assets                                                                                |  |       |  |  |  |  |             |  | 197,992 |             | 



|                               |  |  |  |  |  |  | 2015        |  |         | 2014        | 
|------------------------------ |  |  |  |  |  |  | ----------- |  | ------- | ----------- | 
|                               |  |  |  |  |  |  | RMB million |  |         | RMB million | 
|                               |  |  |  |  |  |  |             |  |         |             | 
|Liabilities                    |  |  |  |  |  |  |             |  |         |             | 
|Reportable segment liabilities |  |  |  |  |  |  |             |  | 158,058 |             | 
|- Others                       |  |  |  |  |  |  |             |  | 3       |             | 
|                               |  |  |  |  |  |  |             |  |         |             | 
|Consolidated liabilities       |  |  |  |  |  |  |             |  | 158,061 |             | 



Notes:



| | (i) | The difference represents the different classification of business tax and expired sales in advance
of carriage under the PRC Accounting Standards and IFRS.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The difference is attributable to the differences in the useful lives and residual values of aircraft
and engines adopted for depreciation purposes in prior years under the PRC Accounting Standards and IFRS. Despite the depreciation
policies of these assets have been unified under IFRS and the PRC Accounting Standards in recent years, the changes were applied
prospectively as changes in accounting estimates which result in the differences in the carrying amounts and related depreciation
charges under IFRS and the PRC Accounting Standards.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The difference represents the different measurement of the fair value of acquisition cost of the
shares from Shanghai Airlines between the PRC Accounting standards and IFRS, which results in the different measurement of goodwill.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8 | GAIN ON FAIR VALUE CHANGES OF DERIVATIVE FINANCIAL INSTRUMENTS
| | - | --------------------------------------------------------------



|                                          |  | Year ended December 31, |  
|----------------------------------------- |  | ----------------------- | -
|                                          |  | 2015                    |  
|                                          |  | RMB million             |  
|                                          |  |                         |  
|Interest rate swap contracts (Note 39(a)) |  |                         | 6
|Others                                    |  |                         | -
|                                          |  |                         |  
|                                          |  |                         | 6



F-41







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



|                                                 |  | Year ended December 31, |       
|------------------------------------------------ |  | ----------------------- | ------
|                                                 |  | 2015                    |       
|                                                 |  | RMB million             |       
|                                                 |  |                         |       
|Wages, salaries, bonus and allowances            |  |                         | 12,917
|Employee welfare and benefits                    |  |                         | 436   
|Pension and medical insurance (Note 37(a) & (b)) |  |                         | 2,042 
|Post-retirement benefits (Note 37(c))            |  |                         | -     
|Staff housing fund (Note (a))                    |  |                         | 817   
|Staff housing allowances (Note (b))              |  |                         | 247   
|                                                 |  |                         |       
|                                                 |  |                         | 16,459



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:



|                                    |  | 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



F-42







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



| |  | (c) Emoluments of directors and supervisors (cont’d)
| |  | ----------------------------------------------------



|                                    |  | 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



|                                    |  | 2013         |      
|----------------------------------- |  | ------------ | -----
|                                    |  | Salaries and |      
|                                    |  | Allowance    |      
|                                    |  | RMB’000      |      
|                                    |  |              |      
|Executive Directors                 |  |              |      
|Liu Shaoyong*                       |  |              | -    
|Ma Xulun                            |  |              | 713  
|Xu Zhao*                            |  |              | -    
|Gu Jiadan*                          |  |              | -    
|Li Yangmin                          |  |              | 639  
|Tang Bing                           |  |              | 604  
|Luo Zhuping******                   |  |              | 391  
|                                    |  |              |      
|Independent non-executive Directors |  |              |      
|Liu Keya                            |  |              | 120  
|Wu Xiaogen******                    |  |              | -    
|Ji Weidong                          |  |              | 120  
|Shao Ruiqing                        |  |              | 120  
|Li Ruoshan*******                   |  |              | 60   
|Ma Weihua*******                    |  |              | 30   
|                                    |  |              |      
|Supervisors                         |  |              |      
|Yu Faming*                          |  |              | -    
|Xi Sheng*                           |  |              | -    
|Liu Jiashun******                   |  |              | -    
|Feng Jinxiong                       |  |              | 422  
|Yan Taisheng                        |  |              | 384  
|Ba Shengji*******                   |  |              | 325  
|                                    |  |              |      
|Total                               |  |              | 3,928



| | * | 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  December 31, 2015.
| | -- | --------------------------------------------------------------



| | *** | These directors and supervisors of the Company retired
or resigned during the year ended December 31, 2014.
| | --- | -----------------------------------------------------------------------------------------------------------



| | **** | These directors and supervisors of the Company were newly
appointed during the year ended December 31, 2015.
| | ---- | ------------------------------------------------------------------------------------------------------------



F-43







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



(c) Emoluments of directors
and supervisors (cont’d)



| | ***** | Mr. Ji Weidong has filed his resignation during the year ended December 31, 2015 but will fulfil
his responsibility until new director being appointed by the board.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ****** | These directors and officials of the Company retired or
resigned during the year ended December 31, 2013.
| | ------ | ---------------------------------------------------------------------------------------------------------



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



During
the years ended December 31, 2015, 2014 and 2013, 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, 2015 (2014 and
2013: Nil). The emoluments payable to the five highest paid individuals were as follows:



|                                                |  | 2015    |       |  | 2014    |  |       | 2013    | 
|----------------------------------------------- |  | ------- | ----- |  | ------- |  | ----- | ------- | 
|                                                |  | RMB’000 |       |  | RMB’000 |  |       | RMB’000 | 
|                                                |  |         |       |  |         |  |       |         | 
|Wages, salaries, bonus and allowances           |  |         | 8,104 |  |         |  | 7,817 |         | 
|                                                |  |         |       |  |         |  |       |         | 
|The emoluments fell within the following bands: |  |         |       |  |         |  |       |         | 



|                             |  | Number of individuals |  
|---------------------------- |  | --------------------- | -
|                             |  | 2015                  |  
|                             |  |                       |  
|Nil to HK$1,000,000          |  |                       | -
|HK$1,000,001 to HK$1,500,000 |  |                       | -
|HK$1,500,001 to HK$2,000,000 |  |                       | 5
|HK$2,000,001 to HK$2,500,000 |  |                       | -
|                             |  |                       |  
|                             |  |                       | 5



| |  | During the year ended December 31, 2015, 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 (2014 and 2013: Nil).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10 | IMPAIRMENT CHARGES
| | -- | ------------------



|                                                                                                 |  | Year ended December 31, |    
|------------------------------------------------------------------------------------------------ |  | ----------------------- | ---
|                                                                                                 |  | 2015                    |    
|                                                                                                 |  | RMB million             |    
|                                                                                                 |  |                         |    
|Provision for/(reversal of) impairment
    charge of flight     equipment spare parts (Note (a)) |  |                         | 88 
|Impairment charge on assets classified as held for sale (Note (b))                               |  |                         | -  
|Impairment charge on interests in associates                                                     |  |                         | 33 
|Impairment charge on available-for-sale investments                                              |  |                         | 100
|Reversal of impairment charge of trade and other receivables                                     |  |                         | (41
|Impairment charges on property, plant and equipment                                              |  |                         | 48 
|Impairment charges on other long-term assets (Note (c))                                          |  |                         | -  
|                                                                                                 |  |                         |    
|                                                                                                 |  |                         | 228



Note:



| | (a) | After acquisition of Shanghai Airlines Co., Ltd. in 2010, the Company has reviewed the composition
of its aircraft fleet, aiming to simplify the models of aircraft and maximize operation efficiencies. In 2012, the Company has
defined the main model of aircraft for future operation and signed series of contracts to dispose other models of aircraft between
2014 and 2016. As a consequence, the Company has reassessed the provision for the flight equipment spare parts in relation to the
main models of aircraft and also the spare parts in relation to the aircraft to be disposed, and reversed provision of RMB20 million
during the year ended December 31,2013 in accordance with the reassessment results.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | In 2012, the Group entered into an agreement with a third party to dispose certain aircraft and
related engines. The aircraft and engines to be sold in the next 12 months were recognized as assets classified as held for sale
at December 31, 2013, and an impairment loss of approximately RMB50 million was made against those aircraft and engines by reference
to the contracted selling price less estimated cost to sell (Note 16).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | An impairment loss of approximately RMB114 million was made against other long-term assets of a
subsidiary for the year ended December 31, 2013 by reference to the projected future cash flows of respective cash-generating-unit
(“CGU”).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-44







| | 11 | OPERATING PROFIT
| | -- | ----------------



Operating
profit is stated after charging/(crediting) the following items:



|                                                                               |  | Year ended December 31, |      
|------------------------------------------------------------------------------ |  | ----------------------- | -----
|                                                                               |  | 2015                    |      
|                                                                               |  | RMB million             |      
|                                                                               |  |                         |      
|Amortization of intangible assets                                              |  |                         | 85   
|Depreciation of property, plant and equipment                                  |  |                         |      
|– owned                                                                        |  |                         | 5,350
|– leased (finance leases)                                                      |  |                         | 4,972
|Depreciation of investment properties                                          |  |                         | 4    
|Amortization of long-term deferred assets included in other non-current assets |  |                         | 388  
|Amortization of lease prepayments                                              |  |                         | 60   
|Consumption of flight equipment spare parts                                    |  |                         | 974  
|Auditors’ remuneration                                                         |  |                         | 17   



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



|                           |  | Year ended December 31, |   
|-------------------------- |  | ----------------------- | --
|                           |  | 2015                    |   
|                           |  | RMB million             |   
|                           |  |                         |   
|Exchange gains, net (Note) |  |                         | - 
|Interest income            |  |                         | 66
|                           |  |                         |   
|                           |  |                         | 66



Note:



The exchange gain primarily
related to the translation of the Group’s foreign currency denominated borrowings and obligations under finance leases.



| | 13 | FINANCE COSTS
| | -- | -------------



|                                                                                            |  | Year ended December 31, |       
|------------------------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                                            |  | 2015                    |       
|                                                                                            |  | RMB million             |       
|                                                                                            |  |                         |       
|Interest on bank borrowings                                                                 |  |                         | 1,727 
|Interest relating to obligations under finance leases and post-retirement benefits          |  |                         | 867   
|Interest on bonds and debentures                                                            |  |                         | 483   
|Interest relating to bills payable                                                          |  |                         | 128   
|                                                                                            |  |                         |       
|                                                                                            |  |                         | 3,205 
|                                                                                            |  |                         |       
|Exchange losses, net (Note (b))                                                             |  |                         | 4,987 
|                                                                                            |  |                         |       
|Less:  amounts capitalized into advanced payments
    on acquisition of aircraft (Note (a)) |  |                         | (1,014
|amounts capitalized into
    construction in progress (Note (a))                            |  |                         | (2    
|                                                                                            |  |                         |       
|                                                                                            |  |                         | 7,176 



Note:



| | (a) | The average interest rate used for interest capitalization was 3.09% per annum for the year ended
December 31, 2015 (2014: 2.69%; 2013: 2.75%).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The exchange losses primarily related to the translation of the Group’s foreign currency
denominated borrowings and obligations under finance leases.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



F-45







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



| |  | Income tax charged to profit or loss was as follows:
| |  | ----------------------------------------------------



|                            |  | Year ended December 31, |     
|--------------------------- |  | ----------------------- | ----
|                            |  | 2015                    |     
|                            |  | RMB million             |     
|                            |  |                         |     
|PRC income tax              |  |                         | 737 
|Deferred taxation (Note 38) |  |                         | (113
|                            |  |                         |     
|                            |  |                         | 624 



| |  | 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 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% (2014: 16.5%; 2013:16.5%),
are generally subject to the PRC standard corporate income tax rate of 25% (2014: 25%; 2013: 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, |      
|------------------------------------------------------------ |  | ----------------------- | -----
|                                                             |  | 2015                    |      
|                                                             |  | RMB million             |      
|                                                             |  |                         |      
|Profit before income tax                                     |  |                         | 5,667
|                                                             |  |                         |      
|Tax calculated at the tax rate of 25% (2014: 25%; 2013:25%)  |  |                         | 1,417
|Lower tax rates enacted by local authority                   |  |                         | (156 
|Share of results of associates and joint ventures            |  |                         | (38  
|Expenses not deductible for tax                              |  |                         | 104  
|Effect in respect of post-retirement benefit plan            |  |                         | -    
|Utilization of previously unrecognized tax losses            |  |                         | (1   
|Unrecognized tax losses for the year                         |  |                         | 20   
|Utilization of/unrecognized deductible temporary differences |  |                         | (722 
|                                                             |  |                         |      
|Tax charge                                                   |  |                         | 624  



| |  | The Group operates international flights to overseas destinations. There
was no material overseas taxation for the years ended December 31, 2015, 2014 and 2013, 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 RMB4,537 million (2014: RMB3,410 million; 2013: RMB2,373 million) and the weighted average number of shares of
12,818,509,000 (2014: 12,674,269,000; 2013: 12,091,881,000) in issue during the year ended December 31, 2015. The Company had no
potentially dilutive options or other instruments relating to the ordinary shares in issue during the years ended December 31,
2015, 2014 and 2013.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-46







| | 16 | ASSETS CLASSIFIED AS HELD FOR SALE
| | -- | ----------------------------------



| |  | The Group entered into several agreements with third parties to dispose certain aircraft and
                                                          related engines. The aircraft and engines with an aggregate carrying amount of RMB594 million (2014: RMB4,330 million) have
                                                          been recognized as assets classified as held for sale by the Group as at December 31, 2015, which are stated at the lower
                                                          of their carrying amounts and their fair value less cost to sell.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 17 | INTANGIBLE ASSETS
| | -- | -----------------



|                         |  | Goodwill    |        |  | Computer    |  |     |             | 
|------------------------ |  | ----------- | ------ |  | ----------- |  | --- | ----------- | 
|                         |  | (Note)      |        |  | software    |  |     | Total       | 
|                         |  | RMB million |        |  | RMB million |  |     | RMB million | 
|Cost                     |  |             |        |  |             |  |     |             | 
|At January 1, 2014       |  |             | 11,270 |  |             |  | 495 |             | 
|Additions                |  |             | -      |  |             |  | 79  |             | 
|                         |  |             |        |  |             |  |     |             | 
|At December 31, 2014     |  |             | 11,270 |  |             |  | 574 |             | 
|                         |  |             |        |  |             |  |     |             | 
|Additions                |  |             | -      |  |             |  | 109 |             | 
|Disposals                |  |             | -      |  |             |  | (4  | )           | 
|                         |  |             |        |  |             |  |     |             | 
|At December 31, 2015     |  |             | 11,270 |  |             |  | 679 |             | 
|                         |  |             |        |  |             |  |     |             | 
|Accumulated amortization |  |             |        |  |             |  |     |             | 
|At January 1, 2014       |  |             | -      |  |             |  | 275 |             | 
|Charge for the year      |  |             | -      |  |             |  | 69  |             | 
|                         |  |             |        |  |             |  |     |             | 
|At December 31, 2014     |  |             | -      |  |             |  | 344 |             | 
|                         |  |             |        |  |             |  |     |             | 
|Charge for the year      |  |             | -      |  |             |  | 85  |             | 
|Disposals                |  |             | -      |  |             |  | (2  | )           | 
|                         |  |             |        |  |             |  |     |             | 
|At December 31, 2015     |  |             | -      |  |             |  | 427 |             | 
|                         |  |             |        |  |             |  |     |             | 
|Net book amount          |  |             |        |  |             |  |     |             | 
|At December 31, 2014     |  |             | 11,270 |  |             |  | 230 |             | 
|                         |  |             |        |  |             |  |     |             | 
|At December 31, 2015     |  |             | 11,270 |  |             |  | 252 |             | 



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



| |  | The balance represents goodwill arising from the acquisition of Shanghai Airlines. Goodwill is
attributable to strengthening the competitiveness of the Group’s airline transportation operations, attaining synergy through
integration of the resources and providing the evolution of Shanghai international air transportation center. For the purpose of
impairment assessment, goodwill was allocated to the 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% (2014: 13%). The growth rate used to extrapolate
the cash flows of the above cash-generating unit beyond the five-year period is 3% (2014: 5%), which includes the effect of inflation.
No impairment for the goodwill was required based on the value-in-use calculation as at the reporting date.



F-47







| | 18 | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------





|                                                                         |  | 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 (Note 19)                          |  |                                                                                                                          | -      |   |                                                                                                             |  | -      |                 |  |  | (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



During
the year, the Group recognized an impairment loss of approximately RMB48 million relating to aircraft, engines and flight equipment
(2014: RMB3 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, 2015, certain aircraft and buildings owned by the Group with an aggregate net carrying amount of approximately RMB29,147 million
(2014: approximately RMB23,117 million) were pledged as collateral under certain loan arrangements (Note 34).



F-48







| | 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, 2014                                                       |  |                                                                                                                          | 76,671 |   |                                                                                                             |  | 47,668 |                 |  |  | 7,486                                                        |   |  |                           | 6,435
|Transfer from construction
    in progress                               |  |                                                                                                                          | 19     |   |                                                                                                             |  | -      |                 |  |  | 814                                                          |   |  |                           | 249  
|Transfer from advanced
    payments on acquisition of aircraft (Note 21) |  |                                                                                                                          | 4,267  |   |                                                                                                             |  | 12,442 |                 |  |  | -                                                            |   |  |                           | -    
|Additions                                                                |  |                                                                                                                          | 2,262  |   |                                                                                                             |  | 11,029 |                 |  |  | 5                                                            |   |  |                           | 545  
|Transfer to assets classified
    as held for sale                       |  |                                                                                                                          | (5,634 | ) |                                                                                                             |  | (2,706 | )               |  |  | -                                                            |   |  |                           | -    
|Transfer to other non-current
    assets                                 |  |                                                                                                                          | -      |   |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                           | -    
|Disposals                                                                |  |                                                                                                                          | (6,129 | ) |                                                                                                             |  | (862   | )               |  |  | (69                                                          | ) |  |                           | (228 
|At
    December 31, 2014                                                 |  |                                                                                                                          | 71,456 |   |                                                                                                             |  | 67,571 |                 |  |  | 8,236                                                        |   |  |                           | 7,001
|                                                                         |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                           |      
|Accumulated
    depreciation                                             |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                           |      
|At January 1, 2014                                                       |  |                                                                                                                          | 28,858 |   |                                                                                                             |  | 11,862 |                 |  |  | 1,769                                                        |   |  |                           | 4,130
|Charge for the year                                                      |  |                                                                                                                          | 4,919  |   |                                                                                                             |  | 3,368  |                 |  |  | 277                                                          |   |  |                           | 492  
|Transfer to assets classified
    as held for sale                       |  |                                                                                                                          | (2,691 | ) |                                                                                                             |  | (1,319 | )               |  |  | -                                                            |   |  |                           | -    
|Disposals                                                                |  |                                                                                                                          | (4,282 | ) |                                                                                                             |  | (658   | )               |  |  | (33                                                          | ) |  |                           | (192 
|At
    December 31, 2014                                                 |  |                                                                                                                          | 26,804 |   |                                                                                                             |  | 13,253 |                 |  |  | 2,013                                                        |   |  |                           | 4,430
|                                                                         |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                           |      
|Impairment                                                               |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                           |      
|At January 1, 2014                                                       |  |                                                                                                                          | 798    |   |                                                                                                             |  | 108    |                 |  |  | -                                                            |   |  |                           | 8    
|Charge for the year                                                      |  |                                                                                                                          | 3      |   |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                           | -    
|Disposals                                                                |  |                                                                                                                          | (475   | ) |                                                                                                             |  | -      |                 |  |  | -                                                            |   |  |                           | (1   
|At
    December 31, 2014                                                 |  |                                                                                                                          | 326    |   |                                                                                                             |  | 108    |                 |  |  | -                                                            |   |  |                           | 7    
|                                                                         |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                           |      
|Net
    book amount                                                      |  |                                                                                                                          |        |   |                                                                                                             |  |        |                 |  |  |                                                              |   |  |                           |      
|At
    December 31, 2014                                                 |  |                                                                                                                          | 44,326 |   |                                                                                                             |  | 54,210 |                 |  |  | 6,223                                                        |   |  |                           | 2,564
|At January 1, 2014                                                       |  |                                                                                                                          | 47,015 |   |                                                                                                             |  | 35,698 |                 |  |  | 5,717                                                        |   |  |                           | 2,297



F-49







| | 19 | INVESTMENT PROPERTIES
| | -- | ---------------------



|                                                      |  | 2015        |    
|----------------------------------------------------- |  | ----------- | ---
|                                                      |  | RMB million |    
|                                                      |  |             |    
|Cost                                                  |  |             |    
|At January 1, 2015                                    |  |             | -  
|Transfer from property, plant and equipment (Note 18) |  |             | 344
|                                                      |  |             |    
|At December 31, 2015                                  |  |             | 344
|                                                      |  |             |    
|Accumulated depreciation                              |  |             |    
|At January 1, 2015                                    |  |             | -  
|Charge for the year                                   |  |             | (4 
|Transfer from property, plant and equipment (Note 18) |  |             | (46
|                                                      |  |             |    
|At December 31, 2015                                  |  |             | (50
|                                                      |  |             |    
|Net book amount                                       |  |             |    
|At December 31, 2015                                  |  |             | 294



| |  | As of December 31, 2015, the fair value of the investment properties was RMB497,462,000 according
to a valuation performed by an independent professionally qualified valuer.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Fair value hierarchy
| |  | --------------------



| |  | The following table illustrates the fair value measurement hierarchy of the Group’s investment
properties:
| |  | ----------------------------------------------------------------------------------------------------------



|                                                        |  | Fair value measurement as at December 31,
    2015 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 (2014: Nil).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



Below is a summary of the valuation
techniques used and the key inputs to the valuation of investment properties:



|          |  |                              |  |                            |  | Range or weighted
|--------- |  | ---------------------------- |  | -------------------------- |  | -----------------
|          |  |                              |  | Significant unobservable   |  | average          
|          |  | Valuation techniques         |  | inputs                     |  | RMB              
|          |  |                              |  |                            |  |                  
|          |  |                              |  |                            |  | 2015             
|          |  |                              |  |                            |  |                  
|Buildings |  | Discounted                   |  | Estimated rental value     |  | 10.65 to 154.43  
|          |  | cash flow method             |  | (per s.q.m. and per month) |  |                  
|          |  |                              |  | Rent growth (p.a.)         |  | 2% to 6%         
|          |  |                              |  | Long term vacancy rate     |  | 0% to 5%         
|          |  |                              |  | Discount rate              |  | 4% to 6%         
|          |  |                              |  |                            |  |                  
|Buildings |  | Market comparable
    method |  | Price per s.q.m.           |  | 14,699 to 37,000 



F-50







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



|                         |  | 2015        |       |   | 2014        | 
|------------------------ |  | ----------- | ----- | - | ----------- | 
|                         |  | RMB million |       |   | RMB million | 
|                         |  |             |       |   |             | 
|Cost                     |  |             |       |   |             | 
|At  January 1            |  |             | 2,686 |   |             | 
|Additions                |  |             | 82    |   |             | 
|Disposals                |  |             | (144  | ) |             | 
|                         |  |             |       |   |             | 
|At December 31           |  |             | 2,624 |   |             | 
|                         |  |             |       |   |             | 
|Accumulated amortisation |  |             |       |   |             | 
|At  January 1            |  |             | 480   |   |             | 
|Charge for the year      |  |             | 60    |   |             | 
|Disposals                |  |             | (10   | ) |             | 
|                         |  |             |       |   |             | 
|At  December 31          |  |             | 530   |   |             | 
|                         |  |             |       |   |             | 
|Net book amount          |  |             |       |   |             | 
|At  December 31          |  |             | 2,094 |   |             | 



| |  | Lease prepayments represent unamortized prepayments for land use rights.
| |  | ------------------------------------------------------------------------



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



|                                                    |  | 2015        |         |   | 2014        | 
|--------------------------------------------------- |  | ----------- | ------- | - | ----------- | 
|                                                    |  | RMB million |         |   | RMB million | 
|                                                    |  |             |         |   |             | 
|At  January 1                                       |  |             | 20,260  |   |             | 
|Additions                                           |  |             | 24,772  |   |             | 
|Interest capitalised (Note 13)                      |  |             | 1,014   |   |             | 
|Transfer to property, plant and equipment (Note 18) |  |             | (24,839 | ) |             | 
|                                                    |  |             |         |   |             | 
|At  December 31                                     |  |             | 21,207  |   |             | 



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



|                              |  | 2015        |       |  | 2014        | 
|----------------------------- |  | ----------- | ----- |  | ----------- | 
|                              |  | RMB million |       |  | RMB million | 
|                              |  |             |       |  |             | 
|Unlisted investments, at cost |  |             | 1,266 |  |             | 
|Share of net assets           |  |             | 277   |  |             | 
|                              |  |             |       |  |             | 
|                              |  |             | 1,543 |  |             | 



| |  | The movements in investments in associates were as follows:
| |  | -----------------------------------------------------------



|                                                                            |  | 2015        |       |   | 2014        | 
|--------------------------------------------------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                                                            |  | RMB million |       |   | RMB million | 
|                                                                            |  |             |       |   |             | 
|At  January 1                                                               |  |             | 1,086 |   |             | 
|Additions                                                                   |  |             | 413   |   |             | 
|Share of results of associates                                              |  |             | 126   |   |             | 
|Share of revaluation on available-for-sale investments held by an associate |  |             | 7     |   |             | 
|Disposal of associates                                                      |  |             | -     |   |             | 
|Provision for impairment                                                    |  |             | (33   | ) |             | 
|Dividend received during the year                                           |  |             | (56   | ) |             | 
|                                                                            |  |             |       |   |             | 
|At  December 31                                                             |  |             | 1,543 |   |             | 



F-51







| | 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
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------ |  | ------------------ | ----- |  | -------------------------------- | --- | --- | --------------------
|                                                                                           |  |                                                                    |  | 2015               |       |  | 2014                             |     |     | 2015                
|                                                                                           |  |                                                                    |  | Million            |       |  | Million                          |     |     |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|Eastern Air Group
    Finance Co., Ltd. (“Eastern Air Finance Company”)                    |  | PRC December 6, 1995                                               |  | RMB                | 2,000 |  |                                  | RMB | 500 |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|China Eastern Air Catering
    Investment Co., Ltd.                                        |  | PRC November 17, 2003                                              |  | RMB                | 350   |  |                                  | RMB | 350 |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|Shanghai Pratt & Whitney
    Aircraft Engine Maintenance Co., Ltd. (“Shanghai P&W”) (Note) |  | PRC March 28, 2008                                                 |  | USD                | 40    |  |                                  | USD | 40  |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|New Shanghai International
    Tower Co., Ltd.                                             |  | PRC November 17, 1992                                              |  | RMB                | 167   |  |                                  | RMB | 167 |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|Eastern Aviation Import &
    Export Co., Ltd. (“Eastern Import & Export”)                 |  | PRC June 9, 1993                                                   |  | RMB                | 80    |  |                                  | RMB | 80  |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|Eastern Aviation Advertising
    Service Co., Ltd. (“Eastern Advertising”)                 |  | PRC March 4, 1986                                                  |  | RMB                | 200   |  |                                  | RMB | 200 |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|Shanghai Collins Aviation
    Maintenance Service Co., Ltd. (“Collins Aviation”)           |  | PRC September 27, 2002                                             |  | USD                | 7     |  |                                  | USD | 7   |                     
|                                                                                           |  |                                                                    |  |                    |       |  |                                  |     |     |                     
|Jetstar Hong Kong Airways
    Ltd. (“Jetstar Hong Kong”)                                   |  | Hong Kong September 4, 2012                                        |  | USD                | 198   |  |                                  | USD | 198 |                     



| |  | 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:



|                                                                         |  | 2015        |       |  | 2014        | 
|------------------------------------------------------------------------ |  | ----------- | ----- |  | ----------- | 
|                                                                         |  | RMB million |       |  | RMB million | 
|                                                                         |  |             |       |  |             | 
|Share of the associates’ profit for the year                             |  |             | 126   |  |             | 
|Share of the associates’ other comprehensive income                      |  |             | 7     |  |             | 
|Share of the associates’ total comprehensive income                      |  |             | 133   |  |             | 
|Aggregate carrying amount of the Group’s
    interests in the associates |  |             | 1,543 |  |             | 



F-52







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



|                              |  | 2015        |     |  | 2014        | 
|----------------------------- |  | ----------- | --- |  | ----------- | 
|                              |  | RMB million |     |  | RMB million | 
|                              |  |             |     |  |             | 
|Unlisted investments, at cost |  |             | 352 |  |             | 
|Share of net assets           |  |             | 166 |  |             | 
|                              |  |             |     |  |             | 
|                              |  |             | 518 |  |             | 



| |  | The movements in investments in joint ventures were as follows:
| |  | ---------------------------------------------------------------



|                                                    |  | 2015        |     |   | 2014        | 
|--------------------------------------------------- |  | ----------- | --- | - | ----------- | 
|                                                    |  | RMB million |     |   | RMB million | 
|                                                    |  |             |     |   |             | 
|At  January 1                                       |  |             | 505 |   |             | 
|Addition through the acquisition of a joint venture |  |             | -   |   |             | 
|Share of results                                    |  |             | 26  |   |             | 
|Dividend received during the year                   |  |             | (13 | ) |             | 
|                                                    |  |             |     |   |             | 
|At  December 31                                     |  |             | 518 |   |             | 



| |  | 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
|-------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- |  | --------------- | -- |  | -------------------------------- | --- | -- | --------------------
|                                                                                                                                 |  |                                                                        |  | 2015            |    |  | 2014                             |     |    | 2015                
|                                                                                                                                 |  |                                                                        |  | Million         |    |  | Million                          |     |    |                     
|                                                                                                                                 |  |                                                                        |  |                 |    |  |                                  |     |    |                     
|Shanghai Technologies Aerospace
    Co., Ltd. (“Technologies Aerospace”) (Note)                                                  |  | PRC September 28, 2004                                                 |  | USD             | 73 |  |                                  | USD | 73 |                     
|                                                                                                                                 |  |                                                                        |  |                 |    |  |                                  |     |    |                     
|Shanghai
    Eastern Union
    Aviation Wheels & Brakes Maintenance Services Overhaul Engineering Co.,  Ltd. (“Wheels & Brakes”) |  | PRC December 28, 1995                                                  |  | USD             | 2  |  |                                  | USD | 2  |                     
|                                                                                                                                 |  |                                                                        |  |                 |    |  |                                  |     |    |                     
|Eastern
    China Kaiya System
    Integration Co., Ltd. (“China Kaiya”)                                                         |  | PRC May 21, 1999                                                       |  | RMB             | 10 |  |                                  | RMB | 10 |                     
|                                                                                                                                 |  |                                                                        |  |                 |    |  |                                  |     |    |                     
|CAE
    Melbourne Flight 
    Training Pty Ltd.                                                                                  |  | Australia March 9, 2007                                                |  | AUD             | 11 |  |                                  | AUD | 11 |                     
|                                                                                                                                 |  |                                                                        |  |                 |    |  |                                  |     |    |                     
|Shanghai
    Hute Aviation  Technology Co., Ltd. (“Shanghai Hute”)                                                               |  | PRC April 9, 2003                                                      |  | RMB             | 30 |  |                                  | RMB | 30 |                     



F-53







| | 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:
| |  | --------------------------------------------------------------------------------------------------------------------------------------



|                                                                             |  | 2015        |     |  | 2014        | 
|---------------------------------------------------------------------------- |  | ----------- | --- |  | ----------- | 
|                                                                             |  | RMB million |     |  | RMB million | 
|                                                                             |  |             |     |  |             | 
|Share of the joint ventures’ profit for the year                             |  |             | 26  |  |             | 
|Share of the joint ventures’ total comprehensive income                      |  |             | 26  |  |             | 
|Aggregate carrying amount of the Group’s
    interests in the joint ventures |  |             | 518 |  |             | 



| | 24 | AVAILABLE-FOR-SALE INVESTMENTS
| | -- | ------------------------------



|                                            |  | 2015        |     |  | 2014        | 
|------------------------------------------- |  | ----------- | --- |  | ----------- | 
|                                            |  | RMB million |     |  | RMB million | 
|                                            |  |             |     |  |             | 
|Listed equity investments, at fair value    |  |             | 317 |  |             | 
|Unlisted equity investments, at cost (Note) |  |             | 135 |  |             | 
|                                            |  |             |     |  |             | 
|                                            |  |             | 452 |  |             | 



During
the year, the gross gain in respect of the Group's available-for-sale investments recognized in other comprehensive 	income
amounted to 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:
| |  | -----
| |  |      

| |  | As at December 31, 2015, 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, |      
|----------------------------------------------------------- |  | ------------ | -----
|                                                            |  | 2015         |      
|                                                            |  | RMB million  |      
|                                                            |  |              |      
|Deposits relating to aircraft held under operating leases   |  |              | 338  
|Deferred pilot recruitment costs                            |  |              | 1,243
|Rebate receivables on aircraft acquisitions                 |  |              | 974  
|Rental prepayment                                           |  |              | 450  
|Prepayment for acquisition of property, plant and equipment |  |              | 156  
|Other long term assets                                      |  |              | 593  
|                                                            |  |              |      
|                                                            |  |              | 3,754



| | 26 | FLIGHT EQUIPMENT SPARE PARTS
| | -- | ----------------------------



|                                |  | December 31, |      
|------------------------------- |  | ------------ | -----
|                                |  | 2015         |      
|                                |  | RMB million  |      
|                                |  |              |      
|Flight equipment spare parts    |  |              | 2,597
|Less: provision for spare parts |  |              | (541 
|                                |  |              |      
|                                |  |              | 2,056



F-54







| | 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, |     
|------------------------------------------------------------ |  | ------------ | ----
|                                                             |  | 2015         |     
|                                                             |  | RMB million  |     
|                                                             |  |              |     
|At January 1                                                 |  |              | 665 
|Accrual (Note 10)                                            |  |              | 88  
|Provision written off in relation to disposal of spare parts |  |              | (212
|                                                             |  |              |     
|At December 31                                               |  |              | 541 



| | 27 | TRADE RECEIVABLES
| | -- | -----------------



| |  | The credit terms given to trade customers are determined on an individual basis.
| |  | --------------------------------------------------------------------------------



| |  | The aging analysis of trade receivables was as follows:
| |  | -------------------------------------------------------



|                                        |  | December 31, |      
|--------------------------------------- |  | ------------ | -----
|                                        |  | 2015         |      
|                                        |  | RMB million  |      
|                                        |  |              |      
|Within 90 days                          |  |              | 2,608
|91 to 180 days                          |  |              | 105  
|181 to 365 days                         |  |              | 90   
|Over 365 days                           |  |              | 280  
|                                        |  |              |      
|                                        |  |              | 3,083
|Provision for impairment of receivables |  |              | (216 
|                                        |  |              |      
|Trade receivables                       |  |              | 2,867



| |  | Balances with related parties included in trade receivables are summarized in Note 47(c)(i).
| |  | --------------------------------------------------------------------------------------------



| |  | The carrying amounts of the trade receivables approximated to their fair values.
| |  | --------------------------------------------------------------------------------



| |  | Trade 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 December 31, 2015, trade receivables of RMB267 million (2014: RMB262 million) were past due
but not impaired. These relate to a number of independent sales agents for whom there was no recent history of default. The Group
holds cash deposits of RMB540 million (2014: RMB462 million) from these agents. The aging analysis of these trade receivables was
as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                |  | December 31, |    
|--------------- |  | ------------ | ---
|                |  | 2015         |    
|                |  | RMB million  |    
|                |  |              |    
|Past due:       |  |              |    
|Within 90 days  |  |              | 213
|91 to 180 days  |  |              | 28 
|181 to 365 days |  |              | 26 
|                |  |              |    
|                |  |              | 267



| |  | As at December 31, 2015,  trade receivables of RMB42 million (2014: RMB155 million) were impaired and
fully provided for. The remaining impaired trade receivables of RMB260 million relate to customers that were in financial difficulties
and only a portion of the receivables is expected to be recovered.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                                                         |  | 2015        |     |   | 2014        | 
|-------------------------------------------------------- |  | ----------- | --- | - | ----------- | 
|                                                         |  | RMB million |     |   | RMB million | 
|                                                         |  |             |     |   |             | 
|At January 1                                             |  |             | 206 |   |             | 
|Receivables written off during the year as uncollectible |  |             | (2  | ) |             | 
|Impairment losses recognized                             |  |             | 12  |   |             | 
|                                                         |  |             |     |   |             | 
|At December 31                                           |  |             | 216 |   |             | 



F-55











| | 27 | TRADE RECEIVABLES (cont’d)
| | -- | --------------------------



| |  | The net impacts of creation and release of provisions for impaired receivables
have been included in “Reversal of impairment charge of trade and other receivables” 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.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The carrying amounts of the Group’s trade receivables were denominated in the following currencies:
| |  | ---------------------------------------------------------------------------------------------------



|                  |  | December 31, |            
|----------------- |  | ------------ | -----------
|                  |  | 2015         |            
|                  |  |              | RMB million
|Currency          |  |              |            
|Renminbi          |  |              | 2,866      
|Japanese Yen      |  |              | 5          
|US Dollars        |  |              | 52         
|Euro              |  |              | 92         
|Hong Kong Dollars |  |              | -          
|Other currencies  |  |              | 68         
|                  |  |              |            
|                  |  |              | 3,083      



| |  | The maximum exposure to credit risk at the reporting date was the carrying amount of receivables
shown above.
| |  | -------------------------------------------------------------------------------------------------------------



| | 28 | PREPAYMENTS AND OTHER RECEIVABLES
| | -- | ---------------------------------



|                                                          |  | December 31, |            
|--------------------------------------------------------- |  | ------------ | -----------
|                                                          |  | 2015         |            
|                                                          |  |              | RMB million
|                                                          |  |              |            
|VAT recoverable                                           |  |              | 2,226      
|Prepaid corporate income tax                              |  |              | 413        
|Advance to suppliers                                      |  |              | 379        
|Prepaid aircraft operating lease rentals                  |  |              | 346        
|Dividend receivable                                       |  |              | 22         
|Rebate receivables on aircraft acquisitions               |  |              | 1,610      
|Rental deposits                                           |  |              | 278        
|Amounts due from related parties (Note 47(c)(i))          |  |              | 139        
|Deposits relating to aircraft held under operating leases |  |              | 145        
|Others                                                    |  |              | 3,127      
|                                                          |  |              |            
|Subtotal                                                  |  |              | 8,685      
|Provision for impairment of other receivables             |  |              | (239       
|                                                          |  |              |            
|                                                          |  |              | 8,446      



| |  | 
| |  | 

| |  | During the year, the reversal of impairment charge in respect of recovery of rental deposits from
previous years amounted to RMB53 million (2014: Nil).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



F-56







| | 29 | RESTRICTED BANK DEPOSITS AND SHORT-TERM BANK DEPOSITS
| | -- | -----------------------------------------------------



|                                                 |  | December 31, |   
|------------------------------------------------ |  | ------------ | --
|                                                 |  | 2015         |   
|                                                 |  | RMB million  |   
|                                                 |  |              |   
|Bank deposits with original maturity over a year |  |              | 2 
|Restricted bank deposits                         |  |              | 33
|                                                 |  |              |   
|                                                 |  |              | 35



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

| |  | As at December 31, 2015, the deposits bore effective interest rates ranging from 0.35% to 3.50%
per annum (2014: 0.35% to 3.50%).
| |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  | The carrying amounts of the Group’s restricted bank deposits and short-term bank deposits
were denominated in the following currency:
| |  | -------------------------------------------------------------------------------------------------------------------------------------



|         |  | December 31, |   
|-------- |  | ------------ | --
|         |  | 2015         |   
|         |  | RMB million  |   
|         |  |              |   
|Renminbi |  |              | 35



| | 30 | CASH AND CASH EQUIVALENTS
| | -- | -------------------------



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



|                  |  | December 31, |      
|----------------- |  | ------------ | -----
|                  |  | 2015         |      
|                  |  | RMB million  |      
|                  |  |              |      
|Renminbi          |  |              | 1,013
|US Dollars        |  |              | 7,755
|Euro              |  |              | 56   
|Japanese Yen      |  |              | 36   
|Hong Kong Dollars |  |              | 39   
|Other currencies  |  |              | 181  
|                  |  |              |      
|                  |  |              | 9,080



| | 31 | TRADE AND BILLS PAYABLES
| | -- | ------------------------



| |  | The aging analysis of trade and bills payables was as follows:
| |  | --------------------------------------------------------------



|                |  | December 31, |      
|--------------- |  | ------------ | -----
|                |  | 2015         |      
|                |  | RMB million  |      
|                |  |              |      
|Within 90 days  |  |              | 2,060
|91 to 180 days  |  |              | 348  
|181 to 365 days |  |              | 461  
|1 to 2 years    |  |              | 414  
|Over 2 years    |  |              | 429  
|                |  |              |      
|                |  |              | 3,712



| |  | As at December 31, 2015, trade and bills payable balances included amounts due to related parties
of RMB897 million (2014: RMB186 million) (Note 47(c)(ii)).
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As at December 31, 2015, bills payable amounted to RMB800 million (2014: Nil).
| |  | ------------------------------------------------------------------------------



F-57







| | 32 | OTHER PAYABLES AND ACCRUALS
| | -- | ---------------------------



|                                                                    |  | December 31, |       
|------------------------------------------------------------------- |  | ------------ | ------
|                                                                    |  | 2015         |       
|                                                                    |  | RMB million  |       
|                                                                    |  |              |       
|Salaries, wages and benefits                                        |  |              | 3,602 
|Take-off and landing charges                                        |  |              | 2,302 
|Fuel cost                                                           |  |              | 878   
|Expenses related to aircraft overhaul conducted                     |  |              | 1,703 
|Advance from customers                                              |  |              | 1,059 
|Duties and levies payable                                           |  |              | 2,077 
|Other accrued operating expenses                                    |  |              | 2,255 
|Deposits received from ticket sales agents                          |  |              | 841   
|Current portion of other long-term liabilities (Note 36)            |  |              | 515   
|Staff housing allowance                                             |  |              | 420   
|Amounts due to related parties (Note 47(c)(ii))                     |  |              | 1,305 
|Current portion of post-retirement benefit obligations (Note 37(c)) |  |              | 181   
|Others                                                              |  |              | 1,919 
|                                                                    |  |              |       
|                                                                    |  |              | 19,057



| | 33 | OBLIGATIONS UNDER FINANCE LEASES
| | -- | --------------------------------



| |  | As at December 31, 2015, the Group had 213 aircrafts (2014: 167 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:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------



|                                       |  |               |        |   | Present values of |  |        |               |  |  | Present values of |  
|-------------------------------------- |  | ------------- | ------ | - | ----------------- |  | ------ | ------------- |  |  | ----------------- | -
|                                       |  | Minimum lease |        |   | minimum lease     |  |        | Minimum lease |  |  | minimum lease     |  
|                                       |  | payments      |        |   | payments          |  |        | payments      |  |  | payments          |  
|                                       |  | 2015          |        |   | 2015              |  |        | 2014          |  |  | 2014              |  
|                                       |  | RMB million   |        |   | RMB million       |  |        | RMB million   |  |  | RMB million       |  
|                                       |  |               |        |   |                   |  |        |               |  |  |                   |  
|Within one year                        |  |               | 7,377  |   |                   |  | 6,109  |               |  |  | 5,453             |  
|In the second year                     |  |               | 7,101  |   |                   |  | 5,942  |               |  |  | 5,174             |  
|In the third to fifth years, inclusive |  |               | 19,183 |   |                   |  | 16,679 |               |  |  | 13,165            |  
|After the fifth year                   |  |               | 25,167 |   |                   |  | 23,669 |               |  |  | 19,272            |  
|                                       |  |               |        |   |                   |  |        |               |  |  |                   |  
|Total                                  |  |               | 58,828 |   |                   |  | 52,399 |               |  |  | 43,064            |  
|                                       |  |               |        |   |                   |  |        |               |  |  |                   |  
|Less: amount repayable within one year |  |               | (7,377 | ) |                   |  | (6,109 | )             |  |  | (5,453            | )
|                                       |  |               |        |   |                   |  |        |               |  |  |                   |  
|Long-term portion                      |  |               | 51,451 |   |                   |  | 46,290 |               |  |  | 37,611            |  



F-58







| | 34 | BORROWINGS
| | -- | ----------



|                                             |  | December 31, |       
|-------------------------------------------- |  | ------------ | ------
|                                             |  | 2015         |       
|                                             |  | RMB million  |       
|                                             |  |              |       
|Non-current                                  |  |              |       
|Long-term bank borrowings                    |  |              |       
|– secured (Note (a))                         |  |              | 14,766
|– unsecured                                  |  |              | 5,642 
|Guaranteed bonds (Note (b))                  |  |              | 8,090 
|                                             |  |              |       
|                                             |  |              | 28,498
|                                             |  |              |       
|Current                                      |  |              |       
|Current portion of long-term bank borrowings |  |              |       
|– secured (Note (a))                         |  |              | 2,609 
|– unsecured                                  |  |              | 10,369
|Short-term bank borrowings                   |  |              |       
|– unsecured                                  |  |              | 7,537 
|Short-term debentures (Note (c))             |  |              | 15,500
|Guaranteed bonds (Note (b))                  |  |              | 2,199 
|                                             |  |              |       
|                                             |  |              | 38,214
|                                             |  |              |       
|Total borrowings                             |  |              | 66,712
|                                             |  |              |       
|The borrowings are repayable as follows:     |  |              |       
|                                             |  |              |       
|Within one year                              |  |              | 38,214
|In the second year                           |  |              | 10,306
|In the third to fifth years inclusive        |  |              | 8,224 
|After the fifth year                         |  |              | 9,968 
|                                             |  |              |       
|Total borrowings                             |  |              | 66,712



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



| | (a) | As at December 31, 2015, the secured bank borrowings of the Group were pledged by the related aircraft
and buildings with an aggregate carrying amount of RMB29,147 million (2014: RMB23,117 million) (Note 18).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On March 18, 2013, the Company issued ten-year guaranteed bonds with a principal amount of RMB4.8
billion, at an issue price equal to the face value of the bonds. The bonds bear interest at the rate of 5.05% per annum, which
are payable annually. The principal of the bonds will mature and be repayable on March 18, 2023. CEA Holding has unconditionally
and irrevocably guaranteed the due payment and performance of the above bonds (Note 47(d)).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On June 5, 2013, Eastern Air
Overseas issued three-year guaranteed bonds with a principal amount of RMB2.2 billion, at an issue price equal to the face value
of the bonds. The bonds bear interest at the rate of 3.875% per annum, which are payable semi-annually. The principal of the bonds
will mature and become repayable on June 5, 2016. The Company has unconditionally and irrevocably guaranteed the due payment and
performance of the above bonds.



On March 6, 2014, Eastern Air
Overseas issued three-year guaranteed bonds with a principal amount of RMB2.5 billion, at an issue price equal to the face value
of the bonds. The bonds bear interest at the rate of 4.80% per annum, which are payable semi-annually. The principal of the bonds
will mature and become repayable on March 13, 2017. The Company has unconditionally and irrevocably guaranteed the due payment
and performance of the above bonds.



On May 14, 2014, Eastern Air
Overseas issued three-year guaranteed bonds with a principal amount of RMB0.8 billion, at an issue price equal to the face value
of the bonds. The bonds bear interest at the rate of 4.80% per annum, which are payable semi-annually. The principal of the bonds
will mature and become repayable on May 14, 2017. The Company has unconditionally and irrevocably guaranteed the due payment and
performance of the above bonds.



F-59







| | 34 | BORROWINGS (cont’d)
| | -- | -------------------



| | (c) | On June 26, 2015, 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 3.50% per annum.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On September 25, 2015, the Company issued short-term debentures with a principal of RMB2.5 billion
and maturity of 270 days. The debentures bear interest at the rate of 3.30% per annum.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On October 27, 2015, 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 3.00% per annum.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On November 20, 2015, 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 3.10% per annum.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On November 27, 2015, 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 3.00% per annum.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On December 28, 2015, 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 2.87% per annum.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On December 30, 2015, the Company issued short-term debentures with a principal of RMB1 billion
and maturity of 270 days. The debentures bear interest at the rate of 2.83% per annum.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The terms of the long-term borrowings were summarized as follows:
| |  | -----------------------------------------------------------------





|Interest rate and final maturities |  | 2015                                                                                                                                                                     |        |             | 2014   | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------ | ----------- | ------ | 
|                                   |  |                                                                                                                                                                          |        | RMB million |        | 
|                                   |  |                                                                                                                                                                          |        |             |        | 
|Long-term bank borrowings          |  |                                                                                                                                                                          |        |             |        | 
|                                   |  |                                                                                                                                                                          |        |             |        | 
|RMB denominated                    |  | interest rates ranging from 5.75% to 5.90% with final maturities through 2023 (2014: 5.54% to 5.99%)                                                                     |        |             | 280    | 
|                                   |  |                                                                                                                                                                          |        |             |        | 
|USD denominated                    |  | interest rates ranging from 6 months libor +0.50%
    to 6 months libor +3.75% with final maturities through 2025 (2014: 6 months libor +0.55% to 6 months libor +5.30%) |        |             | 33,106 | 
|                                   |  |                                                                                                                                                                          |        |             |        | 
|Guaranteed bonds                   |  |                                                                                                                                                                          |        |             |        | 
|                                   |  |                                                                                                                                                                          |        |             |        | 
|RMB denominated                    |  | interest rates ranging from 3.88% to 5.05% with
    final  maturities through 2023 (2014: 3.88% to 5.05%)                                                                |        |             | 10,289 | 
|                                   |  |                                                                                                                                                                          |        |             |        | 
|Total long-term borrowings         |  |                                                                                                                                                                          | 43,675 |             |        | 



| |  | Short-term borrowings of the Group are repayable within one year. As at December 31, 2015, the
interest rates relating to such borrowings ranged from 1.49% to 3.48% per annum (2014: 1.01% to 5.35% per annum).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|           |  | December 31, |       
|---------- |  | ------------ | ------
|           |  | 2015         |       
|           |  | RMB million  |       
|           |  |              |       
|Renminbi   |  |              | 29,769
|US Dollars |  |              | 36,943
|           |  |              |       
|           |  |              | 66,712



F-60







| | 35 | PROVISION FOR RETURN CONDITION CHECKS FOR AIRCRAFT UNDER OPERATING LEASES
| | -- | -------------------------------------------------------------------------



|                      |  | December 31, |       
|--------------------- |  | ------------ | ------
|                      |  |              |       
|                      |  | 2015         |       
|                      |  | RMB million  |       
|                      |  |              |       
|At  January 1         |  |              | 3,884 
|Accrual               |  |              | 968   
|Utilisation           |  |              | (1,349
|                      |  |              |       
|At  December 31       |  |              | 3,503 
|Less: current portion |  |              | (1,281
|                      |  |              |       
|Long-term portion     |  |              | 2,222 



| |  | 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, 2015 and 2014 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, |      
|------------------------------------------------------------------------------------ |  | ------------ | -----
|                                                                                     |  | 2015         |      
|                                                                                     |  | RMB million  |      
|                                                                                     |  |              |      
|Fair value of unredeemed points awarded under the Group’s frequent flyer
    program |  |              | 1,739
|Long-term duties and levies payable relating to finance leases                       |  |              | 1,713
|Other long-term payables                                                             |  |              | 1,053
|                                                                                     |  |              |      
|                                                                                     |  |              | 4,505
|Less: current portion included in other payables and accrued expenses (Note 32)      |  |              | (515 
|                                                                                     |  |              |      
|Long-term portion                                                                    |  |              | 3,990



| | 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 2015. For the year ended December 31, 2015, the Group’s pension costs charged to profit or loss amounted to
RMB1,479 million (2014: RMB1,492 million; 2013: RMB1,005
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, 2015, the Group’s medical insurance contributions charged to profit
or loss amounted to RMB563 million (2014: RMB533 million; 2013: RMB478 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, 2015 with assistance from a third party consultant using the projected unit credit actuarial valuation method.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-61







| | 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:
| |  | ----------------------------------------------------------------------------------------------------------------------



|                                    |  | 2015        |       |   | 2014        | 
|----------------------------------- |  | ----------- | ----- | - | ----------- | 
|                                    |  | RMB million |       |   | RMB million | 
|                                    |  |             |       |   |             | 
|Post-retirement benefit obligations |  |             | 2,750 |   |             | 
|Less: current portion               |  |             | (181  | ) |             | 
|                                    |  |             |       |   |             | 
|Long-term portion                   |  |             | 2,569 |   |             | 



| |  | The principal actuarial assumptions utilized as at the
end of the reporting period are as follows:
| |  | --------------------------------------------------------------------------------------------------



|                                                         |  | 2015 |                        |   | 2014 | 
|-------------------------------------------------------- |  | ---- | ---------------------- | - | ---- | 
|                                                         |  |      |                        |   |      | 
|Discount rates for post-retirement benefits              |  |      | 3.30                   | % |      | 
|Mortality rate                                           |  |      | China Insurance        |   |      | 
|                                                         |  |      | Life Mortality         |   |      | 
|                                                         |  |      | Table (2000-2003). CL3 |   |      | 
|                                                         |  |      | for Male and CL4       |   |      | 
|                                                         |  |      | for Female             |   |      | 
|Annual increase rate of medical expenses due to age      |  |      | 2.50                   | % |      | 
|Annual increase rate of post-retirement medical expenses |  |      | 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      | 
|                                           |  | %        |      |  | RMB million     |  |     | %        |  |  | RMB million     | 
|2015                                       |  |          |      |  |                 |  |     |          |  |  |                 | 
|                                           |  |          |      |  |                 |  |     |          |  |  |                 | 
|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            | 
|                                           |  |          |      |  |                 |  |     |          |  |  |                 | 
|2014                                       |  |          |      |  |                 |  |     |          |  |  |                 | 
|                                           |  |          |      |  |                 |  |     |          |  |  |                 | 
|Discount rate for post-retirement benefits |  |          | 0.25 |  |                 |  | (88 | )        |  |  | 0.25            | 
|                                           |  |          |      |  |                 |  |     |          |  |  |                 | 
|Annual increase rate of pension benefits   |  |          | 1.00 |  |                 |  | 314 |          |  |  | 1.00            | 
|Annual increase rate of medical expenses   |  |          | 1.00 |  |                 |  | 57  |          |  |  | 1.00            | 



| |  | The sensitivity analyses above have been determined based on a method that extrapolates the impact
on net post-retirement benefit obligations as a result of reasonable changes in key assumptions occurring at the end of the reporting
period.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Expected contributions to be made in the future years out of the post-retirement benefit obligations
were as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------



|                          |  | 2015        |       |  | 2014        | 
|------------------------- |  | ----------- | ----- |  | ----------- | 
|                          |  | RMB million |       |  | RMB million | 
|                          |  |             |       |  |             | 
|Within the next 12 months |  |             | 181   |  |             | 
|Between 2 and 5 years     |  |             | 662   |  |             | 
|Between 5 and 10 years    |  |             | 831   |  |             | 
|Over 10 years             |  |             | 2,739 |  |             | 
|                          |  |             |       |  |             | 
|Total expected payments   |  |             | 4,413 |  |             | 



The average duration of the post-retirement benefit obligations
at the end of 2015 was 13 years (2014: 12 years).



F-62







| | 37 | PENSION, MEDICAL INSURANCE AND POST-RETIREMENT BENEFITS (cont’d)
| | -- | ----------------------------------------------------------------



| |  | The movements in the post-retirement benefit obligations
were as follows:
| |  | -------------------------------------------------------------------------



|2015                                              |  |             |       |  |                                        |  |   |                                                                |  |  |             | 
|------------------------------------------------- |  | ----------- | ----- |  | -------------------------------------- |  | - | -------------------------------------------------------------- |  |  | ----------- | 
|                                                  |  |             |       |  | Pension cost charged to profit or loss |  |   | Remeasurement (gains)/losses in other comprehensive
    income |  |  |             | 
|                                                  |  |             |       |  |                                        |  |   |                                                                |  |  |             | 
|                                                  |  |             |       |  |                                        |  |   |                                                                |  |  |             | 
|                                                  |  |             |       |  |                                        |  |   |                                                                |  |  | Sub-total   | 
|                                                  |  |             |       |  |                                        |  |   |                                                                |  |  | included    | 
|                                                  |  | January 1,  |       |  |                                        |  |   | Net                                                            |  |  | in profit   | 
|                                                  |  | 2015        |       |  | Service cost                           |  |   | interest                                                       |  |  | or loss     | 
|                                                  |  | RMB million |       |  | RMB million                            |  |   | RMB million                                                    |  |  | RMB million | 
|                                                  |  |             |       |  |                                        |  |   |                                                                |  |  |             | 
|Defined
    benefit obligations/benefit liability |  |             | 3,032 |  |                                        |  | - |                                                                |  |  | 114         | 



|2014                          |  |             |       |   |                                                       |  |     |                                                                |  |  |             | 
|----------------------------- |  | ----------- | ----- | - | ----------------------------------------------------- |  | --- | -------------------------------------------------------------- |  |  | ----------- | 
|                              |  |             |       |   | Pension
    cost charged/(credited) to profit or loss |  |     | Remeasurement
    (gains)/losses in other comprehensive income |  |  |             | 
|                              |  |             |       |   |                                                       |  |     |                                                                |  |  |             | 
|                              |  |             |       |   |                                                       |  |     |                                                                |  |  |             | 
|                              |  |             |       |   |                                                       |  |     |                                                                |  |  |             | 
|                              |  |             |       |   | Service cost/                                         |  |     |                                                                |  |  |             | 
|                              |  | January 1,  |       |   | investment                                            |  |     | Net                                                            |  |  |             | 
|                              |  | 2014        |       |   | income                                                |  |     | interest                                                       |  |  | Curtailment | 
|                              |  | RMB million |       |   | RMB million                                           |  |     | RMB million                                                    |  |  | RMB million | 
|Defined benefit obligations   |  | 5,941       |       |   | 223                                                   |  |     | 294                                                            |  |  | (3,251)     | 
|Fair
    value of plan assets |  |             | (122  | ) |                                                       |  | -   |                                                                |  |  | -           | 
|Benefit
    liability         |  |             | 5,819 |   |                                                       |  | 223 |                                                                |  |  | 294         | 



F-63







| | 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, |    
|------------------------ |  | ------------ | ---
|                         |  | 2015         |    
|                         |  | RMB million  |    
|                         |  |              |    
|Deferred tax assets      |  |              | 243
|Deferred tax liabilities |  |              | (8 
|                         |  |              |    
|Net deferred tax assets  |  |              | 235



| |  | Movements in the net deferred tax assets were as follows:
| |  | ---------------------------------------------------------



|                                               |  | 2015        |     |   | 2014        | 
|---------------------------------------------- |  | ----------- | --- | - | ----------- | 
|                                               |  | RMB million |     |   | RMB million | 
|                                               |  |             |     |   |             | 
|At January 1                                   |  |             | 144 |   |             | 
|Credited/(charged) to profit or loss (Note 14) |  |             | 113 |   |             | 
|Charged to other comprehensive income          |  |             | (22 | ) |             | 
|                                               |  |             |     |   |             | 
|At  December 31                                |  |             | 235 |   |             | 



| |  | 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, |     
|------------------------------------------------------- |  | ------------ | ----
|                                                        |  | 2015         |     
|                                                        |  | RMB million  |     
|Deferred tax assets:                                    |  |              |     
|Impairment provision for flight equipment spare parts   |  |              | 43  
|Impairment provision for receivables                    |  |              | 80  
|Impairment provision for property, plant, and equipment |  |              | 26  
|Derivative financial instruments                        |  |              | 25  
|Impairment provision for available-for-sale investments |  |              | 25  
|Other payables and accruals                             |  |              | 89  
|Tax losses                                              |  |              | 133 
|                                                        |  |              |     
|                                                        |  |              | 421 
|                                                        |  |              |     
|Deferred tax liabilities:                               |  |              |     
|Depreciation and amortisation                           |  |              | (136
|Available-for-sale investments                          |  |              | (39 
|Derivative financial instruments                        |  |              | (11 
|                                                        |  |              |     
|                                                        |  |              | (186
|                                                        |  |              |     
|                                                        |  |              | 235 



F-64







| | 38 | DEFERRED TAXATION (cont’d)
| | -- | --------------------------



| |  | Movements in the net deferred tax assets of the Group for
the year were as follows:
| |  | -----------------------------------------------------------------------------------



|                                                        |  |              |      |   |                |  |     | (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 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         | )



|                                                       |  |              |      |   |                |  |      | 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, 2014                   |  |              |      |   |                |  |      |               |  |  |             |  
|Impairment provision for flight equipment spare parts  |  |              | 24   |   |                |  | 8    |               |  |  | -           |  
|Impairment provision for receivables                   |  |              | 20   |   |                |  | 3    |               |  |  | -           |  
|Impairment provision for property, plant and equipment |  |              | 39   |   |                |  | (16  | )             |  |  | -           |  
|Derivative financial instruments                       |  |              | 17   |   |                |  | (8   | )             |  |  | -           |  
|Other payables and accruals                            |  |              | 146  |   |                |  | 37   |               |  |  | -           |  
|Provision for post-retirement benefits                 |  |              | 426  |   |                |  | (304 | )             |  |  | (122        | )
|Tax losses                                             |  |              | -    |   |                |  | 96   |               |  |  | -           |  
|                                                       |  |              |      |   |                |  |      |               |  |  |             |  
|                                                       |  |              | 672  |   |                |  | (184 | )             |  |  | (122        | )
|                                                       |  |              |      |   |                |  |      |               |  |  |             |  
|Depreciation and amortization                          |  |              | (295 | ) |                |  | 87   |               |  |  | -           |  
|Available-for-sale investments                         |  |              | -    |   |                |  | -    |               |  |  | (5          | )
|Derivative financial instruments                       |  |              | (17  | ) |                |  | 8    |               |  |  | -           |  
|                                                       |  |              |      |   |                |  |      |               |  |  |             |  
|                                                       |  |              | (312 | ) |                |  | 95   |               |  |  | (5          | )
|                                                       |  |              |      |   |                |  |      |               |  |  |             |  
|Net deferred tax assets                                |  |              | 360  |   |                |  | (89  | )             |  |  | (127        | )



F-65







| | 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, |    
|-------------------------------------- |  | ------------ | ---
|                                       |  | 2015         |    
|                                       |  | Deferred     |    
|                                       |  | taxation     |    
|                                       |  | RMB million  |    
|                                       |  |              |    
|Tax losses carried forward             |  |              | 489
|Other deductible temporary differences |  |              | 49 
|Total unrecognised deferred tax assets |  |              | 538



| |  | 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 2016 and 2020.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As at December 31, 2015, 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 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-66







| | 39 | DERIVATIVE FINANCIAL INSTRUMENTS
| | -- | --------------------------------



| |  | 
| |  | 

|                                              |  | Assets      |    |  | Liabilities | 
|--------------------------------------------- |  | ----------- | -- |  | ----------- | 
|                                              |  | 2015        |    |  | 2014        | 
|                                              |  | RMB million |    |  | RMB million | 
|                                              |  |             |    |  |             | 
|At December 31                                |  |             |    |  |             | 
|Interest rate swaps (Note (a))                |  |             | 22 |  |             | 
|Forward foreign exchange contracts (Note (b)) |  |             | 16 |  |             | 
|Cross currency swap (Note (c))                |  |             | 7  |  |             | 
|                                              |  |             |    |  |             | 
|Total                                         |  |             | 45 |  |             | 
|                                              |  |             |    |  |             | 
|Less: current portion                         |  |             |    |  |             | 
|– Interest rate swaps                         |  |             | -  |  |             | 
|– Forward foreign exchange                    |  |             | -  |  |             | 
|                                              |  |             |    |  |             | 
|                                              |  |             | -  |  |             | 
|                                              |  |             |    |  |             | 
|Non-current portion                           |  |             | 45 |  |             | 



| |  | The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets
in the statement of financial position.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------



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



| | (a) | Interest rate swaps
| | --- | -------------------



| |  | The Group uses interest rate swaps to reduce the risk of changes in market interest rates (Note
3). 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,
2015, the notional amount of the outstanding interest rate swap agreements was approximately USD1,466 million (2014: USD801 million).
These agreements will expire between 2016 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:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                        |  | 2015            |      |   | 2014            |  |     | 2013            | 
|------------------------------------------------------------------------------------------------------- |  | --------------- | ---- | - | --------------- |  | --- | --------------- | 
|                                                                                                        |  | RMB
    million |      |   | RMB
    million |  |     | RMB
    million | 
|                                                                                                        |  |                 |      |   |                 |  |     |                 | 
|Realized losses (recorded in finance costs)                                                             |  |                 | (134 | ) |                 |  | (80 | )               | 
|Unrealized mark to market gains/(losses)                                                                |  |                 |      |   |                 |  |     |                 | 
|–  cash flow hedges (recognized in other comprehensive
    income)                                      |  |                 | 2    |   |                 |  | (28 | )               | 
|–  fair
    value hedges (recognized in gain on fair value changes of derivative financial instruments) |  |                 | 6    |   |                 |  | 11  |                 | 
|                                                                                                        |  |                 |      |   |                 |  |     |                 | 
|                                                                                                        |  |                 | (126 | ) |                 |  | (97 | )               | 



| | (b) | Foreign exchange forward contracts
| | --- | ----------------------------------



| |  | The Group uses
                                                              foreign exchange forward contracts to reduce the risk of changes in currency exchange rates in respect of ticket sales and
                                                              expenses denominated in foreign currencies (Note 3). The Group’s foreign exchange forward contracts for selling foreign
                                                              currency (i.e., Japanese Yen) and purchasing
                                                              US dollars at fixed exchange rates are accounted for as cash flow hedges. As at  December 31, 2015, the notional amount of the
                                                              outstanding currency forward contracts was approximately USD12 million (2014: USD39 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:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                               |  | 2015        |     |   | 2014        |  |    | 2013        | 
|-------------------------------------------------------------- |  | ----------- | --- | - | ----------- |  | -- | ----------- | 
|                                                               |  | RMB million |     |   | RMB million |  |    | RMB million | 
|                                                               |  |             |     |   |             |  |    |             | 
|Realized gains/(losses) (recorded in finance income/(costs))   |  |             | 15  |   |             |  | (2 | )           | 
|Unrealized mark to market (losses)/gains                       |  |             |     |   |             |  |    |             | 
|– cash flow hedges (recognized in other  comprehensive income) |  |             | (11 | ) |             |  | 17 |             | 
|                                                               |  |             |     |   |             |  |    |             | 
|                                                               |  |             | 4   |   |             |  | 15 |             | 



F-67







| | 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 (Note 3). 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 December 31, 2015, the notional
amount of the outstanding cross currency swap agreement was approximately USD38 million (2014: Nil). The agreement will expire
in 2025.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                             |  | 2015        |   |  | 2014        | 
|------------------------------------------------------------ |  | ----------- | - |  | ----------- | 
|                                                             |  | RMB million |   |  | RMB million | 
|                                                             |  |             |   |  |             | 
|Unrealized mark to market gain                               |  |             |   |  |             | 
|– cash flow hedge (recognized in other comprehensive income) |  |             | 7 |  |             | 



| | 40 | FINANCIAL INSTRUMENTS BY CATEGORY
| | -- | ---------------------------------



|2015                                                  |  | 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 |    
|Financial assets                                      |  |                       |        |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|                                                      |  |                       |        |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|Available-for-sale investments                        |  |                       | -      |  |                                             |  | - |                              |  |  | -                  |  |  |             | 452
|Derivative financial instruments                      |  |                       | -      |  |                                             |  | - |                              |  |  | 45                 |  |  |             | -  
|Trade 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



|2015                             |  | Loans and receivables |         |  | Liabilities at fair value through profit or loss |  |   | Derivatives used for hedging |  |  | Other financial liabilities at amortized cost |  |  | Total       |  
|-------------------------------- |  | --------------------- | ------- |  | ------------------------------------------------ |  | - | ---------------------------- |  |  | --------------------------------------------- |  |  | ----------- | -
|                                 |  |                       |         |  |                                                  |  |   |                              |  |  |                                               |  |  |             |  
|                                 |  | RMB million           |         |  | RMB million                                      |  |   | RMB million                  |  |  | RMB million                                   |  |  | RMB million |  
|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                            |  |                       | 134,544 |  |                                                  |  | 2 |                              |  |  | 99                                            |  |  |             | -



F-68







| | 40 | FINANCIAL INSTRUMENTS BY CATEGORY (cont’d)
| | -- | ------------------------------------------



|2014                                                   |  | 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 |    
|Financial assets                                       |  |                       |       |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|                                                       |  |                       |       |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|Available-for-sale investments                         |  |                       | -     |  |                                             |  | - |                              |  |  | -                  |  |  |             | 433
|Derivative financial instruments                       |  |                       | -     |  |                                             |  | - |                              |  |  | 35                 |  |  |             | -  
|Trade receivables                                      |  |                       | 3,862 |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Other receivables                                      |  |                       | 1,313 |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Restricted bank deposits and  short-term bank deposits |  |                       | 38    |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Cash and cash equivalents                              |  |                       | 1,355 |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|Other non-current assets                               |  |                       | 528   |  |                                             |  | - |                              |  |  | -                  |  |  |             | -  
|                                                       |  |                       |       |  |                                             |  |   |                              |  |  |                    |  |  |             |    
|Total                                                  |  |                       | 7,096 |  |                                             |  | - |                              |  |  | 35                 |  |  |             | 433



|2014                             |  | Loans and receivables |         |  | Liabilities at fair value through profit or loss |  |   | Derivatives used for hedging |  |  | Other financial liabilities at amortized cost |  |  | Total       |  
|-------------------------------- |  | --------------------- | ------- |  | ------------------------------------------------ |  | - | ---------------------------- |  |  | --------------------------------------------- |  |  | ----------- | -
|                                 |  |                       |         |  |                                                  |  |   |                              |  |  |                                               |  |  |             |  
|                                 |  | RMB million           |         |  | RMB million                                      |  |   | RMB million                  |  |  | RMB million                                   |  |  | RMB million |  
|Financial liabilities            |  |                       |         |  |                                                  |  |   |                              |  |  |                                               |  |  |             |  
|                                 |  |                       |         |  |                                                  |  |   |                              |  |  |                                               |  |  |             |  
|Borrowings                       |  |                       | 59,189  |  |                                                  |  | - |                              |  |  | -                                             |  |  |             | -
|Obligations under finance leases |  |                       | 38,695  |  |                                                  |  | - |                              |  |  | -                                             |  |  |             | -
|Derivative financial instruments |  |                       | -       |  |                                                  |  | 8 |                              |  |  | 87                                            |  |  |             | -
|Trade and bills payables         |  |                       | 2,083   |  |                                                  |  | - |                              |  |  | -                                             |  |  |             | -
|Other payables                   |  |                       | 12,818  |  |                                                  |  | - |                              |  |  | -                                             |  |  |             | -
|                                 |  |                       |         |  |                                                  |  |   |                              |  |  |                                               |  |  |             |  
|Total                            |  |                       | 112,785 |  |                                                  |  | 8 |                              |  |  | 87                                            |  |  |             | -



F-69







| | 41 | SHARE CAPITAL
| | -- | -------------



|                                                                                           |  | 2015        |        |  | 2014        | 
|------------------------------------------------------------------------------------------ |  | ----------- | ------ |  | ----------- | 
|                                                                                           |  | RMB million |        |  | RMB million | 
|                                                                                           |  |             |        |  |             | 
|Registered, issued and fully paid of RMB1.00 each                                          |  |             |        |  |             | 
|                                                                                           |  |             |        |  |             | 
|A shares listed on The Shanghai Stock Exchange (“A Shares”)                                |  |             | 8,481  |  |             | 
|-  Tradable shares held by CEA Holding with trading moratorium                             |  |             | 242    |  |             | 
|-  Tradable shares held by CES Finance Holding Co., Ltd. with trading moratorium           |  |             | 457    |  |             | 
|-  Tradable shares without trading moratorium                                              |  |             | 7,782  |  |             | 
|                                                                                           |  |             |        |  |             | 
|H shares listed on The Stock Exchange of Hong Kong Limited (“H Shares”)                    |  |             | 4,659  |  |             | 
|-  Tradable shares held by CES Global Holdings (Hong Kong) Limited with trading moratorium |  |             | 699    |  |             | 
|-  Tradable shares held by Delta Air Lines, Inc. without trading moratorium                |  |             | 466    |  |             | 
|-  Tradable shares without trading moratorium                                              |  |             | 3,494  |  |             | 
|                                                                                           |  |             |        |  |             | 
|                                                                                           |  |             | 13,140 |  |             | 



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 |       
|                                                          |  |                 |       
|At January 1, 2014, December 31, 2014 and January 1, 2015 |  |                 | 12,674
|Issue of shares                                           |  |                 | 466   
|                                                          |  |                 |       
|At December 31, 2015                                      |  |                 | 13,140



F-70









| | 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 January 1, 2014                                                        |  |             | 20,190 |   |             |  | (778 | )           |  |  | (50         | ) |  |             | -   |  |                      |  | (2,539 | )           | 
|Unrealised losses on cash flow hedges (Note 39)                           |  |             | -      |   |             |  | -    |             |  |  | (11         | ) |  |             | -   |  |                      |  | -      |             | 
|Fair value changes of
    available-for-sale investments                  |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | 14     |             | 
|Actuarial losses on post-retirement benefit obligations                   |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | (341   | )           | 
|Profit for the year                                                       |  |             | -      |   |             |  | -    |             |  |  | -           |   |  |             | -   |  |                      |  | -      |             | 
|                                                                          |  |             |        |   |             |  |      |             |  |  |             |   |  |             |     |  |                      |  |        |             | 
|At December
    31, 2014                                                  |  |             | 20,190 |   |             |  | (778 | )           |  |  | (61         | ) |  |             | -   |  |                      |  | (2,866 | )           | 
|                                                                          |  |             |        |   |             |  |      |             |  |  |             |   |  |             |     |  |                      |  |        |             | 
|At January 1, 2015                                                        |  |             | 20,190 |   |             |  | (778 | )           |  |  | (61         | ) |  |             | -   |  |                      |  | (2,866 | )           | 
|Unrealised gains on cash flow hedges (Note 39)                            |  |             | -      |   |             |  | -    |             |  |  | 10          |   |  |             | -   |  |                      |  | -      |             | 
|Fair value  changes of
    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 December
    31, 2015                                                  |  |             | 22,327 |   |             |  | (778 | )           |  |  | (51         | ) |  |             | 184 |  |                      |  | (2,579 | )           | 



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-71







| | 43 | DISPOSAL OF A SUBSIDIARY
| | -- | ------------------------



|                                 |  | 2015        |     
|-------------------------------- |  | ----------- | ----
|                                 |  | RMB million |     
|                                 |  |             |     
|Net assets disposed of:          |  |             |     
|Cash and bank balances           |  |             | 8   
|Lease prepayments                |  |             | 137 
|Other payables and accruals      |  |             | (137
|                                 |  |             |     
|Gain on disposal of a subsidiary |  |             | 41  
|                                 |  |             |     
|                                 |  |             | 49  



|              |  | 2015        |   
|------------- |  | ----------- | --
|              |  | RMB million |   
|Satisfied by: |  |             |   
|Cash          |  |             | 49





An
analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:



|                                                                                   |  | 2015        |   
|---------------------------------------------------------------------------------- |  | ----------- | --
|                                                                                   |  | RMB million |   
|                                                                                   |  |             |   
|Cash consideration                                                                 |  |             | 49
|Cash and bank balances disposed of                                                 |  |             | (8
|                                                                                   |  |             |   
|Net inflow of cash and cash equivalents in respect of the disposal of a subsidiary |  |             | 41



F-72









| | 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:



|                                                                          |  | 2015 |             |   | 2014 | 
|------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | 
|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%      |   |      | 
|                                                                          |  |      |             |   |      | 
|                                                                          |  |      | 2015        |   |      | 
|Profit/(loss) for the year allocated to non-controlling interests:        |  |      | RMB million |   |      | 
|                                                                          |  |      |             |   |      | 
|CEA Jiangsu                                                               |  |      | 174         |   |      | 
|CEA Yunnan                                                                |  |      | 120         |   |      | 
|CEA Wuhan                                                                 |  |      | 207         |   |      | 
|China Cargo                                                               |  |      | 2           |   |      | 
|                                                                          |  |      |             |   |      | 
|Dividends paid to non-controlling interests of CEA Jiangsu                |  |      | 37          |   |      | 
|                                                                          |  |      |             |   |      | 
|Accumulated balances of non-controlling interests at the reporting dates: |  |      |             |   |      | 
|CEA Jiangsu                                                               |  |      | 1,104       |   |      | 
|CEA Yunnan                                                                |  |      | 499         |   |      | 
|CEA Wuhan                                                                 |  |      | 1,074       |   |      | 
|China Cargo                                                               |  |      | (132        | ) |      | 



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 |  
|---------------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ------ | ----------- |  |  | ----------- | -
|2015                                                 |  | RMB million |       |   | RMB million |  |        | RMB million |  |  | RMB million |  
|                                                     |  |             |       |   |             |  |        |             |  |  |             |  
|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-73







| | 44 | PARTLY-OWNED SUBSIDIARIES
WITH MATERIAL NON-CONTROLLING INTERESTS (cont’d)
| | -- | --------------------------------------------------------------------------



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



F-74







| | 45 | NOTES TO THE STATEMENT OF CONSOLIDATED
                                         CASH FLOWS
| | -- | ------------------------------------------------------------------------------------------



| | (a) | Cash generated from operations
| | --- | ------------------------------



|                                                                                           |  | Year ended December 31, |       
|------------------------------------------------------------------------------------------ |  | ----------------------- | ------
|                                                                                           |  | 2015                    |       
|                                                                                           |  | RMB million             |       
|                                                                                           |  |                         |       
|Profit before income tax                                                                   |  |                         | 5,667 
|Adjustments for:                                                                           |  |                         |       
|Depreciation of property, plant and equipment and amortization of other non-current assets |  |                         | 10,710
|Amortization of intangible assets                                                          |  |                         | 85    
|Depreciation of investment properties                                                      |  |                         | 4     
|Amortization of lease prepayments                                                          |  |                         | 60    
|(Gains)/losses on disposal of property, plant and equipment                                |  |                         | (378  
|Gain on disposal of investments in a subsidiary                                            |  |                         | (41   
|Gain on disposals of investment in associates                                              |  |                         | -     
|Gain on disposal of available-for-sale investments                                         |  |                         | (33   
|Dividend income from available-for-sale investments                                        |  |                         | (13   
|Share of results of associates                                                             |  |                         | (126  
|Share of results of joint ventures                                                         |  |                         | (26   
|Net foreign exchange losses/(gains)                                                        |  |                         | 5,480 
|Gain on fair value changes of derivative financial instruments                             |  |                         | (6    
|(Reversal of)/provision for
    post-retirement benefits                                   |  |                         | -     
|Impairment charges                                                                         |  |                         | 228   
|Interest income                                                                            |  |                         | (66   
|Interest expense                                                                           |  |                         | 2,075 
|                                                                                           |  |                         |       
|Operating profit before working capital changes                                            |  |                         | 23,620
|                                                                                           |  |                         |       
|Changes in working capital                                                                 |  |                         |       
|Flight equipment spare parts                                                               |  |                         | 117   
|Trade receivables                                                                          |  |                         | 985   
|Prepayments and other receivables                                                          |  |                         | (2,011
|Restricted bank deposits and short-term bank deposits                                      |  |                         | -     
|Sales in advance of carriage                                                               |  |                         | 777   
|Trade and bills payables                                                                   |  |                         | 1,629 
|Other payables and accruals                                                                |  |                         | (234  
|Staff housing allowances                                                                   |  |                         | 105   
|Other long-term liabilities                                                                |  |                         | 1,164 
|Post-retirement benefit obligations                                                        |  |                         | (282  
|Provision for return condition checks for aircraft under operating leases                  |  |                         | (381  
|Operating lease deposits                                                                   |  |                         | 46    
|                                                                                           |  |                         |       
|Cash generated from operations                                                             |  |                         | 25,535



| | (b) | Major non-cash transactions
| | --- | ---------------------------



|                                                               |  | Year ended December 31, |       
|-------------------------------------------------------------- |  | ----------------------- | ------
|                                                               |  | 2015                    |       
|                                                               |  | RMB million             |       
|                                                               |  |                         |       
|Finance lease obligations incurred for acquisition of aircraft |  |                         | 21,887



F-75







| | 46 | COMMITMENTS
| | -- | -----------



| | (a) | Capital commitments
| | --- | -------------------



| |  | The Group
                                         had the following capital commitments:
| |  | -----------------------------------------------------------------------------------------



|                                                |  | 2015        |         |  | 2014        | 
|----------------------------------------------- |  | ----------- | ------- |  | ----------- | 
|                                                |  | RMB million |         |  | RMB million | 
|                                                |  |             |         |  |             | 
|Contracted for:                                 |  |             |         |  |             | 
|– Aircraft, engines and flight equipment (Note) |  |             | 106,666 |  |             | 
|– Other property, plant and equipment           |  |             | 3,923   |  |             | 
|– Investment                                    |  |             | -       |  |             | 
|                                                |  |             |         |  |             | 
|                                                |  |             | 110,589 |  |             | 



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:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                   |  | 2015        |         |  | 2014        | 
|------------------ |  | ----------- | ------- |  | ----------- | 
|                   |  | RMB million |         |  | RMB million | 
|                   |  |             |         |  |             | 
|Within one year    |  |             | 23,781  |  |             | 
|In the second year |  |             | 26,642  |  |             | 
|In the third year  |  |             | 25,579  |  |             | 
|In the fourth year |  |             | 18,793  |  |             | 
|Over four years    |  |             | 11,871  |  |             | 
|                   |  |             |         |  |             | 
|                   |  |             | 106,666 |  |             | 



| |  | 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 under operating leases to pay future
                                         minimum lease rentals as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                       |  | 2015        |        |  | 2014        | 
|-------------------------------------- |  | ----------- | ------ |  | ----------- | 
|                                       |  | RMB million |        |  | RMB million | 
|                                       |  |             |        |  |             | 
|Aircraft, engines and flight equipment |  |             |        |  |             | 
|Within one year                        |  |             | 4,308  |  |             | 
|In the second year                     |  |             | 3,676  |  |             | 
|In the third to fifth years, inclusive |  |             | 7,962  |  |             | 
|After the fifth year                   |  |             | 8,977  |  |             | 
|                                       |  |             |        |  |             | 
|                                       |  |             | 24,923 |  |             | 
|                                       |  |             |        |  |             | 
|Land and buildings                     |  |             |        |  |             | 
|Within one year                        |  |             | 299    |  |             | 
|In the second year                     |  |             | 219    |  |             | 
|In the third to fifth years, inclusive |  |             | 410    |  |             | 
|After the fifth year                   |  |             | 814    |  |             | 
|                                       |  |             |        |  |             | 
|                                       |  |             | 1,742  |  |             | 
|                                       |  |             |        |  |             | 
|                                       |  |             | 26,665 |  |             | 



F-76







| | 47 | RELATED PARTY TRANSACTIONS
| | -- | --------------------------



| |  | The Group
                                         is controlled by CEA Holding, which directly owns 38.61% of the Company’s shares
                                         as at December 31, 2015 (2014: 40.03%). 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 approximately 19.99% and 3.48% of the
                                         Company’s shares respectively as at  December 31, 2015 (2014: 20.72% and 3.61%).
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 
| |  | 

| |  | 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. (“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-77







| | 47 | RELATED PARTY TRANSACTIONS
(cont’d)
| | -- | -----------------------------------



| | (b) | Related party transactions
| | --- | --------------------------



|                                                                                                                                                                                    |  |                                 |  |                    |  | Income
    or receipts/   |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- |  | ------------------ |  | ------------------------- | ------
|                                                                                                                                                                                    |  |                                 |  | Pricing
    policy |  | (expense
    or payments) |       
|                                                                                                                                                                                    |  |                                 |  | and
    decision   |  | 2015                      |       
|Nature
    of transaction                                                                                                                                                           |  | Related
    party               |  | process            |  | RMB
    million           |       
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|With
    CEA Holding or companies directly or indirectly held by CEA Holding:                                                                                                      
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Interest
    income on deposits                                                                                                                                                     |  | Eastern
    Air Finance Company |  | (iv)               |  |                           | 20    
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Interest
    income on loans                                                                                                                                                        |  | Jetstar
    Hong Kong           |  | (iv)               |  |                           | 1     
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Interest
    expense on loans                                                                                                                                                       |  | Eastern
    Air Finance Company |  | (iv)               |  |                           | (11   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|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)               |  |                           | (119  
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Repairs
    and maintenance expense                                                                                                                                                 |  | Wheels
    & Brakes             |  | (ii)               |  |                           | (137  
|for
    aircraft and engines                                                                                                                                                        |  | Technologies
    Aerospace      |  | (ii)               |  |                           | (193  
|                                                                                                                                                                                    |  | Shanghai
    P&W                |  | (ii)               |  |                           | (1,717
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Supply
    of system services                                                                                                                                                       |  | China
    Kaiya                 |  | (ii)               |  |                           | (45   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Supply
    of food and beverages*                                                                                                                                                   |  | Eastern
    Air Catering        |  | (i)                |  |                           | (1,058
|                                                                                                                                                                                    |  | CEA
    development             |  | (i)                |  |                           | (38   
|                                                                                                                                                                                    |  | Eastern
    Import & Export     |  | (i)                |  |                           | (32   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Advertising
    expense*                                                                                                                                                            |  | Eastern
    Advertising         |  | (ii)               |  |                           | (24   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Media
    royalty fee                                                                                                                                                               |  | Eastern
    Advertising         |  | (iii)              |  |                           | 26    
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Automobile
    maintenance service,aircraft
    maintenance, providing transportation automobile and other products*                                                                |  | CEA
    Development             |  | (ii)               |  |                           | (86   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Equipment
    maintenance fee                                                                                                                                                       |  | Shanghai
    Hute               |  | (ii)               |  |                           | -     
|                                                                                                                                                                                    |  | Collins
    Aviation            |  | (ii)               |  |                           | (26   
|                                                                                                                                                                                    |  | CEA
    Development             |  | (ii)               |  |                           | (24   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Property
    management and                                                                                                                                                         |  | Eastern
    Investment          |  | (ii)               |  |                           | -     
|green
    maintenance expenses*                                                                                                                                                     |  | CEA
    Development             |  | (ii)               |  |                           | (52   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Supply
    of hotel accommodation                                                                                                                                                   |  | Eastern
    Tourism             |  | (ii)               |  |                           | -     
|service*                                                                                                                                                                            |  | CEA
    Development             |  |                    |  |                           | (39   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Land
    and building rental*                                                                                                                                                       |  | CEA
    Holding                 |  | (ii)               |  |                           | (52   
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Acquisition
    of a subsidiary                                                                                                                                                     |  | Eastern
    Tourism             |  | (v)                |  |                           | -     
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Disposal
    of a subsidiary                                                                                                                                                        |  | Eastern
    Investment          |  | (v)                |  |                           | 49    
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Expense
    on finance lease*                                                                                                                                                       |  | CES
    Lease Company           |  | (ii)               |  |                           | (216  
|                                                                                                                                                                                    |  |                                 |  |                    |  |                           |       
|Civil
    aviation information                                                                                                                                                      |  | TravelSky                       |  | (ii)               |  |                           | (454  
|network
    services**                                                                                                                                                              |  |                                 |  |                    |  |                           |       



F-78







| | 47 | RELATED PARTY TRANSACTIONS
(cont’d)
| | -- | -----------------------------------



| | (b) | Related party transactions
(cont’d)
| | --- | -----------------------------------



| | (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 based
                                         on benchmark interest rates between contract parties.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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 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-79







| | 47 | RELATED PARTY TRANSACTIONS
(cont’d)
| | -- | -----------------------------------



| | (c) | Balances with related parties
| | --- | -----------------------------



| |  | (i) Amounts
                                         due from related parties
| |  | -----------------------------------------------------------------------------



|                                  |  | December 31, |    
|--------------------------------- |  | ------------ | ---
|                                  |  | 2015         |    
|Trade receivables                 |  | RMB million  |    
|                                  |  |              |    
|Others                            |  |              | -  
|                                  |  |              |    
|Prepayments and other receivables |  |              |    
|                                  |  |              |    
|Eastern Import & Export           |  |              | 31 
|Collins Aviation                  |  |              | -  
|Technologies  Aerospace           |  |              | 5  
|China Kaiya                       |  |              | 11 
|Beijing Dongtou                   |  |              | 88 
|Others                            |  |              | 4  
|                                  |  |              |    
|                                  |  |              | 139



All
the amounts due from related parties are trade in nature, interest-free and payable within normal credit terms.



| |  | (ii)
                                         Amounts due to relatedparties
| |  | ---------------------------------------------------------------------------



|                                 |  | December 31, |      
|-------------------------------- |  | ------------ | -----
|                                 |  | 2015         |      
|Trade payable and bills payables |  | RMB million  |      
|                                 |  |              |      
|Eastern Import & Export          |  |              | 295  
|Eastern Air Catering             |  |              | 37   
|Wheels & Brakes                  |  |              | 8    
|CEA development                  |  |              | 2    
|Collins Aviation                 |  |              | 1    
|CEA Holding                      |  |              | 1    
|Technologies Aerospace           |  |              | 5    
|TravelSky                        |  |              | 548  
|Others                           |  |              | -    
|                                 |  |              |      
|                                 |  |              | 897  
|                                 |  |              |      
|Other payables and accruals      |  |              |      
|                                 |  |              |      
|Eastern Import & Export          |  |              | 303  
|Shanghai P&W                     |  |              | 259  
|Eastern Air Catering             |  |              | 253  
|CEA Holding                      |  |              | 160  
|Collins Aviation                 |  |              | 3    
|China Kaiya                      |  |              | -    
|Shanghai Hute                    |  |              | -    
|Technologies Aerospace           |  |              | 25   
|Wheels & Brakes                  |  |              | 3    
|Jetstar Hong Kong                |  |              | 10   
|CEA Development                  |  |              | 61   
|TravelSky                        |  |              | 223  
|Others                           |  |              | 5    
|                                 |  |              |      
|                                 |  |              | 1,305
|Obligations under finance leases |  |              |      
|                                 |  |              |      
|CES Lease Company                |  |              | 5,826



Except
for the amounts due to CEA Holding, which are reimbursement in nature, all other amounts due to related parties are trade in nature.
All amounts due to related parties are interest-free and payable within normal credit terms given by trade creditors.



F-80









| | 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, | 
|----------------------------------------------------------------------------------------------- |  | --------------------- | ------------------ | - | ------------ | 
|                                                                                                |  | 2015                  |                    |   | 2014         | 
|                                                                                                |  |                       |                    |   |              | 
|                                                                                                |  |                       |                    |   |              | 
|Short-term
    deposits(included in cash and cash equivalents)“Eastern
    Air Finance Company” |  |                       | 0.35               | % |              | 
|                                                                                                |  |                       |                    |   |              | 
|Short-term
    borrowings (included in borrowings)“Eastern
    Air Finance Company”             |  |                       | 2.07               | % |              | 
|                                                                                                |  |                       |                    |   |              | 
|Long-term
    borrowings (included in borrowings)“Eastern
    Air Finance Company”              |  |                       | 5.54               | % |              | 
|                                                                                                |  |                       |                    |   |              | 
|Loans(Note)(included in prepayments and other receivables)“Jetstar
    Hong Kong”               |  |                       | 1 month libor+3.44 | % |              | 



| | Note: | In
                                         July 2014, Eastern Air Overseas signed a loan contract with Jetstar Hong Kong, an associate
                                         of the Company. According to the contract, Eastern Air Overseas offered a loan of USD60
                                         million at the market interest rate to Jetstar Hong Kong. The principal of the loan was
                                         repaid on April 30, 2015.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | Guarantees
                                         by holding company
| | --- | ----------------------------------------------------------------------



| |  | As at
                                         December 31, 2015, bonds of the Group guaranteed by CEA Holding amounted to RMB4.8 billion
                                         (2014: 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 and was analyzed as below:



|                                      |  | 2015        |   |  | 2014        |  |   | 2013        | 
|------------------------------------- |  | ----------- | - |  | ----------- |  | - | ----------- | 
|                                      |  | RMB million |   |  | RMB million |  |   | RMB million | 
|                                      |  |             |   |  |             |  |   |             | 
|Directors and supervisors (Note 9(a)) |  |             | 3 |  |             |  | 3 |             | 
|Senior management                     |  |             | 3 |  |             |  | 3 |             | 
|                                      |  |             |   |  |             |  |   |             | 
|                                      |  |             | 6 |  |             |  | 6 |             | 



| | 48 | EVENTS AFTER THE REPORTING
PERIOD
| | -- | ---------------------------------



In
January 2016, the Group received the approval from China Securities Regulatory Commission regarding the non-public issuance of
not more than 2,329,192,546 A Shares.



On
January 18, 2016, the Company issued short-term debentures with a principal of RMB2.5 billion and maturity of 90 days. The debentures
bear interest at the rate of 2.5% per annum.



On
January 20, 2016, the Company issued short-term debentures with a principal of RMB2.0 billion and maturity of 90 days. The debentures
bear interest at the rate of 2.5% per annum.



On
March 24, 2016, the Company issued short-term debentures with a principal of RMB3.0 billion and maturity of 270 days. The debentures
bear interest at the rate of 2.4% per annum.



The
Board of the Group also intends, for mid-2016, a cash dividend distribution of not less than 40% of the net profit of the Company
for the year 2015 under domestic accounting principles.





On April 8, 2016, the Company issued short-term
debentures with a principal of RMB 3.0 billion and maturity of 259 days. The debentures bear interest at the rate of 2.5 % per
annum.





On April 13, 2016, the Company
issued short-term debentures with a principal of RMB 3.0 billion and maturity of 90 days. The debentures bear interest at the rate
of 2.35 % per annum.





On April 14, 2016, the Company issued short-term
debentures with a principal of RMB 3.0 billion and maturity of 180 days. The debentures bear interest at the rate of 2.55 % per
annum.





On April 20, 2016, the Company
issued short-term debentures with a principal of RMB 3.0 billion and maturity of 270 days. The debentures bear interest at the
rate of 2.80 % per annum.







| | 49 | DIVIDENDS
| | -- | ---------



The
Board has not recommended any dividend for the years ended December 31, 2015, 2014 and 2013.



F-81







| | 50 | COMPARATIVE AMOUNTS
| | -- | -------------------



As
further explained in note 2.2 to the financial statements, due to the implementation of the Hong Kong Companies Ordinance (Cap.
622) during the current year, the presentation and disclosures of certain items in the financial statements have been revised
to comply with the new requirements.



F-82