TIDMAIRC
RNS Number : 8858P
Air China Ld
31 May 2018
Air China Limited
Stock code: 00753 HongKong 601111 Shanghai AIRC London
Air China is the only national flag carrier of China and a
member of Star Alliance, the world's largest airline alliance. It
is also the only Chinese civil aviation enterprise listed in "The
World's 500 Most Influential Brands".
Air China is headquartered in Beijing, the capital of China,
with three increasingly important hubs in Chengdu, Shanghai and
Shenzhen. With Star Alliance, our network covered 1,330
destinations in 192 countries as at 31 December 2017. Air China is
dedicated to serving passengers with credibility, convenience,
comfort and choice.
Air China is actively implementing the strategic objectives of
ranking among the top in terms of global competitiveness,
continuously strengthening our development potentials, providing
our customers with an excellent and unique experience and realising
sustainable growth to create value for all related parties.
In addition, Air China also holds direct or indirect interests
in the following airlines: Air China Cargo Co., Ltd., Shenzhen
Airlines Company Limited (including Kunming Airlines Company
Limited), Air Macau Company Limited, Beijing Airlines Company
Limited, Dalian Airlines Company Limited, Air China Inner Mongolia
Co., Ltd., Cathay Pacific Airways Limited, Shandong Airlines Co.,
Ltd. and Tibet Airlines Company Limited.
CONTENTS
Corporate Information 2
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Summary of Financial Information 4
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Summary of Operating Data 5
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Chairman's Statement 7
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Business Overview 9
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Management's Discussion and
Analysis of
Financial Position and Operating
Results 18
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Corporate Governance Report 25
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Report of the Directors 37
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Profile of Directors, Supervisors
and Senior Management 56
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Financial Statements Prepared
under International
Financial Reporting Standards
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- Independent Auditor's Report 64
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- Consolidated Statement of
Profit or Loss 68
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- Consolidated Statement of
Profit or Loss and
Other Comprehensive Income 70
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- Consolidated Statement of
Financial Position 71
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- Consolidated Statement of
Changes in Equity 73
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- Consolidated Statement of
Cash Flow 75
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- Notes to the Consolidated
Financial Statements 78
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Supplementary Information 158
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Independent Auditor's Report
(Issued by a third country
auditor registered with the
UK Financial Reporting Council) 160
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Glossary of Technical Terms 166
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Definitions 168
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CORPORATE INFORMATION
REGISTERED CHINESE NAME:
ENGLISH NAME:
Air China Limited
REGISTERED OFFICE:
Blue Sky Mansion
28 Tianzhu Road
Airport Industrial Zone
Shunyi District
Beijing
China
PRINCIPAL PLACE OF BUSINESS IN HONG KONG:
5th Floor
CNAC House
12 Tung Fai Road
Hong Kong International Airport
Hong Kong
WEBSITE:
www.airchina.com.cn
DIRECTOR:(1)
Cai Jianjiang
Song Zhiyong
John Robert Slosar
Xue Yasong
Wang Xiaokang
Liu Deheng
Stanley Hui Hon-chung
Li Dajin
SUPERVISORS:(2)
Wang Zhengang
He Chaofan
Xiao Yanjun
Li Guixia
LEGAL REPRESENTATIVE OF THE COMPANY:
Cai Jianjiang
JOINT COMPANY SECRETARIES:(3)
Zhou Feng
Tam Shuit Mui
AUTHORISED REPRESENTATIVES:
Cai Jianjiang
Tam Shuit Mui
LEGAL ADVISERS TO THE COMPANY:
DeHeng Law Offices (as to PRC Law)
DLA Piper Hong Kong (as to Hong Kong and English Law)
INTERNATIONAL AUDITOR:(4)
Deloitte Touche Tohmatsu
H SHARE REGISTRAR AND TRANSFER OFFICE:
Computershare Hong Kong Investor Services Limited
Rooms 1712-1716, 17th Floor, Hopewell Centre
183 Queen's Road East
Wanchai
Hong Kong
LISTING VENUES:
Hong Kong, London and Shanghai
(1) On 8 May 2017, the Board received resignation letters from
independent non-executive Directors Mr. Pan Xiaojiang and Mr. Simon
To Chi Keung, who resigned as independent non-executive Directors
with effect from 25 May 2017 as their tenures have expired. On 25
May 2017, the Company convened its 2016 Annual General Meeting, at
which Mr. Wang Xiaokang and Mr. Liu Deheng were elected as
independent non-executive Directors. Given the election of the new
session of the Board on 27 October 2017, Mr. Cao Jianxiong, Mr.
Feng Gang and Mr. lan Sai Cheung Shiu have ceased to be
non-executive Directors. Mr. Xue Yasong was elected as employee
representative Director by the second session of the employee
representative meeting of the Company in 2018.
2 Due to work rearrangement, Mr. Zhou Feng has conveyed to the
Supervisory Committee his request to resign from the position as a
Supervisor on 2 August 2017. Ms. Li Guixia was elected as the
employee supervisor of the fifth session of the Supervisory
Committee at the employee representative meeting of the Company and
Mr. Shen Zhen has ceased to be the employee supervisor with effect
from 27 October 2017.
3 On 30 August 2017, the Board received a resignation letter
from Ms. Rao Xinyu, the board secretary. Due to work rearrangement,
Ms. Rao Xinyu resigned as board secretary and joint company
secretary of the Company. On the same date, the Company convened
its 48th meeting of the 4th session of the Board, at which Mr. Zhou
Feng was appointed as the board secretary and joint company
secretary of the Company.
4 After being considered by the 44th meeting of the 4th session
of the Board and considered and approved by the 2016 Annual General
Meeting, Deloitte Touche Tohmatsu was appointed as the
international auditor of the Company for the year of 2017. KPMG has
ceased to be the international auditor of the Company.
SUMMARY OF FINANCIAL INFORMATION
(RMB'000)
2017 2016 2015 2014 2013
---------------------------------- ----------- ----------- ----------- ----------- ----------
Revenue 124,026,202 115,144,692 110,057,034 105,964,897 98,265,058
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Profit from operations 11,755,712 17,532,575 15,551,622 7,257,047 4,091,469
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Profit before taxation 11,486,232 10,212,902 9,355,251 5,134,866 4,592,283
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Profit after taxation
(including profit attributable
to non-controlling interests) 8,641,449 7,758,681 7,509,487 4,334,102 3,667,422
---------------------------------- ----------- ----------- ----------- ----------- ----------
Profit attributable to
non-controlling interests 1,397,128 949,522 446,140 481,610 396,595
---------------------------------- ----------- ----------- ----------- ----------- ----------
Profit attributable to
equity shareholders of
the Company 7,244,321 6,809,159 7,063,347 3,852,492 3,270,827
---------------------------------- ----------- ----------- ----------- ----------- ----------
EBITDA(1) 25,352,031 31,006,295 28,562,383 18,650,476 15,119,959
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EBITDAR(2) 33,740,737 38,261,866 34,725,582 24,131,141 20,044,184
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Earnings per share attributable
to equity shareholders
of the Company (RMB) 0.54 0.55 0.57 0.31 0.27
---------------------------------- ----------- ----------- ----------- ----------- ----------
Return on equity attributable
to equity shareholders
of the Company (%) 8.42 9.90 11.82 7.10 6.06
---------------------------------- ----------- ----------- ----------- ----------- ----------
(1) EBITDA represents earnings before finance income, finance
costs, income taxes, share of profits of joint ventures and
associates, depreciation and amortisation as computed under the
IFRSs.
(2) EBITDAR represents EBITDA before deducting operating lease
expenses on aircraft and engines as well as other operating lease
expenses.
(RMB'000)
31 December 31 December 31 December 31 December 31 December
2017 2016 2015 2014 2013
---------------------------- ----------- ----------- ----------- ----------- -----------
Total assets 235,644,584 224,050,951 213,631,150 211,669,694 206,194,704
---------------------------- ----------- ----------- ----------- ----------- -----------
Total liabilities 140,785,986 147,654,552 147,108,397 151,791,604 147,908,961
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Non-controlling interests 8,811,036 7,597,144 6,774,742 5,604,325 4,268,650
---------------------------- ----------- ----------- ----------- ----------- -----------
Equity attributable to
equity shareholders of
the Company 86,047,562 68,799,255 59,748,011 54,273,765 54,017,093
---------------------------- ----------- ----------- ----------- ----------- -----------
Equity attributable to
equity shareholders of
the Company per share
(RMB) 5.92 5.26 4.57 4.15 4.13
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SUMMARY OF OPERATING DATA
The following is the operating data summary of the Company, Air
China Cargo, Shenzhen Airlines (including Kunming Airlines), Air
Macau, Dalian Airlines and Air China Inner Mongolia.
2017 2016 Increase/(decrease)
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Capacity
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ASK (million) 247,815.03 233,218.05 6.26%
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International 90,723.28 84,158.87 7.80%
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Mainland China 147,938.97 139,720.36 5.88%
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Hong Kong, Macau and Taiwan 9,152.77 9,338.82 (1.99%)
---------------------------------- ------------ ------------ -------------------
AFTK (million) 13,319.36 12,736.96 4.57%
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International 8,871.19 8,845.06 0.30%
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Mainland China 4,169.82 3,613.37 15.40%
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Hong Kong, Macau and Taiwan 278.35 278.54 (0.07%)
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ATK (million) 35,672.57 33,776.53 5.61%
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Traffic
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RPK (million) 201,078.49 188,158.21 6.87%
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International 71,039.18 65,445.49 8.55%
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Mainland China 122,876.89 115,744.65 6.16%
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Hong Kong, Macau and Taiwan 7,162.42 6,968.07 2.79%
---------------------------------- ------------ ------------ -------------------
RFTK (million) 7,552.65 6,995.06 7.97%
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International 5,791.72 5,238.68 10.56%
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Mainland China 1,646.49 1,649.43 (0.18%)
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Hong Kong, Macau and Taiwan 114.44 106.95 7.00%
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Passengers carried (thousand) 101,576.66 96,605.87 5.15%
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International 13,487.46 13,250.22 1.79%
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Mainland China 83,524.14 78,901.28 5.86%
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Hong Kong, Macau and Taiwan 4,565.07 4,454.37 2.49%
---------------------------------- ------------ ------------ -------------------
Cargo and mail carried (tonnes) 1,841,636.93 1,769,146.31 4.10%
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Kilometres flown (million) 1,323.36 1,274.88 3.80%
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Block hours (thousand) 2,115.24 2,028.68 4.27%
---------------------------------- ------------ ------------ -------------------
Number of flights 670,505 651,108 2.98%
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International 86,005 86,545 (0.62%)
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Mainland China 549,955 529,431 3.88%
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Hong Kong, Macau and Taiwan 34,545 35,132 (1.67%)
---------------------------------- ------------ ------------ -------------------
RTK (million) 25,385.38 23,697.62 7.12%
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Load factor
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Passenger load factor (RPK/ASK) 81.14% 80.68% 0.46ppt
---------------------------------- ------------ ------------ -------------------
International 78.30% 77.76% 0.54ppt
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Mainland China 83.06% 82.84% 0.22ppt
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Hong Kong, Macau and Taiwan 78.25% 74.61% 3.64ppt
---------------------------------- ------------ ------------ -------------------
Cargo and mail load factor
(RFTK/AFTK) 56.70% 54.92% 1.78ppt
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International 65.29% 59.23% 6.06ppt
---------------------------------- ------------ ------------ -------------------
Mainland China 39.49% 45.65% (6.16ppt)
---------------------------------- ------------ ------------ -------------------
Hong Kong, Macau and Taiwan 41.11% 38.40% 2.71ppt
---------------------------------- ------------ ------------ -------------------
Overall load factor (RTK/ATK) 71.16% 70.16% 1.00ppt
---------------------------------- ------------ ------------ -------------------
Daily utilisation of aircraft
(block hours per day per
aircraft) 9.47 9.56 (0.09hr)
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Yield
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Yield per RPK (RMB) 0.5227 0.5259 (0.61%)
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International 0.4067 0.4282 (5.03%)
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Mainland China 0.5772 0.5682 1.58%
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Hong Kong, Macau and Taiwan 0.7373 0.7393 (0.27%)
---------------------------------- ------------ ------------ -------------------
Yield per RFTK (RMB) 1.3578 1.1873 14.36%
---------------------------------- ------------ ------------ -------------------
International 1.3735 1.1685 17.55%
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Mainland China 1.1700 1.1646 0.46%
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Hong Kong, Macau and Taiwan 3.2608 2.4570 32.71%
---------------------------------- ------------ ------------ -------------------
Unit cost (RMB)
---------------------------------- ------------ ------------ -------------------
Operating cost per ASK 0.4530 0.4185 8.24%
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Operating cost per ATK 3.1473 2.8899 8.90%
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CHAIRMAN'S STATEMENT
2017 is an important year when the 19th National Congress of the
Communist Party of China was successfully held, and the
comprehensive implementation of the 13th Five-year Plan has entered
a crucial stage. Air China studied and implemented Xi Jinping
Thought on Socialism with Chinese Characteristics for a New Era and
strived to guide its reform and development with new ideas, new
thinking and new strategies, forge ahead and work in a
down-to-earth way. The Group also spared no effort in safety
management and strove to economic benefit, actively improved the
service quality. We continuously pushed forward the deepening of
reform, intensified the Party building, focused on the strategic
target of becoming a top-tier aviation group in the world with
global competitiveness, and achieved positive and stable progress
in all aspects.
During the reporting period, the Group adhered to the general
keynote of making progress while maintaining stability and quality
and profit were improved significantly. In 2017, we recorded a
profit before tax of RMB11,486 million, with a year-on-year
increase of 12.47%. The net profit attributable to equity
shareholders of the Company was RMB7,244 million, representing a
year-on-year increase of 6.39%. We recorded 2.117 million
accident-free flight hours, with a year-on-year increase of 4.2%;
traffic measured by RTK reached 25,385 million tonne kilometres,
with a year-on-year increase of 7.12%; 102 million passengers were
carried, with a year-on-year increase of 5.15%; the passenger load
factor was 81.14%, up by 0.46 percentage point year on year.
Continue to expand our route network and enhance airport hub
construction. In view of the national development strategies
including the Belt and Road Initiative and the coordinated
development of the Beijing-Tianjin-Hebei region, 49 domestic routes
such as Beijing-Maotai and 12 international and regional routes
such as Beijing-Astana were newly launched in 2017. We have also
made efforts to accelerate the consolidation of layout of the
global route network covering six continents, which is connected by
the nodes of Beijing, Chengdu, Shanghai and Shenzhen. The flight
bank structure has been under continuous optimization and the
number of O&D connected reached 5,918; the transfer capacity
and quality continuously increased. The interlining service revenue
reached RMB5.51 billion, representing a year-on-year increase of
15.3%. Luggage checking through service is now provided to all
flights from Europe, North America and Australia transferring to
domestic routes via Beijing and the competitiveness of our hubs
were strengthened.
Steadily improve marketing capability and accelerate business
model transformation. As at the end of the reporting period, the
number of our frequent flyer member exceeded 50 million
contributing 43.7% of our total revenue, representing a
year-on-year increase of 3.8 percentage point. Due to the
continuous efforts devoted to improving our mobile application
platform, a turnover of RMB5.02 billion was recorded, representing
a year-on-year increase of 39.4%. We conducted in-depth studies on
passenger demands, and this has helped us to increase the revenue
contributed by first class and business class service to RMB13.11
billion, representing a year-on-year increase of 12.7%. The revenue
generated from ancillary services such as paid seat selection,
prepaid luggage and boarding gate upgrade recorded a year-on year
increase of 32%. Air China Cargo has achieved positive operating
results through exploring new business model, optimizing the
arrangement of its routes and the structure of cargo sources, as
well as focusing on the development and sale of high value-added
services such as cold-chain logistics.
Promote premium brand strategy and improve service quality.
Focusing on the concept of "Internet plus convenient
transportation", we promoted products such as self-service
check-in, self-service ticket endorsement, self-print itinerary and
self-service luggage check-in on all routes and established the
whole-process convenient travel service mode. We continuously
improved our service hardware such as infrastructure and service
software such as operating codes to improve service quality. We
have also made efforts to promote the application of big data and
the construction of "mobile cabin" to realize the timely
transmission of operation related information and connect the whole
service information chain. As the exclusive official partner of air
passenger transport for the Beijing 2022 Winter Olympic and
Paralympic Winter Games and the International Horticultural
Exhibition 2019 Beijing China, the Group took such opportunity to
promote its brand in a more innovative way and to build its brand
image characterized by "the leader of civil aviation industry in
China" and "international network coverage".
Strive to enhance cost control and maintain cost advantage. We
devoted great energy to streamline and strengthen our management,
and to improve the quality and efficiency of our services. We
focused on the optimization of the operation of wide-body aircraft
to improve our cost management system, strengthen cost process
management and improve our performance. We actively carried out the
policy of "Lower Leverage, Reduce Liability and Control Risk". As a
result, as at 31 December 2017, the gearing ratio of the Group
decreased by 6.15 percentage points to 59.75% compared with last
year, which is at a relatively superior level in the industry. We
promoted special projects such as "increase direct sales and reduce
distribution costs", "reduce trade receivables and inventories" and
"streamline management structure". Since 2014, the percentage of
the Group's passenger transport direct sales has increased from 26%
to 50.9%, and the percentage of agency commission expense of the
marketing revenue has decreased from 4.2% to 1.5%. Therefore, our
cost competitiveness was continuously improved.
2018 marks the 40th anniversary of the Reform and Opening of
China, and also the first year to implement the guiding principles
of the 19th National Congress of the Communist Party of China. The
Group will fully implement the guiding principles of the 19th
National Congress. Guided by Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era, adhering to the development
principles of "Innovation, Coordination, Green, Openness and
Sharing", we will focus on the reform on quality, efficiency and
growth driver, carry out our work in a down-to-earth manner,
prevent and mitigate risks and strengthen Party building, and will
take a solid step towards the strategic goal of building a
world-class aviation group by achieving further spectacular
performance in safety, results, service and reform.
Cai Jianjiang
Chairman
Beijing, PRC
27 March 2018
Business Overview
In 2017, the Group's ASKs and RPKs reached 247,815 million and
201,078 million, representing a year-on-year increase of 6.26% and
6.87%, respectively. The passenger load factor was 81.14%,
representing a year-on-year increase of 0.46 ppt. The Group's AFTKs
and RFTKs reached 13,319 million and 7,553 million, representing a
year-on-year increase of 4.57% and 7.97%, respectively. The Group's
cargo and mail load factor was 56.70%, representing a year-on-year
increase of 1.78 ppt.
DEVELOPMENT OF FLEET
In 2017, the Group introduced 56 aircraft, (including six B787-9
aircraft, three B777-300ER aircraft, twenty-four B737 series
aircraft (including seven B737-8MAX aircraft), six A330-300
aircraft, seventeen A320 series aircraft (including two A320NEO
aircraft), among which seventeen were bought with our own funds,
twenty-three were acquired under finance leases and sixteen were
acquired under operating leases. And the Group phased out 24
aircraft (including three B777-200 aircraft, eighteen B737 series
aircraft, two A320 series aircraft and one business jet). As at the
end of 2017, the Group had a total of 655 aircraft, with an average
age of 6.53 years (excluding aircraft under wet leases).
Details of the fleet of the Group are set out in the table
below:
31 December 2017
-------------------- ------------------------------------------------------
Finance Operating Average
Sub-total Self-owned leases leases age (year)
-------------------- --------- ---------- ------- --------- -----------
Passenger aircraft 634 265 171 198 6.45
-------------------- --------- ---------- ------- --------- -----------
Airbus 311 127 89 95 6.63
-------------------- --------- ---------- ------- --------- -----------
A319 47 32 6 9 10.67
-------------------- --------- ---------- ------- --------- -----------
A320/A321 203 72 73 58 5.87
-------------------- --------- ---------- ------- --------- -----------
A330 61 23 10 28 6.05
-------------------- --------- ---------- ------- --------- -----------
Boeing 323 138 82 103 6.26
-------------------- --------- ---------- ------- --------- -----------
B737 269 110 64 95 6.42
-------------------- --------- ---------- ------- --------- -----------
B747 11 9 2 0 9.96
-------------------- --------- ---------- ------- --------- -----------
B777 30 8 16 6 5.79
-------------------- --------- ---------- ------- --------- -----------
B787 13 11 0 2 0.94
-------------------- --------- ---------- ------- --------- -----------
Cargo air-craft 15 10 5 0 10.54
-------------------- --------- ---------- ------- --------- -----------
B747F 3 3 0 0 15.53
-------------------- --------- ---------- ------- --------- -----------
B757F 4 4 0 0 21.35
-------------------- --------- ---------- ------- --------- -----------
B777F 8 3 5 0 3.26
-------------------- --------- ---------- ------- --------- -----------
Business jets 6 1 0 5 5.28
-------------------- --------- ---------- ------- --------- -----------
Total 655 276 176 203 6.53
-------------------- --------- ---------- ------- --------- -----------
Among the aircraft set out above, the Company operated a fleet
of 396 aircraft in total, with an average age of 6.57 years
(excluding aircraft under wet leases). The Company introduced 34
aircraft and phased out 19 aircraft among which one was leased to
Dalian Airlines.
Introduction Plan Phase-out Plan
-------------------- --------------------- ------------------
2018 2019 2020 2018 2019 2020
-------------------- ------ ------ ----- ----- ----- ----
Passenger aircraft
-------------------- ------ ------ ----- ----- ----- ----
Airbus 25 32 22 2 4 6
-------------------- ------ ------ ----- ----- ----- ----
A319 0 0 3 2 4 6
-------------------- ------ ------ ----- ----- ----- ----
A320/A321 15 28 19 0 0 0
-------------------- ------ ------ ----- ----- ----- ----
A330 4 0 0 0 0 0
-------------------- ------ ------ ----- ----- ----- ----
A350 6 4 0 0 0 0
-------------------- ------ ------ ----- ----- ----- ----
Boeing 29 31 31 20 13 6
-------------------- ------ ------ ----- ----- ----- ----
B737 25 31 31 17 13 6
-------------------- ------ ------ ----- ----- ----- ----
B777 2 0 0 3 0 0
-------------------- ------ ------ ----- ----- ----- ----
B787 2 0 0 0 0 0
-------------------- ------ ------ ----- ----- ----- ----
Total 54 63 53 22 17 12
-------------------- ------ ------ ----- ----- ----- ----
In 2017, the Company made new progress in respect of hub
network, sales and marketing, products and services, external
cooperation, safety management, employee self-achievement, customer
service, supplier management, environmental protection and social
welfare, etc.
HUB NETWORK
The Company (including Dalian Airlines and Air China Inner
Mongolia) newly launched or adjusted 61 domestic and international
routes. As for the Beijing Hub, the Company launched international
routes from Beijing to Astana, Zurich, Brisbane, etc., and domestic
routes of Beijing-Maotai, Beijing-Zhengzhou-Shaoyang,
Beijing-Harbin-Jiansanjiang, etc. The Company also boosted the
flight frequency on the routes of Beijing-Islamabad-Karachi,
Beijing-Urumchi and other international and domestic routes. The
passenger visits to transiting hotels and lounges increased by 8.8%
year-on-year, with continuous enhancement of our transiting service
capabilities. The transiting passengers from overseas to domestic
destinations via Beijing increased by 7.2% year-on-year; the number
of O&D connected reached 5,918, and the super hub value of
Beijing steadily increased. The Company continuously developed the
Chengdu International Hub which launched new routes such as
Chengdu-Shihezi-Yining, Chengdu-Hami, Chongqing-Nanchang and
Chongqing-Taipei Songshan. Shanghai international gateway launched
new routes such as Shanghai Pudong-Barcelona and Shanghai
Pudong-Bangkok and Shenzhen international gateway launched new
routes such as Shenzhen-Los Angeles, Guangzhou-Lanzhou and
Guangzhou-Yinchuan. The quadrilateral network structure has been
continuously optimized and the competitiveness of the hubs has been
steadily improved. In addition, route network has been further
developed and the interlining flights products have been further
diversified by launching new international and domestic routes such
as Dalian-Chengdu, Guiyang-Haikou, Hohhot-Xiamen,
Tianjin-Lianyungang-Bangkok, Hangzhou-Phuket and Yuncheng-Hong
Kong. In 2018, the Company plans to launch international
long-distance routes such as Beijing-Panama City,
Beijing-Copenhagen, Beijing-Barcelona, Chengdu-Bangkok,
Chengdu-Bali, Hangzhou-Nha Trang and domestic routes such as
Chengdu-Hongyuan-Lhasa and Chongqing-Urumqi.
As at 31 December 2017, the Company (including Dalian Airlines
and Air China Inner Mongolia) was operating 420 passenger routes,
with 101 international routes, 16 regional routes and 303 domestic
routes. The above passenger routes reached 40 countries (regions)
and 185 cities, including 66 international cities, 3 regions and
116 domestic cities. With Star Alliance, our network covered 1,330
destinations in 192 countries.
SALES AND MARKETING
The Company continuously strengthened our strength in domestic
key bases and routes, optimized the capacity resources
distribution, dynamically adjusted our domestic and international
capacity deployment structure, made full use of slot resources and
increased our deployment of wide-body aircraft for domestic routes
in trunk markets. We also actively carried out our price priority
strategy in response to the market dynamics and adjusted the ticket
prices of 64 domestic routes, resulting in an increase in revenue
of approximately RMB921 million throughout the year. The successful
marketing of premium class drove a year-on-year increase in revenue
from premium class of 12.7%. In addition, we reconstructed the
business process and model of the frequent flier credit point
accumulation platform, completed 16 upgrades to the mobile
platform, optimized and added more than 450 functions,
significantly enhancing customer experience. The total number
of"Phoenix Miles" members amounted to 50.91 million and the
electronization of frequent flier services has been materialized.
With the significant increase of frequent fliers' satisfaction,
loyalty, and consumption stickiness, revenue contribution was up by
19.6% compared to the same period last year, accounting for 43.7%
of the revenue. Moreover, the Company continuously expanded our
ancillary services and products to explore new business growth
points. During the reporting period, our cumulative sales revenue
from ancillary products reached RMB270 million, representing a
year-on-year increase of 32%. Given our brand characteristics, the
Company launched an IP image "Panda ( )" with an aim to enhance our
brand identity and spark public emotional resonance. As the
exclusive official partner of air passenger transport for the
Beijing 2022 Olympic and Paralympic Winter Games, our brand
strategic plans have been systematically implemented so as to
continuously establish our core competitiveness and long-term
development capability.
PRODUCTS AND SERVICES
Focusing on the concept of "Internet plus convenient
transportation", the Company has established a whole-process
convenient travel service mode to build a one-stop intelligent air
travel platform. New functions such as passport reading,
self-service ticket endorsement and self-print itinerary were added
to self-service check-in machines. With the introduction of new
process of self-service baggage check with boarding pass, the
growth rate of domestic passengers boarding through self-service
check-in machines has reached 13%. During the reporting period, six
self-operated lounges were newly built, rebuilt or expanded, with a
newly-added area of 4,600 square meters; Chongqing and Wuhan
lounges were officially launched. The design of a new passenger
services interface such as seats, entertainment systems, cabin
interiors and scene lighting for newly introduced aircraft such as
A350, A320NEO and B737-8MAX has been completed, creating brand new
product experience in the new aircraft. We also managed to launch
and operate the "mobile cabin", realizing the timely transmission
of air-ground information and connect the whole service information
chain. We continued to revise or develop such rules and codes of
service as Standards for Rain and Snow Proof Services for
Passengers Embarking and Disembarking at the Apron (Trial) ( ( ) )
and Regulations for Management of Injury, Death and Serious
Diseases of Passengers ( ), Standards for Irregular Flight Services
( ) and Standards for Donated Human Organ Transshipment Services (
), so as to further improve the standardization of services and
reinforce the soft power of our services. We enhanced our service
quality from the perspective of passengers with problem-oriented
policies, and actively expanded the access to passengers' opinions,
resulting in the significant increase of passengers' response
rate.
EXTERNAL COOPERATION
During 2017, the Group formally commenced its cooperation with
Lufthansa Group on jointly operating China-European routes. The
parties have launched a united network plan to provide passengers
with more convenient traveling options; carried out the joint
corporate customer scheme to provide corporate customers with more
attractive products; further optimized the frequent flier scheme to
reward our frequent fliers; and enhanced the standard consistency
for ground service, shared lounges and improved processes for
irregular flights. By adopting such measures, service of the
China-European routes has been continuously improved, and our
overall competitive strength in European market was obviously
enhanced. Besides, we further deepened the joint operation with the
Air New Zealand, and has initiated negotiation on joint operation
with the Air Canada. We also engaged in code sharing arrangement
with a Columbian airline, and currently cooperated with 36 airlines
in code sharing and offered 14,467 code sharing flights per week.
Last but not least, in 2017, the 10th year of joining the Star
Alliance, the Company signed a memorandum of cooperation for the
project "Move Under One Roof" with Star Alliance and Beijing
Capital International Airport, with aims of facilitating
development of the Beijing Capital International Airport and
building it a first-class gateway airport, the achieving of which
will greatly improve flight experiences in the futures. We also
jointly carried out a series of programs with Star Alliance
members, which includes but not limited to brand promotion under
the theme of "20th anniversary of Star Alliance", fast customs
clearance program and luggage hub program.
SAFETY MANAGEMENT
The Company upheld the development philosophy of "Safety First,
Prevention First and Comprehensive Management". We embodied the
statements and requirements in relation to new development
philosophy, overall national security outlook, social governance
and other aspects mentioned in the report of the 19th National
Congress of the Communist Party of China into theories and
guidelines of our safety work, and has maintained a stable safety
record throughout the year. In 2017, the Company kept real time
monitoring over those key risks and important sources of risk,
proceeded safety inspections in orderly manners, and timely
rectified the problems and hidden dangers identified with
zero-tolerance attitude, thereby effectively preventing safety
risk. In addition, we strictly controlled training quality and
accelerated training progress, increased monitoring and
troubleshooting efforts for common and recurrent failures, offered
training and education to improved working style and service
capability of our professional teams, and improved our emergency
response capacity and organization and coordination ability to
further consolidate our safety fundamentals. We earnestly performed
our safety supervision duties, with security audit, special
guidance, technical inspection and job conference in place to
ensure that our investment enterprises had improved their safety
management. We made sure that safety management has full coverage
and good coordination between different business units, and no
omission and ambiguity occurred in this respect.
EMPLOYEE SELF-ACHIEVEMENT
The Company respected and provided equality to each staff,
safeguarded their legitimate rights and interests, expanded their
growth channels and cared for their occupational health and
personal life, wishing that all our employees could equally share
our development fruits, and cohesive force of our Group and sense
of belonging of our staffs could be strengthened. Specifically, we
had built up a position management system, which provides unique
career development channels for staffs to management, business and
technical posts; we had formed a unique training system, which
provides diversified training programs and training methods; we
conducted comprehensive appraisal on our youth backbone and key
talents at key positions through our self-developed
"Assessment-oriented Method"; we continuously implemented
"Happiness -- Heart Program" to improve our employee's attention
and knowledge on psychological health, and devoted efforts to
improve their physical and psychological health; we spared no
efforts to construct services sites outside Beijing to enlarge the
service coverage for our staffs and facilitate their business
processing; and we organized vocational skills competition, art
festival and other recreational and sports activities to promote
the communication between employees, hence raising their cohesion
and sense of belonging.
CUSTOMER SERVICE
Adhering to its "Four Cs" service philosophy of "Credibility,
Convenience, Comfort and Choice", the Company strived to
continuously optimize its passenger service management system, and
leveraging internet information technology, to further improve the
software and hardware facilities in relation to the services of the
whole process so as to improve the passengers' self-service
experience. The Company took efforts to supplement and upgrade its
service management system in accordance with the standards under
ISO9001: 2015. The Company has further improved the flight
punctuality rate by lowering the percentage of delayed flights
caused by the Company, and would provide proof to passengers in
respect of delay, cancellation and adjustment of flights through
self-service channels including official website and mobile phone
application so as to protect passengers' interest in the event of
flight irregularity. Efforts have also been made to optimise the
customer complaint responding mechanism and to promote on-line
compensation channel so as to make it more convenient for travelers
to get due compensation. The Company also paid attention to the
needs of special passengers and provide preferential tickets or
discounted tickets to soldiers and disabled soldiers (including
police officers) through on-line channel. Information encryption
technologies have been adopted for personal data transmission to
prevent the leakage of and safeguard the security of such data. In
2017, no mass event has occurred for reasons of the Company and the
overall satisfaction level of passengers has improved.
SUPPLIER MANAGEMENT
The Company formulated "Integrated Implementation Plan for
Centralized Procurement", based on which a centralized, efficient
and transparent procurement management system and a system for
regular publication of supplier information data base have been
established; the Company has also enhanced suppliers' annual
performance assessment, created a new mechanism of performance
review and optimized its performance assessment system. In 2017,
the Company admitted 551 suppliers and the number of total
suppliers admitted reached 3,261, of which 3,150 are domestic
suppliers and 111 are foreign suppliers.
ENVIRONMENTAL PROTECTION
The Company adhered to the philosophy of "Green Operation for
Sustainable Development" and continued to further implement the
energy conservation and environmental protection policies of China.
In accordance with the relevant requirements of the nation's
environment-related laws and regulations, the Company has
established systems covering the organization and mechanism of
environment management. Based on the characteristics of the
industry, the Company strengthened the construction of its energy
management system and push forward the energy conservation and
emission reduction work. Focusing on fuel saving management in its
operation and the application of new technologies, the Company
continuously reduced the energy consumption in fields which used to
be deemed as trivial, through air route optimization, APU fuel
saving and the improvement of ground facilities. The Company has
paid significant attention to the development of new types of fuel,
participated in relevant promotional activities and reduced
emissions and pollution through implementation and research of
projects such as "replace oil with electricity", solar power and
low NOx transformation. The Company has also held environmental
protection themed training courses and various promotional
activities to elevate the environmental protection awareness of
employees, passengers and the public. In 2017, the fuel efficiency
of passenger aircraft was 0.2642 kilogram/tonne kilometer.
SOCIAL WELFARE
The Company has integrated the performance of social
responsibility into its overall development planning for the
purpose of making contribution to the community. In response to the
Belt and Road Initiative, in 2017, the Company launched a number of
new routes such as Beijing to Astana and Beijing to Zurich in order
to promote international political, economic and cultural
communication; and has successfully accomplished the transportation
missions for the 19th Nation Congress of the Communist Party, the
13th National Games, "rescue operations in Sri Lanka" and "rescue
operations in Jiuzhaigou". The Company contributed its efforts to
precise poverty alleviation by fully utilising its own resource
advantages and the characteristic resources in Sonid Right Banner,
Xilingol League, the Inner Mongolia Autonomous Region and Zhaoping
County, Guangxi Zhuang Autonomous Region, to help to enhance the
independent development capability of the local communities and
promote the rapid development of relevant industries so as to
relieve the local communities from poverty sustainably. Caring for
the growth of children, the Company conducted the "Star Route"
teenager caring and supporting activities. In addition, the Company
enhanced its communication with the community and promoted advanced
culture with an aim to build a stable and harmonious social
environment.
MAJOR SUBSIDIARIES AND ASSOCIATES AND THEIR OPERATING
RESULTS
1. Air China Cargo
Air China Cargo was established in 2003. Headquartered in
Beijing, Air China Cargo takes Shanghai as its main long-distance
air freighter operation base and is primarily engaged in air cargo
and mail transportation. The registered capital of Air China Cargo
is RMB5,235,294,118, and Air China holds 51% of its equity
interest.
As at 31 December 2017, Air China Cargo operated a fleet of 15
aircraft with an average age of 10.54 years.
In 2017, the AFTKs of Air China Cargo reached 12,176 million,
representing a year-on-year increase of 3.66%. Its RFTKs reached
6,950 million, representing a year-on-year increase of 8.97%. The
volume of cargo and mail carried was 1.4694 million tonnes,
representing a year-on-year increase of 6.00%. The cargo and mail
load factor was 57.08%, representing a year-on-year increase of
2.79 ppt.
In 2017, Air China Cargo recorded consolidated revenue of
RMB11,264 million, representing an increase of 24.84%, of which
cargo and mail transportation revenue amounted to RMB9,903 million,
representing a year-on-year increase of 24.52%. The profit
attributable to the equity shareholders was RMB1,104 million as
compared to RMB11 million in the same period last year.
2. Shenzhen Airlines
Shenzhen Airlines was established in 1992, with its principal
operating base located in Shenzhen. Its principal business is the
operation of passenger and cargo transportation. The registered
capital of Shenzhen Airlines is RMB5,360,000,000. Air China holds
51% of its equity interest.
As at 31 December 2017, Shenzhen Airlines (including Kunming
Airlines) operated a fleet of 203 aircraft with an average age of
6.20 years. During the year, 19 aircraft were introduced and 4
aircraft were phased out.
In 2017, the ASKs of Shenzhen Airlines (including Kunming
Airlines) reached 59,792 million, representing a year-on-year
increase of 3.39%. Its RPKs reached 49,346 million, representing a
year-on-year increase of 3.23%. Shenzhen Airlines (including
Kunming Airlines) carried 32.7086 million passengers, representing
a year-on-year increase of 3.98%. The average passenger load factor
was 82.53%, representing a year-on-year decrease of 0.13 ppt.
In terms of air cargo, the AFTKs of Shenzhen Airlines reached
981 million, representing a year-on-year increase of 17.06%. Its
RFTKs reached 542 million, representing a year-on-year decrease of
3.39%. The volume of cargo and mail carried by Shenzhen Airlines
was 0.3271 million tonnes, representing a year-on-year decrease of
4.02%, while the cargo and mail load factor was 55.24%,
representing a year-on-year decrease of 11.72 ppt.
In 2017, Shenzhen Airlines recorded consolidated revenue of
RMB28,052 million, representing a year-on-year increase of 6.58%,
of which, air traffic revenue amounted to RMB26,778 million,
representing a year-on-year increase of 6.63%. The profit
attributable to equity shareholders was RMB1,439 million,
representing a year-on-year decrease of 8.54%.
3. Air Macau
Air Macau was established in 1994 and is an airline based in
Macau with a registered capital of MOP442.042 million. Air China
holds 66.8995% of its equity interest.
As at 31 December 2017, Air Macau operated a fleet of 17
aircraft with an average age of 7.68 years. During the year, 1 new
aircraft was introduced and 1 was phased out.
In 2017, the ASKs of Air Macau reached 6,161 million,
representing a year-on-year decrease of 4.34%.Its RPKs reached
4,618 million, representing a year-on-year decrease of 2.12%. It
carried a total of 2.7839 million passengers during the year,
representing a year-on-year decrease of 0.74%, with an average
passenger load factor of 74.96%, representing a year-on-year of
increase of 1.71 ppt.
In terms of air cargo, the AFTKs of Air Macau reached 98.18
million, representing a year-on-year decrease of 4.70%. Its RFTKs
reached 33.44 million, representing a year-on-year increase of
13.74%. 21,220 tonnes of cargo and mail were carried, representing
a year-on-year increase of 10.80%; the cargo and mail load factor
was 34.06%, representing a year-on-year increase of 5.52 ppt.
In 2017, Air Macau recorded a revenue of RMB2,872 million,
representing a year-on-year increase of 6.56%, of which, air
traffic revenue amounted to RMB2,602 million, representing a
year-on-year increase of 8.49%. Profit after taxation was RMB66
million, representing a year-on-year increase of 173.45%.
4. Beijing Airlines
Beijing Airlines was established in 2011 with a registered
capital of RMB1 billion. Air China holds 51% of its equity
interest.
As at 31 December 2017, Beijing Airlines operated a fleet of 5
entrusted business jets and one self-owned business jet with an
average age of 5.28 years. And 1 aircraft was phased out during the
year.
In 2017, Beijing Airlines completed 477 flights, representing a
year-on-year increase of 11.44%. It completed 1,676 flying hours,
representing a year-on-year increase of 10.26%. It carried a total
of 2,980 passengers, representing a year-on-year decrease of
5.64%.
In 2017, Beijing Airlines recorded a revenue of RMB125 million,
representing a year-on-year decrease of 7.92%, of which, charter
service revenue amounted to RMB28 million, representing a
year-on-year decrease of 36.29%. The loss for the year was RMB37
million, as compared to profit after taxation of RMB0.7 million in
the same period last year.
5. Dalian Airlines
Dalian Airlines was established in 2011 with a registered
capital of RMB1 billion. Air China holds 80% of its equity
interest.
As at 31 December 2017, Dalian Airlines operated a fleet of 11
aircraft with an average age of 4.57 years. 2 aircraft was
introduced during the year.
In 2017, the ASKs of Dalian Airlines reached 2,767 million,
representing a year-on-year increase of 14.62%. Its RPKs reached
2,334 million, representing a year-on-year increase of 13.96%. It
carried a total of 2.1948 million passengers during the year,
representing a year-on-year increase of 8.92%, with an average
passenger load factor of 84.36%, representing a year-on-year
decrease of 0.47 ppt.
In terms of air cargo, the AFTKs of Dalian Airlines reached
34.9309 million, representing a year-on-year increase of 12.01%.
Its RFTKs reached 15.3284 million, representing a year-on-year
decrease of 0.99%.It carried a total of 13,704.87 tonnes of cargo
and mail during the year, representing a year-on-year increase of
0.38%. Its cargo and mail load factor was 43.88%, representing a
year-on-year decrease of 5.77 ppt.
In 2017, Dalian Airlines recorded revenue of RMB1,483 million,
representing a year-on-year increase of 12.62%, of which, air
traffic revenue amounted to RMB1,478 million, representing a
year-on-year increase of 12.28%. Profit after taxation was RMB133
million, representing a year-on-year increase of 17.29%.
6. Air China Inner Mongolia
Air China Inner Mongolia was established in 2013 with a
registered capital of RMB1 billion. Air China holds 80% of its
equity interest.
As at 31 December 2017, Air China Inner Mongolia operated a
fleet of 7 aircraft with an average age of 6.44 years.1 aircraft
was introduced during the year.
In 2017, the ASKs of Air China Inner Mongolia reached 1,728
million, representing a year-on-year increase of 22.64%. Its RPKs
reached 1,400 million, representing a year-on-year increase of
22.48%.
It carried a total of 1.4243 million passengers during the year,
representing a year-on-year increase
of 23.29%, with an average passenger load factor of 81.03%,
representing a year-on-year decrease of 0.04 ppt.
In terms of air cargo, the AFTKs of Air China Inner Mongolia
reached 28.5941 million, representing a year-on-year increase of
59.11%. Its RFTKs reached 11.4196 million, representing a
year-on-year increase of 2.40%. The amount of cargo and mail
carried by Air China Inner Mongolia was 10,257.53 tonnes,
representing a year-on-year increase of 10.08%, with a cargo and
mail load factor of 39.94%, representing a year-on-year decrease of
22.12 ppt.
In 2017, Air China Inner Mongolia recorded a revenue of RMB1,122
million, representing a year-on-year increase of 20.63%, of which,
air traffic revenue amounted to RMB1,097 million, representing a
year-on-year increase of 21.24%. Profit after taxation was RMB97
million, representing a year-on-year decrease of 22.15%.
7. AMECO
AMECO was established in 1989 and principally engages in
maintenance services of aircraft, engine and and components. The
registered capital of AMECO is US300,052,800, and Air China holds
75% of its equity interest.
In 2017, AMECO recorded a revenue of RMB7,287 million,
representing a year-on-year increase of 6.75% and profit after
taxation amounted to RMB165 million, representing a year-on-year
increase of 79.63%.
8. CNAF
CNAF was established in 1994 and principally engaged in the
provision of financial services to CNAHC Group and the Group. The
registered capital of CNAF is RMB1,127,961,864, with Air China
holding 51% of its equity interest.
In 2017, CNAF recorded a revenue of RMB228 million, representing
a year-on-year increase of 26.75%, and profit after taxation of
RMB77 million, representing a year-on-year increase of 31.83%.
9. Cathay Pacific
Cathay Pacific was established in 1946 in Hong Kong and is
listed on the Hong Kong Stock Exchange. Air China holds 29.99% of
its equity interest.
As at 31 December 2017, Cathay Pacific operated a fleet of 208
aircraft with an average age of 9.3 years. 12 aircraft were
introduced and 6 were phased out during the year.
In 2017, the ASKs of Cathay Pacific reached 150.14 billion,
representing a year-on-year increase of 2.8%. Its RPKs reached
126.66 billion, representing a year-on-year increase of 2.6%. A
total of 34.820 million passengers were carried, representing a
year-on-year increase of 1.4%, with an average passenger load
factor of 84.4%, representing a year-on-year decrease of 0.1
ppt.
In terms of air cargo, the AFTKs of Cathay Pacific reached 17.16
billion, representing a year-on-year increase of 3.6%. Its RFTKs
reached 11.63 billion, representing a year-on-year increase of
8.9%; it carried a total of 2.056 million tonnes of cargo and mail
during the year, representing a year-on year increase of 10.9%; the
cargo and mail load factor was 67.8%, representing a year-on year
increase of 3.4 ppt.
In 2017, Cathay Pacific recorded consolidated revenue of
RMB84,171 million, representing a year-on-year increase of 4.77%,
of which, air traffic revenue amounted to RMB78,138 million,
representing a year-on-year increase of 3.71%. The loss
attributable to equity shareholders for the year was RMB1,089
million, representing a year-on-year increase of 118.72% as
compared to the loss attributable to equity shareholders of RMB498
million in the same period last year.
10. Shandong Airlines
Shandong Airlines was established in 1999 with a registered
capital of RMB400 million. Shandong Airlines was owned as to 22.8%
and 42% by Air China and Shandong Aviation Group Corporation, while
Shandong Aviation Group Corporation was owned as to 49.4% by Air
China.
As at 31 December 2017, Shandong Airlines operated a fleet of
113 aircraft with an average age of 4.91 years. 15 aircraft were
introduced during the year.
In 2017, the ASKs of Shandong Airlines reached 39,665 million,
representing a year-on-year increase of 16.71%. Its RPKs reached
32,984 million, representing a year-on-year increase of 24.7%. It
carried a total of 23.1734 million passengers during the year,
representing a year-on-year increase of 24.36%, with an average
passenger load factor of 83.16%, representing an increase of 5.35
ppt compared to the year of 2016.
In terms of air cargo, the AFTKs of Shandong Airlines reached
661 million, representing a year-on-year increase of 11.12%. Its
RFTKs reached 270 million, representing a year-on-year increase of
10.72%. It carried a total of 0.1623 million tonnes of cargo and
mail during the year, representing a year-on-year increase 7.92%.
The cargo and mail load factor was 40.76%, representing a decrease
of 0.15 ppt compared to the year of 2016.
In 2017, Shandong Airlines recorded a revenue of RMB16,485
million, representing a year-on-year increase of 19.96%, of which,
air traffic revenue amounted to RMB15,988 million, representing a
year-on-year increase of 20.19%. The profit attributable to equity
shareholders was RMB490 million, representing a year-on-year
decrease of 7.97%.
OUTLOOK FOR FUTURE
Further development of consumption upgrade and continuous
increase of demand
With China's economy maintaining a middle-to-high speed growth
and the residents' income increasing rapidly, the middle-income
population and consumption capacity has been continuously
expanding. Due to the rapid growth of the needs for personal travel
such as tours and vacations, family visits and study abroad, the
travel trend tends to be high-end, quality, convenient and
customized, and it is expected more and more residents will take
airplane as their prior choice of travelling means for self-funded
tours and family visits. As a result, air travel will gain
increasing popularity.
Due to supply-side reform, the punctuality of flights is
expected to improve
The Civil Aviation Administration of China has issued "Several
Policies and Measures on Controlling the Total Traffic and
Adjusting Flight Structure to Improve the Punctuality Rate of
Flights" which is designed to further improve flight punctuality
through strictly controlling airport capacity and optimizing the
allocation of flight slots resources. The Group, with an objective
of constructing aviation hubs, will substantially benefit from the
flight punctuality since flight punctuality is crucial for the
transferring and connecting functions of these hubs. In the future,
with the improvement of flight punctuality of the industry as a
whole, the importance of these hubs will be further elevated.
With the implementation of pricing reform, marketisation of
aviation industry will be further enhanced
The Civil Aviation Administration of China and National
Development and Reform Commission have promulgated new pricing
policies for civil aviation, in the light of which marketized
ticket price shall be applied to routes between first-tier cities
and most of other routes with huge traffic. Thus, aviation
companies will be able to develop different products and services
according to their respective advantages and development models,
which will be beneficial for the differentiated development of
various aviation companies in the industry.
Intense competition will continue in the industry, and the
impacts of high-speed rail as alternative will come to a stable
level
The further implementation of the coordinated development of the
Beijing-Tianjin-Hebei region, the development of the Yangtze
Economic Belt and the Belt and Road Initiative, together with the
construction of Guangdong-Hong Kong-Macao Bay Area, has provided
opportunities for aviation companies to further explore market
potentials. However, as a result of the relatively low market
access barrier and the rapid development of low cost airlines in
China, at the present, a number of major airports have been under
almost full operation and the competition for traffic rights and
flight slots resources is getting even more intense. Under such
background, the Group has constructed a rhombus shape network with
Beijing, Chengdu, Shanghai and Shenzhen as the four vertexes and
has established strong competitive advantages in major airports
across China. The Group will continue to push forward the
development of its four hubs/portals in order to enhance the
transferring capability, expand the coverage of the airline routes
and optimise the network structure for the purpose of providing
passengers with quality products and services.
The development of high-speed rail in China has entered a stable
stage and a relatively mature route network has been established.
Although leveraging the advantages in price and punctuality rate,
highspeed rail has caused obvious diversion impacts on routes
within the range of 800-1,000 kilometres, aviation companies has
mitigated such impacts by adjusting route network and layout. In
the medium-to-long term, the diversion pressure imposed on aviation
companies by the competition from high-speed rail will gradually
weaken. The Group has achieved a balance between domestic and
overseas routes while the average distance for domestic routes is
relatively longer compared with other airlines, and through
continuous route network structure adjustment,
the diversion impacts of high-speed rail will be further
reduced.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION AND OPERATING RESULTS
The following discussion and analysis are based on the Group's
consolidated financial statements and the notes thereto prepared in
accordance with the IFRSs and are designed to assist the readers in
further understanding the information provided in this report so as
to better understanding the financial conditions and results of
operations of the Group as a whole.
PROFIT ANALYSIS
In 2017, the Group proactively grasped market opportunities, and
further strengthened the advantages of our core air traffic
business by adopting measures such as expanding the scale of
production, optimising operational arrangement, stabilising the
yield level and refining cost control. During the reporting period,
despite of influences of unfavorable factors such as the oil price
rebound, the Group still achieved satisfactory results. During the
reporting period, the Group recorded a profit after tax of RMB8,641
million, representing a year-on-year increase of 11.38%.
REVENUE
In 2017, the Group's revenue was RMB124,026 million,
representing an increase of RMB8,882 million or 7.71% as compared
with last year. Among which, air traffic revenue was RMB115,380
million, representing an increase of RMB8,082 million or 7.53% as
compared with last year; other operating revenue was RMB8,646
million, representing a year-on-year increase of RMB800 million or
10.19%.
Revenue Contribution by Geographical Segments
2017 2016
------------------ ------------------------- ------------------------- ---------
(in RMB'000) Amount Percentage Amount Percentage Change
------------------ ------------ ----------- ------------ ----------- ---------
Mainland China 80,800,286 65.15% 74,968,688 65.11% 7.78%
------------------ ------------ ----------- ------------ ----------- ---------
Hong Kong, Macau
and Taiwan 5,710,565 4.60% 5,460,001 4.74% 4.59%
------------------ ------------ ----------- ------------ ----------- ---------
Europe 12,187,864 9.83% 10,015,695 8.70% 21.69%
------------------ ------------ ----------- ------------ ----------- ---------
North America 10,576,506 8.53% 10,294,873 8.94% 2.74%
------------------ ------------ ----------- ------------ ----------- ---------
Japan and Korea 6,108,205 4.92% 6,800,675 5.91% (10.18%)
------------------ ------------ ----------- ------------ ----------- ---------
Asia Pacific and
others 8,642,776 6.97% 7,604,760 6.60% 13.65%
------------------ ------------ ----------- ------------ ----------- ---------
Total 124,026,202 100.00% 115,144,692 100.00% 7.71%
------------------ ------------ ----------- ------------ ----------- ---------
Air Passenger Revenue
In 2017, the Group recorded an air passenger revenue of
RMB105,125 million, representing an increase of RMB6,132 million
over that of 2016. Among the air passenger revenue, the increase of
capacity contributed an increase of RMB6,195 million to the
revenue, and the increase of passenger load factor brought an
increase of RMB602 million to the revenue, while the decrease of
passenger yield resulted in a decrease in revenue of RMB665
million.
The Group's capacity, passenger load factor and yield per RPK in
2017 are as follows:
2017 2016 Change
--------------------------- ----------- ----------- --------
Available seat kilometres
(million) 247,815.03 233,218.05 6.26%
--------------------------- ----------- ----------- --------
Passenger load factor (%) 81.14 80.68 0.46ppt
--------------------------- ----------- ----------- --------
Yield per RPK (RMB) 0.5227 0.5259 (0.61%)
--------------------------- ----------- ----------- --------
Air Passenger Revenue Contributed by Geographical Segments
2017 2016
------------------ ------------------------- ------------------------ ---------
(in RMB'000) Amount Percentage Amount Percentage Change
------------------ ------------ ----------- ----------- ----------- ---------
Mainland China 70,953,284 67.50% 65,815,143 66.49% 7.81%
------------------ ------------ ----------- ----------- ----------- ---------
Hong Kong, Macau
and Taiwan 5,280,870 5.02% 5,151,510 5.20% 2.51%
------------------ ------------ ----------- ----------- ----------- ---------
Europe 8,218,696 7.82% 7,031,555 7.10% 16.88%
------------------ ------------ ----------- ----------- ----------- ---------
North America 7,350,972 6.99% 7,740,515 7.82% (5.03%)
------------------ ------------ ----------- ----------- ----------- ---------
Japan and Korea 5,428,488 5.16% 6,269,045 6.33% (13.41%)
------------------ ------------ ----------- ----------- ----------- ---------
Asia Pacific and
others 7,892,974 7.51% 6,985,124 7.06% 13.00%
------------------ ------------ ----------- ----------- ----------- ---------
Total 105,125,284 100.00% 98,992,892 100.00% 6.19%
------------------ ------------ ----------- ----------- ----------- ---------
Air Cargo and Mail Revenue
In 2017, the Group's air cargo and mail revenue was RMB10,255
million, representing an increase of RMB1,950 million as compared
with last year. Among the air cargo and mail revenue, the increase
of capacity contributed an increase of RMB380 million to the
revenue, while the increase of cargo and mail load factor resulted
in an increase in revenue of RMB282 million, and the increase of
yield of cargo and mail resulted in an increase of RMB1,288 million
to the revenue.
The capacity, cargo and mail load factor and yield per RFTK in
2017 are as follows:
2017 2016 Change
------------------------------------ ---------- ---------- --------
Available freight tonne kilometres
(million) 13,319.36 12,736.96 4.57%
------------------------------------ ---------- ---------- --------
Cargo and mail load factor
(%) 56.70 54.92 1.78ppt
------------------------------------ ---------- ---------- --------
Yield per RFTK (RMB) 1.3578 1.1873 14.36%
------------------------------------ ---------- ---------- --------
Air Cargo and Mail Revenue Contributed by Geographical
Segments
2017 2016
------------------- ------------------------ ----------------------- -------
(in RMB'000) Amount Percentage Amount Percentage Change
------------------- ----------- ----------- ---------- ----------- -------
Mainland China 1,926,312 18.78% 1,920,904 23.14% 0.28%
------------------- ----------- ----------- ---------- ----------- -------
Hong Kong, Macau
and Taiwan 373,174 3.64% 262,788 3.16% 42.01%
------------------- ----------- ----------- ---------- ----------- -------
Europe 3,767,678 36.74% 2,832,908 34.11% 33.00%
------------------- ----------- ----------- ---------- ----------- -------
North America 3,045,317 29.70% 2,387,878 28.75% 27.53%
------------------- ----------- ----------- ---------- ----------- -------
Japan and Korea 563,990 5.50% 416,940 5.02% 35.27%
------------------- ----------- ----------- ---------- ----------- -------
Asia Pacific and
others 578,170 5.64% 483,610 5.82% 19.55%
------------------- ----------- ----------- ---------- ----------- -------
Total 10,254,641 100.00% 8,305,028 100.00% 23.48%
------------------- ----------- ----------- ---------- ----------- -------
Operating Expenses
In 2017, the Group's operating expenses were RMB112,270 million,
representing an increase of 15.02% from RMB97,612 million in 2016.
The breakdown of the operating expenses is set out below:
2017 2016
----------------------------- ------------------------- ------------------------ -------
(RMB'000) Amount Percentage Amount Percentage Change
----------------------------- ------------ ----------- ----------- ----------- -------
Jet fuel costs 28,409,213 25.30% 21,981,934 22.52% 29.24%
----------------------------- ------------ ----------- ----------- ----------- -------
Take-off, landing
and depot charges 13,863,338 12.35% 12,774,220 13.09% 8.53%
----------------------------- ------------ ----------- ----------- ----------- -------
Depreciation and
amortisation 13,596,319 12.11% 13,473,720 13.80% 0.91%
----------------------------- ------------ ----------- ----------- ----------- -------
Aircraft maintenance,
repair and overhaul
costs 6,213,096 5.53% 4,654,964 4.77% 33.47%
----------------------------- ------------ ----------- ----------- ----------- -------
Employee compensation
costs 22,392,361 19.95% 20,075,602 20.57% 11.54%
----------------------------- ------------ ----------- ----------- ----------- -------
Air catering charges 3,462,347 3.08% 3,270,726 3.35% 5.86%
----------------------------- ------------ ----------- ----------- ----------- -------
Selling and marketing
expenses 4,496,533 4.01% 3,893,265 3.99% 15.50%
----------------------------- ------------ ----------- ----------- ----------- -------
General and administrative
expenses 1,727,042 1.54% 1,401,882 1.44% 23.19%
----------------------------- ------------ ----------- ----------- ----------- -------
Others 18,110,241 16.13% 16,085,804 16.47% 12.59%
----------------------------- ------------ ----------- ----------- ----------- -------
Total 112,270,490 100.00% 97,612,117 100.00% 15.02%
----------------------------- ------------ ----------- ----------- ----------- -------
-- Jet fuel costs increased by RMB6,427 million or 29.24% on a
year-on-year basis, mainly due to the increase in the consumption
and the prices of jet fuel.
-- Take-off, landing and depot charges increased by RMB1,089
million on a year-on-year basis, primarily due to an increase in
the number of take-offs and landings.
-- Aircraft maintenance, repair and overhaul costs increased by
RMB1,558 million on a year-on-year basis, mainly due to the
expansion of fleet size.
-- Employee compensation costs increased by RMB2,317 million,
mainly due to the increase in number of employees and the impact of
the adjustment of employee compensation level.
-- Air catering charges increased by RMB192 million, mainly due
to the increase in the number of passengers.
-- Sales and marketing expenses increased by RMB603 million on a
year-on-year basis, mainly due to the increase in agency fees and
fees charged for computer reservation services.
-- General and administrative expenses increased by RMB325
million on a year-on-year basis, mainly due to the increase in
provision for impairment of accounts receivable.
-- Other operating expenses mainly included aircraft and engines
operating lease expenses, contributions to the civil aviation
development fund and non-above-mentioned ordinary expenses arising
from our core air traffic business. Other operating expenses
increased by 12.59% as compared to the previous year, mainly due
to, among others, the year-on-year increase in the operating lease
expenses of aircraft, engines and premises, etc. and the increase
in the contributions to the civil aviation development fund during
the year.
Other Income and Gains and Finance Costs
In 2017, the Group recorded an interest income of RMB224
million, representing a year-on-year increase of RMB97 million or
76.07%; and incurred an interest expense (excluding the capitalised
portion) of RMB3,055 million, representing a year-on-year decrease
of RMB180 million. In 2017, the Group recorded a net exchange gain
of RMB2,938 million, as compared to the net exchange loss of
RMB4,234 million for the same period of 2016, which was mainly due
to the depreciation in the exchange rate of US dollars against RMB
during the reporting period.
Share of Results of Associates and Joint Ventures
In 2017, the Group's share of results of its associates and
joint ventures was a loss of RMB376 million, as compared to the
share of results of its associates and joint ventures as a profit
of RMB22 million for the same period of 2016, mainly due to the
decrease in the profits of Cathay Pacific (an associate of the
Group) this year. The Group recorded a loss on investment of Cathay
Pacific of RMB986 million during the reporting period, representing
a year-on-year increase of RMB327 million.
Material Acquisitions and Disposals
In 2017, the Company did not make any material acquisitions and
disposals of subsidiaries, associates or joint ventures.
Assets Structure Analysis
As at 31 December 2017, the total assets of the Group amounted
to RMB235,645 million, representing a year-on-year increase of
5.17%, among which current assets accounted for RMB20,760 million
or 8.81% of the total assets, while non-current assets accounted
for RMB214,885 million or 91.19% of the total assets.
Among the current assets, cash and cash equivalents were
RMB5,563 million, accounting for 26.80% of the current assets and
representing a decrease of 18.77% from the beginning of 2017. The
decrease was mainly due to the improvement of the Group in
utilisation efficiency of financial funds.
Among the non-current assets, the net book value of property,
plant and equipment amounted to RMB168,536 million, accounting for
78.43% of the non-current assets and representing a year-on-year
increase of 6.66%, which was primarily due to the increase in the
number of self-owned and financing leased aircraft during the
year.
Asset Mortgage
As at 31 December 2017, the Group, pursuant to certain bank
loans and finance leasing agreements, had mortgaged certain
aircraft and premises with an aggregated net book value of
approximately RMB81,064 million (RMB84,030 million as at 31
December 2016) and land use rights with net book value of
approximately RMB34 million (RMB35 million as at 31 December 2016).
In addition, as at 31 December 2017, the Group had restricted bank
deposits of approximately RMB697 million (approximately RMB474
million as at 31 December 2016), which were mainly reserves
deposited in the People's Bank of China.
Capital Expenditure
In 2017, the Company's capital expenditure amounted to a total
of RMB19,617 million, of which the total investment in aircraft and
engines was RMB18,493 million. Other capital expenditure investment
amounted to RMB1,124 million, mainly including investments in
aircraft modifications, flight simulators, infrastructure
construction, IT system construction, ground equipment procurement
and cash component of the long-term investments.
Equity Investment
As at 31 December 2017, the Group's equity investment in its
associates amounted to RMB14,200 million, representing an increase
of 0.13% from the beginning of 2017. Among which, the balance of
the equity investment of the Group in Cathay Pacific, Shandong
Aviation Group Corporation and Shandong Airlines amounted to
RMB11,469 million, RMB1,301 million and RMB888 million,
respectively, with such companies recording profits of RMB-768
million, RMB604 million and RMB490 million, respectively for the
year of 2017.
As at 31 December 2017, the Group's equity investment in its
joint ventures was RMB1,239 million, representing an increase of
9.97% from the beginning of 2017, mainly due to the impact of the
recognition of investment income from the joint ventures during the
year.
Debt Structure Analysis
As at 31 December 2017, the Group's total liabilities were
RMB140,786 million, representing a year-on-year decrease of 4.65%.
Among which, current liabilities amounted to RMB72,132 million,
accounting for 51.24% of the total liabilities; and non-current
liabilities amounted to RMB68,654 million, accounting for 48.76% of
the total liabilities.
Among the current liabilities, interest-bearing debts (including
bank loans and other borrowings and obligations under finance
leases) amounted to RMB34,892 million, representing an increase of
8.78% from the beginning of 2017.
Among the non-current liabilities, interest-bearing debts
(including bank loans and other borrowings, corporate bonds and
obligations under finance leases) amounted to RMB59,907 million,
representing a decrease of 19.19% from the beginning of 2017.
Details of interest-bearing debts of the Group categorized by
currency are set out below:
2017 2016
------------ ------------------------ ------------------------- ---------
(RMB'000) Amount Percentage Amount Percentage Change
------------ ----------- ----------- ------------ ----------- ---------
US dollars 38,719,435 40.84% 52,170,383 49.12% (25.78%)
------------ ----------- ----------- ------------ ----------- ---------
RMB 54,830,969 57.84% 52,434,834 49.37% 4.57%
------------ ----------- ----------- ------------ ----------- ---------
Others 1,248,538 1.32% 1,598,669 1.51% (21.90%)
------------ ----------- ----------- ------------ ----------- ---------
Total 94,798,942 100.00% 106,203,886 100.00% (10.74%)
------------ ----------- ----------- ------------ ----------- ---------
Commitments and Contingent Liabilities
The Group's capital commitments, which mainly consisted of the
payables in the next few years for purchasing certain aircraft and
related equipment, decreased by 8.69% from RMB85,143 million as at
31 December 2016 to RMB77,742 million as at 31 December 2017. The
Group's commitments under operating leases, which mainly consisted
of the payments in the next few years for leasing certain aircraft,
offices and related equipment, amounted to RMB51,391 million as at
31 December 2017, representing a year-on-year decrease of 1.49%.
The Group's investment commitments, which was mainly used in the
investment agreements entered into, amounted to RMB58 million as at
31 December 2017, representing a decrease of RMB1 million from
RMB59 million as at 31 December 2016.
Details of the Group's contingent liabilities are set out in
Note 43 to the financial statements of the Group for 2017.
Capital Expenditure Plan and Relevant Financing Plan for
Aircraft and Related Equipment for the Coming Three Years
The Group has set the total budgeted capital expenditure for
aircraft and related equipment at RMB97,973 million, of which
RMB29,553 million, RMB37,143 million and RMB31,277 million have
been allocated to the years of 2018, 2019 and 2020 respectively.
The Group intends to satisfy the capital expenditure requirement by
means such as internal funds or debt financing.
Gearing Ratio
As at 31 December 2017, the Group's gearing ratio (total
liabilities divided by total assets) was 59.75%, representing a
decrease of 6.15 percentage points from 65.90% as at 31 December
2016, such decrease was mainly due to the non-public issuance of A
Shares during the reporting period. High gearing ratio is common
among aviation enterprises, and the current gearing ratio of the
Group is at a relatively reasonable level. Taking into account the
Group's profitability and the market environment where it operates,
its long-term insolvency risk is within controllable range.
Working Capital and its Sources
As at 31 December 2017, the Group's net current liabilities
(current liabilities minus current assets) were RMB51,372 million,
representing an increase of RMB7,178 million as compared to the
previous year. The increase in net current liabilities was mainly
due to the increase in short-term interest-bearing bank loans and
other borrowings. Based on the structure of current assets and
current liabilities, the current ratio (current assets divided by
current liabilities) was 0.29, representing a decrease from 0.31 as
at 31 December 2016.
The Group meets its working capital needs mainly through its
operating activities and external financing activities. In 2017,
the Group's net cash inflow from operating activities was RMB22,837
million, representing a decrease of 16.55% from RMB27,366 million
in 2016, which is mainly due to the increase of jet fuel costs. Net
cash outflow from investment activities was RMB14,653 million,
representing a decrease of 22.93% from RMB19,013 million in 2016,
mainly due to the year-on-year decrease in the cash payment of
advances and remaining balances for aircraft during the reporting
period. Net cash outflow from financing activities amounted to
RMB9,302 million, representing an increase of 5.92% from RMB8,781
million in 2016, mainly due to the increase in debt repayment
during the reporting period. The Company has obtained bank
facilities of up to RMB171,567 million granted by several banks in
the PRC, among which approximately RMB23,004 million has been
utilised, sufficient to meet our demand on working capital and
future capital commitments.
RISK FACTORS
Risks of Market Fluctuation
The demand in the air transport market is closely linked to the
economic growth and the level of disposable national income.
China's economy has managed to maintain its speedy growth.
Accompanied by the continuously deepening of economic
restructuring, the pressure of prospective economic deterioration
has eased. And while, with the interlaced impact of the structural
and cyclical factors, coupled with international political turmoil
and such other external uncertainties, the pressure of economic
slowdown and risk of market volatility still exist.
Risks of Competition
Risks of industry competition
Bilateral and multilateral non-equity joint venture arrangements
among large network carriers are being constantly strengthened as
competition is taking new forms. While China's top three airlines
are accelerating their penetration in the global market, an
increasing number of medium-size domestic airlines are actively
applying for flying medium- and long-distance international routes,
as a result, the international air traffic rights will become more
valuable and scarce in the future. While the Company is enjoying
the advantages in locations and timeslots in respect of the
long-distance routes to Europe and America, it has still much to
improve compared with the leading airlines in Europe and America in
terms of network, products and services. Regional airlines that
spring up during an industry deregulation promoted the trend of
low-cost aviation operations, which will further intensify the
competition in the domestic market and may result in reduced
yield.
Risks of alternative competition
China has built up the world's largest high-speed railway
network and is extending its reach towards the central and western
China. High-speed railway transportation features high frequency,
low cost, punctuality, high speed, convenience and comfort, and has
become the favourite choice of travellers, which put civil aviation
in an inferior position. In the short term, high-speed rail
carriers will continue to snatch market shares from the airlines
after they start network operation, increase the overall speed and
the frequency and extend the operating schedule. However, in the
long term, it will change China's geographic pattern of economy as
highspeed railway transportation and civil aviation may actually
cooperate and compete, and the air-rail interline operation will
become a strong support to the construction of international hubs.
As for the domestic routes, as medium and short distance routes
account for the lowest proportion in the industry, the Company may
suffer from the competition of high-speed railway transportation,
but only to a limited extent.
Operating Risks
De-hubbing risks
The international reach from the airports of China's second-tier
cities has been developing rapidly, with an obvious de-hubbing
trend. Taking international long-distance routes above the range of
5,000 kilometres as example, in 2009, there were only three
second-tier cities in China which operated international
long-distance routes, and as of December 2017 the number has
increased to 21. Long-distance route operations by the airports in
the second-tier cities have been growing rapidly, which now covers
Europe, America, Australia and Africa. With the gradual expansion
of the routes, airlines with wide-body aircraft have been actively
involved in the development of long-distance market in the
second-tier cities. Such development will have certain impact on
the Company's hubbed operations.
Risks of Oil Price Fluctuation
Jet fuel constitutes one of the major components of the Group's
operating costs, for which the Group is subject to the fluctuation
of jet fuel price. In the future, with uncertainties in crude oil
supply, the US dollar interest rate increase cycle and geopolitics,
it is expected there still exist some risks of oil price
fluctuation. In 2017, with the other variables remaining unchanged,
if the average price of the jet fuel rises or falls by 5%, the
Group's jet fuel cost will rise or fall by about RMB1,420 million.
In view of this, the Group will closely monitor the trend of oil
price and actively work on appropriate measures to control the
risks that might be brought by oil price fluctuation with an aim to
mitigate the potential impacts of such fluctuation on the
Group.
Risks of Exchange Rate Fluctuation
Currently, with the positive prospects of global economy, the US
and Europe are phasing out quantitative easing and monetary
policies have been tightened. In addition, as the US further pushes
forward its tax reform, the economic growth of the US will gain
more driving force and more dollars will flow back to its domestic
market, which in turn will promote the increase of US Dollar Index
and create conditions for the increase of US dollar interest rate.
As of March 2018, the Federal Reserve System has announced the
first-round interest rate increase in 2018 with a total of 2 to 3
times of interest rate increase to be expected for the year. At the
same time, with the further deepening of supply-side reform and the
implementation of the Belt and Road Initiative of China, the
high-quality growth of China's economy has established the
foundation for the stability of RMB exchange rate. The trend of the
exchange rate of RMB against USD is still unclear in 2018.
Some of the Group's foreign currency liabilities are denominated
in US dollar and some of the Group's expenses are also denominated
in currencies other than RMB. Assuming that the risk variables
other than the exchange rate stay unchanged, the appreciation or
depreciation of RMB against US dollar by 1% due to the changes in
the exchange rate will result in the increase or decrease in the
Group's total profit and equity for the year of 2017 by RMB279
million. In response to this, taking into account its own income
denominated in USD, the Group will flexibly adjust its debt
structure on the basis of maintaining a relatively reasonable
percentage of external debts, so as to minimize the exchange
exposure to be brought by USD interest-bearing debts.
Details of the financial risk management objectives and policies
of the Group are set out in note 45 to the financial statements of
the Group for 2017.
CORPORATE GOVERNANCE REPORT
The Company has been committed to maintaining and enhancing the
level of its corporate governance so as to ensure greater
accountability and transparency of the Group and deliver long-term
return to its shareholders. The Company has complied with all code
provisions as set out in the Corporate Governance Code in Appendix
14 to the Listing Rules (the "Code") during the year ended 31
December 2017 with the exception of Code Provision A.5.1. The
Company's corporate governance practices are summarised and
discussed below.
GOVERNANCE STRUCTURE
As at the date of this annual report, the governance structure
of the Company is set out as follows:
MEMBERS OF THE FIFTH SESSION OF THE BOARD
All of the Directors have actively participated in the
activities of the Company. The attendance records of all the
Directors present in person at general meetings, Board meetings and
meetings of each special committee in 2017 are as follows:
Audit
Nomination and Risk Strategy Aviation
General and Remuneration Control and Investment Safety
Meeting Board Committee Committee Committee Committee
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Number of Meetings 4 12 6 8 2 1
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Non-executive Directors
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Cai Jianjiang (Chairman) 4/4 12/12 6/6 2/2 1/1
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Cao Jianxiong (ceased
to act on 27 October
2017) 3/4 10/10 6/7 1/1
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Feng Gang (ceased
to act on 27 October
2017) 2/4 10/10 1/1
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
John Robert Slosar 4/4 10/12
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Ian Sai Cheung Shiu
(ceased to act on
27 October 2017) 4/4 10/10
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Executive Director
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Song Zhiyong (President) 3/4 12/12 2/2 1/1
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Independent Non-executive
Directors
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Pan Xiaojiang (ceased
to act on 25 May
2017) 3/3 7/7 2/2 4/4
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Simon To Chi Keung
(ceased to act on
25 May 2017) 3/3 7/7 2/2
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Wang Xiaokang (elected
on 25 May 2017) 1/1 5/5 3/3
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Liu Deheng (elected
on 25 May 2017) 1/1 5/5 4/4 1/1
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Stanley Hui Hon-chung 4/4 12/12 1/1 1/1
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Li Dajin 4/4 12/12 6/6 8/8
---------------------------- --------- ------ ------------------ ----------- ---------------- -----------
Notes:
(1) For the year ended 31 December 2017, the number of Board
meetings held, the convening procedures, minutes and records, rules
of procedure and other relevant matters in connection with such
meetings were in compliance with the relevant code provisions of
the Code. It can be shown from the attendance rate that all
Directors have discharged their duty of diligence and are dedicated
to making contribution for the interest of the Company and its
shareholders as a whole.
(2) Mr. Pan Xiaojiang and Mr. Simon To Chi Keung ceased to act
as independent non-executive Directors and members of the
Nomination and Remuneration Committee on 25 May 2017. On 9 August
2017, Mr. Wang Xiaokang was appointed as a member of the Nomination
and Remuneration Committee. As at 31 December 2017, the Nomination
and Remuneration Committee comprised two independent non-executive
Directors, namely Mr. Li Dajin and Mr. Wang Xiaokang and one
non-executive Director, namely Mr. Cai Jianjiang, with Mr. Li Dajin
serving as the Chairman of the committee.
(3) Mr. Pan Xiaojiang ceased to act as independent non-executive
Director and the Chairman of the Audit and Risk Control Committee
on 25 May 2017. On 9 August 2017, Mr. Liu Deheng was elected as the
Chairman of the Audit and Risk Control Committee. Mr. Cao Jianxiong
ceased to be non-executive Director and a member of the Audit and
Risk Control Committee with effect from 27 October 2017 and Mr.
Stanley Hui Hon-chung was appointed as a member of the Audit and
Risk Control Committee on the same day. As at 31 December 2017, the
Audit and Risk Control Committee comprised three independent
non-executive Directors, namely Mr. Liu Deheng, Mr. Stanley Hui
Hon-chung and Mr. Li Dajin, with Mr. Liu Deheng serving as the
Chairman of the committee.
(4) Mr. Cao Jianxiong and Mr. Feng Gang ceased to act as
non-executive Directors and members of the Strategy and Investment
Committee on 27 October 2017. Mr. Liu Deheng was appointed as a
member of the Strategy and Investment Committee on 27 October 2017.
As at 31 December 2017, the Strategy and Investment Committee
comprised one non-executive Director, namely Mr. Cai Jianjiang, one
executive Director, namely Mr. Song Zhiyong and one independent
non-executive Director, namely Mr. Liu Deheng, with Mr. Song
Zhiyong serving as the Chairman of the committee.
(5) Mr. Feng Gang ceased to act as non-executive Director and a
member of the Aviation Safety Committee on 27 October 2017, and Mr.
Stanley Hui Hon-chung was appointed as a member of the Aviation
Safety Committee on the same day. As at 31 December 2017, the
Aviation Safety Committee comprised one non-executive Director,
namely Mr. Cai Jianjiang, one executive Director, namely Mr. Song
Zhiyong and one independent non-executive Director, namely Mr.
Stanley Hui Hon-chung, with Mr. Song Zhiyong serving as the
Chairman of the committee.
(6) Mr. Xue Yasong was elected as employee representative
Director in 2018 and therefore did not attend the above meetings
held in 2017.
MAJOR CORPORATE GOVERNANCE PRINCIPLES AND PRACTICES OF THE
COMPANY
A. Directors
Independent non-executive Directors shall comprise one third of
the Board.
-- As at 31 December 2017, the Board comprised 7 Directors, out
of which four were independent non-executive Directors. The
Directors are elected at the shareholders' general meeting for a
three-year term of office, and are eligible for re-election upon
expiry of the term.
-- Pursuant to the Listing Rules, each of the four independent
non-executive Directors, namely, Mr. Wang Xiaokang, Mr. Liu Deheng,
Mr. Stanley Hui Hon-chung and Mr. Li Dajin, has confirmed their
independence with the Hong Kong Stock Exchange when they were
elected.
-- The Company had already received from all independent
non-executive Directors the annual statements concerning their
independence in which each of the independent non-executive
Directors re-confirmed their independence. The Company considers
all independent non-executive Directors as independent within the
meaning of Rule 3.13 of the Listing Rules.
The Directors shall have adequate skills and experience for the
business of the Company.
-- The Directors have extensive expertise and experience in the
fields of aviation, finance, law and financial management and
provide substantial support for the effective performance of the
Board.
-- The list of the Directors and their biographical details and
respective roles on the Board and special committees under the
Board are set out in this annual report and published on the
websites of the Company and Hong Kong Stock Exchange.
-- Besides the working relationships in the Company, there are
no financial, business, family relationship or other material
relationships among the Directors, Supervisors and senior
management.
Distinguished roles of the Chairman and President
-- The Chairman, concurrently a non-executive Director, is
responsible for leading the Board and ensuring the Board's
efficient operation and that all major and relevant issues are
discussed by the Board in a prompt and constructive manner.
-- The Chairman shall be elected and dismissed by a simple
majority of the Directors. The term of office of the Chairman shall
be three years, and the Chairman is eligible for re-election and
re-appointment upon expiry of the term. Mr. Cai Jianjiang was
elected as the Chairman on 21 February 2014, and was re-elected on
27 October 2017.
-- The Company has a President who shall be appointed or
dismissed by the Board. Mr. Song Zhiyong was appointed as the
President on 28 January 2014.
-- The President is authorised to oversee the Group's business
and implement its strategies to attain overall commercial
goals.
Non-executive Directors shall be appointed for a specific term,
and all Directors appointed to fill a casual vacancy shall be
subject to election by shareholders at the first shareholders'
general meeting after their appointment.
-- The term of office of the existing non-executive Directors is
three years upon election at the shareholders' general meeting.
The Board shall assume responsibility for the leadership and
supervision of the Company and be collectively responsible for
promoting the success of the Company.
-- The Board is accountable to the shareholders' general meeting
and determines the investment proposals of the Company and
disposals of the Company's fixed assets according to the
authorisation of the shareholders' general meeting. The Company
formulated the "Rules and Procedures for Shareholders' General
Meetings", "Rules and Procedures for Board Meetings" and "Rules and
Procedures for Senior Management Meetings". Pursuant to the
Articles of Association, the main responsibilities of the Board
include: to determine the Company's business policies and
investment plans; to formulate the Company's preliminary and final
annual financial budgets; to formulate the Company's profit
distribution proposals and loss recovery proposals; to determine
the establishment of the Company's internal management bodies; to
appoint or dismiss the President of the Company, Secretary to the
Board, and based on the nomination by the President, to appoint or
dismiss the Vice President, the Chief Financial Officer, the Chief
Pilot, the general counsel and other senior management personnel of
the Company; and to exercise other functions and powers as
stipulated in the Articles of Association and authorised by the
shareholders' general meeting.
-- The President shall be authorised by the Board to implement
various strategies and oversee the day-to-day operations of the
Company.
-- The Board shall have independent access to the senior
management personnel for enquiries in relation to the Company's
management.
-- The Board shall have special committees to provide support to
the Board in its decision-making process.
The management shall be responsible for formulating and
implementing the Company's business plans and board resolutions and
shall be accountable to the Board.
-- The management shall be accountable to the Board and its main
responsibilities include: to formulate the strategic development
plans and determine the establishment of the Company's internal
bodies; to formulate and implement annual business plans,
investment proposals, preliminary and final annual financial
budgets; to establish general management systems regarding
employment, remuneration and other fundamental internal rules and
regulations; to make decisions on major issues such as operation
safety and business management; to make decision on transactions
relating to the Company's main business involving a value within a
monetary threshold or within a specific proportion of the Company's
latest audited net asset value; to implement board resolutions and
exercise such other authorities as authorised by the Board.
The Board shall meet regularly to carry out its duties. The
Board and its committees shall be provided with adequate
information in a timely manner.
-- Board meetings are held regularly throughout the year and
generally include annual meeting, interim meeting and meetings for
the first and third quarters. The Board shall formulate meeting
plans on an annual basis, which mainly include matters such as the
time and venue of the Board meeting as well as routine proposals
such as review of financial reports, and shall inform all Directors
of such plans in the beginning of the year. Board meetings shall be
convened by the Chairman and a 14-day notice shall be served to all
Directors before each meeting. The Directors may attend live
meetings or through other electronic means of communication. If an
extraordinary Board meeting is proposed to be convened, the
Secretary to the Board shall issue a notice of the extraordinary
Board meeting within 10 days from the receipt of such proposal, and
the relevant documents of the meeting shall be given to all
Directors, Supervisors and other persons attending the meeting at
least three days in advance.
-- The Secretary to the Board shall be responsible for the
communications and liaison with all Directors from the time when
the notice is served to the commencement of the meeting, and shall
provide in a timely manner the necessary information to the
Directors to facilitate their decision-making on matters set out in
the agenda.
-- For the purpose of considering resolutions or matters during
Board meetings, the Directors may require the presence of the
persons-in-charge of the relevant departments at the Board meetings
to answer queries, so that the Directors can have a thorough
understanding of the key issues and the general situation.
-- All Directors shall have access to the Secretary to the
Board. Under the leadership of the Board and the Chairman, the
Secretary to the Board shall take the initiative to keep himself or
herself abreast of the implementation progress of the Board
resolutions, and report to and advise the Board and the Chairman in
a timely manner on major issues arising in the course of
implementation.
-- Minutes of Board meetings shall be kept by the Secretary to
the Board and made available for inspection by any Director at any
time.
Each Director is required to keep abreast of his/her
responsibilities as a Director and of the operating manner,
business activities and developments of the Company.
-- The management shall provide members of the Board and special
committees under the Board with appropriate and sufficient
information in a timely manner so as to update them with the latest
developments of the Company and facilitate their discharge of
duties.
-- Newly appointed Directors shall be given introduction in
relation to the Company to ensure that they have a sufficient
understanding of the management, business and governance practices
of the Company.
-- The Company also encourages its Directors to participate in
seminars and courses conducted by recognised institutions so as to
ensure that they constantly improve their skills and are aware of
the latest changes or developments in laws and regulations, the
Listing Rules and the Code with which they are required to comply
in discharging their duties.
-- The Directors confirmed that they have complied with code
provision A.6.5 of the Code in relation to training of Directors.
All Directors have participated in continuing professional
development by attending trainings and programmes or reading
relevant materials to broaden their knowledge base and sharpen
their skills, and have provided their training records to the
Company.
Category
Training for Directors in 2017 (notes)
--------------------------------------- ---------
Non-executive Directors
--------------------------------------- ---------
Cai Jianjiang (Chairman) a, b
--------------------------------------- ---------
Cao Jianxiong (ceased to act on 27
October 2017) a, b
--------------------------------------- ---------
Feng Gang (ceased to act on 27 October
2017) a, b
--------------------------------------- ---------
John Robert Slosar a, b
--------------------------------------- ---------
Ian Sai Cheung Shiu (ceased to act
on 27 October 2017) a, b
--------------------------------------- ---------
Executive Director
--------------------------------------- ---------
Song Zhiyong (President) a, b
--------------------------------------- ---------
Independent non-executive Directors
--------------------------------------- ---------
Pan Xiaojiang (ceased to act on 25
May 2017) a, b
--------------------------------------- ---------
Simon To Chi Keung (ceased to act
on 25 May 2017) a, b
--------------------------------------- ---------
Wang Xiaokang (elected on 25 May 2017) a, b
--------------------------------------- ---------
Liu Deheng (elected on 25 May 2017) a, b
--------------------------------------- ---------
Stanley Hui Hon-chung a, b
--------------------------------------- ---------
Li Dajin a, b
--------------------------------------- ---------
Notes: a. Trainings on the responsibilities of the directors
provided by the Company's legal advisers and the information about
the latest laws and regulations and regulatory developments in the
domestic and foreign capital markets prepared by the Company on a
regular basis, for the Directors to study by themselves.
b. Special trainings provided by the regulatory authorities.
The Company shall arrange appropriate insurance in respect of
potential legal actions against its Directors.
-- The Company has purchased liability insurance for the
Directors, Supervisors and senior management.
Compliance with the Model Code for Securities Transactions by
Directors of Listed Issuers ("Model Code")
-- After making specific enquiries, the Company confirmed that
each Director and each Supervisor has complied with the required
standards under the Model Code as set out in Appendix 10 of the
Listing Rules throughout 2017.
-- The Model Code contained in Appendix 10 to the Listing Rules
provides that the listed issuer may adopt a code of conduct which
is higher in level than the Model Code. On 5 September 2005, the
Company formulated and adopted the Model Code for Securities
Transactions, which was subsequently amended on 19 March 2007 and 4
December 2009, respectively, on terms no less exacting than the
required standards of the Model Code. The Model Code for Securities
Transactions of the Company also applies to the Supervisors and the
relevant employees.
Corporate Governance Functions
-- The Board shall be responsible for performing the following
corporate governance duties: to develop and review the Company's
policies and practices on corporate governance, and provide
recommendations in this regard; to review and monitor the training
and continuous professional development of the Directors and senior
management; to review and monitor the Company's policies and
practices on compliance with legal and regulatory requirements; to
develop, review and monitor the code of conduct and compliance
manual applicable to employees and Directors; and to review the
Company's compliance with the Corporate Governance Code and the
disclosure in the Corporate Governance Report. During the year, the
Board has duly performed the above corporate governance duties.
Please refer to the disclosure in this Corporate Governance Report
for details of the implementation in this regard.
B. Remuneration of Directors and Senior Management
The Company shall establish a remuneration committee with
certain authorities and obligations under specific written terms. A
majority of the members of the remuneration committee shall be
independent non-executive directors.
-- The Company has established the Nomination and Remuneration
Committee to advise the Board on the compensation of the Directors
as well as to nominate candidates to fill vacancies on the Board of
the Company. In addition, the Nomination and Remuneration Committee
reviews the performance of and determines the compensation
structure of the senior management of the Company.
-- The "Board Diversity Policy" was adopted by the Board in
September 2013, which sets out the approach of the Company towards
achieving diversity of the Board.
- The Company takes into consideration a number of factors,
including, but not limited to, professional experience and
qualifications, cultural and educational background, skills,
industry knowledge and reputation, knowledge of the laws and
regulations applicable to the Company, gender, age, language skills
and length of service, with a view to achieving diversity of the
Board. These factors shall be taken into account by the Nomination
and Remuneration Committee in reviewing the structure and
composition of the Board and making recommendations to the Board on
the appointment, re-appointment and re-designation of
Directors.
- The above factors should be balanced as appropriate in
determining the optimal composition of the Board. For appointment
of Directors, the above factors shall be considered on a
case-by-case basis in light of the actual circumstances of the
Company and its business operations, development and strategies.
Appointment by the Board should be made based on merits and the
contributions that the individual is expected to bring to the Board
with due regard for the benefits of diversity in the Board.
- The Nomination and Remuneration Committee shall monitor the
implementation of the Board Diversity Policy on an ongoing basis,
and review this policy as appropriate.
-- A shareholder holding 3% or more of the shares of the Company
is entitled to nominate a Director to the Nomination and
Remuneration Committee. The Nomination and Remuneration Committee
shall review the qualification of candidates for directorship and
senior management according to the standards as set out in the
Articles of Association and the Board Diversity Policy and submit a
report to the Board.
-- During the reporting period, the Nomination and Remuneration
Committee considered the nomination of candidates for independent
non-executive Directors and candidates for Directors of the fifth
session of the Board; advised the Board on the appointment of
senior management of the Company; recommended the remuneration of
Directors of the fifth session of the Board; and re-elected the
Chairman of the Nomination and Remuneration Committee of the fifth
session of the Board.
-- The remuneration of the independent non-executive Directors
shall be determined according to the average level of the listed
companies in the industry with the actual situation of the Company
taken into account. The remuneration of the executive Directors and
senior management shall be determined in accordance with the
relevant laws and regulations of PRC and the provisions of the
"Interim Measures for Remuneration Administration of Enterprise
Leaders" of the Company. The Nomination and Remuneration Committee
made recommendations to the Board on the remuneration packages of
individual Directors and senior management based on the
above-mentioned standards. The remuneration of the Directors and
Supervisors of the Company shall be determined by the shareholders'
meeting, and that of the senior management shall be determined by
the Board of Directors after being considered by the Nomination and
Remuneration Committee.
-- Details of the remuneration for the Directors and senior
management are disclosed in note 13 to the financial statements of
this annual report. Mr. Pan Xiaojiang, a former independent
non-executive Director, waived his emolument as an independent
non-executive Director of the Company for personal reasons.
C. Accountability and Audit
The Board shall present a balanced, clear and comprehensive
assessment of the Company's performance, position and prospects
-- The Company has established the Audit and Risk Control
Committee to review the financial information of the Company and
the relevant disclosure, to review the risk management and internal
control systems of the Company as well as to review and supervise
the effectiveness of the internal audit department.
-- The Company has published its annual and interim reports in
accordance with the requirements of the Listing Rules and other
relevant laws and regulations in a timely manner, within three
months and two months, respectively, after the end of the relevant
periods, and published its quarterly reports within 30 days after
the end of the first and third quarter, and the information
disclosed is adequate for the shareholders to evaluate the
performance, financial position and prospects of the Company.
-- Key operating data of the Company are published monthly in
order to improve the transparency of the Company's performance and
to provide the latest developments of the Company in a timely
manner.
-- The Company has a sound environment for implementing internal
controls. The Company has set up an effective electronic
information system to support business development which comprises
various operation systems, settlement system and a core accounting
and audit platform, i.e. the Oracle financial information system.
For treasury management, the Company has implemented a global
online banking management system. An effective accounting
information system was also established.
The Board is responsible for assessing and determining the
nature and extent of the risks that the Company is willing to take
in order to achieve its strategic objectives and ensuring that the
Company has established and maintained appropriate and effective
risk management and internal control system. The Board shall
supervise the design, implementation and monitoring of the risk
management and internal control system by the management, while the
management should confirm with the Board if the relevant system is
effective.
-- The Board bears the ultimate responsibility for the Group's
risk management and internal control system and for reviewing the
effectiveness of the system. The risk management and internal
control system is designed to manage rather than eliminate the risk
of failing to achieve business objectives and to make reasonable,
but not absolute, assurances that there will be no material
misstatement or loss. The Board monitors the risk level with the
assistance of the Audit and Risk Control Committee and the
management of the Company.
-- The Company conducts at least one review of the soundness and
effectiveness of the risk management and internal control system
every year. The Board will publish the self-assessment report on
the annual internal control after it is reviewed by the Audit and
Risk Control Committee.
-- In 2017, the Board reviewed the Group's risk management and
internal control system for the year through the Audit and Risk
Control Committee and considered that the system was adequate and
effective. The review of the Audit and Risk Control Committee
covered such key aspects of as financial monitoring, operational
monitoring and compliance monitoring. The Audit and Risk Control
Committee also reviewed the Group's resources, qualifications and
experience of the responsible staff, training courses and budget in
respect of the accounting, internal audit and financial reporting
functions and expressed satisfaction with the adequacy of such
measures. The Board also confirmed that the Company has established
effective systems and procedures to ensure the control and
management of the strategic risks, financial risks, operational
risks, legal risks, contingent risks etc..
-- The basic procedures of the Group's risk management include:
(1) collection of risk information; (2) identification and
assessment of risks; (3) formulation and implementation of risk
reduction measures; and (4) monitoring of risk management.
-- The Company has established a clear organizational structure
to allocate responsibilities for formulation, implementation and
monitoring as required. An information reporting mechanism has been
initially formed for risk management, which covers the Company's
main business units to ensure that significant risks are
effectively monitored and coped with within the Group.
-- The Group ranks the risks based on priority so as to pay
special attention to critical risks. It sets risk indicators for
critical risks, and monitors and judges the key indicators on a
regular basis so that the risks are always under control. All the
business units are required to compile a summary of the risks and
report to the Risk Management Working Group Office on a regular
basis. The Risk Management Working Group Office has initially set
up a monthly reporting procedure to regularly report the risks and
tracking to the management and regulatory authorities.
-- According to the risk assessment in 2017, the Group is mainly
facing market fluctuation risk, industry competition and
alternative competition risk, oil price fluctuation and exchange
rate fluctuation risk and de-hubbing risk, which will affect the
profitability and development of the Company.
-- The Company has established an internal audit department to
assist the Audit and Risk Control Committee and to analyze and
evaluate the adequacy and effectiveness of the Group's internal
control and risk management system and to supervise and evaluate
the risk management and internal control of the Group. The internal
audit department regularly reports the annual, interim work reports
and annual audit plans to the Audit and Risk Control Committee for
review of risk management and internal control system. The Audit
and Risk Control Committee reviews the reporting compliance,
reviews and monitors the effectiveness of the internal audit
department, keeps tracks of the corrective actions for the problems
spotted and guides the internal audit department to operate
efficiently.
-- The Company has implemented a registration and filing system
for the insiders and established the profiles of the insiders, who
should bear the responsibility of confidentiality for the insider
information they know. The Board should guarantee the truthfulness,
accuracy and completeness of the insider information. The Company
will conduct regular or occasional inquiries on the trading of
shares and derivatives of the Company by the insiders. If insiders
are found to have been involved in insider transaction or have
breached the laws and regulations due to dereliction of duty, the
Company will ensure that the relevant personnel are held
accountable in accordance with relevant laws and regulations and
the Company's policies. The Company is also aware of the Company's
obligations under the SFO and the Listing Rules for the handling
and disclosure of insider information, and unless the information
is in the category of "Safe Harbour Provisions", the Company will
disclose such insider information to the public as soon as
practicable.
The Board shall establish formal and transparent arrangements in
relation to the application of financial reporting, risk management
and internal control principles and the maintenance of an
appropriate relationship with the issuer's auditors. The Audit
Committee established as per the Listing Rules must have clear
Terms of Reference.
-- Through the Audit and Risk Control Committee, the Board
reviews and supervises the Company's financial reporting process
and risk management and internal control system, and reviews and
monitors the effectiveness of the internal control functions,
communicates with the auditors and reviews periodic financial
reports so as to make sure the financial reporting and internal
control principles are formal and transparent.
-- During the reporting period, the Audit and Risk Control
Committee mainly performed the following duties:
reviewing the annual reports for the year of 2016 and the
semi-annual reports for the year of 2017 prepared in accordance
with CASs and IFRSs respectively, and the first and third quarterly
reports for the year of 2017 prepared in accordance with CASs;
reviewing the profit distribution plan for 2016; reviewing "Special
Explanations for Non-operating Fund Utilization and Other Related
Fund Transactions in 2016" and the "Statement of the Implementation
of Connected Transactions for the year of 2016"; reviewing the
assessment report on internal control and the audit report on
internal control for the year of 2016; reviewing the performance
report by the Audit and Risk Control Committee for the year of
2016; reviewing the financial plan and investment plan for the year
of 2017; reviewing matters relating to the change of international
and domestic auditors and internal control auditor for the year of
2017; approving the "Administrative Regulations regarding the
Related/Connected Transactions of Air China Limited"; reviewing the
replacement of self-raised funds by funds raised through non-public
offering; reviewing the special report regarding the deposit and
actual use of raised funds of A Shares for the first half of 2017;
reviewing matters relating to the acquisition of properties from
China National Aviation Construction and Development Company;
determining the list of related parties of A share as of 31
December 2016; approving the renewal of trademark license framework
agreement between the Company and CNAHC; approving the new
financial services framework agreement between the Company and CNAF
and the annual caps for the continuing connected transactions
contemplated thereunder; approving the new financial services
framework agreement between CNAF and CNAHC and the annual caps for
the continuing connected transactions contemplated thereunder; and
electing the Chairman of the Audit and Risk Control Committee.
In addition to the above, the Audit and Risk Control Committee
also heard the following reports:
the summary report on internal audit work for the year 2016 and
the internal audit plan for the year 2017; summary report on audit
work for the year 2016 from KPMG; self-assessment report on
internal control of the Company for the year 2017 and the audit
plan on internal control of Deloitte Touche Tohmatsu CPA LLP.
-- The annual results and annual report of the Company for the
year 2017 had been reviewed by the Audit and Risk Control
Committee.
The responsibility of the Directors in relation to the financial
statements
The Company prepares and publishes annual reports, interim
reports and quarterly reports each year. The responsibilities of
the Directors in relation to the financial statements are set out
below and shall be read together with the "Independent Auditor's
Report" set out in this annual report.
-- Annual reports and accounts
The Directors acknowledge that they are responsible for
preparing the financial statements for each financial year so as to
present a true and fair view of the financial position of the
Company and the Group, and of the financial performance and cash
flow of the Group.
-- Accounting policies
When preparing the financial statements of the Company and the
Group, the Directors have consistently applied appropriate
accounting policies under the relevant accounting standards.
-- Accounting records
The Directors are responsible for ensuring that the Company
shall keep the accounting records, which will reflect the financial
position of the Company with reasonable accuracy, enabling the
Group to prepare the financial statements in accordance with the
requirements of the Listing Rules, Hong Kong Companies Ordinance
and the relevant accounting standards.
-- Ongoing operation
After making appropriate enquiries, the Directors believe that
the Group has sufficient resources for operation in the foreseeable
future. Accordingly, the Group's financial statements should be
prepared on a going concern basis.
The statement of reporting responsibility of the auditors is set
out in the section headed "Independent Auditor's Report" set out in
this annual report.
Auditors' remuneration
The international and domestic auditors of the Company are
Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu Certified
Public Accountants LLP respectively. Breakdown of the remuneration
to the Company's external auditors for providing audit and
non-audit services for the year ended 31 December 2017 is as
follows:
RMB9,522,000 (including value-added tax) was charged in
aggregate for the review of the Group's financial statements for
the six months ended 30 June 2017 and for the audit of the Group's
financial statements for the year ended 31 December 2017; an
aggregate amount of RMB6,623,000 (including value-added tax) was
charged for the audit of the financial statements of certain
subsidiaries of the Group for the year ended 31 December 2017;
RMB1,000,000 (including value-added tax) was charged for providing
internal control audit services to the Group; and RMB70,000
(including value-added tax) was charged for the rendering of tax
advisory related services to the Group.
D. Delegation by the Board
The Company shall formalise the functions reserved to the Board
and those delegated to the management. There shall be division of
responsibility between the Board committees, and each committee
shall be formed with certain authorities under specific terms
-- The Articles of Association has provided for the authorities
and authorisations of the Board and the President, details of which
are set out in the "Rules and Procedure for Board Meetings" and
"Rules and Procedures for Senior Management Meetings".
-- The primary duties of the Audit and Risk Control committee
are: to propose the engagement or change of external auditors,
conduct appropriate review and evaluation, as well as give opinion
in writing to the Board, in connection with the appointment of new
accounting firms or re-appointment of the existing accounting
firms; to review and supervise our internal auditing system and its
implementation, review the duties and responsibilities of the
internal audit personnel and receive and consider the work report
prepared by the responsible person of the audit department; to be
responsible for the communications between the internal auditors
and external auditors; to review and verify the Company's financial
information and its disclosure; to review the Company's financial
control, internal control and risk control system, and evaluate the
effectiveness of the system; to monitor the implementation and
self-assessment of the Company's internal control system, review
the risk control and internal control system with the management,
ensuring that they have performed their duties properly and
established an effective internal control system; to study the
results of the investigation on the internal control and the
feedback of the management on the results; to assess the
effectiveness of the control rules and the operational standards
relating to risk investments, including but not limited to
financial derivative instruments, and consider the strategies and
proposals of the Company's risk investment; to be responsible for
the control and daily management of the related/connected
transactions of the Company, and to review the Company's relevant
significant related/connected transactions; to receive reports from
the Company relating to fraudulent acts and discovery and
complaints; and to fulfil other duties authorised by the Board.
-- The primary duties of the Nomination and Remuneration
Committee are: to study on the criteria and procedures for
selecting candidates for the Directors and senior management and
make recommendations to the Board; to make recommendations to the
Board on the candidates to fill casual vacancies on the Board, and
make recommendations regarding the Directors' remuneration to the
Board; to evaluate the performance of the senior management of the
Company and determine their remuneration structure; to make
recommendations to the Board on the remuneration policy and
structure for the Directors and senior management and on the
establishment of a set of formal and transparent procedures for
formulating remuneration policy, and supervise the implementation
of the remuneration policy of the Company; to assess the
independence of the independent non-executive Directors; to
formulate the proposal of the Company's share incentive plan,
verify the compliance of relevant regulations on granting and
fulfilment of exercise conditions, and make recommendations to the
Board for consideration; and to fulfil other duties authorised by
the Board.
-- The primary duties of the Strategy and Investment Committee
are: to study the Company's strategic plan for long-term
development and significant investment and financing proposals, as
well as important operation and production decisions, and make
recommendations on other significant matters that may affect the
Company's development; to make decisions on the establishment,
merger and dissolution of branches of the Company; and to fulfil
other duties authorised by the Board. During the reporting period,
the Strategy and Investment Committee approved the investment plan
of the Company for 2017 and re-elected the Chairman of the Strategy
and Investment Committee of the fifth session of the Board.
-- The primary duties of the Aviation Safety Committee are: to
receive the safety report of the Company on a regular basis and
report to the Board; to study and deal with significant problems in
relation to aviation safety work of the Company; to supervise and
guide the production activities of the Company and the allocation
of various kinds of resources such as human resources, facilities
and materials to fulfil the needs of safety operation of the
Company; and to fulfil other duties authorised by the Board. During
the reporting period, the Aviation Safety Committee held one
meeting on which the Chairman of the Aviation Safety Committee of
the fifth session of the Board was re-elected.
E. Communication with Shareholders
The Board shall endeavour to maintain an on-going dialogue with
shareholders and in particular, make use of general meetings to
communicate with shareholders.
-- The Company has established and maintained various
communication channels with its shareholders through the
publication of annual reports, interim reports and quarterly
reports, press releases and announcements on the websites of the
Company and the stock exchanges (if applicable), results
presentations, roadshows, briefings on dividend distribution,
etc.
-- The Company has implemented the "Measures of Investors
Relation Management" to regulate and strengthen its communication
with the shareholders and investors, so as to optimise its
corporate governance and enhance its corporate image.
-- The annual general meeting represents an effective means for
the shareholders to exchange their views with the Board. The
Chairman of the Board, as well as the respective Chairmen of the
Audit and Risk Control Committee, Nomination and Remuneration
Committee, Strategy and Investment Committee and Aviation Safety
Committee will answer queries raised by shareholders at general
meetings.
-- Resolutions in respect of independent matters, including the
election and change of the Directors (if any), shall be tabled as
separate resolutions before the annual general meeting.
-- Other than the annual general meeting, the Company would also
hold the extraordinary general meeting (the "EGM") as required. In
accordance with articles 66 and 92 of the Articles of Association,
shareholder(s), individually or in the aggregate, holding more than
10% of the shares of the Company may request the Board to convene
an EGM by making one or more written request(s) in the same form to
the Board with a clear agenda. The Board shall respond to such
written request(s) within ten days of receipt of such written
request(s). If the Board agrees to convene an EGM, it shall within
five days of the Board resolution resolving to hold an EGM issue a
notice of EGM convening an EGM within two months of receiving such
request(s) from the shareholder(s). If the Board does not accept
the request(s) from shareholder(s) for a meeting or fails to
respond within ten days of the receipt of such written request(s),
such shareholder(s) shall request the Supervisory Committee to
convene an EGM by written request(s). If the Supervisory Committee
fails to issue a notice for convening a meeting within five days of
the receipt of such written request(s), shareholder(s),
individually or in the aggregate, holding more than 10% of the
shares of the Company for a consecutive 90 days or more may convene
and hold a meeting by themselves.
-- For including a resolution relating to other matters in a
general meeting, shareholders are requested to follow the
requirements and procedures as set out in article 68 of the
Articles of Association which provides that shareholder(s),
individually or in the aggregate, holding more than 3% of the
shares of the Company may put forward proposal(s) by providing a
written request to the convener of the meeting not less than ten
days before the meeting. The convener of the meeting shall, within
two days of the receipt of such written request, give supplemental
meeting notice to each shareholder which specifies information on
such proposal(s).
-- The Board values the views and input of shareholders.
Shareholders, may at any time, send their enquiries and concerns to
the Board by addressing them to the Company Secretary, whose
contact details are as follows:
Address: Air China Headquarter, 30 Tian Zhu Road, Tianzhu
Airport Economic Development Zone, Beijing, 101312
Email: ir@airchina.com
Telephone number: 86-10-61462799
Fax number: 86-10-61462805
The Company shall ensure that shareholders are familiar with the
detailed procedures for conducting a poll
-- The chairman of a meeting shall, at the commencement of the
meeting, ensure that an explanation of the detailed procedures for
conducting a poll is provided and subsequently, any questions from
shareholders in relation to voting by way of a poll are
answered.
F. Joint Company Secretaries
Joint company secretaries shall attend relevant professional
training for no less than 15 hours
-- Joint company secretaries (Mr. Zhou Feng and Ms. Tam Shuit
Mui) are responsible for facilitating the rules of procedures of
the Board, as well as facilitating the communications among Board
members, and communications with shareholders and with the
management. The biographies of the joint company secretaries are
set out in the section headed "Profile of Directors, Supervisor and
Senior Management" of this annual report. In 2017, each joint
company secretary attended more than 15 hours of professional
training to update his/her skill and knowledge.
G. Articles of Association
-- In 2017, the Company made amendments to its Articles of
Association, the amendments had been approved by considering at the
second EGM and third EGM for 2017, respectively. The Company also
made amendments to the Rules and Procedures of Shareholders'
Meetings and the Rules and Procedures of Meetings of the Board in
2017, which were passed at the third EGM for 2017. The details
about the above amendments set out in the circular of the Company
dated 10 February 2017 and 7 September 2017.
H. Compliance with the Code Provision A.5.1 and the Requirements
of the Listing Rules on Audit Committee and Remuneration
Committee
Code provision A.5.1 requires that the nomination committee
shall be chaired by the chairman of the Board or an independent
non-executive director, and comprise a majority of independent
non-executive directors. Rule 3.21 of the Listing Rules requires
that the audit committee shall comprise at least three members and
at least one of the independent non-executive directors must have
appropriate professional qualifications or accounting or related
financial management expertise as required under Rule 3.10(2) of
the Listing Rules, and the chairman of the audit committee must
also be an independent non-executive director. Rule 3.25 of the
Listing Rules requires that the remuneration committee must
comprise a majority of independent non-executive directors.
Mr. Pan Xiaojiang and Mr. Simon To Chi Keung resigned as
independent non-executive Directors on 8 May 2017, and the
resignation became effective from the date of the annual general
meeting of the Company held on 25 May 2017, where Mr. Wang Xiaokang
and Mr. Liu Deheng were elected as independent non-executive
Directors. After the resignation became effective, Mr. Pan
Xiaojiang was no longer the chairman of the Audit and Risk Control
Committee of the Board and a member of the Nomination and
Remuneration Committee of the Board, and Mr. Simon To Chi Keung was
no longer a member of the nomination and remuneration committee of
the Board. Therefore, the Company failed to meet the composition
requirements of audit committee, remuneration committee and
nomination committee under the aforesaid rules of the Listing Rules
and code provision. On 9 August 2017, Mr. Wang Xiaokang was
appointed as a member of the nomination and remuneration committee
of the Board and Mr. Liu Deheng was elected as the chairman of the
Audit and Risk Control Committee of the Board. The aforementioned
requirements of the Listing Rules and code provision have been
fulfilled since then.
Report of the Directors
STRATEGIC OBJECTIVES
The Group will, on the basis of enhancing security management,
continue to advance the implementation of its strategies, improve
global network coverage to increase the commercial value of hub
network; optimise the allocation of its core resources to improve
the efficiency of resource utilisation; reasonably deploy transport
capacity to grasp opportunities in the market, take multiple
measures to strengthen marketing competitiveness; enhance service
management, promote product innovation to improve customer
experience with an aim to seize market opportunities to ensure
sound operation and bring better returns to its shareholders and
investors.
GROUP ACTIVITIES AND RESULTS
The Group is a provider of air passenger, air cargo and
airline-related services. The results of the Group for the year
ended 31 December 2017 and the financial position of the Group and
the Company as at the same date are set out in the audited
financial statements on pages 99 to 202 of this annual report.
REVIEW OF BUSINESS
Description of the fair review of the Company's business and the
analysis using the financial key performance indicators,
description of the principal risks and uncertainties facing the
Group, future prospects of the Company's business, environmental
policy and performance and the important relations statement with
employee, customer and supplier of the Group are set out in the
sections headed "Business Overview" and "Management's Discussion
and Analysis of Financial Position and Operating Results" of this
annual report.
FIVE-YEAR FINANCIAL HIGHLIGHTS
The Group's results and financial position prepared in
accordance with IFRSs for the five years ended 31 December 2017 are
summarised and set out on pages 6 and 7 of this annual report.
SHARE CAPITAL STRUCTURE
As at 31 December 2017, the Company had a total share capital of
RMB14,524,815,185, dividing into 14,524,815,185 shares of RMB1.00
each. The following table sets out the share capital structure of
the Company as at 31 December 2017:
Percentage
of
Number of the total
Category of Shares shares share capital
-------------------- --------------- ---------------
A Shares 9,962,131,821 68.59%
-------------------- --------------- ---------------
H Shares 4,562,683,364 31.41%
-------------------- --------------- ---------------
Total 14,524,815,185 100.00%
-------------------- --------------- ---------------
SIGNIFICANT INTERESTS AND SHORT POSITIONS IN SHARES AND
UNDERLYING SHARES OF THE COMPANY
As at 31 December 2017, to the knowledge of the Directors,
Supervisors and chief executive of the Company, the interests or
short positions of the following persons (other than a Director,
Supervisor or chief executive of the Company) in the shares and
underlying shares of the Company which were required to be recorded
in the register kept by the Company pursuant to Section 336 of the
SFO are as follows:
1. Total long positions in the shares and underlying shares of the Company
Percentage Percentage Percentage
of the of the of the
total total total
issued issued issued
Type and number share A shares H shares
Type of of shares of of the of of Short
Name interests the Company held company the Company the Company positions
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Beneficial 5,952,236,697
CNAHC owner A Shares 40.98% 59.75% - -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Equity 1,332,482,920
CNAHC (1) attributable A Shares 9.17% 13.38% - -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Equity 223,852,000 H
CNAHC (1) attributable Shares 1.54% - 4.91% -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Beneficial 1,332,482,920
CNACG owner A Shares 9.17% 13.38% - -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Beneficial 223,852,000 H
CNACG owner Shares 1.54% - 4.91% -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Cathay Beneficial 2,633,725,455
Pacific owner H Shares 18.13% - 57.72% -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Swire Pacific Equity 2,633,725,455
Limited(2) attributable H Shares 18.13% - 57.72% -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
John Swire
& Sons
(H.K.) Equity 2,633,725,455
Limited(2) attributable H Shares 18.13% - 57.72% -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
John Swire
& Sons Equity 2,633,725,455
Limited(2) attributable H Shares 18.13% - 57.72% -
---------------- --------------- ------------------- ----------- ------------- ------------- -----------
Notes:
Based on the information available to the Directors, Supervisors
and chief executive of the Company (including such information as
was available on the website of the Hong Kong Stock Exchange) and
so far as the Directors, Supervisors and chief executive are aware,
as at 31 December 2017:
1. By virtue of CNAHC's 100% interest in CNACG, CNAHC was deemed
to be interested in the 1,332,482,920 A Shares and 223,852,000 H
Shares directly held by CNACG.
2. By virtue of John Swire & Sons Limited's 100% interest in
John Swire & Sons (H.K.) Limited and their approximately 55.06%
equity interest and 63.88% voting rights in Swire Pacific Limited,
and Swire Pacific Limited's approximately 45.00% interest in Cathay
Pacific as at 31 December 2017, John Swire & Sons Limited, John
Swire & Sons (H.K.) Limited and Swire Pacific Limited were
deemed to be interested in the 2,633,725,455 H Shares directly held
by Cathay Pacific.
2. Total short positions in the shares and underlying shares of the Company
As at 31 December 2017, the Company was not aware of any
substantial shareholders holding short positions in the shares or
underlying shares of the Company.
Save as disclosed above, as at 31 December 2017, to the
knowledge of the Directors, Supervisors and chief executive of the
Company, no other person had an interest or short position in the
shares or underlying shares of the Company which were required to
be recorded in the register kept by the Company pursuant to Section
336 of the SFO.
INFORMATION OF SHAREHOLDERS
1. Total number of shareholders
Total number of holders 138,366 accounts, of which
of ordinary shares as 3,577 accounts are registered
at the end of the reporting holders of H Shares
period (account)
------------------------------ ------------------------------
Total number of holders 137,165 accounts, of which
of ordinary shares as 3,384 accounts are registered
at 28 February 2018 (account) holders of H Shares
------------------------------ ------------------------------
2. Shareholdings of the top 10 shareholders and the top 10
holders of tradable shares (or shares not subject to selling
restrictions) as at the end of the reporting period
Unit: Share
Shareholdings of the
top 10 shareholders
----------------------------------------------------------------------------------------------------------------------
Shares pledged
or frozen
---------------- ------------ -------------- ------------- -------------- ---------------------- ---------------
Number
of
shares
held
as at Number
Change(s) the of shares
during end held
Name of the of the Shareholding subject
shareholder Reporting reporting percentage to selling Nature
(full name) Period period (%) restrictions Status Number of shareholder
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
China National
Aviation
Holding
Company 513,478,818 5,952,236,697 40.98 513,478,818 frozen 127,445,536 State
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
Cathay Pacific Foreign
Airways legal
Limited 0 2,633,725,455 18.13 0 Nil 0 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
Foreign
HKSCC NOMINEES legal
LIMITED 1,801,999 1,684,774,519 11.60 0 Nil 0 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
China National
Aviation
Corporation Foreign
(Group) legal
Limited 0 1,556,334,920 10.72 0 frozen 36,454,464 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
China
Securities
Finance State-owned
Corporation legal
Limited 258,136,087 502,119,147 3.46 0 Nil 0 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
China National
Aviation Fuel State-owned
Group legal
Corporation 382,845,502 469,145,502 3.23 385,109,114 Nil 0 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
Zhongyuan
Equity
Investment State-owned
Management legal
Co., Ltd 262,569,509 262,569,509 1.81 256,739,409 Unknown 262,569,405 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
China
Structural State-owned
Reform Fund legal
Co., Ltd 231,065,468 231,065,468 1.59 231,065,468 Nil 0 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
National
Social State-owned
Security Fund legal
118 22,588,959 71,034,895 0.49 0 Nil 0 person
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
China
Construction
Bank
Corporation
-
Boshi
Industry
Mixed
Securities
Investment
Fund (LOF) 45,999,714 45,999,714 0.32 0 Nil 0 Unknown
---------------- ------------ -------------- ------------- -------------- -------- ------------ ---------------
Unit: Share
Shareholdings of the top 10 shareholders not
subject to selling restrictions
---------------------------------------------------------------------------------
Class and number
of shares
----------------------------- -------------- ----------------------------------
Number Class Number
of
tradable
shares
held
not subject
to selling
Name of shareholder restrictions
----------------------------- -------------- ------------------ --------------
China National Aviation RMB ordinary
Holding Company 5,438,757,879 shares 5,438,757,879
----------------------------- -------------- ------------------ --------------
Overseas
Cathay Pacific Airways listed foreign
Limited 2,633,725,455 shares 2,633,725,455
----------------------------- -------------- ------------------ --------------
Overseas
listed foreign
HKSCC NOMINEES LIMITED 1,684,774,519 shares 1,684,774,519
----------------------------- -------------- ------------------ --------------
China National Aviation
Corporation (Group) RMB ordinary
Limited 1,556,334,920 shares 1,332,482,920
----------------------------- -------------- ------------------ --------------
Overseas
listed foreign
shares 223,852,000
----------------------------- -------------- ------------------ --------------
China Securities Finance RMB ordinary
Corporation Limited 502,119,147 shares 502,119,147
----------------------------- -------------- ------------------ --------------
China National Aviation RMB ordinary
Fuel Group Corporation 84,036,388 shares 84,036,388
----------------------------- -------------- ------------------ --------------
National Social Security RMB ordinary
Fund 118 71,034,895 shares 71,034,895
----------------------------- -------------- ------------------ --------------
China Construction Bank
Corporation - Boshi
Industry Mixed Securities RMB ordinary
Investment Fund (LOF) 45,999,714 shares 45,999,714
----------------------------- -------------- ------------------ --------------
RMB ordinary
Jiang Hongye 23,000,000 shares 23,000,000
----------------------------- -------------- ------------------ --------------
China Merchants Securities RMB ordinary
Co., Ltd. 19,825,571 shares 19,825,571
----------------------------- -------------- ------------------ --------------
Explanation on connected China National Aviation
relationship or action Corporation (Group) Limited
in concert among the is a wholly-owned subsidiary
above shareholders of China National Aviation
Holding Company. Accordingly,
China National Aviation
Holding Company is directly
and indirectly interested
in 51.70% of the shares
of the Company.
----------------------------- --------------------------------------------------
1. HKSCC NOMINEES LIMITED is a subsidiary of The Stock Exchange
of Hong Kong Limited and its principal business is acting as
nominee for and on behalf of other corporate shareholders or
individual shareholders. The 1,684,774,519 H shares held by it in
the Company do not include the 166,852,000 H shares held by it as
nominee of China National Aviation Corporation (Group) Limited.
2. According to the "Implementation Measures on Partial Transfer
of State-owned Shares to the National Social Security Fund in the
Domestic Securities Market" (Cai Qi [2009] No. 94) ( ( [2009]94 ))
and the Notice ([2009] No. 63) jointly issued by the Ministry of
Finance, the State-owned Assets Supervision and Administration
Commission of the State Council, China Securities Regulatory
Commission and the National Council for Social Security Fund,
127,445,536 A shares and 36,454,464 A shares held by China National
Aviation Holding Company, the controlling shareholder of the
Company, and China National Aviation Corporation (Group) Limited
respectively are frozen at present.
Unit: Share
Shareholdings of the top 10 shareholders subject
to selling restrictions and conditions of selling
restrictions
-----------------------------------------------------------------------------------------------------
Listing and
trading of shares
subject to selling
restrictions
---- ------------------------- -------------- ---------------------------- ----------------------
Number
of
Number shares
of shares Date of being to be
Name of shareholder held subject permitted listed
subject to selling for listing and
No. to selling restrictions restrictions and trading traded Selling restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
China National A shares subject
Aviation Holding to selling
1 Company Limited 513,478,818 2020-03-10 513,478,818 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
China National A shares subject
Aviation Fuel to selling
2 Group Corporation 385,109,114 2018-03-10 385,109,114 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
Zhongyuan Equity A shares subject
Investment Management to selling
3 Co., Ltd. 256,739,409 2018-03-10 256,739,409 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
China Structural A shares subject
Reform Fund Co., to selling
4 Ltd. 231,065,468 2018-03-10 231,065,468 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
A shares subject
Caitong Fund Management to selling
5 Co., Ltd. 15,147,625 2018-03-10 15,147,625 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
A shares subject
CIB Asset Management to selling
6 Co., Ltd. 12,849,807 2018-03-10 12,849,807 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
Horizon Asset A shares subject
Management Co., to selling
7 Ltd. 12,836,970 2018-03-10 12,836,970 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Non-public
offering of
A shares subject
E Fund Management to selling
8 Co., Ltd. 12,836,970 2018-03-10 12,836,970 restrictions
---- ------------------------- -------------- -------------- ------------ ----------------------
Descriptions on relationships of the Nil
above shareholders as related
parties or concerted parties
----------------------------------------------------------------------------- ----------------------
PUBLIC FLOAT
Pursuant to public information available to the Company and to
the knowledge of the Directors of Company, the Company has
maintained a public float as required by the Listing Rules and
agreed by the Hong Kong Stock Exchange as at the date of this
annual report.
DIVID
Based on the 2017 profit distribution plan of the Company, the
Board recommends the appropriation of 10% and 10% of profit after
tax to statuary surplus reserve and discretionary surplus reserve
respectively and the payment of a cash dividend of RMB1.1497
(including tax) for every ten shares for the year 2017, totalling
approximately RMB1,670 million based on the current total issued
shares of 14,524,815,185 shares of the Company.
The proposed payment of the final dividends is subject to
shareholders' approval at the forthcoming annual general meeting
(the "AGM") to be held on 25 May 2018. Dividends payable to the
Company's shareholders shall be denominated and declared in RMB.
Dividends payable to the holders of A Shares and the holders of H
Shares who are mainland investors investing in H Shares through
Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock
Connect shall be paid in RMB while dividends payable to the other
holders of H Shares shall be paid in Hong Kong dollars. The amount
of Hong Kong dollars payable shall be calculated on the basis of
the average of the middle price of the exchange rate of RMB against
Hong Kong dollars as announced by the People's Bank of China for
the calendar week prior to the declaration of the final dividends
(if approved) at the AGM.
The Company proposed to pay the aforesaid final dividends on 4
July 2018. For H Shares, the dividends shall be paid to
shareholders whose names appear on the register of members of the
Company on 5 June 2018. Accordingly, the register of members of the
H Shares will be closed from 31 May 2018 to 5 June 2018. For A
Shares, the dividends will be paid to shareholders whose names
appear on the register of members of the Company at the close of
business on 3 July 2018, and the ex-dividend date of A Shares will
be 4 July 2018.
As of 31 December 2017, no arrangement was reached pursuant to
which a shareholder of the Company waived or agreed to waive any
dividends.
The register of members of H Shares will be closed from
Wednesday, 25 April 2018 to Friday, 25 May 2018, both days
inclusive, during which no transfer of H Shares will be effected.
In order to be entitled to attend and vote at the AGM, the holders
of the H Shares must return all the transfer documents to the
Company's H Shares registrar in Hong Kong, Computershare Hong Kong
Investor Services Limited at Shops 1712-1716, 17/F, Hopewell
Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration
not later than 4:30 p.m. on Tuesday, 24 April 2018. The members of
the H Shares whose names appear on the register of shareholders of
the Company on Wednesday, 25 April 2018 will be entitled to attend
the AGM.
The register of members of H Shares of the Company will be
closed from Thursday, 31 May 2018 to Tuesday, 5 June 2018, both
days inclusive, during which no transfer of H Shares will be
effected. In order to qualify for the final dividend, the holders
of the H Shares must return all the transfer documents to the
Company's H Shares registrar in Hong Kong, Computershare Hong Kong
Investor Services Limited at Shops 1712-1716, 17/F, Hopewell
Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration
not later than 4:30 p.m. on Wednesday, 30 May 2018. The members of
the H Shares whose names appear on the register of shareholders of
the Company on Tuesday, 5 June 2018 will be qualified for the final
dividend.
TAXATION ON DIVID
In accordance with the "Enterprise Income Tax Law of the
People's Republic of China" and the "Rules for the Implementation
of the Enterprise Income Tax Law of the People's Republic of
China", both implemented on 1 January 2008 and the "Notice of the
State Administration of Taxation on Issues Relevant to the
Withholding of Enterprise Income Tax on Dividends Paid by PRC
Resident Enterprises to Offshore Non-resident Enterprise Holders of
H Shares" (Guo Shui Han [2008] No. 897) promulgated by the State
Administration of Taxation on 6 November 2008, the Company is
obliged to withhold and pay PRC enterprise income tax on behalf of
non-resident enterprise shareholders at a tax rate of 10% from 2008
onwards when the Company distributes any dividends to non-resident
enterprise shareholders whose names appear on the register of
members of H Shares. Any H Shares which are not registered in the
name(s) of individual(s) (which, for this purpose, includes shares
registered in the name(s) of HKSCC Nominees Limited, other
nominees, trustees, or other organisations or groups) shall be
deemed to be H Shares held by non-resident enterprise
shareholder(s), and the PRC enterprise income tax shall be withheld
from any dividends payable thereon. Non-resident enterprise
shareholders may apply for a tax refund (if any) in accordance with
the relevant requirements, such as tax agreements (arrangements),
upon receipt of any dividends.
In accordance with the "Circular on Certain Issues Concerning
the Policies of Individual Income Tax" (Cai Shui Zi [1994] No. 020)
promulgated by the Ministry of Finance of the PRC and the State
Administration of Taxation on 13 May 1994, overseas individuals
are, as an interim measure, exempted from the PRC individual income
tax for dividends or bonuses received from foreign-invested
enterprises. As the Company is a foreign-invested enterprise, the
Company will not withhold and pay the individual income tax on
behalf of individual shareholders when the Company distributes the
final dividends for the year 2017 to individual shareholders whose
names appear on the register of members of H Shares.
Pursuant to the Circular on Tax Policies Concerning the Pilot
Programme of the Shanghai and Hong Kong Stock Market Trading
Interconnection Mechanism (Cai Shui [2014] No. 81) promulgated on
17 November 2014 and the Circular on the Tax Policies Concerning
the Pilot Programme of the Shenzhen and Hong Kong Stock Market
Trading Interconnection Mechanism (Cai Shui [2016] No. 127)
promulgated on 5 November 2016 by the Ministry of Finance of the
PRC, the State Administration of Taxation and the CSRC:
The Company is obliged to withhold PRC individual income tax on
behalf of individual shareholders at a tax rate of 20% when the
Company distributes the 2017 final dividends to individual
investors who invest in the H Shares through Shanghai-Hong Kong
Stock Connect and Shenzhen-Hong Kong Stock Connect. Where
individual investors have already paid foreign withholding taxes
for such income, investors may apply to the competent tax
authorities of China Securities Depository and Clearing Corporation
Limited for foreign tax credit with valid tax withholding
certificates. The Company is obliged to withhold PRC individual
income tax on behalf of Mainland securities investment funds
investing in H Shares through Shanghai-Hong Kong Stock Connect and
Shenzhen-Hong Kong Stock Connect when the Company distributes the
2017 final dividends; and the Company will not withhold income tax
on behalf of Mainland enterprise investors investing in H Shares
through Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong
Stock Connect when the Company distributes the 2017 final
dividends. The Mainland enterprise investors shall report the
income and make tax payment by themselves.
Shareholders are recommended to consult their tax advisors
regarding the ownership and disposal of H Shares in Mainland China
and Hong Kong and other tax effects.
PURCHASES, SALES OR REDEMPTION OF LISTED SECURITIES
For the year ended 31 December 2017, neither the Company nor any
of its subsidiaries purchased, sold or redeemed any of the listed
securities (the term "securities" has the meaning ascribed to it
under Paragraph 1 of Appendix 16 to the Listing Rules) of the
Company.
PRE-EMPTIVE RIGHTS
The Articles of Association does not provide for any pre-emptive
rights requiring the Company to offer new shares to the existing
shareholders in proportion to their existing shareholdings.
Non-Public Issue of A Shares
On 10 March 2017, the Company completed the non-public issue of
1,440,064,181 A Shares to CNAHC, China Structural Reform Fund Co.,
Ltd., Zhongyuan Equity Investment Management Co., Ltd., China
National Aviation Fuel Group Corporation, Caitong Fund Management
Co., Ltd., CIB Asset Management Co., Ltd., Horizon Asset Management
Co., Ltd. and E Fund Management Co., Ltd., at an issue price of
RMB7.79 per share with an aim to enhance the capital structure and
improve the financial position of the Company, satisfy the funding
need for business development, maintain the competitive advantages
and ensure the continuous and healthy development. The net proceeds
raised is RMB11,200,418,471.06 after deducting underwriting fees
and other issuance costs (including taxes). As of 31 December 2017,
the aforesaid funds have been used by RMB11,050,000,000.00 in
accordance with the purpose of fund raising, with the unused
amounting to RMB193,402,559.97 (including interest income generated
from the raised funds of RMB42,984,088.91). For details, please
refer to the 2017 Special Report Regarding the Deposit and Actual
Use of Raised Funds of A Shares of Air China Limited ( A ) set out
in the overseas regulatory announcement dated 27 March 2018 issued
by the Company on the website of Hong Kong Stock Exchange.
DIRECTORS AND SUPERVISORS OF THE COMPANY
Directors
Set out below is the list of Directors during the reporting
period and as at the date of this annual report (unless otherwise
stated).
Date of election
and if applicable,
leaving office as
Name Director
--------------------------------------------- ------------------------
Cai Jianjiang (Chairman and non-executive Elected as non-executive
Director) Director on 28 January
2014 and as Chairman
on 21 February 2014
--------------------------------------------- ------------------------
Song Zhiyong (Vice Chairman and Elected as executive
executive Director) Director on 22 May
2014 and as Vice
Chairman on 6 June
2016
--------------------------------------------- ------------------------
Cao Jianxiong (Non-executive Elected on 10 June
Director) 2009 and ceased to
act on 27 October
2017
--------------------------------------------- ------------------------
Feng Gang (Non-executive Director) Elected on 26 August
2014 and ceased to
act on 27 October
2017
--------------------------------------------- ------------------------
John Robert Slosar (Non-executive Elected on 22 May
Director) 2014
--------------------------------------------- ------------------------
lan Sai Cheung Shiu (Non-executive Elected on 28 October
Director) 2010 and ceased to
act on 27 October
2017
--------------------------------------------- ------------------------
Xue Yasong (Non-executive Director Elected on 29 March
and 2018
employee representative Director)
--------------------------------------------- ------------------------
Pan Xiaojiang (Independent non-executive Elected on 29 October
Director) 2013 and ceased to
act on 25 May 2017
--------------------------------------------- ------------------------
Simon To Chi Keung (Independent Elected on 29 October
non-executive Director) 2013 and ceased to
act on 25 May 2017
--------------------------------------------- ------------------------
Wang Xiaokang (Independent non-executive Elected on 25 May
Director) 2017
--------------------------------------------- ------------------------
Liu Deheng (Independent non-executive Elected on 25 May
Director) 2017
--------------------------------------------- ------------------------
Stanley Hui Hon-chung (Independent Elected on 22 May
non-executive Director) 2015
Li Dajin (Independent non-executive
Director)
--------------------------------------------- ------------------------
Elected on 22 December
2015
------------------------------------------- ------------------------
Supervisors
Set out below is the list of Supervisors during the reporting
period and as at the date of this annual report (unless otherwise
stated).
Date of election
and if applicable,
leaving office as
Name Supervisor
--------------------------------- ----------------------
Wang Zhengang (Chairman of the Elected on 30 August
Supervisory Committee) 2016
--------------------------------- ----------------------
He Chaofan (Supervisor) Elected on 22 December
2008
--------------------------------- ----------------------
Zhou Feng (Supervisor) Elected on 25 November
2011 and ceased to
act on 2 August 2017
--------------------------------- ----------------------
Xiao Yanjun (Supervisor) Elected on 16 June
2011
--------------------------------- ----------------------
Shen Zhen (Supervisor) Elected on 29 October
2013 and ceased to
act on 27 October
2017
--------------------------------- ----------------------
Li Guixia (Supervisor) Election took effect
on 27 October 2017
--------------------------------- ----------------------
DIRECTORS AND SUPERVISORS' RIGHTS TO ACQUIRE SHARES OR
DEBENTURES
At any time during the reporting period or as of the end of the
reporting period, none of the Company, its holding company, any of
the Company's subsidiaries or fellow subsidiaries was a party to
any agreement or arrangement which enables the Directors and
Supervisors to acquire benefits by means of the acquisition of
Shares in, or debentures, of the Company or any other body
corporate.
INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND THE
CHIEF EXECUTIVE IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF
THE COMPANY
As at the end of the reporting period, none of the Directors,
Supervisors or the chief executive of the Company had interests or
short positions in the shares, underlying shares and/or debentures
(as the case may be) held by the Company or its associated
corporations (within the meaning of Part XV of the SFO) which shall
be recorded and maintained in the register pursuant to section 352
of the SFO, or which shall be notified to the Company and the Hong
Kong Stock Exchange pursuant to the Model Code.
INTERESTS OF DIRECTORS AND SUPERVISORS IN CONTRACTS AND SERVICE
CONTRACTS
Each of the Directors has entered into a service contract with
the Company. All Directors shall serve a term of three years.
None of the Directors or Supervisors has any existing or
proposed service contract with any member of the Group which is not
terminable by the Group within one year without payment of
compensation (other than statutory compensation).
Save as disclosed in the section headed "Connected Transactions"
set out in this Report of the Directors, none of the Company, its
holding company, or any of the Company's subsidiaries or fellow
subsidiaries has entered into any significant transactions,
arrangements or contracts relating to the Group's business, in
which a Director or Supervisor or his or her connected entity
directly or indirectly had any material interest, and which
subsisted at the end of the reporting period or at any time during
the reporting period.
During the reporting period, Mr. Cai Jianjiang (Chairman and
non-executive Director), Mr. Song Zhiyong (executive Director) and
Mr. John Robert Slosar (non-executive Director) also served as
directors of Cathay Pacific. Cathay Pacific and its wholly-owned
Cathay Dragon compete or are likely to compete either directly or
indirectly with some aspects of the business of the Company as they
operate airline services to certain destinations, which are also
served by the Company.
Save as disclosed above, none of the Directors or Supervisors
and their respective associates (as defined in the Listing Rules)
has any competing interests which would be required to be disclosed
under Rule 8.10 of the Listing Rules if they were controlling
shareholders of the Company.
PERMITTED INDEMNITY PROVISION
Appropriate directors' liability insurance cover has been
arranged by the Company to indemnify the Directors for liabilities
arising out of corporate activities.
EMPLOYEES
As at the end of the reporting period, the Company had 27,858
employees and its subsidiaries had 55,648 employees. The categories
of employees of the Company are as follows:
As at As at
31 December 31 December Increase/
Professional Categories 2017 2016 (decrease)
----------------------------- ------------- ------------- ------------
Management 6,526 5,719 807
----------------------------- ------------- ------------- ------------
Marketing and Sales 2,481 1,947 534
----------------------------- ------------- ------------- ------------
Operation 1,529 1,427 102
----------------------------- ------------- ------------- ------------
Ground Handling 3,622 2,093 1,529
----------------------------- ------------- ------------- ------------
Cabin Service 6,446 2,684 3,762
----------------------------- ------------- ------------- ------------
Logistics and Support 1,351 2,914 (1,563)
----------------------------- ------------- ------------- ------------
Flight Crew 5,259 4,952 307
----------------------------- ------------- ------------- ------------
Engineering and Maintenance 103 45 58
----------------------------- ------------- ------------- ------------
Information Technology 411 389 22
----------------------------- ------------- ------------- ------------
Others 130 1,088 (958)
----------------------------- ------------- ------------- ------------
Total 27,858 23,258 4,600
----------------------------- ------------- ------------- ------------
A total of 444 employees of the Company retired in the reporting
period.
REMUNERATION POLICY
The Company adheres to the principles of combining incentives
with control and aligning the improvement in performance with the
increase in wages, and upholds a remuneration concept of "paying
salary with reference to the value of job, personal ability as well
as performance appraisal" in developing and implementing the
remuneration policies primarily based on the value of job. In order
to develop a sustainable incentive mechanism for talent and
stimulate the enthusiasm and creativity of its employees, in 2017,
the Company conducted a wage adjustment covering all posts of the
Group.
EMPLOYEES AND EMPLOYEES' PENSION SCHEME
Details of the staff pension scheme and other welfare are set
out in note 4 to the financial statements, and retired employees
are entitled to benefits under the social pension scheme approved
and provided by the labour and social security authority of the
local governments.
STOCK APPRECIATION RIGHTS
On 6 June 2013, the resolution regarding the Proposal of Second
Grant of the Stock Appreciation Rights was passed at the 14th
meeting of the Nomination and Remuneration Committee of the 3rd
session of the Board to grant a total of 26.20 million shares under
the second grant of stock appreciation rights (SARs) to 160
incentive recipients and to confirm the grant date with respect to
the second grant of SARs (i.e. 6 June 2013) and the exercise price
(i.e. grant price) with respect to the second grant of SARs of
HK$6.46. The grant of SARs shall be valid for five years from the
date of grant. Upon the satisfaction of certain performance
conditions, the total numbers of SARs exercisable will not exceed
30%, 70% and 100%, respectively, of the total SARs granted to the
respective eligible participants, since the first trading day after
the second, third and fourth anniversary from the grant date. As at
31 December 2017, the carrying amount of the liabilities related to
the SARs was nil.
SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
Details of the subsidiaries, associates and joint ventures of
the Company as at 31 December 2017 are set out respectively in
notes 22, 23 and 24 to the financial statements of this annual
report.
BANK LOANS AND OTHER BORROWINGS
Details of the bank loans and other borrowings of the Group are
set out in note 37 to the financial statements of this annual
report.
FIXED ASSETS
Changes in the fixed assets of the Group for the year ended 31
December 2017 are set out in note 17 to the financial statements of
this annual report.
CAPITALISED INTERESTS
Details of the capitalised interests of the Group for the year
ended 31 December 2017 are set out in note 12 to the financial
statements of this annual report.
RESERVES
Changes in the reserves of the Company and the Group during the
year are set out in note 41 to the financial statements and the
consolidated statement of changes in equity of this annual
report.
DONATIONS
For the year ended 31 December 2017, the Group made donations
for charitable and other purposes amounting to RMB5.542
million.
MAJOR CUSTOMERS AND SUPPLIERS
For the year ended 31 December 2017, the purchases of the Group
from the largest supplier accounted for 17.52% of the total
purchases of the Group, while the purchases of the Group from the
five largest suppliers accounted for 38.12% of the total purchases
of the Group. None of the Directors or Supervisors, their
associates, nor any shareholder of the Company, who to the
knowledge of the Directors owns 5% or more of the Company's share
capital, had any interest in the five largest suppliers of the
Company.
For the year ended 31 December 2017, the sales of the Group to
the five largest customers accounted for not more than 30% of the
total sales of the Group.
COMPLIANCE OPERATIONS
As a Chinese company listed on the Hong Kong Stock Exchange and
the Shanghai Stock Exchange, the Company shall comply with the
Company Laws of the People's Republic of China, the Securities Law
of the People's Republic of China, the Securities and Futures
Ordinance, the Hong Kong Companies Ordinance, the Stock Listing
Rules of the Shanghai Stock Exchange ( ) and the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong
Limited regarding relevant regulations in relation to listed
companies' securities issue and trading. CNAF, a non-wholly owned
subsidiary of the Company, as a non-bank financial institution
established in Mainland China, shall comply with rules in respect
of financial regulation in Mainland China. The Group, with civil
aviation transportation and related services as its principal
businesses, shall comply with requirements in relation to civil
aviation safety regulations of locations where the Group operates,
and laws and regulations in respect of consumer rights protection,
environmental protection, anti-monopoly, anti-unfair competition
and tax, etc.
The Group has the procedure of compliance in place to ensure
compliance with applicable laws, regulations and normative legal
documents, and in particular those having a significant impact on
its principal businesses. The Group will notify the relevant
employees and operating teams of any change in applicable laws,
regulations and normative legal documents relating to its principal
businesses from time to time.
During the reporting period, so far as the Directors were aware,
the Group did not commit any violations of laws and regulations in
all material aspects that would have a significant impact on the
Group.
Save as disclosed in note 43 to the financial statements of this
annual report, as at 31 December 2017, the Company was not involved
in any significant litigation or arbitration and to the knowledge
of the Company, there was no litigation or claim of material
importance pending or threatened or initiated against the
Company.
CONNECTED TRANSACTIONS
The Group has entered into several connected transaction
agreements with certain connected persons of the Group as described
in the paragraphs below. The Company has complied with the
disclosure requirements of the connected transactions in accordance
with Chapter 14A of the Listing Rules in force from time to
time.
For the purpose of this section "Connected Transactions" in this
Report of the Directors, "CNAHC Group" refers to CNAHC, its
subsidiaries and associates (as defined under the Listing Rules)
excluding the Group.
I. Connected Transactions Between the Group and CNAHC Group
Continuing Connected Transactions
As CNAHC is a substantial shareholder of the Company and
therefore a connected person of the Company, the transactions
between the Group and CNAHC Group described in paragraphs (a) to
(f) below constitute continuing connection transactions of the
Company under Rule 14A.31 of the Listing Rules and are subject to
the requirements under Chapter 14A of the Listing Rules.
a. Property Leasing
The Company (for itself and on behalf of its subsidiaries)
entered into a properties leasing framework agreement with CNAHC
(on behalf of CNAHC Group) on 29 October 2015 (the "Properties
Leasing Framework Agreement") with a term of three years from 1
January 2016 to 31 December 2018.
Pursuant to the Properties Leasing Framework Agreement, the
Company agreed to lease from CNAHC a number of properties for
various uses including as business premises, offices and storage
facilities. The Company also agreed to lease to CNAHC a number of
properties. The details are set out in the announcement of the
Company dated 29 October 2015.
Pricing Policy: The rent payable by the Company under the
Properties Leasing Framework Agreement will be determined after
consultation based on the quotation for leasing services available
from independent third parties for the same type of properties in
close proximity to the properties with reference to other factors
including quotation, property service quality, location and
district of properties and specific needs of the parties, and
specific property leasing agreements will be entered into.
b. Sales Agency Services of Air Tickets and Cargo Space
The Company (for itself and on behalf of its subsidiaries)
entered into a sales agency services framework agreement with CNAHC
(on behalf of CNAHC Group) on 29 October 2015 (the "Sales Agency
Services Framework Agreement") with a term of three years from 1
January 2016 to 31 December 2018.
Pursuant to the Sales Agency Services Framework Agreement,
certain subsidiaries of CNAHC acting as the Company's sales agents
(the "Sales Agency Companies") will: (i) procure purchasers for the
Company's air tickets and cargo spaces on a commission basis; or
(ii) purchase air tickets (other than domestic air tickets) and
cargo spaces from the Company and resell such air tickets and cargo
spaces to end customers. The details are set out the announcement
of the Company dated 29 October 2015.
Pricing Policies:
-- As for the air passenger agency services, the Company will
consult with the Sales Agency Companies on a fair and voluntary
basis and determine the agency service fee standards. In addition,
the Company and the Sales Agency Companies may agree on specific
sales targets and the corresponding incentive plans for achieving
such targets to the extent permitted by law and in accordance with
the industry practice.
-- As for the air cargo agency services, the Sales Agency
Companies and the Company will discuss and determine the applicable
transportation prices, which shall be no less favourable than the
prices offered by independent third parties in the PRC air cargo
transportation market for transporting such products, with
reference to prices charged by air cargo agencies of the same scale
and type, as well as the specific product types and required
delivery priority. The Sales Agency Companies may formulate the
transportation prices charged to its customers (including the
prices for extended services offered to their customers) based on
the aforesaid transportation prices, with the differences to be
retained as commissions. In addition, the Company and the Sales
Agency Companies may agree on specific sales targets and the
corresponding price discounts for achieving such sales targets in
accordance with the industry practice.
c. Comprehensive Services
The Company (for itself and on behalf of its subsidiaries)
entered into a comprehensive services framework agreement with
CNAHC (on behalf of CNAHC Group) on 29 October 2015 (the
"Comprehensive Services Framework Agreement") with a term of three
years from 1 January 2016 to 31 December 2018.
Pursuant to the Comprehensive Services Framework Agreement, (i)
certain wholly-owned or controlled companies of CNAHC which are
engaged in ancillary services in relation to air transportation
business (the "Specialised Companies") will be appointed as
suppliers of ancillary services in relation to air transportation
business to the Company; and (ii) the Company is commissioned by
CNAHC to provide welfare-logistics services for CNAHC's retired
employees. The details are set out in the announcement of the
Company dated 29 October 2015.
Pricing Policies:
-- The prices of airline catering services to be provided by the
Specialised Companies to the Company will be determined by the
parties based on the quotation for the same type of catering
services available from independent third parties with reference to
other factors including cost of raw materials and labour costs.
-- The prices of property management services to be provided by
the Specialised Companies to the Company will be determined by the
parties based on the quotation for the same type of property
management services available from independent third parties with
reference to other factors including quotation, quality, scope and
type of property management services, and specific needs of the
parties.
-- The prices of hotel accommodation and staff recuperation
services to be provided by the Specialised Companies to the Company
shall be no less favourable than the quotation for the same type of
guest room products or services available from independent third
parties of the same level in the area of the hotel, with reference
to other factors including quotation, quality of products and
services, seasonal demand in the hotel industry, location of hotel
and specific needs of the parties.
-- For in-flight supply offering, publications and other
services to be provided by the Specialised Companies to the
Company, the Specialised Companies as supplier of the Company shall
provide such services in accordance with the bidding management
requirements of the Company. The prices of such services shall be
no less favourable than the quotation of similar products or
services available from independent third parties.
-- The management charges payable by CNAHC to the Company for
the welfare-logistics services provided by the Company for retired
employees of CNAHC shall be settled at a rate of 4% of the actual
aggregate welfare expense paid to such retired employees as
confirmed by CNAHC.
d. Government Charter Flight Services
The Company entered into a government charter flight service
framework agreement with CNAHC on 29 October 2015 (the "Government
Charter Flight Service Framework Agreement") with a term of three
years from 1 January 2016 to 31 December 2018.
Pursuant to the Government Charter Flight Service Framework
Agreement, CNAHC agreed to resort to the Company's charter flight
services so as to fulfill the government charter flight assignment.
The details are set out in the announcement of the Company dated 29
October 2015.
Pricing Policy: the Company's hourly rate of the charter flight
service fee will be calculated on the basis of the following
formula: Hourly rate = Total cost per flight hour x (1 + 6.5%).
Total cost per flight hour includes direct costs and indirect
costs.
e. Media and Advertising Services
CNAMC is a wholly-owned subsidiary of CNAHC and therefore a
connected person of the Company. The Company entered into a media
services framework agreement with CNAMC on 29 October 2015 (the
"Media Services Framework Agreement") with a term of three years
from 1 January 2016 to 31 December 2018.
Pursuant to the Media Services Framework Agreement, CNAMC will
have the following rights: (i) an exclusive right to distribute the
in-flight reading materials of the Company; (ii) an exclusive
operation right of certain media of the Company, including the
boarding passes, in-flight entertainment programmes and flight
schedules; (iii) a right to be commissioned to purchase inflight
entertainment programmes (which may include advertising contents)
from independent third parties or produce such programmes on its
own; (iv) a right to develop and use the media of the Company and
receive effective support and assistance from the Company in the
course of the sale of advertisements; and (v) the right to act as
operator of the Company's media business to provide the Company
with certain services. The details are set out in the announcement
of the Company dated 29 October 2015.
Pricing Policies:
-- CNAMC agreed to pay the Company RMB13.8915 million as media
usage fee for each of the two years ended 31 December 2016 and 2017
and for the year ending 31 December 2018 in respect of the
exclusive operation rights of the specific media of the Company,
and according to the annual budget of the Company, provide the
Company with sufficient in-flight media (other than in-flight
entertainment programmes), including in-flight publications,
boarding passes and flight schedules that meet the Company's
requirements.
-- CNAMC also agreed to pay the Company 20% of any revenue from
any new advertising media of the Company which was not mentioned in
the Media Services Framework Agreement but proposed to be developed
by CNMAC on a case-by-case basis.
-- The Company agreed to pay the purchase price to CNAMC for the
in-flight entertainment programmes purchased by CNAMC for the
Company. In the event that the relevant entertainment programmes
are produced by CNAMC at the request of the Company, the Company
will pay the corresponding production costs to CNAMC.
The Company further agreed to pay advertising fees and service
fees at market price to CNAMC in respect of advertising design,
image promotion and other services conducted by CNAMC for the
Company, which will be determined taking into consideration certain
factors including quotation, service quality and specific needs of
the parties.
f. Financial Services
CNAF, a non-wholly owned subsidiary of the Company and CNAHC
(for itself and on behalf of CNAHC Group) entered into a financial
services agreement on 29 April 2015 (the "CNAHC Financial Services
Agreement") with a term from the date of completion of registration
of State Administration for Industry and Commerce of CNAF to 31
December 2017.
Pursuant to the CNAHC Financial Services Agreement, CNAF has
agreed to provide CNAHC Group with a range of financial services
including deposit services, loan and other credit services and
other financial services. The details are set out in the
announcement of the Company dated 29 April 2015.
Pricing Policies:
-- The interest rate applicable to CNAHC Group's deposits with
CNAF shall be determined based on arm's length negotiation by the
parties subject to compliance with the requirements on the range of
interest rates prescribed by the Peoples' Bank of China (the
"PBOC") from time to time and published on the PBOC's website for
the same type of deposits.
-- The interest rate applicable to loans (including other credit
services) granted to CNAHC Group by CNAF shall be determined based
on arm's length negotiation by the parties by making reference to
the benchmark interest rate and the range prescribed by the PBOC
from time to time and published on the PBOC's website for the same
type of loans.
-- The fees charged by CNAF to CNAHC Group for providing bills
acceptance services, letter of credit services, guarantee services,
finance leasing services, discounting services, bills and payment
collection services and financial consulting services shall be
determined based on arm's length negotiation by the parties subject
to the relevant standards (if any) prescribed by the PBOC or the
China Banking Regulatory Commission (the "CBRC") from time to time
in respect of the same type of financial services.
-- If CNAF charges fees for the unpaid services or new financial
services during the term of the CNAHC Financial Services Agreement,
such fees charged by CNAF to CNAHC Group shall be determined based
on arm's length negotiation by the parties according to the
relevant fee standards prescribed by the PBOC or the CBRC from time
to time for services of the same type.
On 30 August 2017, CNAF and CNAHC renewed and amended the CNAHC
Financial Services Agreement for a period of 3 years effective from
1 January 2018 up to 31 December 2020. The details are set out in
the announcement of the Company dated 30 August 2017.
Acquisition of Properties
On 24 August 2017, the Company entered into the Assets Transfer
Agreement and the Commodity House Purchase and Sale Contract with
Chengdu Southwest Real Estate Development Co., Ltd. (an indirect
wholly-owned subsidiary of CNAHC, and therefore a connected person
with the Company, afterwards referred as Chengdu Real Estate),
respectively. Pursuant to the Assets Transfer Agreement, the
Company agreed to acquire and Chengdu Real Estate agreed to sell
the Club and the Parking Space for a cash consideration of
RMB67,876,935.00 (tax inclusive), and the Company agreed to pay a
renovation and transformation fee in the estimated amount of
RMB40,303,868.00 (tax inclusive) to Chengdu Real Estate. Pursuant
to the Commodity House Purchase and Sale Contract, the Company
agreed to acquire and Chengdu Real Estate agreed to sell the Houses
for a cash consideration of RMB24,682,500.06 (tax inclusive), and
the Company agreed to pay a renovation and transformation fee in
the estimated amount of RMB5,643,261.20 (tax inclusive) to Chengdu
Real Estate. The details are set out in the announcement of the
Company dated 24 August 2017.
II. Continuing Connected Transactions between the Group and CNACG Group
The Company entered into a framework agreement with CNACG on 26
August 2008 (the "CNACG Framework Agreement") which was renewed on
26 September 2013 for a term of three years. On 30 August 2016, the
Company and CNACG entered into a framework agreement to renew and
amend the CNACG Framework Agreement (the "New CNACG Framework
Agreement"). The New CNACG Framework Agreement has a term of three
years commencing on 1 January 2017 and ending on 31 December
2019.
As CNACG is a substantial shareholder of the Company and
therefore a connected person of the Company, the transactions
between CNAGG Group and the Group constitute continuing connected
transactions of the Company under Rule 14A.31 of the Listing Rules
and are subject to the requirements under Chapter 14A of the
Listing Rules.
Pursuant to the New CNACG Framework Agreement, CNACG Group will
provide ground support services, aircraft repair and maintenance
services, administrative management services, as well as finance
lease and operating lease services to the Group. The details are
set out in the announcement of the Company dated 30 August
2016.
Pricing Policies:
-- The prices for the ground support services will be negotiated
and determined by both parties on an arm's length basis, after
taking into account various factors, including the guidance from
the Civil Aviation Administration of the PRC and the International
Air Transport Association on the service prices and other terms for
ground support services, the prevailing market prices, the costs of
human resources and the quality of services.
-- The prices for aircraft repair and maintenance services, and
administrative management services will be negotiated and
determined by both parties on an arm's length basis with reference
to comparable market prices for the same or similar type of
services provided by independent third parties after taking into
account other relevant factors, including the quality of services
and the special needs of the parties.
-- For finance lease and operating lease services, the amount
payable by the Group to the CNACG Group will be subject to the
procurement prices of the leased items, the financing costs, the
term of leases, the nature and availability of the lease items and
comparable lease arrangement fees, as applicable.
III. Continuing Connected Transactions between the Group and Cathay Pacific Group
The Company entered into a framework agreement with Cathay
Pacific on 26 June 2008, which was renewed on 1 October 2013 and 1
October 2016 (the "Cathay Pacific Framework Agreement"), currently
with a term commencing on 1 January 2017 and ending on 31 December
2019.
As Cathay Pacific is a substantial shareholder of the Company
and therefore a connected person of the Company, the transactions
between Cathay Pacific Group (Cathay Pacific and its subsidiaries,
including Cathay Dragon) and the Group constitute continuing
connected transactions of the Company under Rule 14A.31 of the
Listing Rules and are subject to the requirements under Chapter 14A
of the Listing Rules.
The Cathay Pacific Framework Agreement provides a framework for
the transactions between the Group and Cathay Pacific Group arising
from interline arrangements, code sharing arrangements, joint
operating arrangements, aircraft leasing, frequent flier
programmes, the provision of airline catering, ground support and
engineering services and other services agreed to be provided and
other transactions agreed to be undertaken under the Cathay Pacific
Framework Agreement. The details are set out in the joint
announcement of the Company and Cathay Pacific dated 30 August
2016.
Pricing Policies: for interline arrangements and code share
arrangements, revenue is apportioned between the parties in
accordance with bilateral prorate agreements which follow the
principles in the Multi-lateral Prorate Agreement of International
Air Transport Association. For joint operating arrangements,
revenue is apportioned between the parties having regard to the
fleet capacity of both parties and the values of seats sold by each
party. For aircraft leasing, rentals payable under aircraft leases
are determined after negotiations at arm's length between the
parties having regard to rentals payable under comparable leases
between unconnected parties for comparable aircraft and comparable
periods and prevailing long term interest rates. For frequent flyer
programmes, frequent flyers of either party can earn mileage
credits by taking the other party's flights. Payments by each party
to the other for mileage values are determined by the parties on an
arm's length basis having regard to comparable mileage values
payable by unconnected airlines to each other. For airline
catering, the parties determine the pricing of airline catering
having regard to quotations provided by unconnected caterers,
taking due account of material and labour costs, quality, assurance
of supply, safety and innovation (including changes in the
foregoing matters). For ground support and engineering services,
the pricing of ground support and engineering services charged by
one party to the other party is required to be no less favourable
than that offered for comparable services to unconnected parties
taking due account of the quality of services. For other products
and services, the pricing of other products and services (including
for leasing premises and handling customs clearance) is determined
having regard to relevant market information (including independent
third party quotations for comparable products and services), costs
incurred by the relevant party and the quality of products and
services (including changes in any of the foregoing).
IV. Continuing Connected Transactions between the Group and ACC Group
The Company entered into a framework agreement with Air China
Cargo on 27 October 2011, which was renewed on 26 September 2013
for a term of three years (the "ACC Framework Agreement"). On 30
August 2016, the Company and Air China Cargo entered into a
framework agreement to renew and amend the ACC Framework Agreement
(the "New ACC Framework Agreement"), and the New ACC Framework
Agreement has a term of three years commencing on 1 January 2017
and ending on 31 December 2019.
Air China Cargo is a connected person of the Company by virtue
of being a non-wholly owned subsidiary of the Company in which
Cathay Pacific, a substantial shareholder of the Company, holds
more than 10% of the equity interest through Cathay Pacific China
Cargo Holdings, a wholly-owned subsidiary of Cathay Pacific. As
such, transactions between ACC Group and the Group constitute
continuing connected transactions of the Company under Rule 14A.31
of the Listing Rules and are subject to the requirements under
Chapter 14A of the Listing Rules.
Pursuant to the New ACC Framework Agreement, the Group (other
than ACC Group) will provide the following services to ACC Group:
(i) the provision of bellyhold space of the passenger aircraft
operated by the Company; (ii) ground support services, such as
airport apron services and aircraft cabin cleansing services; and
(iii) other services, including aircraft maintenance engineering
services, engine and other aircraft related materials lease
services, property lease services (including the lease of certain
GAC Regulated Property) and labour management services. The ACC
Group will provide the following services to the Group (other than
ACC Group): (i) marketing and sales services of bellyhold space
provided by the Company; (ii) ground support services, such as
cargo and mail ground loading and unloading and security inspection
services; and (iii) other services, including engine and other
aircraft related material lease services and property lease
services. The details are set out in the announcement of the
Company dated 30 August 2016.
Pricing Policies:
-- The prices for bellyhold space provided to the ACC Group will
be determined by the Company based on the following formula: total
annual sales amount = the average sales price of bellyhold space of
the Company in the past three years x (1+adjustment rate) x the
total volume of bellyhold space provided by the Company. The
adjustment rate generally ranges from -7% to +7%, which is
determined by the Company with reference to the average annual
revenue growth rate for air cargo services of other major aircraft
operators in the PRC and the operating costs of the Company in
connection with air transportation.
-- The prices for the ground support services/other services
provided by the Group will be negotiated and agreed by both parties
primarily on a "cost-plus" basis, which will be determined based on
the costs and expenses of the Company, plus a margin generally
ranging from 5% to 10%.
-- With respect to ACC Group's provision of marketing and sales
services of bellyhold space to end customers, the Company will pay
commission fees to Air China Cargo primarily based on the costs and
expenses in connection with the sales and marketing of bellyhold
space to end customers by the ACC Group and the sales performance
of the ACC Group on meeting the relevant sales targets, after
taking into account the overall market conditions.
-- The prices for the ground support services provided by the
ACC Group will be negotiated and determined by both parties on an
arm's length basis, after taking into account various factors,
including the guidance from the Civil Aviation Administration of
the PRC and the International Air Transport Association on the
service prices and other terms for ground support services, the
market prices for comparable services available from other service
providers and the quality of services.
-- The prices for other services provided by the ACC Group will
be negotiated and determined by both parties on an arm's length
basis, after taking into account comparable market prices for the
same or similar type of services by independent third parties and
the specific needs of the Group.
V. Continuing Connected Transactions between the Group and CNAF
CNAF is a non-wholly owned subsidiary of the Company. Since
CNAHC is interested in more than 10% of the equity interest in
CNAF, CNAF became a connected subsidiary of the Company as defined
under the Listing Rules, and the transactions between the Group and
CNAF constitute continuing connection transactions of the Company
under Rule 14A.31 of the Listing Rules and are subject to the
requirements under Chapter 14A of the Listing Rules.
On 29 April 2015, the Company (for itself and on behalf of its
subsidiaries) and CNAF entered into a financial services agreement
(the "Air China Financial Services Agreement") with a term from the
date of completion of registration of State Administration for
Industry and Commerce of CNAF to 31 December 2017. Pursuant to the
Air China Financial Services Agreement, CNAF agreed to provide the
Group with a range of financial services including deposit
services, loan and other credit services and other financial
services.
Pricing Policies:
-- The interest rate applicable to the Group for deposits with
CNAF shall not be lower than the minimum interest rate prescribed
by the PBOC from time to time and published on the PBOC's website
for the same type of deposits, and such interest rate shall not be
lower than the interest rate for the same type of deposits placed
by the members of CNAHC Group with CNAF, and shall not be lower
than the interest rate for the same type of deposit services
provided by state-owned commercial banks to the Group.
-- The interest rate applicable to loans (including other credit
services) granted to the Group by CNAF shall be set with reference
to the benchmark interest rate prescribed by the PBOC from time to
time and published on the PBOC's website for the same type of
loans, and such interest rate shall not be higher than the interest
rate for the same type of loans granted by CNAF to the members of
CNAHC Group, and shall not be higher than those for the same type
of loans granted by state-owned commercial banks to the Group.
-- The fees charged by CNAF to the Group for providing bills
acceptance services, letter of credit services, guarantee services,
finance leasing services, discounting services, bills and payment
collection services and financial consulting services shall be
determined in accordance with the relevant standards (if any)
prescribed by the PBOC or CBRC in respect of the same type of
financial services. In addition, such fees shall not be higher than
those generally charged to the Group by state-owned commercial
banks and those charged by CNAF to the members of CNAHC Group for
the same type of financial services.
-- If CNAF charges fees for the unpaid services or new financial
services during the term of the Air China Financial Services
Agreement, such fees charged by CNAF to the Group shall comply with
the standards stipulated by the PBOC or the CBRC for services of
the same type and shall not be higher than those charged by
state-owned commercial banks to the Group and those charged by CNAF
to the members of CNAHC Group for the same type of financial
services.
The Air China Financial Services Agreement was renewed and
revised by CNAF and the Company on 30 August 2017 for a term of
three years commencing on 1 January 2018 and ending on 31 December
2020. The details are set out in the announcement of the Company
dated 30 August 2017.
The Company has confirmed that the execution and enforcement of
the implementation agreements under the continuing connected
transactions set out above for the year ended 31 December 2017 has
followed the pricing policies of such continuing connected
transactions.
VI. Transaction Caps and Actual Transaction Amounts in 2017
Actual transaction amounts and transaction caps of the
above-mentioned continuing connected transactions during the year
ended 31 December 2017 are as follows:
Aggregate amount
of
transactions for
the year ended
31 December 2017
---------------------------------- ---------- ------------------------------
Actual
Currency Cap Amount
---------------------------------- ---------- -------------- --------------
(in millions) (in millions)
---------------------------------- ---------- -------------- --------------
Transactions with CNAHC
Group:
---------------------------------- ---------- -------------- --------------
Subcontracting of charter
flight services RMB 900 441
---------------------------------- ---------- -------------- --------------
Aggregate sales of airline
tickets and cargo space
to CNAHC Group RMB 152 65
---------------------------------- ---------- -------------- --------------
Comprehensive services RMB 1,513 1,285
---------------------------------- ---------- -------------- --------------
Properties leasing RMB 178 107
---------------------------------- ---------- -------------- --------------
Media and advertising
services RMB 297 158
---------------------------------- ---------- -------------- --------------
Financial services
---------------------------------- ---------- -------------- --------------
Maximum daily outstanding
loans and other credit
services granted by
CNAF to CNAHC Group RMB 10,000 3,125
---------------------------------- ---------- -------------- --------------
Transactions with CNACG
Group:
---------------------------------- ---------- -------------- --------------
Ground handling and
other services (other
than leasing business) RMB 450 241
---------------------------------- ---------- -------------- --------------
Operating lease of aircraft
engines RMB 1,000 22
---------------------------------- ---------- -------------- --------------
Operating lease of equipment RMB 500 0
---------------------------------- ---------- -------------- --------------
Finance leases of aircraft
simulators and new aircraft
engines RMB 500 115
---------------------------------- ---------- -------------- --------------
Transactions with Cathay
Pacific Group:
---------------------------------- ---------- -------------- --------------
Aggregate amount paid/payable
by the Group to Cathy
Pacific Group HKD 900 390
---------------------------------- ---------- -------------- --------------
Aggregate amount paid/payable
by Cathay Pacific Group
to the Group HKD 900 302
---------------------------------- ---------- -------------- --------------
Transactions with ACC
Group:
---------------------------------- ---------- -------------- --------------
Aggregate sales commission
of bellyhold space paid
by the Group to ACC
Group RMB 519 385
---------------------------------- ---------- -------------- --------------
Aggregate amount of
ground handling paid
by the Group to ACC
Group RMB 932 576
---------------------------------- ---------- -------------- --------------
Aggregate amount of
other services paid
by the Group to ACC
Group RMB 174 32
---------------------------------- ---------- -------------- --------------
Aggregate sales of bellyhold
space paid by ACC Group
to the Group RMB 5,182 5,104
---------------------------------- ---------- -------------- --------------
Aggregate amount of
ground handling paid
by ACC Group to the
Group RMB 143 62
---------------------------------- ---------- -------------- --------------
Aggregate amount of
other services paid
by ACC Group to the
Group RMB 529 470
---------------------------------- ---------- -------------- --------------
Transactions with CNAF:
---------------------------------- ---------- -------------- --------------
Maximum daily outstanding
deposits placed by the
Group with CNAF RMB 15,000 8,943
---------------------------------- ---------- -------------- --------------
VII. Confirmation from Independent Non-executive Directors
The independent non-executive Directors of the Company have
confirmed that all continuing connected transactions in the year
ended 31 December 2017 to which the Company was a party have been
entered into:
in the ordinary and usual course of business of the Company;
on normal commercial terms or better; and
according to the agreement governing them on terms that were
fair and reasonable and in the interests of the shareholders of the
Company as a whole.
VIII. Confirmation from the Auditor
For the purpose of Rule 14A.56 of the Listing Rules, the
Company's auditor, Deloitte Touche Tohmatsu has performed the
procedural work on the connected transactions for the year ended 31
December 2017 in accordance with Hong Kong Standard on Assurance
Engagement 3000 (Revised) "Assurance Engagements Other Than Audits
or Reviews of Historical Financial Information" and with reference
to Practice Note 740 "Auditor's Letter on Continuing Connected
Transactions under the Hong Kong Listing Rules" issued by the Hong
Kong Institute of Certified Public Accountants, and reported on the
above connected transactions as follows:
nothing has come to its attention that causes it to believe that
the disclosed continuing connected transactions have not been
approved by the Company's board of Directors;
for transactions involving the provision of goods or services by
the Group, nothing has come to its attention that causes it to
believe that the disclosed continuing connected transactions were
not, in all material respects, in accordance with the pricing
policies of the Group;
nothing has come to its attention that causes it to believe that
the disclosed continuing connected transactions were not entered
into, in all material respects, in accordance with the relevant
agreements governing such transactions; and
with respect to the aggregate amount of the continuing connected
transactions, nothing has come to its attention that causes it to
believe that the continuing connected transactions disclosed in
chart above have exceeded the annual cap made by the Company.
IX. RELATED PARTY TRANSACTIONS
Details of the significant related party transactions entered
into by the Group during the year ended 31 December 2017 are set
out in note 48 to the financial statements of this annual report.
None of these related party transactions constitutes a discloseable
connected transaction as defined under the Listing Rules, except
for the transactions described in the section headed "Connected
Transactions" in this Report of the Directors, in respect of which
the disclosure requirements under Chapter 14A of the Listing Rules
have been complied with.
CONTRACT OF SIGNIFICANCE
Save as disclosed in the section headed "Connected Transactions"
of this Report of the Directors, none of the Company or any of its
subsidiaries entered into any contract of significance with the
controlling shareholder or any of its subsidiaries, and there is no
contract of significance in relation to provision of services by
the controlling shareholder or any of its subsidiaries to the
Company or any of its subsidiaries.
AUDITOR
CNAHC, the controlling shareholder of the Company, is a central
state-owned enterprise regulated by the SASAC. Pursuant to the
relevant requirements issued by SASAC and the Ministry of Finance
of the PRC, if the service term of an external accounting firm to
continuously undertake financial auditing work for a central
state-owned enterprise exceeds the prescribed time limit, the
enterprise should consider changing or per request change such
accounting firm. As KPMG and KPMG Huazhen LLP (collectively, the
"KPMG") have been providing audit services to the Company as the
international auditor, domestic auditor and the internal control
auditor of the Company (collectively, the "Auditor") respectively
for four years since 2013, after being considered and approved by
the 44th meeting of the 4th session of the Board and approved by
the 2016 Annual General Meeting, the Company appointed Deloitte
Touche Tohmatsu and Deloitte Touche Tohmatsu Certified Public
Accountants LLP as the Company's international auditor and domestic
auditor respectively for the year 2017, and KPMG ceased to be the
Auditor of the Company.
SUBSEQUENT EVENTS
On 27 March 2018, the Company and CNACG entered into the
2018-2019 aircraft finance lease service framework agreement in
relation to aircraft finance lease services provided by the CNACG
Group to the Group. The 2018-2019 aircraft finance lease service
framework agreement, the transactions contemplated thereunder as
well as the proposed maximum transaction amounts thereunder are
subject to the approval by the independent shareholders of the
Company at the 2017 Annual General Meeting. For details, please
refer to the announcement of the Company dated 27 March 2018
published on the websites of the Company and the Hong Kong Stock
Exchange.
The sections, reports or notes of this annual report mentioned
above constitute a part of this Report of the Directors.
PROFILE OF DIRECTORS, SUPERVISORS AND
SENIOR MANAGEMENT
1. Directors
Mr. Cai Jianjiang, aged 54, is the Chairman and a non-executive
Director of the Company. Mr. Cai graduated from China Civil
Aviation Institute majoring in aviation control and English. Mr.
Cai was appointed as General Manager of Shenzhen Airlines in 1999.
He joined Air China International Corporation in 2001 as Manager of
its Shanghai Branch, and subsequently as Assistant to the President
and Manager of the marketing department. In October 2002, he was
appointed as Vice President of Air China International Corporation,
and subsequently as Secretary of the Communist Party Committee and
Vice President of the Company in September 2004. He served as
President and Deputy Secretary of the Communist Party Committee of
the Company and a member of the Communist Party Group of CNAHC from
January 2007 to January 2014. He has been serving as the
non-executive director of Cathay Pacific since November 2009, the
Chairman of Shenzhen Airlines since May 2010, and the General
Manager and Deputy Secretary of the Communist Party Group of CNAHC
from January 2014 to December 2016. Mr. Cai has been serving as a
Director of the Company since September 2004 and Chairman of the
Company since February 2014. He has been serving as Chairman and
Secretary of the Communist Party Group of CNAHC since December
2016. He has been serving as Secretary of the Communist Party
Committee of the Company since May 2017.
Mr. Song Zhiyong, aged 52, is the Vice Chairman, executive
Director and President of the Company. Mr. Song is a first class
pilot. He graduated from the Second Flying Academy of China Air
Force with a bachelor's degree in aviation. Mr. Song started his
career in China's civil aviation industry in 1987 and was
previously a pilot, Deputy Team Captain, Flight Director, and
Deputy Group Captain of the Third Group of the Chief Flight Team,
Deputy Captain of the Chief Flight Team and Director of the
Training Department of Air China International Corporation. He
served as Captain of the Chief Flight Team and Deputy Secretary of
the Communist Party Committee of the Company from November 2002 to
June 2008. Mr. Song held the post of Assistant to President from
September 2004 to October 2006. He was the Vice President, a member
and a standing member of the Communist Party Committee of the
Company from October 2006 to December 2010. Mr. Song served as the
Deputy General Manager of CNAHC from December 2010 to April 2014.
He has been a Member of the Communist Party Group of CNAHC since
December 2010. Mr. Song has been serving as President and Deputy
Secretary of the Communist Party Committee of the Company to handle
the comprehensive work of the Company since January 2014 as well as
an executive Director of the Company since May 2014 and the
Secretary of the Communist Party Group of CNAHC from February 2016
to December 2016. He has been serving as Vice Chairman of the
Company since June 2016 and Director, General Manager and Deputy
Secretary of the Communist Party Group of CNAHC since December
2016.
Mr. Cao Jianxiong, aged 58, is a former non-executive Director
of the Company. Mr. Cao holds a master degree in economics from the
Eastern China Normal University and is a senior economist. He was
appointed as the Deputy General Manager and Chief Financial Officer
of China Eastern Airlines in December 1996. In September 1999, he
was appointed as the Vice President of China Eastern Airlines Group
Corporation. Commencing from September 2002 till December 2008, he
served as Vice President and a member of Communist Party Group of
China Eastern Airlines Group Corporation and was also Secretary of
the Communist Party Committee of China Eastern Airlines Northwest
Company from December 2002 to September 2004. From October 2006 to
December 2008, he served as the General Manager and the Deputy
Party Secretary of the Communist Party Committee of China Eastern
Airlines. Since December 2008, Mr. Cao has been serving as the
Deputy General Manager and a member of Communist Party Group of
CNAHC. Mr. Cao served as a non-executive Director of the Company
from June 2009 to October 2017. He has been serving as Deputy
Secretary of the Communist Party Group and Deputy General Manager
of CNAHC since November 2016. He has been serving as the Deputy
Secretary of the Communist Party Committee and Vice President of
the Company since May 2017.
Mr. Feng Gang, aged 54, is a former non-executive Director of
the Company. Mr. Feng graduated from Sichuan University majoring in
semiconductor. He started his career in July 1984. Mr. Feng became
the Deputy General Manager of China Southwest Airlines in October
1995, and was the Assistant to President of Air China International
Corporation since October 2002. He also served as General Manager
and Party Secretary of China National Aviation Holding Assets
Management Company since February 2003, and was appointed as the
Chairman, President and Deputy Secretary of the Communist Party
Committee of Shandong Aviation Group Co., Ltd. in May 2007. He
served as Vice President of the Company from April 2010 to August
2014, and concurrently served as a director, President and Deputy
Secretary of the Communist Party Committee of Shenzhen Airlines
from May 2010 to May 2014. He has also been serving as Deputy
General Manager and Member of the Communist Party Group of CNAHC
since April 2014. He served as non-executive Director from August
2014 to October 2017. He has been served as Vice President and
Member of the Standing Committee of the CPC of the Company since
May 2017.
Mr. John Robert Slosar, aged 61, is a non-executive Director of
the Company. Mr. Slosar holds degrees in Economics from Columbia
University and Cambridge University. He joined the Swire group in
1980 and worked with the group in Hong Kong, the United States and
Thailand. Mr. Slosar has been a director of Cathay Pacific since
July 2007 and served as Chief Operating Officer from July 2007 to
March 2011 and as Chief Executive from March 2011 to March 2014,
and has become Chairman of Cathay Pacific, John Swire & Sons
(H.K.) Limited, Swire Pacific Limited, Swire Properties Limited and
Hong Kong Aircraft Engineering Company Limited since March 2014.
Mr. Slosar has been serving as a non-executive Director of the
Company since May 2014.
Mr. lan Sai Cheung Shiu, aged 63, is a former non-executive
Director of the Company. Mr. Shiu holds a bachelor's degree in
business administration from University of Hawaii and an MBA degree
from the University of Western Ontario. Mr. Shiu worked at offices
of Cathay Pacific in Hong Kong, the Netherlands, Singapore and the
United Kingdom. He was a director of Cathay Pacific and Cathay
Dragon from October 2008 to December 2016, a director of John Swire
& Sons (H.K.) Limited from July 2010 to December 2016 and a
director of Swire Pacific Limited from August 2010 to December
2016. Mr. Shiu served as a non-executive Director of the Company
from October 2010 to October 2017.
Mr. Xue Yasong, aged 56, is a non-executive Director (employee
representative Director) of the Company. He is an economist and
lecturer who graduated from the Institute of Financial Science
under the Ministry of Finance with a master degree in Economics.
From September 1978 to July 1982, Mr. Xue studied in the Department
of Mathematics, Henan Normal University. From July 1982 to July
1986, he taught in the Zhumadian Normal School, Henan Province.
From August 1986 to August 1991, he taught in the training centre
of the Regional Taxation Bureau of Zhumadian, Henan Province. From
September 1991 to July 1994, Mr. Xue studied his master course in
the Postgraduate Department of the Institute of Financial Science
under the Ministry of Finance. He joined Guangdong Yuecai Trust
& Investment Co., Ltd. in July 1994 and consecutively served as
a project manager of the Investment Department, Manager of Trading
Department of Guangdong Property Rights Trading Centre, Assistant
to the General Manager of the International Finance Department,
Head of the Asset Reorganization Group and Head of Preparatory
Group for the Securities Company. He has been a director, Executive
Deputy General Manager and Secretary of the Board of
Directors of Guangdong Guanhao High-tech Co., Ltd. since March
1999. He served as the Deputy General Manager of CNAHC from
November 2004 to August 2009, during which he served concurrently
as Chairman of China National Aviation Travel Co., Ltd. from
January 2005 to November 2006 and Secretary of the Party Committee
of China National Aviation Construction and Development Co., Ltd.
under temporary assignment from November 2006 to August 2009. He
was elected Chairman of the Labour Union of CNAHC in August 2009,
and served as Secretary of the Party Committee of CNAHC from
January 2016 to June 2017. He was elected Chairman of the Labour
Union of the Company in October 2016, responsible for overseeing
the daily operation of the Labour Union of the Company. He has been
serving as an employee representative director of CNAHC since
December 2017, and was elected as employee representative Director
of the Company in March 2018.
Mr. Pan Xiaojiang, aged 65, is a former independent
non-executive Director of the Company. Mr. Pan holds a doctoral
degree in Management from Tsinghua University and is a senior
economist and China Certified Public Accountant. He served as
Deputy Director of the Accounting Management Department of the
Ministry of Finance ("MOF"); Deputy Director of Chinese Institute
of Certified Public Accountants; Deputy Director, Director and
Deputy Director-general of the World Bank Department of the MOF;
and Deputy Director-general of the International Department of the
MOF. Mr. Pan was appointed as professional supervisor and deputy
office director of the board of supervisors of Bank of China
Limited in July 2000; professional supervisor and office director
of the board of supervisors of Bank of China Limited in November
2001; professional supervisor and office director of the board of
supervisors of Agricultural Bank of China Limited in July 2003;
shareholder representative supervisor and office director of the
board of supervisors of Agricultural Bank of China Limited from
January 2009 to January 2012; leader of the fifth patrol team of
the Communist Party Committee of Agricultural Bank of China Limited
from March 2012 to January 2013. From May 2013 to May 2015, Mr. Pan
served as an independent director of Tsinghua Tongfang Limited. Mr.
Pan served as an independent non-executive Director of the Company
from October 2013 to May 2017.
Mr. Simon To Chi Keung, aged 66, is a former independent
non-executive Director of the Company. Mr. To holds a First Class
Bachelor's Honours Degree in Mechanical Engineering from the
Imperial College of Science and Technology (London University) and
an MBA degree from Stanford University's Graduate School of
Business. He joined Hutchison Whampoa (China) Limited in 1980 as
the divisional manager of the Industrial Project Division and was
appointed managing director in 1981. From 1999 to 2005, he served
as an independent non-executive director of China Southern
Airlines. From 2000 to 2011, he served as a non-executive director
of Shenzhen International Holdings Limited. He is currently the
managing director of Hutchison Whampoa (China) Limited and chairman
of Hutchison China MediTech Limited. He is concurrently the vice
chairman of Guangzhou Aircraft Maintenance & Engineering Co.
Ltd, director of China Aircraft Services Limited, chairman of
Beijing Greatwall Hotel, chairman of Hutchison Whampoa (China)
Commerce Limited, chairman of Guangzhou Hutchison Logistics
Services Company Limited, chairman of Hutchison Whampoa Baiyunshan
Chinese Medicine Company Limited, vice chairman of Shanghai
Hutchison Pharmaceuticals Limited and chairman of Shanghai
Hutchison Whitecat Co., Ltd. Mr. To served as an independent
non-executive Director of the Company from October 2013 to May
2017.
Mr. Wang Xiaokang, aged 62, is an independent non-executive
Director of the Company. He graduated from Peking University
majoring in law. He served as Chairman and Deputy Secretary of the
Communist Party Committee of China Energy Conservation and
Environmental Protection Group from May 2010 to December 2016.
Since December 2011, he has been serving as the President of China
Industrial Energy Conservation and Clean Production Association. He
is also currently a Member of the Twelfth National Committee of the
Chinese People's Political Consultative Conference and a Member of
the Committee of Population, Resources and Environment under the
Twelfth National Committee the Chinese People's Political
Consultative Conference, a member of National Manufacturing
Strategy Advisory Committee, a member of the Sixth China Council
for International Cooperation on Environment and Development and a
member of the Expert Advisory Committee for Inter-Ministerial Joint
Meeting for Circular Economy Development. He has been serving as an
independent non-executive Director of Company since May 2017.
Mr. Liu Deheng, aged 61, is an independent non-executive
Director of the Company. He graduated from the School of Management
of Xi'an Jiaotong University with a master's degree in industrial
management engineering. He served as Deputy Director General of
Statistics and Assessment Bureau (Asset and Capital Verification
Office), Deputy Director General and Director General of Revenue
Management Bureau of the SASAC from May 2003 to October 2016, and
served as Professional External Director for Central State-owned
Enterprises from October 2016 to April 2017. Since May 2017, he has
been serving as Professional External Director of Commercial
Aircraft Corporation of China, Ltd. and serving as an independent
non-executive Director of the Company.
Mr. Stanley Hui Hon-chung, aged 67, is an independent
non-executive Director of the Company. Mr. Hui holds the bachelor
degree of Science from the Chinese University of Hong Kong. He
joined Cathay Pacific in 1975 and had held a range of management
positions in Hong Kong and overseas. From 1990 to 1992, Mr. Hui
served in Cathy Dragon as General Manager-Planning and
International Affairs and was appointed the Chief Representative of
John Swire & Sons (China) Limited in Beijing in 1992. He later
returned to Hong Kong in 1994 to assume the position of Chief
Operating Officer of AHK Air Hong Kong Limited until 1997. Mr. Hui
joined Cathy Dragon as its Chief Executive Officer from 1997 to
2006. During the period from February 2007 to July 2014, he served
as the Chief Executive Officer of Hong Kong Airport Authority. Mr.
Hui was appointed as member of the Greater Pearl River Delta
Business Council twice by the Chief Executive of the HKSAR, and
held civic duties including member of the Commission on Strategic
Development of the HKSAR Government, member of the Hong Kong
Government's Aviation Development Advisory Committee and member of
the Hong Kong Tourism Board. Mr. Hui is currently the member of the
13th session of National Committee of Chinese People's Political
Consultative Conference ("CPPCC") and the General Committee of the
Hong Kong General Chamber of Commerce. In July 2006, Mr. Hui was
appointed as a Justice of the Peace by the Chief Executive of the
HKSAR. Mr. Hui has been serving as an independent non-executive
Director of the Company since May 2015. Mr. Hui was appointed
executive director and Vice CEO of NWS Holdings Limited in
September 2015 and independent non-executive director of Guangzhou
Baiyun International Airport Co., Ltd. in December 2016.
Mr. Li Dajin, aged 59, is an independent non-executive Director
of the Company. Mr. Li graduated from Peking University majoring in
law. He is a director, partner and lawyer of East & Concord
Partners. He has practiced law in the PRC since 1982 and was one of
the first lawyers who obtained the qualifications to engage in
securities law business in 1994. He was the vice president of the
sixth All China Lawyers Association, the president of the seventh
Beijing Lawyers Association, member of the 13th standing committee
of Beijing Municipal People's congress, member of Internal and
Judicial Affairs Committee and the deputy to the 12th National
People's Congress. Mr. Li currently also serves as a member of the
13th Chinese People's Political Consultative Conference,
legislative consultant to the Standing Committee of Beijing
Municipal People's Congress, invited supervisor to the PRC Supreme
People's Court, invited supervisor to the Ministry of Public
Security of the PRC, visiting professor to Lawyer College Renmin
University of China, lecturer for master candidate of Tsinghua
University Law School, and visiting professor of Southwest
University of Political Science & Law. Since December 2015, he
has been serving as an independent non-executive Director of the
Company.
2. Supervisors
Mr. Wang Zhengang, aged 59, is Chairman of the Supervisory
Committee of the Company. He is a senior accountant who graduated
from the Anti Chemical Command and Engineering Institute of the
Chinese People's Liberation Army with a bachelor's degree in
economics and management. He has been serving as a director, the
president and a member of the Communist Party Committee of CNACG
since July 2011 and the chairman of the board of directors of
Zhongyi Aviation Investment Co., Ltd. since September 2011. Mr.
Wang has been an assistant general manager of CNAHC since September
2014. Mr. Wang is currently a member of the Committee of the 13th
session of the CPPCC of Beijing Municipality. He was elected as
Chairman of the Supervisory Committee of the Company in August
2016.
Mr. He Chaofan, aged 55, is a Supervisor of the Company. Mr. He
graduated from Civil Aviation University of China majoring in
operation management. Mr. He started his career in China's civil
aviation industry in 1983. He served as an accountant at the
Finance Department of Beijing Administration of Civil Aviation
Administration of China (CAAC), and served various positions in Air
China International Corporation, including the section chief,
deputy director and director of the finance department and general
manager of the revenue accounting centre of Air China International
Corporation. From March 2003 to October 2008, he served as the
General Manager and the Deputy Secretary of CPC of CNAF. He served
as the General Manager of the finance department of CNAHC and a
Supervisor of the Company concurrently from October 2008 to April
2011. He was appointed as vice president of CNACG in May 2011, and
has been concurrently served as a director, general manager, party
committee member and the Deputy Secretary of the CPC Committee of
Zhongyi Aviation Investment Co., Ltd. since July 2013. Mr. He has
been serving as a Supervisor of the Company since October 2013.
Mr. Zhou Feng, a former Supervisor of the Company, the biography
of whom is set out in the section headed "Senior Management".
Ms. Xiao Yanjun, aged 53, is a Supervisor of the Company. Ms.
Xiao obtained a Juris Master from Renmin University of China and an
EMBA degree from Tsinghua University and is an advanced
professional of political work. From July 1988 to April 2002, Ms.
Xiao held various positions in Air China International Corporation,
including an Instructor at the Training Department, the Secretary
of the Communist Party Committee, an Organiser at division level,
Secretary of the Party Branch and Head of Officer Training. She
served as the Training Manager of the Human Resource Department of
the Company from April 2002 to March 2008 and Deputy Director of
the Labour Union of the Company from March 2008 to November 2012.
She has been Director of the Labour Union of the Company since
November 2012. Ms. Xiao has been serving as a Supervisor of the
Company since June 2011. She has been serving as the head of the
office to the Labour Union of CNAHC since May 2017.
Mr. Shen Zhen, aged 51, is a former Supervisor of the Company.
Mr. Shen graduated from Party School of the Central Committee of
CPC majoring in economics and management. He started his career in
China's civil aviation industry since October 1985 and held various
positions in Vehicle Administrative Office and Chief Flight Team at
Beijing Ad-ministration of CAAC. From August 2003 to November 2012,
Mr. Shen served as the Deputy Captain of the Fourth Group (1st
team) of Chief Flight Team of the Company. He has been serving as
the Party branch secretary of the First Group (5th team) of Chief
Flight Team of the Company since November 2012. Mr. Shen served as
a Supervisor of the Company from October 2013 to October 2017.
Ms. Li Guixia, aged 41, is a Supervisor of the Company. Ms. Li
graduated from Xi'an Shiyou University majoring in accounting. Ms.
Li started her career in August 1998 and served various positions
in the Company, including an Assistant at the Domestic Passenger
Center of the Ground Services Department, the Commissioner of the
Budget Management Division of the Finance Department and the
Project Manager of the Planning Financial Office of the Business
Council. She has been serving as a Senior Deputy Manager of the
Planning Financial Office of the Business Council of the Company
since 2014. Since October 2017, she has been serving as a
Supervisor of the Company.
3. Senior Management
Mr. Song Zhiyong, is the President of the Company. Mr. Song's
biography is set out in the section headed "Directors".
Mr. Cao Jianxiong, is the Vice President of the Company. Mr.
Cao's biography is set out in the section headed "Directors".
Mr. Feng Gang, is the Vice President of the Company. Mr. Feng's
biography is set out in the section headed "Directors".
Mr. Hou Xulun, aged 50, is the Secretary of Committee for
Discipline Inspection of the Company. He graduated from the School
of Government of Peking University, majoring in administration
management. He was a division-level inspector of the Organization
Department of Jinan City, Shandong Province, a division-level
investigator of the Office of Publication of the Research Office,
the Organization Department of the Central Committee, a Director of
Office, a deputy-bureau-level investigator, a deputy inspector, the
Deputy Director of Bureau of the Bureau of Cadre Supervision, the
Organization Department of the Central Committee. Since September
2011, he was an inspector of the Bureau of Cadre Supervision and
the Director of Liaison Office for Inspection Work of the
Organization Department of the CPC. Since August 2014, he was an
inspector and the Deputy Director of the Bureau of Cadre
Supervision, the Organization Department of the Central Committee.
Since July 2015, he was a member of the Leading Party Member Group
and Team Leader of the Discipline Inspection Group of CPC Leading
Group of CNAHC. Since May 2017, he has been a member of the Leading
Party Member Group and Team Leader of the Discipline Inspection
Group of CPC Leading Group of CNAHC and a member and a standing
member of the CPC Committee and the Secretary of Committee for
Discipline Inspection of the Company.
Mr. Ma Chongxian, aged 52, is the Vice Chairman of the Company.
He graduated from Inner Mongolia University majoring in planning
and statistics and holds a degree of Executive Master in Business
Administration in Tsinghua University. Mr. Ma started his career in
July 1988 and served as Planner of the Mechanical Division of Inner
Mongolia Administration of CAAC and various positions in Air China,
including Deputy Chief and Secretary of the Party branch of
Aircraft Repair Plant in Inner Mongolia branch, General Manager of
the Bluesky Customer Service Department, Deputy General Manager of
Inner Mongolia branch, Deputy General Manager, Party Secretary and
General Manager of Zhejiang branch. He served as General Manager
and Deputy Secretary of the Communist Party Committee of Hubei
Branch of the Company from June 2009. Mr. Ma has been serving as
Vice President and a standing member of the CPC Committee of the
Company since April 2010, responsible for air and ground services.
From April 2010 to November 2016, he served as Chairman and
President of Shandong Aviation Group Corporation and Vice Chairman
of Shandong Airlines. He has been a member of the Communist Party
Group of CNAHC since August 2016 and Vice General Manager since
December 2016.
Mr. Zhao Xiaohang, aged 56, is the Vice President of the
Company. He graduated from Tsinghua University majoring in
management engineering and holds a postgraduate diploma and a
master's degree. Mr. Zhao started his career in August 1986 and
served various positions, including Assistant of the Planning
Department of Beijing Administration of CAAC, Assistant, Section
Chief and Deputy Division Chief of the Planning Department, Manager
and Deputy Secretary of the Ground Services Department, General
Manager of the Planning and Development Department and Assistant
President of Air China International Corporation. He served as
director and Vice President of CNACG from September 2003 to May
2004, director, Vice President and Secretary of the Commission for
Discipline Inspection of CNACG from May 2004 to February 2011. He
served as director of China National Aviation Company Limited from
July 2005 to November 2015 and General Manager of China National
Aviation Company Limited from July 2005 to May 2016, and director
and General Manager of China National Aviation Corporation (Macau)
Company Limited from April 2007 to February 2016. He also served as
Chairman, executive director and General Manager of Air Macau from
December 2009 to April 2011. Mr. Zhao has also been serving as Vice
President and a member of the Standing Committee of CPC of the
Company since February 2011. He is also a director of Shandong
Aviation Group Corporation since April 2011 and Chairman of Dalian
Airlines since August 2011. Mr. Zhao was appointed as the Chairman
of Air Macau in March 2016, a member of the Communist Party Group
of CNAHC in August 2016, Vice General Manager and a member of the
Communist Party Group of CNAHC as well as Director and Vice
Chairman of CNACG and Chairman of CNAMC in December 2016.
Mr. Wang Mingyuan, aged 52, is the Vice President of the
Company, graduated from Xiamen University majoring in planning and
statistics. Mr. Wang started his career in July 1988 and served
various positions in China Southwest Airlines, including Assistant
of the planning department, Manager of the Production Plan Office
of the Sales & Marketing Department, Deputy Manager of the
Sales & Marketing Department, Deputy Manager and Manager of the
Market Department, and served various positions in Air China
International Corporation, including Deputy General Manager of the
Marketing Department, Member of the Commerce Commission, Member of
the Communist Party Committee and General Manager of Network
Revenue Department. Mr. Wang was appointed as the director of the
Commerce Commission and Deputy Secretary of the Communist Party
Committee of the Company from July 2008 to March 2012. Mr. Wang was
appointed as the Vice President and a member of the Standing
Committee of CPC of the Company in February 2011.
Ms. Feng Run'e, aged 55, is the former Vice President of the
Company, obtained an EMBA degree from HEC Paris. Ms. Feng started
her career in July 1984 and served various positions, including an
Instructor of Science & Education Division of Inner Mongolia
Administration of CAAC, Deputy Chief, Chief, Deputy director and
director of Science & Education Department of Inner Mongolia
branch of Air China International Corporation; Manager of Human
Resource Department and Head of Party and Mass Affairs Department
of Inner Mongolia branch. She also served as Deputy Secretary of
the Communist Party Committee and Secretary of Commission for
Discipline Inspection of Inner Mongolia branch. In October 2002,
she began to serve as Head and director of Office of Communist
Party Group of CNAHC. From January 2009 to March 2011, she was
appointed as Secretary of the Communist Party Committee and Deputy
General Manager of Air China Cargo. She has been serving as Deputy
Secretary of the Communist Party Committee and Secretary of
Commission for Discipline Inspection of the Company from February
2011 to May 2017 as well as a member and Secretary of the Communist
Party Committee of the department directly under the Company from
March 2011 to July 2017. She served as president of the Labour
Union of the Company from June 2011 to October 2013. Ms. Feng was
appointed as the Vice President and a member of the Standing
Committee of CPC of the Company from May 2017 to September
2017.
Mr. Chai Weixi, aged 55, is the Vice President of the Company,
graduated from City University of Seattle and holds a postgraduate
diploma and a master's degree. Mr. Chai is a senior engineer. Mr.
Chai started his career in September 1980 and served various
positions, including Engineer and Manager of airframe team of
Engineering Department of AMECO, Deputy director of the Engineering
Division under the Aircraft Engineering Department of Air China
International Corporation, Manager of Aircraft Maintenance
Subdivision and Manager of Aircraft Overhaul Division, General
Manager of Aircraft Engineering Department of of AMECO and Deputy
General Manager of the Engineering Technology Branch of the
Company. From October 2005 to March 2009, he was appointed as
General Manager and Member of the Communist Party Committee of
AMECO as well as the Member of the Communist Party Committee of the
Engineering Technology Branch of the Company. He served as General
Manager and Deputy Secretary of the Communist Party Committee of
the Engineering Technology Branch of the Company from March 2009 to
June 2015. And he was appointed as the director of AMECO in October
2005, the Vice President and a member of the Standing Committee of
CPC of the Company in March 2012. He also served as the Chief
Executive of AMECO from June 2015 to September 2017.
Mr. Chen Zhiyong, aged 54, is the Vice President of the Company,
graduated from Civil Aviation Flight University of China majoring
in flight technology. Mr. Chen is a first-class pilot. Mr. Chen
started his career in October 1982 and served various positions,
including squadron leader of the Third Squadron of the Seventh
Flight Team of CAAC, squadron leader and head of Chengdu Flight
Department of China Southwest Airlines and manager of Flight
Technology Management Department of China Southwest Airlines, head
of Chengdu Flight Department of Southwest Branch of Air China
International Corporation, and Deputy General Manager and Chief
Pilot of Southwest Branch. He served as General Manager and Deputy
Secretary of the Communist Party Committee of Southwest Branch of
the Company from December 2009 to December 2012. Mr. Chen has been
serving as Vice President and a standing member of the CPC
Committee of the Company since December 2012 till now. Mr. Chen has
also been serving as director and president of Shenzhen Airlines
since May 2014.
Mr. Liu Tiexiang, aged 51, is the Vice President of the Company,
graduated from No. 2 Aviation College of the PLA Air Force majoring
in pilot and is a first-class pilot. He started his career in June
1983 and has previously served various positions in Air China
International Corporation, including pilot, squadron leader of the
Third Team of the General Flight Group, deputy director and deputy
manager of Flight Training Centre, deputy general manager of
Aviation Security Technology Department, deputy general manager and
general manager of Flight Technical Management Department and vice
captain of the Chief Flight Team. He served as captain of the Chief
Flight Team of and Deputy Secretary of the Communist Party
Committee of the Company from June 2008 to April 2011. He served as
Chief Pilot of the Company from April 2011 to November 2014, and
has been serving as the Vice President and a member of the Standing
Committee of CPC of the Company since August 2014 and the Chief
Operating Officer of the Company since April 2015.
Mr. Xue Yasong, is the Chairman of the Labour Union of the
Company. Mr. Xue's biography is set out in the section headed
"Directors".
Mr. Xu Chuanyu, aged 53, is the Chief Safety Officer of the
Company, graduated from China Civil Aviation Institution majoring
in aviation and obtained an MBA degree from Tsinghua University.
Mr. Xu is a first-class pilot. He started his career in July 1985.
Mr. Xu previously served various positions in Air China
International Corporation, including Pilot, Deputy Captain of the
Third Group of the Chief Flight Team, an Inspector in the Safety
Supervisory Office and Captain of the Third Group of the Chief
Flight Team. In December 2001, Mr. Xu was appointed as the Deputy
Captain of the Chief Flight Team of Air China International
Corporation. In March 2006, Mr. Xu was appointed as the General
Manager and Deputy Secretary of the Communist Party Committee of
the Tianjin branch of the Company. Mr. Xu served as Deputy
Operation Executive Officer of the Company and General Manager of
Operation Control Centre of the Company as well as a Member and
Deputy Secretary of the Communist Party Committee from January 2009
to March 2011. He served as the Chief Pilot from January 2009 to
April 2011 and as Vice President of the Company from February 2011
to December 2012. He has been serving as the Chief Pilot of CNAHC
and Chief Safety Officer of the Company since December 2012. Mr. Xu
was appointed as Chairman, President, deputy secretary of the CPC
committee of Shandong Aviation Group Corporation in November
2016.
Mr. Zhang Hua, aged 52, is the General Counsel of the Company.
He graduated from Zhongnan University of Finance and Economics
majoring in industrial economics and is a on-job postgraduate of
the Party School of the Central Committee of the Communist Party of
China majoring in economics and management. He started his career
in 1986 and served various positions, including the director of the
China Factory Director (Manager) Work Research Association, an
officer at vice-director level of China Enterprise Management
Association, the project manager of China Business Consulting
Company, an officer at director level, deputy director and director
of Division of Economic Law and Regulations of State Economic and
Trade Commission as well as the director and deputy Legal director
of Bureau of Policies, Laws and Regulations of the SASAC. He was
appointed as the General Legal Counsel of CNAHC and of the Company
in August 2016 and August 2017, respectively.
Mr. Xiao Feng, aged 49, is the Chief Accountant of the Company.
He graduated from Harbin Civil Engineering & Architectural
Institute majoring in management engineering. Mr. Xiao holds an
undergraduate degree and is a senior accountant. He started his
career in July 1990, and served as an accountant of the
Infrastructure Office, Deputy Section Chief and Section Chief of
the Finance Office, Treasury Manager of the Finance Department and
Deputy General Manager of the Finance Department of the Company and
the Chief Accountant and Deputy General Manager of Shandong
Airlines. Mr. Xiao served as the General Manager of the Finance
Department of the Company from December 2009 to July 2014. He has
been serving as the Chief Accountant of the Company since July
2014.
Mr. Meng Xianbin, aged 60, is the former Chief Economic Officer
of the Company. He graduated from Air Force and Missile Institute
majoring in management engineering and holds an undergraduate
degree. Mr. Meng started his career in December 1974 and served as
a machinist of the Mechanics Team of a certain division of the Air
Force, an officer and the head of the Political Department of a
certain force of the Air Force and the deputy head of the Political
Department of the Air Force in Beijing. He joined the Company in
July 2001. He worked as the Secretary of the Communist Party
Committee of the Fifth Group of the Chief Flight Team, Deputy
Director of the President Office and Deputy General Manager and
General Manager of the Human Resource Department of the Company.
Mr. Meng served as the Secretary of the Communist Party Committee
and Deputy General Manager of the Engineering Technology Branch of
the Company from December 2009 to August 2015. Mr. Meng served as
the Chief Economic Officer of the Company from July 2014 to January
2018, and served as the secretary of the Communist Party Committee
and the convener of the labour union of AMECO from August 2015 to
December 2017.
Mr. Wang Yingnian, aged 54, is the Chief Pilot of the Company.
He graduated from Sichuan Guanghan Aviation College majoring in
airplane piloting and is a first-class pilot. Mr. Wang started his
career in China's civil aviation industry in August 1984 and has
been engaged in work related to piloting. He was the deputy chief
of Flying Corps, member and standing member of the CPC Committee of
the Company from August 2007 to April 2011. Mr. Wang served as the
Flying Corps captain and Deputy Secretary of Communist Party
Committee of the Company from April 2011 to December 2014. He has
been serving as Chief Pilot of the Company since November 2014 and
has been serving as General Manager and Deputy Secretary of
Communist Party Committee of the Training Department of the Company
since February 2017.
Ms. Rao Xinyu, aged 51, is the former Secretary to the Board of
the Company. She graduated from Beijing Foreign Studies University
with a postgraduate diploma. Ms. Rao started her career in July
1990 and served as an officer at vice-director level and an officer
at director level of the International Department of the CAAC,
Deputy Manager of the General Office, Deputy Director of the
Administration Office and Deputy General Manager of the Planning
and Investment Department of China National Aviation Corporation,
respectively. From December 2002, Ms. Rao was appointed as Deputy
General Manager of the Planning and Investment Department of CNAHC.
From October 2003, she served as Deputy General Manager of the
Planning and Development Department of CNAHC. Ms. Rao has been
Deputy Director of the Secretariat of the Board and General Manager
of Investor Relation Department of the Company since April 2005.
She served as the Secretary to the Board and the Director of the
Secretariat of the Board of the Company from December 2011 to
August 2017. She was appointed as the deputy director of the
Business Committee of the Company in August 2017.
Mr. Zhou Feng, aged 56, is the Secretary to the Board of the
Company. He obtained a master's degree in economics from Shanghai
University of Finance and Economics and a master's degree of
business administration from China Europe International Business
School, and is a senior accountant. He served as the director of
the financial planning and audit department of Zhejiang
Administration of CAAC in 1992; the Chief Accountant of CNAC
Zhejiang Airlines in 1997; assistant to the General Manager of
China National Aviation Corporation (Macau) Company Limited and an
executive director of Air Macau in 2001; the Deputy General Manager
of CNAF in 2003; Director and Executive Vice President of Samsung
Air China Life Insurance Co., Ltd. in 2005; Secretary of the
Communist Party Committee of CNAF in 2010. Mr. Zhou served as the
General Manager of the finance department of CNAHC from April 2011
to May 2017 and as a Supervisor of the Company from November 2011
to August 2017. He has been serving as the head of the Secretariat
of the Board of the Company since June 2017 and was appointed as
Secretary to the Board of the Company in August 2017.
Mr. Shao Bin, aged 52, is the Assistant to the President of the
Company. He Graduated from Tsinghua University School of Economics
and Management majoring in EMBA, and is a first-class pilot. He
started his career in July 1987 and had hold various positions in
Tianjin branch of Air China, including Deputy Captain and Caption
of First Squadron of the Flight Team, Deputy Captain and Captain of
the Flight Team, Manager of the Flight Department, Deputy General
Manager and member of the Communist Party Committee; he was
appointed as the General Manager of Aviation Safety Monitoring
Department in December 2006 and as the General Manager of the
Aviation Safety Management Department in August 2008. Mr. Shao
served as assistant to the President and the General Manager of the
Flight Department of Shenzhen Airlines since April 2010; as
assistant to the President and the General Manager of the Aviation
Safety Management Department since March 2012. He has been serving
as assistant to the President of the Company and the Deputy
President of Shenzhen Airlines since November 2014.
Mr. Zhu Songyan, aged 47, is the Assistant to the President of
the Company. Mr. Zhu graduated from China Civil Aviation
Institute's Department of Economics majoring in transportation. Mr.
Zhu started his career in July 1991 and served various positions in
Air China International Corporation, including Assistant of the
Passenger Department, Head of Business Office of Seat Reservation
Centre, Deputy General Manager of the Marketing Department, and
General Manager and Party General Branch Deputy Secretary of the
Information Technology Center. Mr. Zhu served as the Deputy
Director of Commerce Commission and Member of the Communist Party
Committee of the Company since July 2008, the Deputy Director of
Commerce Commission, Member of the Communist Party Committee,
General Manager of the Network Revenue Department and Party General
Branch Secretary of the Company since January 2009, the Director,
Executive Director and General Manager of Air Macau since April
2011. He has been serving as the Assistant to the President and
General Manager of the Planning and Development Department of the
Company since July 2014.
Mr. Zhao Yang, aged 50, is the Assistant to the President of the
Company. Mr. Zhao graduated from Civil Aviation Flight University
of China majoring in flight technology. Mr. Zhao started his career
in August 1988 and served various positions in Southwest Branch of
Air China International Corporation, including squadron leader of
the Seventh Squadron, Captain of the First Group of the Flight
Department, Deputy General Manager, General Manager and Deputy
Secretary of the Communist Party Committee of the Flight
Department. Mr. Zhao served as the Deputy General Manager and Chief
Pilot, Member and Executive Member of the Communist Party Committee
of the Southwest Branch of the Company since November 2014. He
served as the Deputy Operation Executive Officer and General
Manager of Operation Control Centre, and Deputy Secretary of the
Communist Party Committee of the Company since October 2017. Mr.
Zhao has been serving as the Assistant to the President of the
Company since October 2017.
4. Joint Company Secretaries
Mr. Zhou Feng. Mr. Zhou's biography is set out in the section
headed "Senior Management".
Ms. Tam Shuit Mui, aged 46, graduated from the State University
of New York at Buffalo, USA in 1998 with a Bachelor of Science in
Business Administration majoring in accounting and financial
analysis. Ms. Tam is an associate member of the Hong Kong Institute
of Certified Public Accountants. Between September 1998 and April
2001, Ms. Tam worked as an accountant with Tommy Hilfiger (HK)
Limited. From May 2001 to October 2007, Ms. Tam served as the
company secretary of International Business Settlement Holdings
Limited (formerly known as Chaoyue Group Limited/Graneagle Holdings
Limited), a company listed on the Hong Kong Stock Exchange. Ms. Tam
has been serving as one of the Joint Company Secretaries of the
Company since October 2008.
INDEPENT AUDITOR'S REPORT
To the Shareholders of Air China Limited
(Incorporated in the People's Republic of China with limited
liability)
Opinion
We have audited the consolidated financial statements of Air
China Limited (the "Company") and its subsidiaries (collectively
referred to as the "Group") set out on pages 68 to 157, which
comprise the consolidated statement of financial position as at 31
December 2017, and the consolidated statement of profit or loss and
the consolidated statement of profit or loss and other
comprehensive income, consolidated statement of changes in equity
and consolidated statement of cash flows for the year then ended,
and notes to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the consolidated financial statements give a
true and fair view of the consolidated financial position of the
Group as at 31 December 2017, and of its consolidated financial
performance and its consolidated cash flows for the year then ended
in accordance with International Financial Reporting Standards
("IFRSs") issued by the International Accounting Standards Board
("IASB") and have been properly prepared in compliance with the
disclosure requirements of the Hong Kong Companies Ordinance.
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on
Auditing ("HKSAs") issued by the Hong Kong Institute of Certified
Public Accountants ("HKICPA"). Our responsibilities under those
standards are further described in the Auditor's Responsibilities
for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Group in accordance with the
HKICPA'S Code of Ethics for Professional Accountants (the "Code"),
and we have fulfilled our other ethical responsibilities in
accordance with the Code. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Key Audit Matters (Continued)
Key audit matters How our audit addressed
the key audit matter
--------------------------------- ---------------------------------------------
Provision for major overhauls
--------------------------------------------------------------------------------
As at 31 December 2017, Our procedures in relation
provision for major overhauls to provision for major
of RMB5,005 million were overhauls to fulfil the
recorded in the consolidated return condition of aircraft
statement of financial under operating leases
position. We identified included:
provision for major overhauls
to fulfil the return condition -- Testing the internal
of aircraft under operating controls relevant to the
leases as a key audit matter audit of provision for
because of the significant major overhauls to fulfil
management estimation and the return condition of
judgement required in assessing aircraft under operating
the variable factors and leases.
assumptions in order to
quantify the amount of -- Evaluating the methodology
provision required at each and key assumptions adopted
reporting date. by management in estimating
the provision for these
The Group held certain major overhauls. This evaluation
aircraft under operating included reviewing the
leases at 31 December 2017. terms of the operating
Under the terms of the leases and comparing assumptions
operating lease arrangements, to contract terms and the
the Group is contractually Group's maintenance cost
committed to return the experience.
aircraft to the lessors
in a certain condition -- Discussing with managers
agreed with the lessors in the engineering department
at the inception of each responsible for aircraft
lease. In order to fulfil engineering about the Utilisation
these return conditions, pattern of aircraft, obtaining
major overhauls are required relevant operating data,
to be conducted on a regular performing recalculation
basis. and checking the mathematical
accuracy of the calculation
Management estimates the of provision for major
maintenance costs of major overhauls by the management
overhauls for aircraft for those aircraft under
held under operating leases operating leases.
at the end of each reporting
period and accrues such -- Performing a retrospective
costs over the lease term. review of aircraft maintenance
The calculation of such provisions to evaluate
costs includes a number the assumptions adopted
of variable factors and by management by comparing
assumptions, including past assumptions adopted
the anticipated utilisation by management in prior
of the aircraft and the years with actual events
expected costs of maintenance. as well as the current
year's assumptions.
Details of the related
estimation uncertainty
are set out in note 4,
5 and 38 to the consolidated
financial statements.
--------------------------------- ---------------------------------------------
Key Audit Matters (Continued)
Key audit matters How our audit addressed
the key audit matter
----------------------------------- ---------------------------------------------
Revenue Recognition
----------------------------------------------------------------------------------
The Group's revenue primarily Our procedures in relation
consists of air traffic to revenue recognition
revenue amounting to RMB115,380 included:
million for the year ended
31 December 2017. We identified -- Testing the internal
revenue recognition as controls, including IT
a key audit matter because controls, relevant to our
revenue is one of the key audit of revenue recognition.
performance indicators
of the Group and because -- Performing analytical
it involves complex information procedures on passenger
technology ("IT") systems revenue by developing an
to capture and recognise expectation for each type
sales data and information of revenue using independent
and an estimation of the inputs and information
unit fair value and redemption generated from the Group's
rate of frequent-flyer IT systems and comparing
programme, both of which such expectations with
give rise to an inherent recorded revenue. Investigating
risk that revenue could the reason of any significant
be recorded in the incorrect unusualness.
period or could be subject
to management manipulation. -- Evaluating the management's
estimate of the unit fair
Passenger and cargo sales value and redemption rate
are recognised as revenue of frequent-flyer programme.
when the related transportation
service is provided. The -- Checking underlying
value of passenger and documentation for journal
cargo sales for which the entries which were considered
related transportation to be material or met other
service has not yet been specified risk-based criteria.
provided at the end of
the reporting period is -- Challenging the reasonableness
recorded as air traffic of the Group's assumptions
liabilities in the consolidated relating to the redemption
statement of financial rate for mileage by comparison
position. with historical experience
and planned changes to
The fair value of programme the programme that may
awards under the Group's impact future redemption
frequent-flyer programme, activities.
is deferred and included
in deferred income in the
consolidated statement
of financial position.
The Group maintains complex
IT systems in order to
track the point of service
provision for each sale
and also to track the issuance
and subsequent redemption
and utilisation and expiry
of frequent-flyer programme.
The Group estimates the
unit fair value of frequent-flyer
programme which are initially
deferred when earned by
members of the programme.
Details of revenue are
set out in notes 4, 5,
7 and 40 to the consolidated
financial statements.
----------------------------------- ---------------------------------------------
Other Information
The directors of the Company are responsible for the other
information. The other information comprises the information
included in the annual report, but does not include the
consolidated financial statements and our auditor's report
thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of Directors and Those Charged with Governance
for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation
of the consolidated financial statements that give a true and fair
view in accordance with IFRSs issued by the IASB and the disclosure
requirements of the Hong Kong Companies Ordinance, and for such
internal control as the directors determine is necessary to enable
the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the
directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Those charged with governance are responsible for overseeing the
Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion solely to you, as a
body, in accordance with our agreed terms of engagement, and for no
other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with HKSAs will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements (Continued)
As part of an audit in accordance with HKSAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements (Continued)
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
The engagement partner on the audit resulting in the independent
auditor's report is Yam Siu Man.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
27 March 2018
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 31 December 2017
Notes 2017 2016
---------------------------------- ----- -------------- ------------
RMB'000 RMB'000
---------------------------------- ----- -------------- ------------
Revenue
---------------------------------- ----- -------------- ------------
Air traffic revenue 7 115,379,925 107,297,920
---------------------------------- ----- -------------- ------------
Other operating revenue 8 8,646,277 7,846,772
---------------------------------- ----- -------------- ------------
124,026,202 115,144,692
---------------------------------- ----- -------------- ------------
Operating expenses
---------------------------------- ----- -------------- ------------
Jet fuel costs (28,409,213) (21,981,934)
---------------------------------- ----- -------------- ------------
Employee compensation costs 9 (22,392,361) (20,075,602)
---------------------------------- ----- -------------- ------------
Depreciation and amortisation (13,596,319) (13,473,720)
---------------------------------- ----- -------------- ------------
Take-off, landing and depot
charges (13,863,338) (12,774,220)
---------------------------------- ----- -------------- ------------
Aircraft and engine operating
lease expenses (7,310,649) (6,252,783)
---------------------------------- ----- -------------- ------------
Aircraft maintenance, repair
and overhaul costs (6,213,096) (4,654,964)
---------------------------------- ----- -------------- ------------
Air catering charges (3,462,347) (3,270,726)
---------------------------------- ----- -------------- ------------
Other operating lease expenses (1,078,057) (1,002,788)
---------------------------------- ----- -------------- ------------
Other flight operation expenses (9,721,535) (8,830,233)
---------------------------------- ----- -------------- ------------
Selling and marketing expenses (4,496,533) (3,893,265)
---------------------------------- ----- -------------- ------------
General and administrative
expenses (1,727,042) (1,401,882)
---------------------------------- ----- -------------- ------------
(112,270,490) (97,612,117)
---------------------------------- ----- -------------- ------------
Profit from operations 10 11,755,712 17,532,575
---------------------------------- ----- -------------- ------------
Other income and gains 11 3,161,847 127,077
---------------------------------- ----- -------------- ------------
Finance costs 12 (3,055,064) (7,468,985)
---------------------------------- ----- -------------- ------------
Share of results of associates (604,671) (211,188)
---------------------------------- ----- -------------- ------------
Share of results of joint
ventures 228,408 233,423
---------------------------------- ----- -------------- ------------
Profit before taxation 11,486,232 10,212,902
---------------------------------- ----- -------------- ------------
Income tax expense 14 (2,844,783) (2,454,221)
---------------------------------- ----- -------------- ------------
Profit for the year 8,641,449 7,758,681
---------------------------------- ----- -------------- ------------
Attributable to:
---------------------------------- ----- -------------- ------------
- Equity shareholders of
the Company 7,244,321 6,809,159
---------------------------------- ----- -------------- ------------
- Non-controlling interests 1,397,128 949,522
---------------------------------- ----- -------------- ------------
Profit for the year 8,641,449 7,758,681
---------------------------------- ----- -------------- ------------
Earnings per share
---------------------------------- ----- -------------- ------------
RMB55.38
- Basic and diluted 15 RMB53.79 cents cents
---------------------------------- ----- -------------- ------------
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
For the year ended 31 December 2017
2017 2016
-------------------------------------- ----------- ----------
RMB'000 RMB'000
-------------------------------------- ----------- ----------
Profit for the year 8,641,449 7,758,681
--------------------------------------- ----------- ----------
Other comprehensive (expense)
income for the year
-------------------------------------- ----------- ----------
(after tax adjustments)
-------------------------------------- ----------- ----------
Items that will not be reclassified
to profit or loss:
-------------------------------------- ----------- ----------
- Remeasurement of net defined
benefit liability (13,301) 2,295
--------------------------------------- ----------- ----------
- Share of other comprehensive
income of associates
and joint ventures 180,538 162,682
--------------------------------------- ----------- ----------
Items that may be reclassified
subsequently to
profit or loss:
-------------------------------------- ----------- ----------
- Share of other comprehensive
income of associates and
joint ventures 1,561,413 2,171,389
--------------------------------------- ----------- ----------
- Available-for-sale securities:
net change in fair value 127,474 39,457
--------------------------------------- ----------- ----------
- Exchange realignment (1,454,550) 1,332,354
--------------------------------------- ----------- ----------
- Income tax relating to
items that may be reclassified
subsequently to profit or
loss (31,869) (9,864)
--------------------------------------- ----------- ----------
Other comprehensive income
for the year 369,705 3,698,313
--------------------------------------- ----------- ----------
Total comprehensive income
for the year 9,011,154 11,456,994
--------------------------------------- ----------- ----------
Attributable to:
-------------------------------------- ----------- ----------
- Equity shareholders of
the Company 7,613,176 10,453,622
--------------------------------------- ----------- ----------
- Non-controlling interests 1,397,978 1,003,372
--------------------------------------- ----------- ----------
Total comprehensive income
for the year 9,011,154 11,456,994
--------------------------------------- ----------- ----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2017
31 December 31 December
-------------------------------- ----- ----------- -----------
Notes 2017 2016
-------------------------------- ----- ----------- -----------
RMB'000 RMB'000
-------------------------------- ----- ----------- -----------
Non-current assets
-------------------------------- ----- ----------- -----------
Property, plant and equipment 17 168,536,471 158,012,922
-------------------------------- ----- ----------- -----------
Lease prepayments 18 3,300,124 3,057,745
-------------------------------- ----- ----------- -----------
Investment properties 19 674,738 695,518
-------------------------------- ----- ----------- -----------
Intangible assets 20 76,021 113,367
-------------------------------- ----- ----------- -----------
Goodwill 21 1,099,975 1,099,975
-------------------------------- ----- ----------- -----------
Interests in associates 23 14,199,540 14,181,687
-------------------------------- ----- ----------- -----------
Interests in joint ventures 24 1,239,396 1,126,992
-------------------------------- ----- ----------- -----------
Advance payments for aircraft
and flight equipment 20,480,204 20,662,867
-------------------------------- ----- ----------- -----------
Deposits for aircraft under
operating leases 567,889 649,343
-------------------------------- ----- ----------- -----------
Held-to-maturity securities - 10,000
-------------------------------- ----- ----------- -----------
Available-for-sale securities 25 1,334,953 1,150,661
-------------------------------- ----- ----------- -----------
Deferred tax assets 26 2,501,518 3,054,035
-------------------------------- ----- ----------- -----------
Other non-current assets 873,813 249,502
-------------------------------- ----- ----------- -----------
214,884,642 204,064,614
-------------------------------- ----- ----------- -----------
Current assets
-------------------------------- ----- ----------- -----------
Non-current assets held for
sale 27 284,169 913,129
-------------------------------- ----- ----------- -----------
Inventories 28 1,535,769 1,680,633
-------------------------------- ----- ----------- -----------
Accounts receivable 29 3,490,427 3,286,091
-------------------------------- ----- ----------- -----------
Bills receivable 348 837
-------------------------------- ----- ----------- -----------
Prepayments, deposits and
other receivables 30 5,122,517 3,729,699
-------------------------------- ----- ----------- -----------
Financial assets 31 19,938 222
-------------------------------- ----- ----------- -----------
Restricted bank deposits 32 697,167 474,338
-------------------------------- ----- ----------- -----------
Cash and cash equivalents 32 5,562,907 6,848,018
-------------------------------- ----- ----------- -----------
Held-to-maturity securities 10,000 -
-------------------------------- ----- ----------- -----------
Other current assets 33 4,036,700 3,053,370
-------------------------------- ----- ----------- -----------
20,759,942 19,986,337
-------------------------------- ----- ----------- -----------
Total assets 235,644,584 224,050,951
-------------------------------- ----- ----------- -----------
31 December 31 December
--------------------------------- ----- ------------ ------------
Notes 2017 2016
--------------------------------- ----- ------------ ------------
RMB'000 RMB'000
--------------------------------- ----- ------------ ------------
Current liabilities
--------------------------------- ----- ------------ ------------
Air traffic liabilities (7,405,757) (6,313,936)
--------------------------------- ----- ------------ ------------
Accounts payable 34 (13,254,188) (10,832,292)
--------------------------------- ----- ------------ ------------
Other payables and accruals 35 (13,336,701) (13,094,920)
--------------------------------- ----- ------------ ------------
Current taxation (1,825,063) (920,508)
--------------------------------- ----- ------------ ------------
Obligations under finance
leases 36 (6,237,472) (6,099,453)
--------------------------------- ----- ------------ ------------
Interest-bearing bank loans
and other borrowings 37 (28,654,599) (25,975,716)
--------------------------------- ----- ------------ ------------
Provision for major overhauls 38 (1,418,055) (943,609)
--------------------------------- ----- ------------ ------------
(72,131,835) (64,180,434)
--------------------------------- ----- ------------ ------------
Net current liabilities (51,371,893) (44,194,097)
--------------------------------- ----- ------------ ------------
Total assets less current
liabilities 163,512,749 159,870,517
--------------------------------- ----- ------------ ------------
Non-current liabilities
--------------------------------- ----- ------------ ------------
Obligations under finance
leases 36 (37,798,582) (36,295,471)
--------------------------------- ----- ------------ ------------
Interest-bearing bank loans
and other borrowings 37 (22,108,289) (37,833,246)
--------------------------------- ----- ------------ ------------
Provision for major overhauls 38 (3,586,943) (3,523,236)
--------------------------------- ----- ------------ ------------
Provision for early retirement
benefit obligations (4,869) (7,919)
--------------------------------- ----- ------------ ------------
Long-term payables (193,712) (23,350)
--------------------------------- ----- ------------ ------------
Defined benefit obligations 39 (263,575) (269,742)
--------------------------------- ----- ------------ ------------
Deferred income 40 (3,568,127) (3,092,841)
--------------------------------- ----- ------------ ------------
Deferred tax liabilities 26 (1,130,054) (2,428,313)
--------------------------------- ----- ------------ ------------
(68,654,151) (83,474,118)
--------------------------------- ----- ------------ ------------
NET ASSETS 94,858,598 76,396,399
--------------------------------- ----- ------------ ------------
CAPITAL AND RESERVES
--------------------------------- ----- ------------ ------------
Issued capital 41 14,524,815 13,084,751
--------------------------------- ----- ------------ ------------
Treasury shares 41 (3,047,564) (3,047,564)
--------------------------------- ----- ------------ ------------
Reserves 74,570,311 58,762,068
--------------------------------- ----- ------------ ------------
Total equity attributable
to equity shareholders of
the Company 86,047,562 68,799,255
--------------------------------- ----- ------------ ------------
Non-controlling interests 8,811,036 7,597,144
--------------------------------- ----- ------------ ------------
TOTAL EQUITY 94,858,598 76,396,399
--------------------------------- ----- ------------ ------------
The consolidated financial statements on pages 99 to 202 were
approved and authorised for issue by the board of directors on 27
March 2018 and signed on its behalf by:
Cai Jianjiang Song Zhiyong
------------- ------------
Director Director
------------- ------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Attributable to equity shareholders
of the Company
------------------ ---- ---------------------------------------------------------------------------------------------- ----------- -----------
Foreign
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
exchange Non-
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Issued Treasury Capital Reserve General translation Retained controlling Total
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Note capital shares reserve funds reserve reserve earnings Total interests equity
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
RMB'000 RMB'00 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
1 January
2016 13,084,751 (3,047,564) 15,831,794 6,633,105 54,951 (2,593,116) 29,784,090 59,748,011 6,774,742 66,522,753
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Changes in
equity for
2016
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Profit for
the year - - - - - - 6,809,159 6,809,159 949,522 7,758,681
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Other
comprehensive
income - - 2,351,422 - - 1,293,041 - 3,644,463 53,850 3,698,313
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Total
comprehensive
income - - 2,351,422 - - 1,293,041 6,809,159 10,453,622 1,003,372 11,456,994
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Appropriation
of statutory
reserve funds - - - 652,457 - - (652,457) - - -
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Appropriation
of
discretionary
reserve funds
and others - - - 544,081 - - (546,391) (2,310) (2,152) (4,462)
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Appropriation
of general
reserve - - - - 11,758 - (11,758) - - -
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Dividends
paid to
non-controlling
shareholders - - - - - - - - (187,806) (187,806)
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Dividends
declared in
respect of
the previous
year 16 - - - - - - (1,400,068) (1,400,068) - (1,400,068)
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Others - - - - - - - - 8,988 8,988
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
As at 31
December
2016 and
1 January
2017 13,084,751 (3,047,564) 18,183,216 7,829,643 66,709 (1,300,075) 33,982,575 68,799,255 7,597,144 76,396,399
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Changes in
equity for
2017
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Profit for
the year - - - - - - 7,244,321 7,244,321 1,397,128 8,641,449
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Other
comprehensive
income
(expense) - - 1,780,734 - - (1,411,879) - 368,855 850 369,705
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Total
comprehensive
income
(expense) - - 1,780,734 - - (1,411,879) 7,244,321 7,613,176 1,397,978 9,011,154
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Non-public
offering of
shares 1,440,064 - 9,778,036 - - - - 11,218,100 - 11,218,100
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Transaction
costs related
to non-public
offering of
shares - - (16,726) - - - - (16,726) - (16,726)
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Appropriation
of statutory
reserve funds - - - 695,805 - - (695,805) - - -
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Appropriation
of
discretionary
reserve funds
and others - - - 652,457 - - (654,232) (1,775) (1,628) (3,403)
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Appropriation
of general
reserve - - - - 3,033 - (3,033) - - -
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Dividends
paid to
non-controlling
shareholders - - - - - - - - (182,458) (182,458)
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
Dividends
declared in
respect of
the previous
year 16 - - - - - - (1,564,468) (1,564,468) - (1,564,468)
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
As at 31
December
2017 14,524,815 (3,047,564) 29,725,260 9,177,905 69,742 (2,711,954) 38,309,358 86,047,562 8,811,036 94,858,598
------------------ ---- ---------- ----------- ---------- --------- ------- ----------- ----------- ----------- ----------- -----------
CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended 31 December 2017
2017 2016
--------------------------------------------- ----------- -----------
RMB'000 RMB'000
--------------------------------------------- ----------- -----------
Operating activities
--------------------------------------------- ----------- -----------
Profit before taxation 11,486,232 10,212,902
--------------------------------------------- ----------- -----------
Adjustments for:
--------------------------------------------- ----------- -----------
Share of results of associates
and joint ventures 376,263 (22,235)
--------------------------------------------- ----------- -----------
Exchange (gains)/losses, net (2,938,101) 4,233,668
--------------------------------------------- ----------- -----------
Interest income (223,746) (127,077)
--------------------------------------------- ----------- -----------
Finance costs 3,055,064 3,235,317
--------------------------------------------- ----------- -----------
Depreciation of property, plant
and equipment 13,453,155 13,339,651
--------------------------------------------- ----------- -----------
Losses on disposal of property,
plant and equipment, net 37,186 37,628
--------------------------------------------- ----------- -----------
(Gains)/losses on disposal of
non-current assets held for sale (46,414) 4,659
--------------------------------------------- ----------- -----------
Interest income of available-for-sale
securities (14,337) -
--------------------------------------------- ----------- -----------
Amortisation of lease prepayments 71,811 68,177
--------------------------------------------- ----------- -----------
Depreciation of investment properties 32,518 27,145
--------------------------------------------- ----------- -----------
Amortisation of intangible assets 38,835 38,747
--------------------------------------------- ----------- -----------
Impairment of property, plant
and equipments 149,160 -
--------------------------------------------- ----------- -----------
Impairment of non-current assets
held for sale - 219,376
--------------------------------------------- ----------- -----------
Provision for inventories 341,802 71,570
--------------------------------------------- ----------- -----------
Impairment/(reversal of impairment)
of accounts receivable 90,100 (9,031)
--------------------------------------------- ----------- -----------
Impairment/(reversal of impairment)of
prepayments,
deposits and other receivables 525 (3,537)
--------------------------------------------- ----------- -----------
Impairment of other non-current
assets 3,034 2,516
--------------------------------------------- ----------- -----------
Impairment of other current assets 38,194 11,546
--------------------------------------------- ----------- -----------
Operating cash flows before movements
in working capital 25,951,281 31,341,022
--------------------------------------------- ----------- -----------
Decrease/(increase) in deposits
for aircraft under operating
leases 81,454 (51,423)
--------------------------------------------- ----------- -----------
Increase in other non-current
assets (627,345) -
--------------------------------------------- ----------- -----------
Increase in inventories (380,941) (21,461)
--------------------------------------------- ----------- -----------
(Increase)/decrease in accounts
receivable (294,436) 384,294
--------------------------------------------- ----------- -----------
Decrease/(increase) in bills
receivable 489 (613)
--------------------------------------------- ----------- -----------
Increase in prepayments, deposits
and other receivables (1,117,255) (90,237)
--------------------------------------------- ----------- -----------
Increase in other current assets (1,021,524) (246,397)
--------------------------------------------- ----------- -----------
Increase in air traffic liabilities 1,091,821 554,703
--------------------------------------------- ----------- -----------
Increase in accounts payable 2,421,896 1,561,540
--------------------------------------------- ----------- -----------
Decrease in bills payable - (11,646)
--------------------------------------------- ----------- -----------
Increase/(decrease) in other
payables and accruals 1,848,875 (255,824)
--------------------------------------------- ----------- -----------
Increase in provision for major
overhauls 538,153 52,823
--------------------------------------------- ----------- -----------
Decrease in provision for early
retirement benefit obligations (3,050) (5,546)
--------------------------------------------- ----------- -----------
Decrease in defined benefit obligations (27,986) -
--------------------------------------------- ----------- -----------
Increase/(decrease) in deferred
income 475,286 (396,857)
--------------------------------------------- ----------- -----------
Fair value changes of financial
assets at fair value through
profit or loss 60 -
--------------------------------------------- ----------- -----------
Increase in long-term payables 170,362 13,170
--------------------------------------------- ----------- -----------
Cash generated from operations 29,107,140 32,827,548
--------------------------------------------- ----------- -----------
Income tax paid (2,717,839) (2,103,188)
--------------------------------------------- ----------- -----------
Interest paid (3,552,358) (3,358,127)
--------------------------------------------- ----------- -----------
Net cash generated from operating
activities 22,836,943 27,366,233
--------------------------------------------- ----------- -----------
Note 2017 2016
--------------------------------------------- ---- ------------ ------------
RMB'000 RMB'000
--------------------------------------------- ---- ------------ ------------
Investing activities
--------------------------------------------- ---- ------------ ------------
Payment for the purchase
of property, plant and equipment (10,206,470) (9,628,246)
--------------------------------------------- ---- ------------ ------------
Payment for the purchase
of intangible assets (1,489) (116,240)
--------------------------------------------- ---- ------------ ------------
Increase in lease prepayments (2,361) (91,713)
--------------------------------------------- ---- ------------ ------------
Increase in advance payments
for aircraft and flight equipment (7,421,245) (10,799,254)
--------------------------------------------- ---- ------------ ------------
Proceeds from sale of property,
plant and equipment 1,628,809 171,733
--------------------------------------------- ---- ------------ ------------
Proceeds from sale of held-for-sale
assets 959,543 479,522
--------------------------------------------- ---- ------------ ------------
Increase in investment properties (11,738) -
--------------------------------------------- ---- ------------ ------------
Decrease in intangible assets - 28
--------------------------------------------- ---- ------------ ------------
(Increase)/decrease in restricted
bank deposits against aircraft
operating leases and others (3,451) 194,876
--------------------------------------------- ---- ------------ ------------
Cash acquired through acquisition
of a subsidiary - 28,984
--------------------------------------------- ---- ------------ ------------
Payment for purchase of available-for-sale
securities (56,818) (2,545)
--------------------------------------------- ---- ------------ ------------
Payment for purchase of financial
assets (19,998) -
--------------------------------------------- ---- ------------ ------------
Interest received 259,903 122,283
--------------------------------------------- ---- ------------ ------------
Dividends received from associates,
joint ventures and available-for-sale
securities 222,558 627,535
--------------------------------------------- ---- ------------ ------------
Net cash used in investing
activities (14,652,757) (19,013,037)
--------------------------------------------- ---- ------------ ------------
Financing activities
--------------------------------------------- ---- ------------ ------------
Proceeds from issuance of
shares 11,218,100 -
--------------------------------------------- ---- ------------ ------------
Payment of transaction costs
attributable to issuance
of shares (16,726) -
--------------------------------------------- ---- ------------ ------------
New bank loans and other
loans 27,645,359 15,270,322
--------------------------------------------- ---- ------------ ------------
Proceeds from issuance of
corporate bonds 1,200,000 22,648,240
--------------------------------------------- ---- ------------ ------------
Repayment of bank loans and
other loans (29,027,128) (26,543,223)
--------------------------------------------- ---- ------------ ------------
Repayment of principal under
finance lease obligations (6,178,027) (6,468,849)
--------------------------------------------- ---- ------------ ------------
Repayment of corporate bonds (12,396,198) (12,100,000)
--------------------------------------------- ---- ------------ ------------
Dividends paid (1,746,926) (1,587,874)
--------------------------------------------- ---- ------------ ------------
Net cash used in financing
activities (9,301,546) (8,781,384)
--------------------------------------------- ---- ------------ ------------
Net decrease in cash and
cash equivalents (1,117,360) (428,188)
--------------------------------------------- ---- ------------ ------------
Cash and cash equivalents
at 1 January 32 6,848,018 7,138,098
--------------------------------------------- ---- ------------ ------------
Effect of foreign exchange
rates changes (167,751) 138,108
--------------------------------------------- ---- ------------ ------------
Cash and cash equivalents
at 31 December 32 5,562,907 6,848,018
--------------------------------------------- ---- ------------ ------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
1. CORPORATE INFORMATION
Air China Limited (the "Company") was established as a joint
stock limited company in Beijing, the People's Republic of China
(the "PRC") on 30 September 2004. The Company's H shares are listed
on The Stock Exchange of Hong Kong Limited (the "HKSE") and the
London Stock Exchange (the "LSE") while the Company's A shares are
listed on the Shanghai Stock Exchange. In the opinion of the
directors of the Company (the "Directors"), the Company's parent
and ultimate holding company is China National Aviation Holding
Company ("CNAHC"), a PRC state-owned enterprise under the
supervision of the State Council.
The principal activities of the Company and its subsidiaries
(together referred to as the "Group") are provision of airline and
airline-related services, including aircraft engineering services
and airport ground handling services.
The registered office of the Company is located at Blue Sky
Mansion, 28 Tianzhu Road, Airport Industrial Zone, Shunyi District,
Beijing 101312, the PRC.
The consolidated financial statements are presented in Renminbi
("RMB"), the currency of the primary economic environment in which
most of the group entities operate (the functional currency of the
Company and most of the entities comprising the Group), and all
values are rounded to the nearest thousand ('000) unless otherwise
indicated.
2. BASIS OF PREPARATION
As at 31 December 2017, the Group's current liabilities exceeded
its current assets by approximately RMB51,372 million. The
liquidity of the Group is primarily dependent on its ability to
maintain adequate cash inflows from operations and sufficient
financing to meet its financial obligations as and when they fall
due. Considering the Company's sources of liquidity and the
unutilised bank facilities of RMB148,563 million as at 31 December
2017, the Directors believe that adequate funding is available to
fulfil the Group's debt obligations and capital expenditure
requirements when preparing the consolidated financial statements
for the year ended 31 December 2017. Accordingly, the consolidated
financial statements have been prepared on a basis that the Group
will be able to continue as a going concern.
The Group has applied the following amendments to IFRSs issued
by the International Accounting Standards Board (the "IASB") for
the first time in the current year:
Amendments to
IAS 7 Disclosure Initiative
------------- ----------------------------------
Amendments to Recognition of Deferred Tax Assets
IAS 12 for Unrealised Losses
------------- ----------------------------------
Amendments to As part of the Annual Improvements
IFRS 12 to IFRSs 2014-2016 Cycle
------------- ----------------------------------
Except as described below, the application of the amendments to
IFRSs in the current year has had no material impact on the Group's
financial performance and positions for the current and prior years
and/or on the disclosures set out in these consolidated financial
statements.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSs")
Amendments to IAS 7 Disclosure Initiative
The Group has applied these amendments for the first time in the
current year. The amendments require an entity to provide
disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including
both cash and non-cash changes. In addition, the amendments also
require disclosures on changes in financial assets if cash flows
from those financial assets were, or future cash flows will be
included in cash flows from financing activities.
Specifically, the amendments require the following to be
disclosed: (i) changes from financing cash flows; (ii) changes
arising from obtaining or losing control of subsidiaries or other
businesses; (iii) the effect of changes in foreign exchange rates;
(iv) changes in fair values; and (v) other changes.
A reconciliation between the opening and closing balances of
these items is provided in Note 46. Consistent with the transition
provisions of the amendments, the Group has not disclosed
comparative information for the prior year. Apart from the
additional disclosure in Note 46, the application of these
amendments has had no impact on the Group's consolidated financial
statements.
The Group has not early applied the following new and revised
IFRSs that have been issued but are not yet effective:
IFRS 9 Financial Instruments(1)
--------------- -------------------------------------------
IFRS 15 Revenue from Contracts with Customers
and the related Amendements(1)
--------------- -------------------------------------------
IFRS 16 Leases(2)
--------------- -------------------------------------------
IFRS 17 Insurance Contracts(4)
--------------- -------------------------------------------
IFRIC 22 Foreign Currency Transactions and
Advance Consideration(1)
--------------- -------------------------------------------
IFRIC 23 Uncertainty over Income Tax Treatments(2)
--------------- -------------------------------------------
Amendments to Classification and Measurement
IFRS 2 of Share-based Payment Transactions(1)
--------------- -------------------------------------------
Amendments to Applying IFRS 9 Financial Instruments
IFRS 4 with IFRS 4 Insurance Contracts(1)
--------------- -------------------------------------------
Amendments to Prepayment Features with Negative
IFRS 9 Compensation(2)
--------------- -------------------------------------------
Amendments to Sale or Contribution of Assets
IFRS 10 between an Investor and its Associate
and IAS 28 or Joint Venture(3)
--------------- -------------------------------------------
Amendments to Plan Amendment, Curtailment or
IAS 19 Settlement(2)
--------------- -------------------------------------------
Amendments to Long-term Interests in Associates
IAS 28 and Joint Ventures(2)
--------------- -------------------------------------------
Amendments to As part of the Annual Improvements
IAS 28 to IFRS Standards 2014-2016 Cycle(1)
--------------- -------------------------------------------
Amendments to Transfers of Investment Property(1)
IAS 40
--------------- -------------------------------------------
Amendments to Annual Improvements to IFRS Standards
IFRSs 2015-2017 Cycle(2)
--------------- -------------------------------------------
(1) Effective for annual periods beginning on or after 1 January 2018
(2) Effective for annual periods beginning on or after 1 January 2019
(3) Effective for annual periods beginning on or after a date to be determined
(4) Effective for annual periods beginning on or after 1 January 2021
Except for the new IFRSs mentioned below, the Directors
anticipate that the application of all other new and amendments to
IFRSs and Interpretations will have no material impact on the
consolidated financial statements in the foreseeable future.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS ("IFRSs") (continued)
IFRS 9 Financial Instruments
IFRS 9 introduces new requirements for the classification and
measurement of financial assets, financial liabilities, general
hedge accounting and impairment requirements for financial
assets.
Key requirements of IFRS 9 which are relevant to the Group
are:
-- all recognised financial assets that are within the scope of
IFRS 9 are required to be subsequently measured at amortised cost
or fair value. Specifically, debt investments that are held within
a business model whose objective is to collect the contractual cash
flows, and that have contractual cash flows that are solely
payments of principal and interest on the principal outstanding are
generally measured at amortised cost at the end of subsequent
accounting periods. Debt instruments that are held within a
business model whose objective is achieved both by collecting
contractual cash flows and selling financial assets, and that have
contractual terms that give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal
amount outstanding, are generally measured at fair value through
other comprehensive income ("FVTOCI"). All other financial assets
are measured at their fair value at subsequent accounting periods.
In addition, under IFRS 9, entities may make an irrevocable
election to present subsequent changes in the fair value of an
equity investment (that is not held for trading) in other
comprehensive income, with only dividend income generally
recognised in profit or loss;
-- in relation to the impairment of financial assets, IFRS 9
requires an expected credit loss model, as opposed to an incurred
credit loss model under IAS 39. The expected credit loss model
requires an entity to account for expected credit losses and
changes in those expected credit losses at the reporting date to
reflect changes in credit risk since initial recognition. In other
words, it is no longer necessary for a credit event to have
occurred before credit losses are recognised.
Based on the Group's financial instruments and risk management
policies as at 31 December 2017, the Directors anticipate the
following potential impact on initial application of IFRS 9:
Classification and measurement
-- Debt instruments classified as held-to-maturity investments
carried at amortised cost. These are held within a business model
whose objective is to collect the contractual cash flows that are
solely payments of principal and interest on the principal
outstanding. Accordingly, these financial assets will continue to
be subsequently measured at amortised cost upon the application of
IFRS 9.
-- Listed debt instruments classified as available-for-sale
investments carried at fair value as disclosed in Note 25: these
are held within a business model whose objective is achieved both
by collecting contractual cash flows and selling the listed debt
instruments in the open market, and the contractual terms give rise
to cash flows on specified dates that are solely payments of
principal and interest on the principal outstanding. Accordingly,
the listed debt instruments will continue to be subsequently
measured at FVTOCI upon the application of IFRS 9, and the fair
value gains or losses accumulated in the capital reserve will
continue to be subsequently reclassified to profit or loss when the
listed debentures are derecognized or reclassified (except in the
case of reclassifications to the amortized cost measurement
category in which case the accumulated gains or losses are removed
from equity and adjusted against the fair value of the financial
asset at reclassification date).
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS ("IFRSs") (continued)
IFRS 9 Financial Instruments (continued)
Classification and measurement (continued)
-- Listed equity securities classified as available-for-sale
investments carried at fair value as disclosed in Note 25: these
securities qualified for designation as measured at FVTOCI under
IFRS 9, however, the fair value gains or losses accumulated in the
capital reserve will no longer be subsequently reclassified to the
profit or loss under IFRS 9, which is different from the current
treatment. This will affect the amounts recognised in the Group's
profit or loss and other comprehensive income but will not affect
total comprehensive income.
-- Equity securities classified as available-for-sale
investments carried at cost less impairment as disclosed in Note
25: these securities qualified for designation as measured at
FVTOCI under IFRS 9 and the Group will measure these securities at
fair value at the end of subsequent reporting periods with fair
value gains or losses to be recognised as other comprehensive
income and accumulated in the capital reserve. Upon initial
application of IFRS 9, the fair value gain relating to these
securities would be adjusted to capital reserve.
-- All other financial assets and financial liabilities will
continue to be measured on the same bases as are currently measured
under IAS 39.
Impairment
In general, the Directors anticipate that the application of the
expected credit loss model of IFRS 9 will result in earlier
provision of credit losses which are not yet incurred in relation
to the Group's financial assets measured at amortised costs and
other items that subject to the impairment provisions upon
application of IFRS 9 by the Group.
Based on the assessment by the Directors, if the expected credit
loss model were to be applied by the Group, the accumulated amount
of impairment loss to be recognised by the Group as at 1 January
2018 would be slightly increased as compared to the accumulated
amount recognised under IAS39 mainly attributable to expected
credit losses provision on accounts receivable and other
receivables. Such further impairment recognised under expected
credit loss model would reduce the opening retained earnings and
increase the deferred tax assets at 1 January 2018 slightly.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued which establishes a single comprehensive
model for entities to use in accounting for revenue arising from
contracts with customers. IFRS 15 will supersede the current
revenue recognition guidance including IAS 18 Revenue, IAS 11
Construction Contracts and the related interpretations when it
becomes effective.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS ("IFRSs") (continued)
IFRS 15 Revenue from Contracts with Customers (continued)
The core principle of IFRS 15 is that an entity should recognise
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services. Specifically, the standard introduces a 5-step approach
to revenue recognition:
-- Step 1: Identify the contract(s) with a customer
-- Step 2: Identify the performance obligations in the contract
-- Step 3: Determine the transaction price
-- Step 4: Allocate the transaction price to the performance obligations in the contract
-- Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognises revenue when (or as) a
performance obligation is satisfied, i. e. when 'control' of the
goods or services underlying the particular performance obligation
is transferred to the customer. Far more prescriptive guidance has
been added in IFRS 15 to deal with specific scenarios. Furthermore,
extensive disclosures are required by IFRS 15.
In 2016, the IASB issued Clarifications to IFRS 15 in relation
to the identification of performance obligations, principal versus
agent considerations, as well as licensing application
guidance.
The Directors anticipate that the application of IFRS 15 in the
future may result in more disclosure, however, the Directors do not
anticipate that the application of IFRS 15 will have a material
impact on the timing and amounts of revenue recognised in the
respective reporting periods.
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede IAS 17 Leases and the related
interpretations when it becomes effective.
IFRS 16 distinguishes lease and service contracts on the basis
of whether an identified asset is controlled by a customer.
Distinctions of operating leases and finance leases are removed for
lessee accounting, and is replaced by a model where a right-of-use
asset and a corresponding liability have to be recognised for all
leases by lessees, except for short-term leases and leases of low
value assets.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is
initially measured at the present value of the lease payments that
are not paid at that date. Subsequently, the lease liability is
adjusted for interest and lease payments, as well as the impact of
lease modifications, amongst others. For the classification of cash
flows, the Group currently presents upfront prepaid lease payments
as investing cash flows in relation to leasehold lands for owned
use and those classified as investment properties while other
operating lease payments are presented as operating cash flows.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS ("IFRSs") (continued)
IFRS 16 Leases (continued)
Upon application of IFRS 16, lease payments in relation to lease
liability will be allocated into a principal and an interest
portion which will be presented as financing cash flows by the
Group.
Under IAS 17, the Group has already recognised an asset and a
related finance lease liability for finance lease arrangement and
prepaid lease payments for leasehold lands where the Group is a
lessee. The application of IFRS 16 may result in potential changes
in classification of these assets depending on whether the Group
presents right-of-use assets separately or within the same line
item at which the corresponding underlying assets would be
presented if they were owned.
In contrast to lessee accounting, IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17, and continues
to require a lessor to classify a lease either as an operating
lease or a finance lease.
Furthermore, extensive disclosures are required by IFRS 16.
As at 31 December 2017, the Group has non-cancellable operating
lease commitments of RMB51,391 million as disclosed in Note 44. A
preliminary assessment indicates that these arrangements will meet
the definition of a lease. Upon application of IFRS 16, the Group
will recognise a right-of-use asset and a corresponding liability
in respect of all these leases unless they qualify for low value or
short-term leases.
Furthermore, the application of new requirements may result in
changes in measurement, presentation and disclosure as indicated
above.
4. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
accordance IFRSs issued by the IASB. In addition, the consolidated
financial statements include applicable disclosures required by the
Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited ("Listing Rules") and by the Hong Kong Companies
Ordinance ("Companies Ordinance").
The consolidated financial statements have been prepared on the
historical cost basis, except for certain financial instruments
that are measured at fair values, as explained in the accounting
policies set out below. Historical cost is generally based on the
fair value of the consideration given in exchange for goods and
services.
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, regardless of whether
that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a
liability, the Group takes into account the characteristics of the
asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date. Fair value for measurement and/or disclosure
purposes in these consolidated financial statements is determined
on such a basis, except leasing transactions that are within the
scope of IAS 17 Leases, and measurements that have some
similarities to fair value but are not fair value, such as net
realisable value in IAS 2 Inventories or value in use in IAS 36
Impairment of assets.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
-- Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity can
access at the measurement date;
-- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
-- Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved when the Company:
-- has power over the investee;
-- is exposed, or has rights, to variable returns from its
involvement with the investee; and
-- has the ability to use its power to affect its returns.
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 listed above.
When the Group has less than a majority of the voting rights of
an investee, it has power over the investee when the voting rights
are sufficient to give it the practical ability to direct the
relevant activities of the investee unilaterally. The Group
considers all relevant facts and circumstances in assessing whether
or not the Group's voting rights in an investee are sufficient to
give it power, including:
-- the size of the Group's holding of voting rights relative to
the size and dispersion of holdings of the other vote holders;
-- potential voting rights held by the Group, other vote holders or other parties;
-- rights arising from other contractual arrangements; and
-- any additional facts and circumstances that indicate that the
Group has, or does not have, the current ability to direct the
relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders' meetings.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis of consolidation (continued)
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses control
of the subsidiary. Specifically, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated statement of profit or loss from the date the
Group gains control until the date when the Group ceases to control
the subsidiary.
Profit or loss and each component of other comprehensive income
are attributed to the owners of the Company and to the
non-controlling interests. Total comprehensive income of
subsidiaries is attributed to the owners of the Company and to the
non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
the Group's accounting policies.
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.
Goodwill
Goodwill arising on an acquisition of a business is carried at
cost as established at the date of acquisition of the business less
accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to
each of the Group's cash-generating units (or group of
cash-generating units) that is expected to benefit from the
synergies of the combination, which represent the lowest level at
which the goodwill is monitored for internal management purposes
and not larger than an operating segment.
A cash-generating unit (or group of cash-generating units) to
which goodwill has been allocated is tested for impairment
annually, or more frequently when there is an indication that the
unit may be impaired. If the recoverable amount of the
cash-generating unit is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of
any goodwill and then to the other assets on a pro rata basis based
on the carrying amount of each asset in the unit (or group of
cash-generating units). Any impairment loss for goodwill is
recognised directly in profit or loss. An impairment loss
recognised for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the
attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in associates and joint ventures
An associate is an entity over which the Group has 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 joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets
of the joint arrangement. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent
of the parties sharing control.
The results and assets and liabilities of associates or joint
ventures are incorporated in the consolidated financial statements
using the equity method of accounting, except when the investment,
or a portion thereof, is classified as held for sale, in which case
it is or the portion so classified is accounted for in accordance
with IFRS 5. Any retained portion of an investment in an associate
or a joint venture that has not been classified as held for sale
shall be accounted for using the equity method. The associate and
joint venture uses accounting policies that differ from those of
the Group for like transactions and events in similar
circumstances. Appropriate adjustments have been made to confirm
with the associate's and the joint venture's accounting policies to
those of the Group. Under the equity method, an investment in an
associate or a joint venture is initially recognised in the
consolidated statement of financial position at cost and adjusted
thereafter to recognise the Group's share of the profit or loss and
other comprehensive income of the associate or joint venture. When
the Group's share of losses of an associate or a joint venture
exceeds the Group's interest in that associate or joint venture
(which includes any long-term interests that, in substance, form
part of the Group's net investment in the associate or joint
venture), the Group discontinues recognising its share of further
losses. Additional losses are recognised only to the extent that
the Group has incurred legal or constructive obligations or made
payments on behalf of the associate or joint venture.
An investment in an associate or a joint venture is accounted
for using the equity method from the date on which the investee
becomes an associate or a joint venture. On acquisition of the
investment in an associate or a joint venture, any excess of the
cost of the investment over the Group's share of the net fair value
of the identifiable assets and liabilities of the investee is
recognised as goodwill, which is included within the carrying
amount of the investment. Any excess of the Group's share of the
net fair value of the identifiable assets and liabilities over the
cost of the investment, after reassessment, is recognised
immediately in profit or loss in the period in which the investment
is acquired.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in associates and joint ventures (continued)
The requirements of IAS 39 are applied to determine whether it
is necessary to recognise any impairment loss with respect to the
Group's investment in an associate or a joint venture. When
necessary, the entire carrying amount of the investment (including
goodwill) is tested for impairment in accordance with IAS 36
Impairment of Assets as a single asset by comparing its recoverable
amount (higher of value in use and fair value less costs of
disposal) with its carrying amount. Any impairment loss recognised
forms part of the carrying amount of the investment. Any reversal
of that impairment loss is recognised in accordance with IAS 36 to
the extent that the recoverable amount of the investment
subsequently increases.
When the Group ceases to have significant influence over an
associate or joint control over a joint venture, it is accounted
for as a disposal of the entire interest in the investee with a
resulting gain or loss being recognised in profit or loss. When the
Group retains an interest in the former associate or joint venture
and the retained interest is a financial asset within the scope of
IAS 39, the Group measures the retained interest at fair value at
that date and the fair value is regarded as its fair value on
initial recognition. The difference between the carrying amount of
the associate or joint venture and the fair value of any retained
interest and any proceeds from disposing relevant interest in the
associate or joint venture is included in the determination of the
gain or loss on disposal of the associate or joint venture. In
addition, the Group accounts for all amounts previously recognised
in other comprehensive income in relation to that associate or
joint venture on the same basis as would be required if that
associate or joint venture had directly disposed of the related
assets or liabilities. Therefore, if a gain or loss previously
recognised in other comprehensive income by that associate or joint
venture would be reclassified to profit or loss on the disposal of
the related assets or liabilities, the Group reclassifies the gain
or loss from equity to profit or loss (as a reclassification
adjustment) upon disposal/partial disposal of the relevant
associate or joint venture.
The Group continues to use the equity method when an investment
in an associate becomes an investment in a joint venture or an
investment in a joint venture becomes an investment in an
associate. There is no remeasurement to fair value upon such
changes in ownership interests.
When a group entity transacts with an associate or a joint
venture of the Group, profits and losses resulting from the
transactions with the associate or joint venture are recognised in
the Group's consolidated financial statements only to the extent of
interests in the associate or joint venture that are not related to
the Group.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for goods
sold and services provided in the normal course of business. The
following specific recognition criteria must also be met before
revenue is recognised:
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
Passenger revenue is recognised either when transportation
services are provided or when an unused ticket expires rather than
when a ticket is sold. Ticket sales for transportation not yet
provided are included in current liabilities as air traffic
liabilities. In addition, the Group has code-sharing agreements
with other airlines under which a carrier's flights can be marketed
under the two-letter airline designator code of another carrier.
Revenue earned under these arrangements is allocated between the
code share partners based on existing contractual agreements and
airline industry standard sharing formulae and is recognised as
passenger revenue when the transportation services are
provided.
Cargo and mail revenue is recognised when transportation
services are provided.
Revenue from airline-related services is recognised when the
relevant services are rendered.
Sale of goods is recognised when goods are delivered and title
has passed.
Dividend income from investments is recognised when a group
entity's right to receive payment has been established (provided
that it is probable that the economic benefits will flow to the
Group and the amount of income can be measured reliably).
Interest income from a financial asset is recognised when it is
probable that the economic benefits will flow to the Group and the
amount of income can be measured reliably. Interest income from a
financial asset is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset's net carrying amount on initial
recognition.
Deposits and instalments received from customers prior to
meeting the above criteria for revenue recognition are included in
the consolidated statement of financial position under current
liabilities.
The Group's policy for the recognition of revenue from operating
leases is described in the accounting policy for leasing below.
Frequent-flyer programme
The Group operates frequent flyer programmes that provide travel
services or products to programme members based on accumulated
miles. The Group maintains complex IT systems in order to track the
point of service provision for each sale and also to track the
issuance and subsequent redemption and utilisation and expiry of
frequent-flyer programme. The consideration received or receivable
from the transportation services provided is allocated between the
miles earned by the frequent-flyer programme members and the other
components of the sales transactions. The amount allocated to the
miles earned by the frequent-flyer programme members is deferred
until the miles are redeemed when the Group fulfils its obligations
to supply services or products or when the miles expire.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Maintenance and overhaul costs
In respect of aircraft under operating leases, the Group has the
responsibility to fulfil certain return conditions under the
relevant operating leases. In order to fulfil these return
conditions, major overhauls are required to be conducted on a
regular basis. Accordingly, estimated maintenance costs for
aircraft under operating leases are accrued and charged to the
profit or loss over the lease term using the ratios per flying
hours/cycles. The costs of major overhauls comprise mainly labour
and materials. Differences between the estimated costs and the
actual costs of overhauls are included in the profit or loss in the
period of overhaul.
In respect of aircraft and engines owned by the Group or held
under finance leases, costs of major overhauls are recognised in
the carrying amount of the property, plant and equipment as a
replacement if the recognition criteria are satisfied. Overhaul
components subject to replacement during major overhauls are
depreciated over the expected life between major overhauls.
All other routine repair and maintenance costs incurred in
restoring such property, plant and equipment to their normal
working condition are charged to the profit or loss as and when
incurred.
Leasing
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
The Group as lessor
Rental income from operating leases is recognised in profit or
loss on a straight-line basis over the relevant lease term. Initial
direct costs incurred in negotiating and arranging an operating
lease are added to the carrying amount of the leased asset. Such
costs are recognised as an expense on a straight-line basis over
the lease term.
The Group as lessee
Assets held under finance leases are initially recognised as
assets of the Group at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease
payments. The corresponding liability to the lessor is included in
the consolidated statement of financial position as a finance lease
obligation.
Lease payments are apportioned between finance expenses and
reduction of the lease obligation so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance
expenses are recognised immediately in profit or loss, unless they
are directly attributable to qualifying assets, in which case they
are capitalised in accordance with the Group's general policy on
borrowing costs (see the accounting policy below).
Operating lease payments, including the cost of acquiring land
held under operating leases, are recognised as an expense on a
straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Leasing (continued)
The Group as lessee (continued)
In the event that lease incentives are received to enter into
operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction of
rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
Leasehold land and building
When the Group makes payments for a property interest which
includes both leasehold land and building elements, the Group
assesses the classification of each element as a finance or an
operating lease separately based on the assessment as to whether
substantially all the risks and rewards incidental to ownership of
each element have been transferred to the Group, unless it is clear
that both elements are operating leases in which case the entire
property is accounted as an operating lease. Specifically, the
entire consideration (including any lump-sum upfront payments) are
allocated between the leasehold land and the building elements in
proportion to the relative fair values of the leasehold interests
in the land element and building element of the lease at initial
recognition.
To the extent the allocation of the relevant payments can be
made reliably, interest in leasehold land that is accounted for as
an operating lease is presented as "prepaid lease payments" in the
consolidated statement of financial position and is amortised over
the lease term on a straight-line basis, except for those that are
intended to be sold in the ordinary course of business upon
completion of the relevant property development project. When the
lease payments cannot be allocated reliably between the leasehold
land and building elements, the entire property is generally
classified as if the leasehold land is under finance lease.
Foreign currencies
In preparing the financial statements of each individual group
entity, transactions in currencies other than the functional
currency of that entity (foreign currencies) are recorded in the
respective functional currency (i.e. the currency of the primary
economic environment in which the entity operates) at the rates of
exchanges prevailing on the dates of the transactions. At the end
of the reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date.
Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing on the
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are recognised
in profit or loss in the period in which they arise.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies (continued)
For the purposes of presenting the consolidated financial
statements, the assets and liabilities of the Group's foreign
operations are translated into the presentation currency of the
Group (i.e. RMB) at the rate of exchange prevailing at the end of
the reporting period. Income and expenses are translated at the
average exchange rates for the year, unless exchange rates
fluctuate significantly during the year, in which case, the
exchange rates prevailing at the dates of transactions are used.
Exchange differences arising, if any, are recognised in other
comprehensive income and accumulated in equity under the heading of
foreign exchange translation reserve (attributed to non-controlling
interests as appropriate).
On the disposal of a foreign operation (i.e. a disposal of the
Group's entire interest in a foreign operation, or a disposal
involving loss of control over a subsidiary that includes a foreign
operation, or a partial disposal of an interest in a joint venture
of associate), all of the exchange differences accumulated in
equity in respect of that operation attributable to the owners of
the Company are reclassified to profit or loss.
Goodwill and fair value adjustments on identifiable assets
acquired arising on an acquisition of a foreign operation are
treated as assets and liabilities of that operation and translated
at the rate of exchange prevailing at the end of each reporting
period. Exchange differences arising are recognised in other
comprehensive income.
Borrowing costs
Borrowing costs are directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial periods of time to get ready
for their intended use or sale, are added to the cost of those
assets, until such time as 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 eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in
the period in which they are incurred.
Government grants
Government grants are not recognised until there is reasonable
assurance that the Group will comply with the conditions attaching
to them and that the grants will be received.
Government grants are recognised in profit or loss on a
systematic basis over the periods in which the Group recognises as
expenses the related costs for which the grants are intended to
compensate. Specifically, government grants whose primary condition
is that the Group should purchase, construct or otherwise acquire
non-current assets are recognised as deferred income in the
consolidated statement of financial position and transferred to
profit or loss on a systematic and rational basis over the useful
lives of the related assets.
Government grants that are receivable as compensation for
expenses or losses already incurred or for the purpose of giving
immediate financial support to the Group with no future related
costs are recognised in profit or loss in the periods in which they
become receivable.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits
Retirement benefit costs and termination benefits
Payments to defined contribution retirement benefit plans are
recognised as an expense when employees have rendered service
entitling them to the contributions.
For defined benefit retirement benefit plans, the cost of
providing benefits is determined using the projected unit credit
method, with actuarial valuations being carried out at the end of
each annual reporting period. Remeasurement, comprising actuarial
gains and losses, the effect of the changes to the asset ceiling
(if applicable) and the return on plan assets (excluding interest),
is reflected immediately in the consolidated statement of financial
position with a charge or credit recognised in other comprehensive
income in the period in which they occur. Remeasurement recognised
in other comprehensive income is reflected immediately in retained
earnings and will not be reclassified to profit or loss. Past
service cost is recognised in profit or loss in the period of a
plan amendment. Net interest is calculated by applying the discount
rate at the beginning of the period to the net defined benefit
liability or asset.
Defined benefit costs are categorised as follows:
-- service cost (including current service cost, past service
cost, as well as gains and losses on curtailments and
settlements);
-- net interest expense or income; and
-- remeasurement.
The Group presents the first two components of defined benefit
costs in profit or loss in the line items of administrative
expenses and finance costs or finance income. Curtailment gains and
losses are accounted for as past service costs.
The retirement benefit obligation recognised in the consolidated
statement of financial position represents the actual deficit or
surplus in the Group's defined benefit plans. Any surplus resulting
from this calculation is limited to the present value of any
economic benefits available in the form of refunds from the plans
or reductions in future contributions to the plans.
A liability for a termination benefit is recognised at the
earlier of when the Group entity can no longer withdraw the offer
of the termination benefit and when the entity recognises any
related restructuring costs.
Short-term and other long-term employee benefits
A liability is recognised for benefits accruing to employees
(such as wages and salaries, annual leave and sick leave) after
deducting any amount already paid.
Liabilities recognised in respect of short-term employee
benefits are measured at the undiscounted amount of the benefits
expected to be paid in exchange for the related service. All
short-term employee benefits are recognised as an expense unless
another IFRS require or permits the inclusion of the benefits in
the cost of an asset.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits (continued)
Short-term and other long-term employee benefits (continued)
Liabilities recognised in respect of other long-term employee
benefits are measured at the present value of the estimated future
cash outflows expected to be made by the Group in respect of
services provided by employees up to the reporting date. Any
changes in the liabilities' carrying amounts resulting from service
cost, interest and remeasurements are recognised in profit or loss
except to the extent that another IFRS requires or permits their
inclusion in the cost of an asset.
Share-based payment arrangements
Cash-settled share-based payment transactions
The Company operates a share appreciation rights ("SARs") plan
for the purpose of providing incentives and rewards to eligible
participants who contribute to the success of the Group's
operations. Employee (including directors) of the Group are
entitled to a future cash payment (rather than an equity
instrument) ("cash-settled transactions"), based on the increase in
the entity's share price from a specified level over a specified
period of time. The Company recognised the services received, and a
liability to pay for those services, as the employees render
services.
For cash-settled share-based payments, a liability is recognised
for the goods or services acquired, measured initially at the fair
value of the liability. At the end of each reporting period until
the liability is settled, and at the date of settlement, the fair
value of the liability is remeasured, with any changes in fair
value recognised in profit or loss for the year.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from 'profit before tax' as reported
in the consolidated statement of profit or loss because of items of
income or expense that are taxable or deductible in other years and
items that are never taxable or deductible. The Group's liability
for current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the reporting
period.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxation (continued)
Deferred tax
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a
business combination) of assets and liabilities in a transaction
that affects neither the taxable profit nor the accounting
profit.
Deferred tax liabilities are recognised for taxable temporary
differences associated with interests/investments in subsidiaries,
associates and joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable
future. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be
sufficient taxable profits against which to utilise the benefits of
the temporary differences and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at the
end of the reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the periods in which the
liability is settled or the asset is realised, based on tax rate
(and tax laws) that have been enacted or substantively enacted by
the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively. Where current tax or
deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for
business combination.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment properties
Investment properties are properties held to earn rentals and/or
for capital appreciation.
Investment properties are measured initially at cost or deemed
cost, including any directly attributable expenditure. Subsequent
to initial recognition, investment properties are stated at cost
less subsequent accumulated depreciation and any accumulated
impairment losses. Depreciation is recognised so as to write off
the cost of each item of investment property over its estimated
useful life and after taking into account its estimated residual
value, using straight-line method.
Construction costs incurred for investment properties under
construction are capitalized as part of the carrying amount of the
investment properties under construction.
If an item of investment property becomes owner-occupied
property because its use has changed as evidenced by commencement
of owner-occupation, the cost and accumulated depreciation of that
item at the date of transfer are transferred to property, plant and
equipment for subsequent measurement and disclosure purposes.
An investment property is derecognised upon disposal or when the
investment property is permanently withdrawn from use and no future
economic benefits are expected from the disposal. Any gain or loss
arising on derecognition of the property (calculated as the
difference between the net disposal proceeds and the carrying
amount of the asset) is included in profit or loss in the period in
which the property is derecognised.
Property, plant and equipment
Property, plant and equipment including buildings held for use
in the production or supply of goods or services, or for
administrative purposes (other than construction in progress), are
stated in the consolidated statement of financial position at cost,
less subsequent accumulated depreciation and subsequent accumulated
impairment losses, if any.
Properties in the course of construction for production, supply
or administrative purposes are carried at cost, less recognised
impairment loss, if any. Costs include professional fees and, for
qualifying assets, borrowing costs capitalised in accordance with
the Group's accounting policy. Construction in progress is
classified to the appropriate category of property, plant and
equipment when completed and ready for intended use. Depreciation
of these assets, on the same basis as other property assets,
commences when the assets are ready for their intended use.
Depreciation is recognised so as to write off the cost of items
of property, plant and equipment less their residual values over
their estimated useful lives, using the straight-line method. The
estimated useful lives, residual values and depreciation method are
reviewed at the end of the reporting period, with the effect of any
changes in estimate accounted for on a prospective basis.
If an owner-occupied property becomes an investment property
because its use has changed as evidenced by end of
owner-occupation, the cost and accumulated depreciation of that
item at the date of transfer are transferred to investment property
for subsequent measurement and disclosure purposes.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment (continued)
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets. However,
when there is no reasonable certainty that ownership will be
obtained by the end of the lease term, assets are depreciated over
the shorter of the lease term and their useful lives.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on
the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in
profit or loss.
Non-current assets held for sale
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This
condition is regarded as met only when the asset (or disposal
group) is available for immediate sale in its present condition
subject only to terms that are usual and customary for sales of
such asset (or disposal group) and its sale is highly probable.
Management must be committed to the sale, which should be expected
to qualify for recognition as a completed sale within one year from
the date of classification.
Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of their previous carrying amount
and fair value less costs to sell.
Intangible assets
Intangible assets with finite useful lives that are acquired
separately are recorded at cost on initial acquisition and
subsequently stated at cost less accumulated amortisation and
impairment. Amortisation for intangible assets with finite useful
lives is provided on a straight-line basis over their estimated
useful lives. The estimated useful life and amortisation method are
reviewed at the end of the reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired
separately are carried at cost less any subsequent accumulated
impairment losses.
An intangible asset is derecognised on disposal, or when no
future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognised in profit or loss
when the asset is derecognised.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of tangible and intangible assets (other than
goodwill) and investments in subsidiaries, associates and joint
ventures
At the end of the reporting period, the Group reviews the
carrying amounts of its tangible and intangible assets with finite
useful lives and investments in subsidiaries, associates and joint
ventures to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the relevant asset is estimated
in order to determine the extent of the impairment loss (if any).
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment at least
annually, and whenever there is an indication that they may be
impaired.
When it is not possible to estimate the recoverable amount of an
asset individually, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs. When a
reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-generating
units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent
allocation basis can be identified.
Recoverable amount is the higher of fair value less costs of
disposal and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset (or a
cash-generating unit) for which the estimates of future cash flows
have not been adjusted.
If the recoverable amount of an asset (or a cash-generating
unit) is less than its carrying amount, the carrying amount of the
asset (or a cash-generating unit) is reduced to its recoverable
amount. In allocating the impairment loss, the impairment loss is
allocated first to reduce the carrying amount of any goodwill (if
applicable) and then to the other assets on a pro-rata basis based
on the carrying amount of each asset in the unit. The carrying
amount of an asset is not reduced below the highest of its fair
value less costs of disposal (if measurable), its value in use (if
determinable) and zero. The amount of the impairment loss that
would otherwise have been allocated to the asset is allocated pro
rata to the other assets of the unit. An impairment loss is
recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or a cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (or a cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately in profit
or loss.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Costs of inventories are determined on a weighted average
basis. Net realisable value represents the estimated selling price
for inventories less all estimated costs of completion and costs
necessary to make the sale.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (when the effect of the time value of money is material).
Present obligations arising under onerous contracts are
recognised and measured as provisions. An onerous contract is
considered to exist where the Group has a contract under which the
unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received from the
contract.
Financial instruments
Financial assets and financial liabilities are recognised in the
consolidated statement of financial position when a group entity
becomes a party to the contractual provisions of the
instruments.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss.
Financial assets
The Group's financial assets are classified into financial
assets at fair value through profit or loss ("FVTPL"),
held-to-maturity investments, available-for-sale ("AFSs") financial
assets and loans and receivables. The classification depends on the
nature and purpose of the financial assets and is determined at the
time of initial recognition. All regular way purchases or sales of
financial assets are recognised and derecognised on a trade date
basis. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the
timeframe established by regulation or convention in the
marketplace.
Effective interest method
The effective interest method is a method of calculating the
amortised cost of a financial asset and of allocating interest
income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts
(including all fees paid or received that form an integral part of
the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the debt instrument, or,
where appropriate, a shorter periods to the net carrying amount on
initial recognition.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Effective interest method (continued)
Interest income is recognised on an effective interest basis for
debt instruments other than those financial assets classified as at
FVTPL.
Financial assets at FVTPL
Financial assets are classified as at FVTPL when the financial
asset is either held for trading or it is designated as at
FVTPL.
A financial asset is classified as held for trading if:
-- it has been acquired principally for the purpose of selling it in the near term; or
-- on initial recognition it is part of a portfolio of
identified financial instruments that the Group manages together
and has a recent actual pattern of short-term profit-taking; or
-- it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading
may be designated as at FVTPL upon initial recognition if:
-- such designation eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise; or
-- the financial asset forms part of a group of financial assets
or financial liabilities or both, which is managed and its
performance is evaluated on a fair value basis, in accordance with
the Group's documented risk management or investment strategy, and
information about the grouping is provided internally on that
basis; or
-- it forms part of a contract containing one or more embedded
derivatives, and IAS 39 permits the entire combined contract to be
designated as at FVTPL.
Financial assets at FVTPL are stated at fair value, with any
gains or losses arising on remeasurement recognised in profit or
loss. The net gain or loss recognised in profit or loss
incorporates any dividend or interest earned on the financial asset
and is included in the 'other gains and losses' line item. Fair
value is determined in the manner described in Note 45.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturity dates that
are quoted in an active market and that the Group has the positive
intention and ability to hold to maturity.
The Group designated a debt instrument as held-to-maturity.
Subsequent to initial recognition, held-to-maturity investments are
measured at amortised cost using the effective interest method,
less any impairment.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
AFSs
AFSs are non-derivatives that are either designated as available
for sale or are not classified as (a) loans and receivables, (b)
held-to-maturity investments or (c) financial assets at FVTPL.
Equity and debt securities held by the Group that are classified
as AFS financial assets are measured at fair value at the end of
each reporting period except for unquoted equity investments whose
fair value cannot be reliably measured. Changes in the carrying
amount of AFS debt instrument relating to interest income
calculated using the effective interest method, are recognised in
profit or loss. Fair value is determined in the manner described in
Note 45.
Dividends on AFS equity investments are recognised in profit or
loss when the Group's right to receive the dividends is
established. Other changes in the carrying amount of AFSs financial
assets are recognised in other comprehensive income and accumulated
under the heading of capital reserve. When the investment is
disposed of or is determined to be impaired, the cumulative gain or
loss previously accumulated in the capital reserve is reclassified
to profit or loss.
AFS equity investments that do not have a quoted market price in
an active market and whose fair value cannot be reliably measured
are measured at cost less any identified impairment losses at the
end of the reporting period.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Subsequent to initial recognition, loans and receivables
(including trade and bills receivable, deposits and other
receivables, other loans, restricted bank deposits, cash and cash
equivalents) are measured at amortised cost using the effective
interest method, less any identified impairment at the end of the
reporting period.
Interest income is recognised by applying the effective interest
rate, except for short-term receivables where the recognition of
interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for
indicators of impairment at the end of the reporting period.
Financial assets are considered to be impaired when there is
objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the financial assets have been
affected.
For AFS equity investments, a significant or prolonged decline
in the fair value of the security below its cost is considered to
be objective evidence of impairment.
For other financial asset, objective evidence of impairment
could include:
-- significant financial difficulty of the issuer or counterparty; or
-- breach of contract, such as default or delinquency in
interest or principal payments; or
-- it becoming probable that the borrower will enter bankruptcy
or financial re-organisation; or
-- the disappearance of an active market for that financial
asset because of financial difficulties.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Impairment of financial assets (continued)
For certain categories of financial assets, such as trade
receivables, assets are assessed for impairment on a collective
basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables
could include the Group's past experience of collecting payments,
an increase in the number of delayed payments in the portfolio past
the average credit periods, as well as observable changes in
national or local economic conditions that correlate with default
on receivables.
For financial assets carried at amortised cost, the amount of
the impairment loss recognised is the difference between the
asset's carrying amount and the present value of estimated future
cash flows, discounted at the financial asset's original effective
interest rate.
For financial assets carried at cost, the amount of the
impairment loss is measured as the difference between the asset's
carrying amount and the present value of the estimated future cash
flows discounted at the current market rate of return for a similar
financial asset. Such impairment loss will not be reversed in
subsequent periods.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables and other receivables, where the
carrying amount is reduced through the use of an allowance account.
When a trade receivable or other receivable is considered
uncollectible, it is written off against the allowance account.
Impairment losses are reversed in subsequent periods when an
increase in the asset's recoverable amount can be related
objectively to an event occurring after the impairment was
recognised, subject to a restriction that the carrying amount of
the asset at the date the impairment is reversed does not exceed
what the amortised cost would have been had the impairment not been
recognised.
When an AFS financial asset is considered to be impaired,
cumulative gains or losses previously recognised in other
comprehensive income are reclassified to profit or loss in the
period.
For financial assets measured at amortised cost, if, in a
subsequent periods, the amount of impairment loss decreases and the
decrease can be related objectively to an event occurring after the
impairment losses was recognised, the previously recognised
impairment loss is reversed through profit or loss to the extent
that the carrying amount of the asset at the date the impairment is
reversed does not exceed what the amortised cost would have been
had the impairment not been recognised.
In respect of AFS equity investments, impairment losses
previously recognised in profit or loss are not reversed through
profit or loss. Any increase in fair value subsequent to an
impairment loss is recognised in other comprehensive income and
accumulated under the heading of capital reserve. In respect of AFS
debt investments, impairment losses are subsequently reversed
through profit or loss if an increase in the fair value of the
investment can be objectively related to an event occurring after
the recognition of the impairment loss.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Financial liabilities and equity instruments
Debt and equity instruments issued by a group entity are
classified either as financial liabilities or as equity in
accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity
instrument.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of the group entities after deducting all of
its liabilities. Equity instruments issued by the group entities
are recognised at the proceeds received, net of direct issue
costs.
Own equity instruments (treasury shares) are recognised at cost
and deducted from equity. No gain or loss is recognised in profit
or loss on the purchase, sale, issue or cancellation of the Group's
own equity instruments. Any difference between the carrying amount
and the consideration is recognised in equity.
Effective interest method
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability, or, where appropriate, a shorter periods to
the net carrying amount on initial recognition.
Interest expense is recognised on an effective interest
basis.
Financial liabilities at amortised cost
Financial liabilities (including accounts payables, dividend
payables, other payables, bank and other borrowings, obligations
under finance lease and long-term payables) are subsequently
measured at amortised cost using the effective interest method.
Derecognition
The Group derecognises a financial asset when only the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another party. If the
Group neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and
an associated liability for amounts it may have to pay. If the
Group retains substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues to recognise
the financial asset and also recognises a collateralised borrowing
for the proceeds received.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Derecognition (continued)
On derecognition of a financial asset in its entirety, the
difference between the asset's carrying amount and the sum of the
consideration received and receivable and the cumulative gain or
loss that had been recognised in other comprehensive income and
accumulated in equity is recognised in profit or loss.
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or have
expired. The difference between the carrying amount of the
financial liability derecognised and the consideration paid and
payable is recognised in profit or loss.
5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, which are
described in Note 4, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Key assumptions and uncertainties about accounting estimates
The following are the key assumptions concerning the future, and
other key sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Estimated impairment of goodwill
Determining whether goodwill is impaired requires an estimation
of the recoverable amount of the cash-generating unit to which
goodwill has been allocated, which is the higher of the value in
use or fair value less costs of disposal. The value in use
calculation requires the Group to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate the present value. Where the
actual future cash flows are less than expected, or change in facts
and circumstances which results in downward revision of the future
cash flows, a material impairment loss may rise.
As at 31 December 2017, the carrying amount of goodwill was
RMB1,100 million (31 December 2016: RMB1,100 million) (already net
of accumulated impairment loss of RMB177 million (31 December 2016:
RMB177 million)). Details of the recoverable amount calculation are
disclosed in Note 21.
5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)
Key assumptions and uncertainties about accounting estimates
(continued)
Impairment of non-financial assets (other than goodwill)
The Group assesses whether there are any indicators of
impairment for all non-financial assets at the end of each
reporting period. Intangible assets with indefinite life are tested
for impairment annually and at other times when such indicator
exists. Other non-financial assets are tested for impairment when
there are indicators that the carrying amounts may not be fully
recoverable. An impairment exists when the carrying value of an
asset or a cash-generating unit exceeds its recoverable amount,
which is the higher of its fair value less costs of disposal and
its value in use. The calculation of the fair value less costs of
disposal is based on available data from binding sales transactions
in an arm's length transaction of similar assets or observable
market prices less incremental costs for disposal of the asset.
When value in use calculations are undertaken, management must
estimate the expected future cash flows from the asset or
cash-generating unit and choose a suitable discount rate in order
to calculate the present value of those cash flows.
As at 31 December 2017, the aggregate carrying amount of
property, plant and equipment, lease prepayments, investment
properties and intangible assets (net of impairment), was
RMB172,587 million (31 December 2016: RMB161,880 million). Details
of these items are set out in Notes 17, 18, 19 and 20.
Overhaul provisions
Overhaul provisions for aircraft under operating leases are
accrued using the estimated maintenance costs for aircraft to
fulfil these return conditions. Management estimates the
maintenance costs of major overhauls for aircraft held under
operating leases at the end of each reporting period and accrues
such costs over the lease term. The calculation of such costs
includes a number of variable factors and assumptions, including
the anticipated utilisation of the aircraft and the expected
standard rates of maintenance costs per flying hour/cycle.
Different estimates could significantly affect the estimated
overhaul provision and the results of operations.
As at 31 December 2017, the Group had overhaul provisions
amounting to RMB5,005 million (31 December 2016: RMB4,467 million)
and details are disclosed in Note 38.
Deferred income
The amount of revenue attributable to the miles earned by the
members of the Group's frequent-flyer programme is estimated based
on the fair value of the miles awarded and the expected redemption
rate. The fair value of the miles awarded is estimated by reference
to external sales. The expected redemption rate was estimated
considering the number of the miles that will be available for
redemption in the future after allowing for miles which are not
expected to be redeemed. Any change in estimate would affect profit
or loss in future years.
As at 31 December 2017, the deferred income related to
frequent-flyer programme was RMB3,530 million (31 December 2016:
RMB3,073 million) and details are disclosed in Note 40.
5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)
Key assumptions and uncertainties about accounting estimates
(continued)
Deferred tax asset
Deferred tax assets are recognised for all unused tax losses and
deductible temporary differences to the extent that it is probable
that taxable profit will be available against which the losses and
deductible temporary differences can be utilised. Significant
management judgement is required to determine the amount of
deferred tax assets that can be recognised, based upon the likely
timing and level of future taxable profits together with future tax
planning strategies. In case where there are actual future profits
or the actual future profits generated are more than expected, or
effective tax rate is changed, a material recognition or change of
deferred tax assets may arise, which would be recognised in profit
or loss for the period in which such recognition or change takes
places.
As at 31 December 2017, a deferred tax assets of RMB2,502
million (31 December 2016: RMB3,054 million) in relation to
differences in value of property, plant and equipment, provisions
and accruals, unrealised profit of intra-group transactions,
impairment of assets and deductible tax losses have been recognised
in the Group's consolidated statement of financial position. No
deferred tax asset has been recognised on the deductible tax losses
of RMB584 million (2016: RMB1,650 million) and other temporary
differences of RMB792 million (2016: RMB783 million) due to the
unpredictability of the future streams and details are disclosed in
Note 26.
6. SEGMENT INFORMATION
The Group's operating businesses are structured and managed
separately, according to the nature of their operations and the
services they provide. The Group has the following reportable
operating segments:
(a) the "airline operations" segment which mainly comprises the
provision of air passenger and air cargo services; and
(b) the "other operations" segment which comprises the provision
of aircraft engineering, ground services and other airline-related
services.
In determining the Group's geographical information, revenue is
attributed to the segments based on the origin and destination of
each flight. Assets, which consist principally of aircraft and
ground equipment, supporting the Group's worldwide transportation
network, are mainly registered/located in Mainland China. An
analysis of the assets of the Group by geographical distribution
has therefore not been included.
Inter-segment sales and transfers are transacted with reference
to the selling prices used for sales made to third parties at the
then prevailing market prices.
6. SEGMENT INFORMATION (continued)
Operating segments
The following tables present the Group's consolidated revenue
and profit before taxation regarding the Group's operating segments
in accordance with the Accounting Standards for Business
Enterprises of the PRC ("CASs") for the years ended 31 December
2017 and 2016 and the reconciliations of reportable segment revenue
and profit before taxation to the Group's consolidated amounts
under IFRSs:
Year ended 31 December 2017
Airline Other
------------------------- ----------- ---------- ----------- -----------
operations operations Elimination Total
------------------------- ----------- ---------- ----------- -----------
RMB'000 RMB'000 RMB'000 RMB'000
------------------------- ----------- ---------- ----------- -----------
Revenue
------------------------- ----------- ---------- ----------- -----------
Sales to external
customers 120,066,345 1,296,554 - 121,362,899
------------------------- ----------- ---------- ----------- -----------
Inter-segment
sales 247,297 8,689,539 (8,936,836) -
------------------------- ----------- ---------- ----------- -----------
Revenue for reportable
segments under
CASs 120,313,642 9,986,093 (8,936,836) 121,362,899
------------------------- ----------- ---------- ----------- -----------
Other income
not included
in segment revenue 2,663,303
------------------------- ----------- ---------- ----------- -----------
Revenue for the
year under IFRSs 124,026,202
------------------------- ----------- ---------- ----------- -----------
Segment profit
before taxation
------------------------- ----------- ---------- ----------- -----------
Profit before
taxation for
reportable segments
under CASs 11,077,352 453,377 (49,842) 11,480,887
------------------------- ----------- ---------- ----------- -----------
Effect of differences
between IFRSs
and CASs 5,345
------------------------- ----------- ---------- ----------- -----------
Profit before
taxation for
the year under
IFRSs 11,486,232
------------------------- ----------- ---------- ----------- -----------
6. SEGMENT INFORMATION (continued)
Operating segments (continued)
Year ended 31 December 2016
Airline Other
------------------------- ----------- ---------- ----------- -----------
operations operations Elimination Total
------------------------- ----------- ---------- ----------- -----------
RMB'000 RMB'000 RMB'000 RMB'000
------------------------- ----------- ---------- ----------- -----------
Revenue
------------------------- ----------- ---------- ----------- -----------
Sales to external
customers 111,347,956 1,329,124 - 112,677,080
------------------------- ----------- ---------- ----------- -----------
Inter-segment
sales 243,209 8,400,147 (8,643,356) -
------------------------- ----------- ---------- ----------- -----------
Revenue for reportable
segments under
CASs 111,591,165 9,729,271 (8,643,356) 112,677,080
------------------------- ----------- ---------- ----------- -----------
Other income
not included
in segment revenue 2,467,612
------------------------- ----------- ---------- ----------- -----------
Revenue for the
year under IFRSs 115,144,692
------------------------- ----------- ---------- ----------- -----------
Segment profit
before taxation
------------------------- ----------- ---------- ----------- -----------
Profit before
taxation for
reportable segments
under CASs 10,011,057 328,378 (120,059) 10,219,376
------------------------- ----------- ---------- ----------- -----------
Effect of differences
between IFRSs
and CASs (6,474)
------------------------- ----------- ---------- ----------- -----------
Profit before
taxation for
the year under
IFRSs 10,212,902
------------------------- ----------- ---------- ----------- -----------
6. SEGMENT INFORMATION (continued)
Operating segments (continued)
The following tables present the segment assets, liabilities and
other information of the Group's operating segments under CASs as
at 31 December 2017 and 2016 and the reconciliations of reportable
segment assets, liabilities and other information to the Group's
consolidated amounts under IFRSs:
Airline Other
------------------------ ----------- ---------- ------------ -----------
operations operations Elimination Total
------------------------ ----------- ---------- ------------ -----------
RMB'000 RMB'000 RMB'000 RMB'000
------------------------ ----------- ---------- ------------ -----------
Segment assets
------------------------ ----------- ---------- ------------ -----------
Total assets
for reportable
segments as at
31 December 2017
under CASs 228,104,759 19,166,617 (11,553,560) 235,717,816
------------------------ ----------- ---------- ------------ -----------
Effect of differences
between IFRSs
and CASs (73,232)
------------------------ ----------- ---------- ------------ -----------
Total assets
under IFRSs 235,644,584
------------------------ ----------- ---------- ------------ -----------
Total assets
for reportable
segments as at
31 December 2016
under CASs 215,918,569 17,435,746 (9,226,123) 224,128,192
------------------------ ----------- ---------- ------------ -----------
Effect of differences
between IFRSs
and CASs (77,241)
------------------------ ----------- ---------- ------------ -----------
Total assets
under IFRSs 224,050,951
------------------------ ----------- ---------- ------------ -----------
6. SEGMENT INFORMATION (continued)
Operating segments (continued)
Airline Other
------------------------ ----------- ---------- ------------ -----------
operations operations Elimination Total
------------------------ ----------- ---------- ------------ -----------
RMB'000 RMB'000 RMB'000 RMB'000
------------------------ ----------- ---------- ------------ -----------
Segment liabilities
------------------------ ----------- ---------- ------------ -----------
Total liabilities
for reportable
segments as at
31 December 2017
under CASs 141,208,964 11,026,686 (11,449,664) 140,785,986
------------------------ ----------- ---------- ------------ -----------
Effect of differences
between IFRSs
and CASs -
------------------------ ----------- ---------- ------------ -----------
Total liabilities
under IFRSs 140,785,986
------------------------ ----------- ---------- ------------ -----------
Total liabilities
for reportable
segments as at
31 December 2016
under CASs 147,086,337 9,662,575 (9,094,360) 147,654,552
------------------------ ----------- ---------- ------------ -----------
Effect of differences
between IFRSs
and CASs -
------------------------ ----------- ---------- ------------ -----------
Total liabilities
under IFRSs 147,654,552
------------------------ ----------- ---------- ------------ -----------
6. SEGMENT INFORMATION (continued)
Operating segments (continued)
Year ended 31 December 2017
Effect of
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
differences
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
between
Airline Other IFRSs Amounts
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
under
operations operations Elimination Total and CASs IFRSs
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Other segment
information
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Share of
profits less
losses of
associates
and joint
ventures (651,618) 275,355 - (376,263) - (376,263)
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Impairment
losses and
inventories
provision
recognised
in profit
or loss,
net 257,792 375,966 (37,750) 596,008 26,807 622,815
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Depreciation
and amortisation 13,346,813 287,822 (12,082) 13,622,553 (26,234) 13,596,319
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Other income
and gains 3,134,949 142,889 (115,991) 3,161,847 - 3,161,847
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Finance costs 3,310,772 60,855 (156,602) 3,215,025 (159,961) 3,055,064
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Income tax
expense 2,751,642 109,390 (17,585) 2,843,447 1,336 2,844,783
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Interests
in associates
and joint
ventures 13,914,145 1,384,872 - 15,299,017 139,919 15,438,936
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Additions
to non-current
assets 30,458,830 180,937 - 30,639,767 - 30,639,767
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
6. SEGMENT INFORMATION (continued)
Operating segments (continued)
Year ended 31 December 2016
Effect of
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
differences
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
between
Airline Other IFRSs Amounts
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
under
operations operations Elimination Total and CASs IFRSs
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Other segment
information
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Share of
profits less
losses of
associates
and joint
ventures (258,709) 280,944 - 22,235 - 22,235
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Impairment
losses and
inventories
provision
recognised
in profit
or loss,
net 244,283 23,059 (13,500) 253,842 38,598 292,440
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Depreciation
and amortisation 13,222,642 289,906 (3,980) 13,508,568 (34,848) 13,473,720
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Other income
and gains 147,634 68,200 (88,757) 127,077 - 127,077
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Finance costs 7,699,365 69,745 (148,261) 7,620,849 (151,864) 7,468,985
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Income tax
expense 2,394,383 91,471 (30,015) 2,455,839 (1,618) 2,454,221
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Interests
in associates
and joint
ventures 13,911,830 1,256,930 - 15,168,760 139,919 15,308,679
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
Additions
to non-current
assets 31,314,344 387,335 - 31,701,679 - 31,701,679
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
6. SEGMENT INFORMATION (continued)
Geographical information
The following table presents the Group's consolidated revenue
under IFRSs by geographical location for the years ended 31
December 2017 and 2016, respectively:
Year ended 31 December 2017
Hong
Kong,
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
Macau Japan Asia
Mainland and North and Pacific
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
China Taiwan Europe America Korea and others Total
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
Sales
to external
customers
and total
revenue 80,800,286 5,710,565 12,187,864 10,576,506 6,108,205 8,642,776 124,026,202
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
Year ended 31 December 2016
Hong
Kong,
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
Macau Japan Asia
Mainland and North and Pacific
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
China Taiwan Europe America Korea and others Total
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
Sales
to external
customers
and total
revenue 74,968,688 5,460,001 10,015,695 10,294,873 6,800,675 7,604,760 115,144,692
--------------- ---------- --------- ---------- ---------- --------- ---------- -----------
The Group's main assets to earn income are the aircraft, most of
which are registered in China. According to the business demand,
the Group needs to flexibly allocate the aircraft to match the need
of the route network. Therefore, the Group has no proper benchmark
to distribute these assets according to regional information.
Except for the aircraft, most of the Group's assets are located in
Mainland China.
There was no revenue from transactions with a single customer
amounting to 10% or more of the Group's revenue during the year
ended 31 December 2017 (2016: Nil).
7. AIR TRAFFIC REVENUE
Air traffic revenue represents revenue from the Group's airline
operation business. An analysis of the Group's air traffic revenue
during the year was as follows:
2017 2016
----------------- ----------- -----------
RMB'000 RMB'000
----------------- ----------- -----------
Passenger 105,125,284 98,992,892
----------------- ----------- -----------
Cargo and mail 10,254,641 8,305,028
----------------- ----------- -----------
115,379,925 107,297,920
----------------- ----------- -----------
8. OTHER OPERATING REVENUE
2017 2016
----------------------------------- --------- ---------
RMB'000 RMB'000
----------------------------------- --------- ---------
Aircraft engineering income 1,045,262 1,058,729
----------------------------------- --------- ---------
Ground service income 935,947 853,586
----------------------------------- --------- ---------
Government grants:
----------------------------------- --------- ---------
- Recognition of deferred income
(Note 40(b)) 36,177 61,107
----------------------------------- --------- ---------
- Others 2,479,288 2,226,052
----------------------------------- --------- ---------
Service charges on return of
unused flight tickets 1,618,286 1,359,162
----------------------------------- --------- ---------
Cargo handling service income 407,481 174,251
----------------------------------- --------- ---------
Training service income 24,885 39,606
----------------------------------- --------- ---------
Rental income 149,937 145,077
----------------------------------- --------- ---------
Sale of materials 26,311 20,487
----------------------------------- --------- ---------
Import and export service income 74,827 46,670
----------------------------------- --------- ---------
Others 1,847,876 1,862,045
----------------------------------- --------- ---------
8,646,277 7,846,772
----------------------------------- --------- ---------
Note: Certain air traffic revenue in the comparative figure was
reclassified to other operating revenue to conform with the
presentation in this year in respect of subsidies granted by
various local governments controlled parties to encourage the Group
to operate certain routes to cities where these governments are
located.
9. EMPLOYEE COMPENSATION COSTS
An analysis of the Group's employee compensation costs,
including the emoluments of Directors and supervisors, is as
follows:
2017 2016
------------------------------------- ---------- ----------
RMB'000 RMB'000
------------------------------------- ---------- ----------
Wages, salaries and other benefits 20,081,647 18,167,651
------------------------------------- ---------- ----------
Retirement benefit costs:
------------------------------------- ---------- ----------
- Contributions to defined
contribution retirement scheme 2,313,802 1,925,864
------------------------------------- ---------- ----------
- Early retirement benefits (1,060) (1,589)
------------------------------------- ---------- ----------
Share-based benefits (Note 42) (2,028) (16,324)
------------------------------------- ---------- ----------
22,392,361 20,075,602
------------------------------------- ---------- ----------
10. PROFIT FROM OPERATIONS
The Group's profit from operations is arrived at after
crediting/(charging):
2017 2016
---------------------------------------- ---------- ----------
RMB'000 RMB'000
---------------------------------------- ---------- ----------
Depreciation of property, plant
and equipment 13,453,155 13,339,651
---------------------------------------- ---------- ----------
Depreciation of investment properties 32,518 27,145
---------------------------------------- ---------- ----------
Amortisation of intangible assets 38,835 38,747
---------------------------------------- ---------- ----------
Amortisation of lease prepayments 71,811 68,177
---------------------------------------- ---------- ----------
Impairment/(reversal of impairment):
---------------------------------------- ---------- ----------
- Property, plant and equipment 149,160 -
---------------------------------------- ---------- ----------
- Non-current assets held for
sale - 219,376
---------------------------------------- ---------- ----------
- Accounts receivable 90,100 (9,031)
---------------------------------------- ---------- ----------
- Prepayments, deposits and
other receivables 525 (3,537)
---------------------------------------- ---------- ----------
- Other current assets 38,194 11,546
---------------------------------------- ---------- ----------
- Other non-current assets 3,034 2,516
---------------------------------------- ---------- ----------
Provision for inventories 341,802 71,570
---------------------------------------- ---------- ----------
Losses on disposal of property,
plant and equipment, net 37,186 37,628
---------------------------------------- ---------- ----------
(Gains)/losses on disposal of
non-current assets held for
sale (46,414) 4,659
---------------------------------------- ---------- ----------
Minimum lease payments under
operating leases:
---------------------------------------- ---------- ----------
- Aircraft and flight equipment 7,310,649 6,252,783
---------------------------------------- ---------- ----------
- Land and buildings and others 1,078,057 1,002,788
---------------------------------------- ---------- ----------
Auditors' remuneration:
---------------------------------------- ---------- ----------
- Audit related services 17,438 20,080
---------------------------------------- ---------- ----------
- Other services 70 194
---------------------------------------- ---------- ----------
11. OTHER INCOME AND GAINS
An analysis of the Group's other income and gains during the
year was as follows:
2017 2016
---------------------- --------- -------
RMB'000 RMB'000
---------------------- --------- -------
Exchange gains, net 2,938,101 -
---------------------- --------- -------
Interest income 223,746 127,077
---------------------- --------- -------
3,161,847 127,077
---------------------- --------- -------
12. FINANCE COSTS
2017 2016
----------------------------------- --------- ---------
RMB'000 RMB'000
----------------------------------- --------- ---------
Interest on interest-bearing
bank loans and other borrowings 2,488,219 2,400,304
----------------------------------- --------- ---------
Interest on finance leases 1,032,137 1,058,107
----------------------------------- --------- ---------
Imputed interest expenses on
defined benefit obligations 8,518 8,355
----------------------------------- --------- ---------
Exchange loss, net - 4,233,668
----------------------------------- --------- ---------
3,528,874 7,700,434
----------------------------------- --------- ---------
Less: Interest capitalised (473,810) (231,449)
----------------------------------- --------- ---------
3,055,064 7,468,985
----------------------------------- --------- ---------
The interest capitalisation rates during the year ranged from
3.09% to 4.38% (2016: 1.03% - 4.62%) per annum relating to the
costs of related borrowings during the year.
13. DIRECTORS', CHIEF EXECUTIVE'S, SUPERVISORS' AND EMPLOYEES' EMOLUMENTS
Directors', chief executive's and supervisors' remuneration for
the year, disclosed pursuant to the applicable Listing Rules and
Companies Ordinance, was as follows:
2017 2016
------------------------------------------ ------- -------
RMB'000 RMB'000
------------------------------------------ ------- -------
Directors' fee 400 450
------------------------------------------ ------- -------
Salaries and other allowances 665 675
------------------------------------------ ------- -------
Discretionary bonus 216 635
------------------------------------------ ------- -------
Retirement benefit scheme contributions 124 145
------------------------------------------ ------- -------
Total 1,405 1,905
------------------------------------------ ------- -------
13. DIRECTORS', CHIEF EXECUTIVE'S, SUPERVISORS' AND EMPLOYEES' EMOLUMENTS (continued)
2017
Salaries
and Retirement
---------------------- ---------- ---------- ------------- ------------- ------- -------
benefit
Director's other Discretionary scheme SARs
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Note
fee allowances bonuses contributions 42) Total
---------------------- ---------- ---------- ------------- ------------- ------- -------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
---------------------- ---------- ---------- ------------- ------------- ------- -------
Executive director
---------------------- ---------- ---------- ------------- ------------- ------- -------
Song Zhiyong
(Note(a)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Non-executive
directors
---------------------- ---------- ---------- ------------- ------------- ------- -------
Cai Jianjiang
(Note(a)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Cao Jianxiong
(Note(a)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Feng Gang (Note(a)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
John Robert
Slosar (Note(b)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Shiu Sai Cheung,
Ian (Note(b)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
- - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Mr. Cao Jianxiong, Mr. Feng Gang and Mr. Shiu
Sai Cheung, Ian retired upon their office term
expiration on 27 October 2017.
----------------------------------------------------------------------------------------------
Independent
non-executive
directors
---------------------- ---------- ---------- ------------- ------------- ------- -------
Wang Xiaokang
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Appointed
on 25 May 2017) 37 - - - - 37
---------------------- ---------- ---------- ------------- ------------- ------- -------
Liu Deheng
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Appointed
on 25 May 2017) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Pan Xiaojiang
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Resigned
on 8 May 2017)
(Note(c)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
To Chi Keung,
Simon
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Resigned
on 8 May 2017) 63 - - - - 63
---------------------- ---------- ---------- ------------- ------------- ------- -------
Hui Hon-chung,
Stanley 150 - - - - 150
---------------------- ---------- ---------- ------------- ------------- ------- -------
Li Dajin 150 - - - - 150
---------------------- ---------- ---------- ------------- ------------- ------- -------
400 - - - - 400
---------------------- ---------- ---------- ------------- ------------- ------- -------
Supervisors
---------------------- ---------- ---------- ------------- ------------- ------- -------
Wang Zhengang
(Note(a)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
He Chaofan
(Note(a)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Xiao Yanjun - 428 151 73 - 652
---------------------- ---------- ---------- ------------- ------------- ------- -------
Zhou Feng
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Resigned
on 2 August
2017)
(Note(a)) - - - - - -
---------------------- ---------- ---------- ------------- ------------- ------- -------
Shen Zhen
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Resigned
on 27 October
2017) - 189 36 40 - 265
---------------------- ---------- ---------- ------------- ------------- ------- -------
Li Guixia
---------------------- ---------- ---------- ------------- ------------- ------- -------
(Appointed
on 27 October
2017) - 48 29 11 - 88
---------------------- ---------- ---------- ------------- ------------- ------- -------
- 665 216 124 - 1,005
---------------------- ---------- ---------- ------------- ------------- ------- -------
400 665 216 124 - 1,405
---------------------- ---------- ---------- ------------- ------------- ------- -------
13. DIRECTORS', CHIEF EXECUTIVE'S, SUPERVISORS' AND EMPLOYEES' EMOLUMENTS (continued)
2016
Retirement
---------------------- ---------- ----------- ------------- ------------- ------- -------
Salaries benefit
Director's and Discretionary scheme SARs
---------------------- ---------- ----------- ------------- ------------- ------- -------
other (Note
fee allowances bonuses contributions 42) Total
---------------------- ---------- ----------- ------------- ------------- ------- -------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
---------------------- ---------- ----------- ------------- ------------- ------- -------
Executive directors
---------------------- ---------- ----------- ------------- ------------- ------- -------
Song Zhiyong
(Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Fan Cheng (Resigned
on 14 April
2016) - 73 465 29 - 567
---------------------- ---------- ----------- ------------- ------------- ------- -------
- 73 465 29 - 567
---------------------- ---------- ----------- ------------- ------------- ------- -------
Non-executive
directors
---------------------- ---------- ----------- ------------- ------------- ------- -------
Cai Jianjiang
(Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Wang Yinxian
---------------------- ---------- ----------- ------------- ------------- ------- -------
(Resigned
on 6 June 2016)
(Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Cao Jianxiong
(Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Feng Gang (Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
John Robert
Slosar (Note(b)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Shiu Sai Cheung,
Ian (Note(b)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
- - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Independent
non-executive
directors
---------------------- ---------- ----------- ------------- ------------- ------- -------
Pan Xiaojiang
(Note(c)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
To Chi Keung,
Simon 150 - - - - 150
---------------------- ---------- ----------- ------------- ------------- ------- -------
Hui Hon-chung,
Stanley 150 - - - - 150
---------------------- ---------- ----------- ------------- ------------- ------- -------
Li Dajin 150 - - - - 150
---------------------- ---------- ----------- ------------- ------------- ------- -------
450 - - - - 450
---------------------- ---------- ----------- ------------- ------------- ------- -------
Supervisors
---------------------- ---------- ----------- ------------- ------------- ------- -------
Wang Zhengang
---------------------- ---------- ----------- ------------- ------------- ------- -------
(Appointed
on 30 August
2016)
(Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Li Qinglin
---------------------- ---------- ----------- ------------- ------------- ------- -------
(Resigned
on 30 August
2016)
(Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
He Chaofan
(Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Zhou Feng (Note(a)) - - - - - -
---------------------- ---------- ----------- ------------- ------------- ------- -------
Xiao Yanjun - 395 129 69 - 593
---------------------- ---------- ----------- ------------- ------------- ------- -------
Shen Zhen - 207 41 47 - 295
---------------------- ---------- ----------- ------------- ------------- ------- -------
- 602 170 116 - 888
---------------------- ---------- ----------- ------------- ------------- ------- -------
450 675 635 145 - 1,905
---------------------- ---------- ----------- ------------- ------------- ------- -------
Certain Directors have been granted SARs in respect of their
services to the Group, further details of which are set out in Note
42.
13. DIRECTORS', CHIEF EXECUTIVE'S, SUPERVISORS' AND EMPLOYEES' EMOLUMENTS (continued)
Notes:
(a) These Directors or supervisors did not receive any
remuneration for their services in the capacity of the Directors or
supervisors of the Company. They also held management positions in
CNAHC and salaries were borne by CNAHC.
(b) These two Directors did not receive any remuneration for
their services in the capacity of the Directors. They also held
management positions in Cathay Pacific Airways Limited ("Cathay
Pacific"), the associate of the Group, and salaries were borne by
Cathay Pacific.
(c) Mr. Pan Xiaojiang, an independent non-executive director,
had waived the remuneration for the year ended 31 December 2017.
Except for Mr. Pan Xiaojiang, none of the Directors, supervisors
and chief executive has waived any emoluments during the years
ended 31 December 2017 and 2016.
(d) For the year ended 31 December 2017, the Group received cash
consideration from Cathay Pacific of Hong Kong Dollar ("HKD")
2,480,000 for making available directors' services to Cathay
Pacific (2016: HKD2,480,000).
Five highest paid individuals
For both 2017 and 2016, the five highest paid employees were not
Directors, supervisors nor chief executive of the Group.
Details of the remuneration of the five highest paid individuals
during the year were as follows:
2017 2016
------------------------------------------ ------- -------
RMB'000 RMB'000
------------------------------------------ ------- -------
Salaries and other allowances 13,355 12,389
------------------------------------------ ------- -------
Discretionary bonus 225 203
------------------------------------------ ------- -------
Retirement benefit scheme contributions 167 149
------------------------------------------ ------- -------
13,747 12,741
------------------------------------------ ------- -------
Discretionary bonuses are calculated based on the Group's or
respective member's performance for such financial year.
13. DIRECTORS', CHIEF EXECUTIVE'S, SUPERVISORS' AND EMPLOYEES' EMOLUMENTS (continued)
Five highest paid individuals (continued)
The number of the five highest paid individuals whose
remuneration fell within the following bands is as follows:
2017 2016
------------------------------- ---- ----
HKD2,500,001 to HKD3,000,000 1 3
------------------------------- ---- ----
HKD3,000,001 to HKD3,500,000 3 2
------------------------------- ---- ----
HKD3,500,001 to HKD4,000,000 1 -
------------------------------- ---- ----
5 5
------------------------------- ---- ----
During the year, no emoluments were paid by the Group to any of
the Directors, supervisors, chief executive, or the five highest
paid individuals as an inducement to join or upon joining the Group
or as compensation for loss of office (2016: nil).
14. INCOME TAX EXPENSE
2017 2016
------------------------------- --------- ---------
RMB'000 RMB'000
------------------------------- --------- ---------
Current income tax:
------------------------------- --------- ---------
- Mainland China 3,615,672 2,200,163
------------------------------- --------- ---------
- Hong Kong and Macau 11,939 4,969
------------------------------- --------- ---------
Over-provision in respect of
prior years (5,217) (1,316)
------------------------------- --------- ---------
Deferred tax (Note 26) (777,611) 250,405
------------------------------- --------- ---------
2,844,783 2,454,221
------------------------------- --------- ---------
Under the relevant Corporate Income Tax Law and regulations in
the PRC, except for two branches and a subsidiary which are taxed
at a preferential rate of 15% (2016: 15%), all group companies
located in Mainland China are subject to a corporate income tax
rate of 25% (2016: 25%) during the year. Subsidiaries in Hong Kong
and Macau are taxed at corporate income tax rates of 16.5% and 12%
(2016: 16.5% and 12%), respectively.
In respect of majority of the Group's overseas airline
activities, the Group has either obtained exemptions from overseas
taxation pursuant to the bilateral aviation agreements between the
overseas governments and the PRC government, or has sustained tax
losses in these overseas jurisdictions. Accordingly, no provision
for overseas tax has been made for overseas airlines activities in
the current and prior years.
14. INCOME TAX EXPENSE (continued)
The taxation for the year can be reconciled to the profit before
taxation per consolidated statement of profit or loss as
follows:
2017 2016
-------------------------------------- ---------- ----------
RMB'000 RMB'000
-------------------------------------- ---------- ----------
Profit before taxation 11,486,232 10,212,902
-------------------------------------- ---------- ----------
Tax at the applicable tax rate
of 25% 2,871,558 2,553,226
-------------------------------------- ---------- ----------
Preferential tax rates on income
of group entities (159,809) (126,637)
-------------------------------------- ---------- ----------
Tax effect of share of profits
less losses of associates and
joint ventures 94,066 (5,559)
-------------------------------------- ---------- ----------
Tax effect of non-deductible
expenses 43,055 46,800
-------------------------------------- ---------- ----------
Tax effect of non-taxable income (10,850) (1,543)
-------------------------------------- ---------- ----------
Deductible temporary differences
and tax losses not recognised 11,530 105,783
-------------------------------------- ---------- ----------
Utilisation of tax losses not
recognised in prior years (274,684) (27,165)
-------------------------------------- ---------- ----------
Utilisation of deductible temporary
differences not recognised in
prior years (1,139) (89,368)
-------------------------------------- ---------- ----------
Over-provision in respect of
prior years (5,217) (1,316)
-------------------------------------- ---------- ----------
Withholding tax on undistributed
earnings of subsidiaries 276,273 -
-------------------------------------- ---------- ----------
Taxation for the year 2,844,783 2,454,221
-------------------------------------- ---------- ----------
15. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share
attributable to the owners of the Company is based on the following
data:
2017 2016
---------------------------------- --------- ---------
RMB'000 RMB'000
---------------------------------- --------- ---------
Earnings
---------------------------------- --------- ---------
Earnings for the purpose of
basic and diluted earnings per
share 7,244,321 6,809,159
---------------------------------- --------- ---------
15. EARNINGS PER SHARE (continued)
2017 2016
-------------------------------------- ---------- ----------
'000 '000
-------------------------------------- ---------- ----------
Number of shares
-------------------------------------- ---------- ----------
Weighted average number of ordinary
shares for the purpose of basic
and diluted earnings per share 13,466,675 12,294,897
-------------------------------------- ---------- ----------
The weighted average number of ordinary shares for the purpose
of basic and diluted earnings per share is calculated based on the
weighted average number of ordinary shares in issue during the
year, as adjusted to reflect the number of treasury shares held by
Cathay Pacific through reciprocal shareholding (Note 23).
The Group had no potential dilutive ordinary shares in issue
during both years.
16. DIVIDS
Dividends for the shareholders of ordinary shares of the Company
recognised as distribution during the year:
2017 2016
---------------------------------- --------- ---------
RMB'000 RMB'000
---------------------------------- --------- ---------
Final dividend in respect of
the previous financial year,
---------------------------------- --------- ---------
approved during the current
year,
---------------------------------- --------- ---------
of RMB1.0771 per ten shares
(including tax)
---------------------------------- --------- ---------
(2016: RMB1.0700 per ten shares
(including tax)) 1,564,468 1,400,068
---------------------------------- --------- ---------
Subsequent to the end of the reporting period, final dividend in
respect of the year ended 31 December 2017 of RMB1.1497 per ten
ordinary share (approximately RMB1,670 million in aggregate for
ordinary shares) has been proposed by the Directors and is subject
to approval by the shareholders at the forthcoming annual general
meeting.
17. PROPERTY, PLANT AND EQUIPMENT
Aircraft
----------------------------- ------------ ----------- ----------- ------------ ------------
and flight Other Construction
----------------------------- ------------ ----------- ----------- ------------ ------------
equipment Buildings equipment in progress Total
----------------------------- ------------ ----------- ----------- ------------ ------------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------- ------------ ----------- ----------- ------------ ------------
Cost
----------------------------- ------------ ----------- ----------- ------------ ------------
At 1 January 2016 206,609,203 11,175,434 9,959,884 6,270,902 234,015,423
----------------------------- ------------ ----------- ----------- ------------ ------------
Additions 3,415,522 1,433 272,972 12,949,130 16,639,057
----------------------------- ------------ ----------- ----------- ------------ ------------
Transfer from construction
in progress 9,255,096 813,455 493,434 (10,561,985) -
----------------------------- ------------ ----------- ----------- ------------ ------------
Reclassification
to non-current
assets held for
sale (6,193,899) (19,065) - - (6,212,964)
----------------------------- ------------ ----------- ----------- ------------ ------------
Disposals (1,284,481) (98,790) (173,932) - (1,557,203)
----------------------------- ------------ ----------- ----------- ------------ ------------
Exchange realignment 104,905 - 8,773 - 113,678
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2016 and 1 January
2017 211,906,346 11,872,467 10,561,131 8,658,047 242,997,991
----------------------------- ------------ ----------- ----------- ------------ ------------
Additions 3,960,686 45,209 460,072 21,918,661 26,384,628
----------------------------- ------------ ----------- ----------- ------------ ------------
Transfer from construction
in progress 20,155,320 89,205 471,495 (20,716,020) -
----------------------------- ------------ ----------- ----------- ------------ ------------
Reclassification
to non-current
assets held for
sale (3,184,739) - - - (3,184,739)
----------------------------- ------------ ----------- ----------- ------------ ------------
Disposals (6,087,010) (23,398) (314,642) - (6,425,050)
----------------------------- ------------ ----------- ----------- ------------ ------------
Exchange realignment (107,767) - (9,640) - (117,407)
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2017 226,642,836 11,983,483 11,168,416 9,860,688 259,655,423
----------------------------- ------------ ----------- ----------- ------------ ------------
Accumulated depreciation
----------------------------- ------------ ----------- ----------- ------------ ------------
At 1 January 2016 (67,684,985) (3,588,154) (5,918,488) - (77,191,627)
----------------------------- ------------ ----------- ----------- ------------ ------------
Reclassification
to non-current
assets held for
sale 5,062,845 10,495 - - 5,073,340
----------------------------- ------------ ----------- ----------- ------------ ------------
Depreciation charge
for the year (12,111,448) (472,788) (755,415) - (13,339,651)
----------------------------- ------------ ----------- ----------- ------------ ------------
Written back on
disposals 1,142,242 46,698 153,757 - 1,342,697
----------------------------- ------------ ----------- ----------- ------------ ------------
Exchange realignment (42,635) - (6,638) - (49,273)
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2016 and 1 January
2017 (73,633,981) (4,003,749) (6,526,784) - (84,164,514)
----------------------------- ------------ ----------- ----------- ------------ ------------
Reclassification
to non-current
assets held for
sale 2,848,804 - - - 2,848,804
----------------------------- ------------ ----------- ----------- ------------ ------------
Depreciation charge
for the year (12,245,637) (416,511) (791,007) - (13,453,155)
----------------------------- ------------ ----------- ----------- ------------ ------------
Written back on
disposals 4,290,657 10,924 208,763 - 4,510,344
----------------------------- ------------ ----------- ----------- ------------ ------------
Exchange realignment 48,118 - 7,370 - 55,488
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2017 (78,692,039) (4,409,336) (7,101,658) - (90,203,033)
----------------------------- ------------ ----------- ----------- ------------ ------------
Impairment
----------------------------- ------------ ----------- ----------- ------------ ------------
At 1 January 2016 (825,700) (7,119) - - (832,819)
----------------------------- ------------ ----------- ----------- ------------ ------------
Reclassification
to non-current
assets held for
sale - 7,119 - - 7,119
----------------------------- ------------ ----------- ----------- ------------ ------------
Written back on
disposals 5,145 - - - 5,145
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2016 and 1 January
2017 (820,555) - - - (820,555)
----------------------------- ------------ ----------- ----------- ------------ ------------
Reclassification
to non-current
assets held for
sale 51,766 - - - 51,766
----------------------------- ------------ ----------- ----------- ------------ ------------
Charge for the
year (149,160) - - - (149,160)
----------------------------- ------------ ----------- ----------- ------------ ------------
Written back on
disposals 2,030 - - - 2,030
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2017 (915,919) - - - (915,919)
----------------------------- ------------ ----------- ----------- ------------ ------------
Net book value
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2017 147,034,878 7,574,147 4,066,758 9,860,688 168,536,471
----------------------------- ------------ ----------- ----------- ------------ ------------
At 31 December
2016 137,451,810 7,868,718 4,034,347 8,658,047 158,012,922
----------------------------- ------------ ----------- ----------- ------------ ------------
17. PROPERTY, PLANT AND EQUIPMENT (continued)
The above items of property, plant and equipment, less their
estimated residual value, if any, except for construction in
progress, are depreciated on a straight-line basis at the following
rates per annum:
Estimated Residual Depreciation
----------------------------- --------- -------- ------------
useful
life value rate
----------------------------- --------- -------- ------------
Aircraft and flight
equipment:
----------------------------- --------- -------- ------------
Core parts of airframe 15 to 30 5% 3.17% -
and engine years 6.33%
----------------------------- --------- -------- ------------
Overhaul of airframe 5 to 12 Nil 8.33% -
and cabin refurbishment years 20.00%
----------------------------- --------- -------- ------------
Overhaul of engine 3 to 15 Nil 6.67% -
years 33.33%
----------------------------- --------- -------- ------------
Rotable 3 to 15 Nil 6.67% -
years 33.33%
----------------------------- --------- -------- ------------
Buildings 5 to 50 3%-5% 1.90% -
years 19.40%
----------------------------- --------- -------- ------------
Other equipment 3 to 20 Nil-5% 4.75% -
years 33.33%
----------------------------- --------- -------- ------------
During the year, the Group recognised an impairment loss of
approximately RMB149 million relating to aircraft and flight (2016:
Nil). The recoverable amounts of the impaired aircraft and flight
equipment are the higher of their fair value less costs of disposal
and value in use. The recoverable amount was determined based on
the fair value less costs of disposal, using market comparison
approach by reference to the estimated sales value as at 31
December 2017 and 2016. During the year, a number of aircrafts have
been transferred to assets held for sale.
As at 31 December 2017, the Group's aircraft and flight
equipment, buildings and machinery with an aggregate net book value
of approximately RMB13,107 million (31 December 2016: RMB21,922
million) were pledged to secure certain bank loans of the Group
(Note 37).
As at 31 December 2017, the aggregate net book value of aircraft
and simulator held under finance leases included in the property,
plant and equipment of the Group amounted to approximately
RMB67,957 million (31 December 2016: RMB62,108 million) (Note
36).
As at 31 December 2017, the Group was in the process of applying
for the title certificates of certain buildings with an aggregate
net book value of approximately RMB3,143million (31 December 2016:
RMB3,177 million). The Directors are of the opinion that the Group
is entitled to lawfully and validly occupy and use the
above-mentioned buildings, and the aforesaid matter did not have
any significant impact on the Group's financial position as at 31
December 2017.
18. LEASE PREPAYMENTS
2017 2016
---------------------------- --------- ---------
RMB'000 RMB'000
---------------------------- --------- ---------
Cost
---------------------------- --------- ---------
As at 1 January 3,627,556 3,535,843
---------------------------- --------- ---------
Additions 314,190 91,713
---------------------------- --------- ---------
As at 31 December 3,941,746 3,627,556
---------------------------- --------- ---------
Accumulated amortization
---------------------------- --------- ---------
As at 1 January (569,811) (501,634)
---------------------------- --------- ---------
Amortisation for the year (71,811) (68,177)
---------------------------- --------- ---------
As at 31 December (641,622) (569,811)
---------------------------- --------- ---------
Net carrying amount
---------------------------- --------- ---------
As at 31 December 3,300,124 3,057,745
---------------------------- --------- ---------
The Group's lease prepayments in respect of land are located in
Mainland China.
As at 31 December 2017, the Group's land use rights with an
aggregate net book value of approximately RMB34 million (31
December 2016: RMB35 million) were pledged to secure certain bank
loans of the Group (Note 37).
As at 31 December 2017, the Group was in the process of applying
for the title certificates of certain land with an aggregate net
book value of approximately RMB48 million (31 December 2016: RMB552
million). The Directors are of the opinion that the Group is
entitled to lawfully and validly occupy and use the above-mentioned
land, and the aforesaid matter did not have any significant impact
on the Group's financial position as at 31 December 2017.
19. INVESTMENT PROPERTIES
2017 2016
---------------------------- --------- ---------
RMB'000 RMB'000
---------------------------- --------- ---------
Cost
---------------------------- --------- ---------
As at 1 January 903,707 903,707
---------------------------- --------- ---------
Additions 11,738 -
---------------------------- --------- ---------
As at 31 December 915,445 903,707
---------------------------- --------- ---------
Accumulated depreciation
---------------------------- --------- ---------
As at 1 January (208,189) (181,044)
---------------------------- --------- ---------
Depreciation for the year (32,518) (27,145)
---------------------------- --------- ---------
As at 31 December (240,707) (208,189)
---------------------------- --------- ---------
Net carrying amount
---------------------------- --------- ---------
As at 31 December 674,738 695,518
---------------------------- --------- ---------
20. INTANGIBLE ASSETS
2017 2016
------------------------------ -------- --------
RMB'000 RMB'000
------------------------------ -------- --------
As at 1 January 113,367 35,902
------------------------------ -------- --------
Addition 1,489 116,240
------------------------------ -------- --------
Amortization for the year (38,835) (38,747)
------------------------------ -------- --------
Reduction upon admission of
new Star Alliance members - (28)
------------------------------ -------- --------
As at 31 December 76,021 113,367
------------------------------ -------- --------
The Group's intangible assets include the right of using given
flight slots and the admission rights of the Company and Shenzhen
Airlines Company Limited ("Shenzhen Airlines") to Star Alliance
(the "Admission Rights"), which are stated at cost less impairment
losses. The Admission Rights have an indefinite useful life due to
their lasting legal and economic significance.
21. GOODWILL
2017 2016
---------------------- --------- ---------
RMB'000 RMB'000
---------------------- --------- ---------
As at 31 December:
---------------------- --------- ---------
- Cost 1,276,866 1,276,866
---------------------- --------- ---------
- Impairment (176,891) (176,891)
---------------------- --------- ---------
Net carrying amount 1,099,975 1,099,975
---------------------- --------- ---------
Impairment testing of goodwill
For the purposes of impairment testing, goodwill acquired
through business combinations has been mainly allocated to the
following cash-generating units for impairment testing:
-- Air China Cargo Co., Ltd. ("Air China Cargo") cash-generating unit
-- Shenzhen Airlines cash-generating unit
Air China Cargo cash-generating unit
Full impairment provision was made for goodwill allocated to the
Air China Cargo in 2011.
Shenzhen Airlines cash-generating unit
The recoverable amount of the Shenzhen Airlines cash-generating
unit was determined based on a value in use calculation. That
calculation uses cash flow projections based on financial budgets
approved by management covering a three-year period and discount
rate of 10% (2016: 10%). The discount rate used is a long-term
weighted-average cost of capital, which is based on the
management's best estimation of the investment returns that market
participants would require for the relevant assets. Shenzhen
Airlines' cash flows beyond the three-year period were extrapolated
using a 2% growth rate. This growth rate is based on the relevant
industry growth forecasts and does not exceed the average long-term
growth rate for the relevant industry. Other key assumptions for
the value in use calculations relate to the estimation of cash
inflows/outflows which include budgeted sales and gross margin,
such estimation is based on the unit's past performance and
management's expectations for the market development. Management
believes that any reasonably possible change in any of these
assumptions would not cause the aggregate carrying amount of
Shenzhen Airlines cash-generating unit to exceed the aggregate
recoverable amount of Shenzhen Airlines cash-generating unit.
22. INTERESTS IN SUBSIDIARIES
Particulars of the principal subsidiaries as at 31 December 2017
were as follows:
Place Percentage
of Nominal of
incorporation/ value equity interests
registration of attributable
and Legal registered to the Principal
Company name operations status capital Company activities
---------------------- ------------------ ------------- ------------------ ------------------- ------------------
Direct Indirect
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
China National
Aviation Company Limited
Limited ("CNAC") liability Investment
( ) Hong Kong company HK$331,268,000 69 31 holding
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
Air China Import Limited Import
and Export PRC/Mainland liability and export
Co., Ltd.(#) China company RMB95,080,786 100 - trading
( )
----------------------------------------------------------------------------- -------- --------- ------------------
Provision
of cabin
Zhejiang Aviation Limited service
Service Co., PRC/Mainland liability and airline
Ltd.(#) China company RMB20,000,000 100 - catering
( )
----------------------------------------------------------------------------- -------- --------- ------------------
Shanghai
International
Aviation Air
Service Co., Limited Provision
Ltd.(#) PRC/Mainland liability of ground
( ) China company RMB2,000,000 100 - service
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
Air China
Development
Corporation Provision
(Hong Kong) Limited of air
Limited liability ticketing
( ) Hong Kong company HK$9,379,010 95 - services
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
Beijing Golden
Phoenix Human Provision
Resource Limited of human
Co., Ltd.(#) PRC/Mainland liability resources
( ) China company RMB2,000,000 100 - services
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
British Limited
Total Transform Virgin liability Investment
Group Ltd. Islands company HK$13,765,440,000 99.94 0.06 holding
( )
----------------------------------------------------------------------------- -------- --------- ------------------
Air Macau Company Macau Limited MOP442,042,000 - 66.9 Airline
Limited liability operator
( ) company
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
Provision
Limited of cargo
Air China Cargo PRC/Mainland liability carriage
( ) China company RMB5,235,294,118 51 - services
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
Chengdu Falcon
Aircraft Provision
Engineering of aircraft
Service Co., Limited overhaul
Ltd.(#) PRC/Mainland liability and maintenance
( ) China company RMB37,565,216 60 - services
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
Limited
Shenzhen Airlines PRC/Mainland liability Airline
( ) China company RMB5,360,000,000 51 - operator
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
Kunming Airlines PRC/Mainland Limited RMB80,000,000 - 80 Airline
Co., Ltd.(#) China liability operator
company
( )
----------------------------------------------------------------------------- -------- --------- ------------------
Limited
Beijing Airlines PRC/Mainland liability Airline
Co., Ltd.(#) China company RMB1,000,000,000 51 - operator
( )
----------------------------------------------------------------------------- -------- --------- ------------------
Limited
Dalian Airlines PRC/Mainland liability Airline
Co., Ltd.(#) China company RMB1,000,000,000 80 - operator
( )
----------------------------------------------------------------------------- -------- --------- ------------------
Air China Inner Limited
Mongolia Co., PRC/Mainland liability Airline
Ltd.(#) China company RMB1,000,000,000 80 - operator
( )
----------------------------------------------------------------------------- -------- --------- ------------------
Aircraft Maintenance Provision
and Engineering of aircraft
Corporation Limited overhaul
("AMECO") PRC/Mainland liability and maintenance
( ) China company US$300,052,800 75 - services
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
China National
Aviation Finance Limited Provision
Co., Ltd. ("CNAF") PRC/Mainland liability of financial
( ) China company RMB1,127,961,864 51 - services
---------------------- ------------------ ------------- ------------------ -------- --------- ------------------
(#) The English names of these companies are direct translations of their Chinese names.
The above table lists the subsidiaries of the Company which, in
the opinion of the Directors, principally affected the results or
assets of the Group. To give details of other subsidiaries would,
in the opinion of the Directors, result in particulars of excessive
length.
22. INTERESTS IN SUBSIDIARIES (continued)
Information of issued capital and debt securities, representing
corporate bonds, issued by subsidiaries of the Group:
As at 31 December 2017, the Group's certain subsidiaries which
had outstanding issued debt securities as follows:
Face value Carrying
of value of
-------------------- --------------- --------------- -----------
Maturity
Name debt securities debt securities date
-------------------- --------------- --------------- -----------
RMB'000 RMB'000
-------------------- --------------- --------------- -----------
Shenzhen Airlines 1,000,000 999,026 11/12/2018
-------------------- --------------- --------------- -----------
600,000 599,644 21/04/2018
-------------------- --------------- --------------- -----------
600,000 599,807 24/03/2018
-------------------- --------------- --------------- -----------
2,198,477
-------------------- --------------- --------------- -----------
As at 31 December 2016, the Group had outstanding issued debt
securities as follows:
Face value Carrying
of value of
-------------------- --------------- --------------- --------------
Maturity
Name debt securities debt securities date
-------------------- --------------- --------------- --------------
RMB'000 RMB'000
-------------------- --------------- --------------- --------------
Shenzhen Airlines 700,000 699,256 06/11/2017
-------------------- --------------- --------------- --------------
100,000 100,000 19/11/2017
-------------------- --------------- --------------- --------------
400,000 398,772 19/12/2017
-------------------- --------------- --------------- --------------
1,000,000 998,041 11/12/2018
-------------------- --------------- --------------- --------------
09/01/2017
5,150,000 5,147,083 - 24/08/2017
-------------------- --------------- --------------- --------------
7,343,152
-------------------- --------------- --------------- --------------
22. INTERESTS IN SUBSIDIARIES (continued)
Composition of the Group
Place of
------------------------------- ---------------- ----------
incorporation/
establishment
------------------------------- ----------------
Number of principal
Principal activity and operation subsidiaries
------------------------------- ---------------- ---------------------
2017 2016
------------------------------- ---------------- ---------- ---------
Airline operator PRC/Macau 6 6
------------------------------- ---------------- ---------- ---------
Investment holding Hong Kong/BVI 2 2
------------------------------- ---------------- ---------- ---------
Import and export trading PRC 1 1
------------------------------- ---------------- ---------- ---------
Provision of cabin service
and airline catering PRC 1 1
------------------------------- ---------------- ---------- ---------
Provision of ground service PRC 1 1
------------------------------- ---------------- ---------- ---------
Provision of air ticketing
service Hong Kong 1 1
------------------------------- ---------------- ---------- ---------
Provision of human resources
services PRC 1 1
------------------------------- ---------------- ---------- ---------
Provision of cargo carriage
services PRC 1 1
------------------------------- ---------------- ---------- ---------
Provision of aircraft
overhaul and maintenance
service PRC 2 2
------------------------------- ---------------- ---------- ---------
Provision of financial
services PRC 1 1
------------------------------- ---------------- ---------- ---------
17 17
------------------------------------------------ ---------- ---------
Details of non-wholly owned subsidiaries that have material
non-controlling interests
The table below shows details of non-wholly owned subsidiaries
of the Group that have material non-controlling interests:
Proportion
of
Place equity interests Profit (loss)
of and voting allocated
incorporation/establishment rights to non- Accumulated
and held by non- controlling non-
principal controlling interests controlling
place interests year ended interests
Name of subsidiary of business at 31 December 31 December at 31 December
----------------------- ----------------------------- ------------------- ------------------ --------------------
2017 2016 2017 2016 2017 2016
----------------------- ----------------------------- --------- -------- --------- ------- --------- ---------
RMB'000 RMB'000 RMB'000 RMB'000
----------------------- ----------------------------- --------- -------- --------- ------- --------- ---------
Shenzhen Airlines PRC 49% 49% 709,439 804,829 3,848,030 3,221,420
----------------------- ----------------------------- --------- -------- --------- ------- --------- ---------
Air China
Cargo PRC 49% 49% 540,771 5,902 1,939,609 1,400,208
----------------------- ----------------------------- --------- -------- --------- ------- --------- ---------
Others 146,918 138,791 3,023,397 2,975,516
------------------------------------------------------ --------- -------- --------- ------- --------- ---------
Total 1,397,128 949,522 8,811,036 7,597,144
------------------------------------------------------ --------- -------- --------- ------- --------- ---------
22. INTERESTS IN SUBSIDIARIES (continued)
Details of non-wholly owned subsidiaries that have material
non-controlling interests (continued)
Summarised financial information in respect of each of the
Group's subsidiaries that has material non-controlling interests is
set out below. The summarised financial information below
represents amounts before intra-group elimination. The summarised
financial information below represents amounts shown in the
subsidiary's financial statements prepared in accordance with
IFRSs.
2017 2016
--------------------------- ------------------------- -------------------------
Shenzhen Air China Shenzhen Air China
--------------------------- ------------ ----------- ------------ -----------
Airlines Cargo Airlines Cargo
--------------------------- ------------ ----------- ------------ -----------
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------- ------------ ----------- ------------ -----------
Current assets 3,370,806 3,344,189 2,332,454 3,128,327
--------------------------- ------------ ----------- ------------ -----------
Non-current assets 47,144,256 11,003,418 44,885,787 11,615,443
--------------------------- ------------ ----------- ------------ -----------
Current liabilities (25,202,668) (4,211,970) (19,701,150) (3,350,084)
--------------------------- ------------ ----------- ------------ -----------
Non-current liabilities (17,562,511) (6,186,863) (21,040,470) (8,545,805)
--------------------------- ------------ ----------- ------------ -----------
Net assets 7,749,883 3,948,774 6,476,621 2,847,881
--------------------------- ------------ ----------- ------------ -----------
- Equity contributed
to equity shareholders
of the subsidiary 7,650,692 3,939,540 6,382,748 2,838,575
--------------------------- ------------ ----------- ------------ -----------
- Equity contributed
to the NCI at the
subsidiary level 99,191 9,234 93,873 9,306
--------------------------- ------------ ----------- ------------ -----------
Carrying amount
of NCI 3,848,030 1,939,609 3,221,420 1,400,208
--------------------------- ------------ ----------- ------------ -----------
Revenue 28,051,965 11,424,404 26,471,441 9,241,553
--------------------------- ------------ ----------- ------------ -----------
Profit for the
year 1,444,438 1,103,112 1,605,922 10,499
--------------------------- ------------ ----------- ------------ -----------
Total comprehensive
income 1,550,819 1,100,893 1,641,664 12,007
--------------------------- ------------ ----------- ------------ -----------
Total comprehensive
income
allocated to NCI 761,566 539,401 822,343 6,973
--------------------------- ------------ ----------- ------------ -----------
Dividend paid to
NCI (134,955) - (111,818) (1,818)
--------------------------- ------------ ----------- ------------ -----------
Cash flows generated
from operating
activities 3,234,613 2,294,037 7,626,164 1,445,017
--------------------------- ------------ ----------- ------------ -----------
Cash flows used
in investing activities (3,068,375) (245,739) (2,557,435) (98,595)
--------------------------- ------------ ----------- ------------ -----------
Cash flows used
in financing activities (197,449) (4,626,260) (5,483,318) (1,103,903)
--------------------------- ------------ ----------- ------------ -----------
23. INTERESTS IN ASSOCIATES
2017 2016
-------------------------------- ---------- ----------
RMB'000 RMB'000
-------------------------------- ---------- ----------
Share of net assets
-------------------------------- ---------- ----------
- Listed shares in the PRC 820,269 746,275
-------------------------------- ---------- ----------
- Listed shares in Hong Kong 9,097,056 9,056,334
-------------------------------- ---------- ----------
- Unlisted investments 1,743,985 1,511,568
-------------------------------- ---------- ----------
Goodwill 2,585,072 2,914,352
-------------------------------- ---------- ----------
14,246,382 14,228,529
-------------------------------- ---------- ----------
Less: impairment (46,842) (46,842)
-------------------------------- ---------- ----------
As at 31 December 14,199,540 14,181,687
-------------------------------- ---------- ----------
Market value of listed shares 13,097,468 12,115,901
-------------------------------- ---------- ----------
23. INTERESTS IN ASSOCIATES (continued)
Particulars of the principal associates as at 31 December 2017
were as follows:
Percentage
Place of of
------------------------ -------------- ----------------- ---------------- -----------------
Nominal
incorporation/ value of equity interests
------------------------ -------------- ----------------- ---------------- -----------------
registration
and registered/issued attributable
------------------------ -------------- ----------------- ---------------- -----------------
Principal
Company name operations share capital to the Group activities
------------------------ -------------- ----------------- ---------------- -----------------
Cathay Pacific(*) Hong Kong HK$787,139,514 29.99 Airline
operator
( )
------------------------ -------------- ----------------- ---------------- -----------------
Shandong Aviation PRC/Mainland RMB580,000,000 49.4 Investment
Group Co., Ltd. China holding
------------------------ -------------- ----------------- ---------------- -----------------
( )
------------------------ -------------- ----------------- ---------------- -----------------
Shandong Airlines PRC/Mainland RMB400,000,000 22.8 Airline
Co., Ltd. China operator
------------------------ -------------- ----------------- ---------------- -----------------
( )
------------------------ -------------- ----------------- ---------------- -----------------
Menzies Macau Airport Macau MOP10,000,000 41 Provision
Services Limited(*) of airport
------------------------ -------------- ----------------- ---------------- -----------------
( ) ground
handling
------------------------ -------------- ----------------- ---------------- -----------------
services
------------------------ -------------- ----------------- ---------------- -----------------
Yunnan Airport PRC/Mainland RMB10,000,000 40 Civil aircraft
Aircraft China line
------------------------ -------------- ----------------- ---------------- -----------------
Maintenance & maintenance
Services Co., Ltd.
------------------------ -------------- ----------------- ---------------- -----------------
( )
------------------------ -------------- ----------------- ---------------- -----------------
Chongqing Civil PRC/Mainland RMB14,800,000 24.5 Provision
Aviation Cares China of
Information
------------------------ -------------- ----------------- ---------------- -----------------
Technology Co., airline-related
Ltd.(#)
------------------------ -------------- ----------------- ---------------- -----------------
( ) information
------------------------ -------------- ----------------- ---------------- -----------------
system
services
------------------------ -------------- ----------------- ---------------- -----------------
Chengdu Civil Aviation PRC/Mainland RMB10,000,000 35 Provision
Southwest Cares China of
------------------------ -------------- ----------------- ---------------- -----------------
Co., Ltd.(#) airline-related
( ) information
------------------------ -------------- ----------------- ---------------- -----------------
system
services
------------------------ -------------- ----------------- ---------------- -----------------
Tibet Airlines PRC/Mainland RMB280,000,000 31 Airline
Co., Ltd.(#) China operator
------------------------ -------------- ----------------- ---------------- -----------------
( )
------------------------ -------------- ----------------- ---------------- -----------------
(*) The equity interests of these associates are held indirectly
through certain subsidiaries of the Company.
(#) The English names of these companies are direct translations of their Chinese names.
The above table lists the associates of the Group which, in the
opinion of the Directors, principally affected the results or
assets of the Group. To give details of other associates would, in
the opinion of the Directors, result in particulars of excessive
length.
Summarised financial information in respect of Cathay Pacific,
the only individually material associate of the Group, and a
reconciliation to the carrying amount in the consolidated financial
statements, are set out below. The summarised financial information
below represents amounts shown in the associate's financial
statements prepared in accordance with IFRSs.
23. INTERESTS IN ASSOCIATES (continued)
Cathay Pacific
2017 2016
----------------------------------------- ------------ ------------
RMB'000 RMB'000
----------------------------------------- ------------ ------------
Gross amounts of the associate's
----------------------------------------- ------------ ------------
Current assets 27,447,105 28,080,458
----------------------------------------- ------------ ------------
Non-current assets 130,019,949 130,624,401
----------------------------------------- ------------ ------------
Current liabilities (34,504,693) (39,440,735)
----------------------------------------- ------------ ------------
Non-current liabilities (71,744,483) (69,595,562)
----------------------------------------- ------------ ------------
Equity 51,217,878 49,668,562
----------------------------------------- ------------ ------------
- Equity contributed to equity
shareholders of the associate 51,074,937 49,524,546
----------------------------------------- ------------ ------------
- Equity contributed to NCI
of the associate 142,941 144,016
----------------------------------------- ------------ ------------
Revenue 84,171,090 80,335,815
----------------------------------------- ------------ ------------
Loss for the year (768,306) (237,324)
----------------------------------------- ------------ ------------
Other comprehensive income 6,052,144 8,030,896
----------------------------------------- ------------ ------------
Total comprehensive income 5,283,838 7,793,572
----------------------------------------- ------------ ------------
Dividend received from the associate - 337,702
----------------------------------------- ------------ ------------
Reconciled to the Group's interests
in the associate
----------------------------------------- ------------ ------------
Gross amounts of net assets
of the associate 51,074,937 49,524,546
----------------------------------------- ------------ ------------
Group's effective interest 29.99% 29.99%
----------------------------------------- ------------ ------------
Group's share of net assets
of the associate 15,317,374 14,852,411
----------------------------------------- ------------ ------------
Elimination of reciprocal shareholding (6,220,319) (5,796,077)
----------------------------------------- ------------ ------------
Goodwill 2,372,287 2,701,567
----------------------------------------- ------------ ------------
Carrying amount in the consolidated
financial statements 11,469,342 11,757,901
----------------------------------------- ------------ ------------
Aggregate information of associates that are not individually
material:
2017 2016
-------------------------------------- --------- ---------
RMB'000 RMB'000
-------------------------------------- --------- ---------
Aggregate carrying amounts of
individually immaterial associates
in the consolidated financial
statements 2,730,198 2,423,786
-------------------------------------- --------- ---------
Aggregate amounts of the Group's
share of those associates'
-------------------------------------- --------- ---------
- Profit from continuing operations 380,948 447,309
-------------------------------------- --------- ---------
- Other comprehensive income
for the year 17,684 19,137
-------------------------------------- --------- ---------
Total comprehensive income for
the year 398,632 466,446
-------------------------------------- --------- ---------
24. INTERESTS IN JOINT VENTURES
2017 2016
---------------------- --------- ---------
RMB'000 RMB'000
---------------------- --------- ---------
Share of net assets 1,232,901 1,120,497
---------------------- --------- ---------
Goodwill 6,495 6,495
---------------------- --------- ---------
1,239,396 1,126,992
---------------------- --------- ---------
Particulars of the joint ventures of the Group at 31 December
2017 were as follows:
Place
of
--------------------------- ---------------- ---------------- --------- ------------------
Percentage of
incorporation/ (%)
--------------------------- ---------------- ---------------- ------------------ ------------------
registration
and Ownership Profit
--------------------------- ---------------- ---------------- --------- ------- ------------------
Issued Principal
Company name operations capital interest sharing activities
--------------------------- ---------------- ---------------- --------- ------- ------------------
Provision
SkyWorks Capital of financial
Asia Ltd. Hong Kong HK$30 33.3 33.3 services
--------------------------- ---------------- ---------------- --------- ------- ------------------
Shanghai Pudong
International
Airport Cargo
Terminal Co., Provision
Ltd.(#) of cargo
( PRC/Mainland carriage
) China RMB680,000,000 39 39 services
--------------------------- ---------------- ---------------- --------- ------- ------------------
Provision
Sichuan Services of engine
Aero-Engine Maintenance overhaul
Co., Ltd.(#) PRC/Mainland and maintenance
( ) China US$88,000,000 60 60 services
--------------------------- ---------------- ---------------- --------- ------- ------------------
Wholesale
and import
GA Innovation PRC/Mainland of aircraft
China Co., Ltd.(#) China US$10,000,000 50 50 and components
( )
--------------------------------------------------------------- --------- ------- ------------------
Shanghai International
Airport Ground Provision
Service Co., of airport
Ltd.(#) PRC/Mainland ground handling
( ) China RMB360,000,000 24 24 services
--------------------------- ---------------- ---------------- --------- ------- ------------------
(#) The English names of these companies are direct translations of their Chinese names.
24. INTERESTS IN JOINT VENTURES (continued)
The Directors are of the opinion that no joint ventures are
individually material to the Group. Aggregate information of joint
ventures that are not individually material are listed as
follows:
2017 2016
-------------------------------------- --------- ---------
RMB'000 RMB'000
-------------------------------------- --------- ---------
Aggregate carrying amounts of
individually immaterial joint
ventures in the consolidated
financial statements 1,239,396 1,126,992
-------------------------------------- --------- ---------
Aggregate amounts of the Group's
share of those joint ventures'
-------------------------------------- --------- ---------
- Profit from continuing operations 228,408 233,423
-------------------------------------- --------- ---------
- Other comprehensive income
for the year - -
-------------------------------------- --------- ---------
Total comprehensive income for
the year 228,408 233,423
-------------------------------------- --------- ---------
25. AVAILABLE-FOR-SALE SECURITIES
2017 2016
--------------------------------------- --------- ---------
RMB'000 RMB'000
--------------------------------------- --------- ---------
Available-for-sale debt securities 1,034,961 993,161
--------------------------------------- --------- ---------
Available-for-sale equity securities 299,992 157,500
--------------------------------------- --------- ---------
1,334,953 1,150,661
--------------------------------------- --------- ---------
26. DEFERRED TAXATION
The movements in deferred tax assets and liabilities during the
year were as follows:
2017 2016
------------------------------------ --------- ---------
RMB'000 RMB'000
------------------------------------ --------- ---------
Deferred tax assets:
------------------------------------ --------- ---------
As at 1 January 3,054,035 3,753,729
------------------------------------ --------- ---------
Credited/(charged) to profit
or loss (Note 14) 500,847 (699,694)
------------------------------------ --------- ---------
Credited to other comprehensive
income 1,286 -
------------------------------------ --------- ---------
Gross deferred tax assets as
at 31 December 3,556,168 3,054,035
------------------------------------ --------- ---------
Deferred tax liabilities:
------------------------------------ --------- ---------
As at 1 January 2,428,313 2,867,738
------------------------------------ --------- ---------
Credited to profit or loss (Note
14) (276,764) (449,289)
------------------------------------ --------- ---------
Recognised in other comprehensive
income 33,155 9,864
------------------------------------ --------- ---------
Gross deferred tax liabilities
as at 31 December 2,184,704 2,428,313
------------------------------------ --------- ---------
Net deferred tax assets as at
31 December 1,371,464 625,722
------------------------------------ --------- ---------
26. DEFERRED TAXATION (continued)
The principal components of the Group's deferred tax assets and
liabilities were as follows:
2017 2016
---------------------------------------------- ----------- -----------
RMB'000 RMB'000
---------------------------------------------- ----------- -----------
Deferred tax assets:
---------------------------------------------- ----------- -----------
Differences in value of property,
plant and equipment 69,632 70,968
---------------------------------------------- ----------- -----------
Provisions and accruals 2,906,362 2,489,095
---------------------------------------------- ----------- -----------
Unrealised profit of intra-group
transactions 106,020 84,959
---------------------------------------------- ----------- -----------
Impairment 460,743 396,903
---------------------------------------------- ----------- -----------
Deductible tax losses 12,110 12,110
---------------------------------------------- ----------- -----------
Changes in fair value of financial
instruments 1,301 -
---------------------------------------------- ----------- -----------
Gross deferred tax assets 3,556,168 3,054,035
---------------------------------------------- ----------- -----------
Deferred tax liabilities:
---------------------------------------------- ----------- -----------
Unrealised exchange gain - (781)
---------------------------------------------- ----------- -----------
Changes in fair value of available-for-sale
securities (61,917) (28,762)
---------------------------------------------- ----------- -----------
Depreciation allowances in excess
of the related depreciation (1,846,514) (2,386,268)
---------------------------------------------- ----------- -----------
Withholding tax on undistributed
earnings of subsidiaries (276,273) -
---------------------------------------------- ----------- -----------
Others - (12,502)
---------------------------------------------- ----------- -----------
Gross deferred tax liabilities (2,184,704) (2,428,313)
---------------------------------------------- ----------- -----------
Net deferred tax assets 1,371,464 625,722
---------------------------------------------- ----------- -----------
The following amounts, determined after appropriate offsetting,
are shown separately on the consolidated statement of financial
position:
2017
------------------------------- -----------
RMB'000
------------------------------- -----------
Net deferred tax assets 2,501,518
------------------------------- -----------
Net deferred tax liabilities (1,130,054)
------------------------------- -----------
1,371,464
------------------------------- -----------
26. DEFERRED TAXATION (continued)
Details of tax losses and other temporary differences not
recognised are set out below:
2017 2016
------------------------------- --------- ---------
RMB'000 RMB'000
------------------------------- --------- ---------
Deductible tax losses 584,273 1,650,342
------------------------------- --------- ---------
Other unrecognised temporary
differences 792,153 783,256
------------------------------- --------- ---------
1,376,426 2,433,598
------------------------------- --------- ---------
The Group has no tax losses arising from operations outside
Mainland China (2016: Nil). The Group has tax losses and other
deductible temporary differences arising from the operation in
Mainland China of RMB1,376,426,000 (2016: RMB2,433,598,000).
Included in unrecognised tax losses are losses that will expire in
five financial years from the year of incurrence for offsetting
against future taxable profits. Deferred tax assets have not been
recognised in respect of these losses which relate to subsidiaries
that have been loss-making for some years and it is not considered
probable that sufficient taxable profits will be available in the
near future against which the tax losses can be utilised.
27. NON-CURRENT ASSETS HELD FOR SALE
Non-current assets held for sale mainly represent aircraft and
the related flight equipment which are planned to be retired in the
next 12 months and are measured at the lower of their carrying
amounts and fair values less costs of disposal.
2017 2016
------------------------------ ------- -------
RMB'000 RMB'000
------------------------------ ------- -------
Non-current assets held for
sale 284,169 913,129
------------------------------ ------- -------
During the year, no impairment losses relating to non-current
assets held for sale were recognised (2016: RMB219,376,000).
Impairment of assets held for sale is considered by writing down
the carrying value to the estimated recoverable amount, which is
the higher of the value in use and the fair value less costs of
disposal. The recoverable amount was determined based on the fair
value less costs of disposal, using market comparison approach by
reference to the estimated sales value as at 31 December 2017.
28. INVENTORIES
An analysis of inventories as at the end of the reporting period
is as follows:
2017 2016
---------------------------------- --------- ---------
RMB'000 RMB'000
---------------------------------- --------- ---------
Spare parts of flight equipment 881,492 1,166,544
---------------------------------- --------- ---------
Catering supplies 86,365 84,572
---------------------------------- --------- ---------
Ordinary equipment 11,228 9,869
---------------------------------- --------- ---------
Others 556,684 419,648
---------------------------------- --------- ---------
1,535,769 1,680,633
---------------------------------- --------- ---------
29. ACCOUNTS RECEIVABLE
2017 2016
---------------------- --------- ---------
RMB'000 RMB'000
---------------------- --------- ---------
Accounts receivable 3,674,827 3,414,566
---------------------- --------- ---------
Impairment (184,400) (128,475)
---------------------- --------- ---------
3,490,427 3,286,091
---------------------- --------- ---------
The Group normally allows a credit period of 30 to 90 days to
its sales agents and other customers. The Group seeks to maintain
strict control over its outstanding receivables to minimise credit
risk. Overdue balances are reviewed regularly by senior management.
In view of the aforementioned and the fact that the Group's
accounts receivable relates to a large number of diversified
customers, there is no significant concentration of credit risk.
The Group does not hold any collateral or other credit enhancement
over its accounts receivable balances. Accounts receivables are
non-interest-bearing.
The ageing analysis of the accounts receivable as at the end of
the reporting period, based on the transaction date, net of
provision for impairment, was as follows:
2017 2016
----------------- --------- ---------
RMB'000 RMB'000
----------------- --------- ---------
Within 30 days 2,743,074 2,460,470
----------------- --------- ---------
31 to 60 days 463,564 407,875
----------------- --------- ---------
61 to 90 days 100,562 68,167
----------------- --------- ---------
Over 90 days 183,227 349,579
----------------- --------- ---------
3,490,427 3,286,091
----------------- --------- ---------
29. ACCOUNTS RECEIVABLE (continued)
The movements of the provision for impairment of accounts
receivable during the year, including both specific and collective
loss components, was as follows:
2017 2016
------------------------------ -------- --------
RMB'000 RMB'000
------------------------------ -------- --------
As at 1 January 128,475 155,162
------------------------------ -------- --------
Provided/(reversed) for the
year, net (Note 10) 90,100 (9,031)
------------------------------ -------- --------
Written off (33,936) (17,878)
------------------------------ -------- --------
Exchange realignment (239) 222
------------------------------ -------- --------
As at 31 December 184,400 128,475
------------------------------ -------- --------
As at 31 December 2017, the Group's accounts receivable of
RMB181,807,000 (2016: RMB126,028,000) was impaired and fully
provided for. The individually impaired accounts receivable related
to customers that were in financial difficulties and the
probability to recover these receivables is doubtful.
The ageing analysis of the accounts receivable that are neither
individually nor collectively considered to be impaired is as
follows:
2017 2016
-------------------------------- --------- ---------
RMB'000 RMB'000
-------------------------------- --------- ---------
Neither past due nor impaired 2,529,604 2,292,312
-------------------------------- --------- ---------
Less than 3 months past due 515,516 418,089
-------------------------------- --------- ---------
More than 3 months past due 162,012 333,481
-------------------------------- --------- ---------
3,207,132 3,043,882
-------------------------------- --------- ---------
Receivables that were neither past due nor impaired relate to a
large number of diversified customers for whom there was no recent
history of default.
Receivables that were past due but not impaired relate to a
number of independent customers that have a good track record with
the Group. Based on past experience, the Directors are of the
opinion that no provision for impairment is necessary in respect of
these balances as there has not been a significant change in credit
quality and the balances are still considered fully recoverable.
The Group does not hold any collateral or other credit enhancement
over these balances.
30. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
An analysis of prepayments, deposits and other receivables as at
the end of the reporting period, net of provision for impairment,
was as follows:
2017 2016
------------------------------------ --------- ---------
RMB'000 RMB'000
------------------------------------ --------- ---------
Manufacturers' credits 732,563 863,950
------------------------------------ --------- ---------
Prepayments of aircraft operating
lease rentals 611,984 637,427
------------------------------------ --------- ---------
Prepayments of jet fuel 2,000,376 5,816
------------------------------------ --------- ---------
Other prepayments 500,902 493,583
------------------------------------ --------- ---------
3,845,825 2,000,776
------------------------------------ --------- ---------
Deposits and other receivables 1,276,692 1,728,923
------------------------------------ --------- ---------
5,122,517 3,729,699
------------------------------------ --------- ---------
The movements of the provision for impairment of prepayments,
deposits and other receivables are as follows:
2017 2016
------------------------------ --------- ---------
RMB'000 RMB'000
------------------------------ --------- ---------
As at 1 January 2,400,952 2,410,672
------------------------------ --------- ---------
Provided/(reversed) for the
year, net (Note 10) 525 (3,537)
------------------------------ --------- ---------
Written off (243) (6,244)
------------------------------ --------- ---------
Exchange realignment (62) 61
------------------------------ --------- ---------
As at 31 December 2,401,172 2,400,952
------------------------------ --------- ---------
At the end of each reporting period, the Group would assess the
collectability of the receivables and provision will be made if
necessary. For those receivables which are individually significant
and the possibility of recovery is doubtful, full impairment will
be provided. Should further information be obtained in subsequent
periods indicating the receivables could be collected partially or
entirely, the provision would be partially or entirely reversed
accordingly.
As at 31 December 2017, the provision for impairment mainly
consisted of the full provision for the amounts due from Shenzhen
Huirun Investment Co., Ltd. ("Huirun") and Shenzhen Airlines
Property Development Co., Ltd. ("Shenzhen Property") and its
subsidiaries of RMB1,075,182,000 (31 December 2016:
RMB1,075,182,000) and RMB649,486,000 (31 December 2016:
RMB649,486,000), respectively.
31. FINANCIAL ASSETS
2017 2016
---------------------- ------- -------
RMB'000 RMB'000
---------------------- ------- -------
Interest rate swaps - 222
---------------------- ------- -------
Money market fund 19,938 -
---------------------- ------- -------
19,938 222
---------------------- ------- -------
The above financial assets are accounted for as financial
instruments at fair value through profit or loss and any fair value
changes are recognised in profit or loss.
32. RESTRICTED BANK DEPOSITS, CASH AND CASH EQUIVALENTS
Note 2017 2016
--------------------------------- ----- --------- ---------
RMB'000 RMB'000
--------------------------------- ----- --------- ---------
Time deposits with banks 1,012,733 1,227,715
---------------------------------------- --------- ---------
Bank and cash 5,247,341 6,094,641
---------------------------------------- --------- ---------
Less: Restricted bank deposits (i) (697,167) (474,338)
--------------------------------- ----- --------- ---------
Cash and cash equivalents 5,562,907 6,848,018
---------------------------------------- --------- ---------
Note:
(i) Details of restricted bank deposits are as follows:
2017 2016
------------------------------ ------- -------
RMB'000 RMB'000
------------------------------ ------- -------
Deposits with The People's
Bank Of China by CNAF 609,770 386,657
------------------------------ ------- -------
Restricted bank deposits
against aircraft operating
leases and others 87,397 87,681
------------------------------ ------- -------
697,167 474,338
------------------------------ ------- -------
33. OTHER CURRENT ASSETS
2017 2016
-------------------------------- --------- ---------
RMB'000 RMB'000
-------------------------------- --------- ---------
The VAT tax credit and others 1,896,840 1,010,316
-------------------------------- --------- ---------
Loans to related parties 1,189,600 1,154,600
-------------------------------- --------- ---------
Others 1,000,000 900,000
-------------------------------- --------- ---------
4,086,440 3,064,916
-------------------------------- --------- ---------
Impairment (49,740) (11,546)
-------------------------------- --------- ---------
4,036,700 3,053,370
-------------------------------- --------- ---------
Loans to related parties mainly represented loans to CNAHC and
its subsidiaries by CNAF at rates ranging from 3.83% to 4.35%
(2016: 2.90%-3.92%) per annum.
34. ACCOUNTS PAYABLE
The ageing analysis of the accounts payable as at the end of the
reporting period was as follows:
2017 2016
----------------- ---------- ----------
RMB'000 RMB'000
----------------- ---------- ----------
Within 30 days 5,605,426 4,288,890
----------------- ---------- ----------
31 to 60 days 1,880,067 1,692,454
----------------- ---------- ----------
61 to 90 days 1,395,745 1,397,287
----------------- ---------- ----------
Over 90 days 4,372,950 3,453,661
----------------- ---------- ----------
13,254,188 10,832,292
----------------- ---------- ----------
The accounts payable are non-interest-bearing and have normal
credit terms up to 90 days.
35. OTHER PAYABLES AND ACCRUALS
An analysis of other payables and accruals as at the end of the
reporting period was as follows:
2017 2016
---------------------------------------- ---------- ----------
RMB'000 RMB'000
---------------------------------------- ---------- ----------
Accrued salaries, wages and
benefits 2,643,064 2,301,098
---------------------------------------- ---------- ----------
Receipts in advance for employee
residence 609,260 592,397
---------------------------------------- ---------- ----------
Accrued operating expenses 514,850 565,292
---------------------------------------- ---------- ----------
Other tax payables 536,190 441,234
---------------------------------------- ---------- ----------
Deposits received from sales
agents 887,690 780,302
---------------------------------------- ---------- ----------
Due to a non-controlling shareholder
of a subsidiary 100,000 100,000
---------------------------------------- ---------- ----------
Interest payable 610,089 761,913
---------------------------------------- ---------- ----------
Current portion of deferred
income related to the frequent-flyer
programme (Note 40) 707,106 652,170
---------------------------------------- ---------- ----------
Current portion of deferred
income related to government
grants (Note 40) 32,907 36,158
---------------------------------------- ---------- ----------
Current portion of long-term
payables 8,393 2,721
---------------------------------------- ---------- ----------
Deposits received by CNAF from
related parties 3,137,574 3,845,923
---------------------------------------- ---------- ----------
Others 3,549,578 3,015,712
---------------------------------------- ---------- ----------
13,336,701 13,094,920
---------------------------------------- ---------- ----------
36. OBLIGATIONS UNDER FINANCE LEASES
The Group have obligations under finance lease agreements
expiring during the years from 2018 to 2029 (2016: 2017 to 2027) in
respect of aircraft. An analysis of the future minimum lease
payments under these finance leases as at the end of the reporting
period, together with the present values of the net minimum lease
payments which are principally denominated in foreign currencies,
is as follows:
Present Present
values values
----------------------- ----------- -------------- ----------- --------------
Minimum Minimum
lease of minimum lease of minimum
----------------------- ----------- -------------- ----------- --------------
payments lease payments payments lease payments
----------------------- ----------- -------------- ----------- --------------
2017 2017 2016 2016
----------------------- ----------- -------------- ----------- --------------
RMB'000 RMB'000 RMB'000 RMB'000
----------------------- ----------- -------------- ----------- --------------
Amounts repayable
----------------------- ----------- -------------- ----------- --------------
- Within 1 year 7,352,188 6,237,472 7,000,199 6,099,453
----------------------- ----------- -------------- ----------- --------------
- After 1 year
but within 2
years 6,453,959 5,543,525 6,519,323 5,739,351
----------------------- ----------- -------------- ----------- --------------
- After 2 years
but within 5
years 17,297,727 15,355,311 15,562,232 13,957,147
----------------------- ----------- -------------- ----------- --------------
- After 5 years 18,104,668 16,899,746 17,492,189 16,598,973
----------------------- ----------- -------------- ----------- --------------
Total minimum
finance lease
payments 49,208,542 44,036,054 46,573,943 42,394,924
----------------------- ----------- -------------- ----------- --------------
Less: Amounts
representing
finance costs (5,172,488) (4,179,019)
----------------------- ----------- -------------- ----------- --------------
Present values
of minimum lease
payments 44,036,054 42,394,924
----------------------- ----------- -------------- ----------- --------------
Less: Portion
classified as
current liabilities (6,237,472) (6,099,453)
----------------------- ----------- -------------- ----------- --------------
Non-current portion 37,798,582 36,295,471
----------------------- ----------- -------------- ----------- --------------
The Group's finance leases were secured by the Group's aircraft
with net carrying amount of approximately RMB67,957 million (31
December 2016: RMB62,108 million) (Note 17).
At 31 December 2017, the obligations under finance leases of the
Group with an aggregate amount of US$279 million (equivalent to
RMB1,821 million) (31 December 2016: US$305 million (equivalent to
RMB2,118 million)) were guaranteed by Cathay Pacific, an associate
of the Group.
Under the terms of the finance lease agreements, the Group has
the option to purchase these aircraft at the end of or during the
lease terms, at market value or at the price as stipulated in the
finance lease agreements.
37. INTEREST-BEARING BANK LOANS AND OTHER BORROWINGS
2017 2016
---------------------------------- ---------- ----------
RMB'000 RMB'000
---------------------------------- ---------- ----------
Bank loans and other borrowings
---------------------------------- ---------- ----------
- Secured 7,649,748 20,052,374
---------------------------------- ---------- ----------
- Unsecured 22,963,837 12,413,453
---------------------------------- ---------- ----------
30,613,585 32,465,827
---------------------------------- ---------- ----------
Corporate bonds:
---------------------------------- ---------- ----------
- Secured 10,000,000 10,000,000
---------------------------------- ---------- ----------
- Unsecured 10,149,303 21,343,135
---------------------------------- ---------- ----------
20,149,303 31,343,135
---------------------------------- ---------- ----------
50,762,888 63,808,962
---------------------------------- ---------- ----------
2017 2016
---------------------------------- ------------ ------------
RMB'000 RMB'000
---------------------------------- ------------ ------------
Bank loans and other borrowings
repayable:
---------------------------------- ------------ ------------
- Within 1 year or payable
on demand 23,005,296 19,630,605
---------------------------------- ------------ ------------
- After 1 year but within 2
years 3,441,120 3,371,915
---------------------------------- ------------ ------------
- After 2 years but within
5 years 3,183,086 6,169,893
---------------------------------- ------------ ------------
- After 5 years 984,083 3,293,414
---------------------------------- ------------ ------------
30,613,585 32,465,827
---------------------------------- ------------ ------------
Corporate bonds repayable:
---------------------------------- ------------ ------------
- Within 1 year 5,649,303 6,345,111
---------------------------------- ------------ ------------
- After 1 year but within 2
years 4,000,000 4,498,024
---------------------------------- ------------ ------------
- After 2 years but within
5 years 4,000,000 14,000,000
---------------------------------- ------------ ------------
- After 5 years 6,500,000 6,500,000
---------------------------------- ------------ ------------
20,149,303 31,343,135
---------------------------------- ------------ ------------
Total interest-bearing bank
loans and other borrowings 50,762,888 63,808,962
---------------------------------- ------------ ------------
Less: Portion classified as
current liabilities (28,654,599) (25,975,716)
---------------------------------- ------------ ------------
Non-current portion 22,108,289 37,833,246
---------------------------------- ------------ ------------
37. INTEREST-BEARING BANK LOANS AND OTHER BORROWINGS (continued)
Bank and other borrowings denominated in currencies other than
the functional currencies of respective entities are set out
below:
2017 2016
----------------------- --------- ----------
RMB'000 RMB'000
----------------------- --------- ----------
USD 9,121,920 15,251,160
----------------------- --------- ----------
EURO 120,731 113,065
----------------------- --------- ----------
Macau Pataca ("MOP") - 207,227
----------------------- --------- ----------
9,242,651 15,571,452
----------------------- --------- ----------
The carrying amount of the bank and other borrowings and the
range of interest rates are as below:
2017 2016
----------------------- ------------------ ------------------
RMB'000 % RMB'000 %
----------------------- ---------- ------ ---------- ------
Fixed rate bank 2.39 - 2.63 -
and other borrowing 12,085,000 5.40 9,000,524 5.80
----------------------- ---------- ------ ---------- ------
Fixed rate corporate 2.84 - 2.84 -
bonds 20,149,303 5.30 31,343,135 5.60
----------------------- ---------- ------ ---------- ------
Floating rate 1.21 - 1.21 -
bank 17,548,585 4.90 22,485,303 5.00
----------------------- ---------- ------ ---------- ------
Interest-free
borrowings 980,000 0.00 980,000 0.00
----------------------- ---------- ------ ---------- ------
50,762,888 63,808,962
----------------------- ---------- ------ ---------- ------
The floating rate bank and other borrowings are arranged at the
interest rate based on benchmark interest rates of the People's
Bank of China or at London Interbank Offered Rate.
The Group's bank loans and corporate bonds of approximately
RMB17,650 million as at 31 December 2017 (31 December 2016:
RMB30,052 million) were secured or guaranteed by:
(a) Mortgages over certain of the Group's aircraft and flight
equipment, buildings and machinery with an aggregate net carrying
amount of approximately RMB13,107 million as at 31 December 2017
(31 December 2016: RMB21,922 million) (Note 17); and land use
rights with an aggregate carrying amount of approximately RMB34
million as at 31 December 2017 (31 December 2016: RMB35 million)
(Note 18);
(b) As at 31 December 2017, bank loans of the Group with an
aggregate amount of US$117 million (equivalent to RMB765 million)
(31 December 2016: US$204 million (equivalent to RMB1,415 million))
were guaranteed by an associate of the Group; and
(c) As at 31 December 2017, corporate bonds issued by the Group
with a face value of RMB10,000 million (31 December 2016: RMB10,000
million) were guaranteed by CNAHC.
37. INTEREST-BEARING BANK LOANS AND OTHER BORROWINGS (continued)
As at 31 December 2017, corporate bonds with carrying amount of
RMB2,198 million (31 December 2016: RMB7,343 million) were issued
by Shenzhen Airlines, a subsidiary of the Company.
38. PROVISION FOR MAJOR OVERHAULS
Details of the movements in provision for major overhauls in
respect of aircraft under operating leases at the end of the
reporting period are as follows:
2017 2016
------------------------------ ----------- -----------
RMB'000 RMB'000
------------------------------ ----------- -----------
As at 1 January 4,466,845 4,414,022
------------------------------ ----------- -----------
Provision for the year 1,645,935 1,849,427
------------------------------ ----------- -----------
Utilisation during the year (1,107,782) (1,796,604)
------------------------------ ----------- -----------
As at 31 December 5,004,998 4,466,845
------------------------------ ----------- -----------
Less: Portion classified as
current liabilities (1,418,055) (943,609)
------------------------------ ----------- -----------
Non-current portion 3,586,943 3,523,236
------------------------------ ----------- -----------
Provision is estimated based on the costs of overhauls and
flying hours/cycles of aircraft under operating leases. The
estimates are reviewed on an ongoing basis and revised whenever
appropriate.
39. DEFINED BENEFIT OBLIGATIONS
The liabilities recognised in the consolidated statement of
financial position represent:
2017 2016
-------------------------------------- -------- --------
RMB'000 RMB'000
-------------------------------------- -------- --------
Post-retirement benefit obligations 291,451 298,219
-------------------------------------- -------- --------
Less: current portion (27,876) (28,477)
-------------------------------------- -------- --------
Long-term portion 263,575 269,742
-------------------------------------- -------- --------
AMECO, a subsidiary of the Company, provides monthly retirement
benefits for those staff who were retired before AMECO adopted its
own enterprise annuity plan (the "Plan"). These retirement benefits
are recognised as defined benefit obligations.
39. DEFINED BENEFIT OBLIGATIONS (continued)
Movements of the defined benefit obligations were set out as
follows:
2017 2016
---------------------------- -------- --------
RMB'000 RMB'000
---------------------------- -------- --------
At 1 January 298,219 304,613
---------------------------- -------- --------
Remeasurement loss/(gain) 13,301 (2,295)
---------------------------- -------- --------
Past service cost - 16,418
---------------------------- -------- --------
Interest cost 8,518 8,355
---------------------------- -------- --------
Payments (28,587) (28,872)
---------------------------- -------- --------
At 31 December 291,451 298,219
---------------------------- -------- --------
Less: current portion (27,876) (28,477)
---------------------------- -------- --------
Long-term portion 263,575 269,742
---------------------------- -------- --------
Expenses recognized in the consolidated statement of profit or
loss and other comprehensive income are as follows:
2017 2016
------------------------------ ------- -------
RMB'000 RMB'000
------------------------------ ------- -------
Employee compensation costs
------------------------------ ------- -------
- Past service cost - 16,418
------------------------------ ------- -------
Finance costs
------------------------------ ------- -------
- Interest cost 8,518 8,355
------------------------------ ------- -------
Other comprehensive income
------------------------------ ------- -------
- Remeasurement loss/(gain) 13,301 (2,295)
------------------------------ ------- -------
Total defined benefit costs 21,819 22,478
------------------------------ ------- -------
The Plan exposes the Group to actuarial risks such as interest
rate risk and longevity risk.
Interest The present value of the defined benefit
rate risk plan obligation is calculated using
a discount rate determined by reference
to government bond yields. A decrease
in the bond interest rate will increase
the plan liability.
---------- ---------------------------------------------
Longevity The present value of the defined benefit
risk plan obligation is calculated by reference
to the best estimate of the mortality
of plan participants both during and
after their employment. An increase
in the life expectancy of the plan
participants will increase the plan
liability.
---------- ---------------------------------------------
39. DEFINED BENEFIT OBLIGATIONS (continued)
The most recent actuarial valuations of the present value of the
defined benefit obligations as at 31 December 2017 were carried out
by an independent firm of actuaries. The present value of the
defined benefit obligations, and the related current service cost
and past cost were measured using the projected unit credit
method.
Significant actuarial assumptions (expressed as weighted
averages) are as follows:
2017 2016
---------------------------------- ---------- ----------
Discount rate 3.9% 3.0%
---------------------------------- ---------- ----------
Average expected remaining life
of eligible employees 14.7 years 13.3 years
---------------------------------- ---------- ----------
Significant actuarial assumptions for the determination of the
defined benefit obligation are discount rate and mortality. The
sensitivity analyses below have been determined based on reasonably
possible changes of the respective assumptions occurring at the end
of the reporting period, while holding all other assumptions
constant.
-- If the discount rate on benefit obligation decreases by 0.5%,
the defined benefit obligations would increase by RMB11.7
million.
-- If the mortality changes to 95% of original assumption, the
defined benefit obligations would increase by RMB5.0 million.
40. DEFERRED INCOME
2017 2016
--------------------------------- --------- ---------
RMB'000 RMB'000
--------------------------------- --------- ---------
Frequent-flyer programme (Note
(a)) 2,822,657 2,420,734
--------------------------------- --------- ---------
Government grants (Note (b)) 578,032 610,284
--------------------------------- --------- ---------
Gain on sale and lease back
arrangements 126,904 27,950
--------------------------------- --------- ---------
Operating lease rebates 40,534 33,873
--------------------------------- --------- ---------
3,568,127 3,092,841
--------------------------------- --------- ---------
40. DEFERRED INCOME (continued)
Notes:
(a) The movements of deferred income related to the Group's
frequent-flyer programme during the year were as follows:
2017 2016
-------------------------------- ----------- -----------
RMB'000 RMB'000
-------------------------------- ----------- -----------
As at 1 January 3,072,904 3,527,105
-------------------------------- ----------- -----------
Additions during the year 1,971,371 1,654,138
-------------------------------- ----------- -----------
Recognised as revenue during
the year (1,514,512) (2,108,339)
-------------------------------- ----------- -----------
As at 31 December 3,529,763 3,072,904
-------------------------------- ----------- -----------
Less: Portion classified
as current liabilities (Note
35) (707,106) (652,170)
-------------------------------- ----------- -----------
Non-current portion 2,822,657 2,420,734
-------------------------------- ----------- -----------
(b) The movements of deferred income related to government
grants during the year were as follows:
2017 2016
-------------------------------- -------- --------
RMB'000 RMB'000
-------------------------------- -------- --------
As at 1 January 646,442 665,412
-------------------------------- -------- --------
Additions 674 42,137
-------------------------------- -------- --------
Recognised as other operating
revenue the year (36,177) (61,107)
-------------------------------- -------- --------
As at 31 December 610,939 646,442
-------------------------------- -------- --------
Less: Portion classified
as current liabilities (Note
35) (32,907) (36,158)
-------------------------------- -------- --------
Non-current portion 578,032 610,284
-------------------------------- -------- --------
41. CAPITAL AND RESERVES
(a) Movements in components of equity
The reconciliation between the opening and closing balances of
each component of the Group's consolidated equity is set out in the
consolidated statement of changes in equity. Details of the changes
in the Company's individual components of equity between the
beginning and the end of the year are set out below:
Issued Capital Reserve Retained
---------------------- ------ ---------- ---------- --------- ----------- -----------
Notes capital reserve funds earnings Total
---------------------- ------ ---------- ---------- --------- ----------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
---------------------- ------ ---------- ---------- --------- ----------- -----------
As at 1 January
2016 13,084,751 17,674,429 6,595,999 19,004,630 56,359,809
------------------------------ ---------- ---------- --------- ----------- -----------
Total comprehensive
income for
the year - 16,691 - 6,519,712 6,536,403
------------------------------ ---------- ---------- --------- ----------- -----------
Appropriation
of statutory
reserve funds (ii) - - 652,457 (652,457) -
---------------------- ------ ---------- ---------- --------- ----------- -----------
Appropriation
of discretionary
reserve fund (iii) - - 544,081 (544,081) -
---------------------- ------ ---------- ---------- --------- ----------- -----------
Dividends
declared
in respect
of the previous
year - - - (1,400,068) (1,400,068)
------------------------------ ---------- ---------- --------- ----------- -----------
As at 31
December
2016 and
1 January
2017 13,084,751 17,691,120 7,792,537 22,927,736 61,496,144
------------------------------ ---------- ---------- --------- ----------- -----------
Total comprehensive
income for
the year - 20,301 - 6,962,061 6,982,362
------------------------------ ---------- ---------- --------- ----------- -----------
Non-public
offering
of shares 1,440,064 9,778,036 - - 11,218,100
------------------------------ ---------- ---------- --------- ----------- -----------
Transaction
costs related
to non-public
offering
of shares - (16,726) - - (16,726)
------------------------------ ---------- ---------- --------- ----------- -----------
Appropriation
of statutory
reserve funds (ii) - - 695,805 (695,805) -
---------------------- ------ ---------- ---------- --------- ----------- -----------
Appropriation
of discretionary
reserve fund (iii) - - 652,457 (652,457) -
---------------------- ------ ---------- ---------- --------- ----------- -----------
Dividends
declared
in respect
of the previous
year - - - (1,564,468) (1,564,468)
------------------------------ ---------- ---------- --------- ----------- -----------
As at 31
December
2017 14,524,815 27,472,731 9,140,799 26,977,067 78,115,412
------------------------------ ---------- ---------- --------- ----------- -----------
41. CAPITAL AND RESERVES (continued)
(a) Movements in components of equity (continued)
Under the PRC Company Law and the Company's articles of
association, profit after taxation as reported in the PRC statutory
financial statements can only be distributed as dividends after
allowances have been made for the following:
(i) making up prior years' cumulative losses, if any;
(ii) allocations to the statutory reserve fund of at least 10%
of the after-tax profit, until the fund reaches 50% of the
Company's registered capital (for the purpose of calculating
transfers to reserves, profit after taxation would be the amount
determined under CASs. The transfers to reserves should be made
before any distribution of dividends to shareholders. The statutory
reserve fund can be used to offset previous years' losses, if any,
and part of the statutory reserve fund can be capitalised as the
Company's share capital provided that the amount of such reserve
remaining after the capitalisation shall not be less than 25% of
the share capital of the Company); and
(iii) allocations to the discretionary reserve fund if approved by the shareholders.
The above reserves cannot be used for purposes other than those
for which they are created and are not distributable as cash
dividends. As at 31 December 2017, in accordance with the PRC
Company Law, an amount of approximately RMB30,619 million (2016:
RMB20,857 million) standing to the credit of the Company's capital
reserve account, and an amount of approximately RMB9,141 million
(2016: RMB7,793 million) standing to the credit of the Company's
reserve funds, as determined in accordance with CASs, were
available for distribution by way of a future capitalisation issue.
In addition, the Company had retained earnings of approximately
RMB25,762 million available for distribution as at 31 December 2017
(2016: RMB21,717 million).
(b) Share capital
The number of shares of the Company and their nominal values as
at 31 December 2017 and 31 December 2016 are as follows:
Number Number
of Nominal of Nominal
---------------------- -------------- ---------- -------------- ----------
shares value shares value
---------------------- -------------- ---------- -------------- ----------
2017 2017 2016 2016
---------------------- -------------- ---------- -------------- ----------
RMB'000 RMB'000
---------------------- -------------- ---------- -------------- ----------
Registered, issued
and fully paid:
---------------------- -------------- ---------- -------------- ----------
H shares of RMB1.00
each:
---------------------- -------------- ---------- -------------- ----------
- Tradable 4,562,683,364 4,562,683 4,562,683,364 4,562,683
---------------------- -------------- ---------- -------------- ----------
A shares of RMB1.00
each:
---------------------- -------------- ---------- -------------- ----------
- Tradable 8,522,067,640 8,522,068 8,522,067,640 8,522,068
---------------------- -------------- ---------- -------------- ----------
- Trade-restricted
(Note) 1,440,064,181 1,440,064 - -
---------------------- -------------- ---------- -------------- ----------
14,524,815,185 14,524,815 13,084,751,004 13,084,751
---------------------- -------------- ---------- -------------- ----------
41. CAPITAL AND RESERVES (continued)
(b) Share capital (continued)
Note: On 10 March 2017, the Company completed the non-public
offering of 1,440,064,181 A shares (the "Issuance") to 8 specific
shareholders including CNAHC, which was approved by China
Securities Regulatory Commission on 5 September 2016. The issue
price was RMB7.79 per A share. The total proceeds raised through
the Issuance amounted to RMB11,218,099,970. After deducting the
relevant expenses for the Issuance amounted to RMB16,725,891, the
net proceeds from the Issuance amounted to RMB11,201,374,079, of
which RMB1,440,064,181 was recognised as share capital and
RMB9,761,309,898 was recognised as capital reserve. As such, the
total issued share capital of the Company had increased to
14,524,815,185 shares. The new A Shares subscribed by CNAHC were
subject to a lock-up period of 36 months from the completion date
of the Issuance and were expected to be listed for trading on 10
March 2020. Those new A Shares subscribed by other investors were
subject to a lock-up period of 12 months from the completion date
of the Issuance and were listed for trading on 12 March 2018. The
new A shares under the Issuance issued ranked pari passu with
the existing A shares in all respects.
A shares rank pari passu, in all material respects, with H
shares of the Company.
(c) Treasury shares
As at 31 December 2017, the Group owned 29.99% equity interest
in Cathay Pacific (2016: 29.99%), which in turn owned 18.13% equity
interest in the Company (2016: 20.13%). Accordingly, the 29.99% of
Cathay Pacific's shareholding in the Company was recorded in the
Group's consolidated financial statements as treasury shares
through deduction from equity.
(d) Capital management
The primary objectives of the Group's capital management are to
safeguard the Group's ability to continue as a going concern and to
maintain healthy capital ratios in order to support its business
and maximise shareholders' value.
The Group manages its capital structure and makes adjustments to
it in light of changes in economic conditions. To maintain or
adjust the capital structure, the Group may adjust the dividend
payment to shareholders, return capital to shareholders or issue
new shares. No changes were made in the objectives, policies or
processes for managing capital during the years ended 31 December
2017 and 31 December 2016.
The Group monitors capital structure by reference to the gearing
ratio, which represents total liabilities divided by total assets.
The gearing ratio as at the end of the reporting periods was as
follows:
2017 2016
-------------------- ----------- -----------
RMB'000 RMB'000
-------------------- ----------- -----------
Total liabilities 140,785,986 147,654,552
-------------------- ----------- -----------
Total assets 235,644,584 224,050,951
-------------------- ----------- -----------
Gearing ratio 59.75% 65.90%
-------------------- ----------- -----------
42. SHARE APPRECIATION RIGHTS
The Company's "Measures on Management of the Stock Appreciation
Rights of Air China Limited (revised)" and "Proposal for the Second
Grant of the Stock Appreciation Rights of Air China Limited"
(together "the Scheme") were approved by the 2012 Annual General
Meeting on 23 May 2013.
Pursuant to the Scheme, 26,200,000 units of SARs were granted to
160 employees of the Group at the exercise price of HK$6.46 per
unit on 6 June 2013, with valid period of 5 years since
granted.
No shares will be issued under the Scheme. Upon exercise of the
SARs, a recipient will receive an amount of cash equal to the
difference between the market share price of the relevant H Share
and the exercise price. Upon the satisfaction of certain
performance conditions, the total numbers of SARs exercisable will
not exceed 30%, 70% and 100%, respectively, of the total SARs
granted to the respective eligible participants, since the first
trading day after the second, third and fourth anniversary from the
grant date.
The exercise price, expected period, expected volatility of the
share price, expected dividend yield, the risk free rate and market
price are used as the key inputs into the model for the SARs with
reference to the Scheme's provisions and the Company's H Share's
historical trading information. The fair value of the liability for
SARs as at 31 December 2017 was RMB Nil (31 December 2016:
RMB2,028,000).
43. CONTINGENT LIABILITIES
As at 31 December 2017, the Group had the following contingent
liabilities:
(a) Pursuant to the restructuring of CNAHC in preparation for
the listing of the Company's H shares on the HKSE and the LSE, the
Company entered into a restructuring agreement (the "Restructuring
Agreement") with CNAHC and China National Aviation Corporation
(Group) Limited ("CNACG", a wholly-owned subsidiary of CNAHC) on 20
November 2004. According to the Restructuring Agreement, except for
liabilities constituting or arising out of or relating to business
undertaken by the Company after the restructuring, no liabilities
would be assumed by the Company and the Company would not be
liable, whether severally, or jointly and severally, for debts and
obligations incurred prior to the restructuring by CNAHC and CNACG.
The Company has also undertaken to indemnify CNAHC and CNACG
against any damage suffered or incurred by CNAHC and CNACG as a
result of any breach by the Company of any provision of the
Restructuring Agreement.
(b) In May 2011, Shenzhen Airlines received a summons issued by
the Higher People's Court of Guangdong Province in respect of a
guarantee provided by Shenzhen Airlines on loans borrowed by Huirun
from a third party amounting to RMB390,000,000. It was alleged that
Shenzhen Airlines had entered into several guarantee agreements
with Huirun and the third party, pursuant to which Shenzhen
Airlines acted as a guarantor in favour of the third party for the
loans borrowed by Huirun. The Directors consider that the provision
of RMB130,000,000 which was provided in prior years in respect of
this legal claim is adequate.
(c) Shenzhen Airlines provided guarantees to banks for certain
employees in respect of their residential loans as well as for
certain pilot trainees in respect of their tuition loans. As at 31
December 2017, Shenzhen Airlines had outstanding guarantees for
employees' residential loans amounting to RMB53,865,000 (31
December 2016: RMB111,973,000) and for pilot trainees' tuition
loans amounting to RMB172,000 (31 December 2016: RMB264,000). The
Directors consider that the fair value of these guarantees are
insignificant.
44. COMMITMENTS
(a) Capital commitments
The Group had the following amounts of contractual commitments
for the acquisition and construction of property, plant and
equipment as at the end of the reporting period:
2017 2016
---------------------------------- ---------- ----------
RMB'000 RMB'000
---------------------------------- ---------- ----------
Contracted, but not provided
for:
---------------------------------- ---------- ----------
- Aircraft and flight equipment 77,130,746 84,450,700
---------------------------------- ---------- ----------
- Buildings and others 611,254 691,804
---------------------------------- ---------- ----------
Total capital commitments 77,742,000 85,142,504
---------------------------------- ---------- ----------
(b) Investment commitments
The Group had the following amount of investment commitments as
at the end of the reporting period:
2017 2016
-------------------------------- ------- -------
RMB'000 RMB'000
-------------------------------- ------- -------
Contracted, but not provided
for:
-------------------------------- ------- -------
- Associate and joint venture 57,870 59,280
-------------------------------- ------- -------
(c) Operating lease commitments
The Group has leased certain office premises, aircraft and
flight equipment under operating lease arrangements.
At the end of the reporting period, the Group had the following
future minimum lease payments under non-cancellable operating
leases:
2017 2016
---------------------------- ---------- ----------
RMB'000 RMB'000
---------------------------- ---------- ----------
Within one year 6,990,927 6,922,872
---------------------------- ---------- ----------
After one year but within
five years 22,778,784 21,787,782
---------------------------- ---------- ----------
Over five years 21,621,602 23,460,545
---------------------------- ---------- ----------
Total capital commitments 51,391,313 52,171,199
---------------------------- ---------- ----------
45. FINANCIAL INSTRUMENTS
a. Categories of financial instruments
2017 2016
------------------------------------ ----------- -----------
RMB'000 RMB'000
------------------------------------ ----------- -----------
Financial assets
------------------------------------ ----------- -----------
Loans and receivables:
------------------------------------ ----------- -----------
Accounts receivable 3,490,427 3,286,091
------------------------------------ ----------- -----------
Deposits and other receivables 1,276,692 1,728,923
------------------------------------ ----------- -----------
Deposits for aircraft under
operating leases 567,889 649,343
------------------------------------ ----------- -----------
Bills receivable 348 837
------------------------------------ ----------- -----------
Loans to related parties 1,411,600 1,406,200
------------------------------------ ----------- -----------
Other current assets - other 1,000,000 900,000
------------------------------------ ----------- -----------
Restricted bank deposits 697,167 474,338
------------------------------------ ----------- -----------
Cash and cash equivalents 5,562,907 6,848,018
------------------------------------ ----------- -----------
Subtotal 14,007,030 15,293,750
------------------------------------ ----------- -----------
Held-to-maturity financial
assets 10,000 10,000
------------------------------------ ----------- -----------
Available-for-sale financial
assets 1,334,953 1,150,661
------------------------------------ ----------- -----------
Financial assets at FVTPL 19,938 222
------------------------------------ ----------- -----------
Financial liabilities
------------------------------------ ----------- -----------
Amortised cost:
------------------------------------ ----------- -----------
Accounts payable 13,254,188 10,832,292
------------------------------------ ----------- -----------
Other payable 8,581,663 9,944,667
------------------------------------ ----------- -----------
Obligations under finance
leases 44,036,054 42,394,924
------------------------------------ ----------- -----------
Bank and other borrowings 50,762,888 63,808,962
------------------------------------ ----------- -----------
Long-term payables 95,915 26,071
------------------------------------ ----------- -----------
116,730,708 127,006,916
------------------------------------ ----------- -----------
45. FINANCIAL INSTRUMENTS (continued)
b. Financial risk management objectives and policies
The Group's major financial instruments include accounts
receivable, bills receivable, available-for-sale financial assets,
financial assets at fair value through profit or loss,
held-to-maturity financial assets, deposits and other receivables,
deposits for aircraft under operating leases, restricted bank
deposits, cash and cash equivalents, loans to related parties,
other current assets, accounts payable, other payable, bank and
other borrowings, obligations under finance lease and long-term
payables. Details of the financial instruments are disclosed in the
respective notes. The risks associated with these financial
instruments include market risks (interest rate risk and foreign
currency risk), credit risk and liquidity risk. The policies on how
to mitigate these risks are set out below. The management manages
and monitors these exposures to ensure appropriate measures are
implemented on a timely and effective manner.
Market risk
(i) Interest rate risk
The Group is exposed to fair value interest rate risk which
arises from fixed rate bank and other borrowings and obligation
under finance lease.
In addition, the Group is exposed to cash flow interest rate
risk which arises from floating rate bank and other borrowings,
pledged deposits and bank and cash balances. The Group's exposures
to interest rates on financial liabilities are detailed in the
liquidity risk management section of this note.
Sensitivity analysis
The sensitivity analyses below have been determined based on the
exposure to interest rates for cash and cash equivalents,
restricted bank deposits, floating rate bank and other borrowings
at the end of the reporting period. The analysis is prepared
assuming the financial instruments outstanding at the end of
reporting period were outstanding for the whole year. A 50 basis
points increase or decrease in interest rate on bank and cash
balances and pledged deposits and a 50 basis points increase or
decrease in interest rate on bank and other borrowings are used
which represent management's assessment of the reasonably possible
changes in interest rates.
If interest rates had been 50 basis points (2016: 50 basis
points) higher/lower for floating rate bank and other borrowings
with all other variables held constant, the Group's post-tax profit
(net of interest capitalised) for the year ended 31 December 2017
would have decreased/increased by approximately RMB162,562,000
(2016: RMB166,077,000).
In management's opinion, the sensitivity analysis is
unrepresentative of the inherent interest rate risk as exposure at
the end of the reporting period does not reflect the exposure
during the year.
45. FINANCIAL INSTRUMENTS (continued)
b. Financial risk management objectives and policies (continued)
Market risk (continued)
(ii) Currency risk
The Group's exposure to currency risk is attributable to cash
and cash equivalents, accounts receivable, other receivables,
accounts payable, other payables, obligation under finance lease
and bank and other borrowings which are denominated in the
currencies other than the functional currency of the relevant group
entities. The management manages and monitors this exposure to
ensure appropriate measures are implemented on a timely and
effective manner.
The carrying amounts of the Group's major foreign currency
denominated monetary assets and monetary liabilities other than the
functional currency of the relevant group entities at the end of
the reporting period are as follows:
Assets Liabilities
------- -------------------- ----------------------
2017 2016 2017 2016
------- --------- --------- ---------- ----------
RMB'000 RMB'000 RMB'000 RMB'000
------- --------- --------- ---------- ----------
USD 2,500,109 2,658,515 39,701,263 52,794,616
------- --------- --------- ---------- ----------
EURO 402,595 327,980 662,726 603,030
------- --------- --------- ---------- ----------
HKD 149,722 346,217 164,401 121,359
------- --------- --------- ---------- ----------
JPY 83,367 80,899 1,454,516 1,590,236
------- --------- --------- ---------- ----------
Sensitivity analysis
The sensitivity analysis below has been determined based on a 1%
(2016: 1%) increase/decrease in functional currency of respective
group entities against the relevant foreign currencies. 1% (2016:
1%) is the sensitivity rate used and represents management's
assessment of the reasonably possible change in foreign exchange
rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation
at the end of the reporting period for a 1% (2016: 1%) change in
foreign currency rates. A positive (negative) number below
indicates an increase (decrease) in the Group's post-tax profit and
the Group's other comprehensive income, where functional currency
of respective group entities had strengthened 1% (2016:1%) against
the relevant foreign currency. For a 1% (2016: 1%) weakening of
functional currency of respective group entities against the
relevant foreign currency, there would be an equal and opposite
impact on the post-tax profit and other comprehensive income for
the year.
2017 2016
------------------------------- ------- -------
RMB'000 RMB'000
------------------------------- ------- -------
Increase (decrease) in
the Group's post-tax profit
------------------------------- ------- -------
- if RMB strengthens
against USD 279,009 376,021
------------------------------- ------- -------
- if RMB strengthens
against EURO 1,951 2,063
------------------------------- ------- -------
- if RMB strengthens
against HKD 110 (1,686)
------------------------------- ------- -------
- if RMB strengthens
against JPY 10,284 11,320
------------------------------- ------- -------
45. FINANCIAL INSTRUMENTS (continued)
b. Financial risk management objectives and policies (continued)
Credit risk
Credit risk refers to the risk that counterparty will default on
its contractual obligations resulting in financial loss to the
Group. At the end of the reporting period, the Group's maximum
exposure is arising from the carrying amount of the respective
recognised financial assets as stated in the consolidated statement
of financial position.
A significant portion of the Group's air tickets are sold by
agents participating in the Billing and Settlements Plan (the
"BSP"), a clearing system between airlines and sales agents
organized by the International Air Transportation Association. The
balance due from the BSP agents amounted to approximately RMB1,129
million or 32% of accounts receivable as at 31 December 2017 (31
December 2016: RMB895 million or 27% of accounts receivable). The
credit risk exposure to BSP and the remaining accounts receivables
balance are monitored by the Group on an ongoing basis and the
allowance for impairment of doubtful debts is within management's
expectations.
In the opinion of management, the Group has no significant
credit risk with BSP as the Group maintains long-term and stable
business relationships with BSP with healthy repayment history. For
other accounts receivable, the management of the Group performs an
ongoing individual credit evaluation of their customers' and
counterparties' financial conditions, and is of the opinion that
the outstanding debts are recoverable.
The credit risk on liquid funds is limited because the
counterparties are banks and financial institutions with good
reputation.
Other than the above mentioned concentration of credit risk, the
Group does not have any other significant concentration of credit
risk.
Liquidity risk
In the management of the liquidity risk, the Group monitors and
maintains a level of cash and cash equivalents as well as undrawn
banking facilities deemed adequate by the management to finance the
Group's operations and mitigate the effects of fluctuations in cash
flows. The management monitors the utilisation of bank borrowings
to ensure compliance with loan covenants.
45. FINANCIAL INSTRUMENTS (continued)
b. Financial risk management objectives and policies (continued)
Liquidity risk (continued)
As at 31 December 2017, the Group's current liabilities exceeded
its current assets by approximately RMB51,372 million (31 December
2016: RMB44,194 million). The Group recorded a net cash inflow from
operating activities of approximately RMB22,837 million for the
year ended 31 December 2017 (2016: RMB27,366 million). For the same
year, the Group had a net cash outflow from investing activities of
approximately RMB14,653 million (2016: RMB19,013 million). The
Group also recorded a net cash outflow from financing activities of
approximately RMB9,301 million for the year ended 31 December 2017
(2016: RMB8,781 million). The Group recorded a decrease in cash and
cash equivalents of approximately RMB1,117 million for the year
ended 31 December 2017 (2016: RMB428 million) respectively.
The liquidity of the Group is primarily dependent on its ability
to maintain adequate cash inflows from operations to meet its
financial obligations as and when they fall due, and its ability to
obtain external financing to meet its committed future capital
expenditure. With regard to its future capital commitments and
other financing requirements, the Company has already obtained
banking facilities with several PRC banks of up to an aggregate
amount of RMB171,567million as at 31 December 2017 (31 December
2016: RMB155,535 million), of which an amount of approximately
RMB23,004 million was utilised (31 December 2016: RMB20,835
million).
The Directors had carried out a detailed review of the cash flow
forecast of the Group for the year ended 31 December 2017. Based on
such forecast, the Directors had determined that adequate liquidity
existed to finance the working capital and capital expenditure
requirements of the Group. In preparing the cash flow forecast, the
Directors had considered historical cash requirements of the Group
as well as other key factors, including the availability of the
above-mentioned loans financing which may impact the operations of
the Group. The Directors are of the opinion that the assumptions
and sensitivities which are included in the cash flow forecast are
reasonable. However, these are subject to inherent limitations and
uncertainties and some or all of these assumptions may not be
realised.
The following tables detail the Group's remaining contractual
maturities for its non-derivative financial liabilities. The tables
have been drawn up based on the undiscounted cash flows of
financial liabilities based on the earliest date on which the Group
can be required to pay. The maturity dates for other non-derivative
financial liabilities are based on the agreed repayment dates.
45. FINANCIAL INSTRUMENTS (continued)
b. Financial risk management objectives and policies (continued)
Liquidity risk (continued)
The table includes both interest and principal cash flows. To
the extent that interest flows are floating rate, the undiscounted
amount is derived from interest rate at the end of the reporting
period.
Repayable
on
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
demand
or In In In In Total
within the the the the After undiscounted Carrying
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
one second third fourth fifth five cash
year year year year year years flows amount
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
At 31 December
2017
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
Accounts payable 13,254,188 - - - - - 13,254,188 13,254,188
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
Other payables 8,581,663 - - - - - 8,581,663 8,581,663
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
Obligations
under financial
lease 7,352,188 6,453,959 6,046,343 5,839,642 5,411,742 18,104,668 49,208,542 44,036,054
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
Interest-bearing
bank and other
borrowings 29,727,175 8,213,681 2,196,686 5,408,769 1,055,858 7,998,481 54,600,650 50,762,888
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
Long-term payable 8,393 72,217 18,992 - - - 99,602 95,915
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
58,923,607 14,739,857 8,262,021 11,248,411 6,467,600 26,103,149 125,744,645 116,730,708
-------------------- ---------- ---------- --------- ---------- --------- ---------- ------------- -----------
Repayable
on
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
demand
or In In In In Total
within the the the the After undiscounted Carrying
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
one second third fourth fifth five cash
year year year year year years flows amount
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
At 31 December
2016
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
Accounts payable 10,832,292 - - - - - 10,832,292 10,832,292
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
Other payables 9,944,667 - - - - - 9,944,667 9,944,667
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
Obligations
under
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
Obligations
under financial
lease 7,000,199 6,519,323 5,565,696 5,106,224 4,890,312 17,492,189 46,573,943 42,394,924
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
Interest-bearing
bank and other
borrowings 27,426,442 9,303,485 14,127,491 2,431,658 5,980,133 11,283,938 70,553,147 63,808,962
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
Long-term payable 3,190 12,235 11,356 - - - 26,781 26,071
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
55,206,790 15,835,043 19,704,543 7,537,882 10,870,445 28,776,127 137,930,830 127,006,916
------------------- ---------- ---------- ---------- --------- ---------- ---------- ------------- -----------
45. FINANCIAL INSTRUMENTS (continued)
c. Fair value measurements of financial instruments
Fair value measurements for financial instruments measured at
fair value on a recurring basis
The following table presents the fair value of the Group's
financial instruments measured at the end of the reporting period
on a recurring basis, categorised into the three-level fair value
hierarchy as defined in IFRS 13 Fair value measurement. The level
into which a fair value measurement is classified is determined
with reference to the observability and significance of the inputs
used in the valuation technique as follows:
-- Level 1 valuations: Fair value measured using only Level 1
inputs i.e. unadjusted quoted prices in active markets for
identical assets or liabilities at the measurement date.
-- Level 2 valuations: Fair value measured using Level 2 inputs
i.e. observable inputs which fail to meet Level 1, and not using
significant unobservable inputs. Unobservable inputs are inputs for
which market data are not available.
-- Level 3 valuations: Fair value measured using significant unobservable inputs.
Fair value measurements
as at 31 December 2017
categorised into
--------------------- ---------------------------
Fair value
at
31 December Level Level Level
2017 1 2 3
--------------------- ------------ -------- -------- -------
RMB'000 RMB'000 RMB'000 RMB'000
--------------------- ------------ -------- -------- -------
Financial assets:
--------------------- ------------ -------- -------- -------
- Money market
fund 19,938 19,938 - -
--------------------- ------------ -------- -------- -------
Available-for-sale
equity securities 257,267 - 257,267 -
--------------------- ------------ -------- -------- -------
Available-for-sale
debt securities 1,034,961 354,202 680,759 -
--------------------- ------------ -------- -------- -------
Total financial
assets at fair
value 1,312,166 374,140 938,026 -
--------------------- ------------ -------- -------- -------
Fair value measurements
as at 31 December 2016
categorised into
--------------------- ---------------------------
Fair value
at
31 December Level Level Level
2016 1 2 3
--------------------- ------------ -------- -------- -------
RMB'000 RMB'000 RMB'000 RMB'000
--------------------- ------------ -------- -------- -------
Financial assets:
--------------------- ------------ -------- -------- -------
- Interest rate
swaps 222 - 222 -
--------------------- ------------ -------- -------- -------
Available-for-sale
equity securities 114,775 - 114,775 -
--------------------- ------------ -------- -------- -------
Available-for-sale
debt securities 993,161 164,288 828,873 -
--------------------- ------------ -------- -------- -------
Total financial
assets at fair
value 1,108,158 164,288 943,870 -
--------------------- ------------ -------- -------- -------
45. FINANCIAL INSTRUMENTS (continued)
c. Fair value measurements of financial instruments (continued)
Fair value measurements for financial instruments measured at
fair value on a recurring basis (continued)
During the year ended 31 December 2017, there were no transfers
between Level 1 and Level 2, or transfers into or out of Level 3
(2016: nil). The Group's policy is to recognise transfers between
levels of fair value hierarchy as at the end of the reporting
period in which they occur.
Valuation techniques and inputs used in Level 2 fair value
measurements
The fair value of interest rate swaps as at the end of the
reporting period was estimated by using quotations from
counterparty banks, taking into account the terms and conditions of
the derivative contracts. The major inputs used in the estimation
process include volatility of short term interest rate and the
LIBOR curve, which can be obtained from observable markets.
The fair value of available-for-sale debt securities was
determined in accordance with the discounted cash flow analysis
with the significant input being the discount rate that reflects
the credit risk of counterparties.
The fair value of available-for-sale equity securities as at the
end of the reporting period was estimated by reference to the
quoted prices in an active market with an adjustment of discount of
lack of marketability.
Fair values of financial assets and liabilities carried at other
than fair value
Except as detailed in the following table, the Directors
consider that the carrying amounts of financial assets and
financial liabilities recognised in these consolidated financial
statements approximate their fair values.
Carrying amounts Fair values
------------------------ ------------------------ ------------------------
As at As at As at As at
------------------------ ----------- ----------- ----------- -----------
31 December 31 December 31 December 31 December
------------------------ ----------- ----------- ----------- -----------
2017 2016 2017 2016
------------------------ ----------- ----------- ----------- -----------
RMB'000 RMB'000 RMB'000 RMB'000
------------------------ ----------- ----------- ----------- -----------
Financial liabilities
corporate bonds
(fixed rate) 18,949,853 26,196,052 18,231,547 26,605,005
------------------------ ----------- ----------- ----------- -----------
45. FINANCIAL INSTRUMENTS (continued)
c. Fair value measurements of financial instruments (continued)
Fair values of financial assets and liabilities carried at other
than fair value (continued)
Fair value hierarchy as at 31 December 2017
Level Level Level
1 2 3 Total
------------------------ ------- ---------- ------- ----------
RMB'000 RMB'000 RMB'000 RMB'000
------------------------ ------- ---------- ------- ----------
Financial liabilities
corporate bonds
(fixed rate) - 18,231,547 - 18,231,547
------------------------ ------- ---------- ------- ----------
Fair value hierarchy as at 31 December 2016
Level Level Level
1 2 3 Total
------------------------ ------- ---------- ------- ----------
RMB'000 RMB'000 RMB'000 RMB'000
------------------------ ------- ---------- ------- ----------
Financial liabilities
------------------------ ------- ---------- ------- ----------
Corporate bonds
(fixed rate) - 26,605,005 - 26,605,005
------------------------ ------- ---------- ------- ----------
46. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flow were, or future cash flows will be, classified
in the Group's consolidated statement of cash flows as cash flows
from financing activities.
Obligations
Corporate under
--------------------- ----------- ------------ ----------- ------------
finance
Borrowings bonds leases Total
--------------------- ----------- ------------ ----------- ------------
Note 37 Note 37 Note 36
--------------------- ----------- ------------ ----------- ------------
RMB'000 RMB'000 RMB'000 RMB'000
--------------------- ----------- ------------ ----------- ------------
At 1 January
2017 32,465,827 31,343,135 42,394,924 106,203,886
--------------------- ----------- ------------ ----------- ------------
Financing cash
flow (1,381,769) (11,196,198) (6,178,027) (18,755,994)
--------------------- ----------- ------------ ----------- ------------
New finance leases - - 9,822,691 9,822,691
--------------------- ----------- ------------ ----------- ------------
Foreign exchange
translation (550,624) - (2,003,534) (2,554,158)
--------------------- ----------- ------------ ----------- ------------
Others 80,151 2,366 - 82,517
--------------------- ----------- ------------ ----------- ------------
At 31 December
2017 30,613,585 20,149,303 44,036,054 94,798,942
--------------------- ----------- ------------ ----------- ------------
47. MAJOR NON-CASH TRANSACTIONS
During the year, the Group entered into several finance lease
arrangements in respect of property, plant and equipment with a
total capital value at the inception of the leases of approximately
RMB9,823 million (2016: RMB2,440 million).
48. RELATED PARTY TRANSACTIONS
(a) During the year, the Group had the following significant
transactions with (i) CNAHC, its subsidiaries (other than the
Group), joint ventures and associates (collectively, the "CNAHC
Group"); (ii) its joint ventures; and (iii) its associates:
(i) Transactions with related parties
2017 2016
----------------------------------- --------- ---------
RMB'000 RMB'000
----------------------------------- --------- ---------
Service provided to the
CNAHC Group
----------------------------------- --------- ---------
Sales commission income 14,964 5,851
----------------------------------- --------- ---------
Sale of cargo space 65,140 58,807
----------------------------------- --------- ---------
Government charter flights 440,821 518,275
----------------------------------- --------- ---------
Ground services income 3,004 2,332
----------------------------------- --------- ---------
Air catering income 17,053 16,329
----------------------------------- --------- ---------
Income from advertising
media business 14,281 14,324
----------------------------------- --------- ---------
Aircraft and flight equipment
leasing income - 123
----------------------------------- --------- ---------
Others 7,754 2,402
----------------------------------- --------- ---------
563,017 618,443
----------------------------------- --------- ---------
Service provided by the
CNAHC Group
----------------------------------- --------- ---------
Sales commission expenses 1,379 969
----------------------------------- --------- ---------
Air catering charges 1,098,518 1,008,107
----------------------------------- --------- ---------
Airport ground services,
take-off, landing and
depot expenses 794,142 884,341
----------------------------------- --------- ---------
Repair and maintenance
costs 15,342 366
----------------------------------- --------- ---------
Management fees 139,108 114,804
----------------------------------- --------- ---------
Expense on finance lease 114,665 23,442
----------------------------------- --------- ---------
Lease charges for land
and buildings 151,034 147,599
----------------------------------- --------- ---------
Other procurement and
maintenance 127,512 79,661
----------------------------------- --------- ---------
Aviation communication
expenses 550,250 528,225
----------------------------------- --------- ---------
Interest expenses 3,975 38,713
----------------------------------- --------- ---------
Media advertisement expenses 157,405 207,666
----------------------------------- --------- ---------
Construction management
expenses 1,068 4,360
----------------------------------- --------- ---------
Aircraft and flight equipment
leasing fees 22,282 -
----------------------------------- --------- ---------
Others 48,301 502
----------------------------------- --------- ---------
3,224,981 3,038,755
----------------------------------- --------- ---------
48. RELATED PARTY TRANSACTIONS
(a) (Continued)
(i) Transactions with related parties (continued)
2017 2016
----------------------------------- --------- --------
RMB'000 RMB'000
----------------------------------- --------- --------
Loans to the CNAHC Group
by CNAF:
----------------------------------- --------- --------
Net granting/(repayment)
of loans 35,000 (20,000)
----------------------------------- --------- --------
Interest income 42,150 40,684
----------------------------------- --------- --------
Deposits from the CNAHC
Group received by CNAF:
----------------------------------- --------- --------
(Decrease)/increase in
deposits received (442,516) 345,122
----------------------------------- --------- --------
Interest expenses 56,164 45,970
----------------------------------- --------- --------
Service provided to joint
ventures and associates
----------------------------------- --------- --------
Sales commission income 28,547 18,601
----------------------------------- --------- --------
Ground services income 161,270 123,700
----------------------------------- --------- --------
Aircraft maintenance income 84,410 124,843
----------------------------------- --------- --------
Air catering income 3,842 3,899
----------------------------------- --------- --------
Frequent-flyer programme
income 47,883 114,840
----------------------------------- --------- --------
Airline joint venture
income - 7,824
----------------------------------- --------- --------
Aircraft and flight equipment
leasing income 2,296 -
----------------------------------- --------- --------
Others 5,315 868
----------------------------------- --------- --------
333,563 394,575
----------------------------------- --------- --------
48. RELATED PARTY TRANSACTIONS (continued)
(a) (Continued)
(i) Transactions with related parties (continued)
2017 2016
----------------------------------- --------- ---------
RMB'000 RMB'000
----------------------------------- --------- ---------
Service provided by joint
ventures and associates
----------------------------------- --------- ---------
Sales commission expenses 7,561 9,079
----------------------------------- --------- ---------
Air catering charges 26,189 24,028
----------------------------------- --------- ---------
Airport ground services,
take-off, landing and
depot expenses 464,078 444,368
----------------------------------- --------- ---------
Repair and maintenance
costs 667,911 977,689
----------------------------------- --------- ---------
Aircraft and flight equipment
leasing fees 147,921 251,792
----------------------------------- --------- ---------
Other procurement and
maintenance 8,743 36,676
----------------------------------- --------- ---------
Aviation communication
expenses 6,008 51,352
----------------------------------- --------- ---------
Interest expenses - 14,537
----------------------------------- --------- ---------
Frequent-flyer programme
expenses 3,486 4,017
----------------------------------- --------- ---------
Airline joint venture
expenses 58,106 34,650
----------------------------------- --------- ---------
1,390,003 1,848,188
----------------------------------- --------- ---------
Loans to joint ventures
and associates by CNAF:
----------------------------------- --------- ---------
(Repayment)/net granting
of loans (29,600) 281,200
----------------------------------- --------- ---------
Interest income 10,814 5,735
----------------------------------- --------- ---------
Deposits from joint ventures
and associates received
by CNAF:
----------------------------------- --------- ---------
(Decrease)/increase in
deposits received (171,447) 89,031
----------------------------------- --------- ---------
Interest expenses 357 707
----------------------------------- --------- ---------
The Directors are of the opinion that the above transactions
were conducted in the ordinary course of business of the Group.
Part of the related transactions above also constitute connected
transactions or continuing connected transactions as defined in
Chapter 14A of Listing Rules.
48. RELATED PARTY TRANSACTIONS (continued)
(a) (Continued)
(ii) Balances with related parties
2017 2016
----------------------------------- ------- -------
RMB'000 RMB'000
----------------------------------- ------- -------
Outstanding balances with
related parties*
----------------------------------- ------- -------
Amount due from the ultimate
holding company 134,444 125,684
----------------------------------- ------- -------
Amounts due from associates 203,112 209,077
----------------------------------- ------- -------
Amounts due from joint
ventures 66 1,700
----------------------------------- ------- -------
Amounts due from other
related companies 14,602 12,729
----------------------------------- ------- -------
Amount due to the ultimate
holding company 76,934 51,384
----------------------------------- ------- -------
Amounts due to associates 577,452 256,575
----------------------------------- ------- -------
Amounts due to joint ventures 237,999 100,614
----------------------------------- ------- -------
Amounts due to other related
companies 810,195 871,603
----------------------------------- ------- -------
* Outstanding balances with related parties exclude borrowing
balances with related parties and outstanding balances between CNAF
and related parties.
The above outstanding balances with related parties are
unsecured, interest-free and repayable within one year or have no
fixed terms of repayment.
2017 2016
---------------------------------- --------- ---------
RMB'000 RMB'000
---------------------------------- --------- ---------
Outstanding borrowing
balances with related
parties:
---------------------------------- --------- ---------
Interest-bearing bank
loans and other borrowings:
---------------------------------- --------- ---------
- Due to the ultimate
holding company - 1,000,000
---------------------------------- --------- ---------
- Due to an associate 980,000 980,000
---------------------------------- --------- ---------
Outstanding balances between
CNAF and related parties:
---------------------------------- --------- ---------
(1)
Outstanding balances
between CNAF and
CNAHC Group
---------------------------------- --------- ---------
Loans granted 1,160,000 1,125,000
---------------------------------- --------- ---------
Deposits received 3,179,474 3,676,376
---------------------------------- --------- ---------
Interest payable to related
parties 11,362 14,067
---------------------------------- --------- ---------
Interest receivable from
related parties 1,368 18
---------------------------------- --------- ---------
(2)
Outstanding balances
between CNAF and
joint ventures and associates
of the Group
---------------------------------- --------- ---------
Loans granted 251,600 281,200
---------------------------------- --------- ---------
Deposits received 12,100 183,547
---------------------------------- --------- ---------
Interest payable to related
parties 2 59
---------------------------------- --------- ---------
Interest receivable from
related parties 309 -
---------------------------------- --------- ---------
48. RELATED PARTY TRANSACTIONS (continued)
(a) (Continued)
(ii) Balances with related parties (continued)
The outstanding balances between CNAF and related parties
represent loans to related parties or deposits received by CNAF
from related parties. The applicable interest rates are determined
in accordance with the prevailing borrowing rates/deposit saving
rates published by the People's Bank of China.
(b) An analysis of the compensation of key management personnel of the Group is as follows:
2017 2016
-------------------------------- ------- -------
RMB'000 RMB'000
-------------------------------- ------- -------
Short term employee benefits 12,737 13,891
-------------------------------- ------- -------
Retirement benefits 1,124 1,173
-------------------------------- ------- -------
Emoluments for key management
personnel 13,861 15,064
-------------------------------- ------- -------
Expense for SARs (Note 42) (470) (3,699)
-------------------------------- ------- -------
13,391 11,365
-------------------------------- ------- -------
The breakdown of emoluments for key management personal are as
follows:
2017 2016
---------------------------- ------- -------
RMB'000 RMB'000
---------------------------- ------- -------
Directors and supervisors 1,405 1,905
---------------------------- ------- -------
Senior management 12,456 13,159
---------------------------- ------- -------
13,861 15,064
---------------------------- ------- -------
Further details of the remuneration of the Directors and
supervisors are included in Note 13 to the financial
statements.
48. RELATED PARTY TRANSACTIONS (continued)
(c) Guarantee with related parties
Amount of guaranty at 31 December 2017:
Amount
------------------- ---------- -------------- ----------- -----------
of guaranty
------------------- ---------- -------------- ----------- -----------
Inception Maturity
Name of at 31 December date date
------------------- ---------- -------------- ----------- -----------
Name of guarantor guarantee 2017 of guaranty of guaranty
------------------- ---------- -------------- ----------- -----------
USD'000
------------------- ---------- -------------- ----------- -----------
Long-term loans:
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 54,784 15/05/2017 15/12/2025
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 45,574 15/05/2017 11/03/2026
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 16,660 15/05/2017 30/03/2026
------------------- ---------- -------------- ----------- -----------
Obligations
under
finance leases:
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 51,151 30/06/2014 30/06/2026
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 52,663 29/08/2014 29/08/2026
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 55,902 27/02/2015 27/02/2027
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 59,524 13/07/2015 13/07/2027
------------------- ---------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 59,409 31/08/2015 30/08/2027
------------------- ---------- -------------- ----------- -----------
Amount
------------------- ---------- -------------- ----------- -----------
of guaranty
------------------- ---------- -------------- ----------- -----------
Inception Maturity
Name of at 31 December date date
------------------- ---------- -------------- ----------- -----------
Name of guarantor guarantee 2017 of guaranty of guaranty
------------------- ---------- -------------- ----------- -----------
RMB'000
------------------- ---------- -------------- ----------- -----------
Corporate bonds:
------------------- ---------- -------------- ----------- -----------
Air China
CNAHC Limited 5,000,000 18/01/2013 18/07/2023
------------------- ---------- -------------- ----------- -----------
Air China
CNAHC Limited 3,500,000 16/08/2013 16/02/2019
------------------- ---------- -------------- ----------- -----------
Air China
CNAHC Limited 1,500,000 16/08/2013 16/02/2024
------------------- ---------- -------------- ----------- -----------
48. RELATED PARTY TRANSACTIONS (continued)
(c) Guarantee with related parties (continued)
Amount of guaranty at 31 December 2016:
Amount
------------------- --------- -------------- ----------- -----------
of guaranty
------------------- --------- -------------- ----------- -----------
Inception Maturity
Name of at 31 December date date
------------------- --------- -------------- ----------- -----------
Name of guarantor guarantee 2016 of guaranty of guaranty
------------------- --------- -------------- ----------- -----------
USD'000
------------------- --------- -------------- ----------- -----------
Long-term loans:
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 67,714 16/12/2013 15/12/2023
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 72,958 12/03/2014 11/03/2024
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 63,158 31/03/2014 30/03/2024
------------------- --------- -------------- ----------- -----------
Obligations
under
finance leases:
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 56,450 30/06/2014 30/06/2026
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 57,953 29/08/2014 29/08/2026
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 61,362 27/02/2015 27/02/2027
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 64,812 13/07/2015 13/07/2027
------------------- --------- -------------- ----------- -----------
Air China
Cathay Pacific Cargo 64,742 31/08/2015 30/08/2027
------------------- --------- -------------- ----------- -----------
Amount
------------------- --------- -------------- ----------- -----------
of guaranty
------------------- --------- -------------- ----------- -----------
Inception Maturity
Name of at 31 December date date
------------------- --------- -------------- ----------- -----------
Name of guarantor guarantee 2016 of guaranty of guaranty
------------------- --------- -------------- ----------- -----------
RMB'000
------------------- --------- -------------- ----------- -----------
Corporate bonds:
------------------- --------- -------------- ----------- -----------
Air China
CNAHC Limited 5,000,000 18/01/2013 18/07/2023
------------------- --------- -------------- ----------- -----------
Air China
CNAHC Limited 3,500,000 16/08/2013 16/02/2019
------------------- --------- -------------- ----------- -----------
Air China
CNAHC Limited 1,500,000 16/08/2013 16/02/2024
------------------- --------- -------------- ----------- -----------
48. RELATED PARTY TRANSACTIONS (continued)
(d) Transactions with other government-related entities in the PRC
The Company is ultimately controlled by the PRC government and
the Group operates in an economic environment currently
predominated by entities controlled, jointly controlled or
significantly influenced by the PRC government ("government-related
entities").
Apart from above transactions with CNAHC Group, the Group has
collectively, but not individually significant transactions with
other government-related entities, which include but are not
limited to the following:
-- Rendering and receiving services
-- Sales and purchases of goods, properties and other assets
-- Lease of assets
-- Depositing and borrowing money
-- Use of public utilities
The transactions between the Group and other government-related
entities are conducted in the ordinary course of the Group's
business within normal business operations. The Group has
established its approval process for providing of services,
purchase of products, properties and services, purchase of lease
service and its financing policy for borrowing. Such approval
processes and financing policy do not depend on whether the
counterparties are government-related entities or not.
49. EVENT AFTER THE REPORTING PERIOD
On 27 March 2018, the Company and CNACG entered into the
2018-2019 aircraft finance lease service framework agreement in
relation to aircraft finance lease services provided by the CNACG
Group to the Group. The 2018-2019 aircraft finance lease service
framework agreement, the transactions contemplated thereunder as
well as the proposed maximum transaction amounts thereunder are
subject to the approval by the independent shareholders of the
Company at the 2017 annual general meeting.
50. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY
Information about the statement of financial position of the
Company at the end of the reporting period included:
31 December 31 December
---------------------------------- ----------- -----------
2017 2016
---------------------------------- ----------- -----------
RMB'000 RMB'000
---------------------------------- ----------- -----------
Non-current assets
---------------------------------- ----------- -----------
Property, plant and equipment 114,862,113 104,485,927
---------------------------------- ----------- -----------
Lease prepayments 2,228,252 1,976,989
---------------------------------- ----------- -----------
Intangible assets 11,857 11,857
---------------------------------- ----------- -----------
Interests in subsidiaries 21,476,446 21,476,446
---------------------------------- ----------- -----------
Interests in associates 2,669,369 2,364,782
---------------------------------- ----------- -----------
Interests in joint ventures 1,239,396 1,126,992
---------------------------------- ----------- -----------
Advance payments for aircraft
and flight equipment 12,928,552 15,911,987
---------------------------------- ----------- -----------
Deposits for aircraft under
operating leases 449,913 470,648
---------------------------------- ----------- -----------
Entrusted loans to subsidiaries 1,020,000 1,020,000
---------------------------------- ----------- -----------
Available-for-sale securities 22,110 22,110
---------------------------------- ----------- -----------
Deferred tax assets 2,104,502 1,936,377
---------------------------------- ----------- -----------
Other non-current assets 312,285 -
---------------------------------- ----------- -----------
159,324,795 150,804,115
---------------------------------- ----------- -----------
Current assets
---------------------------------- ----------- -----------
Non-current assets held for
sale 284,169 911,680
---------------------------------- ----------- -----------
Inventories 97,900 130,941
---------------------------------- ----------- -----------
Accounts receivable 3,534,850 3,028,488
---------------------------------- ----------- -----------
Prepayments, deposits and other
receivables 4,526,783 3,471,581
---------------------------------- ----------- -----------
Cash and cash equivalents 3,172,520 2,221,952
---------------------------------- ----------- -----------
Other current assets 1,173,376 829,828
---------------------------------- ----------- -----------
12,789,598 10,594,470
---------------------------------- ----------- -----------
Total assets 172,114,393 161,398,585
---------------------------------- ----------- -----------
50. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY (continued)
31 December 31 December
---------------------------------------- ------------ ------------
2017 2016
---------------------------------------- ------------ ------------
RMB'000 RMB'000
---------------------------------------- ------------ ------------
Current liabilities
---------------------------------------- ------------ ------------
Air traffic liabilities (6,276,702) (4,909,318)
---------------------------------------- ------------ ------------
Accounts payable (11,363,190) (9,818,098)
---------------------------------------- ------------ ------------
Other payables and accruals (10,260,543) (9,071,796)
---------------------------------------- ------------ ------------
Current taxation (851,979) (611,110)
---------------------------------------- ------------ ------------
Obligations under finance leases (4,365,278) (4,441,898)
---------------------------------------- ------------ ------------
Interest-bearing bank loans
and other borrowings (15,385,880) (16,490,414)
---------------------------------------- ------------ ------------
Provision for major overhauls (612,360) (468,625)
---------------------------------------- ------------ ------------
(49,115,932) (45,811,259)
---------------------------------------- ------------ ------------
Net current liabilities (36,326,334) (35,216,789)
---------------------------------------- ------------ ------------
Total assets less current liabilities 122,998,461 115,587,326
---------------------------------------- ------------ ------------
Non-current liabilities
---------------------------------------- ------------ ------------
Obligations under finance leases (23,638,515) (22,519,793)
---------------------------------------- ------------ ------------
Interest-bearing bank loans
and other borrowings (16,371,198) (27,025,373)
---------------------------------------- ------------ ------------
Provision for major overhauls (1,933,084) (1,821,218)
---------------------------------------- ------------ ------------
Provision for early retirement
benefit obligations (4,711) (7,760)
---------------------------------------- ------------ ------------
Deferred income (2,935,541) (2,614,384)
---------------------------------------- ------------ ------------
Deferred tax liabilities - (102,654)
---------------------------------------- ------------ ------------
(44,883,049) (54,091,182)
---------------------------------------- ------------ ------------
NET ASSETS 78,115,412 61,496,144
---------------------------------------- ------------ ------------
CAPITAL AND RESERVES
---------------------------------------- ------------ ------------
Issued capital 14,524,815 13,084,751
---------------------------------------- ------------ ------------
Reserves 63,590,597 48,411,393
---------------------------------------- ------------ ------------
TOTAL EQUITY 78,115,412 61,496,144
---------------------------------------- ------------ ------------
Supplementary Information
EFFECTS OF DIFFERENCES BETWEEN IFRSs AND CASs
The effects of differences between the consolidated financial
statements of the Group prepared under IFRSs and CASs are as
follows:
Notes 2017 2016
-------------------------------- ------ --------- ---------
RMB'000 RMB'000
-------------------------------- ------ --------- ---------
Net profit attributable to
shareholders of the Company
under CASs 7,240,312 6,814,015
---------------------------------------- --------- ---------
Deferred taxation (i) (1,336) 1,618
-------------------------------- ------ --------- ---------
Differences in value of fixed
assets and other
non-current assets (ii) 5,345 (6,474)
-------------------------------- ------ --------- ---------
Net profit attributable to
shareholders of the Company
under IFRSs 7,244,321 6,809,159
---------------------------------------- --------- ---------
31 December 31 December
-------------------------------------- ------ ----------- -----------
Notes 2017 2016
-------------------------------------- ------ ----------- -----------
RMB'000 RMB'000
-------------------------------------- ------ ----------- -----------
Equity attributable to shareholders
of the Company under CASs 86,120,794 68,876,496
---------------------------------------------- ----------- -----------
Deferred taxation (i) 69,632 70,968
-------------------------------------- ------ ----------- -----------
Differences in value of fixed
assets and other
non-current assets (ii) (282,783) (288,128)
-------------------------------------- ------ ----------- -----------
Unrealised profit of the
disposal of Hong Kong Dragon
Airlines (iii) 139,919 139,919
-------------------------------------- ------ ----------- -----------
Equity attributable to shareholders
of the Company under IFRSs 86,047,562 68,799,255
---------------------------------------------- ----------- -----------
Notes:
(i) The differences in deferred taxation were mainly caused by
the differences under IFRSs and CASs as explained below.
(ii) The differences in the value of fixed assets and other
non-current assets mainly consist of the following three types: (1)
fixed assets acquired in foreign currencies prior to 1 January 1994
and translated at the equivalent amount of RMB at the then
prevailing exchange rates prescribed by the government (i.e., the
government-prescribed rates) under CASs. Under IFRSs, the costs of
fixed assets acquired in currencies prior to 1 January 1994 should
be translated at the then prevailing market rate (i.e., the swap
rate) and therefore resulted in differences in the costs of fixed
assets in the financial statements prepared under IFRSs and CASs;
(2) in accordance with the accounting policies under IFRSs, all
assets are recorded at historical cost. Therefore, the revaluation
surplus or deficit (and the related depreciation/amortisation or
impairment) recorded under CASs should be reversed in the financial
statements prepared under IFRSs; (3) the differences were caused by
the adoption of component accounting in different years under IFRSs
and CASs. Component accounting was adopted by the Group on a
prospective basis under IFRSs since 2005 and under CASs since 2007.
Such differences are expected to be eliminated through depreciation
or disposal of fixed assets in future.
(iii) The difference was caused by the disposal of Hong Kong
Dragon Airlines Limited to Cathay Pacific and is expected to be
eliminated when the Group's interest in Cathay Pacific is disposed
of.
INDEPENT AUDITOR'S REPORT
(Issued by a Third Country Auditor registered with The UK
Financial Reporting Council)
TO THE SHAREHOLDERS OF AIR CHINA LIMITED
(Incorporated in the People's Republic of China with limited
liability)
Opinion
We have audited the consolidated financial statements of Air
China Limited (the "Company") and its subsidiaries (collectively
referred to as the "Group") set out on pages 68 to 157, which
comprise the consolidated statement of financial position as at 31
December 2017, and the consolidated statement of profit or loss and
the consolidated statement of profit or loss and other
comprehensive income, consolidated statement of changes in equity
and consolidated statement of cash flows for the year then ended,
and notes to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the consolidated financial statements give a
true and fair view of the consolidated financial position of the
Group as at 31 December 2017, and of its consolidated financial
performance and its consolidated cash flows for the year then ended
in accordance with International Financial Reporting Standards
("IFRSs") issued by the International Accounting Standards Board
("IASB") and have been properly prepared in compliance with the
disclosure requirements of the Hong Kong Companies Ordinance.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's Responsibilities
for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants ("the Code"), and we have
fulfilled our other ethical responsibilities in accordance with the
Code. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Key Audit Matters (Continued)
Key audit matters How our audit addressed
the key audit matter
--------------------------------- ---------------------------------------------
Provision for major overhauls
--------------------------------------------------------------------------------
As at 31 December 2017, Our procedures in relation
provision for major overhauls to provision for major
of RMB5,005 million were overhauls to fulfil the
recorded in the consolidated return condition of aircraft
statement of financial under operating leases
position. We identified included:
provision for major overhauls
to fulfil the return condition -- Testing the internal
of aircraft under operating controls relevant to the
leases as a key audit matter audit of provision for
because of the significant major overhauls to fulfil
management estimation and the return condition of
judgement required in assessing aircraft under operating
the variable factors and leases.
assumptions in order to
quantify the amount of -- Evaluating the methodology
provision required at each and key assumptions adopted
reporting date. by management in estimating
the provision for these
The Group held certain major overhauls. This evaluation
aircraft under operating included reviewing the
leases at 31 December 2017. terms of the operating
Under the terms of the leases and comparing assumptions
operating lease arrangements, to contract terms and the
the Group is contractually Group's maintenance cost
committed to return the experience.
aircraft to the lessors
in a certain condition -- Discussing with managers
agreed with the lessors in the engineering department
at the inception of each responsible for aircraft
lease. In order to fulfil engineering about the Utilisation
these return conditions, pattern of aircraft, obtaining
major overhauls are required relevant operating data,
to be conducted on a regular performing recalculation
basis. and checking the mathematical
accuracy of the calculation
Management estimates the of provision for major
maintenance costs of major overhauls by the management
overhauls for aircraft for those aircraft under
held under operating leases operating leases.
at the end of each reporting
period and accrues such -- Performing a retrospective
costs over the lease term. review of aircraft maintenance
The calculation of such provisions to evaluate
costs includes a number the assumptions adopted
of variable factors and by management by comparing
assumptions, including past assumptions adopted
the anticipated utilisation by management in prior
of the aircraft and the years with actual events
expected costs of maintenance. as well as the current
year's assumptions.
Details of the related
estimation uncertainty
are set out in note 4,
5 and 38 to the consolidated
financial statements.
--------------------------------- ---------------------------------------------
Key Audit Matters (Continued)
Key audit matters How our audit addressed
the key audit matter
----------------------------------- ---------------------------------------------
Revenue Recognition
----------------------------------------------------------------------------------
The Group's revenue primarily Our procedures in relation
consists of air traffic to revenue recognition
revenue amounting to RMB115,380 included:
million for the year ended
31 December 2017. We identified -- Testing the internal
revenue recognition as controls, including IT
a key audit matter because controls, relevant to our
revenue is one of the key audit of revenue recognition.
performance indicators
of the Group and because -- Performing analytical
it involves complex information procedures on passenger
technology ("IT") systems revenue by developing an
to capture and recognise expectation for each type
sales data and information of revenue using independent
and an estimation of the inputs and information
unit fair value and redemption generated from the Group's
rate of frequent-flyer IT systems and comparing
programme, both of which such expectations with
give rise to an inherent recorded revenue. Investigating
risk that revenue could the reason of any significant
be recorded in the incorrect unusualness.
period or could be subject
to management manipulation. -- Evaluating the management's
estimate of the unit fair
Passenger and cargo sales value and redemption rate
are recognised as revenue of frequent-flyer programme.
when the related transportation
service is provided. The -- Checking underlying
value of passenger and documentation for journal
cargo sales for which the entries which were considered
related transportation to be material or met other
service has not yet been specified risk-based criteria.
provided at the end of
the reporting period is -- Challenging the reasonableness
recorded as air traffic of the Group's assumptions
liabilities in the consolidated relating to the redemption
statement of financial rate for mileage by comparison
position. with historical experience
and planned changes to
The fair value of programme the programme that may
awards under the Group's impact future redemption
frequent-flyer programme, activities.
is deferred and included
in deferred income in the
consolidated statement
of financial position.
The Group maintains complex
IT systems in order to
track the point of service
provision for each sale
and also to track the issuance
and subsequent redemption
and utilisation and expiry
of frequent-flyer programme.
The Group estimates the
unit fair value of frequent-flyer
programme which are initially
deferred when earned by
members of the programme.
Details of revenue are
set out in notes 4, 5,
7 and 40 to the consolidated
financial statements.
----------------------------------- ---------------------------------------------
Other Information
The directors of the Company are responsible for the other
information. The other information comprises the information
included in the annual report, but does not include the
consolidated financial statements and our auditor's report
thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of Directors and Those Charged with Governance
for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation
of the consolidated financial statements that give a true and fair
view in accordance with IFRSs issued by the IASB and the disclosure
requirements of the Hong Kong Companies Ordinance, and for such
internal control as the directors determine is necessary to enable
the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the
directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Those charged with governance are responsible for overseeing the
Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion solely to you, as a
body, in accordance with our agreed terms of engagement, and for no
other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements (Continued)
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
The engagement partner on the audit resulting in the independent
auditor's report is Yam Siu Man.
Deloitte Touche Tohmatsu Certified Public Accountants LLP
Certified Public Accountants
(Registered as a Third Country Auditor with the UK Financial
Reporting Council)
Shanghai, China
27 March 2018
GLOSSARY OF TECHNICAL TERMS
Capacity Measurements
"available seat the number of seats available for sale multiplied
kilometres" or "ASK(s)" by the kilometres flown
------------------------ -------------------------------------------------------------
"available freight the number of tonnes of capacity available for the
tonne kilometres" carriage of cargo and mail multiplied by the kilometres
or "AFTK(s)" flown
------------------------ -------------------------------------------------------------
"available tonne the number of tonnes of capacity available for transportation
kilometres" or "ATK(s)" multiplied by the kilometres flown
------------------------ -------------------------------------------------------------
TRAFFIC MEASUREMENTS
"revenue passenger the number of revenue passengers carried multiplied
kilometres" or "RPK(s)" by the kilometres flown
-------------------------- ----------------------------------------------------
"passenger traffic" measured in revenue passenger kilometres, unless
otherwise specified
-------------------------- ----------------------------------------------------
"revenue freight the revenue cargo and mail load in tonnes multiplied
tonne kilometres" by the kilometres flown
or "RFTK(s)"
-------------------------- ----------------------------------------------------
"cargo and mail measured in revenue freight tonne kilometres, unless
traffic" otherwise specified
-------------------------- ----------------------------------------------------
"revenue tonne kilometres" the revenue load (passenger and cargo) in tonnes
or "RTK(s)" multiplied by the kilometres flown
-------------------------- ----------------------------------------------------
YIELD MEASUREMENTS
"passenger yield"/"yield
per RPK" revenues from passenger operations divided by RPKs
------------------------ --------------------------------------------------
"cargo yield"/"yield
per RFTK" revenues from cargo operations divided by RFTKs
------------------------ --------------------------------------------------
LOAD FACTORS
"passenger load revenue passenger kilometres expressed as a percentage
factor" of available seat kilometres
--------------------- ----------------------------------------------------------
"cargo and mail revenue freight tonne kilometres expressed as a percentage
load factor" of available freight tonne kilometres
--------------------- ----------------------------------------------------------
"overall load factor" revenue tonne kilometres expressed as a percentage
of available tonne kilometres
--------------------- ----------------------------------------------------------
UTILISATION
"block hour(s)" each whole and/or partial hour elapsing from the
moment the chocks are removed from the wheels of
the aircraft for flights until the chocks are next
again returned to the wheels of the aircraft
--------------- ---------------------------------------------------
DEFINITIONS
In this annual report, the following expressions shall have the
following meanings unless the context requires otherwise:
"A Share(s)" ordinary share(s) in the share capital
of the Company, with a nominal value
of RMB1.00 each, which are subscribed
for and traded in Renminbi and listed
on Shanghai Stock Exchange
------------------- -------------------------------------------
"Air China Cargo" Air China Cargo Co., Ltd.
------------------- -------------------------------------------
"Air China Inner Air China Inner Mongolia Co., Ltd.
Mongolia"
------------------- -------------------------------------------
"Air Macau" Air Macau Company Limited
------------------- -------------------------------------------
"AMECO" Aircraft Maintenance and Engineering
Corporation
------------------- -------------------------------------------
"Articles of the articles of association of the
Association" Company, as amended from time to time
------------------- -------------------------------------------
"Beijing Airlines" Beijing Airlines Company Limited
------------------- -------------------------------------------
"Board" the board of directors of the Company
------------------- -------------------------------------------
"CASs" China Accounting Standards for Business
Enterprises
------------------- -------------------------------------------
"Cathay Dragon" Hong Kong Dragon Airlines Limited
------------------- -------------------------------------------
"Cathay Pacific" Cathay Pacific Airways Limited
------------------- -------------------------------------------
"China Eastern China Eastern Airlines Corporation
Airlines" Limited
------------------- -------------------------------------------
"China Southern China Southern Airlines Company Limited
Airlines"
------------------- -------------------------------------------
"CNACG" China National Aviation Corporation
(Group) Limited
------------------- -------------------------------------------
"CNACG Group" CNACG and its subsidiaries
------------------- -------------------------------------------
"CNAF" China National Aviation Finance Co.,
Ltd.
------------------- -------------------------------------------
"CNAHC" China National Aviation Holding Corporation
Limited
------------------- -------------------------------------------
"CNAHC Group" CNAHC and its subsidiaries
------------------- -------------------------------------------
"CNAMC" China National Aviation Media Co.,
Ltd
------------------- -------------------------------------------
"Company", "We" Air China Limited
or "Air China"
------------------- -------------------------------------------
"CSRC" China Securities Regulatory Commission
------------------- -------------------------------------------
"Dalian Airlines" Dalian Airlines Company Limited
------------------- -------------------------------------------
"Director(s)" the director(s) of the Company
------------------- -------------------------------------------
"Group" Air China Limited and its subsidiaries
------------------- -------------------------------------------
"H Share(s)" overseas-listed foreign invested shares
in the share capital of the Company,
with a nominal value of RMB1.00 each,
which are listed on the Hong Kong
Stock Exchange (as primary listing
venue) and have been admitted into
the Official List of the UK Listing
Authority (as secondary listing venue)
------------------- -------------------------------------------
"Hong Kong Stock The Stock Exchange of Hong Kong Limited
Exchange"
------------------- -------------------------------------------
"IFRSs" International Financial Reporting
Standards
------------------- -------------------------------------------
"Kunming Airlines" Kunming Airlines Company Limited
------------------- -------------------------------------------
"Listing Rules" The Rules Governing the Listing of
Securities on The Stock Exchange of
Hong Kong Limited
------------------- -------------------------------------------
"Lufthansa" Deutsche Lufthansa AG
------------------- -------------------------------------------
"reporting period" the period from 1 January 2017 to
31 December 2017
------------------- -------------------------------------------
"SASAC" State-owned Assets Supervision and
Administration Commission of the State
Council
------------------- -------------------------------------------
"SFO" the Securities and Futures Ordinance
(Chapter 571 of the Laws of Hong Kong)
------------------- -------------------------------------------
"Shandong Airlines" Shandong Airlines Co., Ltd.
------------------- -------------------------------------------
"Shandong Aviation Shandong Aviation Group Corporation
Group Corporation"
------------------- -------------------------------------------
"Shenzhen Airlines" Shenzhen Airlines Company Limited
------------------- -------------------------------------------
"Supervisor(s)" The supervisor(s) of the Company
------------------- -------------------------------------------
"Supervisory The supervisory committee of the Company
Committee"
------------------- -------------------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR ABMJTMBBJBPP
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