TIDMAIRC
RNS Number : 1936D
Air China Ld
25 April 2017
Please click to find full AIR CHINA 2016 Annual Results
Report
http://www.rns-pdf.londonstockexchange.com/rns/1936D_-2017-4-25.pdf
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 two increasingly important hubs in Chengdu and Shanghai. With
Star Alliance, our network covered 1,330 destinations in 192
countries as at 31 December 2016. 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, 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.
content
Corporate Information 2
Summary of Financial Information 4
Summary of Operating Data 6
Chairman's Statement 8
Business Overview 12
Management's Discussion and Analysis
of
Financial Position and Operating
Results 30
Corporate Governance Report 39
Report of the Directors 54
Profile of Directors, Supervisors
and Senior Management 75
Financial Statements Prepared under
International
Financial Reporting Standards
- Independent Auditor's Report 85
- Consolidated Statement of Profit
or Loss 92
- Consolidated Statement of Profit
or Loss and
Other Comprehensive Income 93
- Consolidated Statement of Financial
Position 94
- Consolidated Statement of Changes
in Equity 97
- Consolidated Cash Flow Statement 98
- Notes to the Financial Statements 99
Financial Statements Prepared under
the Accounting
Standards for Business Enterprise
of the PRC
- Consolidated Income Statement 189
- Consolidated Balance Sheet 191
Supplementary Information 194
Glossary of Technical Terms 196
Definitions 197
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
DIRECTORS:
Cai Jianjiang
Song Zhiyong
Cao Jianxiong
Feng Gang
John Robert Slosar ( )
Ian Sai Cheung Shiu
Pan Xiaojiang
Simon To Chi Keung
Stanley Hui Hon-chung
Li Dajin
SUPERVISORS:
Wang Zhengang
He Chaofan
Zhou Feng
Xiao Yanjun
Shen Zhen
LEGAL REPRESENTATIVE OF THE COMPANY:
Cai Jianjiang
JOINT COMPANY SECRETARIES:
Rao Xinyu
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:
KPMG
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
SUMMARY OF FINANCIAL INFORMATION
(RMB'000)
2016 2015 2014 2013 2012
(Restated) (Restated) (Restated)
Revenue 115,144,692 110,057,034 105,964,897 98,265,058 99,617,550
Profit from operations 17,532,575 15,551,622 7,257,047 4,091,469 8,439,565
Profit before taxation 10,212,902 9,355,251 5,134,866 4,592,283 7,009,337
Profit after taxation
(including profit attributable
to non-controlling interests) 7,758,681 7,509,487 4,334,102 3,667,422 5,370,111
Profit attributable to
non-controlling interests 949,522 446,140 481,610 396,595 538,590
Profit attributable to
equity shareholders of
the Company 6,809,159 7,063,347 3,852,492 3,270,827 4,831,521
EBITDA(1) 31,006,295 28,562,383 18,650,476 15,119,959 18,850,684
EBITDAR(2) 38,261,866 34,725,582 24,131,141 20,044,184 23,015,786
Earnings per share attributable
to equity shareholders
of the Company (RMB) 0.55 0.57 0.31 0.27 0.40
Return on equity attributable
to equity shareholders
of the Company (%) 9.90 11.82 7.10 6.06 9.63
(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
2016 2015 2014 2013 2012
(Restated) (Restated) (Restated)
Total assets 224,050,951 213,631,150 211,669,694 206,194,704 187,021,035
Total liabilities 147,654,552 147,108,397 151,791,604 147,908,961 132,990,055
Non-controlling interests 7,597,144 6,774,742 5,604,325 4,268,650 3,833,973
Equity attributable to
equity shareholders of
the Company 68,799,255 59,748,011 54,273,765 54,017,093 50,197,007
Equity attributable to
equity shareholders of
the Company per share
(RMB) 5.26 4.57 4.15 4.13 3.89
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.
Increase/
2016 2015 (decrease)
Capacity
ASK (million) 233,218.05 214,828.73 8.56%
International 84,158.87 72,524.99 16.04%
Domestic 139,720.36 132,533.45 5.42%
Hong Kong, Macau and Taiwan 9,338.82 9,770.29 (4.42%)
AFTK (million) 12,736.96 11,982.31 6.30%
International 8,845.06 8,353.23 5.89%
Domestic 3,613.37 3,311.23 9.12%
Hong Kong, Macau and Taiwan 278.54 317.86 (12.37%)
ATK (million) 33,776.53 31,363.89 7.69%
Traffic
RPK (million) 188,158.21 171,713.88 9.58%
International 65,445.49 56,147.20 16.56%
Domestic 115,744.65 108,643.79 6.54%
Hong Kong, Macau and Taiwan 6,968.07 6,922.89 0.65%
RFTK (million) 6,995.06 6,558.43 6.66%
International 5,238.68 4,920.87 6.46%
Domestic 1,649.43 1,524.56 8.19%
Hong Kong, Macau and Taiwan 106.95 113.00 (5.35%)
Passengers carried (thousand) 96,605.87 89,815.89 7.56%
International 13,250.22 11,028.76 20.14%
Domestic 78,901.28 74,374.25 6.09%
Hong Kong, Macau and Taiwan 4,454.37 4,412.88 0.94%
Cargo and mail carried (tonnes) 1,769,146.31 1,664,406.35 6.29%
Kilometres flown (million) 1,274.88 1,181.41 7.91%
Block hours (thousand) 2,028.68 1,875.94 8.14%
Number of flights 651,108 615,912 5.71%
International 86,545 74,016 16.93%
Domestic 529,431 505,986 4.63%
Hong Kong, Macau and Taiwan 35,132 35,910 (2.17%)
Increase/
2016 2015 (decrease)
RTK (million) 23,697.62 21,807.18 8.67%
Load factor
Passenger load factor (RPK/ASK) 80.68% 79.93% 0.75 ppt
International 77.76% 77.42% 0.35 ppt
Domestic 82.84% 81.97% 0.87 ppt
Hong Kong, Macau and Taiwan 74.61% 70.86% 3.76 ppt
Cargo and mail load factor (RFTK/AFTK) 54.92% 54.73% 0.19 ppt
International 59.23% 58.91% 0.32 ppt
Domestic 45.65% 46.04% (0.39 ppt)
Hong Kong, Macau and Taiwan 38.40% 35.55% 2.85 ppt
Overall load factor (RTK/ATK) 70.16% 69.53% 0.63 ppt
Daily utilisation of aircraft
(block hours per day per aircraft) 9.56 9.52 0.04 hrs
Yield
Yield per RPK (RMB) 0.5327 0.5583 (4.58%)
International 0.4327 0.4880 (11.34%)
Domestic 0.5766 0.5807 (0.71%)
Hong Kong, Macau and Taiwan 0.7436 0.7766 (4.25%)
Yield per RFTK (RMB) 1.1873 1.2880 (7.82%)
International 1.1685 1.2552 (6.91%)
Domestic 1.1646 1.2992 (10.36%)
Hong Kong, Macau and Taiwan 2.4570 2.5685 (4.34%)
Unit cost (RMB)
Operating cost per ASK 0.4185 0.4399 (4.86%)
Operating cost per ATK 2.8899 3.0132 (4.09%)
CHAIRMAN'S STATEMENT
In 2016, while the global economy gradually regained its
momentum, China managed to secure a steady economic growth. The
demand in the global air passenger market remained strong as
China's civil aviation industry continued its double-digit rapid
growth, while the global air cargo market remained sluggish and
trapped in a challenging operating environment. With the erupting
geopolitical events, intensifying industrial competition and
constantly appreciating US dollars, the challenges are getting even
more severe. Firm and determined, the Group adhered to its
guidelines of sound operation and sustainable development as it
coped with the changes in the market with proper tactics, expanded
its global presence and improved its operational efficiency with
strict cost control, resulting in enhanced profitability of its
principal businesses and a secured leading position in the
industry.
During the reporting period, our capacity measured in ATK
reached 33,777 million and RTK reached 23,698 million, representing
an increase of 7.69% and 8.67% respectively, over the previous
year. We carried 96.6059 million passengers, increased by 7.56%
year-on-year. Our cargo and mail volume reached 1.7691 million
tonnes, representing a year-on-year increase of 6.29%. Our revenue
reached RMB115,145 million, representing a year-on-year increase of
4.62%, while our operating expenses reached RMB97,612 million,
increased by 3.29% over the previous year, among which, fuel cost
dropped by RMB2,061 million compared with that of last year.
Although fluctuations of exchange rate caused an exchange loss of
RMB4,234 million, owing to the satisfying profitability in the main
business, we still recorded RMB6,809 million of profit attributable
to equity shareholders, representing a year-on-year decrease of
3.60%.
In 2016, we introduced 54 aircraft, including 7 new B787-9
passenger aircraft, and phased out 21 aircraft, building up a fleet
of 623 aircraft with an average age of 6.36 years. The Company
sensibly allocated its capacity relying on its pre-judgment on
market demand and concentrated its advantageous resources to
support those profitable and crucial routes and those which are
making greater contribution to its network, aiming to optimise the
overall deployment structure. In response to the changes in the
market demand triggered by the adverse factors such as the
terrorist crisis in Europe, we sensibly reduced our international
flights to the affected countries and relocated our wide-body
aircraft to major domestic markets. While maintaining the
investment and optimisation efforts at our international
operations, we gradually increased our strength in the domestic
market, and at the same time, steadily reduced the number of
unprofitable routes through fine-tuning of our yield management
system, which effectively supported overall yield improvement
across all our routes.
Constantly advancing our hub network strategy. The Company
launched 45 new routes, both domestic and international, during the
year. As the largest carrier between China and Europe, and between
China and U.S., our global network coverage has been continuously
optimized, with increasingly improved the quality of flight
connections and a significant growth of 49% in the volume of
connecting passengers between international flights. Concerning our
Beijing Hub, we launched the Beijing-Warsaw route while increasing
the flight frequency for the Beijing-San Francisco route. Aiming to
strengthen our penetration in the "One Belt, One Road" markets, we
also launched new routes and increased flight frequency to Turpan
and Yinchuan and so on, further enhancing the network influence of
our Beijing Hub. As for our Shanghai Hub, we launched a new route
to San Jose while optimising the scheduling for the domestic routes
to Chengdu, Changchun and Hohhot, aiming to consolidate the status
of Shanghai International Gateway. For our Chengdu Hub, we launched
a new route to Sydney while increasing the frequency of domestic
routes to Ningbo, Lanzhou and Guilin, aiming to reinforce our
network structure. For our Shenzhen Hub, we launched an
international route to Frankfurt as well as a Shenzhen - Beijing -
Los Angeles route, which signified the first step of our
international long distance network coverage from South China.
Transforming and innovating our business models to improve our
marketing ability from all aspects. The Company has decided on the
path for business model transformation with the focus on frequent
fliers, products with ancillary revenue and e-commerce based on the
three major leads, i.e. customers, products and channels, in order
to enhance its marketing capacity, and to create an air travel
lifestyle ecosystem. We rolled out 12 iterative upgrades for our
mobile app in respect of technology, service functions, customer
experience and marketing capabilities, aiming to promote precise
marketing and reinforce our e-commerce platform, which awarded us
with a year-on-year increase of 54% in the revenue from our
e-commerce platform.
Continuously enhancing our comprehensive service management
expertise with the focus on passenger experience improvement. We
enriched and innovated the food and beverages served on board to
satisfy the changing demands of our customers. In order to improve
the baggage transport and passenger transit service, we launched
the global baggage query call centre. We established the emergency
response mechanism for massive flight delay in Beijing to enhance
the synergy with the airports in our main bases. We continued to
promote the fast travel services, especially the self-service and
online service functions, so as to use new technology to simplify
the passenger boarding procedures and effectively enhance the
passenger's travel experience.
Focusing on quality and efficiency improvement and strengthening
cost control. As our business and operational scale continued to
expand, we tried to achieve a year-on-year decrease in our
transportation costs through a strict control of large-cost process
management and structural cost adjustment. Our efforts in reducing
the receivables and inventory met with encouraging results, while
our efforts in increasing direct sales and reducing distribution
costs were also carried on with remarkable momentum, as a result of
which the percentage of our direct sales increased to 40.6% with a
further reduction of distribution costs. To cope with the risk of
exchange rate fluctuations, the Company adjusted the way it
acquired aircraft to keep its interest-bearing US dollar debts
under control while adjusting the structure of the debt currency
within the permission of national policies, resulting in a
significant decrease in its interest-bearing US dollar debts and
the proportion thereof, thereby effectively reducing the impact of
exchange rate fluctuations.
In 2016, facing a challenging operating environment, Air China
Cargo steadily improved the quality of its business operation and
achieved sustained profitability. Air China Cargo maintained a
sharp sense of the market movements as it constantly adjusted the
allocation of transport capacity to ensure that the high-yield
areas were prioritised and the overall yield level were enhanced.
It also strengthened the coordination of passenger and cargo
transport resources, resulting in satisfactory belly space yield.
Air China Cargo sustained profit growth in the cargo stations.
While consolidating its traditional businesses, Air China Cargo
accelerated its cooperation with couriers and e-commerce companies,
which laid the foundation for the diversified development.
In 2017, the global economy will maintain its growth at a slow
pace, while China will arrive at an important stage of economic
"New Normal" in which the consumers' demands will continue to grow
and the consumption structure will be upgraded at a faster speed
with consumption itself playing a more important role in driving
the economic growth. In this stage, the demand for air travel will
continue to grow while fluctuations of oil prices and exchange rate
as well as geopolitical situation and intensified competition in
the industry may impose great challenges on our operation. The
Group will continue its efforts to become a "large network airline
with international competitive edge" while carrying on its reform,
achieving a sound development, innovating marketing capability and
consolidating competitive advantages, in order to reward its
shareholders and society with better results.
Cai Jianjiang
Chairman
Beijing, PRC
30 March 2017
Business Overview
In 2016, the Group's ASKs and RPKs reached 233,218 million and
188,158 million, representing a year-on-year increase of 8.56% and
9.58%, respectively. The passenger load factor was 80.68%,
representing a year-on-year increase of 0.75 ppt. The Group's AFTKs
and RFTKs reached 12,737 million and 6,995 million, representing a
year-on-year increase of 6.30% and 6.66%, respectively. The Group's
cargo and mail load factor was 54.92%, representing a year-on-year
increase of 0.19 ppt.
DEVELOPMENT OF FLEET
In 2016, the Group introduced 54 aircraft, among which seven
were bought with our own funds, one was bought with pledged bank
loans, nine were acquired under finance leases and 37 were acquired
under operating leases, and phased out 21 aircraft (including one
A340, one B757-200, three B777-200, ten B737 series, three A320
series and three business jets). As at the end of 2016, the Group
had a total of 623 aircraft, with an average age of 6.36 years
(excluding aircraft under wet leases).
Details of the fleet of the Group are set out in the table
below:
31 December 2016
Operating
Sub-total Self-owned Finance leases leases Average age
Passenger aircraft 601 247 167 187 6.31
Airbus 290 114 91 85 6.20
A319 42 31 5 6 10.90
A320/A321 193 66 73 54 5.32
A330 55 17 13 25 5.67
Boeing 311 133 76 102 6.41
B737 263 107 61 95 6.44
B747 11 9 2 0 8.96
B777 30 11 13 6 6.60
B787 7 6 0 1 0.42
Cargo aircraft 15 10 5 0 9.54
B747F 3 3 0 0 14.53
B757F 4 4 0 0 20.35
B777F 8 3 5 0 2.26
Business jets 7 1 0 6 4.28
Total 623 258 172 193 6.36
Introduction Plan Phase-out Plan
2017 2018 2019 2017 2018 2019
Passenger aircraft 56 46 55 18 17 20
Airbus 23 24 24 1 2 8
A319 5 0 3 0 2 4
A320/A321 11 15 19 1 0 4
A330 6 4 0 0 0 0
A350 1 5 2 0 0 0
Boeing 33 22 31 17 15 12
B737 24 20 31 15 12 12
B747 0 0 0 0 0 0
B777 3 0 0 2 3 0
B787 6 2 0 0 0 0
Total 56 46 55 18 17 20
Among the aircraft set out above, the Company operated a fleet
of 381 aircraft in total, with an average age of 6.46 years
(excluding aircraft under wet leases). In 2016, the Company
introduced 35 aircraft and phased out 14 aircraft among which three
were leased to Air China Inner Mongolia under wet leases.
In 2016, the Company made new progress in respect of hub
network, sales and marketing, products and services, external
cooperation, safety investment, employee self-achievement, customer
service, supplier management, environmental protection and social
welfare, etc.
HUB NETWORK
Expanding network coverage with commercial value of our hubs
constantly increasing. A total of 45 domestic and international
routes were launched in 2016. As for the Beijing Hub, a new
Beijing-Warsaw route was added to its international flight network
which boosted the flight frequency on the Beijing-San Francisco
route. New routes from Beijing to Xichang, Turpan, Shihezi, Shiyan
and Linfen were also added to its domestic network which boosted
the flight frequency on the routes from Beijing to Guiyang,
Lanzhou, Yinchuan, Fuzhou and Zhanjiang, aiming to develop the "One
Belt, One Road" related markets and further increase the influence
of the route network of Beijing Hub. Meanwhile, we have increased
our efforts in exploring the new markets, and strived to expand the
flight network coverage of Chengdu regional hub, Shanghai
International Gateway and other bases. New international routes
such as Chongqing-Dubai, Shenzhen-Frankfurt, Hangzhou-Surat Thani,
Yinchuan-Chongqing-Nha Trang, Xining-Chengdu-Tokyo, Shanghai
Pudong-San Jose, Chengdu-Sydney were launched while the flight
frequency on domestic routes such as Chengdu-Ningbo,
Chengdu-Lanzhou, Shanghai-Changchun and Shanghai-Hohhot were
boosted. Fight distribution was optimised on domestic routes such
as Chengdu to Shanghai, Guilin and Ningbo, with which our route
network was expanded in depth to create a more prosperous
connecting flight market. The flight connection was constantly
optimised, with automatic all-through boarding service now provided
in 151 terminals, and a significant growth of 49% in the volume of
connecting passengers between international flights. In 2017, the
Company plans to launch new European and American routes such as
Beijing-Astana, Beijing-Zurich, Shanghai-Barcelona and Shenzhen-Los
Angeles as well as some Southeast Asian routes departing from
Hangzhou, Chongqing and Shanghai. Meanwhile, we also expect to
launch a number of new domestic routes, such as
Hangzhou-Liupanshui, Tianjin-Fuzhou, Dalian-Yuncheng-Guiyang and
Chengdu-Shihezi-Yining.
As at 31 December 2016, the Company was operating 378 passenger
routes, covering six continents of the world, with 102
international routes, 14 regional routes and 262 domestic routes.
The above passenger routes reached 41 countries (regions) and 176
cities, including 109 domestic cities, 64 international cities and
3 regions. Through the Star Alliance, the Company's network now
covers 1,330 destinations in 192 countries.
SALES AND MARKETING
Remarkable improvement achieved in "Increasing Direct Sales and
Reducing Distribution Costs", with significantly enhanced yield
management. The Company has significantly expanded its direct sales
channels with optimised functions, which resulted in the increase
of the revenue from direct sales by 33% year-on-year and accounted
for 40.6% of the Company's total revenue. The Company insisted on
price stability strategy while deepening the application of its
Origin & Destination (O&D) yield management system and
practically advancing fine flight management, so as to keep overall
yield in the leading position of the industry.
Business model transformation advancing steadily. The Company
has established on the path for business model transformation with
the focus on frequent flier, products with ancillary revenue and
e-commerce based on the three major leads, i.e. customers, products
and channels. For Phase I of business model transformation, we have
completed the building of the credit point accumulation platform,
customer portal unification, electronic and mileage payment
services, laying a solid foundation for subsequent strategic
development. As at the end of 2016, the total number of "Phoenix
Miles" members topped 42.97 million. With the member loyalty
further improved by means of mileage capitalisation, the percentage
of income contributed by members further improved to 39.3%. The
functions of ancilliary revenue services continued to improve with
its scope of use and sales channel effectively expanded, with which
the ancilliary revenue has increased by 26%. The functionality of
our E-commerce platform continued to improve, with 7 iterative
development of our overseas websites and 12 iterative upgrades of
our mobile APP application completed, and more than 500 products
such as mileage capitalisation and Apple pay launched to our
customers. Our brand strategy was steadily advancing in 2016, as we
were once again ranked among the "World's Top 500 Brands" and rose
to the 295th place and we were also ranked the sixth in the initial
list of "Brand Z - China's Overseas Going Brands Top 30", both
being the company in China's aviation industry with the highest
score.
PRODUCTS AND SERVICES
Improving our services to offer better passenger experience
throughout the trip. Focusing on passengers' travel trends and
preferences, we developed and promoted new ground services and
vigorously promoted and offered convenient travel services through
four major channels, namely mobile APPs, Wechat, websites and
self-service check-in machines, with our self-service check-in
machines installed in over 84 airports, and our remote self-service
check-in applications (computers and mobile phones) available at
143 airports. We widened our APP-based customer services,
integrated our member service into 95583 platform and promoted the
electronic compensation scheme while launching the service
compensation function on the APP. For high-value customers, we
refined our services throughout the trip, and preliminarily
realised the 7*24 uninterrupted service. We launched the operation
of Global Luggage Inquiry & Call Centre, established the
response mechanism to the wide-spread flight delay emergency in
Beijing area and optimised and integrated our transit service
resources, aiming to provide emergent transit and flight-missing
passengers with all-the-way guiding services, which has
significantly improved the transit achievement. We introduced new
products such as
electronic porthole, windowed bathroom and advanced
entertainment systems on the Boeing 787-9 aircraft to improve the
passenger experience.
EXTERNAL COOPERATION
In 2016, the Company entered into a joint route operation
arrangement with Lufthansa, pursuant to which we will coordinate
with each other on flight schedules, so as to provide passengers
with more convenient and affordable options; we carried out our
joint corporate customer scheme to provide corporate customers with
more attractive products and further optimised the frequent flier
scheme, so as to reward our frequent fliers. Through joint
arrangement, both of us can improve services in the China European
routes, and our overall competitive strength will be improved
significantly in the European market.
Also, the Company started the code sharing arrangement with
Singapore Airlines Limited and its subsidiary Silk Air, and
currently has code sharing agreements with 35 Airlines, totalling
15,037 code share flights each week; the Company entered into a
10-year Strategic Cooperation Agreement with United Airlines,
pursuant to which both parties will strengthen cooperation in terms
of business and operation; the Company also planned on renovation
of Beijing Hub and construction of the new airport in Beijing with
Star Alliance members, on which we have arrived at a cooperation
arrangement; we carried out fast customs clearance programs at the
airports jointly with Star Alliance members.
SAFETY investment
The Company adhered to the development philosophy of "Safety
First, Prevention First and Comprehensive Management" and
maintained a stable safety record during the reporting period
through strictly implementing the safety responsibility,
strengthening process management, exercising control over the key
links and taking effective remedies for the weak links. In 2016,
the Company strengthened risk identification, warning, prevention
and control, and implemented special risk control programme for the
newly introduced aircraft models, new routes, coordinated crew
dispatch, and plateau airport operation; strengthened flight
training to continuously upgrade the skills of pilots; increased
monitoring and troubleshooting efforts for common and recurrent
failures to ensure excellent aircraft conditions; optimised the
emergency management system and strengthened operational risk
control to improve our emergency handling skills; carried out
in-depth application of and investment in the enterprise aviation
security regulatory platform, and increased security supervision
over our controlled subsidiaries through security audit and
provision of special guidance, so as to improve the aviation safety
management of the Group.
employee self-achievEment
The Company continued to innovate its talent management
mechanism, pay close attention to its employee development and
promotion and share the achievement of development with them. The
Company formulated its "Thirteen Five-Year Human Resource
Planning", aiming to advance the construction of talent development
mechanism and enhance the efficiency of human resources; the
Company signed the Collective Labour Contract on Occupational
Safety and Health (I) with its Labour Union, which clearly defined
the rights and obligations of the Company and its employees in
terms of safety regulations and labour protection, occupational
hazard prevention and treatment as well as safety training; the
Company adopted the "Assessment -oriented Method" to take care of
its key talents at key positions, and provide personalised guidance
for the participating employees on their personal and professional
development; the Company also created diversified training
programmes such as APP-based micro-classes, Wechat communities,
E-learning and face-to-face teaching, which made leadership
training more flexible and convenient; the Company established
seven Employees Service Centres at the Air China headquarters,
flying corps and cabin service department and so on, providing
convenient services to its employees; the Company organised
interactive exchange activities named "Life Is Wonderful With You
Around" in Beijing, Shanghai and Chengdu, providing our employees a
stage to display their distinctiveness through story sharing,
interesting dialogue and free talk.
CUSTOMER SERVICE
The Company continued to improve its service capacity by fully
exploiting the Internet technologies to innovate service practices,
so as to improve passenger satisfaction. The Company actively
improved the convenient travel service and promoted the
self-service convenience product on the ground, with the coverage
of airport self-service check-in machines (CUSS) and remote
self-service check-in applications (Internet and mobile phone)
further expanded; we upgraded our luggage service by launching the
Global Luggage Inquiry & Call Centre to improve handling
efficiency for delayed and lost luggage; we also strived to improve
passenger experience on board by carrying out special inspection on
food quality, upgrading the B787-9 aircraft by introducing the new
entertainment system with passenger-operated interface; we have
strengthened the on-board Internet construction, and successfully
live broadcast the Spring Festival Gala on Chinese New Year's Eve
on 3 of our aircraft, which secured our leading position in
satellite broadcasting in the aviation industry; we innovated the
passenger interface on the electronic applications by launching the
on-line electronic passenger satisfaction survey to listen to our
customers' opinions in a timely manner.
SUPPLIERS MANAGEMENT
The Company strengthened the supplier responsibility management,
aiming to establish closer supplier relationships and achieve
sustainable development in terms of economy, environment and
society. In 2016, the Company implemented centralized supplier
management by means of supplier acceptance control, database
construction, performance appraisal and evaluation and blacklist
management. In 2016, 1,097 suppliers were newly accepted which led
to a total number of 2,137 suppliers in the database. The Company
exercised dynamic management of suppliers, updated and issued a
blacklist of 294 suppliers in 2016; the Company carried out
supplier performance evaluation and formed grading list of 1,803
suppliers, with 1,559 Grade A suppliers, 212 Grade B suppliers, 20
Grade C suppliers and 12 unqualified suppliers. The Company
insisted on open procurement and "Sunshine Procurement", and
randomly invited potential suppliers to participate in competition
for its procurement projects by publishing announcements on the
"Procurement Platform" of the Company's official website and
www.chinabidding.com.cn, and gradually raised the ratio of open
procurement to enhance transparency.
ENVIRONMENTAL PROTECTION
The Company adhered to the philosophy of "Green Operation for
Sustainable Development", aiming to establish itself as a benchmark
for environment-friendly operation in the industry through
comprehensive, all-rounded, multi-angle environmental management
initiatives. The Company formulated the "Thirteenth Five-Year Plan
for Energy Saving and Emission Reduction", and set the working
guidelines and principles for the "Thirteenth Five-Year Plan" on
its energy saving and emission reduction campaign by systematically
analyzing the internal and external circumstances of the Company
and the current situation of energy saving and emission reduction,
energy saving industry development trends; the Company also clearly
defined the target of fuel efficiency improvement by 4% during the
period of "Thirteenth Five-Year". The Company continued its efforts
in improving fuel efficiency by means of, among other things,
upgrading its fleet, aircraft renovation and aircraft weight
reduction. In 2016, the fuel consumption per tonne kilometre for
passenger aircraft was 292 grams, and fuel consumption per tonne
kilometre for pure cargo aircraft was 129 grams; the Company
optimised resource distribution through a series of solution and
measures such as introducing new energy cars and recycling waste;
The Company issued the Notice on Prohibition of Shark Fin
Transport, and became China's first airline which prohibited shark
fin transport on its planes, demonstrating its determination in
protection of the eco-system and biological diversity; the Company
also held training in respect of environmental protection to
increase the environmental awareness of its employees and
management; we aimed to participate in the nation-wide
environmental protection campaign through organizing various
promotional activities to inspire the concern of our passengers and
the public about environmental protection.
SOCIAL WELFARE
The Company attached equal importance to development and
dedication, and carried out social responsibility practices
leveraging on the advantage it has as an airline, and made
contribution to the improvement of social life and the integration
and sustainable development of culture. The Company did its best to
perform its duties as a state-owned enterprise under the Central
Government, and successfully accomplished its missions for "Air
Transportation for Pakistan Earthquake Rescue Materials",
"Chartered Flight for Olympic Delegation", "Chartered Flight for
Paralympic Delegation", "G20 Summit Airline Service" and "Chartered
Flight for Pilgrimage"; the Company constantly strengthened its
precise poverty-alleviation efforts by conducting investigation at
Sunite Right Banner of Inner Mongolia, Zhaoping County of Guangxi
Province and Batang County of Sichuan Province and making efforts
to promote the economic and social development of the
poverty-stricken areas by taking into account the local conditions;
the Company also cared about the growth and education of children
as it held "Love in the Sunshine - 2016 Beijing Summer Camp for the
Sino-African Children", which was intended to develop the
children's vision and make them feel the charm of knowledge through
entertaining scientific activities; the Company also took an active
part in promoting the cultural exchange activities as it sponsored
the Dunhuang Mogao Grottoes:
Buddhist Art Exhibition on China's Silk Road, representing its
contribution to the dissemination of Chinese culture, and its
endeavour to take the path of cultural confidence; we were also
committed to the social welfare undertakings as we organised our
young volunteers to participate in the summer volunteer activities
known as "Air China, Unaccompanied Minors Love To Fly", showing our
volunteers' spirit of love caring and helping each other.
COMPLIANCE OPERATIONS
During the reporting period, so far as the Directors were aware,
the Group did not commit any violations of laws and regulations in
material aspects that would have a significant impact on the
Group.
MAJOR SUBSIDIARIES AND ASSOCIATES AND THEIR OPERATING
RESULTS
(1) Air China Cargo
Air China Cargo was established in 2003. In 2011, Air China
established the cargo joint venture project with Cathay Pacific on
the basis of the former Air China Cargo. The registered capital of
Air China Cargo is RMB3,235,294,118. Air China holds 51% of its
equity interest. In 2014, Air China and Cathay Pacific, on a pro
rata basis, agreed to inject a total of RMB2 billion to Air China
Cargo, thus increasing Air China Cargo's registered capital to
RMB5,235,294,118.
As at 31 December 2016, Air China Cargo operated a fleet of 15
aircraft with an average age of 9.54 years.
In 2016, the AFTKs of Air China Cargo reached 11,746 million,
representing a year-on-year increase of 5.11%. Its RFTKs reached
6,378 million, representing a year-on-year increase of 6.08%. The
volume of cargo and mail was 1.3862 million tonnes, representing a
year-on-year increase of 5.08%. The cargo and mail load factor was
54.29%, representing an increase of 0.49 ppt compared to 2015.
In 2016, Air China Cargo's revenue was RMB9,023 million,
representing a decrease of 1.19%, of which cargo and mail
transportation revenue amounted to RMB7,567 million, representing a
year-on-year decrease of 2.24%. The profit attributable to the
equity shareholders of the Company was RMB11 million, representing
an increase of 23.72% over the previous 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 RMB812.5 million. Air China holds
51% of its equity interest.
As at 31 December 2016, Shenzhen Airlines (including Kunming
Airlines) operated a fleet of 188 aircraft with an average age of
5.96 years. During the year, 14 aircraft were introduced, and four
aircraft were phased out.
In 2016, the ASKs of Shenzhen Airlines (including Kunming
Airlines) reached 57,831 million, representing a year-on-year
increase of 9.67%. Its RPKs reached 47,804 million, representing a
year-on-year increase of 10.82%. Shenzhen Airlines (including
Kunming Airlines) carried 31.4571 million passengers, representing
a year-on-year increase of 9.25%. The average passenger load factor
was 82.66%, representing an increase of 0.86 ppt compared to the
year of 2015.
In terms of air cargo, the AFTKs of Shenzhen Airlines reached
838 million, representing a year-on-year increase of 22.05%. Its
RFTKs reached 561 million, representing a year-on-year increase of
12.05%. The volume of cargo and mail carried by Shenzhen Airlines
was 0.3408 million tonnes, representing a year-on-year increase of
9.84%, while the cargo and mail load factor was 66.96%,
representing a decrease of 5.97 ppts compared to the year of
2015.
In 2016, Shenzhen Airlines recorded a revenue of RMB26,321
million, representing a year-on-year increase of 8.57%, of which,
air traffic revenue amounted to RMB25,113 million, representing a
year-on-year increase of 8.83%. The profit attributable to equity
shareholders for the year was RMB1,573 million, representing an
increase of 114.51% compared to the year of 2015.
(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 2016, Air Macau operated a fleet of 17
aircraft with an average age of 7.65 years. During the year, two
new aircraft were introduced and three were phased out.
In 2016, the ASKs of Air Macau reached 6,441 million,
representing a year-on-year increase of 12.31%. Its RPKs reached
4,718 million, representing a year-on-year increase of 22.63%. It
carried a total of 2.8046 million passengers during the year,
representing a year-on-year increase of 21.54%, with an average
passenger load factor of 73.25%, representing an increase of 6.17
ppts compared to the year of 2015.
In terms of air cargo, the AFTKs of Air Macau reached 103.02
million, representing a year-on-year increase of 12.70%. Its RFTKs
reached 29.40 million, representing a year-on-year increase of
15.57%. It carried 19,145 tonnes of cargo and mail, representing a
year-on-year increase of 11.61%. The cargo and mail load factor was
28.54%, representing an increase of 0.71 ppt compared to the year
of 2015.
In 2016, Air Macau recorded a revenue of RMB2,696 million,
representing a year-on-year increase of 10.31%, of which, air
traffic revenue amounted to RMB2,398 million, representing a
year-on-year increase of 24.41%. Profit after taxation was RMB24
million, representing a year-on-year decrease of 22.65%.
(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 2016, Beijing Airlines operated a fleet of 6
entrusted business jets and one privately-owned business jet with
an average age of 4.28 years. Beijing Airlines acquired 2 aircraft
and phased out three during the year.
In 2016, Beijing Airlines completed 428 flights, representing a
year-on-year decrease of 9.81%. It completed 1,520 flying hours,
representing a year-on-year increase of 7.66%. It carried a total
of 3,158 passengers, representing a year-on-year decrease of
0.09%.
In 2016, Beijing Airlines recorded a revenue of RMB136 million,
representing a year-on-year increase of 6.67%, of which, charter
service revenue amounted to RMB43 million, representing a
year-on-year decrease of 16.98%. Profit after taxation was RMB0.7
million, representing a year-on-year decrease of 75.65%.
(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 2016, Dalian Airlines operated a fleet of 9
aircraft with an average age of 4.47 years. One aircraft was
introduced during the year.
In 2016, the ASKs of Dalian Airlines reached 2,414 million,
representing a year-on-year increase of 9.76%. Its RPKs reached
2,048 million, representing a year-on-year increase of 11.52%. It
carried a total of 2.0151 million passengers during the year,
representing an increase of 15.27%, with an average passenger load
factor of 84.83%, representing an increase of 1.33 ppts compared to
the year of 2015.
In terms of air cargo, the AFTKs of Dalian Airlines reached
31.1851 million, representing a year-on-year increase of 27.92%.
Its RFTKs reached 15.4823 million, representing a year-on-year
decrease of 0.81%. It carried a total of 13,652.31 tonnes of cargo
and mail during the year, representing a year-on-year increase of
0.52%. Its cargo and mail load factor was 49.65%, representing a
decrease of 14.37 ppts compared to the year of 2015.
In 2016, Dalian Airlines recorded a revenue of RMB1,330 million,
representing a year-on-year increase of 7.31%, of which, air
traffic revenue amounted to RMB1,330 million, representing a
year-on-year increase of 7.41%. Profit after taxation was RMB113
million, representing a year-on-year decrease of 2.33%.
(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 2016, Air China Inner Mongolia operated a
fleet of six aircraft (including three self-owned aircraft) with an
average age of 6.44 years. Three aircraft were introduced under wet
leases during the year.
In 2016, the ASKs of Air China Inner Mongolia reached 1,409
million, representing a year-on-year increase of 161.52%. Its RPKs
reached 1,143 million, representing a year-on-year increase of
159.51%. It carried a total of 1.1552 million passengers during the
year, representing a year-on-year increase of 125.47%, with an
average passenger load factor of 81.07%, a decrease of 0.63 ppt
compared to the year of 2015.
In terms of air cargo, the AFTKs of Air China Inner Mongolia
reached 17.9714 million, representing a year-on-year increase of
278.70%. Its RFTKs reached 11.1523 million, representing a
year-on-year increase of 179.32%. The amount of cargo and mail
carried by Air China Inner Mongolia was 9,317.91 tonnes,
representing a year-on-year increase of 121.15%, with a cargo and
mail load factor of 62.06%, representing a decrease of 22.07 ppts
compared to the year of 2015.
In 2016, Air China Inner Mongolia recorded a revenue of RMB944
million, representing a year-on-year increase of 120.37%, of which,
air traffic revenue amounted to RMB919 million, representing a
year-on-year increase of 129.66%. Profit after taxation was RMB125
million, representing a year-on-year increase of 2,959.89%.
(7) AMECO
AMECO was established in 1989 with Air China holding 60% of its
equity interest. In 2015, the two shareholders, Air China and
Lufthansa, have jointly restructured the shareholding structure of
AMECO. Upon restructuring, AMECO registered capital became
US$300,052,800, with Air China holding 75% of its equity
interest.
In 2016, AMECO recorded a revenue of RMB6,827 million and profit
after taxation amounted to RMB92 million.
(8) CNAF
CNAF was established in 1994 with Air China holding 19.31% of
its equity interest. In 2015, Air China and CNAHC restructured the
shareholding structure in CNAF. After restructuring, CNAF
registered capital became RMB1,127,961,864 with Air China holding
51% of its equity interest.
In 2016, CNAF recorded a revenue of RMB180 million, representing
a year-on-year increase of 1.25%, and profit after taxation of
RMB59 million, representing a year-on-year decrease of 28.81%.
(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 2016, Cathay Pacific operated a fleet of 202
aircraft with an average age of 9.0 years. Eleven aircraft were
introduced and ten were phased out during the year.
In 2016, the ASKs of Cathay Pacific reached 146.09 billion,
representing a year-on-year increase of 2.4%. Its RPKs reached
123.48 billion, representing a year-on-year increase of 0.9%. A
total of 34.323 million passengers were carried, representing a
year-on-year increase of 0.8%, with an average passenger load
factor of 84.5%, a decrease of 1.2 ppts compared to the year of
2015.
In terms of air cargo, the AFTKs of Cathay Pacific reached 16.57
billion, representing a year-on-year increase of 0.6%. Its RFTKs
reached 10.68 billion, representing a year-on-year increase of
0.8%. It carried a total of 1.8540 million tonnes of cargo and mail
during the year, representing a year-on-year increase of 3.1%. The
cargo and mail load factor was 64.4%, representing an increase of
0.2 ppt compared to the year of 2015.
In 2016, Cathay Pacific recorded a revenue of RMB80,336 million,
representing a year-on-year decrease of 3.49%, of which, air
traffic revenue amounted to RMB75,346 million, representing a
year-on-year decrease of 3.67%. The profit attributable to equity
shareholders was RMB-498 million, representing a year-on-year
decrease of 110.21%.
(10) Shandong Airlines
Shandong Airlines was established in 1999 with a registered
capital of RMB400 million. Air China holds 22.8% of its equity
interest.
As at 31 December 2016, Shandong Airlines operated a fleet of 98
aircraft (excluding two aircraft under wet leases to Air China)
with an average age of 4.8 years. Ten aircraft were introduced
during the year.
In 2016, the ASKs of Shandong Airlines reached 33,987 million,
representing a year-on-year increase of 20.01%. Its RPKs reached
26,434 million, representing a year-on-year increase of 23.32%. It
carried a total of 18.6265 million passengers during the year,
representing a year-on-year of 17.09%, with an average passenger
load factor of 77.77%, representing an increase of 7.89 ppts
compared to the year of 2015.
In terms of air cargo, the AFTKs of Shandong Airlines reached
595 million, representing a year-on-year increase of 4.42%. Its
RFTKs reached 243 million, representing a year-on-year increase of
20.10%. It carried a total of 0.1502 million tonnes of cargo and
mail during the year, representing a year-on-year increase 11.86%.
The cargo and mail load factor was 40.86%, representing an increase
of 5.40 ppts compared to the year of 2015.
In 2016, Shandong Airlines recorded a revenue of RMB13,742
million, representing a year-on-year increase of 13.49%, of which,
air traffic revenue amounted to RMB13,302 million, representing a
year-on-year increase of 12.21%. The profit attributable to equity
shareholders was RMB533 million, representing a year-on-year
increase of 0.11%.
SUBSEQUENT EVENTS
Non-Public Issue of A Shares
After being considered by the 39th meeting of the 4th session of
the Board and considered and approved by the first extraordinary
general meeting of the Company for 2017 and the first A Share class
meeting and H Share class meeting of the Company for 2017, the term
of the proposal for the Company's non-public issue of A Shares (the
Company proposed to issue the non-public offering of A Shares to
not more than 10 specified investors including CNAHC with total
number of A Shares to be issued not exceeding 1,540,436,456 A
Shares at the issue price of not less than RMB7.79 per share.) was
extended to 30 April 2017, and the term of the mandate given to the
Board and its authorized persons for handling issues in relation to
the non-public issue of A Shares was extended to twelve months
commencing from the date on which the proposal was considered and
approved by the first extraordinary general meeting of the Company
for 2017. For details, please refer to the announcement published
by the Company on 23 January 2017 on the website of Hong Kong Stock
Exchange.
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. The A Shares subscribed by CNAHC are subject to
a lock-up period of 36 months from the completion date of issuance,
and the A Shares subscribed by the other investors are subject to a
lock-up period of 12 months from the completion date of issuance.
Upon completion of the non-public issue of A Shares, CNAHC directly
and indirectly holds a total of 7,508,571,617 shares with a
shareholding of 51.70%, and remains the controlling shareholder of
the Company. For further details, please refer to the announcement
of the Company published on the website of the Hong Kong Stock
Exchange on 13 March 2017.
OUTLOOK FOR FUTURE
We envisage rapid growth and profound structural changes in
China's air passenger market
Notwithstanding the decelerating pace of its economic growth,
China's aviation market continues to enjoy a strong demand with
huge market potential. While the market will undergo dramatic
structural changes, the passenger throughput in the second and
third-tier cities will maintain its rapid growth, and the number of
travellers from the central and western inland cities will also
grow substantially. Travellers for business and leisure are
expected to constitute a new fast growing market segment with huge
potential. Due to such factors as the growing trend of overseas
studying, immigration and loosening of visa control, the number of
international travellers is expected to be growing faster than that
of domestic travellers.
Implementation of the three major regional strategies will
substantially change the existing aviation market
The three major regional strategies namely the
Beijing-Tianjin-Hebei integration initiative, "One Belt, One Road"
initiative and Yangtze River Economic Belt initiative will not only
strengthen the coordination and the synergy among these three
regions, but also transform the aviation market. The synergistic
development of Beijing-Tianjin-Hebei region will significantly
enhance the international competitiveness of the Beijing Aviation
Hub and further strengthen its hub function. The "One Belt, One
Road" strategy will promote economic and trade exchange as well as
cooperation between China and Southeast Asia, and between China and
Europe. It will not only consolidate the position of Shanghai and
Guangzhou as international hubs, but also nurture development
opportunities for the airports in the second-tier cities of China.
The Yangtze River Economic Belt initiative will accelerate the
formation of the aviation network with Shanghai international
aviation hub and the regional aviation hub as the core.
Competition and cooperation in the global aviation industry are
constantly evolving as competition in China's aviation market
intensifying
In respect of the global market, competition landscape is taking
new forms. Airlines in Europe and America are growing more
competitive through integration. Bilateral and multilateral joint
venture arrangements among large network carriers are being
constantly strengthened, while the minority equity investment
strategy has led to a global partnership that goes beyond the
existing airline alliance framework and code-sharing model.
Taking the international sector of China's aviation market into
account, the Company, China Eastern Airlines and China Southern
Airlines are actively bringing in a large number of wide-body
aircraft, aiming to accelerate the expansion of international
routes and continuously improve their shares in international
routes. With the increasing number of medium-size domestic airlines
applying for the licenses to fly medium- and long-distance
international routes, the international air traffic rights in the
future will become more valuable and scarce. In the meantime, due
to the intensifying competition from other international hubs,
passengers leaving for North America are being diverted to other
international hubs such as Seoul, Tokyo and Hong Kong, while
passengers leaving for Europe are being diverted to certain hubs in
the Middle East, since these hubs offer connection flights.
Taking the domestic sector of China's aviation market into
account, private-owned airlines such as the Spring Airlines and
Juneyao Airlines are emerging to intensify the competition.
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 result
in reduced yield. In addition, the expansion of high-speed rail
network has a significant impact on the short-to-medium-distance
aviation services. Passengers taking short-to-medium-distance
flights are diverted not only to newly launched high-speed railway
routes, but also to the existing railway routes with greater
network coverage, higher travelling speed, increased frequencies
and extended operating hours.
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 readers in
further understanding the information in this announcement and
better understanding the financial position and results of
operation of the Group as a whole.
PROFIT ANALYSIS
In 2016, the Group proactively responded to changes in the
competitive landscape and market demand by adopting various
measures such as optimising operational arrangement, enhancing
marketing capabilities and strengthening cost management. The Group
recorded a profit from operations of RMB17,533 million,
representing an increase of RMB1,981 million or 12.74% as compared
with last year. However, due to the offset by unfavorable factors
including the depreciation of RMB against US dollars and the
decrease in gains on investment, profit attributable to equity
shareholders of the Company and earnings per share amounted to
RMB6,809 million and RMB0.55 respectively, representing a
year-on-year decrease of 3.60% and 3.60%, respectively.
REVENUE
In 2016, the Group's total revenue was RMB115,145 million,
representing an increase of RMB5,088 million or 4.62% as compared
with last year. Among which, air traffic revenue was RMB108,585
million, representing an increase of RMB4,217 million or 4.04% over
last year; other operating revenue was RMB6,560 million,
representing a year-on-year increase of RMB871 million or
15.31%.
REVENUE CONTRIBUTION BY GEOGRAPHICAL SEGMENTs
2016 2015
(in RMB'000) Amount Percentage Amount Percentage Change
Mainland China 74,968,688 65.11% 70,578,761 64.13% 6.22%
Hong Kong, Macau and Taiwan 5,460,001 4.74% 5,666,889 5.15% (3.65%)
Europe 10,015,695 8.70% 10,882,067 9.89% (7.96%)
North America 10,294,873 8.94% 10,196,925 9.27% 0.96%
Japan and Korea 6,800,675 5.91% 6,029,137 5.48% 12.80%
Asia Pacific and others 7,604,760 6.60% 6,703,255 6.08% 13.45%
Total 115,144,692 100.00% 110,057,034 100.00% 4.62%
AIR PASSENGER REVENUE
In 2016, the Group recorded air passenger revenue of RMB100,280
million, representing an increase of RMB4,359 million over that of
2015. Among the air passenger revenue, the increase of capacity
contributed an increase of RMB8,211 million to the revenue, while
the decrease of passenger yield resulted in a decrease in revenue
of RMB4,782 million. The increase of passenger load factor also
brought an increase of RMB930 million to the revenue. The Group's
capacity, passenger load factor and yield per RPK in 2016 are as
follows:
2016 2015 Change
Available seat kilometres (million) 233,218.05 214,828.73 8.56%
Passenger load factor (%) 80.68 79.93 0.75 ppt
Yield per RPK (RMB) 0.5327 0.5583 (4.58%)
AIR PASSENGER REVENUE CONTRIBUTED BY GEOGRAPHICAL SEGMENTS
2016 2015
(in RMB'000) Amount Percentage Amount Percentage Change
Mainland China 66,782,965 66.60% 63,145,755 65.82% 5.76%
Hong Kong, Macau and Taiwan 5,181,639 5.17% 5,376,649 5.61% (3.63%)
Europe 7,110,930 7.09% 8,025,820 8.37% (11.40%)
North America 7,827,893 7.81% 7,662,868 7.99% 2.15%
Japan and Korea 6,323,747 6.31% 5,541,750 5.78% 14.11%
Asia Pacific and others 7,052,628 7.02% 6,167,903 6.43% 14.34%
Total 100,279,802 100.00% 95,920,745 100.00% 4.54%
AIR CARGO And Mail REVENUE
In 2016, the Group's air cargo and mail revenue was RMB8,305
million, representing a decrease of RMB142 million as compared with
last year. Among the air cargo and mail revenue, the increase of
capacity contributed an increase of RMB532 million to the revenue,
while the increase of cargo and mail load factor resulted in an
increase in revenue of RMB31 million, and the decrease of yield of
cargo and mail resulted in a decrease of RMB705 million to revenue.
The capacity, cargo and mail load factor and yield per RFTK in 2016
are as follows:
2016 2015 Change
Available freight tonne kilometres
(million) 12,736.96 11,982.31 6.30%
Cargo and mail load factor (%) 54.92 54.73 0.19 ppt
Yield per RFTK (RMB) 1.1873 1.2880 (7.82%)
AIR CARGO and Mail REVENUE CONTRIBUTED BY GEOGRAPHICAL
SEGMENTs
2016 2015
(in RMB'000) Amount Percentage Amount Percentage Change
Mainland China 1,920,904 23.14% 1,980,773 23.44% (3.02%)
Hong Kong, Macau and Taiwan 262,788 3.16% 290,240 3.44% (9.46%)
Europe 2,832,908 34.11% 2,785,922 32.98% 1.69%
North America 2,387,878 28.75% 2,466,913 29.20% (3.20%)
Japan and Korea 416,940 5.02% 460,065 5.45% (9.37%)
Asia Pacific and others 483,610 5.82% 463,572 5.49% 4.32%
Total 8,305,028 100.00% 8,447,485 100.00% (1.69%)
OPERATING EXPENSES
In 2016, the Group's operating expenses were RMB97,612 million,
representing an increase of 3.29% from RMB94,505 million in 2015.
The breakdown of the operating expenses is set out below:
2016 2015
(in RMB'000) Amount Percentage Amount Percentage Change
Jet fuel costs 21,981,934 22.52% 24,042,614 25.44% (8.57%)
Take-off, landing and depot
charges 12,774,220 13.09% 11,643,166 12.32% 9.71%
Depreciation and amortisation 13,473,720 13.80% 13,010,761 13.77% 3.56%
Aircraft maintenance, repair
and overhaul costs 4,654,964 4.77% 4,015,468 4.25% 15.93%
Employee compensation costs 20,075,602 20.57% 18,230,841 19.29% 10.12%
Air catering charges 3,270,726 3.35% 3,031,717 3.21% 7.88%
Selling and marketing expenses 3,893,265 3.99% 4,558,933 4.82% (14.60%)
General and administrative
expenses 1,401,882 1.44% 1,414,741 1.50% (0.91%)
Others 16,085,804 16.47% 14,557,171 15.40% 10.50%
Total 97,612,117 100.00% 94,505,412 100.00% 3.29%
In particular:
-- Jet fuel costs decreased by RMB2,061 million or 8.57% as
compared to 2015, mainly due to the decrease in the prices of jet
fuel.
-- Take-off, landing and depot charges increased by RMB1,131
million as compared to 2015, primarily due to an increase in the
number of take-offs and landings.
-- Depreciation expenses increased due to an increase in the
number of self-owned and financing leased aircraft during the
reporting period.
-- Aircraft maintenance, repair and overhaul costs increased by
RMB639 million as compared to 2015, mainly due to the expansion of
fleet size.
-- Employee compensation costs increased by RMB1,845 million,
mainly due to the consolidation of AMECO into the Group on 31 May
2015, as well as the increase in number of employees and the
adjustment of employee compensation level.
-- Air catering charges increased by RMB239 million, mainly due
to the increase in the number of passengers.
-- Selling and marketing expenses decreased by RMB666 million as
compared to 2015, mainly due to the active effort to increase the
proportion of direct sales and reduce the agency fee expenses.
-- 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 10.50% as compared to the previous year, mainly due to
the increase in the operating lease expenses of aircraft engines
and buildings and the increase in the contributions to the civil
aviation development fund as compared to 2015.
FINANCE income AND FINANCE COSTS
In 2016, the Group recorded an interest income of RMB127
million, representing a decrease of RMB25 million or 16.54% as
compared to 2015; and incurred an interest expense (excluding the
capitalised portion) of RMB3,235 million, representing an increase
of RMB423 million. In 2016, the Group recorded a net exchange loss
of RMB4,234 million, representing a decrease of 17.89% or RMB922
million as compared to 2015. The decrease was primarily due to the
decrease in our interest-bearing debts in US dollars during the
reporting period.
SHARE OF PROFITS OF ASSOCIATES AND JOINT VENTURES
In 2016, the Group's share in the profits of its associates and
joint ventures was RMB22 million, representing a decrease of
RMB1,598 million from that of 2015, mainly due to the decrease in
the profits of Cathay Pacific (an associate of the Group) this
year, therefore the Group's recognition of gains on investment in
Cathay Pacific amounted to RMB-658 million, representing a
year-on-year decrease of RMB1,667 million.
Material ACQUISITIONS AND DISPOSAL
In 2016, the Company did not make any material acquisitions and
disposal of subsidiaries, associates or joint ventures.
ASSETS STRUCTURE ANALYSIS
As at 31 December 2016, the total assets of the Group amounted
to RMB224,051 million, representing a year-on-year increase of
4.88%, among which current assets accounted for RMB19,986 million
or 8.92% of the total assets, while non-current assets accounted
for RMB204,065 million or 91.08% of the total assets.
Among the current assets, cash and cash equivalents were
RMB6,848 million, accounting for 34.26% of the current assets and
representing a decrease of 4.06% from the beginning of 2016. 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 RMB158,013 million, accounting for
77.43% of the non-current assets and representing a year-on-year
increase of 1.30%, which was primarily due to the increase in the
number of self-owned and financing leased aircraft.
ASSET MORTGAGE
As at 31 December 2016, 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 RMB84,030 million (RMB106,171 million as at 31
December 2015) and land use rights with net book value of
approximately RMB35 million (RMB36 million as at 31 December 2015).
In addition, as at 31 December 2016, the Group had restricted bank
deposits of approximately RMB474 million (approximately RMB655
million as at 31 December 2015), which were mainly reserves
deposited in the People's Bank of China and the pledges for
aircraft operating leases.
CAPITAL EXPITURE
In 2016, the Company's capital expenditure amounted to a total
of RMB16,689 million, of which the total investment in aircraft and
engines was RMB15,479 million. Other capital expenditure investment
amounted to RMB1,210 million, mainly including investments in
aircraft retrofitting, flight simulators, infrastructure
construction, IT system construction, ground equipment procurement
and cash component of the long-term investments.
EQUITY INVESTMENT
As at 31 December 2016, the Group's equity investment in its
associates amounted to RMB14,182 million, representing an increase
of 22.76% from the beginning of 2016. Among which, the balance of
the equity investment of the Group in Cathay Pacific, Shandong
Aviation Group Company Limited and Shandong Airlines amounted to
RMB11,758 million, RMB1,206 million and RMB814 million,
respectively, with such companies recording profits of RMB-237
million, RMB629 million and RMB533 million, respectively.
As at 31 December 2016, the Group's equity investment in its
joint ventures was RMB1,127 million, representing an increase of
8.56% from the beginning of 2016, mainly due to the increase in the
investment income from the joint ventures during the year.
DEBT STRUCTURE ANALYSIS
As at 31 December 2016, the Group's total liabilities were
RMB147,655 million, representing a year-on-year increase of 0.37%.
Among which, current liabilities amounted to RMB64,180 million,
accounting for 43.47% of the total liabilities; and non-current
liabilities amounted to RMB83,474 million, accounting for 56.53% of
the total liabilities.
Among the current liabilities, interest-bearing debts (including
bank loans and other borrowings and obligations under finance
leases) amounted to RMB32,075 million, representing an increase of
85.77% from the beginning of 2016, mainly due to the increase in
short-term borrowings of the Group; other advances and payables
amounted to RMB32,105 million, representing a decrease of 3.53%
from the previous year.
Among the non-current liabilities, interest-bearing debts
(including bank loans and other borrowings, corporate bonds and
obligations under finance leases) amounted to RMB74,129 million,
representing a decrease of 14.59% from the beginning of 2016.
Details of interest-bearing debts of the Group categorized by
currency are set out below:
2016 2015
(in RMB'000) Amount Percentage Amount Percentage Change
US dollars 52,170,383 49.12% 76,468,517 73.48% (31.78%)
RMB 52,434,834 49.37% 24,471,165 23.52% 114.27%
Others 1,598,669 1.51% 3,117,052 3.00% (48.71%)
Total 106,203,886 100.00% 104,056,734 100.00% 2.06%
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 10.81% from RMB95,808 million as at
31 December 2015 to RMB85,449 million as at 31 December 2016. 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 RMB52,171 million as at
31 December 2016, representing an increase of 29.98% as compared to
the previous year. The Group's investment commitments, which was
mainly used in the investment agreements entered into, amounted to
RMB59 million as at 31 December 2016, representing an increase of
RMB1 million from RMB58 million as at 31 December 2015.
Details of the Group's contingent liabilities are set out in
Note 41 to the financial statements of the Group for 2016.
GEARING RATIO
As at 31 December 2016, the Group's gearing ratio (total
liabilities divided by total assets) was 65.90%, representing a
decrease of 2.96 percentage points from 68.86% as at 31 December
2015, such decrease was mainly due to the increase in total equity
resulted from continued profit-making for the period as compared to
that at the beginning of the year. 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 2016, the Group's net current liabilities
(current liabilities minus current assets) were RMB44,194 million,
representing an increase of RMB13,858 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 0.31, representing a decrease from 0.40 as
at 31 December 2015.
The Group meets its working capital needs mainly through its
operating activities and external financing activities. In 2016,
the Group's net cash inflow from operating activities was RMB27,366
million, representing a decrease of 4.22% from RMB28,572 million in
2015. Net cash outflow from investment activities was RMB19,013
million, representing an increase of 180.09% from RMB6,788 million
in 2015, mainly due to the increase in cash advances for aircraft
during the reporting period, over the same period of last year. Net
cash outflow from financing activities amounted to RMB8,781
million, representing a decrease of approximately RMB14,599 million
from RMB23,381 million in 2015, mainly due to the significant
increase in cash inflow from financing activities as a result of
the increase in the advances for the aircraft during the period.
The Company has obtained certain bank facilities of up to
RMB155,535 million granted by a number of banks in the PRC, among
which approximately RMB20,835 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. Under
the "New Normal", the Chinese economy has managed to maintain its
speedy growth, accompanied by the continuously deepening of
economic restructuring. The pressure of prospective economic
deterioration has eased 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 the licenses to fly 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 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 and convenience, 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 high-speed railway
transportation and civil aviation may actually cooperate and
compete, and the air-rail linked transportation 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. In 2009, there were only seven cities in China which
operated international long-distance routes, now the number has
increased to nearly 20. 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
Currently, the oil prices stay at a relatively low level. In the
future, with uncertainties in global economic recovery, crude oil
supply, the US dollar interest rate increase cycle and geopolitics,
there is still some risk 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 2016, 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 RMB1.099
billion.
Risks of Exchange Rate Fluctuation
At present, the liquidity in the domestic monetary market
maintains its tight balance, with the main tone of stable monetary
policy remaining unchanged. As the cross-border capital flows
converge to a state of equilibrium, the pressure on foreign
exchange reserves begins to ease and the expectation of RMB
depreciation decreases. Under the influence of the expected
interest rate increase by the Federal Reserve and uncertainty in
the European and American fiscal policy and tax policy, RMB is
still under the external pressure of depreciation. However, with
the stabilization of the Chinese economy and deepening of the
economic reform, as well as the strengthening implementation of the
policies of the Central Bank to deleverage and suppress economic
bubbles, RMB may be able to maintain basic stability against a
basket of currencies. It is expected that the RMB exchange rate
will remain at a reasonable level of equilibrium and will be
flexible bi-directionally in accordance with changes in
international currency markets and market supply and demand. Some
of the Group's financial leasing liabilities, bank loans and other
loans are mainly denominated in US dollars and Euros, 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 depreciation or appreciation 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 as
at 31 December 2016 by RMB376 million; the appreciation or
appreciation of RMB against Euro 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 as at 31 December 2016 by RMB2.063
million; the depreciation or appreciation of RMB against HK dollar
by 1% due to the changes in the exchange rate will result in the
decrease or increase in the Group's total profit and equity as at
31 December 2016 by RMB1.686 million.
Details of the financial risk management objectives and policies
of the Group are set out in note 42 to the financial statements of
the Group for 2016.
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 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 2016.
The Company's corporate governance practices during the year of
2016 are summarised and discussed below.
GOVERNANCE STRUCTURE
As at 31 December 2016, the governance structure of the Company
is set out as follows:
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 2016, the Board comprised 10 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. Pan Xiaojiang, Mr. Simon To
Chi Keung, Mr. Stanley Hui Hon-chung and Mr. Li Dajin, has
confirmed their independence with the Hong Kong Stock Exchange.
-- 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 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 report and published on the websites of
the Company and Hong Kong Stock Exchange.
-- Besides the work relationships in the Company, there was 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.
-- The Company has a President who shall be nominated, 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 the following, to determine the Company's business policies
and investment plans; to formulate the Company's annual budget and
final accounts; 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 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 the following, 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, annual financial budgets and final accounts;
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 address to convene the Board meeting as well as financial
reports to be considered at such regular meetings, 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 or 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.
-- All Directors have actively participated in the business
operations of the Company. Attendance in person of all Directors at
Board meetings in 2016 is set out as follows:
No. of meetings 14
Non-executive Directors
Cai Jianjiang (Chairman) 14/14
Wang Yinxiang (resigned on 6 June 2016) 7/8
Cao Jianxiong 14/14
Feng Gang 12/14
John Robert Slosar 11/14
Ian Sai Cheung Shiu 14/14
Executive Directors
Song Zhiyong (President) 12/14
Fan Cheng (resigned on 14 April 2016) 6/7
Independent non-executive Directors
Pan Xiaojiang 14/14
Simon To Chi Keung 14/14
Stanley Hui Hon-chung 14/14
Li Dajin 13/14
Notes: For the year ended 31 December 2016, the number of Board
meetings held, the convening procedures, minutes and record, 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.
-- All Directors have actively participated in the general
meetings of the Company. Attendance in person of all Directors at
general shareholders' meetings in 2016 is set out as follows:
No. of meetings 4
Non-executive Directors
Cai Jianjiang (Chairman) 3/4
Wang Yinxiang (resigned on 6 June 2016) 2/2
Cao Jianxiong 4/4
Feng Gang 3/4
John Robert Slosar 2/4
Ian Sai Cheung Shiu 4/4
Executive Directors
Song Zhiyong (President) 4/4
Fan Cheng (resigned on 14 April 2016) 0/1
Independent non-executive Directors
Pan Xiaojiang 4/4
Simon To Chi Keung 4/4
Stanley Hui Hon-chung 4/4
Li Dajin 4/4
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.
Training for Directors in 2016 Category (notes)
Non-executive Directors
Cai Jianjiang (Chairman) a, b
Wang Yinxiang (resigned on 6 June 2016) a
Cao Jianxiong a, b
Feng Gang a, b
John Robert Slosar a, b
Ian Sai Cheung Shiu a, b
Executive Directors
Song Zhiyong (President) a, b
Fan Cheng (resigned on 14 April 2016) a
Independent non-executive Directors
Pan Xiaojiang a, b
Simon To Chi Keung 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 2016.
-- 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.
In addition, the Nomination and Remuneration Committee reviews the
performance of and determines the compensation structure of the
senior management of the Company.
-- Ms. Wang Yinxiang resigned from the position of non-executive
Director on 6 June 2016, and was no longer a member of the
Nomination and Remuneration Committee.
-- As at 31 December 2016, the Nomination and Remuneration
Committee comprised of one non-executive Director, Mr. Cai
Jianjiang, and three independent non-executive Directors, Mr. Pan
Xiaojiang, Mr. Simon To Chi Keung and Mr. Li Dajin, with Mr. Li
Dajin (being the independent non-executive Director) serving as the
Chairman.
-- Attendance in person at the meetings of the nomination and
remuneration committee in 2016 is set out as follows:
No. of meetings 3
Li Dajin (Chairman) 1/1
Cai Jianjiang 3/3
Wang Yinxiang (resigned on 6 June 2016) 2/2
Pan Xiaojiang 3/3
Simon To Chi Keung 3/3
Notes: Mr. Li Dajin was appointed as the Chairman of the
Nomination and Remuneration Committee on 21 January 2016. The
Nomination and Remuneration Committee held one meeting during the
period from 22 January 2016 to 31 December 2016.
-- The "Board Diversity Policy" was adopted by the Board in
September 2013, which sets out the approach 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 redesignation 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 total 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 was mainly performing the following duties:
- to consider and nominate Mr. Li Dajin as a member of the Audit
and Risk Control Committee and the Nomination and Remuneration
Committee, and replacement of certain experts in the special
committees.
- to nominate Mr. Li Dajin as Chairman of the Nomination and
Remuneration Committee, responsible for overseeing the operation of
the Nomination and Remuneration Committee.
- to disapprove the validity of the 30% and 40% of the second
batch of the stock appreciation rights of the Company exercisable
in 2015 and 2016.
- to review the performance report by the Nomination and
Remuneration Committee and report to the Board.
-- The Nomination and Remuneration Committee under the Board
made recommendations to the Board on the remuneration packages of
individual executive Directors and senior management. Remuneration
payable to the Directors and senior management shall be determined
according to the terms of their respective service contracts, if
any, and the recommendation of the Nomination and Remuneration
Committee.
-- The remuneration of the Directors and Supervisors 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. 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 is 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.
Details of the remuneration for the Directors and senior
management are disclosed in notes 11 and 44(c) to the financial
statements of this annual report. During the reporting period, Mr.
Pan Xiaojiang waived his emolument of RMB150,000 (before income
tax) as an independent non-executive Director (2015: he waived his
emolument of RMB150,000 (before income tax) as an independent
non-executive Director) 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, as well as to review the internal control
systems of the Company.
-- 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, i.e. 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.
-- The Company has set up an investor relations webpage, on
which figures of operating results 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 are 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.
-- During 2016, the Board reviewed the Group's risk management
and internal control system 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 2016, the Group is mainly
facing the macroeconomic risk, policy risk, market and operational
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 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 possible.
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.
-- As at 31 December 2016, the Audit and Risk Control Committee
comprised of two independent non-executive Directors, Mr. Pan
Xiaojiang and Mr. Li Dajin and one non-executive Director, Mr. Cao
Jianxiong, with Mr. Pan Xiaojiang serving as the Chairman.
-- Attendance in person at the meetings of the Audit and Risk
Control Committee in 2016 is set out as follows:
No. of meetings 8
Pan Xiaojiang (Chairman) 8/8
Li Dajin 8/8
Cao Jianxiong 8/8
-- During the reporting period, the Audit and Risk Control
Committee was mainly performing the following duties:
- reviewing the annual report and financial statements as well
as profit distribution plan for the year 2015, self-assessment
report on internal control, the audit report on internal control,
the first and third quarterly reports as well as interim report for
the year 2016;
- reviewing the financial plan and investment plan for the year 2016;
- reviewing the motion on signing the Antitrust Civil Litigation
Settlement Agreement and signing the Cost-sharing Agreement in
respect of the US Air Cargo Price Antitrust Case.
- approving the Terms of Reference for the Audit and Risk
Control Committee of the Board of Directors (revised in 2016).
- approving the "Remedial Measures to the Dilutive Impact of the
Non-public A Share Issue on Immediate Returns for Shareholders of
Air China Limited" (Second Revision).
- reviewing the independence of the KPMG and KPMG Huazhen LLP;
to appoint KPMG and KPMG Huazhen LLP as the international and
domestic auditors of the Company for the year 2016; and to appoint
KPMG Huazhen LLP as the internal control auditor of the Company for
the year 2016;
- approving the renewal of the Continuing Connected Transaction
Framework Agreement with Cathay Pacific and the signing of the
Pricing Policy Memorandum for Continuing Connected Transactions and
determining the annual caps for 2017-2019.
- approving the re-signing of the Framework Agreement on
Continuing Connected Transactions between the Company and CNACG and
approving the adjustment to the annual caps for 2017-2019 under the
Framework Agreement.
- approving the re-signing of the Framework Agreement on
Continuing Connected Transactions between the Company and Air China
Cargo and approving the adjustment to the annual caps for 2017-2019
under the Framework Agreement; Agreeing to submit the aforesaid
Framework Agreement and the relevant annual caps to the
shareholders' meeting of the Company for approval by the
non-connected shareholders.
- approving the extension of the term of resolution on the
Company's Non-public Issue of A Shares.
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 2015 and
internal audit plan for the year 2016; summary report on audit work
for the year 2015 from KPMG and KPMG Huazhen LLP; anti-trust civil
proceedings; self-assessment report on internal control of the
Company for the year 2016 and the audit plan on internal control of
KPMG Huazhen LLP and interim Cross-check Report of the Audit and
Risk Control Committee 2016.
-- The annual report of the Company for the year ended 31
December 2016 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 policy
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 "Independent Auditor's Report" set out in this annual
report.
Auditors' remuneration
The international and domestic auditors of the Company are KPMG
and KPMG Huazhen LLP respectively. Breakdown of the remuneration to
the Company's external auditors for providing audit services for
the year ended 31 December 2016 is as follows:
RMB10,860,000 (including value-added tax) was charged in
aggregate for the review of the Group's financial statements for
the six months ended 30 June 2016 and for the audit of the Group's
financial statements for the year ended 31 December 2016; an
aggregate amount of RMB7,999,717 (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 2016; and
fees for other audit services amounted to RMB1,220,000 (including
value-added tax). An aggregate amount of approximately RMB193,993
(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
for carrying out annual audits; 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 and make proposals to the Board 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. As at 31 December 2016, the
Strategy and Investment Committee comprised three non-executive
Directors, Mr. Cai Jianjiang, Mr. Cao Jianxiong, Mr. Feng Gang and
one executive Director, Mr. Song Zhiyong, with Mr. Song Zhiyong
serving as the Chairman.
Attendance in person at the meetings of the Strategy and
Investment Committee in 2016 is set out as follows:
No. of meetings 4
Song Zhiyong (Chairman) 4/4
Cai Jianjiang 4/4
Cao Jianxiong 4/4
Feng Gang 4/4
-- During the reporting period, the Strategy and Investment
Committee was mainly performing the following duties:
- to approve the disposal and introduction of aircraft by the Company
- to consider the investment plan of the Company for 2016
- to approve the joint operation of air passenger routes with Lufthansa
-- 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. As at
31 December 2016, the Aviation Safety Committee comprised two
non-executive Directors, Mr. Cai Jianjiang and Mr. Feng Gang and
one executive Director, Mr. Song Zhiyong, with Mr. Feng Gang
serving as the Chairman.
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 Company's
website.
-- 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, 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 65 and 91 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 67 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: 86-10-61461959
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 (Ms. Rao Xinyu 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 2016, each joint
company secretary attended 15 hours of professional training to
update her skill and knowledge.
G. Amendments to the Articles of Association
-- In 2016, the Company did not make any amendments to its Articles of Association.
REPORT OF THE DIRECTORS
STRATEGIC OBJECTIVES
The Group will, on the basis of enhancing security management,
continue to advance the implementation of its strategies, extend
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 2016 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 92 to 188 of this annual report.
REVIEW OF BUSINESS
Details about the fair review of the Company's business,
employee self-achievement, customer service, supplier management,
environmental protection, social welfare, compliance operations,
subsequent events and future prospects are set out in the section
entitled "Business Overview" of this annual report.
Details about the analysis on the key performance indications of
the Company's operation and descriptions on the major risks that
the Company may be confronted are set out in the section entitled
"Management's Discussion and Analysis of Financial Position and
Operating Results" of this annual report.
The above sections form part of this Report of the
Directors.
FIVE-YEAR FINANCIAL HIGHLIGHTS
The Group's results and financial position prepared in
accordance with IFRSs for the five years ended 31 December 2016 are
summarised and set out on pages 4 and 5 of this annual report.
SHARE CAPITAL STRUCTURE
As at 31 December 2016, the Company had a total of
13,084,751,004 ordinary shares. The following table sets out the
share capital structure of the Company as at 31 December 2016:
Percentage
of
the total
Category of Shares Number of shares share capital
A Shares 8,522,067,640 65.13%
H Shares 4,562,683,364 34.87%
Total 13,084,751,004 100.00%
SIGNIFICANT INTERESTS AND SHORT POSITIONS IN SHARES AND
UNDERLYING SHARES OF THE COMPANY
As at 31 December 2016, to the knowledge of the Directors,
Supervisors and chief executive of the Company, the interests and
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
Type and number total total total
of shares issued issued issued
of share A shares H shares
the company of the of of Short
Name Type of interests held company the Company the Company positions
5,438,757,879
CNAHC Beneficial owner A Shares 41.57% 63.82% - -
Interest of controlled
corporation by
the substantial 1,332,482,920
CNAHC (1) shareholder A Shares 10.18% 15.64% - -
Interest of controlled
corporation by
the substantial 223,852,000
CNAHC (1) shareholder H Shares 1.71% - 4.91% -
1,332,482,920
CNACG Beneficial owner A Shares 10.18% 15.64% - -
223,852,000
CNACG Beneficial owner H Shares 1.71% - 4.91% -
2,633,725,455
Cathay Pacific Beneficial owner H Shares 20.13% - 57.72% -
Interest of controlled
Swire Pacific corporation by
Limited the substantial 2,633,725,455
(2) shareholder H Shares 20.13% - 57.72% -
John Swire Interest of controlled
& Sons corporation by
(H.K.) Limited the substantial 2,633,725,455
(2) shareholder H Shares 20.13% - 57.72% -
John Swire Interest of controlled
& Sons corporation by
Limited the substantial 2,633,725,455
(2) shareholder H Shares 20.13% - 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 2016:
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 55.00%
equity interest and 63.75% voting rights in Swire Pacific Limited,
and Swire Pacific Limited's approximately 45.00% interest in Cathay
Pacific as at 31 December 2016, 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 2016, the Company was not aware of any
substantial shareholders holding short positions in the shares and
underlying shares of the Company.
Save as disclosed above, as at 31 December 2016, 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 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.
PUBLIC FLOAT
Pursuant to public information available to the Company and to
the knowledge of the Directors, 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 2016 profit distribution plan of the Company, the
Board recommends the appropriation of 10% of the discretionary
surplus reserve and the payment of a cash dividend of RMB1.0771
(including tax) for every ten shares for the year ended 31 December
2016, totalling approximately RMB1,564 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 2017. Dividends payable to the
Company's shareholders shall be denominated and declared in
Renminbi. Dividends payable to the holders of A Shares and domestic
investors in the H Shares through Shanghai-Hong Kong Stock Connect
and Shenzhen-Hong Kong Stock Connect shall be paid in Renminbi
while dividends payable to the 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 rate of
Renminbi to 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 7
July 2017. For the shares of the Company listed on Hong Kong Stock
Exchange (H Shares), the dividends shall be paid to shareholders
whose names appear on the register of members of the Company at the
close of business on 7 June 2017. For the shares of the Company
listed on the Shanghai Stock Exchange (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 6 July 2017, and
the ex-dividend date of A Shares is 7 July 2017.
As at 31 December 2016, no arrangement was reached pursuant to
which the shareholders of the Company waived or agreed to waive
their dividends.
CLOSURE OF REGISTER OF MEMBERS
The registers of members of the Company will be closed from
Tuesday, 25 April 2017 to Thursday, 25 May 2017, both days
inclusive, during which no transfer of 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 registrar in Hong Kong, Computershare Hong Kong Investor
Services Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183
Queen's Road East, Hong Kong for registration not later than 4:30
p.m. on Monday, 24 April 2017. Shareholders whose names appear on
the register of shareholders of the Company on Tuesday, 25 April
2017 will be entitled to attend the AGM.
The register of members of the Company will be closed from
Friday, 2 June 2017 to Wednesday, 7 June 2017, both days inclusive,
during which no transfer of 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 registrar in
Hong Kong, Computershare Hong Kong Investor Services Limited at
Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Hong
Kong for registration not later than 4:30 p.m. on Thursday, 1 June
2017. Shareholders whose names appear on the register of
shareholders of the Company on Wednesday, 7 June 2017 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
Enterprises to Offshore Non-resident Enterprise Holders of H
Shares" (Guo Shui Han [2008] No. 897) promulgated 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. As such, any H
Shares which are not registered in the name(s) of individual(s)
(which, for this purpose, includes shares registered in the name 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 wish to 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 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 2016 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 15 November 2016 by the Ministry of Finance, the
State Administration of Taxation and CSRC:
The Company is obliged to withhold PRC personal income tax on
behalf of resident shareholders at a tax rate of 20% when the
Company distributes the 2016 final dividends to individual
investors who invest in the H Shares via 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 pay PRC personal 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 2016 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 2016 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 the PRC and in
Hong Kong and other tax effects.
PURCHASES, SALES OR REDEMPTION OF LISTED SECURITIES
For the year ended 31 December 2016, 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.
Issuance of Corporate Bonds
In order to repay the bank loans and supplement the working
capital of the Company, the Company issued corporate bonds of RMB4
billion on the Shanghai Stock Exchange on 18 August 2016, with a
coupon rate of 2.84% and a maturity date of 18 August 2019; and
issued corporate bonds of RMB4 billion on the Shanghai Stock
Exchange on 20 October 2016 with a coupon rate of 3.08% and a
maturity date of 20 October 2021. Besides, the Group issued a total
of RMB14.65 billion of extra-short and short bonds at Inter-bank
Bond Market with coupon rates ranging from 2.59% to 3.68%.
DIRECTORS AND SUPERVISORS OF THE COMPANY
Directors
Date of appointment and
if
applicable, resignation
Name Age Position in the Company as Director
Cai Jianjiang 53 Chairman and non-executive Appointed as non-executive
Director Director
on 28 January 2014 and
as Chairman
on 21 February 2014
Song Zhiyong 51 Vice Chairman, executive Director Appointed as President
and president on 28 January 2014,
as Director on 22 May
2014 and
as Vice Chairman on 6
June 2016
Wang Yinxiang 61 Former Vice Chairman and Appointed on 9 October
non-executive Director 2008 and resigned
on 6 June 2016
Cao Jianxiong 57 non-executive Director Appointed on 10 June 2009
Feng Gang 53 non-executive Director Appointed on 26 August
2014
John Robert Slosar 60 non-executive Director Appointed on 22 May 2014
Ian Sai Cheung 62 non-executive Director Appointed on 28 October
Shiu 2010
Fan Cheng 61 Former executive Director and Appointed as Director
Vice President on 18 October 2004 and
as Vice President on 27
October 2006,
and resigned on 14 April
2016
Pan Xiaojiang 64 Independent non-executive Director Appointed on 29 October
2013
Simon To Chi 65 Independent non-executive Director Appointed on 29 October
Keung 2013
Stanley Hui Hon-chung 66 Independent non-executive Director Appointed on 22 May 2015
Li Dajin 58 Independent non-executive Director Appointed on 22 December
2015
SUPERVISORS
Date of appointment and
if
applicable, resignation
Name Age Position in the Company as Supervisor
Wang Zhengang 58 Chairman of the Supervisory Appointed on 30 August
Committee 2016
Li Qinglin 62 Former Chairman of the Supervisory Appointed on 28 October
Committee 2010 and
resigned on 30 August
2016
He Chaofan 54 Supervisor Appointed on 22 December
2008
Zhou Feng 55 Supervisor Appointed on 25 November
2011
Xiao Yanjun 52 Supervisor Appointed on 16 June 2011
Shen Zhen 50 Supervisor Appointed on 29 October
2013
Notes:
1. The Board received the resignation from Mr. Fan Cheng on 14
April 2016, who resigned as executive Director and Vice President
due to his retirement.
2. The Board received the resignation from Ms. Wang Yinxiang as
a non-executive Director and Vice Chairman on 6 June 2016 due to
changes in her positions. On the same date, the 34th meeting of the
4th session of the Board was held, during which Mr. Song Zhiyong,
an executive Director, was elected as Vice Chairman of the
Company.
3. The Supervisory Committee received the resignation from Mr.
Li Qinglin on 30 August 2016, who resigned as Chairman of the
Supervisory Committee due to his retirement. On the same date, the
second EGM of the Company for 2016 was held, during which Mr. Wang
Zhengang was elected as Supervisor of the 4th session of the
Supervisory Committee. Mr. Wang was elected as Chairman of the
Supervisory Committee at the 19th meeting of the 4th session of the
Supervisory Committee.
DIRECTORS' AND SUPERVISORS' RIGHTS TO ACQUIRE SHARES OF THE
COMPANY
During the year ended 31 December 2016, the Company did not
grant any rights to its Directors, Supervisors or their respective
spouses or children under the age of 18 to subscribe for the shares
or debentures of the Company or any of its other associated
corporations, and none of the above persons have exercised such
rights to subscribe for the above-mentioned shares or
debentures.
interests and short positions of directors, supervisors and
chief executive IN THE SHARE, UNDERLYING SHARES AND DEBENTURES OF
THE COMPANY
As at 31 December 2016, the Directors, Supervisors or chief
executive had following interests or short positions in the shares,
underlying shares and/or debentures (as the case may be) of the
Company or its associated corporations (within the meaning of Part
XV of the SFO) which shall be recorded in the register maintained
by the Company 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:
1. Total long positions in the shares, underlying shares and
debentures of the Company and its associated corporations
Number of Shares
Interest
of children
under Shareholding
Name of associated the percentage
Name of Director, corporation/ age of as at
Supervisor or company and Personal 18 Corporate 31 December
chief executive relevant shareholder Interest or spouse Interest Total 2016
Ian Sai Cheung Cathay Pacific
Shiu Airways Limited 1,000 - - 1,000 0.00%
Zhou Feng Air China Limited 10,000 - - 10,000 0.00%
(A Shares) (A Shares)
Shen Zhen Air China Limited 33,200 - - 33,200 0.00%
(A Shares) (A Shares)
2. Total short positions in the shares, underlying shares and
debentures of the Company and its associated corporations
As at 31 December 2016, none of the Directors, Supervisors and
chief executives of the Company held any short positions in the
shares, debentures, share capital derivative instruments.
Save as disclosed above, as at 31 December 2016, none of the
Directors, Supervisors or chief executive of the Company had
interests or short positions in the shares, underlying shares
and/or debentures (as the case may be) of the Company or its
associated corporations (within the meaning of Part XV of the SFO)
which were recorded in the register maintained by the Company
pursuant to section 352 of the SFO, or which were 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 "Connected Transactions" in
this Report of the Directors, the Company or any of its
subsidiaries has not entered into any significant transactions,
arrangements or contracts relating to the Group's business, in
which the Directors and Supervisors or their associates directly or
indirectly have material interests, and which remain valid at the
end of the current year or at any time during the year.
During the year of 2016, Mr. Cai Jianjiang (Chairman and
non-executive Director), Mr. Song Zhiyong and Mr. Fan Cheng
(executive Directors) and Mr. John Robert Slosar and Mr. lan Sai
Cheung Shiu (non-executive Directors) also served as directors of
Cathay Pacific. Cathay Pacific and 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 31 December 2016, the Company had 23,258 employees and its
subsidiaries had 56,764 employees. The categories of employees of
the Company are as follows:
As at As at
31 December 31 December
Professional Categories 2016 2015 Increase/(decrease)
Management 5,719 6,467 (748)
Marketing and Sales 1,947 1,902 45
Operation 1,427 1,429 (2)
Ground Handling 2,093 2,080 13
Cabin Service 2,684 2,485 199
Logistics and Support 2,914 3,395 (481)
Flight Crew 4,952 4,713 239
Engineering and Maintenance (Notes) 45 2,872 (2,827)
Information Technology 389 375 14
Others 1,088 1,386 (298)
Total 23,258 27,104 (3,846)
Notes: Upon completion of the shareholding restructuring in
AMECO by the Company and Lufthansa, the engineering and maintenance
staff of the Company were transferred to and entered into
employment contracts with AMECO.
A total of 372 employees of the Company retired in 2016.
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, the
Company carried out the appraisal and promotion in 2016, which
covered Air China and its invested enterprises.
EMPLOYEES AND EMPLOYEES' PENSION SCHEME
Details of the staff pension scheme and other welfare are set
out in note 2 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 the Company did not satisfy the "effective performance
conditions" as set forth in the "Proposal for the Second Grant of
the Stock Appreciation Rights of Air China Limited" in 2015, the
proportion of 40% of the exercisable SARs for 2016 would not take
effect. As at 31 December 2016, the carrying amount of the
liabilities related to the SARs was RMB2.0280 million.
SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
Details of the subsidiaries, associates and joint ventures of
the Company as at 31 December 2016 are set out respectively in
notes 20, 21 and 22 to the financial statements of this annual
report.
BANK LOANS AND OTHER BORROWINGS
Details of the bank loans and other borrowings of the Company
and the Group are set out in note 35 to the financial statements of
this annual report.
FIXED ASSETS
Changes in the fixed assets of the Group for the year ended 31
December 2016 are set out in note 15 to the financial statements of
this annual report.
CAPITALISED INTERESTS
Details of the capitalised interests of the Group for the year
ended 31 December 2016 are set out in note 9 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 39 to the financial statements of this
annual report.
DONATIONS
For the year ended 31 December 2016, the Company made donations
for charitable and other purposes amounting to RMB514,000.
MAJOR CUSTOMERS AND SUPPLIERS
For the year ended 31 December 2016, the purchases from the
largest supplier accounted for 16.95% of the total purchases of the
Group, while the purchases from the five largest suppliers
accounted for 45.08%. None of the Directors or Supervisors, their
associates, nor any shareholder, 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 2016, the sales of the Group to
the five largest customers accounted for not more than 30% of the
total sales of the Group.
PROPERTY TITLE CERTIFICATE
The Company effected changes to the titles of assets (land use
rights, buildings and vehicles), in accordance with its
undertakings as disclosed in the Company's prospectus issued at the
time of its offering of shares. All of the aforementioned title
transfer procedures have been completed.
MAJOR LEGAL PROCEEDINGS
Save as disclosed in note 41 to the financial statements of this
annual report, the Company was not involved in any significant
litigation or arbitration as at 31 December 2016. 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 a number of 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 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 at 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 Company and the
Sales Agency Companies 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
transportation time. 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 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.
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. 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.
f. Media and Advertising Services
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.
As CNAMC is a wholly-owned subsidiary of CNAHC and therefore a
connected person of the Company, the transactions between CNAMC and
the Company 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 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 in-flight
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 RMB13,891,500 as media usage
fee for each of the three years ending 31 December 2016, 2017 and
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.
Non-Public Issue of A Shares
As stated in "Subsequent Events", upon the approval of the board
of directors and shareholders' meetings, the Company proposed
non-public issue of A Shares to not more than 10 (inclusive)
specified investors (including CNAHC).
On 11 December 2015, CNAHC entered into a new subscription
agreement (the "New Share Subscription Agreement") with the Company
which superseded the original share subscription agreement entered
into between CNAHC and the Company on 27 July 2015. Pursuant to the
New Share Subscription Agreement, CNAHC agreed to commit no more
than RMB4 billion to subscribe for, and the Company agreed to
issue, not more than 506,970,849 new A Shares at the issue price of
RMB7.89 per share, which may be adjusted if there is any ex-rights
or ex-dividend arrangement from the pricing benchmark date to the
date of issuance.
Since CNAHC is the controlling shareholder of the Company, and
hence a connected person of the Company, its subscription of A
Shares to be issued by the Company constitutes a connected
transaction of the Company under Chapter 14A of the Listing Rules
and is subject to the announcement, reporting and independent
shareholders' approval requirements.
According to the announcement of the Company dated 22 July 2016,
due to the distribution of final dividends for the year 2015, the
Issue Price was adjusted to not less than RMB7.79 per A Share, and
the number of A Shares to be subscribed for by CNAHC was adjusted
to not more than 513,478,818 A Shares. The above-mentioned
non-public issue of A Shares and the New Share Subscription
Agreement were approved by the independent shareholders of the
Company at both the EGM and the class meetings on 26 January 2016.
On 31 October 2016, the Company received a formal approval form the
CSRC approving the non-public issue of A Shares. On 10 March 2017,
the non-public issue of A Shares was completed. CNAHC subscribed
for 513,478,818 A Shares at the issue price of RMB7.79 per A Share,
which are subject to a lock-up period of 36 months from the
completion date of the non-public issue of A Shares. After the
non-public issue of A Shares, CNAHC holds directly and indirectly
7,508,571,617 shares of the Company, representing 51.70% of the
total issued share capital of the
Company, and CNAHC remains the controlling shareholder of the
Company.
II. Continuing Connected Transactions between the Group and CNAF
Pursuant to the announcement of the Company dated 24 December
2014, the Company entered into an equity transfer agreement and
capital injection agreement with the relevant parties in relation
to its acquisition of equity interest in CNAF and the capital
injection into CNAF by the Company and CNAHC (the "Acquisition and
Capital Injection"). Upon completion of the Acquisition and Capital
Injection, CNAF became a non-wholly owned subsidiary of the
Company. Since CNAHC continues to be 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. The details are set out in the announcement of the
Company dated 29 April 2015.
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 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.
III. Continuing Connected Transactions between the Group and CNACG Group
The Company entered into a framework agreement with CNACG on 26
August 2008 which was renewed in 2013 (the "CNACG Framework
Agreement") for a term from 1 January 2014 to 31 December 2016.
As CNACG is a substantial shareholder of the Company and
therefore a connected person of the Company, the transactions
between CNACG and the Company 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 CNACG Framework Agreement provides a framework for the
relevant agreements between the Group and CNACG Group relating to
ground handling and engineering services, management services and
other services and transactions as may be agreed by parties to be
undertaken under the CNACG Framework Agreement excluding those
which have been contemplated by the related CNAHC framework
agreements. The details are set out in the announcement of the
Company dated 26 September 2013.
As the Company expected that the transactions contemplated under
the CNACG Framework Agreement would continue to be conducted after
31 December 2016, the Company and CNACG entered into a framework
agreement on 30 August 2016 to renew and amend the CNACG Framework
Agreement (the "New CNACG Framework Agreement"). The New CNACG
Framework Agreement has a term of three years from 1 January 2017
to 31 December 2019. Details are set out in the announcement of the
Company dated 30 August 2016 and the circular of the Company dated
14 September 2016.
IV. 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 (the
"Cathay Pacific Framework Agreement") for a term from 1 January
2014 to 31 December 2016.
As Cathay Pacific is a substantial shareholder of the Company
and therefore a connected person of the Company, the transactions
between the Company and the Cathay Pacific Group (Cathay Pacific
and its subsidiaries, including Cathay Dragon) 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 joint venture arrangements for the operation of passenger air
transportation, code sharing arrangements, interline 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 26 September 2013.
The Cathay Pacific Framework Agreement was renewed on 1 October
2016 for a term of three years from 1 January 2017 to 31 December
2019. Details are set out in the announcement of the Company dated
30 August 2016 and the circular of the Company dated 14 September
2016.
V. Continuing Connected Transactions between the Group and Air China Cargo
The Company entered into a framework agreement with Air China
Cargo on 27 October 2011 (the "ACC Framework Agreement"), which was
renewed in 2013 with a term from 1 January 2014 to 31 December
2016.
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 the Air China Cargo 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 ACC Framework Agreement, the Group (other than
Air China Cargo) will provide the following services to Air China
Cargo: (i) the provision of bellyhold space of the passenger
aircraft operated by the Company; (ii) ground support and aircraft
maintenance engineering including, among others, the repair and
maintenance of aircraft and engines; and (iii) other services to
Air China Cargo including, among others, labour management and
import and export agency services. Air China Cargo will provide the
following services to the Group (other than Air China Cargo): (i)
ground support including, among others, cargo and mail ground
loading and unloading and security inspection services; and (ii)
other services provided to the Group (other than Air China Cargo).
The details are set out in the announcement of the Company dated 26
September 2013.
The consideration of specific continuing connected transactions
under the ACC Framework Agreement shall be agreed between the
Company and Air China Cargo on a case-by-case basis.
As the Company expected that the transactions contemplated under
the ACC Framework Agreement would continue to be conducted after 31
December 2016, The Company and Air China Cargo entered into a
framework agreement on 30 August 2016 to renew and amend the ACC
Framework Agreement ("New ACC Framework Agreement"). The New ACC
Framework Agreement has a term of three years from 1 January 2017
to 31 December 2019. Details are set out in the announcement of the
Company dated 30 August 2016 and the circular of the Company dated
14 September 2016.
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 2016 has
followed the pricing policies of such continuing connected
transactions.
VI. Transaction Caps and Actual Transaction Amounts in 2016
Actual transaction amounts and transaction caps of the
above-mentioned continuing connected transactions during the year
ended 31 December 2016 are as follows:
Aggregate amount of
transactions for the year
ended
31 December 2016
Currency Cap Actual Amount
(in millions) (in millions)
Transactions with CNAHC
Group
Subcontracting of charter
flight services RMB 900 518
Aggregate sales of airline
tickets and cargo space
to CNAHC Group RMB 138 59
Comprehensive services RMB 1,375 1,251
Properties leasing RMB 155 104
Media and advertising services RMB 270 208
Financial services
Maximum daily outstanding
loans and
other credit services granted
by
CNAF to CNAHC Group RMB 9,000 2,146
Transactions with CNACG
Group
Ground handling, engineering,
management and other services RMB 350 284
Transactions with Cathay
Pacific Group
Aggregate amount payable/paid
by the Group to Cathay Pacific
Group HKD 900 286
Aggregate amount payable/paid
by Cathay Pacific Group
to the Group HKD 900 345
Transactions with Air China
Cargo
Aggregate amount payable/paid
by the Group to Air China
Cargo RMB 1,480 951
Aggregate amount payable/paid
by Air China Cargo to the
Group RMB 8,250 4,370
Transactions with CNAF
Maximum daily outstanding
deposits placed by the Group
with CNAF RMB 14,000 4,772
VII. Confirmation from Independent Non-executive Directors
The independent non-executive Directors have confirmed that all
continuing connected transactions in the year ended 31 December
2016 to which the Company was a party have been entered into:
1. in the ordinary and usual course of business of the Company;
2. on normal commercial terms or better; and
3. 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 Auditors
For the purpose of Rule 14A.56 of the Listing Rules, the
Company's auditor, KPMG has performed the procedural work on the
continuing connected transactions for the year ended 31 December
2016 in accordance with Hong Kong Standard on Assurance Engagement
3000 "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.
RELATED PARTY TRANSACTIONS
Details of the significant related party transactions entered
into by the Group during the year ended 31 December 2016 are set
out in note 44 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 "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
KPMG and KPMG Huazhen LLP have been appointed as the
international auditor and the domestic auditor of the Company since
the 2012 annual general meeting of the Company. KPMG has audited
the accompanying financial statements, which have been prepared in
accordance with IFRSs.
PROFILE OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
1. DIRECTORS
Cai Jianjiang, aged 53, 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.
Song Zhiyong, aged 51, is the Vice Chairman, executive Director
and Vice 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 of the Communist Party
Committee, and a Member of the Standing Committee 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.
Wang Yinxiang, aged 61, is the Vice Chairman and a non-executive
Director of the Company. Ms. Wang graduated from the Party School
of the Central Committee of the Communist Party of China ("C.P.C.")
majoring in economics and management. Ms. Wang is senior
professional of political work and senior flight attendant. Ms.
Wang served several positions at Air China International
Corporation, including Vice Captain of the in-flight service team
of the Chief Flight Team, Deputy Manager of the in-flight service
division, Deputy Manager of the passenger cabin service division
and Deputy Secretary of the Communist Party Committee. In October
2002, Ms. Wang served several positions in CNAHC, including Deputy
General Manager, Head of the Disciplinary and Supervisory Committee
of the Communist Party Group and Secretary of the Communist Party
Committee of CNAHC. Ms. Wang was appointed as President of the
Labour Union of CNAHC from July 2003 to July 2009. Since March 2008
till February, 2016, Ms. Wang served as Secretary of the Communist
Party Group, Deputy General Manager and Secretary of the Communist
Party Committee directly under department of CNAHC. Ms. Wang served
as the Vice
Chairman of the Company from October 2008 to June 2016.
Cao Jianxiong, aged 57, is a 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 President 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 has been serving as a non-executive Director of the
Company since June 2009. He has been serving as Deputy Secretary of
the Communist Party Group and Deputy General Manager of CNAHC since
November 2016.
Feng Gang, aged 53, is a 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 has served as non-executive Director since
August 2014.
John Robert Slosar, aged 60, 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.
lan Sai Cheung Shiu, aged 62, is a 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
has been serving as a non-executive Director of the Company since
October 2010.
Fan Cheng, aged 61, is the former executive Director and Vice
President of the Company. Mr. Fan graduated from Nanjing Institute
of Chemistry and Chemical Engineering with a major in organic
fertilizer and has an MBA degree from Guanghua School of
Management, Peking University. Mr. Fan is a senior accountant,
senior engineer and Certified Public Accountant. Mr. Fan was
appointed as Deputy General Manager of China New Technology Venture
Capital Company in 1996. He started his career in China's civil
aviation industry in 2001, and served as General Manager of the
corporate management department and capital management department
of CNAHC in October 2002 and Chief Financial Officer of the Company
from September 2004 to July 2014. From October 2006 to April 2016,
he served as Vice President of the Company. From December 2009 to
May 2010, he served as Secretary of the Communist Party Committee
of Shenzhen Airlines. From March 2010 to April 2010, he served as
Acting President of Shenzhen Airlines and from March 2010 to May
2010, he served as the Chairman of Shenzhen Airlines. From January
2011 to May 2016, he served as Director and Chairman of Beijing
Airlines. From February 2011 to March 2016, he served as Secretary
of the Communist Party Committee of the Company to handle the
comprehensive work of the Party Committee. From April 2011 to June
2016, he served as Chairman of Air China Cargo. Mr. Fan served as
an executive Director of the Company from October 2004 to April
2016 and a member of the Communist Party Group of CNAHC from April
2014 to February 2016.
Pan Xiaojiang, aged 64, is an 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 has been serving as an
independent director of Tsinghua Tongfang Limited. Mr. Pan has been
serving as an independent non-executive Director of the Company
since October 2013.
Simon To Chi Keung, aged 65, is an 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 has been serving as an
independent non-executive Director of the Company since October
2013.
Stanley Hui Hon-chung, aged 66, 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 as a management trainee 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
12th 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.
Li Dajin, aged 58, is an independent non-executive Director of
the Company. He graduated from Peking University majoring in law.
He was admitted to practice law in the PRC in 1982 and is the
managing partner of East & Concord Partners. Mr. Li was the one
the lawyers who were initially qualified to engage in securities
law business. He previously served as vice president of the 6th
session of All China Lawyers Association, president of the 7th
session of Beijing Lawyers Association, and committee member of the
13th session of Beijing Municipal People's Congress. Mr. Li
currently also serves as deputy to the 12th session of National
People's Congress, 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 of
Renmin University of China, lecturer for master candidate of
Tsinghua University Law School, and visiting professor of Southwest
University of Political Science & Law. Mr. Li has been serving
as an independent non-executive Director of the Company since
December 2015.
2. SUPERVISORS
Wang Zhengang, aged 58, 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 Chinawings Aviation
Technology 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 12th session of the
CPPCC of Beijing Municipality and a member of the Standing
Committee of the 5th session the CPPCC of Shunyi District, Beijing
Municipality. He was appointed as Chairman of the Supervisory
Committee of the Company in August 2016.
Li Qinglin, aged 62, is former Chairman of the Supervisory
Committee of the Company. Mr. Li graduated from Beijing Radio and
Television University majoring in Chinese and Zhongnanhai Amateur
University majoring in administrative management, and is a senior
professional of political work. Mr. Li served various positions,
including a Section Chief, Deputy Director, Director, Vice
Director-General and Director-General, as well as the Chairman of
the Labour Union of the Government Office Administration of the
State Council. From 1998 to 2000, he served as a Deputy Director of
the Hebei Leading Group Office of Poverty Alleviation and
Development. Since 2000, he had served different positions,
including a Deputy Director of the Work Department under the
Supervisory Committee of Central Enterprises Working Commission,
Deputy Director of the Office of Central Enterprises Working
Commission, Deputy Director and Inspector of the General Office of
the SASAC and a Director of the Office of the Stability
Preservation Leading Team of the SASAC. He was appointed as the
Head of the Disciplinary and Supervisory Committee of CNAHC from
September 2008 to July 2015 and a member of the Communist Party
Group of CNAHC from September 2008 to February 2016. Mr. Li served
as chairman of the Supervisory Committee the Company from October
2010 to August 2016.
He Chaofan, aged 54, 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 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
deputy secretary to the party committee of Zhongyi Aviation
Investment Co., Ltd. since July 2013. Mr. He has been serving as a
Supervisor of the Company since October 2013.
Zhou Feng, aged 55, is a Supervisor of the Company. Mr. Zhou
obtained a master's degree in economics from Shanghai University of
Finance and Economics. He held various positions, including the
director of the financial planning and audit department of Zhejiang
Administration of CAAC; the Chief Accountant of finance department
of CNAC Zhejiang Airlines; the Assistant General Manager of China
National Aviation Corporation (Macau) Company Limited; the Deputy
General Manager, the Chief Accountant and a member of the party
committee of CNAF, the director, the Executive Vice President of
Samsung Air China Life Insurance Co., Ltd. Mr. Zhou has been
Secretary of the Communist Party Committee and the Deputy General
Manager of CNAF since August 2010. He has also been the General
Manager of the finance department of CNAHC since April 2011. Mr.
Zhou has been serving as a Supervisor of the Company since November
2011.
Xiao Yanjun, aged 52, 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 a 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.
Shen Zhen, aged 50, is a Supervisor of the Company. Mr. Shen
graduated from Party School of the Central Committee of C.P.C.
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 has been
serving as a Supervisor of the Company since October 2013.
3. OTHER SENIOR MANAGEMENT
Ma Chongxian, aged 51, 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 member of the
standing committee of CCP 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 and a member of the Communist
Party Group of CNAHC since December 2016.
Zhao Xiaohang, aged 55, 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 of Air
China, Manager and Deputy Secretary of the Ground Services
Department, General Manager of the Planning and Development
Department and Assistant President of Air China. 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 CCP of the
Company since February 2011, responsible for administration,
information management, centralized procurement, asset management,
investment on the enterprises located in Hong Kong and Macau and
logistics support. 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 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 Director and Chairman of CNAMC in December 2016.
Xu Chuanyu, aged 52, 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 Chairman, President, deputy
secretary of the CCP committee of Shandong Aviation Group
Corporation, responsible for its overall management.
Wang Mingyuan, aged 51, graduated from Xiamen University
majoring in planning and statistics. Mr. Wang started his career in
July 1988 and served various positions in 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 the Company, 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 a director of the
Commerce Commission and Deputy Secretary of the Communist Party
Committee of the Company from July 2008 to March 2012. He has been
serving as Vice President and a member of the Standing Committee of
the Communist Party Committee of the Company since February 2011,
responsible for the planning of the development, aircraft,
investment, operation efficiency, marketing, alliance affairs,
external cooperation and construction work for the airbase of the
Beijing new airport for the Company.
Feng Rune, aged 54, 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 Air
China Inner Mongolia branch; Manager of Human Resource Department
and Head of Party and Mass Affairs Department of Air China Inner
Mongolia branch. She also served as Deputy Secretary of the
Communist Party Committee and Secretary of Commission for
Discipline Inspection of Air China 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 since February
2011 and responsible for the members of the Communist Party in the
Company, corporate culture, disciplinary monitoring and
supervision, audit and management of the former employees. She
served as a member and Secretary of the Communist Party Committee
of the department directly under the Company since March 2011, and
president of the Labour Union of the Company from June 2011 to
October 2013.
Chai Weixi, aged 54, 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, Manager of Aircraft Maintenance
Subdivision and Manager of Aircraft Overhaul Division of AMECO,
General Manager of Aircraft Engineering Department of Air China and
Deputy General Manager of the Engineering Technology Branch of Air
China. He served as General Manager, director, member of the
Communist Party Committee of AMECO and a member of the Communist
Party Committee of the Engineering Technology Branch of the Company
in October 2005. In April 2009, he served as General Manager and
Deputy Secretary of the Communist Party Committee of the
Engineering Technology Branch of the Company and director of AMECO.
Mr. Chai has been serving as Vice President and a member of the CCP
standing committee of the Company since March 2012, who is
responsible for integration of aircraft engineering and
industrialization, as well as the Chief Executive of AMECO.
Chen Zhiyong, aged 53, 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, and Deputy General Manager and Chief Pilot of
Southwest Branch of Air China. 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 member of the CCP
committee of the Company since December 2012 till now. He has also
been serving as Director and President of Shenzhen Airlines since
May 2014, responsible for its operation.
Liu Tiexiang, aged 50, 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, 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 of Air China. He served as captain
of the Chief Flight Team of Air China and Deputy Secretary of the
Communist Party Committee from June 2008 to April 2011. He served
as Chief Pilot of the Company from April 2011 to November 2014. Mr.
Liu has been serving as Vice President and a member of the CCP
committee of the Company since August 2014 and Chief Operating
Officer since April 2015, responsible for flight management,
operation control, safety and technology management, maintenance of
normal flight schedule, national defence mobilisation, management
of airport terminals and assisting the President to manage private
jets.
Xue Yasong, aged 55, 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, 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. In August 2009, he was elected Chairman of the
Labour Union of CNAHC, and appointed Secretary of the Party
Committee of CNAHC in January 2016. He was elected Chairman of the
Labour Union of the Company in October 2016, responsible for
overseeing the daily operation of the Company's Labour Union.
Wang Yantang, aged 60, graduated from Open College of Party
School of the Central Committee of C.P.C. majoring in economic
management. He started his career in October 1973 and served as
squad leader, technician and Deputy Company Commander of Artillery
Brigade 601 of the Beijing Military Region. He started his career
in China's civil aviation industry from September 1986 and served
various positions in Air China including Head of Integrated
Business Section of the Passenger Department, Manager of Customer
Service Office and Manager of International Passenger Office of the
Ground Services Department as well as Deputy Secretary of the
Communist Party Committee, Secretary of the Discipline Committee,
Secretary of the Communist Party Committee and Deputy General
Manager of the Ground Services Department. He served as Party
General Branch Secretary and Deputy General Manager of the Aircraft
Engineering Department of Air China from July 2003 to February 2004
as well as Deputy Secretary of the Communist Party Committee,
Secretary of the Discipline Committee and Chairman of the Labour
Union of the Company's engineering branch from February 2004 to
August 2007. He served as Member, Executive Member, Secretary and
Deputy Commander of Chief Flight Team of the Company from August
2007 to July 2014. Mr. Wang served as Chairman of the Company's
Labour union from October 2013 to September 2016, responsible for
the operation of the Labour Union.
Xiao Feng, aged 48, 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. Mr. Xiao
has been serving as the Chief Accountant of the Company since July
2014, responsible for financial management and providing assistance
to Vice President Wang Mingyuan in enhancing operation
efficiency.
Meng Xianbin, aged 59, 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 has been serving as the Secretary of the
Communist Party Committee and Deputy General Manager of the
Engineering Technology Branch of the Company since December 2009.
Mr. Meng has been serving as the Chief Economic Officer of the
Company since July 2014. He is accountable for the provision of
assistance to our Vice President Chai Weixi in respect of the
integration of aircraft engineering and industrialization, and is
appointed as the secretary of the Communist Party Committee and the
convener of the labour union of AMECO.
Wang Yingnian, aged 53, 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 Communist Party 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 in April
2011. He has been serving as Chief Pilot of the Company since
November 2014 and is accountable for the trainings of the pilots in
the Company.
Rao Xinyu, aged 50, 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 has been serving as the Secretary to the Board of the Company
since December 2011 and the Director of the Secretariat of the
Board since March 2012 and is responsible for corporate governance,
information disclosure, investor relations and equity management
and so forth.
4. JOINT COMPANY SECRETARIES
Rao Xinyu. Ms. Rao's biography is set out in the section headed
"Other Senior Management" above.
Tam Shuit Mui, aged 45, 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 Chaoyue Group Limited (formerly known as
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.
Independent Auditor's Report
KPMG
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 ("the Group")
set out on pages 92 to 188, which comprise the consolidated
statement of financial position as at 31 December 2016, the
consolidated statement of profit or loss, the consolidated
statement of profit or loss and other comprehensive income, the
consolidated statement of changes in equity and the consolidated
cash flow statement 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 2016 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")
together with any ethical requirements that are relevant to our
audit of the consolidated financial statements in the People's
Republic of China, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and 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
judgement, 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)
Assessing the carrying value of aircraft and flight equipment
Refer to note 15 to the consolidated financial statements and
the accounting policies on page 109.
The key audit matter How the matter was addressed
in our audit
---------------------------------------------------
The carrying value of aircraft Our audit procedures to assess
and flight equipment is reviewed the carrying value of aircraft
annually taking into consideration and flight equipment included
factors such as changes in fleet the following:
composition, current and forecast
market values and technical factors -- discussing with strategy and
which may have a material impact development department the plans
on any impairment charges for for future fleet composition
the year. including future acquisitions
and retirement of aircraft as
We identified the assessment well as indicators of possible
of the carrying value of aircraft impairment of aircraft and flight
and flight equipment as a key equipment and, where such indicators
audit matter because of its significance were identified, assessing whether
to the consolidated financial management had performed impairment
statements and because assessing assessments in accordance with
the key assumptions the requirements of the prevailing
underlying impairment assessments accounting standards;
involves a significant degree
of judgement by management in -- assessing management's assertions
considering the nature, timing and estimates adopted in their
and likelihood of changes to impairment assessments with reference
the factors noted above which to valuation reports published
may affect both the carrying by third party specialists, our
value of the Group's aircraft knowledge of the airline industry
and flight equipment as well and the Group's historical experience
as any impairment charges for and future operating plans;
the year.
-- challenging the assumptions
and critical judgements adopted
by management by comparing management's
past estimates and plans to the
current year's estimates and
plans and taking into account
recent developments in the airline
industry and future operating
plans.
---------------------------------------------------
Key audit matters (Continued)
Provision for major overhauls
Refer to note 36 to the consolidated financial statements and
the accounting policies on page 116.
The key audit matter How the matter was addressed
in our audit
------------------------------------------------------
The Group held certain aircraft Our audit procedures to assess
under operating leases at 31 provision for major overhauls
December 2016. Under the terms included the following:
of the operating lease arrangements,
the Group is contractually committed -- assessing the design and implementation
to return the aircraft to the of the Group's internal controls
lessors in a certain condition over making provision for major
agreed with the lessors at the overhauls for aircraft held under
inception of each lease. In order operating leases;
to fulfil these return conditions,
major overhauls are required -- evaluating the methodology
to be conducted on a regular and key assumptions
basis. adopted by management in estimating
the provision for major overhauls.
Management estimates the maintenance This evaluation included testing
costs of major overhauls for the integrity and arithmetic
aircraft held under operating accuracy of the provision model
leases at the end of each reporting through recalculation, reviewing
period and accrues such costs the terms of the operating leases
over the lease term. The calculation and comparing assumptions to
of such costs includes a number contract terms, information from
of variable factors and assumptions, the lessors and the Group's maintenance
including the anticipated utilisation cost experience;
of the aircraft and the expected
standard rates of maintenance -- discussing with managers in
costs per flying hour/cycle. the engineering
department responsible for aircraft
We identified provision for major engineering
overhauls as a key audit matter the utilisation pattern of aircraft
because of the inherent level and considering
of complex and subjective management the consistency of the provisions
judgement required in assessing with the engineering department's
the variable factors and assumptions assessment of the condition of
in order to quantify the amount the aircraft;
of provision required at each
reporting date. -- challenging the assumptions
adopted by management by comparing
past assumptions adopted by management
in prior years with actual events
as well as the current year's
assumptions.
------------------------------------------------------
Key audit matters (Continued)
Revenue recognition
Refer to notes 5 and 38 to the consolidated financial statements
and the accounting policies on pages 115 and 116.
How the matter was addressed
The key audit matter in our audit
---------------------------------------------------
Passenger and cargo sales are Our audit procedures to assess
recognised as revenue when the revenue recognition included
related transportation service the following:
is provided. The value of passenger
and cargo sales for which the -- assessing the design, implementation
related transportation service and operating effectiveness of
has not yet been provided at Group's internal controls over
the end of the reporting period revenue recognition and assessing
is recorded as air traffic liabilities the design and implementation
in the consolidated statement of IT controls related to the
of financial position. Group's revenue systems;
The fair value of programme awards -- performing analytical procedures
under the Group's frequent-flyer on passenger
programme, Phoenix Miles, is and cargo revenue by developing
deferred and included in deferred an expectation for each type
income in the consolidated statement of revenue using independent
of financial position. This deferred inputs and information generated
income arises from qualifying from the Group's IT systems and
air travel by Phoenix Miles members comparing such expectations with
or from programme partners that recorded revenue;
purchase Phoenix Miles from the
Group to issue to their own customers. -- inspecting underlying documentation
The deferred income is recognised for journal entries which were
as income when Phoenix Miles considered to be material or
members receive the related goods met other specified risk-based
or services after redemption criteria;
of their Phoenix Miles or when
it is assessed that the Phoenix -- evaluating the assumptions
Miles awarded will expire without applied in the mathematical models
use. used to determine the fair value
of expected Phoenix Miles awards.
The Group maintains complex information This included undertaking a comparison
technology ("IT") systems in with historical redemption patterns
order to track the point of service and comparing the calculations
provision for each sale and also for award values against observable
to track the issuance and subsequent inputs such as the prices for
redemption and utilisation of third party Phoenix Miles sales;
Phoenix Miles. The Group estimates
the unit fair value of Phoenix -- challenging the assumptions
Miles which are initially deferred used to estimate the number of
when earned by members of the Phoenix Miles that will expire
programme. without use, including comparing
with historical experience and
We identified revenue recognition planned changes to the programme
as a key audit matter because that may impact future redemption
revenue is one of the key performance activities.
indicators of the Group and because
it involves complex IT systems
and an estimation of the unit
fair value of Phoenix Miles,
both of which give rise to an
inherent risk that revenue could
be recorded in the incorrect
period or could be subject to
manipulation.
---------------------------------------------------
Information other than the consolidated financial statements and
auditor's report thereon
The directors are responsible for the other information. The
other information comprises all the information included in the
annual report, other than 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 the directors for the consolidated financial
statements
The directors 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.
The directors are assisted by the Audit and Risk Control
Committee in discharging their responsibilities 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. This report is made
solely to you, as a body, 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 judgement and maintain professional scepticism
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 the Audit and Risk Control Committee
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 the Audit and Risk Control Committee with a
statement that we have complied with relevant ethical requirements
regarding independence and communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence and, where applicable, related safeguards.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
From the matters communicated with the Audit and Risk Control
Committee, 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 this
independent auditor's report is Yu Wai Sum.
KPMG
Certified Public Accountants
8th Floor, Prince's Building
10 Chater Road
Central, Hong Kong
30 March 2017
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 31 December 2016
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
Note 2016 2015
RMB'000 RMB'000
Revenue
Air traffic revenue 5 108,584,830 104,368,230
Other operating revenue 6 6,559,862 5,688,804
115,144,692 110,057,034
Operating expenses
Jet fuel costs (21,981,934) (24,042,614)
Take-off, landing and depot charges (12,774,220) (11,643,166)
Depreciation and amortisation (13,473,720) (13,010,761)
Aircraft maintenance, repair and overhaul
costs (4,654,964) (4,015,468)
Employee compensation costs 7 (20,075,602) (18,230,841)
Air catering charges (3,270,726) (3,031,717)
Aircraft operating lease expenses (6,252,783) (5,145,664)
Other operating lease expenses (1,002,788) (1,017,535)
Other flight operation expenses (8,830,233) (8,393,972)
Selling and marketing expenses (3,893,265) (4,558,933)
General and administrative expenses (1,401,882) (1,414,741)
(97,612,117) (94,505,412)
Profit from operations 8 17,532,575 15,551,622
Finance income 9 127,077 152,257
Finance costs 9 (7,468,985) (7,968,825)
Share of profits less losses of associates (211,188) 1,319,300
Share of profits less losses of joint
ventures 233,423 300,897
Profit before taxation 10,212,902 9,355,251
Taxation 10 (2,454,221) (1,845,764)
Profit for the year 7,758,681 7,509,487
Attributable to:
- Equity shareholders of the Company 6,809,159 7,063,347
- Non-controlling interests 949,522 446,140
Profit for the year 7,758,681 7,509,487
Earnings per share: 13
- Basic and diluted RMB55.38 cents RMB57.45 cents
The notes on pages 99 to 188 form part of these financial
statements. Details of dividends payable to equity shareholders of
the Company attributable to the profit for the year are set out in
note 39 (d).
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
For the year ended 31 December 2016
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
Note 2016 2015
RMB'000 RMB'000
Profit for the year 7,758,681 7,509,487
Other comprehensive income for the
year
(after tax and reclassification adjustments)
Items that will not be reclassified
to profit or loss:
* Remeasurement of net defined benefit liability 2,295 (21,054)
* Share of other comprehensive income of associates and
joint ventures 162,682 (55,062)
Items that may be reclassified subsequently
to
profit or loss:
* Share of other comprehensive income of associates and
joint ventures 2,171,389 (1,639,957)
* Available-for-sale securities: net change in fair
value 29,593 22,014
* Exchange realignment 1,332,354 1,095,705
Other comprehensive income for the
year 14 3,698,313 (598,354)
Total comprehensive income for the
year 11,456,994 6,911,133
Attributable to:
* Equity shareholders of the Company 10,453,622 6,415,240
* Non-controlling interests 1,003,372 495,893
Total comprehensive income for the
year 11,456,994 6,911,133
The notes on pages 99 to 188 form part of these financial
statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2016
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
31 December 31 December
Note 2016 2015
RMB'000 RMB'000
Non-current assets
Property, plant and equipment 15 158,012,922 155,990,977
Lease prepayments 16 3,057,745 3,034,209
Investment properties 17 695,518 722,663
Intangible assets 18 113,367 35,902
Goodwill 19 1,099,975 1,099,975
Interests in associates 21 14,181,687 11,552,825
Interests in joint ventures 22 1,126,992 1,038,118
Advance payments for aircraft and
flight equipment 20,662,867 14,476,913
Deposits for aircraft under operating
leases 649,343 597,920
Held-to-maturity securities 10,000 10,000
Available-for-sale securities 23 1,150,661 1,106,588
Deferred tax assets 24 3,054,035 3,753,729
Other non-current assets 249,502 -
204,064,614 193,419,819
Current assets
Non-current assets held for sale 25 913,129 582,074
Inventories 26 1,680,633 1,730,742
Accounts receivable 27 3,286,091 3,661,354
Bills receivable 837 224
Prepayments, deposits and other receivables 28 3,729,699 3,635,925
Financial assets 29 222 995
Restricted bank deposits 30 474,338 654,946
Cash and cash equivalents 30 6,848,018 7,138,098
Other current assets 31 3,053,370 2,806,973
19,986,337 20,211,331
Total assets 224,050,951 213,631,150
The notes on pages 99 to 188 form part of these financial
statements.
31 December 31 December
Note 2016 2015
RMB'000 RMB'000
Current liabilities
Air traffic liabilities (6,313,936) (5,759,233)
Accounts payable 32 (10,832,292) (9,270,752)
Bills payable - (11,646)
Other payables and accruals 33 (13,094,920) (16,129,727)
Current taxation (920,508) (819,880)
Obligations under finance leases 34 (6,099,453) (5,963,977)
Interest-bearing bank loans and other
borrowings 35 (25,975,716) (11,290,310)
Provision for major overhauls 36 (943,609) (1,301,821)
(64,180,434) (50,547,346)
Net current liabilities (44,194,097) (30,336,015)
Total assets less current liabilities 159,870,517 163,083,804
Non-current liabilities
Obligations under finance leases 34 (36,295,471) (37,803,279)
Interest-bearing bank loans and other
borrowings 35 (37,833,246) (48,987,522)
Provision for major overhauls 36 (3,523,236) (3,112,201)
Provision for early retirement benefit
obligations (7,919) (13,465)
Long-term payables (23,350) (10,180)
Defined benefit obligations 37 (269,742) (276,968)
Deferred income 38 (3,092,841) (3,489,698)
Deferred tax liabilities 24 (2,428,313) (2,867,738)
(83,474,118) (96,561,051)
NET ASSETS 76,396,399 66,522,753
The notes on pages 99 to 188 form part of these financial
statements.
31 December 31 December
Note 2016 2015
RMB'000 RMB'000
CAPITAL AND RESERVES
Issued capital 39 13,084,751 13,084,751
Treasury shares 39 (3,047,564) (3,047,564)
Reserves 58,762,068 49,710,824
Total equity attributable to equity
shareholders
of the Company 68,799,255 59,748,011
Non-controlling interests 7,597,144 6,774,742
TOTAL EQUITY 76,396,399 66,522,753
Approved and authorised for issue by the board of directors on
30 March 2017.
Cai Jianjiang Song Zhiyong
Director Director
The notes on pages 99 to 188 form part of these financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
Attributable to equity shareholders
of the Company
-------------------------------------------------------------------------------------------------------
Foreign
exchange Non-
Issued Treasury Capital Reserve General translation Retained controlling Total
capital shares reserve funds reserve reserve earnings Total interests equity
Note RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
As at 1 January
2015 13,084,751 (3,047,564) 17,790,103 5,802,819 38,364 (3,645,243) 24,250,535 54,273,765 5,604,325 59,878,090
Changes in
equity
for 2015
Profit for the
year - - - - - - 7,063,347 7,063,347 446,140 7,509,487
Other
comprehensive
income - - (1,700,234) - - 1,052,127 - (648,107) 49,753 (598,354)
Total
comprehensive
income - - (1,700,234) - - 1,052,127 7,063,347 6,415,240 495,893 6,911,133
Acquisition of
a subsidiary - - 26,198 - - - - 26,198 514,629 540,827
Acquisition of
a subsidiary
under
common control - - (280,191) - - - - (280,191) 280,191 -
Appropriation
of statutory
reserve
funds - - - 544,081 - - (544,081) - - -
Appropriation
of
discretionary
reserve funds
and others - - - 285,331 - - (287,658) (2,327) (2,180) (4,507)
Appropriation
of general
reserve - - - - 16,100 - (16,100) - - -
Dividends paid
to
non-controlling
shareholders - - - - - - - - (112,022) (112,022)
Dividends
declared
in respect of
the previous
year 39(d) - - - - - - (683,417) (683,417) - (683,417)
Others - - (4,082) 874 487 - 1,464 (1,257) (6,094) (7,351)
As at 31
December
2015 and
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 39(d) - - - - - - (1,400,068) (1,400,068) - (1,400,068)
Others - - - - - - - - 8,988 8,988
As at 31
December
2016 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
The notes on pages 99 to 188 form part of these financial
statements.
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2016
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
Note 2016 2015
RMB'000 RMB'000
Operating activities
Cash generated from operations 30(b) 32,827,548 33,147,993
Income tax paid (2,103,188) (1,395,286)
Interest paid (3,358,127) (3,181,177)
Net cash generated from operating
activities 27,366,233 28,571,530
Investing activities
Payment for the purchase of property,
plant and equipment (9,628,246) (10,824,751)
Payment for the purchase of intangible
assets (116,240) -
Increase in lease prepayments (91,713) (472,403)
(Increase)/decrease in advance payments
for aircraft and flight equipment (10,799,254) 3,672,076
Proceeds from sale of property, plant
and equipment 171,733 249,718
Proceeds from sale of held-for-sale
assets 479,522 110,220
Proceeds from sale of held-to-maturity
securities - 20,000
Decrease in intangible assets 28 957
Decrease/(increase) in restricted
bank deposits against aircraft operating
leases and others 30(a) 194,876 (202,503)
Cash acquired through acquisition
of a subsidiary 28,984 145,380
Acquisition of non-controlling interests - (4,654)
Payment for the purchase of an associate
and a joint venture - (59,085)
Payment for purchase of available-for-sale
securities (2,545) (363,567)
Interest received 122,283 159,445
Dividends received from associates,
joint ventures and available-for-sale
securities 627,535 781,082
Net cash used in investing activities (19,013,037) (6,788,085)
Financing activities
New bank loans and other loans 15,270,322 15,740,698
Proceeds from issuance of corporate
bonds 22,648,240 3,597,000
Repayment of bank loans and other
loans (26,543,223) (32,485,785)
Repayment of principal under finance
lease obligations (6,468,849) (5,797,142)
Repayment of corporate bonds (12,100,000) (3,640,000)
Dividends paid (1,587,874) (795,439)
Net cash used in financing activities (8,781,384) (23,380,668)
Net decrease in cash and cash equivalents (428,188) (1,597,223)
Cash and cash equivalents at 1 January 30(a) 7,138,098 8,639,687
Effect of foreign exchange rate changes 138,108 95,634
Cash and cash equivalents at 31 December 30(a) 6,848,018 7,138,098
The notes on pages 99 to 188 form part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi, unless otherwise indicated)
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 Hong Kong Stock Exchange (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,
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, which does not produce
financial statements available for public use.
The principal activities of the Company and its subsidiaries
(together referred to the "Group") are provision of airline and
airline-related services, including aircraft engineering services,
air catering services and airport ground handling services, mainly
in Mainland China, Hong Kong and Macau.
The registered office of the Company is located at Blue Sky
Mansion, 28 Tianzhu Road, Airport Industrial Zone, Shunyi District,
Beijing 101312, the PRC.
2 Summary of significant accounting policies
(a) Statement of compliance
These financial statements have been prepared in accordance with
all applicable International Financial Reporting Standards
("IFRSs"), which collective term includes all applicable individual
International Financial Reporting Standards, International
Accounting Standards ("IASs") and Interpretations issued by the
International Accounting Standards Board ("IASB"). These financial
statements also comply with the disclosure requirements of the Hong
Kong Companies Ordinance and the applicable disclosure provisions
of the Rules Governing the Listing of Securities on the Stock
Exchange of Hong Kong Limited. Significant accounting policies
adopted by the Group are disclosed below.
The IASB has issued certain new and revised IFRSs that are first
effective or available for early adoption for the current
accounting period of the Group. Note 2 (c) provides information on
any changes in accounting policies resulting from initial
application of these developments to the extent that they are
relevant to the Group for the current and prior accounting periods
reflected in these consolidated financial statements.
(b) Basis of preparation of the financial statements
As at 31 December 2016, the Group's current liabilities exceeded
its current assets by approximately RMB44,194 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 RMB134,700 million as at 31 December
2016, the directors of the Company believe that adequate funding is
available to fulfil the Group's debt obligations and capital
expenditure requirements when preparing the financial statements
for the year ended 31 December 2016. Accordingly, the financial
statements have been prepared on a basis that the Group will be
able to continue as a going concern.
2 Summary of significant accounting policies (Continued)
(b) Basis of preparation of the financial statements (Continued)
The consolidated financial statements for the year ended 31
December 2016 comprise the Group and the Group's interest in
associates and joint ventures.
The measurement basis used in the preparation of the financial
statements is the historical cost basis except that:
- financial instruments classified as available-for-sale or as
trading securities (see note 2(g)) and derivatives are stated at
their fair value;
- non-current assets held for sale are stated at the lower of
carrying amount and fair value less costs of disposal (see note
2(cc)).
The preparation of financial statements in conformity with IFRSs
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets, liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. 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.
Judgements made by management in the application of IFRSs that
have significant effect on the financial statements and major
sources of estimation uncertainty are discussed in note 3.
(c) Changes in accounting policies
The IASB has issued a number of amendments to IFRSs that are
first effective for the current accounting period of the Group. The
change in policy arising from the amendments to IAS 27 is the only
change which has had a material impact on the current and
comparative periods. As a result of this change in policy, the
Company has chosen to apply the equity method to account for its
interests in associates and interests in joint ventures in its
company-level financial statements, which were previously stated at
cost less impairment. Directors consider that this change provides
more relevant and meaningful information about the financial
performance of associates and joint ventures in the separate
financial statements of the Company.
2 Summary of significant accounting policies (Continued)
(c) Changes in accounting policies (Continued)
This change in policy has been applied retrospectively by
restating the Company's opening balances at 1 January 2015 and
2016, with consequential adjustments to comparatives for the year
ended 31 December 2015. This has resulted in an adjustment to the
carrying amount of interests in associates, interests in joint
ventures, profit for the year and other comprehensive income for
the year of the Company as follows:
Effect of
adoption
As of
previously amendments
reported to IAS 27 As restated
RMB'000 RMB'000 RMB'000
Movements in components of
equity of the Company for the
year ended 31 December 2015
Statement of financial position
at 31 December 2015:
Interests in associates 687,209 1,317,403 2,004,612
Interests in joint ventures 707,678 304,699 1,012,377
Total non-current assets 142,451,182 1,622,102 144,073,284
Total current assets 10,752,993 - 10,752,993
Total current liabilities (35,002,147) - (35,002,147)
Total assets less current liabilities 118,202,028 1,622,102 119,824,130
Total non-current liabilities (63,464,321) - (63,464,321)
Issued capital (13,084,751) - (13,084,751)
Reserves (41,652,956) (1,622,102) (43,275,058)
Total equity (54,737,707) (1,622,102) (56,359,809)
Profit for the year (5,088,242) (317,810) (5,406,052)
Other comprehensive income for
the year - (15,083) (15,083)
Total comprehensive income for
the year (5,088,242) (332,893) (5,421,135)
2 Summary of significant accounting policies (Continued)
(c) Changes in accounting policies (Continued)
Effect of
adoption
As of
previously amendments
reported to IAS 27 As restated
RMB'000 RMB'000 RMB'000
Statement of financial position
at 1 January 2015:
Interests in associates 766,148 1,072,116 1,838,264
Interests in joint ventures 951,879 217,093 1,168,972
Total non-current assets 141,857,734 1,289,209 143,146,943
Total current assets 11,794,567 - 11,794,567
Total current liabilities (41,140,397) - (41,140,397)
Total assets less current liabilities 112,511,904 1,289,209 113,801,113
Total non-current liabilities (62,213,159) - (62,213,159)
Issued capital (13,084,751) - (13,084,751)
Reserves (37,213,994) (1,289,209) (38,503,203)
Total equity (50,298,745) (1,289,209) (51,587,954)
The Group has not applied any new standard or interpretation
that is not yet effective for the current accounting period.
(d) Subsidiaries and non-controlling interests
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed, or has rights, to variable
returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. When
assessing whether the Group has power, only substantive rights
(held by the Group and other parties) are considered.
An investment in a subsidiary is consolidated into the
consolidated financial statements from the date that control
commences until the date that control ceases. Intra-group balances,
transactions and cash flows and any unrealised profits arising from
intra-group transactions are eliminated in full in preparing the
consolidated financial statements. Unrealised losses resulting from
intra-group transactions are eliminated in the same way as
unrealised gains but only to the extent that there is no evidence
of impairment.
2 Summary of significant accounting policies (Continued)
(d) Subsidiaries and non-controlling interests (Continued)
Non-controlling interests represent the equity in a subsidiary
not attributable directly or indirectly to the Company, and in
respect of which the Group has not agreed any additional terms with
the holders of those interests which would result in the Group as a
whole having a contractual obligation in respect of those interests
that meets the definition of a financial liability. For each
business combination, the Group can elect to measure any
non-controlling interests either at fair value or at the
non-controlling interests' proportionate share of the subsidiary's
net identifiable assets.
Non-controlling interests are presented in the consolidated
statement of financial position within equity, separately from
equity attributable to the equity shareholders of the Company.
Non-controlling interests in the results of the Group are presented
on the face of the consolidated statement of profit or loss and
consolidated statement of profit or loss and other comprehensive
income as an allocation of the total profit or loss and total
comprehensive income for the year between non-controlling interests
and the equity shareholders of the Company. Loans from holders of
non-controlling interests and other contractual obligations towards
these holders are presented as financial liabilities in the
consolidated statement of financial position in accordance with
notes 2 (s) or (t) depending on the nature of the liability.
Changes in the Group's interests in a subsidiary that do not
result in a loss of control are accounted for as equity
transactions, whereby adjustments are made to the amounts of
controlling and non-controlling interests within consolidated
equity to reflect the change in relative interests, but no
adjustments are made to goodwill and no gain or loss is
recognised.
When the Group loses control of a subsidiary, it is accounted
for as a disposal of the entire interest in that subsidiary, with a
resulting gain or loss being recognised in profit or loss. Any
interest retained in that former subsidiary at the date when
control is lost is recognised at fair value and this amount is
regarded as the fair value on initial recognition of a financial
asset (see note 2(g)) or, when appropriate, the cost on initial
recognition of an investment in an associate or a joint venture
(see note 2(e)).
In the Company's statement of financial position, an investment
in a subsidiary is stated at cost less impairment losses (see note
2(m)), unless the investment is classified as held for sale (or
included in a disposal group that is classified as held for
sale).
2 Summary of significant accounting policies (Continued)
(e) Associates and joint ventures
An associate is an entity in which the Group or the Company has
significant influence, but not control or joint control, over its
management, including participation in the financial and operating
policy decisions.
A joint venture is an arrangement whereby the Group or the
Company and other parties contractually agree to share control of
the arrangement, and have rights to the net assets of the
arrangement.
An investment in an associate or a joint venture is accounted
for in the consolidated financial statements under the equity
method, unless it is classified as held for sale (or included in a
disposal group that is classified as held for sale (see note
2(cc))). Under the equity method, the investment is initially
recorded at cost, adjusted for any excess of the Group's share of
the acquisition-date fair values of the investee's identifiable net
assets over the cost of the investment (if any). Thereafter, the
investment is adjusted for the post acquisition change in the
Group's share of the investee's net assets and any impairment loss
relating to the investment (see note 2(m)). Any acquisition-date
excess over cost, the Group's share of the post-acquisition,
post-tax results of the investees and any impairment losses for the
year are recognised in the consolidated statement of profit or
loss, whereas the Group's share of the post-acquisition post-tax
items of the investees' other comprehensive income is recognised in
the consolidated statement of profit or loss and other
comprehensive income.
When the Group's share of losses exceeds its interest in the
associate or the joint venture, the Group's interest is reduced to
nil and recognition of further losses is discontinued except to the
extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the investee. For this
purpose, the Group's interest is the carrying amount of the
investment under the equity method together with the Group's
long-term interests that in substance form part of the Group's net
investment in the associate or the joint venture.
Unrealised profits and losses resulting from transactions
between the Group and its associates and joint ventures are
eliminated to the extent of the Group's interest in the investee,
except where unrealised losses provide evidence of an impairment of
the asset transferred, in which case they are recognised
immediately in profit or loss.
If an investment in an associate becomes an investment in a
joint venture or vice versa, retained interest is not remeasured.
Instead, the investment continues to be accounted for under the
equity method.
In all other cases, 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 that
investee, with a resulting gain or loss being recognised in profit
or loss. Any interest retained in that former investee at the date
when significant influence or joint control is lost is recognised
at fair value and this amount is regarded as the fair value on
initial recognition of a financial asset (see note 2(g)).
2 Summary of significant accounting policies (Continued)
(f) Goodwill
Goodwill represents the excess of:
(i) the aggregate of the fair value of the consideration
transferred, the amount of any non-controlling interest in the
acquiree and the fair value of the Group's previously held equity
interest in the acquiree; over
(ii) the net fair value of the acquiree's identifiable assets
and liabilities measured as at the acquisition date.
When (ii) is greater than (i), then this excess is recognised
immediately in profit or loss as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses.
Goodwill arising on a business combination is allocated to each
cash-generating unit, or groups of cash generating units, that is
expected to benefit from the synergies of the combination and is
tested annually for impairment (see note 2(m)).
On disposal of a cash generating unit during the year, any
attributable amount of purchased goodwill is included in the
calculation of the profit or loss on disposal.
(g) Other investments in debt and equity securities
The Group's and the Company's policies for investments in debt
and equity securities, other than investments in subsidiaries,
associates and joint ventures, are as follows:
Investments in debt and equity securities are initially stated
at fair value, which is their transaction price unless it is
determined that the fair value at initial recognition differs from
the transaction price and that fair value is evidenced by a quoted
price in an active market for an identical asset or liability or
based on a valuation technique that uses only data from observable
markets. Cost includes attributable transaction costs, except where
indicated otherwise below. These investments are subsequently
accounted for as follows, depending on their classification:
Investments in securities held for trading are classified as
current assets. Any attributable transaction costs are recognised
in profit or loss as incurred. At the end of each reporting period
the fair value is remeasured, with any resultant gain or loss being
recognised in profit or loss. The net gain or loss recognised in
profit or loss does not include any interest or dividends earned on
these investments as these are recognised in accordance with the
policies set out in notes 2 (w)(iii) and 2 (w)(iv),
respectively.
Investments in securities which do not fall into any of the
above categories are classified as available-for-sale securities.
At the end of each reporting period the fair value is remeasured,
with any resultant gain or loss being recognised in other
comprehensive income and accumulated separately in equity in the
capital reserve. As an exception to this, investments in equity
securities that do not have a quoted price in an active market for
an identical instrument and whose fair value cannot otherwise be
reliably measured are recognised in the statement of financial
position at cost less impairment losses (see note 2(m)). Dividend
income from equity securities and interest income from debt
securities calculated using the effective interest method are
recognised in profit or loss in accordance with the policies set
out in notes 2 (w)(iv) and 2 (w)(iii), respectively. Foreign
exchange gains and losses resulting from changes in the amortised
cost of debt securities are also recognised in profit or loss.
2 Summary of significant accounting policies (Continued)
(g) Other investments in debt and equity securities (Continued)
When the investments are derecognised or impaired (see note
2(m)), the cumulative gain or loss recognised in equity is
reclassified to profit or loss. Investments are
recognised/derecognised on the date the Group commits to
purchase/sell the investments or they expire.
(h) Property, plant and equipment
Property, plant and equipment, other than construction in
progress, is stated at cost less accumulated depreciation and any
impairment losses (see note 2(m)). The cost of an item of property,
plant and equipment comprises its purchase price and any directly
attributable costs of bringing the asset to its working condition
and location for its intended use.
Expenditure incurred after items of property, plant and
equipment have been put into operation, such as repairs and
maintenance, is normally charged to the profit or loss in the
period in which it is incurred. In situations where the recognition
criteria are satisfied, the expenditure for a major inspection is
capitalised in the carrying amount of the asset as a replacement.
Where significant parts of property, plant and equipment are
required to be replaced at intervals, the Group recognises such
parts as individual assets with specific useful lives and
depreciates them accordingly.
Depreciation is calculated on the straight-line basis to write
off the cost of each item of property, plant and equipment to its
residual value over its estimated useful life. The estimated useful
lives and residual values used for this purpose are as follows:
Estimated Residual Depreciation
useful life value rate
Aircraft and flight equipment:
Core parts of airframe and 15 to 30
engine years 5% 3.17% - 6.33%
Overhaul of airframe and cabin
refurbishment 5 to 12 years Nil 8.33% - 20%
Overhaul of engine 3 to 15 years Nil 6.67% - 33.33%
Rotable 3 to 15 years Nil 6.67% - 33.33%
Buildings 5 to 50 years 3%-5% 1.90% - 19%
Other equipment 3 to 20 years Nil-5% 4.75% - 33.33%
Where parts of an item of property, plant and equipment have
different useful lives, the cost of that item is allocated on a
reasonable basis among the parts and each part is depreciated
separately.
The assets' residual values, useful lives and the depreciation
method are reviewed, and adjusted if appropriate, at least at each
financial year end.
An item of property, plant and equipment including any
significant part initially recognised is derecognised upon disposal
or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in the profit or loss
in the year the asset is derecognised.
2 Summary of significant accounting policies (Continued)
(h) Property, plant and equipment (Continued)
Property, plant and equipment under finance leases is
depreciated over the same terms as self-owned assets. If it is
reasonably assured that the ownership of the leased property, plant
and equipment could be transferred to the Group after the lease
periods, the leased assets are depreciated over its estimated
useful life. Otherwise, leased assets are depreciated over the
shorter of the estimated useful lives of the assets and the lease
terms.
Construction in progress represents buildings or various
infrastructure projects under construction, and equipment pending
for installation in aircraft. Construction in progress is stated at
cost less any impairment losses (see note 2(m)) and is not
depreciated. Costs of construction in progress comprise the direct
costs of construction, the cost of equipment as well as capitalised
borrowing costs on related borrowed funds during the construction
or installation period. Construction in progress is reclassified to
the appropriate category of property, plant and equipment when
completed and ready for use.
Property, plant and equipment are reviewed for impairment when
events or changes in circumstances indicate that the carrying
amounts may not be fully recoverable.
(i) Investment properties
Investment properties are interests in land and buildings
(including the leasehold interest under an operating lease for a
property which would otherwise meet the definition of an investment
property) held to earn rental income and/or for capital
appreciation.
Investment properties are measured initially at cost, including
transaction costs. Subsequent costs are recognised in the carrying
amount of the investment properties if it is probable that future
economic benefits associated with the item will flow to the entity
and the costs can be measured reliably. Otherwise, these costs are
recognised in profit or loss as incurred.
The Group chooses the cost method to measure its investment
properties.
Depreciation is calculated on the straight-line basis to write
off the cost to its residual value over its estimated useful life.
The estimated useful lives and residual values used for this
purpose are as follows:
Estimated useful Depreciation
life Residual value rate
Buildings 20 to 35 years 5% 2.71% - 4.75%
Lease prepayments 50 years Nil 2%
Investment properties measured at the cost method are reviewed
for impairment when events or changes in circumstances indicate
that the carrying amounts may not be fully recoverable.
2 Summary of significant accounting policies (Continued)
(j) Intangible assets (other than goodwill)
Intangible assets that are acquired by the Group are stated at
cost less accumulated amortisation (where the estimated useful life
is finite) and impairment losses (see note 2(m)). Expenditure on
internally generated goodwill and brands is recognised as an
expense in the period in which it is incurred.
Intangible assets are not amortised while their useful lives are
assessed to be indefinite. Any conclusion that the useful life of
an intangible asset is indefinite is reviewed annually to determine
whether events and circumstances continue to support the indefinite
useful life assessment for that asset. If they do not, the change
in the useful life assessment from indefinite to finite is
accounted for prospectively from the date of change and in
accordance with the policy for amortisation of intangible assets
with finite lives.
(k) Leases
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement and requires an
assessment of whether the fulfilment of the arrangement is
dependent on the use of a specific asset or assets and the
arrangement conveys a right to use the asset.
Finance leases, which transfer to the Group substantially all
the risks and rewards of ownership of the leased item, are
capitalised at the inception of the lease at the fair value of the
leased asset or, if lower, at the present value of the minimum
lease payments. Minimum lease payments are apportioned between the
finance charges and reduction of the outstanding liability so as to
achieve a constant periodical rate of interest on the remaining
balance of the liability. Finance charges are charged to the profit
or loss.
Leases where the lessor retains substantially all the risks and
rewards of ownership of the asset are classified as operating
leases. Where the Group is the lessor, assets leased by the Group
under operating leases are included in non-current assets and
rentals receivable under the operating leases are credited to the
profit or loss on the straight-line basis over the lease terms.
Where the Group is the lessee, rentals payable under operating
leases net of any incentives received from the lessor are charged
to the profit or loss on the straight-line basis over the lease
terms.
Prepaid land lease payments under operating leases are initially
stated at cost and subsequently recognised on the straight-line
basis over the lease terms. When the lease payments cannot be
allocated reliably between the land and buildings elements, the
entire lease payments are included in the cost of the land and
buildings as a finance lease in property, plant and equipment.
2 Summary of significant accounting policies (Continued)
(l) Advance payments for aircraft and flight equipment
Advance contractual payments to aircraft manufacturers to secure
deliveries of aircraft and flight equipment in future years,
including attributable finance costs, are included in assets. The
advances are accounted for as part of the cost of property, plant
and equipment upon delivery of the aircraft and flight
equipment.
(m) Impairment of assets
(i) Impairment of investments in debt and equity securities and other receivables
Investments in debt and equity securities and other current and
non-current receivables that are stated at cost or amortised cost
or are classified as available-for-sale securities are reviewed at
the end of each reporting period to determine whether there is
objective evidence of impairment. Objective evidence of impairment
includes observable data that comes to the attention of the Group
about one or more of the following loss events:
- significant financial difficulty of the debtor;
- a breach of contract, such as a default or delinquency in
interest or principal payments;
- it becoming probable that the debtor will enter bankruptcy or
other financial reorganisation;
- significant changes in the technological, market, economic or
legal environment that have an adverse effect on the debtor;
and
- a significant or prolonged decline in the fair value of an
investment in an equity instrument below its cost.
If any such evidence exists, any impairment loss is determined
and recognised as follows:
- For investments in associates and joint ventures accounted for
under the equity method in the consolidated financial statements
(see note 2(e)), the impairment loss is measured by comparing the
recoverable amount of the investment with its carrying amount in
accordance with note 2(m)(ii). The impairment loss is reversed if
there has been a favourable change in the estimates used to
determine the recoverable amount in accordance with note
2(m)(ii).
- For unquoted equity securities carried at cost, the impairment
loss is measured as the difference between the carrying amount of
the financial asset and the estimated future cash flows, discounted
at the current market rate of return for a similar financial asset
where the effect of discounting is material. Impairment losses for
equity securities carried at cost are not reversed.
2 Summary of significant accounting policies (Continued)
(m) Impairment of assets (Continued)
(i) Impairment of investments in debt and equity securities and
other receivables (Continued)
- For trade and other current receivables and other financial
assets carried at amortised cost, the impairment loss is measured
as 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 (i.e. the
effective interest rate computed at initial recognition of these
assets), where the effect of discounting is material. This
assessment is made collectively where these financial assets share
similar risk characteristics, such as similar past due status, and
have not been individually assessed as impaired. Future cash flows
for financial assets which are assessed for impairment collectively
are based on historical loss experience for assets with credit risk
characteristics similar to the collective group.
If in a subsequent period the amount of an impairment loss
decreases and the decrease can be linked objectively to an event
occurring after the impairment loss was recognised, the impairment
loss is reversed through profit or loss. A reversal of an
impairment loss shall not result in the asset's carrying amount
exceeding that which would have been determined had no impairment
loss been recognised in prior years.
- For available-for-sale securities, the cumulative loss that
has been recognised in the fair value reserve is reclassified to
profit or loss. The amount of the cumulative loss that is
recognised in profit or loss is the difference between the
acquisition cost (net of any principal repayment and amortisation)
and current fair value, less any impairment loss on that asset
previously recognised in profit or loss.
Impairment losses recognised in profit or loss in respect of
available-for-sale equity securities are not reversed through
profit or loss. Any subsequent increase in the fair value of such
assets is recognised in other comprehensive income.
Impairment losses in respect of available-for-sale debt
securities are reversed if the subsequent increase in fair value
can be objectively related to an event occurring after the
impairment loss was recognised. Reversals of impairment losses in
such circumstances are recognised in profit or loss.
Impairment losses are written off against the corresponding
assets directly, except for impairment losses recognised in respect
of trade debtors and bills receivable included within trade and
other receivables, whose recovery is considered doubtful but not
remote. In this case, the impairment losses for doubtful debts are
recorded using an allowance account. When the Group is satisfied
that recovery is remote, the amount considered irrecoverable is
written off against trade debtors and bills receivable directly and
any amounts held in the allowance account relating to that debt are
reversed. Subsequent recoveries of amounts previously charged to
the allowance account are reversed against the allowance account.
Other changes in the allowance account and subsequent recoveries of
amounts previously written off directly are recognised in profit or
loss.
2 Summary of significant accounting policies (Continued)
(m) Impairment of assets (Continued)
(ii) Impairment of other assets
Internal and external sources of information are reviewed at the
end of each reporting period to identify indications that the
following assets may be impaired or, except in the case of
goodwill, an impairment loss previously recognised no longer exists
or may have decreased:
- property, plant and equipment;
- lease prepayments;
- intangible assets;
- advance payments for aircraft and flight equipment;
- goodwill; and
- investments in subsidiaries, associates and joint ventures in
the Company's statement of financial position.
If any such indication exists, the asset's recoverable amount is
estimated. In addition, for goodwill and intangible assets that
have indefinite useful lives, the recoverable amount is estimated
annually whether or not there is any indication of impairment.
- Calculation of recoverable amount
The recoverable amount of an asset is the greater of its 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. Where an asset does not generate cash
inflows largely independent of those from other assets, the
recoverable amount is determined for the smallest group of assets
that generates cash inflows independently (i.e. a cash-generating
unit).
- Recognition of impairment losses
An impairment loss is recognised in profit or loss if the
carrying amount of an asset, or the cash-generating unit to which
it belongs, exceeds its recoverable amount. Impairment losses
recognised in respect of cash-generating units are allocated first
to reduce the carrying amount of any goodwill allocated to the
cash-generating unit (or group of units) and then, to reduce the
carrying amount of the other assets in the unit (or group of units)
on a pro rata basis, except that the carrying value of an asset
will not be reduced below its individual fair value less costs of
disposal (if measurable) or value in use (if determinable).
2 Summary of significant accounting policies (Continued)
(m) Impairment of assets (Continued)
(ii) Impairment of other assets (Continued)
- Reversals of impairment losses
In respect of assets other than goodwill, an impairment loss is
reversed if there has been a favourable change in the estimates
used to determine the recoverable amount. An impairment loss in
respect of goodwill is not reversed.
A reversal of an impairment loss is limited to the asset's
carrying amount that would have been determined had no impairment
loss been recognised in prior years. Reversals of impairment losses
are credited to profit or loss in the year in which the reversals
are recognised.
(iii) Interim financial reporting and impairment
Under the Rules Governing the Listing of Securities on the Stock
Exchange of Hong Kong Limited, the Group is required to prepare an
interim financial report in compliance with IAS 34, Interim
financial reporting, in respect of the first six months of the
financial year. At the end of the interim period, the Group applies
the same impairment testing, recognition, and reversal criteria as
it would at the end of the financial year (see notes 2 (m)(i) and
(ii)).
Impairment losses recognised in an interim period in respect of
goodwill, available-for-sale equity securities and unquoted equity
securities carried at cost are not reversed in a subsequent period.
This is the case even if no loss, or a smaller loss, would have
been recognised had the impairment been assessed only at the end of
the financial year to which the interim period relates.
Consequently, if the fair value of an available-for-sale equity
security increases in the remainder of the annual period, or in any
other period subsequently, the increase is recognised in other
comprehensive income and not profit or loss.
(n) Treasury shares
Own equity instruments (treasury shares) are recognised at cost
and deducted from equity. No gain or loss is recognised in the
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.
(o) Inventories
Inventories, which consist primarily of expendable spare parts
and supplies, are stated at the lower of cost and net realisable
value. Cost is determined on the weighted average basis. Net
realisable value is determined on the basis of anticipated sales
proceeds less estimated costs to be incurred to completion and
disposal.
2 Summary of significant accounting policies (Continued)
(p) Trade and other receivables
Trade and other receivables are initially recognised at fair
value and thereafter stated at amortised cost less allowance for
impairment of doubtful debts (see note 2(m)), except where the
receivables are interest-free loans made to related parties without
any fixed repayment terms or the effect of discounting would be
immaterial. In such cases, the receivable is stated at cost less
allowance for impairment of bad and doubtful debts.
(q) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand,
demand deposits with banks and other financial institutions, and
short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an
insignificant risk of changes in value, having been within three
months of maturity at acquisition. Bank overdrafts that are
repayable on demand and form an integral part of the Group's cash
management are also included as a component of cash and cash
equivalents for the purpose of the consolidated cash flow
statement.
(r) Manufacturers' credits
In connection with the acquisition of certain aircraft and
flight equipment, the Group receives various credits from the
manufacturers. Such credits are deferred until the aircraft and
flight equipment are delivered, at which time they are applied as a
reduction of the cost of acquiring the aircraft and flight
equipment.
(s) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost with any difference between the amount initially recognised
and redemption value being recognised in profit or loss over the
period of the borrowings, together with any interest and fees
payable, using the effective interest method.
(t) Trade and other payables
Trade and other payables are initially recognised at fair value.
Trade and other payables are subsequently stated at amortised cost
unless the effect of discounting would be immaterial, in which case
they are stated at cost.
(u) Provisions
A provision is recognised when the Group has a present
obligation (legal or constructive) as a result of a past event and
it is probable that a future outflow of resources will be required
to settle the obligations and a reliable estimate can be made of
the amount of the obligations. When the effect of discounting is
material, the amount recognised for a provision is the present
value at the end of the reporting period of the future expenditure
expected to be required to settle the obligation. The increase in
the discounted present value amount arising from the passage of
time is included in the profit or loss.
2 Summary of significant accounting policies (Continued)
(v) Income tax
Income tax for the year comprises current tax and movements in
deferred tax assets and liabilities. Current tax and movements in
deferred tax assets and liabilities are recognised in profit or
loss except to the extent that they relate to items recognised in
other comprehensive income or directly in equity, in which case the
relevant amounts of tax are recognised in other comprehensive
income or directly in equity, respectively.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the end of the reporting period, and any adjustment to tax payable
in respect of previous years.
Deferred tax assets and liabilities arise from deductible and
taxable temporary differences respectively, being the differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and their tax bases. Deferred tax
assets also arise from unused tax losses and unused tax
credits.
Apart from certain limited exceptions, all deferred tax
liabilities and all deferred tax assets, to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised, are recognised. Future taxable
profits that may support the recognition of deferred tax assets
arising from deductible temporary differences include those that
will arise from the reversal of existing taxable temporary
differences, provided those differences relate to the same taxation
authority and the same taxable entity, and are expected to reverse
either in the same period as the expected reversal of the
deductible temporary difference or in periods into which a tax loss
arising from the deferred tax asset can be carried back or forward.
The same criteria are adopted when determining whether existing
taxable temporary differences support the recognition of deferred
tax assets arising from unused tax losses and credits, that is,
those differences are taken into account if they relate to the same
taxation authority and the same taxable entity, and are expected to
reverse in a period, or periods, in which the tax loss or credit
can be utilised.
The limited exceptions to recognition of deferred tax assets and
liabilities are those temporary differences arising from goodwill
not deductible for tax purposes, the initial recognition of assets
or liabilities that affect neither accounting nor taxable profit
(provided they are not part of a business combination), and
temporary differences relating to investments in subsidiaries to
the extent that, in the case of taxable differences, the Group
controls the timing of the reversal and it is probable that the
differences will not reverse in the foreseeable future, or in the
case of deductible differences, unless it is probable that they
will reverse in the future.
The amount of deferred tax recognised is measured based on the
expected manner of realisation or settlement of the carrying amount
of the assets and liabilities, using tax rates enacted or
substantively enacted at the end of the reporting period. Deferred
tax assets and liabilities are not discounted.
The carrying amount of a deferred tax asset is reviewed at the
end of each reporting period and is reduced to the extent that it
is no longer probable that sufficient taxable profits will be
available to allow the related tax benefit to be utilised. Any such
reduction is reversed to the extent that it becomes probable that
sufficient taxable profits will be available.
2 Summary of significant accounting policies (Continued)
(v) Income tax (Continued)
Current tax balances and deferred tax balances, and movements
therein, are presented separately from each other and are not
offset. Current tax assets are offset against current tax
liabilities, and deferred tax assets against deferred tax
liabilities, if the Company or the Group has the legally
enforceable right to set off current tax assets against current tax
liabilities and the following additional conditions are met:
- in the case of current tax assets and liabilities, the Company
or the Group intends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously; or
- in the case of deferred tax assets and liabilities, if they
relate to income taxes levied by the same taxation authority on
either:
- the same taxable entity; or
- different taxable entities, which, in each future period in
which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered, intend to realise the current
tax assets and settle the current tax liabilities on a net basis or
realise and settle simultaneously.
(w) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognised:
(i) Provision of airline and airline-related services
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.
(ii) Sale of goods
Revenue is recognised when the significant risks and rewards of
ownership of the goods have been passed to the buyer.
(iii) Interest income
Interest income is recognised as it accrues using the effective
interest method.
(iv) Dividend income
Dividend income is recognised when the Group's rights to receive
payments is established.
2 Summary of significant accounting policies (Continued)
(w) Revenue recognition (Continued)
(v) Rental income and aircraft and flight equipment lease income
Rental income is recognised on a time proportion basis over the
terms of the respective leases.
(x) Frequent-flyer programme
The Group operates frequent-flyer programme which allows
customers to earn miles when they purchase air tickets from the
Group. The miles can then be redeemed for free services or
products, subject to a minimum number of points to be obtained. The
consideration received or receivable from the tickets sold 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.
(y) 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.
(z) Government grants
Government grants are recognised at their fair value where there
is reasonable assurance that the grant will be received and all
attaching conditions will be complied with. When the grant relates
to an expense item, it is recognised as income on a systematic
basis over the periods that the costs, which it is intended to
compensate, are expensed.
Where the grant relates to an asset, the fair value is credited
to a deferred income account and is released to the profit or loss
over the expected useful life of the relevant asset by equal annual
installments or deducted from the carrying amount of the asset and
released to the profit or loss by way of a reduced depreciation
charge.
Where the Group receives a non-monetary grant, the asset and the
grant are recorded at the fair value of the non-monetary asset and
released to the profit or loss over the expected useful life of the
relevant asset by equal annual installments.
2 Summary of significant accounting policies (Continued)
(aa) Borrowing costs
Borrowing costs directly attributable to the acquisition of
aircraft, construction or production of qualifying assets, that is,
assets that necessarily take a substantial period of time to get
ready for their intended use or sale, are capitalised as part of
the costs of those assets. The capitalisation of borrowing costs
ceases when the assets are substantially ready for their intended
use or sale are interrupted or complete. Investment income earned
on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing
costs capitalised. All other borrowing costs are expensed in the
period in which they are incurred. Borrowing costs consist of
interest and other costs that an entity incurs in connection with
the borrowing of funds.
(bb) Employee benefits
(i) Pension obligations
The full-time employees of the Group are covered by various
government-sponsored pension plans under which the employees are
entitled to a monthly pension based on certain formula. Certain
government agencies are responsible for the pension liability to
these retired employees. The Group contributes on a monthly basis
to these pension plans. Under these plans, the Group has no legal
or constructive obligations for retirement benefits beyond the
contributions made. Contributions to these plans are expensed as
incurred. In addition to these plans, the Company, Air China Cargo
Co., Ltd. ("Air China Cargo"), Shenzhen Airlines Co., Ltd.
("Shenzhen Airlines"), Beijing Airlines Co., Ltd. ("Beijing
Airlines"), Dalian Airlines Co., Ltd. ("Dalian Airlines"), Beijing
Golden Phoenix Human Resource Co., Ltd. ("Golden Phoenix"),
Zhejiang Air Services Co., Ltd. ("Zhejiang Air Services"), Air
China Group Import and Export Trading Co. ("AIE"), Shanghai Air
China Aviation Service Co., Ltd. ("Shanghai Air China Services"),
Chengdu Falcon Aircraft Engineering Service Co., Ltd. ("Chengdu
Falcon"), Aircraft Maintenance and Engineering Corporation Beijing
("AMECO") and China National Aviation Finance Co., Ltd ("CNAF")
also implement an additional defined contribution retirement scheme
for voluntary employees. Contributions are made based on a
percentage of the employees' total salaries and are charged to the
profit or loss in accordance with the rules of the scheme.
(ii) Termination and early retirement benefits
Termination benefits are payable whenever an employee's
employment is voluntarily terminated before the normal retirement
date or whenever an employee accepts voluntary redundancy in
exchange for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either terminating
the employment of current employees according to a detailed formal
plan without possibility of withdrawal or to providing termination
benefits as a result of an offer made to encourage voluntary
redundancy.
(iii) Housing benefits
All full-time employees of the Group are entitled to participate
in various government-sponsored housing funds. The Group
contributes on a monthly basis to these funds based on certain
percentages of the salaries of the employees. The Group's liability
in respect of these funds is limited to the contributions payable
in each year.
2 Summary of significant accounting policies (Continued)
(bb) Employee benefits (Continued)
(iv) Share-based payments
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. Employees (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 recognises the services received, and a
liability to pay for those services, as the employees render
services.
The cost of cash-settled transactions with employees is measured
initially at fair value at the grant date. The liability is
remeasured at each reporting date up to and including the
settlement date, with any changes in fair value recognised in
profit or loss for the period.
(v) Defined benefit retirement plan obligations
The Group's net obligation in respect of defined benefit
retirement plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned
in return for their service in the current and prior periods; that
benefit is discounted to determine the present value and the fair
value of any plan assets is deducted. The calculation is performed
by a qualified actuary, Mercer Consulting (China) Ltd., Beijing
Branch, using the projected unit credit method. When the
calculation results in a benefit to the Group, the recognised asset
is limited to the present value of economic benefits available in
the form of any future refunds from the plan or reductions in
future contributions to the plan.
Service cost and net interest expense/(income) on the net
defined benefit liability are recognised in profit or loss and
allocated by function as part of "cost of sales", "distribution
costs" or "administrative expenses". Current service cost is
measured as the increase in the present value of the defined
benefit obligation resulting from employee service in the current
period. When the benefits of a plan are changed, or when a plan is
curtailed, the portion of the changed benefit related to past
service by employees, or the gain or loss on curtailment, is
recognised as an expense in profit or loss at the earlier of when
the plan amendment or curtailment occurs and when related
restructuring costs or termination benefits are recognised. Net
interest expense/(income) for the period is determined by applying
the discount rate used to measure the defined benefit obligation at
the beginning of the reporting period to the net defined benefit
liability. The discount rate is the yield at the end of the
reporting period on high quality corporate bonds that have maturity
dates approximating the terms of the Group's obligations.
Remeasurements arising from defined benefit retirement plans are
recognised in other comprehensive income and reflected immediately
in retained earnings. Remeasurements comprise actuarial gains and
losses, the return on plan assets (excluding amounts included in
net interest on the net defined benefit liability (asset)) and any
change in the effect of the asset ceiling (excluding amounts
included in net interest on the net defined benefit liability
(asset)).
2 Summary of significant accounting policies (Continued)
(cc) Non-current assets held for sale
Non-current assets and disposal groups are classified as held
for sale if their carrying amounts will be recovered principally
through a sales transaction rather than through continuing use. For
this to be the case, the asset must be available for immediate sale
in its present condition subject only to terms that are usual and
customary for the sale of such assets and its sale must be highly
probable.
Non-current assets classified as held for sale are measured at
the lower of their carrying amounts and fair values less costs of
disposal.
Impairment losses on initial classification as held for sale,
and on subsequent remeasurement while held for sale, are recognised
in profit or loss. As long as a non-current asset is classified as
held for sale, or is included in a disposal group that is
classified as held for sale, the non-current asset is not
depreciated or amortised.
(dd) Translation of foreign currencies
These financial statements are presented in RMB, which is the
Company's functional and presentation currency. Each entity within
the Group determines its own functional currency and items included
in the financial statements of each entity are measured using that
functional currency.
Foreign currency transactions recorded by the entities within
the Group are initially recorded in their respective functional
currency rates prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies
are translated at the functional currency rates of exchange ruling
at the end of the reporting period. Differences arising on
settlement or translation of monetary items are recognised in the
profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates as at
the dates of the initial transactions. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined. The
gain or loss arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of gain or
loss on change in fair value of the item (i.e., translation
difference on the items whose fair value gain or loss is recognised
in other comprehensive income or profit or loss is also recognised
in other comprehensive income or profit or loss, respectively).
The functional currencies of certain overseas subsidiaries,
joint ventures and associates are currencies other than RMB. As at
the end of the reporting period, the assets and liabilities of
these entities are translated into RMB at the rates of exchange
prevailing at the end of the reporting period and their profits or
losses are translated into RMB at the average exchange rates for
the period of the translations. The resulting exchange differences
are recognised in other comprehensive income and accumulated in the
foreign exchange translation reserve. On disposal of a foreign
operation, the component of other comprehensive income relating to
that particular foreign entity is reclassified to the profit or
loss.
2 Summary of significant accounting policies (Continued)
(ee) Related parties
(a) A person, or a close member of that person's family, is
related to the Group if that person:
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or the Group's parent.
(b) An entity is related to the Group if any of the following conditions applies:
(i) The entity and the Group are members of the same group
(which means that each parent, subsidiary and fellow subsidiary is
related to the others).
(ii) One entity is an associate or joint venture of the other
entity (or an associate or joint venture of a member of a group of
which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the
other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit
of employees of either the Group or an entity related to the
Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence
over the entity or is a member of the key management personnel of
the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a
part, provides key management personnel services to the Group or to
the Group's parent.
Close members of the family of a person are those family members
who may be expected to influence, or be influenced by, that person
in their dealings with the entity.
(ff) Segment reporting
Operating segments, and the amounts of each segment item
reported in the financial statements, are identified from the
financial information provided regularly to the Group's most senior
executive management for the purposes of allocating resources to,
and assessing the performance of, the Group's various lines of
business and geographical locations.
Individually material operating segments are not aggregated for
financial reporting purposes unless the segments have similar
economic characteristics and are similar in respect of the nature
of products and services, the nature of production processes, the
type or class of customers, the methods used to distribute the
products or provide the services, and the nature of the regulatory
environment. Operating segments which are not individually material
may be aggregated if they share a majority of these criteria.
3 Accounting judgement and estimates
The Group's financial condition and results of operations are
sensitive to accounting methods, assumptions and estimates that
underlie the preparation of these financial statements. The Group
bases the assumptions and estimates on historical experience and on
various other assumptions that the Group believes to be reasonable
and which form the basis for making judgements about matters that
are not readily apparent from other sources. Actual results may
differ from those estimates as facts, circumstances and conditions
change.
The selection of critical accounting policies, the judgements
and other uncertainties affecting application of those policies and
the sensitivity of reported results to changes in conditions and
assumptions are factors to be considered when reviewing these
financial statements. The principal accounting policies are set
forth in note 2. The Group believes the following critical
accounting policies involve the most significant judgements and
estimates used in the preparation of these financial
statements.
- Impairment of goodwill
The Group determines whether goodwill is impaired at least on an
annual basis. This requires an estimation of the value in use of
the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate
of the expected future cash flows from the cash-generating units
and also to choose a suitable discount rate in order to calculate
the present value of those cash flows. The carrying amount of
goodwill at 31 December 2016 was RMB1,100 million (31 December
2015: RMB1,100 million). More details are given in note 19 to the
financial statements.
- 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.
- 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.
3 Accounting judgement and estimates (Continued)
- 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.
4 Operating 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.
Intersegment sales and transfers are transacted with reference
to the selling prices used for sales made to third parties at the
then prevailing market prices.
4 Operating 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
2016 and 2015 and the reconciliations of reportable segment revenue
and profit before taxation to the Group's consolidated amounts
under IFRSs:
Year ended 31 December 2016
Airline Other
operations operations Elimination Total
RMB'000 RMB'000 RMB'000 RMB'000
Revenue
Sales to external customers 112,634,866 1,329,124 - 113,963,990
Intersegment sales 243,209 8,400,147 (8,643,356) -
Revenue for reportable
segments under CASs 112,878,075 9,729,271 (8,643,356) 113,963,990
Other income not included
in segment revenue 1,180,702
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
4 Operating segment information (Continued)
Operating segments (Continued)
Year ended 31 December 2015
Airline Other
operations operations Elimination Total
RMB'000 RMB'000 RMB'000 RMB'000
Revenue
Sales to external customers 107,554,126 1,374,988 - 108,929,114
Intersegment sales - 4,949,724 (4,949,724) -
Revenue for reportable
segments under CASs 107,554,126 6,324,712 (4,949,724) 108,929,114
Business tax and surcharges
not included in segment
revenue (274,190)
Other income not included
in segment revenue 1,372,558
Effect of other differences
between IFRSs and CASs 29,552
Revenue for the year
under IFRSs 110,057,034
Segment profit before
taxation
Profit before taxation
for reportable segments
under CASs 8,567,974 530,895 (55,624) 9,043,245
Effect of differences
between IFRSs and CASs 312,006
Profit before taxation
for the year under IFRSs 9,355,251
4 Operating 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 2016 and 2015 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
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
Total assets for reportable
segments as at 31 December
2015 under CASs 206,654,516 15,615,623 (8,566,604) 213,703,535
Effect of differences
between IFRSs and CASs (72,385)
Total assets under IFRSs 213,631,150
4 Operating 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 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
Total liabilities for
reportable segments
as at 31 December 2015
under CASs 147,140,525 8,492,758 (8,524,886) 147,108,397
Effect of differences
between IFRSs and CASs -
Total liabilities under
IFRSs 147,108,397
4 Operating segment information (Continued)
Operating segments (Continued)
Year ended 31 December 2016
Effect
of
differences
between Amounts
Airline Other IFRSs 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
Finance income 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
Taxation 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
Year ended 31 December 2015
Effect
of
differences
between Amounts
Airline Other IFRSs 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 1,281,527 338,670 - 1,620,197 - 1,620,197
Impairment losses
and inventories provision
recognised in profit
or loss, net 151,211 30,674 - 181,885 (6,828) 175,057
Depreciation and
amortisation 12,774,041 279,284 - 13,053,325 (42,564) 13,010,761
Finance income 161,508 71,371 (80,622) 152,257 - 152,257
Finance costs 8,182,665 60,210 (142,087) 8,100,788 (131,963) 7,968,825
Taxation 1,816,017 20,986 (13,906) 1,823,097 22,667 1,845,764
Interests in associates
and joint ventures 11,293,713 1,157,311 - 12,451,024 139,919 12,590,943
Additions to non-current
assets 23,866,084 92,630 - 23,958,714 - 23,958,714
4 Operating 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 2016 and 2015, respectively:
Year ended 31 December 2016
Hong Kong,
Macau
Mainland and North Japan Asia Pacific
China Taiwan Europe America and 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
Year ended 31 December 2015
Hong Kong,
Macau
Mainland and North Japan Asia Pacific
China Taiwan Europe America and 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 70,578,761 5,666,889 10,882,067 10,196,925 6,029,137 6,703,255 110,057,034
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 of 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 2016 (2015: Nil).
5 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 is as follows:
2016 2015
RMB'000 RMB'000
Passenger 100,279,802 95,920,745
Cargo and mail 8,305,028 8,447,485
108,584,830 104,368,230
6 Other operating revenue
2016 2015
RMB'000 RMB'000
Aircraft engineering income 1,058,729 747,651
Ground service income 853,586 810,176
Government grants:
- Recognition of deferred income 61,107 79,658
- Others 939,142 889,166
Service charges on return of unused
flight tickets 1,359,162 1,147,055
Cargo handling service income 174,251 138,677
Training service income 39,606 43,168
Rental income 145,077 194,356
Sale of materials 20,487 27,050
Import and export service income 46,670 35,521
Others 1,862,045 1,576,326
6,559,862 5,688,804
7 Employee compensation costs
An analysis of the Group's employee compensation costs,
including the emoluments of directors and supervisors, is as
follows:
2016 2015
RMB'000 RMB'000
Wages, salaries and other benefits 18,167,651 16,325,780
Retirement benefit costs:
- Contributions to defined contribution
retirement scheme 1,925,864 1,907,635
- Early retirement benefits (1,589) (1,664)
Share-based benefits (note 40) (16,324) (910)
20,075,602 18,230,841
8 Profit from operations
The Group's profit from operations is arrived at after
crediting/(charging):
2016 2015
RMB'000 RMB'000
Depreciation of property, plant and
equipment 13,339,651 12,911,350
Depreciation of investment properties 27,145 27,559
Amortisation of intangible assets 38,747 -
Amortisation of lease prepayments 68,177 71,852
Impairment/(reversal of impairment):
- Non-current assets held for sale 219,376 112,791
- Accounts receivable (9,031) 49,167
- Prepayments, deposits and other
receivables (3,537) 268
- Other current assets 11,546 -
- Other non-current assets 2,516 -
Provision for inventories 71,570 12,831
Losses/(gains) on disposal of property,
plant and equipment, net 37,628 (10,319)
Losses on disposal of non-current assets
held for sale 4,659 101,554
Minimum lease payments under operating
leases:
- Aircraft and flight equipment 6,252,783 5,145,664
- Land and buildings 879,023 924,430
Auditors' remuneration:
- Audit related services 20,080 22,051
- Other services 194 29
9 Finance income and finance costs
An analysis of the Group's finance income and finance costs
during the year is as follows:
Finance income
2016 2015
RMB'000 RMB'000
Interest income 127,077 152,257
9 Finance income and finance costs (Continued)
Finance costs
2016 2015
RMB'000 RMB'000
Interest on interest-bearing bank loans
and other borrowings 2,408,659 2,502,785
Interest on finance leases 1,058,107 677,976
Exchange losses, net 4,233,668 5,156,039
7,700,434 8,336,800
Less: Interest capitalised (231,449) (367,975)
7,468,985 7,968,825
The borrowing costs have been capitalised at a rate of 1.03% -
4.62% per annum (2015: 0.77% - 6.55%).
10 Taxation
(a) Taxation in the consolidated statement of profit or loss represents:
2016 2015
RMB'000 RMB'000
Current income tax:
- Mainland China 2,200,163 1,555,160
- Hong Kong and Macau 4,969 8,224
(Over)/under-provision in respect
of prior years (1,316) 1,199
Deferred tax (note 24) 250,405 281,181
2,454,221 1,845,764
Under the relevant Corporate Income Tax Law and regulations in
the PRC, except for two branches which are taxed at a preferential
rate of 15% (2015: 15%) and a subsidiary which is exempted from the
local income tax of the Inner Mongolia Autonomous Region from year
2013 to 2016, all group companies located in Mainland China are
subject to a corporate income tax rate of 25% (2015: 25%) during
the year. Subsidiaries in Hong Kong and Macau are taxed at
corporate income tax rates of 16.5% and 12% (2015: 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.
10 Taxation (Continued)
(b) Reconciliation between tax expense and accounting profit at applicable tax rates:
2016 2015
RMB'000 RMB'000
Profit before taxation 10,212,902 9,355,251
Notional tax on profit before taxation
using the Company's domestic tax
rate 2,553,226 2,338,813
Tax rate differential in foreign
jurisdictions (126,637) (96,023)
Tax effect of share of profits less
losses of associates and joint ventures (5,559) (405,050)
Tax effect of non-deductible expenses 46,800 46,216
Tax effect of non-taxable income (1,543) (56,222)
Deductible temporary differences
and tax losses not recognised 105,783 100,078
Utilisation of tax losses not recognised
in prior years (27,165) (43,221)
Utilisation of deductible temporary
differences not recognised in prior
years (89,368) (40,026)
(Over)/under-provision in respect
of prior years (1,316) 1,199
Actual tax expense 2,454,221 1,845,764
Effective tax rate 24.0% 19.7%
11 Directors' and supervisors' emoluments
Directors' and supervisors' emoluments disclosed pursuant to
section 383 (1) of the Hong Kong Companies Ordinance and Part 2 of
the Companies (Disclosure of Information about Benefits of
directors) Regulation are as follows:
For the year ended 31 December 2016 are as follows:
Basic
salaries,
housing
benefits,
other
allowances
and SARs
benefits Discretionary Retirement (Note
Fees in kind bonuses benefits 40) Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Executive directors
Song Zhiyong - - - - - -
Fan Cheng
(Resigned on 14
April 2016) - 73 465 29 - 567
- 73 465 29 - 567
Non-executive directors
Cai Jianjiang - - - - - -
Wang Yinxiang
(Resigned on 6 June
2016) - - - - - -
Cao Jianxiong - - - - - -
Feng Gang - - - - - -
John Robert Slosar - - - - - -
Shiu Sai Cheung,
Ian - - - - - -
- - - - - -
Independent non-executive
directors
Pan Xiaojiang(2) - - - - - -
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) - - - - - -
Li Qinglin
(Resigned on 30
August 2016) - - - - - -
He Chaofan - - - - - -
Zhou Feng - - - - - -
Xiao Yanjun - 395 129 69 - 593
Shen Zhen - 207 41 47 - 295
- 602 170 116 - 888
450 675 635 145 - 1,905
11 Directors' and supervisors' emoluments (Continued)
For the year ended 31 December 2015 are as follows:
Basic
salaries,
housing
benefits,
other
allowances
and SARs
benefits Discretionary Retirement (Note
Fees in kind bonuses benefits 40) Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Executive directors
Song Zhiyong - 476 391 82 - 949
Fan Cheng - 201 595 85 - 881
- 677 986 167 - 1,830
Non-executive directors
Cai Jianjiang - - - - - -
Wang Yinxiang - - - - - -
Cao Jianxiong - - - - - -
Feng Gang - - - - - -
John Robert Slosar - - - - - -
Shiu Sai Cheung,
Ian - - - - - -
- - - - - -
Independent non-executive
directors
Fu Yang
(Resigned on 22
December 2015) 150 - - - - 150
Yang Yuzhong
(Resigned on 22
May 2015) 63 - - - - 63
Pan Xiaojiang(2) - - - - - -
To Chi Keung, Simon 150 - - - - 150
Hui Hon-chung, Stanley
(Appointed on 22
May 2015) 88 - - - - 88
Li Dajin
(Appointed on 22
December 2015) 4 - - - - 4
455 - - - - 455
Supervisors
Li Qinglin - - - - - -
He Chaofan - - - - - -
Zhou Feng - - - - - -
Xiao Yanjun - 377 129 65 - 571
Shen Zhen - 196 33 46 - 275
- 573 162 111 - 846
455 1,250 1,148 278 - 3,131
(1) Certain directors have been granted SARs in respect of their
services to the Group, further details of which are set out in note
40 to the financial statements.
(2) Mr. Pan Xiaojiang had waived the remuneration for the year
ended 31 December 2016, and there was no other arrangement under
which a director, a supervisor or a chief executive waived or
agreed to waive any remuneration during the year.
12 Individuals with highest emoluments
None of the directors (2015: none), whose emoluments are
disclosed in the note 11, was among the five highest paid
individuals in the Group for 2016. The aggregate emoluments in
respect of the five (2015: five) individuals during the year are as
follows:
2016 2015
RMB'000 RMB'000
Basic salaries, housing benefits, other
allowances and benefits in kind 8,395 8,254
Discretionary bonuses 535 492
Retirement benefits 503 670
9,433 9,416
The emoluments of the five (2015: five) individuals with the
highest emoluments are within the following bands:
2016 2015
Number of Number of
individuals individuals
HK$2,000,001 to HK$2,500,000 5 5
13 Earnings per share attributable to equity shareholders of the Company
The calculation of basic earnings per share for the year ended
31 December 2016 was based on the profit attributable to ordinary
equity shareholders of the Company of RMB6,809 million (2015:
RMB7,063 million) and the weighted average of 12,294,896,740
ordinary shares (2015: 12,294,896,740 ordinary shares) in issue
during the year, as adjusted to reflect the weighted average number
of treasury shares held by Cathay Pacific Airways Limited ("Cathay
Pacific") through reciprocal shareholding.
The Group had no potentially dilutive ordinary shares in issue
during both years.
14 Other comprehensive income
The components of other comprehensive income do not have
significant tax effect for the years ended 31 December 2016 and
2015.
15 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 2015 193,807,199 8,167,791 7,906,352 8,299,544 218,180,886
Additions 4,397,898 5,267 252,115 14,755,805 19,411,085
Additions through business
combinations 60,050 2,125,639 1,398,906 66,166 3,650,761
Transfer from construction
in progress 15,358,527 939,364 552,722 (16,850,613) -
Reclassification to
non-current assets held
for sale (3,050,637) - - - (3,050,637)
Disposals (4,007,909) (62,627) (155,263) - (4,225,799)
Exchange realignment 44,075 - 5,052 - 49,127
At 31 December 2015
and 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 211,906,346 11,872,467 10,561,131 8,658,047 242,997,991
Accumulated depreciation
1 January 2015 (62,063,991) (2,608,104) (4,410,013) - (69,082,108)
Reclassification to
non-current assets held
for sale 2,430,990 - - - 2,430,990
Charge for the year (11,748,512) (367,488) (795,350) - (12,911,350)
Additions through business
combinations (25,954) (635,593) (852,345) - (1,513,892)
Written back on disposals 3,747,059 23,031 142,934 - 3,913,024
Exchange realignment (24,577) - (3,714) - (28,291)
At 31 December 2015
and 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
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 (73,633,981) (4,003,749) (6,526,784) - (84,164,514)
Impairment
1 January 2015 (899,076) (7,119) - - (906,195)
Reclassification to
non-current assets held
for sale - - - - -
Charge for the year - - - - -
Written back on disposals 73,376 - - - 73,376
At 31 December 2015
and 1 January 2016 (825,700) (7,119) - - (832,819)
Reclassification to
non-current assets held
for sale - 7,119 - - 7,119
Charge for the year - - - - -
Written back on disposals 5,145 - - - 5,145
At 31 December 2016 (820,555) - - - (820,555)
Net book value
At 31 December 2016 137,451,810 7,868,718 4,034,347 8,658,047 158,012,922
At 31 December 2015 138,098,518 7,580,161 4,041,396 6,270,902 155,990,977
15 Property, plant and equipment (Continued)
During the year, no impairment losses relating to aircraft and
flight equipment were recognised (2015: 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 2016 and 2015. During
the year, a number of aircraft have been transferred to assets held
for sale. The fair value on which the recoverable amount is based
on is categorised as a Level 2 measurement.
As at 31 December 2016, the Group's aircraft and flight
equipment, buildings and machinery with an aggregate net book value
of approximately RMB21,922 million (2015: RMB37,953 million) were
pledged to secure certain bank loans of the Group (note 35(a)).
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 RMB62,108 million (2015:
RMB68,218 million) (note 34).
As at 31 December 2016, the Group was in the process of applying
for the title certificates of certain buildings with an aggregate
net book value of approximately RMB3,177 million (2015: RMB2,780
million). The directors of the Company 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 2016.
16 Lease prepayments
2016 2015
RMB'000 RMB'000
Cost
As at 1 January 3,535,843 3,063,440
Additions 91,713 472,403
As at 31 December 3,627,556 3,535,843
Accumulated amortisation
As at 1 January (501,634) (429,782)
Amortisation for the year (68,177) (71,852)
As at 31 December (569,811) (501,634)
Net carrying amount
As at 31 December 3,057,745 3,034,209
16 Lease prepayments (Continued)
The Group's lease prepayments in respect of land are held under
long-term leases and located in Mainland China.
As at 31 December 2016, the Group's land use rights with an
aggregate net book value of approximately RMB35 million (2015:
RMB36 million) were pledged to secure certain bank loans of the
Group (note 35(a)).
As at 31 December 2016, the Group was in the process of applying
for the title certificates of certain land acquired by the Group
with an aggregate net book value of approximately RMB552 million
(2015: RMB536 million). The directors of the Company are of the
view 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 2016.
17 Investment properties
2016 2015
RMB'000 RMB'000
Cost
As at 1 January 903,707 837,140
Additions - 66,567
As at 31 December 903,707 903,707
Accumulated depreciation/amortisation
As at 1 January (181,044) (153,485)
Depreciation/amortisation for the year (27,145) (27,559)
As at 31 December (208,189) (181,044)
Net carrying amount
As at 31 December 695,518 722,663
18 Intangible assets
2016 2015
RMB'000 RMB'000
As at 1 January 35,902 36,859
Addition 116,240 -
Amortisation for the year (38,747) -
Reduction upon admission of new Star
Alliance members (28) (957)
As at 31 December 113,367 35,902
18 Intangible assets (Continued)
The Group's intangible assets include the right of using given
flight slots and the admission rights of the Company and 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.
19 Goodwill
2016 2015
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
Goodwill acquired through business combinations has been mainly
allocated to the following cash-generating units for impairment
testing:
-- 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 using cash
flow projections based on financial budgets covering a three-year
period approved by senior management of Shenzhen Airlines. The
discount rate applied to the cash flow projections is 10% (2015:
10%) and cash flows beyond the three-year period were extrapolated
using a growth rate of 2% by reference to the long-term average
growth rate.
The key assumptions used for cash flow projections are as
follows:
Budgeted gross margin - determined based on management's
expectations for efficiency improvement and market development.
Discount rate - The discount rate used reflect specific risks
relating to the relevant units.
With regard to the assessment of value in use of the Shenzhen
Airlines cash-generating unit, the directors of the Company believe
that no reasonably possible changes in any of the above key
assumptions would cause the carrying value of the unit to
materially exceed its recoverable amount.
20 Interests in subsidiaries
Particulars of the principal subsidiaries as at 31 December 2016
are as follows:
Percentage
Nominal of equity
Place of value of interests
incorporation/registration registered attributable Principal
Company name and operations Legal status capital to the Company activities
Direct Indirect
China National
Aviation Company
Limited ("CNAC") Limited liability Investment
( ) Hong Kong company HK$331,268,000 69 31 holding
AIE ( ) PRC/Mainland Limited liability RMB95,080,786 100 - Import and
China company export trading
Zhejiang Air Services(#) PRC/Mainland Limited liability RMB20,000,000 100 - Provision
China company of cabin
service and
airline catering
( )
Shanghai Air China PRC/Mainland Limited liability RMB2,000,000 100 - Provision
Services(#) ( ) China company of ground
service
Air China Development Hong Kong Limited liability HK$9,379,010 95 - Provision
Corporation company of air ticketing
(Hong Kong) Limited services
( )
Golden Phoenix(#) PRC/Mainland Limited liability RMB2,000,000 100 - Provision
( China company of human
resources
services
)
Total Transform British Limited liability Investment
Group Ltd. Virgin Islands company HK$13,765,440,000 99.94 0.06 holding
( )
Air Macau Company Macau Limited liability MOP442,042,000 - 66.9 Airline operator
Limited company
( )
Air China Cargo PRC/Mainland Limited liability RMB5,235,294,118 51 - Provision
( ) China company of cargo
carriage
services
Chengdu Falcon(#) PRC/Mainland Limited liability RMB37,565,216 60 - Provision
( ) China company of aircraft
overhaul
and maintenance
services
Shenzhen Airlines PRC/Mainland Limited liability RMB812,500,000 51 - Airline operator
( ) China company
Kunming Airlines PRC/Mainland Limited liability RMB80,000,000 - 80 Airline operator
Co., Ltd.(#) ( China company
)
Beijing Airlines(#) PRC/Mainland Limited liability RMB1,000,000,000 51 - Airline operator
( ) China company
Dalian Airlines PRC/Mainland Limited liability RMB1,000,000,000 80 - Airline operator
( ) China company
Air China Inner PRC/Mainland Limited liability RMB1,000,000,000 80 - Airline operator
Mongolia Co., Ltd.(#) China company
( )
AMECO( ) PRC/Mainland Limited liability US$300,052,800 75 - Provision
China company of aircraft
and engine
overhaul
and maintenance
services
CNAF( ) PRC/Mainland Limited liability RMB1,127,961,864 51 - Provision
China company of financial
services
(#) The English names of these companies are direct translations of their Chinese names.
20 Interests in subsidiaries (Continued)
The above table lists the subsidiaries of the Company which, in
the opinion of the directors, principally affected the results for
the year ended 31 December 2016 or formed a substantial portion of
the net assets of the Group as at 31 December 2016. To give details
of other subsidiaries would, in the opinion of the directors,
result in particulars of excessive length.
The following table lists out the information relating to
Shenzhen Airlines and Air China Cargo, the subsidiaries of the
Group which have material non-controlling interests (NCI). The
summarised financial information presented below represents the
amounts before any inter-company elimination.
2016 2015
Shenzhen Air China Shenzhen Air China
Airlines Cargo Airlines Cargo
RMB'000 RMB'000 RMB'000 RMB'000
NCI percentage 49% 49% 49% 49%
Current assets 2,332,454 3,128,327 2,822,886 2,441,221
Non-current assets 44,885,787 11,615,443 43,281,129 12,239,974
Current liabilities (19,701,150) (3,350,084) (16,548,558) (2,866,494)
Non-current liabilities (21,040,470) (8,545,805) (24,492,300) (8,985,997)
Net assets 6,476,621 2,847,881 5,063,157 2,828,704
* Equity contributed to equity shareholder of the
subsidiary 6,382,748 2,838,575 5,004,435 2,828,704
* Equity contributed to the NCI at the subsidiary level 93,873 9,306 58,722 -
Carrying amount of NCI 3,221,420 1,400,208 2,510,895 1,386,065
Revenue 26,321,092 9,022,883 24,244,072 9,131,736
Profit for the year 1,605,922 10,499 725,742 6,992
Total comprehensive
income 1,641,664 12,007 738,432 8,325
Total comprehensive
income allocated to
NCI 822,343 6,973 370,398 4,079
Dividend paid to NCI (111,818) (1,818) (85,603) -
Cash flows generated
from operating activities 7,626,164 1,445,017 6,188,398 1,158,564
Cash flows (used in)/generated
from investing activities (2,557,435) (98,595) (1,228,977) 675,921
Cash flows used in financing
activities (5,483,318) (1,103,903) (5,046,709) (1,870,127)
21 Interests in associates
2016 2015
RMB'000 RMB'000
Share of net assets
- Listed shares in the PRC 746,275 648,878
- Listed shares in Hong Kong 9,056,334 6,789,902
- Unlisted investments 1,511,568 1,246,535
Goodwill 2,914,352 2,914,352
14,228,529 11,599,667
Less: impairment (46,842) (46,842)
As at 31 December 14,181,687 11,552,825
Market value of listed shares 12,115,901 15,172,661
Particulars of the principal associates as at 31 December 2016
are as follows:
Percentage
Nominal value of
Place of of equity interests
incorporation/registration registered/issued attributable Principal
Company name and operations share capital to the Group activities
Cathay Pacific * ( ) Hong Kong HK$787,139,514 29.99 Airline operator
Shandong Aviation Group PRC/Mainland RMB580,000,000 49.4 Investment
Corporation China holding
( )
Shandong Airlines Co., PRC/Mainland RMB400,000,000 22.8 Airline operator
Ltd. China
( )
Menzies Macau Airport Macau MOP10,000,000 41 Provision
Services Limited* ( of airport
) ground handling
services
Yunnan Airport Aircraft PRC/Mainland RMB10,000,000 40 Civil aircraft
Maintenance Services China line maintenance
Co., Ltd.
( )
CAAC Cares Chongqing PRC/Mainland RMB14,800,000 24.5 Provision
Co., Ltd. China of airline-related
information
system services
( )
Chengdu CAAC Southwest PRC/Mainland RMB10,000,000 35 Provision
Cares Co., Ltd.(#) ( China of airline-related
) information
system services
Tibet Airlines Co., PRC/Mainland RMB280,000,000 31 Airline operator
Ltd.(#) China
( )
* 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.
21 Interests in associates (Continued)
The above table lists the associates of the Group which, in the
opinion of the directors, principally affected the results for the
year ended 31 December 2016 or formed a substantial portion of the
net assets of the Group as at 31 December 2016. To give details of
other associates would, in the opinion of the directors, result in
particulars of excessive length.
Summarised financial information of Cathay Pacific, the only
individually material associate of the Group, and a reconciliation
to the carrying amount in the consolidated financial statements,
are disclosed below:
Cathay Pacific
2016 2015
RMB'000 RMB'000
Gross amounts of the associate's
Current assets 28,080,458 27,835,241
Non-current assets 130,624,401 116,955,764
Current liabilities (39,440,735) (41,702,175)
Non-current liabilities (69,595,562) (62,819,258)
Equity 49,668,562 40,269,572
- Equity contributed to equity shareholders
of the associate 49,524,546 40,152,282
- Equity contributed to NCI of the
associate 144,016 117,290
Revenue 80,335,815 83,237,307
(Loss)/profit for the year (237,324) 5,130,454
Other comprehensive income 8,030,896 (6,302,455)
Total comprehensive income 7,793,572 (1,172,001)
Dividend received from the associate 337,702 513,958
Reconciled to the Group's interests
in the associate
Gross amounts of net assets of the
associate 49,524,546 40,152,282
Group's effective interest 29.99% 29.99%
Group's share of net assets of the
associate 14,852,411 12,041,669
Elimination of reciprocal shareholding (5,796,077) (5,251,767)
Goodwill 2,701,567 2,701,567
Carrying amount in the consolidated
financial statements 11,757,901 9,491,469
21 Interests in associates (Continued)
Aggregate information of associates that are not individually
material:
2016 2015
RMB'000 RMB'000
Aggregate carrying amounts of individually
immaterial associates in the consolidated
financial statements 2,423,786 2,061,356
Aggregate amounts of the Group's share
of those associates'
- Profit from continuing operations 447,309 310,689
- Other comprehensive income 19,137 17,526
Total comprehensive income 466,446 328,215
22 Interests in joint ventures
2016 2015
RMB'000 RMB'000
Share of net assets 1,120,497 1,031,623
Goodwill 6,495 6,495
1,126,992 1,038,118
22 Interests in joint ventures (Continued)
Particulars of the joint ventures of the Group at 31 December
2016 are as follows:
Percentage of (%)
------------------------------
Place of
incorporation/registration Ownership Voting Profit Principal
Company name and operations Issued capital interest power sharing activities
Provision
SkyWorks Capital of financial
Asia Ltd. Hong Kong HK$30 33.3 33.3 33.3 services
Shanghai Pudong
International
Airport Cargo
Terminal Co., Provision
Ltd.(#) of cargo
( PRC/Mainland carriage
) China RMB680,000,000 39 28.6 39 services
Sichuan Services Provision
Aero-Engine of engine
Maintenance overhaul
Company(#) PRC/Mainland and maintenance
( ) China US$88,000,000 60 60 60 services
Wholesale
GA Innovation and import
China Co., Ltd.( PRC/Mainland of aircraft
#) China US$10,000,000 50 50 50 and components
( )
Shanghai
International
Airport Provision
Service Co., of airport
Ltd.(#) PRC/Mainland ground handling
( ) China RMB360,000,000 24 22.2 24 services
(#) The English names of these companies are the direct
translations of their Chinese names.
The directors of the Company 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:
2016 2015
RMB'000 RMB'000
Aggregate carrying amount of individually
immaterial joint ventures in the consolidated
financial statements 1,126,992 1,038,118
Aggregate amounts of the Group's share
of those joint ventures'
- Profit from continuing operations 233,423 300,897
- Other comprehensive income - 1,347
Total comprehensive income 233,423 302,244
23 Available-for-sale securities
2016 2015
RMB'000 RMB'000
Available-for-sale debt securities 993,161 996,044
Available-for-sale equity securities
- Unlisted 42,725 42,725
- Listed 114,775 67,819
1,150,661 1,106,588
24 Deferred tax assets and liabilities
The movements in deferred tax assets and liabilities during the
year are as follows:
2016 2015
RMB'000 RMB'000
Deferred tax assets:
As at 1 January 3,753,729 3,581,841
Additions through business combinations - 56,334
(Charged)/credited to profit or loss
(note 10) (699,694) 115,554
Gross deferred tax assets as at 31
December 3,054,035 3,753,729
Deferred tax liabilities:
As at 1 January 2,867,738 2,337,958
Additions through business combinations - 125,707
(Credited)/charged to profit or loss
(note 10) (449,289) 396,735
Recognised in other comprehensive income 9,864 7,338
Gross deferred tax liabilities as at
31 December 2,428,313 2,867,738
Net deferred tax assets as at 31 December 625,722 885,991
24 Deferred tax assets and liabilities (Continued)
The principal components of the Group's deferred tax assets and
liabilities are as follows:
2016 2015
RMB'000 RMB'000
Deferred tax assets:
Differences in value of property, plant
and equipment 70,968 69,350
Provisions and accruals 2,489,095 2,514,787
Unrealised profit of intra-group transactions 84,959 67,680
Impairment 396,903 423,241
Deductible tax losses 12,110 678,671
Gross deferred tax assets 3,054,035 3,753,729
Deferred tax liabilities:
Unrealised exchange gain (781) (14,247)
Changes in fair value of available-for-sale
securities (28,762) (18,898)
Depreciation allowances in excess of
the related depreciation (2,386,268) (2,627,729)
Others (12,502) (206,864)
Gross deferred tax liabilities (2,428,313) (2,867,738)
Net deferred tax assets 625,722 885,991
Deferred tax assets not recognised for the following temporary
differences:
2016 2015
RMB'000 RMB'000
Deductible tax losses 1,650,342 2,186,235
Other deductible temporary differences 783,256 773,845
2,433,598 2,960,080
The Group has no tax losses arising from operations outside
Mainland China (2015: Nil). The Group has tax losses and other
deductible temporary differences arising from the operation in
Mainland China of RMB2,433,598,000 (2015: RMB2,960,080,000) 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.
25 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.
2016 2015
RMB'000 RMB'000
Non-current assets held for sale 913,129 582,074
An impairment loss charged of approximately RMB219,376,000 for
the Group, was made against these non-current assets held for sale
for the year ended 31 December 2016 (2015: RMB112,791,000).
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 2016. The
fair value on which the recoverable amount is based on is
categorised as a Level 2 measurement.
26 Inventories
An analysis of inventories as at the end of the reporting period
is as follows:
2016 2015
RMB'000 RMB'000
Spare parts of flight equipment 1,166,544 1,215,004
Catering supplies 84,572 111,524
Ordinary equipments 9,869 17,356
Others 419,648 386,858
1,680,633 1,730,742
27 Accounts receivable
2016 2015
RMB'000 RMB'000
Accounts receivable 3,414,566 3,816,516
Impairment (128,475) (155,162)
3,286,091 3,661,354
The Group normally allows a credit period of 30 to 90 days to
its sales agents and other customers while some major customers are
granted a credit period of up to six months or above. 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 relate 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
enhancements over its accounts receivable balances.
The ageing analysis of the accounts receivable as at the end of
the reporting period, net of impairment, is as follows:
2016 2015
RMB'000 RMB'000
Within 30 days 2,460,470 2,828,753
31 to 60 days 407,875 328,902
61 to 90 days 68,167 166,916
Over 90 days 349,579 336,783
3,286,091 3,661,354
The movement in the provision for impairment of accounts
receivable during the year, including both specific and collective
loss components, is as follows:
2016 2015
RMB'000 RMB'000
As at 1 January 155,162 69,334
Impairment losses recognised 13,087 49,273
Additions through business combinations - 38,399
Amount reversed (22,118) (106)
Amount written off (17,878) (1,830)
Exchange realignment 222 92
As at 31 December 128,475 155,162
As at 31 December 2016, the Group's accounts receivable of
RMB126,028,000 (2015: RMB148,180,000) 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.
27 Accounts receivable (Continued)
The ageing analysis of the accounts receivable that are neither
individually nor collectively considered to be impaired is as
follows:
2016 2015
RMB'000 RMB'000
Neither past due nor impaired 2,292,312 2,661,746
Less than 3 months past due 418,089 455,368
More than 3 months past due 333,481 305,421
3,043,882 3,422,535
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 of the Company
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 enhancements over these balances.
28 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,
is as follows:
2016 2015
RMB'000 RMB'000
Prepayments
Manufacturers' credits 863,950 882,801
Prepaid aircraft operating lease rentals 637,427 507,505
Other prepayments 499,399 561,758
2,000,776 1,952,064
Deposits and other receivables 1,728,923 1,683,861
3,729,699 3,635,925
28 Prepayments, deposits and other receivables (Continued)
The movement in the provision for impairment of prepayments,
deposits and other receivables are as follows:
2016 2015
RMB'000 RMB'000
As at 1 January 2,410,672 2,410,655
Impairment losses recognised 2,992 324
Amount reversed (6,529) (56)
Amount written off (6,244) (290)
Exchange realignment 61 39
As at 31 December 2,400,952 2,410,672
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 obtained in subsequent
periods indicate the receivables could be collected partially or
entirely, the provision would be partially or entirely reversed
accordingly.
As at 31 December 2016, the gross amount due from Shenzhen
Huirun Investment Co., Ltd. ("Huirun") was RMB1,075,182,000, for
which full provision had been provided.
As at 31 December 2016, the gross amount due from Shenzhen
Airlines Property Development Co., Ltd. ("Shenzhen Property") and
its subsidiaries was RMB649,486,000 (31 December 2015:
RMB649,486,000), for which full provision had been provided.
29 Financial assets
2016 2015
RMB'000 RMB'000
Interest rate swaps 222 967
Listed equity securities - 28
222 995
The above financial assets are accounted for as held-for-trading
financial instruments and any fair value changes are recognised in
the profit or loss.
The fair value of interest rate swaps as at the end of the
reporting period was estimated by using the 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.
30 Restricted bank deposits, cash and cash equivalents
(a) Cash and cash equivalents comprise:
Note 2016 2015
RMB'000 RMB'000
Time deposits with banks 1,227,715 1,940,479
Cash and bank 6,094,641 5,852,565
Less: Restricted bank deposits (i) (474,338) (654,946)
Cash and cash equivalents 6,848,018 7,138,098
Note:
(i) Details of restricted bank deposits are as follows:
2016 2015
RMB'000 RMB'000
Deposits with the central bank
by CNAF 386,657 377,873
Restricted bank deposits against
aircraft
operating leases and others 87,681 277,073
474,338 654,946
30 Restricted bank deposits, cash and cash equivalents (Continued)
(b) Reconciliation of profit before taxation to cash generated from operations:
2016 2015
RMB'000 RMB'000
Cash flows generated from operating
activities
Profit before taxation 10,212,902 9,355,251
Adjustments for:
Share of profits less losses of
associates and joint ventures (22,235) (1,620,197)
Exchange losses, net 4,233,668 5,156,039
Interest income (127,077) (152,257)
Finance costs 3,235,317 2,812,786
Depreciation of property, plant
and equipment 13,339,651 12,911,350
Losses/(gains) on disposal of property,
plant and
equipment, net 37,628 (10,319)
Losses on disposal of non-current
assets held for sale 4,659 101,554
Amortisation of lease prepayments 68,177 71,852
Depreciation of investment properties 27,145 27,559
Amortisation of intangible assets 38,747 -
Impairment of non-current assets
held for sale 219,376 112,791
Provision for inventories 71,570 12,831
(Reversal of impairment)/impairment
of accounts receivable (9,031) 49,167
(Reversal of impairment)/impairment
of prepayments, deposits and other
receivables (3,537) 268
Impairment of other non-current
assets 2,516 -
Impairment of other current assets 11,546 -
Increase in deposits for aircraft
under operating leases (51,423) (74,582)
Increase in inventories (21,461) (643,394)
Decrease/(increase) in accounts
receivable 384,294 (726,312)
Increase in bills receivable (613) (69)
(Increase)/decrease in prepayments,
deposits and other receivables (90,237) 579,192
(Increase)/decrease in other current
assets (246,397) 1,998,620
Increase in air traffic liabilities 554,703 928,427
Increase/(decrease) in accounts
payable 1,561,540 (532,169)
Decrease in bills payable (11,646) (138,354)
(Decrease)/increase in other payables
and accruals (255,824) 2,621,730
Increase in provision for major
overhauls 52,823 194,057
Decrease in provision for early
retirement benefit obligations (5,546) (5,745)
(Decrease)/increase in deferred
income (396,857) 153,592
Increase/(decrease) in long-term
payables 13,170 (35,675)
Cash generated from operations 32,827,548 33,147,993
(c) 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
RMB2,440 million (2015: RMB11,112 million).
31 Other current assets
2016 2015
RMB'000 RMB'000
The VAT tax credit and others 1,010,316 1,661,973
Loans to related parties 1,154,600 1,145,000
Others 900,000 -
3,064,916 2,806,973
Impairment (11,546) -
3,053,370 2,806,973
Loans owed to related parties mainly are the loans to CNAHC and
its subsidiaries by CNAF at a rate of 2.90% - 3.92%.
32 Accounts payable
The ageing analysis of the accounts payable as at the end of the
reporting period is as follows:
2016 2015
RMB'000 RMB'000
Within 30 days 4,288,890 4,566,656
31 to 60 days 1,692,454 1,373,626
61 to 90 days 1,397,287 1,086,846
Over 90 days 3,453,661 2,243,624
10,832,292 9,270,752
The accounts payable are non-interest-bearing and have normal
credit terms up to 90 days.
33 Other payables and accruals
An analysis of other payables and accruals as at the end of the
reporting period is as follows:
2016 2015
RMB'000 RMB'000
Accrued salaries, wages and benefits 2,191,248 1,933,927
Receipts in advance for employee residence 592,397 308,377
Accrued operating expenses 565,292 1,727,321
Other tax payable 441,234 484,499
Deposits received from sales agents 780,302 850,339
Due to a non-controlling shareholder
of a subsidiary 100,000 100,000
Interest payable 761,913 679,394
Current portion of deferred income
related to the frequent-flyer programme
(note 38(a)) 652,170 711,345
Current portion of deferred income
related to government grants (note
38(b)) 36,158 47,807
Current portion of long-term payables 2,721 40,665
Provision for staff housing benefits 109,850 109,264
Deposits received by CNAF from related
parties 3,845,923 3,417,770
Others 3,015,712 5,719,019
13,094,920 16,129,727
34 Obligations under finance leases
The Group have obligations under finance lease agreements
expiring during the years from 2017 to 2027 (2015: 2016 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 values Present values
Minimum lease of minimum Minimum lease of minimum
payments lease payments payments lease payments
2016 2016 2015 2015
RMB'000 RMB'000 RMB'000 RMB'000
Amounts repayable:
- Within 1 year 7,000,199 6,099,453 6,683,391 5,963,977
- After 1 year but within
2 years 6,519,323 5,739,351 6,261,603 5,592,839
- After 2 years but
within 5 years 15,562,232 13,957,147 15,293,774 13,828,594
- After 5 years 17,492,189 16,598,973 19,367,819 18,381,846
Total minimum finance
lease payments 46,573,943 42,394,924 47,606,587 43,767,256
Less: Amounts representing
finance costs (4,179,019) (3,839,331)
Present values of minimum
lease payments 42,394,924 43,767,256
Less: Portion classified
as current liabilities (6,099,453) (5,963,977)
Non-current portion 36,295,471 37,803,279
The Group's finance leases were secured by the Group's aircraft
with net carrying amount of approximately RMB62,108 million (2015:
RMB68,218 million) (note 15).
At 31 December 2016, the obligations under finance leases of the
Group with an aggregate amount of US$305 million (equivalent to
RMB2,118 million) were guaranteed by an associate of the Group.
Under the terms of the finance lease agreements, the Group has
the option to purchase these aircraft at the end of or during the
lease terms, at market value or at the price as stipulated in the
finance lease agreements.
35 Interest-bearing bank loans and other borrowings
2016 2015
RMB'000 RMB'000
Bank loans:
- Secured 20,052,374 30,785,825
- Unsecured 12,413,453 8,700,126
32,465,827 39,485,951
Corporate bonds:
- Secured 10,000,000 10,000,000
- Unsecured 21,343,135 10,791,881
31,343,135 20,791,881
63,808,962 60,277,832
2016 2015
RMB'000 RMB'000
Bank loans repayable:
- Within 1 year 19,630,605 8,691,467
- After 1 year but within 2 years 3,371,915 7,347,641
- After 2 years but within 5 years 6,169,893 13,993,366
- After 5 years 3,293,414 9,453,477
32,465,827 39,485,951
Corporate bonds:
- Within 1 year 6,345,111 2,598,843
- After 1 year but within 2 years 4,498,024 1,195,982
- After 2 years but within 5 years 14,000,000 10,497,056
- After 5 years 6,500,000 6,500,000
31,343,135 20,791,881
Total interest-bearing bank loans and
other borrowings 63,808,962 60,277,832
Less: Portion classified as current
liabilities (25,975,716) (11,290,310)
Non-current portion 37,833,246 48,987,522
35 Interest-bearing bank loans and other borrowings (Continued)
Further details of the bank loans and corporate bonds at the end
of the reporting period are as follows:
2016 2015
RMB'000 RMB'000
Bank loans
RMB denominated loans:
Fixed interest rate ranging from 2.65%
to 5.80% (2015: 2.00% to 6.80%) per
annum, with final maturities through
to 2017 8,775,185 1,750,839
Floating interest rate ranging from
0.00% to 5.00% (2015: 4.86% to 5.40%)
per annum, with final maturities through
to 2026 8,119,190 1,445,779
Total RMB denominated loans 16,894,375 3,196,618
US$ denominated loans:
Fixed interest rate at 3.80% (2015:
2.70% to 3.80%) per annum, with final
maturities through to 2019 112,274 890,612
Floating interest rate ranging from
0.93% to 4.62% (2015: 0.93% to 6.40%)
per annum, with final maturities through
to 2024 15,138,886 33,547,598
Total US$ denominated loans 15,251,160 34,438,210
Euros denominated loans:
Fixed interest rate at 4.38% (2015:
4.38%) per annum, with final maturities
through to 2047 113,065 112,261
Floating interest rate at 1.35% per
annum, with final maturities through
to 2016 - 1,489,992
Total Euros denominated loans 113,065 1,602,253
MOP denominated loans:
Floating interest rate at 2.63% per
annum, with final maturities through
to 2020 207,227 248,870
Total bank loans 32,465,827 39,485,951
Corporate bonds
RMB denominated loans:
Fixed interest rate ranging from 2.63%
to 5.60% (2015: 2.91% to 5.60%) per
annum, with final maturities through
to 2023 31,343,135 20,791,881
Total interest-bearing bank loans and
other borrowings 63,808,962 60,277,832
35 Interest-bearing bank loans and other borrowings (Continued)
The Group's bank loans and corporate bonds of approximately
RMB30,052 million as at 31 December 2016 (2015: RMB40,786 million)
were secured by:
(a) Mortgages over certain of the Group's aircraft and flight
equipment, buildings and machinery with an aggregate net carrying
amount of approximately RMB21,922 million as at 31 December 2016
(2015: RMB37,953 million) (note 15); and land use rights with an
aggregate carrying amount of approximately RMB35 million as at 31
December 2016 (2015: RMB36 million) (note 16);
(b) As at 31 December 2016, bank loans of the Group with an
aggregate amount of US$204 million (equivalent to RMB1,415 million)
were guaranteed by an associate of the Group (31 December 2015:
US$237 million (equivalent to RMB1,541 million)); and
(c) As at 31 December 2016, corporate bonds issued by the Group
with a face value of RMB10,000 million (31 December 2015: RMB10,000
million) were guaranteed by CNAHC.
As at 31 December 2016, corporate bonds with carrying amount of
RMB7,343 million were issued by Shenzhen Airlines.
36 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:
2016 2015
RMB'000 RMB'000
As at 1 January 4,414,022 4,219,965
Provision for the year 1,849,427 1,918,121
Utilisation during the year (1,796,604) (1,724,064)
As at 31 December 4,466,845 4,414,022
Less: Portion classified as current
liabilities (943,609) (1,301,821)
Non-current portion 3,523,236 3,112,201
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.
37 Defined benefit obligations
The liabilities recognised in the consolidated statement of
financial position represent:
2016 2015
RMB'000 RMB'000
Post-retirement benefit obligations 298,219 304,613
Less: current portion (28,477) (27,645)
Long-term portion 269,742 276,968
AMECO, a subsidiary of the Company, affords monthly retirement
benefits for those staffs who were retired before AMECO adopted its
own enterprise annuity plan. These retirement benefits are
recognised as defined benefit obligations.
(a) Movements in the defined benefit obligations are set out as follows:
2016 2015
RMB'000 RMB'000
At 1 January 304,613 -
Acquired through business combinations - 294,109
Remeasurement (gain)/loss (2,295) 21,054
Past service cost 16,418 -
Interest cost 8,355 5,908
Payments (28,872) (16,458)
At 31 December 298,219 304,613
Less: current portion (28,477) (27,645)
Long-term portion 269,742 276,968
37 Defined benefit obligations (Continued)
(b) Expenses recognised in the consolidated statement of profit
or loss and other comprehensive income are as follows:
2016 2015
RMB'000 RMB'000
Employee compensation costs
- Past service cost 16,418 -
Finance costs
- Interest cost 8,355 5,908
Other comprehensive income
- Remeasurement (gain)/loss (2,295) 21,054
Total defined benefit costs 22,478 26,962
(c) Significant actuarial assumptions (expressed as weighted averages) are as follows:
2016 2015
RMB'000 RMB'000
Discount rate 3.0% 2.8%
Annual growth rate 0% 0%
Average expected remaining life
of eligible employees 13.3 years 14 years
38 Deferred income
2016 2015
RMB'000 RMB'000
Frequent-flyer programme (a) 2,420,734 2,815,760
Government grants (b) 610,284 617,605
Gain on sale and lease back arrangements 27,950 46,428
Operating lease rebates 33,873 9,905
3,092,841 3,489,698
(a) The movements in deferred income related to the Group's
frequent-flyer programme during the year are as follows:
2016 2015
RMB'000 RMB'000
------------------------------------- ------------ ------------
As at 1 January 3,527,105 3,525,638
Additions during the year 1,654,138 2,140,031
Recognised as revenue during the
year (2,108,339) (2,138,564)
As at 31 December 3,072,904 3,527,105
Less: Portion classified as current
liabilities (652,170) (711,345)
Non-current portion 2,420,734 2,815,760
(b) The movements in deferred income related to government
grants during the year are as follows:
2016 2015
RMB'000 RMB'000
----------------------------------------- --------- ---------
As at 1 January 665,412 708,386
Additions 42,137 32,362
Additions through business combinations - 4,322
Recognised in profit or loss (61,107) (79,658)
As at 31 December 646,442 665,412
Less: Portion classified as current
liabilities (36,158) (47,807)
Non-current portion 610,284 617,605
39 Capital, reserves and dividends
(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
capital reserve funds earnings Total
Note RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
As at 1 January 2015 13,084,751 17,654,960 5,766,587 13,792,447 50,298,745
Impact of change in
accounting policy 2(c) - (29,751) - 1,318,960 1,289,209
Restated balance as
at
1 January 2015 13,084,751 17,625,209 5,766,587 15,111,407 51,587,954
Total comprehensive
income for the year
(restated) 2(c) - 15,083 - 5,406,052 5,421,135
Acquisition of a subsidiary
under common control - 36,834 - - 36,834
Dividends declared
in respect of the
previous year - - - (683,417) (683,417)
Appropriation of statutory
reserve funds - - 544,081 (544,081) -
Appropriation of discretionary
reserve fund - - 285,331 (285,331) -
Others - (2,697) - - (2,697)
As at 31 December
2015 and
1 January 2016 (restated) 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 - - 652,457 (652,457) -
Appropriation of discretionary
reserve fund - - 544,081 (544,081) -
Others - - - (1,400,068) (1,400,068)
As at 31 December
2016 13,084,751 17,691,120 7,792,537 22,927,736 61,496,144
39 Capital, reserves and dividends (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 2016, in accordance with the PRC Company Law,
an amount of approximately RMB20,857 million (2015: RMB20,857
million) standing to the credit of the Company's capital reserve
account, and an amount of approximately RMB7,793 million (2015:
RMB6,596 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 RMB21,717
million available for distribution as at 31 December 2016 (2015:
RMB17,789 million).
39 Capital, reserves and dividends (Continued)
(b) Share capital
The number of shares of the Company and their nominal values as
at 31 December 2016 and 31 December 2015 are as follows:
Number of Nominal Number of Nominal
shares value shares value
2016 2016 2015 2015
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 8,329,271,309 8,329,272
- Trade-restricted* - - 192,796,331 192,796
13,084,751,004 13,084,751 13,084,751,004 13,084,751
* The trade-restricted shares of 192,796,331 shares as at 31
December 2015 became tradable on 1 February 2016.
The H shares and A shares rank pari passu, in all material
respects, with the state legal person shares and non-H foreign
shares of the Company.
(c) Treasury shares
As at 31 December 2016, the Group owned 29.99% equity interest
in Cathay Pacific (2015: 29.99%), which in turn owned 20.13% equity
interest in the Company (2015: 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.
39 Capital, reserves and dividends (Continued)
(d) Dividends
2016 2015
RMB'000 RMB'000
Final dividend proposed after the
end of
the reporting period 1,564,468 1,400,068
Final dividend in respect of the
previous financial year, declared
and paid during the year 1,400,068 683,417
In accordance with the Company's articles of association, the
profit after taxation of the Company for the purpose of dividend
distribution is based on the lesser of (i) the profit determined in
accordance with CASs; and (ii) the profit determined in accordance
with IFRSs.
Pursuant to the shareholders' approval at the Annual General
Meeting on 30 May 2016, a final dividend of RMB1.0700 (including
tax) per ten shares totalling RMB1,400 million in respect of the
year ended 31 December 2015 was paid out in 2016.
Pursuant to a resolution passed at the Directors' Meeting on 30
March 2017, a final dividend in respect of the year ended 31
December 2016 of RMB1,564 million (approximately RMB1.0771
(including tax) per ten shares calculated based on number of shares
in issue at the date of the Directors' Meeting) was proposed for
shareholders' approval at the Annual General Meeting. As the final
dividend is declared after the balance sheet date, such dividend is
not recognised as a liability as at 31 December 2016.
39 Capital, reserves and dividends (Continued)
(e) 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
2016 and 31 December 2015.
The Group monitors capital structure by reference to the gearing
ratio, which represents total liabilities divided by total assets.
The gearing ratios as at the end of the reporting periods are as
follows:
2016 2015
RMB'000 RMB'000
Total liabilities 147,654,552 147,108,397
Total assets 224,050,951 213,631,150
Gearing ratio 65.90% 68.86%
40 Share appreciation rights
The Company's "Measures on Management of the Stock Appreciation
Rights ("SARs") 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 2016 was RMB2,028,000 (2015:
RMB18,352,000).
41 Contingent liabilities
As at 31 December 2016, 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) On 26 February 2007, the Eastern District Court of New York
of the Federal Judiciary of the United States filed a civil summons
against the Company and Air China Cargo, claiming that they,
together with a number of other airlines, have violated certain
anti-trust regulations in respect of their air cargo operations in
the United States by acting in concert in imposing excessive
surcharges to impede the offering of discounts and allocating
revenue and customers so as to increase, maintain and stabilise air
cargo prices during the period between 1 January 2000 and 30
September 2006 ("the Period"). On 5 February 2016, the Company and
Air China Cargo entered into a settlement agreement with the
plaintiffs in respect of the lawsuit. Under the settlement
agreement, the Company and Air China Cargo have agreed to make a
payment of US$50 million in aggregate to settle the lawsuit, which
has been paid out in March 2016. The settlement agreement was
officially approved by the Court in October 2016.
(c) 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 of the Company consider
that the provision of RMB130,000,000 which was provided in prior
years in respect of this legal claim is adequate.
(d) 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 2016, Shenzhen Airlines had outstanding guarantees for
employees' residential loans amounting to RMB111,973,000 (31
December 2015: RMB357,010,000) and for pilot trainees' tuition
loans amounting to RMB264,000 (31 December 2015: RMB1,108,000).
42 Financial risk management and fair values
The Group's principal financial instruments, other than
derivatives, comprise bank loans and corporate bonds, obligations
under finance leases, cash and cash equivalents and restricted bank
deposits. The main purpose of these financial instruments is to
raise finance for the Group's operations. The Group has various
other financial assets and liabilities such as accounts receivable
and accounts payable, which arise directly from its operations.
The Group also enters into derivative transactions, mainly
including principally interest rate swaps contracts. The purpose is
to manage interest rate risk arising from the Group's
operations.
The Group operates globally and generates revenue in various
currencies. The Group's airline operations are exposed to credit
risk, liquidity risk, interest rate risk, foreign currency risk,
and jet fuel price risk. The Group's overall risk management
approach is to moderate the effects of such volatility on its
financial performance.
Financial risk management policies are periodically reviewed and
approved by the board of directors and they are summarised
below.
(a) Credit risk
The Group's credit risk is primarily attributable to cash and
cash equivalents, accounts receivables and the 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.
The Group's cash and cash equivalents are deposited with banks
in Mainland China and overseas banks. The Group has policies in
place to limit the exposure to any single financial
institution.
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
organised by the International Air Transportation Association. The
balance due from the BSP agents amounted to approximately RMB895
million or 27% of accounts receivable as at 31 December 2016 (2015:
RMB990 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.
Shenzhen Airlines provided the 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. The
detailed guarantees information is set out in Note 41 (d).
42 Financial risk management and fair values (Continued)
(b) Liquidity risk
The Group's net current liabilities amounted to approximately
RMB44,194 million as at 31 December 2016 (2015: RMB30,336 million).
The Group recorded a net cash inflow from operating activities of
approximately RMB27,366 million for the year ended 31 December 2016
(2015: RMB28,572 million). For the same period, the Group had a net
cash outflow from investing activities of approximately RMB19,013
million (2015: RMB6,788 million). The Group also recorded a net
cash outflow from financing activities of approximately RMB8,781
million for the year ended 31 December 2016 (2015: RMB23,381
million). The Group recorded a decrease in cash and cash
equivalents of approximately RMB428 million for the year ended 31
December 2016 and an decrease of approximately RMB1,597 million for
the year ended 31 December 2015, respectively.
The liquidity of the Group is primarily dependent on its ability
to maintain adequate cash inflows from operations to meet its debt
obligations as 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 RMB155,535
million as at 31 December 2016 (2015: RMB144,433 million), of which
an amount of approximately RMB20,835 million was utilised (2015:
RMB25,508 million).
The directors of the Company 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.
42 Financial risk management and fair values (Continued)
(b) Liquidity risk (Continued)
The maturity profile of the Group's financial liabilities as at
the end of the reporting period, based on the contractual
undiscounted payments, is as follows:
2016 Contractual undiscounted cash
outflow
----------------------------------------------------------------
More than More than
Within 1 year 2 years
1 year but but
or less than less than More than Carrying
on demand 2 years 5 years 5 years Total amount
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Accounts payable 10,832,292 - - - 10,832,292 10,832,292
Financial liabilities
included in
other payables
and accruals 9,944,667 - - - 9,944,667 9,944,667
Obligations under
finance leases 7,000,199 6,519,323 15,562,232 17,492,189 46,573,943 42,394,924
Interest-bearing
bank loans and
other borrowings 27,426,442 9,303,485 22,539,282 11,283,938 70,553,147 63,808,962
Provision for
major overhauls 943,609 107,362 2,229,256 1,186,618 4,466,845 4,466,845
Long-term payables 3,190 12,235 11,356 - 26,781 26,071
56,150,399 15,942,405 40,342,126 29,962,745 142,397,675 131,473,761
2015 Contractual undiscounted cash
outflow
----------------------------------------------------------------
More than More than
Within 1 year 2 years
1 year but but
or less than less than More than Carrying
on demand 2 years 5 years 5 years Total amount
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Accounts payable 9,270,752 - - - 9,270,752 9,270,752
Bills payable 11,646 - - - 11,646 11,646
Financial liabilities
included in
other payables
and accruals 13,188,131 - - - 13,188,131 13,188,131
Obligations under
finance leases 6,683,391 6,261,603 15,293,774 19,367,819 47,606,587 43,767,256
Interest-bearing
bank loans and
other borrowings 12,466,797 9,990,501 27,374,630 17,570,426 67,402,354 60,277,832
Provision for
major overhauls 1,301,821 396,732 1,276,089 1,439,380 4,414,022 4,414,022
Long-term payables 40,665 3,550 7,223 - 51,438 50,845
42,963,203 16,652,386 43,951,716 38,377,625 141,944,930 130,980,484
42 Financial risk management and fair values (Continued)
(c) Interest rate risk
The Group's exposure to the risk of changes in market interest
rates relates primarily to the Group's long-term debt obligations
with floating interest rates.
The Group's policy is to manage its interest cost using a mix of
fixed and variable rate debts. To manage this mix in a
cost-effective manner, the Group enters into interest rate swaps
contract, in which the Group agrees to exchange, at specified
intervals, the difference between fixed and variable rate interest
amounts calculated by reference to an agreed-upon notional
principal amount.
(i) Interest rate profile
The following table sets out the carrying amounts, by maturity,
of the Group's financial instruments that are exposed to interest
rate risk:
2016 2015
Effective Effective
interest interest
rate RMB'000 rate RMB'000
Fixed rate:
Other payables and
long-term payables 1.35% - 4.13% 1,948,000 1.35% - 4.13% 1,926,660
Obligations under
finance leases 1.61% - 5.22% 17,079,503 1.61% - 4.86% 13,807,055
Interest-bearing
bank loans and other
borrowings 2.63% - 5.80% 40,343,659 2.00% - 6.80% 23,545,593
Bank deposits 1.35% - 3.30% (1,227,715) 1.35% - 3.08% (1,940,479)
Other current assets 2.90% - 5.70% (1,900,000) 3.50% (1,000,000)
56,243,447 36,338,829
Floating interest
rate:
Other payables and
accruals 0.35% 1,911,923 0.35% 1,499,110
Obligations under (1.06%) - (1.46%) -
finance leases 4.14% 25,315,421 3.39% 29,960,201
Interest-bearing
bank loans and other
borrowings 0.00% - 5.00% 23,465,303 0.93% - 6.40% 36,732,239
Bank deposits 0.35% (5,999,120) 0.35% (5,771,243)
Other current assets 3.92% (154,600) 3.92% - 5.25% (145,000)
Other non-current
assets 4.02% (251,600) - -
44,287,327 62,275,307
Total net borrowings 100,530,774 98,614,136
Net fixed rate borrowings
as a percentage of
total net borrowings 56% 37%
42 Financial risk management and fair values (Continued)
(c) Interest rate risk (Continued)
(i) Interest rate profile (Continued)
Interest on financial instruments classified as floating rate is
repriced at intervals of less than one year. Interest on financial
instruments classified as a fixed rate is fixed until the maturity
of the instrument. The other financial instruments of the Group
that are not included in the above tables are non-interest-bearing
and are therefore not subject to interest rate risk.
(ii) Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably
possible change in interest rate, with all other variables held
constant, of the Group's profit for the year and equity (through
the impact on floating rate borrowings) for the year
(increase/(decrease)).
Profit for Total
the year equity
RMB'000 RMB'000
31 December 2016
If interest rate increases by
50 basis points (166,077) (166,077)
31 December 2015
If interest rate increases by
50 basis points (233,532) (233,532)
(d) Foreign currency risk
The Group's finance lease obligations as well as certain bank
and other loans are mainly denominated in United States dollars and
Euros, and certain expenses of the Group are denominated in
currencies other than RMB. The Group generates foreign currency
revenue from ticket sales made in overseas offices and normally
generates sufficient foreign currencies after payment of foreign
currency expenses to meet its foreign currency liabilities
repayable within one year.
The following table details the Group's exposure at the end of
the reporting period to currency risk arising from recognised
assets or liabilities denominated in a currency other than the
functional currency of the entity to which they relate. For
presentation purposes, the amounts of the exposure are shown in
RMB, translated using the spot rate at the year end date.
42 Financial risk management and fair values (Continued)
(d) Foreign currency risk (Continued)
Exposure to foreign currencies (expressed
in RMB)
2016 2015
US$ EURO HK$ US$ EURO HK$
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Accounts receivable 535,030 128,614 50,891 393,681 156,038 50,192
Other receivables 1,098,418 13,488 17,089 1,022,794 16,652 13,279
Cash and cash
equivalents 1,025,067 185,878 278,237 1,559,863 914,604 347,796
Accounts payable (1,379,388) (489,965) (121,359) (1,246,193) (443,415) (116,769)
Other payables
and accruals (40,054) - - (83,280) - -
Obligations under
finance leases (36,919,220) - - (42,030,307) - -
Interest-bearing
bank loans
and other borrowings (15,251,160) (113,065) - (34,438,210) (1,602,253) -
Net exposure arising
from
recognised assets
and liabilities (50,931,307) (275,050) 224,858 (74,821,652) (958,374) 294,498
The following table demonstrates the sensitivity at the end of
the reporting period to a reasonably possible change in the US$,
EURO and HK$ exchange rate, with all other variables held constant,
of the Group's profit for the year and equity (due to changes in
the fair value of monetary assets and liabilities) for the year
(increase/(decrease)). Differences resulting from the translation
of the financial statements of foreign operations into the Group's
presentation currency are excluded.
Profit for Total
1 December 2016 the year equity
RMB'000 RMB'000
If RMB appreciates against following
currencies by 1%
United States Dollars 376,021 376,021
Euros 2,063 2,063
Hong Kong Dollars (1,686) (1,686)
376,398 376,398
Profit for Total
31 December 2015 the year equity
RMB'000 RMB'000
If RMB appreciates against following
currencies by 1%
United States Dollars 529,934 529,934
Euros 7,188 7,188
Hong Kong Dollars (2,209) (2,209)
534,913 534,913
42 Financial risk management and fair values (Continued)
(e) Jet fuel price risk
The Group's strategy for managing the risk on jet fuel price
aims to provide the Group with protection against sudden and
significant increases in prices.
The following table demonstrates the sensitivity at the end of
the reporting period to a reasonably possible change in fuel price,
with all other variables held constant and excluding the impact of
fuel derivative contracts, of the Group's profit for the year and
equity for the year (increase/(decrease)):
Profit for Total
the year equity
RMB'000 RMB'000
31 December 2016
If jet fuel price increases by 5% (1,099,097) (1,099,097)
31 December 2015
If jet fuel price increases by 5% (1,202,131) (1,202,131)
(f) Fair value hierarchy
(i) Financial assets and liabilities measured at fair value
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.
42 Financial risk management and fair values (Continued)
(f) Fair value hierarchy (Continued)
(i) Financial assets and liabilities measured at fair value (Continued)
As at 31 December 2016
Fair value Level 1 Level 2 Level 3
RMB'000 RMB'000 RMB'000 RMB'000
Financial assets
- Interest rate swaps 222 - 222 -
Available-for-sale
equity securities
- Listed 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 -
As at 31 December 2015
Fair value Level 1 Level 2 Level 3
RMB'000 RMB'000 RMB'000 RMB'000
Financial assets
- Interest rate swaps 967 - 967 -
- Listed equity securities 28 28 - -
Available-for-sale
equity securities
- Listed 67,819 - 67,819 -
Available-for-sale
debt securities 996,044 194,395 801,649 -
Total financial assets
at fair value 1,064,858 194,423 870,435 -
During the year ended 31 December 2016, There were no transfers
between Level 1 and Level 2, or transfers into or out of Level 3
(2015: 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.
For the fair value of available-for-sale debt securities, the
significant unobservable input used in the fair value measurement
is expected volatility. The fair value measurement is positively
correlated to the expected volatility. As at 31 December 2016, the
fair value is close to the carrying amount.
(ii) Fair values of financial assets and liabilities carried at other than fair value
The carrying amounts of the Group's financial instruments
carried at cost or amortised cost are not materially different from
their fair values as at 31 December 2016 and 2015.
43 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:
2016 2015
RMB'000 RMB'000
Contracted, but not provided for:
- Aircraft and flight equipment 84,450,700 94,397,176
- Buildings and others 691,804 397,920
85,142,504 94,795,096
Authorised, but not contracted for:
- Buildings and others 306,233 1,013,146
Total capital commitments 85,448,737 95,808,242
(b) Investment commitments
The Group had the following amount of investment commitments as
at the end of the reporting period:
2016 2015
RMB'000 RMB'000
Contracted, but not provided for:
- Associates and joint ventures 59,280 57,728
(c) Operating lease commitments
The Group lease certain office premises, aircraft and flight
equipment under operating lease arrangements.
At 31 December 2016, the total future minimum lease payments
under non-cancellable operating leases are payable as follows:
2016 2015
RMB'000 RMB'000
Within 1 year 6,922,872 5,969,033
After 1 year but within 5 years 21,787,782 17,124,487
Over 5 years 23,460,545 17,045,029
52,171,199 40,138,549
44 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
2016 2015
RMB'000 RMB'000
Service provided to the CNAHC
Group
Sales commission income 5,851 9,082
Sale of cargo space 58,807 74,679
Government charter flights 518,275 417,077
Ground services income 2,332 3,280
Air catering income 16,329 17,596
Income from advertising media
business 14,324 28,775
Aircraft and flight equipment
leasing income 123 185
Others 2,402 10,716
618,443 561,390
Service provided by the CNAHC
Group
Sales commission expenses 969 1,371
Air catering charges 1,008,107 913,250
Airport ground services, take-off,
landing and depot expenses 884,341 780,761
Repair and maintenance costs 366 5,580
Management fees 114,804 117,578
Expense on finance lease 23,442 -
Lease charges for land and buildings 147,599 155,337
Other procurement and maintenance 79,661 61,417
Aviation communication expenses 528,225 487,436
Interest expenses 38,713 15,935
Media advertisement expenses 207,666 133,481
Construction management expenses 4,360 4,414
Others 502 576
3,038,755 2,677,136
44 Related party transactions (Continued)
(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:
(Continued)
(i) Transactions with related parties (Continued)
2016 2015
RMB'000 RMB'000
Loans to the CNAHC Group by
CNAF:
Net granting of loans (20,000) (759,000)
Interest income 40,684 48,843
20,684 (710,157)
Deposits from the CNAHC Group
received by CNAF:
Increase in deposits received 345,122 256,377
Interest expenses 45,970 43,313
391,092 299,690
Service provided to joint ventures
and associates
Sales commission income 18,601 17,851
Ground services income 123,700 119,528
Aircraft maintenance income 124,843 60,987
Air catering income 3,899 4,792
Frequent-flyer programme income 114,840 26,422
Lease income for land and buildings - 7,749
Airline joint venture income 7,824 16,799
Aircraft and flight equipment
leasing income - 1,256
Others 868 5,894
394,575 261,278
44 Related party transactions (Continued)
(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:
(Continued)
(i) Transactions with related parties (Continued)
2016 2015
RMB'000 RMB'000
Service provided by joint ventures
and associates
Sales commission expenses 9,079 53,486
Air catering charges 24,028 21,998
Airport ground services, take-off,
landing and depot expenses 444,368 427,725
Repair and maintenance costs 977,689 2,074,002
Aircraft and flight equipment
leasing fees 251,792 349,725
Lease charges for land and buildings - 4,785
Other procurement and maintenance 36,676 4,514
Aviation communication expenses 51,352 32,558
Interest expenses 14,537 15,408
Frequent-flyer programme expenses 4,017 4,345
Airline joint venture expenses 34,650 28,384
1,848,188 3,016,930
Loans to joint ventures and
associates by CNAF:
Net repayment of loans 281,200 -
Interest income 5,735 -
286,935 -
Deposits from joint ventures
and associates received by CNAF:
Increase in deposits received 89,031 94,516
Interest expenses 707 234
89,738 94,750
The directors of the Company are of the opinion that the above
transactions were conducted on normal commercial terms and 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 the HKEx Main board Listing Rules.
44 Related party transactions (Continued)
(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:
(Continued)
(ii) Outstanding balances with related parties
2016 2015
RMB'000 RMB'000
Outstanding balances with related
parties:
Amounts due from the ultimate
holding company 125,684 409,149
Amounts due from associates 209,077 150,253
Amounts due from joint ventures 1,700 3,041
Amounts due from other related
companies 12,729 8,655
Amounts due to the ultimate
holding company 51,384 2,739,181
Amounts due to associates 256,575 351,608
Amounts due to joint ventures 100,614 50,439
Amounts due to other related
companies 871,603 937,133
The above outstanding balances with related parties are
unsecured, interest-free and repayable within one year or have no
fixed terms of repayment.
2016 2015
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
44 Related party transactions (Continued)
(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:
(Continued)
(ii) Outstanding balances with related parties (Continued)
2016 2015
RMB'000 RMB'000
Outstanding balances between
CNAF and related parties:
(1) Outstanding balances between
CNAF
and CNAHC Group
Loans granted 1,125,000 1,145,000
Deposits received 3,676,376 3,331,254
Interest payable to related
parties 14,067 12,569
Interest receivable to related
parties 18 -
(2) Outstanding balances between
CNAF and
related parties other than
CNAHC Group
Loans granted 281,200 -
Deposits received, current and
non-current portion 183,547 94,516
Interest payable to related
parties 59 10
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) Guarantee with related parties
Name of Amount of Inception date Maturity date
Name of guarantor guarantee guaranty of guaranty of guaranty
US$'000
Long-term loans:
Cathay Pacific Air China Cargo 67,714 16/12/2013 15/12/2023
Cathay Pacific Air China Cargo 72,958 12/03/2014 11/03/2024
Cathay Pacific Air China Cargo 63,158 31/03/2014 30/03/2024
Obligations under finance
leases:
Cathay Pacific Air China Cargo 56,450 30/06/2014 30/06/2026
Cathay Pacific Air China Cargo 57,953 29/08/2014 29/08/2026
Cathay Pacific Air China Cargo 61,362 27/02/2015 27/02/2027
Cathay Pacific Air China Cargo 64,812 13/07/2015 13/07/2027
Cathay Pacific Air China Cargo 64,742 31/08/2015 30/08/2027
All the other information about guarantee with related parties
besides the aforementioned are disclosed in note 35.
44 Related party transactions (Continued)
(c) An analysis of the compensation of key management personnel of the Group is as follows:
2016 2015
RMB'000 RMB'000
Short term employee benefits 13,891 15,150
Retirement benefits 1,173 1,337
Emoluments for key management personnel 15,064 16,487
Expense for SARs (note 40) (3,699) 105
11,365 16,592
The breakdown of emoluments for key management personal are as
follows:
2016 2015
RMB'000 RMB'000
Directors and supervisors 1,905 3,131
Senior management 13,159 13,356
15,064 16,487
Further details of the remuneration of the directors and
supervisors are included in note 11 to the financial
statements.
The emoluments of senior executives were within the following
bands:
2016 2015
Number of Number of
individuals individuals
Nil to HK$1,000,000 4 4
HK$1,000,001 to HK$1,500,000 5 6
HK$1,500,001 to HK$2,000,000 4 4
13 14
(d) On 25 August 2004, CNACG entered into two licence agreements
with CNAC pursuant to which CNACG has agreed to grant licences to
CNAC, free of royalty, for the rights to use certain trademarks in
Hong Kong and Macau, respectively, so long as CNAC is a direct or
indirect subsidiary of CNAHC. No royalty charge was levied in
respect for the use of these trademarks during the years ended 31
December 2016 and 2015.
44 Related party transactions (Continued)
(e) The Company entered into several agreements with CNAHC
regarding the use of trademarks granted by the Company to CNAHC;
the provision of construction project management services by China
National Aviation Construction and Development Company ("Aviation
Construction & Development"); the subcontracting of charter
flight services to CNAHC; financial services; the leasing of
properties from and to CNAHC; the provision of air ticketing and
cargo services; the media service arrangement to China National
Aviation Media Co., Ltd.; the services co-operation agreement with
CNAHC; the services agreement with CNACG.
(f) Commitments
(i) Investment commitments
Pursuant to an equity investment agreement signed in 2009, a
subsidiary of the Group commits to contribute paid-in capital of
RMB45,000,000 to an associate. As at 31 December 2016,
RMB10,000,000 had been paid and the outstanding commitment balance
is RMB35,000,000.
Pursuant to an equity investment agreement signed in 2012, the
Company commits to contribute paid-in capital of US$5,000,000 to a
joint venture of the Group. As at 31 December 2016, US$1,500,000
had been paid and the outstanding commitment balance is
US$3,500,000.
(ii) Operating lease commitments
The Group lease certain aircraft, flight equipment, office
premises and warehouses from related parties under operating lease
arrangements. Leases for these assets are negotiated for terms
within 3 year.
2016 2015
RMB'000 RMB'000
Operating lease commitments
to associates 143,025 306,230
Operating lease commitments
to other related parties 86,036 26,565
229,061 332,795
(iii) Capital commitments
Capital commitments are mainly represent the construction
contracts between the Group and Aviation Construction &
Development.
2016 2015
RMB'000 RMB'000
Contracted, but not provided
for:
- Capital commitments to other
related parties 176,092 11,585
Authorised, but not contracted
for:
- Capital commitments to other
related parties 58,550 578,439
45 Subsequent events
Pursuant to the approval of China Securities Regulatory
Commission [2016]2026 on 5 September 2016, Air China issued new
non-public A shares to 8 specific shareholders including CNAHC. On
10 March 2017, Air China issued 1,440,064,181 new non-public A
shares at the price of RMB7.79 per share with the par value of
RMB1. Air china raised RMB11,218,099,970 totally from the issue of
new non-public A shares, after deducting the issue cost of
RMB17,681,499 (including VAT), the net cash inflow was
RMB11,200,418,471.
46 Company-level statement of financial position
31 December 31 December 1 January
2016 2015 2015
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Non-current assets
Property, plant and equipment 104,485,927 103,512,118 102,138,037
Lease prepayments 1,976,989 1,994,237 1,576,050
Intangible assets 11,857 11,885 12,842
Interests in subsidiaries 21,476,446 21,476,446 19,643,911
Interests in associates 2,364,782 2,004,612 1,838,264
Interests in joint ventures 1,126,992 1,012,377 1,168,972
Advance payments for aircraft
and flight equipment 15,911,987 10,623,845 13,275,785
Deposits for aircraft under
operating leases 470,648 412,808 349,500
Entrusted loans 1,020,000 1,020,000 1,020,000
Available-for-sale securities 22,110 22,110 22,110
Deferred tax assets 1,936,377 1,982,846 2,101,472
150,804,115 144,073,284 143,146,943
Current assets
Non-current assets held
for sale 911,680 582,074 460,028
Inventories 130,941 243,332 633,178
Accounts receivable 3,028,488 2,556,398 2,033,210
Prepayments, deposits and
other receivables 3,471,581 2,805,266 3,514,733
Cash and cash equivalents 2,221,952 3,223,977 3,258,265
Other current assets 829,828 1,341,946 1,895,153
10,594,470 10,752,993 11,794,567
Total assets 161,398,585 154,826,277 154,941,510
46 Company-level statement of financial position (Continued)
31 December 31 December 1 January
2016 2015 2015
RMB'000 RMB'000 RMB'000
(Restated) (Restated)
Current liabilities
Air traffic liabilities (4,909,318) (4,587,000) (3,917,724)
Accounts payable (9,818,098) (7,600,071) (7,203,711)
Other payables and accruals (9,071,796) (11,549,560) (6,522,590)
Current taxation (611,110) (778,149) (574,177)
Obligations under finance
leases (4,441,898) (4,636,614) (3,972,048)
Interest-bearing bank loans
and other borrowings (16,490,414) (5,318,956) (18,542,372)
Provision for major overhauls (468,625) (531,797) (407,775)
(45,811,259) (35,002,147) (41,140,397)
Net current liabilities (35,216,789) (24,249,154) (29,345,830)
Total assets less current
liabilities 115,587,326 119,824,130 113,801,113
Non-current liabilities
Obligations under finance
leases (22,519,793) (25,446,576) (23,895,151)
Interest-bearing bank loans
and other borrowings (27,025,373) (33,156,055) (33,612,658)
Provision for major overhauls (1,821,218) (1,768,166) (1,757,510)
Provision for early retirement
benefit obligations (7,760) (13,206) (18,751)
Deferred income (2,614,384) (2,963,675) (2,798,912)
Deferred tax liabilities (102,654) (116,643) (130,177)
(54,091,182) (63,464,321) (62,213,159)
NET ASSETS 61,496,144 56,359,809 51,587,954
CAPITAL AND RESERVES
Issued capital 13,084,751 13,084,751 13,084,751
Reserves 48,411,393 43,275,058 38,503,203
TOTAL EQUITY 61,496,144 56,359,809 51,587,954
Approved and authorised for issue by the board of directors on
30 March 2017.
Cai Jianjiang Song Zhiyong
Director Director
47 POSSIBLE IMPACT OF AMMENTS, NEW STANDARDS AND INTERPRETATIONS
ISSUED BUT NOT EFFECTIVE FOR THE YEARED 31 DECEMBER 2016
Up to the date of issue of these financial statements, the IASB
has issued a number of amendments and new standards which are not
yet effective for the year ended 31 December 2016 and which have
not been adopted in these financial statements. These include the
following which may be relevant to the Group.
Effective for
accounting
periods beginning
on or after
Amendments to IAS 7, Statement of cash flows:
Disclosure initiative 1 January 2017
Amendments to IAS 12, Income taxes: Recognition
of
deferred tax assets for unrealised losses 1 January 2017
IFRS 9, Financial instruments 1 January 2018
IFRS 15, Revenue from contracts with customers 1 January 2018
Amendments to IAS 2, Share-based payment: Classification
and
measurement of share-based payment transactions 1 January 2018
IFRS 16, Leases 1 January 2019
The Group is in the process of making an assessment of what the
impact of these amendments and new standards is expected to be in
the period of initial application. So far the Group has identified
some aspects of the new standards which may have impact on the
consolidated financial statements. Further details of the expected
impacts are discussed below. As the Group has not completed its
assessment, further impacts may be identified in due course and
will be taken into consideration when determining whether to adopt
any of these new requirements before their effective date and which
transitional approach to take, where there are alternative
approaches allowed under the new standards.
IFRS 9, Financial instruments
IFRS 9 will replace the current standard on accounting for
financial instruments, IAS 39, Financial instruments: Recognition
and measurement. IFRS 9 introduces new requirements for
classification and measurement of financial assets, calculation of
impairment of financial assets and hedge accounting. On the other
hand, IFRS 9 incorporates without substantive changes the
requirements of IAS 39 for recognition and derecognition of
financial instruments and the classification of financial
liabilities.
47 POSSIBLE IMPACT OF AMMENTS, NEW STANDARDS AND INTERPRETATIONS
ISSUED BUT NOT EFFECTIVE FOR THE YEARED 31 DECEMBER 2016
(Continued)
IFRS 15, Revenue from contracts with customers
IFRS 15 establishes a comprehensive framework for recognising
revenue from contracts with customers. IFRS 15 will replace the
existing revenue standards, IAS 18, Revenue, which covers revenue
arising from sale of goods and rendering of services, and IAS 11,
Construction contracts, which specifies the accounting for revenue
from construction contracts, and IFRIC 13, Customer Loyalty
Programs. It also includes guidance on when to capitalise costs of
obtaining or fulfilling a contract not otherwise addressed in other
standards, and includes expanded disclosure requirements.
IFRS 16, Leases
IFRS 16 provides comprehensive guidance for the identification
of lease arrangements and their treatment by lessees and lessors.
IFRS 16 is not expected to impact significantly on the way that
lessors account for their rights and obligations under a lease.
However, once IFRS 16 is adopted, lessees will no longer
distinguish between finance leases and operating leases. Instead,
subject to practical expedients, lessees will account for all
leases in a similar way to current finance lease accounting, i.e.
at the commencement date of the lease the lessee will recognize and
measure a lease liability at the present value of the minimum
future lease payments and will recognize a corresponding
"right-of-use" asset. After initial recognition of this asset and
liability, the lessee will recognize interest expense accrued on
the outstanding balance of the lease liability, and the
depreciation of the right-of-use asset, instead of the current
policy of recognizing rental expenses incurred under operating
leases on a systematic basis over the lease term. As a practical
expedient, the lessee can elect not to apply this accounting model
to short-term leases (i.e. where the lease term is 12 months or
less) and to leases of low-value assets, in which case the rental
expenses would continue to be recognised on a systematic basis over
the lease term.
The Group does not plan to early adopt the above new standards
or amendments. Given the Group has not completed its assessment of
their full impact on the Group's financial statements, their
possible impact on the Group's results of operations and financial
position has not been quantified.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2016
(Prepared under the Accounting Standards for Business
Enterprises of the PRC)
2016 2015
RMB'000 RMB'000
Revenue from operations 113,963,990 108,929,114
Less: Cost of operations 87,202,708 83,694,898
Taxes and surcharges 293,972 274,190
Selling expenses 5,594,956 6,147,913
General and administrative expenses 4,031,545 4,023,522
Finance costs 7,493,772 7,948,531
Impairment losses 253,842 181,885
Add: (Losses)/gains from movements in fair
value (279) 5,634
Investment income 87,851 1,675,988
Including: Share of profits less losses
of associates
and joint ventures 22,235 1,620,197
Profit from operations 9,180,767 8,339,797
Add: Non-operating income 1,154,781 1,159,756
Including: Gains on disposal of non-current
assets 39,416 69,960
Less: Non-operating expenses 116,172 456,308
Including: Losses on disposal of non-current
assets 78,978 172,920
Profit before taxation 10,219,376 9,043,245
Less: Taxation 2,455,839 1,823,097
Net profit 7,763,537 7,220,148
Including: net profit of the combined party
before
common control combinations - 57,677
Net profit attributable to equity shareholders
of the Company 6,814,015 6,774,008
Non-controlling interests 949,522 446,140
Earnings per share (RMB)
Basic and diluted 0.55 0.55
2016 2015
RMB'000 RMB'000
Other comprehensive income for the year
Other comprehensive income attributed to
equity shareholders of the Company after
taxation
Items that will not be reclassified to
profit or loss:
* Remeasurement of net defined benefit liability 1,721 (15,790)
* Share of other comprehensive income of the investees
accounted by the equity method 162,682 (55,062)
Items that may be reclassified to profit
or loss:
* Share of other comprehensive income of the investees
accounted by the equity method 2,171,926 (1,640,609)
* Exchange realignment 1,293,041 1,052,127
* Gains or losses arising from changes in fair value of
available-for-sale financial assets 15,093 11,227
Other comprehensive income after taxation
attributed to non-controlling interests 53,850 49,753
Total comprehensive income 11,461,850 6,621,794
Attributable to:
Equity shareholders of the Company 10,458,478 6,125,901
Non-controlling interests 1,003,372 495,893
CONSOLIDATED BALANCE SHEET
At 31 December 2016
(Prepared under the Accounting Standards for Business
Enterprises of the PRC)
31 December 31 December
2016 2015
RMB'000 RMB'000
ASSETS
Current assets
Cash and bank 7,322,356 7,793,044
Financial assets at fair value through
profit or loss 222 995
Bills receivable 837 224
Accounts receivable 3,286,091 3,661,354
Other receivables 1,923,459 1,882,945
Prepayments 1,136,826 1,069,263
Inventories 1,680,633 1,730,742
Held-for-sale assets 918,587 582,074
Other current assets 3,053,370 2,806,973
Total current assets 19,322,381 19,527,614
Non-current assets
Available-for-sale financial assets 1,152,704 1,108,631
Held-to-maturity investments 10,000 10,000
Long-term receivables 898,845 598,312
Long-term equity investments 15,168,760 12,451,024
Investment properties 337,551 353,511
Fixed assets 148,910,057 149,267,398
Construction in progress 29,320,914 20,747,815
Intangible assets 4,252,314 4,169,341
Goodwill 1,102,185 1,102,185
Long-term deferred expenses 669,414 683,325
Deferred tax assets 2,983,067 3,684,379
Total non-current assets 204,805,811 194,175,921
Total assets 224,128,192 213,703,535
31 December 31 December
2016 2015
RMB'000 RMB'000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term loans 14,488,948 3,055,641
Short-term bonds payable 5,147,083 2,598,843
Bills payable - 11,646
Accounts payable 11,775,901 11,747,465
Domestic air traffic liabilities 2,933,845 2,619,395
International air traffic liabilities 3,380,091 3,139,838
Receipts in advance 181,050 148,505
Employee compensations payable 2,191,248 1,933,927
Taxes payable 1,361,742 1,304,379
Interest payable 761,913 679,394
Other payables 8,480,453 10,574,693
Non-current liabilities repayable within
one year 13,144,160 12,399,620
Total current liabilities 63,846,434 50,213,346
Non-current liabilities
Long-term loans 12,835,222 30,794,484
Corporate bonds 24,998,024 18,193,038
Long-term payables 3,546,586 3,122,381
Obligations under finance leases 36,295,471 37,803,279
Defined benefit obligations 269,742 276,968
Accrued liabilities 341,919 347,465
Deferred income 3,092,841 3,489,698
Deferred tax liabilities 2,428,313 2,867,738
Total non-current liabilities 83,808,118 96,895,051
Total liabilities 147,654,552 147,108,397
31 December 31 December
2016 2015
RMB'000 RMB'000
Shareholders' equity
Issued capital 13,084,751 13,084,751
Capital reserve 16,509,531 16,509,531
Other comprehensive income (2,062,598) (5,707,061)
Reserve funds 7,829,643 6,633,105
Retained earnings 33,448,460 29,245,119
General reserve 66,709 54,951
Equity attributable to shareholders of
the Company 68,876,496 59,820,396
Non-controlling interests 7,597,144 6,774,742
Total shareholders' equity 76,473,640 66,595,138
Total liabilities and shareholders' equity 224,128,192 213,703,535
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:
Note 2016 2015
RMB'000 RMB'000
Net profit attributable to shareholders
of the Company under CASs 6,814,015 6,774,008
Deferred taxation (i) 1,618 (22,667)
Differences in value of fixed assets
and other non-current assets (ii) (6,474) 282,454
Government grants (iii) - 29,552
Net profit attributable to shareholders
of the Company under IFRSs 6,809,159 7,063,347
31 December 31 December
Note 2016 2015
RMB'000 RMB'000
Equity attributable to shareholders
of the Company under CASs 68,876,496 59,820,396
Deferred taxation (i) 70,968 69,350
Differences in value of fixed assets
and other non-current assets (ii) (288,128) (281,654)
Unrealised profit of the disposal
of Hong Kong Dragon Airlines (iv) 139,919 139,919
Equity attributable to shareholders
of the Company under IFRSs 68,799,255 59,748,011
Effects of differences between IFRSs and CASs (Continued)
Notes:
(i) The differences in deferred taxation were mainly caused by
the other 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) Under both CASs and IFRSs, government grants or government
subsidies should be debited as government grants/subsidies
receivable or the relevant assets and credited as deferred income,
which will then be charged to the profit or loss on a straight-line
basis over the useful lives of the relevant assets. As the
accounting for government grants or government subsidies have had
no significant impact on the Group's financial statements, no
adjustment has been made to unify the accounting treatments of
government grants or government subsidies received before the Group
adopted CASs. Therefore, in the Group's financial statements
prepared in accordance with CASs, these government grants received
were debited as the relevant assets and credited as capital
reserve; and government subsidies were debited as cash and bank
balances and credited as subsidy income in the profit or loss. Such
differences are eliminated in 2015.
(iv) 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.
GLOSSARY OF TECHNICAL TERMS
CAPACITY MEASUREMENTS
"available seat kilometres" the number of seats available for sale
or "ASK(s)" multiplied by the kilometres flown
"available freight tonne kilometres" the number of tonnes of capacity available
or for the carriage of cargo and mail multiplied
"AFTK(s)" by the kilometres flown
"available tonne kilometres" the number of tonnes of capacity available
or "ATK(s)" for transportation multiplied by the kilometres
flown
TRAFFIC MEASUREMENTS
"revenue passenger kilometres" the number of revenue passengers carried
or "RPK(s)" multiplied by the kilometres flown
"passenger traffic" measured in revenue passenger kilometres,
unless otherwise specified
"revenue freight tonne kilometres" "RFTK(s)" the revenue cargo and mail load
or in tonnes multiplied by the kilometres
"RFTK(s)" flown
"cargo and mail traffic" measured in revenue freight tonne kilometres,
unless otherwise specified
"revenue tonne kilometres" the revenue load (passenger and cargo)
or "RTK(s)" in tonnes multiplied by the kilometres
flown
YIELD MEASUREMENTS
"passenger yield"/"yield per revenues from passenger operations divided
RPK" by RPKs
"cargo yield"/"yield per RFTK" revenues from cargo operations divided
by RFTKs
LOAD FACTORS
"passenger load factor" revenue passenger kilometres expressed
as a percentage of available seat kilometres
"cargo and mail load factor" revenue freight tonne kilometres expressed
as a percentage of available freight tonne
kilometres
"overall load factor" RTKs 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 Mongolia" Air China Inner Mongolia Co., Ltd.
"Air Macau" Air Macau Company Limited
"AMECO" Aircraft Maintenance and Engineering
Corporation
"Articles of Association" the articles of association of the
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 Airlines" China Eastern Airlines Corporation
Limited
"China Southern Airlines" China Southern Airlines Company Limited
"CNACG" China National Aviation Corporation
(Group) Limited
"CNAF" China National Aviation Finance Co.,
Ltd.
"CNAHC" China National Aviation Holding Company
"CNAHC Group" China National Aviation Holding Company
and its subsidiaries
"CNAMC" China National Aviation Media Co.,
Ltd
"Company", "We" or "Air China" Air China Limited
"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)" the overseas-listed foreign invested
share(s) in the share capital of the
Company, with a nominal value of RMB1.00
each, which are listed on the Hong
Kong Stock Exchange
"Hong Kong Stock Exchange" The Stock Exchange of Hong Kong Limited
"IFRSs" International Financial Reporting Standards
"Juneyao Airlines" Juneyao Airlines Co., Ltd.
"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 2016 to 31
December 2016
"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.
"Shenzhen Airlines" Shenzhen Airlines Company Limited
"Spring Airlines" Spring Airlines Co., Ltd.
"Supervisors(s)" The supervisor(s) of the Company
"Supervisory Committee" The supervisory committee of the Company
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IAMJTMBATMRR
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