CEA China Eastern Airlines Corp Ltd

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Certain statements contained in this announcement may be regarded as "forward-looking statements" within the meaning of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The forward-looking statements included in this announcement represent the Company's views as of the date of this announcement. While the Company anticipates that subsequent events and developments may cause the Company's views to change, the Company specifically disclaims any obligation to update these forward-looking statements, unless required by applicable laws. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of this announcement.

If you are in any doubt as to any aspect of this circular or the appropriate course of action, you should consult a stock broker or other registered dealer in securities, bank manager, solicitor, professional accountant or other appropriate independent advisers.

If you have sold or transferred all your shares in China Eastern Airlines Corporation Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

(I) MAJOR TRANSACTION AND

CONTINUING CONNECTED TRANSACTION

IN RELATION TO

2016 AIRCRAFT FINANCE LEASE FRAMEWORK AGREEMENT

AND

(II) PROPOSED AMENDMENTS OF ARTICLES OF

ASSOCIATION OF THE COMPANY

AND

(III) PROPOSED APPOINTMENTS OF DIRECTORS,

INDEPENDENT NON-EXECUTIVE DIRECTORS AND

SHAREHOLDER REPRESENTATIVE SUPERVISORS

Independent Financial Adviser

to the Independent Board Committee and the Independent Shareholders

20 May 2016

To the shareholders of the Company

Dear Sir or Madam,

(I) MAJOR TRANSACTION AND

CONTINUING CONNECTED TRANSACTION

IN RELATION TO

2016 AIRCRAFT FINANCE LEASE FRAMEWORK AGREEMENT

AND

(II) PROPOSED AMENDMENTS OF ARTICLES OF

ASSOCIATION OF THE COMPANY

AND

(III) PROPOSED APPOINTMENTS OF DIRECTORS,

INDEPENDENT NON-EXECUTIVE DIRECTORS AND

SHAREHOLDER REPRESENTATIVE SUPERVISORS

Reference is made to: (i) the Announcements; and (ii) the notice of the 2015 AGM dated 28 April 2016.

The 2015 AGM will be held on 15 June 2016. The purpose of this circular is to give Shareholders information on matters to be dealt with at the 2015 AGM, which include the approval of (i) the 2016 Aircraft Finance Lease Framework Agreement and the Proposed Transactions thereunder; (ii) the proposed amendments of Articles of Association; and (iii) the proposed appointments of Directors, independent non-executive Directors and shareholder representative supervisors.

The major terms of the 2016 Aircraft Finance Lease Framework Agreement are set out as follows:

The lease period of the aircraft under the 2016 Aircraft Finance Lease Framework Agreement will be agreed upon entering into the Aircraft Finance Lease Agreements. Based on previous similar transactions, the lease period of the aircraft under the 2016 Aircraft Finance Lease Framework Agreement would be around 10 years.

To ensure the Company’s conformity with the terms of the 2016 Aircraft Finance Lease Framework Agreement, the Company shall adopt a series of internal control policies during its daily operations. Such internal control policies shall be conducted and supervised by the finance department of the Company and the independent non-executive Directors of the Company:

In addition, for the purpose of Rule 14A.56 of the Listing Rules, the Company’s external auditors, will be engaged to issue a letter to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on “Assurance Engagements 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.

The Directors are of the view that the above procedures can ensure that the transactions contemplated under the 2016 Aircraft Finance Lease Framework Agreement will be conducted on normal commercial terms or better, and will not be prejudicial to the interests of the Company and the Shareholders.

The Company is principally engaged in the business of civil aviation.

CES Leasing is principally engaged in the provision of finance leasing and other leasing services, purchase of domestic and foreign finance lease assets, handling salvage value and maintenance of finance lease assets, and provision of advisory services and guarantee etc. for finance lease transactions.

As of 31 December 2015, the total assets and net assets of CES Leasing amounted to RMB8,598,763,714.68 and RMB1,052,032,155.39 respectively. For the year ended 31 December 2015, CES Leasing recorded net profits of RMB49,025,351.61.

The Designated Financial Institutions are principally engaged in banking services.

CES Leasing was established in 2014. The Company previously conducted transactions in relation to finance lease with CES Leasing in 2014 and 2015. However, such transactions were not conducted on a continuing basis. The total amounts payable under the 2015 Aircraft Finance Lease CT and the 2014 Aircraft Finance Lease CT were expected to be not more than approximately USD1,712 million and not more than approximately USD906 million, respectively.

The total fee payable under the Proposed Transactions is the sum of the rental fee, the arrangement fee and the buy-back fee, and the total rental fee payable under the Proposed Transactions fee equals to the sum of the principal and the interest payable under each Aircraft Finance Lease Agreement. Having considered the historical transaction amounts and the Company’s aircraft introduction plan for the year 2016 (the Company plans to introduce 72 aircraft in 2016. Please refer to page 11 of the annual report of the Company for year 2015 for details), the proposed total annual cap in relation to the Proposed Transactions for the financial year ending 31 December 2016 amount to USD2,616 million, of which the total rental fee (including principal and interest) shall not exceed USD2,600 million and the total arrangement fee shall not exceed USD16 million (or the equivalent amount in RMB).

Under the Proposed Transactions, the Leased Aircraft will be recorded as fixed assets of the Company and the principal amount of the Proposed Transactions will be recorded as long-term liabilities of the Company. The consideration for the purchase of aircraft may be funded through the Company’s working capital, bank loans from commercial banks and other sources of financing available to the Company. Using a finance lease structure under the Proposed Transactions may result in an increase in the Company’s debt-to-equity ratio, but as the rental fee under the Proposed Transactions is payable quarterly or semi-annually in arrears, commencing on the Delivery Date of each of the Leased Aircraft and concluding on the date of the last payment for such Leased Aircraft, it is not expected to have a substantial impact on the Company’s cashflow position or its business operations. The Proposed Transactions are not expected to result in a material impact on the earnings and net assets of the Group.

Upon reviewing and evaluating the financial proposals submitted from independent commercial banks and the Designated Financial Institutions, whether the Company may finally mandate the finance lease for the Leased Aircraft to CES Leasing depends on the following prerequisites: (1) the stable operation of CES Leasing and its qualification and ability in engaging in large-scale aircraft finance lease transactions; (2) through requests for proposals or other bidding processes, the evaluated advantages of CES Leasing’s finance proposal and its quotations for the arrangement fee over other finance proposals and their quotations for the arrangement fee; and (3) the capability of CES Leasing to issue value added tax invoices for the interest portion of finance lease, which enables the Company to deduct value added tax, and the arrangement fee being lower than the deductible value added tax in respect of the interest payments, which helps the Company reduce financing costs.

If, after such requests of proposals or other bidding processes, CES Leasing is confirmed to have fulfilled the aforesaid prerequisites, the maximum aggregate rental of the aircraft finance lease transactions between the Company and CES Leasing shall not exceed half of the aggregate amount of the aircraft scheduled to be introduced in 2016. Through adopting the finance lease arrangement provided by CES Leasing, and after deducting the arrangement fee payable to CES Leasing, the savable financing costs for the Company for the financial year ending 31 December 2016 compared to adopting secured loans arrangements with equivalent interest rates are estimated to up to USD69 million (or the equivalent amount in RMB) for the financial year ending 31 December 2016.

The Company introduced 14 and 23 aircraft respectively in the 2014 Aircraft Finance Lease CT and the 2015 Aircraft Finance Lease CT by adopting the finance lease arrangement provided by CES Leasing. After deducting the arrangement fee payable to CES Leasing, the Company saved financing costs of USD13 million and USD32 million respectively under such finance lease arrangement compared to adopting secured loans arrangements with equivalent interest rates.

CES Leasing intends to incorporate wholly-owned subsidiaries in the China (Shanghai) Pilot Free Trade Zone or the Tianjin Dongjiang Bonded Zone of the PRC for the purpose of acting as the Lessor(s) in the Proposed Transactions. The Lessor(s), acting as the borrower(s), will sign loan agreement(s) with the Designated Financial Institutions, acting as the lender(s), in respect of each of the Leased Aircraft. Such arrangement can facilitate CES Leasing to issue value added tax invoices for the interest portion of finance lease, which enables the Company to deduct value added tax.

The terms and conditions of the Proposed Transactions are agreed after arm’s length negotiations between the parties. The Directors are of the view that the Proposed Transactions are on normal commercial terms, and that the terms of the Proposed Transactions as well as the proposed annual cap for the financial year ending 31 December 2016 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

CES Leasing is a non-wholly owned subsidiary of CEA Holding, which in turn is the controlling shareholder of the Company. Each of CES Leasing and the Lessor(s), which are wholly-owned subsidiaries of CES Leasing, is thus a connected person of the Company. Therefore, the Proposed Transactions constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

As the highest applicable percentage ratio of the Proposed Transactions under the Listing Rules exceeds 25% on an annual basis and as the highest transaction classification of the Proposed Transactions is that of a major transaction under the Listing Rules, the 2016 Aircraft Finance Lease Framework Agreement will constitute a continuing connected transaction and major transaction of the Company under the Listing Rules. Therefore, the 2016 Aircraft Finance Lease Framework Agreement is subject to: (a) the disclosure, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules; and (b) the requirements applicable to major transactions under Chapter 14 of the Listing Rules.

The resolutions regarding the Proposed Transactions had been passed at the 2016 third regular meeting of the Board on 28 April 2016. As Mr. Liu Shaoyong (a Director and the Chairman of the Company), Mr. Xu Zhao (a Director) and Mr. Gu Jiadan (a Director) are members of the senior management of CEA Holding, they may be regarded as having a material interest in the Proposed Transactions. As such, they have abstained from voting at the meeting of the Board convened for the purpose of approving the Proposed Transactions. Save as disclosed above, none of the other Directors has any material interests in the Proposed Transactions.

On 28 April 2016, the Company also entered into the 2017–2019 Aircraft Finance Lease Framework Agreement with CES Leasing, details of which are set out in a separate announcement published by the Company on the same day. As the term of the 2016 Aircraft Finance Lease Framework Agreement, together with the term of the 2017–2019 Aircraft Finance Lease Framework Agreement, will exceed three years, the Independent Financial Advisor ’s opinion is included in this circular from pages 23 to 36 explaining why a period longer than three years is required and confirming whether it is normal business practice for an agreement of this type to be of such duration pursuant to Rule 14A.52 of the Listing Rules.

The resolution on the amendments to the article relating to Profit Distribution in the Articles of Association was considered and approved at the 2016 third regular meeting of the seventh session of the Board on 28 April 2016. It was agreed to amend Article 157(D) of the Articles of Association. Such amendments are hereby submitted to the Shareholders for approval at the 2015 AGM.

The original Article 157(D) of the Articles of Association:

“Conditions and proportion of distribution of cash dividends by the Company:

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

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

The amended Article 157(D) of the Articles of Association:

“Conditions and proportion of distribution of cash dividends by the Company:

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

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

The resolution on nomination of Directors and independent non-executive Directors of the eighth session of the Board was considered and approved at the 2016 third regular meeting of the seventh session of the Board on 28 April 2016. It was agreed that Mr. Liu Shaoyong, Mr. Ma Xulun, Mr. Xu Zhao, Mr. Gu Jiadan, Mr. Li Yangmin, Mr. Tang Bing and Mr. Tian Liuwen shall be nominated as candidates for Directors of the eighth session of the Board, and Mr. Li Ruoshan, Mr. Ma Weihua, Mr. Shao Ruiqing and Mr. Cai Hong Ping shall be nominated as candidates for independent non-executive Directors of the eighth session of the Board. The resolution on nomination of candidates for the eighth session of the Supervisory Committee was considered and approved at the fourteenth meeting of the seventh session of the Supervisory Committee on 28 April 2016. It was agreed that Mr. Xi Sheng, Mr. Ba Shengji and Mr. Jia Shaojun shall be nominated as the shareholder representative supervisors of the eighth session of the Supervisory Committee of the Company. Such appointments are hereby submitted to the Shareholders for approval at the 2015 AGM. The term of office of the Directors and independent non-executive Directors of the eight session of the Board, as well as the supervisors of the eight session of the Supervisory Committee is three years.

There are no service contracts between the Company and the nominated Directors, independent non-executive Directors and supervisors in respect of their proposed appointments. The remuneration of the nominated Directors, independent non-executive Directors and supervisors will be determined according to the remuneration policy of the Company, their responsibilities and the prevailing market conditions.

As far as the Directors are aware and save as disclosed in this circular: each of the nominated Directors, independent non-executive Directors and supervisors (i) does not presently, and did not in the last 3 years, hold any other position in the Company or any of its subsidiaries; (ii) has not held any other directorship in the last 3 years in public companies the securities of which are listed on any securities market in Hong Kong or overseas; (iii) has no other major appointment or professional qualification; (iv) does not have any other relationship with any director, senior management or substantial or controlling shareholder of the Company; and (v) does not have, or is not deemed to have, any interests in any shares or underlying shares of the Company within the meaning of Part XV of the Securities and Futures Ordinance.

Save as disclosed in this circular, the Board is not aware of any other matter in relation to the proposed appointments of the nominated Directors, independent non-executive Directors and supervisors which is required to be disclosed pursuant to Rule 13.51(2) of the Listing Rules and any other matter that needs to be brought to the attention of the shareholders.

The biographical details of the nominated Directors, independent non-executive Directors and supervisors are set out in Appendix III to this circular.

2015 AGM

The 2015 AGM will be held at Four Seasons Hall, 2/F, Shanghai International Airport Hotel (上海國際機場賓館二樓四季廳), No. 368 Yingbin (1) Road, Shanghai, the PRC at 9:30 am, on Wednesday, 15 June 2016. Please refer to the notice of 2015 AGM published by the Company on 28 April 2016 for details.

Closure of books

The H share register of members of the Company will be closed from 16 May 2016 to 15 June 2016, both days inclusive, during which period no transfer of the H shares will be effected. Where applicable, holders of the H shares of the Company intending to attend the 2015 AGM are therefore required to lodge their respective instrument(s) of transfer and the relevant share certificate(s) to the Company’s H share registrar, Hong Kong Registrars Limited, by 4:30 p.m. on 13 May 2016. The address and contact details of Hong Kong Registrars Limited are as follows:

Hong Kong Registrars Limited

Rooms 1712–1716, 17th Floor, Hopewell Centre

183 Queen’s Road East

Wanchai

Hong Kong

Telephone: +852 2862 8628

Fax: +852 2865 0990

Registration procedures for attending the 2015 AGM

Appointing proxies

Recommendation

Based on the relevant information disclosed herein, the Directors are of the opinion that the Proposed Transactions are on normal commercial terms, and that the terms of the Proposed Transactions as well as the proposed annual cap for the financial year ending 31 December 2016 are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Having considered that: (i) the Group is principally engaged in the business of civil aviation; (ii) it is the Group’s usual practice to regularly refresh its fleet structure as disclosed in its annual reports; and (iii) the Aircraft Finance Lease Agreements provide the necessary financial resources to the Group while the Group executes its aircraft introduction plan, the Directors are also of the opinion that the Proposed Transactions are in the Company’s ordinary and usual course of business. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the 2015 AGM.

Your attention is drawn to the letter from the Independent Board Committee set out on pages 21 to 22 of this circular which contains its recommendation to the Independent Shareholders regarding the Proposed Transactions, and the letter of advice from the Independent Financial Adviser set out on pages 23 to 36 of this circular containing its advice to the Independent Board Committee and the Independent Shareholders on the same. The Independent Shareholders are advised to read the aforesaid letters before deciding as to how to vote on the resolution approving the 2016 Aircraft Finance Lease Framework Agreement and the transactions contemplated thereunder.

In addition, based on the relevant information disclosed herein, the Directors are of the opinion that (i) the proposed amendments to the Articles of Association; and (ii) the proposed appointment of Directors, independent non-executive Dir ectors and supervisors are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the aforesaid resolutions to be proposed at the 2015 AGM.

Voting

To the best of the Directors’ knowledge as at the Latest Practicable Date, no Shareholder is required to abstain from voting on (i) the proposed amendments to the Articles of Association and (ii) the proposed appointments of Directors, independent non-executive Directors and supervisors at the 2015 AGM.

As CEA Holding is the controlling Shareholder holding directly and indirectly holds 8,156,480,000 shares of the Company, representing approximately 62.07% of the Company’s issued share capital as at the Latest Practicable Date, each of CEA Holding and its associate(s) is therefore a connected person of the Company. As such, CEA Holding and its associate(s), if any, will at the 2015 AGM abstain from voting on the ordinary resolution approving the 2016 Aircraft Finance Lease Framework Agreement and the transactions contemplated thereunder, which will be taken on a poll as required under the Listing Rules. To the extent that the Directors are aware having made all reasonable enquiries, as at the Latest Practicable Date:

Your attention is also drawn to the additional information set out in the appendices to this circular.

20 May 2016

To the Independent Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION AND

CONTINUING CONNECTED TRANSACTION

IN RELATION TO 2016

AIRCRAFT FINANCE LEASE FRAMEWORK AGREEMENT

We refer to the circular dated 20 May 2016 (the “ Circular ”) to the Shareholders of which this letter forms part. Unless otherwise specified, terms defined in the Circular shall have the same meaning in this letter.

We have been appointed as members of the Independent Board Committee, which has been established to advise you in respect of the Proposed Transactions, details of which are set out in the letter from the Board contained in the Circular. None of us has any material interest in the Proposed Transactions.

CES Leasing is a non-wholly owned subsidiary of CEA Holding, which in turn is the controlling shareholder of the Company. Each of CES Leasing and the Lessor(s), which are wholly-owned subsidiaries of CES Leasing, is thus a connected person of the Company. Therefore, the Proposed Transactions constitute a connected transaction of the Company under Chapter 14A of the Listing Rules.

As the highest applicable percentage ratio of the Proposed Transactions under the Listing Rules exceeds 25% on an annual basis and as the highest transaction classification of the Proposed Transactions is that of a major transaction under the Listing Rules, the 2016 Aircraft Finance Lease Framework Agreement will constitute a continuing connected transaction and major transaction of the Company under the Listing Rules. Therefore, the 2016 Aircraft Finance Lease Framework Agreement is subject to: (a) the disclosure, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules; and (b) the requirements applicable to major transactions under Chapter 14 of the Listing Rules.

Octal Capital has been appointed as the Independent Financial Adviser to advise us and you on the fairness and reasonableness of the Proposed Transactions. We wish to draw your attention to the letter from Octal Capital set out on pages 23 to 36 of the Circular.

We have discussed with the management of the Company in relation to the Proposed Transactions. We have also taken into account the principal factors and reasons considered by the Independent Financial Adviser in forming its opinion in relation to the Proposed Transactions. We have also considered that: (i) the Group is principally engaged in the business of civil aviation; (ii) it is the Group’s usual practice to regularly refresh its fleet structure as disclosed in its annual reports; and (iii) the Aircraft Finance Lease Agreements provide the necessary financial resources to the Group while the Group executes its aircraft introduction plan.

On the basis of the above, we consider, and agree with the view of the Independent Financial Adviser, that the Proposed Transactions are on normal commercial terms and in the Company’s ordinary and usual course of business, and that the Proposed Transactions as well as the proposed annual caps for the financial year ending 31 December 2016 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend you to vote in favour of the ordinary resolution to be proposed at the 2015 AGM in respect of the Proposed Transactions.

The following is the text of the letter of advice dated 20 May 2016 from Octal Capital to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Proposed Transactions prepared for the purposes of Chapter 14A of the Listing Rules and for incorporation into this circular:

	Octal Capital Limited 801-805, 8th Floor, Nan Fung Tower 88 Connaught Road Central Hong Kong
	20 May 2016

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the 2016 Aircraft Finance Lease Framework Agreement and the 2017–2019 Aircraft Finance Lease Framework Agreement (collectively the “ Aircraft Finance Lease Framework Agreements ”) and the transactions contemplated thereunder (the “ Continuing Connected Transactions ”), details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circulars of the Company dated 20 May 2016 (the “ Circular ”), of which this letter forms a part. Capitalized terms used in this letter shall have the same meaning as those defined in the Circular unless the context otherwise requires.

On 28 April 2016, the Company entered into the Aircraft Finance Lease Framework Agreements with CES Leasing, pursuant to which CES Leasing agreed to provide finance leasing to the Company in relation to the aircrafts scheduled to be introduced by the Company for the financial years 2016–2019 (the “ Leased Aircraft ”), as and when the Company considers desirable, in accordance with the terms and conditions of the Aircraft Finance Lease Framework Agreements and the relevant implementation agreements contemplated thereunder. CES Leasing is a non-wholly owned subsidiary of CEA Holding, which in turn is the controlling shareholder of the Company. Each of CES Leasing and the Lessor(s), which are wholly-owned subsidiaries of CES Leasing, is thus a connected person of the Company. As the relevant applicable percentage ratios under the Listing Rules exceed 25% on an annual basis and as the highest transaction classification is that of a major transaction under the Listing Rules, the Aircraft Finance Lease Framework Agreements will constitute Continuing Connected Transactions and major transactions of the Company under the Listing Rules.

An independent board committee comprising all independent non-executive Directors of the Company, namely Mr. JI Weidong, Mr. LI Ruoshan, Mr. MA Weihua and Mr. SHAO Ruiqing, has been established to consider and advise the Independent Shareholders on whether the terms of the Aircraft Finance Lease Framework Agreements are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. The advice of the Independent Board Committee as regards the Continuing Connected Transactions is contained in its letter included in the Circular.

We, Octal Capital Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the Continuing Connected Transactions in this regard. We are not connected with the directors, chief executive and substantial shareholders of the Company or CES Leasing or any of their respective subsidiaries or their respective associates and do not have any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group as at the Latest Practicable Date and therefore is considered suitable to give independent advice to the Independent Shareholders. During the last two years, we were engaged by the Company as the independent financial adviser in respect of a major and connected transaction in relation to aircraft finance lease (details can be referred to the circular of the Company dated 26 May 2015). Under such appointment, we were required to express our opinion on and give recommendations to the Independent Board Committee and the Shareholders in respect of the transaction. Apart from normal professional fees payable to us in connection with this and the previous appointment, no arrangement exists whereby we will receive any fees or benefits from the Group or the directors, chief executive and substantial shareholders of the Company or CES Leasing or any of its subsidiaries or their respective associates.

In formulating our opinion, we have relied on the accuracy of the information and representations contained in the Circular and have assumed that all information and representations made or referred to in the Circular as provided by the management of the Company were true at the time they were made and continue to be true as at the date of the Circular. We have also relied on our discussion with the management of the Company regarding the Continuing Connected Transactions including the information and representations contained in the Circular. We have also assumed that all statements of belief, opinion and intention made by the management of the Company respectively in the Circular were reasonably made after due enquiry. We consider that we have reviewed sufficient information to reach an informed view, to justify our reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our advice. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information and representations provided to us by the management of the Company. We have not, however, conducted an independent in-depth investigation into the business and affairs of the Group, CES Leasing and their respective associates, nor have we carried out any independent verification of the information supplied to us.

THE CONTINUING CONNECTED TRANSACTIONS

Principal factors and reasons considered

In arriving at our opinion regarding the terms of the Continuing Connected Transactions, we have considered the following principal factors and reasons:

The Company is principally engaged in the business of civil aviation. The Group established an aviation transportation network covering 1,057 destinations in 179 countries and carried nearly 94 million passengers in 2015. As at 31 December 2015, the Group operated a fleet of 551 aircrafts, of which 396 were self-owned or under finance leases, 139 of which were under operating lease and the remaining 16 were business aircrafts held under trust. The Group maintained an average passenger aircraft fleet age of under 6 years as at 31 December 2015. As disclosed in the annual report of the Company for the year ended 31 December 2015, the Group planned to introduce a total of 124 new aircrafts and retire 45 older models during 2016 and 2017. The Group further planned to introduce 177 aircraft and retire 25 aircraft in 2018 and future years according to confirmed orders as at 31 December 2015.

On 14 November 2014, the Company entered into a finance lease framework agreement with CES Leasing pursuant to which CES Leasing agreed to provide finance leasing to the Company in relation to 14 aircrafts in accordance with the terms and conditions thereto, details of which are set out in the announcement of the Company dated 14 November 2014. Subsequently on 5 May 2015, the Company entered into a second lease agreement with CES Leasing pursuant to which CES Leasing agreed to provide finance leasing to the Company in relation to 23 aircrafts in accordance with the terms and conditions thereto, details of which are set out in the announcement of the Company dated 30 April 2015.

The table below summaries the consolidated financial position of the Group as at 31 December 2014 and 2015:

The total assets of the Group amounted to approximately RMB165,829 million and RMB197,992 million as at 31 December 2014 and 2015 respectively. The total liabilities of the Group amounted to approximately RMB134,058 million and RMB158,061 million as at 31 December 2014 and 2015 respectively. The Group’s total obligations under finance leases (including interest) was approximately RMB52,399 million as at 31 December 2015. As at 31 December 2015, the Group had cash and cash equivalents amounted to approximately RMB9,080 million. The Group monitors its gearing on the basis of its debt ratios (measured as total liabilities divided by total assets), which were approximately 80.8% and 79.8% as at 31 December 2014 and 2015 respectively.

As set out in the Letter from the Board, the Group introduced 14 and 23 aircrafts respectively in the 2014 Aircraft Finance Lease CT and the 2015 Aircraft Finance Lease CT (the “ Previous CTs ”) by adopting the finance lease arrangement provided by CES Leasing. By utilising a finance lease structure in the PRC domestic bonded zone with CES Leasing to introduce aircrafts for the Group, CES Leasing can provide value added tax invoices for the interest payments under the lease structure to the Group, and the Group can use the invoices to deduct value added tax under the relevant PRC domestic bonded zone regulations. The arrangement fee charged by CES Leasing under the lease structure is far less than the deductible value added tax in respect of the interest payments, thereby reducing the Company’s aggregate financing costs in introducing new aircrafts. After deducting the arrangement fee payable to CES Leasing under the lease structure of the Previous CTs, the Group saved financing costs of approximately USD13 million and USD32 million respectively under such finance lease arrangement compared to adopting secured loans arrangements with equivalent interest rates.

Having conducted the Previous CTs, the Group is of the view that the finance lease structure in the PRC domestic bonded zone proved to be both economically favorable and legally permissible and is in line with the Company and Shareholders’ interest as a whole. As such, the Company entered into the Aircraft Finance Lease Framework Agreements with CES Leasing to extend such lease structure to financially support the Group’s aircraft estimated delivery schedule during the years 2016 to 2019. The Group currently estimates that if it adopt the finance lease arrangement provided by CES Leasing, considering the Group’s aircraft estimated delivery schedule for the years 2016 to 2019 and after deducting the arrangement fee payable to CES Leasing, the savable financing costs for the Group compared to adopting secured loans arrangements with equivalent interest rates would amount to USD69 million, USD64 million, USD64 million and USD69 million respectively for each of the four years ending 31 December 2019.

Under the lease structure, CES Leasing intends to incorporate wholly-owned subsidiaries in the China (Shanghai) Pilot Free Trade Zone or the Tianjin Dongjiang Bonded Zone of the PRC for the purpose of acting as the Lessor(s) in the Continuing Connected Transactions. The Lessor(s), acting as the borrower(s), will sign loan agreement(s) with the Designated Financial Institutions, acting as the lender(s), in respect of each of the Leased Aircraft. Such arrangement can facilitate CES Leasing to issue value added tax invoices for the interest portion of finance lease, which enables the Company to deduct value added tax.

As set out in the Letter from the Board, we noted that the entering into of the Aircraft Finance Lease Framework Agreements with CES Leasing does not necessarily imply CES Leasing will be the eventual financial institution providing aircraft financial lease service to the Group in respect of each of the Leased Aircraft. We understand that the Company will review and evaluate financial proposals submitted from independent commercial banks and the Designated Financial Institutions, and whether the Company eventually mandates the finance lease for each of the Leased Aircraft to CES Leasing depends on the following prerequisites: (1) the stable operation of CES Leasing and its qualification and ability in engaging in large-scale aircraft finance lease transactions; (2) through requests for proposals or other bidding processes, the evaluated advantages of CES Leasing’s finance proposal and its quotations for the arrangement fee over other finance proposals and their quotations for the arrangement fee; and (3) the capability of CES Leasing to issue value added tax invoices for the interest portion of finance lease, which enables the Company to deduct value added tax, and the arrangement fee being lower than the deductible value added tax in respect of the interest payments, which helps the Company reduce financing costs. Taking into account that CES Leasing has obtained all relevant licenses in the PRC for operating in finance leasing business and had provided aircraft finance leasing arrangements to the Group under the Previous CTs at a competitive rate, the Directors believe that based on the previous competitive quotations provided by CES Leasing, it is competent to provide competitive and high-quality aircraft finance leasing arrangements to the Group.

We note that the Company has explored alternative financing options for the introduction of aircrafts including direct purchase, equity and debt financing or making a direct borrowing arrangement with CDB Shanghai. We are advised that having considered, among others, the Group’s debt structure and the market conditions and particularly the cost savings brought by a lease structure with CES Leasing, the Directors are of the view that the entering into of the Aircraft Finance Lease Framework Agreements are preferred over the financing alternatives and is in the interests of the Company and the Shareholders as a whole.

As discussed in the previous sub-section regarding the background of the Continuing Connected Transactions, it is one of the key business strategies of the Group to continuously refresh and update its fleet structure to cope with the increasing demand of customers and to expand the Group’s geographic coverage to new locations. The Group has maintained an average passenger aircraft fleet age of under 6 years as at 31 December 2015 which is one of the lowest among major Chinese airlines. As disclosed in the annual report of the Company for the year ended 31 December 2015, the Group planned to introduce a total of 124 new aircrafts and retire 45 older models during 2016 and 2017. The Group further planned to introduce 177 aircraft and retire 25 aircraft in 2018 and future years according to confirmed orders as at 31 December 2015. Given such ambitious aircraft estimated delivery schedule, we consider the Aircraft Finance Lease Framework Agreements would allow the Group to introduce the aircrafts in an organized and cost efficient manner.

Having considered (i) the financial benefits to the Group under the Continuing Connected Transactions, in particular the considerable value added tax savings; (ii) the eventual aircraft finance lease agreement shall only be mandated to CES Leasing should it provide the most competitive solution compared to third party proposals; (iii) the Group’s genuine and continuing need of new aircrafts in light of business developments and fleet structure refreshment; and (iv) the lack of alternative financing options for the introduction of aircrafts that are economically viable, we concur with the views of the Directors that the entering into of the Aircraft Finance Lease Framework Agreements are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Given (i) the Group is principally engaged in the business of civil aviation; (ii) it is the Group’s usual practice to regularly refresh its fleet structure as disclosed in its annual reports; and (iii) the Aircraft Finance Lease Framework Agreements provide the necessary financial resources to the Group while the Group executes its aircraft introduction plan, we consider the entering into of the Aircraft Finance Lease Framework Agreements is in the ordinary and usual course of business of the Group.

In considering the term of the Aircraft Finance Lease Framework Agreements, we noted that the Aircraft Finance Lease Framework Agreements in aggregate cover a term of four years from 2016 to 2019, which is longer than three years. Rule 14A.52 of the Listing Rules provides that the term of agreement governing continuing connected transaction must not exceed three years except in special circumstances where the nature of the transaction requires the contract to be of duration longer than three years. In this regard, we have discussed with the management of the Group the principal reasons for a longer term for the Aircraft Finance Lease Framework Agreements. We are advised by the Group that it is a common practice in the aviation industry for airlines to refresh their fleet structure and introduce new aircrafts on a continuous basis during each financial year. Further, given the extensive financial and time resources required in the manufacture and introduction of any new aircrafts, we are advised that it is common for airlines to negotiate with Aircraft Manufacturer(s) and formulate their aircraft introduction plan multiple years in advance. In this regard, we have reviewed the latest aircraft estimated delivery schedule of the Group and we noted that the Group has arranged delivery of new aircrafts for the years 2016 to 2022 pursuant to aircraft purchase agreements entered into between the Group and the Aircraft Manufacturer(s) during 2010 to 2016. We also reviewed publicly available aircraft delivery schedule of other major Chinese airlines and noted that these airlines also have formulated plans to introduce new aircrafts at a timeframe of a maximum of seven years in advance. Given the above, we are of the view that it is normal business practice in the Chinese aviation industry for airlines to enter into agreements in relation to introduction of aircrafts that covers a longer term of more than three years.

Furthermore, we are advised that aircraft leasing is a common practice in the aviation industry concerning introduction of new aircrafts and the lease period of such aircrafts exceeds three years in most cases given the useful lives of the Leased Aircraft are 15 years at minimum. A lease structure is often adopted while introducing new aircrafts due to the advantages of lower cost of financing, higher flexibility and less impact on the airline’s cash flow as compared to direct purchasing. We noted that the majority of the Group’s aircrafts are held under lease structures while the average percentage of leased aircrafts of other major Chinese airlines also exceeds 60% of their total fleet. We also reviewed the latest annual reports of other major Chinese airlines that are listed on the Stock Exchange and noted that the lease period of their aircrafts ranges from one to twelve years. In particular, we noted it was disclosed that the finance lease obligations of Air China Limited (SEHK:0753) shall expire during the years from 2016 to 2027 while for China Southern Airlines Company Limited (SEHK:1055) it was disclosed that the majority of its aircraft leases have terms of 10 to 12 years. We consider the entering into of the Aircraft Finance Lease Framework Agreements provides the necessary financial resources to the Group while the Group executes its aircraft introduction plan during the course of the next four years. It also provides the Group with a cost efficient and familiar mechanism to ensure the Group’s aircraft estimated delivery schedule shall be closely adhered to in which failing to do so may lead to contractual consequences under the purchase agreements with Aircraft Manufacturer(s) or disruption in the Group’s expansion plan into new destinations. Based on the foregoing, we are of the view that it is beneficial to the long-term business growth and financial performance of the Group for it to enter into the Aircraft Finance Lease Framework Agreements which in aggregate have a term of more than three years.

In addition to our discussion with the management of the Group regarding the term of the Aircraft Finance Lease Framework Agreements and the generality of agreements of such kind in the Chinese aviation industry, we have also performed search of comparable transactions beyond the aviation industry involving finance lease agreements entered into by companies listed on the Stock Exchange with connected parties since January 2015 in relation to finance lease of heavy machineries and/or income generating assets that had a lease period of more than three years. We identified comparable transactions in relation to leasing of vessels and medical equipment and we noted that the term of the finance lease agreements in the identified comparable transactions have a period of maximum ten years depending on the nature of the leased assets. Further taking into account the common lease period for other major Chinese airlines is between one to twelve years as abovementioned, we are of the view that it is reasonable and a commonly adopted practice for such lease agreement to be of such period.

On the above basis, we are of the view that it is normal business practice for financial lease agreements of this type to have a period of more than three years and we are of the view that entering into of the Aircraft Finance Lease Framework Agreements are in the ordinary and usual course of business of the Group, are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

As set out in the Letter from the Board, on 28 April 2016, the Company entered into the Aircraft Finance Lease Framework Agreements with CES Leasing and the principal terms of the Aircraft Finance Lease Framework Agreements are as follows:

The lease period of the aircraft under the Aircraft Finance Lease Framework Agreements will be agreed upon entering into the respective aircraft finance lease agreements. The Company estimates that based on previous similar transactions, the lease period of the aircraft under the Continuing Connected Transactions would be around 10 years.

As disclosed in the paragraph “Internal Control Procedures” in the Letter from the Board, to ensure the Company’s conformity with the terms of the Aircraft Finance Lease Framework Agreements, the Company shall adopt a series of internal control policies during its daily operations. Such internal control policies shall be conducted and supervised by the finance department of the Company and the independent non-executive Directors of the Company as follows:

In addition, for the purpose of Rule 14A.56 of the Listing Rules, the Company’s external auditors, will be engaged to issue a letter to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on “Assurance Engagements 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.

Based on the above, the Directors are of the view that the above procedures can ensure that the transactions contemplated under the Aircraft Finance Lease Framework Agreements will be conducted on normal commercial terms or better, and will not be prejudicial to the interests of the Company and the Shareholders. Having reviewed the above mechanism and the Group’s historical internal control procedural records, we concur with the view of the Directors that the Group has taken appropriate and adequate internal control measures in carrying out the Continuing Connected Transactions and thereby safeguarding the interests of the Shareholders.

Based on information provided by the Company, we summarise in the following table the relevant annual caps of the Aircraft Finance Lease Framework Agreements (the “ Proposed Caps ”) for each of the four financial years ending 31 December 2019:

The Company previously conducted transactions in relation to financial leasing with CES Leasing in 2014 and 2015. However, such transactions were not conducted on a continuing basis. The total amounts payable under the 2015 Aircraft Finance Lease CT and the 2014 Aircraft Finance Lease CT were expected to be not more than approximately USD1,712 million and not more than USD907 million, respectively.

The Proposed Caps for each of the four years ending 31 December 2019, being the total fee payable under the Continuing Connected Transactions, is the sum of the rental fee, the arrangement fee and the buy-back fee estimated to be payable by the Group to CES Leasing under the Continuing Connected Transactions. In particular, the total rental fee payable under the Continuing Connected Transactions fee equals to the sum of the principal and the interest payable under each Aircraft Finance Lease.

In relation to the proposed annual caps of the Continuing Connected Transactions for the four financial years ending 31 December 2019 of USD2,616 million, USD2,415 million, USD2,415 million and USD2,616 million respectively, we have obtained from the Company a list of estimated purchase of aircrafts for the period 2016 to 2019 and we noted the Proposed Caps primarily comprise the estimated rental fee and arrangement fee of each aircraft to be payable by the Group to CES Leasing during each of the four years ending 31 December 2019. We understand from the Directors that such list of estimated purchase was prepared based on the confirmed orders of aircrafts to be delivered to the Group by the Aircraft Manufacturer(s) during the period 2016 to 2019. We have cross-checked the Group’s estimated delivery schedule of new aircrafts from 2016 to 2019 with the Company’s published announcements in relation to purchase of aircrafts from Aircraft Manufacturer(s) that constituted notifiable transactions of the Company and we noted the delivery schedule and the consideration for the aircrafts adopted in arriving the Proposed Caps are in line with such disclosures.

In order to assess the fairness and reasonableness of the Proposed Caps, we have reviewed the computation of the estimated rental fee payable by the Group and noted that it is derived by multiplying (i) the estimated principal amount for each of the Leased Aircraft; (ii) the estimated applicable annual interest rate and (iii) the estimated lease period in years. We are advised that the estimated principal amount for each of the Leased Aircraft represents half of the value of each Leased Aircraft which is based on the catalog price provided by the Aircraft Manufacturer(s) minus any price concessions which has been finalized in the respective purchase agreements and therefore the value of each Leased Aircraft will not be subject to much variation in the Company’s estimation. As for the applicable interest rate, we noted that it will be determined through requests for proposals or other bidding processes issued by the Company, and will be negotiated and determined between the Company, CES Leasing and the Designated Financial Institutions and shall be consistent with the interest rate payable by CES Leasing or the Lessor(s) to the Designated Financial Institutions. In this regard, we have obtained and reviewed two historical loan quotations provided by independent financial institutions to the Group in 2015 and noted that the quoted interest rate was determined with reference to benchmark interest rate set by the People’s Bank of China of the PRC. We have further compared the Group’s estimation of the applicable interest rate for the years 2016 to 2019 and also noted that it is in consistent with the benchmark interest rate set by the People’s Bank of China and thus we consider such estimation to be reasonable. As regards the estimated lease period of aircrafts, we noted that the Group has assumed a lease period that is in consistent with the Group’s fleet age which we also consider it to be reasonable.

We noted the total fee payable under the Continuing Connected Transactions, in addition to the rental fee as assessed above, consists of estimated arrangement fee and buy-back fee to be payable by the Group to CES Leasing. We noted that the Group has assumed the arrangement fee to be equal to a certain percentage of the estimated principal amount for the Leased Aircraft which is consistent with the actual arrangement fee charged by CES Leasing in the Previous CTs. The Group has also assumed the buy-back fee payable to CES Leasing shall be at a nominal level which is negligible comparing to the base price of the aircrafts. We have reviewed the relevant agreements and disclosures in relation to the Previous CTs and further reviewed an independent quotation provided by Bank of China which suggested its level of arrangement fee to be charged is comparable to that of CES Leasing, thus we consider that the Group’s estimation of the arrangement fee and the buy-back fee to be payable to CES Leasing during 2016 to 2019 is reasonable and in line with previous and industry practices.

In general, we noted that the Proposed Caps for each of the four years ending 31 December 2019 approximately equals half of the aggregate value of the aircrafts scheduled to be introduced during each of the four years ending 31 December 2019 under the Continuing Connected Transactions, which is in consistent with the Company’s disclosure made in the Letter from the Board.

On the above basis, we consider that the respective terms and conditions of the Aircraft Finance Lease Framework Agreements and the Proposed Caps are fair and reasonable, and the Continuing Connected Transactions as contemplated under the Aircraft Finance Lease Framework Agreements are on normal commercial terms and in the ordinary and usual course of the business of the Group and in the interests of the Shareholders and the Company as a whole.

As the respective Proposed Caps will exceed HK$10 million and the relevant applicable ratios under Rule 14.07 of the Listing Rules exceed 5%, the Proposed Caps of the Continuing Connected Transactions are subject to reporting, announcement, and the requirement of seeking approval from the Independent Shareholders under the Listing Rules. The Company will therefore seek the approval by the Independent Shareholders of the Continuing Connected Transactions and the Proposed Caps.

Taking into account the measures taken/to be taken by the Group in relation to the Continuing Connected Transactions, in particular (i) the restriction by way of setting the Proposed Caps; (ii) the mechanism of the Group to issue request for proposals from at least two independent financial institutions and the conditions prerequisite for the Group to mandate the lease agreement to CES Leasing as disclosed in “Reasons for Entering into the Proposed Transactions and Benefits Expected to Accrue to the Company” in the Letter from the Board; (iii) the compliance with all other relevant requirements under the Listing Rules (which include the annual review and/or confirmation by the independent non-executive Directors and auditors of the Company on the actual execution of the Continuing Connected Transactions); and (iv) the annual review of connected transactions of the Group by the Supervisory Committee of the Company, we consider that the Company has taken appropriate and adequate measures to govern the Group in carrying out the Continuing Connected Transactions, thereby safeguarding the interests of the Shareholders thereunder.

RECOMMENDATION

Having considered the principal factors and reasons above, we are of the view that the Continuing Connected Transactions contemplated under the Aircraft Finance Lease Framework Agreements are in the ordinary and usual course of business of the Company, are on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolutions to approve the Aircraft Finance Lease Framework Agreements and the transactions contemplated thereunder at the upcoming 2015 AGM.

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

DISCLOSURE OF INTERESTS

Directors, supervisors, chief executives and senior management of the Company

The interests of the Directors, supervisors, chief executives and senior management in the issued share capital of the Company as at the Latest Practicable Date are set out as follows:

Note 1: representing approximately 0.000030% of the Company’s total issued shares as at the Latest Practicable Date.

Note 2: representing approximately 0.000028% of the Company’s total issued shares as at the Latest Practicable Date.

Note 3: representing approximately 0.000477% of the Company’s total issued shares as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, the Company’s supervisors, chief executives or members of senior management of the Company had any interest or short position in the shares, underlying shares and/or debentures (as the case may be) of the Company and/or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be: (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any interest and short position which he/she was taken or deemed to have under such provisions of the SFO); or (ii) entered in the register of interests required to be kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (which for this purpose shall be deemed to apply to the supervisors of the Company to the same extent as it applies to the Directors).

As at the Latest Practicable Date, Mr. Liu Shaoyong (a Director and the Chairman), Mr. Xu Zhao (a Director) and Mr. Gu Jiadan (a Director), Mr. Yu Faming (a supervisor and the Chairman of the Supervisory Committee of the Company), Mr. Xi Sheng (a supervisor of the Company) and Mr. Ba Shengji (a supervisor of the Company) are employees of CEA Holding, which is a company having an interest in the Company’s shares required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Octal Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter in the form and context in which it is included.

As at the Latest Practicable Date, Octal Capital did not have any direct or indirect interest in any assets which have been, since 31 December 2015 (being the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, Octal Capital was not beneficially interested in the share capital of any member of the Group nor had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

JOINT COMPANY SECRETARY

Mr. Wang Jian graduated from Shanghai Jiao Tong University, has a Master of Business Administration postgraduate degree from East China University of Science and Technology and holds an Executive Master ’s degree of Business Administration from Tsinghua University. Mr. Wang Jian has obtained a qualification certificate for board secretaries of listed companies issued by the Shanghai Stock Exchange. Mr. Wang Jian is currently a joint company secretary of the Company and Mr. Wang Jian is assisted by Mr. Ngai Wai Fung, the other joint company secretary of the Company.

Mr. Ngai Wai Fung is a fellow and vice president of the Hong Kong Institute of Chartered Secretaries, a fellow of the Institute of Chartered Secretaries and Administrators in the United Kingdom, a member of the Hong Kong Institute of Certified Public Accountants and a fellow of the Association of Chartered Certified Accountants in the United Kingdom. Mr. Ngai Wai Fung has a Doctorate in Finance from the Shanghai University of Finance and Economics, a Master ’s degree in Corporate Finance from the Hong Kong Polytechnic University and a Master’s degree in Business Administration (MBA) from Andrews University in the United States and a Bachelor’s degree (Honours) in Law from the University of Wolverhampton in the United Kingdom.

SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any existing or proposed service contract with any member of the Group which is not expiring nor determinable by the Group within a year without payment of any compensation (other than statutory compensation).

COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or, so far as is known to them, any of their respective close associates was interested in any business (apart from the Group’s business) which competes or is likely to compete, either directly or indirectly, with the Group’s business (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder).

LITIGATION

As at the Latest Practicable Date, the Directors were not aware of any litigation or claim of material importance pending or threatened against any member of the Group.

INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any direct or indirect interest in any assets which have been, since 31 December 2015 (being the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement, subsisting at the date of this circular, which is significant in relation to the business of the Group.

MATERIAL CONTRACTS

Save as disclosed above, no material contract (not being a contract entered into in the ordinary course of business) has been entered into by any member of the Group within the two years immediately preceding the issue of this circular.

DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at Unit B, 31/F., United Centre, 95 Queensway, Hong Kong for a period of 14 days (excluding Saturdays and Sundays) from the date of this circular:

THREE-YEAR FINANCIAL INFORMATION OF THE GROUP

The Company is required to set out in this circular the information for the last three financial years with respect to the profits and losses, financial record and position, set out as a comparative table and the latest published audited balance sheet together with the notes on the annual accounts for the last financial year for the Group.

The audited consolidated financial statements of the Group for each of the three years ended 31 December 2015, 2014 and 2013 together with the accompanying notes to the financial statements, can be found on pages 77 to 164 of the annual report of the Company for the year ended 31 December 2015, pages 72 to 166 of the annual report of the Company for the year ended 31 December 2014 and pages 75 to 169 of the annual report of the Company for the year ended 31 December 2013, respectively. Please also see below the hyperlinks to the said reports:

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0422/LTN201604221312.pdf

http://www. hkexnews.hk/listedco/listconews/SEHK/2015/0416/LTN201504161393.pdf

http://www. hkexnews.hk/listedco/listconews/SEHK/2014/0424/LTN201404241398.pdf

INDEBTEDNESS OF THE GROUP

Indebtedness

As at the close of business on 31 March 2016, being the latest practicable date for the purpose of this indebtedness statement the Group had the following liabilities:

Borrowings and obligations under finance leases

The Group had total outstanding indebtedness of approximately RMB112,281 million as at 31 March 2016. The table below sets forth the Group’s total outstanding indebtedness as at 31 March 2016:

Notes:

Contingent liabilities

As at the close of business on 31 March 2016, the Group had no significant contingent liabilities.

Except as disclosed above and apart from intra-group liabilities at 31 March 2016, the Group did not have any debt securities issued and outstanding, or authorized or otherwise created but unissued, term loans, any other borrowings or indebtedness in the nature of borrowing of the Group including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments, mortgages and charges, contingent liabilities or guarantees.

SUFFICIENCY OF WORKING CAPITAL

Taking into account the expected completion of the Proposed Transactions and the financial resources available to the Group, including the internally generated funds and the available banking facilities, the Directors are of the opinion that the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular, in the absence of any unforeseeable circumstances.

TRADING AND FINANCIAL PROSPECTS

The operations of the Group as an air transport enterprise that performs public service functions are closely linked to the political and economic development both at home and abroad. As such, the Group’s operations as well as that of the aviation industry are, to a significant extent, subject to the risks associated with unforeseen occurrences of geopolitical events and other significant events.

In the future, the Company intends to become a premium airline that is globally competitive. In addition, the Group intends to transform from a traditional air passenger and freight carrier to an integrated modern aviation services and logistics services provider.

In 2016, the world economy is expected to experience a thorough reshuffle and its recovery is expected to remain sluggish. The International Monetary Fund has again trimmed its expected growth of the global economy and the total trade volume for the year in January 2016, and expected that international oil prices will decrease significantly in 2016 as compared to the previous year. It is expected that the Chinese economy will maintain a moderate growth despite larger downward pressure and the economic structure will continuously transform and upgrade. The pull effect of growth of consumption on the economic growth is expected to boost with tourism boom. Under the impacts of the aforesaid, it is expected that the demand for air passenger transportation will remain in growth, while the demand for aviation freight transportation will be relatively low. In view of a complicated and dynamic operating environment, the Group will seize the opportunities arising from the low oil prices, the rising tourism and consumption demand and the opening of the Shanghai Disneyland, and focus on the following areas in order to achieve better operating results:

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2015, being the date to which the latest published audited consolidated financial statements of the Group were made up.

Mr. Liu Shaoyong , aged 58, is currently the Chairman of the Company and president of CEA Holding. Mr. Liu joined the civil aviation industry in 1978 and was appointed as vice president of China General Aviation Corporation, deputy director of Shanxi Provincial Civil Aviation Administration of the PRC, general manager of the Shanxi Branch of the Company, and director general of Flight Standard Department of CAAC. Mr. Liu served as President of the Company from December 2000 to October 2002, vice minister of the CAAC from October 2002 to August 2004, president of China Southern Air Holding Company from August 2004 to December 2008, chairman of China Southern Airlines Co., Ltd. from November 2004 to December 2008. In December 2008, Mr. Liu was appointed as president of CEA Holding, and became the Chairman of the Company since February 2009. Mr. Liu is also currently the board member of International Air Transport Association and the board member of Association for Relations Across the Taiwan Straits. Mr. Liu graduated from the China Civil Aviation Flight College and obtained an Executive Master of Business Administration degree from Tsinghua University. Mr. Liu holds the title of commanding pilot.

Mr. Ma Xulun , aged 51, is currently the vice chairman, president and deputy party secretary of the Company, and party secretary of CEA Holding. Mr. Ma was previously vice president of China Commodities Storing and Transportation Corporation, deputy director general of the Finance Department of the CAAC and vice president of Air China International Corporation Limited. In 2002, after the restructuring of civil aviation industry he was appointed as vice president of general affairs of Air China International Corporation Limited. Mr. Ma served as president and deputy party secretary of Air China International Corporation Limited from September 2004 to January 2007. Mr. Ma became a party member of China National Aviation Holding Company from December 2004 to December 2008, and deputy general manager of China National Aviation Holding Company from January 2007 to December 2008. In December 2008, Mr. Ma was appointed as president and deputy party secretary of the Company and deputy party secretary of CEA Holding. Since February 2009, Mr. Ma has become a Director of the Company. Mr. Ma served as party secretary of CEA Holding and vice chairman of the Company with effect from November 2011. Mr. M a i s also currently the deputy director-general of Association of Shanghai Listed Companies. Mr. Ma graduated from Shanxi University of Finance and Economics and Huazhong University of Science and Technology. Mr. Ma holds a master ’s degree and is a PRC certified accountant.

Mr. Xu Zhao , aged 47, is currently a Director of the Company, and the chief accountant of CEA Holding. Mr. Xu served as engineer and accountant of Dongfeng Motor Group Company Limited, manager of the finance department of Shanghai Yanhua High Technology Limited Company, and chief financial officer of Shaanxi Heavy Duty Automobile Co., Limited. Since November 2006, Mr. Xu has served as the chief accountant of CEA Holding. He was a Supervisor of the Company from June 2007 to November 2011. He has served as a Director of the Company since June 2012. Mr. Xu graduated from Chongqing University, majoring in moulding, and The Chinese University of Hong Kong, majoring in accounting, and holds a master ’s degree. Mr. Xu is qualified as an engineer and an accountant, and is a certified public accountant in the PRC.

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

Mr. Li Yangmin , aged 52, is currently a Director, party secretary and vice president of the Company, and a party member of CEA Holding. Mr. Li joined the civil aviation industry in 1985. He was previously deputy general manager of the aircraft maintenance base and the manager of air route department (航線部) of Northwest Company (西北航空公司), general manager of the aircraft maintenance base of China Eastern Air Northwest Branch Company and vice president of China Eastern Air Northwest Branch Company. Since October 2005, he has also been a vice president of the Company. He served as Safety Director of the Company from July 2010 to December 2012. He has become a party member of CEA Holding since May 2011. He was appointed the party secretary and Director of the Company with effect from June 2011. He served as the chairman of China Cargo Airlines Co., Ltd. from February 2012 to January 2013. Mr. Li also served as a director of Travelsky Technology Limited. Mr. Li graduated from the Civil Aviation University of China and Northwestern Polytechnical University with master ’s degrees and obtained an Executive Master of Business Administration degree from Fudan University. He is also a qualified professor-level senior engineer.

Mr. Tang Bing , aged 49, is currently a Director, vice president of the Company, and party member of CEA Holding. Mr. Tang joined the civil aviation industry in 1993. He served as vice executive president (general manager in China Office) of 珠海摩天 宇發動機維修有限公司 (MTU Maintenance Zhuhai Co., Ltd.), office director of China Southern Airlines Holding Company and pr esident of 重慶航空有限公司 (Chongqing Airlines Company Limited). From December 2007 to May 2009, he served as chief engineer and general manager of the Aircraft Engineering Department of China Southern Airlines Company Limited. From May 2009 to December 2009, he was appointed as president of the Beijing Branch of the Company and was the president of Shanghai Airlines from January 2010 to December 2011. He served as the chairman of Shanghai Airlines since January 2012 and a Vice President of the Company since February 2010, and was appointed a party member of CEA Holding in May 2011 and a Director of the Company in June 2012. Mr. Tang graduated from Nanjing University of Aeronautics and Astronautics majoring in electrical technology. He obtained a Master of Business Administration degree from the Administration Institute of Sun Yat-sen University, an Executive Master of Business Administration degree from the School of Economics and Management of Tsinghua University and a doctoral degree in national economics from the Graduate School of Chinese Academy of Social Sciences. He is also a qualified senior engineer.

Mr. Tian Liuwen , aged 56, is currently a Director, vice president of the Company and a party member of CEA Holding. Mr. Tian served as manager of the Beijing Sales Department under the Marketing and Sales Division of China General Aviation Corporation. He was also the head of the general manager office and chairman of the labour union and deputy general manager of the Shanxi Branch of the Company. From June 2002 to January 2008, he was the vice president and subsequently president of the Hebei Branch of the Company. From April 2005 to January 2008, he was the president of the Beijing Base of the Company. He served as general manager of China Eastern Airlines Jiangsu Co., from January 2008 to December 2011. Since December 2011, he has been the vice president of the Company. From December 2011 to June 2013, he was the president of Shanghai Airlines Co., Ltd. Since June 2014, he has been a party member of CEA Holding. Since June 2015, he has been a Director of the Company. He obtained an Executive Master of Business Administration degree from Nanjing University and is qualified as senior economist.

Mr. Li Ruoshan , aged 67, is currently an independent non-executive Director of the Company. Mr. Li was a deputy dean of the School of Economics and a deputy director of the Accounting Department of the School of Economics of Xiamen University; and a deputy dean of the School of Management, director of the Accounting Department, and director of the Finance Department of Fudan University. Mr. Li is currently a professor and PhD supervisor of the Accounting Department of the School of Management of Fudan University. He is also the deputy director of the Members’ Rights Protection Commission of the Chinese Institute of Certified Public Accountants, the vice president of the Shanghai Accounting Society and Shanghai Auditing Society, a member of the Consultant Professional Committee for Listed Companies of the Shanghai Stock Exchange and a consultant professional of the Committee for Accounting Standards of the Ministry of Finance. In 2010, Mr. Li was awarded the “The Best 10 Independent Directors in China” by the Shanghai Stock Exchange. Mr. Li graduated from Xiamen University, majoring in accounting and obtained the first doctoral degree in auditing in China. He further studied abroad in Belgium and the Massachusetts Institute of Technology in the United States.

Mr. Ma Weihua , aged 67, is currently an independent non-executive Director of the Company. Mr. Ma is currently a member of the Twelfth National Committee of the Chinese People’s Political Consultative Conference, the director-general of Council of National Fund for Technology Transfer and Commercialization, a member of the Standing Council of China Society for Finance and Banking. Mr. Ma is currently an independent director of China World Trade Center Co., Ltd. and Guotai Junan Securities Co., Ltd. and the Chairman of the Board of Supervisors of Taikang Life Insurance Co., Ltd. Mr. Ma served as an executive director, president and chief executive officer of China Merchants Bank Co., Ltd, the chairman of Wing Lung Bank Limited in Hong Kong, the chairman of CIGNA & CMC Life Insurance Company Limited and the chairman of China Merchants Fund Management Co., Ltd. Mr. Ma obtained a doctorate degree in economics and is an adjunct professor at several higher educational institutions including Peking University and Tsinghua University.

Mr. Shao Ruiqing , aged 58, currently serves as an independent non-executive director of the Company. Mr. Shao currently serves as a professor in accounting and a mentor to doctoral students at the Shanghai Lixin University of Commerce. He served as the deputy dean and dean of the School of Economics and Management of Shanghai Maritime University, the deputy dean of Shanghai Lixin University of Commerce. and the independent Director of China Shipping Haisheng Co., Ltd., Shenzhen Guangju Energy Co., Ltd., Jianmin Pharmaceutical Groups Co., Ltd. and SAIC Motor Corp Ltd. Mr. Shao served as an independent non-executive Director of China Eastern Airlines Corporation Limited from June 2010 to April 2014. Mr. Shao was awarded the special allowance by the State Council of the PRC in 1995. He is currently a consultative committee member of the Ministry of Transport, as an expert in finance and accounting. Mr. Shao graduated from Shanghai Maritime University, Shanghai University of Finance and Economics and Tongji University with a bachelor ’s degree in economics, and master ’s and doctoral degrees in management. Mr. Shao has spent two and a half years studying and being senior visiting scholar in the U.K. and Australia.

Mr. Cai Hong Ping , aged 61, male, with Chinese Hong Kong nationality, currently serves as the chairman of AGIC Industrial Promotion Capital 4.0. He worked for the Industrial and Transportation Management Committee of the Shanghai Government and Sinopec Shanghai Petrochemical Company Limited (“ Sinopec Shanghai ”) from 1987 to 1991. He participated in the entire listing process of Sinopec Shanghai in Hong Kong and the United States and is one of the founders of H shares in China. From 1992 to 1996, he acted as a member of the Overseas Listing Team for Chinese Enterprises under the Restructuring Committee of the State Council and the chairman of the Joint Committee of Board Secretaries for H Share Companies in China. He served as a joint director of the investment banking division of Peregrine Investments Holdings Limited in Asia from 1997 to 2006, chairman of the investment banking division of UBS AG in Asia from 2006 to 2010, chairman of Deutsche Bank in the Asia Pacific region from 2010 to 2015 and independent director and chairman of the audit committee of Minmetals Development Co., Ltd. (“ Minmetals Development ”) (600058) from 29 April 2015 to 31 December 2015. Later, he resigned from Minmetals Development after being appointed as an external director of China Minmetals Corporation. Mr. Cai graduated from Shanghai Fudan University, majoring in mass communications.

Mr. Xi Sheng , aged 53, is currently a Supervisor of the Company and chief auditor of CEA Holding. Mr. Xi served as the deputy head of the foreign affairs department II of the foreign funds utilization and application audit department and the head of the liaison and reception office of the foreign affairs department of the National Audit Office of the PRC and the deputy head of the PRC Audit Institute (中國審計事 務所). He was also the head of the fixed assets investment audit department of the National Audit Of fice of the PRC, and the party secretary and a special commissioner of the Harbin office of the National Audit Office of the PRC. He served as the head of the personnel and education department of the National Audit Office of the PRC from January 2007 to September 2009. He was the head of the audit department of CEA Holding from September 2009 to November 2012. Mr. Xi has served as the chief auditor of CEA Holding since September 2009. Since June 2012, he has been a supervisor of the Company. Mr. Xi is also the council member of China Institute of Internal Audit, a member of International Institute of Internal Auditors, a committee member of international relations committee of the institute and committee of executive committee of 亞洲內審組織 (Asia Internal Audit Organisation). Mr. Xi graduated from Jiangxi University of Finance and Economics with undergraduate education background. He is a senior auditor, a Chinese Certified Public Accountant (CPA) and an International Certified Internal Auditor (CIA).

Mr. Ba Shengji , aged 58, is currently a Supervisor of the Company and the chairman of the labour union of CEA Holding. Mr. Ba joined the civil aviation industry in 1978. He served as the section manager and deputy head of the finance department. He was the chief officer of the auditing office of the Company from March 1997 to October 1997, chief officer of the auditing office of CEA Holding from October 1997 to July 2000, head of the audit department of CEA Holding from July 2000 to January 2003, chief officer of disciplinary committee office, head of supervision department and head of audit department of CEA Holding from January 2003 to May 2003. He served as the deputy head of party disciplinary inspection group, chief officer of disciplinary committee office, head of supervision department and head of the audit department of CEA Holding from May 2003 to November 2006. He was the secretary of the disciplinary committee of the Company from November 2006 to November 2009 and the secretary of the disciplinary committee and chairman of the labour union of the Company from November 2009 to November 2011. He served as the deputy secretary of the party committee and secretary of the disciplinary committee of the Company from November 2011 to August 2013. Since June 2013, he has been a supervisor of the Company. He has served as the chairman of the labour union of CEA Holding since August 2013. Mr. Ba graduated from Shanghai Television University.

Mr. Jia Shaojun , aged 48, is currently head of the financial department of CEA Holding. Mr. Jia was general manager of the financial department and secretary of party general branch of the financial department of the Company. He served as general manager of the finance and accounting department of the Company from December 2011 to November 2012 and head of the audit department of CEA Holding from November 2012 to May 2014. He has acted as head of the financial department of CEA Holding since May 2014. Mr. Jia graduated from Civil Aviation College of China and Fudan University School of Management, holding an executive MBA degree. He is qualified as a senior accountant.