Shandong Airlines Co., Ltd. 2008 Annual Report
0
山东航空股份有限公司
2008 年年度报告
SHANDONG AIRLINES CO., LTD.
2008 ANNUAL REPORT
March, 2009
Jinan · P.R.C.Shandong Airlines Co., Ltd. 2008 Annual Report
1
Contents and Important Notes
I. Company Profile -------------------------------------------------------------------------------------2
II. Summary of Financial Highlight and Business Highlight ----------------------------------3
III. Changes in Capital Shares and Particulars about Shareholders ------------------------5
IV. Particulars about Directors, Supervisors, Senior Executives and Employees---------8
V. Administrative Structure ------------------------------------------------------------------------13
VI. Brief Introduction to the Shareholders’ General Meeting -------------------------------15
VII. Report of the Board of Directors ------------------------------------------------------------15
VIII. Report of the Supervisory Committee ----------------------------------------------------24
IX. Significant Events --------------------------------------------------------------------------------25
X. Financial Report ----------------------------------------------------------------------------------28
XI. Documents for Reference -----------------------------------------------------------------------84
Important Notes:
The Board of Directors and the Supervisory Committee of Shandong Airlines Co., Ltd.
(hereinafter referred to as the Company) and its directors, supervisors and senior executives
hereby confirm that there are no any fictitious statements， misleading information or
important omissions carried in this report, and shall take all responsibilities, individual
and/or joint, for the reality, accuracy and completion of the whole contents.
Independent Director Mr Fan Shaokun was absent from the Board meeting and authorized
Independent Director Mr. Hu Jijian to vote on his behalf.
Reanda Certified Public Accountants issued the standard unqualified Auditors’ Report for
the Company.
Chairman of the Board Mr. Zhang Xingfu, General Manager Mr. Zeng Guoqiang, and Chief
Accountant Mr. Xiao Feng of the Company hereby confirm that the Financial Report of the
Annual Report is true and complete.
Paraphrases:
The Company: Shandong Airlines Co., Ltd.
SDA: Shandong Aviation Group; the controlling shareholder of the Company
Air China: Air China Limited, the actual controller of the Company
Air China Group: China National Aviation Group Co., Ltd., the controlling shareholder of
Air ChinaShandong Airlines Co., Ltd. 2008 Annual Report
2
I. Company Profile
1. Legal Chinese Name of the Company: 山东航空股份有限公司
Legal English Name of the Company: SHANDONG AIRLINES CO., LTD.
2. Legal Representative: Zhang Xingfu
3. Secretary of Board of Directors of the Company: Li Qing’en
Contact Address: 19/F, SDA Bldg., No. 5746, Er Huan East Road, Jinan, Shandong
Tel.: (86) 531-5698966
E-mail: liqe@shandongair.com.cn
Authorized Representative: Huang Haiming
E-mail: huanghm@shandongair.com.cn
Tel.: (86) 531-85698678
Fax: (86) 531-85698679
4. Registered Address: Yaoqiang International Airport, Jinan, Shandong
Office Address: SDA Bldg., No. 5746, Er Huan East Road, Jinan, Shandong
Post Code: 250014
Company’s Website: http://www.shandongair.com.cn
E-mail: zqb@shandongair.com.cn
5. Newspapers for Disclosing the Information Designated by the Company:
Domestic: China Securities and Securities Times
Overseas: Hong Kong Wen Wei Po
Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn
The Place Where the Annual Report is Prepared and Placed: Enterprise Management and
Investment Management of Securities Dept. of the Company (Room 1920, SDA Bldg.)
Liaison Tel: (86) 531-85698678
6. Stock Exchange Listed with: Shenzhen Stock Exchange
Short Form of the Stock: SHANHANG B
Stock Code: 200152
7. Other Relevant Information of the Company
Initial registration date: Dec. 13, 1999
Registration date after change: June 14, 2007
Registration address: Industrial and Commercial Administration Bureau of Shandong
Province
Registered number for enterprise corporation business license: QGLZ Zi No. 003926
Registered number for taxation: 370112720721201
Name and address of certified public accountants engaged by the Company:
Reanda Certified Public Accountants
Address: Room 2008 on 20/F, East District of No. 1 Building, No. 100, Xili Street,
Balizhuang, Chaoyang District, BeijingShandong Airlines Co., Ltd. 2008 Annual Report
3
II. Summary of Financial Highlight and Business Highlight
Unit: RMB
(I)Main profit index of the Company as of the report year
Items Amount
Operating profit 75,759,367.91
Total profit 108,260,827.56
Net profit attributable to the shareholders of the
listed company 80,981,442.68
Net profit attributable to the shareholders of the
listed company after deducting non-recurring
losses/gains 92,440,296.87
Net cash flow arising from operating activities 1,059,833,106.56
(II) Items of deducting non-recurring gains and losses and the involved amounts are as
following:
Items of non-recurring gains and losses Amount
Net profit 80,981,442.68
Add: (1) Gains and losses from the disposal of non-current asset, including
the offsetting parts which was made accrual of provision for asset
impairment 10,915,236.47
(2) Governmental subsidy calculated into current gains and losses,
while closely related with the business of the Company, excluding the
fixed-amount or fixed-proportion governmental subsidy according to the
unified national standard -4,822,515.00
(3)Losses/gains from changes of fair values occurred in holding
transaction financial assets and transaction financial liabilities, and
investment income obtaining from the disposal of transaction financial
assets and transaction financial liabilities and financial assets available for
sales, excluded effective hedging business relevant with normal operations
of the Company 19,293,822.87
(4) Reversal of provisions for asset impairment of account receivable
which is made singly impairment test -84,834.50
(5)Other losses/gains items according with the definition of nonoperational
losses/gains -10,023,237.59
Subtotal 15,278,472.25
Less:Influence number of income tax of non-recurring losses/gains 3,819,618.06
Net profit after deducting non-recurring gains and losses 92,440,296.87
Less: Net profit deducted non-recurring losses/gains attributable to
minority shareholder 0
Net profit attributable to shareholder of parent company after deducting
non-recurring losses/gains 92,440,296.87
(III) Major accounting data and financial highlights over the previous three years as at the
end of the report period
1. Main accounting data
2007
Increase/decrease this year
compared with that last year
(%)
2006
Items 2008
Before
adjustment After adjustment After adjustment Before
adjustment After adjustment
Operating income
5,049,391,116.47
4,630,130,538.19
4,630,130,538.19 9.06%
4,231,057,944.71
4,231,057,944.71Shandong Airlines Co., Ltd. 2008 Annual Report
4
Total profit 108,260,827.56 57,546,814.19 98,768,111.17 9.61% 43,421,493.61 44,954,831.61
Net profit attributable
to shareholders of the
listed company
80,981,442.68 37,255,985.51 68,171,958.24 18.79% 8,875,631.95 10,025,635.45
Net profit attributable
to shareholders of the
listed company after
deducting non-recurring
gains and losses
92,440,296.87 50,392,077.82 53,689,781.57 72.17% -77,526,808.87 -77,526,808.87
Net cash flow arising
from operating
activities
1,059,833,106.56
734,571,420.98
734,571,420.98 44.28%
1,059,281,297.52
1,059,281,297.52
At the end of 2007
Increase/decrease at the end
of this year compared with
that at the end of last year
(%)
At the end of 2006
Items At the end of
2008
Before
adjustment After adjustment After adjustment Before
adjustment After adjustment
Total assets
7,844,104,901.47
7,039,689,367.94
7,082,444,002.92 10.75%
6,035,555,283.07
6,036,705,286.57
Owners’ equity( or
Shareholders’ equity) 550,012,296.30
436,964,877.39
469,030,853.62 17.27%
399,824,575.27
400,974,578.77
2. Main financial indexes
2008 2007
Increase/decrease this year
compared with that last year
(%)
2006
Before
adjustment
After
adjustment After adjustment Before
adjustment
After
adjustment
Basic earnings per share 0.20 0.09 0.17 17.65% 0.02 0.03
Diluted earnings per share 0.20 0.09 0.17 17.65% 0.02 0.03
Basic earnings per share after
deducting non-recurring gains
and losses
0.23 0.13 0.13 72.41% -0.19 -0.19
Fully diluted return on equity 14.72% 8.53% 14.53% Up 0.19 percentage point 2.22% 2.50%
Weighted average return on
equity 15.89% 8.90% 15.67% Up 0.22 percentage point 2.25% 2.53%
Fully diluted return on equity
after deducting non-recurring
gains and losses
16.81% 11.53% 11.45% Up 5.36 percentage point -19.39% -19.33%
Weighted average return on
equity after deducting nonrecurring
gains and losses
18.14% 12.04% 12.34% Up 5.8 percentage point -19.61% -19.58%
Net cash flow per share arising
from operating activities(RMB) 2.65 1.84 1.84 44.28% 2.65 2.65
At the end
of 2008 At the end of 2007
Increase/decrease at the end
of this year compared with
that at the end of last year
(%)
At the end of 2006
Before
adjustment
After
adjustment After adjustment Before
adjustment
After
adjustment
Net asset per share attributable to
shareholders of listed company 1.38 1.09 1.17 17.27% 0.77 1.00
(IV) The Company’s return on equity and earnings per share as of the year 2008 as
calculated based on fully diluted method and weighted average method taking Requirements
on the Information Disclosure of Companies Publicly Issuing Shares No. 9 as the reference
1. Return on EquityShandong Airlines Co., Ltd. 2008 Annual Report
5
Amount in Profit in the report this period Amount in same period of last year
Period Fully diluted Weighted
average Fully diluted Weighted average
Net profit attributable to common
shareholders 14.72% 15.89% 14.53% 15.67%
Net profit attributable to common
shareholders after deducting the nonrecurring
losses and gains
16.81% 18.14% 11.45% 12.34%
2. Earnings per Share
Amount in this period Amount in same period of last year
Profit in the report
period
Basic earnings
per share
Diluted
earnings per
share
Basic earnings
per share
Diluted earnings
per share
Net profit attributable to common
shareholders 0.20 0.20 0.17 0.17
Net profit attributable to common
shareholders after deducting the nonrecurring
losses and gains
0.23 0.23 0.13 0.13
III. Changes in Shares Capital and Particulars about the Shareholders
(I) Statement of changes in share
Unit: Shares
Before
change Increase/decrease in this time (+ , - ) After
change
Rationed
share
Bonus
share
Conversion of
capital public
reserve
Additional
insurance Others Subtotal
I. Unlisted shares 260000000 260000000
1. Sponsor’s shares 168780100
168780100
Including:
State-owned shares 168581100 168581100
Domestic legal person’s
shares 199000 199000
Foreign legal person’s shares
Others
2. Raised legal person’s
shares
3. Inner employees’ shares
4. Preference shares or other 91219900 91219900
Total unlisted shares 260000000 260000000
II. Listed shares 140000000 140000000
1. RMB ordinary shares
2.Domestically listed foreign
shares 140000000 140000000Shandong Airlines Co., Ltd. 2008 Annual Report
6
3. Overseas listed foreign
shares
4. Other
Total listed shares 140000000 140000000
III. Total shares 400000000 400000000
(II) Particulars about issuance and listing of shares
1. Issuance and listing of shares
The previous three year ended by the period-end, the Company did not issue shares and
derivative securities for trading.
2. During the report period, there were no changes in the number and structure of the
Company’s shares due to bonus share, capital public reserve transferring into share capital,
rationed share, additional issuance, share merger, convertible company’s bonds transferring
shares, disinvestments, listing of inner employees’ shares or company’s employee’s shares,
etc. There were no inner employees’ shares in the Company.
(III) About Shareholders
1. Total shareholders as at the end of the report period
Up to Dec. 31, 2008, the Company had totally 20,397 shareholders, including 20,391 ones of
domestically listed foreign shares. The top ten shareholders of the Company are as following:
Unit: Share
No. Shareholders’ name
Increase/
decrease in
this year
Number of shares
held at the year-end
Proportion
(%) Type Number of shares
pledged or frozen
1 SHANDONG
AVIATION GROUP 0 168004000 42
State-owned
legal person’s
share
Unknown
2 AIR CHINA
LIMITED 0 91200000 22.8
State-owned
legal person’s
share
Unknown
3
GUOTAI JUNAN
SECURITIES(HONG
KONG) LIMITED
-275400 1819000 0.45
Circulation
share Unknown
4 CHEN CHUN PENG 0 1544800 0.39
Circulation
share Unknown
5 CHEN JING JIAN 893040 1304200 0.33
Circulation
share Unknown
6 WU HAO YUAN 0 1062700 0.27
Circulation
share Unknown
7 LIU LI YA 0 1015216 0.25
Circulation
share Unknown
8 ZHENG WEI HUA 0 1000000 0.25
Circulation
share Unknown
9 HE BIN 0 829407 0.21
Circulation
share Unknown
10 XUE PEI MING 0 828400 0.21
Circulation
share Unknown
Note: 1. Shandong Aviation Group is the first largest shareholder of the Company, who holds
the shares of the Company on behalf of the State with unlisted shares.
2. Air China Limited is the second largest shareholder of the Company, who holds the shares
of the Company on behalf of the State with unlisted shares; Air China is the first largest
shareholder of SDA and the actual controller of the Company.
3. Among the above the top ten shareholders, Air China, shareholders of state-owned legal
person’s share, is the first largest shareholder of the SDA, and there exists no associatedShandong
Airlines Co., Ltd. 2008 Annual Report
7
relationship between SDA and Air China and the other shareholders, and they don’t belong
to the consistent actionist regulated by the Management Regulation of Information
Disclosure on Change of Shareholding for Listed Companies with the other shareholders.
The Company is not aware of their associated relationship among the other shareholders of
circulation share, whether belongs to the consistent actionist regulated by the Management
Regulation of Information Disclosure on Change of Shareholding for Listed Companies.
2. The controlling shareholder of the Company
Name of the controlling shareholder: Shandong Aviation Group
Legal representative: Feng Gang
Date of foundation: Feb. 9, 1995
Place of SDA: No. 5746, Er Huan East Road, Lixia District, Jinan, Shandong
Business scope: Investment and management on aviation transportation; maintaining of
aerostat and ground facilities limited by permission; conference and exhibition service;
working service; maintaining on vehicles of ground passenger transportation and ground
transportation; the sales of general merchandise, handicraft and souvenir; the lodgings; the
dining service; retail sales of the tobacco product; lease of house (limitedly managed by
branches)
Registered capital: RMB 580 million
3. The actual controller of the Company
Actual controller of the Company: Air China Limited.
Legal Representative: Kong Dong
Structure of share equity: China National Aviation Corporation (Group) Limited and China
Aviation (Group) Co., Ltd. (wholly-owned subsidiary company of Air China Group in Hong
Kong) jointly sponsored and founded Air China Limited, which was listed in Hong Kong,
London and Shanghai. Air China Group holds its 43.59% equity.
Date of Foundation: Sep. 30, 2004
Business scope: It was engaged in the domestic and overseas transportation business such as
periodic and aperiodic aviation passenger, cargo, letter and baggage; domestic and overseas
official flight business; aeroplane management business; repairing of aerostat; business agent
among air companies; ground service and air courier services related with the main
operations (excluding letter and articles with the nature of letters); tax-free commodities in
airplane.
Registered capital: RMB 11,072,210,909
49.406%
22.8%
22.8%
42%
4. The Company has no shareholders holding over 10% of shares of the Company except for
the controlling shareholder SDA and actual controller Air China Limited.
5. Particulars about the top ten shareholders of circulation share
No. Name of shareholders Number of shares held at the Type of shares
Air China Limited
Shandong Aviation Group
Shandong Airlines Co., Ltd.Shandong Airlines Co., Ltd. 2008 Annual Report
8
year-end (share) held
1
GUOTAI JUNAN
SECURITIES(HONGKONG) LIMITED 1819000 B-share
2 CHEN CHUN PENG 1544800 B-share
3 CHEN JING JIAN 1304200 B-share
4 WU HAO YUAN 1062700 B-share
5 LIU LI YA 1015216 B-share
6 ZHENG WEI HUA 1000000 B-share
7 HE BIN 829407 B-share
8 XUE PEI MING 828400 B-share
9 JOHN POSS 756000 B-share
10 DENG HONG WEI 650609 B-share
The Company is not aware of their associated relationship among the top ten shareholders of
circulation share, and is unknown whether other circulation shareholders belong to the
consistent actionist regulated by the Management Regulation of Information Disclosure on
Change of Shareholding for Listed Companies.
IV. Particulars about Directors, Supervisors, Senior Executives and
Employees
(I) Directors, Supervisors and Senior Executives
Name Sex Birthday Title Office term
Amounts
at the
year-begin
Amounts
at the
year-end
Feng Gang Male Sep. 1963 Vice Chairman of the
Board
June 28, 2007
-March 14, 2009 0 0
Zhang Xingfu Male Apr. 1955 Chairman of the
Board
March 15, 2006
–March 14, 2009 0 0
Zeng Guoqiang Male Oct. 1953 Director, General
Manger
March 15, 2006
–March 14, 2009 0 0
Su Zhongmin Male March 1954
Director, Standing
Deputy General
Manager
March 15, 2006
–March 14, 2009 0 0
Bai Weisan Male Oct. 1957
Director, Deputy
General Manager,
General Manager of
Qingdao Branch
March 15, 2006
–March 14, 2009 0 0
Xiao Feng Male Oct. 1968 Director, Chief
Accountant
March 15, 2006
–March 14, 2009 0 0
Wang Mingyuan Male Sep. 1965 Director March 15, 2006
–March 14, 2009 0 0
Kou Zunxian Male Aug. 1955 Director March 15, 2006
–March 14, 2009 0 0
Wang Jieming Female June 1958 Director March 15, 2006
–March 14, 2009 0 0Shandong Airlines Co., Ltd. 2008 Annual Report
9
Wang Zhi Male May 1942 Independent Director March 15, 2006
–March 14, 2009 0 0
Hu Jijian Male Nov. 1942 Independent Director March 15, 2006
–March 14, 2009 0 0
Fang Shaokun Male Oct. 1962 Independent Director March 15, 2006
–March 14, 2009 0 0
Wei Jincai Male Feb. 1950 Independent Director March 15, 2006
–March 14, 2009 0 0
Wang Fuzhu Male June 1953
Chairman of the
Supervisory
Committee
March 15, 2006
–March 14, 2009 0 0
Gao Lihua Male May 1969 Supervisor March 15, 2006
–March 14, 2009 0 0
Wang Wuping Male March 1965 Supervisor March 15, 2006
–March 14, 2009 0 0
Wang Xianlin Male Nov. 1965 Supervisor, Deputy
Chief Pilot
March 15, 2006
–March 14, 2009 0 0
Zhou Qiaoyan Female Jan. 1975
Supervisor, Deputy
Head of Cabin
Service Department
March 15, 2006
–March 14, 2009 0
Song Yuxia Female Jan. 1956 Deputy General
Manager
March 15, 2006
–March 14, 2009 0 0
Yu Haitian Male Sep. 1969 Deputy General
Manager
March 15, 2006
–March 14, 2009 0 0
Li Qing’en Male Aug. 1955
Deputy General
Manager, Secretary
of the Board
March 15, 2006
–March 14, 2009 0 0
Zhang Qingshe Male Oct. 1958 Chief Pilot March 15, 2006
–March 14, 2009 0 0
He Guobin Male July 1949 Chief Engineer March 15, 2006
–March 14, 2009 0 0
Note: 1. There was no change in the number of shares held by directors, supervisors and
senior executives in the report period.
2. Particulars about directors, supervisors holding the post in Shareholding Company
Name
Name of the
Shareholding
Company
Position in the Shareholding
Company
Draw remuneration and
allowance from the
Shareholding Company
(Yes or no)
Feng Gang SDA Chairman of the Board, President Yes
Zhang Xingfu SDA Secretary of Party Committee,
Vice-president Yes
Wang Fuzhu SDA Chief Accountant Yes
Wang Wuping SDA Head of Financial Department Yes
Wang Mingyuan Air China
Commissary of Commerce
Commission,
General Manager of Network
Proceedings Department
Yes
Gao Lihua Air China
General Manager of Income
Settlement Department of
Commerce Commission
Yes
(II) Main work experiences in the near five years of the directors, supervisors and senior
executives, as well as particulars of their full time or part time posts in other units other than
the shareholding companies
Name Main work experience Full-time or part-time posts in other units
other than the shareholding companiesShandong Airlines Co., Ltd. 2008 Annual Report
10
Feng Gang
01/2004-05/2007, General Manager and Party
Secretary of China National Aviation Asset
Management Co., Ltd.;
05/2007 till now, Chairman and President of
SDA;
06/2007 till now, Director and Vice-president of
the Company.
Zhang Xingfu
01/2004-12/2005, Deputy Mayor in Yantai;
12/2005 till now, Party Secretary, Vice-president
of SDA;
03/2006 till now, Chairman of the Board of the
Company.
Chairman of Taikoo Shandong Aircraft
Engineering Co., Ltd.
Zeng
Guoqiang
01/2004 till now, Director and General Manager
of the Company.
Su Zhongmin 01/2004 till now, Director and Standing Deputy
General Manager of the Company.
Chairman of the Board of Qingdao
International Logistics Centre Co., Ltd.
Bai Weisan
01/2004-12/2005, Director and Deputy General
Manager of the Company;
05/2005 till now, General Manager of Qingdao
Branch of the Company.
Xiao Feng
01/2004-08/2005, Deputy General Manager of
Financial Department of Air China ;
04/2005 till now, Director of the Company;
08/2005 till now, Chief Accountant of the
Company.
Wang
Mingyuan
01/2004-06/2005, Deputy General Manager of
Sales & Marketing Department of Air China;
06/2005 till now, Commissary of Commerce
Commission, General Manager of Network
Proceedings Department of Air China ;
03/2006 till now, Director of the Company.
Kou Zunxian
01/2004-03/2007, Director of Asset
Management Department of Shandong
Economic Development and Investment
Company;
03/2007 till now, Deputy General Manager of
Shandong Economic Development and
Investment Company;
04/2005 till now, Director of the Company.
Wang Jieming
01/2004 till now, Director of Planning Financial
Department of Shandong Economic
Development and Investment Company;
03/2006 till now, Director of the Company.
Wang Zhi 01/2004 till now, Independent Director of the
Company.
President of Nanjing University of
Aeronautics and Astronautics;
Independent Director of China Southern
Airlines.
Hu Jijian
01/2004 till now, Professor of Shandong
Institute of Economics;
01/2004 till now, Independent Director of the
Company.
Independent Director of Luyin Investment
Group Co., Ltd.
Fang Shaokun
01/2004 till now, Vice President of Yantai
University;
12/2004 till now, Independent Director of the
Company.
Lawyer at Shandong Sunsum Law Firm.
Wei Jincai
01/2004-10/2008, Party Secretary of Civil
Aviation Management Institute of China;
10/2008 till now, President of Civil Aviation
Management Institute of China;Shandong Airlines Co., Ltd. 2008 Annual Report
11
03/2006 till now, Independent Director of the
Company.
Wang Fuzhu
01/2004-04/2005, Director of the Company;
01/2004 till now, Chief Accountant of SDA;
05/2005 till now, Chairman of Supervisory
Committee of the Company.
Gao Lihua
01/2004-10/2008, Deputy General Manager of
the Financial Department of Air China;
10/2008 till now, General Manager of Income
Settlement Department of commerce
commission of Air China;
03/2006 till now, Supervisor of the Company.
Wang Wuping
01/2004 till now, Director of the Financial
Department of SDA; Supervisor of the
Company.
Wang Xianlin
01/2004-09/2007, Group Leader of NO. 2
Flying Group of the Company;
09/2007 till now, Deputy Chief Pilot of the
Company;
01/2004 till now, Supervisor of the Company.
Zhou Qiaoyan
01/2004 till now, Deputy Head of Cabin Service
Department of the Company;
03/2006 till now, Supervisor of the Company.
Song Yuxia
01/2004-04/2005, Director of the Company;
01/2004-05/2005, General Manager of Qingdao
Branch of the Company;
01/2004 till now, Deputy General Manager of
the Company.
Chairwoman of the Board of Shandong
International Aero Training Co., Ltd.,
Chairwoman of the Board of Qingdao
Feisheng International Aero Technical
Training Co., Ltd.
Yu Haitian 01/2004 till now, Deputy General Manager of
the Company.
Chairman of the Board of Shandong
Xiangyu Aero Technical Services Co., Ltd.
Li Qing’en
01/2004-08/2005, Chief Accountant of the
Company;
01/2005 till now, Deputy General Manager and
Secretary of Board of Directors of the
Company.
Zhang
Qingshe 01/2004 till now, Chief Pilot of the Company.
He Guobin 01/2004 till now, General Engineer of the
Company.
(II) Particulars about annual payment
The payments of the directors, supervisors and senior executives of the Company were
determined according to the performances and results salary system. The allowance for each
independent director was RMB 50,000 per year as the basic number plus an extra allowance
of RMB 600 for every working day.
Name Title
Total amount of annual
remuneration
(RMB’000, before tax)
Zeng Guoqiang Director, General Manager 55.53
Su Zhongmin Director, Standing Deputy General Manager 48.90
Bai Weisan Director, Deputy General Manager, General
Manager of Qingdao Branch of the Company 47.92
Xiao Feng Director, Chief Accountant 39.43Shandong Airlines Co., Ltd. 2008 Annual Report
12
Wang Zhi Independent Director 5.90
Hu Jijian Independent Director 5.90
Fang Shaokun Independent Director 5.90
Wei Jincai Independent Director 5.90
Wang Xianlin Supervisor, Deputy Chief Pilot 26.47
Zhou Qiaoyan Supervisor, Deputy Head of Cabin Service
Department 18.06
Song Yuxia Deputy General Manager 49.70
Yu Haitian Deputy General Manager 47.34
Li Qing’en Deputy General Manager, Secretary of Board of
Directors 42.98
Zhang Qingshe Chief Pilot 47.35
He Guobin General Engineer 46.96
Total 494.24
Director Mr. Feng Gang and Director Mr. Zhang Xingfu, together with Supervisor Mr. Wang
Fuzhu and Supervisor Mr. Wang Wuping drew their remunerations from SDA, the
controlling shareholder, not from the Company; Director Mr. Wang Mingyuan, and
Supervisor Mr. Gao Lihua drew their remunerations from Air China, not from the Company;
Director Mr. Kou Zunxian and Director Ms. Wang Jieming drew their remunerations from
Shandong Economic Development and Investment Company, not from the Company.
(III) Particulars about changes of directors, supervisors and senior executive
In the report period, there were no changes of directors, supervisors and senior executive.
Note: On March 6, 2009, Mr. Bai Weisan resigned his posts of Director and Deputy General
Manager of Shandong Airlines Co., Ltd due to work change, Mr. Li Qing’en did not
concurrently hold the post of Secretary of the Board of Directors of the Company due to
work arrangement.
With the recommendation of Air China and the nomination of General Manager Mr. Zeng
Guoqiang, the Board of Directors engaged Mr. Xiao Feng and Mr. Qiu Feng as the Deputy
General Managers of Shandong Airlines Co., Ltd. Chairman Mr. Zhang Xingfu will perform
the duties as Secretary of the Board of Directors on behalf while the position as Secretary of
the Board of Directors is vacant.
(IV) About staff
By the end of the report period, the Company had 3,857 employees in total, including 54
postgraduates (Master Degree and Doctor Degree) or above, 2,056 persons graduated from
3-years regular college or above. The staff structure is as follows:
Type of employee Number Proportion to the total employees
Flight personnel 444 11.5％
Aircraft crew and maintenance personnel 647 16.8％
Marketing personnel 822 21.3％
Air host and hostess 796 20.6％
Ground attendant 316 8.2％
Financial personnel 149 3.8％Shandong Airlines Co., Ltd. 2008 Annual Report
13
Others 683 17.8％
By the end of the report period, there were 21 retirees in the Company.
V. Administration Structure of the Company
(I) Particulars about Company Administration
1. Particulars about the Company Administration in the report period
In 2008, strictly according to Company Law, Securities Law and relevant laws and
regulations promulgated by CSRC, the Company continuously perfected the Company’s
corporate governance structure and standardized its operation. In the report period, special
governance campaign for listed companies was accomplished; the Company perfected a
series of administrative and internal control system, modified and perfected the rules and
systems, thus providing powerful system and organization guarantee for its orderly operation.
Professional committees of the Board of Directors carried their work step by step, and the
scientific decision making level further enhanced. Working as callers of different
professional committees, independent directors’ influence were also strengthened. Compared
with the standard documents issued by CSRC on governance for listed companies, the Board
of Directors thinks the actual administration of the Company was basically in accordance
with regulations of Code of Corporate Governance for Listed Companies.
2. Particulars about Special Governance Campaign
According to the CSRC【2008】 No. 27 Notice and the requirements of Announcement on
Carrying Out Further Deeply Promoting Special Campaign for Corporate Governance of
Listed Companies Promulgated by CSRC issued by Shandong Securities Regulatory Bureau,,
the leader team on Special Governance Campaign issued special explanation report on
rectification ended as June 30, 2008 in light of the matters of self assessment in Rectification
Report on Special Campaign of Governance of the COmpnay in 2007, and the explanation
report was published on Juchao Website www.cninfo.com.cn.
Throught self assesement and self rectification, the Company further fined and perfected the
Company’s system construction, regulated governance and information disclosure of the
Company, operated strictly in accordance with the laws and regulations and the rules of the
Company, promoted regulated operation level, and advanced the sustainable, healthy and
steady development of the Company.
(II) Performance of Independent Directors
Since the Independent Directors of the Company, Mr. Wang Zhi, Mr. Hu Jijian, Mr. Fang
Shaokun and Mr. Wei Jincai took their posts, they fulfilled their duties in an honest, diligent
and responsible way, attended various meetings of the Board and Shareholders’ General
Meeting on time and attended Supervisory Committee meetings as non-voting delegates;
researched and studies actively the operation, business development and financial status of
the Company, supervised stictly over and guided the normative operation of the Company,
participated actively in the decision-making of the Board of Directors, and expressed
independent and objective opinions on the nomination of Director, suggestion and
engagement of certified public accountants and significant related transactions of the
Company, offering scientific and reasonable comments and proposals for many times on the
management and development of the Company by their own professional knowledge.
1. Particulars about Independent Directors’ Attending the Board of Directors
Name
Present Times for
the Board of
Directors this year
Presenting
in person
(Times)
Entrusted
presence
(Times)
Absent
(Times)
Wang Zhi 5 5 0 0Shandong Airlines Co., Ltd. 2008 Annual Report
14
Hu Jijian 5 5 0 0
Fang Shaokun 5 4 1 0
Wei Jincai 5 5 0 0
2. Objections on the related terms of the Company offered by the independent directors:
In the report period, there was no objection made by independent directors on related matters.
(III) Separation of the Company and holding shareholder in business, personal, assets,
organization and finance.
The Company and SDA, the controlling shareholder, have been made “Five Seperations” in
business, personal, assets, organization and finance. The Company possesses the
independent and complete business and operates independently.
(IV) Evaluation and encouragement mechanism of senior executives
According to the internal Regulation on the Integrated Evaluation and Management of
Executives, the Company conducted the annual comprehensive evaluation on the senior
executives and implemented the wage system where payment was linked with performances.
(V) Particulars about establishment and perfection of the Company’s internal control system
1. Self-assessment summary on implementation effectiveness of internal control system of
the Company in this year from the board of directors:
Throught establishing and effectively implementing internal control system, the operations
of the Company presented better development trend, the management abilities improved
further, realized the integration of security and benefit. In accordance with relevant laws and
regulations and requirements of relevant department, the Company established and perfected
complete and reasonable internal control, generally guaranteed the normal operation of
production of the Company, reduced the management risks to somer extent, implementations
of all the significant aspects relevant with accounting statement as of Dec. 31, 2008
according to the control system.
The Board of Directors of the Company made self-assessment on the aforesaid aspects of
internal control of this year; no significant faults in internal control design or implementation
were discovered. The Board of Directors of the Company thought the internal control system
of the Company was integrated and implemented effectively from Jan. 1st of this year to the
end of the report period.
For details, please refer the Bord of Directors’ Self Assessment Report on Internal Control of
Shandong Airlines Co., Ltd.
2. Opinions given by Supervisory Committee on Self-estimation for The Company Internal
Control
According to Basic Standard for Enterprise Internal Control promulgated by Ministry of
Finance and CSRC and the Guideline of Internal Control for the Listed Companies of
Shenzhen Stock Exchange, The Company earnestly checked the internal control system of
the Company in 2008, thought:
(1) The internal control system basically accorded with requirements of supervision, and also
went well with the present demands for the production and operation of the Company;
(2)The implementation of internal control of the Company was effective; the systems should
be perfected continuously in accordance with relevant regulations.
3. Independent Opinion given by Independent Board of Directors on Self-assessment for The
Company Internal control
In 2008, According to Basic Standard for Enterprise Internal Control promulgated by
Ministry of Finance and CSRC and the Guideline of Internal Control for the Listed
Companies of Shenzhen Stock Exchange, the Company checked the internal control systemShandong Airlines Co.,
Ltd. 2008 Annual Report
15
wholly and deeply, On the basis of independent judgment; independent directors made
careful checkings on internal control of the Company in 2008 and made the following
independent opinions:
(1) The internal control system basically conformed to the relevant laws of the State and
requirements of securities supervisory department, and also went well with the present
demands for production and operation of the COmpnay;
(2) The internal control methods of the Company had good effects on the control of every
procedure and every part of enterprise management, and the implementation was effective.
VI. Brief introduction to the Shareholders’ General Meeting
In the report period, the Company held one Shareholders’ General Meeting, which was the
Annual Shareholders’ General Meeting of 2007.
1. Notification, convening and holding of the Shareholders’ General Meeting
On Apr. 22, 2008, at time of 10:00, the Company held its 2007 Annual Shareholders’
General Meeting on 31/F conference room of SDA Building. The Company notified the
shareholders of the meeting by means of Public Notice, and the notification of the meeting
was published in China Securities, Securities Times and Hong Kong Wen Wei Po dated Mar.
26, 2008. Totally 7 shareholders and shareholder’s proxies with authorization from
shareholders representing 260,939,000 shares of the Company presented at the meeting,
taking 65.23% in the total amount of shares with voting rights of the Company: including
259,801,000 state-owned legal person’s shares, taking 64.95% of total shares of the
Company; 199,000 domestic legal person’s shares, taking 0.05% of total shares; 939,000
domestically listed foreign share (B share), taking 0.23% of total shares of the Company.
Chairman of the Board, Mr. Zhang Xingfu presided the meeting. The directors, supervisors
and senior executives of the Company attended the meeting. The convening and holding of
the Meeting accorded with the regulations of Company Law, Standardizing Opinions on
Shareholders’ General Meeting of Listed Company and Articles of Association of the
Company.
2. The resolutions passed by the Shareholders’ General Meeting and the disclosure of public
notice on resolutions
Following proposals were examined item-by-item and approved by means of roll call vote in
the meeting:
(1) Work Report 2007 of the Board of Directors of Shandong Airlines Co., Ltd.;
(2) Work Report 2007 of the Supervisory Committee of Shandong Airlines Co., Ltd.;
(3) Annual Report 2007 of Shandong Airlines Co., Ltd.;
(4) Financial Settlement Report 2007 of Shandong Airlines Co., Ltd.;
(5) Profit Distribution Plan 2007 of Shandong Airlines Co., Ltd.;
(6) Airplane Introduction Plan from 2009 to 2013;
(7) Proposal on Routine Related Transaction in 2008;
(8) Proposal on Re-engaging Certified Public Accountants and its Remunerations.
The resolutions of the meeting were published in China Securities, Securities Times and
Hong Kong Wen Wei Po dated Apr. 23, 2008.
VII. Report of the Board of Directors
(I) Discussion and analysis to the operation
The Company is a civil aviation transportation enterprise. In 2008, the Company insisted on
taking the utmost interests for itself and its shareholders as the springboard, earnestly carried
out responsibility endowed by Articles of Association. With the tough leaders of Shandong
Provincial Party Committee, Provincial Government, Civil Aviation Administration of China,
the Company made active progress, fought against difficulties with hard attitude, and
successfully responded to tests of earthquake-fighting, disaster rescue and guarantee for theShandong
Airlines Co., Ltd. 2008 Annual Report
16
Olympic Games, in front of various difficulties and pressures. Meanwhile, the Company
actively responded to the new challenges brought by international financial crisis; its safety
quality was improved continuously; operation capability was advanced steadily; production
and operation kept profit-making; organization for innovation was promoted in stable steps;
enterprise culture system was constructed; development of safety, high efficiency,
continuance, harmonization as well as health was realized.
1. Safety. In 2008, no non-safety incidents over symptoms of flight accidents happened to
the Company due to the responsibility of the Company. The overall safety trend was stable.
New improvement was made in safety management level. The team was steadier and
management & control ability on safety was further advanced.
2. Transport index. In 2008, the Company totally made 127,000 hours for safety flight and
76,000 flights flied, respectively 16.5% and 8.5% up compared to those of the same period
of last year; traffic mileage amounting to 800 million ton*kilometer was reached by the
Company, 24.5% up compared to those of the same period of last year; and totally 6,555,000
passengers were safely delivered, 15.3% up compared to those of the same period of last
year.
3. Benefit. In 2008, the Company has realized operating income of RMB 5.049 billion and
total profit of RMB 108,260,900, respectively 9.06% and 19.14% up compared to those of
the same period of last year; RMB 75,759,400 for operating profit; ton*kilometer level for
profit from transport business increased RMB 0.04 compared to that of the same period of
last year; the Company received some promotion in its ability of making profit, developing
and debt repaying.
4. Market. In 2008, the flight course structure was forwardly optimized and relevant cost was
greatly reduced. Assumptions of course transfixion between south and north, course of east
and west being in series was primarily realized, which effectively improved return level of
Chongqing and Xiamen bases and their contribution to the network. In Xiamen base, more
strength was input in transport capacity and density of flight course; plane was increased to 3
ones from the original one, and cities available for flight arrival amounted to 13. The charter
flight from Jinan to Niigata Japan was executed, and Qingdao-Taipei direct charter flight
was available. Action was made to promote the optimization for sales network in freight area
and Truck scheduled flight network was constructed with Weifang as the distributing center.
5. Service punctuality. In 2008, taking implementation of service brand as mainline, the
Company made seven actions plan to promote service innovation and standard construction,
which made service quality improved in some degree. Punctuality for the whole year’s
scheduled flights reached at 81.73%; only 1.3 times complains were received from every
10,000 passengers, 0.01% down compared to that of the same period of last year; the
satisfaction rate from passengers was 89.2%, 0.1% down compared to that of the same
period of last year; and the dilapidation error rate for baggage was 0.0282%. In the activity
of Civil Aviation in Eyes of Passenger for 2008, the Company was rewarded with
Outstanding Award for Abnormal Service of Scheduled Flight.
(II)Operation in the report period
1. Scope of main operations and their status
The Company is mainly engaged in business of passenger and cargo civil aviation
transportation and air traffic from home to its surrounding nations and districts, hotel and
food service, air machine reparation, agency business for inter airlines, ground services
related to main operation.
2. Constitution of main business of the Company
(1)Main business classified by industries
Unit: RMB
Industry Operation income Operation cost Operation
profit
Operation
income
Operation
cost
Operation profit ratio
increased or decreasedShandong Airlines Co., Ltd. 2008 Annual Report
17
ratio (%) increased
or
decreased
compared
to last
year (%)
increased
or
decreased
compared
to last
year (%)
compared to last year
Aviation
transportation
service
4,953,048,164.35 4,101,665,962.58 17.19 9.98 9.04 Increased 0.72
percentage point
Cargo transportation
logistics 6,020,693.27 1,313,169.79 78.19 -16.97 -24.27 Increased 2.1
percentage points
Hotel and food
service 22,538,565.66 15,614,100.05 30.72 -13.51 -4.28 Decreased 6.68
percentage points
(2)Main business classified by areas
Unit: RMB
Domestic International
Industry Operation income
Increased or
decreased
compared to
last year
Operation income
Increased or
decreased
compared to
last year
Aviation transportation service 4,776,170,383.28 0.10 176,877,781.07 0.11
Cargo transportation logistics 6,020,693.27 -0.17 - -
Hotel and food service 31,801,807.87 0.22 - -
3. Operations and achievements of holding and share-join companies
(1) Qingdao International Airlines Logistics Center Co., Ltd.
Qingdao International Airlines Logistics Center Co., Ltd., whose shares are held by the
Company, is mainly engaged in air cargo storage, ground dispatching, e-commerce, the 3rd
party logistics design and implementation, logistics business consultation and other related
services, with registered capital amounting to RMB 30 million. In the report period, the
company realized net profit amounting to RMB2,190,600. Till the end of the report period,
the total assets were RMB 45,721,700 and RMB 41,903,200 for net assets.
(2) Shandong Airlines Rainbow Jet Co., Ltd.
Shandong Airlines Rainbow Jet Co., Ltd., which the Company joined shares in, realized net
profit of RMB -210,500 by audited in the report period. Till the end of the report period, the
total assets were RMB 92,804,200.
(3)Sichuan Airlines Co., Ltd.
Sichuan Airlines Co., Ltd., which the Company joined shares in, has not finished the 2008
audit work till now.
(4) Travelsky Technology Limited
Travelsky Technology Limited, which the Company joined shares in, has not finished the
2008 audit work till now.
(5) Jinan International Airport Co., Ltd.
Jinan International Airport Co., Ltd., which the Company joined shares in, has not finished
the 2008 audit work till now.
4. Main suppliers and customers
The total purchase amount from the top five suppliers of the Company took up 40% of the
total annual purchase amount (mainly purchase aviation oil, aviation materials and plane
supply products); and the total amount of sales to the top five customers took up 13.68% of
the total annual amount of sales of the Company.
5. Problems and difficulties occurred in operationsShandong Airlines Co., Ltd. 2008 Annual Report
18
(1)The profit-making ability of the Company still needs to be improved. In 2008, according
to the profit index for transport business, the Company still appeared loss, which was similar
to the general situation for the whole industry. The Company finally realized general payoff
mainly by income from exchange.
(2) The losses from CRJ series airplanes of the Company have not been completely solved
yet.
(III)Investment of the Company
1. In the report period, there was no proceeds raised or application of proceeds raised in the
previous period but lasted to this report period in the Company.
2. In the report period, the Company had no investment with non-raised proceeds.
(IV) Financial status of the Company in the report period
1. Change of accounting policy and accounting estimation, and correction of accounting
error
In order to avoid the risk of fluctuation of interest rate when financing, the Company
successively signed Interest Rate Swap Contract with bank with the principal amounting to
USD 309 million from 2004 to 2005. Until Dec. 31st of 2007, the Company still held the
interest rate swap contract with the principal amounting to USD 179,344,000 which had not
been matured. Respectively on Dec. 31st of 2007 and Dec. 31st of 2006, the market values of
the interest rate swap contract were confirmed by bank to be RMB 42,754,634.98 (USD 5,
853,111.05) and RMB 1,533,338.00 (USD 190,000.00) respectively. According to cautious
principle, before 2008, value for the interest rate swap contract was all reflected in offbalance
sheet, value for the interest rate swap contract was expected to reflect on-balance
sheet from 2008. When preparing the comparative financial statement between 2008 and
2007, the Company had already corrected errors. Since corrected, RMB 42,754,634.98 was
increasely adjusted to the 2007 transaction financial assets and RMB 10,688,658.74 was
increasely adjusted to the 2007 deferred income tax liability, and RMB 32,065,976.23 was
increasely adjusted to the 2007 retained earnings:
Amount involved in retrospective adjustment
Items
2007 Year-begin of 2007
Amount
accumulatively
influenced
Income from change of fair
value 41,221,296.98 1,533,338.00 42,754,634.98
Income tax expense 10,305,324.25 383,334.50 10,688,658.75
Undistributed profit 30,915,972.73 1,150,003.50 32,065,976.23
Surplus reserve 0.00 0.00 0.00
2. Assets constitution and reasons for the changes
(1) Significant change in assets constitution of the Company compared to that of the same
period of last year during the report period
Unit: RMB
Item Dec. 31st of 2008 Dec. 31st of 2007 Increase Scope ofShandong Airlines Co., Ltd. 2008 Annual Report
19
Amount Proportion Amount Proportion
or
decrease
scope in
amount
compared
to that of
last year
(%)
change in
proportion
Transaction financial assets 23,460,812.11 0.30% 42,754,634.98 0.60% -45.13 -0.30%
Accounts receivable 126,118,032.09 1.61% 208,349,054.20 2.94% -39.47 -1.33%
Accounts paid in advance 29,124,244.97 0.37% 20,788,886.80 0.29% 40.10 0.08%
Inventory 74,347,529.57 0.95% 52,238,139.37 0.74% 42.32 0.21%
Notes payable 10,000,000.00 0.13% 15,000,000.00 0.21% -33.33 -0.08%
Tax payable 113,610,355.47 1.45% 86,739,296.55 1.22% 44.44 0.37%
Non-current liability due within one year 615,589,677.22 7.85% 302,623,652.29 4.27% 103.42 3.57%
Deferred earnings 18,319,557.83 0.23% 4,871,343.11 0.07% 276.07 0.16%
(2)Reason for change
Item Explanations
Transaction financial assets Mainly due to change of fair value
Accounts receivable Mainly due to great shortening of BSP settlement period
Accounts paid in advance Mainly due to increase of 3 planes in this report period, which caused a great
increase in account paid in advance for flight materials
Inventory Mainly due to increase of 3 planes in this report period, which caused a great
increasing demand for flight materials
Notes payable Mainly due to that commercial acceptance bill was matured and payment was
made
Tax payable Mainly due to the increase in profit of the Company which led to increase in
income tax
Non-current liability due
within one year Mainly due to that long-term loans matured in 2009 were more than those in 2008
Deferred earnings
Mainly due to that the Company adopted incentive plan for regular passengers in
this year, and confirmed the un-honored part among the account obtained from
passengers as deferred earnings
3. Change and corresponding explanation on the period expense of the Company occurred in
the report period
(1)Change in main financial data
Unit: RMB
Item 2008 2007 Increase or decrease
scope(%)
Sales tax and extra charges 132,823,862.65 137,305,155.03 -3.26%
Sales expense 236,554,096.88 211,372,665.37 11.91%
Administration expense 187,022,654.78 171,407,025.30 9.11%
Financial expense 253,541,156.57 219,325,967.84 15.60%
(2)Explanation for the above changes
Item Explanation
Sales tax and extra charges Due to derating of fuel extra operation tax regulated by national policy in
the report periodShandong Airlines Co., Ltd. 2008 Annual Report
20
Sales expense Due to increase of sales
Administration expense Due to increase of personnel and hand-in proportion for labor insurance
Financial expense Due to expansion of loan scale and decrease of income from exchange
4. Measurement attributes adopted for the main assets
The Company started to implement the new Accounting Standard for Enterprise since Jan.
1st of 2007. In the report period, no significant change had happened to the measurement
attributes adopted for the main assets of the Company. Details of the measurement attributes
are available in Notes to Financial Report.
5. Constitution of cash flow of the Company, and particulars about the items which received
significant changes compared to those of last year and reasons for the changes
(1) Constitution of the cash flow
Unit: RMB
Item 2008 2007
Increase or decrease
occurred in this year
compared to that of last
year(%)
Net cash flow arising from operating
activities 1,059,833,106.56 734,571,420.98 44.28%
Net cash flow arising from investment
activities -1,285,932,710.29 -1,278,473,770.97 0.58%
Net cash flow arising from financing
activities 229,614,517.64 519,998,016.04 -55.84%
Influence on cash and cash equivalents
from change of exchange rate -709,703.85 -2,220,419.94 -68.04%
Net increase in cash and cash
equivalents 2,805,210.06 -26,124,753.89 -110.74%
(2) Particulars about the significant changes in cash flow compared to that of last year and
reasons for the changes during the report period
Unit: RMB
Item 2008 2007
Increase or
decrease
occurred in
this year
compared to
that of last
year(%)
Explanation
Cash received from
obtaining investment
income
11,211,668.70 23,774,225.14 -52.84%
Mainly due to decrease in
income from transacting
financial assets(interest rate
swap contract) in this year
Cash paid for distributing
dividends, profit and
repaying interest
262,317,177.48 186,766,834.35 40.45%
Mainly due to increase in
long-term loans in this report
period
Influence on cash and
cash equivalents from
change of exchange rate
-709,703.85 -2,220,419.94 -68.04%
Mainly due to the
comprehensive influence
brought by change in deposit
structure of foreign currency
and exchange rate
Net increase in cash and
cash equivalents 2,805,210.06 -26,124,753.89 -110.74%
Mainly due to increase of
cash inflow arising from
operation activities and
decrease of account paid in
advance for airplane in this
yearShandong Airlines Co., Ltd. 2008 Annual Report
21
(V)Influence on the Company brought by change in operation environment, macro-policy
and laws and regulations
1. Drastic drop in market demand led by global economic recession will be the grimmest
challenge. It is predicted that growth step of the global passenger & goods transport by
aviation would slow down. Even in some region, negative growth will appear. The global
aviation will continue to remain bad situation with severe loss.
2. It is predicted that growth scope of the domestic civil aviation market would be lower than
that of transport capacity. In future, contradiction of overmuch transport capacity would be
prominent.
3. Support policy conducted by superintending departments of the industry will bring
positive influences to the Company, and the drastic drop in international oil price also
provides condition for the Company to lower down its cost for aviation oil.
(VI) Explanation of the Board of Directors on interpretative explanatory paragraph in the
auditors’ report
Reanda Certified Public Accountants audited Financial Report 2008 of the Company and
presented standard unqualified Auditor’s Report.
(VII) Prospects of the future development of the Company and work plan of the Board of
Directors for year 2009
The year 2009 is 60th anniversary of the founding of People's Republic of China, also an
essential year for implementation of the 11th Five Year Plan, and also the key year for us to
meet challenge, make pioneering efforts, optimize and improve. The Board of Directors
determined the work concept in this year was that: deeply carry out and practise Scientific
Development View to ensure constant safety as primary task, thus entirely complete safety
management system construction; scientifically meet the financial crisis, and entirely
implement Overwinter strategy to ensure constant profit-making; take safeguarding National
Games as opportunity, and exert to improve service level; deepen management reform and
construction and completely improve the management level of the Company; strengthen
team building and ideological and political work, ensure stability, agglomerate the force of
all employees, overcome new challenge, hold new opportunity, ensure the Company’s
constant development, and open new prospect of scientific development of Shandong
Airlines.
1. Continue to perfect corporate governance structure and strengthen the construction of
internal control system
Fully exert the functions of decide-making, audit and examination of each special committee
of the Board of Directors; further ensure that independent directors, each special committee
and supervisory committee fulfill their duties and actually provide necessary and convenient
conditions for supervisory work; according to basic criterion and specific criterion of
enterprises’ internal control issued by relevant department, continue to complete and perfect
internal control system and improve management level of internal control.
2. To realize the annual task and aim, the Company should find effort points to implement
key breakthrough. According to the present facts, the following five points should be done
well in this year.
(1) Entirely complete the building of safety management system to ensure constant safety.
Start activity of Year for Fulfilling Safety Responsibility; perfect SMS system, and improve
management level of the system; strengthen flight safety management to actually improve
flight quality; improve navigability level of the flight team; strengthen process control and
advance flight quality; especially grasp the safeguard work; increase safety training force to
lift training quality.Shandong Airlines Co., Ltd. 2008 Annual Report
22
(2) Entirely implement Overwinter strategy to ensure constant profit-making. Implement
active Overwinter strategy, and grasp the initiative of work. Take capital management as the
most important thing in operation management, strengthen cash flow management, adjust
debts structure, rationally arrange capital demand of production and operation activities, and
prudentially arrange capital investment to effectively consolidate capital chain; accurately
put in transport capacity to actual optimize network structure; lean sale strategy and innovate
sale mode; fine products designation and improve competition of products; make revenue
management, exact to improve revenue level; entirely fulfill the work measures of lowering
cost and improving efficiency.
(3) Take safeguarding National Games as opportunity, and exert to improve service level.
Standardize basic services. on the basis of benchmark with Air China, further fine and
perfect present service criterion standard, and entirely arrange the contact points between
customers and the Company; according to the brand strategy plan of the Company, continue
to perfect the management system of brand construction; entirely fulfill the plan of whole
transport service safeguard to improve service quality; take various measures to improve
flight punctuality rate; improve service in the air, baggage transport, abnormal flight service
and guarantee out of station; strengthen and reform service management work.
(4) Deepen management reform and construction, and completely improve the management
level of the Company. Speed up the adjustment of strategy and layout timely; continue to
deepen innovation of organization; build scientific and perfect performance management
system; strengthen basic management work.
(5) Take deeply study and practise Scientific Development View as motivity; entirely
promote harmonious construction of Shandong Airlines. Seriously sort the activity of
studying and practicing Scientific Development View; perfect leaders’ cultivation
mechanism; constantly advance the cohesion of organization; perfect systems of discipline
inspect and supervisory to further strengthen incorruptness building, actively promote
building enterprise’s culture to create a steady and harmonious atmosphere; continue to
strengthen four safety teams constructions including flight, maintenance, operation and
aviation security officer; fully exert the function of Labor Union and Youth League, protrude
the function of maintaining legal rights and interests of employees and join in democracy
management and supervisory.
(VIII) Capital needs in realizing operation plan, using plan and capital source
In 2009, the existed financial structure and loans arrangement from bank could satisfy capital
need in normal operations of the Company.
(IX) Routine work of the Board of Directors
1. The Board of Directors of the Company totally held five meetings in 2008.
(1) On Mar. 21, 2008, the Company held the 11th meeting of the 3rd Board of Directors. The
public notice of the resolutions of the Meeting was published on China Securities, Securities
Times and Hong Kong Wen Wei Po dated Mar. 25, 2008.
(2) On Apr. 22, 2008, the Company held the 1st Extraordinary Meeting of the 3rd Board of
Directors 2008. The public notice of the resolutions of the Meeting was published on China
Securities, Securities Times and Hong Kong Wen Wei Po dated Apr. 23, 2008.
(3) On Jul. 24, 2008, the Company held the 2nd Extraordinary Meeting of the 3rd Board of
Directors 2008. The public notice of the resolutions of the Meeting was published on China
Securities, Securities Times and Hong Kong Wen Wei Po dated Jul. 25, 2008.
(4) On Aug. 22, 2008, the Company held the 12th meeting of the 3rd Board of Directors by
voting. The public notice of the resolutions of the Meeting was published on China
Securities, Securities Times and Hong Kong Wen Wei Po dated Aug. 26, 2008.Shandong Airlines Co., Ltd. 2008
Annual Report
23
(5) On Oct. 24, 2008, the Company held the 13th meeting of the 3rd Board of Directors. The
public notice of the resolutions of the Meeting was published on China Securities, Securities
Times and Hong Kong Wen Wei Po dated Oct. 27, 2008.
2. The implementation of the resolutions of Shareholders’ General Meeting by the Board of
Directors
In the report period, according to the requirements of the relevant laws and regulations of
Company Law, Securities Law and Articles of Association, the Board of Directors of the
Company seriously implemented various resolutions approved by Shareholders’ General
Meeting strictly in compliance with the resolutions and authorization of Shareholders’
General Meeting.
(1) The implementation of profit distribution of the Company of 2007
In order to make up the losses in previous year, the Company didn’t carry out profit
distribution in 2007.
(2) The Board of Directors of the Company strictly implemented other various resolutions
approved by Shareholders’ General Meeting, actively arranged the production and operation,
investment disposal and fundamental construction etc..
(X) Profit Distribution Preplan or Preplan on Converting Capital Public Reserve into Share
Capital
Audited by Reanda Certified Public Accountants, the Company realized net profit
attributable to shareholders of listed company of RMB 80.98 million in 2008. After
offsetting the losses in the previous years, the profit available for distribution for investors
till Dec. 31, 2008 was 36.47 million. The Board of Directors decided not to carry out profit
distribution or conversion from capital public reserve into share capital in 2008.
The profit distribution preplan would be handed into the 2008 General Shareholders’
Meeting of the Company for examination and discussion.
(XI) Reason for why not presenting cash profit distribution preplan though made profit
during the report period, and usage of the undistributed profit
Due to most of the realized profit in 2008 came from the exchange income of the Company,
and this part was mainly the income of the present foreign currency debts brought by RMB
appreciation, which could not bring relevant cash inflow, while the main business of the
Company still appeared loss. The undistributed profit was used for satisfying daily
production and operation demand.
(XII) Duty implementation of the Audit Committee of the Board of Directors
In the report period, the Audit Committee of the Board of Directors issued opinions on the
various periodic reports and event about the reengagement of certified public accountant.
The Audit Committee of the Board of Directors has done lots of work during the 2008
auditing period of the Company. According to the requirements of Articles of Association,
Work System of Annual Report for Independent Directors of Shandong Airlines Co., Ltd.
and Work Rules of Audit Committee of Shandong Airlines Co., Ltd., the Audit Committee
makes the following summary on the 2008 auditing work:
1. Ensured the general audit plan and examined the financial statements of the Company
With negotiation among the independent directors of the Company, the Audit Committee and
Reanda Certified Public Accountants, the audit work arrangement for 2008 of the Company
was confirmed. At the same time, the independent directors and the Audit Committee
examined the 2008 financial statements formed by the Company and considered that: the
Company made financial calculation in compliance with the regulation of the new
accounting standards and no significant untrue contents was carried in the annual reportShandong Airlines
Co., Ltd. 2008 Annual Report
24
materials; the 2008 financial statements preprared by the Company basically reflected the
assets, liabilities and production and operation achievements of the Company till Dec. 31,
2008 and it was agreed to take this financial statement as the basis to carry out the 2008
financial audit work.
2. Kept normal negotiations with the Certified Public Accountants and paid attention to the
progress of auditing
During the audit period, the Audit Committee consistently kept negotiations with the
financial department and the Certified Public Accountants. Meanwhile, the Committee took
close eyes to the progress of auditing and examines the financial reports.
3. Called in the Audit Committee to examine and approve the proposals related to Annual
Report
Reanda Certified Public Accountants finished its auditing work in scheduled time and issued
standard unqualified Auditor’s Report. The Audit Committee held meeting to examine and
approve the following proposals: the 2008 Financial Settlement Report, the 2008 Profit
Distribution Preplan, the 2008 Annual Report, and Reengagement of Certified Public
Accountant.
(XIII) Duty implementation of the Remuneration Committee of the Board of Directors
The Remuneration Committee made examination on the remuneration of the directors,
supervisors and senior executives of the Company disclosed in the 2008 Annual Report and
offered the following opinions: the present remuneration system of the Company was made
according to the regulated decision-making procedure; the remuneration of the directors,
supervisors and senior executives of the Company was in compliance with relevant
regulations; the remuneration of relevant personnel disclosed in the 2008 Annual Report of
the Company was real and accurate.
VIII. Report of the Supervisory Committee
(I) Particulars about the work of Supervisory Committee
In 2008, the Supervisory Committee exerted the duties authorized by Company Law of the
P.R.C. and the Articles of Association of the Company according to laws with assiduity and
responsibility, actively implemented supervision functions on the Company’s operating
decision-making, financial status, the responsibility and behaviors of directors and senior
managers in the period and tried to safeguard the rights and interests of the shareholders.
The Supervisory Committee had hold one meetings of the Supervisory Committee and
attended all Shareholders’ General Meetings and meetings of the Board in 2008.
In the report period, the Supervisory Committee totally held the following meetings:
1. On Mar. 21st of 2008, the 8th Meeting of the 3rd Supervisory Committee was held in the
conference room of SDA Building. The meeting examined and approved the following
proposals:
(1) The 2007 Annual Report and Summary of Shandong Airlines Co., Ltd;
(2) The 2007 Working Report of Shandong Airlines Co., Ltd.
The public notice of the resolutions was published on China Securities, Securities Times and
Hong Kong Wen Wei Po dated Mar. 25th of 2008.
2. On Aug. 22nd of 2008, the Meeting of the Supervisory Committee was held in the
conference room of SDA Building. The meeting examined and approved the 2008 Semiannual
Report and its Summary of Shandong Airlines Co., Ltd.
(II) Independent Opinions of the Supervisory Committee on relevant events in 2008Shandong Airlines Co.,
Ltd. 2008 Annual Report
25
The Supervisory Committee conducted serious inspection and supervision on such
conditions as the Company’s finance, implementing resolutions of Shareholders’ General
Meeting, operating decision-making, operation according to laws, operating behaviors of
directors, managers and senior executives and related transactions, etc; and believed that the
operation management of the Company was in accordance with the relevant laws and
regulations and the Articles of Association of the Company.
1. Operation according to laws
In the report period, the Company conducted regulated operation complying with Company
Law, Securities Law, Articles of Association of the Company, and Rules for Shares Listed
with Shenzhen Stock Exchange and other national relevant laws and regulations. It
implemented effective internal control system inside the Company. Following the
regulations and laws and being honest with faith and diligence, directors and senior
executives of the Company carefully implemented every resolutions approved in
Shareholders’ General Meeting with a view to protect the shareholders’ interests. There was
no behaviors found that directors or senior executives broke the laws, regulations, or Articles
of Association or harmed the interests of the Company in their office terms.
2. Finance management of the Company
The Supervisory Committee carefully examined the financing situation of the Company. In
the opinion of the Supervisory Committee, 2008 Financial Report of the Company reflected
the financial situation and operation results of the Company truthfully and fairly. The
accounting vouchers, books and statements, and other accounting materials were genuine
and standard.
3. Related transaction
The related transactions of the Company are done in accordance with the market principle,
so they are of equality and reasonable price, and also maintain the interests of shareholders’
equity and the listed companies.
IX. Significant Events
(I) The Company has not been involved in significant lawsuits or arbitrations in the report
period.
(II) The Company has no bankruptcy and reforming in the report period.
(III) The Company holds 8,697,000 shares of Chinese Information Network Incorporation of
Civil Aviation which is listed in Hong Kong Exchanges and Clearing Limited. The nature of
these shares is non-circulating domestic shares.
The Company holds no share equity of other listed companies, or equity of financial
enterprises such as joint stock commercial banks, securities companies, insurance companies,
trust companies and futures companies.
(IV) No purchase and sale of assets and merger of the Company in the report period
(V) The implementation of stock option incentive plan in the report period
There is no implementation of stock option incentive plan of the Company in the report
period.
(VI) Significant related transaction
The Company has some related transactions with its holding shareholders and their
subordinate companies at present. These related transactions are necessity for the Company
and are unavoidable. Before the transactions, the Company has already fully considered the
quality, price and efficiency of the services and goods provided by the related parties andShandong
Airlines Co., Ltd. 2008 Annual Report
26
also made analysis and comparison on the market environment. The independent directors of
the Company presented opinions on the related transactions which believed that the
Company and the related parties made the deals with market principles of open, equality and
justice, the transaction price was fair and there was no behaviour hurting profit of other
shareholders.
1. Purchasing and selling merchandise, providing and accepting service
(1) In the report period, airplane maintaining fee of RMB 61.21 million has occurred
between the Company and Taikoo (Shandong) Aircraft Engineering Co., Ltd. This
transaction amount took proportion of 17.68% in the same kind transactions. The Company
paid for this transaction in cash according to the market price.
(2) In the report period, scheduled flight cooperation amount of RMB 96.046 million has
occurred between the Company and Air China. The transaction was priced according to the
price regulated in the contract agreed by the both parties.
(3) The related transactions about the routine operations in 2008
Unit: RMB’0000
Classification of the
related transactions Related parties Anticipated
amount
Actual
amount
Taikoo (Shandong) Aircraft Engineering Co., Ltd 7,027 6,121
Shandong Xiangyu Aero Technical Services Co., Ltd. 357 1,107
1.Maintenance of
aircraft and fittings
Subtotal 7,384 7,228
Qingdao Feisheng International Aero Technical Training Co.,
Ltd. 759 501
2.Training expense Shandong International Aero Training Co., Ltd. 955 1,092
Subtotal 1,714 1,593
Shandong Aviation Group(Rent for office land) 678 583
Shandong Aviation Group (Daily Accommodation) 512 514
3.Rent for office
land, and daily
accommodation
Subtotal 1,190 1,097
Air China Limited (aircraft lease) 50,451 60,019
Air China Limited (joint owned operation in South Korea flight
course) 9,999 9,605
Air China Limited (labour service support) 1200 595
4. Aircraft lease and
market cooperation
Subtotal 60,960 70,219
2. The Company and its controlling shareholder’s cooperative investment
The Company had no cooperative investment with its controlling shareholders in the report
period.
3. Credits and liabilities between the Company and related parties
There are no newly increased credits and liabilities between the Company and related parties
in the report period.
(VII) Significant contracts and implementation
1. There are no assets entrustment, contract and lease in the report period.
2. In the report period, the Company had no external significant guarantee.
3. In the report period, the Company had no entrusted financing.Shandong Airlines Co., Ltd. 2008 Annual
Report
27
4. Other significant contracts
Up tp the end of the report period, the accumulated amount of long-term and short-term
borrowings of the Company amounted to RMB 4,653,389,700.
The Company had no other significant contracts which were not disclosed.
(VIII) The Company had not entrusted anyone to manage its cash assets in the report period.
(IX) In the report period, there is no significant commitment.
(X) Engagement of Certified Public Accountants
In the report period, the Company continued to engage Reanda Certified Public Accountants
as Auditing Organization of the Company. 2007 Annual Shareholders’ General Meeting
examined and approved the Proposal on Renewal of Engaging CPA and its Remunerations,
the Company engaged Reanda Certified Public Accountants as 2008 Auditing Organization
of the Company. In the report period, the Company should pay the annual auditing fee of
RMB 600,000. The aforesaid auditing organization has provided auditing services to the
Company for the 5th year.
(XI) In the report period, the Company and the Board of Directors have not received check,
administrative punishment and notice of criticism from the CSRC, and public criticism from
the securities exchange.
(XII) In the report period, the received research and interview of the Company.
In accordance with the principles of just, fair and publicity, further regulate the behaviors of
information disclosure for the listed companies, the Company received the research and
media interviews in standardized way according to the regulations of Guideline on Fair
Information Disclosure for Listed Companies promulgated by Shenzhen Stock Exchange. In
the report period, the Company received organization investors, analysts, investors of Bstock,
and the research, visits and telephone communication from specialized media many
times; the Company received them and replies strictly in accordance with relevant
regulations; there occurred no such situations as selectively and privately reveal or leak nonpublic
significant information to specific parties; and all these assure the fairness of
information disclosure of the Company.
Activities form of receiving research, communication and interview in the report period:
The received
date
The received
place
The received
way
The received parties Contents discussed and materials
supplied
April, 2008 Jinan Spot research
News media, organization
investors and investors of Bshare
Financial status and operations
plan in 2008, provide the 2007
Annual Report of the Company
Jan.-Dec., 2008 Jinan
Telephone
interview,
communication
Organization investors and
investors of B-share
Operating situations and
significant events of the CompanyShandong Airlines Co., Ltd. 2008 Annual Report
28
X. Financial Report
Auditors' Report
To the Shareholders of Shandong Airlines Co., Ltd
山东航空股份有限公司
We have audited the accompanying financial statements of Shandong Airlines Co., Ltd. (“The
Company”), which comprise the consolidated balance sheet as at December 31, 2008, and the
consolidated income statement, consolidated cash flow statement for the year then ended, and a
summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
The Company’s management is responsible for the preparation of these financial statements in
accordance with the Enterprises Accounting Standards of China. This responsibility includes: (1)
designing, implementing and maintaining internal control relevant to the preparation of financial
statements that are free from material misstatement, whether due to fraud or error; (2) selecting and
applying appropriate accounting policies; (3) making accounting estimates that are reasonable in the
circumstances.
Auditor’s Responsibility
our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with the Chinese Certified Public Accountants' Auditing Standards.
These standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amount and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation of the financial statements 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 entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used
and reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Auditing opinion
In our opinion, the financial statements have been prepared in accordance with the requirements of
the Enterprises Accounting Standards promulgated by the People’s Republic of China, and present
fairly, in all material respects, the financial position of Shandong Airlines Co., Ltd as at December 31,
2008, and the results of its operations and its cash flows for the year then ended.
Reanda Certified Public Accountants Co., Ltd.
March 27, 2009Shandong Airlines Co., Ltd. 2008 Annual Report
29
Consolidated Balance Sheet
December 31st, 2008
Name of the company ： Shandong Airlines Co., Ltd Monetary unit : ( RMB) Yuan
Asset Note 31/12/2008 31/12/2007
Liabilities and
Shareholders'
equities
Note 31/12/2008 31/12/2007
Current
assets: Current liability:
Monetary
funds IX(1)
71,872,933.88
69,524,098.82 Short-term loan IX(16)
1,006,887,514.55
1,205,230,000.00
Tradable
financial
assets
IX(2)
23,460,812.11
42,754,634.98
Tradable financial
liabilities
Note
receivable Notes payable IX(17)
10,000,000.00
15,000,000.00
Accounts
receivable IX(3)
126,118,032.09
208,349,054.20 Accounts payable IX(18)
875,319,060.11
760,365,588.12
Advance to
suppliers IX(4)
29,124,244.97
20,788,886.80
Advance from
customers IX(19)
87,735,493.54
89,600,059.23
Interests
receivable Payroll payable IX(20)
91,119,967.07
73,407,937.88
Dividend
receivable Tax payable IX(21)
111,337,241.37
86,739,296.55
Other
accounts
receivables
IX(5)
144,978,136.24
160,626,933.07 Interests payable IX(22)
9,634,990.00
12,429,380.48
Inventories IX(6)
74,347,529.57
52,238,139.37 Dividend payable
11,940.00
11,940.00
Non-current
assets due
within one
year
Other accounts
payable IX(23)
161,736,748.70
135,360,048.66
Other current
assets Non-current liabilities
due within one year IX(24)
615,589,677.22
302,623,652.29
Total
current
assets
469,901,688.86
554,281,747.24
Other current
liabilities
Non-current
assets: Total current
liabilities
2,969,372,632.56
2,680,767,903.21
Availablefor-
sale
financial
assets
Non-current liabilities:
Held-tomaturity
investment
Long-term borrowings IX(25)
3,159,333,277.39
2,600,391,847.97
Long-term
accounts
receivable
Bonds payable
Long-term
equity
investment
IX(7)
88,352,100.00
89,459,196.91
Long-term accounts
payable IX(26)
1,114,459,905.38
1,304,559,910.24
Investment
property Deferred income IX(27)
18,319,557.83
4,871,343.11
Fixed assets IX(8)
5,684,074,945.46
4,995,005,633.80 Accrued liabilties
Construction
in process IX(9)
1,277,744,153.32
1,154,132,471.11
Deferred income tax
liabilities IX(28)
19,816,576.46
10,688,658.74
Construction
materials Other non-current
liabilities
Liquidation
of fixed
assets
IX(10
833,029.86
Total non-current
liabilities
4,311,929,317.06
3,920,511,760.06Shandong Airlines Co., Ltd. 2008 Annual Report
30
Production
biology
assets
Total liabilities
7,281,301,949.62
6,601,279,663.27
Oil and gas
assets Shareholders' equity:
Intangible
assets IX(11)
46,945,074.17
43,412,609.06 Share capital IX(29)
400,000,000.00
400,000,000.00
Development
expenses Capital reserve IX(30)
84,050,162.84
84,050,162.84
Goodwill Less: inventory shares
Long-term
deferred
assets
IX(12)
208,312,781.55
172,330,090.76 Surplus reserve IX(31)
29,490,727.77
24,919,586.71
Deferred
income tax
assets
IX(13)
68,774,158.11
72,989,224.18 Retained earnings IX(32)
36,471,405.69
-
39,938,895.93
Other noncurrent
assets
Exchange difference
of foreign currency
financial statements
translation
Total noncurrent
assets
7,374,203,212.61
6,528,162,255.68
Shareholders' equity
attributable to parent
company:
550,012,296.30
469,030,853.62
Minority interests
12,790,655.55
12,133,486.03
Total shareholders’
equities
562,802,951.85
481,164,339.65
Total assets
7,844,104,901.47
7,082,444,002.92
Total liabilities and
shareholders’
equities
7,844,104,901.47
7,082,444,002.92
Consolidated Income Statement
For the year 2008
Name of the company ： Shandong Airlines Co., Ltd Monetary unit : ( RMB) Yuan
Item Note 31/12/2008 31/12/2007
1. Total operating income IX(33) 5,049,391,116.47 4,630,130,538.19
Minus: operating cost IX(33) 4,156,123,366.72 3,836,749,656.28
Business taxes and surtax IX(34) 132,823,862.65 137,305,155.03
Selling expense 236,554,096.88 211,372,665.37
Administration expense 187,022,654.78 171,407,025.30
Financial expenses IX(35) 253,541,156.57 219,325,967.84
Impairment loss of assets IX(36) -551,458.89 670,094.39
Add: profits from the fair value changes (The loss is
listed beginning with “-“) IX(37) -19,293,822.87 41,221,296.98
Investment income (The loss is listed beginning
with “-“) IX(38) 11,175,753.02 23,333,345.80
Including: the investment income from associated
and joint ventures enterprises
II. Operating profit 75,759,367.91 117,854,616.76
Add: non-operating income IX(39) 43,893,809.88 11,362,190.18
Less: non-operating expense IX(40) 11,392,350.23 30,448,695.77Shandong Airlines Co., Ltd. 2008 Annual
Report
31
Including: loss from disposal of non-current assets 10,915,236.47 21,736,311.72
III. Total profits (The loss is listed beginning with
“-“) 108,260,827.56 98,768,111.17
Less: income tax expense IX(41) 26,622,215.36 29,862,834.65
IV. Net profits (the net loss is listed beginning
with “-”) 81,638,612.20 68,905,276.52
Net profits attributable to parent company 80,981,442.68 68,171,958.24
Minority interests 657,169.52 733,318.28
V. Earnings per share
1.Basic earnings per share 0.20 0.17
2.Diluted earnings per share 0.20 0.17
Consolidated Cash Flow Statement
For the year 2008
Name of the company ： Shandong Airlines Co., Ltd Monetary unit : ( RMB) Yuan
Item Note 31/12/2008 31/12/2007
I. Cash flows from operating activities
Cash received from sales of goods or rendering of services 5,142,461,900.44 4,614,996,501.55
Tax refund
Cash received related to other operating activities IX(43) 79,525,658.45 62,474,713.49
Subtotal of cash inflow from operating activities 5,221,987,558.89 4,677,471,215.04
Cash received from sales of goods or rendering of services 3,362,644,381.56 3,245,072,652.98
Cash paid to and on behalf of employees 543,461,203.22 382,490,652.80
Tax payments 176,555,377.04 240,417,165.04
Other cashes paid to operating activities IX(44) 79,493,490.51 74,919,323.24
Subtotal of Cash outflow from operating activities 4,162,154,452.33 3,942,899,794.06
Net cash flow from operating activities 1,059,833,106.56 734,571,420.98
II. Cash flow from investment activities:
Cash received from investments
Cash dividents received from investment 11,211,668.70 23,774,225.14
Net cash received from disposal of fixed assets, intangible assets and other longterm
assets 23,995.00
Net cash amount received from the disposal of subsidiaries an other business units 912,019.23 750,000.00
Cash received related to other investment activities
Subtotal of cash inflow from the investment activities 12,147,682.93 24,524,225.14
Cash paid to acquire and construct fixed assets, intangible assets and other long-term
assets 1,298,080,393.22 1,299,602,794.39
Cash paid to acquire investments
Net cash amount paid to acquire the subsidiaries and other business units
Cash paid related to other investment activities IX(45) 3,395,201.72
Subtotal of Cash outflow from investment activities 1,298,080,393.22 1,302,997,996.11
Net cash flow from investment activities -1,285,932,710.29 -1,278,473,770.97
III. Cash flow from financing activities:Shandong Airlines Co., Ltd. 2008 Annual Report
32
Cash received from investors
Cash received from loans 2,578,478,035.95 3,096,874,737.10
Cash received related to other financing activities
Subtotal of cash inflow from the financing activities 2,578,478,035.95 3,096,874,737.10
repayment of loans 1,812,750,241.19 2,281,783,413.74
Cash dividends, profits and interests paid 262,317,177.48 186,766,834.35
Cash payments related to other financing activities IX(46) 273,796,099.64 108,326,472.97
Sub-total of cash outflow from the financing activities 2,348,863,518.31 2,576,876,721.06
Net cash flow from finacing activities 229,614,517.64 519,998,016.04
IV. Effect of Foreign Exchange Rate Changes on Cash and cash equivalents -709,703.85 -2,220,419.94
V. Net increase in cash and cash equivalents 2,805,210.06 -26,124,753.89
Add: beginning balance of cash and cash equivalents 42,131,848.82 68,256,602.71
VI ending balance of cash and cash equivalents 44,937,058.88 42,131,848.82Shandong Airlines Co., Ltd. 2008
Annual Report
33
Consolidated statement of changes in the shareholders' equity
For the year 2008
Name of the company ： Shandong Airlines Co., Ltd Monetary unit : ( RMB) Yuan
31/12/2008
shareholders' equity belongs to parent company
Item
Share capital Capital
reserve
minus:
Shares
at
stock
Capital surplus Undistributed
Profit Others
Minority interest Toatl of
shareholder's equity
I. Balance at the end of previous
year
400,000,000.00
84,050,162.84 24,919,586.71 -39,938,895.93 12,133,486.03
481,164,339.65
plus(I): changes of accounting
policies
(II)Correction of errors in previous
years
II. Balance at the beginning of
this year
400,000,000.00
84,050,162.84 24,919,586.71 -39,938,895.93 12,133,486.03
481,164,339.65
III. Increase or decrease of
change amount in this year(the
decrease is listed beginning with
“-”)
4,571,141.06
76,410,301.62 657,169.52
81,638,612.20
(I)Net profits in the year
80,981,442.68 657,169.52
81,638,612.20
(II)Profit and loss directly accrued
to owners’ equities
1．Net amount of fair value
changes of saleable financial
assets
2．Net amount about the change
of fair values of cash flow
arbitrage tools
3． Income tax effect related to
the projects accrued to owner's
euity
4. OthersShandong Airlines Co., Ltd. 2008 Annual Report
34
Subtotal of (I)and (II)
80,981,442.68 657,169.52
81,638,612.20
(III) Capitals invested by the
owners
1.Capital investment by owners in
current period
2. Repurchase of shares at stock in
the year
3.others
(IV)Profit distribution in the yea 4,571,141.06 -4,571,141.06
Withdrawal of surplus reserve 4,571,141.06 -4,571,141.06
2．Withdrawal of general risk
preparation
3. Distribution to shareholders
4．Others
(V) Internal settlement and
transfer of owners’equity
1. Transfer of capital reserve to
capital
2. Transfer of surplus reserve to
capital
3. Surplus reserve makes up for
the loss
4. others
IV. Balance at the end of this
period
400,000,000.00
84,050,162.84 29,490,727.77
36,471,405.69 12,790,655.55
562,802,951.85
Consolidated statement of changes in the shareholders' equity
For the year 2007
Name of the company ： Shandong Airlines Co., Ltd Monetary unit : ( RMB) Yuan
Item 31/12/2007
shareholders' equity belongs to parent company Minority interest Toatl ofShandong Airlines Co., Ltd. 2008
Annual Report
35
Share capital Capital
reserve
minus:
Shares
at
stock
Capital surplus Undistributed
Profit Others
shareholder's
equity
I. Balance at the end of
previous year
400,000,000.00
84,050,162.84 25,001,281.34 -109,226,868.91 12,862,556.09
412,687,131.36
plus(I): changes of accounting
policies
(II)Correction of errors in
previous years
1,150,003.50
1,150,003.50
II. Balance at the beginning of
this year
400,000,000.00
84,050,162.84 25,001,281.34 -
108,076,865.41 12,862,556.09
413,837,134.86
III. Increase or decrease of
change amount in this year(the
decrease is listed beginning
with “-”)
-81,694.63
68,137,969.48 -729,070.06
67,327,204.79
(I)Net profits in the year 68,171,958.24 733,318.28
68,905,276.52
(II)Profit and loss directly
accrued to owners’ equities
173,679.78
173,679.78
1．Net amount of fair value
changes of saleable financial
assets
2．Net amount about the change
of fair values of cash flow
arbitrage tools
3． Income tax effect related to
the projects accrued to owner's
euity
4. Others
173,679.78
173,679.78
Subtotal of (I)and (II)
68,345,638.02 733,318.28
69,078,956.30
(III) Capitals invested by the
owners
1.Capital investment by owners in
current periodShandong Airlines Co., Ltd. 2008 Annual Report
36
2. Repurchase of shares at stock
in the year
3.others
(IV)Profit distribution in the
yea 207,668.54 -207,668.54
Withdrawal of surplus reserve 207,668.54 -207,668.54
2．Withdrawal of general risk
preparation
3. Distribution to shareholders
4．Others
(V) Internal settlement and
transfer of owners’equity -289,363.17 -1,462,388.34 -
1,751,751.51
1. Transfer of capital reserve to
capital
2. Transfer of surplus reserve to
capital
3. Surplus reserve makes up for
the loss
4. others -289,363.17 -1,462,388.34 -
1,751,751.51
IV. Balance at the end of this
period
400,000,000.00
84,050,162.84 24,919,586.71 -39,938,895.93 12,133,486.03
481,164,339.65Shandong Airlines Co., Ltd. 2008 Annual Report
37
Shandong Airlines Co., Ltd
Notes to Financial Statements
For the year of 2008
（All amounts are expressed in RMB Yuan unless otherwise stated）
I. General
Shandong Airlines Co., Ltd. (the "Company") was established in the People's Republic of China ("PRC")
on JULY 29, 1999, and is responsible for its own operation, subject to the supervision and regulation of
the
Civil Aviation Administration of China (“CAAC”), a regulatory authority of the civil aviation industry in
the
PRC. Its B shares are listed on the Shenzhen Stock Exchange (“the Stock Exchange”) with effect from
September 12, 2000. Its holding company is Shandong Aviation Group 山东航空集团有限公司 (formerly
Shandong Airlines Limited 山东航空集团有限公司), a company also established in the PRC..
The company is engaged in the provision of domestic passenger and cargo air transportation services.
The principle activities of subsidiaries and associates are set out in notes VII (1) and (2).
The Company and its subsidiaries are hereinafter collectively referred to as “the Group”.
II. Basis for preparation
The financial statements of the company are prepared on the assumption of going concern and actual
transactions and items ,in accordance with the Enterprise Accounting Standards issued by the Ministry of
Finance in February 2006 and accounting policy ,accounting estimation which presented in the Part four of
the
accounting Notes.
III. Declaration of Compliance with the Enterprise Accounting Standards
The Company’s financial statements prepared meet the requirements of the Enterprise Accounting
Standards, fairly and completely presents the financial position, operation result and cash flow, and other
relevant information of the company.
IV. Main accounting policies and accounting estimates and methods of consolidation
(1) Accounting Year
The company employs the period of the calendar days from the January 1 to December 31 each year as
the accounting year.
(2) Reporting currency
The Company’s reporting currency is Renminbi (“RMB”).
(3) Measurement characters
The Company commonly measures accounting factors by historical cost method; if the determined
accounting factor amount can be obtained or reliably measured, the replacement cost, net realizable value,
net
value and fair value method may be employed.
Within the reporting period，financial assets and liabilities measured at fair value through profit and
loss,
available for sale financial assets and financial derivative instrument are measured at fair value; for the
payment terms of purchased inventory and fixed assets are more than more than normal credit terms,
theseShandong Airlines Co., Ltd. 2008 Annual Report
38
inventory and fixed assets are measured at their purchase price; if impairment Loss occurs on inventory,
the
inventory is measured at net realizable value; if impairment Loss occurs on other assets ,they are measured
at
recoverable value; Asset inventory surplus are measured at replacement cost, other items of financial
statement
are measured at historical cost.
(4) Standard of cash equivalents
In preparing cash flow statement, cash equivalents of the company include the investments with short
term (it usually expires within three months from the purchase date), highly liquidity, easy to convert
into
known amount of cash, and low-risk of changes in value. Equity investments shall not deem as cash
equivalents.
(5) Foreign currency transactions
Foreign currency (currency other than the reporting currency) transactions are translated into reporting
currency at spot exchange rates prevailing on the day in which the transactions take place.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are restated
into the reporting currency using the spot exchange rates at that date. The exchange gains or loses are
dealt
with in the income statement for the year. The exchange gains or loses arising from foreign currency
borrowings in relation to the acquisition or construction of fixed assets are accounted for according to
the
requirements of capitalization of borrowing costs.
Conversion of financial statement in foreign currency
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are converted
into the reporting currency using the spot exchange rates at that date. Among shareholders’ equity items,
all
items except “undistributed profits” are converted into reporting currency at the spot exchange rate on
the
occurrence date. Income and expense items in Income Statement are converted into reporting currency at spot
exchange rate on the occurrence date.
(6) Financial assets and financial liabilities
(1) The recognition of the financial instruments:
The company should recognize a financial asset or a financial liability on its balance sheet when, and
only when the entity becomes a party to the contractual provision of the instrument.
(2) Classification of financial assets and financial liabilities:
Financial assets and liabilities include financial assets and liabilities held for trading, and financial
asset
or financial liability at fair value through profit or loss; held-to-maturity investments; loans and
accounts
receivable; available-for-sale financial assets; and other financial liabilities.
1. Financial asset or financial liabilities at fair value through profit or loss which including tradable
financial assets or liability and designated financial asset or financial liability at fair value through
profit
or loss.
The tradable financial asset or liability is financial assets or liability meets one of the following
criteria:
a. The purpose of the obtaining the financial asset or liability is for sale or repurchase in the near
future.
b. Forming a part of the identifiable combination of financial instruments which are managed in a
centralized way and for which there are objective evidences proving that the enterprise may manage the
combination by way of short term profit making in the near future;Shandong Airlines Co., Ltd. 2008 Annual
Report
39
c. Being a derivative instrument, excluding the designated derivative instrument which are
effective hedging instruments, or derivative instruments to financial guarantee contracts, and the
derivative instruments which are connected with the equity instrument investments for which there is no
quoted price in the active market, whose fair value cannot be reliably measured, and which shall be
settled by delivering the said equity instruments.
The financial assets or financial liabilities meeting any of the following requirements can be designated,
when they are initially recognized, as financial assets or financial liabilities as measured at its fair
value and of
which the variation is included in the current profits and losses:
(1) The designation is able to eliminate or obviously reduce the discrepancies in the recognition or
measurement of relevant gains or losses arisen from the different basis of measurement of the financial
assets
or financial liabilities;
(2) The official written documents on risk management or investment strategies of the enterprise
concerned have recorded that the combination of said financial assets, the combination of said financial
liabilities, or the combination of said financial assets and financial liabilities will be managed and
evaluated
on the basis of their fair values and be reported to the key management personnel.
2. held-to-maturity investment" refers to a non-derivative financial asset with a fixed date of
maturity, a fixed or determinable amount of reportable price and which the enterprise holds for a definite
purpose or the enterprise is able to hold until its maturity.
3. Loans and accounts receivable" refers to the non-derivative financial assets for which there is no
quoted price in the active market and of which the repo amount is fixed or determinable.
4. The "sellable financial assets" refers to the non-derivative financial assets which are designated
as sellable when they are initially recognized as well as the financial assets other than those as
described
below:
(1) Loans and accounts receivables;
(2) Investments held until their maturity; and
(3) Financial assets measured at their fair values and of which the variation is recorded into the profits
and
losses of the current period.
5. Other financial liability refers to financial liability are not measured at fair value through profit
and loss.
(3) Measurement of Financial Instruments
The financial assets and financial liabilities initially recognized by an enterprise shall be measured at
their fair values. For the financial assets and liabilities measured at their fair values and of which the
variation
is recorded into the profits and losses of the current period, the transaction expenses thereof shall be
directly
recorded into the profits and losses of the current period.
The subsequent measurement of the financial assets and financial liability:
1. The financial asset and liability at fair value through profit and loss are subsequently measured
at fair value, the profit and loss caused by changes in the fair value and de-recognition of the financial
asset and liability should be recorded in the profit and loss accounts.Shandong Airlines Co., Ltd. 2008
Annual Report
40
2. The investments held until their maturity, are measured on the basis of the post-amortization
costs by adopting the actual interest rate method; the profit and loss caused by de-recognition,
impairment or amortization are recorded in the profit and loss account of the current period.
3. The accounts receivable are measured on the basis of the post-amortization costs by adopting the
actual interest rate method; the profit and losses caused by de-recognition, impairment or amortization is
recorded in the profit and loss account of the current period.
4. Available for sale financial asset, subsequently measured at fair value, the profit and losses
caused by changes in fair value are recorded in the Capital reserve. The differences between purchase
value and book value as disposal of available for sale financial asset should be recognized in the profit
and loss on investments. At the same time, roll out the amount of the disposal part corresponding with
the cumulative amount of the changes in the fair value recognized in the owner’s equity into the Capital
reserve. The interest and cash dividend received during hold for available for sale financial asset, are
recognized in the profit and loss on investments.
5. Other financial liability , the derivative instruments which are connected with the equity
instrument investments for which there is no quoted price in the active market, whose fair value cannot
be reliably measured, and which shall be settled by delivering the said equity instruments
For the financial guarantee contracts which are not designated as a financial liability measured at its
fair
value and the variation thereof is recorded into the profits and losses of the current period, and for the
commitments to grant loans which are not designated to be measured at the fair value and of which the
variation is recorded into the profits and losses of the current period and which will enjoy an interest
rate
lower than that of the market, a subsequent measurement shall be made after they are initially recognized
according to the higher one of the following:
i. the amount as determined according to the Accounting Standards for
Enterprises No. 13 - Contingencies; or
ii. The surplus after accumulative amortization as determined according to the principles of the
Accounting Standards for Enterprises No. 14 - Revenues is subtracted from the initial recognized amount
Other financial liabilities are measured on the basis of the post-amortization costs by adopting the actual
interest rate method; the profit and losses caused by de-recognition, impairment or amortizations are
recorded
in the profit and loss account of the current period.
6. The "fair value" refers to the amount, at which both parties to a transaction who are familiar with
the condition exchange their assets or clear off their debts under fair conditions. In a fair transaction,
both
parties to it shall be enterprises in continuous operation, and do not plan or do not need to carry out any
liquidation, significantly reduce their operational scale or carry out transactions notwithstanding the
unfavorable conditions they face.
7. Amortized cost
Preferred term for the apportionment (charging or writing off) of the cost of an intangible asset as an
operational cost over the asset's estimated useful life. It is identical to depreciation, the preferred
term for
tangible assets. The purpose of both terms is to (1) reflect reduction in the book value of the asset due
to usage
and/or obsolescence, (2) spread a large expenditure proportionately over a fixed period, and thereby (3)
reduce
the taxable income (not the actual or cash income) of a firm. In effect, it is a process by which invested
capital
of a firm is recovered by gradual sale of the firm's asset(s) to its customers over the years.Shandong
Airlines Co., Ltd. 2008 Annual Report
41
8. Effective interest methods refers to a financial Asset (including a group of financial assets) or
financial liability (including a group of financial liabilities), means a method of— calculating the
amortized cost of the asset or liability, as the case may be; and allocating the interest income and
interest
expense of the asset or the interest income and interest expense of the liability, as the case may be, over
the expected life of the asset or liability, as the case may be.
(4) Termination of recognition of financial assets
1. Where a financial asset satisfies any of the following requirements the recognition of it shall be
terminated:
a. Where the contractual rights for collecting the cash flow of the said financial asset are terminated;
b. Where the said financial asset has been transferred and meets the conditions for recognizing the
termination of financial assets as provided for in Accounting Standards for Enterprises No. 23 - Transfer
of
Financial Assets
2. When conditions of entire transferred assets de-recognition has been satisfied, the differences
between the amount of following two items shall be accounted for profits and losses of current period.
a. The book value of transferred financial assets;
b. The sum of consideration received from the transfer, and the accumulative amount of the changes
of the fair value originally recorded in the shareholders’ equities (in the event that the financial asset
involved in the transfer is a financial asset available-for-sale)
3. If the transfer of partial financial assets satisfies the conditions of de-recognition, the entire book
value of the transferred financial asset shall, between the portion whose de-recognition and the recognized
portion (under such circumstance, the service asset retained shall be deemed as a portion of financial
asset
whose de-recognition), be apportioned according to their respective relative fair value, and the difference
between the amounts of the following two items shall be accounted for the profits and losses of the current
period .
a. The book value of the portion whose de-recognition.
b. The sum of consideration of the portion whose de-recognition and the portion of accumulative
amount of the changes in the fair value originally recorded in the shareholders’ equity which is
corresponding to the portion whose derecognized ( in the event that the financial assets involved in the
transfer is a financial assets available-for-sale).
4. If the Company fails to satisfy the conditions of de-recognition for transferred financial assets, it
shall continue to recognize the entire financial assets to be transferred and shall recognize the
consideration it receives as a financial liability.
5. Impairment of financial assets
The Company assesses the financial assets that carry at fair value, and those financial assets which
changes of fair value are recognized in profit and loss accounts at the balance sheet date. If there is
objective evidence that the one or several financial assets are impaired, the Company shall determine the
amount of any impairment loss.
a. Accounts receivable
At the end of the period, if there is objective evidence that the accounts receivable have been
impaired, the impairment loss shall be recognized based on the difference between book values and expected
cash inflow values.Shandong Airlines Co., Ltd. 2008 Annual Report
42
At the end of the period, impairment test shall be made on individual accounts receivable with significant
amounts. If there is objective evidence that they have been impaired, bad debt loss shall be recognized and
provision for bad debts shall be made based on the difference between the expected cash inflow values and
book values.
For those individual accounts receivable with not significant amounts at the end of the period, along with
those accounts receivable that have been tested individually but not impaired, the Company classifies them
in
line with similar credit risk characteristics into several groups, and make 5% of bad debts provision on
the
accounts receivable balances at balance sheet date. This percentage reflects the actual impairment loss,
that is,
the amount of which book values of each group are over their expected inflow values.
On the basis of the actual loss rate of receivable accounts, with same or similar credit risk
characteristics
of accounts receivable package in previous year, the Company also considers current situation and determine
the percentage of bad debt provision.
No bad debts provision has been made for security deposits for the operating lease aircrafts and aircraft
machineries.
b. Held-to-maturity investment
The measurement of impairment loss of held-to-maturity investment, please refer to impairment loss
treatment of accounts receivable.
c. Available-for-sale financial assets
If there is objective evidence that available-for-sale financial assets have significant depreciated, or
after
considering various relevant factors, this downward tendency is deemed as not temporary, the impairment
loss
shall be recognized based on the difference between the expected cash inflow values and book values.
In case of impairment loss of available-for-sale financial assets recognized, it can not be written back.
(7) Inventory
1. Inventories category: aircraft consumable parts, low-value consumable supplies for airplanes.
2. Inventories stock taking system: perpetual inventory method.
3. Valuation of methods of inventories：Inventories are calculated at actual costs when acquire, and
issuance of inventories is determined on first in first out basis.
4. low-value consumable products amortization method
The low–value consumable supplies are amortized at one time.
5. Impairment loss of inventories
For inventories at balance sheet date, the evaluation criteria should base on the lower value between costs
and net values that can be converted into cash. When net values that can be converted into cash are lower
than
costs, provision for impairment loss of inventories shall be made. For large quantity and low-unit-price
inventories, provision for impairment loss of inventories shall be made based on the category of
inventories;
for those inventories that relate to product series which production and sale are in same areas, have same
or
similar final usages or purposes, and are hard to separate calculation from other items, their impairment
loss
provision shall be consolidated.
The net value that can be converted into cash is referred to the value after estimated the selling price
subtracts the estimated finished cost and estimated sales expenses and related tax and fees in normal
operating
process.
（8）Recognition and measurement of Long-term Equity InvestmentShandong Airlines Co., Ltd. 2008 Annual
Report
43
1. Initial measurement
Long-term Equity Investment Including the company's investment that was able to exercise control, joint
control or equity investment which may have significant influence on the invested company or the Company’s
investment does not have control, joint control or significant influence on the invested company, and there
is
no active market quotation, the fair value can not be reliably measured.
a. For the merger of enterprises under the same control, if the consideration of the merging enterprise is
that it makes payment in cash, transfers non-cash assets or bear its debts, it shall, on the date of
merger, regard
the share of the book value of the owner's equity of the merged enterprise as the initial cost of the long-
term
equity investment. The difference between the initial cost of the long-term equity investment and the
payment
in cash, non-cash assets transferred as well as the book value of the debts borne by the merging party
shall
offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings
shall be
adjusted. If the consideration of the merging enterprise is that it issues equity securities, it shall, on
the date of
merger, regard the share of the book value of the owner's equity of the merged enterprise as the initial
cost of
the long-term equity investment. The total face value of the stocks issued shall be regarded as the capital
stock,
while the difference between the initial cost of the long-term equity investment and total face value of
the
shares issued shall offset against the capital reserve. If the capital reserve is insufficient to dilute,
the retained
earnings shall be adjusted.
For obtaining subsidiary not under common control, the cost of long-term equity investment is fair value
of assets paid or liabilities undertaken by the Company. Where the cost of a business combination exceeds
the
acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be
recognized
as goodwill, goodwill shall be measured at cost less accumulated impairment losses. Where the cost of
combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net
assets, after
reassessment, the difference shall be recognized in profit or loss for the current period.
other types of long-term equity investment
Besides the long-term equity investments formed by the merger of
Enterprises, the initial cost of a long-term equity investment obtained by other means shall be ascertained
in accordance with the provisions as follows:
(1) The initial cost of a long-term equity investment obtained by making payment in cash shall be the
purchase cost which is actually paid. The initial cost consists of the expenses directly relevant to the
obtainment of the long term equity investment, taxes and other necessary expenses.
(2) The initial cost of a long-term equity investment obtained on the basis of issuing equity securities
shall be the fair value of the equity securities issued.
(3) The initial cost of a long-term equity investment of an investor shall be the value stipulated in the
investment contract or agreement except the unfair value stipulated in the contract or agreement.
(4) The initial cost of a long-term investment obtained by the exchange of nonmonetary assets shall be
ascertained in accordance with the Accounting Standards for Enterprises No. 7 – Exchange of Non-monetary
Assets.
(5) The initial cost of a long-term equity investment obtained by recombination of liabilities shall be
ascertained in accordance with Accounting Standards for Enterprises No. 12 – Debt Restructuring.
2. Subsequent measurement
The cost method is employed to calculate the long-term equity investment of subsidiaries and will be
adjusted in accordance with the equity method in the preparation of the consolidated financial
statements.Shandong Airlines Co., Ltd. 2008 Annual Report
44
The Company uses cost method for the following conditions: a long-term equity investment where the
investing enterprise can exercise control over the investee, or the investing enterprise does not have
joint
control or significant influence over the investee, the investment is not quoted in an active market and
its fair
value can’t be reliably measured.
When an investing enterprise can exercise joint control or significant influence over the investee, a
longterm
equity investment shall be treated as a recovery of initial investment cost.
a. When using cost method, cash dividends or profit distributions declared by the investee shall be
recognized as investment income in the current period. However, investment Income recognized by the
investing enterprise shall be limited to the amount distributed to it out of accumulated net profits of the
investee arising after the investment was made. Any cash dividends or distributions received in excess of
this
amount shall be treated as a recovery of initial investment cost.
b. When using equity method, after the investing enterprise has acquired a long-term equity investment,
it shall recognize its share of net profits or losses made by the investee as investment income or losses,
and
adjust the carrying amount of the investment accordingly. The carrying amount of the investment shall be
reduced by the portion of any profit distributions or cash dividends declared by the investee that is
attributed
to the investing enterprise.
The impairment of a long-term equity investment which is measured by employing the cost method as
prescribed in these Standards, for which there is no offer in the active market and of which the fair value
cannot be reliably measured, its impairment shall be disposed in accordance with the Accounting Standards
for Enterprises No. 22 – Recognition and Measurement of Financial Instruments. The impairment of any other
long-term equity investment measured in accordance with these Standards shall be disposed in accordance
with the Accounting Standards for Enterprises No. 8 – Asset Impairment.
（9）Recognition and measurement of fixed asset
1. Fixed assets refer to simultaneously have the following characteristics of tangible assets: for the
production of merchandise, and providing labor services, lease or operation and management of holdings;
life
of more than one fiscal year.
2. Fixed assets are tangible assets that are held for use in production or supply of goods or services, for
rental to others, or for administrative purpose, and have useful lives more than one accounting year. Fixed
assets shall be recognized if they meet the following conditions:
(a) The economic benefits related to fixed asset probably flows to the enterprise;
(b) The cost of fixed asset may be reliably measured.
3. Fixed assets are measured in accordance with initial cost, the value of the financing leased fixed
assets
are measured at the lower of the fair value of the start date of the leasing and the present value of
minimum
lease payments, depreciation policy is in accordance with its own policy
4. The depreciation method of fixed assets: straight-line method is in used to calculate the depreciation
of
fixed assets (including finance leased fixed assets). The estimated useful lives, expected residual value
and
annual depreciation rate of various types fixed assets are listed as follows:
Category Estimated useful lives (years) Residual value (%) Annual depreciation rate
Buildings and structures 27-33 5.00 2.88-3.52
LLP and APU 15-20 5.00 4.75-6.33Shandong Airlines Co., Ltd. 2008 Annual Report
45
Aircraft frame replaceable parts 6-8 - 2.5-16.67
Engine replaceable parts 3-5 - 20-33.33
Machineries, Electronics and equipments 4-10 0-5.00 9.5-23.75
High price rotables 15-18 - 5.56-6.67
Vehicles 5-10 5.00 9.5-19
5. The fixed asset would be recognized as idle fixed assets if the fixed asset be unused in 6months
(except for seasonal disable), the deprecation method of idle fixed assets is in line with other types of
fixed
assets.
6. The high price rotables were classified into fixed assets according to the Ministry of Finance
CAIKUAIHAN [2004] No. 54 Ministry of Finance regarding the reply for the expansion of scope for civil
aviation capitalization flow management
7. At balance sheet date, if there is evidence indicates that the fixed asset has been impaired, the
provision for the impairment is prepared in accordance with methods described in14, note 4.
（10）Construction in progress
Construction in progress shall be calculated based on the classification of proposed projects.
Construction in progress is measured at actual cost. Construction in progress is transferred to fixed
assets
when the project is substantially ready for its intended use. Borrowing costs relating to construction in
progress are measured according to borrowing costs measurement method.
At the end of period, the company makes judgment if any provision of impairment loss is necessary. If
the project has been stopped for a long time and will not be constructed within three years, the impairment
loss for such construction in progress shall be made based on the differences between recoverable amount
and
book values. Once impairment loss is made, it can not be written back.
(11) Intangible Assets
1. The intangible assets shall be initially
measured according to its cost
2. As for the intangible assets with limited service life, the enterprise shall estimate the years of its
service life, or the amount of the output or any other similar measurement unit, which constitutes its
service
life. If it is unable to forecast the period when the intangible asset can bring economic benefits to the
enterprise, it shall be regarded as an intangible asset with uncertain service life
3. To determine the useful life for the intangible assets with limited useful life, the following factors
would be considered: a. the life cycle of the product which produced by the intangible assets. b. present
technical, technological, and the trend of future development c. market demand for the products or services
that produced by that asset. d. what action the Present or potential competitors will take in the future e.
estimated maintenance expenditures for the maintenance of that asset as well as the company ‘s ability to
pay
for the expenditure. f. the relevant laws and regulations or similar constraints for the duration of that
asset.
g .the connection with other relevant asset’s useful life which hold by the company.
4. With regard to intangible assets with limited service life, its amortization amount shall be amortized
within its service life systematically and reasonably. An enterprise shall amortize intangible assets from
the
time when it is available for use to the time when it is not confirmed as the intangible assets any more.
The
method chosen by an enterprise for the amortization of intangible assets shall reflect the expected
realizationShandong Airlines Co., Ltd. 2008 Annual Report
46
pattern of the economic benefits which relevant to the intangible assets. If it is unable to determine the
expected realization pattern reliably, intangible assets shall be amortized by the straight-line method
The useful lives of intangible assets:
Intangible assets Estimated useful lives (years)
Land-use rights 50
(12) Maintenance expenses
The maintenance expenses for aircraft and leased aircraft are both treated as current expenditure when
they occur. Since January 1, 2007, the occurrence of the maintenance expenses will be capitalized if the
maintenance expenses satisfy the conditions for capitalization, confirm as resetting the costs of fixed
assets
and depreciate in the reasonable terms．For aircraft under operating lease, maintenance are required before
return the aircraft to the lessor, the expenses for maintenance is estimated based on straight line method
or
flight hours.
(13) Long-term deferred assets
The Company’s long-term deferred assets refer to expense which has been paid out and the benefiting
period is over one year, such as expenses for pilots’ initial trainings and subsequent trainings. Those
expenses
are amortized at 20 years according to their benefit period respectively.
(14)Impairment of Assets
1. No matter whether there is any sign of possible assets impairment, the goodwill formed by the merger
of enterprises and intangible assets with uncertain service lives shall be subject to impairment test every
year.
Fixed assets, construction in progress, intangible assets, the investment properties measured by cost
method
and long-term equity investments, if there is any indication for impairment at balance sheet date then
impairment test need to be taken
Where any evidence shows that there is possible assets impairment, the recoverable amount of the assets
shall be estimated. The recoverable amount shall be determined in light of the higher one of the net amount
of
the fair value of the assets minus the disposal expenses and the current value of the expected future cash
flow
of the assets. The disposal expenses shall include the relevant legal expenses, relevant taxes, truck age
as well
as the direct expenses for bringing the assets into a marketable state. Where there is any evidence
indicating a
possible impairment of assets, the enterprise shall, on the basis of single item assets, estimate the
recoverable
amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on
the
basis of the asset group to which the asset belongs.
2. The recognition of the impairment
a. The current market price of assets falls, and its decrease is obviously higher than the expected
drop over time or due to the normal use;
b. The economic, technological or legal environment in which the enterprise operates, or the market
where the assets is situated will have any significant change in the current period or in the near future,
which will cause adverse impact on the enterprise;
c. The market interest rate or any other market investment return rate has risen in the current period,
and thus the discount rate of the enterprise for calculating the expected future cash flow of the assets
will
be affected, which will result in great decline of the recoverable amount of the assets;Shandong Airlines
Co., Ltd. 2008 Annual Report
47
d. Any evidence shows that the assets have become obsolete or have been damaged substantially;
e. The assets have been or will be left unused, or terminated for use, or disposed ahead of schedule;
f. Any evidence in the internal report of the enterprise shows that the economic performance of the
assets have been or will be lower than the expected performance, for example, the net cash flow created
by assets or the operating profit (or loss) realized is lower (higher) than the excepted amount, etc.; and
Other evidence indicates that the impairment of assets has probably occurred.
3. The recognition of an asset group shall base on whether the main cash inflow generated by the
asset group is independent of those generated by other assets or other group assets. Simultaneously, when
recognizing an asset group, the enterprise shall take into consideration how its managers manage the
production and business activities (for example, according to the production lines, business varieties or
according to the regions or areas), and the ways of decision-making for the continuous use or disposal of
the assets, etc
Where there is an active market for the products manufactured by (or other outputs of) a combination of
several assets, even if some or all of these products (or other outputs) are provided for the internal use,
the
enterprise shall also recognize this combination of assets as an asset group on the condition that the
provisions
of the preceding paragraph are accorded with
Where the cash inflow of the asset group is affected by the internal transfer price, the future cash flow
of
the asset group shall be determined on the basis of the best available estimate made by the managers of the
enterprise for the future price in the fair transaction.
Once an asset group is recognized, it shall be kept consistent during different accounting periods, and not
be changed at will.
(15) Measurement and recognition of employee Compensation
1. Employee Compensation
Employee compensation refers to all kinds of payments and other relevant expenditures given by
enterprises in exchange of the services offered by the employees. The employee compensation shall include:
a. Wages, bonuses, allowances and subsidies for the employees;
b. Welfare expenses for the employees;
c. Medical insurance, endowment insurance, unemployment insurance, work injury insurance, maternity
insurance and other social insurances;
d. Housing accumulation fund;
e. Labor union expenditure and employee education expenses;
f. Non-monetary welfare;
g. Compensations for the cancellation of the labor relationship with the employees; and
h. Other relevant expenditures of services offered by the employees
2. If an enterprise cancels the labor relationship with any employee prior to the expiration of the
relevant
labor contract or brings forward any compensation proposal for the purpose of encouraging the employee to
accept a layoff, and the following conditions are met concurrently, the enterprise shall recognize the
expected
liabilities incurred due to the compensation for the cancellation of the labor relationship with the
employee,
and shall simultaneously record them into the profit or loss for the current period:
a. Where the enterprise has formulated a formal plan on the cancellation of labor relationship or has
brought forward a proposal on voluntary layoff and will execute it soon. This plan or proposal
shallShandong Airlines Co., Ltd. 2008 Annual Report
48
include the department at which the employee to be laid off works, the post of the employee and the
number of the employees to be laid off, the amount of compensation for the cancellation of labor
relationship or for layoff as determined on the basis of the job category or post according to the relevant
provisions, and the planned time for the cancellation of labor relationship or layoff.
b. The enterprise is unable to unilaterally withdraw the plan on the cancellation of labor relationship
or the layoff proposal.
(16) Principle of accrued liabilities
1. Principle of accrued liabilities
The obligations related to some items that meet the following conditions at the same time will be
confirmed as the liabilities:
a. This obligation is the current obligation of the company;
b. The performance of this obligation will probably cause the economic benefits to flow out of the
company;
c. The amount of this obligation can be reliably calculated.
2. The measurement of accrued liabilities
The accrued liabilities are initially measured in accordance with the best estimated outflow of economic
benefits to fulfill the current obligation as well as related risks regarding the contingencies,
uncertainties and
time value of money. Significant impact on the time value of money the best estimation is determined
through
the related discounted future cash outflows. The increase of book value of accrued liability caused due to
the
passage of time is recognized as interest.
3. Optimum evaluation of accrued liabilities
If the necessary payments have scopes, the optimum evaluation shall be determined based on the average
amount between the upper and lower limit amount of scope ; if the necessary payments do not have such
scopes, the optimum evaluation shall be determined in the following method:
(a) If the contingent event is involved in an individual project, the optimum evaluation amount will be
determined based on the possible amount;
(b) If the contingent event is involved in some projects, the optimum evaluation amount shall be
determined based on possible amount and occurrence probability. In case of all or part of payments about
the
confirmed liquidation liabilities are expected to be compensated by the third parties or other parties, and
the
compensation amounts are surely received, then such amounts shall be separately recognized. The confirmed
compensation amounts shall not exceed book values of confirmed liabilities.
(17) Revenue recognition
1. Offering labor
a. The Company recognizes revenue based on passenger transport services provided or not based on the
use of expired ticketed through, rather than as the basis to ticket through sales. The unused tickets will
expiry
in one year after sale. In addition, the company and other airlines signed code-sharing agreement; under
the
code-sharing agreements one party's carrier's flight No. classes can use designated code of the other air
carrier.Shandong Airlines Co., Ltd. 2008 Annual Report
49
The revenue generated from code-sharing is allocated between parties in accordance with ode-sharing
agreements; the revenue is confirmed as the provision of passenger transport services.
b. In the provision of other aviation services, revenue is confirmed as at the completion of
service
2. The company ascertains the amount of revenues from the alienating of right to use assets based on the
following circumstances, respectively:
(1) The amount of interest revenue should be measured and confirmed in accordance with the length of
time for which the company's cash is used by others and the actual interest rate; or
(2) The amount of royalty revenue should be measured and confirmed in accordance with the period and
method of charging as stipulated in the relevant contract or agreement.
(18) Government Subsidies
1. No government subsidy may be recognized unless the following conditions are met simultaneously as
follows:
a. The enterprise can meet the conditions for the government subsidies; and
b. The enterprise can obtain the government subsidies.
2. a. If a government subsidy is a monetary asset, it shall be measured in the light of the received or
receivable amount. If a government subsidy is a non-monetary asset, it shall be measured at its fair value.
If its
fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount.
b. The government subsidies pertinent to assets shall be recognized as deferred income, equally
distributed within the useful lives of the relevant assets, and included in the current profits and losses.
But the
government subsidies measured at their nominal amounts shall be directly included in the current profits
and
losses.
The government subsidies pertinent to incomes shall be treated respectively in accordance with the
circumstances as follows:
(1) Those subsidies used for compensating the related future expenses or losses of the enterprise shall be
recognized as deferred income and shall included in the current profits and losses during the period when
the
relevant expenses are recognized; or
(2) Those subsidies used for compensating the related expenses or losses incurred to the enterprise shall
be directly included in the current profits and losses.
3. If it is necessary to refund any government subsidy which has been recognized, it shall be treated
respectively in accordance with the circumstances as follows:
a. If there is the deferred income concerned, the book balance of the deferred income shall be offset
against, but the excessive part shall be included in the current profits and losses; and
b. If there is no deferred income concerned to the government subsidy, it shall be directly included in the
current profits and losses.
(19) Measurement and recognition of borrowing cost
1. Principle of capitalization of borrowing cost
Borrowing costs may be attributable to the construction and productions of assets and complied with the
capitalization conditions, they shall be capitalized and accounted for as cost of assets; other borrowing
costsShandong Airlines Co., Ltd. 2008 Annual Report
50
shall be recognized as expenses when incurred and accounted for current profit and loss account. The assets
complying with the capitalization conditions mean assets such as fixed assets, investment properties and
inventories etc, that require a long time of construction and production activities before being intended
for use
or for sales.
The capitalization of borrowing costs shall satisfy the following conditions:
(a) The expenditure of assets has been incurred;
(b) The borrowing costs have been incurred;
(c) Activities relating to acquisition, construction or production that are necessary to the assets being
intended for use or sales have been launched.
Capitalization of borrowing costs shall be suspended during periods in which acquisition, construction or
production of assets is interrupted abnormally, and is interrupted for a continuous period of three months.
2. Capitalization period
Capitalization of borrowing costs shall be suspended during periods in which acquisition, construction or
production of assets is interrupted abnormally, and is interrupted for a continuous period of three months.
Capitalization of borrowing costs also shall be suspended when the acquisition, construction or
production of assets are prepared being intended for use or sales.
Borrowing costs which are incurred by the acquisition, construction or production of assets, and are
satisfied with the aforesaid capitalization conditions, are recognized as cost of assets before those
assets are
intended for use or sales. Any borrowing costs incurred after those assets are intended for use or sales,
are
recognized as financial costs.
3. Where a general borrowing is used for the acquisition and construction or production of assets eligible
for capitalization, the enterprise shall calculate and determine the to-be-capitalized amount of interests
on the
general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative
asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used.
The
capitalization rate shall be calculated and determined in light of the weighted average interest rate of
the
general borrowing. The capitalization period shall refer to the period from the commencement to the
cessation
of capitalization of the borrowing costs, excluding the period of suspension of capitalization of the
borrowing
costs. During the period of capitalization, the amount of interest capitalized during each accounting
period
shall not exceed the amount of interest actually incurred to the relevant borrowings in the current period.
During the period of capitalization, the exchange balance on foreign currency borrowings shall be
capitalized,
and shall be recorded into the cost of assets eligible for capitalization. For the ancillary expense
incurred to a
specifically borrowed loan, those incurred before a qualified asset under acquisition, construction or
production is ready for the intended use or sale shall be capitalized at the incurred amount when they are
incurred, and shall be recorded into the costs of the asset eligible for capitalization; those incurred
after a
qualified asset under acquisition and construction or production is ready for the intended use or sale
shall be
recognized as expenses on the basis of the incurred amount when they are incurred, and shall be recorded
into
the profits and losses of the current period. The ancillary expenses arising from a general borrowing shall
be
recognized as expenses at their incurred amount when they are incurred, and shall be recorded into the
profits
and losses of the current period.Shandong Airlines Co., Ltd. 2008 Annual Report
51
(20) Measurement and recognition of income taxes
1.The company uses deferred income tax liability method in calculation of income taxes
2. Where the company obtains assets or liabilities, it shall determine its tax base. Where there is
difference between the carrying amount of the assets or liabilities and its tax base, the deferred income
tax
assets or the deferred income tax liabilities shall be determined.
3. The recognition of the deferred income tax assets
a. The company should recognize the deferred income tax liabilities arising from a deductible temporary
difference to the extent of the amount of the taxable income which it is most likely to obtain and which
can be
deducted from the deductible temporary difference. However, the deferred income tax assets, which are
arising from the initial recognition of assets or liabilities during a transaction which is simultaneously
featured
by the following, shall not be recognized:
(a) The transaction is not business combination;
(b) At the time of transaction, the accounting profits will not be affected, nor will the taxable amount
(or
the deductible loss) be affected
b. Where the deductible temporary difference related to the investments of the subsidiary companies,
associated enterprises and joint enterprises can meet the following requirements simultaneously, the
enterprise
shall recognize the corresponding deferred income tax assets:
(a) The temporary differences are likely to be reversed in the expected future; and
(b) It is likely to acquire any amount of taxable income tax that may be used for making up the
deductible temporary differences.
c. As for any deductible loss or tax deduction that can be carried forward to the next year, the
corresponding deferred income tax assets shall be determined to the extent that the amount of future
taxable
income to be offset by the deductible loss or tax deduction to be likely obtained
4. Deferred income tax liabilities
Deferred tax liabilities shall be recognized for all taxable temporary differences, except to the extent
that
the deferred tax liabilities arise from:
a. the initial recognition of good will;
b. the initial recognition of assets or liabilities arising from the following transactions which are
simultaneously featured by the following:
(1) The transaction is not business combination;
(2) At the time of transaction, the accounting profits will not be affected, nor will the taxable amount
(or
the deductible loss) be affected.
c. The taxable temporary differences related to the investments of subsidiary companies, associated
enterprises and joint enterprises shall recognize corresponding deferred income tax liabilities. However,
those
that can simultaneously meet the following conditions shall be excluded:
(1) The investing enterprise can control the time of the reverse of temporary differences; and
(2) The temporary differences are unlikely to be reversed in the excepted future.
5.The carrying amount of deferred income tax assets shall be reexamined on balance sheet day. If it is
unlikely to obtain sufficient taxable income taxes to offset the benefit of the deferred income tax assets,
the
carrying amount of the deferred income tax assets shall be written down.
When it is probable to obtain sufficient taxable income taxes, such write down amount shall be
subsequently reversed.Shandong Airlines Co., Ltd. 2008 Annual Report
52
(21) Basis of Consolidation
1. The recognition scope of the consolidation
The consolidated financial statements prepared are in accordance with the No. 33 Enterprise Accounting
Standards – Consolidated Financial Statement issued in February, 2006. The recognition of the scope of the
consolidated financial statement based on control bases the consolidation including the company,
subsidiaries
directly or indirectly controlled by the company and special-purpose financial statements of the entity.
Control
refers to the Company has the right to decide financial and operating policies of the invested company, and
to
obtain benefits from the business activities.
Company is not included in the scope of consolidation if there is evidence shows that the parent company
can not exercise control over it.
2. Purchase or sale of subsidiary share holding
The purchase and sale date will be confirmed with the time that major related risks and rewards of equity
ownership have been transferred. For the acquisition or sale of a subsidiary under the different control of
the
consolidation, the operating results and cash flows have been properly included in the consolidated Income
Statement and Consolidated Statements of Cash Flows before the sales day and after the purchase day. For
the
acquisition or sale of a subsidiary under the same control of the consolidation the operating results and
cash
flows have been properly included in the consolidated Income Statement and Consolidated Statements of
Cash Flows and shown separately. The corresponding adjustments have been made for Comparative figures of
the consolidated financial statements
3. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the
accounting policies used into line with those used by other members of the group.
If the accounting policy and accounting period of the subsidiary are inconsistent with the Company,
financial statements of subsidiaries have been adjusted accordingly in accordance with the Company's
accounting policies as preparation consolidated financial statements, for the subsidiary acquired under
different control consolidation, financial statements of subsidiaries have been adjusted accordingly in
accordance with fair value of subsidiary's identifiable assets, liabilities and contingent liabilities at
purchase
day.
4. The method of consolidation
All significant intercompany transaction and balances between group enterprises are eliminated on
consolidation. The part of net assets of consolidated subsidiaries belongs to the part of minority
interests
should be reported separately in equity of consolidated financial statements.
V．Changes of Accounting Policies and Accounting Estimates and Error Correction
In order to avoid the risk of interest rate volatility, from 2004 to 2005, the company signed the interest
rate
swaps with banks which amounted to 309 million U.S. dollars. Up to 31/12/2007, the total amount of immature
interest rate swaps of the company was 179,344,000 U.S. dollars。At 31/12/2007 the banks confirmed the fair
value of the interest rate swaps of the company is 42,754,634.98 Yuan (5,853,111.05. dollars); At
31/12/2006 the
banks confirmed the fair value of the interest rate swaps of the company is 1,533,338.00 Yuan (190,000.00.
dollars). According to the principle of caution, prior to 2008 the value of the interest rate swaps be
presented out of
the financial statement. Since year 2008 the value of the interest rate swaps should be presented in the
financial
statement according to the requirement of the CSRC. In the preparation of 2008 and 2007 comparative
financialShandong Airlines Co., Ltd. 2008 Annual Report
53
statements, adjustments have been made. After the adjustments, the total amounts of the tradable financial
assets of
2007 has been increased 42,754,634.98 Yuan; the total amounts of Deferred income tax liabilities of 2007
has been
increased 10,688,658.74 Yuan; the retained earning of 2007 has been increased 32,065,976.24 Yuan
Retrospective adjustment
Item
2007 Opening balance of 2007 The cumulative effects
Income from Changes In fair Value 41,221,296.98 1,533,338.00 42,754,634.98
Income tax expense 10,305,324.24 383,334.50 10,688,658.74
undistributed profit 30,915,972.74 1,150,003.50 32,065,976.24
Surplus reserves 0.00 0.00 0.00
VI. Taxation
1、Company applies to the following major types of taxes and tax rates：
Types of tax Tax basis Tax rate
Business tax Passenger, cargo transportation business or commissions, lease business 3%or5%
Income tax Taxable income 25%
Note: According to CAISHUI [2008] NO.178 Document, from 1/1/2008 to 31/12/2010 fuel surcharge are
exempted from sales tax for airline company.
2、Civil aviation basic construction fund
According to Causing [2004] No. 38 the notice of temporary administration method for civil aviation basic
construction fund issued by the Ministry of Finance, civil aviation fund is calculated based on
classification of
airline, maximum take off weight, airline mileage etc. and related regulation.
VII. Corporate consolidate and the scope of consolidated financial statements
1、Subsidiaries were not obtained through combination
Company Name Registered Address Business nature Business scope
Qingdao Int'l Aviation Logistics Center Co., Ltd Qingdao
Transportation and
warehousing
Aviation cargo warehousing, ground allocation; Electronic
commerce and so on
Subsidiaries were not obtained through combination（continued）
Company Name Registered capital
Actual investment at
year end
Proportion of shares
held by the company
Proportion of voting
rights
Whether consolidated
or not
Qingdao Int'l Aviation Logistics Center Co., Ltd. 3,000.00 2,381.00 70.00% 70.00% Yes
2. Minority interest of subsidiaries
Company Name
Minority shareholder
interests at
31/12/2007
Net profits of
subsidiaries
The proportion of
shares held by
minority
shareholders
Profit and loss
attribute to minority
shareholders
The excess losses by
Minority shareholders
that parent company
has to beared
Minority
shareholder
interests at
31/12/2008
Qingdao Int'l Aviation
Logistics Center Co.,
Ltd.
12,133,486.03 2,190,565.09 30.00% 657,169.52 0.00 12,790,655.55Shandong Airlines Co., Ltd. 2008 Annual
Report
54
VIII. Joint venture and associated enterprises
List of joint ventures and key financial information：
Company Name Registered Address Business nature
Registered
capital(Million)
Holding
Proportion
Proportion of voting
rights
Shandong Airlines Rainbow Jet Co.,
Ltd.
Jinan General aviation transportation
50.00 45% 45%
List of joint ventures and key financial information(continued)：
Company Name
Total assts at the end of
balance date
Total liabilities at the
end of balance date
Total net assets at the
end of balance date
Total income Net profits
Shandong Airlines Rainbow Jet Co., Ltd. 92,804,133.65 241,500,785.58 -148,696,651.93 6,092,211.17 -
210,411.57
IX. Main items of consolidated financial statements
1. Monetary Funds
Items Closing balance Opening balance
Cash on hand 220,541.02 924,974.06
Bank deposit 44,716,517.86 41,206,874.76
Other monetary fund 26,935,875.00 27,392,250.00
Total 71,872,933.88 69,524,098.82
Closing balance Opening balance
Items Original
currency
Exchange
rate
Equivalent to
RMB
Original
currency
Exchange
rate
Equivalent to
RMB
Cash on hand
RMB 168,989.78 1.00 168,989.78 828,873.93 1.00 828,873.93
HKD 1,559.60 0.8819 1,375.43 5,930.00 0.9364 5,552.86
USD 1,520.92 6.8346 10,394.89 7,901.92 7.3046 57,720.36
GBP 82.80 9.8798 818.04 1,652.80 14.5807 24,098.99
CAD 10.00 5.6146 56.15 10.00 7.4419 74.42
JPY 135,000.00 0.07565 10,219.50 135,000.00 0.0641 8,653.50
EUR 2,970.00 9.6590 28,687.23 0.00 0.00 0.00
Sub total 220,541.02 924,974.06
Bank deposit
RMB 44,483,350.50 1.00 44,483,350.50 40,274,001.87 1.00 40,274,001.87
USD 34,117.08 6.8346 233,167.36 127,710.33 7.3046 932,872.89
Sub total 44,716,517.86 41,206,874.76
Other monetary fund
RMB 26,935,875.00 1.00 26,935,875.00 0.00 0.00 0.00Shandong Airlines Co., Ltd. 2008 Annual Report
55
USD 0.00 0.00 0.00 3,750,000.00 7.3046 27,392,250.00
Sub total 26,935,875.00 27,392,250.00
Total 71,872,933.88 69,524,098.82
Note ：Other monetary funds are due to aircraft and engine security deposit, the amount is RMB
26,935,875.00 at the year end 2008.
2. Tradable financial assets
Items fair value at the end of the year fair value at the beginning of the year
Derivative financial Assets 23,460,812.11 42,754,634.98
Total 23,460,812.11 42,754,634.98
Note：In order to avoid the risk of interest rate volatility, from 2004 to 2008, the company has signed the
interest rate swaps with banks which amounted to 384 million U.S. dollars, these interest rate swaps
contract are
matched with contract of airplane finance leasing and long-term borrowing contract, therefore the risks
arise from
interest payment of the financing can be avoided, and to prevent the losses in financing costs in the
fluctuation of
interest rates.
Up to 31/12/2008, the total amount of immature interest rate swaps of the company is 164,297,045.74 U.S.
dollars, of which redeemable interest rate swaps is 5,806,476.14 U.S. dollars。The bank has confirmed the
fair
value of the interest rate swaps of the company is 23,460,812.11 Yuan (3,432,653.28 U.S. dollars)。
3 .Accounts receivable
Composition of Accounts Receivable
2008.12.31 2007.12.31
Items
Balance Proportion
Bad debt
provision
Book value Balance Proportion
Bad debt
provision
Book value
Individual transaction
with significant amount 115,826,770.70 91.46% 0.00 115,826,770.70 189,588,286.65 89.54% 0.00 189,588,286.65
Credit risk portfolio 0.00 0.00% 0.00 0.00 2,608,298.83 1.23% 2,608,298.83 0.00
Other transaction with no
significant amount 10,812,993.42 8.54% 521,732.03 10,291,261.39 19,538,120.58 9.23% 777,353.03
18,760,767.55
Total 126,639,764.12 100.00% 521,732.03 126,118,032.09 211,734,706.06 100.00% 3,385,651.86 208,349,054.20
（1） Individual accounts receivable with significant amount
Items Amount Bad debt provision reason
Air China Limited 55,089,147.43 0.00
balance due to the settlement method, all amount after
period are received
BSP 39,640,732.64 0.00
balance due to the settlement method, all amount after
period are received
Accounts receivable from China
aviation settlement center 21,096,890.63 0.00
balance due to the settlement method, all amount after
period are received
Total 115,826,770.70 0.00Shandong Airlines Co., Ltd. 2008 Annual Report
56
（2） Age analysis of accounts receivable
Closing balance Opening balance
Age
Balance proportion
Bad debt
provision
Net value Balance proportion
Bad debt
provision
Net value
Within 1 year 125,431,572.82 99.05% 445,258.73 124,986,314.09 208,993,647.58 98.70% 770,715.04
208,222,932.54
1 to 2 years 1,157,864.08 0.91% 75,222.25 1,082,641.83 307,308.50 0.15% 206,030.43 101,278.07
2 to 3 years 26,524.80 0.02% 60.93 26,463.87 1,200,577.98 0.57% 1,175,785.69 24,792.29
3 to 4 years 23,802.42 0.02% 1,190.12 22,612.30 929,258.00 0.44% 929,206.70 51.30
4 to 5 years 0.00 0.00% 0.00 0.00 303,914.00 0.14% 303,914.00 0.00
Total 126,639,764.12 100.00% 521,732.03 126,118,032.09 211,734,706.06 100.00% 3,385,651.86 208,349,054.20
（3） the first five accounts of account receivable
Closing balance Opening balance
Items
Amounts proportion Amounts proportion
Total amounts of the first five accounts of account receivable 117,636,799.77 92.89% 191,137,479.60 90.27%
(4) at the end the year the balance of the accounts receivable decreased 39.47% in comparison with the
opening balance , this is mainly caused by BSP significantly shorten the billing cycle。
(5) As at December 31, 2008, the outstanding amounts of the shareholders who hold over 5% voting rights
(including 5%) see "Note 11, Related Party Relationships and transactions.
1. Advance payable
(1) Age analysis of advance payable
Age Closing balance Proportion Opening balance Proportion
Within 1 year 28,449,390.88 97.68% 20,787,499.32 99.99%
1-2years 674,854.09 2.32% 1,387.48 0.01%
Total 29,124,244.97 100.00% 20,788,886.80 100.00%
(2) At the end of year the significant amount of advance payments are as follows：
Amounts Proportion Details
17,451,742.86 59.92% Payment for the rental of operating lease
(3) The closing balance of the advanced payments has been increased 40.10% in comparison with the
opening balance, this mainly caused by significant increasing in prepaid payment of the aviation materials
for 3
newly added aircrafts.
(4) Up to 31 Dec 2008, the account balance did not contain any debt owned by major shareholders who owns
5% or over 5% of voting sharesShandong Airlines Co., Ltd. 2008 Annual Report
57
2. Other account receivable
(1)Composition of other account receivable
2008.12.31 2007.12.31
Items
Balance Proportion
Bad debt
provision
Book value Balance Proportion
Bad debt
provision
Book value
Individual transaction
with significant
amount 203,908,540.13 79.66% 109,051,717.65 94,856,822.48 228,111,849.89 83.89% 109,136,552.15
118,975,297.74
Other transaction with
no significant amount 52,065,571.90 20.34% 1,944,258.14 50,121,313.76 43,806,896.86 16.11% 2,155,261.53
41,651,635.33
Total 255,974,112.03 100.00% 110,995,975.79 144,978,136.24 271,918,746.75 100.00% 111,291,813.68
160,626,933.07
(2)Other individual account receivable with significant amount
Debtor Balance bad debts provision Reason
Shandong Airlines Rainbow-Jet Co. ,Ltd (SARJ)
109,051,717.65 109,051,717.65
Long-term accounts receivable, the company could
not repay debts due to its financial difficulty
Deposit of aircraft engine 94,856,822.48 0.00
Deposit for engine maintenance and purchase of
aircraft, all amounts is receivable in the future.
Total 203,908,540.13 109,051,717.65
(3)Age analysis of other account receivable
2008.12.31 2007.12.31
Age Balance Proportion Bad debt provision Net value Balance Proportion Bad debt provision Net value
Within 1 year 42,992,690.15 16.80% 2,038,542.29 40,954,147.86 45,332,097.75 16.67% 1,339,820.64
43,992,277.11
1 to 2 years 31,169,427.89 12.18% 669,245.45 30,500,182.44 29,195,356.30 10.74% 11,280,098.16 17,915,258.14
2 to 3 years 17,263,584.49 6.74% 10,698,669.47 6,564,915.02 137,151,532.65 50.44% 80,385,813.40
56,765,719.25
3 to 4 years 133,052,336.46 51.98% 80,329,246.11 52,723,090.35 23,496,543.29 8.64% 18,138,057.20
5,358,486.09
4 to 5 years 23,398,644.42 9.14% 17,195,422.39 6,203,222.03 24,265,824.29 8.92% 77,624.20 24,188,200.09
Above 5 years 8,097,428.62 3.16% 64,850.08 8,032,578.54 12,477,392.47 4.59% 70,400.08 12,406,992.39
Total 255,974,112.03 100.00% 110,995,975.79 144,978,136.24 271,918,746.75 100.00% 111,291,813.68
160,626,933.07
(4)List of significant debtors
Name of debtors Balance Nature or content Age Proportion
SARJ 109,051,717.65 Disbursement fee 1-5years 42.60%
GuoYin finance lease company 41,354,563.28 Deposit of aircraft 3-4years 16.16%
Singapore Aircraft Leasing Enterprise 19,136,880.00 Deposit of aircraft 1-3years 7.48%
RainierAircraft Leasing(Ireland)Limited 16,762,866.90 Deposit of aircraft 3-6years 6.55%
Huaxia Airlines Ltd. 14,979,716.58 Aircraft rental and maintenance reserve. 3-4years 5.85%Shandong Airlines
Co., Ltd. 2008 Annual Report
58
Total 201,285,744.41 78.64%
(5) As at December 31, 2008, the outstanding amounts of the shareholders who hold over 5% voting rights
(including 5%) see "Note 11, Related Party Relationships and transactions
6. INVENTORY
(1) Details of inventories
2008.12.31 2007.12.31
Items
Balance
Impairment loss
provision
Net value
Balance Impairment loss
provision
Net value
Aviation consumable material 73,263,438.33 353,539.79 72,909,898.54 51,137,472.47 353,539.79 50,783,932.68
Low value consumable 762,731.56 0.00 762,731.56 943,633.30 0.00 943,633.30
Material 605,146.87 0.00 605,146.87 497,251.68 0.00 497,251.68
Others 69,752.60 0.00 69,752.60 13,321.71 0.00 13,321.71
Total 74,701,069.36 353,539.79 74,347,529.57 52,591,679.16 353,539.79 52,238,139.37
(2) The closing balance of the inventories has increased 42.32% in comparison with the opening balance,
this mainly caused by increasing of consumption of Aircraft Materiel for three new Aircraft.
(3) Inventories impairment loss provision
Items
The opening
balances
Impairment loss
provision
Reversal Write off
The closing
balances
Proportion of current reversal to
inventories closing balance
Aviation consumable material 353,539.79 0.00 0.00 0.00 353,539.79 0.00
Total 353,539.79 0.00 0.00 0.00 353,539.79 0.00
(4) Up to 31 Dec 2008, the company did not use any inventories for guarantee.
7. Long-term equity investment
(1) Long-term equity investment and impairment loss provision
2008.12.31 2007.12.31
Items
Balance
Impairment loss
provision
Book value Balance
Impairment loss
provision
Book value
Long-term Equity Investment 110,852 ,100.00 22,500,000.00 88,352,100.00 111,959,196.91 22,500,000.00
89,459,196.91
Include: Investment in Subsidiary 0.00 0.00 0.00 1,107,096.91 0.00 1,107,096.91
Joint Venture 22,500,000.00 22,500,000.00 0.00 22,500,000.00 22,500,000.00 0.00
Investment in Other Companies 88,352,100.00 0.00 88,352,100.00 88,352,100.00 0.00 88,352,100.00
（2）Long-term equity investments measured with cost method
Investee
Initial investment
cost
The opening balances Increment Decrement The closing balances
China Civil aviation information network Co., Ltd 6,690,000.00 6,690,000.00 0.00 0.00 6,690,000.00
SiChuan airlines Co. Ltd 35,000,000.00 35,000,000.00 0.00 0.00 35,000,000.00
JiNan International Airport Co. Ltd 46,662,100.00 46,662,100.00 0.00 0.00 46,662,100.00
Total 88,352,100.00 88,352,100.00 0.00 0.00 88,352,100.00Shandong Airlines Co., Ltd. 2008 Annual Report
59
(3) Long-term equity investments measured with equity method
Investee
Initial
investment cost
The opening
balances
Increment Decrement
Cash
dividend
Other decrement
The closing
balances
Accumulate
Cash dividend
SARJ 22,500,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Union Express Service
Shangdong Airline Co.Ltd 650,000.00 1,107,096.91 0.00 0.00 0.00 1,107,096.91 0.00 0.00
Total 23,150,000.00 1,107,096.91 0.00 0.00 0.00 1,107,096.91 0.00 0.00
(4) Long-term equity investments impairment loss provision
Investee The opening balances Increment Decrement The closing balances
SARJ 22,500,000.00 0.00 0.00 22,500,000.00
Total 22,500,000.00 0.00 0.00 22,500,000.00
Note: Due to the insolvency of SARJ, the company decided to set up an impairment provision for this
long-term investment of SARJ.
8. Fixed assets and accumulated depreciation
（1） Classify Details
Item The opening balances Increment Decrement The closing balances
1.Fixed asset original price total 6,414,070,753.88 1,157,673,816.56 98,964,361.31 7,472,780,209.13
Building 143,576,494.34 687,902.20 2,863,767.75 141,400,628.79
Aircraft and engine 5,780,373,131.37 1,092,664,929.56 71,219,604.78 6,801,818,456.15
High price rotables 373,394,501.78 47,763,311.39 20,100,479.13 401,057,334.04
Vehiclest 32,712,599.99 2,494,949.55 651,819.91 34,555,729.63
Machinery and equipment and other office equipment 84,014,026.40 14,062,723.86 4,128,689.74 93,948,060.52
2.Accumulated depreciation total 1,419,065,120.08 436,398,118.13 66,757,974.54 1,788,705,263.67
Building 18,166,198.34 4,669,557.31 442,109.07 22,393,646.58
Aircraft and engine 1,245,587,703.83 398,454,013.01 59,309,003.03 1,584,732,713.81
High price rotables 100,420,352.91 22,070,425.39 2,717,323.31 119,773,454.99
Delivery equipment 15,702,027.57 3,102,565.27 509,913.98 18,294,678.86
Machinery and equipment and other office equipment 39,188,837.43 8,101,557.15 3,779,625.15 43,510,769.43
3. Fixed asset net book value total 4,995,005,633.80 0.00 0.00 5,684,074,945.46
Building 125,410,296.00 0.00 0.00 119,006,982.21
Aircraft and engine 4534785427.54 0.00 0.00 5,217,085,742.34
High price rotables 272,974,148.87 0.00 0.00 281,283,879.05
Delivery equipment 17,010,572.42 0.00 0.00 16,261,050.77
Machinery and equipment and other office equipment 44,825,188.97 0.00 0.00 50,437,291.09
（2） Current year completed construction in progress transferred to fixed asset is 937,546,706.41 Yuan.
（3） Finance leases
Items Book value
Accumulated
depreciation
Impairment provision Net book value
Aircraft and engine 2,505,052,608.99 746,338,680.70 0.00 1,758,713,928.29
Total 2,505,052,608.99 746,338,680.70 0.00 1,758,713,928.29Shandong Airlines Co., Ltd. 2008 Annual Report
60
（4）up to December 31, 2008, there is nothing indicates that fixed assets have been impaired therefore
no impairment provision is provided.
9. Construction in progress
(1) Construction in progress
Title
The opening
balances
Increment Transferred into fixed asset Decrement The closing balances
B737-800 (2008) 527,446,403.69 583,993,120.09 937,028,602.41 0.00 174,410,921.37
B737-800 (2009) 454,857,420.33 445,713,491.54 0.00 0.00 900,570,911.87
B737-800 (2012) 104,366,795.48 -4,384,233.99 0.00 0.00 99,982,561.49
ARJ700 60,778,195.00 0.00 0.00 0.00 60,778,195.00
Qingdao Maintenance
garage 4,820,907.63 34,890,249.98 423,604.00 0.00 39,287,553.61
Other construction 1,862,748.98 945,761.00 94,500.00 0.00 2,714,009.98
Total 1,154,132,471.11 1,061,158,388.62 937,546,706.41 0.00 1,277,744,153.32
(2) Capitalization of borrowing for construction in progress to 31 Dec 2008
Title The opening balances Increment Transferred into fixed asset The closing balances Sources of funding
B737-800 8,278,547.28 8,895,278.34 6,738,227.35 10,435,598.27 Loans from financial institutions
ARJ21-700 487,587.70 0.00 0.00 487,587.70 Loans from financial institutions
Total 8,766,134.98 8,895,278.34 6,738,227.35 10,923,185.97
Note ：The current increase in the capitalization containing interest on borrowings 53,035,614.64 Yuan,
and exchange earning 44,140,336.30 Yuan
(3) Up to December 31, 2008, there is nothing indicates that construction in progress have been impaired
therefore no impairment provision is provided.
10. Liquidation of fixed assets
Items The opening balances Increment Decrement The closing balances Reason for liquidation
Building 833,029.86 1,856,220.69 2,689,250.55 0.00 scraped
High price rotables 0.00 6,080,908.85 6,080,908.85 0.00 scraped
Aircraft and engine 0.00 1,211,274.75 1,211,274.75 0.00 scraped
Total 833,029.86 9,148,404.29 9,981,434.15 0.00
11. Intangible assets and accumulated amortization
(1) Intangible assets
Items The opening balances Increment Decrement The closing balances
1、Total original value 44,850,133.13 4,194,563.36 0.00 49,044,696.49
land Use right 44,850,133.13 4,194,563.36 0.00 49,044,696.49
2.Totalaccumulated amortization 1,437,524.07 662,098.25 0.00 2,099,622.32
land Use right 1,437,524.07 662,098.25 0.00 2,099,622.32
3. Total accumulated impairment loss provision for
intangible assets 0.00 0.00 0.00 0.00
land Use right 0.00 0.00 0.00 0.00Shandong Airlines Co., Ltd. 2008 Annual Report
61
4.Total book value of intangible assets 43,412,609.06 3,532,465.11 0.00 46,945,074.17
land Use right 43,412,609.06 3,532,465.11 0.00 46,945,074.17
(2) Up to December 31, 2008, there is nothing indicates that Intangible assets have been impaired
therefore no impairment provision is provided.
12. Long-term deferred expenses
Items Original value The opening balances Increment Decrement transfer out
accumulated
amortization
The closing
balances
Expenses of recruitment
and training for pilots 284,348,225.82 172,330,090.76 49,682,027.42 13,699,336.63 0.00 76,035,444.27
208,312,781.55
Total 284,348,225.82 172,330,090.76 49,682,027.42 13,699,336.63 0.00 76,035,444.27 208,312,781.55
The amortization period for expenses of recruitment and training for pilots is 20 years, The remaining
period is16-19 years。
13. Deferred income tax assets
(1) Recognized deferred income tax assets
deductible temporary differences deferred income tax assets
Items
The closing balances The opening balances The closing balances The opening balances
deductible temporary differences arising from
Provision for impairment of assets 111,461,696.80 114,677,465.48 27,865,424.20 28,669,366.37
Inventory impairment provision 353,539.79 353,539.79 88,384.95 88,384.95
Withholding costs for assets repairing 156,828,874.32 99,334,110.52 39,207,218.58 24,833,527.63
Employee wage payable 6,424,516.00 64,949,603.00 1,606,129.00 16,237,400.75
Deductible difference resulting from loss remedy 0.00 12,552,438.48 0.00 3,138,109.62
Launch fee amortization 28,005.52 89,739.44 7,001.38 22,434.86
Total 275,096,632.43 291,956,896.71 68,774,158.11 72,989,224.18
Note: According to the history of sales and Prediction of future market of the company, deferred income
tax assets recognized in each period can be written back in the following period
14. Provision for asset impairment
Decrement
Items The opening balances Increment
written back Written off
The closing balances
(1) Accounts receivable bad debt provision 3,385,651.86 0.00 255,621.00 2,608,298.83 521,732.03
(2) Other account receivable bad debt
provision 111,291,813.68 0.00 295,837.89 0.00 110,995,975.79
(3) Provision of inventory impairment loss 353,539.79 0.00 0.00 0.00 353,539.79
(4) impairment provision of the long term
equity investment 22,500,000.00 0.00 0.00 0.00 22,500,000.00
Total 137,531,005.33 0.00 551,458.89 2,608,298.83 134,371,247.61Shandong Airlines Co., Ltd. 2008 Annual
Report
62
15. Restricted assets
(1) Restricted assets
Item The opening balances Increment Decrement The closing balances
Net worth of pledged assets
Self owned aircraft 2,656,919,630.14 1,007,972,763.24 206,520,579.33 3,458,371,814.05
Finance leased aircraft 1,877,865,797.40 13,472,561.55 132,624,430.66 1,758,713,928.29
Total 4,534,785,427.54 1,021,445,324.79 339,145,009.99 5,217,085,742.34
(2) The obtaining of bank loans and finance leasing aircraft cause the accessing of the above assets to be
restricted.
16. Short-term loans
（1）Types of short-term loan
Types The closing balances The opening balances
Credit bank loan 70,503,800.00 36,523,000.00
Pledged bank loan 126,383,714.55 0.00
Guaranteed bank loan 810,000,000.00 1,168,707,000.00
Total 1,006,887,514.55 1,205,230,000.00
（2）Details of short-term loan
Types Amount(RMB) Start Date Maturity Date Remarks
Credit bank loan：
Everbright Bank,Qingdao branch 50,000,000.00 2008-11-24 2009-11-23
Bank of China (Hong Kong) Branch 20,503,800.00 2008-1-10 2009-1-10 Three million U.S. dollars in original
currency
Total 70,503,800.00
Pledged bank loan：
SH Nordbank AG 50,619,781.44 2008-7-25 2009-4-30 7,406,400.00 U.S. dollars in original currency
SH Nordbank AG 25,144,151.67 2008-7-31 2009-2-28 3,678,950.00 U.S. dollars in original currency
SH Nordbank AG 50,619,781.44 2008-9-25 2009-4-30 7,406,400.00 U.S. dollars in original currency
Total 126,383,714.55
Guaranteed bank loan：
China Construction Bank Jinan shizhong branch 40,000,000.00 2008-12-16 2009-12-15 Shandong airline co. ltd
as guarantor
China Construction Bank Jinan shizhong branch 40,000,000.00 2008-12-18 2009-12-17 Shandong airline co. ltd
as guarantor
China Merchants Bank, Jinan branch 40,000,000.00 2008-7-3 2009-7-3 Shandong airline co. ltd as guarantor
China Merchants Bank, Qingdao branch 80,000,000.00 2008-6-16 2009-6-16 Shandong airline co. ltd as
guarantor
China Merchants Bank, Qingdao branch 90,000,000.00 2008-7-9 2009-7-9 Shandong airline co. ltd as guarantor
Agriculture bank of China, MingHu branch 150,000,000.00 2008-1-23 2009-1-22 Shandong airline co. ltd as
guarantor
Agriculture bank of China, MingHu branch 60,000,000.00 2008-11-5 2009-11-4 Shandong airline co. ltd as
guarantor
Agriculture bank of China, MingHu branch 50,000,000.00 2008-11-12 2009-11-11 Shandong airline co. ltd as
guarantor
Agriculture bank of China, MingHu branch 60,000,000.00 2008-11-19 2009-11-18 Shandong airline co. ltd as
guarantor
Bank of China (Jinan) Branch 80,000,000.00 2008-12-31 2009-12-30 Shandong airline co. ltd as guarantor
Chinese Foreign Economic and Trade Trust Ltd. 120,000,000.00 2008-4-18 2009-4-17 Shandong airline co. ltd
as guarantorShandong Airlines Co., Ltd. 2008 Annual Report
63
Subtotal 810,000,000.00
Total 1,006,887,514.55
(3) As of December 31, 2008 there are no overdue outstanding loans.
17. Notes payable
(1) Details
Items The closing balances The opening balances
bank acceptance 10,000,000.00 15,000,000.00
Total 10,000,000.00 15,000,000.00
(2) The closing balance of the notes payable has decreased 33.33% in comparison with the opening
balance, this mainly caused by the payment made to the maturity bank acceptance.
18. Accounts payable
(1). Age
Age The closing balances The opening balances
Within 1 year 866,216,091.36 760,092,700.15
Above I year 9,102,968.75 272,887.97
Total 875,319,060.11 760,365,588.12
(2) Up to 31 Dec 2008, there are no payables due from shareholders who own 5% or over 5% of voting
rights
19. Advanced from customers
(1). Age
Age The closing balances The opening balances
Within 1 year 87,709,493.54 89,541,466.63
Above 1 year 26,000.00 58,592.60
Total 87,735,493.54 89,600,059.23
(2) Up to 31 Dec 2008, there are no advanced payments received from shareholders who own 5% or over
5% of voting rights
20. Payroll payable
Items The opening balances Increment Decrement The closing balances
1、Salary, bonus and allowance 65,167,874.92 421,945,772.48 402,717,604.43 84,396,042.97
2、Employee benefit 0.00 17,523,387.97 17,523,387.97 0.00
3、Social insurance fee 105.82 52,379,543.13 52,379,397.71 251.24
Include：1. medical insurance 28.69 216,467.20 216,495.89 0.00
2.Basic retirement insurance 65.92 32,116,354.30 32,116,168.98 251.24
3.Annuity fee 0.00 14,835,012.40 14,835,012.40 0.00
4.Unemployment fee 6.59 3,344,146.38 3,344,152.97 0.00
5.Injury insurance 1.65 716,916.41 716,918.06 0.00
6.Procreation insurance premium 2.97 1,150,646.44 1,150,649.41 0.00
4、Housing accumulation fund 236,614.70 59,218,648.96 59,452,221.42 3,042.24Shandong Airlines Co., Ltd.
2008 Annual Report
64
5、Labor union fee and employee education
fee 8,003,342.44 10,101,229.39 11,383,941.21 6,720,630.62
6. Non-monetary benefit 0.00 0.00 000 0.00
7、Redemption of termination of labor
contract 0.00 4,650.48 4,650.48 0.00
8、Others 0.00 0.00 0.00 0.00
Include：share payment by cash 0.00 0.00 0.00 0.00
Total 73,407,937.88 561,173,232.41 543,461,203.22 91,119,967.07
21. Tax payable
Types The closing balances The opening balances
VAT & Custom tax 42,093,679.29 32,283,139.01
Sales tax 4,783,260.78 11,655,870.96
City maintenance construction fee 1,017.73 3,780.64
Enterprise Income tax 7,878,180.11 81,547.63
Property tax 1,174,020.58 1,160,007.23
Tenure tax 3,468.00 766,030.00
Personal income tax 1,846,373.79 1,107,868.53
Stamp duty 3,099,249.32 2,649,751.77
Civil aviation infrastructure construction
fund 9,223,996.01 8,348,032.19
Civil aviation airport administration fee 26,114,804.00 22,865,399.00
Income tax in advance 15,119,191.76 5,817,869.59
Total 111,337,241.37 86,739,296.55
Note：The closing balance of the tax payable has increased 28.36% in comparison with the
opening balance; this mainly caused by the company has not carried out the Final Settlement and Payment of
Enterprise Income Taxes.
22. Interest payable
Items The closing balances The opening balances
interest on short and long-term borrowings 9,634,990.00 12,429,380.48
Total 9,634,990.00 12,429,380.48
23. Other accounts payable
(1). Age
Age The closing balances The opening balances
Within 1 year 117,844,706.36 78,174,526.56
Above 1 year 43,892,042.34 57,185,522.10
Total 161,736,748.70 135,360,048.66Shandong Airlines Co., Ltd. 2008 Annual Report
65
(2).Details of significant Other accounts payable with age more than one year
Name Amount owed age The reasons for arrears
Air China Ltd. 20,000,000.00 1-2years
Air China prepaid 20 million Yuan for aircraft wet renting on December 10, 2007. Both
parties agreed that the settlement should base on the actual operation of these aircrafts
and shall settle the payment in the last month before the contract terminated.
（3）The total amount of the top five of other account payable is 126,480,258.45 Yuan which is taken
78.20% of the total amount of other account payable.
（4）Up to 31 Dec 2008, amounts due to shareholders who own 5% or over 5% of voting rights see
“Note 11, Related parties and transactions”
24. Non-current liabilities due within one year
(1). Types
Items The closing balances The opening balances
Long-term borrowing within 1 year 487,168,908.19 190,810,617.13
Long-term account payable within 1 year 227,593,094.74 161,580,345.90
Total 714,762,002.93 352,390,963.03
Less: Unrecognized financing liabilities 99,172,325.71 49,767,310.74
Total 615,589,677.22 302,623,652.29
(2). List of creditors
The closing balances
Items
Currency Original currency Equivalent to RMB
Interest rate Remark
Commerz bank, New York branch USD 5,674,365.85 38,782,020.84 6.0100%-6.0150% pledge
Shenzhen Financial lease company RMB 89,638,748.19 89,638,748.19 8.1500% pledge
China Minsheng Bank Jinan branch RMB 50,000,000.00 50,000,000.00 6.1200% pledge
Industry and commercial bank Jinan
Dongjiao branch RMB 188,000,000.00 188,000,000.00 5.5080% pledge
Bank of China, Jinan branch RMB 21,376,000.00 21,376,000.00 7.8300% pledge
Bank of China, Jinan branch USD 8,400,000.00 57,410,640.00 4.3900% pledge
Bank of Communication Co.,Ltd,JiNan
Tianqiao branch RMB 57,160,950.00 57,160,950.00 5.5100%-7.0470% Guarantee
Shanghai Pudong Development Bank
Co.,Ltd,JiNan branch RMB 70,000,000.00 70,000,000.00 6.8040% pledge
Bank of Communication Co.,Ltd,JiNan
Tianqiao branch USD 2,183,510.00 14,923,417.45 3.8200%-4.1800% Guarantee
SH Nordbank AG USD 4,140,388.72 28,297,900.74 4.5000% pledge
Total 615,589,677.22
(3) As of December 31, 2008 there are no overdue outstanding loans.Shandong Airlines Co., Ltd. 2008 Annual
Report
66
25. Long-term borrowing
(1) Types
Types The closing balances The opening balances
Pledge bank loan 1,157,489,900.59 1,487,075,281.45
Guaranteed bank loan 2,001,843,376.80 1,113,316,566.52
Total 3,159,333,277.39 2,600,391,847.97
(2) List of creditors
Creditor Original currency Equivalent to RMB Start date Maturity date Interest rate Remark
Construction Bank of China Jinan Shizhong branch 27,600,000.00 27,600,000.00 2007-12-3 2022-3-28 5.5080%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch 83,000,000.00 83,000,000.00 2008-1-2 2022-3-28 7.0470%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch 54,000,000.00 54,000,000.00 2008-3-3 2022-3-28 7.0470%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch 53,000,000.00 53,000,000.00 2008-4-1 2022-3-28 7.0470%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch 26,500,000.00 26,500,000.00 2008-4-29 2022-3-28 7.0470%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch 52,300,000.00 52,300,000.00 2008-6-2 2022-3-28 7.0470%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch 51,500,000.00 51,500,000.00 2008-7-1 2022-3-28 7.0470%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch 120,000,000.00 120,000,000.00 2008-7-15 2022-3-28 7.0470%
Shandong airline co. ltd as guarantor
construction bank of china Jinan Shizhong branch $6,039,200.00 41,275,516.32 2007-3-29 2022-3-28 4.6763%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch $3,749,800.00 25,628,383.08 2007-4-30 2022-3-28 4.2800%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch $6,765,620.00 46,240,306.45 2007-5-31 2022-3-28 3.3675%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch $17,954,820.00 122,714,012.77 2007-7-2 2022-3-28 3.9088%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch $3,749,800.00 25,628,383.08 2007-8-1 2022-3-28 3.9863%
Shandong airline co. ltd as guarantor
Construction Bank of China Jinan Shizhong branch $12,000,000.00 82,015,200.00 2007-8-29 2010-8-28 3.8169%
Aircraft as pledge
Construction Bank of China Jinan Shizhong branch $1,300,000.00 8,884,980.00 2007-9-10 2010-8-28 3.6925%
Aircraft as pledge
construction bank of china Jinan Shizhong branch $700,000.00 4,784,220.00 2007-9-21 2010-8-28 3.2975%
Aircraft as pledge
Construction Bank of China Jinan Shizhong branch $14,908,900.00 101,896,367.94 2007-9-28 2022-3-28 3.4319%
Shandong airline co. ltd as guarantor
industrial and commercial bank Dongjiao branch 100,000,000.00 100,000,000.00 2006-12-18 2018-12-17 5.5080%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch 2,200,000.00 2,200,000.00 2008-6-5 2018-12-17 5.5080%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch 2,100,000.00 2,100,000.00 2008-6-18 2018-12-17 5.5080%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch 123,000,000.00 123,000,000.00 2008-6-19 2018-12-17 5.5080%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch 13,500,000.00 13,500,000.00 2008-7-1 2018-12-17 6.9660%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch 30,000,000.00 30,000,000.00 2008-8-19 2018-12-17 5.8320%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch $3,671,400.00 25,092,550.44 2007-5-31 2018.12.17 3.7675%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch $3,671,400.00 25,092,550.44 2007-9-4 2018.12.17 3.9194%
Shandong airline co. ltd as guarantor
Industrial and Commercial Bank Dongjiao branch $3,671,400.00 25,092,550.44 2007-12-3 2018.12.17 3.4063%
Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch 132,750,000.00 132,750,000.00 2006-5-30 2016-12-30
5.7510% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch 101,707,125.00 101,707,125.00 2007-11-12 2016-12-30
6.4800% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch 102,000,000.00 102,000,000.00 2007-12-3 2016-12-30
5.5080% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch 86,100,000.00 86,100,000.00 2008-1-14 2016-12-30
7.0470% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch $2,746,050.00 18,768,153.33 2006-10-31 2016-12-30
3.8163% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch $2,754,112.50 18,823,257.29 2006-11-30 2016-12-30
3.3213% Shandong airline co. ltd as guarantorShandong Airlines Co., Ltd. 2008 Annual Report
67
Bank of Communication Co.,Ltd Jinan Tianqiao branch $2,746,050.00 18,768,153.33 2007-1-31 2016-12-30
4.1275% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch $2,712,675.00 18,540,048.56 2007-5-31 2016-12-30
3.3213% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch $2,704,762.50 18,485,969.78 2007-4-29 2016-12-30
4.2125% Shandong airline co. ltd as guarantor
Bank of Communication Co.,Ltd Jinan Tianqiao branch $2,712,675.00 18,540,048.56 2007-5-31 2016-12-30
3.8163% Shandong airline co. ltd as guarantor
Bank of China Jinan branch $1,469,733.60 10,045,041.26 2005-4-29 2019-4-28 3.0638% Aircraft as pledge
Bank of China Jinan branch $469,200.00 3,206,794.32 2005-6-23 2019-4-28 3.0638% Aircraft as pledge
Creditor Original currency Equivalent to RMB Start date Maturity date Interest rate Remark
Bank of China Jinan branch $25,656,600.00 175,352,598.36 2005-7-15 2019-4-28 3.0638% Aircraft as pledge
Bank of China Jinan branch $26,071,798.00 178,190,310.61 2005-10-19 2019-4-28 3.0638% Aircraft as pledge
Bank of China Jinan branch $26,213,260.00 179,157,146.80 2005-12-21 2019-4-28 3.0638% Aircraft as pledge
Bank of China Jinan branch $923,467.00 6,311,527.56 2005-12-23 2019-4-28 3.0638% Aircraft as pledge
Bank of China Jinan branch $525,000.00 3,588,165.00 2006-4-27 2019-4-28 3.0638% Aircraft as pledge
China Minsheng Bank Jinan branch 270,000,000.00 270,000,000.00 2005-4-7 2014-6-29 6.1200% Aircraft as
pledge
China Development Bank Shandong branch $3,735,500.00 25,530,648.30 2008-7-1 2023-6-30 2.5913% Aircraft as
pledge
China Development Bank Shandong branch $18,292,500.00 125,021,920.50 2008-7-11 2023-6-30 2.5913% Aircraft
as pledge
China Development Bank Shandong branch $7,481,350.00 51,132,034.71 2008-9-2 2023-6-30 2.5913% Aircraft as
pledge
China Development Bank Shandong branch $3,735,500.00 25,530,648.30 2008-9-26 2023-6-30 2.5913% Aircraft as
pledge
China Development Bank Shandong branch $7,481,350.00 51,132,034.71 2008-12-8 2023-6-30 2.5913% Aircraft as
pledge
HSH Nordbank AG $36,228,401.10 247,606,630.15 2008-7-25 2018-7-25 4.8713% Aircraft as pledge
Total 3,159,333,277.39
Note：As of December 31, 2008 there are no overdue outstanding loans.
26. Long-term account payable
(1) Details
Balance due within following dates The closing balance The opening balance
First year after balance sheet date 227,593,094.76 266,014,982.84
Second year after balance sheet date 227,593,094.76 219,714,595.69
Third year after balance sheet date 184,513,291.73 219,714,595.69
Over there years 1,217,418,343.07 1,341,366,941.63
Total minimum lease payment 1,857,117,824.32 2,046,811,115.85
Less: unrecognized financing fee 614,237,149.91 630,438,170.45
Finance lease payable 1,242,880,674.41 1,416,372,945.40
Include: finance lease payable within 1 year 128,420,769.03 111,813,035.16
Total 1,114,459,905.38 1,304,559,910.24
(2) List of long-term payable
The closing balance
Item
Currency Original currency Equivalent to RMB
Loan condition Interest rate maturity date
Commerzbank, New
York Branch
USD
6,355,783.14 43,439,235.45
Finance lease 6.010%-6.015% 2010.7.15
Guoying finance lease
company
RMB
1,071,020,669.93 1,071,020,669.93
Finance lease 8.1500% 2020.6.15Shandong Airlines Co., Ltd. 2008 Annual Report
68
Total 1,114,459,905.38
27. Deferred Income
Items Original value
The opening
balance Increment Amortization
Accumulative
amortization
The closing
balance
CRJ leaseback profit 9,741,746.00 4,871,343.11 0.00 1,392,193.00 6,262,595.89 3,479,150.11
Bonus earnings 9,840,407.72 0.00 9,840,407.72 0.00 0.00 9,840,407.72
Special funds of subsidies for
post-disaster reconstruction 5,000,000.00 0.00 5,000,000.00 0.00 0.00 5,000,000.00
Total 24,582,153.72 4,871,343.11 14,840,407.72 1,392,193.00 6,262,595.89 18,319,557.83
Note: Bonus earning arises from the application of the frequent customer bonus plan; members’ customers
of the company can accumulate mileage points as they take the flight of the Company or flight of the China
airline
28. Deferred income tax liabilities
Recognized deferred income tax liabilities
taxable temporary differences deferred income tax liabilities
Items
The closing balance The opening balance The closing balance The opening balance
changes in fair value of tradable financial assets 23,460,812.12 42,754,634.96 5,865,203.03 10,688,658.75
Unrealized exchange gain 55,805,493.72 0.00 13,951,373.43 0.00
Total 79,266,305.84 42,754,634.96 19,816,576.46 10,688,658.75
29. Share Capital
Increase/Decrease （+、－） Unit: shares
Items
The opening
balance
Issuance
of new
shares
Bonus
shares
Capitalization
of public
reserve
Others Sub-total The closing balance
(1) Shares subject to trading
moratorium
①founder's shares 260,000,000.00 0.00 0.00 0.00 0.00 0.00 260,000,000.00
Including：
Shares held by the state 259,801,000.00 0.00 0.00 0.00 0.00 0.00 259,801,000.00
Shares held by state-owned legal
persons 199,000.00 0.00 0.00 0.00 0.00 0.00 199,000.00
Shares held by overseas legal
persons 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Others 0.00 0.00 0.00 0.00 0.00 0.00 0.00
② Raised legal person’s shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00
③ Inner employees’ shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00Shandong Airlines Co., Ltd. 2008 Annual
Report
69
④ Preference shares or other 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Include: transferred/allotted shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total unlisted shares 260,000,000.00 0.00 0.00 0.00 0.00 0.00 260,000,000.00
Listed shares
①RMB ordinary shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Increase/Decrease （+、－） Unit: shares
Items
The opening
balance
Issuance
of new
shares
Bonus
shares
Capitalization
of public
reserve
Others Sub-total The closing balance
Including：Shares hold by
management 0.00 0.00 0.00 0.00 0.00 0.00 0.00
②Domestically listed foreign shares 140,000,000.00 0.00 0.00 0.00 0.00 0.00 140,000,000.00
Total listed shares 140,000,000.00 0.00 0.00 0.00 0.00 0.00 140,000,000.00
(3)sell limited shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(4) Total shares 400,000,000.00 0.00 0.00 0.00 0.00 0.00 400,000,000.00
1、The aforesaid listed shares are listed on B shares at RMB1 each。
2、The aforesaid share capital has been examined by Shangdong Yantai Qianju Certified Public
Accountants and issued a Capital Verification Report with Yanqianzi［2000］NO.27.
30. Capital Reserve
Items The opening balance Increment Decrement The closing balance
Premium on share capital 76,258,081.68 0.00 0.00 76,258,081.68
Other capital reserve 7,792,081.16 0.00 0.00 7,792,081.16
Total 84,050,162.84 0.00 0.00 84,050,162.84
31. Surplus Reserve
Items The opening balance Increment Decrement The closing balance
Statutory surplus reserve 24,919,586.71 4,571,141.06 0.00 29,490,727.77
Total 24,919,586.71 4,571,141.06 0.00 29,490,727.77
32. Retained Earnings
Items 2008 2007
Balance at the beginning of the year -39,938,895.93 -108,076,865.41
Add：Consolidated net profit 80,981,442.68 68,171,958.24
Other transfer-in 0.00 173,679.78
Less：Withdrawal of statuary surplus reserve 4,571,141.06 207,668.54
Withdrawal of employee incentive and welfare fund 0.00 0.00
Withdrawal of reserve fund 0.00 0.00
Withdrawal reserve for business expansion 0.00 0.00
Profits capitalized on return of investment 0.00 0.00
Less：Preference dividends payable 0.00 0.00
Withdrawal of Unspecified surplus reserve 0.00 0.00Shandong Airlines Co., Ltd. 2008 Annual Report
70
Ordinary dividends payable 0.00 0.00
Ordinary share dividend transfer to capital(or share) 0.00 0.00
Undistributed profits at end of year 36,471,405.69 -39,938,895.93
33. Operating Revenue and Operating Cost
(1) Operating Revenue
Items 2008 2007
Main operating revenue 4,985,950,205.16 4,536,790,226.62
Other operating Revenue 63,440,911.31 93,340,311.57
Total 5,049,391,116.47 4,630,130,538.19
(2) Operating Cost
Items 2008 2007
Main operating cost 4,122,612,353.88 3,779,784,586.76
Other operating cost 33,511,012.84 56,965,069.52
Total 4,156,123,366.72 3,836,749,656.28
(3) Main operation income, main operation cost and gross profit of segment
2008 2007
Segment
Operating Income Operating Cost Gross profit Operating Income Operating Cost Gross profit
Aviation transportation service 4,953,048,164.35 4,101,665,962.58 851,382,201.77 4,503,661,260.70
3,761,738,252.60 741,923,008.10
Logistic transportation service 6,020,693.27 1,313,169.79 4,707,523.48 7,250,905.82 1,733,971.61
5,516,934.21
Hospitality and Catering service 22,538,565.66 15,614,100.05 6,924,465.61 26,059,386.92 16,312,368.49
9,747,018.43
Lease service 31,801,807.87 35,128,834.04 -3,327,026.17 49,549,336.89 52,470,312.13 -2,920,975.24
Others 35,981,885.32 2,401,300.26 33,580,585.06 43,609,647.86 4,494,751.45 39,114,896.41
Total 5,049,391,116.47 4,156,123,366.72 893,267,749.75 4,630,130,538.19 3,836,749,656.28 793,380,881.91
(4) Top five customers
2008 2007
Name
Sales amount
Proportion of the total
sales%
Sales amount
Proportion of the total
sales%
Total amount of Sales revenue of the top five customers 712,142,468.82 14.10% 373,431,310.83 8.06%
34. Business tax and surtax
Item Applicable tax rate 2008 2007
Business tax 3%、5% 132,823,862.65 137,305,155.03
Total 132,823,862.65 137,305,155.03
35. Financial expenses
Items 2008 2007
Interest expenses 328,596,797.15 283,408,485.31
Less: Interest income 5,839,812.54 1,219,055.29Shandong Airlines Co., Ltd. 2008 Annual Report
71
Exchange gains -78,963,306.70 -66,751,899.20
Others 9,747,478.66 3,888,437.02
Total 253,541,156.57 219,325,967.84
36. Impairment loss of assets
Items 2008 2007
Bad debts provision -551,458.89 670,094.39
Total -551,458.89 670,094.39
37. Earnings from changes in fair value
Sources of Earnings from changes in fair value 2008 2007
Tradable financial assets -19,293,822.87 41,221,296.98
Total -19,293,822.87 41,221,296.98
Note：Earnings from changes in fair value is -19,293,822.87 Yuan, this is losses result in the changes in
fair value of the Interest rate swaps.
38. Investment income
The origin of the investment income 2008 2007
Realized profit from Financial assets trading 10,081,058.70 22,379,236.48
Increase income by equity method -35,915.68 -2,560.68
Income from equity investment 1,130,610.00 956,670.00
Total 11,175,753.02 23,333,345.80
39. Non-operating income
（1）Non-operating income
Items 2008 2007
Government Grant 42,232,215.00 10,000,000.00
Other 1,661,594.88 1,362,190.18
Total 43,893,809.88 11,362,190.18
(2) Government Grant
Items 2008 Approval documents Approval authority
Regional aviation
subsidies
16,580,300.00
East China Electricity Council FAMINGDIAN【2008 】No.
1522
Chinese Civil Aviation Authority in East China
Airline subsidy 14,067,100.00 JIFAMINGDIAN 【2008】 No. 1022 Southwest China's civil aviation authority
Earthquake relief subsidies 3,000,000.00 JUFAMINGDAIN【2008】NO.4444 Civil Aviation Administration of China
Others 8,584,815.00
Total 42,232,215.00
40. Non-operating expenses
Items 2008 2007
Loss on disposal of non-current assets 10,915,236.47 21,736,311.72
Include: Loss on disposal of fixed assets 10,915,236.47 21,348,892.09
Donation 0.00 215,000.00
Extra-ordinary loss 0.00 8,482,707.78
Others 477,113.76 14,676.27Shandong Airlines Co., Ltd. 2008 Annual Report
72
Total 11,392,350.23 30,448,695.77
41. Income taxes expense
Items 2008 2007
Income tax for current period 13,279,231.57 298,883.01
Deferred income tax 13,342,983.79 29,563,951.64
Total 26,622,215.36 29,862,834.65
42. Net profit after deduction of Non-recurring gains and losses
Items 2008 2007
Net profit 80,981,442.68 68,171,958.24
Plus： (1) Minus: Profit and loss in disposal of non-circulation assets 10,915,236.47 21,736,311.72
(2) Governmental allowance accrued to the current profit and loss Gain or loss from combination -
4,822,515.00 -10,000,000.00
(3) gains and losses arising from changes in fair value of tradable financial assets and tradable
financial liabilities and financial liabilities and investment income arising form disposal of
tradable financial assets ,tradable financial liabilities and available for sale financial assets
19,293,822.87 -41,221,296.98
(4) transferred back of individually impairment tested receivables -84,834.50 0.00
(5) Non-operating income and expenses other than above items 0.00 7,370,706.97
(6) other Non-recurring gains and losses -10,023,237.59 498,594.46
Subtotal 15,278,472.25 -21,615,683.83
less：Amount influenced due to income tax 3,819,618.06 -7,133,175.66
Net profit after deduction of non-recurring gain/loss 92,440,296.87 53,689,450.07
less：non-recurring gain/loss attributable to minority shareholders 0.00 -331.50
Net profit after deduction of non-recurring gain/loss attributable to shareholders of parent company
92,440,296.87 53,689,781.57
43. Cash received relating to other operating activities
Items 2008 2007
Government grant 47,232,215.00 10,000,000.00
Interest incomes 5,839,812.54 667,658.52
Cash received from non-operating activities 1,661,594.88 1,362,190.18
Cash received from payable and receivable 24,792,036.03 50,444,864.79
Total 79,525,658.45 62,474,713.49
44. Cash paid relating to other operating activities
Items 2008 2007
Bank commission charge 9,747,478.66 3,888,437.02
Cash Paid for non-operating activities 477,113.76 229,676.27
Cash paid for current fund 4,898,582.20 15,017,209.45
Marketing cost, administration cost and cash paid
for operating activities 64,370,315.89 55,784,000.50
Total 79,493,490.51 74,919,323.24Shandong Airlines Co., Ltd. 2008 Annual Report
73
45. Cash paid relating to other investment activities
Items 2008 2007
Decrease of cash in subsidiaries for
reconciliation 00 3,395,201.72
Total 00 3,395,201.72
46. Cash received relating to other financing activities
Item 2008 2007
Interest expenses for leased aircrafts 273,796,099.64 108,326,472.97
Total 273,796,099.64 108,326,472.97
47. Adjusting net profit to cash flow from operating activities
1.Adusting net profit to cash flow from operating activities： 2008 2007
Net profit 81,638,612.20 68,905,276.52
Add: Impairment loss provision of assets -551,458.89 670,094.39
Depreciation of fixed assets、oil and gas assets and consumable biological assets 436,398,118.13
405,262,347.38
Amortization of intangible assets 662,098.25 613,539.74
Amortization of Long-term deferred and prepaid expenses 13,699,336.63 10,720,417.07
Loss on disposal of fixed assets、intangible assets and other long-term deferred
assets（Loss/Gain +/－） -19,700.00 387,419.63
Loss from written off assets（Loss/Gain +/－） 10,915,236.47 21,348,892.09
Loss of fair value fluctuation on assets（Loss/Gain +/－） 19,293,822.87 -41,221,296.98
Financial cost（Loss/Gain +/－） 252,838,009.68 283,408,485.31
Loss on investment（Loss/Gain +/－） -11,175,753.02 -23,333,345.80
Decrease of deferred income tax assets（Loss/Gain +/－） 4,215,066.07 19,258,627.39
Decrease of deferred income tax liabilities（Loss/Gain +/－） 9,127,917.72 10,305,324.25
Decrease of inventories（Loss/Gain +/－） -22,109,390.20 -12,792,299.74
Decrease of operating receivables（Loss/Gain +/－） 83,801,585.12 -98,303,411.61
Increase of operating payables（Loss/Gain +/－） 181,099,605.53 89,341,351.34
Others 0.00 0.00
Net cash flows arising from operating activities 1,059,833,106.56 734,571,420.98
2.Significant investment and financing activities that without cash flows
Liability transfer to capital 0.00 0.00
Convertible corporate bond due within 1 year 0.00 0.00
Finance lease-fixed assets 0.00 0.00
3.Net increase (decrease) of cash and cash equivalents
Ending balance of cash 44,937,058.88 42,131,848.82
Less: Beginning balance of cash 42,131,848.82 68,256,602.71
Add : Ending balance of cash equivalents 0.00 0.00
Less: Beginning balance of cash equivalents 0.00 0.00
Net increase of cash and cash equivalents 2,805,210.06 -26,124,753.89Shandong Airlines Co., Ltd. 2008
Annual Report
74
48. Relating information for acquired or disposal of subsidiaries and other business units for
current period
Items 2008 2007
Relating information for acquired or disposal of subsidiaries and other business
units：
1．Price of disposal of subsidiaries and other business unit 1,071,181.23 2,592,379.24
2．Cash and cash equivalent received from disposal
of subsidiaries and other business unit 912,019.23 750,000.00
Less：Cash and cash equivalent held by subsidiaries and other business unit 0.00 1,138,731.24
3．Net cash received from disposal of subsidiaries and other business unit 912,019.23 -388,731.24
4．Net assets from disposal of subsidiaries 1,071,181.23 2,592,379.24
Current assets 912,019.23 2,592,379.24
Non-current assets 159,162.00 0.00
Current liabilities 0.00 0.00
Non-current liabilities 0.00 0.00
49. Cash and cash equivalents
Items 2008 2007
1.Cash 44,937,058.88 42,131,848.82
Including: Cash on hand 220,541.02 924,974.06
Non restricted bank deposit 44,716,517.86 41,206,874.76
Non restricted other monetary fund 0.00 0.00
2.Cash equivalents 0.00 0.00
Including: Bond investment within three month 0.00 0.00
3.Ending balance of cash and cash equivalents 44,937,058.88 42,131,848.82
Inculding: restricted cash and cash equivalents for parent or group ubsidiaries 0.00 0.00
X. Notes to financial statement for parent company
1. Accounts Receivable
(1) Details of accounts receivable
The closing balance The opening balance
Item
Balance
Proportion Provision for bad
debts Net book value Balance
Proportion Provision for bad
debts Net book value
Individual transaction
with significant
amount 115,826,770.70 92.24% 0.00 115,826,770.70 189,588,286.65 90.17% 0.00 189,588,286.65
portfolio credit risk 0.00 0.00% 0.00 0.00 2,608,298.83 1.24% 2,608,298.83 0.00
Other transaction with
no significant amount 9,747,897.58 7.76% 469,172.93 9,278,724.65 18,050,269.68 8.59% 777,353.03
17,272,916.65Shandong Airlines Co., Ltd. 2008 Annual Report
75
Total 125,574,668.28 100.00% 469,172.93 125,105,495.35 210,246,855.16 100.00% 3,385,651.86 206,861,203.30
(2) Individual significant accounts receivable
Name Amount Provision for bad debts Reason
Air China 55,089,147.43 0.00 Settlement difference, all are received in subsequent date
BSP 39,640,732.64 0.00 Settlement difference, all are received in subsequent date
China Aviation Settlement Centre 21,096,890.63 0.00 Settlement difference, all are received in subsequent
date
Total 115,826,770.70 0.00
（3）Age
The closing balance The opening balance
Age
Balance % Bad debt provision Net Value Balance % Bad debt provision Net Value
Within one year 124,366,476.98 99.04% 392,699.63 123,973,777.35 207,505,796.68 98.70% 770,715.04
206,735,081.64
1-2 years 1,157,864.08 0.92% 75,222.25 1,082,641.83 307,308.50 0.15% 206,030.43 101,278.07
2-3 years 26,524.80 0.02% 60.93 26,463.87 1,200,577.98 0.57% 1,175,785.69 24,792.29
3-4 years 23,802.42 0.02% 1,190.12 22,612.30 929,258.00 0.44% 929,206.70 51.30
4-5 years 0.00 0.00% 0.00 0.00 303,914.00 0.14% 303,914.00 0.00
Total 125,574,668.28 100% 469,172.93 125,105,495.35 210,246,855.16 100.00% 3,385,651.86 206,861,203.30
（4）Details of top five debtors for accounts receivable
The closing balance The opening balance
Items
Balance Percentage Balance Percentage
Total amounts for top five debtors 117,636,799.77 93.68% 191,137,479.60 90.91%
(5) Up to 31 Dec 2008, amounts due to shareholders who own 5% or over 5% of voting rights see “Note
11, related parties and transactions”
2. Other accounts receivable
(1) Details of other accounts receivable
The closing balance The opening balance
Items Balance % Bad debt
provision
Net Value Balance % Bad debt
provision
Net Value
Individual
transaction with
significant amount 203,908,540.13 79.59% 109,051,717.65 94,856,822.48 228,111,849.89 83.93% 109,136,552.15
118,975,297.74
Other transaction
with no significant
amount 52,282,091.05 20.41% 1,940,806.24 50,341,284.81 43,684,552.87 16.07% 2,155,261.53 41,529,291.34
Total 256,190,631.18 100.00% 110,992,523.89 145,198,107.29 271,796,402.76 100.00% 111,291,813.68
160,504,589.08
(2) Bad debt provision for individual accounts receivable with significant amount.Shandong Airlines Co.,
Ltd. 2008 Annual Report
76
Debtor Balance
Percentage of bad debts
provision Reason
Shandong Airline Rainbow Jet Co., Ltd 109,051,717.65 100.00%
the company could not repay debts due to its
financial difficulty
Security deposit for airplane engine 94,856,822.48 0.00
Deposit for engine maintenance and purchase of
aircraft, all amounts is receivable in the future
Total 203,908,540.13 109,051,717.65
(3) Age
The closing balance The opening balance
Ages Balance % Bad debt
provision
Net Value Balance % Bad debt provision Net Value
Within one year 43,209,209.30 16.87% 2,035,090.39 41,174,118.91 45,220,181.76 16.64% 1,339,820.64
43,880,361.12
1-2 years 31,169,427.89 12.17% 669,245.45 30,500,182.44 29,184,928.30 10.74% 11,280,098.16 17,904,830.14
2-3 years 17,263,584.49 6.74% 10,698,669.47 6,564,915.02 137,151,532.65 50.46% 80,385,813.40 56,765,719.25
3-4 years 133,052,336.46 51.93% 80,329,246.11 52,723,090.35 23,496,543.29 8.64% 18,138,057.20 5,358,486.09
4-5 years 23,398,644.42 9.13% 17,195,422.39 6,203,222.03 24,265,824.29 8.93% 77,624.20 24,188,200.09
Above 5 years 8,097,428.62 3.16% 64,850.08 8,032,578.54 12,477,392.47 4.59% 70,400.08 12,406,992.39
Total 256,190,631.18 100.00% 110,992,523.89 145,198,107.29 271,796,402.76 100.00% 111,291,813.68
160,504,589.08
(4) Details of top five debtors for other accounts receivable
Name of debtors Balance Nature or content Age Proportion
Shandong Airline Rainbow Jet Co., Ltd 109,051,717.65 Disbursement fee 1-5years 42.57%
Shenzhen finance lease company 41,354,563.28 Deposit of aircraft 3-4years 16.14%
SingaporeAircraft Leasing Enterprise 19,136,880.00 Deposit of aircraft 1-3years 7.47%
RainierAircraftLeasing(Ireland)Limited 16,762,866.90 Deposit of aircraft 3-6years 6.54%
Huaxia Airlines Ltd 14,979,716.58 Aircraft rental and maintenance reserve 3-4years 5.85%
Total 201,285,744.41 78.57%
(5) Up to 31 Dec 2008, amounts due to shareholders who own 5% or over 5% of voting rights see “Note
11, related parties and transactions.
3. Long-term equity investment
(1). Long-term equity investment and provision for impairment loss
The closing balance The opening balance
Items
Balance Provision for impairment loss Book value Balance Provision for impairment loss Book value
Long-term equity investment 134,665,305.97 22,500,000.00 112,165,305.97 135,315,305.97 22,500,000.00
112,815,305.97
Include: Investment in Subsidiary 23,813,205.97 0.00 23,813,205.97 24,463,205.97 0.00 24,463,205.97
Joint-venture investment 22,500,000.00 22,500,000.00 0.00 22,500,000.00 22,500,000.00 0.00
Investment in Other Companies 88,352,100.00 0.00 88,352,100.00 88,352,100.00 0.00 88,352,100.00
(2) Long-term equity investment measured by cost methodShandong Airlines Co., Ltd. 2008 Annual Report
77
Compay The initial amount The opening balance Increment Decrement The closing balance
①Subsidiaries:
Qingdao International Aviation Logistic center Co.,
Ltd 23,813,205.97 23,813,205.97 0.00 0.00 23,813,205.97
Union Express Service Shandong Airline Co., Ltd 650,000.00 650,000.00 0.00 650,000.00 0.00
Sub-total 24,463,205.97 24,463,205.97 0.00 650,000.00 23,813,205.97
②Other long-term equity investment
China Civil aviation information network Co., Ltd 6,690,000.00 6,690,000.00 0.00 0.00 6,690,000.00
Sichuan airlines Co. Ltd 35,000,000.00 35,000,000.00 0.00 0.00 35,000,000.00
JiNan International Airport Co. Ltd 46,662,100.00 46,662,100.00 0.00 0.00 46,662,100.00
Sub-total 88,352,100.00 88,352,100.00 0.00 0.00 88,352,100.00
Total 112,815,305.97 112,815,305.97 0.00 650,000.00 112,165,305.97
(3) Long-term equity investment measured by equity method
Company Initial investment
Opening
balance
Increment Adjustment for
current year profit
and loss
Cash
dividend
Other
decrement
The closing
balances
Accumulate Cash
dividend
SARJ 25,000,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 25,000,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(4) Impairment loss provision of long-term investment
Investee The opening balances Increment Decrement The closing balances
SARJ 22,500,000.00 0.00 0.00 22,500,000.00
Total 22,500,000.00 0.00 0.00 22,500,000.00
Note: Due to the insolvency of SARJ, the company decided to set up an impairment provision for this
long-term investment of SARJ.
4. Operating income and operating cost
(1) Operating income
Items 2008 2007
Main business income 4,979,929,511.89 4,530,329,258.69
Other business income 63,440,911.31 93,220,311.57
Total 5,043,370,423.20 4,623,549,570.26
(2) Operating cost
Items 2008 2007
Main business cost 4,121,299,184.09 3,778,757,204.89
Other business cost 33,511,012.84 56,965,069.52
Total 4,154,810,196.93 3,835,722,274.41
(3) The main businesses are listed as per product or category.Shandong Airlines Co., Ltd. 2008 Annual
Report
78
2008 2007
Product or category
Operating income Operating cost Gross profit Operating income Operating cost Gross profit
Aviation shipping service 4,953,048,164.35 4,101,665,962.58 851,382,201.77 4,503,661,260.70
3,761,738,252.60 741,923,008.10
Logistic service 0.00 0.00 0.00 789,937.89 706,583.80 83,354.09
Catering service 22,538,565.66 15,614,100.05 6,924,465.61 26,059,386.92 16,312,368.49 9,747,018.43
Leasing service 31,801,807.87 35,128,834.04 -3,327,026.17 49,549,336.89 52,470,312.13 -2,920,975.24
Others 35,981,885.32 2,401,300.26 33,580,585.06 43,489,647.86 4,494,757.39 38,994,890.47
Total 5,043,370,423.20 4,154,810,196.93 888,560,226.27 4,623,549,570.26 3,835,722,274.41 787,827,295.85
(4)Top five accounts for sales income
2008 2007
Customer
sales amount
Proportion of the total
sales%
sales amount
Proportion of the total
sales%
Total amounts of the top five accounts for sales income 712,142,468.82 14.12% 373,431,310.83 8.08%
5. Investment income
The origin of the investment income 2008 2007
Realized profit from Financial assets trading 10,081,058.70 22,379,236.48
Profit distributed by the disposal of shareholder’s
right 421,181.23 0.00
Profit distributed by shareholding company 1,130,610.00 956,670.00
Total 11,632,849.93 23,335,906.48
XI. Related party and related party transactions
1. Confirmation standard of related part
The other party which is controlled, jointly controlled or substantially influenced by the company, or
controls, jointly controls or substantially influences the company, or is under the same control, joint
control or
substantial influence of the same parties as the company will be deemed as the associated party of the
company.
2、The relationship of related parties
(1) The relationship of related parties
①related party with controllable relationship
Business name
Registered
ADD
Main business
Relationship
Business nature
Legal
representative
Air China Limited Beijing
air passenger transport, freight transport and
related service etc
Controlled party Corp. Dongkong
Shandong Aviation Group
Co. Ltd.
Jinan
Aircraft and ground equipment repair and
maintenance, air passenger transport, freight
transport and related service etc
Controlled
shareholder
Limited liability
company
Gang feng
The registered capital and changes the related parties with controllable relationship
Business name The opening balance Increment Decrement The closing balanceShandong Airlines Co., Ltd. 2008
Annual Report
79
Air China Limited 9,433,210,909.00 1,639,000,000. 0.00 11,072,210,909.00
Shandong Aviation Group Co. Ltd. 580,000,000.00 0.00 0.00 580,000,000.00
Changes in share capital and particular about related party with controllable relationship
Business name The opening balance Proportion Increment Decrement The closing balance Proportion
Air China Limited 91,200,000.00 22.80% 0.00 0.00 91,200,000.00 22.80%
Shandong Aviation Group Co. Ltd. 168,004,000.00 42.00% 0.00 0.00 168,004,000.00 42.00%
② Subsidiaries of the company
The information about Subsidiaries of the company, see Note 7.1
（2）The related party with uncontrollable relationship
①The joint ventures and associates of the company
The information about joint ventures and associates of the company, see Note8
②The related party with uncontrollable relationship
Name The relationship with company
Shandong Taeco Aircraft Engineering Co., Ltd Subsidiary which under the same control of holding company
Aviation building management limited company Subsidiary which under the same control of holding company
Shandong xiaoyu technology service ltd Subsidiary which under the same control of holding company
Qingdao Feisheng international Aviation Training Co., Ltd Subsidiary which under the same control of
holding company
Shandong International Aviation Training Co., Ltd. Subsidiary which under the same control of holding
company
SARJ associate
3、 Related party transactions
（1） The pricing principle of the transaction between the company and related party: the price of the
related
party transaction will be settled at the market price as the similar product or service。
（2） Related party transactions
① Offering service
2008 2007
Related party Pricing principle Transaction detail
Amount proportion Amount proportion
Air China Limited Protocol Price Payment for service 5,950,000.00 43.44% 12,390,700.00 100.00%
Total 5,950,000.00 43.44% 12,390,700.00 100.00%
② Acceptance service
2008 2007
Related party
Pricing
principle
Transaction detail
Amount proportion Amount proportionShandong Airlines Co., Ltd. 2008 Annual Report
80
Shandong Taeco Aircraft
Engineering Co., Ltd Marketing price Expenditure for aircraft maintenance 61,209,045.29 17.68%
56,344,238.51 32.11%
Shandong Aviation Group Co. Ltd. Marketing price
Rental charges in respect of
land and buildings 5,834,547.95 21.43% 6,207,465.77 22.13%
Shandong Aviation Group Co. Ltd. Marketing price Room and restaurant service charges 5,135,401.66 0.00%
4,911,669.10 0.00%
Qingdao Feisheng international
Aviation Training Co., Ltd Marketing price Training fee 5,010,748.92 6.17% 5,879,227.00 7.50%
Shandong International Aviation
Training Co., Ltd. Marketing price Training fee 10,917,712.53 13.48% 7,933,074.50 10.12%
Shandong xiaoyu technology
service ltd Marketing price Repairs and maintenance charges 11,073,497.62 3.63% 3,323,330.44 1.89%
Total 99,180,953.97 84,599,005.32
③ Other transaction
2008 2007
Related party
Pricing
principle
Transaction detail
Amount proportion Amount proportion
SARJ Settlement of debt 84,834.5 0.00 498,594.46 0.00
Air China Limited Protocol Price Leasing of aircraft and engine 600,186,086.00 94.97% 259,180,758.50 83.95%
Air China Limited Protocol Price Joint venture route 96,046,056.93 100.00% 85,833,974.37 100.00%
Shandong Aviation Group Co. Ltd. Protocol Price Guarantee fee 4,445,800.00 100.00% 0.00 0.00
④ Guarantee
Shandong Aviation Group Co. Ltd. Provides guarantee for the company as following:
Types of borrowing Creditors currency Amount Start date
Maturity
date
Interest
rate
Industrial and Commercial Bank Dongjiao branch RMB 100,000,000.00 2006-12-18 2018-12-17 5.5080%
Industrial and Commercial Bank Dongjiao branch RMB 2,200,000.00 2008-6-5 2018-12-17 5.5080%
Industrial and Commercial Bank Dongjiao branch RMB 2,100,000.00 2008-6-18 2018-12-17 5.5080%
Industrial and Commercial Bank Dongjiao branch RMB 123,000,000.00 2008-6-19 2018-12-17 5.5080%
Industrial and Commercial Bank Dongjiao branch RMB 13,500,000.00 2008-7-1 2018-12-17 6.9660%
Industrial and Commercial Bank Dongjiao branch RMB 30,000,000.00 2008-8-19 2018-12-17 5.8320%
Industrial and Commercial Bank Dongjiao branch USD $3,671,400.00 2007-5-31 2018-12-17 3.7675%
Industrial and Commercial Bank Dongjiao branch USD $3,671,400.00 2007-9-4 2018-12-17 3.9194%
Industrial and Commercial Bank Dongjiao branch USD $3,671,400.00 2007-12-3 2018-12-17 3.4063%
China Construction Bank Jinan Shizhong branch RMB 27,600,000.00 2007-12-3 2022-3-28 5.5080%
Long-term borrowing
China Construction Bank Jinan Shizhong branch RMB 83,000,000.00 2008-1-2 2022-3-28 7.0470%
Types of borrowing Creditors currency Amount Start date
Maturity
date
Interest
rate
China Construction Bank Jinan Shizhong branch RMB 54,000,000.00 2008-3-3 2022-3-28 7.0470%
China Construction Bank Jinan Shizhong branch RMB 53,000,000.00 2008-4-1 2022-3-28 7.0470%
Long-term borrowing
China Construction Bank Jinan Shizhong branch RMB 26,500,000.00 2008-4-29 2022-3-28 7.0470%Shandong
Airlines Co., Ltd. 2008 Annual Report
81
China Construction Bank Jinan Shizhong branch RMB 52,300,000.00 2008-6-2 2022-3-28 7.0470%
China Construction Bank Jinan Shizhong branch RMB 51,500,000.00 2008-7-1 2022-3-28 7.0470%
China Construction Bank Jinan Shizhong branch RMB 120,000,000.00 2008-7-15 2022-3-28 7.0470%
China Construction Bank Jinan Shizhong branch USD $6,039,200.00 2007-3-29 2022-3-28 4.6763%
China Construction Bank Jinan Shizhong branch USD $3,749,800.00 2007-4-30 2022-3-28 4.2800%
China Construction Bank Jinan Shizhong branch USD $6,765,620.00 2007-5-31 2022-3-28 3.3675%
China Construction Bank Jinan Shizhong branch USD $17,954,820.00 2007-7-2 2022-3-28 3.9088%
China Construction Bank Jinan Shizhong branch USD $3,749,800.00 2007-8-1 2022-3-28 3.9863%
China Construction Bank Jinan Shizhong branch USD $14,908,900.00 2007-9-28 2022-3-28 3.4319%
Bank of Communication Co.,Ltd JiNan Tianqiao branch RMB 150,450,000.00 2006-5-30 2016-12-30 5.7510%
Bank of Communication Co.,Ltd JiNan Tianqiao branch RMB 115,268,075.00 2007-11-12 2016-12-30 6.4800%
Bank of Communication Co.,Ltd JiNan Tianqiao branch RMB 115,600,000.00 2007-12-3 2016-12-30 5.5080%
Bank of Communication Co.,Ltd JiNan Tianqiao branch RMB 98,400,000.00 2008-1-14 2016-12-30 7.0470%
Bank of communications Tianqiao branch USD $3,112,190.00 2006-10-31 2016-12-30 3.8163%
Bank of communications Tianqiao branch USD $3,121,327.50 2006-11-30 2016-12-30 3.3213%
Bank of communications Tianqiao branch USD $3,112,190.00 2007-1-31 2016-12-30 4.1275%
Bank of communications Tianqiao branch USD $3,074,365.00 2007-5-31 2016-12-30 3.3213%
Bank of communications Tianqiao branch USD $3,065,397.50 2007-4-29 2016-12-30 4.2125%
Bank of communications Tianqiao branch USD $3,074,365.00 2007-5-31 2016-12-30 3.3213%
Agricultural Bank of China Minghu branch RMB 150,000,000.00 2008-1-23 2009-1-22 6.7230%
Agricultural Bank of China Minghu branch RMB 60,000,000.00 2008-11-5 2009-11-4 5.9940%
Agricultural Bank of China Minghu branch RMB 50,000,000.00 2008-11-12 2009-11-11 5.9940%
Agricultural Bank of China Minghu branch RMB 60,000,000.00 2008-11-19 2009-11-18 5.9940%
China Merchants Bank Jinan branch RMB 40,000,000.00 2008-7-3 2009-7-2 6.7230%
China Merchants Bank Qingdao branch RMB 80,000,000.00 2008-6-16 2009-6-16 7.0218%
China Merchants Bank Qingdao branch RMB 90,000,000.00 2008-7-9 2009-7-9 7.0218%
Bank of China Jinan branch RMB 80,000,000.00 2008-12-31 2009-12-30 5.0445%
China Construction Bank Jinan Shizhong branch RMB 40,000,000.00 2008-12-16 2009-12-15 5.0220%
Short-term loans
China Construction Bank Jinan Shizhong branch RMB 40,000,000.00 2008-12-18 2009-12-17 5.0220%
（3） The balance of payables and receivables for related party.
The opening balance The closing balance
Business name
Amounts proportion Amounts proportion
Trade receivables ：
Air China Limited 50,081,251.95 23.65% 55,089,147.43 43.50%
Total 50,081,251.95 23.65% 55,089,147.43 43.50%Shandong Airlines Co., Ltd. 2008 Annual Report
82
Other receivables ：
Air China Limited 2,550,000.00 0.94% 1,100.00 0.00%
Shandong International Aviation Training Co., Ltd. 80,342.04 0.03% 780,969.77 0.31%
Qingdao Feisheng international Aviation Training Co., Ltd 41,041.70 0.02% 0.00 0.00
Shandong xiaoyu technology service ltd 1,201.25 0.00% 706,431.65 0.28%
SARJ 109,136,552.15 40.14% 109,051,717.70 42.60%
Total 111,809,137.14 41.12% . 110,540,219.12 43.19%
Trade payables：
Shandong Taeco Aircraft Engineering Co., Ltd 717,414.49 0.09% 717,414.49 0.08%
Total 717,414.49 0.09% 717,414.49 0.08%
Other payables：
Air China Limited 20,000,000.00 14.77% 20,000,000.00 12.37%
Shangdong Aviation Group Co. Ltd. 1,019,818.83 0.75% 5,551,323.91 3.43%
Qingdao Feisheng international Aviation Training Co., Ltd 1,150,179.77 0.85% 3,827,607.16 2.37%
Shandong Taeco Aircraft Engineering Co., Ltd 6,554,109.84 4.84% 24,756,728.86 15.31%
Shandong International Aviation Training Co., Ltd. 1,417,927.19 1.05% 0.00 0.00%
Total 30,142,035.63 22.26% 54,135,659.93 33.48%
XII、Financial instruments and risk management
The financial instruments of the company include financial derivative instrument and bank borrowings,
finance lease liabilities, monetary funds, etc. The main purposes of these financial instruments are in
order to
finance the operation of the Company which directly arise from the operation activities of the company,
such as
accounts receivable and accounts payable, etc.
The derivative instrument of the company is interest rate swaps; the purpose of interest rate swaps is to
avoid
the risk of interest rate volatility, these interest rate swaps contract are matched with contract of
airplane finance
leasing and long-term borrowing contract, therefore the risks arise from interest payment of the financing
can be
avoided, and to prevent the losses in financing costs in the fluctuation of interest rates.
In order to strengthen the Company's financial derivative transaction management and control the risk, the
control procedures of the financial derivative instruments has been approved by the board.
XIII、Contingency
The pledged assets are listed as in the Note 9 of the 16, 24, and 25 of the financial statements; there is
no other
significant contingency that needs to be disclosed.
XIV、Commitment
Up to 31/12/2008, the uncompleted commitments are as following:Shandong Airlines Co., Ltd. 2008 Annual
Report
83
The closing balance(000)
Item
Within one year 1-2years 2-3years Above 3 years Total
Lease commitments 344,967.74 329,927.55 298,427.91 1,043,131.27 2,016,454.47
Capital Commitments 936,212.73 522,152.09 1,076,484.56 3,497,611.76 6,032,461.15
Total 1,281,180.47 852,079.64 1,374,912.47 4,540,743.03 8,048,915.62
XV. Non-adjusting events occurring after the balance sheet date
By 31/12/2008 the company has no non-adjusting events occurring after the balance sheet date that need to
be
disclosed.
XVI. Supplementary Information
Return on equity and earnings per share
Return on equity（%） earnings per share（Yuan/Share）
Profit in the report period
Full dilution
Weighted
average
Basic profit
per share
Profit per share
after dilution
Net profit attributable to ordinary
shareholders 80,981,442.68 14.72 15.89 0.20 0.20
Net profit attributable to the ordinary
shareholders after deduction of non-recurring 92,440,296.87 16.81 18.14 0.23 0.23
Calculation of earning per share: ：
（1）Basic earning per share:
2008 2007
Items calculation
Amount
after deduction
of nonrecurring
Amount
after deduction
of non-recurring
Net profit attributable to ordinary shareholder of the Company (1) 80,981,442.68 92,440,296.87
68,171,958.24 53,689,781.57
The number of shares issued to the public at the beginning of the period (2) 400,000,000.00 400,000,000.00
400,000,000.00 400,000,000.00
The number of shares newly issued in the current period (3) 0.00 0.00 0.00 0.00
The number of shares repurchase in the current period (4) 0.00 0.00 0.00 0.00
The weighted average number of ordinary shares issued to the public (5)=(2)+(3)-(4) 400,000,000.00
400,000,000.00 400,000,000.00 400,000,000.00
Basic earning per share (6)=(1)÷(5) 0.20 0.23 0.17 0.13
（2）Diluted earning per share:
2008 2007
Items calculation
Amount
after deduction of
non-recurring
Amount
after deduction of
non-recurring
Net profit attributable to ordinary shareholder of
the Company
(1)
80,981,442.68 92,440,296.87 68,171,958.24 53,689,781.57
The interest of the potential diluted ordinary
shares determined to be expenses in the current
period
(2)
0.00 0.00 0.00 0.00
The gains or expenses to be resulted from (3) 0.00 0.00 0.00 0.00Shandong Airlines Co., Ltd. 2008 Annual
Report
84
conversion of diluted ordinary shares
Income tax rate (4) 0.25 0.25 0.33 0.33
The adjustment of the net profit attributable to
ordinary shareholder of the Company
(5)=(1)+[(2)-(3)]×[1-
(4)] 80,981,442.68 92,440,296.87 68,171,958.24 53,689,781.57
Total number of ordinary shares (6) 400,000,000.00 400,000,000.00 400,000,000.00 400,000,000.00
Assumed that the dilution of potential ordinary
shares converted into ordinary shares in issue
increased the weighted average number of
ordinary shares
(7)
0.00 0.00 0.00 0.00
Total number of diluted ordinary shares (8)=(6)+(7) 400,000,000.00 400,000,000.00 400,000,000.00 400,000,000.00
Diluted earning per share (9)=(5)÷(8) 0.20 0.23 0.17 0.13
XVII. Approval of financial statements
This financial statement is approved and authorized for issuance by the Board of Directors on March 27,
2009.
XI. Documents Available for Reference
1. Financial statements carrying the personal signatures and seals of Chairman of the Board,
Chief Accountant and Person in Charge of Accounting Department;
2. Original of Auditors’ Report carrying the seals of Certified Public Accountants as well as
personal signatures and seals of certified public accountants;
3. Originals of all documents and notices publicly disclosed on newspapers designated by
CSRC in the report period in 2008;
4. The Company will offer above documents for reference timely provided that CSRC or
Stock Exchange demands or shareholders requires according to the regulations and Articles
of Association.
Board of Directors of
Shandong Airlines Co., Ltd.
March 27, 2009
