11:52     CHINA EAST AIR<00670> - Announcement (8)                            

    (iv)    Increase of income and enhancement of cost efficiency and         
    profitability                                                             
                                                                              
    After the Proposed Acquisition, the Group will be able to adjust          
    its air routes and operational capability to develop customer             
    resources in the northwest and southwest regions of China to              
    increase its passenger revenue. In addition, the expansion of the         
    aircraft fleet will increase the capability of the Group to operate       
    its air cargo business and will enable the Group to benefit from          
    the development of its air cargo business in China. Through the           
    integration of operations and internal resources, and                     
    centralization of procurement of aviation materials, the Proposed         
    Acquisition is also expected to increase the Group's operational          
    efficiency and reduce operation costs. Further, the aviation              
    businesses operated by the Group, CEA Northwest and CEA Yunnan            
    maintain extensive air tickets' sales and marketing networks in           
    China, and have operating centres located at major domestic               
    airports providing line maintenance and ground support services.          
    The Enlarged Group is expected to benefit from the integration of         
    these resources which is made possible through the Proposed               
    Acquisition, thereby minimising its operating expenses and                
    enhancing its operational efficiency.                                     
                                                                              
    (v)     Optimisation of air flights and air routes                        
                                                                              
    In particular, after the completion of the Proposed Acquisition,          
    the Group may allocate aircraft in the expected combined air              
    routes of CEA Holding, CEA Northwest and CEA Yunnan, and                  
    reallocate its expanded aircraft fleet and flight crew with greater       
    flexibility so that the demand for air routes during periods              
    requiring higher transportation capacity could be satisfied and           
    the balance in supply and demand of transportation capacity               
    throughout the year would be better assured.                              
                                                                              
    (vi)    Elimination of competition and reduction of connected             
    transactions                                                              
                                                                              
    As mentioned above, each of CEA Holding, CEA Northwest and                
    CEA Yunnan has made a non-competition undertaking in respect of           
    any business which competes or may compete with the Company's             
    aviation business following completion of the Acquisition                 
    Agreement. The Proposed Acquisition is therefore expected to              
    eliminate any competition among the Company, CEA Northwest and            
    CEA Yunnan. The Proposed Acquisition is also expected to help             
    regulate and reduce the volume of connected transactions between          
    the Company and CEA Holding, resulting in an enhanced                     
    efficiency of overall management and streamlined operations of            
    the Company.                                                              
                                                                              
    Based on the above, the Directors believe that the Proposed               
    Acquisition is fair and reasonable and is in the interests of the         
    Group and the Company's shareholders as a whole. Accordingly, the         
    Directors recommend the Independent Shareholders to vote in favour        
    of the ordinary resolution to be proposed at the AGM to approve the       
    Proposed Acquisition.                                                     
                                                                              
    Implications under the Listing Rules                                      
                                                                              
    In respect of the Proposed Acquisition, the relevant "percentage          
    ratio" applicable to the transaction under Rule 14.07 of the Listing      
    Rules exceeds 100%. The Proposed Acquisition therefore constitutes a      
    very substantial acquisition by the Company under the Listing Rules.      
    Further, since CEA Holding is the controlling shareholder, and hence      
    a connected person, of the Company, the Proposed Acquisition also         
    constitutes a connected transaction of the Company under Chapter          
    14A of the Listing Rules and is subject to approval by the                
    Independent Shareholders at the AGM.                                      
                                                                              
    CONTINUING CONNECTED TRANSACTIONS                                         
                                                                              
    Background                                                                
                                                                              
    The Company has in place agreements with certain members of the           
    CEA Holding Group in respect of provision of goods and/or services        
    which are carried out on a continuing basis between the Group and         
    the CEA Holding Group. The Company has a conditional waiver,              
    granted by the Stock Exchange at the time when its H shares are           
    listed in Hong Kong, from strict compliance with the relevant             
    connected transaction regulatory requirements in respect of these         
    agreements and the transactions thereunder. Information in relation       
    to the waiver was disclosed in the Company's prospectus dated 28th        
    January, 1997.