China Eastern Airlines (CEA) recorded a profit in 2007 and in the first quarter of 2008, mainly due to strong passenger demand in China and the Chinese currency appreciating versus the US dollar. The company is well-positioned to leverage the growth potential of China' s aviation industry. An appreciating Chinese currency should also support its stock price. We think its current price fairly reflects most of these factors. Therefore, we are maintaining Hold recommendation.

According to Boeing's estimates, growth in total revenue passenger kilometers in China will hold at 7.2% annually over the next 20 years, compared with growth of 4.7% in the rest of the world. China's domestic air passenger traffic is growing 8.8% annually and international air passenger traffic is growing 5.9% over the same period. China Eastern is aggressively expanding to international markets and is expanding its market share in the domestic market.

China Eastern has around 70% of its debt in foreign currency, which is mainly US currency. As the Chinese currency continues to appreciate over the US dollar, the company's financial costs decline significantly.