Spokesperson & Deputy Spokesman：SpokesmanPeng, Long-Min
Vice President, CORPORATE COMMUNICATIONS OFFICE
886-3-399-8888
886-3-399-8640

Name
Title
Tel
Fax

Deputy Spokesman
Chen, I-Chieh
Vice President, FINANCE DIV.
886-3-399-8888
886-3-399-8313

Headquarter, Branches and Plant：
Organization Unit

Address

Tel

Headquarter

No.1, Hangzhan S. Rd., Dayuan Dist., Taoyuan City 337, Taiwan

886-3-399-8888

Taipei Branch

No.131, Section 3, Nanjing East Road, Taipei City 104, Taiwan

886-2-2715-2233

Cargo Sales & Service, Taiwan

No.3, Aly. 123, Ln. 405, Dunhua N. Rd., Songshan Dist., Taipei City 105, Taiwan

886-2-2715-5151

Kaohsiung Branch

6 Floor, Asia-Pacific Financial Plaza, No.38 Of Xin Guang Road, Lingya District, Kaohsiung City 802, Taiwan

886-7-213-1200

Tainan Branch

Room A, 6 Floor, No.358, Section 1, Tungmen Road, Tainan, Taiwan

886-6-235-8099

Taichung Branch

Room 2, 15th Floor, No.218, Section 2, Taiwan Boulevard, West District, Taichung City 403, Taiwan

886-4-2325-9592

Maintenance Div.

No.15, Hangqin S. Rd., Dayuan Dist., Taoyuan City 337, Taiwan

886-3-383-4251

Cargo Sales & Services Mainland
China

Suite 22i, No.726 Of West Yanan Road, Changning District, Shanghai, China

86-21-2220-3292

Beijing Office

Bright China Chang An Building, Tower 1, Unit 1111 No.7 Jianguomen Nei Avenue, Beijing, China

86-10-6510-2671

Shanghai Office

Suite 22a, No.726 Of West Yanan Road, Changning District, Shanghai, China

86-21-2220-3333

Guangzhou Office

Room 1210, 12th Floor, Teem Tower, No.208 Of Tianhe Road, Tianhe District, Guangzhou, Guangdong, China

86-20-8527-2950

Xian Office

Room 4805, Office Tower, Shun Hing Di Wang Commercial Center, No.5002 Of Shen Nan East Road, Luohu
District, Shenzhen, Guangdong, China
Room 810, 8th Floor, Gaoxin Building 9, Gaoxin 4th Road, High-Tech Zone, Xi'an, Shaanxi, China

Chengdu Office1-1608, Baoli Centere Biilding, No.7, Consulate Rd. Chengdu, China

86-28-8602-7508

Zhengzhou Office

Rooms 1101-1102, Tower B, Yuhong International Building, No.59 Of Zijingshan Road, Zhengzhou, Henan, China

86-371-5562-9880

Changsha Office

Room 3404, Building 2, Block C, Kaifu Wanda Plaza, No.589 Of Zhongshan Road, Changsha , Hunan, China

86-731-8224-0871

Shenyang Office

Room 2009, Tower E, Fortune Center, No.59 Of North Station Road, Shen He District, Shenyang, Liaoning, China

86-24-3128-7021

Xiamen Office

Unit 3310, 33rd Floor, Bank Center, No.189 Of Xiahe Road , Xiamen, Fujian, China

86-592-2388-388

Nanjing Office

Room B1-B2, Building 38, Nanjing Center Building, No.1 South Zhongshan Road, Qinhuai District, Nanjing, China

86-25-8467-1050

Ningbo Office

Room 1702, China Citic Building, No.36 Of Zhenming Road, Haishu District, Ningbo, Zhejiang, China

86-574-8775-4090

Hangzhou Office
Fuzhou Statiom

Room 2307 Building 2, China Qian Tang Aviation, Shimin'S Street 66, Jianggan District, Hangzhou, China
Room 2508, Zhonggeng Youth Plaza, No.83 Of East Road, Gulou District, Fuzhou, Fujian, China

86-571-8668-4214
86-591-8755-9705

Chongqing Station

Room 2202, No.3 Building, Zhongyu Plaza, No.86 Of Hongjin Avenue, Yubei District, Chongqing, China

86-023-8828-0118

Dalian Station
Haikou Office

Room B4-008, Dalian International Airport, No.96 Of Yingke Road, Ganjingzi District, Dalian, Liaoning, China
18e, Huanhai Business Building, No.15, Jinmao W. Rd., Haukuo Hainan, China

86-411-8388-6550
86-898-6853-9677

Nanchang Station

Rm 701,Unit A, No.205 Guangchang S. Rd., Nanchang, Jiangxi Province, China

86-0791-8378-0580

Sanya Station
Wenzhou Station

Room No.110, 5F, Block B, Sanya Aviation City, Sanya Phoenix Int'l Airport, Hainan
Room 2310, Huameng Business Palace, No.2 Of Chezhan Road, Lucheng District, Wenzhou, Zhejiang, China

86-0898-8828-9677
86-0577-8605-2181

Wuxi Station

Room 1403, No.8 Tianshan Road, New District, Jiangsu Province, China

86-0510-8522-8710

Yancheng Station
Qingdao Office

Room B1207, East Building High-End Business Office (Hbo), Ren Min South Road No.1 , Yancheng, Jiangsu, China
Unit 2801, Office Tower, Shangri-La Centre, No.9 Xiang Gang Zhong Lu, Qingdao, China

86-515-8996-6950
86-532-6887-7106

Weihai Station

Room 25a15, No.11 Nanda Street, Yitong International Building, Zhifu District, Yantai, Shandong, China

86-535-6223-830

Wuhan Office

Room 1315, 13F, New World International Trade Building, 568 Building Avenue, Wuhan, China
Rooms 6006, 6th Floor, Bai-Nau Technology Building, No.1313 Of Gong Nong Road, Chaoyang District,
Changchun, Jilin, China

86-27-8555-8172

Xuzhou Station

Jiangsu Xuzhou, Jingpo West Rd. Jitian Business E Building E110 Room, China

86-516-8379-0550

Cargo Sales & Services, Japan

Nittochi-Uchisaiwaicho Bldg. 8F, 1-2-1 Uchisaiwaicho, Chiyoda-ku, Tokyo, 100-0011, Japan

81-3-6378-8860

Tokyo Branch

Nittochi-Uchisaiwaicho Bldg. 8F, 1-2-1 Uchisaiwaicho, Chiyoda-ku, Tokyo, 100-0011, Japan

81-3-6378-8855

Osaka Branch
Sapporo Branch

Nakanoshima Mitsui Bldg. 9F 3-3, 3-Chome Nakanoshima Kita-Ku Osaka 530-0005, Japan
Kita 1 Jo Mitsui Building 3F, Kita 1, Nishi 5, Chuo-ku, Sapporo Hokkaido, 060-0001, Japan

81-6-6459-5783
81-11-218-6766

Shizuoka Station

Shizuoka Ariport Terminal Bldg. 1F, 3336-4, Sakaguchi, Makinohara-Shi, Shizuoka, 421-0411, Japan

81-548-29-2668

Toyama Station
Kagoshima Station

International Terminal Building 3F, 191 Akigashima, Toyama-Shi, 939-8252, Japan
1355-4 Fumoto, Kirishima, Kagoshima 899-6404, Japan

81-76-461-7200
81-995-57-9898

Miyazaki Station

Miyazaki Airport, Akae Miyazaki 880-0912, Japan

81-985-64-9811

Nagoya Branch
Fukuoka Branch

3F, NMF Nagoya-Fushimi Building, Nishiki 2-9-27, Naka-ku, Nagoya, Aichi, 460-0003, Japan
Daihakata Bldg. 8F, 2-20-1 Hakata Ekimae, Hakata-Ku, Fukuoka 812-0011, Japan

81-52-202-7253
81-92-471-7788

Hiroshima Branch

7F 2-7-10, Ote-Machi, Naka-Ku, Hiroshima-Shi, Hiroshima, 730-0051, Japan

81-82-542-0883

Takamatsu Station

Takamatsu Airport Bldg. 1312-7, Oka, Konan-cho, Takamatsu-shi, Kagawa, 761-1401, Japan

81-87-815-8702

Shenzhen Office

Changchun Office86-755-8246-3560
86-29-895-81909

86-431-8920-7672

Okinawa Branch

Kumamoto Airport Int'l Terminal Bldg. 1802-2 Oyatsu, Mashiki-machi, Kamimashiki-gun, Kumamoto 861-2204,
Japan
Gojinsha Naha Matsuyama Bldg. 3F, 2-1-12 Matsuyama, Naha City, Okinawa 900-0032, Japan

Korea Branch

12F, Donghwa Bldg. Seosomun-Ro 106, Jung-Gu, Seoul, Korea 04513

82-2-317-8888

Busan Branch

3F, Kyo-Won B/D, Jungang Daero 216, Dong-Gu, Busan, Korea, 48733

82-51-462-8885

Hong Kong Branch

Suites 2701-2705, 27F Devon House, Taikoo Place, 979 King's Road, Hong Kong852-2843-9800

Thailand Branch4Fl., The Peninsula Plaza Bangkok, 153 Rajadamri Rd., Bangkok 10330, Thailand

66-2-250-9898

Bali Branch

Departure Int'l Terminal 2nd FL., No.A0-12B Ngurah Rai Airport. Tuban-Bali, Indonesia

62-361-935-7298

Malaysia Branch

Unit 15.01, Level 15, AMODA Building, 22, Jalan Imbi, 55100 Kuala Lumpur, Malaysia

60-3-2142-7344

Penang Branch

Unit 9.04, Level 9, Menara Boustead Penang, 39 Jalan Sultan Ahmad Shah, 10050 Penang, Malaysia

60-4-228-9227

Singapore Branch
Surabaya Branch

302 Orchard Road, #14-01 Tong Building Singapore 238862
Intiland Tower, 2nd Floor, Suite 9B, Jl. Panglima Sudirman No.101-103 Surabaya 60271, Indonesia

65-6-737-2144
62-31-547-0898

Cambodia Branch#10, St.596 Toul Kork, Sangkat Beoung Kok II, Khan Toul Kork, Phnom Penh, Cambodia

855-23-883-696/686

Myanmar Branch

No.353/355, Bo Aung Kyaw Street, Kyauktada Township, Yangon, Myanmar

95-1-839-2663

Philippines Branch

G/F Unit-1 Golden Empire Tower 1322 Roxas Boulevard Cor. Padre Faura St., Ermita Manila, Philippines

63-2-354-6700 to 09

Indonesia Branch

Intiland Tower, M1 Floor, Jl. Jend. Sudirman Kav.32, Jakarta 10220, Indonesia

62-21-251-0788

Vietnam Branch

1B, 7F Crescent Plaza 105 Ton Dat Tien St., Dist.7, Ho Chi Minh City, Vietnam84-28-5414-1008

Hanoi Branch

4th Floor, Opera Business Center, 60 Ly Thai To Street, Hoan Kiem District, Hanoi, Vietnam84-24-3936-6364

Palau Branch

P.O. BOX 10027 Koror, Republic of Palau 96940

680-488-8888

Australia Branch

Suite 1, Level 1, Central Terrace Building, 10 Arrivals Crt. Sydney International Airport Mascot NSW 2020, Australia 61-2-8339-9188

Brisbane Branch

Level 1, Brisbane International Terminal, Airport Drive, Brisbane Airport QLD 4008, Australia

61-7-3860-5611

Melbourne Branch

Level 2, North End, Terminal 2, Melbourne Airport, Tullamarine 3045

61-3-9907-0910

New Zealand Branch

GM60, Level 1, Auckland International Airport, Auckland 2150, New Zealand

64-9-256-8088

India Branch

Office No.323, 3rd Floor, MGF Metropolis, M.G. Road, Gurgaon 122001, Haryana, India

91-124-711-5000

Los Angeles Branch

200 N. Continental Blvd., Suite 100, El Segundo, CA 90245, U.S.A.

1-310-322-2888

New York Branch

633 3rd Ave., 8th Fl., Suite 800, New York, NY 10017, U.S.A.

1-917-368-2000

San Francisco Branch

433 Airport Blvd., Suite 501 Burlingame, CA 94010, U.S.A.

1-650-931-8000

Honolulu Branch

300 Rodgers Blvd., #14, Honolulu, HI 96819, U.S.A.

1-808-955-0088

Anchorage Branch
Canada Branch4600 Postmark Drive, Ste. NB202, Anchorage, AK99502, U.S.A.
Suite 240-10451 Shellbridge Way, Richmond, British Columbia, V6X 2W8, Canada

1-907-249-2300
1-604-242-1168

Kumamoto Station

81-096-232-8863
81-98-863-1013

Cargo Sales & Services The Americas 5651 West 96th Street, Los Angeles, CA 90045, U.S.A.

1-310-646-1260

Guam Branch
Netherlands Branch

518 Pale San Vitores Road, Suite 202-203, Concorde Center, Tumon, Guam 96913, U.S.A.
Officia Gebouw I, De Boelelaan 7, 6th Floor, 1083 HJ Amsterdam, The Netherlands

1-671-649-0861
31-20-646-1001

Germany Branch

Gutleutstrasse 80, 60329 Frankfurt, Germany

49-69-297-0580

Italy Branch
Cargo Sales & Services, Europe

Viale Marco Polo, 71, 3F, Roma, Italy
Room G2045, Cargo Center Luxair, L-1360 Luxembourg, Luxembourg

39-06-474-5045
352-348-363-9500

Austria Branch

Mariahilfer Strasse 123/8 O.G. 1060 Vienna, Austria

43-1-8130-156

The United Kingdom Branch

Minstrel House, 1F, 2 Chapel Place, Rivington Street, London, EC2A 3DQ

Stock Transfer Agent：
Name：
CTBC Bank Co., Ltd.
Address： 5F., No.83, Sec. 1, Chongqing S. Rd., Zhongzheng Dist., Taipei City 100, Taiwan
Website： http://www.ctbcbank.com
Tel：886-2-6636-5566

Overseas Securities Exchange：N/A
Corporate Website：http://www.china-airlines.com

44-208-587-3688

Auditors：Name：
Deloitte & Touche
Auditors： Yang, Chen-Hsiu; Chen, Li-Chi
Address： 12F., No.156, Sec. 3, Minsheng E. Rd., Songshan Dist., Taipei City 105, Taiwan
Website： http://www.deloitte.com.tw
Tel：886-2-2545-9988

Contents

I. Letter to Shareholders............................................................................................................................................. 1
II. Company Profile....................................................................................................................................................... 7
2.1 Date of Incorporation .............................................................................................................................................. 8
2.2 Company History ..................................................................................................................................................... 8III. Corporate Governance Report ......................................................................................................................... 12

3.1 Organization .......................................................................................................................................................... 13
3.2 Directors, and Management Team ........................................................................................................................ 17
3.3 Implementation of Corporate Governance ........................................................................................................... 39
3.4 Information Regarding the Company’s Audit Fee and Independence .................................................................. 73
3.5 Replacement of CPA ...............................................................................................................................................74
3.6 Audit Independence ...............................................................................................................................................74
3.7 Changes in Shareholding of Directors, Managers and Major Shareholders .......................................................... 75
3.8 Relationships among the Top Ten Shareholders ................................................................................................... 78
3.9 Ownership of Shares in Affiliated Enterprises ....................................................................................................... 79

IV. Capital Overview ................................................................................................................................................... 80

4.1 Capital and Shares................................................................................................................................................. 81
4.2 Bonds .................................................................................................................................................................... 85
4.3 Other Securities-Related Issues .............................................................................................................................87
4.4 Financing Plans and Implementation.....................................................................................................................87

V. Operational Highlights ......................................................................................................................................... 88

5.1 Business Activities ................................................................................................................................................. 89
5.2 Market and Sales Overview .................................................................................................................................. 96
5.3 Human Resources ............................................................................................................................................... 100
5.4 Environmental Protection Expenditure............................................................................................................... 100
5.5 Labor Relations ................................................................................................................................................... 104
5.6 Major Contracts .................................................................................................................................................. 108

VI. Financial Information........................................................................................................................................ 111
6.1 Five-Year Financial Summary .............................................................................................................................. 112
6.2 Five-Year Financial Analysis................................................................................................................................. 116
6.3 Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016, and Independent
Auditors’ Report .................................................................................................................................................. 118
6.4 Parent Company Only Financial Statements for the Years Ended December 31, 2017 and 2016 andIndependent Auditors’ Report ............................................................................................................................ 118
6.5 Audit Committee’s Report .................................................................................................................................. 119

VII. Review of Financial Conditions, Financial Performance, and Risk Management ........................ 120

7.1 Analysis of Financial Status ................................................................................................................................. 121
7.2 Analysis of Financial Performance ...................................................................................................................... 122
7.3 Analysis of Cash Flow .......................................................................................................................................... 122
7.4 Major Capital Expenditure Items ........................................................................................................................ 122
7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans andInvestment Plans for the Coming Year ................................................................................................................ 123
7.6 Analysis of Risk Management ............................................................................................................................. 123
7.7.Other important Matters .................................................................................................................................... 126

VIII Special Disclosure ..............................................................................................................................................127
8.1 Summary of Affiliated Companies ....................................................................................................................... 128
8.2 Private Placement Securities in the Most Recent Years ...................................................................................... 134
8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years...................................... 134
8.4 Special Notes ....................................................................................................................................................... 134
8.5 Situations with Major Impacts on Shareholder Equity or Share Prices ............................................................... 134(Appendix 1) Consolidated Financial Statements for the Years Ended December 31, 2017and 2016 and Independent Auditors’ Report ........................................................................ 136(Appendix 2) Parent Company Only Financial Statements for the Years Ended December 31,
2017 and 2016 and Independent Auditors’ Report ............................................................. 188(Summary Translation)
This document is prepared in accordance with the Chinese version and is for reference only. In theevent of any discrepancy between the English version and the Chinese version, the Chinese version
shall prevail.

Letter to Shareholders
1.1 Operating Performance in 2017
1.2 Business Plan for 2018
1.3 Development Strategies

Letter to Shareholders

1

I. Letter to Shareholders
Looking back over 2017, there were many newchallenges, both internal and external. There werechanges to the global political situation, frequentterrorist attacks, a steady rise in oil prices, weather
calamities brought on by climate change, andinternal labor disputes. Although the year was not aquiet one, the China Airlines team still listened to
the voices of all its stakeholders and held fast to its
value of "Believe In Yourself and You'll Do It Better".
Keeping passenger safety and shareholder benefit as
its primary considerations, the team came together
to face and overcome every obstacle to achieve its
mission of "Creating More Beauty for You and Me
Through Flight".
Updates to flight crews and passenger cabins
continued, as China Airlines brought 6 next
generation A350‐900 long haul aircraft into service
in 2017combining the next generation designconcepts of Eastern aesthetics with youthful
innovation; at the same time, the company won
accolades in Taiwan and abroad for its insistence on
the best hardware, software and service. These
included Global Traveler's "Best Business Class Seat
Design" and "Beat Airline in Northeast Asia", afive‐star service award from Global Views Monthly,
Air Cargo World's "Global Air Cargo Certificate of
Excellence", and a designation as a "Gold Trusted
Brand" by Reader's Digest Asia. China Airlines was
further rated a "New Century Top 20 Employer" by
Cheers Magazine, and its operations team not only
increased the group's competitiveness, but also
made the airline a company employees can trust
and the first choice of passengers.
As the leading enterprise on the Taiwan airline
market, China Airlines has been praised both in
Taiwan and abroad for its active promotion of
economic, environmental and social sustainability.
Not only was the company listed for the second
consecutive year in the Dow Jones Sustainability
Indices, it was also honored with multiple "TCSA
Taiwan Sustainable Enterprise Awards". Sustainable
operations have gradually become the key to future
development in the airline industry.
In 2017, China Airlines turned in a dazzling overall
performance. Turning in such an outstanding result
depended on the hard work of all its employees,
cooperation from its partners, the trust of its
passengers and support from its shareholders. In the
future, China Airlines will take a prudent yet
optimistic attitude in continuing to optimize thefleet and its allocation, integrate the resources of
the company and the group, and provide

2 Letter to Shareholders

outstanding products and services to bring everyone
onto a new page of China Airlines history.

1.1 Operating Performance in2017
Operating revenue in NT dollars (same hereafter)
was NT$139.815 billion, a 9.64% increase over thelast year, After‐tax net profit was NT$2.208 billion,
for a basic after‐tax net profit of NT$0.40 per share.

1.1.1 Results of the business strategy
y Fleet:As of the end of December, the company held 79
passenger aircraft (including leased aircraft) and 21
cargo aircraft, for a total of 100. In 2017, thecompany leased 2 Boeing 737‐800 passenger
airliners, for a period of 8 years; 6 Airbus A350‐900
passenger aircraft were also brought in. Two
747‐400 and four 737‐800 passenger planes weresold.

y Passenger flights:
Revenue from passenger business was NT$90.56
billion, a 4.94% increase over the last year,
accounting for 64.77% of total operating revenue. Asof the end of 2017, the China Airlines Group flew to
22 countries and 79 passenger destinations,spanning Asia, Europe, the Americas and Oceania.
On average, there are 680 round‐trip flights per
week.

y Cargo flights:
Cargo business income was NT$42.97 billion, a21.54% increase over the last year, accounting for
30.73% of total operating revenue. As of the end of
December, the China Airlines group flew 18 cargoplans in cargo operations, flying to 15 countries and
33 destinations spanning Asia, Europe and theAmericas. Each week, there were an average of 93
cargo flights.

y Other operating income:
Other operating revenue included in‐flight duty‐freesales revenue, a total of NT$6.285 billion, a 7.02%
increase over the last year, accounting for 4.5% of
total operating revenue.

y Investments and earnings:
As of the end of December, the company had
investment in a total of 34 companies, areas ofbusiness such as air business, ground services,logistics, aircraft maintenance, air cargo station
business, etc. contributed NT$1.628 billion revenue
over the year.

1.1.2 Business cash flow budget andprofitability analysis
y Cash flow:
Operating revenue was NT$139.815 billion, up 12.29
billion over last year. Operating costs and expenses
were NT$132.457 billion, up NT$9.408 billion overlast year.
Pre‐tax net profit was NT$3.088 billion, up NT$1.551
billion over last year.
After‐tax net profit was NT$2.208 billion, up
NT$1.636 billion over last year.

y Budget execution:
Projected operating revenue was NT$138.889 billion,
and actual operating revenue was NT$139.815
billion, for a 100.67% attainment; projected
operating costs and fees were NT$133.31 billion,
and actual operating costs were NT$132.457 billion,a spend rate of 99.36%. Projected losses fromnon‐operating activities were NT$5.225 billion, withactual losses from non‐operating activities at
NT$4.27 billion. Actual annual pre‐tax net profit was
NT$3.088 billion, a budget‐achieving rate of872.32%.

y Profitability:
Return on assets 1.54%
Return on equity 3.91%
After‐tax profit margin 1.58%
After‐tax earnings per share NT$0.40

1.1.3 Research and development
With the rise of the internet service era, China
Airlines is committed to developing website
functionality and optimizing ticket purchase systems,
to create an ever higher‐quality online experienceand more convenient service. In 2017, China Airlines
added England and Latin America web sites, andcurrently has established web sites for 15 countries
and official web sites in 13 different languages. The
company has also added services such as overweightluggage allowance purchases and online ticketingchanges, and added 3D safety verification for credit
cards to ensure the security of consumer onlinetransactions and provide superior online service. In

response to the "Swipe Generation" who are
gradually becoming the main consumer force, China
Airlines is using Facebook, IG and other social media
platforms to provide interactive connection withpassengers, make information transmission more
timely and reach a broader audience. At the sametime, the company plans to implement various
improvements such as promoting Customs
pre‐clearance and e‐AWB plans, to ensure that thecompany remains on course in moving toward
low‐carbon, energy‐saving sustainable development.
The development of the company's information
strategy focuses on 7 main areas: mobile, big data,
artificial intelligence, cloud services, setting up an
information base, information security, augmented
reality and the Internet of Things. China Airlines willkeep its finger on the pulse of the industry and use
technology to better understand customer values,
grasp profit‐making trends, seek out opportunities
for innovation, and enhance resource and risk
management, to improve the company's operatingcompetitiveness.

1.2 Business Plan for 2018
The operating environment in the airline industry isstrongly impacted by global economic growth, oilprices, and political and other factors. Based on thenewest predictions by the IMF, overall global growthin 2018 will be 3.9%, somewhat higher than the
3.7% posted in 2017. It is predicted that future
economic growth will continue stable. A December,2017 IATA report on the global market outlook
stated that global airline passenger volume would
continue positive growth, with passenger demand
up 6% in 2018. Asia‐Pacific region passenger
demand was predicted to show slowing growth,
down to 7% (compared to 10% in 2017). In terms oftransport capacity, global and Asian regional growth
rates were pegged at 5.7% and 6.8% respectively,
with overall growth in demand holding even.
However, the price of oil is a major factor in airline
operations and from the latter half of last year todate, fuel prices continued to rise, and it is predictedthat this will squeeze profits for this year. In terms ofthe cargo market, IATA predicts that while the 2018global cargo growth will reach the 9.3% growth rateof 2017, it should still hold at the 4.5% level.
However, because of new widebody airliners being
delivered one after another from 2016 to 2020,
increasing belly compartment shipping capacity,
overall the market will still be in an oversupply
situation for cargo space, so that global shipping
market still holds opportunities and challenges.
(Note: IATA will update the above growth rate
prediction data each quarter)

Letter to Shareholders31.2.1 Overall Fleet Capacity Plan
To better grasp overall market and growth forpassenger and cargo demand, China Airlines has
allocated a total of 90 planes in its fleet operations
plan for 2018. This is 5 more than in 2017. Of these,72 are passenger aircraft and 18 are cargo planes.
The various models and differences in capacity are
shown below:
Aircraft
Model
A333‐300
A350‐900
737‐800
747‐400
777‐300ER

End 2018

End 2017

Difference

23
14
19
4
10

24
10
19
4
10

‐1
4
0
0
0

2

0

2

72

67

5

18

18

0

E190
Total
Passenger
Airliners
747‐400F
Total
Passenger
and Freight
Airlinersy Northeast Asian Routes:
The wave of tourists visiting Japan did not flag in
2017, and there was also a great influx of Korean
tourists to Taiwan. Usage on routes between Taiwan
and Japan and Taiwan and Korea rose on average
5% and 15% respectively. As a result, the China
Airlines group has converted all its Taoyuan‐Seoul
Incheon flights to widebody operations, while
increasing the frequency of its Kaohsiung‐Seoul
Incheon flights to daily departures starting last
March. Flights have been added to the
Taoyuan‐Fukuoka and Taoyuan‐Narita routes, andfurther increases are in store for Northeast Asianroutes, to maintain China Airlines' market share andcompetitiveness.

y European Routes:
90

85

5

1.2.2 Passenger Service
In coordination with the government's new
Southern Policy, China Airlines continues to evaluate
potential markets and increased flights to Southeast
Asia, consolidating its New
Zealand/Australia/Europe/American routes, andadjusting its route network to enhance the positionof Taoyuan International Airport as a hub. Moreover,close attention will be paid to market situation andadjustments at appropriate times with regard toroutes to Mainland China.

y Cross‐Strait Routes:
In response to the cessation of operations by
TransAsia Airways and reallocation of flight rights
across the Strait, the China Airlines group (including
Mandarin Airlines and Tigerair Taiwan) began flightsfrom Songshan Airport to Wuhan (Mandarin)
Taoyuan to Changsha (China Airlines) and Taoyuan
to Wuxi (Tigerair). The group also added flights fromSongshan to Fuzhou. Routes such as Taoyuan‐Yantai
and Taoyuan‐Hefei were impacted by the allocation
policy on Chinese tour groups, and were temporarilysuspended due to lack of demand. In the future, thecompany will continue to adapt to developments in

4 Letter to Shareholders

cross‐Strait policy and market conditions, flexibly
allocating its capacity. It will also coordinate with thechanges over time to Shanghai's Hongqiao andPudong airports by opening up Songshan‐Hongqiao(Mandarin Airlines) and Taichung‐Pudong (China
Airlines) routes, in hopes of abundant profits.

In addition to its Frankfurt route, China Airlines
began serving all its European routes with
A350‐900s starting in January, 2017. This includes
flights from Taoyuan to Amsterdam, Vienna andRome. At the same time, four weekly roundtrips
began on the Taoyuan‐London (Gatwick) route in
December. This brought China Airline's list ofEuropean destinations to five. With new aircraft
coming on line, China Airlines will further integrate
flights on the Vienna, London (Gatwick) and Romeroutes in 2018, while operating flights from Taoyuan
to Paris as a codeshare with Skyteam Alliancepartner Air France. This will provide tight, rapid
service on European routes.

y Australia and New Zealand Routes
To further enhance its strength on routes to Oceania,
China Airlines began using new A350‐900s on its
Taoyuan‐Sydney route in December, 2017. Flights
were also increased to two per day, while a daily
flight was inaugurated on the
Taoyuan‐Brisbane‐Auckland route. Additionally,
starting with summer flights at the end of March,
2018, all routes to Oceania will be served with
A350‐900 aircraft, improving the passenger producton these routes and actively expanding the route
network transfer market from Oceania to Europe
and Northeast Asia, enhancing the company's
service.

y Southeast Asian Routes:

y Asian Routes:

In line with the new Southern Policy, China Airlines
increased its Taoyuan‐Bangkok flights to 23 per
week in 2017, and its Taoyuan‐Penang flights to 6
per week. Between November, 2017 and March,
2018, the company will offer two flights per week
between Kaohsiung and Hanoi. When the summer
flight schedule begins in March, 2018, China Airlines
will increase weekly flights between Taoyuan and
Bangkok to 28 and continue observing that regional
market to judge at an appropriate moment thefeasibility of adding more capacity.

With the new Southern policy and continued
economic development in Southeast Asian nations,sources of cargo like consumer electronics, textiles,
and cross‐border e‐commerce promise market
growth. China Airlines will continue its thoroughdevelopment in Japan, Singapore, Malaysia,
Indonesia, Vietnam, the Philippines and Thailand to
win cargo moving north‐south in Asia, and will also
optimize combination of Southeast Asian cargo flight
destinations, considering the conversion of multi‐leg
destinations into direct flights based on thedevelopment of demand. The company will strive tocoordinate with development in Southeast Asia,
increasing the overall economic efficiency ofoperations.

y North American routes:
In line with China Airlines' timetable for bringing
new long‐haul aircraft into service, starting in Augustand October 2017 respectively, service with
A350‐900 aircraft commenced on
Taoyuan‐Vancouver and Honolulu routes. When thesummer schedule begins at the end of March, 2018,
China Airlines will offer two daily flights between
Taoyuan and Ontario, California, providing
customers with more diversified choices.

1.2.3 Cargo Service
Global trade demand will steady once more in 2018,
and IATA projections have global cargo growth rates
a bit slower than 2017 levels. However, 4.5% growthis still expected. However, since there is still an
excess of space on the market as a whole, in the
future the company will match up bellycompartment capacity in widebody aircraft andcontinue to optimize its route network to adapt tochanges in global cargo market demand.

y Long‐Haul Routes
Some 41 cargo flights are planned weekly (35overseas flights and 6 European routes). Overseas
flights are increased based on seasonal rise and fallin market demand, locking in large manufacturers
and agencies enhances and promotes customized
charter business. In 2017, cargo volume from Europe
to Asia trended toward recovery, and with thecompany's all‐new Airbus A350‐900s flying
European routes with direct service, it will continue
to develop e‐commerce express delivery, postaldelivery, fresh and frozen cargo and enhance its
cooperation with United Airlines, making full use of
the belly compartment capacity of its A350‐900sto
expand business revenue.

y Scheduled charter business andhigh‐growth goods supply expansion:2017 saw splendid results from scheduled charterbusiness, with expanded charter business toaccommodate individual customer demand. Some
120 charter flights were completed between Taipei,
Hong Kong, Nanjing, Vietnam, Los Angeles, andChicago, and further development of Southeast
Asian and other emerging markets will continue in2018, as well as adjustments to route networks inresponse to market changes and promotion ofcustom charter business. China Airlines will strive tobring the full effectiveness of its cargo fleet into play.
Moreover, the potential market for special cargosuch as semiconductor precision machines, motors,
temperature controlled cold chain and biotech
pharmaceuticals will continue as a focus fordevelopment. Additionally, to keep in step with thedevelopment of cross‐border ecommerce, thecompany is enhancing its cooperation with express
shippers and air resource development and sharing
among the SKTC (SkyTeam Cargo) alliance , andcontinues to roll out postal/express and otherrelated business, grasping the trends in logistics andenlarging its operational territory.

1.3 Development Strategies
Looking to the future, the airline market will become
more competitive, the progress of cross‐Strait
relations is unclear, and oil prices continue to climb.
All this means the operating environment is mademore and more difficult. China Airlines sincerely
believes that holding firmly to its deep roots is the
only road toward sustainable operations for an
airline.

Letter to Shareholders

5Creating "profit" for the company and maintaining"safety" for passengers are the primary missions ofChina Airlines. On the safety front, China Airlines has
been awarded the highest standard for flight safety,
IOSA certification. It will continue to live up to these
accolades and carefully oversee flight safety. At thesame time, China Airlines has signed a joint air
medicine memorandum of cooperation with
Changgeng Memorial Hospital in Linkou, becoming
Taiwan's first company able to provide in‐flight
medical treatment support. China Airlines holds
itself to the highest standards, to bring passengers
the safest travel and set their minds at ease.
In the profit sphere, China Airlines continues tooptimize its flight network, solidifying its existing
passenger destinations and, at the end of 2017,
resuming flights to London, England. This year, theairline will begin to fly to California's Ontario Airport
and inaugurate a direct flight to Paris as a codesharewith Air France. These actions will enhance thecompany's long haul deployment and expand its
bidirectional connections market. The assessment
process for selection of narrow body regional
aircraft has gotten underway, to implement thecompany's strategy of a youthful fleet. Overall
prospects for the air cargo market are improving,
and cargo operations coordinated with passenger
aircraft belly compartments will be brought into fullplay and as demand changes, adjustments will bemade to cargo capacity to better grasp business
opportunities. China Airlines is located in Asia‐Pacificregion, where the development of the air industry is
rapid. It keenly appreciates the importance of

6 Letter to Shareholders

aircraft maintenance, and actively partners with
Airbus and has a joint venture in Taiwan with
NORDAM aerospace group (USA) to establish acompound materials and maintenance plant,"NORDAM Asia Ltd.” to expand its maintenance andrepairs territory. The company is also leveraging theadvantages of its own onboard duty‐free products
experience and warehouses to prepare to move into
the e‐commerce market. China Airlines will continue
to promote both vertical and horizontal strategies in
the new year, deepening the group's operational
strength.
In 2018, China Airlines will continue to keep its
promises to its stakeholders, constantly surpassing
itself, and using the cohesive spirit of the airline toachieve a sustainable vision of "becoming Taiwan's
premiere airline", and bringing its passengers the joyof both "familiarity" and "surprise". It will keep
developing into the most trusted friend of every air
passenger and a family member that truly
understands them, so that the plum blossoms of
China Airlines will continue to thrive in every cornerof the world.

Chairman: Ho, Nuan‐Hsuan
President: Hsieh, Su‐Chien
Vice President, Finance Div.:
Chen, I‐Chieh

Company Profile
2.1 Date of Incorporation
2.2 Company History

Company Profile

7

II. Company Profile
2.1Date of Incorporation
September 7, 1959

2.2 Company History
1959: China Airlines (CAL) was founded by 26 retired
members of the Air Force with TWD 400,000 incapital. The Company flew charter flights using two
rented PBY seaplanes.
1961: Provided military supply transport to Laos.
1962: Flew special cargo missions for the Vietnamese
government and USARV. Inaugurated the first
domestic route from Taipei to Hualien.
1966: Inaugurated the first international route from Taipei
to Saigon (now Ho Chi Minh City), marking ourofficial start in international aviation.
1967: Inaugurated Northeast Asia routes.
1970: Developed trans ‐ Pacific routes to explore the US
market.

1994: New engine repair plant became operational andSongshan Training Minquan Building opened. Set up
China Pacific Catering Services as a joint venturewith the Swire Group.
1995: First flights to Switzerland and Italy. Entered into a
joint venture with Pratt & Whitney and SIA
Engineering Company Limited to establish AsianCompressor Technology Services Co. in Taiwan.
Invested in CAL ‐ Asia Investments Inc. Launched our"plum blossom" logo.
1996: Inaugurated the Taipei ‐ Penang cargo route.
1997: Inaugurated the Kaohsiung ‐ Hong Kong ‐ Jakarta
route. Established the first cargo ‐ only flights
between Asia and Miami. Established code share
flights with Continental Airlines and American
Airlines. Invested in Huasheng Investment Company
and China Pacific Laundry Services Ltd.
1998: Set up our Penang Branch Office and Hanoi Branch.
Began using the Third Maintenance Hangar.
1999: Inaugurated cargo flight routes to Sydney, Delhi,
and Colombo. Set up Kaohsiung Airport Catering
Services as a joint venture with TransAsia Airlines
and Far Eastern Air Transport. Established Chung
Hwa Express Corp. as a joint venture with Chunghwa
Post. Established TACT Logistics through investment
transfer.

1976: Inaugurated Middle East and Saudi Arabia Routes.
1978: Invested in Taoyuan International Airport Services
Co., Ltd.
1980: Invested in Dynasty Holidays, Inc.
1983: Expanded European routes.
1986: Divided the Operations Division into Passenger
Division and Cargo Division to expand operations.
1988: Twenty ‐ seven shareholders donated shares toestablish the China Aviation Development
Foundation, transferring the rights of supervisionand management to society.
1989: Invested in Hwa Hsia Co., Ltd. and Tai Kong Ju
Investment Co., Ltd.
1990: Added Phuket and Bali destinations. Invested in
Abacus Distribution Systems (Taiwan) Ltd.
1991: Established Hua Mei Investment Company and
Mandarin Airlines. The Ministry of Finance approved
the public offering of China Airlines shares.
1992: Resumed flights to Ho Chi Minh City. The Taiwan
Stock Exchange approved the listing of China
Airlines shares. The Company gained 100% equity
interest in Mandarin Airlines.
1993: First flight to Frankfurt. Established German Branch
Office. Officially listed on the Taiwan Stock
Exchange.

8 Company Profile

2000: Launched Canada, Australia and New Zealand routes
and Taipei ‐ Guam, Taipei ‐ Manila, Kaohsiung ‐Manila, Hakodate charter, and Taipei ‐ Penang
passenger flights and Frankfurt cargo flights.
Established Shanghai office in Mainland China andnew branch offices in Canada, Australia, New
Zealand and Guam. Established YesTrip Travel
Internet Technology Co.
2001: Inaugurated cargo flight routes to Seattle andNashville. Made indirect investment in Xiamen
International Airport Co., Ltd. Set up code ‐ share
flights with Delta Airlines. Introduced A340‐300
passenger jets.
2002: Inaugurated passenger flight routes to Delhi andcargo routes to Manchester. Received approval toinvest in China Cargo Airlines. Ordered 18 Airbus
A330 passenger aircraft and 10 Boeing 747‐400
cargo and passenger aircraft. Rejoined theInternational Air Transport Association (IATA).

2003: Inaugurated the first cross ‐ strait Spring Festival
charter flight. Inaugurated charter flights to Seoul
and passenger routes to Brisbane and Hanoi andnon ‐ stop flights to Hawaii. Inaugurated cargo flightroutes to Ho Chi Minh City and Delhi. Created theParagon Card, the highest Dynasty Flyer
membership tier. Received the Outstanding Service
Award from the R.O.C. President.
2004: Launched sea ‐ air transport charter flights.
Inaugurated Hiroshima passenger flights and cargoroutes to Milan and Prague. Introduced three
A330‐300 passenger jets, two Boeing 747‐400
passenger jets and two Boeing 747‐400 freighters.
2005: Flew the first direct charter flights to Beijing, andSpring Festival charters to Guangzhou and Shanghai.
Inaugurated Vienna passenger flight route andNagoya and Vienna cargo flight routes. Invested in
China Aircraft Services Limited.
2006: Inaugurated cargo flight routes to Osaka, Hanoi,
Houston and Stockholm. Flew the first cargo charter
flight to Shanghai. Invested in Yangtze River Express
Airlines Company. Began construction on the
Taoyuan International Airport Airline Business
Operation Center.
2007: Signed a letter of intent to purchase with Airbus.
Announced contract with AccorHotels for a new
airport hotel. Inaugurated regularly ‐ scheduled
passenger flights between Kaohsiung and Chiang
Mai.
2008: Launched cross ‐ strait humanitarian charter flights
direct to Chengdu to deliver disaster relief supplies
at no charge. Inaugurated cross ‐ strait holiday
charter flights, weekend charter flights to Shanghai,
Beijing, Xiamen, and Guangzhou, and cross ‐ strait
direct cargo charter flights.
2009: Inaugurated the Taipei ‐ Osaka ‐ Los Angeles cargoflight route. Inaugurated scheduled cross ‐ strait
flights to Zhengzhou, Xiamen, Xi'an, Ningbo,
Shenyang, and Changsha. Became an official
member of IATA's e ‐ Freight program. Inaugurated
Taiwan's largest 120,000‐pound power plant testing
platform.
2010: New routes: Passenger routes between Taipei andthe cities of Miyazaki, London, and Qingdao,
Songshan Airport to Hongqiao and Haneda, andKaohsiung to Xiamen and Narita, direct cargo flights
to Xiamen, Nanjing and Fuzhou as well as the special
cargo charter flight direct to Xi'an. EstablishedCompany headquarters in China Airlines Park andwon the National Building Golden Award andNational First Award.
2011: New routes: Taipei ‐ Brisbane ‐ Auckland; Taipei ‐Osaka ‐ New York; flights to and from Taipei and
Wuhan, Sanya, Yancheng, Haikou, Nanchang and
Dalian; Taicheng to Chongqing and Nanchang;
Kaohsiung to Changsha, Chongqing, Beijing, andKuala Lumpur. Officially joined SkyTeam, becoming
the first Taiwanese airline member of aninternational airline alliance.
2012: New routes: Songshan to Wenzhou and Gimpo
Airport, Taipei to Kagoshima, Shizuoka and Toyama,
added Auckland leg to the Taipei ‐ Sydney route,and Taipei to Seoul and Yangon. Joined SkyTeam
Cargo becoming the first Taiwanese airline to join aninternational air cargo alliance. Renovated thecabins of nine Boeing 747‐400 passenger jets to
install new cabin seats and video systems. Signed a
Memorandum of Strategic Cooperation with
Chunghwa Telecom. Signed an OnPoint Fuel &Carbon Solutions Agreement with GE Aviation.
Awarded Business Next Magazine’s Super Green
Jury Award and First Place in the Green Brand
Awards 2012 Transportation Category, Gold Award
in Reader's Digest Trusted Brands 2012, the Sports
Activists Award from Sports Affairs Council, First
Place in Management Magazine’s Consumer Brand
Survey, and the 2012 Energy Conservation andCarbon Reduction Action Label Excellence Award.
The China Airlines Maintenance Facility received ISO
14001 Environment Management System
Certification. Launched the world's first trans ‐Pacific climate observation aircraft. Became theworld's first airline to display our carbon footprint
and calories for in‐flight meals.
2013: Formed Greater China Connection Partnership with
China Southern, China Eastern and Xiamen Airlines.
Launched code‐sharing services with Russia's
Transaero Airlines and Hawaiian Airlines andexpanded code‐sharing services with China
Southern Airlines. Launched Taipei ‐ Takamatsu
route, Chiayi ‐ Shizuoka charter flights, Taipei ‐Hawaii direct flights, Taipei ‐ Urumqi and Lijiangroutes. Launched Taipei ‐ Ishigaki, Tainan ‐ Hong
Kong, and Taipei ‐ Busan routes as well as Songshan‐ Matsuyama charter flights. Launched the Taipei ‐Nanjing ‐ Zhengzhou cargo route and Taipei ‐ Weihai
flights. Launched temperature‐controlled productcargo services. Again awarded Business Next
Magazine’s Super Green Jury Award and First Placein the Green Brand Awards 2013 Transportation
Category. Awarded Top Aviation Brand in Manager
Today‘s Power Brands Survey 2013 and Reader's
Digest Trusted Brands Gold Award. Won the
National Standardization Awards’ Corporate
Standardization Award, 3rd Taiwan Green Classics
Award, Global Views Service Excellence Award 2013,and EPA’s 22nd Business Environmental Award.
2014: Awarded the EPA’s 23rd Business Environmental
Award and the International Green Classics Award
2014 and earned ISO 14001 Environment
Management System Expansion Certification andISO 50001 Energy Management System Setup
Certification. Again awarded Business Next
Magazine’s Super Green Jury Award and earnedFirst Place in the Green Brand Awards
Transportation Category for the third time.
Inaugurated the Songshan ‐ Fuzhou and Taipei toCompany Profile

9Changchun, Hefei, Yantai, and Xuzhou routes. Won
the Annual Best of Design Awards in the 2014
Golden Pin Design Award for our NextGen 777
aircraft cabin design and named the Best Airline inNorth Asia by Global Traveler.
2015: Launched Taipei ‐ Wuxi; Kaohsiung to Changzhou,
Kumamoto, and Fukuoka; Taipei ‐ Melbourne withan extension to Christchurch; and Tainan ‐ Osakaflights. Launched social media customer services, afirst for Taiwan. Established an airplane
maintenance training center. Received the following
awards:y Brand Service:
CAA 2014 Golden Wing Awards, Second place in
TheDesignAir Global Passenger Choice Top 10
Airlines Awards 2015, Reader's Digest Trusted
Brands Gold Award, three top awards in the
Global Traveler reader survey.
y Corporate Social Responsibility:
2015 TCSA Taiwan Corporate SustainabilityAward, EPA’s Business Environmental Awards.
y Product Design:
The NextGen 777‐300ER passenger cabin design
was awarded the Red Dot Design Award 2015,
Family Couch design received the Global Traveler
Leisure Travel Innovation Excellence Award, Won
National Industry Innovation Award for NexGen
Aesthetics.
y Other:
Centers for Disease Control Epidemic Prevention
Award 2015.
2016: Launched Taipei ‐ Yangzhou route and Taipei ‐Shenzhen cargo route. Inaugurated Chinese
passenger transit through Taiwan for onward China
Airlines flights. Increased free baggage allowance by
10 kg and reduced regional excess baggage charges.
Took delivery of the first A350 airliner for any
Taiwanese carrier. Completed the Air Passenger
Transport Service‐Product Carbon Footprint
Category Regulations together with the Civil
Aeronautics Administration. Received the following
awards:y Brand Service:
PAX International magazine reader survey's 2016
Outstanding Food Service by a Carrier, Best
Premium Economy and Best Airline by Global
Traveler, China Airlines Dynasty In‐flight
Magazine won APEX Award of Excellence, the CAL
website was named 2016 Best Airline Website by
WebAward.
y Corporate Social Responsibility:
Passed third‐party audits for ISO 14001 and ISO
50001 Environmental Management Systems.
Received IOSA flight safety certification and the
TCSA Taiwan Corporate Sustainability Award
2016.

10 Company Profiley Product Design:
Received 5 iF Design Awards for the Boeing
777‐300ER passenger cabin, software userinterface, tableware design, Sky Lounge design
packaging, and Taiwan Taoyuan Airport Terminal
1 Lounge. A double win in TheDesignAir Awards
2016.
y Other:
Selected as a Dow Jones Sustainability Indicesconstituent stock, the first such honor for a
Taiwanese company and emerging market airline.
2017: Inaugurated the Taipei ‐ London route, as the only
airline in Taiwan to offer nonstop service to London.
Partnered with Air France on a codeshare nonstop
flight from Taipei to Paris. Added codeshares on
Taiwan ‐ Japan routes with Air Japan. Signed amemorandum of cooperation with KLM. Signed anagreement to enhance cooperation with American
Airlines. Signed a Letter of Intent with Airbus
comprehensively strengthening cooperation on
maintenance. Established a joint venture in Taoyuan
with NORDAM Aerospace (USA) as "NORDAM Asia
Ltd.” with both parties cooperating to drive business
investment and training of aerospace maintenancepersonnel. Signed a memorandum of cooperation
with Changgeng Hospital of Linkou for air medical
treatment. Obtained AS 9110 Airbus certification formaintenance facility. Flew Taiwanese satellites tothe US on four occasions. Hosted the 2017 AAPA
annual conference to empower development in the
Asia‐Pacific airline industry. Provided the second
A330‐300 to work on plans for greenhouse gas
observation and testing in the Pacific. Signed the
Buckingham Palace Declaration against illegal
wildlife shipments. Used sustainable alternative
fuels and setting a milestone in carbon reduction
among Taiwanese airlines. Received many awards:y Brand Service:
Excellence in Global Airline Cargo Service award.
Cheers magazine's 2017 "TOP 20 Most Influential
Enterprises of the New Era". Awarded a Gold
Medal for reputation by "Readers' Digest" for the
19th consecutive year. Awarded a 2017 Global
Vision magazine five‐star service rating.
Remained on top as Global Traveler's Best Airline
in Northeast Asia.

y Corporate Social Responsibility:
Won the "Taiwan Top 50 Enterprises
Sustainability Report Gold Medal for Cargo
Division", "Climate Leader Award" and "Harmony
with Society" award.

y Other:
Selected for the Dow Jones Sustainability Index
for the second consecutive year.

2018: China Airlines campus wins Ministry of the Interior
Diamond Class mark for green construction, withsavings of 23,000 units of electricity annually. The
China Airlines group also donated NT$10 million toassist in the aftermath of the Hualien earthquake.
The new Taipei ‐ Ontario County California routeformally goes into operation. Expanded codeshareoperations with Air France on Direct Flights
between Taipei and Paris. The Cheers magazineannounced that China Airlines is a top 20 employer
among the younger generation and the Premium
Economy class product targeted at the young adultgeneration was also named "Best 10 Company
Profile Onboard Amenities Kit ‐ Premium Economy"at the Onboard Hospitality Awards by OBH
Magazine.

Company Profile

11

Corporate Governance Report
3.1 Organization
3.2 Directors and Management Team
3.3 Implementation of Corporate Governance
3.4 Information Regarding the Company’s Audit Fee andIndependence
3.5 Replacement of CPA
3.6 Audit Independence
3.7 Changes in Shareholding of Directors, Managers andMajor Shareholders
3.8 Relationships among the Top Ten Shareholders
3.9 Ownership of Shares in Affiliated Enterprises

12 Corporate Governance ReportIII. Corporate Governance Report
3.1 Organization
3.1.1 Organizational Chart (APR 29, 2018)ިύ๮ૐ‫ޜ‬Ϧљಔᙃܿቩी‫ہ‬঩཮

཮

AUDIT COMMITTEESHAREHOLDERS MEETINGᖒၗൔၿ‫ہ‬঩཮

ORGANIZATION CHART OF CHINA AIRLINESဠ٣཮REMUNERATION COMMITTEEဠ٣ߏRISK COMMITTEE

BOARD OF DIRECTORS॥ᓀ‫ہ‬঩཮CHAIRMAN OF THE BOARD

ဠ٣཮཰୍λಔ

SECRETARIAL OFFICE,
BOARD OF DIRECTORSᕴዽਡ࠻GENERAL AUDIT OFFICEᕴ ࿶ ౛
PRESIDENT

Ҿ཰ว৖࠻

Ҿ཰Ӽӄ࠻

CORPORATEDEVELOPMENT OFFICE

ၗుୋᕴ࿶౛CORPORATECOMMUNICATIONS OFFICE

ၗుୋᕴ࿶౛

ၗుୋᕴ࿶౛(VW)
SENIOR VP

Ӧ༇୍ܺೀ

Չ ࡹ ೀ

GROUND SERVICES DIV.

PASSENGER
MARKETING DIV.

ၗૻᆅ౛ೀ‫ޜ‬ύҔࠔ‫ٮ‬ᔈೀIN-FLIGHT SERVICE SUPPLYDIV.

INFORMATIONMANAGEMENT DIV.

୍ܺࠔߥ೽SERVICE QUALITYASSURANCE DEPT.

LEGAL & INSURANCE DIV.

অៈπቷ

FLIGHTOPERATIONS DIV.

࠼ၮՉᎍೀADMINISTRATION DIV.

(VE)
SENIOR VPૐ ୍ ೀPASSENGERSALES DIV.

FINANCE DIV.

ၗుୋᕴ࿶౛(VO)
SENIOR VP

࠼ၮᔼ཰ೀ

଄ ୍ ೀ

CABIN CREW DIV.

ၗుୋᕴ࿶౛(VV)
SENIOR VP(VF)SENIOR VP‫ ܺ ޜ‬ೀᙍ཰Ӽӄፁғ೽
OCCUPATIONAL
SAFETY & HEALTH DEPT.

ϦӅᜢ߯࠻

CORPORATESAFETY OFFICE

MAINTENANCE
DIV.

ᖄӝᆅ‫ڋ‬ೀᐒ୍πำೀ

SYSTEM OPERATIONCONTROL DIV.

ENGINEERING
DIV.

ᐒ୍ࠔߥೀ

೤ၮೀ

QUALITY
ASSURANCE DIV.

CARGO SALESǵ MARKETING& SERVICES DIV.

‫ߥࡓݤ‬ᓀೀ

०ᐒঅៈ૽ግύЈTECHNICALTRAINING CENTERΓΚၗྍೀ

HUMAN RESOURCES DIV.

ߕ೛௲‫૽ػ‬ግύЈEDUCATION TRAINING
CENTER಻ើϩϦљቺ୯ϩϦљ
GERMANYBRANCHကεճϩϦљITALY BRANCH

༫ӦճϩϦљ

AUSTRIA BRANCH

ኻࢪ೤ၮύЈCARGO SALES &SERVICES, EUROPEम୯ϩϦљU.K. Branch‫ݤ‬୯ᔼ཰ೀ

FRANCE SALESOFFICEεഌ೤ၮύЈCARGO SALES &SERVICES
MAINLAND CHINAቶԀᒤ٣ೀGUANGZHOUOFFICE‫ݓ‬ᅇᒤ٣ೀ

๮ч୔२ৢж߄
ASSISTANT VP,NORTH CHINAుӥᒤ٣ೀSHENZHEN
OFFICEԋ೿ᒤ٣ೀWUHAN OFFICECHENGDU OFFICEᎄԀᒤ٣ೀɉख़ቼઠZHENGZHOUOFFICEੇαᒤ٣ೀ

HAIKOU OFFICEΟ٥ઠ

SANYA STATIONCHONGQINGSTATIONч٧ᒤ٣ೀ

BEIJING OFFICEεೱઠDALIAN STATIONਜ਼ᎹЕሸઠ
URUMQISTATIONߏ؅ᒤ٣ೀɉ ᘟ໚ᒤ٣ೀɉ
CHANGSHAOFFICEࠄܱઠ

NANCHANGSTATION๮ܿ୔२ৢж߄
ASSISTANT VP,
EAST CHINA΢ੇᒤ٣ೀSHANGHAI OFFICEதԀઠ

CHANGZHOUSTATIONɉ༺ߐᒤ٣ೀXIAMEN OFFICEՋӼᒤ٣ೀXIAN OFFICEFUZHOUSTATIONߏࡾᒤ٣ೀɉ

ჱ‫ݢ‬ᒤ٣ೀɉᅽ Ԁ ઠɉNINGBO OFFICEྕ Ԁ ઠɉ

WENZHOUSTATIONܼԀᒤ٣ೀɉ
ɉǺ๮ߞૐ‫ޜ‬੤ဦ०ૐ

HANGZHOU
OFFICEࠄ٧ᒤ٣ೀɉ

NANJING OFFICE

ᡶࠤઠ ɉ

คᒴઠ

WUXI STATIONSHENYANG
OFFICECHANGCHUNOFFICE

VICE PRESIDENT,OCEANIA

VICE PRESIDENT,TAIWAN

VICE PRESIDENT,
MAINLAND CHINA

๮ࠄ୔२ৢж߄
ASSISTANT VP,
SOUTH CHINA

NETHERLANDSBRANCHεࢩࢪӦ୔ೀߏ

Ѡ᡼Ӧ୔ೀߏ

εഌӦ୔२ৢж߄ኻࢪӦ୔२ৢж߄

SENIOR VICE PRESIDENT,EUROPEYANCHENG
STATIONඦԀઠ

YANGZHOU
STATION৪ԀઠXUZHOUSTATION

ӝ‫ޥ‬ઠ
HEFEI
STATIONߙ৞ᒤ٣ೀQINGDAO OFFICE࠶ੇઠWEIHAI STATIONྟѠઠ

YANTAI STATION

ѠчϩϦљ

३ෝϩϦљ

TAIPEI BRANCHHONG KONG
BRANCH

ଯ໢ϩϦљ

ੀ୯ϩϦљ

KAOHSIUNGBRANCHTHAILAND
BRANCH

ѠࠄϩϦљ

ຫࠄϩϦљ

TAINAN BRANCH

ѠύϩϦљɉ

TAICHUNG BRANCH

Ѡ᡼೤ၮύЈCARGO SALES &SERVICE, TAIWANVIETNAM BRANCH‫ݞ‬ϣϩϦљ

HANOI BRANCHᐞࢪϩϦљTOKYO BRANCH

ѲٚථҁϩϦљӜђࡂϩϦљӑѭϩϦљ
INDONESIABRANCH᯷ٚϩϦљ
BALI BRANCH‫ݫ‬НϩϦљ
SURABAYABRANCHᅽ‫۝‬ϩϦљ

SAN FRANCISCO
BRANCHᏀᅟҁϩϦљ

൤ξઠ

ᅜҁઠ

ફऊϩϦљ

MELBOURNE
BRANCHTOYAMASTATIONફՋើϩϦљᓉ‫۝‬ઠ

NEW ZEALAND
BRANCHSHIZUOKA
STATION

ቶ৞ϩϦљ
ᗬ୯ϩϦљ

ཥу‫ڵ‬ϩϦљӑࡋϩϦљ

LOS ANGELESBRANCHᙑߎξϩϦљFUKUOKA BRANCH

BUSAN BRANCHINDIA BRANCHεٞϩϦљࢶ‫׼‬ᕚϩϦљ

OSAKA BRANCHNAGOYA BRANCHKOREA BRANCHSINGAPORE
BRANCHऍࢪӦ୔ೀߏ

VICE PRESIDENT,THE AMERICASBRISBANEBRANCHᘓࠤϩϦљ
PENANG
BRANCHܿ٧ϩϦљ

AUSTRALIA
BRANCHଭٰՋ٥ϩϦљMALAYSIA BRANCH

ВҁӦ୔ೀߏ

VICE PRESIDENT,
JAPAN

ଠξϩϦљ

๷ࡓᇯϩϦљ

PHILIPPINESBRANCH጑‫ث‬ϩϦљ

HIROSHIMA
BRANCHଯ݊ઠ

TAKAMATSU
STATIONВҁ೤ၮύЈCARGO SALES &SERVICES, JAPANKUMAMOTOSTATIONNEW YORK
BRANCHജ‫ٽ‬৞ઠ

ᔝ३ξϩϦљKAGOSHIMA
STATION

HONOLULU
BRANCH৐஘ઠӼ਱܎‫ݯ‬ϩϦљ

MIYAZAKISTATION༷҄ϩϦљ

SAPPORO BRANCH੥ౚϩϦљOKINAWA BRANCHANCHORAGE
BRANCHу৾εϩϦљ

CANADA BRANCH

ऍࢪ೤ၮύЈCARGO SALES &SERVICES
THE AMERICASMYANMAR
BRANCHࢍ঵ჵϩϦљ
CAMBODIABRANCHۧ੥ϩϦљ

PALAU BRANCHᜢ৞ϩϦљGUAM BRANCH

Corporate Governance Report133.1.2 Major Corporate Functions
Department
General Audit Office

Functions
Responsible for auditing the internal control system, results of implementation of theannual business plan.

Secretarial Office, Board Responsible for holding Board of Directors meetings, collating and sending meeting
Of Directors

proceedings and overseeing matters relating to resolutions, coordination channels
with general public stockholders, matters relating to juridical person shareholder
representatives, director communications and services, and budgeting and controls
for the Board and all functional committees.

Corporate Development Responsible for drafting the Company’s medium and long‐term strategic operating
Officeplan, fleet plan, and annual business plan; seeking flying rights and building
relationships between the Company and civil aviation authorities in various countries;
establishing brand position and development strategies; planning medium andlong‐term design and development of passenger cabins and entertainment systems;
purchasing, selling, and leasing of aircraft; and supervising the operational
performance and management of invested enterprises.

Corporate Safety Office Drafts Company safety, security, quality assurance, environmental, and emergency
response policies and systems; establishes related management systems and carries
out educational training; implements related investigations, analysis, andexaminations; coordinates with government agencies and civil aviation authorities,
manufacturers, and groups to deal with Company safety, security, quality assurance,
environmental, and emergency response‐related issues.
Corporate

Responsible for external Company communications, communication links with theCommunications Office legislature and the media, planning social welfare activities, sponsoring charitable
activities, organizing inaugural flights and other holiday or celebratory activities,
publishing CAL Park Magazine, supervising and coordinating publication of Dynasty
Magazine, organizing employee recreational activities, and setting the Company’s
brand image and advertising strategy.
Legal & Insurance Div.

Responsible for reviewing all outside agreements and contracts, handling litigation,and management of insurance matters for Company assets, such as the fleet andaeronautical parts, personnel, and passenger and cargo transportation.

Finance Div.

Responsible for planning financing sources, managing use of funds, controlling thebudget, auditing accounts receivable and payable items, preparing financial
statements, managing tax‐related issues, fuel purchasing, and providing accounting
and cost analysis information.

Administration Div.

Responsible for procurement of general goods, managing renovation projects andland/real estate, land transport management and vehicle maintenance, supervising
CAL Park security and access control management, handling company licenses,
monitoring and safekeeping of Company seals, sending and receipt of prospectuses
and official documents, and document management.

Cabin Crew Div.

Responsible for establishing cabin crew operating standards, managing training of
cabin crew, planning cabin crew manpower needs, and implementing assignment of
cabin crew personnel.

14 Corporate Governance ReportDepartment

Functions

Ground Services Div.

Responsible for establishing ground services operating standards, development of theground services operating system, planning and implementation of a full range ofground services training, supervising ground services operations at each station,
providing ground services at Taiwan Taoyuan and Songshan Airports, and overallmanagement of ground service provider contracts.

In‐Flight Service Supply Responsible for the R&D and planning for air and ground service supplies and in‐flightDiv.

duty free products, planning and supply management for meal and drink service on
all routes, implementing and managing procurement, storage, preparation, andloading of all air and ground service supplies. Investigates improvements to various
in‐flight products based on customer opinions and market trends.

Service Quality

Established and implements the Company’s ISO 9001 quality management system

Assurance Dept.

and implements service quality education, internal quality auditor training, andmeasures to encourage better understanding of quality‐related issues. Monitors
passenger satisfaction surveys and on‐time targets, investigates and analyses
passenger satisfaction in relation to Company goals, and plans and implements
passenger service quality checks.

Passenger Sales Div.

Responsible for supervision of passenger flight route management, sales promotion
and supervision of passenger transport advertising and budget control at all stations,passenger seating controls, determining passenger ticket pricing and setting sales
quotas, and business performance evaluation. Established, develops, and maintains
the revenue management system and holds passenger sales training. Arranges theentire passenger flight table to optimize aircraft use and revenue.

Passenger Marketing

Responsible for passenger service internet marketing, e‐commerce, promoting

Div.

Dynasty Flyer membership, planning and promotion of Dynasty Package products,
and development and management of related systems. Established and supervises
the customer relationship maintenance service mechanism, and handles and analyses
passenger opinions.

Information

Combines information technology with business knowledge to promote

Management Div.

computerization within the Company to upgrade operational competitiveness.

Human Resources Div.

Responsible for planning the Company organization and human resources,
establishment of a personnel management system, and setting pay standards.
Provides recruitment services, supervises personnel management, established theemployee training system and oversees future updates, provides employee healthmanagement, and manages personnel assignments to affiliated enterprises.

Occupational Safety &Writes the Company’s Occupational Health and Safety Manual and regulations;

Health Dept.

drafts, plans, supervises, and promotes health and safety matters and guides
implementation in relevant departments in order to prevent occupational hazards
and ensure employee health and safety. Received OHSAS 18001 and CNS 15506
occupational health and safety certification following SGS audit to effectively control
occupational incident risk and improve occupational health and safety performance.

Corporate Governance Report15

Department

Functions

Cargo Sales, Marketing Establishes the cargo development strategy, supervises cargo operations on all& Services Div.

routes, plans the cargo flight timetable and controls allocation of hold space, sets
cargo shipping rates and sales quotas, evaluates operating performance, drafts andoversees cargo services and operating standards, and is responsible for passenger
and cargo plane loading control operations, cargo equipment controls andreplenishment, Taipei cargo terminal operations, and accounting for the Cargo Sales,
Marketing & Services Division and Taiwan Cargo Center.

Flight Operations Div.

Responsible for cabin crew manpower requirement planning, training andmanagement of cabin crew, developing flight operating standards, controlling fuelconsumption, planning and implementation of crew and flight assignments, andmaintaining airplane flight manuals and flight simulators.

System Operation

Manages coordination of all airports in the system, oversees flight status, coordinates

Control Div.

and manages adjustment of flights in response to anomalies, guarantees on‐time
performance rates, provides real‐time information to aircraft in flight, ensures flightsafety, investigates reasons for major delays to flights, establishes comprehensive
aircraft and statistical analysis data; operates and guides crew allocation, plans andmanages flight permits; responsible for safety management and liability related tobusiness.

Maintenance Div.

Responsible for implementation of airplane maintenance, client aircraft maintenanceservices, support and supervision of station maintenance, and development ofmaintenance capabilities.

Engineering Div.

Responsible for the planning and control of airplane maintenance, materials supply
management, controlling maintenance costs, and planning the information systemdevelopment strategy.

Quality Assurance Div.

Responsible for coordination and communication with other countries’ civil aviation
authorities; maintaining the validity of operating standards, repair facility licenses,
and aircraft airworthiness certificates; authorization and management ofmaintenance personnel training and task assignments; formulation andimplementation of the quality audit system. Established and implements the aircraft
quality management and on‐site inspection systems, implements introduction of new
aircraft and sale or return of aircraft as stipulated in the fleet plan, and assists inaircraft incident investigations.

Technical Training

Develops type training and license conversion training that comply with CAA 05‐02ACenterrequirements. Compose training plan and execute training in accordance with EMO(Engineering & Maintenance Organization) demands and customer requests.

Branch offices

Responsible for each branch’s development and promotion of passenger and freight
related operations.

16 Corporate Governance Report3.2 Directors and Management Team3.2.1 Directors
APR 29, 2018
Title

Name

China
Aviation
Development
Foundation

Nationality/ Country Genderof Origin

Date FirstElectedR.O.C.

07/07/1988 06/26/2015‐

Date
ElectedTerm(Years)3

Shareholding when
ElectedShares%

1,867,341,935

34.14%

Spouse & Minor
Current Shareholding
Shareholding
Shares%

1,867,341,935 34.13%

Shares%‐‐Shareholding by
NomineeArrangement
Shares%‐Representative:

Director

China
Aviation
Development
Foundation

R.O.C.

Male

R.O.C.

‐

06/24/2016 06/26/2015 (Note 1)

07/07/1988 06/26/2015

3

0

0.00%

0 0.00%1,867,341,935

34.14%

1,867,341,935 34.13%

0 0.00%‐‐

Representative:

Hsieh,
Su‐Chien

R.O.C.

Male

07/06/2016 06/26/2015 (Note 2)

48,5170.00%

48,517 0.00%

0 0.00%

Other Position

‐

‐

‐

Chairman, Taoyuan
None
Chairman, China
Metro Corporation
Airlines Ltd.
Member, The
Chairman, CAL
Coordination Council Park Co., Ltd.
for North American
Chairman,Affairs, Executive
CAL‐Asia
Yuan
Investment Inc.
Administrative
Chairman,
Deputy Minister,
CAL‐Dynasty
Ministry ofInternational, Inc.
Transportation and
Chairman, CAL
Communications
Hotel Co., Ltd.
Chairman, Chunghwa Chairman,
Post Co., Ltd.
NORDAM Asia Ltd.
0 0.00% Director‐General,
Vice Chairman,
Taiwan Railway
China Pacific
Administration,
Catering Services
MOTC
Ltd.
Director‐General,
Director, China
Bureau of High Speed Aviation
Rail, MOTC
Development
Director‐General,
Foundation
Taiwan Area National
Freeway Bureau,
MOTC
PhD in Industrial
Engineering andManagement, Chung
Hua University

Chairman

Ho,
Nuan‐
Hsuan

‐

Experience(Education)

Executives, Directors or
Supervisors who are
spouses or within two
degrees of kinship
Title Name Relation

‐

‐

‐

Chairman, Taiwan Air
Cargo Terminal Ltd.
Senior Vice Presidentof Marketing, China
Airlines Ltd.
Director, Taiwan
Region and General
Manager of Taipei
Branch Office, China
Airlines Ltd.
General Manager,
Australia Branch
Office, China Airlines
Ltd.
General Manager,
0 0.00% Indonesia Branch
Office, China Airlines
Ltd.
General Manager,
Kaohsiung Branch
Office, China Airlines
Ltd.
Vice President,
Passenger Sales Div.
Chairman, Abacus
Distribution Systems
Taiwan Ltd.
Bachelor’s Degree,
Department of
Economics, Soochow
University

‐

‐

‐

None

None

‐

‐

None

None

‐

President, China
None
Airlines Ltd.
Chairman,
Mandarin Airlines,
Ltd.
Director &President, CAL
Park Co., Ltd.
Director, CAL Hotel
Co., Ltd.
Director, CAL‐Asia
Investment Inc.
Director,
CAL‐Dynasty
International, Inc.
Director, Dynasty
Properties Co., Ltd.
Director, Taoyuan
International
Airport Services
Co., Ltd.

Corporate Governance Report17TitleName

Nationality/ Country Genderof Origin

Date FirstElected

Date
ElectedTerm(Years)Shareholding when
ElectedShares%Current Shareholding
Shares%Spouse & Minor
Shareholding
Shares%Representative:

Charles
C.Y.,
Chen

R.O.C.

Male

07/01/2000 06/26/2015

3

190,166

0.00%

190,166 0.00% 155,849 0.00%

Representative:

Ting,
Kwang‐Hung

R.O.C.

Male

01/28/2008 06/26/2015

3

0

0.00%

0 0.00%0 0.00%

Representative:

Jong,
Jia‐shi

R.O.C.

Male

08/09/2016 06/26/2015 (Note 3)

543

0.00%

543 0.00%

0 0.00%

Representative:

Lee, Kuo‐
Fu

R.O.C.

Male

07/13/2015 06/26/2015 (Note 4)

18 Corporate Governance Report

10,8590.00%

10,859 0.00%

10,473 0.00%

Shareholding by
NomineeArrangement
Shares%Experience(Education)

Director, Wan Hai
Lines Ltd.
Chairman, UTACGroup, Singapore
Chairman, Epistar
Corp.
Director, Formosa
International Hotels
Ltd.
Director, Ascendas
Pte. Ltd.
0 0.00%
Director, Ichia
Technologies, Inc.
Adjunct Associate
Professor, National
Tsing Hua University
MBA, New York
University, U.S.A.

Other Position

Executives, Directors or
Supervisors who are
spouses or within two
degrees of kinship
Title Name Relation

Chairman, Eyon
None
Holding Group
Vice Chairman,
Taiwan Air Cargo
Terminal Ltd.
Vice Chairman,
Taian InsuranceCo., Ltd.
Director, Epistar
Corp.
Director, Shihlin
Papaer Co., Ltd.
Chairman, Wan
Hai International
Pte. Ltd.
President,
Chen‐YungFoundation
Vice Chairman,
Wan Hai Lines(Singapore) Pte
Ltd.
BA in Finance, Boston Member, Risk
None
University, U.S.A.
Committee, China
Airlines Ltd.
Chairman, Central
Trading &Development
Corp.
Chairman, Hiep
Phuoc Power Co.,
Ltd.
Chairman, Macro
Technologies Inc.
(Vietnam) Ltd.
0 0.00%Chairman, Phu My
Hung Asia Holdings
Corp.
Vice Chairman,
TVBS Media Inc.
Director, Phu My
Hung
Development
Corp.
Visiting Professor,
College ofManagement of
National Taiwan
Normal University
Chairman, China
Technician,None
Airlines Employee
Surface Treatment
Union
EMO Engine
Standing Director,
Maintenance
China Airlines
Department China
Employee Union
Airlines Ltd.
Mission Association
Representative, China
Airlines Employee
Union
Mechanic, Engine
0 0.00% Repair Technician,
R.O.C. Air Force
R.O.C. Air Force,
Technical School,
non‐commissioned
officers classes 85
Mechanical
Associate Degree,
MechanicalEngineering Section,
Southeast Private
Junior College
First Officer By
744 Captain, China None
AB6Fleet
Airlines Ltd.
First Officer And
Cruise Captain By
744FleetStanding Director,
China Airlines
Employee Union
Director, Federationof Aviation
Employees, R.O.C.
Director, Jiantan
Community
0 0.00%Development
Association
Test Pilot, R.O.C. Air
Force
Lieutenant Colonel,
R.O.C. Air Force
Research Officer Of
Flight Safety, National
Taiwan University
Bachelor’s Degree of
Science, R.O.C. Air
Force Academy,
Taiwan

None

None

None

None

None

None

None

None

TitleName

Nationality/ Country Genderof Origin

Date FirstElected

Date
ElectedTerm(Years)Shareholding when
ElectedShares%Current Shareholding
Shares%Spouse & Minor
Shareholding
Shares%Shareholding by
NomineeArrangement
Shares%R.O.C.

Male

07/26/2016 06/26/2015 (Note 5)

0

0.00%

0 0.00%0 0.00%

Representative:

Chen,
Han‐Ming

National
Development
Fund,
Executive
Yuan

R.O.C.

Male

R.O.C.

‐

07/26/2016 06/26/2015 (Note 5)

06/15/2012 06/26/2015

Director

00.00%

519,750,519

9.50%

0 0.00%519,750,519

9.50%

0 0.00%‐‐3

Representative:

Lin,
Su‐Ming

Independent Chung,Director Lo‐Min

R.O.C.

R.O.C.

Male

Male

0

06/15/2012 06/26/2015

3

0

0.00%

0.00%

0 0.00%0 0.00%0 0.00%0 0.00%Luo,

Independent
Hsiao‐
Director

Hsien

R.O.C.

Male

06/15/2012 06/26/2015

3

0

0.00%

0 0.00%0 0.00%

Other Position

Executives, Directors or
Supervisors who are
spouses or within two
degrees of kinship
Title Name Relation

President, EVA Air
None
None
Executive Vice
President, EVA Air
Bachelor’s Degree,
0 0.00%Department ofInternational
Business, Tunghai
University
Director, Yuan‐Chin
Chairman, Prime
None
Development Co.,
Development Co.,
Ltd.
Ltd.
Member, Rotary Club Supervisor,
Of Taipei Tunhua
Chang‐Jia M&E
Engineering Corp.
0 0.00% BA(Hons)
Architecture,
Director, Chyn‐Tay
University of
Bearing Co., Ltd.
Plymouth, UK
MSc, Birmingham City
University, UK

Representative:

Cheng,
Chuan‐YiExperience(Education)

‐

‐

‐

‐

None

None

None

None

‐

‐

None

None

None

None

None

None

‐

Member, Tax Reform Member, Risk
None
Commission,Committee, China
Executive Yuan
Airlines Ltd.
Member,Public Director,
Administration
Taipei Exchange,
Appeals Commission, R.O.C.
Taipei City
Independent
Government
Director, Nan Shan
Deputy Dean, College Life Insurance Co.,of Management,
Ltd.
0 0.00% National Taiwan
Director, iPASSUniversity
Corp.
Chairman,Professor,
Department and
Department &Graduate Institute of Graduate InstituteAccounting, National of Accounting,Taiwan University
National Taiwan
Ph.D. in Accounting, University
Arizona State
University, U.S.A.
Chairman, China Steel Chairman, Audit
None
Chemical Corp.
Committee, China
Chairman, Universal Airlines Ltd.
eXchange Inc.
Executive Vice
President, China Steel0 0.00%Corp.
Vice President of
Finance, China Steel
Corp.
MBA, Arizona State
University, U.S.A.
Commissioner,
Chairman,
None
Department of
Remuneration
Transportation,
Committee, China
Taipei City
Airlines Ltd.
Government
Chairman, Risk
Mayor Advisor, Taipei Committee, China
City Government
Airlines Ltd.
President, Chinese
Member, Audit
Institute ofCommittee, China
Transportation
Airlines Ltd.
President, Taipei
Associate
Society for Traffic
Professor and
SafetyDean of General
Acting Chairman,
Affairs,
Managing Director,
Department of
Taipei Rapid Transit Transportation
Corp.
Management,
Director, EasyCard
Tamkang
Investment Holdings University
Corp. and Easy Card Standing Director,
Corp.
Chinese Institute
Chairman andof Transportation
Member,Director, Eastern
0 0.00% Transportation
Asia Society for
Committee,
Transportation
Consumers'
Studies, EASTSFoundation, Chinese Supervisor, Taipei
Taipei
Rapid Transit Corp.
Chairman,
Director, Vehicle
Department of
Safety Certification
Transportation
CenterManagement,
Director, Taipei
Tamkang University Traffic Foundation
Ph.D. in Civil
Director, Jing
Engineering
Chuan Child Safety(Transportation),Foundation
National Taiwan
Standing Director,
University
Taipei Society for
Traffic Safety
Standing Director,
China Road
Federation
Director, The
General
Association of the
Scouts of China

Corporate Governance Report19TitleName

Nationality/ Country Genderof Origin

Date FirstElected

Date
ElectedTerm(Years)Shareholding when
ElectedShares%Current Shareholding
Shares%Spouse & Minor
Shareholding
Shares%Shareholding by
NomineeArrangement
Shares%Experience(Education)

Other Position

Executives, Directors or
Supervisors who are
spouses or within two
degrees of kinship
Title Name Relation

Vice Mayor, Taipei
Member,
None
City Government
Remuneration
Chairman, Globalview Committee, China
Ltd.
Airlines Ltd.
Chairman, Public
Member, Audit
Opinion ResearchCommittee, China
Foundation
Airlines Ltd.
Chief Consultant,
Associate
Gallup Market
Professor,
Research Corp.,
Department of
TaiwanUrban Industrial
Consultant, USC
Management andMarket ResearchMarketing,
Corp.
University of
Independent
Taipei
Director, Fubon Life
Insurance Co., Ltd.
Independent
Director, Fubon
Insurance Co., Ltd.
Independent
Independent Ting,
R.O.C. Male 06/26/2015 06/26/2015
30 0.00%0 0.00%0 0.00%0 0.00% Director, Fubon
Director Tin‐Yu
Financial Holding Co.,Ltd.
Director, Taipei Smart
Card Corp.
Associate Professor,
Department of
Sociology, National
Taiwan University
Assistant Professor,
Kansas State
University, U.S.A.
Associate Professor,
Department of
Sociology, National
Chengchi University
BA, Department of
Sociology, National
Taiwan University
Ph.D., Department of
Sociology, Universityof Michigan, U.S.A.
Note 1: On June 24, 2016, elected as a representative of juridical person shareholder China Aviation Development Foundation to the 20th Board Session.
Note 2: On July 6, 2016, elected as a representative of juridical person shareholder China Aviation Development Foundation to the 20th Board Session.
Note 3: On August 9, 2016, elected as a representative of juridical person shareholder China Aviation Development Foundation to the 20th Board Session.
Note 4: On July 13, 2015, elected as a representative of juridical person shareholder China Aviation Development Foundation to the 20th Board Session.
Note 5: On July 26, 2016, elected as a representative of juridical person shareholder China Aviation Development Foundation to the 20th Board Session.
Note 6: Average length of service at the company for the 20th Board of Directors was 5.2 years.

Major shareholders among institutional shareholders
Name of Institutional Shareholders

Major Shareholders

China Aviation Development Foundation

Non‐corporate organization, not applicable

National Development Fund, Executive Yuan

Non‐corporate organization, not applicable

20 Corporate Governance Report

None

None

Professional qualifications and independence analysis of directors
Criteria

Name
Ho, Nuan‐Hsuan
Hsieh, Su‐ChienCharles
C.Y. ,Chen

Meets One of the Following Professional Qualification Requirements, Together
Independence Criteria (Note 1)with at Least Five Years Work Experience
An Instructor orHigher Position
in a Departmentof Commerce,
Number of OtherA Judge, Public Prosecutor,
Law, Finance,
Has Work Experience in
Public Companies in
Attorney, Certified Public
Accounting, or
the Areas of Commerce,
Which the Individual is
Accountant, or Other Professional or
Other Academic
Law, Finance, orConcurrently Serving
Technical Specialist Who has Passed
1 2 3 4 5 6 7 8 9 10
Department
Accounting, or
as an Independent
a National Examination and been
Related to the
Otherwise Necessary for
Director
Awarded a Certificate in a Profession
Business Needs
the Business of theNecessary for the Business of theof the Company
Company
Company
in a Public or
Private JuniorCollege, College
or University

9
‐

‐
‐

9
9

9 ‐ 99 ‐ ‐ 999 ‐‐ ‐ 9999999 ‐

‐
‐

9

‐

9

9 ‐ 9999999 ‐‐Jong, Jia‐shi

‐

‐

9

‐ 99999999 ‐‐Cheng, Chuan‐Yi

‐

‐

9

999999999 ‐

‐

Ting,
Kwang‐Hung

‐

‐

9

999999999 ‐

‐

‐
‐
9
‐

‐
9
9
‐

9
9
9
9

999999999 ‐‐ 99999999 ‐999999999 ‐9999999999

‐
‐

9

‐

9

9999999999

‐

9

‐

9

9999999999‐

Chen, Han‐Ming
Lee, Kuo‐ FuLin, Su‐Ming
Chung, Lo‐Min
Luo,
Hsiao‐Hsien
Ting, Tin‐Yu

1(Note 2)‐

Note 1: Please tick the corresponding boxes that apply to the directors or supervisors during the two years prior to being elected or during
their term in office.
1. Not an employee of the Company or any of its affiliates.
2. Not a director or supervisor of the Company or any of its affiliates. Not applicable in cases where the person is an independent
director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than
50% of the voting shares.
3. Not a natural‐person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by
the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of theCompany or ranking in the top 10 in holdings.
4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of thepersons in the preceding three subparagraphs.
5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number ofoutstanding shares of the Company or who holds shares ranking in the top five holdings.
6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution which
has a financial or business relationship with the Company.
7. Not a professional individual who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership,company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any
affiliate of the Company, or a spouse thereof. These restrictions do not apply to any member of the remuneration committee
who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers ofRemuneration Committees of Companies whose Stock is Listed on the TWSE or Traded on the TPEx“.
8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
9. Not been a person of any conditions defined in Article 30 of the Company Law.
10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.
Note 2: Served as independent director of Nan Shan Life Insurance Co., Ltd. since June 26, 2013.

Corporate Governance Report213.2.2 Management TeamAPR 29, 2018
Shareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certific
ates

Chairman, Mandarin
Airlines, Ltd.
Director, CAL Hotel Co.,
Chairman, Taiwan Air
Cargo Terminal Ltd.
General Manager,
President

Hsieh,
Su‐Chien

R.O.C.

Male 06/24/2016 48,517 0.00%

0 0.00%0 0.00%Australia Branch
Senior Vice President
Of Marketing
Bachelor’s Degree From
Soochow University

Ltd.
Director, CAL‐Asia
Investment Inc.
Director & President,
CAL Park Co., Ltd.

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Director, Taoyuan
International Airport
Services Co., Ltd.
Director, CAL‐Dynasty
International, Inc.
Director, Dynasty
Properties Co., Ltd.
Supervisor, Taiwan
Airport Service Co., Ltd.

Auditor
General,General Audit

Chung,
Chuar‐Duan

R.O.C.

Male 12/26/2015 25,610 0.00%

0 0.00%0 0.00%

OfficeVice President,

Supervisor, China PacificInvestment

Catering Services Ltd.

Development &Supervisor, CAL Park Co.,Management Office

Ltd.

General Manager,

Supervisor, Taiwan

Singapore Branch

Aircraft MaintenanceBachelor’s Degree From And Engineering Co.,
Soochow University

Ltd.
Supervisor, CAL Hotel
Co., Ltd.

Assistant Vice
President, Finance Div.
Deputy Auditor
General,General Audit

General Manager,
Ho, Hui‐Fen

R.O.C.

Female 02/01/2018

0 0.00%0 0.00%

Office0 0.00%General Accounting
Department, FinanceDiv.
Master’s Degree From
Soochow University

Supervisor, Dynasty
Holidays, Inc.
Supervisor, Kaohsiung
Airport Catering Services
Ltd.
Supervisor, Taiwan
Aircraft Maintenance
And Engineering Co.,
Ltd.
Chairman, Kaohsiung
Airport Catering Services
Ltd.
Chairman, Taiwan
Airport Service Co., Ltd.
Director, Taoyuan

Chairman, Taiwan
Airport Services Co.,
Ltd. Concurrently,
President, Taiwan
Airport Services Co.,

Senior Vice
President

Chang, Young

R.O.C.

Male 06/24/2016(VF)

0 0.00%0 0.00%0 0.00% Ltd.
President, Taoyuan
International Airport
Services Co., Ltd.
Bachelor’s Degree From
Fu Jen University

International Airport
Services Co., Ltd.
Director, Tigerair Taiwan
Co., Ltd.
Director, Mandarin
Airlines, Ltd.
Director, Arport Air
Terminal (Xiamen) Co.,Ltd.
Director, Arport Air
Cargo Service (Xiamen)
Co., Ltd.
Director, Taiwan Aircraft
Maintenance And
Engineering Co., Ltd.
Director, CAL Park Co.,Ltd.

22 Corporate Governance ReportShareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certificates

Director, CAL Hotel Co.,

Senior Vice
President(VV)

Chang,
Chih‐Chieh

R.O.C.

Male 08/11/2016 96,553 0.00%

0 0.00%0 0.00%Vice President,

Ltd.

Passenger Sales Div.

Director, Mandarin

General Manager, New Airlines, Ltd.
York Branch

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Director, Taiwan Air

Bachelor’s Degree From Cargo Terminal Ltd.
Tunghai University

Director, Tigerair Taiwan
Co., Ltd.

Vice President, Flight
Operations Div.
Senior Vice
President
(VO)

Kao,
Shing‐Hwang

R.O.C.

Male 06/01/2011 62,809 0.00%

0 0.00%0 0.00%Assistant Vice

Director, Mandarin

President, Flight

Airlines, Ltd.

Operations Div.

Director, CAL Hotel Co.,

Bachelor’s Degree From Ltd.
National Cheng Kung
University
Director, Taiwan Aircraft
Maintenance And
Engineering Co., Ltd.
Director, Mandarin
Airlines, Ltd.
Director, China Aircraft

Senior Vice
President

Wang, Houng

R.O.C.

Male 08/16/2017 12,069 0.00%

0 0.00%0 0.00%(VE)

Vice President,

Services Ltd.

Maintenance Div.

Director, Taikoo

Vice President,(Xiamen) Landing Gear

Engineering Div.

Services Co., Ltd.

Bachelor’s Degree From Director, Taikoo Spirit
Feng Chia University

Aerosystems (Jinjiang)
Composite Co., Ltd.
Director, Taoyuan
International Airport
Services Co., Ltd.
Director, NORDAM Asia
Ltd.
Director, CAL‐Asia

Senior Vice
President

Lo, Ya‐Mei

R.O.C.

Female 06/24/2016

0 0.00%0 0.00%General Manager,

Investment Inc.

China Pacific Catering

Concurrently, President,

Services Ltd.

CAL‐Asia Investment Inc.

Confidential

Director, CAL Hotel Co.,0 0.00% Consultant, Executive

(VW)

Ltd.

Yuan

Director, Mandarin

Master’s Degree From

Airlines, Ltd.

National Taiwan

Director, Taoyuan

University

International Airport
Services Co., Ltd.

President, Taiwan
Airport Services Co.,
Data Protection
Officer, DPO
Team

Ltd.
Chung,
Ming‐Jyh

R.O.C.

Male 12/30/2017

638 0.00%

0 0.00%0 0.00%Vice President, Human
Resources Div.
Master’s Degree From
National Taiwan
University
General Manager,
Vietnam Branch
Vice President,

Vice President,
Human
Resources Div.

Investment
Chen,
Kang‐Reuy

R.O.C.

Male 05/13/2017

0 0.00%0 0.00%0 0.00%Development &Management Div.
Associate’s Degree
From Tamsui Institute
Of Business
Administration

Corporate Governance Report

23

Shareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certificates

General Manager,
Human Resources &Assistant Vice

Administration

President,

Yeah,

Human

Shao‐Ting

R.O.C.

Male 01/01/2016

868 0.00%

0 0.00%0 0.00%Resources Div.

Department,
Maintenance Div.

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Bachelor’s Degree From
Chinese Culture
University
Vice President,
Corporate Safety Office
Assistant Vice

Vice President,
FlightLai, Ming‐Hui

R.O.C.

Male 03/01/2016 19,127 0.00%

0 0.00%0 0.00%Operations Div.

President, Flight
Operations Div.
Bachelor’s Degree From
National Cheng Kung
University
General Manager, Legal
Affairs Department,
Legal & Insurance Div.

Assistant Vice
President,
FlightTung,
Hsing‐HuaGeneral Manager,
R.O.C.

Male 03/16/2018

587 0.00%

0 0.00%0 0.00% Business Management
Department, Business

Operations Div.

Development Office
Master’s Degree From
Tunghai University
Assistant Vice
President, Corporate

Vice President,

Safety Office

SystemChou,

Operation

Jyh‐Shyan

R.O.C.

Male 02/01/2017

9,171 0.00% 7,382 0.00%

Control Div.

0 0.00%Vice President, Taiwan
Airport Services Co.,Ltd.
Master’s Degree FromRMIT University, AU
General Manager, Base
Maintenance

Assistant Vice
President,
SystemOperation

Department,
Jeng,
Jong‐Shinn

Maintenance Div.
R.O.C.

Male 08/01/2013

1,494 0.00%

0 0.00%0 0.00% General Manager, LineOperation Department,

Control Div.

Maintenance Div.
Associate’s Degree
From Lung Hwa College
General Manager,
Safety Assurance
Department, Corporate

Assistant Vice
President,
SystemOperation

Safety OfficeHuang,
Hsiang‐Piao

General Manager,
R.O.C.

Male 08/01/2017

1,000 0.00%

0 0.00%0 0.00% Administration
Department, Ground

Control Div.

Services Div.
Bachelor’s Degree From
National Sun Yat‐Sen
University
Director, Dynasty
General Manager,
Korea Branch

Vice President,
Passenger
Sales Div. &Passenger

Wang,
Chen‐Min

Assistant General
R.O.C.

Male 12/10/2016 35,621 0.00%

Marketing Div.

0 0.00%0 0.00% Manager, Los Angeles
BranchBachelor’s Degree From
Feng Chia University

24 Corporate Governance Report

Holidays, Inc.
Director, Sabre Travel
Network (Taiwan) Ltd.
Director, Everest
Investment Holdings Ltd.
Director, Yestrip Co., Ltd.
Director, Tigerair Taiwan
Co., Ltd.

Shareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certificates

General Manager,
Taichung Branch
Assistant Vice
President,

General Manager,
Lai,

Passenger Sales Hsiang‐Kuang

R.O.C.

Male 10/01/2017 24,250 0.00%

0 0.00%0 0.00%Taichung Branch Of
Mandarin Airlines, Ltd.

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Associate’s Degree

Div.

From Shu Shih Hsin
University
Vice President, Europe
Assistant Vice
Assistant Vice
President,
Passenger

President, Passenger
Ouyang, John

R.O.C.

Male 06/17/2017 13,903 0.00%

0 0.00%0 0.00%

Sales Div.
General Associate
Degree From St.John’S

Marketing Div.

And Mary’s InstituteTechnology
Supervisor, Dynasty
Aerotech International
Corp.

Vice President,
Finance Div.

Chen, I‐Chieh

R.O.C.

Male 02/16/2017

6,161 0.00%

0 0.00%Vice President,

Supervisor, CAL Hotel

Investment

Co., Ltd.

Development &Supervisor, MandarinManagement Div.

Airlines, Ltd.

General Manager,

Supervisor, Arport Air

0 0.00% Vietnam Branch
Concurrently, General

Terminal (Xiamen) Co.,Ltd.

Manager, Hanoi Branch Supervisor, Arport Air
Master’s Degree From

Cargo Service (Xiamen)

National Taipei

Co., Ltd.

University

Supervisor, China Pacific
Laundry Services Ltd.
Supervisor, Tigerair
Taiwan Co., Ltd.

General Manager,
Passenger Sales
Revenue Audit &Control Department,
Assistant Vice
President,
Finance Div.

Huang, Hui
Na

R.O.C.

Female 09/01/2017 16,661 0.00%

0 0.00%0 0.00%Finance Div.

Supervisor, Global Sky

General Manager,

Express Ltd.

Accounting And

Supervisor, Yestrip Co.,

Administration

Ltd.

Department, Taipei
BranchMaster’s Degree From
Soochow University
Assistant Vice
President, Corporate
Safety OfficeVice President,
Corporate

Vice President, Safety
Chen, I‐Ko

R.O.C.

Male 03/01/2016 23,541 0.00%

0 0.00%0 0.00% Office, Mandarin
Airlines, Ltd.

Safety Office

Associate’s Degree
From United College Of
Engineering
General Manager,
System Engineering
Department,
Engineering Div.
Assistant Vice

General Manager,

President,

Tsai, Chih

Corporate

Hung

Safety Office

R.O.C.

Male 01/01/2015

0 0.00%0 0.00%0 0.00%Hanger Eri
Maintenance
Department,
Maintenance Div.
Master’s Degree From
Manchester University,
UK

Corporate Governance Report25

Shareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certificates

Director Of Legal Office,Taiwan Financial Asset
Service Corporation
Vice President,
Legal &
Insurance Div.

Chien,
Feng‐Nien

Head Prosecutor,
R.O.C.

Male 01/03/2017

0 0.00%0 0.00%0 0.00% Taichung Prosecutors

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

OfficeMaster’s Degree From
National Taiwan Ocean
University
Chief Representative,
China And North China
Concurrently, General
Manager, Beijing OfficeVice President,
Corporate
Communication

Peng,
Long‐Min

R.O.C.

Male 08/16/2016 32,843 0.00%

0 0.00%0 0.00%s Office

Assistant Vice
President, Ground
Services Div.
Bachelor’s Degree From
Chung Yuan Christian
University
General Manager,
Corporate Affairs
Department, Corporate
Communications Office

Assistant Vice

Assistant General

President
Corporate

Yu, Yau

R.O.C.

Female 10/16/2016 34,154 0.00%

0 0.00%0 0.00%Communication

Manager, Cabin Crew
Management
Department, Cabins Office

Crew Div.
Master’s Degree From
National Sun Yat‐Sen
University
Deputy Auditor
General, General Audit
OfficeAuditor General,

Vice President,
Administration Fang, Juo‐Ling

R.O.C.

Female 01/01/2018

8,000 0.00%

0 0.00%0 0.00%Div.

Taoyuan International
Airport Services Co.,Ltd.
Master’s Degree From
Georgia State
University, U.S.A.

Supervisor, Sabre Travel
Network (Taiwan) Ltd.
Supervisor, Taiwan Air
Cargo Terminal Ltd.
Director, Dynasty
Aerotech International
Corp.
Vice President, CAL Park
Co., Ltd.

General Manager,
Services Items Planning
Department, In‐Flight

Assistant Vice
President,

Chen,

Administration

Jo‐Ching

R.O.C.

Female 10/01/2015

0 0.00%0 0.00%0 0.00%Div.

Service Supply Div.
Mast Auditor, General

None

Audit Office
Master’s Degree From
University Of Michigan
Assistant Vice
President, Next
Generation Travel
Experience Program,Vice President,
Information
Management
Div.

Corporate
Lu, Shih‐Ming

R.O.C.

Male 05/01/2015 24,917 0.00%

0 0.00%0 0.00%Development OfficeDirector, Sabre Travel

Assistant Vice

Network (Taiwan) Ltd.

President, Ground
Services Div.
Master’s Degree From
National Chengchi
University

26 Corporate Governance ReportShareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certificates

Assistant Vice
President, Ground
Services Div.
General Manager,

Assistant Vice
President,
Information
Management

Information Planning
Liu,
Duan‐Shiuh

R.O.C.

Male 04/20/2017 92,608 0.00%

0 0.00%0 0.00%Department,
Information

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Management Div.

Div.

Master’s Degree From
National Taipei
University Of
Technology
Assistant Vice
President, Flight
Operations Div.

Vice President,

Hong,Cabin Crew Div.

Tsu‐Kuang

General Manager, Food
R.O.C.

Male 05/04/2017 11,816 0.00%

0 0.00%0 0.00% & Beverage Services
Department, In‐Flight

Director, China Pacific
Laundry Services Ltd.

Service Supply Div.
Bachelor’s Degree From
Soochow University
General Manager,
Cabin Crew
Management, Cabin
Crew Div.
Assistant Vice
President,
Cabin Crew Div.

Pan,
Wen‐Tsung

General Manger, Media
R.O.C.

Female 03/01/2014

298 0.00%

0 0.00%0 0.00% Affairs Department,

None

Corporate
Communications Office
Master’s Degree From
National Chengchi
University
Director, Tigerair Taiwan
Co., Ltd.

Vice President,
Corporate

Peng, Pao

Development

Chu

R.O.C.

Female 10/16/2017

8,434 0.00%

0 0.00%0 0.00%

OfficeAssistant Vice

Director, Taiwan Airport

President, Passenger

Service Co., Ltd.

Sales Div.

Director, Global Sky

General Manager, San

Express Ltd.

Francisco Branch

Director, Dynasty Hotel

Bachelor’s Degree From Of Hawaii, Inc.
National Taiwan

Director, Dynasty

University

Properties Co., Ltd.
Director, China Aircraft
Services Ltd.

Assistant Vice
President, Corporate
Communications Office
Assistant Vice
President,
Corporate
Development

General Manager, NextLu,
Shwu‐Huoy

Generation Travel
R.O.C.

Female 09/25/2017 22,605 0.00%

0 0.00%0 0.00% Experience Program,

None

Corporate

OfficeDevelopment Office
Master’s Degree From
National Central
University
General Manager,
Austria Branch

Assistant Vice

Assistant Vice

President,
Corporate
Development
OfficeWang, Wei

R.O.C.

Female 02/02/2017 54,297 0.00%

0 0.00%0 0.00%President, Finance Div. Supervisor, NORDAM
Master’s Degree From

Asia Ltd.

George Washington
University, U.S.A.

Corporate Governance Report27

Shareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certific
ates

Chairman, China PacificVice President,
In‐Flight Service
Supply Div.

Chiu,
Chang‐Hsin

R.O.C.

Male 12/18/2017

3,049 0.00%

0 0.00%Marketing Director,

Laundry Services Ltd.

Taiwan Region

Director, China Pacific

General Manager,

Catering Services Ltd.

0 0.00% Germany Branch
Master’s Degree From

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Director, Kaohsiung
Airport Catering Services

The University Of

Ltd.

Queensland

Director, Delica
International Co., Ltd.

General Manager,
Purchasing Department
Administration Div.
General Manager,

Assistant Vice
President,
In‐Flight Service

Kao,
Shu‐Chuan

Personnel
R.O.C.

Female 08/16/2016

7,879 0.00%

0 0.00%0 0.00% Administration
Department, Human

Supply Div.

None

Resources Div.
Associate’s Degree
From Ming Chuan
College
Chief Representative,
South China
Concurrently, General
Manager, Guangzhou

Vice President,
GroundServices Div.

Liu,
Tsao‐Yang

OfficeR.O.C.

Male 09/16/2016 60,488 0.00%

0 0.00%0 0.00% Assistant Vice
President, Cabin Crew

Director, China Pacific
Laundry Services Ltd.

Div.
Bachelor’s Degree From
Chinese Culture
University
Assistant Vice
President, Information
Assistant Vice

Management Div.

President,

Hsiao, Kuo

GroundChih

R.O.C.

Male 04/20/2017

0 0.00%0 0.00%0 0.00%General Manager,
Sapporo Branch
Bachelor’s Degree From

Services Div.

National Cheng Kung
University
General Manager,
Sapporo Branch
General Manager,

Assistant Vice
President,
GroundGround Services
Hung, I‐Lan

R.O.C.

Female 06/16/2017 18,316 0.00%

0 0.00%0 0.00% Training Department,
Ground Services Div.

Services Div.

Bachelor’s Degree From
National Chengchi
University
Director, Taiwan Air
Cargo Terminal Ltd.

Vice President,
Cargo Sales,

Liu,

Marketing &Der‐Chuan

R.O.C.

Male 10/01/2016

172 0.00%

0 0.00%0 0.00%Vice President, Cargo

Director, Dynasty

Sales & Marketing Div.

Aerotech International

Vice President, Cargo

Corp.

Services & Logistics Div. Director, Global Sky
Bachelor’s Degree From Express Ltd.

Services Div.

Fu Jen University

Director, Eastern UnitedInternational Logistics(Holdings) Ltd.

Assistant Vice
President, Cargo Sales& Marketing Div.
Assistant Vice
President,
Cargo Sales,
Marketing &General Manager,
Hsueh,
Po‐WenCargo Marketing &R.O.C.

Male 10/01/2016

Services Div.

328 0.00%

0 0.00%0 0.00% Planning Department,
Cargo Sales &Marketing Div.
Bachelor’s Degree From
Chinese Culture
University

28 Corporate Governance ReportNoneShareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certificates

General Manager,
Cargo SalesManagement
Department, Cargo
Sales, Marketing &Services Div.

Assistant Vice

General Manager,

President,
Cargo Sales,

Shann, Da‐Sin

R.O.C.

Male 01/01/2018 29,818 0.00% 17,982 0.00%

0 0.00%Marketing &Cargo Revenue & RouteManagement

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Department, Cargo

Services Div.

Sales, Marketing &Services Div.
Master’s Degree From
National Taipei
University Of
Technology
General Manager,
Cargo Sales & Services,
The Americas
General Manager,
Cargo Sales

Assistant Vice

Management

President,
Cargo Sales,Wei, Shi Jong

R.O.C.

Male 03/31/2018 63,020 0.00%

0 0.00%0 0.00% Department, Cargo

Marketing &Sales & Marketing Div.

Services Div.

Associate’s Degree
From Electronic Data
Processing Tamsui
Oxford University
College
Vice President,

Vice President,
MaintenanceSun, Jia‐Min

R.O.C.

Male 09/16/2017 62,602 0.00%

0 0.00%0 0.00%Div.

Engineering Div.

Director, Dynasty

Vice President,

Aerotech International

Corporate Safety Office Corp.
Master’s Degree From

Director, Taiwan Aircraft

National Taiwan

Maintenance And

University Of Science

Engineering Co., Ltd.

And Technology
General Manager, Line
Maintenance
Department,

Assistant Vice
President,
Maintenance

Maintenance Div.
Hsiao, Jui‐Fu

R.O.C.

Male 09/16/2017

0 0.00%0 0.00%0 0.00% General Manager, LineOperation Department,

Div.

Maintenance Div.
Master’s Degree From
Kainan University
Assistant Vice
President, MaintenanceDiv.

Vice President
Quality,

Li, Chih‐Wei

R.O.C.

Male 09/16/2017 10,295 0.00%

0 0.00%Assurance Div.

0 0.00%General Manager, LineOperation Department,
Maintenance Div.
Master’s Degree From
Kainan University

Vice President,
EngineeringDiv.

Lee, Jung‐Hui

R.O.C.

Male 09/16/2017 10,298 0.00%

0 0.00%Vice President Quality,

Director, Taiwan Aircraft

Assurance Div.

Maintenance And

Assistant ViceEngineering Co., Ltd.

0 0.00% President, Maintenance Concurrently, President,
Div.

Taiwan Aircraft

Master’s Degree From

Maintenance And

Tatung University

Engineering Co., Ltd.

Corporate Governance Report29

Shareholding

Nationality
Title

Name

/ Country Gender
Of Origin

Date

Spouse &Shareholding

Managers Who Are

Minor

By Nominee

Spouses Or Within Two

ee

Degrees Of Kinship

Stock

Shareholding Arrangement

Effective
Shares％Shares％SharesExperience (Education)

Other Positions％

EmployOptionTitle

Name Relation Certificates

Vice President, Cabin
Crew Div.
Vice President,
TaiwanTong,
Huai‐Ming

R.O.C.

Female 08/16/2016 50,878 0.00% 15,946 0.00%

0 0.00%General Manager,
Kaohsiung Branch
Graduated From Taipei

Director, Sabre Travel
None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

None

Network (Taiwan) Ltd.
Director, Yestrip Co., Ltd.

First Girls High School
Chairman, Dynasty Hotel

Vice President,

Lee,

The Americas

Hsien‐Kuang

R.O.C.

Male 12/16/2014 25,000 0.00%

0 0.00%0 0.00%Vice President, Europe

Of Hawaii, Inc.

Concurrently, General

Chairman, Dynasty

Manager, Netherland

Properties Co., Ltd.

BranchConcurrently, President,

Assistant Vice

Dynasty Properties Co.,

President, Passenger

Ltd.

Sales Div.

Director, CAL‐Dynasty

Bachelor’s Degree From International, Inc.
National Taiwan Ocean Concurrently, President,
College

CAL‐Dynasty
International, Inc.

Vice President,
Corporate
Vice President,
Japan

Chang,
Ming‐Way

Development Office
R.O.C.

Male 10/02/2017 30,512 0.00%

0 0.00%0 0.00% Vice President, Ground
Services Div.

Chairman/President,
Dynasty Holidays, Inc.

Bachelor’s Degree From
Fu Jen University
President, Mandarin
Airlines Co., Ltd.
Vice President,
EuropeHan, Liang
Chung

Senior Vice President
R.O.C.

Male 06/12/2017 11,498 0.00%

0 0.00%0 0.00% Master’s Degree,
Business Of
Administration,
University Of Pittsburgh
Chief Representative,
East China
Concurrently, General
Manager, Shanghai

Vice President,
Mainland China

Lo, How‐Min

R.O.C.

Male 09/08/2016 80,552 0.00%

0 0.00%0 0.00%BranchVice President, Taiwan
Concurrently, General
Manager, Taipei Branch
Associate’s Degree
From Chihlee College
General Manager,
Fukuoka Branch
Assistant Vice
President, Passenger

Vice President,
Oceania

Chen,
Chung‐Ming

Sales Div.
R.O.C.

Male 05/10/2017 32,779 0.00%

0 0.00%0 0.00% Bechelor Degree,
Department Of
Transportation &Logistics Management
Of National Chiao Tung

University
Note: Company presidents, senior vice presidents, vice presidents, data protection officer, assistant vice presidents, and department and branch general managers have not worked for theCompany's currently designated accounting firm or affiliated enterprises within the specified period and do not hold Company stock under the name of a different person.

30 Corporate Governance Report3.2.3 Remuneration of Directors, President, and Vice President
Remuneration of Directors
Remuneration

Title

Name
(Note 1)ChairmanHo, Nuan‐Hsuan

Director

Hsieh, Su‐Chien

Director

Charles C.Y. ,Chen

Director

Ting, Kwang‐Hung

DirectorJong, Jia‐shi

Director

Lee, Kuo‐ Fu

Director

Cheng, Chuan‐Yi

Director

Chen, Han‐Ming

Director

Lin, Su‐Ming

Director

Huang, Hsiu‐Gu

Independent
Director

Chung, Lo‐Min

Independent
Director

Luo, Hsiao‐Hsien

Independent
Director

Ting, Tin‐Yu

Base Compensation (A)(Note 2)

Severance Pay (B)Bonus to Directors (C)(Note 3)

Allowances (D)(Note 4)

CAL

Consolidated
Subsidiaries
of CAL(Note 7)

CAL

Consolidated
Subsidiaries of
CAL(Note 7)

CAL

Consolidated
Subsidiaries of
CAL(Note 7)

CAL

Consolidated
Subsidiaries
of CAL(Note 7)

6,155

6,155

0

0

0

0

5,770

7,145

Ratio of Total
Remuneration(A+B+C+D) to Net
Income (%) (Note 10)
Consolidated
Subsidiaries
CAL
of CAL(Note 7)

0.54%

0.60%

Note 1: Aside from independent directors, all other directors are representatives of the Company’s juridical person shareholders China Aviation Development
Foundation, National Development Fund (Executive Yuan), Chunghwa Telecom Co., Ltd.
Note 2: Refers to director remuneration over the past year (includes director salary, additional compensation, severance pay, various bonuses, incentive pay).
Note 3: As stipulated in the Company’s Articles of Association, directors are not awarded bonuses.
Note 4: Refers to relevant business expenses incurred by directors (including travel expenses, special disbursements, various allowances, living quarters,company car). If provided with housing, a car or other transportation, or exclusive personal expenses, the type and cost, rent (actual or fair market
calculation), fuel cost, and other costs of the assets provided must be disclosed. The above figures do not include remuneration paid to drivers, which
totaled NT$911,000.
Note 5: Refers to salary, bonuses, and allowances received by directors who are also employed by the Company (including as president, vice president, othermanagement, or regular employee) over the past year and includes salary, additional compensation, severance pay, various bonuses, incentive pay,travel expenses, special disbursements, various allowances, living quarters, and company car. If provided with housing, a car or other transportation,
or exclusive personal expenses, the type and cost, rent (actual or fair market calculation), fuel cost, and other costs of the assets provided must be
disclosed. The above figures do not include remuneration paid to drivers, which totaled NT$725,000. As stipulated in IFRS 2, Share Based Payments
including obtaining employee stock options and employee restricted stock awards, and participation in a cash capital increase shall be calculated asremuneration.
＊ The content is provided for information disclosure, not tax purposes.

Corporate Governance Report31Unit: NT$ thousands

Dec 31, 2017

Relevant Remuneration Received by Directors Who are Also Employees
Salary, Bonuses, and Allowances(E)(Note 5)
Consolidated
Subsidiaries
of CAL(Note 7)

CAL

12,042

12,934

Consolidated
Subsidiaries
of CAL(Note 7)

CAL

0

Ratio of Total Compensation(A+B+C+D+E+F+G) to Net Income Compensation Paid to(%) (Note 10)
Directors from an
Invested Company
Consolidated
Other than theConsolidated
Subsidiaries of CAL
Subsidiaries of Company’s Subsidiary(Note 7)
CAL
(Note 11)
CAL
(Note 7)
Cash
Stock

Employees’ Compensation (G)(Note 6)

Severance Pay (F)

0

CAL
Cash

Stock

510

0

510

0

1.11%

1.21%

0

Note 6: Refers to employee compensation (including stock or cash) received by directors who are also employed by the Company (including as president, vicepresident, other management, or regular employee) over the past year, and the amount of employee compensation approved for distribution by the
Board for the most recent year must be disclosed. On January 24, 2018, the Company’s Board of Directors approved the 2017 Employee Compensation
Proposal.
Note 7: The total remuneration provided by the Company and subsidiaries to directors is disclosed per the consolidated financial statement.
Note 8: The remuneration distributed to each member of the Company’s Board is disclosed as a range and the names of directors are disclosed by range ofcompensation received.
Note 9: The total remuneration provided by the Company and subsidiaries to directors is disclosed per the consolidated financial statement and names of
directors are disclosed by range of compensation received.
Note 10: Net income refers to net income (after tax) for the most recent year. For those already using IFRS, net income refers to net income (after tax) reported
on the individual financial statement for the most recent year. The Company’s 2017 individual financial statement net income (after tax) totaled
NT$2,208,066,000.
Note 11:(1) Compensation paid to directors from an invested company other than a Company subsidiary.
(2) Compensation refers to pay, bonuses (including bonuses to employees, directors, or supervisors), or expenses paid in the execution of business toCompany directors who serve as director, supervisor, or manager of an invested company other than a Company subsidiary.
(3) Compensation paid to directors from an invested company other than a Company subsidiary is included in Column I (Consolidated Subsidiaries of
CAL) of the Director Remuneration by Compensation Level Table.

Note 12:(1) Aside from Chairman Ho, Nuan‐Hsuan, and Director Hsieh, Su‐Chien, all other directors received a travel allowance.
(2) Transportation subsidies for Director Ting, Kwang‐Hu, Director Lee, Kuo‐ Fu, and Director Jong, Jia‐shi, respectively, were partially donated (20‐70%)
to the China Airlines Employee Union.
(3) The directors who also serve as employees of the Company are Director Hsieh, Su‐Chien; Director Jong, Jia‐shi; and Director Lee, Kuo‐ Fu.

32 Corporate Governance ReportDirector Remuneration by Compensation Level
Total of (A+B+C+D)
Range of Remuneration

Under NT$2,000,000

NT$2,000,001～
NT$5,000,000
NT$5,000,001～
NT$10,000,000
Total

CAL
(Note 8)

Total of (A+B+C+D+E+F+G)

Consolidated Subsidiaries of
CAL(Note 9) Ｈ

CAL
(Note 8)Hsieh, Su‐Chien; Charles
Hsieh, Su‐Chien; Charles
Charles C.Y., Chen; Ting,
C.Y., Chen; Ting, Kwang‐Hu; C.Y., Chen; Ting, Kwang‐Hu;
Kwang‐Hu; Jong, Jia‐shi;Jong, Jia‐shi; Lee, Kuo‐ Fu; Jong, Jia‐shi; Lee, Kuo‐ Fu;
Cheng, Chuan‐Yi; Chen,
Cheng, Chuan‐Yi; Chen,
Cheng, Chuan‐Yi; Chen,
Han‐Ming; Lin, Su‐Ming;
Han‐Ming; Lin, Su‐Ming;
Han‐Ming; Lin, Su‐Ming;
Huang, Hsiu‐Gu; Chung,Huang, Hsiu‐Gu; Chung,Huang, Hsiu‐Gu; Chung,
Lo‐Min; Luo, Hsiao‐Hsi;
Lo‐Min; Luo, Hsiao‐Hsi;
Lo‐Min; Luo, Hsiao‐Hsi;Ting, Tin‐Yu
Ting, Tin‐Yu
Ting, Tin‐Yu

Consolidated Subsidiaries of
CAL(Note 9) Ｉ

Charles C.Y., Chen; Ting,
Kwang‐Hu; Jong, Jia‐shi;Cheng, Chuan‐Yi; Chen,
Han‐Ming; Lin, Su‐Ming;
Huang, Hsiu‐Gu; Chung,
Lo‐Min; Luo, Hsiao‐Hsi;Ting, Tin‐Yu

‐

‐

‐

‐

Ho, Nuan‐Hsuan

Ho, Nuan‐Hsuan

Ho, Nuan‐Hsuan; Hsieh,
Su‐Chien; Lee, Kuo‐ Fu

Ho, Nuan‐Hsuan; Hsieh,
Su‐Chien; Lee, Kuo‐ Fu

13

13

13

13

Corporate Governance Report

33

President and Senior Vice President Remuneration
Salary (A)(Note 2)Name
(Note 1)

Title

Consolidated
CAL

Subsidiaries of
CAL(Note 3)

Consolidated

Consolidated

Subsidiaries of

CAL

CAL

(Note 5)President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President
Senior Vice
President

Bonuses and Allowances (C)Severance Pay (B)CAL(Note 5)

Subsidiaries of
CAL(Note 5)

Hsieh, Su‐Chien
Lo, Ya‐Mei
Kao, Shing‐Hwang
Chang, Chih‐Chieh

19,812

19,812

0

0

9,108

12,735

Wang, Houng(Note 10)
Chang, Young
Huang, Chwen‐Jiun(Note 10)President and Senior Vice President Remuneration by Compensation Level
Range of Remuneration

Under NT$2,000,000
NT$2,000,001 ~ NT$5,000,000
NT$5,000,001 ~ NT$10,000,000
Total

Name of President and Senior Vice President
CAL (Note 6)
Consolidated Subsidiaries of CAL (Note 7)EWang, Houng‐

Lo, Ya‐Mei; Chang, Chih‐Chieh;

Lo, Ya‐Mei; Chang, Chih‐Chieh; Wang, Houng;

Chang, Young; Huang, Chwen‐Jiun

Chang, Young; Huang, Chwen‐Jiun

Hsieh, Su‐Chien; Kao, Shing‐Hwang

Hsieh, Su‐Chien; Kao, Shing‐Hwang

7

7

Note 1: President Hsieh, Su‐Chien concurrently serve as directors. Their remuneration is listed above and also in the Remuneration of Directors table.
Note 2: Refers to president and senior vice president salary, additional compensation, and severance pay over the past year.
Note 3: Refers to various bonuses, incentive pay, travel expenses, special disbursements, various allowances, living quarters, and company car
distributed to presidents and senior vice presidents over the past year. If provided with housing, a car or other transportation, or exclusive
personal expenses, the type and cost, rent (actual or fair market calculation), fuel cost, and other costs of the assets provided must be
disclosed. The above figures do not include remuneration paid to drivers, which totaled NT$4,498,000. As stipulated in IFRS 2, Share Based
Payments including obtaining employee stock options and employee restricted stock awards, and participation in a cash capital increase shallbe calculated as remuneration.
Note 4: Refers to employee compensation (including stock or cash) approved for distribution by the Board to presidents and senior vice presidents
over the past year. Net income refers to net income (after tax) for the most recent year. For those already using IFRS, net income refers to net
income (after tax) reported on the individual financial statement for the most recent year. On January 24, 2018, the Company’s Board of
Directors approved the 2017 Employee Compensation Proposal.
＊ The content is provided for information disclosure, not tax purposes.

34 Corporate Governance ReportUnit: NT$ thousands December 31, 2017
Ratio of total compensation(A+B+C+D) to net income (%)(Note 8)

Employees’ Compensation (D)(Note 4)
Consolidated
Subsidiaries of CAL(Note 5)
Cash
Stock

CAL
Cash

Stock

1,561

0

1,561

CAL

0

Consolidated
Subsidiaries of
CAL (Note 5)

1.38%

1.54%

Compensation paid to the Presidents andSenior Vice Presidents from an Invested
Company Other Than the Company’s Subsidiary(Note 9)240

Note 5: The total remuneration provided by the Company and subsidiaries to Company presidents and senior vice presidents is disclosed per
the consolidated financial statement.
Note 6: The remuneration distributed to each president and senior vice president is disclosed as a range and the names of the presidents andsenior vice presidents are disclosed by range of compensation received.
Note 7: The total remuneration provided by the Company and subsidiaries to presidents and senior vice presidents is disclosed per the
consolidated financial statement and names of the presidents and senior vice presidents are disclosed by range of compensation
received.
Note 8: Net income refers to net income (after tax) for the most recent year. For those already using IFRS, net income refers to net income(after tax) reported on the individual financial statement for the most recent year. The Company’s 2017 individual financial statement
net income (after tax) totaled NT$2,208,066,000.
Note 9: This column represents compensation paid to presidents and senior vice presidents from an invested company other than a Company
subsidiary.
(1) Compensation paid to presidents and senior vice presidents from an invested company other than a Company subsidiary is included
in Column E (Consolidated Subsidiaries of CAL) of President and Senior Vice President Remuneration by Compensation Level Table.
(2) Compensation refers to pay, bonuses (including bonuses to employees, directors, or supervisors), or expenses paid in the executionof business to Company presidents and senior vice presidents who serve as director, supervisor, or manager of an invested
company other than a Company subsidiary.
(3) Of the presidents and senior vice presidents, only Mr. Chang, Young received compensation from an invested company other thanthe Company’s subsidiaries.
Note 10: Mr. Wong, Houng assumed the position of Senior Vice President on August 16, 2017; Mr. Huang, Chwen‐Jiun was dismissed from theposition of Senior Vice President on August 16, 2017.

Corporate Governance Report35Employees’ Compensation of the Management Team
Unit: NT$ thousands
Title

Name

President
Hsieh, Su‐Chien
Senior Vice
Lo, Ya‐Mei
President
Senior Vice
Kao, Shing‐Hwang
President
Senior Vice
Chang, Chih‐Chieh
President
Senior Vice
Wang, Houng
President
Senior Vice
Chang, Young
President
Auditor
Chung, Chuar‐Duan
GeneralData
Chung, Ming‐Jyh
Protection(Assumed Post On 12/30/2017)
Officer
Vice
Chien, Feng‐Nien
President(Assumed Post On 01/03/2017)
Vice
Chen, I‐Ko
President
ViceLai, Ming‐Hui
President
Vice
Wang, Chen‐Min
President
Vice
Liu, Der‐Chuan
President
Vice
Peng, Long‐Min
President
Vice
Chen, Kang‐Reuy
President(Assumed Post On 05/13/2017)
Vice
Chen, I‐Chieh
President
ViceHong, Tsu‐Kuang
President
Vice
Chiu, Chang‐Hsin
President(Assumed Post On 12/18/2017)
Vice
Chou, Jyh‐Shyan
President
Vice
Liu, Tsao‐Yang
President
Vice
Peng, Pao Chu
President
Vice
Lu, Shih‐Ming
President
ViceSun, Jia‐Min
President
Vice
Lee, Jung‐Hui
President
Vice
Li, Chih‐Wei
President
DeputyAuditorFang, Juo‐Ling
GeneralAssistant Vice
Tsai, Chih Hung
President
Assistant Vice Huang, Hsiang‐Piao
President(Assumed Post On 08/01/2017)
Assistant Vice
Jeng, Jong‐Shinn
President
Assistant Vice Lai, Hsiang‐Kuang
President(Assumed Post On 10/01/2017)
Assistant Vice Ouyang, John
President(Assumed Post On 06/17/2017)
Assistant Vice
Hsueh, Po‐Wen
President
Assistant Vice
Yu, YauPresident
Assistant Vice
Yeah, Shao‐Ting
President

36 Corporate Governance Report

Employees’
Employees’
Compensation in
Compensation in Cash
Stocks

0

9,560

Total

9,560

Dec 31, 2017

Ratio of Total Amount to Net
Income (%)

0.43%

TitleName

Employees’
Employees’
Compensation in
Compensation in Cash
Stocks

Total

Ratio of Total Amount to Net
Income (%)

Assistant Vice
Chen, Jo‐Ching
President
Assistant Vice
Ho, Hui‐Fen
President
Assistant Vice Huang, Hui Na
President(Assumed Post On 09/01/2017)
Assistant Vice
Pan, Wen‐Tsung
President
Assistant Vice
Kao, Shu‐Chuan
President
Assistant Vice
Hsiao, Kuo Chih
President
Assistant Vice Hung, I‐Lan
President(Assumed Post On 06/16/2017)
Assistant Vice Wang, Wei
President(Assumed Post On 02/02/2017)
Assistant Vice
Lu, Shwu‐Huoy
President
Assistant Vice
Liu, Duan‐Shiuh
President
Assistant Vice Hsiao, Jui‐Fu
President(Assumed Post On 09/16/2017)
Assistant Vice Kuey, Kuo‐Ching
President(Dismissed On 01/26/2017)
Assistant Vice Teng, Shu Hua
President(Dismissed On 02/21/2017)
Vice
Chung, Wan‐Chun
President(Dismissed On 03/01/2017)
Assistant Vice Yeh, Jin‐Fu
President(Dismissed On 03/13/2017)
Assistant Vice Wei, Shih‐Kai
President(Dismissed On 03/21/2017)
Assistant Vice Tung, Wei
President(Dismissed On 04/30/2017)
Vice
Wei, Yih‐Jiun
President(Dismissed On 05/08/2017)
Assistant Vice Kung, Yuan‐Jau
President(Dismissed On 05/22/2017)
Vice
Tsao, Jyh‐Fen
President(Dismissed On 06/09/2017)
Senior Vice
Huang, Chwen‐Jiun
President(Dismissed On 08/16/2017)
Assistant Vice Huang, Tze‐Chi
President(Dismissed On 08/31/2017)
Huang, Yuan‐Yue
Assistant Vice
(Assumed Post On 05/01/2017)
President(Dismissed On 09/25/2017)
Vice
Chang, Ming‐Way
President(Dismissed On 10/02/2017)
Vice
Chen, Shann‐Juan
President(Dismissed On 11/30/2017)
Vice
Liu, Shyh‐Hwa
President(Dismissed On 12/18/2017)
Vice
Ku, Yueh‐Han
President(Dismissed On 01/01/2018)
Assistant Vice Chu, Te‐Hsiu
President(Dismissed On 01/08/2018)
Assistant Vice Lin, Ming‐Hsiu
President(Dismissed On 01/11/2018)
Assistant Vice Liao, Wei‐ChihPresident(Dismissed On 03/01/2018)
Assistant Vice Lin, Hsiao‐Feng
President(Dismissed On 03/26/2018)
Note 1: Individual names and titles are disclosed, but the distributed compensation is disclosed as a grand total.
Note 2: On January 24, 2018, the Company’s Board of Directors approved the 2017 Employee Compensation Proposal.
Note 3: The management team includes:(1) Presidents and their equivalent(2) Vice presidents and their equivalent(3) Assistant vice presidents their the equivalent(4) Chief financial officers(5) Chief accounting officers(6) Other persons authorized to manage affairs and sign documents on behalf of the Company

Corporate Governance Report373.2.4 Comparison of Remuneration for Directors, Presidents, and Vice
Presidents in the Most Recent Two Fiscal Years and Remuneration Policy
for Directors, Presidents, and Vice Presidents
A. The ratio of total remuneration paid by the Company and by all companies included in the
consolidated financial statements for the two most recent fiscal years to directors, presidents, andvice presidents of the Company, to their net income.
CAL

2016
Consolidated Subsidiaries of CAL

CAL

2017
Consolidated Subsidiaries of CAL

Directors

7.14%

7.26%

1.11%

1.21%

Presidents and SeniorVice Presidents

9.46%

9.66%

1.38%

1.54%

Title

B. The policies, standards, and portfolios for the payment of remuneration, the procedures fordetermining remuneration, and the correlation with business performance.
As stipulated in the Articles of Association, the Board of Directors is authorized to set the chairman’s
remuneration in accordance with the Company’s policies regarding manager compensation andbased on the extent of his or her participation in Company operations. The travel allowances andremuneration of other directors are determined the Board in reference to the compensation levels
provided by related‐industries and public companies. In accordance with Article 29 of the Company
Act, president and senior vice president remuneration is set by Board of Directors resolution basedon Company employee salary related regulations. Bonuses and employee compensation arecalculated based on the Company’s overall operating performance and the employee’s individual
performance achievement rate.

C. Procedure for estabishing remuneration:
In the case of remuneration for board members and managers, as per regulation, the company's
Salary and Remuneration Committee meets regularly to assess and set salaries and remuneration,
which decisions are implemented after being submitted to the Board of Directors.

D. Linkage to business outcomes:
The remuneration of the president has already taken into account his professional capability and thecompany's operations and financial situation; the experienced senior vice presidents handle mattersbased on the company's employee achievement provisions, using a linkage of individual
performance on goals management and work evaluations, and assessing performance after overall
consideration.

D. Linkage to future risk:
Major decision making for operational levels of this company always balances various risk factors;
major decision‐making performance will be reflected in the company's profits, and thereby isrelated to salaries and remuneration to management levels; namely, the salaries and remunerationof the chairman of the board, the president, and senior vice presidents is related to the results ofcontrolling and managing future risk.

38 Corporate Governance Report3.3 Implementation of Corporate Governance3.3.1 Board of Directors:
From January 1, 2017 through April 29, 2018, a total of eight meetings of the Board of Directors were held.
Average attendance rate was 95%. Director attendance is detailed below:
Title

Name
(Note 1)

Attendance in Person

By ProxyAttendance Rate (%)
Juridical Person(Note 2)
Shareholder Represented

ChairmanHo, Nuan‐Hsuan

8

0

100%

Director

Hsieh, Su‐Chien

8

0

100%

Director

Charles C.Y., Chen

7

1

88%

Director

Ting, Kwang‐Hung

7

1

88%

Director

Lee, Kuo‐ Fu

8

0

100%

Director

Cheng, Chuan‐Yi

7

1

88%

Director

Chen, Han‐Ming

8

0

100%

DirectorJong, Jia‐shi

8

0

100%

Director

Lin, Su‐Ming

7

1

88%

Director

Huang, Hsiu‐Gu

5

1

83%

Independent
Director

Chung, Lo‐Min

8

0

100%

Independent
Director

Luo, Hsiao‐Hsien

8

0

100%

Independent
Director

Ting, Tin‐Yu

8

0

100%

Remarks

Newly appointed as
juridical person director
China Aviation
representative on
Development Foundation
06/24/2016 and elected
Chairman on the same day
Newly appointed as
juridical person director
China Aviation
Development Foundation representative on
07/06/2016
Reappointed as juridical
person director
China Aviation
Development Foundation representative on
06/26/2015
Reappointed as juridical
person director
China Aviation
Development Foundation representative on
06/26/2015
Newly appointed as
juridical person director
China Aviation
Development Foundation representative on
07/13/2015
Newly appointed as
juridical person director
China Aviation
Development Foundation representative on
07/26/2016
Newly appointed as
juridical person director
China Aviation
Development Foundation representative on
07/26/2016
Newly appointed as
juridical person director
China Aviation
Development Foundation representative on
08/09/2016
Reappointed as juridical
person director
National Development
Fund, Executive Yuan
representative on
06/26/2015
Reappointed as juridical
person director
Chunghwa Telecom Co.,
representative on
Ltd.
06/26/2015 and resigned
on 01/19/2018
Reappointed as‐
independent director on
06/26/2015
Reappointed as‐
independent director on
06/26/2015
Newly appointed as‐
independent director on
06/26/2015

Other mentionable items:
1. In the operation of the Board of Directors, should one of the below situations occur, the Board Meeting date, session, content of the resolution, opinions of all
independent directors, and the Company’s response to said opinions shall be properly recorded:(1) Matters listed in Article 14‐3 of the Securities and Exchange Act.
Any Independent Director
Meeting Dates
Agenda content
Had a Dissenting Opinion or
Qualified Opinion
January 27, 2017: 9th meeting of
Changes to duties of the Financial Department Vice President
the 20th Board of Directors
March 30, 2017: 10th meeting ofIssued domestic unsecured ordinary corporate bonds for 2017the 20th Board of Directors
Revision of "Procedures for the Acquisition or Disposition of Assets"
Eliminated anti‐competition limitations on concurrent service of Chairman of
May 11, 2017: 11th meeting of thethe Board Ho, Nuan‐hsuan and board member Hsieh, Shih‐chian
20th Board of Directors
Unanimously passed by all
Revision of "Procedure for Endorsement and Guarantee"
independent Directors
November 5, 2017: 13th meeting ofIssuance of domestic unsecured convertible bonds with a total face value
the 20th Board of Directors
limited to NT$6 billion
January 24, 2018: 14th meeting of"Kaohsiung Airport Catering Services Ltd." share acquisition proposal
the 20th Board of Directors
March 22, 2018: 15th meeting ofGeneral Audit Office, General Auditor, retirement due to age
the 20th Board of Directors

Corporate Governance Report39

(2) Other matters up for decision by the Board not listed in Article 14‐3 of the Securities and Exchange Act, but that were opposed by independent directors or
about which said directors have reservations and their opinion has been recorded or submitted in a written statement: None.
2. Should a director recuse him or herself from a decision about which he or she has a conflict of interest, the name of the director, contents of the resolution,
reasons for recusal, and the results of the vote should be noted:
Directors recused
Participation in vote
Meeting Dates
Agenda content
for conflicting
Reason for recusalinterest
Other than Chairman Ho, Nuan‐Hsuan;
Chairman of the Board
Chairman Ho,
Director Hsieh, Su‐Chien who wereJanuary 27, 2017: 9threcused as provided by law and did not
and managers' 2017
Nuan‐Hsuan;
Personal interest in thismeeting of the 20th Board
annual bonuses and 2016
Director Hsieh,
participate in discussions or voting,matterof Directors
Lunar New Year bonuses
Su‐Chien
passed unanimously by all 11 directors
in attendance.
Eliminatedanti‐competition
Other than Chairman Ho, Nuan‐Hsuan;
Chairman Ho,
Director Hsieh, Su‐Chien who werelimitations on concurrent
May 11, 2017: 11th
service of Chairman of
Nuan‐Hsuan;
Personal interest in thisrecused as provided by law and did notmeeting of the 20th Board
participate in discussions or voting,the Board Ho,
Director Hsieh,matterof Directors
Su‐Chien
passed unanimously by all 11 directors
Nuan‐hsuan and board
member Hsieh,
in attendance.
Shih‐chian2017 Chairman of the
Other than Chairman Ho, Nuan‐Hsuan;
Chairman Ho,
Board and managers
Director Hsieh, Su‐Chien who wereJanuary 24, 2018: 14th
recused as provided by law and did not2018 annual bonus, 2018
Nuan‐Hsuan;
Personal interest in thismeeting of the 20th Board
Director Hsieh,
participate in discussions or voting,
Lunar New Year bonus
matterof Directors
Su‐Chien
passed unanimously by all 10 directors
and 2018 salary
in attendance.
adjustments
3. Board of Director functional improvement goals for the last year and the current year (such as establishing an audit committee and improving informationtransparency) and implementation assessment:(1) In order to strengthen management mechanisms and oversight, three functional committees, Remuneration Committee, Audit Committee, and Risk
Committee, were set up under the Board of Directors. Each are convened based on their charters, which were approved by the Board. The committees
meet to review and discuss relevant issues and report their conclusions and suggestions to the Board for resolution. The committees have been a success.
The regulations governing functional committees passed by the Board specify the number of committee members, term of office, committee powers, rulesof procedure, and resources to be provided by the Company when the committees exercise their powers.
(2) For more information regarding China Airlines Corporate Governance, please refer to our website (http://www.china‐airlines.com): Corporate Social
Responsibility, "Stakeholders' Area" and "Investor Information".
4. Independent director attendance record for 2017 through April 29, 2018:
Meeting Dates
01/17/2017
03/30/2017
05/11/2017
06/22/2017
08/10/2017
11/05/2017
01/24/2018
03/22/2018
Name
Chung, Lo‐Min
Luo, Hsiao‐Hsien
Ting, Tin‐Yu
Note:

Indicates attendance in person. ○ indicates attendance by proxy.

indicates did not attend.

Note 1: For directors that are juridical persons, the name of the juridical person shareholder and its representatives must be disclosed.
Note 2: (1) When a director resigns before the year’s end, the remark column shall note the date of resignation and actual attendance rate (%) calculated based on
the number of meetings held during the period prior to resignation and the director’s actual number of meetings attended.
(2) If there is a change of directors prior to the end of the year, both the new and old directors shall be included in the table and the remark column shallnote whether the director has been reelected or newly elected and the date of the (re)election. Actual attendance rate (%) is calculated based on thenumber of meetings held during the period of service and the director’s actual number of meetings attended.

40 Corporate Governance Report3.3.2 Audit Committee:
The Audit Committee convened eight meetings from January 1, 2017 through April 29, 2018. Committee member
attendance is detailed below:
Title

Name

Attendancein Person

By ProxyAttendance Rate (%)

Remarks

Independent Director

Chung, Lo‐Min

8

0

100%

Served as independent director from
06/15/2012 and continued in the position
on 06/26/2015

Independent Director

Luo, Hsiao‐Hsien

8

0

100%

Served as independent director from
06/15/2012 and continued in the position
on 06/26/2015

Independent Director

Ting, Tin‐Yu

8

0

100%

Newly appointed independent director on
06/26/2015

Other mentionable items:
1. In the operation of the Audit Committee, should one of the below situations occur, the Board Meeting date, session, content of the resolution, result of
the Audit Committee resolution, and the Company’s response to said opinions shall be properly recorded:(1) Matters listed in Article 14‐5 of the Securities and Exchange Act:
Results of the vote by
the Board of Auditors
Results of Board of
Meeting Dates
Agenda content
and company's
Directors decision
handling of the Board's
opinionEndorsement and guarantee of foreign
January 17, 2017exchange credit card transaction funds toSecond session of the 20th Board ofTigerair Taiwan
Directors Board of Auditors
Changes to duties of the Financial Department
Vice President
2016 Annual Operations Report and Financial
Statements
2017 Appointment and Remuneration for
March 30, 2017
Certified Public Accountants
7th meeting of the 20th Board of
Appropriation of 2016 losses
Directors Board of Auditors
Revision to the Procedures Governing theAcquisition and Disposal of Assets
2016 Internal Control System Statement
May 11, 2017
8th meeting of the 20th Board of
Q1 2017 Consolidated Financial Statement
Directors Board of Auditors
Passed to the Board of
Q2 2017 (including first half of the year)
Unanimously passed byAugust 10, 2017
Directors upon
Consolidated Financial Statement
all members of the
9th meeting of the 20th Board ofunanimous approval byInternal audit business report for first half ofBoard of Directors in
Directors Board of Auditors
all members in2017
attendance.
attendance.
Q3 2017 (including previous 3 quarters)
Consolidated Financial Statement
November 5, 2017
China Airlines 2018 audit plan proposal
10th meeting of the 20th Board of
Issuance of domestic unsecured convertible
Directors Board of Auditors
bonds with a total face value limited to NT$6
billion2017 Annual Operations Report and Financial
Statements
2018 Appointment and Remuneration for
Certified Public Accountants
2017 surplus allocation
March 22, 2018
Provision of NT$2 billion endorsement
11th meeting of the 20th Board ofguarantee to Taiwan Aircraft Maintenance andDirectors Board of Auditors
Engineering Co., Ltd.
2017 Internal control system effectiveness audit
and statement
Internal audit business report for first half of2017(2) Other matters up for decision by the Board not listed in Article 14‐5 of the Securities and Exchange Act that were not passed by the Audit Committee
but approved by a two‐thirds majority of the entire Board: None.
2. In situations where independent directors recuse themselves due to conflict of interest, the independent director's name, content of the resolution,
reason for recusal, and his or her voting participation should be properly recorded: None.
3. Communication between independent directors and internal audit managers and auditors (regarding issues such as Company financial and operational
status, procedures, and results):(1) In addition to independent directors in the company receiving a monthly audit report, audit manager will provide reports on the progress of work on
the annual audit plan and semi‐annual audits to the directors.
(2) At each quarterly Board of Auditors meeting, CPA reports and explains financial report audit and audit results to directors.
(3) Directors shall contact the audit supervisor or accountants when needed for full communication.
y Communication between independent directors and accountants:

Corporate Governance Report

41Matter
Proposal byPrimary matter
independent director
1. Please review andcomment on
regulations related
to legal disclosure ofpurchase prices forplanes.
Accountant explained
2. IFRS 16 leasing2016 financial reportannouncement willaudit results, and took
be implemented inquestions from the2019, and will have amajor impact on the
directors for discussion
company's financial
March 30, 2017
reporting.
Board of Auditors
Management
departments please
make preparations inadvance.
Depreciation amountwill change
Report on impact of IFRS
substantially due to
16 leasing
bringing in new planes
announcements andand IFRS 16
depreciation policy forannouncement. Please
new A350 planes
provide counsel on
2017‐2020 depreciation
changes.
Please make apreliminary calculation
Accountant explainedof the impact on the2017 Q1 financial report
gearing ratio for theaudit results andgroup's combined
May 11, 2017
revisions required by law,
Board of Auditors
financial reports byand took questions from
Mandarin Airlines andthe directors for
Tigerair Taiwan
discussion
post‐IFRS 16 leasing
report.
Accountant explained2017 Q2 financial report
audit results and impact
August 10, 2017of new announcement on
None
Board of Auditors
financial reports, andtook questions from thedirectors for discussion.
Accountant explained2017 Q3 financial report
Suggest providing
audit results, revisions
quarterly financial
required by law, andreport for major
November 5, 20172017 financial report
Board of Auditors
subsidiary companies
audit plan and key audit
and annual accountant
items, and took questions
audit report in future.
from the directors fordiscussion
Accountant explained2017 financial report
March 22, 2018
audit results, and took
None.
Board of Auditors
questions from thedirectors for discussiony Communication between independent directors and internal audit supervisor:
MatterMeans of
Proposal by independentcommunication
Primary matterdirector
Means ofcommunication

March 30, 2017
Board of Auditors

ResultPrimary matter

Proposal by independent director

Resolution
passed by all in
attendance.

1. Management departments gave a timely
explanation at the meeting of responses
to various items in the announcement,
and will continue to supplement withwritten material.
2. Continue to request approval of Boardof Directors and complete 2016 financial
report announcement reporting by
March 31, 2017.

Agreed by all in
attendance.

Provide in written follow‐up information.

Agreed by all in
attendance.

1. Complete 2017 Q1 financial reportsubmission by May 16, 2017.
2. Impact on the group was discussed in a
special report to the Board of Directors
on August 10, 2017.

Resolution
passed by all in
attendance.

Continue providing reports to the Board of
Directors, and complete submission of2017 Q2 financial report by August 15,
2017.

Agreed by all in
attendance.

Because no subsidiary companies are
publicly traded, produce accountant
audited annual financial report. In the
future, provide quarterly balance sheets
and profit and loss tables, and annual
accountant audit reports for subsidiaries.

Resolution
passed by all in
attendance.

Continue to request approval of Board of
Directors and complete 2017 financial
report submission by March 23, 2018.

ResultPrimary matter

Proposal by independent director

2016 internal control
statement

None.

Resolution
passed by all in
attendance.

Continue to request approval of Board of
Directors and report on 2016 internal
control statement by March 31, 2017.
Disclosure of 2016 annual report.

Revisions to"Implementation
Guidelines forInternal Audit"

Please summarize status ofestablishment of audit units
in companies and sendingout audit supervisors fromthe mother company andcontinue providing theboard and the directors
materials as per the originalplan.

Resolution
passed by all in
attendance.

Provide related material on day of meeting,continue seeking agreement of Board of
Directors.

Internal audit reportfor last half of 2016

None.

Agreed by all in
attendance.

Continue reports to Board of Directors.

42 Corporate Governance ReportAugust 10, 2017
Board of Auditors

Internal audit reportfor first half of 2017

None.

Agreed by all in
attendance.

November 5, 2017
Board of Auditors

Audit plan for 2018

None.

Resolution
passed by all in
attendance.

2017 Internal control
system effectivenessaudit and statement

None.

Resolution
passed by all in
attendance.

Internal audit
business report forlast half of 2017

None.

Agreed by all in
attendance.

March 22, 2018
Board of Auditors

Continue reports to Board of Directors.
Continue to request approval of Board of
Directors and complete submission ofannouncement for 2018 internal audit planby December 4, 2017.
Continue to request approval of Board of
Directors and submit 2017 internal control
statement by March 23, 2018, disclosing in2017 annual report.
Continue reports to Board of Directors.

3.3.3 Risk Committee:
The Risk Committee convened six meetings from January 1, 2017 through April 29, 2018. Committee member
attendance is detailed below:
Title

Name

Attendance in Person

By ProxyAttendance Rate (%)

Remarks

Luo, Hsiao‐Hsien

6

0

100%

Assumed post on May 6, 2014

Director

Ting, Kwang‐Hung

5

1

83%

Assumed post on May 6, 2014

Director

Charles C.Y. ,Chen

4

2

67%

Independent
Director

Director

Huang, Hsiu‐Gu

4

0

100%

Director

Lin, Su‐Ming

6

0

100%

Assumed post on August 11, 2016
Assumed post on May 6, 2014 andresigned January 19, 2018.
Assumed post on May 6, 2014

Other mentionable items:
Risk Committee resolution results
Meeting Dates

Agenda content

and company action on Risk
Committee opinions

Results of Board of Directors
decision

February 23, 2017
7th meeting of the 20th Board of
Directors Risk Committee
April 20, 2017
8th meeting of the 20th Board of
Directors Risk Committee
July 5, 2017
9th meeting of the 20th Board of
Directors Risk Committee
October 19, 2017
10th meeting of the 20th Board of
Directors Risk Committee
January 31, 2018

Safety management report
Operations risk management analysis
Financial status report

Passed to the Board of Directors

Unanimously passed by all

Operations outlook and financing,upon unanimous approval by all

members of the Board ofcrude oil market analysis

members in attendance.

Directors in attendance.

Financial risk hedging strategy
Oil risk hedging strategy

11th meeting of the 20th Board of
Directors Risk Committee
April 19, 2018
12th meeting of the 20th Board of
Directors Risk Committee

Corporate Governance Report433.3.4 Corporate Governance Implementation Status and Deviations from “theCorporate Governance Best‐Practice Principles for TWSE/TPEx Listed
Companies”
Status of Implementation

Evaluation Item

1. Did the Company
establish its
Corporate
Governance Best
Practice Principles
in accordance with
Corporate
Governance
Best‐PracticePrinciples for
TWSE/TPEx Listed
Companies anddisclose those
Principles?

Deviations
from “theCorporate
Governance
Best‐PracticePrinciples for
Yes NoBrief Explanation
TWSE/TPEx
ListedCompanies”
and Reasons
9
The company's "Rules for Corporate Governance" were set based on "Corporate Social Responsibility Best‐Practice Principles No
for TWSE/TPEx Listed Companies"and were passed and implemented at the 6th meeting of the 19th Board of Directors on
Difference
March 29, 2013 and disclosed on the company's "Major Corporate Regulations" Web page.

2. Company
9ownership
structure andshareholder rights(1)Did theCompany
establish
internal
operational
procedures for
dealing withshareholder
suggestions,questions,disputes, andlawsuits and put
theseprocedures into
practice?

(1) The company's Web site has a portal for shareholder service and a "Method for Handling Investor Relations" has been set No
so that investor suggestions and concerns are dealt with by shareholder service personnel and shareholder service
Difference
agents using relevant procedures. This ensures a smooth channel of communication between the company and its
shareholders and the quality of disclosed information.

(2)Does China
9
Airlines keep
maintain a list of
the major
Company
shareholders
and the ultimate
owners of theseshareholders?

(2) The China Aviation Development Foundation is China Airlines’ largest shareholder and maintains full communication and No
contact with the Company.
Difference(3)Did China
Airlines
establish andimplement risk
controlmechanisms
and firewalls at
the Company
and affiliatedenterprises?

9(3) The Company has established Operational Procedures for Endorsements/Guarantees, Operational Procedures for Lending No
Difference
Funds to Others, and Regulations Governing Management of Invested Enterprises. All capital loans and funding,endorsements/guarantees, and operational supervision and management of Company subsidiaries shall proceed inaccordance with these procedures and regulations. Audit units perform quarterly audits of Company
endorsements/guarantees and capital loans/funding, which are provided to management and independent directors.
The Corporate Development Office is responsible for overseeing implementation at invested enterprises and should any
faults be discovered, an improvement deadline is set and the progress is tracked.

(4)Did theCompany
establish
internal
standards toprevent insider
trading on
undisclosed
information?

9(4) The Company established the Directors Code of Conduct, Procedures for Handling Material Inside Information, andHigh‐Level Manager Code of Conduct to specify insider trading prevention and processing of secret stock trading andoperating information as required of employees by law. Those with undisclosed material inside information areprohibited from engaging in securities trading.

44 Corporate Governance ReportNo
DifferenceStatus of Implementation

Evaluation Item

3. Structure andresponsibilities of
the Board of
Directors(1)Has theCompany
establishedpolicies callingfor diversity
among
members of theBoard ofDirectors andput said policies
into practice?

Yes No9

Brief Explanation(1) China Airlines (Hereinafter “the Company”) advocates and respects director diversity policy, and is convinced that thediversity can improve the overall performance of the Company. Members of the Board of Directors shall be based on
personal capability and the diversification from different aspects shall also be taken into consideration, including basic
characteristics (e.g., age, gender, race, nationality, etc.), experience and skills (e.g., aviation, sea freight, transportation,
finance and accounting, law and insurance, academia, electricity, technology, and public utilities), operation andmanagement, leadership and decision‐making, and crisis management ability. To enhance capabilities among the Boardof Directors for achieving ideal goals of corporate governance, the Company has set its "Rules for Corporate Governance"
which clearly set forth that the Board as a whole should have the following capabilities:y The ability to make operational judgment.
y The ability to perform accounting and financial analysis.
y The ability to conduct management administration.
y The ability to conduct crisis management.
y Industrial knowledge.
y Perspective of the international market.
y The ability to lead.
y The ability to make decisions.
Moreover, the status of diversity among China Airlines' current Board members is as follows:
APR 29, 2018
Diversified
Core
GenderName ofboard
memberHo,
Nuan‐Hsuan
Hsieh,
Su‐ChienCharles
C.Y. ,Chen
Jong, Jia‐shi
Cheng,
Chuan‐YiTing,
Kwang‐Hung
Chen,
Han‐Ming
Lee, Kuo‐ FuLin, Su‐Ming
Chung,
Lo‐MinLuo,
Hsiao‐Hsien
Ting, Tin‐Yu(2)In addition to9
theestablishmentof theRemuneration
Committee andAudit
Committee as
required by law,
did theCompany
establish
committees
with otherfunctions of its
own accord?
(3)Has the9Company
establishedperformance
evaluation
guidelines andevaluation
methods for the
Board ofDirectors anddoes it evaluate
its performance
regularly eachyear?

Operations
Management

Perform
Accounting
And
Financial
Analysis

Male

○

Male

○

Male

○

Male

○

Male

○

Male

○

Male

○

Male
Male

Conduct
Management
Administration

Conduct
CrisisManagement

Industrial
Knowledge

Perspective
Of TheInternational
MarketLead

Deviations
from “theCorporate
Governance
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and ReasonsNo
Difference

Make
Decisions

○

Male
Male

○

Male

○

Note: Indicates has the capability ○ indicates has some capability.
No(2) In addition to establishing the Audit Committee and Salary and Remuneration Committee as required by law, theDifferencecompany also voluntarily established the "Risk Committee", made up of 5 directors, which is convened based onorganizational rules approved by the Board of Directors and meets in principle once per quarter. Committee members are
responsible to the Board of Directors, and engage in review and discussion of relevant topics and report their conclusions
and recommendations to the Board for action. Results have been good.

(3) The Company’s Board comprises ten juridical person shareholder representatives and three independent directors. Of
these, the 10 juridical person shareholder representatives are assessed as determined by the juridical personshareholders, while the responsibilities of the three independent directors shall be faithfully fulfilled in accordance withthe powers conferred by law.

No
Difference

Corporate Governance Report45

Status of Implementation

Evaluation Item(4)Does theCompany
periodicallyassess theindependenceof external
CPAs?

Yes No9(4) As per Article 28 of the company's own "Rules for Corporate Governance" and the "Corporate Social Responsibility
Best‐Practice Principles for TWSE/TPEx Listed Companies", the company's Audit Committee and the Board of Directors
does regular assessments of the independence and suitability of accountants each year, with assessment results as follow:
Assessment Results
Item AssessedYes

4. Has the Company 9
set up a full‐ (orpart‐) time
corporate
governance unit or
personnel to be incharge ofcorporate
governance affairs(this may include
but is not limited
to furnishingdirectors andsupervisors
information
required forbusiness
execution,
handling mattersrelating to board
meetings andshareholders
meetings
according to laws,
handling corporate
registration andamendment
registration, andproducing minutesof board meetingsand shareholders’meetings)?
5. Has the Company
establishedcommunication
channels withstakeholders(including but notlimited toshareholders,
employees,
customers, andsuppliers) and set
up an area
dedicated to
stakeholders on
the Company
website? Does theCompany respond
appropriately toBrief Explanation

9

No

Deviations
from “theCorporate
Governance
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and ReasonsNo
Difference

Conforms to
independence?

1. Issued an accountant independence declaration.

Yes

2. Have not gone seven continuous years without changing
accountants.

Yes

3. Not served as Company director or manager.

Yes

4. Not a shareholder in the Company and has never been on theYespayroll.
5. The accounting firm for which they work is not a Company
Yesaffiliated enterprise.
6. Has not provided any non‐auditing services to the Company thatYes
could affect complete independence.
After assessment by the company, accountants Yang, Cheng‐hsiu and Chen, Li‐chi of Deloitte & Touche both conform to
the above assessment standards for independence, and are suitable to act as CPAs for this company. After the 11th
meeting of the 20th Audit Committee on March 22, 2018, a report will be made to the 15th meeting of the 20th Board of
Directors on the appointment of accountants.
No
The company has set up a Corporate Sustainability Committee, to be specifically responsible for and organize sustainable
Difference
governance for the company. With the "Corporate Social Responsibility and Sustainable Development Best PracticePrinciples" as the guiding principles, an overall plan for company‐wide sustainable development strategy is set and planned,
and a report on 2017 CSR work results was presented to the 14th meeting of the 20th Board of Directors on January 24,
2018, as follows:(1) Organization: Adjustment and consolidation of team names and members in the Business Sustainability Committee(note),and enhancement of the linkage between operations and sustainability.
Here, a Joint Values Team was created to handle not only planning of relevant matters for the Board of
Directors, functional committees and ordinary shareholder meetings, and a corporation information
meeting was held on August 17, 2017 and April 24, 2018 as well.
(2) Management:
1. To emphasize the consideration of stakeholder interests, the 10th meeting of the 20th Board of Directors on March
30, 2017 passed revisions to the Practical Guidelines for Corporate Social Responsibility and Sustainable
Development.
2. Two CSR training sessions were held on December 11, 2017, with a total of 58 governance employees in attendance.
(Note) Beginning in 2017, the Office of Business Development acts as executive secretary for committees, and based on
operational framework and sustainable strategy teams were readjusted into six main teams: the "Customer Relation
Team, Human Resource, Supply Chain, Environment, Society, and the Corporate Governance”. Senior vice presidents
serve as supervisors for each group, enhancing the link between sustainable development and operational
governance.

As per the principles of the AA1000 SES‐2011 stakeholder engagement standard, major stakeholders were identified anddifferent channels of communication and platforms were set up to address each individual category of stakeholder, toensure the ability to respond to complaints and desires from all stakeholders.
Item Focus of
Channel Of Communication
Contact Person
Frequency
Category
communication
And Response
Labor‐Management
Monthly
Conference
Employee concerns mailbox(Wecare listens mailbox,
Human Resource Div.
Speak Out employee
Employee feedback
Real time
Employees
Miss Chi
communication mailbox,
and satisfaction rates
Tel: +886(0)‐3‐3998917
Team+ real‐time information
platform)
Website for retired
employees and those who
Real time
have left employment

46 Corporate Governance ReportNo
DifferenceStatus of Implementation

Evaluation ItemYes NoBrief Explanation

corporate social
responsibility
issues thatstakeholders
considerimportant?

Passenger Service
Passenger dedicatedphone line:+886(0)‐2‐412‐9000
Customers

Customer thoughts
and feelings

Cargo Service
Miss Wei
Tel: +886(0)‐3‐3998263
Aircraft Maintenance
Mr. ChouTel: +886(0)‐3‐3987215

Investors

Reports on operating
results, maintaining
good communication

Finance Div.
Mr. Yang
Tel: +886(0)‐3‐3998331
General Products
General Manager,
Administration Div.
Miss Tang
Tel: +886(0)‐3‐3999136

Partners(Suppliers)

Society

6. Has the Company 9
appointed aprofessional
shareholder
services agent tohandleshareholders
meeting matters?
7. Information
disclosure(1)Has the9Company
established apublic website
to disclose
financial,
operational, andcorporate
governanceinformation?

Deviations
from “theCorporate
Governance
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons

Status of suppliersupply/shipment andsustainable risk

Show concern for
disadvantaged groups,
increase social
connection, spurtransparent
communication

Aircraft Parts
Engineering Div.
Mr. TsaiTel: +886(0)‐3‐3834251
Ext.7507
e‐shopping / Duty free
In‐Flight Service Supply
Div.
Mr. TsuiTel: +886(0)‐3‐3934251
Ext.4925
CSR
Corporate Development
OfficeMr. ChungTel: +886(0)‐3‐399‐8530

Customer satisfaction
surveysGlobal marketing teammeetings
Discussions with travel
agencies
Company website, industry
social responsibility network,
Facebook and Email
Dedicated customer service
site
Site visits
Shareholders meeting
Shareholder hotline/mailbox
Corporate information
meeting

Semi‐annuallyOccasional
Once or twice
annually
Real time
Real time
Occasional
Annually
Real time
Annually

Telephone, email

Occasional

Consultative conferences

Quarterly

Business visits

1‐2 months

Hold activities for the public
good, participate in activities
in society

Occasional

Press Releases

Occasional
every month

Charitable activities
Corporate
Occasional,
Network mailbox
Communications Officedaily
Mr. LeeTel: +886(0)‐3‐399‐8639
Moreover, the company website also has a "Stakeholder Contact":(https://www.china‐airlines.com/tw/zh/about‐us/stakeholder), and accounts in detail for communications channels for all
stakeholders (including contact portals, email, telephone, etc.)For every issue stakeholders are concerned about, there is a
dedicated employee ready to answer.
The Company’s professional services organization is CTBC Bank, which has been appointed to handle shareholder meeting
matters.

(1) Dedicated units within the Company provide information to be disclosed on the China Airlines corporate website(http://www.china‐airlines.com) regarding marketing, operations, finance, administration, aircraft operations, humanresources, training, Shareholders’ Meeting, and the annual report, prospectus, and any material information. Throughthis easily available information, consumers, suppliers, and investors can better understand China Airlines operations.

No
DifferenceNo
Difference

Corporate Governance Report47

Status of Implementation

Evaluation ItemYes No(2)Has the9Company
adopted othermethods ofinformation
disclosure (e.g.,setting up an
English website,
designating a
specialist
responsible forgathering anddisclosing
Company
information,
setting up a
spokesperson
system,uploadingrecordings ofinvestor
conferences
onto theCompany
website)?
8. Does China Airlines 9
have otherimportant
information tofacilitate better
understanding of
the Company's
corporate
governancepractices(including, but notlimited to
employee rights,
employee care,investor relations,
supplier relations,stakeholder rights,
director andsupervisor training
regimes, risk
management
policies, and risk
measurement
standards as wellas theimplementation ofclient policies andthe Company'spurchase of
liability insurance
for its directors
and supervisors)?

Brief Explanation(2) The company has set up an English language website "China Airlines Corporate Website(https://www.china‐airlines.com/tw/en), with the Office of Public Relations as the spokesperson and responsible forgathering and disclosing company information on a monthly basis, and for announcing corporate information to theoutside, including press releases, new interviews and press conferences.

Deviations
from “theCorporate
Governance
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and ReasonsNo
Difference

1. Employee rights: In addition to obeying the Labor Standards Act, in 2002 the company signed a collective agreement that No
Difference
remains in force today. salaries and remuneration, benefits and insurance are adjusted annually basedon the remuneration policy and revenue, and there are also procedures for merit pay and higher pay forpromotions to select and promote outstanding employees
2. Employee care: Primarily in three areas(1) Information:a. The company updated all its internal information networks in 2018, optimizing the platform user interface andenhancing information security, while also integrating provision of information via documents and periodicallyplanning electronic bulletin boards for "News Focus, What's Going On in the Company, China Airlines Light, andActivities" with text and media. These share the company's latest operations information and decision making
progress, while notifying employees of important information using email blasts.
b. The Wecare Listens mailbox, Speak Out employee communication mailbox, Team+ real‐time information platform
and other diversified channels provide employees with ample direct channels to express their opinions andcomplaints.
(2) Organizational:
Based on the scale and dependencies of each unit in the company, employee relations departments or dedicatedpersonnel have been established to be responsible for good communication channels and overall management ofrelations, assisting in publicizing various beneficial policies of the company and eliminating misunderstandings byimproving internal employee satisfaction, cohesiveness, feeling of identification with the company, and work
achievements at appropriate times.
(3) Systemic:
Periodically hold labor‐management conferences and supervisor‐employee communication meetings, and have
employee benefits committee members participate in meetings with various types of unions and employee
representatives, to tell employees about related governance actions at appropriate moments, and each resolution
gives full respect to employee opinions and interests.
3. Investor relations:
The company has established "Rules for Handling Investor Relations” by which it handles all investor concerns or opinions.
A total of 17 were handled in 2017.
4. Supplier relations:
Based on the company regulations in "Work Rules for Purchasing and Acceptance of Ordinary Goods", except in the case ofpatents and urgent purchases, all bids are public and disclosed on the company web site, establishing a transparent andopen process with a fair competitive environment for transactions.
Moreover, under the "Business Rules for Management of Suppliers of Ordinary Goods", supplier qualification, credit, andcapability audits and assessments must be performed on suppliers at different stages of business risk, and audits for a totalof 100 suppliers were completed in 2017.
Additionally, under the company's "Announcement of Sustainable Supply Chain Management Policy", beginning in 2016,
all suppliers have been required to sign a "Supplier Code of Conduct" at the time of bidding, jointly pledging to create asustainable industrial environment; in the future, the company will continue to promote the purchase of products withenvironmental marks. As of the end of 2017, over NT$11.73 million had been spent on green purchases.
5. Stakeholder interests:
The company Website has a "Stakeholder Contact" and other diverse communications channels and platforms toappropriately and effectively address all manner of stakeholder complaints and wishes.
6. Continuing education for directors and supervisors: see page 61 for details.
7. Status of implementation for risk management policy and risk balance standards:
The company's operations are enormously impacted by both the domestic and international environment, so to further
improve the risk management system mechanism and reduce the effect created by interplay among risks; the company

48 Corporate Governance ReportStatus of Implementation

Evaluation ItemYes NoBrief Explanation

Deviations
from “theCorporate
Governance
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons

has established a "Risk Committee" answering directly to the Board of Directors. The committee meets once per quarterand issues periodic reports to the Board of Directors, assisting the Board in oversight of the setting, results and adaptive
measures related to company risk management strategies.
Moreover, to establish a solid internal governance system, the company has additionally set up "China Airlines Proceduresfor Handling Important Internal Information", "Ethical Code of Conduct for Directors", "Ethical Code of Conduct for Senior
Supervisors" and "Rules for Employee Conduct in the Course of Work".
8. Implementation of customer policies:
The company proactively uses electronic questionnaires to obtain information on passenger satisfaction. In 2017, a total of
599 valid customer satisfaction surveys were performed, and after statistical analysis, products and services were
examined and improved as a result, raising the overall level of customer satisfaction.
9. Company purchase of liability insurance for directors and supervisors:
In 2017, the company purchased liability insurance for all directors, to reduce and distribute the risk of legal liability fordirectors. At the 11th meeting of the 20th Board of Directors on May 11, 2017, a report was made to the Board on
important information related to insurance for the directors, including the value, coverage and premiums paid.
9. Please explain improvements that have been made in response to the results of the Corporate Governance Evaluation issued by the Taiwan Stock Exchange Corporate
Governance Center:In 2017, the company began to compile its annual report in an English edition, and to furnish public information on an observation post 7 days prior to its annual
meeting. Moreover, the company Web site has disclosed the status of communications by independent directors with the internal audit supervisor and accountants(such as how and what they communicate about the company's financial report and financial business, and the results of this communication).The diversification policy
for members of the board of directors has also been disclosed and information provided in the annual report and on the Web site as to its progress.

Corporate Governance Report493.3.5 Composition, Responsibilities and Operations of the Remuneration
Committee
The objective of the Remuneration Committee is to assist the Board to implement and assess theCompany’s overall compensation and benefits policy and director and manager remuneration.

A. Professional Qualifications and Independence Analysis of Remuneration Committee
Members
Criteria Meets One of the Following Professional Qualification
Requirements, Together with at Least Five Years’ Work
Experience
An instructor or
higher position A judge, public
in a department prosecutor, attorney, Has work
Certified Publicof commerce,
experience inlaw, finance,
Accountant, or other the areas ofTitle
accounting, or professional orcommerce, law,
(Note 1)other academic technical specialist
finance, ordepartment
who has passed anational examination accounting, or
related to theotherwisebusiness needs and been awarded a necessary forof the Company certificate in a
profession necessary the business ofin a public orfor the business of the the Company
private juniorcollege, college Company
Nameor university
Independent
Luo,
9
‐
9
Director
Hsiao‐Hsien
Independent
Ting, Tin‐Yu
9‐9Director
Other

He, Jyun‐Huei

9

‐

9

Independence Criteria (Note 2)

1

2

3

4

5

6

7

Number of Other
PublicCompanies inWhich theIndividual isRemarks
Concurrently
Servingasan
8Remuneration
Committee
Member9 9 9 9 9 9 9 90‐

9 9 9 9 9 9 9 90‐

9 9 9 9 9 9 9 90‐Note 1: Please tick the corresponding boxes that apply to a member during the two years prior to being elected or during their term(s) in office.
1. Not an employee of the Company or any of its affiliates.
2. Not a director or supervisor of affiliated companies. Not applicable in cases where the person is an independent director of the parent
company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.
3. Not a natural‐person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the
person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company, or ranking
in the top 10 in holdings.
4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in thepreceding three sub‐paragraphs.
5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding
shares of the Company, or who holds shares ranking in the top five holdings.
6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has afinancial or business relationship with the Company.
7. Not a professional individual, who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or
institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of theCompany, or a spouse thereof.
8. Not a person of any conditions defined in Article 30 of the Company Law.
Note 2: The Remuneration Committee is composed of four members. For the Remuneration Committee Charter, please refer to the Company
website: http://www.china‐airlines.com.

50 Corporate Governance Report

B. Attendance of Members at Remuneration Committee Meetings
The Remuneration Committee convened three meetings over the past year (from January 1, 2017
through April 29, 2018). Committee member attendance is detailed below:
Title

Name

Chairman

Luo, Hsiao‐Hsien

MemberTing, Tin‐Yu

MemberMemberAttendance in

By ProxyAttendance Rate (%)

3

0

100%

Assumed post on July 24, 2015.

3

0

100%

Assumed post on July 24, 2015.

He, Jyun‐Huei

3

0

100%

Assumed post on July 24, 2015.

Cao, Shou‐Min

‐

‐

‐

PersonRemarks

Assumed post on July 24, 2015 and resigned on July
1, 2016.

Other mentionable items:
1. If the Board of Directors declines to adopt or modifies a recommendation of the Remuneration Committee, the date of the meeting, session,
content of the motion, resolution by the Board of Directors, and the Company’s response to the Remuneration Committee’s opinion (e.g., theremuneration passed by the Board of Directors exceeds the recommendation of the remuneration committee, the circumstances and cause for thedifference shall be specified) shall be recorded: None.
2. Resolutions of the Remuneration Committee objected to by members or subject to a qualified opinion and recorded or declared in writing, the dateof the meeting, session, content of the motion, all members’ opinions and the response to members’ opinion should be specified: None.

Corporate Governance Report51

3.3.6 Corporate Social Responsibility
Implementation Status

Evaluation Item

1. Corporate governance implementation(1)Has the Company established corporatesocial responsibility policies or a CSR
system and reviewed the effectiveness of
implementation?

Yes

No

Brief Explanation

Deviations
from “theCorporate
SocialResponsibility
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons

9(1) At the 6th meeting of the 20th Board of Directors on May 12, 2016, the Board
No Difference
passed revisions to the "China Airlines Co., Ltd. Corporate Social Responsibility
and Sustainable Development Best Practice Principles " and has since taken thisdocument a the highest guiding principle in the company's implementation of
CSR.
Moreover, the company has set up a Corporate Sustainability Committee, as thehighest sustainable governance organization in the company, with a senior vicepresident acting as chair of the committee. The president reviews the progress ofsustainable business at least twice annually. The following actions were taken in2017 and disclosed in the 2017 CSR report:y Sustainability, operations and brand strategies were linked, and a call made tofollow the United Nations' 9 sustainable development goals in setting asustainable strategy blueprint. Six major strategic axes were set with 12
directions of strategic development.
y Stock was taken of the six types of capital and these were included in actual
value assessment tools to quantify the company's non‐financial achievements.
y Mechanisms for managing human rights risk and auditing sustainable supply
chains were established.
y The group's environmental sustainability capability was enhanced, forexample, assisting Mandarin Airlines in obtaining carbon label certification.
y Two major axes for social sustainability strategy were set, and plans related tocorporate citizenship set based on the company's core strengths, in response
to sustainable development goals 4 and 8.

(2)Does the Company regularly hold CSR
training?

9(2) The company runs sustainable development training classes and lectures forsenior managers periodically each year, and started two CSR trainings on
December 11, 2017, these being a practical course on report drafting and training
on sustainable supply chain management. A total of 58 employees with relevant
positions participated, to develop the concept of sustainable development.

(3)Has the Company designated full‐ (orpart‐) time personnel to implement
corporate social responsibility policy withsenior management authorized by the
Board of Directors to manage them, anddo they give status reports to the Board of
Directors?

9(3) The company has set up a Corporate Sustainability Committee, as an organization No Difference
responsible solely for corporate social responsibility, with the president as its
chair. There are six task forces based on their business structures andsustainability strategies, which are Customer Relation, Human Resource, Supply
Chain, Environment, Society, and Corporate Governance. Corporate Development
Office who is charged with developing and planning sustainable development
strategies for the entire organization, and reports the latest progress acts as theexecutive secretary for the committee and assists in business promotion, and areport is made each year to the Board of Directors. At the 14th meeting of the20th Board of Directors on January 24, 2018, a report on the results of CSR work
was presented.

(4)Has the Company established reasonable
remuneration policies and integrated theemployee performance evaluation system
and CSR policies, and established a clear
and effective incentive and discipline
system?

9(4) As stipulated in the Company’s Articles of Association, if the company makes a No Difference
profit over the year, an amount of no less than 3% of the profit must be
distributed as employee compensation. If the Company has accumulated losses,
funds must be retained to offset the deficit. The company clearly states related
rules in the business handbook (including performance evaluation, incentives andremuneration, etc.), and additionally, salaries and remuneration, benefits andinsurance are adjusted annually based on the remuneration policy and revenue,
and there are also procedures for merit pay and higher pay for promotions.
Performance assessments for employees are done regularly three times a year,
evaluating basic core job functions with other assessment indices and methods
added as dictated by the job specialty, to remain current with actual employee
work performance.

9(1) The company has employed internal and external audits and inspections to further No Difference
improve its management of environmental and energy work, and a KPI
performance review is done each quarter by environmental committee members
and has met environmental sustainability goals. The following are the company's
environmental management strategies and major management goals related tothese considerations, as well as the management measures implemented toreach the goals:
1. Implementation of environmental management and carbon management
strategies

2. Sustainable environmental development(1)Has the Company endeavored to makemore efficient use of resources and use
renewable materials that have a lower
impact on the environment?

52 Corporate Governance Report

No DifferenceImplementation Status

Evaluation Item

Yes

No

Deviations
from “theCorporate
SocialResponsibility
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons

Brief Explanation

Concept

PolicyComplying
withenvironmental
laws andregulations

Enforcingcomplianceobligations tofulfill thecompany's
responsibilities
inenvironmental
protection andenergyconservation

Conserving the
Earth's
resources

Improving
eco‐efficiency

Establishingenvironmental
and energy
management
systems,
including
performanceindicators, toverifycompliance withestablishedpolicies
Promotingenvironmental
and energy
conservation
education tofosteremployees'
eco‐awarenessImplementing
green supply
chain
management toraise overall
eco‐efficiency

Action plan
(1) The company established its"Corporate Environmental
Committee" in 2012. The
committee periodically takes
stock of legal requirements
and new pledges and assesses
the level of compliance.
(2) Keeping up with changes tointernational standards, andimproving the function of thecorporate environmental
management system (ISO
14001:2015).
(3) Environmental goals and plans
to promote them are set
annually for different
business areas (pax/cargoservices, flight operation andoffice activities), with various
resources conserving goals.
(4) Periodically (each quarter) use
the "Environmental
Committee meeting” to grasp
the progress ofenvironmental rules both
domestic and international,
and ways to comply, andtrack and review
environmental and energy
savings achievements(carbon/noise/air pollution).
(5) Primary consideration in thepurchase of ordinary goods is
given to those with anenvironmental lable ispromoted, and periodic
reports are made to thecompany on green products
purchased, their quantity andthe amount of money spenton them.
(6) Continued participation in
DJSI, CDP and otherinternational evaluations.
(1) Set and implemented
short/mid/long‐term GHG
reduction goals.
(2) Began adding sustainable
alternative fuels starting withferrying of new planes in2017.
(3) Manage carbon rights basedon changes to EU ETS carbon
prices.
(1) Beginning in 2014, groupbusinesses have been invited
each year to attend
environmental symposia andrelated professional classes,
to raise the overall capacity
for environmental
management.
(2) Through contractors'
meetings, supplier meetings
and regular meetings, thecompany continuously
communicates its
environmental management
methods and requirements to
suppliers.

Corporate Governance Report53Implementation Status

Evaluation Item

Yes

No

Deviations
from “theCorporate
SocialResponsibility
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons

Brief Explanation

Creating a(1) In 2018, the company will
low‐carbon
plan and implement a "Green
operatingTicket Price (Carbon Offset)
environment toService", and continue toestablish
communicate environmental
continual
concepts to customers.
improvement of(2) Annual plans and holding
environmental"Environmental Education
Fulfilling social
protection andSymposia" and "Funenergyresponsibility
Environmental Competitions”.
efficiency
Occasionally sends new
Supporting
information about
green design
environmental protection toandall employee mailboxes, toprocurement toeducate and guide them inpromoteenvironmentally friendly
sustainablebehaviors.
development
2. Energy savings and carbon reduction
The company has gradually brought in the standards from clauses in the ISO
14001 environmental management system and the ISO 50001 energy
management system, and established an Environmental Management System(EMS) and Energy Management System (EnMS). The company has promoted
measures to save energy and reduce carbon since 2012. In 2017, the company
jointly promoted 60 environmental management KPIs, saving 51,773 metrictons of aviation fuel, reducing ground vehicle fuel consumption by 98 kiloliters,
and reducing energy usage by 549 MWh. The total annual reduction in carbon
was 164,343 tons of CO2e. Detailed data can be found below
AmountCarbonNote: CO2e
Item
Unit
conserved(metric tons CO2e) conversion factor
Aircraft
Fuel
51,773 Metric tons
163,796
3.16375
savings
Ground2.361 (gasoline);
Fuel
98
Kiloliters257
2.651 (diesel)savings
Electricity
549
MWh
290
0.528
conserved
Annual carbon reduction

164,343(Metric tons CO2e)

3. Water conservation and wastewater treatment
The company's total water usage in 2017 was 141,257 units, up 3.60% from2016. The major reason for the increase was the impact of support for the Cal
Hotel due to construction and WC projects. So that 2017 water usage was up
4,907 units over 2016. However, beginning in May, 2016, wash operations
were halted for 24 target locations, and eco‐friendly cleaning methods usedsuch as eco‐shine, which not only achieved the goal of deep cleaning, but also
reduced drag on aircraft bodies during flight and reduced fuel consumption
during flight. This method can also reduce water consumption by 98%; in 2017,
this was expanded to 55 marked aircraft, for a total water conservation of 883
units, up 3.6‐fold from water savings in 2016. Moreover, The company takes
the concept of "total recycling" in maintaining its campuses. It has establishedand operates an effluent treatment plant and an effluent/wastewater recycling
treatment and reuse facility that recycles discharged water that is up to
standard using it to wash vehicles, for ornamental ponds, and for watering. A
total of 1,890 units of running water were conserved in 2017; theeffluent/wastewater recycling and reuse rate (recycled quantity/total wateruse) was 2.7%. The 2018 Action Plan is to calculate rainwater/wastewater
recycling and reuse quantities, and continue to bring in eco‐shine and otherwater‐saving methods as well as calculating efficiencies and establishingbusiness goals. The water conservation goal for 2018 is 2,996 units.
4. Waste management
The company holds to five principles in managing its waste: Reduce, Reuse,
Recycle, Refuse and Repair. The goal is 100% resourcing of waste materials,
raising the reuse rate annually.
Ground operations in 2017 produced 711 tons of waste, while flight operations
produced approximately 3,418 waste material quantities. Of this, ground
operation waste primarily came from maintenance shops and employee
activities on campus. The resource recovery rates were: ground operations,42.03%, in‐flight services, 31.26%. Of this, the most‐recycled item was kitchen
waste, followed by paper.
The 2018 Action Plan will reduce the production of waste and use resource
recycling and set an initial goal for reduction in waste as per the "Goals for
Setting Resource Recycling Ratios". The goal for 2018 is a reduction of 98,940
kilograms.

54 Corporate Governance ReportImplementation Status

Evaluation Item

Yes

No

Brief Explanation

Deviations
from “theCorporate
SocialResponsibility
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons
No Difference(2)Has China Airlines established anenvironmental management system thatis specifically designed with theCompany's operations in mind?

9(2) The company keenly believes that aviation fuel efficiency is tightly tied to climatechange and other sustainability topics. In 2007, the company established across‐unit fuel usage management team to enhance aviation fuel conservation,with comprehensive cooperation from business planning through flight
operations, aircraft maintenance and cycle management to manage and control
approximately 30 fuel conservation efficiency indices, and to use systematic risk
management thinking to implement policies of promoting environmental
management. It actively and steadily extended business environment risk
management mechanisms and brought in the ISO 14064 greenhouse gas
management system, the ISO 14001 environmental management system and theISO 50001 energy management system in phases.

(3)Does the Company pay close attention to
the potential impacts of climate change on
operations, has it undertaken an
examination of greenhouse gas emissions,and has it established a carbon andgreenhouse gas reduction strategy?

9(3) In 2008, the company began to actively implement ISO 14064‐1 greenhouse gas
No Difference
management, doing greenhouse gas emissions audits of the organization's
operations, and implementing third‐party reviews. To keep in step with global
trends, in 2012 the company established a carbon risk management mechanism,
and proactively responded to the Carbon Disclosure Plan (CDP). In October, 2014
the company announced its voluntary greenhouse gas reduction targets, and prior
to the announcement of the start of a global carbon management mechanism by
the ICAO, the company was proactively promoting management. Taking 2009 as abaseline, the company actively supported and implemented IATA's three phased
goals:
1. Average annual improvement of 1.5% in fuel efficiency by 2020;
2. Carbon neutral growth by 2020 (CNG 2020);
3. Reach 50% of 2005 emissions by 2050. This has spurred achievement ofstrategic goals for greenhouse gas reductions in the domestic airline industry.

9(1) In the area of comprehensive management systems and organizational capacity, No Difference
the company not only abides by the "Employee Code of Conduct" and "Employee
Work Standards" set forth in various labor laws, but also refers to the "Universal
Declaration of Human Rights", the "United Nations Global Compact", theInternational Labor Organization's basic compact on core labor standards, the UN
Guiding Principles on Business and Human Rights, and local laws and regulations.
The company has established a "Human Rights Policy” based on the
aforementioned norms as guiding principles for the company's management.

(2)Does the Company have an employee
complaint mechanism and channels anddoes it take care of said complaints
appropriately?

9(2) To guarantee employee interests and provide a healthy and safe working
environment, and create a friendly workplace, the company has set "Rules for
Employee Complaint" and "Rules for Employee Safety Reporting Incentives". It has
also provided diversified channels of communication that all employees arefamiliar with, including a "Speak Out" area, periodic labor‐management
consultations and various dedicated complaint mailboxes (including Wecare,
workplace sexual harassment, professional ethics, etc.) and handles all employee
complaints according to a set process.

(3)Does the Company provide employeeswith a safe and healthy work environmentand regularly implement health and safety
education programs for employees?

9(3) 1. The company obtained OHSAS 18001:2007 and CNS 15506:2001 workplace No Difference
safety and sanitation management system certifications on April 20, 2016,
and passed an SGS audit on March 9, 2018.
2. The company established an occupational safety and health committee as
required by law, with responsibility for consideration, coordination andrecommendations on matters concerning workplace safety and health, withpreventing workplace disasters and ensuring employee safety and health asits goals. The committee meets every three months, and does statistical workand analysis on workplace accident cases, providing a report and tracking
follow‐up management of safety and health in these cases. Moreover, aroving safety and health inspection is held from time to time to discoverdangers and remediate them. In 1,156 rounds done in 2017, 211 deficiencies
were identified, with all completely remediated, for an improvement rate of100%.
3. The China Airlines employee safety reporting system (AQD) is used forpotential hazards in the workplace, with risk assessment performed to reduce
the occurrence of accidents. In 2017, the AQD registered 107 cases related tosafety and health, of which all 107 were remediated, for an improvement
rate of 100%.
4. Responds to major domestic transportation accidents and periodically
performs sampling inspections of highway buses leased by the company toensure all necessary equipment is in place to provide employees with safe
transportation.
5. The company provides employees with clean, nourishing food in cafeterias,
and periodically visits to check that the cafeteria environment is sanitary andfood is of good quality.
6. Implements safety and health training:(1) General employee safety and health training.

3. Social welfare(1)Has the Company establishedmanagement policies and procedures inaccordance with relevant laws andregulations and international human rights
conventions?

No Difference

Corporate Governance Report55Implementation Status

Evaluation Item

Yes

No

Brief Explanation

Deviations
from “theCorporate
SocialResponsibility
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons(2) New hire manager and employee safety and health training by e‐Learning.
(3) Workplace safety and health committee member training.
7. Events to promote health(1) A total of 16 events promoting health were held at the Taoyuan
headquarters, with a total of 310 people participating.
(2) A total of 14 events to promote health were held at the Taipei branch, witha total of 367 people participating.
(3) A total of 10 events to promote health were held at the Kaohsiung branch,with a total of 144 people participating.
(4) Free flu shots: 230 people in Taipei, 1,092 in Taoyuan, 549 maintenancepersonnel and 41 people in the Kaohsiung area.
(4) The company holds a monthly labor‐management conference, and has also
No Difference
established a "Speak Out" area, Wecare mailbox and other means for employees toshare their questions or concerns with the company. In 2017, a total of 28 cases
were handled to completion, providing both labor and management with rapid
access to important operational information and multiple channels ofcommunication to exchange opinions. Major topics in the company werecommunicated in a timely manner, and information concerning employee interests
was posted to the internal web site or sent to employee mailboxes. Through these
multiple channels of communications and effective work processes harmony ismaintained between labor and management, so that there is good common
understanding of company operations.

(4)Has the Company established amechanism enabling periodic
communication with employees and areasonable method of informing
employees of those operational changes
that could significantly affect their work?

9(5)Has the Company established an effective
career skill development training programfor employees?

9(5) To nurture human resources in the company, a "Training Information Committee" No Difference
has been established with responsibility for planning annual training for
employees. This includes strategic skills training, management skills training andtraining specific to a position. At the same time, in cooperation with the company's
operational development strategy, deepening management talent and improving
the perspective of promising talent, periodic strategic and management trainings
are held, further developing the knowledge and skills employees need. In 2017, a
total of NT$390 million was spent on training development. A total of 93,800
training hours were provided.

(6)Has the Company established policies
regarding R&D, procurement, production,
operations, and service processes andcomplaint procedures to safeguard therights of customers?

9

No Difference(6) 1. Consumer interests policy:
The company has set a service pledge, transport contracts, and disclaimers as
required by law, and has also established a data confidentiality policy,"Information on Privacy Protection and Data Security", to do its utmost to
protect the privacy of individual data for all customers. The policy is disclosed
on the company web site. Moreover, the company added a Personal Data Teamin 2018 and brought in an outside expert consulting team to assist in adapting
to the EU General Data Protection Regulation (GDPR). All GDPR privacy
protection systems are projected to be in place by May 28, 2018.
2. Consumer complaint procedure:
The company provides consumers channels for complaints about products andservices, including: the company web site (includes: special stakeholder area,
customer response, service satisfaction survey), Facebook page, email customer
service, global office addresses and telephone numbers for service lines.
Customers may also write in directly and complaints all receive a response after
handling.

(7)Does the Company's product and service
marketing and labeling adhere to relevantlaws and regulations and international
standards?

9(7) The services and products the company provides all adhere to the laws and
No Difference
regulations of various countries. As of the end of 2015, the company compliedwith US DOT's accessible web page regulations for airlines, and had developed
WCAG AA‐level accessible web pages. These provide a means for customers who
have difficulty using traditional web pages to access the information on the pages
using alternative means, effectively making the page more user‐friendly and giving
customers greater convenience. At the same time, internet transactions provide apayment platform that conforms to the industry standard (PCI DSS), ensuring thesecurity of consumer credit card information. In 2017, to facilitate themanagement of the multilingual China Airlines web site structure, the company
further the scope of its regional language pages, and as of the end of 2017, theChina Airlines web site was available for 15 destination countries and provided 13
different languages.

(8)Prior to entering a business relationshipwith a supplier, does the Company first
determine whether or not the supplier has
any record of negatively impacting societyor the environment?

9(8) Potential CAL suppliers must issue a “tender declaration” prior to submitting atender. CAL requires that suppliers meet conflict of interest avoidance principles,anti‐bribery regulations, and supplier integrity standards, while at the same time
following all local laws. CAL carefully assesses suppliers’ impact on theenvironment and society and their image, including their reputation and any
record of previous illegal activities.

56 Corporate Governance Report

No DifferenceImplementation Status

Evaluation Item

(9)Do the Company's contracts with its major
suppliers include provisions forterminating the agreement at any time inthe event that the suppliers are involvedin any activities that violate Company CSR
policies and that significantly adversely
impact the environment or society?
4. Strengthening information disclosure(1)Does the Company disclose on its website
and TWSE Market Observation Post
System relevant and reliable information
about Company CSR?

Yes

No

Brief Explanation

9(9) The company has set a "Supplier Code of Conduct" and specifically stipulates that
suppliers must provide a safe, healthy working environment, guarantee mutual
respect, dignity and fairness for labor, and respect professional ethical standards;
in all circumstances, when supplying products or services, all actions must fulfill
legal and ethical requirements and promise responsibility to society and theenvironment; In the event of any violations of these basic rules, the company
terminates the bilateral business relationship.

9(1) The China Airlines website features a dedicated CSR section to highlight our
related programs and we have disclosed our “CSR Report” and “GHG Emissions
and Reduction Information” on the Taiwan Stock Exchange Market Observation
Post System.

Deviations
from “theCorporate
SocialResponsibility
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reasons
No Difference

No Difference

5. If the Company has drawn up a code for CSR based on the Corporate Social Responsibility Best‐Practice Principles for TWSE/TPEx Listed Companies please
describe any differences between said code and the Best Practice Principles:
To completely implement the company's social responsibility, the company has set its own "Practical Guidelines for Corporate Social Responsibility andSustainable Development" based on the "Practical Rules for Listed and OTC Corporate Governance”. These were approved at the 6th meeting of the 20th Boardof Directors on May 12, 2016. To conform to the government's promotion of CSR, and to keep in step with international trends, the company revised its"Practical Guidelines for Corporate Social Responsibility and Sustainable Development" based on the revised "Practical Rules for Listed and OTC Corporate
Governance" in March, 2017. Using these as the highest guiding principles for CSR, there was a comprehensive review of corporate operations and feedback
was provided to management and executives, for efforts in social responsibility in the three major areas of environment, society and governance (ESG); thisyear, there were no operational discrepancies.
6. Other important information for facilitating the understanding of CSR and its implementation:(1) Environmental protection: in 2017, China Airlines brought on 10 new A350s, ferrying them from Toulouse, France to Taiwan on November 30. These planes
are in the Airbus Air TOTAL cooperative aviation sustainable alternative fuel plan, and sustainable aviation/alternative fuels (SAF) were added making this thefirst airline in Taiwan to use SAF and setting a milestone in carbon reduction among Taiwanese airlines. This fuel was granted the international Certificate of
Sustainability (COS) and can effectively reduce greenhouse gas emissions (a reduction of 20,000 kilograms of CO2e per flight). This reduces the burden on theearth's environment and combined with the A350‐900's fuel conservation efficiency could reduce CO2e emissions by 30% or more compared to planes
currently in service.
(2) Social welfare: The company has long held educational events for the public good, and participates in the "Friendly Campus" educational program for remoteelementary schools as well as the "General Knowledge Platform for the Public Good". Each year, it holds events for the public good at which volunteers teach,
including Chuwei Elementary, Hsihai Elementary, Shanfong Elementary, Haihu Elementary and Kuolin Elementary, benefiting 1,031 students, with a total of 31
volunteers working; Aihsin Papa Tsou held 4 events at Miaoli's Chungho Elementary, Taitung's Chunghua Hsunlihui, Taipei's Children's Autism Foundation, andChiayi County's Tapang Elementarywith over 350 students served by 211 volunteers. Invited "House of Dreams" and other high school disadvantage youth toan event with NBA star rear guard Jeremy Lin. Sponsored the Eden Foundation's 2017 "Onward to American Crazy Baseball to See Yin Hsiong" prize drawing,
the Huashan Foundation Dragon Boat Festival "Move to Love for the Elderly", Mid‐Autumn Festival "Love for the Elderly in the Moonlight" and the Lunar New
Year "Come Together to Love the Elderly" events, donated transportation for relief materials 3 times to the Tzu Chi Foundation, cooperated with Taoyuan
Area Fishing on fencing and cleaning the beach and on the "2018 Fencing the Furnace" event, and continued to provide courtesy air transportation to sickchildren for the "Hsiyuan Association".
(3) Promotion of CSR: Participated in various travel exhibition events in Taiwan and abroad, and sponsored the Taiwan Tourism Bureau and the Tourist
Association's "2017 Taiwan Lantern Festival", "2017 Fulong International Sand Art Season", and the Taipei City Government's 2017 Universiade Cheerleading
Performance Event, the A350 London Cultural Experience Day and the 2017 AAPA President's conference, sponsored the Tourism Bureau's "Welcome 2017with 10 Million Tourists to Taiwan" event, to take specific action to support and participate in promotion of Taiwan tourism. China Airlines innovates withcreative thinking. In 2017, the company earned approbation and awards in Taiwan and abroad and each honor was the result of the hard work of the entire
China Airlines team, allowing the airline to forge an outstanding reputation worldwide.
7. If the Company CSR report has received certification from relevant certification bodies, please detail below:
The CAL 2016 CSR Report was certified by SGS Taiwan Ltd. in May 2017 as meeting GRI core indicators and passed AA1000AS TYPE II high‐level assurance.

Corporate Governance Report573.3.7 Ethical Corporate Management
Implementation Status

Evaluation Item
Yes

1. Establishment of ethical operation policies
and programs(1)Do the Company's Articles of Associationand external documents explicitly
express its ethical policies and methods
and are the Board and management
committed to the active implementationof these commitments?

No

Brief Explanation

Deviations
from “theEthicalCorporate
Management
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reason

9(1) CAL has established Ethical Corporate Management Best Practice Principles and No Difference
Procedures for Ethical Management and Guidelines for Conduct, which werepassed in 2016 at the 5th meeting of the 20th Board session. These guidelines andprinciples clearly spell out the Company’s ethical operating policies, methods, andcommitments. They are published on the CAL website and the Taiwan Stock
Exchange Market Observation Post System.

(2)Has the Company established andimplemented programs to prevent
unethical conduct and do these
programs clearly specify relevant
procedures, conduct guidelines, and adiscipline and appeals system for ruleviolations?

9(2) The company has established the "Guide to Integrity in Management and Business No Difference
Procedures and Conduct" and clearly laid out each item of forbidden unethicalbehavior, a reporting system, and a discipline system, and implements this in theoperations of each unit. Moreover, the company has also set up a unit dedicated tointegrity in management (Human Resources Div.) with responsibility for periodic
reports to the Board of Directors.

(3)Does the Company implement
preventative measures for each item
under Clause 2, Article 7 of the EthicalCorporate Management Best PracticePrinciples for TWSE/TPEx Listed
Companies or other operations thathave higher risk of unethical behavior?

9(3) China Airlines’ Ethical Corporate Management Best Practice Principles expressly No Difference
state that the scope of these regulations shall cover all business operations with ahigher risk of unethical behavior, while also strengthening related measures toprevent those situations listed under Clause 2, Article 7 of the Ethical Corporate
Management Best Practice Principles for TWSE/TPEx Listed Companies.

9(1) In the process of business dealings with other companies, CAL employees explain No Difference
our ethical management policy and related regulations to counterparties andexpressly refuse to directly or indirectly provide, promise, demand or accept any
form of improper benefit. When signing contracts with others, CAL fully reviews thecounterparty’s ethical corporate behavior and includes complying with our ethicalcorporate management policies as a provision in contracts.

(2)Has the Company established anorganization under the direct jurisdictionof the Board of Directors that promotes
ethical management principles and also
regularly reports to the Board
concerning implementation?

9(2) The company's Div. of Human Resources is the specialized unit promoting integrity No Differencein operations. It is responsible for collecting and organizing information on thestatus of integrity in operations for the various units, and reports annually to theBoard of Directors. Moreover, the company encourages reporting of unethicalbehavior or improper behavior, and has established and announced an
independent reporting mailbox with the General Audit Office investigating cases,
how each is handled and following up on reviewing improvement measures andreporting to the Board of Directors.

(3)Has the Company formulated andimplemented policies to prevent
conflicts of interest and provide
appropriate ways to record any potential
conflicts found?

9(3) CAL Procedures for Ethical Management and Guidelines for Conduct expressly state No Difference
that should a conflict of interest arise in the execution of Company duties,
employees shall report the situation to their direct supervisor, who should provide
appropriate guidance.

(4)Has the Company implemented effective
accounting and internal control systems
and does it have an internal auditing
unit or independent accountant
periodically review them?

9(4) In order to implement ethical management, the Company has established effective No Difference
accounting and internal control systems, which are reviewed annually by internal
auditors. The unit under review shall issue a corrective plan for each issue
discovered during the audit and follow ups will be held regularly to review
implementation.

(5)Does the Company periodically holdinternal and external ethical corporate
behavior training?

9(5) The company has created documents such as the "Guiding Principles for No Difference
Operational Integrity" and the "Guide to Ethical Operational Business Procedures
and Behavior", and disclosed them on the company's internal and official web sites
for both employees and outsiders to reference. In 2017, the company also held the
China Airlines Group Code of Conduct e‐Learning training (including Guiding
Principles for Operational Integrity, human rights policy, employee workplace
behavior rules and environmental and energy conservation policy) for in‐service
employees and new hires. A total of 6,030 in‐service employees completed thetraining, and another 200 new hires also took it, for a total of 3,115 training hours.

2. Implementing ethical corporate
management(1)Does the Company evaluate the ethicalrecords of the businesses with which it
has dealings and include clear ethicalcorporate behavior provisions incontracts with such counterparties?

58 Corporate Governance ReportDeviations
from “theEthicalCorporate
Management
Best‐PracticePrinciples for
TWSE/TPEx
ListedCompanies”
and Reason

Implementation Status

Evaluation Item
Yes

3. Operation of the Company's Violation
Reporting System(1)Has the Company established a concrete
violation reporting and rewards system,
set up convenient reporting channels,
and appointed suitable personnel tohandle these cases?

No

Brief Explanation

9(1) Article 20 of the company's "Guide to Integrity in Management and Business No Difference
Procedures and Conduct" stipulates and discloses reporting channels, specialized
units, handling procedures and the discipline system, as follows:
1. Reporting channel: A reporting mailbox has been set up and disclosed on boththe internal and public Web sites at auditor@china‐airlines.com, for people
both in the company and outside to use.
2. Dedicated unit: The General Audit Office.
3. Handling procedure:
The company personnel handling reported incidents must make a written
statement with regard to the non‐disclosure of the identity of the reporter andthe matter being reported, pledge to protect the reporter against any improper
consequences as a result of the report, and the General Audit Office will follow
the procedure below:(1) For reported cases dealing with a ordinary employee, a report must be madeto the department supervisor, and if the report concerns a director or
high‐level supervisor, a report must be made to a director.
(2) The Office of the Chief Auditor and the supervisor or personnel notified in theforegoing clause shall immediately investigate the relevant facts, and if
necessary get help from legislative compliance or other relevant
departments.
(3) If after investigation the person reported is shown to have violated relevantlaws, regulations, or the ethical operations policies of the company, thereported person shall immediately be requested to stop that behavior, and bepunished accordingly. When necessary, payment for damages may be sought
through legal means to protect the reputation and interests of the company.
(4) The receipt of a report, its investigation, and the results of that investigationmust all be retained in a written document and kept for 5 years. The fileshould be kept in electronic format. Prior to the expiration of this retention
period, any complaint concerning the content of the report should haverelevant information appended and retained until any lawsuit is concluded.
(5) If the report is upheld after investigation, relevant units of the company shallbe tasked with reviewing related internal control systems and work
procedures, and providing measures for improvement to put an end to similar
behavior occurring in the future.
(6) The General Audit Office shall investigate cases, how each is handled andfollow up on reviewing improvement measures and report to the Board of
Directors.

(2)Has the Company established aninvestigation SOP for violation reporting
and a relevant confidentiality
mechanism?

9(2) According to CAL Procedures for Ethical Management and Guidelines for Conduct,
all reports of violations and related follow up investigations are kept strictly
confidential and CAL has set up clear and effective awards and punishments,
appeals system, violation reporting confidentiality mechanism, and investigation
SOP.

(3)Does the Company have any measures inplace to protect individuals frompossible mistreatment arising from
reporting violations?

9(3) According to CAL Procedures for Ethical Management and Guidelines for Conduct, No Difference
employees who process violation reports must sign a written statement pledging tomaintain confidentiality of the reporters and the details of the case. CAL also
promises to protect the whistleblower from being improperly punished due to thereporting.

9

CAL’s Ethical Corporate Management Best Practice Principles and Procedures for No Difference
Ethical Management and Guidelines for Conduct are disclosed on the China Airlines
website and the Taiwan Stock Exchange Market Observation Post System, along withthe effectiveness of ethical operations and fair trade principles.

4. Strengthening information disclosure(1)Does the Company disclose the content
of our Ethical Corporate Management
Best Practice Principles and theireffectiveness on our website and the
TWSE Market Observation Post System?

No Difference

5. If the Company has established a code of ethical corporate management based on the Ethical Corporate Management Best‐Practice Principles for TWSE/TPEx
Listed Companies, please describe any differences between said code and the Best Practice Principles: No Differences
6. Other information that will assist in the understanding of Company ethical corporate management practices: None.

Corporate Governance Report593.3.8 Corporate Governance Guidelines and Regulations
The company has set a "Corporate Charter", "Rules for Discussions of Official Business at Shareholder Meetings","Rules for Discussions of Official Business by the Board of Directors", "Ethical Code of Conduct for Directors","Election of Directors", "Rules for Corporate Governance", "Guiding Principles for Operational Integrity", "Guide toIntegrity in Management and Business Procedures and Conduct", "Practical Guidelines for Corporate Social
Responsibility and Sustainable Development", "Ethical Code of Conduct for Directors", "Ethical Code of Conduct for
Senior Supervisors", "Employee Workplace Rules of Conduct", "China Airlines Group Rules of Conduct", "Supplier
Code of Conduct" and "Human Rights Policy", has set up 3 committees under the Board of Directors: "Audit","Remuneration", and "Risk", and has set various organizational rules. The relevant rules listed above are all madepublic on the company's web site (http://www.china‐airlines.com) and the company's social responsibility network(https://calec.china‐airlines.com/csr/index.html).

3.3.9 Resignation or Dismissal of the Company’s Key Individuals, Including the
Chairman, CEO, and Heads of Accounting, Finance, Internal Audit and R&D:
None.
3.3.10 Other Important Information Regarding Corporate Governance
A. The organization and operations of Company internal auditing are disclosed on
the Company website: http://www.china‐airlines.com.
B. Certifications of the personnel related to the company's internal audits:
Institute of Internal Auditors‐Chinese Taiwan Internal Auditor Certificate: 1 person, R.O.C. Certified
Public Accountant License: 2 people.

B. Company financial staff certifications and licenses: Institute of Internal
Auditors‐Chinese Taiwan Internal Auditor Certificate:
6 people, International Internal Auditor Certificate: 5 people, R.O.C. Certified Public Accountant
License: 2 people, R.O.C. Securities (Senior) Specialist: 7 people, R.O.C. Securities Investment Trustand Consulting Professional: 6 people, R.O.C. Futures Specialist: 4 people, R.O.C. Financial Planning
Personnel Proficiency Test Passing Certificate: 4 people, R.O.C. Stock Affairs Specialist Proficiency
Test Passing Certificate: 7 people, USA Certified Public Accountant License: 1 person, R.O.C. BasicEnterprise Internal Audit Proficiency Test Passing Certificate: 6 people.

60 Corporate Governance Report

C. Company Director Continuing Education:
From January 1, 2017 through April 29, 2018
Title

Chairman

Director

Director

Director

Director

Director

Director

Director

Director

Name

Ho,
Nuan‐Hsuan

Traininghours

Date(s)3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

02/25/2017

Taiwan Institute of Directors

The Rise of Innovation Economics‐Revolution and Challenges toEnterprise Operations

3hr

03/28/2017

Taiwan Institute of Directors

Thinking and Challenges forEnterprises to Hold Power in theOnline Economy

3hr

11/17/2017

Taiwan Institute of Directors

The Sixth Annual Chinese Family
Business Symposium

3hr

01/08/2018

Taiwan Institute of Directors

Digital Transformation‐Starting from
Enhanced Board Digital Capabilities

3hr

05/10/2017

Disclosure of Major Corporate
Taiwan Corporate Governance
Information and Director andAssociation
Supervisor Responsibility

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

7hr

06/19/2017

IFRS9 [Financial Tools] and IFRS5
Taiwan Accounting Association [Client Contract Income] AccountingStandards Seminar

3hr

08/01/2017

Taiwan Institute of Directors
and KPMG

1hr

09/21/2017

Preventing Money Laundering andInsurance Anti‐Fraud Institute Countering the Financing ofTerrorism Workshop

Hsieh, Su‐ChienCharles
C.Y. ,Chen

Ting,
Kwang‐Hung

Lee, Kuo‐ FuJong, Jia‐shi

Cheng,
Chuan‐Yi

Chen,
Han‐Ming

Lin, Su‐Ming

Sponsoring Organization

CourseTax Administration in the Era of Tax
EvasionCorporate Governance Report61TitleDirector

Name

Independent
DirectorDate(s)3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

04/11/2017

Ministry of Transportation and Financial Report Analysis andCommunications
Practical Applications

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

3hr

05/11/2017

Training by: Taiwan Corporate
Legal Risk of Corporate Directors
Governance Association

3hr

11/05/2017

Legal Liability and Risk Management
Training by: Taiwan Corporate
for Untrue Financial Reports by
Governance Association
Directors and Supervisors

Huang, Hsiu‐Gu

Independent
Chung, Lo‐Min
Director

Independent
Director

Training
hours

Luo,
Hsiao‐Hsien

Ting, Tin‐Yu

62 Corporate Governance Report

Sponsoring Organization

CourseD. Corporate Governance Related Training Attended by Company Managers:
Title

Name

Date(s)
09/06/2017

Vice
President,
FinanceDiv.

Chen, I‐Chieh

11/23/2017‐11/24/2017
12/21/2017‐12/22/2017

From January 1, 2017 through April 29, 2018
Training
Coursehours
A Practical Workshop on Combined Financial
6hr
Report Compilation
Continued Education for Principal Accounting
Accounting Research and
12hr
Officers of Issuers, Securities Firms, andDevelopment
Securities Exchanges
Foundation
Continued Education for Principal Accounting
12hr
Officers of Issuers, Securities Firms, andSecurities Exchanges
Sponsoring Organization

Assistant
Vice
Accounting Research and Continued Education for Principal Accounting
Ho, Hui‐Fen
12/28/2017‐
President,
Development
Officers of Issuers, Securities Firms, and
12hr(Note 1)
12/29/2017
FinanceFoundation
Securities Exchanges
Div.
AuditorInstitute of InternalInternal Auditor Professional
07/06/2017
6hr
General,Auditors‐Chinese Taiwan Course‐Operation Audits Practice
Chung,
GeneralChuar‐Duan
Institute of InternalInternal Auditor Professional Course‐Practical
Audit
07/12/2017
6hr
Auditors‐Chinese Taiwan Risk Assessment and Checking Skills
OfficeDeputyAccounting Research and "Topics of the Day" Main Points of Newest
05/22/2017 Development
6hr
AuditorLabor Law Revisions and Internal Audit
General, Fang, Juo‐Ling
Foundation
Practices for Enterprise Salary Cycles
General(Note 2)
Accounting Research and "Overview of Legal Liability for Internal
Audit
09/13/2017 Development
6hr
Audits" Overview of legal liability for internal
OfficeFoundation
auditors and whistle‐blower system
DeputyAuditorInternal Auditing Professional
General,Ho, Hui‐Fen
04/16/2018‐ Institute of Internal
Course‐Pre‐Employment Training Workshop
18hr(Note 1)
04/18/2018 Auditors‐Chinese Taiwan
Generalfor the First‐Time Corporate Internal Auditor
Audit
Office(Note 1) Ms. Ho, Hui‐Fen had her work responsibilities changed on 2018/02/01, to take up a job as the deputy auditor general in the
General Audit Office.
(Note 2) Ms. Fang, Juo‐Ling had her job responsibilities changed as of 2018/01/01, taking up work as the vice president in the
Administration Divsion.

Corporate Governance Report63E. On December 6, 2012, after approval by the Board of Directors, the Company
established the China Airlines Ltd. Procedures for Handling Material Inside
Information. In addition to announcing the new procedures to the Board,
management, and employees, they were also published under Important Company
Regulations on the Investor Relations section of the CAL website so the Board,
management, and employees can reference them at any time in order to avoid
violations and the occurrence of insider trading.

64 Corporate Governance ReportChina Airlines Ltd. Procedures for Handling Material Inside Information:
Article 1: These Procedures are specially adopted to establish sound mechanisms for the handling anddisclosure of material inside information by the Company, in order to prevent improper
information disclosures and to ensure the consistency and accuracy of information released by
the Company to the public.
Article 2: The Company shall implement its handling and disclosure of material inside information inaccordance with applicable laws and regulations, the rules and regulations of the Taiwan Stock
Exchange Corporation, and these Procedures.
Article 3: These Procedures shall apply to all directors, managerial officers, and employees of the Company.
The Company shall ensure that any other person who acquires knowledge of the Company's
material inside information due to their position, profession, or relationship of control shallcomply with the applicable provisions of these Procedures.
Article 4: For the purposes of these Procedures, the term "material inside information" refers to
information that is defined as material inside information by the Securities and Exchange Act,
other applicable laws and regulations, and the applicable rules and regulations of the Taiwan
Stock Exchange Corporation or the GreTai Securities Market.
Article 5: The Company’s Finance Division is tasked with handling material inside information. The division
shall have the following functions and authorities:
1. Responsibility for formulating the drafts of these Procedures and any amendments to them.
2. Responsibility for receiving inquiries in connection with the methods of handling material inside
information, and for consultation, review, and recommendations relating to these Procedures.
3. Responsibility for receiving reports on unauthorized disclosures of material inside informationand formulation of corresponding measures.
4. Responsibility for designing a system for preserving all documents, files, electronic records, andother materials related to these Procedures.
5. Other activities related to these Procedures.
Article 6: The Company's directors, managerial officers, and employees shall exercise the due care andfiduciary duty of a good administrator and act in good faith when performing their duties. No
director, manager, or employee with knowledge of material inside information of the Company
may divulge the information to others before it is made public. No director, managerial officer, or
employee of the Company may inquire about or collect any non‐public material inside informationof the Company not related to their individual duties from a person with knowledge of suchinformation, nor may they disclose to others any non‐public material inside information of theCompany of which they become aware for reasons other than the performance of their duties.
Article 7: Proper protection of confidentiality shall be given to files and documents containing the Company's
material inside information when transmitted in written form. When transmitted by email or otherelectronic means, such files and documents must be processed with appropriate security
technology, such as encryption or electronic signatures.
Files and documents containing the Company's material inside information shall be backed up andstored in a secure location.
Article 8: The Company shall ensure that the firewalls specified in the preceding two articles are established,
and take the following additional steps:
1.Adopt adequate control measures for the firewalls and perform periodic testing.
2.Enhance measures for custody and maintaining the secrecy of files and documents containing
non‐public material inside information of the Company.
Article 9: Any organization or person outside of the Company that is involved in any corporate action of theCompany relating to a merger or acquisition, major memorandum of understanding, strategic
alliance, other business partnership plans, or the signing of a major contract shall be required tosign a confidentiality agreement, and may not disclose to another party any material inside
information of the Company thus acquired.
Article 10: The Company shall comply with the following principles when making external disclosures ofmaterial inside information:
1. The information disclosed shall be accurate, complete, and timely.
2. There shall be a well‐founded basis for the information disclosure.
3. The information shall be disclosed fairly.

Corporate Governance Report65Article 11: Any disclosure of the Company's material inside information, except as otherwise provided by law
or regulation, shall be made by the Company's spokesperson, or by a deputy spokesperson acting
in such capacity in a confirmed sequential order. When necessary, the disclosure may be madedirectly by a responsible person of the Company.
The Company's spokesperson or deputy spokesperson shall communicate to outside parties only
information within the scope authorized by the Company, and no personnel of the Company,
other than those serving as the Company's responsible person, spokesperson, or deputy
spokesperson, may disclose any material inside information of the Company to outside parties
without authorization.
Article 12: The Company shall keep records of the following in respect of any disclosure of information tooutside parties:
1. The person who discloses the information, the date, and the time.
2. How the information is disclosed.
3. What information is disclosed.
4. What written material is delivered.
5. Any other relevant details.
Article 13: If a media agency releases information that is in any respect inconsistent with material
information disclosed by the Company, the Company shall promptly issue a clarification on theMarket Observation Post System (MOPS) and request that the media agency correct the
information.
Article 14: Any director, managerial officer, or employee of the Company that becomes aware of any
unauthorized disclosure of the Company's material inside information shall report to the
responsible unit and the internal audit department of the Company as soon as practicable.
Upon receipt of a report made pursuant to the preceding paragraph, the responsible unit shallformulate corresponding measures. When necessary, it may invite members from the internal
audit and other departments to meet for discussion of the measures, and shall keep a record of
the results of the measures for future reference. The internal auditors shall also perform suchaudits as their duties may require.
Article 15: The Company shall take measures to discover those responsible and take appropriate legal action
against any personnel under either of the following circumstances:
1. Personnel of the Company disclose material inside information without authorization to any
outside party, or otherwise violate these Procedures or any other applicable law or regulation.
2. A spokesperson or deputy spokesperson of the Company communicates to any outside party
any information beyond the scope authorized by the Company, or otherwise violates these
Procedures or any other applicable law or regulation.
If any person outside the Company divulges any material inside information of the Company,
thereby causing damage to any property or interest of the Company, the Company shall pursue
appropriate measures to hold the person divulging the information legally liable.
Article 16: These Procedures shall be incorporated into the Company's internal control system. The internal
auditors shall keep themselves regularly informed of the status of compliance with these
Procedures and shall prepare related audit reports, so as to ensure full implementation of theprocedures for handling material inside information.
Article 17: At least once per year, the Company shall conduct educational campaigns to promote awarenessamong all directors, managerial officers, and employees with respect to these Procedures andrelated laws and regulations.
The Company shall also provide educational campaigns to new directors, managerial officers, andemployees in a timely manner.
Article 18: These Procedures, and any amendments to them, shall be implemented upon approval by the
Board of Directors.

66 Corporate Governance Report3.3.11 Internal Control Systems
A. Internal Control Statement

Corporate Governance Report67

B. If the company has commissioned external auditors to review the Company’s
internal control system, the external auditor’s report should be disclosed: None.

68 Corporate Governance Report3.3.12 Any disciplinary measures taken against the Company or its internal staff
due to violations of legal requirements or taken by the Company against
its own staff due to violations of the internal control system. The detailsof the disciplinary measures, major faults, and improvement measures
should be noted:No.
1

Penalty

Deficiency

Improvement

A fine of

Taoyuan City Government, Letter "Labor

When holding a flight to wait for transfer passengers,

NT$300,000.

Inspection" No. 1060090550, Cabin crew

ensure that the supervisor for that flight arranges for relief

working flight CI‐781 on February 21, 2017

personnel to avoid work hour overages.

had a flight held to wait for transfer
passengers, and no arrangements were madefor replacements for the cabin crew. This
caused an overtime situation, in violation of
Article 32, clause 2 of the Labor Standards Act(work time of more than 12 hours), meriting afine.
2

A fine of

Taoyuan City Government "Labor Inspection"

1. The company considers that this issue was caused by a

NT$300,000.

Letter No. 1060198033, cabin crew working

natural disaster, a factor that is beyond its control. An

Flights CI‐511 and 512 on July 7 2017 wereappeal was filed according to law, to protect thedelayed due to traffic control and weather;company's reputation.

cabin crew working CI‐541 and 542 on July 12,

2. The company periodically reviews factors that are

2017had a mechanical issue. This caused anrelated to flight delaysand bring in team dispatch

overtime situation, in violation of Article 32,

planning considerations.

clause 2 of the Labor Standards Act (worktime of more than 12 hours), meriting a fine.
3

A fine of

Taoyuan City Government "Labor Inspection"

1. The company considers that this issue was caused by a

NT$300,000.

Letter No. 1060282279, cabin crew working

natural disaster, a factor that is beyond its control. An

flights CI‐100 and 101 on October 14, 2017.

appeal was filed according to law, to protect the

Delay due to traffic control and weather

company's reputation.

factors. This caused an overtime situation, in

2. The company periodically reviews factors that are

violation of Article 32, clause 2 of the Labor

related to flight delaysand bring in team dispatch

Standards Act (work time of more than 12planning considerations.

hours), meriting a fine.
4

A fine of

On December 9, 2017, a mechanical problem

NT$300,000.

occurred with a flight from another station,and the change to the CI 152 plane caused adelay.

1. This case was due to an uncontrollable factor, and an
appeal was brought under law to protect the company's
reputation.
2. The company periodically reviews factors that are
related to flight delaysand bring in team dispatch
planning considerations.

Corporate Governance Report693.3.13 Major Resolutions of Shareholders’ Meeting and Board Meetings
A. Major Resolutions of Shareholders’ Meeting in 2017
Item
1. 2016 Operations Report and Financial
Statement

Major resolutions
Execution
This resolution was passed On the record after a June 22, 2017 shareholders'
as proposed upon voting.
resolution.
2. Appropriation of 2016 losses
This resolution was passed On the record after a June 22, 2017 shareholders'
as proposed upon voting.
resolution.
3. Revision of "Procedures for theThis resolution was passed It is on the record after a June 22, 2017 shareholders'Acquisition or Disposition of Assets"
as proposed upon voting.
resolution, and was followed that day.
4. Revised "Procedure for Endorsement and This resolution was passed It is on the record after a June 22, 2017 shareholders'
Guarantee"
as proposed upon voting.
resolution, and was followed that day.
5. Elimination of anti‐competition limitations This resolution was passed It is on the record after a June 22, 2017 shareholders'on concurrent service of Chairman of the as proposed upon voting.
resolution, releasing Chairman Ho, Nuan‐chian and
Board Ho, Nuan‐hsuan and board
Director Hsieh, Shi‐chian from non‐compete restrictions.
member Hsieh, Shih‐chian

B. Major Resolutions of Board Meetings (January 1, 2017 to April 29, 2018)th

20 Board

Date

Item

9th session

01/17/2017

1. 2016 Employee Compensation
Case
2. Chairman of the Board andmanagers' 2016 annual bonuses
and 2017 Lunar New Yearbonuses
3. Changes to duties of the Financial
Div. Vice President
1. Audit report for last half of 2016
2. 737‐800 passenger plane sale
3. Convening 2017 shareholders
meeting
4. Issue of domestic unsecured
common corporate bonds for2017
5. 2016 Financial Report andCombined Financial Report
6. 2016 Operations Report
7. 2016 Loss Appropriation
8. 2017 CPA appointment andremuneration
9. Revision of "Procedures for theAcquisition or Disposition ofAssets"10. 2016 Internal Control System
Statement
11. Revisions to "Implementation
Rules for Internal Audits"
12. Revised version of the "Practical
Guidelines for Corporate Social
Responsibility and Sustainable
Development"
1. Revisions to the "Organizational
Regulations for the Audit
Committee" and the "Rules on
the Scope of Responsibility of
Directors"
2. Elimination of anti‐competition
limitations on concurrent serviceof Chairman of the Board Ho,
Nuan‐hsuan and board member
Hsieh, Shih‐chian

10th session

11th session

03/30/2017

05/11/2017

70 Corporate Governance Report

1.Approved.

Opinions of
independent
directors
1.None.

2.Approved.

2.None.

2.None.

3.Approved.

3.None.

3.None.

1.Approved.
2.Approved.
3.Approved.

1.None.
2.None.
3.None.

1.None.
2.None.
3.None.

4.Approved.

4.None.

4.None.

5.Approved.

5.None.

5.None.

6.Approved.
7.Approved.
8.Approved.

6.None.
7.None.
8.None.

6.None.
7.None.
8.None.

9.Approved.

9.None.

9.None.

10.Approved.

10.None.

10.None.

11.Approved.

11.None.

11.None.

12.Approved.

12.None.

12.None.

1.Approved.

1.None.

1.None.

2.Approved.

2. If it is necessary
for Chairman Ho
to act as
vice‐chairman ofa subsidiary in
his capacity as
chairman of thegroup, proposed

2. Response
andexplanation
given tomanagers.

Major
resolutions

Execution
1.None.

th

20 Board

12th session

13th session

14th session

Date

08/10/2017

11/05/2017

01/24/2018

3. Revised "Procedure forEndorsement and Guarantee"
1. Q2 2017 (including first half of theyear) combined financial report
2. Effect on financial report gearing
ratio and group countermeasures
after implementation of IFRS 16
leasing announcement

3.Approved.

Opinions of
independent
directors
that anappropriate andrelevant reason
be explained
should anyone
outside thecompanyinquire.
3.None.

1.Approved.

1. None.

1. None.

2.Approved.

2. Managers
all gave
explanations
at themeeting.

3. 2017 internal audit business
report for first half of the year
1. China Airlines 2018 audit plan
proposal
2. 2018 annual business plan andbudget3. Revisions to "Organizational
Regulations for Audit Board"
4. Revisions to "Rules on Discussionsof Business by the Board of
Directors"
5. Revisions to the "Rules on Scopeof Responsibility of Independent
Directors"
6. Issuance of domestic unsecured
convertible bonds with a total
face value limited to NT$6 billion
7. Proposal for salary andremuneration for senior vicepresident Wang, Hong8. Proposal for salary andremuneration for senior vicepresident Kao, Hsing‐huang
9. Removal of anti‐competition
restrictions on senior vicepresident Wang, Hongconcurrently serving in two
positions
1. The company's 2017 CSR results
2. 2017 Employee Compensationand 2018 Lunar New Yearbonuses

3.Approved.

2. After IFRS 16 is
implemented,
there will bedifferent
currencies inlease contracts
for listed assets
and liabilities.
Propose that theauthorities strive
to have both
assets andliabilities use thesame currency.
3. None.

1.Approved.

1.None.

1.None.

2.Approved.

2.None.

2.None.

3.Approved.

3.None.

3.None.

4.Approved.

4.None.

4.None.

5.Approved.

5.None.

5.None.

6.Approved.

6.None.

6.None.

7.Approved.

7.None.

7.None.

8.Approved.

8.None.

8.None.

9.Approved.

9.None.

9.None.

1.Approved.
2.Approved.

1.None.
2. Proposal toappropriately
explain andclarify
inappropriate
union phrasingsand positions.

1.None.
2. Alreadycoordinate
d with
immediateandappropriat
e responseandclarification for those

Item

Major
resolutions

Execution

3.None.

3. None.

Corporate Governance Report

71

th

20 Board

15th session

Date

03/22/2018

Item

Major
resolutions

Opinions of
independent
directors

Executionon theoutside.
3. Summaryof opinions
of multiple
directors,
andcontinue
current
business.

3. Chairman of the Board andmanagers 2017 annual bonus,
2018 Lunar New Year bonus and2018 salary adjustments

3. Approved.

4. 2018 employee salaryadjustments
5. "Kaohsiung Airport Catering
Services Ltd." share acquisition
proposal
1. Implementation plan andtimetable for adoption ofinternational financial reporting
standard No. 16, "Leasing"
2. Internal audit business report forlast half of 2017
3. Retirements of General Audit
Office General Auditor due to age
4. Convening the 2018 shareholders'meeting
5.Internal control systemeffectiveness audit and statement
6. 2017 Financial Report andCombined Financial Report
7. 2017 annual operations report
8. Surplus allocation for 2017
9. 2018 CPA appointment andremuneration
10. Provision of NT$2 billion
endorsement guarantee to
Taiwan Aircraft Maintenanceand Engineering Co., Ltd.

4.Approved.

3. (1) Proposal toprudently
investigate andassessperformance‐link
ed seniormanager salaryadjustments;(2) Senior
managers may
also facepressure forsalary cuts in theface of corporate
losses still
recommend
putting in
performancebonuses.
4.None.

5.Approved.

5.None.

5.None.

1.Approved.

1.None.

1.None.

2.Approved.

2.None.

2.None.

3.Approved.

3. None.

3. None.

4.Approved.

4. None.

4. None.

5.Approved.

5. None.

5. None.

6.Approved.

6. None.

6. None.

7.Approved.
8.Approved.
9.Approved.

7. None.
8. None.
9. None.

7. None.
8. None.
9. None.

10.Approved.

10. None.

10. None.

4.None.

3.3.14 Major Issues of Record or Written Statements Made by Any Director orSupervisor Dissenting with Important Resolutions Passed by the Board of
Directors: None.

72 Corporate Governance Report3.4 Information Regarding the Company’s Audit Fee andIndependence
3.4.1 Audit Fee
Accounting Firm
Deloitte & Touche

Name of CPA
Yang, Chen‐Hsiu

Period Covered by CPA’s Audit

Remarks

01/01/2017‐12/31/2017

None

Chen, Li‐Chi

Unit: NT$ thousands
Fee Items
Fee Range
1

Audit Fee

Non‐audit Fee

9Under 2,000

2000～4,000

34,000～6,000

46,000～8,000

58,000～10,000

6Over 10,000

Total

9
9

3.4.2 Audit and Non‐Audit Fees Paid to CPAs, the Certified Accounting Firm toWhich Said CPAs Belong and Any Affiliated Enterprises and Details
Regarding Non‐Audit Fees. See Below:
Unit: NT$ thousands
Accounting Name of Audit
Firm

CPA

Fee

Non‐audit Fee
System ofCompany

Human

DesignRegistration

Resource

PeriodOthers Subtotal

Covered by

Remarks

CPA’s Audit
Other, including audit feesfor direct deductions byconcurrent operators, audit
fees for transfer pricing

Yang,
Deloitte& ToucheChen‐Hsiu
Chen,
Li‐Chireports, audit fees for
7,250

‐

‐

‐

987

8,237

01/01/2017‐ convertible corporate bond
12/31/2017 conversion to capital, fees foraccountant signoff related toissuance of corporate bonds,
and audit fees regarding
agency collection of tax for
US airport PFC, etc.

3.4.3 Changed audit firms and the audit fee paid was less than the audit fees
paid in the previous year prior to the change: Not Applicable.
3.4.4 Those with audit fees amounting to a reduction of 15% or more comparedto the previous year: None.

Corporate Governance Report733.5 Replacement of CPA:
3.5.1 On the previous accountant
Date of change

May, 2016

Reason and explanation forchangeDue to internal reorganization at the CPA firm, the resolution was passed at the
6th meeting of the 20th Board of Directors on May 12, 2016 that from thefinancial report for Q2 of 2016, the CPA would be switched to Yang, Cheng‐hsiu
and Chen, Li‐chi.
Involved party

Explanation was terminationof the person or accountant
appointed or refusal of
appointment

Newest check report within
two years other than one
signed and issued without
disclaimer and reason

Situation

Accountant

Appointee

Proactive termination of
appointment
Did not accept further(continuing) appointment
2015 check report was revised without disclaimer, primarily since 2015 revised
security issuer financial report compilation standards and Financial Supervisory
Commission approved 2013 international financial reporting standards,
international accounting standards, interpretations and interpretation reports,
so that there was an effect from tracking back and utilizing the preceding
standards, interpretation and interpretation reports and making adjustments tothe prior period's financial reports.
Accounting principles or customary practiceYes

Financial report disclosure
Scope of check or steps
Other

Objection from issuer
None
Explanation
Other items disclosed (forwhich disclosure is required
under Article 10, Clause 6,
items 1d through 1g)

None.

3.5.2 On successor accountants
Name of firm

Deloitte & Touche

Accountant Name

Yang, Cheng‐hsiu; Chen, Li‐chi

Date of appointment

May, 2016

Pre‐appointment consultations for opinions on method of
accounting or accounting principles for specific transactions
and consultation on possibility of signing and results of same

None.

Written opinions of successor accountants at odds with thoseof previous accountantsNone.

3.6 Audit Independence: None.

74 Corporate Governance Report3.7 Changes in Shareholding of Directors, Managers and Major
Shareholders
Unit: Shares
The current year throughApril 29, 2018
Pledged
Holding
Holding
Increase
Increase(Decrease)(Decrease)

2017
Title

Name

Major
Shareholder

China Aviation Development Foundation (Note 1)

Chairman

Director

Director

China Aviation Development Foundation
Representative: Ho, Nuan‐Hsuan
China Aviation Development Foundation
Representative: Hsieh, Su‐Chien; Charles C.Y.,
Chen; Ting, Kwang‐Hung; Jong, Jia‐Shi; Lee, Kuo‐
Fu; Cheng, Chuan‐Yi; Chen, Han‐Ming
National Development Fund, Executive Yuan
Representative: Lin, Su‐Ming

Independent
Chung, Lo‐Min
Director
Independent
Ting, Tin‐Yu
Director
Independent
Luo, Hsiao‐Hsien
Director
President
Hsieh, Su‐Chien
Senior Vice
Lo, Ya‐Mei
President
Senior Vice
Kao, Shing‐Hwang
President
Senior Vice
Chang, Chih‐Chieh
President
Senior Vice
Wang, Houng
President
Senior Vice
Chang, Young
President
Auditor General Chung, Chuar‐Duan
Data Protection
Chung, Ming‐Jyh (Assumed Post on 12/30/2017)
Officer
Vice President Chien, Feng‐Nien (Assumed Post on 01/03/2017)
Vice President Chen, I‐Ko
Vice President Lai, Ming‐HuiVice President Wang, Chen‐Min
Vice President Liu, Der‐Chuan
Vice President Peng, Long‐Min
Vice President Chen, Kang‐Reuy (Assumed Post on 05/13/2017)
Vice President Fang, Juo‐Ling
Vice President Chen, I‐Chieh
Vice President Hong, Tsu‐Kuang
Vice President Chiu, Chang‐Hsin (Assumed Post on 12/18/2017)
Vice President Chou, Jyh‐Shyan
Vice President Liu, Tsao‐Yang
Vice President Peng, Pao Chu
Vice President Lu, Shih‐Ming

Pledged
Holding
Increase(Decrease)

Holding
Increase(Decrease)

83,160,083(300,000,000)(83,160,083)

00519,750,519(519,750,519)

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0
0
0
0
0
(693)
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Corporate Governance Report75The current year throughApril 29, 2018
PledgedPledged
Holding
Holding
Holding
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)
0
0
0
0
0
0
0
0
0

2017
Title

Name

Vice President Sun, Jia‐Min
Vice President Lee, Jung‐HuiVice President Li, Chih‐Wei
Deputy Auditor
Ho, Hui‐Fen
GeneralAssistant Vice
Tsai, Chih Hung
President
Assistant Vice
Tung, Hsing‐Hua (Assumed post on 03/16/2018)
President
Assistant Vice Huang, Hsiang‐Piao (Assumed post on
President
08/01/2017)
Assistant Vice
Jeng, Jong‐Shinn
President
Assistant Vice
Lai, Hsiang‐Kuang (Assumed post on 10/01/2017)
President
Assistant Vice
Ouyang, John (Assumed post on 06/17/2017)
President
Assistant Vice
Hsueh, Po‐Wen
President
Assistant Vice
Wei, Shi Jong (Assumed post on 03/31/2018)
President
Assistant Vice
Shann, Da‐Sin (Assumed post on 01/01/2018)
President
Assistant Vice
Yu, YauPresident
Assistant Vice
Yeah, Shao‐Ting
President
Assistant Vice
Chen, Jo‐Ching
President
Assistant Vice
Huang, Hui Na (Assumed post on 09/01/2017)
President
Assistant Vice
Pan, Wen‐Tsung
President
Assistant Vice
Kao, Shu‐Chuan
President
Assistant Vice
Hsiao, Kuo Chih
President
Assistant Vice
Hung, I‐Lan (Assumed post on 06/16/2017)
President
Assistant Vice
Wang, Wei (Assumed post on 02/02/2017)
President
Assistant Vice
Lu, Shwu‐Huoy
President
Assistant Vice
Liu, Duan‐Shiuh
President
Assistant Vice
Hsiao, Jui‐Fu (Assumed post on 09/16/2017)
President
Assistant Vice
Kuey, Kuo‐Ching (Dismissed on 01/26/2017)
President
Assistant Vice
Teng, Shu Hua (Dismissed on 02/21/2017)
President

76 Corporate Governance Report

Holding
Increase(Decrease)
0
0
0
0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

43,999

0

0

0

0

0

0

0

(19,000)

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

The current year throughApril 29, 2018
PledgedPledged
Holding
Holding
Holding
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)
0
0
0

2017
Title

Vice President
Assistant Vice
President
Assistant Vice
President
Assistant Vice
President
Vice President
Assistant Vice
President
Vice President
Senior Vice
President
Assistant Vice
President
Assistant Vice
President
Vice President
Vice President
Vice President
Vice President
Assistant Vice
President
Assistant Vice
President
Director
Assistant Vice
President
Assistant Vice
President

Name

Holding
Increase(Decrease)

Chung, Wan‐Chun (Dismissed on 03/01/2017)

0

Yeh, Jin‐Fu (Dismissed on 03/13/2017)

0

0

0

0

Wei, Shih‐Kai (Dismissed on 03/21/2017)

0

0

0

0

Tung, Wei (Dismissed on 04/30/2017)

0

0

0

0

Wei, Yih‐Jiun (Dismissed on 05/08/2017)

0

0

0

0

Kung, Yuan‐Jau (Dismissed on 05/22/2017)

0

0

0

0

Tsao, Jyh‐Fen (Dismissed on 06/09/2017)

0

0

0

0

Huang, Chwen‐Jiun (Dismissed on 08/16/2017)

0

0

0

0

Huang, Tze‐Chi (Dismissed on 08/31/2017)

0

0

0

0

Huang, Yuan‐Yue (Assumed Post on 05/01/2017)(Dismissed on 09/25/2017)
Chang, Ming‐Way (Dismissed on 10/02/2017)
Chen, Shann‐Juan (Dismissed on 11/30/2017)
Liu, Shyh‐Hwa (Dismissed on 12/18/2017)
Ku, Yueh‐Han (Dismissed on 01/01/2018)

0

0

0

0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

Chu, Te‐Hsiu (Dismissed on 01/08/2018)

0

0

0

0

Lin, Ming‐Hsiu (Dismissed on 01/11/2018)

0

0

0

0

Chunghwa Telecom Co., Ltd.
Representative: Huang, Hsiu‐Gu(Dismissed on 01/19/2018)

0

0

0

0

Liao, Wei‐Chih (Dismissed on 03/01/2018)

0

0

0

0

Lin, Hsiao‐Feng (Dismissed on 03/26/2018)

0

0

0

0

Note 1: Refers to major shareholders holding more than 10% of company shares.

3.7.1 Shares Trading with Related Parties: Not Applicable.
3.7.2 Shares Pledge with Related Parties: Not Applicable.

Corporate Governance Report773.8 Relationships among the Top Ten Shareholders
Name

Current Shareholding

SharesChina Aviation Development Foundation(Representative：Wang, Kwo‐Tsai)National Development Fund, Executive
Yuan%

1,867,341,935 34.13%

Spouse’s/minor’s
Shareholding

Shareholding
by Nominee
Arrangement

SharesShares%%April 29, 2018
Name and Relationship
Between the Company’s
Top Ten Shareholders, orRemarks
Spouses or Relatives
Within Two Degrees
Name
Relationship

0

0%

0

0%

None

None

None

519,750,519

9.50%

0

0%

0

0%

None

None

None

263,622,116

4.82%

0

0%

0

0%

None

None

None

New Labor Pension Fund

81,735,000

1.49%

0

0%

0

0%

None

None

None

Morgan Stanley & Co. International Plc.

68,723,026

1.26%

0

0%

0

0%

None

None

None

Cathay Life Insurance Co., Ltd.
(Representative：Huang, Tiao‐Kuei)

55,580,000

1.02%

0

0%

0

0%

None

None

None

China Airlines Ltd. Employee Stock
Ownership Trust Plan

53,820,014

0.98%

0

0%

0

0%

None

None

None

46,832,821

0.86%

0

0%

0

0%

None

None

None

45,290,050

0.83%

0

0%

0

0%

None

None

None

45,165,353

0.83%

0

0%

0

0%

None

None

None

(Representative：Dr. Chen, Mei‐Ling)
Chunghwa Telecom Co., Ltd.
(Representative：Cheng, Yu)

JPMorgan Chase Bank N.A. Taipei Branchin custody for Norges Bank
Vanguard Emerging Markets Stock Index
Fund, a Series of Vanguard International
Equity Index Funds
Dimensional Emerging Markets ValueFund

78 Corporate Governance Report3.9 Ownership of Shares in Affiliated Enterprises
Dec 31, 2017
Unit: shares; %Affiliated Enterprises

Ownership by the Company

Direct or Indirect Ownership by
Directors, Managers
Shares%‐‐5,000
100.00400,000
100.00‐‐Total Ownership

Shares%Shares
1. Cal‐Dynasty International, Inc.
2,614,500
100.002,614,500
1A Dynasty Properties Co., Ltd.
‐
‐
5,000
1B Dynasty Hotel Of Hawaii, Inc.
‐‐
400,000
2. Cal‐Asia Investment Inc.
7,172,346
100.007,172,346
2A Eastern United International‐‐
1,050,000
35.00
1,050,000
Logistics (Holdings) Ltd.
28.00
2B Arport Air Terminal (Xiamen)(Note 1)‐‐
(Note 1)
(Note 2)
Co., Ltd.
28.00
2C Arport Air Cargo Service(Note 1)‐‐
(Note 1)
(Note 2)
(Xiamen) Co., Ltd.
2D Taikoo (Xiamen) Landing Gear‐‐
(Note 1)
2.59
(Note 1)Services Co., Ltd.
2E Taikoo Spirit Aerosystems‐‐(Note 1)
5.45
(Note 1)
(Jinjiang) Composite Co., Ltd.
3. Hwa Hsia Company Ltd. (Note 4)
77,270100.00‐‐77,2704. Freighter Prince (Note 5)
‐
‐
‐
‐
‐
5. Freighter Princess (Note 5)
‐
‐
‐
‐
‐
6. Yestrip Co., Ltd.
1,600,000
100.00‐‐1,600,000
7. Cal Park Co., Ltd.
150,000,000
100.00‐‐150,000,000
8. Cal Hotel Co., Ltd.
46,500,000
100.00‐‐46,500,000
9. Taiwan Aircraft Maintenance And
135,000,000
100.00‐‐135,000,000
Engineering Co., Ltd.
10. Mandarin Airlines, Ltd.
188,154,025
93.99
‐
‐
188,154,025
11. Sabre Travel Network (Taiwan)
13,021,042
93.93
‐
‐
13,021,042
Ltd.
12. Tigerair Taiwan Co., Ltd.
180,000,000
90.00
20,000,000
10.00
200,000,000
13. China Pacific Laundry Services
13,750,000
55.00
‐
‐
13,750,000
Ltd.
14. Taiwan Air Cargo Terminal Ltd.
135,000,000
54.00
12,500,000
5.00
147,500,000
15. Dynasty Holidays, Inc.
408
51.00
‐
‐
408
16. China Pacific Catering Services
43,911,000
51.00
‐
‐
43,911,000
Ltd.
17. Taoyuan International Airport
34,300,000
49.00
‐
‐
34,300,000
Services Co., Ltd.
18. Taiwan Airport Service Co., Ltd.
20,626,644
47.35
469,755
1.08
21,096,399
18A Taiwan Airport Service‐‐(Note 1)100.00(Note 1)(Samoa) Co., Ltd.
19. NORDAM Asia Ltd.
245,000
49.00‐‐
245,000
20. Kaohsiung Airport Catering
14,329,759
35.78
‐
‐
14,329,759
Services Ltd.
21. Global Sky Express Ltd.
250,000
25.00‐‐
250,000
22. Asian Compressor Technology
7,732,200
24.50‐‐
7,732,200
Services Co., Ltd.
23. Science Park Logistics Co., Ltd.
13,293,000
26.00
‐
‐
13,293,000(Note 6)
24. China Aircraft Services Limited.
28,400,000
20.00
‐
‐
28,400,000
25. Jardine Air Terminal Services
15.00
12,000,000‐‐
12,000,000
Ltd.
26. Everest Investment Holdings
13.59(Note 3)‐‐(Note 3)
Ltd.
27. Chung‐Hwa Express Co., Ltd.
11.00
1,100,000‐‐
1,100,000
Note 1: This company has not issued shares.
Note 2: CAL‐Asia Investments Inc. directly holds 14% stake, Taiwan Airport Service (Samoa) Co., Ltd. directly holds 14% stake.
Note 3: Includes 1,359,368 shares of common stock and 135,937 shares of preferred stock.
Note 4: Hwa Hsia Company Ltd. was renamed “Dynasty Aerotech International Corp.” in 2018.
Note 5: Freighter Princess Ltd., and Freighter Prince Ltd. both went out of business in February, 2017.
Note 6: The company disposed of all Science Park Logistics holdings in August, 2017.

%100.00100.00100.00100.0035.00
28.00(Note 2)28.00
(Note 2)2.59
5.45
100.00‐‐100.00100.00100.00100.0093.99
93.93
100.00
55.00
59.00
51.00
51.00
49.00
48.43
100.00

Corporate Governance Report

49.00
35.78
25.00
24.50
26.00
20.00
15.00
13.59
11.00

79

Capital Overview
4.1 Capital and Shares
4.2 Corporate Bonds
4.3 Other Depository Receipts
4.4 Financing Plans and Implementation

80 Capital Overview

IV. Capital Overview
4.1 Capital and Shares
4.1.1 Source of Capital
A. Issued Shares:

APR 29, 2018
Unit: shares; NT$
Authorized Capital

Paid‐in Capital

Par
Month/ Value
Year
(NT$)

SharesAmountSharesAmount02/201210

6 billion

60 billion

5.2 billion

52 billion

05/201510

6 billion

60 billion

5.24 billion

52.4 billion

05/201510

6 billion

60 billion

5.37 billion

53.7 billion

09/201510

6 billion

60 billion

5.47 billion

54.7 billion

12/201510

6 billion

60 billion

5.47 billion

54.7 billion

12/201710

6 billion

60 billion

5.47 billion

54.7 billion

RemarkApproval Date andDocument No. by
Sources of Capital Ministryof Economic
Affairs
Jing Shou Shang No.
Cash increase
10101028630, February 20,
NT$5,683,776,490
2012
Corporate debt for
Jing Shou Shang No.
equity swap
NT$491,665,650 10401079310, May 7, 2015
Jing Shou Shang No.
Corporate debt for
equity swap
10401096840, May 28,
NT$1,208,413,350
2015
Jing Shou Shang No.
Corporate debt for
equity swap
10401186200, September
NT$1,000,652,560
17, 2015
Jing Shou Shang No.
Corporate debt for10401250360, December
equity swap
NT$8,169,930
8, 2015
Jing Shou Shang No.
Corporate debt for
equity swap,
10601158980, December
NT$945,010
4, 2017

Note: There was no “Capital Increase by Assets Other than Cash”.

B. Type of Stock:

APR 29, 2018; Unit: Thousand shares

Share Type
Common Stock
InscribedIssued Shares

Authorized Capital
Un‐issued Shares

Total Shares (Note)

5,470,984

529,0166,000,000

Remarks
Listed Stocks

Note: On June 18, 2014, the Company approved revision to the Articles of Association at the Shareholders’ Meeting that
adjusted the total authorized capital to 7 billion shares.

4.1.2 Status of Shareholders
Item
Number of
Shareholders
Shareholding%

Government
Agencies

APR 29, 2018; Unit: shares

Financial
Institutions

Other Juridical
Persons

Foreign Institutions & Domestic Natural
Natural Persons
Persons

Total

4

26

232

771

113,747

114,780

519,750,824
9.50%

148,462,888
2.71%

2,485,926,542
45.45%

1,166,138,126
21.31%

1,150,706,270
21.03%

5,470,984,650
100.00%4.1.3 Shareholding Distribution Status
Class of Shareholding
1‐999
1 000‐5,000
5,001‐10,000
10,001‐15,000
15,001‐20,000
20,001‐30,000
30,001‐40,000
40,001‐50,000
50,001‐100,000
100,001‐200,000
200,001‐400,000
400,001‐600,000
600,001‐800,000
800,001‐1,000,000
1 000,001 or over
Total

Number of Shareholders
34,57948,342
13,521
5,142
3,484
3,210
1,555
1,140
2,012
844
416
142
66
60
267
114,780

APR 29, 2018; Unit: shares
Shareholding
11,440,179
115,661,125
106,993,272
63,725,468
64,296,459
81,151,421
55,139,031
53,162,989
144,653,477
120,719,135
117,896,538
70,283,358
46,266,100
54,010,823
4,365,585,275
5,470,984,650

Percentage (%)
0.21%
2.11%
1.96%
1.16%
1.18%
1.48%
1.01%
0.97%
2.64%
2.21%
2.15%
1.28%
0.85%
0.99%
79.80%
100.00%Capital Overview

814.1.4 List of Major Shareholders:
APR 29, 2018; Unit: shares
Shareholding

SharesShareholder's Name
China Aviation Development Foundation
National Development Fund, Executive Yuan

Percentage

1,867,341,935
519,750,519

34.13%
9.50%

4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share
Unit: Thousand shares; NT$
Year

2016

2017

2018

(Distributed in 2017)(Distributed in 2018)(As of APR 29)(Note 9)

Highest Market Price

12.05

13.40

12.75

Lowest Market Price

9.07

9.02

10.30

Average Market Price

10.22

10.92

11.60

Before Distribution

10.20

10.43

10.51

Items
MarketPrice per
Share
(Note 1)
Net Worthper Share(Note 2)After Distribution

Weighted Average Shares
Earnings
Diluted Earnings Per Shareper Share(Note 3)
Cash Dividends
Dividends from
Dividends Stock
Retained Earnings
per Share Dividends Dividends from
(Note 8)
Capital Surplus
Accumulated Undistributed
Dividends (Note 4)
Price / Earnings Ratio (Note 5)
Return on
Price / Dividend Ratio (Note 6)
Investment
Cash Dividend Yield Rate (Note 7)

‐

‐

‐

5,468,002

5,468,030

5,465,208

0.10

0.40

0.01

‐ 0.2181820086(Note11)‐‐‐ (Note 11)‐‐‐ (Note 11)‐‐‐ (Note 11)‐101.40N/A (Note 10)
N/A (Note 10)26.00 (Note 11)47.67% (Note 11)2.10% (Note 11)‐‐‐＊If shares are distributed in connection with a capital increase out of earnings or capital reserve, further disclose information onmarket prices and cash dividends retroactively adjusted based on the number of shares after distribution.
Note 1: Annual Average Market Price = Annual Turnover Value / Trading Volume.
Note 2: Based both on the number of issued shares at the end of the year, and on the distribution decided on at the Shareholders’Meeting the following year.
Note 3: For those requiring retroactive adjustment due to stock grants, both the pre‐and post‐adjustment EPS should be listed.
Note 4: In issuing equity securities, provisions may be made to accumulate undistributed dividends for the year and postpone
distribution until a year when profit is made. The dividends accumulated over the period ending in the year of distribution
should be disclosed.
Note 5: P/E Ratio＝Average market price of a share in the current year／EPS.
Note 6: P/D Ratio＝Average market price of a share in the current year／cash dividend per share.
Note 7: Cash dividend yield＝cash dividend per share／average market price of a share in the current year.
Note 8: In accordance with Taiwan Stock Exchange regulations, treasury share effects have already been considered.
Note 9: Net worth per share and EPS are calculated based on the financial statement for the most recent quarter that has beenverified by an accountant. All other fields are based on the current year data through the publication date of the annual
report. As of publication of this report, the Q1 2018 financial information has not been reviewed by Deloitte & Touche yet.
Note 10: 2016 loss appropriation plan, shareholder meeting resolution passed June 22, 2017, to cover the deficit using statutory
surplus reserve, no available surplus distribution.
Note 11: 2017 surplus allocation plan resolution passed at the 15th meeting of the 20th Board of Directors on March 22, 2018, and it
will be sent to the 2018 shareholders' meeting for recognition.
Note 12: The company's 2017 final daily closing price was NT$11.65.

82 Capital Overview

4.1.6 Dividend Policy and Implementation Status
A. Dividend Policy:
The CAL Articles of Association outlines the below dividend policy:
If the company makes a profit over the year, an amount of no less than 3% of the profit must be
distributed as employee compensation. If the Company has accumulated losses, funds must be
retained to offset the deficit.
The aforementioned employee compensation is primarily disbursed as stock or cash and theresolution must be approved at a meeting of the Board of Directors with two‐thirds of directors inattendance and must receive support from half of participating members.
Should the Company make a profit over the year, said profit must first be used to pay all taxes andoffset accumulated losses, then 10% of the remaining amount is to be set aside as a legal reserve.
After setting aside or reversing a special reserve, any remaining amount along with accumulated
undistributed earnings shall be distributed as shareholder dividends and bonuses according to a
resolution drawn up by the Board and approved by the Shareholders’ Meeting that follows the
below principles:(1)Not less than 50% of the amount shall be distributed as shareholder dividends and bonuses. Afterpretax profits are deducted as outlined above, should the amount left not be sufficient for
distribution, the difference will be made up by accumulated undistributed profit.
(2)In the event of a yearly loss, depending on financial, operation, and management considerations,
all or part of the legal reserve may be distributed as new stock or cash as prescribed by law andcompetent authority regulations.
(3)Dividends and bonuses are distributed as stock or cash, with cash dividends making up no lessthan 30% of the total distributable dividends.

B. Proposed Distribution of Dividend:
The company's surplus allocation plan was passed in a resolution on 2017 cash dividend distribution
at the 15th meeting of the 20th Board of Directors on March 22, 2018, and it will be sent to the2018 shareholders' meeting for recognition.

C. No significant change in expected future dividend policy.

4.1.7 Impact of Stock Dividends issuance on Company’s Business Performanceand Earnings per Share: Not Applicable.
4.1.8 Employees’ Compensation and Directors' Remuneration
A. Articles of Association regulations: See 4.1.6 Dividend Policy and Implementation
Status.
B. The basis for estimating the amount of employee compensation and director
bonuses, for calculating the number of shares to be distributed as stock bonuses,
and the accounting treatment of the discrepancy, if any, between the actual
distributed amount and the estimated figure, for the current period:
As stipulated in the Company’s Articles of Association, directors are not awarded bonuses. Should
the actual amount of employee compensation, due to Board of Director resolution prior to the
publication date of the annual individual financial statement, differ significantly from the estimatedvalue of employee compensation, the difference is charged to the earnings of the year making theinitial estimate. If there are changes in the amount after the publication of the annual individual
financial statement, the adjustment shall be recorded in the following year as a result of change inaccounting estimate.

Capital Overview

83

C. Board approved employee compensation and director bonus proposal:(1) Amount of employee bonuses (including stock and cash) and director bonuses distributed. If theactual amount distributed differs from the original estimated amount, the difference, reason, andhow this was handled is to be disclosed:
The company's Board of Directors passed a resolution on 2017 Employee Compensation on
January 24, 2018, resolving to issue NT$799,768 thousand in Employee Compensation in cash; as
per the company's charter, no reward was issued to directors. If the above estimated figures areat odds with the amount issued, it will be handled through changes in accounting estimates, andadjusted and entered into the following year.
(2) The amount of any proposed distribution of employee stock bonuses, and the size of such an
amount as a percentage of the sum of the net income for the current period and total employee
bonuses: Not Applicable.

E. The actual employee compensation and director bonuses distributed for theprevious year (2016) (including number of shares distributed, value, and stock
price). Should there be a discrepancy with the proposed amount of employeecompensation and director bonuses, the difference, reason, and how this washandled should be stated:(1) Employee compensation: None.
(2) Director bonuses: Not Applicable.

4.1.9 Buyback of Treasury Stock: None.

84 Capital Overview

4.2 Bonds
4.2.1 Corporate Bonds:
APR 29, 2018thDomestic Unsecured
straight bond (2013)01/17/2013

Domestic Unsecured 5
Domestic Unsecured
Domestic Unsecured
convertible bond (2013) straight bond (2016‐1) straight bond (2016‐2)
12/26/2013
05/26/2016
09/27/2016

NT$1,000,000

NT$100,000

NT$1,000,000

Republic of China

Republic of China

Republic of China

Par

Par

Par

Par

Total price

NT$10,900,000,000

NT$6,000,000,000

NT$5,000,000,000

NT$5,000,000,000

Coupon rate

Tranche A: 1.60% p.a.;Tranche B: 1.85% p.a.

0.00% p.a.

1.19% p.a.

1.08% p.a.

Tenor

Tranche A: 5 years
Maturity: 01/17/2018
Tranche B: 7 years
Maturity: 01/17/2020

5 year maturity:
12/26/2018

5 year maturity:
05/26/2021

5 year maturity:
09/27/2021

Guarantee agency

Not applicableNot applicableNot applicableNot applicable

Consignee

CTBC Bank Trust
Department

CTBC Bank Trust
Department

Hua Nan Commercial
Bank

Hua Nan Commercial
Bank

Underwriting institution

Not applicableKGI Securities

YuanTa Securities

MasterLink Securities

Chiu, Ya‐Wen
Kuo, Hui‐Chi(Handsome(Hsi Endai Lawyer Office)Attorney‐at‐Law)

Kuo, Hui‐Chi(Ture Honesty
International Law
Office)Kuo, Hui‐Chi(Ture Honesty
International Law
Office)Huang, Jui‐chan;Chen, Li‐Chi(Deloitte & Touche)

Not applicable

Huang, Jui‐chan(Deloitte & Touche)

Yang, Chen‐Hsiu(Deloitte & Touche)

Repayment method

Tranche A: Repaymentof 50% of the principal
in the fourth year andthe remaining 50% in
the fifth year
Tranche B: Repaymentof 50% of the principal
in the sixth year and theremaining 50% in theseventh year

According to theoffering of Domestic
Unsecured convertibleth
5 bond (2013) section
6

Repayment of 50% of
the principal in the
fourth year and theremaining 50% in thefifth year

Repayment of 50% of
the principal in the
fourth year and theremaining 50% in thefifth year

Outstanding principal

NT$5,500,000,000

NT$1,695,900,000

NT$5,000,000,000

NT$5,000,000,000

Terms of redemption oradvance repayment

None.

According to theoffering of Domestic
Unsecured convertible None.
th
5 bond (2013) section
18 and 19

None.

Restrictive clause

None.

None.

None.

None.

None.

None.

None.

Not applicableNot applicable(Note)

Not applicableNot applicable

None.

None.

None.

Corporate Bond Type
Issue date
Denomination

Issuing and transaction location Republic of China
Issue price

Certified lawyer

CPA

Name of credit rating agency,
rating date, rating of corporate None.
bonds
As of the printing
date of this annual
report, converted
amount of(exchanged or
subscribed)
Other
ordinary shares,
rightsNot applicable
GDRs or otherattached securities
Issuance andconversion(exchange orsubscription)
methodIssuance and conversion,exchange or subscription
Not applicable
method, issuing condition
dilution, and impact on existing
shareholders’ equity
None.
Transfer agent

NT$1,000,000

NT$3,316,800,000

According to theoffering of Domestic
Unsecured convertibleth
5 bond (2013) section
8 and 9

Capital Overview

85

APR 29, 2018
Corporate Bond Type

Domestic Unsecured straightbond (2017‐1)

Domestic Unsecured straightbond (2017‐2)thDomestic Unsecured 6
convertible bond (2018)

Issue date

May 19, 2017

October 12, 2017

January 30, 2018

Denomination

NT$1,000,000

NT$1,000,000

NT$100,000 per

Issuing and transaction location Republic of China

Republic of China

Republic of China

Issue price

Par

Par

Issued at 100.2% of par value

Total price

NT$2,350,000,000

NT$3,500,000,000

NT$6,012,000,000

A: 1.20% per annum
B: 1.75% per annum

A: 1.14% per annum
B: 1.45% per annum 0.00% per
annum

0.00% p.a.

Coupon rate

Tenor
Guarantee agency
Consignee
Underwriting institution
Certified lawyer
CPA

Tranche A: 3 years (May 19, 2017 Tranche A: 3 years (October 12,
to May 19, 2020);
2017 to October 12, 2020);
Tranche B: 7 years (May 19, 2017 Tranche B: 5 years (October 12,
to May 19, 2024)2017 to October 12, 2022)
Not applicable
Huanan Commercial Bank

Not applicableNot applicable

Huanan Commercial Bank

Chinatrust Commercial Bank
Trust Department

Masterlink Securities Corporation Fubon Integrated Securities Ltd.
Kuo, Hui‐Chi(Ture Honesty International Law
Office)Chiu, Ya‐Wen(Handsome Attorney‐at‐Law)

Yang, Chen‐Hsiu(Deloitte & Touche)

Yang, Chen‐Hsiu(Deloitte & Touche)

Not applicable

One‐time repayment of capitalupon maturity.

Tranche A: one‐time payment
upon maturity;
Tranche B: return of 50% of
capital 4 and 5 years from thestart date, respectively.

According to the offering ofthDomestic Unsecured 6
convertible bond (2018)section 6

NT$2,350,000,000

NT$3,500,000,000

NT$6,000,000,000

None

None

According to the offering ofthDomestic Unsecured 6
convertible bond (2018)section 18 and 19

None

None

None

None

None

Not applicableNot yet converted

Terms of redemption oradvance repayment
Restrictive clause

Taihsin Integrated Securities
Ltd.

Kuo, Hui‐Chi(Ture Honesty International Law
Office)Repayment method

Outstanding principal

5 years (January 30, 2018 toJanuary 30, 2023)

Name of credit rating agency, None
rating date, rating of corporate
bonds
As of the printing date Not applicableof this annual report,
converted amount of(exchanged or
subscribed) ordinary
shares, GDRs or other
Other
securities
rightsIssuance andattached
conversion (exchangeor subscription)
method As per the
5th issue of domestic
unsecured convertible
bonds
Not applicableIssuance and conversion,exchange or subscription
method, issuing condition
dilution, and impact on existing
shareholders’ equity

According to the offering ofthDomestic Unsecured 6
convertible bond (2018)section 8 and 9

Not applicable(Note)

Transfer agent
None
None
None
Note: As of April 29, 2018, the conversion price as per the domestic unsecured 5th convertible bond (2013) was NT$11.64, andNT$13.2 as per the domestic unsecured 6th convertible bond (2018). Assuming all convertible corporate bonds are completely
converted, the holding ratios for the China Aviation Development Foundation, the National Development Fund, Executive Yuan
and Chunghwa Telecom will be reduced from 48.45% to 43.66%, but as there will be no major change to the holding structure,
the impact on shareholder interests will not be great.

4.2.2 Corporate Bonds Undergoing Private Placement: None.

86 Capital Overview

4.2.3 Convertible Bonds:
Types of Corporate Bonds

The current year
through April 29, 2018

Unit: NT$
Domestic Unsecured 6thconvertible bond (2018)
The current year through April
29, 2018

Domestic Unsecured 5th convertible bond (2013)

Year
Item

2017

Highest116.20112.80102.15

Convertible Bond
LowestMarket Price

100.50102.00100.80

Average108.18106.91101.61

Conversion Price (Note)

11.64
11.64
13.20
Issued over‐the‐counter on December 26, 2013, at For the January 30, 2018
over‐the‐counter issue,
a conversion price upon issue of NT$12.24.
Beginning July 31, 2016, in response to the 2016 conversion price at the time ofIssuance date and conversion cash dividend, the domestic unsecured 5thissue was NT$13.20.
price at the time of issue
convertible bond (2013) and the conversion rules
stated that the conversion price must be adjusted,
for which reason it was adjusted from NT$12.24 to
NT$11.64.
Conversion method
Issue new shares.
Issue new shares.

4.2.4 Exchangeable Bond, Shelf Registration, Shelf Registration: None.

4.3 Other Securities‐Related Issues
4.3.1 Preferred shares: None.
4.3.2 Global Depository Receipts: None.
4.3.3 Employee Stock Options: None.
4.3.4 Employee Restricted Stock: None.
4.3.5 Status of New Shares Issuance in Connection with Mergers andAcquisitions: None.

4.4 Financing Plans and Implementation
As of April 29, 2018, the use of funds earned through previously issued securities areprogressing as planned and are in line with expected results.

Capital Overview

87

Operational Highlights
5.1 Business Activities
5.2 Market and Sales Overview
5.3 Human Resources
5.4 Environmental Protection Expenditure
5.5 Labor Relations
5.6 Important Contracts

88 Operational Highlights

V. Operational Highlights
5.1 Business Activities
5.1.1 Business Scope
A. Main areas of business operations(1) Air passenger transport and regularly scheduled and non‐scheduled international contract
charter flight services.
(2) Air cargo services.
(3) Ground handling services for international civil airports and transiting aircraft.
(4) In‐flight merchandise sales.
(5) Provision of in‐flight meal and beverage services and other related products.
(6) Laundry services for textiles and clothing used aboard aircraft and general laundry services forthe hospitality industry.
(7) Warehousing services for import, export, or transit cargo.
(8) Aircraft body and parts maintenance.
(9) Civil aviation personnel training.
(10) Other: In addition to permitted operations, the Company may engage in any other operations
not prohibited or restricted by law.

B. Revenue distribution
Proportion of Overall Business
Item
Passenger Revenue
Cargo Revenue
Other
Total

Unit: NT$ thousands
2017
Net Revenue
Proportion of Revenue
102,216,106
65%
43,336,068
28%
10,569,611
7%
156,121,785
100%

C. Main products(1) Passenger service: Air passenger transport and regularly scheduled and non‐scheduled contract
international charter flight services.
(2) Cargo service: Transport services for cargo, courier, mail, and packages.
(3) Ground services: Handling of luggage and cargo, aircraft cleaning, and ground support
equipment.
(4) In‐flight sales: Providing in‐flight duty free sales services.
(5) Airline catering: Providing meal services to airlines.
(6) Warehousing and logistics services: Provide airfreight forwarding and logistics services.
(7) Aircraft maintenance services: Airframe, engine, and aircraft component maintenance.
(8) Tourism and leisure services: General hotel industry and travel services.
(9) Investment and leasing services: Engaged in real estate investment, building management, andleasing.
(10) Civil aviation personnel training: Provide maintenance training courses, develop professional
maintenance personnel.

Operational Highlights

89

D. Product Development(1) Enlarge European market territory
As the new Airbus A350‐900s are brought in, there is now direct service all over Europe, with new aircraft
providing uninterrupted direct flights. After flights to London were resumed in 2017, China Airlines now
operates 5 destinations with a total of 22 weekly flights. Starting in April, 2018, China Airlines is partneringwith Air France of the Skyteam Alliance on a codeshare between Taipei and Paris, coordinating with otherairlines' codeshare flights within Europe and providing the tightest flight network between Taiwan andEurope. This will attract more business and tourist travelers headed to Europe, and continue to develop the
Taiwan‐Europe market.

(2) Create a sensory experience in flight, with optimized customer service quality in the A350
To improve the uniqueness of the China Airlines brand, next generation modern design of cabins is set off
by atmospheric lighting, metro style boarding/exit music, and a unique, identifiable scent in the cabin, as
well as in‐flight food from the Sky Bistro which provides European‐style tapas and innovative dishes. This
brings a youthful, innovative, quality sensory impression and begins the passengers' impression of Europe
from the moment they board the plane, bringing an entirely new European experience.

(3) Enhanced long haul and regional flight network distribution
The company continues to augment its long‐haul fleet, while reviewing and commenting on the plan tobring in narrow body aircraft. To keep in step with growing market demand, this will help the company
improve its capacity on North American, European, Southeast Asian and Northeast Asian routes, not only
providing Taiwanese with more diversified flight choices, but also increasing transfer and transshipment
capacity, enhancing Taiwan's position as a East Asian hub.

5.1.2 Industry Overview
A. State of the industry and future development
The operating environment for the airline industry is deeply impacted by global economic growthand oil prices. Of these factors:(1)Economic growthBased on IMF projections, overall global growth in 2018 will be 3.9%, somewhat higher than the 3.7%
posted in 2017. This indicates that the 2018 economy is moving toward stability, and among the nations
that deal with Taiwan, with the exception of continued growth in Southeast Asia, the rest, such as Japan and
China, are projected to experience a drop in economic growth compared to 2017. Therefore, overall
economic growth capacity is still doubtful.

(2)Oil prices
Oil prices are an enormous component of airline operations costs. Although in recent years, oil prices havedeclined significantly, in December 2016 OPEC and non‐OPEC oil producing nations concluded a global
production slowdown agreement, and the US has ramped up its oil production and gradually reduced its
holdings. Crude oil prices have gradually climbed since the last half of 2017, with oil prices projected tocontinue rising in the short term. This will cause a corresponding increase to airline operation costs.

The IATA announced its airline market projection report in December of 2017:(1) Air passenger market
From 2013 to 2016, global airline passenger demand growth rates were higher than supply, and overall
carriage rates rose. Afterwards, due to the rapid development of the airline passenger carriage market, in2017 overall supply growth rates were higher than demand, and IATA's 2018 Revenue Passenger Kilometers
growth was approximately 6%, with Available Seat Kilometer growth at 5.7%. Because growth in demand
was slower than growth in supply, it is projected that overall passenger carriage rates will show a downward
trend; the Asia‐Pacific region will show the same trend, with supply and demand growth rates for 2018 of
6.7 and 7.0%, respectively.

(2) Air cargo market
Based on IATA statistics, global Freight Tonne Kilometers for 2017 will grow by 9.3%. and Available Freight
Tonne Kilometers should grow by 3.9%.Overall, the 2017 global trade situation was stable and recovering,with European and US markets showing stable demand. Consumer electronics, machinery andsemiconductor equipment, e‐commerce products, traditional industrial restocking and other demand grew,leading to a rise in air cargo shipments. IATA projects that in 2018, cargo demand will grow by 4.5%,
somewhat slower than in 2017, and that overall the cargo market will still be full of both opportunities andchallenges.

90 Operational Highlights

B. Relationship between upstream, midstream, and downstream firms
The air transport service industry primarily provides transportation for passengers and cargo. These operations rely on
the support and assistance of upstream, midstream, and downstream industries that enable us to provide
comprehensive services and meet our customers’ needs.

(1)Upstream industries
Primarily aircraft, aircraft engine, and ground service equipment (such as towing vehicles and loading vehicles
and equipment needed on the apron) manufacturers. Currently, in addition to purchasing aircraft, Taiwanese
airlines also utilize leasing to add to their fleets, so the aircraft leasing industry is also an upstream industry for
air transport providers.

(2)Midstream industries
Primarily airlines themselves and related support industries such as the oil industry that provides aviation fuel,the aircraft maintenance industry that repairs and maintains airlines’ aircraft and components, and the airline
catering industry that provides in‐flight meals. In response to the changing needs of downstream industries, theair transport industry’s strategic adjustments in their operating scale, fleets, or flight networks will also affectthe development of upstream industries.

(3)Downstream industries
In terms of passenger transport, the air transport industry primarily serves the public and travel agencies, whilecargo transport services are provided to the courier and freight forwarding industries. As a member of the airtransport industry, the needs of downstream customers are at the core of the CAL’s product and services
planning. Our mission is to provide safe, convenient, and comprehensive services.

C. Product development trends(1)Air cargo market liberalization, airlines continue to add capacity
As integration within the global airline industry becomes more mature, air cargo liberalization is expanding
within the Asia‐Pacific region. The USA, Japan, Singapore, Malaysia, and Thailand have already opened theirskies to Taiwanese carriers. In recent years, Korea, Vietnam, and the Philippines have considerably relaxed
regulations, enabling further expansions in destinations and capacity. However, in addition to domestic airlines
continuing to expand their networks, low‐cost and foreign carriers are also adding capacity making the industry
increasingly competitive. China Airlines is fully aware of these trends and will continue to develop new
business opportunities and expand market share.

(2)Taiwan Taoyuan Airport expansion, a new East Asian hub
In recent years, the government has aimed to develop Taiwan Taoyuan Airport into an East Asian transit hub.
In addition to actively expanding policies and freedoms of the air, the R.O.C. government promulgated the“Taoyuan International Airport Park Master Conceptual Plan” and “Implementation Plan” in 2011 and 2012
respectively and successively launched Terminal 1 renovations, airport roadway improvements, and plans for
Terminal 3 and satellite terminal, and a third runway. China Airlines is working in coordination withgovernment policies to gradually expand fleet capacity and create a new transfer hub in Asia.

(3)Grasp trends, expand cargo income
The company continues to expand into high‐profit special areas of cargo shipment such as engine materials,
temperature‐controlled shipments and precision machinery, with companies like TSMC and UMC using China
Airlines as their main shipper for semiconductor precision equipment; moreover, in the realm of e‐commerce,in response to the trend toward cross‐border e‐commerce, the company has enhanced its cooperation withexpress operators and continues to develop postal business including cargo‐to‐post in Taiwan, a cooperativesite with the postal service in China, and expansion of mail carriage, continuing to grasp logistics trends,
increasing operational income.

(4)As next generation aircraft come on line, belly compartment cargo capacity is increased
In 2017, as the company took delivery of a number of A350‐900 (XWB) planes, as well as 10 Boeing
777‐300ERs,passenger plane belly compartment payload capacity rose, and the company will make best use ofthis belly compartment space, adjusting cargo capacity to conform to the rapidly changing operational models
of different markets and further improving the utilization rates for cargo space.

D. Product competition
China Airlines primarily operates international passenger and cargo air transport services. Because of ourcontinued focus on stable revenue and cost controls, CAL is not only the Taiwan market leader, but also an
important player on the international stage. According to R.O.C. Civil Aeronautics Administration statistics, China
Airlines is the market leader in both passenger and cargo air transport. Also, released in 2017, the IATA 2016
international passenger and cargo capacity rankings showed that China Airlines was 33rd in the world and 12th in
the Asia‐Pacific region for passenger air transport with 38.234 billion Revenue Passenger Kilometers (RPK). Whilecargo capacity reached 5.273 billion Freight Revenue Ton Kilometers (FRTK) earning China Airlines 10th place
globally and 4th place in the Asia‐Pacific region.

Operational Highlights

91

Taiwan National Airlines International and Cross‐Strait Market Share for Passengers and Cargo in 2017
AirlinePassenger

China Airlines

25.09%

Cargo
38.03%EVA Air

22.27%

24.72%

Mandarin Airlines

2.51%

0.76%

UNI Air

1.52%

0.46%

Far Eastern Air Transport

0.33%

‐

Tigerair Taiwan

3.93%

0.05%

Other‐Foreign Carriers

44.35%

35.97%

Source: Civil Aeronautics Administration Monthly Statistics from January to December 2017－Taiwan National Airlines
International and Cross‐Strait Market Share for Passengers and Cargo

IATA Global International Route Passenger and Cargo Rankings 2016
Passenger (Passenger‐Kilometers) Rankings
Unit: 1 million

Cargo (Ton‐Kilometer) Rankings
Unit: 1 million

1
2
3
4
5
6
7
8
9

Emirates
United Airlines
Lufthansa
Ryanair
British Airways
Qatar Airways
Delta Air Lines
Air France
American Airlines

270,797
145,470
145,124
142,740
140,668
137,603
132,502129,153
114,366

10

Cathay Pacific Airways

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Turkish Airlines
KLM
Singapore Airlines
Etihad Airways
Qantas Airways
easyJetKorean Air
Air Canada
LATAM Airlines GroupAir China
Thai Airways International
China Southern Airlines
Aeroflot Russian Airlines
China Eastern Airlines
Norwegian
All Nippon Airways
IberiaAir Berlin
Saudi Arabian Airlines
EVA Air
Japan Airlines
Asiana Airlines

33 China Airlines
Source: IATA WATS 2017

92 Operational Highlights

1
2
3
4
5
6
7
8
9

Emirates
Cathay Pacific Airways
Qatar Airways
Korean Air
Lufthansa
Federal Express
Cargolux
Singapore Airlines
United Parcel Service

12,270
9,947
9,221
7,639
7,379
7,000
6,878
6,345
5,603

110,246 10

China Airlines

5,273

108,286
97,67692,43789,48077,45875,33372,321
69,321
62,96360,22557,711
57,68053,31652,63547,26944,232
43,564
41,631
40,91840,90440,30540,058Air China
AirBridgeCargo Airlines
Etihad Airways
China Southern Airlines
British Airways
All Nippon Airways
Asiana Airlines
China Eastern Airlines
Turkish Airlines
KLM(4)EVA Air
Air France
Polar Air Cargo
United Airlines
LATAM Airlines Group
Nippon Cargo Airlines
American Airlines
Delta Air Lines
AeroLogic
Qantas Airways
Thai Airways International
Saudi Arabian Airlines

4,948
4,914
4,481
4,247
4,112
3,804
3,796
3,723
3,609
3,564
3,480
3,418
3,258
3,185
2 936
2 899
2 897
2 233
2 200
2 196
2 106
2 062

Japan Airlines

1 812

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

38,234 33

5.1.3 Research and Development
A. Costs of R&D investment and successfully developed technologies or products
From January 1, 2017 through the publication date of this report, the Company invested
approximately NT$121 million in research and development. The following table summarizes thetechnologies and products developed:
Project

R&D Project Description
In response to future smart airports, many airports around the world are installing automated luggage
check equipment for passenger use. This self‐service initiative provides passengers with a completely new
Passenger
automatic luggage travel experience, reducing the time needed to wait in line to check in. In line with the IATA's Fast Travel
spirit of passenger self‐service, saving labor by workers and increasing the efficiency of service. The
check systemestablishment and company will coordinate with all airports supplying automated passenger luggage check interfaces, toexpansion
provide passengers with automated luggage check service. In March, 2017, the system formally went
online at the A1 station of the MRT.
Established an automated procedure for air network space allocation integrating it onto the CCNet
Air network space
platform for the cargo department to plan allocation of cargo space and increase revenue from cargo
optimization
operations. Development and testing was completed in June, 2017, and winter season space allocation
systemwas done using the system in October, 2017. SkyTeam Cargo Express Booking
Express cargo space, cargo status and itinerary information is exchanged with various Skyteam Alliancemembers in an integrated internal reservation, status and itinerary system. This improves cooperation and
SkyTeam Cargo
competitiveness on cargo within the Skyteam Alliance. In March, 2017, internal system integration was
Express Booking performed continuing later to China Southern Airlines, China Eastern Airlines, and Korean Airlines for
integrated testing. The system formally went online in December, 2017 and was rolled out to generalcargo space, status exchange, etc. in the Skyteam Alliance.
The use of virtual reality integrating sound, images and text allows students to experience the feeling of"really being there". It also provides real‐time interaction. Having established a 360‐degree A350 virtual
Virtual Reality
cabin environment, modeling interactive opening and closing of doors and inspection procedures andflight attendantaccessible bathroom operation procedures, and noting points to attend to with related equipment, cabin
training systemcrew become more familiar with the A350 doors and accessible bathroom operation procedures, thecabin environment and the cabin equipment.
Dispatch service Established a system to assist dispatch on‐duty managers in doing the next day's dispatch service
assignments and adjustments, so that managers can rapidly grasp the status of personnel and flights,
management
carry out appropriate decision making for adjustment, and guarantee flight safety.
system
Set up a new general items purchasing system in which all items are completely under green
New general
items purchasing management, optimizing ordering, inquiry and quotations, and purchase processes, enhancing supplieraudit management, to raise purchasing quality and reduce purchasing cost.
systemTo improve cargo account business, a cargo account inventory system was established with cargo
operating revenue, receivables and temporary payments placed into the corresponding transactions in
Cargo accounteach bill transaction, integrating up‐ and downstream account information, automating accounts, toinventory
increase the efficiency of account inventory, manage risk, improve management efficiency and save labor.
A next generation To improve collaboration among colleagues in the company, the company should use integrated searches.
It has established a next generation China Airlines Enterprise Information Platform (EIP) available in
China Airlines
Traditional Chinese, Simplified Chinese and English, in Web pages and mobile versions. The platform
enterpriseprovides an information and communication platform for all employees that speeds up action within theinformation
networkcompany and enhances communication between units thus improving overall work efficiency.
To increase member sales and provide greater convenience for regular customer purchases of tickets
online, while also raising airline ticket sales volume. The company established a member package ticket
Member package
online sales system to provide members with a one‐stop shopping portal for multiple airline tickets on thecloud sales systemsame itinerary but with specific flights left open, and a way to reserve seats and obtain boarding passes onflights using this ticket.
To grasp in real time whether travelers have joined a group to flexibly adjust flight allocations in sales, andreduce labor on the part of travel agents and subsidiary group control personnel. This assists the Taipei
Travel industry
office to exchange information and cooperation on services with high‐market share travel professionals
B2B information
throughout Taiwan, so that travel professionals can rapidly obtain information about changes to seatexchange service
reservation records and provide real‐time changes to the number of people on a tour to operators andcooperation
adjusting seats as needed thus improving the efficiency of sales and the productivity of employees. It isestimated that this will bring a 2‐4% increase in group passengers.
Pursuant to review of promotions and card renewals for "high status" members and how to maintain the
New system forvalue of the "high status" to retain highly‐loyal customers, many Dynasty Club promotion rules were
promotions andadjusted, including new definitions for the standard mileage/number of trips interval calculations forcard renewals forpromotions, new calculation standards for flights on China Airlines or Mandarin Airlines‐operated flights,
Dynasty Club
mechanisms to retain mileage or trips above the promotion standard, co‐branded card promotion andmembers
extension rules adjustments, which were implemented in December, 2017.
UnionPay card
The UnionPay debit card was added in November, 2017 as a new means of payment for reserving
reservations ofduty‐free items. This allows all UnionPay cardholders to reserve duty‐free items whether by credit or
duty‐freedebit, providing convenience for more passengers to use diverse methods of payment.
products

Operational Highlights

93

B. Future R&D Projects(1) In order to meet future development needs, China Airlines will continue to invest in R&D projects.
Over 2018, we plan to invest a total of NT$220 million into R&D. The following table summarizes
future projects:
Estimated
Completion Date
Introduce the RMS (revenue management system) and connect to the existing CCNET June, 2018
Comprehensive
cargo reservation and cargo handling system, to maximize revenue from cargo. Based As of the printingof the annual
Integrated Cargo on the work plan, an exhibition of products from six companies and RFI (request forManagement
information) on product functions have been completed, and the current phase will report, project
Systemprogress was at
set criteria for product evaluation and set up an assessment team and draft an RFP
50%(request for proposal).
The New Distribution Capability (NDC) system is a distribution standard promoted byJune, 2018
IATA. Its objective is to enhance information exchange capabilities between airlines
and agents. It is projected that the system will go into widespread use in 2020. The
As of the printing
The New
company is using its existing NDC information system on the PSS structure as aof the annual
Distribution
report, project
foundation to set up NDC XML API through this initiative, implementing airline
Capability system
progress was atindustry commercial modes such as product searches, reservations, payments andticketing. The early phase objective is to complete IATA NDC Level 3 certification, to 52%
improve China Airlines' international visibility.
August, 2018
In coordination with the rollout and operation of the future China Airlines
China Airlines
As of the printing
e‐commerce town, numerous member system support functions are being developedof the annual
e‐commerce town
to provide members a friendly process, special deals and mileage coupons. The
project ‐ member
report, projectsystem provides more products and channels for member mileage activities,functionsprogress was at
improving member loyalty.
25%
September, 2018
Integrating relevant information from various units in the company on Marketing,
As of the printing
Sales, Operation and Security and Finance, this provides a one‐stop, clear Dashboard
Major operationsof the annual
analytical interface to effective provide a decision support system function andreport, projectindicators systemprovide a mobile operations interface so that senior managers can effectively grasp
progress was at
the major operations indices of the company.
38%
December, 2018
To improve financial operations decision making, the company is setting up a new
As of the printing
New financial debt financial debt management system. Its functions will include online signoff forms forof the annual
financial debt transactions and management information to improve business
management
report, projectprocedures and financial analysis effectiveness, which will benefit decision making
systemprogress was atanalysis.
10%
December, 2018
To coordinate with the enormous expansion of the company's flights and crews, as
As of the printing
Next generation well as demand for passenger and cargo aircraft mission dispatch, a new generationof the annual
team scheduling crew dispatch system is planned. It is hoped this will allow rapid, optimized allocation
report, projectof personnel and fair and effective allocation of group schedules in accordance withsystemprogress was at
civil aviation laws to ensure the quality of crew dispatch.
17%
December, 2018
A new age flight operations control system is being brought into jointly manage flights
As of the printing
and personnel using simplified flight operations control management, precise control
New era flightof the annual
operations control of discrepancies, forward‐looking decision making support and other functions. This
report, projectwill allow real‐time adaptation to the many changes in the operating environment
systemprogress was atwith timely, highly effective, low‐cost flight operations control decision making.
39%
To adapt to increasing customer service business load and the demands of different
December, 2018
channels of customer service, the current customer service system equipment has
As of the printing
Next generation
shown itself insufficient. An update to the existing customer service system isof the annual
multi‐media
planned, bringing in a multi‐media customer service platform, integrating email,report, projectpassenger service
Facebook and other channels of customer service demand to actively answer
progress was at
systempassengers' customized information inquiries in real time and improve the efficiency
64%
and service quality of the customer service center.
Project

Future R&D Project Description(2) Major Factors Affecting the Success of Future R&D
A. Full support of operational managers
B. Proper grasp of operational needs
C. Utilization of the latest IT know‐how and technology
D. Information system architecture upgrades
E. Implementation of project management
F. Strict budget control

94 Operational Highlights

5.1.4 Long‐term and Short‐term Development
To promote sustainable operations and strengthen international competitiveness, CAL has planned thefollowing short‐ and long‐term passenger and cargo transport developments:

A. Short‐term Development(1) Passengery Japanese and Korean tours continue to flourish, enhance investment in capacity
Taiwanese demand for tourism in Japan is strong, and a flood of Koreans are coming to Taiwan on vacation. The
company has increased its capacity supply and is also responding to seasonal demand by planning added
flights/charters to improve profit space.

y In coordination with the government's new Southern Policy, expand market potential
The company has added flights to destinations with good potential (such as Bangkok, Penang, etc.) and in combination
with the government's policy of providing landing visas for Southeastern Asian countries, this will effectively spur
more people from Southeast Asia to come to Taiwan for tourism.

y Drive travel demand in Oceania, and maintain the leading brand position on the market
In December, 2017 the company added several flights to Sydney and Brisbane, for an average of 3 flights to Oceania
daily. In 2018, it will continue to enlarge its service to this area, to enhance the company's network spread and satisfy
the need for connections to Europe and Northeast Asia.

(2) Cargoy Customized scheduled charters, making the most of flight network efficiency
2017 saw splendid results from scheduled charter business, with expanded charter business to accommodate
individual customer demand. Some 120 charter flights were completed between Taipei, Hong Kong, Nanjing, Vietnam,
Los Angeles, and Chicago, and further development of Southeast Asian and other emerging markets will continue in2018, as well as adjustments to route networks in response to market changes and promotion of custom charterbusiness. China Airlines will strive to bring the full effectiveness of its cargo fleet into play.

B. Long‐term Development(1) Passengery Optimize the long‐haul flight network to bring Taoyuan's hub position into full play
All routes to Europe were made direct flights as of December, 2016, and flights to London were resumed in December,2017. This added 5 destinations the company services, and in April, 2018, a Taipei‐Paris codeshare will be added with
Skyteam Alliance partner Air France. This is the most destinations and flights from Taiwan to Europe, and is anenormous advantage for the company's operations. After software and hardware upgrades on European routes, andwith more articulation, this will be even more helpful to attract passengers, improving the company's overall image.
The Sydney and Brisbane routes have been increased to 2 and 1 daily flight respectively as of December, 2017, andservice to Ontario Los Angeles was added in March, 2018. These routes provide Taiwanese passengers better service
to Australia and the US; in the future, passengers from China will also benefit from added flights to more conveniently
go through a Taiwan hub to reach destinations in Southeast Asia.

y Response to competition from low cost carriers: Sharing the market with subsidiary Tigerair
Taiwan to enhance group competitivenessAs per Centre for Asia Pacific Aviation (CAP) statistics, in 2017 Low Cost Carriers (LCC) on the Taiwan market held a
16% market share. This represents a rapid rise from the 3.6% market share of 2012. This reflects the fierce
competition on the market. The company and its subsidiary Tigerair Taiwan hold periodic consultations to distinguishmarket positioning and customer segments in order to provide appropriate products to each segment, enhancing the
Chian Airlines group's overall competitiveness.

y Continue bringing in new model passenger aircraftimproving passenger service quality
With the introduction of next‐generation long‐haul aircraft like the 777 and the A350, all European and US routes havebeen planned to use only next generation aircraft. With 4 more A350s coming online in 2018, there will be
improvements to product quality on the Oceania routes thus improving the quality of service on long‐haul routes.
Currently satisfying market trends in the Southern Pacific market and coordinating with route development strategies,
selection of the new generation of narrow body aircraft has begun, with review and comment on the A320 neo series
and 737 MAX ongoing. In the future, one will be selected to replace the current 737‐800, in hopes of creating ahigher‐quality product and provide passengers with a more comfortable flight experience.

Operational Highlights

95

(2) Cargoy The Southern Policyand development of high‐growth cargo sources
With the new Southern policy and continued economic development in Southeast Asian nations, sources of cargo likeconsumer electronics, textiles, and cross‐border e‐commerce promise market growth. China Airlines will continue its
thorough development in Japan, Singapore, Malaysia, Indonesia, Vietnam, the Philippines and Thailand to win cargomoving north‐south in Asia, and will also optimize combination of Southeast Asian cargo flight destinations,considering the conversion of multi‐leg destinations into direct flights based on the development of demand. The
company will do its utmost to coordinate with the development of the Southeast Asian region and improve overall
revenue efficiency; additionally, the potential market for special cargo such as semiconductor precision machines,
motors, temperature controlled cold chain and biotech pharmaceuticals will also continue to bring strong
development. Enhance interairline and alliance cooperation and expand cargo route networks and enhance cargo
information development
Use interairline cooperation to open up ASEAN, India, Mexico, Brazil and other emerging cargo markets to extend theservice network, and adapt to the development of logistics; cooperate with SkyTeam Cargo to coordinate with thedevelopment of a joint express freight platform to improve transshipment efficiency and develop the network; also
continue to enhance cargo operations/service information systems, and use the integration of various systems andreal‐time information provision to improve internal operations efficiency, customer service quality and satisfactionlevels.

5.2 Market and Sales Overview
5.2.1 Market Analysis
A. Main Sales (Service) Region
Overview of Company passengers/cargo (RPK/FRTK, REV) by region and passenger and cargotransport market share over the past two years:(1)Passenger routes:
Item
Area
Trans‐Pacific
EuropeSouth‐East Asia
Domestic
Hong Kong/Macau
North‐East Asia
Oceania
Mainland China
Total

No. of
Passengers
1,386,818
601,3813,450,709
1,000,915
2,738,184
5,142,683
558,7142,702,393
17,581,797

2016
RPK
(Million)
12,280
4,328
8,457
254
2,096
9,275
2,795
2,698
42,183

Revenue(NT$ Million)
18,571
7,063
16,385
1,574
7,594
25,042
4,542
14,511
95,282

No. of
Passengers
1,370,384
462,491
3,692,451
1,222,213
2,969,871
6,161,837
510,978
2,675,925
19,066,150

2017
RPK
(Million)
12,461
4,322
9,126
295
2,322
10,863
2,703
2,576
44,668

Revenue(NT$ Million)
17,8297,688
17,516
1,939
8,075
30,518
4,272
14,379102,216

Note 1: Revenue passenger kilometers (RPK) equal the total number of revenue passengers multiplied by the flight distancetravelled (kilometers).
Note 2: The above data includes scheduled flights, charter flights, and extra flights.
Note 3: The above data includes Mandarin Airlines and Tigerair Taiwan.

(2) Cargo routes:
Item

2016

2017
Revenue
FRTK
Revenue
Area(NT$ Million)(Million)(NT$ Million)
Trans‐Pacific
3,500
20,547
3,724
24,912Europe
716
4,625
793
5,451
South‐East Asia
718
6,034
817
7,549
North‐East Asia
185
1,842
204
2,156
Oceania
72
481
73
435
Mainland China
135
2,192
142
2,833
Total
5,326
35,721
5,753
43,336Note 1: Freight revenue ton‐kilometer (FRTK) equals the revenue cargo load (tons) multiplied by the flight distance travelled(kilometers).
Note 2: The above data includes scheduled flights, charter flights, and extra flights.
Note 3: The above data includes Mandarin Airlines and Tigerair Taiwan.
FRTK(Million)

96 Operational Highlights

B. Market Share (%) of Major Product Categories in the Last Two Years
Year
Airline
China Airlines
EVA Air
Mandarin Airlines
UNI Air
Far Eastern Air
Transport
Tigerair Taiwan
Other – Foreign
Carriers

Passengers
2016

Cargo
2017

25.04%
21.48%
2.61%
1.50%

2016
25.09%
22.27%
2.51%
1.52%

2017
38.12%
24.84%
0.86%
0.5%

38.03%
24.72%
0.76%
0.46%

0.45%

0.33%

‐

‐

2.72%

3.93%

0.04%

0.05%

42.19%

44.35%

35.08%

35.97%

Source: Civil Aeronautics Administration Monthly Statistics from January to December 2016 and 2017－Taiwan National Airlines
International and Cross‐Strait Market Share for Passengers and Cargo

C. Market Analysis of Major Product Categories(1) Passenger
Based on statistics from the Tourism Bureau of the Ministry of Transportation and Communications, the passenger market for2017 in Taiwan saw 10.74 million foreigners come to Taiwan (a growth rate of 0.5%), while 15.65 million trips were made from
Taiwan going abroad (a growth rate of 7.3%). Overall growth was 4%. If visitors from Mainland China are excluded, the growthrate for foreign visitors to Taiwan was 12%, showing that Taiwan's tourism market still has potential for development. It isprojected that in 2018, due to policy shifts on Mainland tour groups, demand across the Strait will continue to follow a declining
trend. In terms of regional routes, due to the expansion of LCC, and hot competition, the Northeast Asian market will continue tobe balanced for supply and demand, and the Southeast Asian market will benefit from policy with demand continuing to climb; interms of the long‐haul market, a stable US economy and improvement in the fluctuating European economy and increased
market supply will see higher demand. In the future, Taiwanese and foreign operators will continue to add supply, and it isprojected that market demand growth will gradually balance out.

(2) Cargo
World economic trends in 2017 showed clear recovery and growth. The newest announcement on Customs incoming andoutgoing trade from Taiwan's Ministry of Finance shows that in 2017, Taiwan's exports grew 13.2%, while imports grew 12.6%.
Both represented the greatest growth rate over the past 7 years. Looking ahead to 2018, the effect of electronic and mobile
equipment innovations and upgrades, machinery and semiconductor capital equipment, e‐commerce and postal cargo, theInternet of Things, car electronics and artificial intelligence and other business opportunities indicates a cautiously optimistic
economic outlook. As airlines around the world continue to take delivery on new generation widebody aircraft, bellycompartment cargo capacity is rapidly increasing, which will continue to impact the supply and demand balance in air cargo.
Moreover, the rising trend in oil prices, trade protectionism, the international situation and regional political factors are still
factors that impact the development of air cargo business.

D. Competitive Niche(1) Next Generation Long‐Haul Fleet Taking ShapeThe 10 Boeing 777‐330ER planes brought in under China Airlines' next‐generation product plan were in place as of the last
half of 2016. 14 Airbus A350‐900s were also delivered over the last half of 2016, and the airline had 10 for capacity inDecember, 2017. Another 4 will be brought in in 2018, not only raising China Airlines' operational efficiency, but also
bringing new business opportunities with the new fleet. The fleet is becoming younger, and under the new generation
product plan, Taiwanese culture will be thrust onto the world stage, allowing China Airlines to become newer as it ages,
using this transition to provide long‐haul passengers with a totally new experience.

(2) Extensive Route Network, Leader in the Region and Australia/New Zealand Markets
The company has been shipping for 58 years, and the destinations in its passenger network span Europe, the Americas, Asia andOceania, reaching 22 countries and 79 different destinations. The company's cargo routes ship to 29 countries and 147
destinations (as of December 31, 2017), forming a complete network of air service for passengers and goods alike. The company
actively deploys regional and Oceania routes with China Airlines' regional routes covering both sides of the Strait of Taiwan,
Northeast and Southeast Asia, at the highest market share of any airline.

(3) A Leader in Collaboration
Aside from the routes it operates itself, China Airlines is also Taiwan's first airline to join a global airline alliance, and the first
operator in Taiwan to run codeshare flights. At present, the company cooperates with 22 airlines on codeshare flights, more thanany other airline in Taiwan. The company actively deploys on the world market, allowing passengers to enjoy a dense route
network running between Taiwan and major cities worldwide. This provides passengers with more rapid and complete service.

(4) Expand the scope of cooperation, upgrade maintenance capabilities
Chian Airlines realizes the importance of aircraft maintenance for itself and all airlines. That's why it has partnered with
Airbus to become a founding member of the Airbus maintenance alliance. At the same time, it also has a joint venture in
Taiwan with NORDAM aerospace group (USA) to establish a compound materials and maintenance plant, "NORDAM Asia
Ltd.” which not only satisfies its own fleet maintenance needs and upgrades its capability to repair and maintaincompound materials, but also energizes the entire aerospace industry chain in Taiwan, opening up new business
opportunities.

Operational Highlights

97

E. Corporate Governance and Policies(1) Corporate Human Rights Policy
China Airlines respects and obeys internationally recognized human rights norms and principles, and firmly believes that
respecting and protecting human rights is the basis for achieving sustainable enterprise development. China Airlines'
human rights policy applies to the airline and all enterprises in which it has a controlling interest, and the company strives
to respect, protect, assess and compensate employees and customers who encounter human rights issues. Moreover, we
also hold China Airlines' suppliers and contractors to the same standards and requirements, and require them to conformto the spirit and basic principles of the policy.

(2) Sustainable Supply Chain Management
In order to achieve its goal of sustainable supply chain management, in 2015 China Airlines set a Supplier Code of Conductthat includes major areas such as compliance with laws and regulations, human rights and labor conditions, workplacesafety and health, environmental protection, fair transactions and ethics, quality and safety, and information security. To
increase the sustainability of its many suppliers, in 2016 the company further required its suppliers to sign a Supplier
Code of Conduct, pledging with partners to create a sustainable industrial environment and move together toward abright future. Moreover, in 2017, for the second time, China Airlines became the only shipping operator in Taiwan to be
selected for the Dow Jones Sustainability Index (DJSI) as emerging market shares included in the composite index, andwon a fourth Taiwan Corporate Sustainability award.

(3) Environmental Sustainability Management
China Airlines holds fast to its belief in environmental sustainability. It views the "environment" as an important factor inachieving sustainable operations. In 2007, the company set management concepts around environment and energy, andin 2011 it established a dedicated Environmental Department and an Environmental Committee, and the President
reviews corporate environmental and energy management achievements quarterly and sets bonus measures. In 2013 astatement of environmental and energy policy was released, making the company the first airline in Taiwan to establish
an organization with specific responsibility for the environment and to set a policy for it.

(4) Corporate Social Responsibility
China Airlines realizes that its success comes from the support of society, and it has long held fast to the concept of giving
back. The company continues its major strategy of creating social value; we hold diverse events to help disadvantaged
groups, to give more back to our home. This nurtures potential and develops talent for the nation, providing greater value
for customers and shareholders alike.

(5) Enterprise Risk Management Architecture and Process
China Airlines understands the importance of risk management, and places great emphasis on possible interactions
between risks. It refers to Enterprise Risk Management (ERM) and other publications and practical methods while also
considering the environment and operational characteristics of the industry. The airline industry is currently facing threemajor risk sources: security, operations, and financial risk management structures, and is using four major steps,"Identification, risk analysis, risk assessment, risk management”. The company identifies potential risks in these threeareas and based on frequency of occurrence and seriousness of the risk, does analysis and assessment, distinguishing thedegree of risk and finally developing response plans for high‐risk items to reduce the impact on company operations.

F. Favorable and Unfavorable Factors in the Long Term
(1) Favorable Factors
z The Asia‐Pacific region is benefiting from the growth of emerging economies in the near term, and demand for air
travel is increasing sharply. IATA projects that growth in passenger volume in this region will be higher than global
averages, and passenger volume is projected to grow for passenger services; in the area of freight, although the same
beneficial factors can drive demand in cargo, due to the overall air freight market still being in an oversupply situation,market demand will not be hot but should remain stable.
z Growth in the air industry is affected not only by economic factors; geographical position is another key factor. Taiwan
is situated in the center of the Asia‐Pacific region, and has boundless potential for the air travel market. Development
as an air transport center will allow a grasp of this business opportunity. As a result, the government has graduallypromoted expansion of the Taoyuan airport in recent years, creating an East Asian transshipment hub.
z With the development of Internet technologies and the mobile internet, e‐commerce has grown rapidly. It is graduallyreplacing traditional brick‐and‐mortar channels, and brings new opportunities for the cargo market. According tostatistics from Seabury Aviation Consulting, between 2006 and 2016, international packages and express goods grew
2.5‐fold and 1.6‐fold, respectively. That growth was higher than other cargo types, and adds a new source of cargo forairlines.

(2) Unfavorable Factors Since the end of 2016 when OPEC and non‐OPEC countries reached anagreement on global reduction in productionz The US has ramped up its oil production and gradually reduced its holdings. International fuel oil prices have risen
gradually since the second half of 2017, and seem likely to continue rising in the near term. This is an issue for the
global air transport industry.
z The prosperity of the air transport industry is inextricably linked to the global economic pulse, and its operating
environment is easily impacted by global political unrest and natural disasters. Examples include the cross‐Strait
political situation, European terrorist threats, and European and American elections.

98 Operational Highlights

z In recent years air rights have gradually opened up, allowing domestic and foreign carriers as well as low‐cost carriers
to enter the market one after another. The huge increase in capacity has put pressure on ticket prices, impacting
overall revenues for several airlines. Additionally, with the liberalization of the market, and ubiquitous crowding in large
airports around the globe, IATA statistics indicate that at present, more than 170 airports are classed as Grade 3,
overcrowded airports. Within the short term, this problem is unlikely to be alleviated, so that air transport operations
are facing serious challenges.

(3) Response Measuresz Through information gathering and management, we will keep abreast of global political and economic developments.
To respond to unpredictable events in the operating environment, we will adapt flight schedules, aircraft deployment,
and capacity to increase the passenger load factor and profitability of those routes.
z In response to changes in passenger behavior and the popularity of mobile devices, the Company will adapt to changing
passenger needs. Launching a variety of promotional activities, providing mobile, electronic information features andmarketing directed at target customer groups will strengthen the Company’s competitiveness.
z In coordination with the arrival of the new long‐haul fleet and new opportunities afforded by Open Skies, the Company
is actively adding new routes and destinations to maintain our regional advantage and optimize our long‐haul network.
With Taiwan’s geographical advantage, we will build an East Asian transfer hub while expanding cooperation with our
airline partners to build a global flight network and generate more revenue.

5.2.2 Production Procedures of Main Products
A. Major Products and Their Main Uses
Major ProductsPassenger services
Cargo services
In‐flight sales

Main Uses
International passenger air transport and scheduled, non‐scheduled, and charter
flights.
International cargo, courier, mail, and package transport.
Providing passengers with in‐flight duty free sales services.

B. Major Products and Their Production Processes
The Company is a member of the airline industry and not a manufacturer, so there is no production
process.

5.2.3 Supply Status of Main Materials
CAL is a member of the airline industry, not a manufacturer. Therefore, there is no need for production
raw materials. Aviation fuel makes up the largest proportion of operating costs. In addition to aviationfuel supplied at Taiwan Taoyuan Airport by CPC Corporation and Formosa Petrochemical Corporation,
the Company also purchases fuel from large oil companies around the world at the various destinations
served, so fuel supplies are very fragmented.

5.2.4 Major Suppliers and Clients
A. Major Clients in the Last Two Calendar Years:
CAL is a member of the airline industry and clients are members of the general public.

B. Major Suppliers in the Last Two Calendar Years:
CPC Corporation, Formosa Petrochemical Corporation, and Chevron Corporation, etc.
Unit: NT$ thousands
2016

2017

Item

CompanyName
1
2
3

Amount%CPC
Corporation
Formosa
Petrochemical
Corporation

11,593,459

ChevronCorporation

Other
Net Total

RelationwithIssuerCompany
Name2018 (As of March 31)
RelationwithIssuerCompanyName

Amount%9.42 None Corporation

13,875,830

10.34 None Corporation

3,193,911

Formosa
2.60 None Petrochemical
Corporation

4,083,732

3.05 None Corporation

2,346,937

1.90 None

ChevronCorporation

3,373,214

2.51 None Petrochemical

105,938,894
123,073,201

CPC

86.08
100.00Other
Net Total

RelationwithIssuerAmount%CPC

4,010,741

11.16 None

Chevron

1,207,754

3.36 None

1,078,900

3.00 None

Formosa
Corporation

112,816,598 84.10
134,149,374 100.00

Other
Net Total

29,641,079 82.48
35,938,474 100.00

Reasons for changes:
Fuel is the Company’s primary operating expense. Overall, purchases have remained stable.

Operational Highlights

995.2.5 Production in the Last Two Years

Unit: thousand kilometers

Year

2016
Capacity and Traffic
Available Seat Kilometers (ASK)54,192,310
Revenue Passenger Kilometers (RPK)
42,183,064
Load Factor (%)
77.84%
Freight Available Ton Kilometers (FATK)
7,554,981
Freight Revenue Ton Kilometers (FRTK)
5,325,986
Load Factor (%)
70.50%
Available Ton Kilometers (ATK)12,420,950
Revenue Ton Kilometers (RTK)
9,114,419
Load Factor (%)
73.38%
Note 1: The above data includes scheduled flights, charter flights, and extra flights.
Note 2: The above data includes Mandarin Airlines and Tigerair Taiwan.

Rate of Increase(Decrease)
2.83%
5.89%
2.32 ppt
5.37%
8.01%
1.77 ppt
4.36%
7.11%
1.93 ppt

2017
55,723,852
44,668,163
80.16%
7,960,873
5,752,743
72.26%
12,962,698
9,762,044
75.31%

Reasons for Changes:
In 2017, the company brought additional passenger capacity on market, Available seat kilometers(thousands) and revenue passenger kilometers (thousands) both increased compared to 2016; to alignwith the increase in cargo demand, Available Ton Kilometers (thousands) and Revenue Freight Ton
Kilometers (thousands) also increased in comparison to 2016, and there was a rise in the overall
passenger‐freight carriage rate compared to 2016.

5.2.6 Shipments and Sales in the Last Two Years
Unit: thousand kilometers; NT$ thousands
2016

Item

RPK/FRTK

2017
Amount

RPK/FRTK

AmountPassenger Revenue

42,183,064

95,282,373

44,668,163

102,216,106

Cargo Revenue

5,325,986

35,721,425

5,752,743

43,336,068‐

10,075,309‐

10,569,611‐
141,079,107
Note 1: The above data includes scheduled flights, charter flights, and extra flights.

‐

156,121,785

Other Operating Revenue
Total

Note 2: The above data includes Mandarin Airlines and Tigerair Taiwan.

Reasons for Changes:
The company's passenger and freight business sales both increased in 2017 compared to 2016, primarily
due to the cargo capacity from cargo space on passenger aircraft coming onto the market in 2017, anddriving an increase in volume and revenue; moreover, due to economic stability and recovery in 2017,and a brisk demand in international trade leading to rising freight prices, freight revenue grew in 2017.

5.3 Human Resources
Year
Male
Number of
FemaleEmployees
Total
Average Age
Average Years of Service
PhDs
Master’s Degrees
Bachelor’s Degrees
Education
Senior High School
Below Senior HighSchool

2016

2017
6,476
6,169
12,645
40.60
13.30
0.11%
10.64%
82.66%
6.22%

6,460
6,102
12,562
40.70
13.40
0.10%
10.64%
82.71%
6.22%

0.56%

0.37%

0.33%

5.4 Environmental Protection Expenditure
5.4.1 Total Losses and Penalties: None.

100 Operational Highlights

APR 29, 2018

6,554
6,094
12,648
40.20
12.90
0.11%
10.34%
82.74%
6.25%

5.4.2 Company Countermeasures to Future Environmental Protection Issues
A. ISO 14001 Environmental Management System and ISO 50001 Energy Management
SystemTo achieve overall improvement in the company's environment and energy management
mechanisms, the company's environmental management mechanism has introduced ISO 14001 EMS
and ISO 50001 EnMS standards, in its PDCA management procedure, which comprehensively
identifies and manages environmental and energy issues arising from corporate operations
activities.
China Airlines implemented self and third party mechanism and has received ISO 14001 certification
again in 2018. The certification was issued by DNV‐GL and valid for Corporate Activities at Offices,
Cargo Activities, Passenger Service, Aircraft and Engine Maintenance. In addition, we also
implement energy management system according to ISO 50001:2011, and apply for re‐certification
annually to ensure the effectiveness of the system.
China Airlines is the second carrier in the world to hold ISO 14001 and ISO 50001 certifications
simultaneously, and the first airline in Taiwan with the most comprehensive coverage.

B. Environmental KPI Controls
The Company’s five major Environmental Management Committees and the Carbon Management
Taskforce have adopted and implemented environmental KPI (key performance indicators). The
annual review by the Environmental Committee, convened and chaired by China Airline’s President,
encourages all divisions to implement environmental protections.
In 2017, a total of 60 KPI were completed and carbon emissions were reduced by 164,343 tons ofCO2e through conservation of aviation fuel, energy, and vehicle fuel. In 2018, we set up a further 55
KPI and expect to reduce emissions by 152,076 tons of CO2e over the year.

C. Environmental Management Inspection Mechanism
As part of the Company’s environmental management inspection mechanism, each unit performs astage one environmental management self‐audit then Company headquarters performs a stage two
audit. Through this double audit system, we can ensure that environmental management is
implemented from the ground up within each unit.
In Q2 and Q4 of 2017, second‐level audits were completed (including cause/rectification measure
and recheck work), with audit items including set inspection table items as well as rechecks from theprevious audit, environmental and energy KPI implementation checks, and checks on
implementation of rectification measures based on the results of Taoyuan City EPA audits.

D. Employee Environmental Education and Training
In order to comprehensively implement Company environmental policies, environmental
management procedures, and increase employee environmental awareness, China Airlines offers
employee environmental education and training. CAL headquarters holds training regarding
environmental policies and systems, while each individual unit holds environmental training as it
pertains to its own operations. Such training can promote a higher level of ecological awareness andconcern for our Earth among employees and build a culture of environmental sustainability at theCompany. From 2014‐2016, the company provided training for all its employees in Taiwan and in2016 extended this to employees stationed abroad as well as foreign team members. This formed
an environmentally sustainable corporate culture. Additionally, in 2017, the company held anannual environmental education event series with online multimedia, environmental symposia andsharing, which spread the sustainable environmental concepts of reducing waste and supporting
ecological preservation.

Operational Highlights

101

E. Carbon Inventory and Reduction Project，to keep well in line with international
management trends(1) A solid response to ICAO CORSIAThe ICAO plan promotes the Carbon Offsetting and Reduction Scheme for International Aviation,
or CORSIA. It is anticipated that this will formally begin in 2019. Through its participation in
IATA's environmental committee and the AAPA environmental work team, the company has
actively grasped the progress of CORSIA and the scope of its content, and set up internal capacity
at the group and company levels. Related information has also been simultaneously provided toagencies in Taiwan for review, to assist with government policymaking response strategy. On
another front, China Airlines has worked through the Flight Safety Foundation's
industry‐government platform to assist in holding working meetings related to CORSIA, so thatdomestic representatives from organizations in industry, government and academe canunderstand the international carbon control mechanism.
(2) Implementation of an annual proactive organization greenhouse gas audit
Following the ISO/CNS 14064‐1 rules, the company began greenhouse gas audits in 2009. These
covered flight, ground logistics and office and administrative business, and third‐party
certification was performed.
In April, 2018, the company completed the third party (DNV GL) certification process for 2017,
obtaining the certificate of "Reasonable Assurance". In 2017, greenhouse gas emissions werecertified at 7,174,056.92 metric tons CO2e.
(3) A healthy response to the EU Emission Trading Scheme
Based on the new EU regulations from April, 2014, the company completed a 2017 Intra‐EU
Flight CO2e emissions audit and certification in March, 2018. Results showed 106 flights in 2017,with total CO2e emissions of 3,568 metric tons. The EU has allocated 7,157 annual metric tons ofannual carbon rights to the company for 2017‐2020, so there were 3,589 metric tons excess for2017.

F. Actively participate in international environmental protection initiatives(1) The company participates in ICAO, IATA and AAPA environmental committees and workgroups,
to grasp relevant international environmental protection laws and regulations as and trends incarbon control, and responses to these.
(2) The company cooperates with the EPA, National Central University and the EU's IAGOS‐ERIin
implementing the Pacific Greenhouse Gases Measurement (PGGM) plan. In June 2012, July 2016
and July 2017, the company installed IAGOS instrumentation in its B‐18806, B18317 and B18316
aircraft, automatically collecting atmospheric gas data during flight. This data was supplied todomestic and foreign research organizations to explore and understand changes to atmosphericgases, for research into ecological protection. Between July 1, 2012 and December 31, 2017,
some 6,757 measurements of atmospheric gases were collected. This represents an important
contribution to global ecology and to Taiwan's image in environmental protection.
(3) The company supports international ecodiversity conservation. At the 73rd IATA conference inJune, 2017, the company signed the "Initiative to Prohibit Illegal Shipments of Wild Animals andPlants" (the Buckingham Palace Declaration) and in the future will work hard with 20‐odd
companies from around the world to put an end to shipments of wild animals and plants topromote implementation of the UN sustainability goals.

102 Operational Highlights

G. Building an Energy‐Efficient, Environmental Fleet
In planning our new fleet, the primary concern was to select planes that met international flightnoise and emissions standards while also prioritizing fuel efficient models.
Beginning in September, 2014, the company has been bringing in fuel‐efficient Boeing 777‐300ER
and Airbus A350‐900 aircraft, and by the end of March, 2018, had a total of 10 777‐300ERs and 12
A350‐900s in the fleet.

H. Promote Continuous Improvement in Maintenance Operations(1) Maintenance Facility Environmental Management TeamThe maintenance facility established an Environmental Management Committee, in which an
assistant vice president‐level manager serves as Environmental Management representative. The
Committee is made up of members employed in the maintenance facility andenvironmental‐related units. Through the committee platform, the effectiveness of maintenancefacility environmental management is regularly monitored and reviewed to meet legal
requirements, international trends, company policies, and our corporate social responsibilities.
(2) Establishing Maintenance Facility Environmental KPI
Each year, the maintenance facility sets environmental KPI in accordance with Company goals andin consideration of potential maintenance facility environmental impacts. The KPI include fuel,energy, and water conservation, green procurement, waste recycling, and environmental
education and training. Each goal is regularly monitored and reviewed by the Environmental
Management Committee to continuously improve environmental management and keep up withdomestic and international environmental protection trends.
(3) Continue to Implement Maintenance Facility ISO 14001 Environmental Management System/ISO
50001 Energy Management System
In accordance with ISO14001 and ISO 50001 provisions, the maintenance facility completed the
management systems’ PDCA model in the areas of environmental policy establishment,
environmental management document formulation, environmental assessment, environmental
objective setting, education and training, environmental performance assessment, internal
auditing, and environmental management review. Each year these efforts are certified by athird‐party auditor.
(4) Air Pollution Control
Each year air pollution emissions testing is performed on the heating boilers in our maintenancefacility’s engine plant and plating factory based on relevant standards and regulations and aquarterly air pollution control fee declaration is made (because the facility uses super diesel, noinspection is required, but a declaration must be made).
(5) Wastewater Treatment
Our maintenance facility wastewater treatment plant treats wastewater produced by airplanecleaning, paint stripping, and plating. The plant has obtained a wastewater discharge permit andour water pollution prevention measures program has been updated to meet legal regulations.
Improvements are implemented and equipment added as necessary to ensure compliance withthe latest environmental regulations.
(6) Waste Disposal
Waste produced by the maintenance facility is sorted and stored as required by law into recycling,
reusable waste, and industrial waste then collected by EPA‐approved recyclers and waste disposal
companies. Maintenance facility units perform scheduled reviews to ensure the legality of the
final disposal. The waste disposal program is updated regularly as required by law and each year’s
actual waste amount is updated and declared. Soil and groundwater remediation fees are paid
based on the latest laws and the declared amount of waste produced.

Operational Highlights

103

(7) Procurement
The maintenance facility has received all necessary authorizations for the toxic chemicals
purchased and in use, which are properly stored, labeled, managed, and declared. In order tomaintain compliance, improvements to these processes are implemented, new equipment added,
and applications for revisions are made based on the latest environmental laws and regulations.
(8) Airport Noise Control
In order to control employee noise exposure while working on the apron, the Company regularlycommissions professional testing organizations to perform operating environment noise
inspections at the Taipei Taoyuan and Kaohsiung Airports. The Company purchases and distributes
hearing protection equipment to protect employees working on the apron from hearing loss. As
required in the Civil Aviation Law of The Republic of China, CAL pays aviation noise control fees(see below table) and supports related education campaigns implemented by the authorities.

5.4.3 Countermeasures

Unit: NT$ thousands
Item

Year
Environmental protection equipment and maintenancecosts (does not include depreciation)
Fees for wastewater equipment regular samplinginspections by inspection agencies and permitting
Waste disposal costs
Aviation noise control fees (paid to the terminal basedon airplane model and number of flights)
Fees for establishment of an environmental control
system and strategic research projectGreen procurement

2017

2018

14,1652019

14,0002020

14,00014,000

172

200

200

200

3,315

3,000

3,000

3,000

188,485

193,008

193,008

193,008

5,697

5,500

5,500

5,500

11,73012,00012,00012,0005.4.4 Effect of Environmental Expenditures on Earnings
Energy‐saving equipment and improved management expenditures reduce both Company energy use
and operating costs.

5.4.5 Effect of Environmental Expenditures on Competitiveness
Environmental performance has already become an important benchmark in achieving corporate social
responsibility. With the rise of green consumers, actively investing in environmental improvements canpositively affect our competitive position and improve brand image.

5.5 Labor Relations
5.5.1 List of employee benefits, training, retirement program, and status of theirimplementation, and labor‐management agreements and protections of
employee rights and interests
A. Good Labor‐Management Relations
On May 4, 1988, the China Airlines Union was established. On July 29, 2011, in accordance withrevisions to the Labor Union Act, it was renamed the China Airlines Employee Union. In 2002, acollective agreement was signed between labor and management, which is regularly negotiated andrenewed.

B. Retirement Program and Pension Preparations(1) Labor Standards Act Old‐Age Pension System: In June, 1987, the company established aretirement standards oversight committee. Under the old system the monthly allocation ratio
was 15%, and it has now reached the legal upper limit. In the case of pensions, after theemployee's retirement takes effect, the Office of Human Resources will automatically apply to
the Bank of Taiwan to have a payment made, and the employee will be notified when a check isissued. As of the end of December, 2017, 53.2 of employees were eligible to request aretirement benefit under the old system (of which 37% were eligible for both).

104 Operational Highlights

(2) Labor Pension Act New Pension System: Under the provisions of the Labor Pension Act, beginningin July, 2015 pension monies will be paid under the new system on a monthly basis to the
Bureau of Labor Insurance for eligible employees. The new system sets aside 6% monthly,
depositing it into the employee's individual retirement account at the Bureau of Labor Insurance,with an automatic request for payment made to the Bureau after the employee's retirement
conditions are fulfilled. As of the end of December, 2017, 66.4% of the company's employees
were eligible to draw retirement monies in this way (of whom 42% were eligible for both the
new and the old systems).

C. Labor‐Management Communications(1) Units within the Company with a relatively large number of employees, such as the maintenancefacility, Ground Services Division, Cabin Crew Division, Flight Operations Division, and Taipei and
Kaohsiung Branches hold regular communication meetings. In addition, elected employee andunion representatives attend monthly company‐wide labor‐management conferences toimprove understanding and communication.
(2) Establish an employee complaint mechanism and channels to ensure proper response:
When employee rights have been violated or a situation is improperly handled, as stipulated in
the Regulations Governing Employee Complaints, employees can lodge a complaint with the
responsible operating unit or the Human Resources Division. If the employee objects to the
response, he or she can file an appeal with the Human Resources Division. Use of employee
complaint channels: a total of 28 written complaints were handled in 2017.

D. Benefits(1) Employee care
Pension appropriation, labor and health insurance, employer liability insurance, group insurance,
employee physical examination, and providing a nursing room.
(2) Employee stock ownership trust
In August 1998, the Company set up an employee stock ownership trust. Employees are free toparticipate and the amount, depending on employee position, is deducted directly from theirmonthly salary. Through the end of 2017, a total of 1,907 employees participated.
(3) Profit sharing
As per the company charter, if the company posts a profit in a given year, it must allocate no lessthan three percent as employee bonuses. However, if the company still has accumulated losses,
it shall first retain a sum of money to make up the deficiency.
(4) Welfare system
The Company’s Employee Welfare Committee was set up in December 1967. As stipulated by law,
the Committee distributes benefits, handles the disbursement of wedding allowances, funeralallowances, disaster allowances, employee children excellence scholarships, birthday bonuses,and birth allowances, arranges visits to nursing homes, holds recreational sports activities,
distributes meals and holiday gift certificates, and offers distress or purchase loans.
(5) Employee leisure
Employee group activity subsidies, employee group travel subsidies, discounted tickets for
current and former employees.
(6) Working environment
Workplace compliant with occupational safety standards, gender equality.

Operational Highlights

105

E. Collective Agreement
The CAL Collective Agreement was renewed on January 5, 2015 and went into effect the following
day. On January 19 of the same year, the Council of Labor Affairs issued a written approval. The fulltext of the agreement is available through the CAL Enterprise Information Portal.

F. CounselingTo take care of our colleagues needs and participate in employee personal growth, the Company has
employed professional counselors and psychiatrists to provide counseling services to employees. In
2017, there was a total of 101 counseling visits totaling 195.5 hours.

G.In addition to promoting employee education and training to enhance staff
knowledge and skills, we also continue to accumulate knowledge and encourage
exchange within the Company to build a learning organization. Through the
management personnel training program and the “China Airlines Lecture Hall”
training system, the Company holds courses to improve employees’ strategic,
management, professional, and general workplace skills.
(1) To encourage employees to participate in various classes and self‐study opportunities provided
by the ROC Workforce Development Agency under the Ministry of Labor, all credit and non‐credit
courses successfully completed by an employee will be registered in the E‐Learning system's
record of outside training, and the self‐pay portions of the costs for such courses subsidized by
the company (in cases where the government provides assistance for the full amount, no
additional subsidy will be paid). Each person may draw a total of NT$5,000 in such subsidies
annually.
(2) Obtain the NT$1.8 million 2017 training subsidy funding from the China Aviation Development
Foundation; obtain the ROC Ministry of Labor Workforce Development Agency's 2017 training
subsidy of NT$488,625.
(3) Popularize and hold strategic work, management, professional and general skills courses.
y Marketing training: including marketing strategies, customer operations, freight business andrelated OJT training, with a total of 188 in‐person classes and 44 e‐classes, training a total of
4,855 people.
y Professional technical classes: including enterprise safety/inspection work, flight services, joint
management and EMO, with a total of 3,581 in‐person classes and 3,417 e‐classes, training a
total of 49,210 people.
y Service: including service quality assurance, introduction to public relations, service business,ground services operations and in‐flight products, with a total of 589 in‐person classes and 345
e‐classes, with a total of 28,890 people trained.
y Other: including investment management unit business, law and insurance, financial,information technology, and human resources management, with a total of 165 face‐to‐faceclasses and 22 e‐classes, training a total of 7,106 people.

106 Operational Highlights

5.5.2 CAL has established an employee code of conduct or ethical code andarranges pre‐employment Employee Rights and Responsibilities classes
for new hires. The main content of the Company’s Employee Code of
Conduct is as follows:
The Company’s Employee Code of Conduct primarily consists of workplace ethics, privacy, occupationalsafety, discrimination and harassment, moral integrity, media and public image, conflict of interest
avoidance, anti‐trust and fair competition, exchanging gifts and anti‐corruption, CAL asset andintellectual property protections, reporting responsibilities, respect for human rights, and commitment
to environmental protection. The company includes an assessment and consideration of the foregoing
items of workplace behavior in its annual results; employees unable to respect or who violate theforegoing regulations governing workplace behavior are penalized based on the company's regulations
governing rewards and penalties, based on the severity of the offense.

5.5.3 Implementation of work environment and employee personal safety
protection measures
The Company complies with the requirements outlined in the Occupational Safety and Health Act andother relevant regulations. Therefore, we formulated and follow our Occupational Health and Safety
Manual and actively promote the Occupational Health and Safety Management system to implement
related operations. To address potential dangers in the work environment, in addition to hazard
identification, risk assessment, engineering controls, government management, and providing
employees with personal protective equipment, we also arrange employee physicals, health promotion
activities, and health education counseling to reduce occupational incidents. The Company has also
strictly implemented automatic safety checks, workplace environment monitoring, and safety
inspections. Furthermore, we launched workplace incident education to enhance employee safety
awareness. As part of health and safety education and emergency response training, the Company
provides essential health and safety training to both new hires and existing employees. Through theparticipation of all employees in harm prevention, we are committed to continuous improvement andcreating a safe and healthy work environment.

5.5.4 Over the most recent year through the date of the publication of thisreport, the estimated value of any losses or potential future losses due tolabor disputes
During 2017 and up until April 29, 2018, the company had been fined approximately NT$1.20 million
because of overtime caused by labor‐management disputes or unavoidable factors such as weather,mechanical factors, etc. Of this, for the cases that were caused by reasons outside the company's
control, the company has used proper channels to obtain administrative relief to protect thecompany's reputation. Moreover, losses from labor‐management disputes expanding to the level ofdemonstrations that will cause damage to the company's operations and commercial reputation
cannot be calculated, so that the company currently uses multiple channels of communication tomaintain good mutual interaction mechanisms between the parties, and to achieve its goals of taking
care of employee welfare and improving the quality of the working environment, to comprehensively
improve the level of satisfaction of employees in all categories of work and eliminate any unnecessary
labor‐management disputes that could lead to controversial incidents.

Operational Highlights

1075.6 Major Contracts
Agreement
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Loan
Loan
Loan

Counterparty
International Lease FinanceCorporation
AWA Leasing Co., Ltd.
Zhong Hang Co., Ltd.
Zhong Hang Co., Ltd.
Whitney Leasing Limited
Zhong Hang Co., Ltd.
Whitney Leasing Limited
SPRITE AVIATION NO. 1 DAC
Bluesky Magical 1001 Leasing
Co.
MSN 1272&1278 Aircraft
Leasing (Cayman) Limited
MSN 1272&1278 Aircraft
Leasing (Cayman) Limited
Panamera Aviation Leasing
Panamera Aviation Leasing V
LimitedSky Aircraft A1450 Limited
Avolon Aerospace (Ireland) AOE
35 Limited
Wilmington Trust SP Services
Wilmington Trust SP Services
Wilmington Trust SP Services
Avolon Aerospace AOE 73
Limited
Avolon Aerospace AOE 78
LimitedSMBC Aviation Capital (UK)
LimitedOriental Leasing 3 Company
LimitedOriental Leasing 4 Company
LimitedCelestial Aviation Trading 34
LimitedWilmington Trust SP Services(Dublin) Limited
Sky High XXXVII Leasing
Company Limited
Sky High XXXVII Leasing
Company Limited
Sky High XXXVII Leasing
Company Limited
ALC Blarney Aircraft Limited
ALC Blarney Aircraft Limited
Sky High XXXVII Leasing
Company Limited
Sky High XXXVIII Leasing
Company Limited
ALC Blarney Aircraft Limited
Sky High XXXIX Leasing Company
LimitedChilli Leasing LLC
Pacific Triangle Leasing Limited
BOC Aviation Limited
BOC Aviation Limited
BOC Aviation Limited
BOC Aviation Limited
BNP Paribas(EXIM Guarantee)
Chang Hwa Commercial Bank
Mega International Commercial
Bank

108 Operational Highlights

PeriodMajor Contents

Restrictions

02/2006‐02/2022

Aircraft Type:A330‐300/No.:B‐18351－

06/2006‐06/2018
06/2006‐06/2018
12/2006‐09/2017
02/2007‐02/2023
04/2007‐04/2019
05/2008‐05/2024
12/2008‐12/2018

Aircraft Type:A330‐300/No.:B‐18308
Aircraft Type:A330‐300/No.:B‐18309
Aircraft Type:747‐400F/No.:B‐18723
Aircraft Type:A330‐300/No.:B‐18352
Aircraft Type:A330‐300/No.:B‐18315
Aircraft Type:A330‐300/No.:B‐18353
Aircraft Type:A330‐300/No.:B‐18312

－
－
－
－
－
－
－

11/2010‐11/2022

Aircraft Type:A330‐300/No.:B‐18355－

12/2011‐12/2023

Aircraft Type:A330‐300/No.:B‐18356－

01/2012‐01/2024

Aircraft Type:A330‐300/No.:B‐18357－

10/2012‐10/2024

Aircraft Type:A330‐300/No.:B‐18358－

12/2012‐12/2024

Aircraft Type:A330‐300/No.:B‐18359－

12/2013‐12/2025

Aircraft Type:A330‐300/No.:B‐18360－

06/2014‐06/2026

Aircraft Type:A330‐300/No.:B‐18361－

04/2013‐04/2021
05/2013‐05/2021
06/2013‐06/2021

Aircraft Type:737‐800/No.:B‐18651
Aircraft Type:737‐800/No.:B‐18652
Aircraft Type:737‐800/No.:B‐18653－－－

03/2014‐03/2022

Aircraft Type:737‐800/No.:B‐18655－

05/2014‐05/2022

Aircraft Type:737‐800/No.:B‐18656－

06/2014‐06/2022

Aircraft Type:737‐800/No.:B‐18657－

10/2014‐09/2026

Aircraft Type:777‐300ER/No.:B‐18051－

10/2014‐10/2026

Aircraft Type:777‐300ER/No.:B‐18052－

11/2014‐11/2026

Aircraft Type:777‐300ER/No.:B‐18053－

01/2015‐01/2027

Aircraft Type:777‐300ER/No.:B‐18055－

05/2015‐05/2027

Aircraft Type:777‐300ER/No.:B‐18001－

06/2015‐06/2027

Aircraft Type:777‐300ER/No.:B‐18002－

08/2015‐08/2027

Aircraft Type:777‐300ER/No.:B‐18003－

09/2015‐09/2023
10/2015‐10/2023

Aircraft Type:737‐800/No.:B‐18658
Aircraft Type:737‐800/No.:B‐18659－－

10/2015‐10/2027

Aircraft Type:777‐300ER/No.:B‐18005－

01/2016‐01/2028

Aircraft Type:777‐300ER/No.:B‐18006－

03/2016‐03/2024

Aircraft Type:737‐800/No.:B‐18660－

05/2016‐05/2028

Aircraft Type:777‐300ER/No.:B‐18007－

09/2016‐09/2024
09/2016‐09/2024
10/2016‐10/2024
11/2016‐11/2024
01/2017‐01/2025
02/2017‐12/2025
01/2005‐01/2017
03/2005‐01/2017

Aircraft Type:737‐800/No.:B‐18661
Aircraft Type:737‐800/No.:B‐18662
Aircraft Type:737‐800/No.:B‐18663
Aircraft Type:737‐800/No.:B‐18665
Aircraft Type:737‐800/No.:B‐18666
Aircraft Type:737‐800/No.:B‐18667
Aircraft Type:747‐400F/No.:B‐18719
Aircraft Type:747‐400/No.:B‐18211

－
－
－
－
－
－
－
－

04/2005‐04/2017

Aircraft Type:747‐400/No.:B‐18212－

Agreement
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan
Loan

Counterparty
Bank of Taiwan
BNP Paribas(EXIM Guarantee)
CIB (ECA Guarantee)
CIB (ECA Guarantee)
BNP Paribas(EXIM Guarantee)
CIB (ECA Guarantee)
Mega International Commercial
BankFirst Commercial Bank
Cathay United Bank
Taiwan Cooperative BankICBC (Macau)
Taiwan Business Bank
Taiwan Business Bank
Hua Nan Commercial Bank
Taipei Fubon Commercial BankFirst Commercial BankFirst Commercial Bank
Taiwan Cooperative Bank
Taipei Fubon Commercial Bank
Bank SinoPac
Far Eastern International BankCTBC Bank
Bank SinoPac
Bank of Taiwan
Chang Hwa Commercial Bank
Hua Nan Commercial Bank
Industrial Bank of Taiwan
The Shanghai Commercial &Savings Bank
JihSun International Commercial
Bank
Chang Hwa Commercial Bank
Taichung Commercial Bank
Taishin International BankCTBC Bank
Bank of Taiwan
Chang Hwa Commercial Bank
Land Bank of Taiwan
Taipei Fubon Commercial Bank
Hua Nan Commercial Bank
Mega International Commercial
Bank
Bank of America Corporation
Ta Chong Commercial Bank
E.SUN Commercial Bank
Hua Nan Commercial Bank
Mega International Commercial
BankLand Bank of Taiwan
KGI Bank
Bank of Taiwan
Bank of Communications
Bank of Communications
Taipei Fubon Commercial Bank
Bank SinoPac
Agricultural Bank of Taiwan
Taiwan Business Bank
Mega International Commercial
Bank
The Export‐Import Bank of the
Republic of China
Hua Nan Commercial Bank
O‐BankChina Construction Bank
Corporation

Period05/2005‐05/2017
05/2005‐05/2017
06/2005‐06/2017
07/2005‐07/2017
08/2005‐08/2017
09/2005‐09/2017

Major Contents
Aircraft Type:747‐400/No.:B‐18215
Aircraft Type:747‐400F/No.:B‐18720
Aircraft Type:A330‐300/No.:B‐18305
Aircraft Type:A330‐300/No.:B‐18306
Aircraft Type:747‐400F/No.:B‐18721
Aircraft Type:A330‐300/No.:B‐18307

Restrictions
－
－
－
－
－
－

07/2006‐10/2017

Aircraft Type:747‐400F/No.:B‐18722－

05/2007‐05/2019
08/2007‐08/2019
02/2008‐02/2020
01/2010‐01/2017
10/2010‐10/2017
04/2011‐04/2018
05/2012‐05/2017
10/2012‐10/2019
09/2013‐09/2018
10/2013‐10/2018
12/2013‐12/2018
02/2014‐02/2017
03/2014‐03/2017
03/2014‐03/2017
03/2014‐03/2017
03/2014‐03/2017
03/2014‐03/2019
06/2014‐06/2017
06/2014‐06/2019
07/2014‐07/2017

Aircraft Type:A330‐300/No.:B‐18316
Aircraft Type:747‐400F/No.:B‐18725
Aircraft Type:A330‐300/No.:B‐18317
Aircraft Type:747‐400/No.:B‐18208
Test Cell
Test Cell
Unsecured Loan
Aircraft Type:737‐800/No.:B‐18610&B18617
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan

－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－

07/2014‐07/2017

Unsecured Loan－

09/2014‐09/2017

Unsecured Loan－

12/2014‐12/2017
12/2014‐12/2017
12/2014‐12/2017
12/2014‐12/2017
12/2014‐12/2019
01/2015‐01/2018
01/2015‐01/2018
02/2015‐11/2017
03/2015‐03/2020

Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan
Aircraft Type:747‐400F/No.:B‐18701
Unsecured Loan
Unsecured Loan
Aircraft Type:747‐400F/No.:B‐18707
Unsecured Loan

－
－
－
－
－
－
－
－
－

07/2015‐07/2020

Aircraft Type:747‐400F/No.:B‐18711－

01/2016‐01/2019
01/2016‐01/2018
06/2016‐06/2019
06/2016‐06/2021

Unsecured Loan
Unsecured Loan
Unsecured Loan
Unsecured Loan

－
－
－
－

08/2016‐08/2019

Unsecured Loan－

09/2016‐09/2018
09/2016‐09/2019
10/2016‐10/2028
11/2016‐11/2019
01/2017‐01/2029
03/2017‐01/2020
03/2017‐03/2020
04/2017‐04/2029
04/2017‐04/2029

Unsecured Loan
Unsecured Loan
Aircraft Type:A350‐900/No.:B‐18901
Unsecured Loan
Aircraft Type:A350‐900/No.:B‐18902
Unsecured Loan
Unsecured Loan
Aircraft Type:A350‐900/No.:B‐18905
Aircraft Type:A350‐900/No.:B‐18905

－
－
－
－
－
－
－
－
－

05/2017‐08/2019

Unsecured Loan－

06/2017‐06/2019

Unsecured Loan－

06/2017‐06/2029
07/2017‐07/2020

Aircraft Type:A350‐900/No.:B‐18906
Unsecured Loan－－

11/2017‐11/2029

Aircraft Type:A350‐900/No.:B‐18903－

Operational Highlights

109

Agreement
Counterparty
Loan
Bank of Taiwan
China Bills Finance CorporationBills
and syndicate
Bills
Mega Bills and syndicate
Bills
Union Bank of Taiwan
Bills
International Bills Finance Corp.
Bills
Mega Bills
International Bills Finance Corp.
Bills
and syndicate
Bills
China Bills Finance Corporation
Bills
Mega Bills
Bills
International Bills Finance Corp.
China Bills Finance CorporationBills
and syndicate
China Bills Finance CorporationBills
and syndicate
Taipei CAL
Building
Lease
contract

FX Hotels Group Inc.

Nankan CAL
Park Land
Costco Co.
Lease
contract

Period04/2018‐04/2030

Major Contents
Aircraft Type:A350‐900/No.:B‐18907

06/2014‐11/2017

FRCP Joint Underwriting,－

08/2014‐11/2017
01/2015‐02/2018
02/2015‐10/2017
03/2015‐05/2018

FRCP Joint Underwriting,
FRCP
Aircraft Type:747‐400F/No.:B‐18710
FRCP

－
－
－
－

12/2015‐03/2019

FRCP Joint Underwriting,－04/2016‐04/2020
07/2016‐07/2020
09/2016‐09/2020

FRCP
FRCP
FRCP

－
－
－

12/2016‐12/2020

FRCP Joint Underwriting,－

10/2017‐04/2022

FRCP Joint Underwriting,－

09/01/2010‐12/30/2026

Rental subject:
Located at No.131, Sec. 3, Nanjing E. Rd.,
Songshan Dist., Taipei City, CAL Building.
Part of B1F 560.7 ㎡,1F 471.1 ㎡,10‐13F
7,091 ㎡.Total 8,122.8 ㎡.
Rent 1F and 11 parking space at B1F－Construction date:
01/2012‐07/2012
Lease inception: Since business
day or The day following the
expiry of one year sinceconstruction commencement
date
Rental period: 20 years sincelease inception

Rental subject:Land located at No.705 and No.705‐1
Jinzhong part, Lujhu Dist., Taotuan City.
Total 27,709.21 ㎡

In accordancewith notarized
text

Taipei CAL
Building
Lease
contract

OEC Group

03/01/2016‐12/31/2026

Taipei CI
Building
Superficies
Contract

Northern Region Branch,
National Property
Administration, MOF

12/31/2016‐12/30/2026

Kaohsiung
CAL Building
FX Hotels Group Co.
Lease
contract

12/31/2012‐12/30/2032

CAL BOTPark
Building
Lease
contract

01/01/2017‐12/31/2018
Renew every 2 years

CAL Park Co., Ltd

110 Operational Highlights

Rental subject:
Located at No.131, Sec. 3, Nanjing E. Rd.,
Songshan Dist., Taipei City, CAL Building.
7F 1,796.8 ㎡, part of B1F 50.4 ㎡
1 parking space at B1F, 12 parking space at
B2F.
Renew lease period for 10 years according
to original contract.
Rental price adjust base on Announced Land
Current Value and assessed and publicly
announced land value.
Rental subject:
Located at No.81, Zhonghua 3rd Rd., Qianjin
Dist., Kaohsiung City.
B1F 383.2 ㎡, 1F 336.8 ㎡, mezzanine 79.4㎡, 2F‐12F 3,583.3 ㎡, Roof protrusion 117.2㎡.
Total 4,499.9 ㎡
Rental subject:
Administration Center Building, Crew Center
Building, Flight Training Center Building,Basement Parking Lot. Total 83107.4 ㎡.

Restrictions
－

－

－

－

－

Financial Information
6.1 Five‐Year Financial Summary
6.2 Five‐Year Financial Analysis
6.3 Consolidated Financial Statements for the YearsEnding December 31, 2017 and 2016, andIndependent Auditors’ Report
6.4 Parent Company Only Financial Statements for theYears Ending December 31, 2017 and 2016 andIndependent Auditors’ Report
6.5 Audit Committee’s Review Report

Financial Information

111

VI. Financial Information
6.1 Five‐Year Financial Summary
6.1.1 Consolidated Condensed Balance Sheet – Based on IFRS
Unit: NT$ thousands
Year
Item

2013
37,085,072

Current assets
Property, Plant andEquipment
Intangible assets
Other assets
Total assets
Current
liabilities

Financial Summary for the Last Five Years (Note 1)
2014 (Note 2)2015 (Note 5)2016 (Note 6)
40,910,490
45,642,615
47,338,201

2017 (Note 7)
47,411,834

2018 (As of March 31) (Note 3)
48,653,145

149,662,068

142,655,066

129,628,866

140,136,737

153,617,531

489,412670,997

1,009,678

1,137,115

1,019,345

1,098,975

33,739,347

44,837,474

45,645,150

35,888,706

23,850,922

18,289,898

160,389,245

220,975,899

229,074,027

221,926,309

224,500,759

225,899,632

228,431,263

Beforedistribution

61,906,028

61,357,995

68,220,452

68,605,724

60,289,113

63,359,878

After
distribution

61,906,028

61,357,995

70,728,977‐‐

Not yet allocatedNon‐current liabilities

106,179,511

116,730,020

93,149,314

98,027,837

106,453,000

104,980,175

Beforedistribution

168,085,539

178,088,015

161,369,766

166,633,561

166,742,113

168,340,053

After
distribution

168,085,539

178,088,015

163,878,291‐‐

Not yet allocatedEquity attributable toshareholders of the parent

50,806,464

48,664,275

58,269,896

55,783,817

57,023,237

57,477,716

Capital stock

52,000,000

52,491,666

54,708,901

54,708,901

54,709,846

54,709,846

Capital surplus (Note 4)

1,924,015

480,462

798,415

799,932

799,999

1,209,977

Beforedistribution(3,161,115)(3,870,736)

2,872,235

206,092

1,664,405

1,695,038

After
distribution(3,161,115)(2,358,783)

363,710206,092‐

Not yet allocated

Other equity interest

86,936(1,905,698)(66,283)

112,264(107,641)(93,773)

Treasury shares(43,372)(43,372)(43,372)(43,372)(43,372)(43,372)

Non‐controlling interest

2,083,896

2,321,737

2,286,647

2,083,381

2,134,282

2,613,494

Beforedistribution

52,890,360

50,986,012

60,556,543

57,867,198

59,157,519

60,091,210

Total liabilities

Retainedearnings

Total equity

After
Not yet allocated52,890,360
50,986,012
58,048,018‐‐
distribution
Note 1: 2013 ‐ 2017 annual financial information was verified by Deloitte & Touche.
Note 2: In 2015, the Company began implementing the revised Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013
version of IFRS, International Accounting Standards, IFRIC and SIC Interpretations recognized by the Financial Supervisory Commission. Therefore, theaforementioned standards and interpretations have been applied retroactively to affected sections of the previous year’s (2014) financial statement.
Note 3: As of the date of printing of this annual report, 2018 Q1 financial information has not yet been reviewed by Deloitte & Touche.
Note 4: The 2014 Deficit Compensation Proposal was passed by the Shareholders’ General Meeting held on June 26, 2015 and additional paid‐in capital of
NT$1,511,953,000 was used to compensate for the deficit.
Note 5: The 2015 Earnings Distribution Proposal resolution was passed by the Shareholders’ General Meeting held on June 24, 2016. As required by law, theCompany appropriated a legal reserve of NT$287,224,000 and special reserve of NT$76,486,000 and distributed cash dividends totaling
NT$2,508,525,000.
Note 6: The 2016 Deficit Compensation Proposal was passed at the shareholder meeting held on June 22, 2017, with legal reserve bonds of NT$81,132,000
making up the shortfall.
Note 7: The 2017 Surplus Distribution Proposal resolution was passed at the 15th meeting of the 20th Board of Directors on March 22, 2018, but has not yet
been approved at the shareholders' regular meeting.

112 Financial Information

6.1.2 Consolidated Condensed Statement of Comprehensive Income – Based on
IFRS
Unit: NT$ thousands; EPS (net) = NT$
Year
Item

Financial Summary for the Last Five Years (Note 1)

2018 (As of March 31)(Note 3)

Revenue2013
2014 (Note 2)
141,702,545 150,581,742

2015
145,056,217

2016
141,079,107

2017
156,121,785

Gross profit

11,027,385

13,631,370

20,268,374

18,005,906

21,972,411

726,268

2,518,747

8,129,197

4,564,687

8,826,160

423,311(1,087,448)(2,156,321)(994,312)(2,684,836)(5,302,197)(256,543)

Pretax Profit (Loss)(361,180)

362,426

7,134,885

1,879,851

3,523,963

166,768

Income from operations of continued
segments ‐ after tax(948,880)(597,488)

5,926,210

710,940

2,490,792

98,151

Income from discontinued operations

－

－

－

－

－

－

Net Income (Loss)(948,880)(597,488)

5,926,210

710,940

2,490,792

98,151Other comprehensive income(Income/Loss after taxes)

121,723(1,947,078)

1,269,760(681,669)(1,113,176)(67,848)

Total Comprehensive Gain (Loss) for
the Year(827,157)(2,544,566)

7,195,970

29,271

1,377,616

30,303

Net income attributable toshareholders of the parent(1,274,046)(749,073)

5,763,714

571,540

2,208,066

30,573

Net income attributable tonon‐controlling interest

325,166

151,585

162,496

139,400

282,726

67,578Comprehensive income attributable to
Shareholders of the parent(1,171,929)(2,693,811)

7,072,042

26,103

1,240,677(40,291)

Comprehensive income attributable tonon‐controlling interest

344,772

149,245

123,928

3,168

136,939

70,594

Operating Profit
Non‐operating Income and Expenses

39,735,027
3,796,553

Earnings (Loss) per share(0.25)(0.14)
1.06
0.10
0.40
0.01
Note 1: 2013 ‐ 2017 annual financial information was verified by Deloitte & Touche.
Note 2: In 2015, the Company began implementing the revised Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013
version of IFRS, International Accounting Standards, IFRIC and SIC Interpretations recognized by the Financial Supervisory Commission. Therefore, theaforementioned standards and interpretations have been applied retroactively to affected sections of the previous year’s (2014) financial statement.
Note 3: As of the date of printing of this annual report, the 2018 Q1 financial information has not yet been reviewed by Deloitte & Touche.

Financial Information

1136.1.3 Condensed Balance Sheet – Based on IFRS (Parent Company Only)
Unit: NT$ thousands
Year
Item
Current assets
Property, Plant andEquipment
Intangible assets

Financial Summary for the Last Five Years (Note 1)

2018 (As of March 31)(Note 3)2013
31,333,434

2014 (Note 2)
34,477,533

2015 (Note 5)
37,904,039

2016 (Note 6)
39,908,492

2017 (Note 7)
37,933,696

139,946,013

131,178,428

118,446,472

129,121,632

142,265,548－－－

473,064

649,614990,307

1,115,101

989,327

Other assets

39,304,463

51,594,035

51,802,032

41,394,218

30,729,421－

Total assets

211,056,974

217,899,610

209,142,850

211,539,443

211,917,992－

Beforedistribution

59,940,257

59,079,846

64,725,525

64,339,805

54,925,364

－

After
distribution

59,940,257

59,079,846

67,234,050

64,339,805‐－

Current
liabilities

100,310,253

110,155,489

86,147,429

91,415,821

99,969,391－

Beforedistribution

160,250,510

169,235,335

150,872,954

155,755,626

154,894,755

－

After
distribution

160,250,510

169,235,335

153,381,479

155,755,626‐－

Equity attributable toshareholders of the parent

50,806,464

48,664,275

58,269,896

55,783,817

57,023,237－

Capital stock

52,000,000

52,491,666

54,708,901

54,708,901

54,709,846－

Capital surplus (Note 4)

1 924,015

480,462

798,415

799,932

799,999－

Beforedistribution(3,161,115)(3,870,736)

2,872,235

206,092

1,664,405－

After
distribution(3,161,115)(2,358,783)

363,710206,092‐－

Other equity interest

86,936(1,905,698)(66,283)

112,264(107,641)－

Treasury shares(43,372)(43,372)(43,372)(43,372)(43,372)－

Non‐controlling interest

－

－

－

‐

‐

－

Beforedistribution

50,806,464

48,664,275

58,269,896

55,783,817

57,023,237－

Non‐current liabilities
Total
liabilities

Retainedearnings

Total
equityAfter50,806,464
48,664,275
55,761,371
55,783,817‐－
distribution
Note 1: 2013 ‐ 2017 annual financial information was verified by Deloitte & Touche.
Note 2: In 2015, the Company began using the financial reporting standards in the revised Regulations Governing the Preparation of Financial Reports by
Securities Issuers and these standards have been applied retroactively to affected sections of the previous year’s (2014) financial statement.
Note 3: The Company has not prepared an individual financial statement for Q1 2018.
Note 4: The 2014 Deficit Compensation Proposal was passed by the Shareholders’ General Meeting held on June 26, 2015 and additional paid‐in capital of
NT$1,511,953,000 was used to compensate for the deficit.
Note 5: The 2015 Earnings Distribution Proposal resolution was passed by the Shareholders’ General Meeting held on June 24, 2016. As required by law, theCompany appropriated a legal reserve of NT$287,224,000 and special reserve of NT$76,486,000 and distributed cash dividends totaling
NT$2,508,525,000.
Note 6: The 2016 Deficit Compensation Proposal was passed by the Shareholders’ General Meeting held on June 22, 2017, using a statutory surplus reserve of
NT$81,132,000 to cover the deficit.
Note 7: The surplus allocation assignments for 2017 were passed in a resolution at the 15th meeting of the 20th Board of Directors on March 22, 2018, but have
not yet been approved at the shareholders' regular meeting.

114 Financial Information

6.1.4 Condensed Statement of Comprehensive Income – Based on IFRS (Parent
Company Only)
Unit: NT$ thousands; EPS (net) = NT$
Year
Item

Financial Summary for the Last Five Years (Note 1)

2018 (As of March 31)(Note 3)

Revenue2013
131,752,677

2014 (Note 2)
139,726,168

2015
133,441,725

2016
127,524,864

2017
139,815,211

Gross profit

8,307,802

10,917,174

17,623,801

15,275,980

17,966,397－

Operating Profit(283,782)

1,870,191

7,885,097

4,475,707

7,358,114－

Non‐operating Income
and Expenses(660,555)(1,820,766)(1,047,275)(2,938,456)(4,269,911)－

Pretax Profit(Loss)－(944,337)

49,425

6,837,822

1,537,251

3,088,203－

Income from operationsof continued segments ‐after tax

(1,274,046)(749,073)

5,763,714

571,540

2,208,066－

Income fromdiscontinued operations

－

－

－

－

－

－

(1,274,046)(749,073)

5,763,714

571,540

2,208,066－

Other comprehensive
income(income/Loss after tax)

102,117(1,944,738)

1,308,328(545,437)(967,389)－

Total Comprehensive
Gain (Loss) For The
Year(1,171,929)(2,693,811)

7,072,042

26,103

1,240,677－

Net Income(Loss)

Net income
attributable to(0.25)(0.14)
1.06
0.10
0.40
shareholders of theparentNote 1: 2013 ‐ 2017 annual financial information was verified by Deloitte & Touche.
Note 2: In 2015, the Company began using the financial reporting standards in the revised Regulations Governing the Preparation of Financial Reports by
Securities Issuers and these standards have been applied retroactively to affected sections of the previous year’s (2014) financial statement.
Note 3: The Company has not prepared an individual financial statement for Q1 2018.

－

Financial Information

1156.1.5 Condensed Balance Sheet – Based on ROC GAAP (Parent Company Only):
Not Applicable.
6.1.6 Condensed Statement of Comprehensive Income – Based on ROC GAAP
(Parent Company Only): Not Applicable.
6.1.7 Auditors’ Opinions from 2013 to 2017
Year

Accounting Firm

Audit Opinion

Name of CPA

2013
Deloitte & Touche
Huang, Jui‐chan; Chen, Li‐Chi
Unqualified Opinion
2014
Deloitte & Touche
Huang, Jui‐chan; Chen, Li‐Chi
Unqualified Opinion
2015
Deloitte & Touche
Huang, Jui‐chan; Chen, Li‐Chi
Qualified Opinion (Note)
2016
Deloitte & Touche
Yang, Chen‐Hsiu; Chen, Li‐Chi
Unqualified Opinion
2017
Deloitte & Touche
Yang, Chen‐Hsiu; Chen, Li‐Chi
Unqualified Opinion
Note: In 2015, the Company began implementing the revised Regulations Governing the Preparation of Financial Reports by Securities
Issuers and the 2013 version of IFRS, International Accounting Standards, IFRIC and SIC Interpretations recognized by the Financial
Supervisory Commission. Therefore, the aforementioned standards and interpretations have been applied retroactively to affected
sections of the previous period’s financial statement.

6.2 Five‐Year Financial Analysis
6.2.1 Consolidated Financial Analysis – Based on IFRSYear

Financial Summary for The Last Five Years (Note 1)
20132014 (Note 2)

2015

2016

2018 (As of March 31)(Note 3)

2017

Item (Note 4)
Financial
structure (%)

Solvency (%)

Operatingperformance

Profitability

Cash flow

Leverage

Debt Ratio

76.07

77.74

72.71

74.22

73.81

73.69

Ratio of long‐term capital toproperty, plant and equipment

106.29117.57118.57111.24107.81102.92Current ratio

59.91

66.68

66.90

69.00

78.64

76.79

Quick ratio

47.96

53.49

53.06

53.16

59.46

57.06

Interest earned ratio (times)

77.14

115.55496.25265.40369.02121.87

Accounts receivable turnover (times)

18.50

17.45

16.98

17.67

18.40

17.80

Average collection period

19.73

20.91

21.49

20.66

19.84

20.50

Inventory turnover (times)

‐

‐

‐

‐

‐

‐

Accounts payable turnover (times)

‐

‐

‐

‐

‐

‐

Average days in sales

‐

‐

‐

‐

‐

‐

Property, plant and equipment
turnover (times)

0.91

1.03

1.07

1.05

1.06

1.01

Total assets turnover (times)

0.64

0.67

0.64

0.63

0.69

0.70

Return on total assets (%)

0.37

0.48

3.28

0.80

1.60

0.62

Return on stockholders' equity (%)(1.79)(1.15)

10.63

1.20

4.26

0.66

Pre‐tax income to paid‐in capital (%)(0.69)

0.69

13.04

3.44

6.44

1.22

Profit ratio (%)(0.67)(0.40)

4.09

0.50

1.60

0.25

Earnings per share (NT$)(0.25)(0.14)

1.06

0.10

0.40

0.01

Cash flow ratio (%)

34.71

27.56

46.60

25.71

47.35

17.03

Cash flow adequacy ratio (%)

129.04207.19233.25303.17351.58310.12

Cash reinvestment ratio (%)

7.50

5.48

10.56

4.83

8.82

3.61

Operating leverage

25.65

8.19

3.21

4.99

3.16

12.77

Financial leverage(0.52)
5.04
1.28
1.40
1.18
3.93
Analysis of financial ratio differences for the last two years. (Not required if the difference does not exceed 20%)
1. Interest earned ratio: Because there was an increase in net profit before taxes for 2017 compared with the previous year, the TIE (times interest earned)
increased.
2. Profitability: Because 2017 net profit increased compared to the previous year, profitability for various items rose.
3. Cash flow ratio and cash reinvestment ratio: Because net cash inflow for 2017 business activities increased, cash flow ratio and cash re‐investment ratio bothincreased.
4. Operating leverage: Mainly due to an increase in 2017 operating profit compared to the previous year, the degree of operating leverage declined.

116 Financial Information

6.2.2 Financial Analysis – Based on IFRS (Parent Company Only)
Year
Item (Note 4)

Financial Summary for the Last Five Years (Note 1)
20132014 (Note 2)

2015

2016

2017

2018 (As of March 31)(Note 3)

Debt Ratio
75.93
77.67
72.14
73.63
73.09
‐
Ratio of long‐term capital to fixed
107.98121.07121.93114.00110.35‐assetsCurrent ratio
52.27
58.36
58.56
62.03
69.06
‐
Solvency (%)
Quick ratio
40.36
45.32
44.54
45.82
49.03
‐
Interest earned ratio (times)
49.95
100.38495.43246.03350.56‐
Accounts receivable turnover
17.26
16.23
15.56
15.92
16.62
‐
(times)Average collection period
21.14
22.49
23.46
22.92
21.96
‐
Inventory turnover (times)
‐
‐
‐
‐
‐
‐
Operatingperformance
Accounts payable turnover (times)
‐
‐
‐
‐
‐
‐
Average days in sales
‐
‐
‐
‐
‐
‐
Fixed assets turnover (times)
0.90
1.03
1.07
1.03
1.03
‐
Total assets turnover (times)
0.63
0.65
0.62
0.61
0.66
‐
Return on total assets (%)
0.20
0.41
3.36
0.75
1.54
‐
Return on stockholders' equity (%)(2.49)(1.51)
10.78
1.00
3.91
‐
Profitability
Pre‐tax income to paid‐in capital (%)(1.82)
0.09
12.50
2.81
5.64
‐
Profit ratio (%)(0.97)(0.54)
4.32
0.45
1.58
‐
Earnings per share (NT$)(0.25)(0.14)
1.06
0.10
0.40
‐
Cash flow ratio (%)
33.43
25.44
47.38
26.71
47.41
‐
Cash flow
Cash flow adequacy ratio (%)
135.16
209.68232.93309.01357.86‐
Cash reinvestment ratio (%)
7.31
5.10
10.74
4.94
8.48
‐
Operating leverage(59.39)
10.21
3.15
4.85
3.46
‐
Leverage
Financial leverage
0.12(19.66)
1.28
1.38
1.21
‐
Analysis of financial ratio differences for the last two years. (Not required if the difference does not exceed 20%)
1. Interest earned ratio: Because there was an increase in net profit before taxes for 2017 compared with the previous year, the TIE (times interest earned)
increased.
2. Profitability: Because 2017 net profit increased compared to the previous year, profitability for various items rose.
3. Cash flow ratio and cash reinvestment ratio: Because net cash inflow for 2017 business activities increased, cash flow ratio and cash re‐investment ratio bothincreased.
4. Operating leverage: Mainly due to an increase in 2017 operating profit compared to the previous year, the degree of operating leverage declined.
Note 1: 2013 ‐ 2017 annual financial information was verified by Deloitte & Touche.
Note 2: In 2015, the Company began implementing the revised Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 version of
IFRS, International Accounting Standards, IFRIC and SIC Interpretations recognized by the Financial Supervisory Commission. Therefore, the aforementioned
standards and interpretations have been applied retroactively to affected sections of the previous year’s (2014) financial statement.
Note 3: As of printing of this annual report, Q1 2018 consolidated financial information has not yet been reviewed by Deloitte & Touche. The Company has not prepared
an individual financial statement for Q1 2018.
Note 4: The calculations of the above financial ratios utilize the formulas listed below:
1. Financial structure(1) Debt ratio = total liabilities / total assets(2) Ratio of long‐term capital to property, plant and equipment = (total shareholders' equity + non‐current liabilities) / net property, plant and equipment
2. Solvency(1) Current ratio = current assets / current liabilities(2) Quick ratio = (current assets – inventory – prepaid expenses) / current liabilities(3) Interest earned ratio (times) = earnings before interest and taxes / interest expenses
3. Operating performance(1) Accounts receivable turnover (including accounts receivable and notes receivable arising from business activities) = net sales / average accounts
receivable (including accounts receivable and notes receivable arising from business activities)(2) Average collection period = 365 / average accounts receivable turnover(3) Inventory turnover = cost of goods sold / average inventory(4) Accounts payable turnover (including accounts payable and notes payable arising from business activities) = cost of goods sold / average accounts
payable (including accounts payable and notes payable arising from business activities)(5) Average inventory turnover days = 365 / inventory turnover ratio(6) Property, Plant and Equipment Turnover = net sales / net property, plant and equipment(7) Total asset turnover = net sales / average total assets
4. Profitability(1) Return on total assets = [net income + interest expense x (1 ‐ effective tax rate)] / average total assets(2) Return on stockholders’ equity = net income / average stockholders’ equity(3) Net margin = net income / net sales(4) Earnings per share = (net income attributable to owners of the parent – preferred stock dividends) / weighted average number of shares outstanding
5. Cash flow
(1) Cash flow ratio = net cash flows from operating activities / current liabilities(2) Cash flow adequacy ratio = five year sum of net cash flows from operating activities / five year sum of (capital expenditures + increase in inventory + cash
dividends)(3) Cash Flow Cash Reinvestment Ratio = (net cash flows from operating activities – cash dividends) / (gross property, plant and equipment + long‐term
investments + other non‐current assets + working capital)
6. Leverage(1) Operating Leverage = (net sales – variable operating costs and expenses) / operating profit(2) Financial Leverage = operating profit / (operating profit – interest expenses)
Financial structure(%)

Financial Information

1176.2.3 Consolidated Financial Analysis – Based on ROC GAAP: Not Applicable.
6.2.4 Financial Analysis – Based on ROC GAAP (Parent Company Only): Not
Applicable.

6.3 Consolidated Financial Statements for the Years Ended
December 31, 2017 and 2016, and Independent Auditors’ Report:
Please refer to Appendix 1.
6.4 Parent Company Only Financial Statements for the Years Ended
December 31, 2017 and 2016, and Independent Auditors’ Report:
Please refer to Appendix 2.

118 Financial Information

6.5 Audit Committee’s Report
Audit Committee Report
The Board of Directors shall create and send (1) the 2017 consolidated financial statement
and individual financial statement that have been jointly audited by Deloitte CPAs Chen-Hsiu
Yang and Li-Chi Chen who released an official unqualified opinion by March 22, 2018 and (2)the 2017 business report and Earnings Distribution Statement, after having been found tohave no discrepancies by this audit committee and, thereupon, issue a report in accordancewith the items stipulated in Article 14-4 of the Securities and Exchange Act and Article 219 of
the Company Act.

China Airlines

Convener of the audit committee: Chung, Lo-Min

22 March 2018

Financial Information

119

Review of Financial
Conditions, Financial
Performance, and Risk
Management
7.1 Analysis of Financial Status
7.2 Analysis of Operation Results
7.3 Analysis of Cash Flow
7.4 Major Capital Expenditure Items
7.5 Investment Policy in Last Year, Main Causes for Profits
or Losses, Improvement Plans and the Investment
Plans for the Coming Year
7.6 Analysis of Risk Management

120 Review of Financial Conditions, Financial Performance, and Risk Management

VII. Review of Financial Conditions, Financial
Performance, and Risk Management
7.1 Analysis of Financial Status (Consolidated)
Analysis of changes in assets, liabilities and equity over the past two years:
Year
Item

2017

Unit: NT$ thousands
Difference

2016
Amount%Current Assets

47,411,834

47,338,201

73,633

Property, Plant and Equipment

153,617,531

140,136,737

13,480,794

9.62

1,019,345

1,137,115(117,770)(10.36)(33.54)

Intangible Assets

0.16

Other Assets

23,850,922

35,888,706(12,037,784)

Total Assets

225,899,632

224,500,759

1,398,873

0.62

Current Liabilities

60,289,113

68,605,724(8,316,611)(12.12)

Non‐Current Liabilities

106,453,000

98,027,837

8,425,163

8.59

Total Liabilities

166,742,113

166,633,561

108,552

0.07

Capital stock

54,709,846

54,708,901

945

0.00

Capital surplus

799,999

799,93267

0.01

Retained Earnings

1,664,405

206,092

1 458,313

707.60

Other Equity(107,641)

112,264(219,905)(195.88)

Treasury shares(43,372)(43,372)‐‐

Non‐Controlling Interests

2,134,282

2,083,381

50,901

2.44

Total Equity
59,157,519
57,867,198
1,290,321
2.23
Analysis of changes in financial ratios:
1. Other assets: Primarily due to the delivery of 6 A350s, prepayments for aircraft were converted to fixed assets, workshops and equipment.
2. Retained earnings: 2017 after‐tax profits were NT$2.491 billion, an increase of NT$1.78 billion over 2016 after‐tax net profits.
3. Other equity: Primarily due to fluctuations in fair value of cash flow hedging derivative financial products.
Future response actions: The above changes do not significantly affect on the Company.

Review of Financial Conditions, Financial Performance, and Risk Management1217.2 Analysis of Financial Performance (Consolidated)
Financial Performance Analysis Table
Year
Item

Unit: NT$ thousands
Difference

2017

2016

Amount%Revenue

156,121,785

141,079,107

15,042,678

10.66

Cost

134,149,374

123,073,201

11,076,173

9.00

Gross Profit

21,972,411

18,005,906

3,966,505

22.03

Operating Expenses

13,146,251

13,441,219(294,968)(2.19)

Operating Income

8,826,160

4,564,687

4,261,473

93.36(5,302,197)(2,684,836)(2,617,361)(97.49)Pretax Profit

3,523,963

1,879,851

1,644,112

87.46

Income Tax Expense

1,033,171

1,168,911(135,740)(11.61)

Non‐operating Income andExpenses

Net Income (Loss)

2,490,792

710,940

1,779,852

250.35

Other Comprehensive Income(1,113,176)(681,669)(431,507)(63.30)Total Comprehensive Gain (Loss)

1,377,616
29,271
1,348,345
4,606.42
for the Year
Analysis of changes in financial ratios:
1. Operating income, pretax profit, and net income for the period: 2017 cargo revenue was up compared to 2016, primarily because of
overall economic trends and growth in trade demand. leading to increased operating gross profit, operating net profit, pre‐tax net profit
and net profit for this period.
2. Non‐operating income and expenses: the impact of purges to the fleet in 2017 and 2016 as impaired losses were NT$4.262 billion and$1.066 billion respectively.
3. Other comprehensive income (net): Primarily due to fluctuations in fair value of hedging derivative financial products in 2017.
4. Total comprehensive income for the period: 2017 passenger and cargo revenue was up from 2016, primarily because of overall economic
trends and growth in trade demand. 2017 non‐operating net expenditures were higher than in 2016, primarily due to asset impairment;
fluctuations in fair value of 2017 derivative financial products for hedging.

7.3 Analysis of Cash Flow (Consolidated)
7.3.1 Cash Flow Analysis for the Current Year
Unit: NT$ thousands
Year
Item

2017

Difference

2016
Amount%Cash and Cash Equivalents, Beginning of Year

24,267,197

23,491,085

776,112

3.30

Net Cash Flow from Operating Activities

28,547,018

17,636,372

10,910,646

61.86

Net Cash Flow from Investing Activities(25,792,340)(21,021,616)(4,770,724)(22.69)Net Cash Flow from Financing Activities(4,669,431)

4,208,402(8,877,833)(210.95)

Exchange Rate Adjustment
Cash and Cash Equivalents, End of Year

232,888(47,046)

279,934595.02

22,585,332

24,267,197(1,681,865)(6.93)

Analysis of change in cash flow in the current year:
1. Operating activity cash flow discrepancy, primarily due to an increase in 2017 operating results compared to the previous year.
2. Investment activity cash flow discrepancy primarily due to the impact of 2016 aircraft prepayment refund.
3. Financing activity cash flow discrepancy primarily due to 2017 repayment of more than the amount borrowed.

7.3.2 Remedy for Cash Deficit and Liquidity Analysis: None.
7.3.3 Cash Flow Analysis for the Coming YearThe cash balance at the beginning of the year was NT$16.56 billion and estimated net cash flow from operating activity for theyear is NT$22.07 billion. Cash flow from investment and financing activities are estimated to total NT$16.23 billion and NT$34.48
billion respectively. The cash shortfall was made up through mortgage loans, corporate bond issuance, and medium‐term
Unsecured Loans of NT$27.21 billion and the cash and cash equivalents at the end of the year totaled NT$15.13 billion.

7.4 Major Capital Expenditure Items (Parent Company Only)
Major capital expenditures primarily include purchases of new airplanes as part of operational expansion,
which does not have a significant impact on the Company’s financial operations.

122 Review of Financial Conditions, Financial Performance, and Risk Management

7.5 Investment Policy in the Last Year, Main Causes for Profits or
Losses, Improvement Plans and Investment Plans for the ComingYear
In order to support our primary airline operations and enhance competitiveness of the CAL Group,
investments are primarily in airline industry‐related companies. Currently, these include air transport,
ground services, logistics and warehousing, air cargo terminals, airline catering, laundry, information
networks, aeronautics, tourism services, and investing and leasing industries to create a comprehensive
air service network and wide‐ranging services. Calculated under the equity method, reinvestment
revenues for 2017 totaled NT$1.628 billion.
The company's joint venture business over the next year will continue with construction of China
Airlines hotels and of Taiwan Aircraft Maintenance and Engineering Ltd.'s hangars and NORDAM Asia
Ltd.'s facilities. It will also feature potential investment feasibility studies in areas such as passenger
carriage, freight, aircraft maintenance and flight training.

7.6 Analysis of Risk Management
7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation
on Corporate Finance, and Future Response Measures
A. Impact of changes in interest rates, foreign exchange rates, and inflation on Company income:
Although changes in interest and foreign exchange rates do have a level of impact on Company
income, through effective controls the impact is limited.
B. Response measures to changes in interest rates, foreign exchange rates, and inflation:
To prevent changes in interest rates, foreign exchange rates, and inflation from creating risks to theCompany’s overall finances, we hold regular meetings of the Board of Directors Risk Committee, andkeep on top of economic and financial developments both in Taiwan and overseas to develop a
hedging strategy, evaluate performance of derivatives, and set the appropriate hedge ratio. These
controls help prevent changes by utilizing financial hedging instruments in the financial environmentand oil prices from creating systemic financial risks and enable CAL to achieve proper risk
management.

Review of Financial Conditions, Financial Performance, and Risk Management1237.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with
Respect to High‐risk, High‐leveraged Investments, Lending or Endorsement
Guarantees, and Derivatives Transactions
A. The Company does not engage in high‐risk, highly‐leveraged investments.
B. The Company has developed Operational Procedures for Lending Funds to Others and Operational
Procedures for Endorsements/Guarantees and risks of such operations are controlled through strict
assessment. Therefore, loans and endorsements/guarantees do not lead to profits or losses for theCompany.
C. Company derivative products include forward foreign exchange and foreign exchange options
contracts and oil options contracts, which are primarily to hedge against the risk of fluctuations in oil
prices, interest rates, and foreign exchange rates. Transactions are performed in accordance with theCompany’s Operational Procedures for Derivatives Trading and are regularly evaluated to ensure
effective risk controls.

7.6.3 Future Research & Development Projects and Corresponding Budget:
Please refer to page 94.
7.6.4 Effects of and Response to Changes in Policies and Regulations Relating toCorporate Finance and Sales: None.
7.6.5 Effects of and Response to Changes in Technology and the Industry
Relating to Corporate Finance and Sales: None.
7.6.6 The Impact of Changes in Corporate Image on Corporate Risk
Management, and the Company’s Response Measures:
China Airlines has tirelessly worked to build a positive image. We continue to enhance our transport
services and airplane maintenance to ensure flight safety. In the spirit of SOP+, we properly implement
every service detail. The Company actively promotes social welfare to fulfill our corporate social
responsibility. Environmental management has become an operational focus, to do our part to protect
the Earth. In the event of a false negative news story, information, or situation that adversely impacts
our brand image, the Company will respond immediately, holding a press conference or issuing a press
to release a correction. We will communicate with the media immediately and issue clarification on our
website or through social media platforms to reduce negative impact.

7.6.7 Expected Benefits from, Risks Relating to and Response to Merger andAcquisition Plans: None.
7.6.8 Expected Benefits from, Risks Relating to and Response to Factory
Expansion Plans: None.
7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing
Sources and Excessive Customer Concentration: None.
7.6.10 Effects of, Risks Relating to, and Response to Large Share Transfers or
Changes in Shareholdings by Directors or Shareholders with
Shareholdings of over 10%: None.
7.6.11 Effects of, Risks Relating to, and Response to the Changes inManagement Rights: None.
124 Review of Financial Conditions, Financial Performance, and Risk Management7.6.12 Litigation or Non‐litigation Matters
A. Any major litigation, non‐litigation or administrative disputes involving theCompany that are already finalized or still pending.
No.
1

2

Disputed
AmountLitigants
Current Status(NT$)
Litigation for 1. In 2002, the Civil
More than 1.2 Plaintiff: China
On the first ruling by the Taipei
refunding
Aeronautics Administration billion
Airlines
District Court, the company's claim
overpayment (CAA) unilaterally
Defendant: Civil was rejected, but because there
on aircraft
terminated an aircraft
Aeronautics
was a calculation error by therentalrental contract with the
Administration
court of first instance, the services
Company for six aircraft,of a law office were retained on
resulting in early
April 2, 2018 to proceed ontermination of the contract,appeal.
which changed the natureof the lease and the rent
calculation basis andresulted in rent
overpayment by theCompany.
2. In 2010, the CAA resolvedthat the Civil Aeronautics
Administration should pay
the Company more than
NT$1.5 billion and in 2015
the Supreme Court revoked
the arbitration judgment,
which resulted in the
Company filing a civil
lawsuit against the CAA torecoup the aforementioned
rent overpayment.
US Passenger In December 2007, because
Currently no
Plaintiff: Global This case was settled out of court
Faremajor global passenger
specific claim passenger group and the 20th meeting of the 13th
Antitrustairlines charged passenger
figures. The
representative
Board of Directors passed aClass Action transport fees and fuelclaim is for
Defendant: China resolution to pay no more thanLawsuitsurcharges and as a member punitive
Airlines and more US$19.50 million (plus court costsof Association of Asia Pacific damages ofthan 10 otherof US$250,000). Later, on
Airlines, the Company was
three times the airlines
December 8, 2017, a formal
listed as a joint defendant. The fuel surcharge
settlement agreement was signed,case is being heard by theovercharged
with settlement monies paid out
District Court of California, San during thein four installments.
Francisco.
disputed period
Case Name

Summary

B. Major litigation, non‐litigation or administrative disputes involving a subsidiary(TACT Logistics) that are already finalized or still pending:
The income tax return of TACT for 2001 was assessed by the tax authorities. After a reinvestigation,an administrative appeal and administrative proceedings, the case was settled, and the amount ofpenalty assigned on June 8, 2017 was $59,501 thousand. TACT had recognized a sufficient
provision for the fine, and the payment is expected to be made on schedule.

7.6.13 Other Major Risks:
CAL fully understands the importance of risk management and the potential for interaction between
different types of risk. We established the Risk Committee directly under the supervision of the Boardof Directors to improve risk management and require subordinate units to control for each major risk
category.

Review of Financial Conditions, Financial Performance, and Risk Management

125

The CAL risk management organization and units responsible for implementation:
Type of Risk

Responsible

Risk Management Measures

Department

Operating Risk

Corporate
Development
OfficeSafety Risk

Corporate
Safety OfficeFinancial Risk

Finance Div.

The operating environment for the aviation industry is ever changing. Major political andeconomic events as well as unexpected internal or external incidents can have a huge
impact on company operations. The Corporate Development Office analyses potential
political, economic, aviation industry, and internal Company situations that could affect
the Company and proposes concrete response plans to reduce their impact on China
Airlines’ strategic direction and annual business plan.
Safety is the cornerstone of airline operations and only a good record of flight safety canearn passenger trust. The Corporate Safety Office utilizes the Safety Management System(SMS) to identify and evaluate important internal and external operating risks including
flights, aircraft, in‐flight service, and ground handling, then proposes improvement
measures.
The domestic and global economy affects Company operating results. Primary operating
costs for airlines include interest rate, exchange rate, and fuel and influence by outside
factors can result in significant volatility. Therefore, the Finance Division utilizes financial
hedging instruments to fix the above factors within a certain range, regularly monitors
financial risk, and establishes relevant strategies and measures to effectively manage
financial risk.

7.7 Other Important Matters: None.

126 Review of Financial Conditions, Financial Performance, and Risk Management

Special Disclosure
8.1 Summary of Affiliated Companies
8.2 Private Placement Securities in the Most Recent
Years
8.3 The Shares in the Company Held or Disposed of by
Subsidiaries in the Most Recent Years
8.4 Special Notes
8.5 Situations with Major Impacts on Shareholder
Equity or Share Prices

Special Disclosure

127

VIII. Special Disclosure
8.1 Summary of Affiliated Companies
8.1.1 Basic information of Affiliated Companies
A. Affiliated Companies Chart
Dec 31, 2017

China Airlines
94% 90% 55% 54% 51% 51% 49% 47% 25%

s
e
c
i
v
r
e
S
y
r
d
n
u
a
L
c
i
f
i
c
a
P
a
n
i
h
C

s
y
a
d
i
l
o
H
y
t
s
a
n
y
D

l
a
n
i
m
r
e
T
o
g
r
a
C
r
i
A
n
a
w
i
a
T

s
e
c
i
v
r
e
S
y
r
d
n
u
a
L
c
i
f
i
c
a
P
a
n
i
h
C

n
a
w
i
a
T
r
i
a
r
e
g
i
T

100%

2.5%
1.08%

s
e
n
i
l
r
i
A
n
i
r
a
d
n
a
M

l
e
t
o
H
L
A
C

k
r
a
P
L
A
C

p
i
r
t
s
e
Y

s
s
e
c
n
i
r
P
r
e
t
h
g
i
e
r
F

e
c
n
i
r
P
r
e
t
h
g
i
e
r
F

y
n
a
p
m
o
C
a
i
s
H
a
w
H

t
n
e
m
t
s
e
v
n
I
a
i
s
A
L
A
C

g
n
i
r
e
e
n
i
g
n
E
d
n
a
e
c
n
a
n
e
t
n
i
a
M
t
f
a
r
c
r
i
A
n
a
w
i
a
T

l
a
n
o
i
t
a
n
r
e
t
n
I
y
t
s
a
n
y
D
L
A
C

n
a
w
i
a
T

i
i
a
w
a
H
f
o
l
e
t
o
H
y
t
s
a
n
y
D

s
e
i
t
r
e
p
o
r
P
y
t
s
a
n
y
D

︵

e
c
i
v
r
e
S
t
r
o
p
r
i
A
n
a
w
i
a
T

k
r
o
w
t
e
N
l
e
v
a
r
T
e
r
b
a
S

︶

2.5%

10%

100%

s
e
c
i
v
r
e
S
t
r
o
p
r
i
A
l
a
n
o
i
t
a
n
r
e
t
n
I
n
a
u
y
o
a
T

︵

100%

e
c
i
v
r
e
S
t
r
o
p
r
i
A
n
a
w
i
a
T

100% 100% 100% 100% 100% 100% 100% 100% 94%

a
o
m
a
S

︶
Note 1: The affiliates listed above mean companies in which the company has invested and has a 50% or higher voting share, or the means tocontrol, either directly or through a subsidiary company. China Pacific Laundry Services and China Pacific Catering Services are joint
ventures.
Note 2: The Freighter Princess and Freighter Prince companies went out of business in February, 2017.
Note 3: Hwa Hsia Company Ltd. was renamed "Dynasty Aerotech International Corp." in 2018.

128 Special Disclosure

s
s
e
r
p
x
E
y
k
S
l
a
b
o
l
G

100%

B. Basic information of Affiliated Company
Dec 31, 2017/Unit: NT$ thousands
Company
1. CAL‐Dynasty International, Inc.
1A Dynasty Properties Co., Ltd.
1B Dynasty Hotel of Hawaii, Inc.
2. CAL‐Asia Investment Inc.
3. Hwa Hsia Company Ltd. (Note 3)
4. Freighter Prince Ltd. (Note 2)
5. Freighter Princess Ltd. (Note 2)
6. Yestrip Co., Ltd.

Date
FoundedAddress

200 Continental Blvd. Suite #101 El Segundo,
07/01/1991
CA90245, U.S.A.
200 Continental Blvd. Suite #101 El Segundo,
08/15/1973
CA90245, U.S.A.
12/10/1973 1830 Ala Moana Blvd. Honolulu, Hawaii 96815, U.S.A.
263 Main Street, P.O. Box 2196, Road Town, Tortola,
06/29/1995
British Virgin Island
No.6, Hangqin South Road, Dayuan District, Taoyuan
05/11/1989
City
Ugland House, P.O.Box 309, George Town, Grand
09/06/2001
Cayman, Cayman Islands, British WestUgland House, P.O.Box 309, George Town, Grand
01/11/2002
Cayman, Cayman Islands, British West
10F, No.9,Section 3, Nanjing E Rd., Zhongshan District,
01/18/2001
Taipei City

7. CAL Park Co., Ltd.

09/06/2006 No.1, Hangzhan S Rd., Dayuan District, Taoyuan City

8. CAL Hotel Co., Ltd.

01/03/2007 No.1‐1, Hangzhan S Rd., Dayuan District, Taoyuan City

9. Taiwan Aircraft Maintenance andNo.15, Hangqin South Road, Dayuan District, Taoyuan
01/16/2015
City

Engineering Co., Ltd.
10. Mandarin Airlines, Ltd.
11. Sabre Travel Network (Taiwan)Ltd.
12. Tigerair Taiwan Co., Ltd.

Capital(Note)

Principal Activities

780,448 Holding & investing
Real estate investing, property
leasing
119,403 Hotel service
14,925522,245 Holding & investing
77,270Aviation ground handlingservice, cleaning service‐ Aircraft leasing‐ Aircraft leasing
16,000 Travel service
1,500,000

Real estate leasing, parking lot
management

465,000 Hotel business
1,350,000 aircraft maintenance and repair

04/29/1991

No.3, Alley 123, Lane 405, Dunhua North Road,
Songshan District, Taipei City

10/09/1990

No.57, Fuxing North Road, Songshan District, Taipei
City

138,618 IT service & GDS

04/21/2014 No.1, Hangzhan S Rd., Dayuan District, Taoyuan City

2,000,000 Civil air transport

No.7, Lane 54, Sande Street, Luzhu District, Taoyuan
13. China Pacific Laundry Services Ltd. 09/08/1997
City
No.10‐1, Hangqin North Road, Dayuan District,
12/22/1999
14. Taiwan Air Cargo Terminal Ltd.
Taoyuan City
5F, You Ei Ginza Second Building, 9‐7, 1Chome, Ginza,
10/28/1980
15. Dynasty Holidays, Inc.
Chuo‐Ku, Tokyo, Japan

2,001,825 Civil air transport

250,000 laundry service
2,500,000 Air cargo and storage service
10,591 Travel service

08/19/1994

No.22, Lane 156, Section 2, Haishan Rd., Luzhu
District, Taoyuan City

861,000 Catering service

11/08/1978

No.15, Hangqin North Road, Dayuan District, Taoyuan
City

700,000 Aviation ground handling service

18. Taiwan Airport Service Co., Ltd.

07/19/1966 No.340, Dunhua N Rd., Songshan District, Taipei City435,600 Aviation ground handling service

18A Taiwan Airport Service (Samoa)

TrustNet Chambers, Lotemau Centre, P. O. Box 1225,
03/22/2004
Apia, Samoa

219,870 Holding & investing

16. China Pacific Catering Services
Ltd.
17. Taoyuan International Airport
Services Co., Ltd.

Co., Ltd.

No.186, Section 4, Nanjing East Road, Songshan
10,000 Air freight forwarder
District, Taipei City
Note 1: Capital was calculated using the exchange rate at the end of 2017: 1TWD=0.0335USD, 3.7769JPY, 0.2182CNY.
Note 2: Freighter Princess Ltd., and Freighter Prince Ltd. ceased operations in February, 2017.
Note 3: Hwa Hsia Company Ltd. was renamed “Dynasty Aerotech International Corp.” in 2018.
19. Global Sky Express Ltd.

09/29/1994

Special Disclosure129

C. Overall Description of the Industries in which Affiliated Companies (Including
Subsidiaries and Other Invested Companies) Operate
China Airlines’ affiliated companies can be divided into seven categories, each of which is highly
dependent on the Company’s operations, and include airlines, ground services, air transport support,
aerospace technology, logistics and warehousing, tourism and leisure, and investment and leasing.
The categories are described below:
Classification
Airlines

Description
Mandarin Airlines provides domestic and international passenger and cargo air transport services to further capitalize on ourcompetitive advantage in the cross‐strait market. Tigerair Taiwan is tasked with operating in the Asian low‐cost carrier market todevelop new business opportunities.
GroundGround services at Taiwan Taoyuan and Taitung Airports are provided by Taoyuan International Airport Services Co., Ltd., while
Handling
Kaohsiung Airport and all other domestic airports are serviced by Taiwan Airport Service Co., Ltd. Overseas, the Company has invested
Servicesin Jardine Aviation Services in Hong Kong, which serves as China Airlines’ ground handling agent in Hong Kong. Cleaning and repair
ground services are provided by Hwa Hsia Company Ltd..
Air Transport
The Company has invested in domestic airline reservation system operations and maintenance provider Sabre Travel Network (Taiwan)
SupportLtd. Overseas, the Company invested in Singapore’s Everest Company.
In‐flight catering services are provided for northern Taiwan by China Pacific Catering Services Ltd. and by Kaohsiung Airport Catering
Services in the South.
China Pacific Laundry Services Ltd. provides laundry services for textiles and clothing used aboard aircraft and general laundry services
for the hospitality industry.
Logistics andDomestically, TACT Logistics is responsible for providing warehousing services at Taiwan Taoyuan Airport and Kaohsiung International
Warehousing
Airport. In Mainland China, the Company made indirect investments in Xiamen International Airport Co., Ltd and Xiamen International
Airport Air Cargo Service Co., Ltd.
Logistics services are provided domestically by invested companies Global Sky Express Ltd., Chung Hwa Express Corp., and Science Park
Logistics. Overseas, the Company has indirectly invested in Hong Kong’s Eastern United International Logistics.
Aerospace
In aerospace technology business in Taiwan, the company invested in Taiwan Aircraft Maintenance and Engineering Ltd., responsible
Technology
for all aspects of maintenance and repair services for Boeing 777 and 737s and Airbus A320 and A350 models; NORDAM Asia provides
thrust reverser and composite material maintenance services in the Asian region, and Hwa Pu Aircraft Engine Technology Company
provides maintenance for PW4000 engines and other high‐value added items; overseas, the company invests in Xiamen Taiko Landing
Gear Co. in Mainland China, providing and maintaining landing gear, and Jinjiang Taiku Shibirui Composite Materials, providing
composite material maintenance. In Hong Kong, the company invests in the China Aircraft Service Company, providing aircraft
maintenance capacity.
Tourism andDomestic investments include Yestrip and CAL Hotel Co., Ltd. Overseas investments include an indirect investment in Dynasty Hotel of
LeisureHawaii in the USA and investment in Japan’s Dynasty Holidays.
Investment and Established CAL‐Dynasty International that makes indirect investments in Chinese and American companies engaged in real estate
investments and leasing management. CAL‐Asia Investment Inc. and Taiwan Airport Service (Samoa) Co., Ltd. are engaged in general
Leasing
Business Group investment holdings.
Freighter Prince and Freighter Princess are special purpose entities set up to meet financial structuring needs.

Note: Freighter Princess Ltd., and Freighter Prince Ltd. went out of business in February, 2017.

130 Special Disclosure

D. Directors, Supervisors and Presidents of Affiliated Companies
Dec 31, 2017
Units: Shares; %Company

Title

1. CAL‐Dynasty International, Inc. Chairman
Director
Director (President)
1A Dynasty Properties Co.,
Chairman (President)
Ltd.
Director
1B Dynasty Hotel of Hawaii,
ChairmanInc.
Director
Director (President)
2. CAL‐Asia Investment Inc.
Chairman
Director
Director (President)
3. Hwa Hsia Company Ltd.(Note 4) Chairman

Shareholding
Shares2,614,500(USD10, share)Name
Ho, Nuan‐Hsuan (Note 1)
Hsieh, Su‐Chien (Note 1)
Lee, Hsien‐Kuang (Note 1)
Lee, Hsien‐Kuang (Note 2)

Lee, Hsien‐Kuang (Note 2)

Director
Supervisor
Director(President)
4. Freighter Prince (Note 3)‐‐

5. Freighter Princess (Note 3)‐‐

6. Yestrip Co., Ltd.

Chairman
Director
Supervisor
President
Chairman
Director
Supervisor
Director(President)
Chairman

Supervisor

Hsieh, Hsin‐Ni (Note 1)
Tong, Huai‐Ming; Wang, Chen‐Min (Note 1)
Huang, Hui‐Na (Note 1)
Lo,Chun‐Ying (Nominated By China Airlines)
Ho, Nuan‐Hsuan (Note 1)
Hsieh, Su‐Chien; Ku, Yueh‐Han (Note 1)
Chung, Chuar‐Duan (Note 1)
Hsieh, Su‐Chien (Note 1)
Ho, Nuan‐Hsuan (Note 1)
Hsieh, Su‐Chien; Kao, Shing‐Hwang; Chang, Chih‐Chieh;
Lo, Ya‐Mei (Note 1)
Chung, Chuar‐Duan; Chen, I‐Chieh (Note 1)

ChairmanHuang, Chwen‐Jiun (Note 1)

8. CAL Hotel Co., Ltd.

Director

9. Taiwan Aircraft Maintenanceand Engineering Co., Ltd.

Supervisor
Director(President)

Chang, Young; Wang, Houng; Sun, Jia‐Min; Lee,
Jung‐Hui (Note 1)
Chung, Chuar‐Duan; Ho, Hui‐Fen (Note 1)
Lee, Jung‐Hui (Nominated By China Airlines)
Hsieh, Su‐Chien (Note 1)
Chang, Young; Kao, Shing‐Hwang; Wang, Houng;
Chang, Chih‐Chieh; Lo, Ya‐Mei (Note 1)
Chen, I‐Chieh
Tsao, Jyh‐Fen (Note 1)

ChairmanWu, Wen‐Kuo (Note 1)

Director

10. Mandarin Airlines, Ltd.

Supervisor
President
Chairman
Director

11. Sabre Travel Network(Taiwan) Ltd.

Supervisor
President

Lu, Shih‐Ming; Tong, Huai‐Ming; Wang, Chen‐Min(Note 1)
Todd Arthur (Represent Sabre Travel Network Asia
Pacific)
Fang, Juo‐Ling
Chen, Chau‐Ling (Nominated By China Airlines)

Chairman

Chang, Horng‐Jong (Note 1)

Director

Chang, Young; Chang, Chih‐Chieh; Peng, Pao‐Chu;
Wang, Chen‐Min (Note 1)

Director
Director

12. Tigerair Taiwan Co., Ltd.

Supervisor

Tsao, Jyh‐Fen (Represent Mandarin Airlines)

Supervisor

Chen, I‐Chieh

President
13.China Pacific Laundry Services Chairman
Ltd.
Director
Director

100

5,000
(USD100, share)100

400,000(USD10, share)100

7,172,346(USD1, share)

100

77,270100‐‐

Hsieh, Su‐Chien; Peng, Pao‐Chu (Note 2)Peng, Pao‐Chu (Note 2)
Fang, Yuan‐Hua (Note 1)
Ho, Nuan‐Hsuan (Note 1)
Hsieh, Su‐Chien (Note 1)
Lo, Ya‐Mei (Note 1)
Chao, Lin (Note 1)
Liu, Der‐Chuan; Sun, Jia‐Min; Ku, Yueh‐Han (Note 1)
Chen, I‐Chieh (Note 1)
Lu, Yung‐Nan (Note 1)

7. CAL Park Co., Ltd.

%

‐

‐

1,600,000

100

150,000,000

100

46,500,000

100

16,000,000

100

188,154,025

93.99

13,021,042

93.93

609,000

4.39

180,000,000

90

20,000,000

10

13,750,000

55

3,750,000

15

Chang, Horng‐Jong
Chiu, Chang‐Hsin (Note 1)
Hong, Tsu‐Kuang; Liu, Tsao‐Yang (Note 1)
Chen, Derrick (Represent Hendriz Holding)Special Disclosure131Company

Title

3,750,000

15Supervisor

Wong, Andy (Represent Merton Lake)

3,750,000

15Supervisor

Chen, I‐Chieh
Chen, Chong‐Yi (Note 1)
Charles C. Y. Chen (Represent Eyon Industrial Co.)
Chang, Chih‐Chieh; Liu, Der‐Chuan (Note 1)
UPS
Michael Shea (Represent Hsin Feng Corp.)
Fang, Juo‐Ling
Chen, Jyi‐Fu (Represent Express Container Terminal
Corp.)
Chang, Cheng‐Hao (Nominated By China Airlines)
Chang, Ming‐Way (Note 1)
Wang, Chen‐Min; Tsao, Jyh‐Fen (Note 1)
Koizumi Kazuhisa; Yamada Keisuke (Represent Koizumi
Group)
Ho, Hui‐Fen (Note 1)
Ishihara Tetsu (Represent Koizumi Group)

135,000,000
6,000,000

54
2.4

20,000,000
7,000,000

8
2.8

15,000,000

6

408

51

392

49

Yeh, Chu‐Lan (Note 1)

43,911,000

51

21,045,500

24.5

21,045,500

24.5Lin, Hsin‐Te (Represent Motc)

31,500,000

45

34,300,000

49

Director
Supervisor

Huang, Chin‐Feng (Note 1)
Hsieh, Su‐Chien; Chang, Young; Lo, Ya‐Mei; Wang,
Houng (Note 1)
Chen, Yen‐Po; Chang, Chang‐Chi; Li, Hung‐Sheng; Yang,
Shao‐Yung(Represent Motc)
Pi, Chung‐Wei (Represent UPS)
Li, Mi; Li, Shen‐Yi

4,200,000

6

Chairman

Chang, Young (Note 1)

20,626,644

47.35

Director(President)
Director

9,405,300

21.59

7,405,200

17Supervisor
Supervisor

Chung, Ming‐Jyh (Note 1)
Peng, Pao‐Chu (Note 1)
Chung, Ting‐Chun (Representing juridical personshareholder Rih Hsin Asset Management Company)
Chang, Chieh‐Tang (Represent Goldsun Building
Materials)
Chung, Chuar‐Duan
Chen, Yao‐Ming

Authorized Signatory

Chang, Young (Represent Taiwan Airport Service Co.)

Supervisor
President
Chairman (President)
Director
Director
Supervisor
Supervisor
16. China Pacific Catering Services
ChairmanLtd.
Director
Director
Supervisor
Supervisor
President
17. Taoyuan International Airport
ChairmanServices Co., Ltd.
Director(President)
Director
Director

Director
Director

18A Taiwan Airport Service(Samoa) Co., Ltd.
19. Global Sky Express Ltd.

Chairman
Director
Director
Director
Director
Director

Lo, Tao‐Wei (Nominated By China Airlines)

Ho, Nuan‐Hsuan ; Chiu, Chang‐Hsin (Note 1)
Wong, Andy; Yau, Algernon (Represent Aldeburgh
Limited)Chung, Chuar‐Duan
Lee, Agatha (Represent Deli Holdings Limited)
An, Long‐Chi (Nominated By China Airlines)

Li, Chung‐Hui
Liu, Der‐Chuan; Tsao, See‐Dee; Peng, Pao‐Chu (Note 1)
Pao, Hsueh‐Chao
Huang, Nan‐Sheng
Wei, Ching‐Li
Hsiao, Yu‐Hsin
Chung, Mei‐Chih (Represent Leader Mutual Freight
Director
System)Supervisor
Huang, Hui‐Na
Supervisor
Yeh, Chien‐Tien
Supervisor
Chiang, Ming‐Fang (Represent Morrison Express)
President
Hsu, Chih‐Chiang (Nominated By China Airlines)
Note 1: Representative of juridical person shareholder China Airlines.
Note 2: Representative of juridical person shareholder CAL‐Dynasty International, Inc..
Note 3: Freighter Princess Ltd. and Freighter Prince Ltd. went out of business in February, 2017.
Note 4: Hwa Hsia Company Ltd. was renamed "Dynasty Aerotech International Corp." in 2018.

132 Special Disclosure%

So, Raymond(Represent Heathlee Int’l)

Deputy Chairman
Director
Director
Director
Supervisor

18. Taiwan Airport Service
Co., Ltd.

Shareholding
SharesDirector

President
14. Taiwan Air Cargo Terminal Ltd. Chairman

15. Dynasty Holidays, Inc.

Name

5,876,976(USD1, share)
50,000250,000
40,00050,00020,00020,000

100
5
25
4
5
2
2

20,0002

10,00050,0001
5

E. Affiliated Company Business Overview
Dec 31, 2017
Unit: NT$ thousands; EPS=NT$
Company
1. CAL‐Dynasty International, Inc.
1A Dynasty Properties Co., Ltd.
1B Dynasty Hotel of Hawaii, Inc.
2. CAL‐Asia Investment Inc.
3. Hwa Hsia Company Ltd.
4. Freighter Prince Ltd.
5. Freighter Princess Ltd.
6. Yestrip Co., Ltd.
7. CAL Park Co., Ltd.
8. CAL Hotel Co., Ltd.
9. Taiwan Aircraft Maintenance andEngineering Co., Ltd.
10. Mandarin Airlines, Ltd.
11. Sabre Travel Network (Taiwan)Ltd.
12. Tigerair Taiwan Co., Ltd.
13. China Pacific Laundry Services
Ltd.
14. Taiwan Air Cargo Terminal Ltd.
15. Dynasty Holidays, Inc.
16. China Pacific Catering Services
Ltd.
17. Taoyuan International Airport
Services Co., Ltd.
18. Taiwan Airport Service Co., Ltd.
18A Taiwan Airport Service(Samoa) Co., Ltd.
19. Global Sky Express Ltd.

Capital

Total
Assets

Total
Liabilities

Total
Equity780,448
14,925
119,403214,100
77,270‐‐16,0001,500,000
465,000

1,341,285
706,411487,605
478,933
215,194‐‐
69,5014,390,357
518,485

155,962
240,61493,752
0
122,694‐‐
43,5972,867,661
82,5191,185,323
465,797
393,853478,933
92,500‐‐25,904
1,522,696
435,966

1,350,000

1,234,663

3,115

2,001,825

4,398,795

3,085,340

Operating
Revenue

Operating
Income (Loss)

Profit(Loss)

EPS (Dollars)

339,801
99,373
240,796
0379,982‐‐
41,702326,887
574,085

59,08528,83026,992(1,084)
14,830‐‐(289)
60,19147,533

34,695
15,835
13,176
31,191
11,280‐‐440
10,017
48,59013.27
3,166.98
32.94
4.35
145.98
‐
‐
0.27
0.07
1.04

1,231,548

0(68,856)(68,580)(4.29)

1,313,455

7,897,163

39,360125,570

0.63

138,618

600,525

120,806

479,719

377,999

218,321

182,04613.13

2,000,000

4,878,700

3,861,883

1,016,817

6,800,010

512,022572,953

2.86

250,000

366,099

54,773311,326

237,411

50,23542,4611.70

2,500,000
10,591

3,623,230
112,373

1,142,768
61,4092,480,462
50,964

1,798,333
54,768

209,971(5,984)

190,444(4,725)0.76(5,906.46)

861,000

2,845,894

1,360,848

1,485,046

2,922,922

563,502472,2485.48

700,000

2,796,382

1,461,476

1,334,906

3,039,289

284,874

248,207

3.55

435,600

1,144,654

596,693547,961

943,905

94,975

108,3312.49

175,432

370,3220370,3220025,1434.28

10,00037,083

7,336

29,747

107,402

8,275

6,876

6.88

Note 1: Capital, total assets, total liabilities, total equity were calculating using the exchange rate at the end of 2017.
Note 2: Operating revenue, operating profit, and income for the period were calculated using the 2017 quarterly average exchange
rates.
Note 3: Exchange rates at the end of 2017 were 1TWD=0.0335USD, 3.7769JPY, 0.2182CNY.
Note 4: Quarterly average exchange rates in 2017 were as following:
Q1: 1TWD=0.0318USD, 3.6340JPY, 0.2196CNY.
Q2: 1TWD=0.0331USD, 3.6872JPY, 0.2276CNY.
Q3: 1TWD=0.0330USD, 3.6633JPY, 0.2212CNY.
Q4: 1TWD=0.0331USD, 3.7331JPY, 0.2201CNY.
Note 5: Freighter Princess Ltd., and Freighter Prince Ltd. went out of business in February, 2017.
Note 6: Hwa Hsia Company Ltd. was renamed "Dynasty Aerotech International Corp." in 107(2) Affiliated Company Consolidated Financial Statements: Information required
to be disclosed regarding affiliated company consolidated financial
statements is included in Appendix 1 Consolidated Financial Statements. The
Company will no longer prepare a separate consolidated financial statement
for affiliated companies.
(3) Relationship Report: China Airlines is not the subsidiary of any company, so a
relationship report is not required.

Special Disclosure

133

8.2 Private Placement Securities in the Most Recent Years: None.
8.3 Shares in the Company Held or Disposed of by Subsidiaries in the
Most Recent Years:
APR 29, 2018
Units: NT$; shares; ％Number of
Number of Number ofAmount of
Shares andShares and Shares andCompany
Date of
Source of % Stake in
Investment Value of Stock
Acquisition Value ofValue ofEndorsement
Funds
Subsidiary
Gain/Loss Held as of theor Disposal
StocksStocks/Guarantee ofPrinting Date of
Acquired Disposed of
Subsidiary
this ReportCompany

CapitalHwa Hsia
Company Ltd.
(Note 1)

77,270,000

Equity
Fund

100%

‐

‐

‐

‐

814,152 shares
8,793,000‐

Mandarin
Airlines, Ltd.

2,042,368,000

EquityFund

93.99%‐‐‐‐

2,074,628 shares
22,406,000‐

Note 1: Hwa Hsia Company Ltd. was renamed "Dynasty Aerotech International Corp." in 2018.
Note 2: No subsidiary has a Company stock pledge nor has the Company lent money to any subsidiary.

8.4 Special Notes: None.
8.5 Situations with Major Impacts on Shareholder Equity or Share
Prices:8.5.1 Change in the chairman of the board, general manager, or one‐third or
more of the directors of the Company.
A. The Company’s juridical person director China Aviation Development Foundation assigned
Mr. Ho, Nuan‐Hsuan to serve as its representative on the 20th Board on June 24, 2016. On
the same day, the Board approved the appointment of Mr. Ho, Nuan‐Hsuan to serve as
Chairman. On July 6, 2016, Mr. Hsieh, Su‐Chien was assigned to serve as representative on
the 20th Board. On July 26, 2016, Mr. Cheng, Chuan‐Yi and Chen, Han‐Ming were assigned toserve as representatives on the 20th Board. On August 9, 2016, Mr. Jong, Jia‐shi wasassigned to serve as representative on the 20th Board.
B. "Chunghwa Telecom", the company's juridical person Board member, was discharged on
January 19, 2018, with representative Mr. Huang Hsiu‐Gu discharged accordingly.

8.5.2 Signing of major memoranda, strategic alliances or other plans forbusiness cooperation or major contracts
A. The company signed a Letter of Intent with France's Airbus on January 10, 2017. With theassistance of Airbus, China Airlines will comprehensively upgrade its Taiwan maintenance,engineering and technical training capacities. Under the agreement, in the future China
Airlines and Airbus will strengthen their cooperation on overall maintenance, including all
Airbus models under the China Airlines umbrella. They will also jointly assess various
technical and business solutions.

134 Special Disclosure

B. The company signed a Memorandum of Cooperation with the USA's NORDAM on March 3,2017 to set up a joint venture in Taiwan. NORDAM's brand will continue to provide engine
thrust reversal equipment and maintenance services for composite materials in Asia.
Through this bilateral cooperation, China Airlines' own fleet thrust reversal maintenanceneeds will be satisfied, and the capacity of China Airlines' maintenance facility to service
composite materials will improve, thereby spurring the development of the aerospaceindustry in Taiwan.

8.5.3 Lawsuits, non‐contentious matters, administrative actions, administrative
disputes, injunctive procedures or compulsory enforcement matters
In 2006, the US Department of Justice began an antitrust investigation of multiple global
carriers for fuel surcharges collected between 2000 and 2006. Because of this, some American
passengers brought a class action suit in December, 2007 in US District Court for San Francisco,over passenger flight fares and surcharges. The company, being a member of the Associationof Asia Pacific Airlines, was listed as a defendant. This matter was disclosed in the company's
2016 financial report.
Since major Asian carriers have recently been settling with the plaintiffs, the company
consulted an attorney and, after considering the costs of a lawsuit, settled with the plaintiffs
for US$19.50 million. A settlement agreement was signed with the plaintiffs on December 8,
2017, and will be included in the 2017 financial report. Furthermore, the settlement monies
will be divided into four installments paid over a three‐year period, to reduce the impact on
the company's operations. The settlement is based on the consideration of minimizing damage
to the company, and does not imply acknowledgement of any willful or negligent damage tothe plaintiffs. The company strives to carry out policies that respect anti‐trust laws, and in
addition to actively training its entire staff, also takes necessary audit measures to ensure theimplementation of this policy and guarantee the rights of the company and its employees.

Special Disclosure

135

136
Opinionwith the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports andRelevant information that should be disclosed in the consolidated financial

Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the consolidated financial statements for the year ended December 31, 2017. These
matters were addressed in the context of our audit of the consolidated financial statements as awhole, and in forming our opinion thereon, and we do not provide a separate opinion on thesematters.

Key Audit Matters

We conducted our audits in accordance with the Regulations Governing Auditing and Attestationof Financial Statements by Certified Public Accountants and auditing standards generally acceptedin the Republic of China. Our responsibilities under those standards are further described in the
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of ourreport. We are independent of the Group in accordance with The Norm of Professional Ethics for
Certified Public Accountant of the Republic of China, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.

March 22, 2018

Basis for Opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as of December 31, 2017 and 2016, andits consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with the Regulations Governing the Preparation of Financial Reports by Securities
Issuers, and International Financial Reporting Standards (IFRS), International AccountingStandards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued
into effect by the Financial Supervisory Commission of the Republic of China.

By

Hence, we have not prepared a separate set of consolidated financial statements

CHINA AIRLINES, LTD.

Very truly yours,of affiliates.

subsidiary companies.

statements of affiliates has all been disclosed in the consolidated financial statements of parent and

Financial Statements.”

and subsidiary companies as provided in International Financial Reporting Standard 10 “Consolidated

all the same as the companies required to be included in the consolidated financial statements of parent

We have audited the accompanying consolidated financial statements of China Airlines, Ltd. andits subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31,
2017 and 2016, and the consolidated statements of comprehensive income, changes in equity andcash flows for the years then ended, and the notes to the consolidated financial statements,
including a summary of significant accounting policies.

The Board of Directors and the Shareholders
China Airlines, Ltd.

The companies required to be included in the consolidated financial statements of affiliates in accordanceConsolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2017 are

INDEPENDENT AUDITORS’ REPORTDECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES(Appendix 1)

137

Acquiring information about the differences between the Group’s financial position and its tax
base, and assessing the rationality of reconciliations and the realization schedule of temporary
differences to verify whether they are consistent with management’s financial forecasts.

2.

Reviewing the rationality of an assessment on the transaction value based on
industry-recognized publications, historical selling prices of similar aircraft models, and thesuggested price proposed by a broker and observing the subsequent transactions.

Discussing the retirement schedule with the accountable department, and reviewing whether
the correspondences and the latest quote were consistent with the market value claimed bymanagement.

1.

2.

The following were the main audit procedures for the key audit matter mentioned above:

Due to the lack of an open trading market for aircrafts, prices for the disposal of aircrafts varies
significantly, and the expected transaction value of aircrafts reflecting the carrying amount of
noncurrent assets held for sale was difficult to evaluate. Therefore, we identified noncurrent
assets held for sale as a key audit matter.

The board of directors of the Group resolved to dispose of several aircrafts. According to IFRS 5“Non-current Assets Held for Sale and Discontinued Operations”, impairment losses from thedisposal of aircrafts were recognized as the differences between the expected transaction value andthe carrying amount of the aircrafts, and then the aircrafts were reclassified as noncurrent assets
held for sale. As of December 31, 2017, the carrying amount of the aircrafts held for sale was
NT$309,330 thousand, and recognized impairment loss in NT$3,571,301 thousand. Refer toNotes 4, 5 and 12 in the accompanying consolidated financial statements for the related detailed
information.

Impairment Loss of Noncurrent Assets Held for Sale

Acquiring the internal financial forecasts and the estimate of future taxable income, andreviewing the rationality of management’s assumptions.

1.

The following are the main audit procedures for the key audit matter mentioned above:

The difference between the amount representative of the Group’s financial position and its tax baseare material to the consolidated financial statements as a whole in the aviation industry. Moreover,deferred tax assets arising from tax losses are dependent on future taxable income and the reversalof existing taxable temporary differences, which involve management’s judgment when assessing
the realization of tax losses. As there is a significant level of judgment involved in valuing thedeferred tax assets, we have deemed this to be a key audit matter.

Due to suffering tax losses in previous years, the Group was granted loss carryforwards which canbe used against taxable income in a certain period. The Group recognized the loss carryforwards
as deferred tax assets to the extent that the taxable profit in the future will be available against theloss carryforwards. As of December 31, 2017, the Group recognized tax losses as deferred tax
assets, in the amount of NT$821,417 thousand. Refer to Notes 4, 5 and 28 in the accompanying
consolidated financial statement for the related detailed information.

Deferred Income Tax Assets

The key audit matters in the audit of the consolidated financial statements of the Group are statedbelow:

Conducting an assessment on the rationality of useful life on the basis of fleet performance in
the industry, historical experience of fleet operations, and documents that described the basis
used by management to determine the useful life of its new fleet.

2.

Those charged with governance, including the audit committee and supervisors, are responsible foroverseeing the Group’s financial reporting process.

In preparing the consolidated financial statements, management is responsible for assessing theGroup’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends toliquidate the Group or to cease operations, or has no realistic alternative but to do so.

Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with the Regulations Governing the Preparation of Financial Reports by
Securities Issuers, and International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC)
endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China,
and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or
error.

Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements

We have also audited the parent company only financial statements of China Airlines, Ltd. as ofand for the years ended December 31, 2017 and 2016 on which we have issued an unmodified
opinion.

Other Matter

Reviewing the certificates issued by the aircraft and engine manufacturers, the suggested
operating cost of the aircraft manufacturer, and the historical experience of the maintenancedepartment to assess the rationale used to determine the division amount by management.

1.

The following were the main audit procedures for the key audit matter mentioned above:

Since the Group introduced a brand new fleet of A350-900 this year, the allocation base should be
adjusted. Moreover, the carrying amount related to the aircrafts and the amount of depreciation
expense recognized would be subject to the allocation of acquisition costs and the applied usefullife, which were made in accordance with management’s judgment. Therefore, we identified theacquisition costs of the new fleet as a key audit matter.

In accordance with IAS 16 “Property, Plant and Equipment”, acquisition costs of aircrafts shouldbe allocated into several significant components, including airframe, airframe overhaul, engine,engine overhaul, landing gear, etc., and should be depreciated over different useful lives. As of
December 31, 2017, the carrying amount of flight equipment was NT$126,832,379 thousand.
Refer to Notes 4, 5, and 15 in the accompanying consolidated financial statements for the related
detailed information.

Acquisition Costs of a New Fleet

138

Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditors’ report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditors’ report.
However, future events or conditions may cause the Group to cease to continue as a going
concern.

2.

3.

4.

Obtain sufficient and appropriate audit evidence regarding the financial information of entities
or business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision, and performance of the groupaudit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.

6.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.

1.

As part of an audit in accordance with the auditing standards generally accepted in the Republic ofChina, we exercise professional judgment and maintain professional skepticism throughout theaudit. We also:

Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditors’ report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with the auditing standards
generally accepted in the Republic of China will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually orin the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Notice to Readers

For the convenience of readers, the independent auditors’ report and the accompanying
consolidated financial statements have been translated into English from the original Chineseversion prepared and used in the Republic of China. If there is any conflict between the English
version and the original Chinese version or any difference in the interpretation of the two versions,the Chinese-language independent auditors’ report and consolidated financial statements shallprevail.

The accompanying consolidated financial statements are intended only to present the consolidated
financial position, financial performance and cash flows in accordance with accounting principles
and practices generally accepted in the Republic of China and not those of any other jurisdictions.
The standards, procedures and practices to audit such consolidated financial statements are thosegenerally applied in the Republic of China.

March 22, 2018

Deloitte & Touche
Taipei, Taiwan
Republic of China

The engagement partners on the audit resulting in this independent auditors’ report are Chen-Hsin
Yang and Li-Chi Chen.

From the matters communicated with those charged with governance, we determine those mattersthat were of most significance in the audit of the consolidated financial statements for the year
ended December 31, 2017 and are therefore the key audit matters. We describe these matters in
our auditors’ report unless law or regulation precludes public disclosure about the matter or when,in extremely rare circumstances, we determine that a matter should not be communicated in ourreport because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.

We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, related safeguards.

139

The accompanying notes are an integral part of the consolidated financial statements.

TOTAL

Total equity

NON-CONTROLLING INTERESTS (Note 26)

Total equity attributable to owners of the Company

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 20 and 26)
Share capital
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated retained earnings (accumulated deficit)
Total retained earnings
Other equity
Treasury shares

Total liabilities

Total noncurrent liabilities

NONCURRENT LIABILITIESFinancial liabilities at fair value through profit or loss - noncurrent (Notes 4, 5, 7 and 31)
Derivative financial liabilities for hedging - noncurrent (Notes 4, 5, 8 and 31)
Bonds payable - noncurrent (Notes 4, 20, 26 and 31)
Loans and debts - noncurrent (Notes 19, 31 and 33)
Provisions - noncurrent (Notes 4, 5 and 24)
Deferred tax liabilities (Notes 4 and 28)
Capital lease obligations - noncurrent (Notes 4, 21, 31 and 33)
Deferred revenue - noncurrent (Notes 4, 5 and 23)
Accrued pension costs (Notes 4, 5 and 25)
Other noncurrent liabilities (Notes 27 and 31)

Total current liabilities

CURRENT LIABILITIESShort-term loans (Note 19)
Short-term bills payable (Note 19)
Financial liabilities at fair value through profit or loss - current (Notes 4, 5, 7 and 31)
Derivative financial liabilities for hedging - current (Notes 4, 5, 8 and 31)
Notes and accounts payable (Note 31)
Notes and accounts payable - related parties (Notes 31 and 32)
Other payables (Notes 22 and 31)
Current tax liabilities (Notes 4 and 28)
Provisions - current (Notes 4, 5 and 24)
Deferred revenue - current (Notes 4, 5 and 23)
Bonds payable and put option of convertible bonds - current portion (Notes 4, 20, 26 and 31)
Loans and debts - current portion (Notes 19, 31 and 33)
Capital lease obligations - current portion (Notes 4, 21, 31 and 33)
Other current liabilities (Notes 27 and 31)

LIABILITIES AND EQUITY

TOTAL

Total noncurrent assets

NONCURRENT ASSETS
Derivative financial assets for hedging - noncurrent (Notes 4, 5, 8 and 31)
Financial assets carried at cost - noncurrent, net of current portion (Notes 9 and 31)
Investments accounted for using the equity method (Notes 4 and 14)
Property, plant and equipment (Notes 4, 5, 15 and 33)
Investment properties (Notes 4 and 16)
Other intangible assets (Notes 4 and 17)
Deferred income tax asset (Notes 4, 5 and 28)
Other assets - noncurrent (Notes 18, 21, 31, 33 and 34)

Total current assets

CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6, 18 and 31)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 31)
Derivative financial assets for hedging - current (Notes 4, 5, 8 and 31)
Receivables:
Notes and accounts, net (Notes 4, 5, 10 and 31)
Notes and accounts - related parties (Notes 31 and 32)
Other receivables (Notes 4 and 31)
Current tax assets (Notes 4 and 28)
Inventories, net (Notes 4 and 11)
Noncurrent assets held for sale (Notes 4, 5 and 12)
Other assets - current (Notes 6 and 18)

ASSETSCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

2,083,381
57,867,198

25
1
26
100

2,134,282
59,157,519$ 225,899,632$ 224,500,759

55,783,817

287,224
76,486(157,618)
206,092
112,264(43,372)

57,023,237

54,708,901
799,932

166,633,561

1
1
-

74

166,742,113

98,027,837

2,775
19,538,044
56,962,187
7,408,229
273,610
3,645,304
1,808,903
7,956,835
431,950

68,605,724

135,000
900,000
20,854
869,712555,829
11,465,254
48,687
81,925
14,820,860
2,700,000
32,268,540
1,284,001
3,455,062

206,092
1,458,313
1,664,405(107,641)(43,372)47

106,453,000$$ 224,500,759

177,162,558

3,268
140,357
2,866,431
140,136,737
2,075,903
1,137,115
6,256,665
24,546,082

24
-

9
29
4
1
4
-

27

60,289,113

926
6,994
21,050,000
65,753,503
8,013,583
190,682
636,222
1,818,265
8,101,565
881,260

6
7
2
9
1
2

120,000
8,655
82,295483,884
590,806
13,033,069
28,722475,725
16,375,789
4,367,100
19,304,674
1,617,321
3,801,073

100

79

1
68
1
1
2
6

47,338,201

8,353,785
3,562
952,320
28,2598,434,386
185,100
4,638,502$ 24,267,197
416,641
58,4492016
Amount54,709,846
799,999$$ 225,899,632

178,487,798

84,0752,507,346
153,617,531
2,075,624
1,019,345
5,519,332
13,664,545

21

4
4
3

8,604,265
8,359
714,41332,487
8,731,755
426,553
6,001,538
47,411,834

10
-

%

$ 22,585,332
306,839293

2017
Amount

100

26

1

25

-

25
-

74

44

9
25
3
2
1
4
-

30

5
7
1
14
1
2

100

79

1
62
1
1
3
11

21

4
4
2

11
-

%

OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit plans (Note 25)
Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method (Notes 4, 14 and 26)
Income tax relating to items that will not bereclassified subsequently to profit or loss
(Note 28)

NET INCOME

INCOME TAX EXPENSE (Notes 4, 5 and 28)

173,691(890,301)(42,277)(1,021,715)

2,490,792

1,033,171

3,523,963

(1)

-

(1)

2

-

2

(2,684,836)(4)(5,302,197)

Total nonoperating income and loss
PRETAX PROFIT

536,986-

536,236

-

-

-

1

1

(2)

-

(2)
(1)

1

3

10

13

87

100

%

159,935(847,675)(Continued)(66,815)(940,795)

710,940

1,168,911

1,879,851(2,688,096)(1,292,865)

(3)
(1)

759,139

4,564,687

13,441,219

18,005,906

123,073,201$ 141,079,107

2016
Amount(5,052,031)(1,346,801)

-

6

8

14

86

100

%

NONOPERATING INCOME AND LOSS
Other income (Notes 4 and 27)
Other gains and losses (Notes 8, 9, 12, 13, 14, 15
and 27)
Finance cost (Notes 8 and 27)
Share of the profit of associates and joint ventures(Note 14)560,399

8,826,160

13,146,251

OPERATING EXPENSES (Notes 4, 25, 27 and 32)
OPERATING PROFIT

21,972,411

134,149,374$ 156,121,785

GROSS PROFITCOSTS (Notes 4, 8, 11, 18, 25, 27 and 32)

REVENUE (Notes 4, 27 and 32)

2017
AmountCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars, Except Earning Per Share)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

140-

45,419(222,875)

$
$

0.40
0.39

1,377,616

$

$

$

1

$

$

$

$

1
-

2

2
-

1

The accompanying notes are an integral part of the consolidated financial statements.

EARNING PER SHARE (NEW TAIWAN DOLLARS;
Note 29)
Basic
Diluted1,240,677
136,939$2,490,792$

TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Owner of the Company
Non-controlling interests

2,208,066
282,726$

NET INCOME ATTRIBUTABLE TO:
Owner of the Company
Non-controlling interests

1,377,616

(1)

-

60

(1,113,176)-%(140,074)(128,280)$$

TOTAL COMPREHENSIVE INCOME FOR THE
YEAR

Other comprehensive loss for the year, net ofincome tax

Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 26)
Cash flow hedges (Notes 4 and 26)
Share of the other comprehensive income (loss)of associates and joint ventures accounted forusing the equity method (Notes 4, 14 and 26)
Income tax relating to items that may bereclassified subsequently to profit or loss
(Note 28)

2017
AmountCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars, Except Earning Per Share)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

$
$

%

-

-

-

-

-

-

-

-

-

(Concluded)

0.10
0.10

29,271

26,103
3,168

710,940

571,540
139,400

29,271(681,669)(33,955)
166,006(41)(112,092)
312,0942016
Amount--Change in capital surplus from dividends distributed to subsidiaries

Net income for the year ended December 31, 2016

Other comprehensive income (loss) for the year ended December 31, 2016,
net of income tax

Total comprehensive income (loss) for the year ended December 31, 2016

Cash dividends from subsidiaries paid to non-controlling interests--

Other comprehensive income (loss) for the year ended December 31, 2017,
net of income tax

Total comprehensive income (loss) for the year ended December 31, 2017

Cash dividends from subsidiaries paid to non-controlling interests

The accompanying notes are an integral part of the consolidated financial statements.

$ 54,709,846-

Net income for the year ended December 31, 2017

BALANCE AT DECEMBER 31, 2017-

Difference between cost of the acquisition of subsidiaries and net value

945

Disposal of capital surplus of investments in associates accounted forusing the equity method

Convertible bonds converted to common shares-

Compensation of deficit - capital surplus

54,708,901-

Appropriation of 2015 the earning
Legal reserve
Special reserve
Cash dividends - $0.458522382 per share

BALANCE AT DECEMBER 31, 2016-

Difference between cost of the acquisition of subsidiaries and net value$ 54,708,901

Share Capital

Change in capital surplus from investments in associates and joint ventures
accounted for using the equity method

BALANCE AT JANUARY 1, 2016

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

141

$

$

799,999

-

-

-

-

-

131

(64)

-

799,932

-

-

-

-

1,517

-

-

-

798,415

Capital Surplus$$

206,092

-

-

-

-

-

-

-

(81,132)

287,224

-

-

-

-

-

287,224----

Legal Reserve

$

$

-

-

-

-

-

-

-

-

(76,486)

76,486

-

-

-

-

-

76,486----

Special Reserve$$

1,458,313-

1,460,582(747,484)

2,208,066(2,269)--157,618(157,618)-(152,444)(723,984)

571,540-(287,224)(76,486)(2,508,525)(3,536)(1,638)2,872,235

UnappropriatedEarnings(Accumulated
Deficit)$$(34,986)-(113,550)(113,550)

-

-

-

-

-

78,564-(79,395)(79,395)

-

-

-

-

-

157,959

Exchange
Differences on
Translating
Foreign
Operations

Other Equity

$

$

1,774

-

60

60

-

-

-

-

-

1,714

-

(41)

(41)

-

-

-

-

-

1,755

Unrealized Gain
(Loss) on
Available-for-saleFinancial Assets

Equity Attributable to Owners of the Company
Retained Earnings$$(74,429)-(106,415)(106,415)

-

-

-

-

-

31,986-257,983

257,983

-

-

-

-

-

(225,997)

Cash Flow
Hedges$$(43,372)

-

-

-

-

-

-

-

-

(43,372)

-

-

-

-

-

-

-

-

(43,372)

Treasury Shares
Held by
Subsidiaries$ 57,023,237-

1,240,677(967,389)

2,208,066(2,269)

1,076

(64)

-

55,783,817-

26,103(545,437)

571,540

1,517(2,508,525)(3,536)(1,638)$ 58,269,896

Total

$

$

2,134,282(39,920)

136,939(145,787)

282,726(46,118)---

2,083,381(201,886)

3,168(136,232)

139,400--(4,548)-2,286,647

Non-controlling
Interests

Total Equity$ 59,157,519(39,920)

1,377,616(1,113,176)

2,490,792(48,387)

1,076

(64)

-

57,867,198(201,886)

29,271(681,669)

710,940

1,517(2,508,525)(8,084)(1,638)$ 60,556,543

142
$

$

2016

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax
Adjustments to reconcile to net cash generated from (used in)operating activities:
Depreciation expenses
Amortization expenses
Bad-debt expense
Net loss on fair value change of financial assets and liabilities held
for trading
Interest income
Dividend income
Share of profit of associates and joint ventures
Gain on disposal of property, plant and equipment
Loss on disposal of financial assets carried at cost
Gain on disposal of investments accounted for using the equity
method(Gain) loss on disposal of noncurrent assets held for saleImpairment loss recognized on noncurrent assets held for saleImpairment loss recognized on available-for-sale financial assets
Impairment loss recognized on property, plant, equipment
Loss on inventories and property, plant and equipment
Impairment loss recognized on financial assets carried at cost
Net gain on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leasebacks
Loss on repurchase of bonds payable
Changes in operating assets and liabilities
Financial assets held for trading
Financial liabilities held for trading
Derivate financial assets for hedging
Notes and accounts receivable
Notes and accounts receivable - related parties
Other receivables
Inventories
Other current assets
Notes and accounts payable
Notes and accounts payable - related parties
Other payables
Deferred revenue
Provisions
Other current liabilities
17,545,523
147,486
83,65735,678(242,801)(59,099)(536,986)(79,848)
346
26,429347,868
19,005
717,758
207,019
71,826(3,855)
1,292,865
2,613,011(14,512)41,94391,72913,096(883,623)
152,611(15,595)(358,861)(293,137)(281,324)(233,483)(1,166,447)
1,651,689(1,393,565)
399,500(Continued)

32,039(210,264)(9,564)(536,236)(6,153)(101,105)(252,467)
3,571,301
690,579
644,005
56,023(327,854)
1,346,801
3,201,642(14,512)
77,1339,580(298,519)(101,830)
215,027(616,396)(1,474,384)(464,147)
309,7292,239,296
1,564,292(1,755,029)
314,740

1,879,851

18,340,022
259,12945,016

3,523,963

Net cash (used in) generated from financing activities

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans(Decrease) increase in short-term bills payable
Proceeds from issue of bonds payable
Exercise of put options of bonds payable
Repayments of bonds payable
Proceeds from long-term debts
Repayments of long-term debts and capital lease obligations
Proceeds of guarantee deposits received
Refunds of guarantee deposits received
Dividends paid to owners of the Company
Cash dividends paid to non-controlling interests
Acquisition of subsidiaries' shares

Net cash used in investing activities

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available-for-sale financial assets
Proceeds of the sale of financial assets carried at cost
Acquisition of associates
Proceeds from disposal of noncurrent assets held for sale
Proceeds from disposal of investments accounted for using the equity
methodPayments for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Refunds of prepayments for aircrafts
Increase in long-term lease receivable
Increase in computer software costs
Decrease in restricted assets

Net cash generated from operating activities

Accrued pension liabilities
Other liabilities
Cash generated from operations
Interest received
Dividends received
Interest paid
Income tax paid

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

2017

CHINA AIRLINES, LTD. AND SUBSIDIARIESCHINA AIRLINES, LTD. AND SUBSIDIARIES$(4,669,431)(18,021)(900,000)
5,850,000(2,700,000)
30,657,300(37,506,405)
250,062(214,060)(39,920)(48,387)(25,792,340)

380,850(2,535,293)
95,929(289,911)
245,505(24,756,184)(716)(141,448)
82,906(2,450)1,128,472

28,547,018(876,289)(23,007)
29,372,561
228,247
443,509(1,319,910)(177,389)

2017

4,208,402(Continued)(35,000)
890,0059,700,000(994,705)(2,400,000)
35,241,000(35,501,395)
121,440(94,448)(2,508,525)(201,886)(8,084)(21,021,616)(2,755,043)
519,489(250,177)
333,973(24,906,679)
5,693,791(277,235)
230,33863
5,579
384,285

17,636,372$ (3,532,023)
22,045
18,265,776
239,461
513,203(1,195,427)(186,641)

2016

143

$ 22,585,332

The accompanying notes are an integral part of the consolidated financial statements.

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

24,267,197

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR

232,888(1,681,865)$

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES

23,491,085

776,112(47,046)(Concluded)$ 24,267,197

$

2016

The amendments stipulate that other companies or institutions of which the chairman of the board of
directors or president serves as the chairman of the board of directors or the president of the Group, oris the spouse or second immediate family of the chairman of the board of directors or president of theGroup are deemed to have a substantive related party relationship, unless it can be demonstrated that nocontrol, joint control, or significant influence exists. Furthermore, the amendments require thedisclosure of the names of the related parties and the relationships with whom the Group has significant
transactions. If the transactions or balance with a specific related party is 10% or more of the Group’s
respective total transactions or balance, such transactions should be separately disclosed by the name ofeach related party.

The amendments include additions of several accounting items and requirements for disclosures of
impairment of non-financial assets as a consequence of the IFRSs endorsed and issued into effect by the
FSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments
also include an emphasis on certain recognition and measurement considerations and add requirements
for disclosures of related party transactions and goodwill.

Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

Except for the following, whenever applied, the initial application of the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs
endorsed and issued into effect by the FSC would not have any material impact on the Group’s
accounting policies:a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports
by Securities Issuers (FSC) and the International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)
endorsed and issued into effect by the FSC

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

The consolidated financial statement of the Company and its subsidiaries (collectively the “Group”) wereapproved by the board of directors and authorized for issue on March 22, 2018.

2. APPROVAL OF FINANCIAL STATEMENTS

The major shareholders of the Company are the China Aviation Development Foundation (CADF) and the
National Development Fund (NDF), Executive Yuan. As of December 31, 2017 and 2016, CADF and
NDF held 43.63% of the Company’s shares.

China Airlines, Ltd. (the “Company”) was founded in 1959 and its shares have been listed on the Taiwan
Stock Exchange since February 26, 1993. The Company primarily provides air transport services forpassengers and cargo. Its other operations include (a) mail services; (b) ground services and routine
aircraft maintenance; (c) major maintenance of flight equipment; (d) communications and data processing
services to other airlines; (e) the sale of aircraft parts, equipment and entire aircraft; and (f) leasing ofaircrafts.

1. GENERAL INFORMATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

2017

CHINA AIRLINES, LTD. AND SUBSIDIARIESCHINA AIRLINES, LTD. AND SUBSIDIARIES144
January 1, 2018
January 1, 2018

January 1, 2017
January 1, 2017

January 1, 2018
January 1, 2018

January 1, 2018
January 1, 2018

January 1, 2018

Note 2January 1, 2018

Effective Date
Announced by IASB (Note 1)a) For debt instruments, if they are held within a business model whose objective is to collectcontractual cash flows, the financial assets are measured at amortized cost and are assessed for
impairment continuously with any impairment loss recognized in profit or loss. Interest
revenue is recognized in profit or loss using the effective interest method; andFor the Group’s debt instruments that have contractual cash flows that are solely payments ofprincipal and interest on the principal amount outstanding, their classification and measurement are
as follows:

With regard to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.

Classification, measurement and impairment of financial assets

1) IFRS 9 “Financial Instruments”

Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or afterJanuary 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods
beginning on or after January 1, 2018.

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.

Annual Improvements to IFRSs 2014-2016 Cycle
Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions”
Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments withIFRS 4 Insurance Contracts”
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures”
IFRS 15 “Revenue from Contracts with Customers”
Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue fromContracts with Customers”
Amendment to IAS 7 “Disclosure Initiative”
Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”
Amendments to IAS 40 “Transfers of Investment Property”
IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”

New, Amended or Revised Standards and Interpretations(the “New IFRSs”)

b. The Regulations Governing the Preparation of Financial Reports by Securities Issuers and theInternational Financial Reporting Standards (IFRS)When the amendments are applied retrospectively from January 1, 2017, the disclosures of related party
transactions are enhanced. Refer to Note 32 for related disclosures.

The Group has performed a preliminary assessment in which it will apply the simplified approach torecognize full-lifetime expected credit losses for trade receivables, contract assets and leasereceivables.

For purchased or originated credit-impaired financial assets, the Group takes into account the
expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate.
Subsequently, any changes in expected losses are recognized as a loss allowance with acorresponding gain or loss recognized in profit or loss.

IFRS 9 requires impairment loss on financial assets to be recognized using the “Expected Credit
Losses Model”. A loss allowance is required for financial assets measured at amortized cost,investments in debt instruments measured at FVTOCI, lease receivables, contract assets arisingfrom IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments andfinancial guarantee contracts. A loss allowance for 12-month expected credit losses is required fora financial asset if its credit risk has not increased significantly since initial recognition. A loss
allowance for full-lifetime expected credit losses is required for a financial asset if its credit risk has
increased significantly since initial recognition and is not low. However, a loss allowance forfull-lifetime expected credit losses is required for trade receivables that do not constitute a financing
transaction.

c) Debt investments classified as debt investments with no active market and measured atamortized cost will be classified as at fair value through profit or loss, because, on initialrecognition, the contractual cash flows are not solely payments of principal and interest on theprincipal outstandingb) Mutual funds classified as available-for-sale will be classified as at fair value through profit orloss because the contractual cash flows are not solely payments of principal and interest on theprincipal outstanding and they are not equity instruments; anda) Listed shares, emerging market shares, and unlisted shares classified as available-for-sale will
be designated as at fair value through other comprehensive income and the fair value gains orlosses accumulated in other equity will be transferred directly to retained earnings instead ofbeing reclassified to profit or loss on disposal. Besides this, unlisted shares carried at cost will
be measured at fair value instead;

The Group analyzed the facts and circumstances of its financial assets that exist at December 31,
2017 and performed the assessment of the impact of IFRS 9 on the classification and measurementof financial assets. Under IFRS 9:

Except for above, all other financial assets are measured at fair value through profit or loss.
However, the Group may make an irrevocable election to present subsequent changes in the fairvalue of an equity investment (that is not held for trading) in other comprehensive income, with
only dividend income generally recognized in profit or loss. No subsequent impairment
assessment is required, and the cumulative gain or loss previously recognized in othercomprehensive income cannot be reclassified from equity to profit or loss.

b) For debt instruments, if they are held within a business model whose objective is achieved byboth the collecting of contractual cash flows and the selling of financial assets, the financial
assets are measured at fair value through other comprehensive income (FVTOCI) and areassessed for impairment. Interest revenue is recognized in profit or loss using the effective
interest method, and other gains or losses shall be recognized in other comprehensive income,
except for impairment gains or losses and foreign exchange gains and losses. When the debt
instruments are derecognized or reclassified, the cumulative gain or loss previously recognizedin other comprehensive income is reclassified from equity to profit or loss.

145

$

1,458,373(60,191)
59,205,029

131,585
225,947,142

y
y
y
y
y

Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; andRecognize revenue when the Group satisfies a performance obligation.

When applying IFRS 15, the Group recognizes revenue by applying the following steps:

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,
and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

The main changes in hedge accounting amended the application requirements for hedge accounting
to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes
include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening
the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging
derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing
retrospective effectiveness assessment with the principle of economic relationship between thehedging instrument and the hedged item.

Hedge accounting

60
47,45047,510131,585(84,075)
47,510January 1, 2019

January 1, 2019

January 1, 2019 (Note 3)
January 1, 2021
January 1, 2019 (Note 4)

To be determined by IASB

January 1, 2019
January 1, 2019 (Note 2)

When IFRS 16 becomes effective, the Group may elect to apply this standard either retrospectively toeach prior reporting period presented or retrospectively with the cumulative effect of the initial
application of this standard recognized at the date of initial application.

The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as
lessor.

Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for allleases on the consolidated balance sheets except for low-value and short-term leases. The Group may
elect to apply the accounting method similar to the accounting for operating leases under IAS 17 to the
low-value and short-term leases. On the consolidated statements of comprehensive income, the Groupshould present the depreciation expense charged on right-of-use assets separately from the interest
expense accrued on lease liabilities; interest is computed using the effective interest method. On the
consolidated statements of cash flows, cash payments for the principal portion of lease liabilities areclassified within financing activities; cash payments for the interest portion are classified within
operating activities.

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related
interpretations.

IFRS 16 “Leases”

Note 4: The Group shall apply these amendments to plan amendments, curtailments or settlements
occurring on or after January 1, 2019.

Note 3: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting fromJanuary 1, 2019.

Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.

1,458,313(107,641)
59,157,519$

Annual Improvements to IFRSs 2015-2017 Cycle
Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”
IFRS 16 “Leases”
IFRS 17 “Insurance Contracts”
Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and Joint
Ventures”
IFRIC 23 “Uncertainty Over Income Tax Treatments”

Unappropriated retained earnings
Other equity
Total effect on equity

84,075
225,899,632

Adjusted
Carrying
Amount as ofJanuary 1, 2018

Effective Date
Announced by IASB (Note)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.

$

Adjustments
Arising from
InitialApplication

New IFRSs

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

In identifying performance obligations, IFRS 15 and the related amendments require that a good orservice is distinct if it is capable of being distinct (for example, the Group regularly sells it
separately) and the promise to transfer it is distinct within the context of the contract (i.e. the natureof the promise in the contract is to transfer each good or service individually rather than to transfer a
combined output).

EquityFinancial assets at fair value through othercomprehensive income
Financial assets carried at cost
Total effect on assets

Noncurrent assets

December 31,2017

Impact on Assets and Equity

Carrying
Amount as ofDecember 31,
2017

The anticipated impact on assets, liabilities and equity of retrospective application of therequirements for the classification, measurement and impairment of financial assets as of January 1,
2018 is set out below:

The Group elects not to restate prior reporting periods when applying the requirements for theclassification, measurement and impairment of financial assets under IFRS 9 with the cumulative
effect of the initial application recognized at the date of initial application and will provide thedisclosures related to the classification and the adjustment information upon initial application of
IFRS 9.

146

Assets and liabilities that are not classified as current are classified as noncurrent.

c. Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12
months after the reporting period. Terms of a liability that could, at the option of the counterparty,
result in its settlement by the issue of equity instruments do not affect its classification.

b. Liabilities due to be settled within 12 months after the reporting period, even if an agreement torefinance, or to reschedule payments, on a long-term basis is completed after the reporting period andbefore the consolidated financial statements are authorized for issue; anda. Liabilities held primarily for the purpose of trading;Current liabilities include:c. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability
for at least 12 months after the reporting period.

b. Assets expected to be realized within 12 months after the reporting period; anda. Assets held primarily for the purpose of trading;Current assets include:

Current and Noncurrent Assets and Liabilitiesc. Level 3 inputs are unobservable inputs for an asset or liability.

b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); anda. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fairvalue measurement inputs are observable and based on the significance of the inputs to the fair value
measurement in its entirety, are described as follows:

The consolidated financial statements have been prepared on the historical cost basis except for financial
instruments which are measured at fair value.

Basis of Preparation

The consolidated financial statements have been prepared in accordance with the Regulations Governing
the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by
the FSC.

Statement of Compliance

4. SIGNIFICANT ACCOUNTING POLICIESExcept for the above impact, as of the date the consolidated financial statements were authorized for
issue, the Group is continuously assessing the possible impact that the application of other standards
and interpretations will have on the Group’s financial position and financial performance and will
disclose the relevant impact when the assessment is completed.

On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect ofthat operation attributable to the owners of the Company are reclassified to profit or loss.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s
foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of eachreporting period. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising are recognized in other comprehensive income (attributed to the owners of theCompany and non-controlling interests as appropriate).

Exchange differences arising on the retranslation of non-monetary items are included in profit or loss forthe period except for exchange differences arising from the retranslation of non-monetary items in respectof which gains and losses are recognized directly in other comprehensive income, in which case, theexchange differences are also recognized directly in other comprehensive income.

b. Exchange differences on transactions entered into in order to hedge certain foreign currency risks.

a. Exchange differences on foreign currency borrowings relating to assets under construction for future
productive use, which are included in the cost of those assets when they are regarded as an adjustment
to interest costs on those foreign currency borrowings;

Exchange differences on monetary items arising from settlement or translation are recognized in profit orloss in the period in which they arise except for:In preparing the consolidated financial statements of the Group, transactions in currencies other than the
Company’s functional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailingat the dates of the transactions. At the end of each reporting period, monetary items denominated inforeign currencies are retranslated at the rates prevailing at that date. Non-monetary items that aremeasured at historical cost in a foreign currency are not retranslated. Non-monetary items measured atfair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when
the fair value was determined.

Foreign Currencies

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control
over the subsidiaries are accounted for as equity transactions. The carrying amounts of the interests of theGroup and the non-controlling interests are adjusted to reflect the changes in their relative interests in thesubsidiaries. Any difference between the amount by which the non-controlling interests are adjusted andthe fair value of the consideration paid or received is recognized directly in equity and attributed to theowners of the Company.

The consolidated financial statements incorporate the financial statements of the Company and the entities
controlled by the Company. Income and expenses of subsidiaries acquired or disposed of during theperiod are included in the consolidated statements of profit or loss and other comprehensive income fromthe effective dates of acquisitions up to the effective dates of disposals, as appropriate. When necessary,adjustments are made to the financial statements of subsidiaries to bring their accounting policies into linewith those used by the Company. All intra-group transactions, balances, income and expenses are
eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to theowners of the Company and to the non-controlling interests even if this results in the non-controllinginterests having a deficit balance.

Basis of Consolidation

147

When the Group subscribes for additional new shares of an associate and joint venture at a percentage
different from its existing ownership percentage, the resulting carrying amount of the investment differsfrom the amount of the Group’s proportionate interest in the associate and joint venture. The Group
records such a difference as an adjustment to investments with the corresponding amount charged or
credited to capital surplus - changes in the Group’s share of equity of associates and joint ventures. If theGroup’s ownership interest is reduced due to the subscription of additional new shares of the associate andjoint venture, the proportionate amount of the gains or losses previously recognized in other comprehensive
income in relation to that associate and joint venture is reclassified to profit or loss on the same basis as
would be required had the investee directly disposed of the related assets or liabilities. When theadjustment should be debited to capital surplus, but the capital surplus recognized from investments
accounted for using the equity method is insufficient, the shortage is debited to retained earnings.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets
and liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which isincluded within the carrying amount of the investment and is not amortized. Any excess of the Group’s
share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after
reassessment, is recognized immediately in profit or loss.

Under the equity method, investments in an associate and a joint venture are initially recognized at cost andadjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of
the associate and joint venture. The Group also recognizes the changes in the Group’s share of equity of
associates and joint venture attributable to the Group.

The Group uses the equity method to account for its investments in associates and joint ventures.

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor
an interest in a joint venture. A joint venture is a joint arrangement whereby the Group and other parties
that have joint control of the arrangement and the rights to the net assets of the arrangement.

Investments in Associates and Joint Ventures

Noncurrent assets classified as held-for-sale are measured at the lower of their previous carrying amountand fair value less costs to sell. Recognition of depreciation of those assets would cease.

Noncurrent assets are classified as held-for-sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the noncurrent asset is available for immediate sale in its present condition.
To meet the criteria for the sale being highly probable, the appropriate level of management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within one
year from the date of classification.

Noncurrent Assets Held for Sale

Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations
and items for in-flight sales and are stated at the lower of cost or net realizable value. The costs ofinventories sold or consumed are determined using the weighted-average method.

Inventories

Cash equivalents, consisting of commercial paper and time deposits, are highly liquid financial instrumentswith maturities of three months or less when acquired and with carrying amounts that approximate their fairvalues.

Cash Equivalents

Investment properties

Investment properties are measured initially at cost, including transaction costs. Subsequent to initialrecognition, investment properties are measured at cost less accumulated depreciation and accumulated
impairment loss.

Investment properties are properties held to earn rentals or for capital appreciation.
also include land held for a currently undetermined future use.

Investment Properties

Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment isdetermined as the difference between the sales proceeds and the carrying amount of the asset and isrecognized in profit or loss.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets. Assets are depreciated over the shorter of the lease term and their useful lives using thestraight-line method.

Depreciation is recognized using the straight-line method. Each significant part is depreciated separately.
The estimated useful lives, residual values and depreciation methods are reviewed at the end of eachreporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

Freehold land is not depreciated.

Property, plant and equipment are tangible items that are held for use in the production or supply of goods
or services, for rental to others, or for administrative purposes and are expected to be used for more than
one period. The cost of an item of property, plant and equipment shall be recognized as an asset if, andonly if, it is probable that future economic benefits associated with the item will flow to the Company andthe cost of the item can be measured reliably. Property, plant and equipment are stated at cost lessrecognized accumulated depreciation and recognized accumulated impairment loss.

Property, Plant and Equipment

The Group discontinues the use of the equity method from the date on which its investment ceases to be an
associate and a joint venture. Any retained investment is measured at fair value at that date and the fairvalue is regarded as its fair value on initial recognition as a financial asset. The difference between theprevious carrying amount of the associate and the joint venture attributable to the retained interest and its
fair value is included in the determination of the gain or loss on disposal of the associate and the joint
venture. The Group accounts for all amounts previously recognized in other comprehensive income inrelation to that associate and the joint venture on the same basis as would be required had that associate
directly disposed of the related assets or liabilities. If an investment in an associate becomes aninvestment in a joint venture or an investment in a joint venture becomes an investment in an associate, theGroup continues to apply the equity method and does not remeasure the retained interest.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset
by comparing its recoverable amount with its carrying amount. Any impairment loss recognized isdeducted from the carrying amount of the investment. Any reversal of that impairment loss is recognized
to the extent that the recoverable amount of the investment subsequently increases.

When the Group’s share of losses of an associate and a joint venture equals or exceeds its interest in thatassociate and joint venture (which includes any carrying amount of the investment accounted for using theequity method and long-term interests that, in substance, form part of the Group’s net investment in theassociate and joint venture), the Group discontinues recognizing its share of further losses. Additional
losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, orconstructive obligations, or made payments on behalf of that associate and joint venture.

148
The estimated useful lives and residual values

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deducted fromthe fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual
provisions of the instruments.

Financial Instruments

When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amountthat would have been determined had no impairment loss been recognized for the asset or cash-generating
unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

Loans and receivables (including trade receivables, cash and cash equivalents, debt investmentswith no active market, and other receivables are measured using the effective interest method atamortized cost less any impairment, except for short-term receivables when the effect of
discounting is immaterial.

c) Loans and receivables

Available-for-sale equity investments that do not have a quoted market price in an active market
and whose fair value cannot be reliably measured and derivatives that are linked to and must be
settled by delivery of such unquoted equity investments are measured at cost less any identified
impairment loss at the end of each reporting period and are presented in a separate line item asfinancial assets carried at cost. If, in a subsequent period, the fair value of the financial assets
can be reliably measured, the financial assets are remeasured at fair value. The difference
between the carrying amount and the fair value is recognized in profit or loss or othercomprehensive income on financial assets.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the
Company’s right to receive the dividends is established.

Changes in the carrying amount of available-for-sale financial assets are recognized in othercomprehensive income and will be reclassified to profit or loss when the investment is disposedof or is determined to be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the Company uses the estimated cash flows discounted by the future pre-tax discount rate, and thediscount rate reflects the current market time value of money and the specific risks to the asset for estimatedfuture cash flows not yet adjusting to the market.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.

Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity investments orfinancial assets at fair value through profit or loss.

b) Available-for-sale financial assets

Financial assets at fair value through profit or loss are stated at fair value, with any gains orlosses arising on remeasurement recognized in profit or loss. The net gain or loss recognizedin profit or loss incorporates any dividends or interest earned on the financial assets. Fairvalue is determined in the manner described in Note 31.

Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.

a) Financial assets at fair value through profit or loss

Financial assets may be classified into the following specified categories: Financial assets at fairvalue through profit or loss, held-to maturity investments, available-for-sale financial assets andloans and receivables. The classification of financial assets depends on their nature and the
purpose identified at their original recognition. The Group’s financial assets consist of thefollowing categories: Financial assets at fair value through profit or loss, available-for-salefinancial assets and loans and receivables.

1) Measurement category

All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis. All regular way purchases or sales of financial assets means buy or sell financial assets in the
period made by regulation or market convention.

a. Financial assets

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible
assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order todetermine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which theasset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable andconsistent basis; otherwise, corporate assets are allocated to the smallest group of cash-generating units on areasonable and consistent allocation basis.

Impairment of Tangible and Intangible Assets Other Than Goodwill

Intangible assets with finite useful lives that are acquired separately are initially measured at cost andsubsequently measured at cost less accumulated amortization and accumulated impairment loss.
Amortization is recognized on a straight-line basis. The estimated useful lives, residual values, andamortization methods are reviewed at the end of each reporting period, with the effects of any changes inthe estimates being accounted for on a prospective basis. The residual value of an intangible asset with afinite useful life shall be assumed to be zero unless the Group expects to dispose of the intangible asset
before the end of its economic life.

Intangible Assets

Any gain or loss arising on the derecognition of investment properties is calculated as the difference
between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss inthe period in which the property is derecognized.

Depreciation is recognized using the straight-line method.
are reviewed at the end of each reporting period.

149

For financial assets that are carried at cost, the amount of the impairment loss is measured as thedifference between such an asset’s carrying amount and the present value of the estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Such
impairment loss will not be reversed in subsequent periods.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit orloss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment
loss is recognized in other comprehensive income. In respect of available-for-sale debt securities,
impairment loss is subsequently reversed through profit or loss if an increase in the fair value of theinvestment can be objectively related to an event occurring after the recognition of the impairment
loss.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the period.

d) The disappearance of an active market for that financial asset because of financial difficulties.

c) It becoming probable that the borrower will enter bankruptcy or financial re-organization; orb) Breach of contract, such as a default or delinquency in interest or principal payments;a) Significant financial difficulty of the issuer or counterparty;

For all other financial assets, objective evidence of impairment could include the following:

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the
security below its cost is considered to be objective evidence of impairment.

The component parts of compound instruments (i.e. convertible bonds) issued by the Company areclassified separately as financial liabilities and equity in accordance with the substance of thecontractual arrangements and the definitions of a financial liability and an equity instrument.

d. Convertible bonds

The Group derecognizes financial liabilities only when the obligation is discharged, canceled or
expired. The difference between the carrying amount of such a financial liability derecognized
and the consideration paid, including any non-cash assets transferred or liabilities assumed, isrecognized in profit or loss.

2) Derecognition of financial liabilities

Except for derivative financial instruments, all the financial liabilities are measured at amortizedcost using the effective interest method.

1) Subsequent measurementc. Financial liabilities

The repurchase of the Company’s own equity instruments is recognized in and deducted directly fromequity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of
the Company’s own equity instruments.

An equity instrument is the residual interest in any contract after all liabilities are deducted from theGroup’s assets. Equity instruments issued by the Group are recognized at the proceeds received, netof direct issue costs.

Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity
in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.

b. Equity instruments

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss
that had been recognized in other comprehensive income is recognized in profit or loss.

For financial assets measured at amortized cost, the amount of the impairment loss recognized is thedifference between such an asset’s carrying amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the investment (at the date the impairment is reversed)
does not exceed what the amortized cost would have been had the impairment not been recognized.

The Group derecognizes a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another party.

3) Derecognition of financial assets

The carrying amount of a financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables and other receivables, where the carrying amount isreduced through the use of an allowance account. When a trade receivable and other receivables
are considered uncollectable, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against the allowance account. Changes
in the carrying amount of the allowance account are recognized in profit or loss except foruncollectable trade receivables and other receivables that are written off against the allowanceaccount.

For financial assets measured at amortized cost, such as trade receivables and other receivables,
assets are assessed for impairment on a collective basis even if they were assessed not to be
impaired individually. Objective evidence of impairment for a portfolio of receivables could
include the Group’s past experience with collecting payments, an increase in the number of delayed
payments in the portfolio past the average credit period of 60 days, as well as observable changes innational or local economic conditions that correlate with defaults on receivables.

Financial assets, other than those at fair value through profit or loss and available-for-sale financial
assets, are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired when there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial assets, the estimated future cash
flows of the investment have been affected.

2) Impairment of financial assets

150

The associated gains or losses that were recognized in other comprehensive income are reclassified fromequity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in thesame period as when the hedged item affects profit or loss. If a hedge of a forecasted transaction
subsequently results in the recognition of a non-financial asset or a non-financial liability, the associatedgains and losses that were recognized in other comprehensive income are removed from equity and areincluded in the initial cost of the non-financial asset or non-financial liability.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion isrecognized immediately in profit or loss.

The Company enters into some derivative transactions that aim to manage interest rates, foreign exchange
rates, fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging
transactions are defined as cash flow hedges. When entering into hedging transactions, the Company has
prepared official documents that describe the hedging relationship between hedging instruments and items
which have been hedged, the objective of risk management, the hedging strategy, and the way to evaluate
the effectiveness of the hedging instrument.

Hedge Accounting

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into andare subsequently remeasured to their fair value at the end of each reporting period. The resulting gainor loss is recognized in profit or loss immediately unless the derivative is designated and effective as ahedging instrument, in which event, the timing of the recognition in profit or loss depends on the natureof the hedging relationship. When the fair value of a derivative financial instrument is positive, thederivative is recognized as a financial asset; when the fair value of a derivative financial instrument isnegative, the derivative is recognized as a financial liability.

The Group enters into a variety of derivative financial instruments to manage its exposure to interest
rate, foreign exchange rate and fuel price risks, including foreign exchange forward contracts, interest
rate swaps, currency options and fuel swaps.

e. Derivative financial instruments

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity
components in proportion to the allocation of the gross proceeds. Transaction costs relating to theequity component are recognized directly in equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability component.

The conversion option classified as equity is determined by deducting the amount of the liability
component from the fair value of the compound instrument as a whole. This is recognized andincluded in equity, net of income tax effects, and is not subsequently remeasured. In addition, theconversion option classified as equity will remain in equity until the conversion option is exercised, inwhich case, the balance recognized in equity will be transferred to capital surplus - share premiums.
When the conversion option remains unexercised at maturity, the balance recognized in equity will betransferred to capital surplus - share premiums.

On initial recognition, the fair value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible instruments. This amount is recorded as a liability on anamortized cost basis using the effective interest method until extinguished upon conversion or the
instrument’s maturity date. Any embedded derivative liability is measured at fair value.

The value ofAssets held under finance leases are initially recognized as assets of the Company at the lower of theirfair value at the inception of the lease or the present value of the minimum lease payments. The
corresponding liability to the lessee is included in the balance sheets as a finance lease obligation.

The Group as lessee

a. Financial leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.

Leasing

Interest income from a financial asset is recognized when it is probable that the economic benefits willflow to the Group and the amount of income can be measured reliably. Interest income is accrued on atime basis, by reference to the principal outstanding and at the effective interest rate applicable.

Dividend income from investments is recognized when a shareholder’s right to receive payment has
been established provided that it is probable that the economic benefits will flow to the Group and theamount of income can be measured reliably.

b. Dividend and interest income

Passenger fares and cargo revenue are recognized when transport service is provided.
unused passenger tickets is recognized as “advance tickets - sales”.

a. Rendering of services

Revenue Recognition

When an aircraft lease contracts expires and the leased item will be returned to the lessor, the Group should
assess if existing obligations exist and if it is required to recognize a provision when signing the lease
contract.

Aircraft lease contracts

The amount recognized as a provision is the best estimate of the expenditure required to settle the present
obligation, taking into account the risks and uncertainties surrounding the obligation as of the balance sheet
date. When a provision is measured using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows.

The Group recognizes provisions when the Group has a present obligation (legal or constructive) arisingfrom past events (legal or constructive obligation), payment for the obligation is probable, and theexpenditure for settling the obligation can be estimated reliably.

Provisions

Hedge accounting is discontinued prospectively when the Group revokes the designated hedging
relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it nolonger meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument thathas been previously recognized in other comprehensive income from the period when the hedge was
effective remains separately in equity until the forecasted transaction occurs. When a forecasted
transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately
in profit or loss.

151

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related services.

a. Short-term employee benefits

Employee Benefits

In the event that lease incentives are received when entering into operating leases, such incentives
are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction ofrental expense on a straight-line basis, except where another systematic basis is more representativeof the time pattern in which economic benefits from the leased asset are consumed.

Operating lease payments are recognized as expenses on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rentals arising under operating leases arerecognized as expenses in the period in which they are incurred.

2) The Group as lessee

Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease unless another systematic basis is representative of the time pattern of the lessee’s
benefit from the use of the leased asset.

1) The Group as lessor

c. Operating leases

If the selling price is equal to the fair value, the transaction gain or loss should be recognized
immediately. If the selling price is above fair value, the difference between the fair value and thebook value of the gain or loss should be recognized immediately; only the part of the selling pricewhich is above fair value shall be deferred and amortized over the period of the lease.

2) Operating leases

This transaction does not actually dispose of the assets. The accounting treatment used treats thetransaction as if it did not occur, and the assets are continuously recognized at the book value of theasset before sale.

1) Financial leases

For a sale and leaseback transaction, if it meets the condition whereby all the risks and rewards ofownership of the leased asset are essentially transferred to the lessee, the sale and leaseback transaction
is classified as a finance lease. If part of the significant risks and rewards of ownership of the leased
asset remain with the lessor (i.e. the buyer), the sale and leaseback transaction is classified as an
operating lease.

b. Sales and leasebacks

Minimum lease payments are apportioned between finance expenses and reductions of the leaseobligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financeexpenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying
assets, in which case, they are capitalized in accordance with the Company’s general policy on
borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are
incurred.

Income tax expense represents the sum of the current tax and deferred tax.

Taxation

The fair value determined at the grant date of the equity-settled share-based payments is expensed on astraight-line basis over the vesting period, based on the Group’s estimate of equity instrument that will
eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value
determined at the grant date of the equity-settled share-based payments is recognized as an expense in fullat the grant date when the granted share options vest immediately.

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments
at the grant date.

Share-based Payment Arrangements

The Company has a “Dynasty Flyer Program” through which program members can convert accumulated
mileage to a cabin upgrade, free tickets and other member rewards and operates a “Tigerclub Member
Privilege Program” to provide members with accumulated ticket reward bonuses, which could be used tooffset the payments for airfare, luggage fees, priority check-ins, and ordering of meals in flight cabins. A
portion of passenger revenue attributable to the rewards for the frequent flyer program is deferred. The
Company should recognize this deferred revenue as revenue only when it has fulfilled its obligations on the
granting of rewards or when the period for converting the mileage to rewards has expired.

Frequent Flyer Programs

Other than that which is stated above, all other borrowing costs are recognized in profit or loss in the period
in which they are incurred.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets(assets which are substantially ready for their intended use or sale through a fairly long period) are added tothe cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Borrowing Costs

Net defined benefit liabilities (assets) represent the actual deficit in the Group’s defined benefit plans.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined
contribution retirement benefit plan are determined using the projected unit credit method. Service
cost (including current service cost and past service cost) and net interest on the net defined benefit
liabilities (assets) are recognized as employee benefits expense in the period in which they occur.
Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest),
is recognized in other comprehensive income in the period in which it occurs. Remeasurement
recognized in other comprehensive income is reflected immediately in retained earnings and will not bereclassified to profit or loss.

Payments to the defined contribution retirement benefit plan are recognized as expenses whenemployees have rendered services entitling them to the contributions.

b. Retirement benefits

152

Routine maintenance costs are recognized in profit or loss in the period in which they are incurred.

Maintenance and Overhaul Costs

Current and deferred taxes are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current and deferredtaxes are also recognized in other comprehensive income or directly in equity, respectively.

c. Current and deferred taxes for the year

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period inwhich the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that havebeen enacted or substantively enacted by the end of the reporting period. The measurement ofdeferred tax liabilities and assets reflects the tax consequences that would follow from the manner inwhich the Group expects, at the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at theend of each reporting period and recognized to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates and interests in joint ventures, except where the Group is able to control thereversal of the temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that there will be
sufficient taxable profit against which to utilize the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.

Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities in the consolidated financial statements and the corresponding tax bases used in thecomputation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences, unused loss carryforwards and unused tax credits for purchases of machinery, equipment
and technology, research and development expenditures, and personnel training expenditures to theextent that it is probable that taxable profit will be available against which those deductible temporary
differences can be utilized.

b. Deferred tax

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided foras income tax in the year the shareholders approve the retention of these earnings.

The Group’s current tax liabilities are calculated by the tax rate was legislated or substantially legislated
at the balance sheet date.

The current tax liabilities are based on current taxable profit. Since part of the income and expenses
are taxable or deductible in other periods, or in accordance with the relevant tax laws are taxable ordeductible, current taxable profit differs from net profit reported in the consolidated statements ofcomprehensive income.

a. Current tax

The Group’s management uses its judgment in selecting an appropriate valuation technique for financial
instruments with no quoted market prices in an active market. Valuation techniques commonly used bymarket practitioners are applied. For derivative financial instruments, assumptions are based on quoted
market rates adjusted for specific features of the instruments. Other financial instruments are valued using
a discounted cash flow analysis based on assumptions supported, where possible, by observable market
prices, interest rates or oil prices (if applicable). The chosen valuation techniques and assumptions used
may affect the fair value of financial instruments.

Fair Value of Derivatives and Other Financial Instruments

The Group assesses the receivables portfolio monthly for impairment. Impairment evidence may include
observable changes in debtors’ solvency and national or local economic conditions that correlate withdefaults on receivables settlement. Management’s analysis of expected cash flows is based on pastexperience of loss on assets with similar credit risk characteristics. The Group periodically reviews themethods of determining, and assumptions on, the expected amount and timing of cash flows to reduce thedifference between the estimated and the actual losses.

Estimated Impairment of Trade Receivables

The Group is subject to income taxes in numerous jurisdictions. Where the final tax payable differs fromthe amounts that were initially recognized, these differences will affect the income tax and deferred tax
provisions in the period in which the differences are determined. Deferred tax assets are recognized for
deductible temporary differences to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences can be used. When evaluating the realizability of a deferred
tax asset, management uses significant accounting judgments and estimates, including expected future
revenue growth and profit margins, income tax exemption periods, the use of tax credits, tax planning andcertain assumptions. Changes in the industry environment and regulations will result in a material
adjustment of the deferred tax asset.

Income Taxes

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of thereporting period that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are discussed below.

Key Sources of Estimation Uncertainty

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised if the revisions affect only that
period or in the period of the revisions and future periods if the revisions affect both current and future
periods.

In the application of the Group’s accounting policies shown on Note 4, management is required to makejudgments, estimates and assumptions about the carrying amounts of assets and liabilities that are notreadily apparent from other sources. The estimates and associated assumptions are based on historicalexperience and other factors that are considered relevant. Actual results may differ from these estimates.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY

The overhaul costs of an owned or leased aircraft that meet the criteria for fixed asset capitalization andengines as replacement parts for aircraft and engines are capitalized and amortized over the expected annual
overhaul cycle using the straight-line depreciation method.

153

When the carrying amount of noncurrent assets held for sale is lower than fair value, the difference between
the carrying amount and fair value is recognized as impairment loss, and the fair value was determinedbased on the quote of potential buyers, the market price of similar assets, etc.

Impairment of Noncurrent Assets Held for Sale

The impairment of flight equipment was based on the recoverable amount of those assets, which is thehigher of fair value less costs to sell or value-in-use of those assets. Any changes in the market price or
future cash flows will affect the recoverable amount of those assets and may lead to the recognition of
additional or reversal of impairment losses.

Impairment of Flight Equipment

As stated in Note 4, “Frequent Flyer Programs”, a portion of passenger revenue attributable to the awardingof frequent flyer benefits is deferred until the awards are given out. The deferment of the revenue isestimated on the basis of historical trends of breakage and redemption, which is then used to project the
expected claiming of these benefits. Changes in fair value per mileage or the redemption rate may have amaterial impact on deferred revenue.

Frequent Flyer Programs

Maintenance reserve is based on the requirement under lease contracts to reflect maintenance costs that may
arise on lease expirations. Estimation of this reserve is based on the past maintenance experience with thesame or similar type of aircraft; incurred overhaul costs; and historical operating performance data.
Changes in judgment or estimations may have a material impact on the amount of maintenance reserve.

Maintenance Reserve for Operating Lease Aircrafts

The present value of defined benefit obligations at the end of the reporting period are calculated using
actuarial assumptions. Those assumptions, which are based on management’s judgment and estimates,
comprise the discount rate and expected return on plan assets. Changes in actuarial assumptions may havea material impact on the amount of defined benefit obligations.

Defined Benefit Obligations

Flight equipment is depreciated on a straight-line basis at rates that can be used to write down their cost to
their estimated residual values at the end of their useful lives. The estimates of the useful lives andresidual values of the flight equipment are made by the Group on the basis of past experience and fleet
operation performance in the industry. Due to changes in the fleet plan, the board of directors of theCompany has decided to change the expected useful lives of four 747-400 (GE) from 20 to 16-17 years
since January 1, 2018 in order to meet the economic benefits and number of years of consumption. It isestimated that the depreciation expense will increase by approximately NT$770 million annually.

Depreciation of Property, Plant and Equipment - Flight Equipment

4,812,734
5,970,387

374,445
11,427,766

3,698,109
10,943,303

359,106
9,266,679

2016$ 24,267,197$

December 31$ 22,585,332

$

2017

0%-2%
0.59%-4.2%
0.36%-2.2%

2016
0.05%-2%
0.13%-12.9%
0.33%-1.40%

December 31

Derivative financial instruments (not under hedge accounting)Current
Noncurrent

Financial liabilities held for trading

Derivative financial instruments (not under hedge accounting)Foreign exchange forward contracts
Non-derivative financial assets
Beneficial certificates

Financial assets held for trading - current

306,839

-

8,655
926
9,581

$

$

415,441

1,200

2016

-

$

$

$ 416,641$

December 31$ 306,839$

2017

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)The amount of time deposits with original maturities more than three months for the years ended December
31, 2017 and 2016 were $1,323,095 thousand and $1,267,927 thousand, respectively, and the market rateintervals were 0.16%-1.42% and 0.16%-2.45%, which were recognized as other current assets. (Refer toNote 18.)

Bank balanceTime deposits with original maturities of less than three months
Repurchase agreements collateralized by bonds

2017

The market rate intervals of cash in banks and cash equivalents at the end of the reporting period were as
follows:

Cash on hand and revolving funds
Checking accounts and demand deposits
Cash equivalents
Time deposits with original maturities of less than three months
Repurchase agreements collateralized by bonds

6. CASH AND CASH EQUIVALENTS

154

NTD/USD

NTD/USD2017.01.26

2018.01.31-2019.01.31

Maturity Date

3,855
19,774$ 20,854
2,775$ 23,629$ 89,289$ 23,629$$ 61,717$ 58,449
3,268$ 61,717$ 61,634
83

2016$ 82,295
6,994$ 89,289

89,289

293

$

$

293
-

293

$
$

293
-

December 31

$

2017

NTD32,258/USD1,000

NTD194,030/USD6,500

The fair value of each derivative contract is determined using quotes from financial institutions.

Current
Noncurrent

Interest rate swaps
Foreign exchange forwards contracts

Derivative financial liabilities under hedge accounting

Current
Noncurrent

Foreign exchange forward contracts
Fuel options

Derivative financial assets under hedge accounting

8. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

Buy forward contracts

December 31, 2016

Buy forward contracts

December 31, 2017

Currency

Notional Amount(In Thousands)

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge
accounting were as follows:

TAIBOR rate

Range of Interest Rates
Received

USD

2017.01.05-2017.02.08

Maturity Date

NTD83

Notional Amount(In Thousands)

Buy forward contracts

December 31, 2016

Buy forward contracts

December 31, 2017

NTD/USD

NTD/USD

Currency

2017.01.03-2018.10.25

2018.01.05-2019.06.21

Maturity Date

NTD5,381,178/USD167,078

NTD7,105,942/USD236,924

Notional Amount(In Thousands)

The outstanding foreign exchange forward contracts at the end of the reporting period were as follows:

The Group entered into foreign exchange forward contracts to minimize cash flow exposure related tofuel payments and aircraft payments, which will be paid in U.S. dollars.

c. Foreign exchange forward contracts

Based on the Taiwan Stock Exchange’s regulation for the public companies’ monthly declarations on
the trading of derivative financial instruments, the contractual amounts are shown at the absolute valuesof the fair values because fuel swap contracts only have notional amounts.

Buy fuel call options

December 31, 2016

Currency

The outstanding fuel options at the end of the reporting period were as follows:

The Group used fuel options to minimize the risk of changes in fuel price related to operating cost.

b. Fuel options

1.01%-1.14%

Range ofInterest Rates
Paid

The Company will settle the difference between the2017.03.09-2017.06.22

Maturity Date

The interest rate swaps settle on a quarterly basis.
fixed and floating interest rates on a net basis.

NT$2,500,000

December 31, 2016

Notional Amount(In Thousands)

The Group entered into interest rate swap contracts to mitigate the risk of changes in interest rates on
the cash flow exposure related to the outstanding floating rate debt. All swapped fixed interest rate
swap out the floating rate interest rate swap contracts are designated as cash flow hedges. The
outstanding interest rate swap contracts at the end of the reporting period were as follows:a. Interest rate swaps

Cash Flow Hedges

155$ (352,960)(10,390)(71,460)$ (434,810)$ (52,034)(2,814)(21,773)$ (76,621)

$

$

$

3
5
11

-

19,89811,00083,602

84,07584,075

473

14
15

% of
Ownership

2016

473

20,157
11,000139,884-

52,70456,023$ 140,357$ 140,357$

Carrying
AmountDecember 31

52,704-

Carrying
Amount

2017

-

5
11

6

14
15

% of
Ownership

On the reporting date, the above unlisted share investments held by the Group were measured at cost after
deducting impairment losses because their range of reasonable fair value estimates were significant andunable to be reasonably evaluated. Thus, the management considered their fair values unable to bemeasured.

The Group recognized an impairment loss of $71,826 thousand in July 2016, because the value of Taikoo(Xiamen) Landing Gear Service Co., Ltd. permanently declined. Due to the permanent decrease in thevalue of Jardine Aviation Service held by the Group, the Group recognized an impairment loss of $56,023
thousand in June 2017, which was classified as other gains and losses.

Classified according to financial asset
measurement categories
Available-for-sale financial assets

Unlisted preference shares
Everest Investment Holdings Ltd. (AH)

Unlisted common shares
Everest Investment Holdings Ltd. (AH)
Jardine Aviation Service
Taikoo (Xiamen) Landing Gear Service
Co., Ltd.
Taikoo Spirt Aerospace Systems (Jin
Jiang) Composite Co., Ltd.
Chung Hwa Express Co.

9. FINANCIAL ASSETS CARRIED AT COST

The amount of gains and losses on hedging instruments reclassified from profit or loss to prepayments
for equipment were $100,367 thousand and $154,970 thousand in 2017 and 2016, respectively.

Increase in operating costs
Increase in finance costs
Other foreign exchange losses

For the Year Ended December 31
2017
2016

Gains and losses of hedging instruments reclassified from equity to profit or loss were included in thefollowing line items in the consolidated statements of comprehensive income:

8,423,278(181,868)
8,241,410

362,855

8,019,386(191,398)
7,827,988

525,7972016$ 8,353,785$

December 31$ 8,604,265

$

2017

$ 7,713,264
553,327
166,684
1,111$ 8,434,386$ 8,731,755

2016$ 8,082,993
576,429
71,046
1,287

December 31$ 191,398$ 109,927
83,657(2,462)276

The operating costs recognized for the years ended December 31, 2017 and 2016 included losses frominventory write-downs of $324,447 thousand and $196,000 thousand, respectively.

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
Others2017$ 181,868

Ending balance

11. INVENTORIES$ 191,398
45,016(54,570)24

Beginning balance
Impairment loss recognized on receivables
Amounts written off during current period
Effects of exchange rate changes

For the Year Ended December 31
2017
2016

Movement in the allowance for impairment loss recognized on notes receivable and accounts receivable
were as follow:

The average credit period was 7 to 55 days. In determining the recoverability of an account receivable,
the Group considered any change in the credit quality of the account receivable since the date credit was
initially granted to the end of the reporting period, and any allowance for impairment loss was based on theestimated irrecoverable amounts determined by reference to the Group’s past default experience with thecounterparty and an analysis of the counterparty’s current financial position.

Accounts receivable
Less: Allowance for impairment loss

Accounts receivable

Notes receivable

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

156$ 185,100$ 185,100

117,223$ 426,553

2016$ 309,330

2017

December 31

Proportion of ownership is considered from the perspective of the Group.

Cal-Dynasty
International
Taiwan Airport Services

China Airlines, Ltd.

Investor Company

Taiwan Air Cargo Terminal(Note)
Dynasty Holidays
Taoyuan International Airport
Services
Taiwan Airport Services (Note)
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Tigerair Taiwan Co., Ltd. (Note)
Taiwan Aircraft Maintenance
And Engineering Co., Ltd.
Dynasty Properties Co., Ltd.
Dynasty Hotel of Hawaii, Inc.
Taiwan Airport Service (Samoa)

Mandarin Airlines

Yestrip
Cal Park
Cal Hotel Co., Ltd.
Sabre Travel Network (Taiwan)

Cal-Asia Investment
Hwa Hsia

Cal-Dynasty International

Investee Company

51
49
48
25
100
100

Travel businessAirport services

Airport services
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Air transportation
Aircraft maintenanceReal estate management
Hotel businessAirport supporting service and investment

59

100
100
100

94

100
100
100
94

100
100

100

A holding company, real estate and hotel
services
General investment
Cleaning of aircraft and maintenance ofmachine and equipment
Travel business
Real estate lease and international trade
Hotel business
Sale and maintenance of hardware andsoftware
Air transportation and maintenance of
aircraft
Air cargo and storage

Main Businesses and Products

100
100
100

48
25
100
100
90
100

51
49

59

94

100
100
100
94

100
100

100

Proportion of
Ownership (%)
December 31
2017
2016

Investments in associates
Investments in jointly controlled entities$ 2,866,431$ 2,507,346

2016$ 2,060,403
806,028

December 31$ 1,576,753
930,5932017

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHODThe Group’s holding of the issued share capital of China Pacific Catering Services and China Pacific
Laundry Services exceeded 50%, yet the Group did not have control over the investees. For related
information, refer to Note 14,b.

Subsidiary included in the consolidated financial statements:

13. SUBSIDIARIESEach of the Company’s holdings of the issued share capital of Taoyuan International Airport Service,Taiwan Airport Service and Global Sky Express did not exceed 50%, but since the Company had control
over these investees, they were listed as subsidiaries. The financial information for the years ended
December 31, 2017 and 2016 of these subsidiaries was reported according to information that was
independently audited.

To integrate the resources of the Group, the board of directors reached an agreement to purchase 10% of theshares of Tigerair Taiwan, which were held by Roar Aviation III Pte. Ltd., in December 2016. The
transaction was completed in January 2017.

The Group liquidated Freighter Princess Ltd. and Freighter Prince Ltd., because the lease contracts related
to these subsidiaries expired, and a disposal loss of $61 thousand was recognized.

The Company increased its investments with a payment of $490,000 thousand, $700,000 thousand and$100,000 thousand to Taiwan Aircraft Maintenance and Engineering Co., Ltd. for the purpose of building
hangars in April 2017, November 2017 and October 2016, respectively.

Considering the Group’s development strategy, Mandarin Airlines bought 323,367 shares of Taiwan
Airport Services for a total of $8,084 thousand over the course of the current year.

To facilitate the integration of resources and business management of the Group, on August 1, 2016, Hwa
Hsia Co., Ltd. merged with Hwa Shin Building Safeguard Co., Ltd. (the dissolved company) and was thesurviving entity. All of the assets, liabilities and other rights and obligations were transferred to Hwa Hsia
Co., Ltd.

Note:

Long-term equity investments in Asian Compressor Technology Services were reclassified to noncurrent
assets held for sale. For related information, refer to Note 14,a.

In 2017 and 2016, the Company recognized impairment losses of $3,571,301 thousand and $347,868
thousand, respectively. In 2017 and 2016, the Company recognized disposal gains and losses of $252,467
thousand and $(26,429) thousand, respectively. The fair value was determined by transactions of therelated market, and the proposed sale price was based on the current status of the aircrafts. The fair value
is classified as level 3.

To enhance its competitiveness, the Company plans to introduce new aircrafts and retire old aircrafts
according to a planned schedule. Such aircrafts, classified as noncurrent assets held for sale, had an
original book value which was higher than the expected sale price and which was recognized as an
impairment loss. However, the actual loss shall be identified by the actual sale price.

Aircrafts held for saleLong-term equity investments held for sale - Asian Compressor
Technology Services

12. NONCURRENT ASSETS HELD FOR SALE

157

493,077
300,400
483,814
256,291
43,171

515,051
267,371
279,176
257,928
467,041
230,888
42,9482016$ 2,060,403$

December 31$ 1,576,753

$

2017

20%
36%
28%
28%
35%

20%
36%
25%
26%
28%
28%
35%

24,47086,757
88,943
21,81922,381
27,8864,806$ 277,062$

51,02875,674
109,815
26,136
14,307
24,742
5,617$ 307,319$

2016

In August 2017, the Group sold all of its holdings of Science Park Logistics to a non-related party, HCT
Logistics Co., Ltd. The agreed upon price was $380,850 thousand, and a disposal gain of $101,166
thousand was recognized.

Other comprehensive income of associates accounted for using the equity method in 2017 and 2016 arelosses in the amounts of $(740) thousands and $(1,325) thousand, respectively.

China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Airport air Cargo Terminal (Xiamen)
Airport air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

2017

The investment income of associates recognized accounted for using the equity method were as
follows:

China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Airport air Cargo Terminal (Xiamen)
Airport air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

Name of Associate

Proportion of Ownership andVoting Rights
December 31
2017
2016

At the end of the reporting period, the proportion of ownership and voting rights of associates held by
the Group were as follows:

China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

Unlisted companies

a. The amount of investment in associates were as follows:$ 806,028$ 930,593

2016$ 638,980
167,048-

December 31$ 756,965
171,229
2,399

2017

51%
55%
49%

51%
55%
-

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.

$ 208,039
21,628$ 229,667$ 235,871
23,354(51)$ 259,174

For the Year Ended December 31
2017
2016

Details of investment income attributable to investment in jointly controlled entitles were as follows:

To enhance the Group's maintenance capabilities, the Company established a joint venture with the US
Nordam Aerospace Group in December 2017 to provide thrust reversers and composite repair services
in Asia under the Nordam brand.

The Group entered into a joint venture agreement with the Taikoo Group to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both parties havethe majority power in the board of directors to pose a motion for veto, and therefore the Group does nothave control.

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.

Proportion of Ownership andVoting Rights
December 31
2017
2016

At the end of the reporting period, the proportion of ownership and voting rights in jointly controlled
entities held by the Group were as follows:

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.

The investments in jointly controlled entities were as follows:b. Investments in jointly controlled entities

The financial statements used as a basis of the amounts of and related information on the investments
accounted for using the equity method and the share of profit or loss and other comprehensive incomeof those investments for the years ended December 31, 2017 and 2016 were all independently audited,
except those of China Aircraft Services and Eastern United International Logistics (Holding) Ltd.
However, the management determined that there would have been no significant adjustments had thisinvestee’s financial statements been independently audited.

In October 2017, the Group signed a contract with a non-related party, MB Aerospace, to sell all of its
holdings of Asian Compressor Technology Services and reclassified it as noncurrent assets held for saleat book value. The transaction was completed and all payments were settled in January 2018.

158

Balance at December 31,
2017

Balance at January 1,
2017
Depreciation expense
Disposals
Impairment loss
Reclassification
Net exchange difference

Accumulated depreciationand impairment

Balance at December 31,
2017

Balance at January 1,
2017
Additions
Disposals
Reclassification
Net exchange difference

Cost

Balance at December 31,
2016

Balance at January 1,
2016
Depreciation expense
Disposals
Impairment loss
Reclassification
Net exchange difference

Accumulated depreciationand impairment

Balance at December 31,
2016

Balance at January 1,
2016
Additions
Disposals
Reclassification
Net exchange difference

Cost

$

$

$

$

$

$

$

$

-

-

922,626

965,174(42,548)--965,174

976,427(11,253)

Freehold Land

$

$

$

$

$

$

$

$

(6,137,495)(5,781,555)(393,458)
3,926
33,592

13,698,308

13,104,983
674,719(5,942)(75,452)(5,781,555)(5,355,804)(508,403)
74,3498,303

13,104,983

13,140,158
93,660(110,227)406(19,014)

Buildings

15. PROPERTY, PLANT AND EQUIPMENT$ (136,594,765)$ (135,893,108)(15,178,386)
4,022,977(690,579)
11,144,331-$ 263,427,144$ 248,262,079
1,022,602(4,550,399)
18,692,862-$ (135,893,108)$ (128,953,990)(14,209,081)
5,612,149(717,758)
2,375,572-$ 248,262,079$ 229,849,035
1,827,641(6,339,141)
22,924,544-

FlightEquipment

28,898,891

28,087,404
2,987(410,271)
1,218,771-

26,187,556

28,898,891
1,607(479,936)(2,232,883)(123)$ (14,142,872)$ (15,846,688)(1,919,407)
619,775
3,003,549
(101)

$

$

$ (15,846,688)$ (14,201,904)(2,061,900)
410,271
6,690
155

$

$

Equipment
under FinanceLeases

$

$

$

$

$

$

$

$

(9,972,982)(9,554,839)(848,492)
415,421
8,271
6,657

16,230,011

15,981,800
821,218(825,699)
260,432(7,740)(9,554,839)(9,080,350)(765,860)
288,884631
1,856

15,981,800

15,167,890
858,094(293,592)
252,436(3,028)Others$ (166,848,114)$ (167,076,190)(18,339,743)
5,062,099(690,579)
14,156,151
40,148$ 320,465,645$ 307,212,927
2,520,146(5,861,976)
16,720,411(125,863)$ (167,076,190)$ (157,592,048)(17,545,244)
6,385,653(717,758)
2,382,893
10,314$ 307,212,927$ 287,220,914
2,782,382(7,153,231)
24,396,157(33,295)

Total

For details on services, major business offices and the country where the above associates and jointly
controlled entities are registered, refer to Table 6, “Names, Locations, And Other Information Of
Investees Over
Which The Company Exercises Significant Influence”, and Table 7, “Investments
In Mainland China”, following these Notes to Consolidated Financial Statements.

The financial statements used as a basis of the amounts of and related information on the investments
accounted for using the equity method and the share of profit or loss and other comprehensive incomeof those investments for the years ended December 31, 2017 and 2016 were all independently audited,
except of NORDAM Asia Limited. However, the management determined that there would have beenno significant adjustments had this investee’s financial statements been independently audited.

Other comprehensive income of associates accounted for using the equity method in 2017 and 2016 arelosses in the amounts of $(41,477) thousand and $(65,531) thousand, respectively.

15-25 years
7-20 years
10-20 years
6-8 years
3-10 years
7-12 years
3-15 years
5-12 years

5 years
3-5 years
3-5 years

25 years
3-13 years
3-15 years

45-55 years
10-25 years

2017
Carrying amount
Investment properties$ 2,075,624

2016$ 2,075,903

December 31$ 2,535,293

Purchase of property, plant and equipment paid

16. INVESTMENT PROPERTIES$ 2,520,146
18,895(3,748)

Increase in property, plant and equipment
Decrease in retentions payable on construction contracts
Capitalized interest paid

December 31,
2017

The Group generated the following non-cash investment activities related to the purchase of property, plantand equipment in 2017:

Based on the particularity of risk in the aviation industry, all of the Group’s assets such as aircrafts, realestate, and movable property are adequately insured to diversify the potential risk related to operations.

Refer to Note 33 for the carrying amounts of property, plant and equipment pledged by the Group.

Regarding changes in fleet composition, current and forecasted market value, and other technical factors,
the Group recognized impairment losses on aircraft equipment in 2017 and 2016 of $690,579 thousand and$717,758 thousand, respectively.

Building
Main buildings
Others
Machinery equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersAssets leased to others
Flying equipment and equipment under finance leases
Airframes
Aircraft cabins
EnginesHeavy maintenance on aircrafts
Engine overhauls
Landing gear overhauls
Repairable spare parts
Leased aircraft improvements

Property, plant and equipment were depreciated on a straight-line basis over the estimated useful life of theasset:

159$ 2,082,390-$ 2,082,390

Balance on January 1, 2017
Depreciation expense

Balance on December 31, 2017

$ 1,898,154$ 1,898,154
141,448-$ 2,039,602

Balance at December 31, 2016

Balance at January 1, 2017
Additions
Amortization expense
Exchange influence

Balance at December 31, 2017

(6,766)$ 1,019,345$ (1,020,257)$ 1,137,115$ 1,009,678
277,235(147,486)(2,267)(45)$ 1,137,115
141,448(259,129)(89)(761,039)(613,508)(147,486)(45)

Net Value$ 2,075,624$ 2,075,903(279)$ 2,075,903$ 2,076,182(279)

Net Value(761,039)(259,129)
(89)

$

$

$

Accumulated
Amortization$(6,487)(279)(6,487)$$(6,208)(279)$

Accumulated

The above other intangible assets were depreciated on a straight-line basis over 2-12 years.

$ 1,623,186
277,235(2,267)-

Balance at January 1, 2016
Additions
Amortization expense
Reclassification
Exchange influence

Computer
Software Costs$ 2,082,390

Balance on December 31, 201617. OTHER INTANGIBLE ASSETS$ 2,082,390-

Balance on January 1, 2016
Depreciation expense

Cost

All of the Group’s investment properties were held under freehold interest.

The fair value of the investment properties held by the Group were $2,506,230 thousand and $2,348,759
thousand as of both December 31, 2017 and 2016, respectively. The fair value valuation was performed
by independent qualified professional valuers, and the future income evaluated by management was basedon market transactions.

The investment properties held by the Group were land located in Nankan and buildings in Taipei, whichwere all leased to others. The buildings were depreciated on a straight-line basis over 55 years.

6,001,538

1,806,413
464,258
2,834,936
895,931$ 13,664,545

4,638,502

1,267,927
355,0032,429,741
178,193
407,6382016$ 24,546,082$ 21,845,682
1,116,985
1,389,464
144,835
18,82730,289$$December 31$ 10,942,604
1,164,604
1,377,136
161,398
18,803
-

$

$

2017

Interest rates

Bank loans - unsecured

a. Short-term loans

19. BORROWINGS

1.04%-1.15%

2016

1.51%-2%$ 135,000

December 31$ 120,000

2017

The Group designated its time deposits with original maturities of more than three months which wereclassified as other financial instruments as cash flow hedges to hedge exchange rate exposure from theexpenditure of aircraft rentals. As of December 31, 2016, the book value of the hedging instruments was$455,037 thousand. The losses on the effective portion of the cash flow hedges reclassified from equity
for 2016 were $2,884 thousand, which were classified as operating costs in the statement of comprehensive
income.

The prepayments for aircrafts comprised the prepaid deposits and capitalized interest from the purchase of
A350-900 and ATR72-600 aircrafts. For details of the contract for the purchase of the A350-900 and
ART72-600 aircrafts, refer to Note 34. The rights to the six confirmed orders of 777-300 ER aircrafts
were transferred to the aircraft leasing company upon delivery of the aircrafts. Then, all six aircrafts wereleased back. As of May 2016, all the aircrafts had been delivered, and the Group was refunded withdeposits for the aircraft purchases.

Prepayments for aircrafts
Prepayments - long-term
Refundable deposits
Restricted assets
Other financial assets
OthersNoncurrent

Other financial assets
Temporary payments
Prepayments
Restricted assets
OthersCurrent

18. OTHER ASSETS

160

Current portion$ 33,993,999
18,100,914
37,200,000
64,18689,230,727
32,268,540$ 56,962,187

26,100,000
37,89785,058,177
19,304,674$ 65,753,503

2016

0.758%$ 900,000$ 26,820,000
32,176,074

2017

2016
$ 900,000-

December 31

-

$
-

-

$

2017

December 31

December 31, 2017
December 31, 2016

Interest rates

December 31, 2017
December 31, 2016

Translated to New Taiwan dollars

December 31, 2017
December 31, 2016

Original currency

0.92%-1.72%
0.92%-2.27%

58,996,074
51,045,365$ 58,996,074
51,045,365

1,049,548

32,5360.8539%-4.39%(Continued)$

Currency
New Taiwan
Dollars
U.S. Dollars

Bank loans (New Taiwan dollars and U.S. dollars) are repayable quarterly, semiannually or in lumpsum upon maturity. Related information is summarized as follows:

For information on secured bank loans which were secured by freehold land, buildings, machinery
equipment and flight equipment, refer to Note 33.

Less:

Unsecured bank loans
Secured bank loans
Commercial paper
Proceeds from issue
Less: Unamortized discountc. Long-term debts

Annual discount rate

Commercial paper
Less: Unamortized discount on bills payableb. Short-term and bills payable

2007/5/242029/11/9
2005/3/42029/2/4

2005/1/182017/9/21(Concluded)-

Five-year private unsecured bonds - issued
at par in January 2013; repayable in
January 2017 and 2018; 1.6% interestp.a., payable annually
Seven-year private unsecured bonds issued at par in January 2013; repayable
in January 2019 and 2020; 1.85% interestp.a., payable annually
Five-year unsecured bonds - issued at par in
May 2016; repayable in May 2020 and2021; 1.19% interest p.a., payableannually

Category

2016.05.262021.05.26

2013.01.172020.01.17

2013.01.172018.01.17

PeriodCurrent portion and put option of convertible bonds

Related issuance conditions were as follows:

Less:

Unsecured corporate bonds first-time issued in 2013
Unsecured corporate bonds first-time issued in 2016
Unsecured corporate bonds second-time issued in 2016
Unsecured corporate bonds first-time issued in 2017
Unsecured corporate bonds second-time issued in 2017
Convertible bonds - fifth time

20. BONDS PAYABLE

1.19

1.85

1.6

Rate
(%)

(Continued)

Principal repayable in
January of 2017 and2018; indicator rate;
payable annuallyPrincipal repayable in
January of 2019 and2020; indicator rate;
payable annuallyPrincipal repayable in May
of 2020 and 2021; interest
p.a. payable annually

Conditions$ 19,538,044$ 21,050,000

2016$ 10,900,000
4,700,000
5,000,000
1,638,044
22,238,044
2,700,000

December 31

8,200,000
4,700,000
5,000,000
2,350,000
3,500,000
1,667,100
25,417,100
4,367,100$

2017

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The
NIFs, with various maturities until December 2021, were used by the Group to guarantee commercial
papers issued. As of December 31, 2017 and 2016, the commercial papers were issued at discountrates of 0.9983%-1.2897% and 1.0510%-1.4580%, respectively.

December 31, 2016

December 31, 2017

Periods

Currency
New Taiwan
Dollars
U.S. Dollars

161

Principal repayable on due
date; indicator rate;
payable annuallyPrincipal repayable on due
date; indicator rate;
payable annually
1.45
Principal repayable in
October of 2021 and2022; indicator rate;
payable annually
Except for converting toshare capital or buying
back, principal repayable
in December of 2018
(Concluded)2017.5.192024.5.19

2017.10.122020.10.12

2017.10.122022.10.12

1.14

1.75

1.20

c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.

b. The holders can request that the Company repurchase their bonds at 100.75% face value on the third
anniversary of the offering date. Because the holders can exercise selling rights on December 26,
2016, the Company reclassified the bonds payable to “current portion of bonds payable” in December
2015. The Company paid $994,705 thousand to the holders of the bonds payable who exercised theput options, and the difference between the payment amount and carrying amount recognized was a loss
on the bonds payable buy back of $41,943 thousand, for which the Company reclassified the remaining
face value to noncurrent assets.

a. The holders may demand a lump-sum payment for the bonds upon maturity.

The Company issued the fifth issue of unsecured convertible bonds, and the issuance conditions were as
follows:

The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand,and the purchasers of the bonds included Mandarin Airlines Co., Ltd. and Sabre Travel Network (Taiwan)Co., Ltd., who held a face value of $300,000 thousand which was eliminated from the consolidated
financial statements.

2013.12.262018.12.26

2017.5.192020.5.19

Principal repayable in
September of 2020 and2021; interest p.a. payableannually
Principal repayable on due
date; indicator rate;
payable annually

2016.09.272021.09.27

Five-year unsecured bonds - issued at par in
September 2016; repayable in September
2020 and 2021; 1.08% interest p.a.,payable annually
Three-year private unsecured bonds - issued
at par in May 2017; repayable on due
date; interest of 1.2% p.a., payableannually
Seven-year private unsecured bonds issued at par in May 2017; repayable ondue date; interest of 1.75% p.a., payableannually
Three-year private unsecured bonds - issued
at par in October 2017; repayable on due
date; interest of 1.14% p.a., payableannually
Five-year private unsecured bonds - issued
at par in October 2017; repayable in
October 2021 and 2022; 1.45% interestp.a., payable annually
Five-year convertible bonds - issued at
discount in December 2013; repayable inlump sum upon maturity; 1.8245%
discount rate p.a.

1.08

Conditions

PeriodCategoryRate(%)$ 5,481,379

Liability component at the date of issuance

1.0617%1.1317%

1.0323%1.0980%$ 4,816,000

As of December 31, 2017, the Company leased engines and a total of three A330-300 aircrafts bysale-leaseback contracts under finance leases. The lease terms are from June 2006 to April 2019.
During the lease term, the Company retained all risks and rewards attached to the aircrafts and engines
and enjoyed the same substantive rights as were enjoyed prior to the transactions. Interest rate
underlying all obligation under finance leases were floated. Therefore, the minimum lease payments
under the sale-leaseback aircraft contracts are not inclusive of interest expense.

Interest rates$ 2,176,000

Present value of minimum lease payments

2016$ 1,254,000
3,562,000

December 31$ 1,580,000
596,000

2017

Within one year
Later than one year and no later than five years

Minimum lease payments -flight equipmenta. Sale-leasebacks - finance leases

21. LEASING

On November 5, 2017, the Company’s board of directors resolved to issue its 2018 second, five-year
unsecured convertible bonds for $6,012,000 thousand, at a coupon rate of 100.2% and a conversion priceset at NT$13.2, on January 30, 2018.

$ 6,000,000(518,621)

Proceeds from issuance
Equity component

The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability
component was 1.8245% per annum on initial recognition.

d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s common shares. The initial conversion price was set at NT$12.24, which is subject toadjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of July 31, 2016, there was adjustment the conversion price to NT$11.64, corporate bonds with aface value of $3,316,800 thousand had been converted to 270,985 thousand units of common shares.

162

Financial cost

77,543$$ 4,929,305$ 2,253,543

4.756%

113,305$ 1,284,001
3,645,304$

30,001
83,304

113,305$$

30,131
85,244
115,375(2,070)$2016$ 1,617,321
636,2224.756%

37,32140,222

77,54337,48440,851
78,335
(792)

$

$

$

Current
Noncurrent

Frequent flyer programs
Advance ticket sales

The rental rates stated in the aircraft lease agreements some are fixed and some are floated. If theagreed-upon rental rate is floating and will be revised monthly or semiannually, subleasing is notallowed for all the lease arrangements. As of December 31, 2017, the Group has rented elevenA330-300 planes, fifteen B737-800 planes, ten 777-300ER planes, six ERJ 190 planes, three
ATR72-600 and ten A320-200 planes under operating contracts which the lease terms range from 6 to
12 years, with an extension option.

Fuel costs
Ground service expenses
Repair expenses
Interest expense
Short-term employee benefits
Terminal surcharges
Commission expenses
Others

22. OTHER PAYABLES

Minimum lease payments

23. DEFERRED REVENUEAs of December 31, 2017 and 2016, the refundable deposits paid by the Group under operating lease
contracts were $807,629 thousand and $982,988 thousand, respectively. Part of the refundable
deposits is secured by credit guarantees, and outstanding credit guarantee as of December 31, 2017 and2016 were $1,394,791 thousand and $1,459,935 thousand, respectively.

$ 84,438,166$ 11,499,501
43,175,899
29,762,766

2016

3,484,288
1,187,329
926,686
290,9022,550,551
876,108
407,109
3,310,096

2,450,877
15,743,177$ 18,194,054$ 16,375,789
1,818,265

2,427,565
14,202,198

2016$ 16,629,763$ 14,820,860
1,808,903$ 16,629,763$

December 31$ 18,194,054

$

2017

2,664,944
902,879
968,371294,751
1,926,538
748,070
391,857
3,567,844$ 11,465,254

$

2016

$ 10,723,726

December 31$ 13,033,069

$

2017

$ 10,432,620

For the Year Ended December 31
2017
2016

$ 83,485,120$ 10,431,969
39,692,972
33,360,179

December 31

The lease payments recognized in profit or loss for the current period were as follows:

Up to 1 year
Over 1 year to 5 years
Over 5 years

2017

The future minimum lease payments for the non-cancelable operating lease commitments were as follows:

China Airlines, Ltd., Mandarin Airlines, Tigerair Taiwan and Taiwan Air Cargo Terminal rented
planes, hangars and etc. under various operating lease contracts expiring on various dates until May
2028. The Group does not have a bargain purchase option to acquire the leased planes and hangar at
the expiration of the lease periods.

c. Operating lease arrangements (include sale-leaseback-operating leases)

Total amount of present value of minimum lease payments
Current
Noncurrent

Discount rate

Within one year
Beyond one year and within five years

Present value of minimum lease payments - cargoterminal and other

Present value of minimum lease payments

Less:

Within one year
Beyond one year and within five years

Minimum lease payments - cargo terminal and other2017

December 31

Taiwan Air Cargo Terminal Co. (TACT) entered into a terminal construction contract. Refer to Note
34 for the terms of the contract. Dynasty Holiday Co., Ltd. signed a long-term equipment lease
contract, and the lease contract is a finance lease contract.

b. Finance leases

163

81,925
7,408,229$ 7,490,154$ 7,490,154
3,201,642(1,755,029)(447,459)$ 8,489,308

Balance at December 31, 2016

Balance at January 1, 2017
Additional provisions recognized
Usage
Effect of exchange rate changes

Balance at December 31, 2017

Employees based in the U.S. and Japan of China Airlines Co., Ltd. and subsidiaries are members of the
U.S. and Japan government retirement benefit plans. Subsidiaries should appropriate a specificportion to retirement benefit plans. The obligation to the government retirement benefit plans ofChina Airlines Co., Ltd. and subsidiaries is to appropriate a specific portion amount.

The Group adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed
defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’
individual pension accounts at 6% of monthly salaries and wages.

a. Defined contribution plans

25. RETIREMENT BENEFIT PLANS

The Group leased flight equipment under operating lease agreements. Under the contracts, when theleases expire and the equipment is returned to the lessor, the flight equipment has to be repaired according
to the expected years of use, number of flight hours, flight cycles and the number of engine revolutions.
The Group had existing obligations to recognize provisions when signing a lease or during the lease term.
Tigerair Taiwan Co., Ltd. also leased flight equipment under operating lease agreements. In accordance tothe contract, Tigerair must pay maintenance reserves monthly according to the actual number of flight
hours.

$ 6,187,481
2,613,011(1,393,565)
83,227

Aircraft Lease
Contract$ 7,490,154$

Balance at January 1, 2016
Additional provisions recognized
Usage
Effect of exchange rate changes$ 8,489,308

475,725
8,013,583$

Current
Noncurrent

2016$ 7,490,154

December 31$ 8,489,308

2017

Operating leases - aircrafts

24. PROVISIONS

Balance at January 1, 2016
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial (gain) loss - changes indemographic assumptions
Actuarial (gain) loss - changes in financial
assumptions
Actuarial (gain) loss - experience
adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
OthersBalance at December 31, 2016

8,101,565

7,254(4,221,019)
979,274
114(7,162,275)

1,160,547
933,541(979,274)(175,245)
15,119,110(233,100)

6,094

7,254

(45,264)(45,264)

742,100
161,780
903,880-$ (3,882,634)

Fair Value ofthe Plan Assets$$ 16,149,382(8,047,817)

2016

7,956,835

1,160,547
940,795(4,221,019)(175,131)
7,956,835(Continued)(233,100)

6,094

7,254

742,100
116,516
858,616$ 10,553,574

Net Defined
BenefitLiabilities(Assets)$$ 15,119,110(7,162,275)

December 31$ 14,436,208

Present Valueof the Defined
BenefitObligation

Movements in net defined benefit liabilities (assets) were as follows:

Deficit (net defined benefit liabilities)

Present value of funded defined benefit obligation
Fair value of plan assets

2017

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans
were as follows:

The defined benefit plan adopted by the Company and in accordance with the Labor Standards Law isoperated by the government. Pension benefits are calculated on the basis of the length of service andaverage monthly salaries of the six months before retirement. The Company and subsidiary contributeamounts equal to 2%-15% of total monthly salaries and wages to a pension fund administered by thepension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in thecommittee’s name. Before the end of each year, the Group assesses the balance in the pension fund.
If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees
who conform to retirement requirements in the next year, the Group is required to fund the difference in
one appropriation that should be made before the end of March of the next year. The pension fund ismanaged by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Group has no right toinfluence the investment policy and strategy.

b. Defined benefit plans

164
23,429(1,769,694)
951,194458,746
520,343998,286(951,194)(133,806)$ (8,047,817)-

19,197(90,471)(90,471)

23,429$-939,046(319)
178,259
1,116,986$ 16,149,382$

Fair Value ofthe Plan Assets$$

8,101,565(Concluded)

520,343
1,021,715(1,769,694)(133,806)

458,746

19,19723,429939,046(319)
87,7881,026,515

Net Defined
BenefitLiabilities(Assets)

Discount rate(s)Expected rate(s) of salary increase

2016
1.000%-1.625%
1.000%-2.000%

December 31

0.88%-1.25%
1.000%-2.000%

2017

The actuarial valuations of the present value of the defined benefit obligation were carried out by
qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations wereas follows:3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the
future salaries of plan participants. As such, an increase in the salary of the plan participants will
increase the present value of the defined benefit obligation.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on theplan’s debt investments.

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities,bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the
mandated management. However, in accordance with relevant regulations, the return generated byplan assets should not be below the interest rate for a 2-year time deposit with local banks.

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to thefollowing risks:

Balance at December 31, 2017

Service cost
Current service cost
Cost from consolidation
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial (gain) loss - changes indemographic assumptions
Actuarial (gain) loss - changes in financial
assumptions
Actuarial (gain) loss - experience
adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
OthersPresent Valueof the Defined
BenefitObligation

768,588(721,823)$ (736,506)
798,561

6,000,000$ 60,000,000$ 54,709,846

2016
6,000,000$ 60,000,000$ 54,708,901

December 31

7-13 years$ 880,886

2016

Issuance of shares in excess of par value and conversion
premium
Expired employee share options
Long-term investments
Gain on sale of treasury shares held by subsidiaries
Bonds payable equity component
Othersb. Capital surplus$ 799,932$ 799,999

2016$ 552,470
11,747
1,019
2,673
146,684
85,339December 31$ 552,696
11,747955
2,673
146,589
85,3392017

For the years ended December 31, 2017, the Company issued the 5th domestic unsecured convertible
bonds, and holders of such bonds amounting to $1,100 thousand applied for conversion, for which 95
thousand of the Company’s common shares were exchanged. In accordance with the law, theCompany may apply for a change of registration after issuing new shares.

Numbers of shares authorized (in thousands)
Amount of shares authorized
Amount of shares issued

Common sharesa. Share capital

20178-12 years

The average duration of the defined benefit obligation

26. EQUITY$ 887,216

December 31

The expected contributions to the plan for the next year

2017

The sensitivity analysis presented above may not be representative of the actual change in the present
value of the defined benefit obligation as it is unlikely that the change in assumptions would occur inisolation of one another as some of the assumptions may be correlated.

Discount rate(s)0.5% increase
0.5% decrease
Expected rate(s) of salary increase
0.5% increase
0.5% decrease

December 31,
2017

If possible reasonable change in each of the significant actuarial assumptions will occur and all otherassumptions will remain constant, the present value of the defined benefit obligation would increase(decrease) as follows:

165

$

287,224
76,4862,508,525$0.458522382

Dividends Per
Share (NT$)

The legal reserve of $81,132 thousand and special reserve of $76,486 thousand used to offset
deficits are subject to resolution by the shareholders in their meeting to be held on June 22, 2017.

2) Appropriation of earnings in 2016

Legal reserve
Special reserve
Cash dividends

Appropriationof Earnings

The appropriation of earnings for 2015 was resolved in the shareholders’ meeting on June 24, 2016.
The appropriations and dividends per share were as follows:

1) Appropriation of earnings in 2015

The distribution of dividends should be resolved and recognized in the shareholders’ meeting in thefollowing year.

According to amended Company Act, where the Company made profit in a fiscal year, the profit shallbe first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10%of the remaining profit, setting aside or reversing a special reserve in accordance with the laws andregulations, and then any remaining profit together with any undistributed retained earnings shall be
used by the Company’s board of directors as the basis for proposing a distribution plan with due
consideration of any future aircraft acquisition plans and fund demand, which should be resolved in theshareholders’ meeting for the distribution of dividends and bonuses to shareholders by cash or shares(cash dividends cannot be less than 30% of total dividends distributed). However, if the Company’s
profit before tax in a fiscal year after deductions for the abovementioned items is not sufficient forearnings distribution, retained earnings can be used as a supplement for the deficiency. If theCompany has no deficit in a fiscal year, the Company can distribute all or part of the capital surplus bycash or shares with due consideration of finance, marketing and management requirements inaccordance with the laws and regulations.

c. Appropriation of earnings and dividend policy

The capital surplus from long-term investments and employee share options expired may not be used
for any purpose. Besides, capital surplus from conversion of employee shares and convertible bonds
payable may not be used for any purpose.

The capital surplus from shares issued in excess of par (including additional paid-in capital fromissuance of common shares and treasury share transactions) and donations may be used to offset
deficits; in addition, when the Company has no deficit, such capital surplus may be distributed as cash
dividends or transferred to capital (but limited to a certain percentage of the Company’s paid-in capitalon yearly basis).

$

145,831
118,810
1,193,670$0.2181820086

Dividends Per
Share (NT$)

Balance on January 1, 2017
Exchange differences ontranslating foreign operations
Cash flow hedges on changes infair value of hedging
instruments
Cumulative gain (loss) onchanges in fair value ofhedging instruments
reclassified to profit or loss

Balance on December 31, 2016

Balance on January 1, 2016
Exchange differences ontranslating foreign operations
Cash flow hedges on changes infair value of hedging
instruments
Cumulative gain (loss) onchanges in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax

$

$

-

-

-

-

1,714

1,714

(41)
-

-

-

-

1,755

-

$

$

$

Unrealized
Gain (Loss) on
Available-forsale Financial
Assets(136,476)

78,56478,564

13,618--(93,013)$ 157,959

Exchange
Differences on
Translating
Foreign
Operations

The movement of other equity items is as follows:d. Other equity items$$

176,927(305,137)-

31,98631,986(52,840)

589,024(278,201)-$ (225,997)

Cash Flow
Hedges

176,927(Continued)(305,137)(136,476)$ 112,264$ 112,264(41)(39,222)589,024(278,201)(93,013)$ (66,283)

Total

When the Company distributes undistributed earnings for the years after 1998, except for non-ROC
residents shareholders, all shareholders can receive imputation tax credit calculated by the Tax
Deduction Ratio on the distribution date.

The appropriation of earnings should be resolved in the shareholders’ meeting to be held on June27, 2018.

Legal reserve
Special reserve
Cash dividends

Appropriationof Earnings

The appropriation of earnings for 2017 should be resolved in the board of directors meeting to beheld on March 22, 2018. The appropriation and dividends per share were as follows:3) Appropriation of earnings in 2017

166
$

$

1,774

60
-

60
44,721$ (107,641)(Concluded)

$

Total

$ 2,083,381

756
65,007(4,548)(201,886)

61
64,702(46,118)(39,920)$ 2,134,282$ 2,286,647
139,400(19,079)(183,431)
515$ 2,083,381
282,726(3,598)(206,821)(131)

Company’s shares held by its subsidiaries reclassified frominvestments in shares to treasury sharesYear ended December 31, 2016

Company’s shares held by its subsidiaries reclassified frominvestments in shares to treasury sharesYear ended December 31, 2017

Purpose of Treasury Shares

2,889

2,889

Number of
Shares,Beginningof Year--

Reduction
Duringthe Year(Note)

2,889

2,889

Number of
Shares,Endof YearTreasury shares are the Company’s shares held by its subsidiaries as of December 31, 2017 and 2016
were as follows:(Shares in Thousands)

f. Treasury sharesEnding balance

21,795$ (74,429)$

Cash Flow
HedgesFor the Year Ended December 31
2017
2016

Unrealized
Gain (Loss) on
Available-forsale Financial
AssetsBeginning balance
Net income attributable to non-controlling interests
Foreign exchange differences
Actuarial gains and losses on defined benefit plans
Cash flow hedge on changes in fair value of hedging instruments
Cumulative gain (loss) arising on changes in fair value ofhedging instruments reclassified to profit or loss
Effect on income tax
Acquisition of non-controlling interests in subsidiaries
Dividends paid by subsidiaries

e. Non-controlling interests$ (34,986)

Balance on December 31, 2017

22,926$

Share of associates accounted
for using the equity method
Effect of income tax

Exchange
Differences on
Translating
Foreign
Operations

2,075
814

2,075
814

Shares(In Thousands)$ 19,294
7,572$ 26,866$ 26,866$ 33,654$ 24,169
9,485

Market Value$ 19,294
7,572$ 33,654$ 24,169
9,485

Carrying
AmountInterest income
Subsidy income
Dividend income
Othersb. Other income

Passenger
Cargo
Othersa. Revenue

27. NET INCOME$ 141,079,107$ 95,282,373
35,721,425
10,075,309$ 560,399$ 210,264
32,332
9,564
308,239$ 759,139$ 242,801
168,377
59,099288,862

For the Year Ended December 31
2017
2016

$ 156,121,785$ 102,216,106
43,336,068
10,569,611

For the Year Ended December 31
2017
2016

The above acquisitions by subsidiaries of the Company’s shares in previous years were due toinvestment planning. The shares of the Company held by its subsidiaries were treated as treasury
shares. The subsidiaries can exercise shareholders’ rights on these treasury shares, except for therights to subscribe for the Company’s new shares and voting rights.

Mandarin Airlines
Hwa Hsia

December 31, 2016

Mandarin Airlines
Hwa Hsia

December 31, 2017

Subsidiary167

258,620(32,039)
101,105(51,756)(3,571,301)(690,579)(56,023)(1,010,058)$ (5,052,031)$

53,419(35,678)(346)(629,965)(347,868)(717,758)(71,826)(938,074)$ (2,688,096)$

For the Year Ended December 31
2017
2016

Capitalization interest
Capitalization rate

Information of interest capitalization was as follows:

Interest expense
Bonds payable
Bank loans
Interest on obligations under financial leases
Loss on derivatives designated as hedging instruments in cash
flow hedge accounting relationships reclassified from equity
to profit or loss

d. Finance costs$ 216,305
1.31%-1.41%$ 421,285
1.45%-1.73%

For the Year Ended December 31
2017
2016

$ 1,292,865

294,890
912,945
74,640$ 1,346,801$

10,390319,315
974,535
50,1372,814$

For the Year Ended December 31
2017
2016

The Company has been named as a defendant, together with other airline members of the Association ofAsia Pacific Airlines, in a civil class action lawsuit filed at the U.S. Northern District Court ofCalifornia by a group of passengers who alleged that there was an antitrust violation in December 2007.
After consulting with the lawyers and considering the cost of litigation, the Company settled with theplaintiff in the amount of US$19,500 thousand, and the settlement was recognized in 2017 financial
statement. The settlement funds will be divided into four-phase payments in three years.

Gain on disposal property, plant and equipment and noncurrent
assets held for sale
Net loss on financial assets held for trading
Gain (loss) on disposal of investments
Loss on foreign exchange, net
Impairment loss on noncurrent assets held for saleImpairment loss on property, plant and equipment
Impairment loss on financial assets carried at cost
Othersc. Other gains and losses$ 17,667,649
672,373

An analysis of depreciation by function
Operating costs
Operating expenses

259,129$

32
147,454
147,486$$

1,509,101$

1,284,476

425,860
858,616$ 20,827,112
4,638,319$ 25,465,431$ 27,374,825$ 24,180,955$ 18,931,016
5,249,939$$$ 22,640,698
4,734,127$ 25,865,724$ 20,287,418
5,578,306

482,586
1,026,515$

For the Year Ended December 31
2017
2016

281
258,848$$ 17,545,523$ 16,839,497
706,026$ 17,693,009$ 17,545,244
279
147,486

To be in compliance with the Company Act as amended, the Articles stipulate the distribution of
employees’ compensation at rates of no less than 3% of the net profit before income tax and employees’
compensation. For the years ended December 31, 2017 and 2016, the employees’ compensation was$799,768 thousand and $382,318 thousand, respectively, of the base net profit. The employees’
compensation in cash for the years ended December 31, 2017 and 2016 was approved by theCompany’s board of directors on January 24, 2018 and January 17, 2017, respectively.

An analysis of employee benefits expense by function
Operating costs
Operating expenses

Other employee benefits
Salary expenses
Personnel service expenses

Post-employment benefits
Defined contribution plan
Defined benefit planf. Employee benefits expense

An analysis of amortization by function
Operating costs
Operating expenses$ 18,599,151

Depreciation and amortization expense$ 18,340,022$ 18,339,743
279
259,129

For the Year Ended December 31
2017
2016
Property, plant, equipment
Investment properties
Intangible assets

e. Depreciation and amortization expense

168883,064

148,743
1,364-$ 1,033,171$

992,790

173,195
(159)
3,085

$

$ 1,033,171

Income tax expense calculated at the statutory rate (17%)
Effect on different tax of subsidiaries govern by other region
Effect on adjustment to income tax
Non-deductible expenses in determining taxable income
Temporary differences
Tax-exempt income
Additional income tax under the Alternative Minimum Tax
Act
Income tax on unappropriated earnings
Loss carryforwards - current used
Loss carryforwards - generated
Oversea income tax expense
Deferred tax
Temporary differences
Unrecognized loss carryforwards, investment tax credits andtemporary difference
Adjustments for prior years’ tax

Income tax expense recognized in profit or loss

350,309642,481(159)

272,772
610,292
1,364$ 1,168,911

3,085(12,495)
235,828
19,624

9,906(1,061,324)
11,63017,474

319,574
33,055
145,181(478,805)(88,767)$$ 1,879,851

5,593
642,737(95,556)

599,074
19,209$ 3,523,963

Profit before tax

For the Year Ended December 31
2017
2016

$ 1,168,911$

For the Year Ended December 31
2017
2016

A reconciliation of accounting profit and income tax expense were as follows:

Income tax expense recognized in profit or loss

Current tax
Current year
Prior year adjustment
Income tax on unappropriated earnings
Deferred tax
Current year

The major components of tax expense were as follows:a. Income tax expense recognized in profit or loss

28. INCOME TAX

Information on the employees’ compensation and remuneration of directors and supervisors resolved by
the Company’s board of directors in 2017 and 2016 is available on the Market Observation Post System
website of the Taiwan Stock Exchange.

Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date that the annual consolidated financial statements are authorized for issue
are adjusted in the year that the bonuses and remuneration were recognized. If there is a change in the
proposed amounts after the annual consolidated financial statements are authorized for issue, thedifferences are recorded as a change in the accounting estimate.

85,949187,661
273,610$$$ 6,256,665$ 1,351,205
421,695
1,250,075
200,841
651,976
2,380,873

Temporary differences
Unrealized foreign exchange gains
Depreciation difference from fixed assets
OthersDeferred tax liabilities

Temporary differences
Defined benefit plans
Frequent flyer programs
Maintenance reserves
Allowance for reduction of inventory
OthersLoss carryforwards

Deferred tax assets

2,534
125,008
213,139
340,681$$$ 7,188,415$ 1,789,811
452,949
1,037,489
174,650
894,828
2,838,688

Beginning
Balance

For the year ended December 31, 2016

Temporary differences
Unrealized foreign exchange gains
Depreciation difference from fixed assets
OthersDeferred tax liabilities

Temporary differences
Defined benefit plans
Frequent flyer programs
Maintenance reserves
Allowance for reduction of inventory
OthersLoss carryforwards

Deferred tax assets

Beginning
Balance

For the year ended December 31, 2017c. Deferred tax assets and liabilities(49,953)$(598,541)(31,254)
212,586
26,191(197,579)(457,815)$$(53,622)(2,534)(39,059)(12,029)$ (1,046,412)$

Recognized in
Profit or Loss

915
(54,939)
4,071(933,017)(143,358)
4,411
257,210
38,274
469,902(1,559,456)

$

$

$

Recognized in
Profit or Loss

Total income tax recognized in other comprehensive income

Recognized in other comprehensive income
Translation of foreign operations
Hedging instruments fair value revaluation for cash flow
hedging
Actuarial gain or loss on defined benefit plan

Deferred tax

b. Income tax recognized in other comprehensive income

21,807
173,691

23,612(22,796)(22,796)

196,314173,691
22,623
-

$

$

$

$

(10,756)(10,756)

115,224

159,935(44,711)-

Recognized in
Other
Comprehensive
Income$$$$Recognized in
Other
Comprehensive
Income(10,179)(10,179)

(630)

(630)
-

$

$

$

$

(2,693)(2,693)

(562)

(562)
-

Exchange
Difference

$

$

$

$

Exchange
Difference$ 219,110$

2017(53,056)
159,935

19,101EndingBalance

190,682915
31,010158,757$$

273,61085,949187,661$ 6,256,665$ 1,351,205
421,695
1,250,075
200,841
651,976
2,380,873$$$ 5,519,332$ 1,381,538
426,106
1,507,285
239,115
1,143,871
821,417

EndingBalance$ 125,980

$

2016

169

2025
2026

Tigerair Taiwan Co., Ltd.

2026

Mandarin Airline Co., Ltd.

2019
2021
2022
2026

China Airlines, Ltd.

Expiry Year323,173

UnusedAmount229,761$$

921,952(Continued)

169,222752,730

594,300$ 15,486,879$ 11,764,885
2,899,496
619,799
202,699$

9,653,435$$ 12,507,288$

7,300,000
22,02080,080125,568
127,707
233,693638,257
1,126,110
-

$

2016

$ 10,900,000
17,9299,617
71,861
34,048221,121
1,184,297
68,415d. Unused tax loss carryforwards as of December 31, 2017 were as follows:

Difference in depreciation

Loss carryforwards
2019
2020
2021
2022
2023
2024
2025
2026
2027

2017

December 31

Deductible temporary differences, and unused loss carryforwards for which no deferred tax assets havebeen recognized in the balance sheets.

In February 2018, it was announced that the Income Tax Law in the R.O.C. was amended and, startingfrom 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of
the corporate surtax applicable to unappropriated earnings will be reduced from 10% to 5%. Deferred
tax assets and deferred tax liabilities recognized as of December 31, 2017 are expected to be adjusted
and increase by $974,000 thousand and $33,650 thousand, respectively, in 2018.

2016$ 102,527

December 31$ 195,252

2017

7,265
(Concluded)

118,015$$

18,124
31,476
68,415

183,195$$

71,861
34,04833,77543,511

27,546$$

17,929
9,617

UnusedAmount

The income tax returns for 2015 of the Company and its subsidiaries, have been examined by the tax
authorities.

f. Income tax assessment

Since the amended Income Tax Act announced in February 2018 abolished the imputation tax system,
related information for 2017 is not applicable.

The Company accumulated a deficit for which to be compensated for the year ended December 31,
2016, and therefore there was no tax deduction ratio resulting from earnings distribution.

Imputation credit accounts

e. Integrated income tax

2026

Hwa Hsia

2025
2026
2027

Taiwan Aircraft Maintenance And Engineering Co., Ltd.

2023
2024
2025
2026

Taiwan Air Cargo Terminal Limited

2021
2022

Cal Hotel Co., Ltd.

Expiry Year

170
0.40
0.39

$
$

0.10
0.10

$

$

571,540-

571,540

5,515,339

47,337

145,763
70,2595,684,052

5,468,002

5,468,030

For the Year Ended December 31
2017
2016

$ 2,232,867

24,801$ 2,208,066

For the Year Ended December 31
2017
2016

$
$

To support its operating activities and purchase of aircraft, the Group needs to maintain sufficient capital.
Therefore, the goal of capital management is to ensure financial resources and operating plan is able tosupport the future working capital, capital expenditures, debt repayment and dividend expenses and otherneeds.

The Group manages its capital to ensure that entities in the Group will be able to continue as going
concerns while maximizing the return to stakeholders through the optimization of the debt and equity
balance. The capital structure of the Group consists of net debt (borrowings offset by cash and cash
equivalents) and equity of the Group comprising issued capital, reserves, retained earnings, other equity andnon-controlling interests.

30. CAPITAL MANAGEMENT

If the Group offered to settle compensation or bonuses paid to employees in cash or shares, the Groupassumed the entire amount of the compensation or bonuses would be settled in shares and the resulting
potential shares were included in the weighted average number of shares outstanding used in thecomputation of diluted earnings per share, if the effect is dilutive. Such dilutive effect of the potential
shares was included in the computation of diluted earnings per share until the number of shares to be
distributed to employees is resolved in the following year.

Weighted average number of common shares used in thecomputation of diluted earnings per share

Weighted average number of common shares in computation of basic
earnings per share
Effect of potentially dilutive common shares:
Convertible bonds
Employees’ compensation or bonuses issued to employees

Earnings used in the computation of diluted earnings per share

Earnings used in the computation of basic earnings per share
Effect of potentially dilutive common shares:
Interest on convertible bonds (after tax)

Basic earnings per share
Diluted earnings per share

For the Year Ended December 31
2017
2016

The numerators and denominators used in calculating earnings per share were as follows:

29. EARNING PER SHARE$ 25,417,100
85,058,177$ 25,818,511
87,070,820

Fair Value

Fair Value$ 22,580,069
91,315,640

2016$ 22,238,044
89,230,727

Carrying
AmountDecember 31

Financial assets at FVTPL
Beneficial certificates
Financial liabilities at
FVTPL
Derivative instruments
Derivative financial assets
for hedging
Derivative financial
liabilities for hedging

December 31, 2017-$89,289

293

$
-

$

$

9,581

$

-

$

-

$

Level 2$ 306,839

Level 1

$

$

$

$

Level 3

-

-

-

-

$

$

$

89,289293

9,581$ 306,839

Totalc) Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).

b) Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. derived from prices); anda) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;

The following table provides an analysis of financial instruments that are measured subsequent toinitial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fairvalue is observable:

2) Fair value measurements recognized in the balance sheets

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying values are their fair values. As of December 31, 2017 and 2016, the fair values oflong-term debts and private bonds with fixed interest rates are estimated at the present value of
expected cash flows discounted at rates of 0.75% and 1.191%, respectively, prevailing in the market
for long-term debts (Level 2). Fair values of bond payable trading in OTC and based on quoted
market prices (Level 1).

Bonds payable
Loans and debt

Financial liabilities

Carrying
Amount2017

Except as detailed in the following table, the management considers the carrying amounts offinancial assets and financial liabilities recognized in the financial statements as approximating theirfair values.

1) Financial instruments not evaluated at fair value

a. Fair values of financial instruments

31. FINANCIAL INSTRUMENTS

171

$

$

23,62961,634

1,200

1,200
-

Level 2

$

$

$

$

$

$

23,62961,717

Future cash flows are estimated based on observable forward
exchange rates at the end of the reporting period andcontract forward rates, discounted at a rate that reflects thecredit risk of various counterparties.

Discounted cash flow.

Financial liabilities at FVTPL
Derivative financial liabilities for hedging
Financial liabilities at amortized cost (Note 2)

Financial liabilities
9,581
89,289127,928,250

306,839
84,075
293
35,276,119$

23,629130,110,449

416,641
140,357
61,71736,576,111

The Group was mainly exposed to the U.S. dollar.

$

Financial assets at FVTPL
Available-for-sale financial assets (Note 3)
Derivative financial assets for hedging
Loans and receivables (Note 1)

2016

The Group enters into foreign currency option contracts to hedge against the risks on change in
related exchange rates, enters into forward contracts to hedge against the risks on changes inforeign-currency assets, liabilities and commitments in the related exchange rates.
Sensitivity analysis

2017

December 31a) Foreign currency risk

The Group is primarily exposed to the financial risks of changes in foreign currency exchange rates
and interest rates. The Group entered into derivative financial instruments to manage its exposure
to foreign currency risk and interest rate risk. The Group enters into foreign exchange forward
contracts, foreign currency option contracts, and interest swap contracts with fair values that arehighly negatively correlated to the fair values of hedged items and evaluates the hedging
effectiveness of these instruments periodically.

1) Market risk

In addition, the Group has a risk management committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging percentage. This
committee informs the Group of global economic and financial conditions, controls the entire financial
risk resulting from changes in the financial environment and fuel prices, and develops the strategy andresponse to avoid financial risk with the assistance of financial risk experts to effect risk management.

The Group has risk management and hedging strategies to respond to changes in the economic andfinancial environment and in the fuel market. To reduce the financial risks from changes in interest
rates, in exchange rates and in fuel prices, the Group has its operating costs stay within a specified
range by using appropriate financial hedging instruments and hedging percentages in accordance withthe “Processing Program of Derivative Financial Instrument Transactions” approved by the Group
shareholders to reduce the impact of market price changes on earnings. These risks include market
risk (including foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

c. Financial risk management objectives and policies

Note 3: The balances include financial assets measured at cost.

Note 2: The balances include financial liabilities measured at amortized cost, which compriseshort-term loans, short-term notes payable, notes and accounts payable, accounts payable related parties, other payables, bonds payable and long-term loans, capital lease obligations,part of other current liabilities, part of other noncurrent liabilities and guarantee deposits.

Note 1: The balances include loans and receivables measured at amortized cost, which comprise cash
and cash equivalents, notes and accounts receivable, accounts receivable - related parties,
other receivables, refundable deposits, other financial assets and other restricted financial
assets.

Financial assets

b. Categories of financial instruments

Because some financial instruments and non-financial instruments cannot show their fair value,
the total fair value showed by these disclosure are not total value of the Group.

The fair values of currency options and fuel options are determined using option pricing models
where the significant unobservable inputs are implied fluctuation. An increase in the implied
fluctuation used in isolation would result in a decrease in the fair value of currency options andfuel options.

e) Valuation techniques and inputs applied for Level 3 fair value measurement

Derivatives - foreign exchange
forward contracts andinterest rate swaps

-

1,200
415,441Total$ 416,641$

Valuation Techniques and Inputsd) Valuation techniques and inputs applied for Level 2 fair value measurement

Financial Instruments

-

-

83

Level 3

There were no transfers between Levels 1 and 2 in the current periods.

$

Derivative financial
liabilities for hedging-$$ 415,441$$

Level 1

415,441$

Derivative financial assets
for hedging

Financial assets at FVTPL
Derivative instruments
Beneficial certificates

December 31, 2016

172
$ 27,537,100
85,311,720

2016$ 26,093,421
91,339,655

December 31

The sensitivity analysis below was determined based on the exposure to fuel price risks at theend of the reporting period.

Sensitivity analysis

The Group was exposed to fuel price risk on its purchase of aviation fuel. The Group enters
into fuel swap contracts to hedge against adverse risks on fuel price changes.

c) Other price risk

Had interest rates increased one yard (25 basis) point and had all other variables been held
constant, the Group’s pre-tax profit for the year ended December 31, 2016 would havedecreased by $228,349 thousand.

Had interest rates increased one yard (25 basis) points higher and had all other variables been
held constant, the Group’s pre-tax profit for the year ended December 31, 2017 would havedecreased by $213,279 thousand.

The sensitivity analyses below were determined based on the Group’s exposure to interest rates
for both derivatives and non-derivative instruments at the end of the reporting period. For
floating rate liabilities, the analysis was prepared assuming the amount of the liability
outstanding at the end of the reporting period was outstanding for the whole year. A one yard
(25 basis) point increase or decrease was used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.

Sensitivity analysis

Fair value interest rate risk
Cash flow interest rate risk

2017

The carrying amount of the Group’s financial assets and financial liabilities with exposure tointerest rates at the end of the reporting period were as follows.

The Group enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates. The risk is managed by the Group by maintaining an appropriate mixof fixed and floating rate borrowings, and using interest rate swap contracts and forward interest
rate contracts.

b) Interest rate risk

When the New Taiwan dollar strengthens one dollar against the U.S. dollar and all othervariables were held constant, there will be an increase in pre-tax profit in 2017 of $60,437
thousand and a decrease in pre-tax profit in 2016 of $47,622 thousand.

The following details the Group’s sensitivity to a one dollar increase or decrease in the New
Taiwan dollar (the functional currency) against the relevant foreign currencies (i.e. the U.S.
dollar). This is the sensitivity rate used when reporting foreign currency risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis included only outstanding foreign
currency denominated monetary items and foreign currency forward contracts designated as
cash flow hedges and adjusts their translation at the end of the reporting period for a one U.S.
dollars increase/decrease against the New Taiwan dollar.
$

75
-

$

(110)
(185)

The objective of the Group’s management of liquidity is to maintain cash and cash equivalents
sufficient for operating purposes, marketable securities with high liquidity and loan commitmentsthat are sufficient to ensure that the Group has adequate financial flexibility.

3) Liquidity risk

Credit risk on bank deposits, investments income and other financial instruments are measured andmonitor by the Group’s finance department. The Group’s trading partners and other parties were
well-performing banks and financial institutions, corporations, and government agencies, and so therisk of counterparties failing to discharge an obligation is low; therefore, there is no significant
credit risk.

Financial credit risk

To assess individual customers, the Group consider into the financial condition of the customers,
the credit rating agency rating, the Group’s internal credit rating, transaction history and current
economic conditions and many other factors that may affect the repayment. Sometimes, the Group
uses certain credit enhancement tools to reduce the credit risk of specific customers. Since thecustomers of the industry is dispersed and non-related, the credit risk concentration is not criticalaviation.

The Group has established procedures to management operations related credit risk to maintain thequality of accounts receivable.

Operation - related credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting
in financial loss to the Group. The Group’s credit risk, primarily comes from accounts receivable
generated from operating activities and bank deposits generated from investing activities, fixed
investment income and other financial instruments, operation related credit risk and financial credit
risk are managed separately.

2) Credit risk

The Group depends on the market of fuel and the cost of hedging to enter into fuel swap
contracts to hedge against adverse risk on fuel price changes. There is no outstanding fuelswap contracts for the years ended December 31, 2017.

Fuel price increase of 5%
Fuel price decrease of 5%

For the Year Ended
December 31, 2016
Other
Comprehensive
Pre-tax Profit
IncomeIncrease
Increase(Decrease)(Decrease)173

5,498,708

2,655
74,4081.3384$

401,301

0.016

335,590

4,684,754

$

1.192

1.1462

1-3 Months

Unused bank loan limit (unsecured)

Loan commitments

Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable$ 16,295,918$ 10,332,359

1,002,171

18,2002,923,225

419,159

27,758,614$ 32,121,369$

3 Months to
1 Year

17,70053,885
1,911,231

5,900

28,4102,790,923

12,906,591

1,406,511

1.4142$

1.1800236,138

3 Months to
1 Year7,270,988$

1-3 Months

1.12511.2090

The Weighted
Average
Effective
Interest Rate(%)

December 31, 2016

Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

The Weighted
Average
Effective
Interest Rate(%)

December 31, 2017

6,994
301,932

2,023,600

18,465,141

193,6483,040,196

2,775
4,599,541-

15,705,615

20,651,932-

28,374,270

455,544656,351

15,403,437-

33,282,382

1,014,142-

18,151,425--

7,428,296--

7,428,296

2016

$

$

5+ Years$ 19,165,567$

5+ Years$ 14,424,006

December 31$ 49,342,170$

2-5 Years$ 49,481,746$

2-5 Years$ 25,181,000

2017$23,348,127$

1-2 Years$ 20,991,315$

1-2 Years

Bank loans with a repayment on demand clause were included in the second column of the tablebelow regardless of whether or not the banks would choose to exercise early their rights to
repayment. The maturity dates for other non-derivative financial liabilities were based on theagreed-upon repayment dates. The Group’s liquidity analysis for its derivative financial
instruments is also shown in the following table. The table was based on the undiscounted
contractual net cash inflows and outflows on derivative instruments that settle on a net basis, andthe undiscounted gross cash inflows and outflows on those derivatives that require gross settlement.
When the amount payable or receivable is not fixed, the amount disclosed has been determined byreference to the projected interest rates as illustrated by yield curves at the end of the reporting
period.

The following table shows the remaining contractual maturity analysis of the Group’s financial
liabilities with agreed-upon repayment periods, which were based on the date the Group may berequired to pay the first repayment and financial liabilities is evaluated based on undiscounted cash
flows, including cash flows of interest and principal.

Liquidity and interest risk rate table

Related Party Type

Major shareholder of theCompany
Associate
Joint venture investment

Associate
Joint venture investment
Major shareholder of the Company

Related Party Typed. Accounts receivable - related parties (generated by operations)

Major shareholder of the Company
Associate
Joint venture investmentc. Purchases

Other income

Account Items

Related Party Type

1,938
46,461$$

28,3282,552
14,325

$
$
$

$

$

8,359

$

$

3,562

501
1,549
1,512

2016

$
63,084$ 656,653$ 1,613,899

December 31

6,431
1,928

2017

$
71,852$ 745,686$ 1,857,684

For the Year Ended December 31
2017
2016

31,971$For the Year Ended December 31
2017
2016

Associate
Associate (disposal in August 2017)
Associate
Associate
Associate
Associate
Associate
Joint venture investment
Joint venture investment
Joint venture investment
Director of the Company and major shareholder
Director, key management personnel, chairman,
general manager of the Group, spouse andsecond-degree relative

Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Aircraft Service
Airport Air Cargo Terminal (Xiamen) Co., Ltd.
Airport Air Cargo Service (Xiamen) Co., Ltd.
Eastern United International Logistics (Hong Kong)
China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia Ltd.
China Aviation Development Foundation
Othersb. Operating income

Relationship with the Company

Namea. Related parties’ names and relationships

The transactions, accounts balances, income and expenses between related parties were eliminated from theconsolidated report and, therefore, were not disclosed in this note. Except for the disclosures stated inother notes, transactions between the Group and its related parties are disclosed below:

32. RELATED-PARTY TRANSACTIONS

174
116,525
469,8274,454
590,806$$2017
120,824
431,5023,503
555,829$2016$

December 31$ 3,850,000
1,080,000
1,055,604

Authorized
Amount$ 2,850,000
318,611405,998$ 2,783,000
436,418
438,740

ActualAmount Used2016

46,805
4,007
50,812$$$$60,01747,74812,269For the Year Ended December 31
2017
2016

$ 3,850,000
1,080,000
180,000
919,742

Authorized
AmountDecember 31
ActualAmount Used2017

The remuneration of directors and key executives was determined by the remuneration committee
having regard to the performance of individuals and market trends.

Short-term employee benefits
Post-employment benefits

h. Compensation of key management personnel

Cal Park
Taiwan Air Cargo Terminal
Cal Hotel
Tigerair Taiwan

The Company

g. Endorsements and guarantees

Under an operating lease agreement, the Company rented flight training machines and flight simulatorsfrom China Aviation Development Foundation to train pilots, the Company paid the rental on usage
hours. In 2017 and 2016, the Company had paid rentals of about $71,852 thousand and $63,084
thousand, respectively.

f. Leases of properties (operating leases)

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.

Associate
Joint venture investment
Major shareholder of the Company

Related Party Typee. Accounts payable - related parties (generated by operations)

The receivables are not guaranteed, and there is no allowance for doubtful accounts related to accounts
receivable - related parties. The payment periods of such accounts were within 30 to 90 days, andthere are no overdue payments.

323,028$ 54,875,334$ 39,983,064$ 54,552,306

2016

161,398$ 39,821,666

December 31

Contract Title
Cargo Terminal Expansion Construction Consultant
Contract

Client NameCECI Engineering
Consultant, Inc., Taiwan$

552,285

Contract
Amount (VAT
Included)

As of December 31, 2017, TACT had signed the following construction contracts with unrelatedparties:

The original total expenditure of the previous main construction project was $8,490,000 thousand.
However, TACT filed an arbitration for the total amount of expenditure in 2012 to revise the total
amount to $6,840,000 thousand.

c. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil
Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20
years from the date of transfer of the chartered operation rights from CAA to TACT. The terminal
expansion and improvements and the equipment installation and upgrade in the Taiwan Taoyuan
International Airport cargo terminal and Kaohsiung cargo terminal were expected to be completed in
the first 10 years of the COP. This construction project was approved by TACT’s board of directors in
2003. TACT filed an application for a 10-year extension of the COP for the cargo terminals in the
Taiwan Taoyuan International Airport and Kaohsiung International Airport and received the approval
from the Taoyuan Airport Corporation and CAA in July 2013 and July 2015, respectively.

b. For operation needs, the board of directors of Mandarin Airlines resolved to enter into a contract to buy
six ATR72-600 aircrafts, and the total list price of the six aircrafts was $120,000 thousand. The
expected delivery period ranges from June 2018 to June 2020, which has been paid in the amount of
US$12,856 thousand (recognized as prepayments for aircrafts). Additionally, Mandarin Airlines
signed a lease contract for three ATR72-600 aircrafts, which were delivered in 2017.

a. In January 2008, the Company entered into a contract to buy fourteen A350-900 aircrafts from Airbus,
with the option to buy six more A350-900 aircrafts, with aggregate purchase prices of US$3,933,235
thousand and US$1,802,645 thousand, respectively. The expected period of delivery of the aircrafts
was from 2016 to 2018. As of December 31, 2017, ten of the aircrafts had been handed over to theCompany, and the total list price of the remaining four aircrafts was US$1,150,984 thousand, which has
been paid in the amount of US$287,746 thousand (recognized as prepayments for aircrafts).

As of December 31, 2017, the Group had commitments and contingent liabilities (except for thosementioned in other notes) as follows:

34. COMMITMENTS AND CONTINGENT LIABILITIESProperty, plant and equipment
Restricted assets - noncurrent
Pledged certificate deposits

2017

The following assets were pledged or mortgaged as collateral for long-term bank loans, lease obligations
and business transactions:33. PLEDGED ASSETS

175

e. Taiwan Aircraft Maintenance Company contracted out Ronggong Engineering Co., Ltd. for aconstruction repair project. The contract expiration date is November 5, 2018, and the estimated total
cost of the project is $1.906 billion. As of December 31, 2017, $301,069 thousand was paid(recognized as construction in progress).

CAL Park should submit the asset transfer plan within five years before the expiry date of the charteredoperation period, begin the negotiation of the asset transfer contract, and complete the assignation nolater than three years before the expiry date of the chartered period. If CAA decides not to keep thebuilding and equipment on the base area, CAL Park should remove all related building and equipment
within three months after the expiry date.

During the 50 years beginning from the initial operation date of CAL Park to the end of the construction
period, CAL Park should pay royalties based on the operating revenue estimated in the financial plan of
its investment execution proposal. If the sales and business tax declared and filed by a business entity
for a single year exceeds 10% of the operating revenue as estimated in the financial plan in its
investment execution proposal, CAL Park should pay additional royalties at 10% of this excess.

CAL Park should pay land rentals on the date of the registration of surface rights. The rental rates forthe development stage differ from those for the operation period. The rental rates should follow
Article No. 2 of the “Regulations for Favorable Rentals Regarding Public Land Lease and Superficies
in Infrastructure Projects,” which states that rental calculation in the development stage should include
the land value added tax plus the necessary maintenance fee; in the operation period, rentals are 60% of
the amount based on the National Building Land Rental Standard plus land value tax, value-added tax
and the necessary maintenance fee.

CAL Park’s business scope includes providing business and other operating space related to civil airtransport, hotels, aviation service and related industries adhered to the base and essential services law
and approved by the Taoyuan Airport Corporation.

d. CAL Park Co., Ltd. (“CAL Park”) signed “Taiwan Taoyuan International Airport Aviation Operation
Center (including Airport Hotel) Construction Operating Contract” with the CAA on September 20,
2006. However, on November 1, 2010, the Taoyuan Airport Corporation took over the CAA’s rights
on this contract from the CAA. The contract is effective for 50 years (consisting of the development
stage and operating period) from the contract date. Three years before contract expiry date, CAL Park
has the first option to renew the contract once with a 20-year extension.

TACT should pay royalties to Taoyuan Airport Corporation and the CAA during the charteredoperation period. The calculation is based on annual sales (including operating and nonoperating
revenue but excluding the rental revenue from specific districts), and Taoyuan Airport Corporation and
the CAA have the option to adjust the royalty rates every 3 years starting from the date of transfer of thechartered operation rights on the basis of actual revenue and expenditures. The current royalty rate is
6%.

Assets acquired from cargo terminal improvements, equipment acquisition and subsequent equipment
acquisition and replacement will be transferred to the government without any compensation when thechartered operating license expires.

As of December 31, 2017, the cumulated consultant service expense and construction equipment had
amounted to $473,599 thousand (VAT included) and $5,051,184 thousand (VAT included),
respectively. Upon completion of the projects, the amount of $460,578 thousand (VAT included) and$5,051,184 thousand (VAT included) were reclassified to property, plant, and equipment. The
remaining cumulative payments were recognized under construction in progress.

Monetary items
USD
EUR
HKD
JPY
CNY

Financial liabilities

Monetary items
USD
EUR
HKD
JPY
CNY

Financial assets

December 31, 2016

Monetary items
USD
EUR
HKD
JPY
CNY

Financial liabilities

Monetary items
USD
EUR
HKD
JPY
CNY

Financial assets

December 31, 2017

418,839
5,971
87,927
4,972,250
150,678

351,90221,358
293,872
6,147,548
469,241$

259,1456,512
94,831
4,442,045
137,773

310,384
15,665
273,060
5,138,687
483,548

Foreign
Currencies (InThousands)$

Foreign
Currencies (InThousands)

32.258134.0136
4.15800.27704.642532.258134.0136
4.15800.27704.6425

Exchange Rate

29.850735.71433.81830.26484.583029.850735.71433.81830.26484.5830Exchange Rate

8,359,536
221,486
394,306
1,230,446
639,614$ 10,012,403
532,807
1,135,385
1,423,417
2,244,088

Carrying
Amount12,503,415
213,250
335,732
1,316,652
690,557$ 10,504,521
762,786
1,122,091
1,627,871
2,150,530

Carrying
Amount

The following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

35. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

176

None

Table 2 (attached)

Table 1 (attached)

Table 7 (attached)c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 8 (attached)b. Investment in mainland China:

10) Derivative financial transactions (Notes 7 and 8)9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 6 (attached)

8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached)7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 4 (attached)6) Disposals of individual real estates at costs or prices of at least NT$100 million or 20% of thepaid-in capital: None

5) Acquisitions of individual real estates at costs or price of at least NT$100 million or 20% of thepaid-in capital: None

4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20%of the paid-in capital: Table 3 (attached)

3) Marketable securities held:

2) Endorsements/guarantees provided:

1) Financing provided:a. Following are the additional disclosures required by the Securities and Futures Bureau for the Company
and its investees:

36. ADDITIONAL DISCLOSURESFor the years ended December 31, 2017 and 2016, the Group’s net foreign exchange losses were $51,756
thousand and $629,965 thousand, respectively. It is impractical to disclose net foreign exchange gains(losses) by each significant foreign currency due to the variety of the foreign currency transactions andfunctional currencies of the group entities.

950,070

7,873,653$$-(6,265,636)$

4,564,687
242,801$ 141,079,107

Total assets

Identifiable assets
Investments accounted for using
the equity method
Assets$ 132,546,517$

9,666,123$ 224,500,759

2,866,431
79,421,688$ 142,212,640$

1,879,851

$

$

Total

$ 225,899,632

2,507,346
67,699,131$ 155,693,155

8,826,160
210,264

Profit before income tax

3,614,617

8,381,813

For the Year Ended December 31, 2016
Adjustments
Othersand Write-offs

$

$

$

536,986
535,162(1,292,865)(2,706,920)$$ 139,471,090

Air
Transportation$ 147,311,342-

Operation profit and losses
Interest revenue
Investments income accounted forusing the equity method
Revenue
Financial costs
Expenses

Operating revenue

Total assets

Identifiable assets
Investments accounted for using
the equity method
Assets$3,523,963

7,909,490

Profit before income tax$ 156,121,785

536,236
626,533(1,346,801)(5,328,429)

916,670$(6,375,116)$$

Operation profit and losses
Interest revenue
Investments income accounted forusing the equity method
Revenue
Financial costs
Expenses

7,984,517

Total$ 154,512,384$

For the Year Ended December 31, 2017
Adjustments
Othersand Write-offs

Operating revenue

Air
Transportation

The Group mainly engages in air transportation services for passengers and cargo; the services include
airport service, storage service, and other air transportation services which are below the financial
threshold for an operating segment of the Group. Therefore, the Group’s main reportable segment is
air transportation. The accounting policies of the reportable segment are consistent with theaccounting policies described in Note 4.

a. Segment information

37. SEGMENT INFORMATION

177

Total assets$

1,434,169$

17,785(215,992 )$$

98,711(429,148 )

$

$

$

$

$

$

3,616

(272,090 )

$

$

China

5,160

(19,411 )

11,770,672

Europe

$

$

$

3,026

89,4105,047,106

Australia$$$

13,7401,560,699

19,267,568

China

9,178

2,503,460

18,990,132

For the Year Ended December 31, 2016

4,407

818,324$

2,143,650

14,505,044

Domestic

2,273,982

13,708,394

Domestic$ 140,640,049$$$ 154,241,089

$

$

-

-

(6,375,116 )

$

$

$

-

-

(6,265,636 )Adjustment andEliminations

$

$

$

Adjustment andEliminations
Consolidation

8,826,160
210,264

4,564,687
242,801$ 224,500,759

2,866,431
79,421,688$ 142,212,640$$$ 141,079,107

Consolidation$ 225,899,632

2,507,346
67,699,131$ 155,693,155$$$ 156,121,785

1,879,851

Identifiable assets
Investments
accounted forusing the equity
methodAssets$30,470,044$

27,017,443

Southeast Asia

91,893$$

Northeast Asia

18,838$4,727,678

Australia

Profit before
income tax

1,305,147

40,063,516

America$(932,071 )$

536,986
535,162(1,292,865 )(2,706,920 )$$

1,324,134$

13,226,468

Operation profit
and losses
Interest revenue
Investments
incomeaccounted forusing the equity
methodRevenue
Interest expenses
Expenses

Operating revenue

Total assets$

2,498,885$

3,523,963

Identifiable assets
Investments
accounted forusing the equity
methodAssets$34,290,529$

32,933,348$

Profit before
income tax

2,066,002

43,823,702

For the Year Ended December 31, 2017

Europe536,236
626,533(1,346,801 )(5,328,429 )$$Southeast Asia

Northeast Asia

Operation profit
and losses
Interest revenue
Investments
incomeaccounted forusing the equity
methodRevenue
Interest expenses
Expenses

Operating revenue

America

The geographical segment information of the Company and its subsidiaries in 2017 and 2016 are listed
below:

b. Geographical segment

$ 3,850,000
1,080,000
180,000
1,079,101$ 3,850,000
1,080,000
1,055,604$ 2,850,000
318,611405,998

Based on the Company’s guidelines, the allowable aggregate amount of collateral guarantee is up to 50% of the Company’s shareholders’ equity.

$ 11,404,647
11,404,647
11,404,647
11,404,647

Note 2:

100% subsidiary
54% subsidiary
100% subsidiary
100% subsidiary by direct
and indirect holdings

Nature of Relationship

ActualBorrowingAmount

-

6.75
1.89
1.85

Ratio ofAccumulated
Value ofAmount ofCollaterals
Collateral toProperty, Plant Net Equity ofor Equipment
the Latest
Financial
Statement (%)

Based on the Company’s guidelines, the maximum amount of guarantee to an individual counterparty is up to 20% of the Company’s shareholders’ equity.

China Airlines
Cal Park(the “Company”) Taiwan Air Cargo Terminal
Cal Hotel
Tigerair Taiwan Ltd.

Name

Limit on EachCounter-party’s
Maximum
Endorsement/
Balance for the Ending Balance
Guarantee
PeriodAmount(Note 1)

Note 1:0No.

Endorsement/
Guarantee
ProviderCounter-party

ENDORSEMENT/GUARANTEE PROVIDEDFOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

178$ 28,511,619
28,511,619
28,511,619
28,511,619

Maximum
Collateral/
Guarantee
Amounts
Allowable(Note 2)

Y
Y
Y
Y

N
N
N
N

N
N
N
N

Endorsement/ Endorsement/ Endorsement/
Guarantee
Guarantee
Guarantee
Given byGiven on Behalf
Given by Parent
on Behalf of
Subsidiaries on of Companies in
Subsidiaries Behalf of Parent Mainland China

TABLE 1Marketable Security Type and Issuer/Name-

Parent company

Financial assets at fair value through profit or loss - current

Available-for-sale financial assets - current

Financial assets at fair value through profit or loss - current

Available-for-sale financial assets - noncurrent

Financial assets at fair value through profit or loss - current
Financial assets at fair value through profit or loss - current
Financial assets at fair value through profit or loss - current

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

Financial assets at fair value through profit or loss - current

Available-for-sale financial assets - current

Note 2: The Company does not issue shares because it is a limited company.

Note 1: The subsidiary’s net asset value was $60,524 thousand, which included common shares and preference shares as of and for the year ended December 31, 2017.

Beneficiary certificates
Taishin 1699 Money Market Fund

SharesChina Airlines-

Beneficial certificatesFuh Hwa Emerging Market Short-term Income
Fund

Hwa Hsia-

SharesTransAsia Airways

Taiwan Airport Services-

Beneficiary certificatesFranklin Templeton SinoAm Money Market FundFSITC Taiwan Money Market Fund
Allianz Global Investors Money Market Fund

Sabre Travel Network (Taiwan)--

Parent company

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent-

SharesTaikoo (Xiamen) Landing Gear Services
Taikoo Spirit Aerospace Systems (Jinjiang)
Composite

Beneficiary certificates
Barclays America Bonds Fund

SharesChina Airlines

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

Financial Statement Account-Relationshipwith the Holding
Company

Cal-Asia Investment

Mandarin Airlines

China Airlines (“Parent company”) Shares
Everest Investment Holdings Ltd. - common shares
Everest Investment Holdings Ltd. - preference
sharesChung Hua Express Co.
Jardine Air Terminal Services

Holding Company Name

MARKETABLE SECURITIES HELDDECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

179

349,523

814,152

4,568,824

2,277,786

6,709,255
5,664,992
5,368,495-

1,000,000

2,074,628

1,100,000
12,000,000

1,359,368
135,937

Number of
Shares/Units

$

4,700

9,485

50,166-68,926
86,14866,86919,89830,03024,16911,000-52,704
473

-

-

-

0.40

-

2.59
5.45

-

-

11.00
15.00

13.59
-

December 31, 2017
Percentage
CarryingofAmountOwnership
(%)

$

4,700

9,485

50,166-68,926
86,14866,86931,15225,43430,03024,16927,9609,167

60,524-Market Valueor Net Asset
Value

-

-

-

-

-

Note 2
Note 2---

Note 1
Note 1Note

TABLE 2Financial Statement
Account

Counterparty(Note 2)

-

-

$

-

-

$

-

-

$

-

-

-

-

$

-

-

Paid-in capital refers to paid-in capital of the indicated parent company. If the shares issued by an issuer have no par value or a par value other than NT$10 per share, the threshold of 20% of paid-in capital, as set out in the preceding item, shall be replaced by 10% of equity attributable toowners of the indicated parent company, as stated in the respective balance sheet.

--Ending Balance
Number ofAmountShares

Note 4$Gain (Loss) on
Disposal

The cumulative amount of acquired and disposed of marketable securities are required to be calculated separately to determine whether they are at least NT$300 million or 20% of the paid-in capital.

--

Disposal (Note 3)
Carrying
AmountAmountNote 3--

Number of
SharesThe marketable securities in this table refer to shares, bonds, beneficial certificates and the securities derived from the above items.

-

Subsidiary$

Acquisition (Note 3)
Number ofAmountSharesMarketable securities which are recognized as investments accounts for using the equity method are required to be filled in the second column.

-

Beginning Balance
Number ofAmountShares

Non-related party

Relationship(Note 2)

Note 2:

SharesScience Park Logistics Investments accounted HCT Logistics Co.,for using the equity
Ltd.
methodTaiwan Aircraft
Investments accounted Taiwan Aircraft
Maintenance andfor using the equity
Maintenance andEngineering Co.,
methodEngineering Co.,
Ltd.
Ltd.

Type and Name ofMarketable
Securities (Note 1)

TABLE 3Note 1:China Airlines, Ltd.

Company Name

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND SUBSIDIARIES180

Taiwan Air Cargo Terminal
Hua Hsia
Mandarin Airlines
Mandarin Airlines
China Pacific Catering Services
Cal Park
Taiwan Airport Services
Taoyuan International Airport Service
Kaohsiung Catering Services
China Aircraft Services
Cal Hotel
Tigerair Taiwan
China Pacific Laundry Services
Eastern United International Logistics

Taoyuan International Airport Service

Taiwan Airport Services

Tigerair Taiwan

Mandarin Airlines

Related Party

China Airlines, Ltd.
(“China Airlines”)

Company Name

Same parent company

Same parent company

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Equity-method investee
Subsidiary
Subsidiary
Equity-method investee
Equity-method investee

Nature of Relationship

Purchase

Purchase

Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Sale
Purchase
Purchase

Purchase/
Sale$

121,505

152,384

507,489
334,375(2,495,101)
147,9141,737,819
228,942
375,579
1,193,551
376,678
197,713
136,681(288,954)
119,865
138,905

Amount

1.78

2.59

0.42
0.27
(1.78)
0.12
1.43
0.19
0.31
0.98
0.31
0.16
0.11
(0.21)
0.10
0.11

% of
Total

Transaction Details

1 month

30 days

30 days
2 months
2 months
2 months
90 days
2 months
40 days
40 days
60 days
30 days
1 month
1 month
2 months
2 months

Payment Terms
$

-

-

-

-

-

-

$

(17,825)(30,344)(48,735)(49,140)
452,488(339,274)(440,739)(67,871)(355,885)(70,948)(30,260)(10,140)
38,796(29,088)(14,769)(1.42)(4.79)(3.34)(3.37)
4.99(23.28)(30.24)(4.66)(24.42)(4.87)(2.08)(0.70)
0.43(2.00)(1.01)

Note/Account Payable or
Receivable% ofPayment Terms Ending Balance
Total

Abnormal Transaction
Unit PriceTOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

181

-

-

-

Note

TABLE 4

China Airlines

China Airlines

China Pacific Catering Services

Taoyuan International Airport Service

Parent company

Parent company

Parent company

Subsidiary

Nature of Relationship355,885

440,739

339,274$ 452,488

Ending Balance(Note)

3.51

4.08

Note

Note

Turnover Rate$

AmountAccounts receivable and revenue were not directly correlated because of the particular industry characteristics, and therefore the turnover rate was not applicable.

China Airlines

Mandarin Airlines

Note:

Mandarin Airlines

Related Party

China Airlines, Ltd. (“China Airlines”)

Company Name

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALDECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

182
-

-

-

-

-

-

-

-

Action Taken

Overdue

355,764

440,698

307,390$ 271,899

Amounts Received
in Subsequent
Period

$

-

-

-

-

Allowance for
Bad Debts

TABLE 5

3,329HK$

Taiwan Aircraft Maintenance and Engineering Co., Ltd. invested capital in the amount of $490,000 thousand and $700,000 thousand in April 2017 and November 2017, respectively.

The Company signed a contract to sell all of its holding in Asian Compressor Technology Services and reclassified it as noncurrent assets held for sale at book value.

Note 4:Note 5:US$

The Company does not issue shares because it is a limited company.

5,877

Represents the consolidated financial information of the foreign holding company disclosed in accordance with local regulations.

US$

HK$

Note 3:

Airport services and investment

Forwarding and storage of air cargo

Note 2:

Samoa

Hong Kong

5,877

3,329

200,000
11,658-26,265
20,400
2,500
US$
1
US$
1
1,600,000
160,000
JPY

77,2701,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
77,322
12,289140,240
465,000
214,745
137,500$

December 31,
2016

Adopted the treasury shares method in recognizing investment income or loss.

Taiwan Airport Services

200,000
11,6582,450

26,265
20,4002,500
US$1,648,387
1,350,000
JPY

77,2701,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
3,704
12,289140,240
465,000
137,500$

December 31,
2017

Investment Amount

Note 1:

Eastern United International Logistics

Taiwan Airport Service (Samoa)

Cal-Asia Investment

Aircraft maintenanceTaoyuan, Taiwan
Air transportation and maintenance of aircraft
Airport services

Taipei, Taiwan
Tokyo, Japan
Taipei, Taiwan
Cayman Islands
Cayman Islands
Taipei, Taiwan
Taoyuan, Taiwan

Yestrip
Dynasty Holidays
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd.
Nordam Asia Ltd.

Taipei, Taiwan
Taipei, Taiwan

Taoyuan, Taiwan

Hwa Hsia

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Real estate lease and international trade
Air transportation and maintenance of aircraft
Air cargo and storage
A holding company, real estate and hotel services
In-flight catering
Airport services
General investment
Sale and maintenance of hardware and software
Airport services
Research, manufacture and maintenance of engines
Airport services
In-flight catering
Hotel business
Storage and customs of services
Cleaning and leasing of the towel of airlines, hotels,
restaurants and health clubs
Cleaning of aircraft and maintenance of machine andequipment
Travel businessTravel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Air transportation and maintenance of aircraft
Aircraft maintenance

Main Business and ProductTaoyuan, Taiwan
Taipei, Taiwan
Taoyuan, Taiwan
Los Angeles, U.S.A.
Taoyuan, Taiwan
Taoyuan, Taiwan
Territory of the British Virgin Islands
Taipei, Taiwan
Hong Kong International Airport
Taoyuan, Taiwan
Taipei, Taiwan
Kaohsiung, Taiwan
Taoyuan, Taiwan
Tainan, Taiwan
Taoyuan, Taiwan

Location

Cal Park
Mandarin Airlines
Taiwan Air Cargo Terminal
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Sabre Travel Network (Taiwan)
China Aircraft Service
Asian Compressor Technology Services
Taiwan Airport Services
Kaohsiung Catering Services
Cal Hotel Co., Ltd
Science Park Logistics
China Pacific Laundry Services

Investee Company

Mandarin Airlines

China Airlines, Ltd.

Investor Company

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE YEAR ENDED DECEMBER 31, 2017
(New Taiwan Dollars and Foreign Currencies in Thousands, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

183-

1,050,000

20,000,000
469,755

245,000

1,600,000
408
250,000
180,000,000
135,000,000

77,270150,000,000
188,154,025
135,000,000
2,614,500
43,911,000
34,300,000
7,172,346
13,021,042
28,400,000
370,440
20,626,644
14,329,759
46,500,000
13,750,000

100.00

35.00

10.00
1.08

49.00

100.00
51.00
25.00
90.00
100.00100.00100.0093.99
54.00
100.0051.00
49.00
100.00
93.93
20.00
47.35
35.78
100.0055.00$

370,322

43,171

101,682
5,902

2,399

25,90425,992
7,437
915,135
1,231,548

83,014

1,522,696
1,211,739
1,339,450
1,185,323
756,965
654,104
478,933
450,600
493,077
259,459
300,400
435,965
171,229

Balance as of December 31, 2017
Percentage
Carrying
Number ofofAmountShares/Units Ownership(%)$

25,143

13,726572,953
108,330(104)

440(4,725)
6,876
572,953(68,580)

11,28010,017
125,570
190,444
34,695472,248248,207
31,191
182,046
122,349
363,033
108,331242,473
48,59083,91942,461Net Income(Loss) of theInvestee$

25,143

4,804

57,295
1,167

(51)

440
(2,410)1,719
514,897(68,580)

11,28010,017118,023
102,840
34,695
235,871
121,622
31,191
171,004
24,47088,94351,29586,757
48,59021,81923,354

Investment
Income (Loss)

Note 3--Note 4Note 1

Note 1
Note 2
Note 5-Note

TABLE 6

Landing gear
1,101,194
maintenance services (US$ 36,890)

Composite material

Taikoo (Xiamen) Landing
Gear Services

Taikoo Spirit Aerospace
Systems (Jinjang)

Investment Amount
Authorized by Investment
Commission, MOEA

$647,805 (Note 3)

Accumulated Investment in
Mainland China as ofDecember 31, 2017

$266,287 (US$8,920)

348,149
11,663)Forwarding and storage64,161of air cargo(RMB 14,000)

Airport Air Cargo Service(Xiamen) Co., Ltd.

(US$

Forwarding and storage $ 1,028,781
of air cargo(RMB 224,480)

Main Business andProduct

Indirect(Note 1)

Indirect(Note 1)

Indirect(Note 1)

Indirect(Note 1)

18,985636)

64,2152,151)

58,133
1,947)$34,213,942 (Note 4)

Limit on Investment

(US$

(US$

(US$

$
124,955 $(US$4,186)

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan as
Capitalof January 1,
2017

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Investee Company Name

China Airlines

INVESTMENTS IN MAINLAND CHINAFOR THE YEAR ENDED DECEMBER 31, 2017
(New Taiwan Dollars/Renminibi/U.S. Dollars In Thousands, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES184
Outflow

-

-

-

-

$

Inflow

Investment Flow

-

-

-

-

Net Income(Loss) of
the Investee

(US$

(US$

(US$

18,985636)

64,2152,151)--

58,133
99,528
1,947) (RMB 22,105)$
124,955 $
79,880(US$
4,186) (RMB 17,741)

Accumulated
Outflow ofInvestment
from Taiwan asof December 31,
2017

5.45

2.59

14.00

14.00

% Ownershipof Direct orIndirect
Investment

(RMB

-

-

(RMB

19,8984,342)---

26,129875)(Note 2)

(Continued)

13,952
128,035 $3,095) (RMB 27,937) (US$83,6342,802)(Note 2)

Accumulated
InwardRemittance ofEarnings as ofDecember 31,
2017$
12,098 $242,549 $(RMB 2,484) (RMB 52,924) (US$Investment
Gain (Loss)

Carrying
Amountas ofDecember 31,
2017

TABLE 7

(US$

-

-

$

Inward$328,776 (Note 4)Upper Limit on the Amount of
Investment Stipulated by
Investment Commission, MOEA

57,515
1,927)$
119,951 $(US$
4,018)

Outward

Remittance of Funds

-

-

(US$

57,51599,5281,927) (RMB 22,105)

14.00

14.00

% Ownershipof Direct orIndirect
Investment

Accumulated
Repatriation of
Investment
Income as ofDecember 31,
2017

(RMB

13,934
128,256
3,095) (RMB 27,985) (US$Note 6: The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the year-end rates of refer for the reporting period.

Note 5: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in mainland China.

(Concluded)

41,9881,407)$
11,183 $
241,265 $
113,622(RMB 2,484) (RMB 52,644) (US$3,806)

Investment
Income (Loss)

Carrying
Amount as ofDecember 31,
2017

Note 4: The limit stated in the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjustment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.

Note 3: The amount comprised US$19,828,324, RMB4,200,000 and NT$36,666,667.

Note 2: The inward remittance of earnings in 2017 amounted to US$2,801,749 and US$875,330.

Net Income(Loss) of theInvestee$
119,951 $
79,880(US$
4,018) (RMB 17,741)

Accumulated
Outward
Remittance forInvestment
from Taiwan asof December 31,
2017

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in mainland China.

$177,466 (US$5,945)$177,466 (US$5,945)

Indirect(Note 5)Investment Amounts Authorized by
Investment Commission, MOEA

Forwarding and storage64,161of air cargo(RMB 14,000)

Airport Air Cargo Service(Xiamen) Co., Ltd.

Indirect(Note 5)

Accumulated Outward
Remittance for Investment in
Mainland China as of December 31, 2017

Forwarding and storage $ 1,028,781
of air cargo(RMB 224,480)

Main Business andProduct

Accumulated
Outward
Remittance for
Method ofPaid-in Capital
Investment
Investment
from Taiwan asof January 1,
2017

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Investee Company

Taiwan Airport Services

185

China Airlines, Ltd.

Taiwan Air Cargo Terminal

Mandarin Airlines

Taoyuan International Airport Services

Taiwan Airport Service

Hwa Hsia

Cal Park

1

2

3

4

5

6

Company Name

0No.

China Airlines, Ltd.

China Airlines, Ltd.

China Airlines, Ltd.
Mandarin Airlines

China Airlines, Ltd.
China Airlines, Ltd.
Tigerair Taiwan Co., Ltd.

China Airlines, Ltd.
China Airlines, Ltd.
Taiwan Airport Service
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.

China Airlines, Ltd.

Mandarin Airlines
Mandarin Airlines
Tigerair Taiwan Co., Ltd.
Taoyuan International Airport Services
Taiwan Airport Service
Hwa Hsia
Mandarin Airlines
Taiwan Air Cargo Terminal
Cal Park
Cal Hotel Co., Ltd.
Mandarin Airlines
Mandarin Airlines
Taoyuan International Airport Services
Mandarin Airlines

Related Party

b

b

b
c

b
b
c

b
b
c
b
b
b
b

b

a
a
a
a
a
a
a
a
a
a
a
a
a
a

Natural of
Relationship(Note 1)

Operating revenue

Operating revenue

Operating revenue
Operating revenue

Airport service revenue
Accounts receivable - related parties
Airport service revenue

Passenger revenue
Passenger costs
Airport service costs
Operating expenses
Accounts receivable - related parties
Held-to-maturity financial assets
Notes payable - related parties

Sales revenue

Passenger revenue
Other operating revenue
Other operating revenue
Airport service costs
Airport service costs
Airport service costs
Passenger costs
Other operating costs
Other operating costs
Other operating costs
Accounts receivable - related parties
Accounts payable - related parties
Accounts payable - related parties
Bonds payable

Financial Statement Account

BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIESFOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

186
228,942

334,375

375,579
121,505

1,193,551
355,885
152,384

147,9142,184,703
121,505
310,398339,274
250,000
452,488

507,489$ 2,184,703
310,398
288,954
1,193,551
375,579
334,375
147,914507,489
228,942
136,681452,488339,274
355,885
250,000

AmountTransaction Criteria

The same as ordinary transactions

The same as ordinary transactions

The same as ordinary transactions
The same as ordinary transactions

The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

The same as ordinary transactions

The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

Intercompany Transactions(Continued)

0.15

0.21

0.24
0.08

0.07
0.16
0.76

0.09
1.40
0.08
0.20
0.15
0.11
0.20

0.33

1.40
0.20
0.19
0.76
0.24
0.21
0.09
0.33
0.15
0.09
0.20
0.15
0.16
0.11

% of Total
Consolidated
Total Revenue
or Assets

TABLE 8

Cal Hotel Co., Ltd.

Tigerair Taiwan Co., Ltd.

8

Company Name

7

No.

China Airlines, Ltd.
Taoyuan International Airport Services

China Airlines, Ltd.

Related Partybcb

Natural of
Relationship(Note 1)

Operating expenses
Airport service costs

Operating revenue

Financial Statement AccountNote 3: The Company only discloses transaction amounts or balances of more than $100,000 thousand.

Note 2: Intercompany transactions were written off in the consolidated financial statements.

a. Parent to subsidiaries.
b. Subsidiaries to parent.
c. Subsidiaries to subsidiaries.

Note 1: The three directional types for transactions by business relationship between China Airlines, Ltd. and its subsidiaries are as follows:

187$
288,954
152,384

136,681

AmountTransaction Criteria

The same as ordinary transactions
The same as ordinary transactions

The same as ordinary transactions

Intercompany Transactions(Concluded)

0.19
0.07

0.09

% of Total
Consolidated
Total Revenue
or Assets

188(Appendix 2)

Financial Statements for theYears Ended December 31, 2017 and 2016 andIndependent Auditors’ Report

China Airlines, Ltd.

-1-

Due to suffering tax losses in previous years, the Company was granted loss carryforwards which
can be used against taxable income in a certain period. The Company recognized the loss
carryforwards as deferred tax assets to the extent that the taxable profit in the future will beavailable against the loss carryforwards. As of December 31, 2017, the Company recognized tax
losses as deferred tax assets, in New Taiwan dollars (NT$), in the amount of NT$779,769 thousand.
Refer to Notes 4, 5 and 27 in the accompanying financial statement for the related detailed
information.

Deferred Income Tax Assets

The key audit matters in the audit of the financial statement of the Company are stated below:

Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements for the year ended December 31, 2017. These matters wereaddressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matters

We conducted our audits in accordance with the Regulations Governing Auditing and Attestationof Financial Statements by Certified Public Accountants and auditing standards generally acceptedin the Republic of China. Our responsibilities under those standards are further described in the
Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are
independent of the Company in accordance with The Norm of Professional Ethics for Certified
Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.

Basis for Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, thefinancial position of the Company as of December 31, 2017 and 2016, and its financial
performance and its cash flows for the years then ended in accordance with the Regulations
Governing the Preparation of Financial Reports by Securities Issuers and other regulations.

We have audited the accompanying financial statements of China Airlines, Ltd. (the Company),
which comprise the balance sheets as of December 31, 2017 and 2016, and the statements ofcomprehensive income, changes in equity and cash flows for the years then ended, and the notes tothe financial statements, including a summary of significant accounting policies.

OpinionThe Board of Directors and the Shareholders
China Airlines, Ltd.

INDEPENDENT AUDITORS’ REPORT

189

Acquiring information about the differences between the Company’s financial position and its
tax base, and assessing the rationality of reconciliations and the realization schedule oftemporary differences to verify whether they are consistent with management’s financial
forecasts.

2.

Conducting an assessment on the rationality of useful life on the basis of fleet performance in
the industry, historical experience of fleet operations, and documents that described the basis
used by management to determine the useful life of its new fleet.

Reviewing the certificates issued by the aircraft and engine manufacturers, the suggested
operating cost of the aircraft manufacturer, and the historical experience of the maintenancedepartment to assess the rationale used to determine the division amount by management.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ reportthat includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with the auditing standards generally accepted in
the Republic of China will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis ofthese financial statements.

Reviewing the rationality of an assessment on the transaction value by obtaining reference
prices from authoritative publications recognized within the aviation industry, historical selling
prices of similar types of aircrafts, and the suggested price proposed by a broker and observing
the subsequent transactions.

Discussing the status of the transaction with the department accountable for disposing ofaircrafts, and reviewing whether the correspondences and the latest quote were consistent withthe market value estimated by management.

1.

2.

-2-

In accordance with IAS 16 “Property, Plant and Equipment”, acquisition costs of aircrafts shouldbe allocated into several significant components, including airframe, airframe overhaul, engine,engine overhaul, landing gear, etc., and should be depreciated over different useful lives. As of
December 31, 2017, the carrying amount of flight equipment was NT$125,442,997 thousand.
Refer to Notes 4, 5 and 14 in the accompanying financial statements for the related detailed
information.

1.

-3-

Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,or the override of internal control.

As part of an audit in accordance with the auditing standards generally accepted in the Republic ofChina, we exercise professional judgment and maintain professional skepticism throughout theaudit. We also:

Auditors’ Responsibilities for the Audit of the Financial Statements

The following were the main audit procedures for the key audit matter mentioned above:

Acquisition Costs of a New Fleet

Those charged with governance, including the audit committee and supervisors, are responsible foroverseeing the Company’s financial reporting process.

In preparing the financial statements, management is responsible for assessing the Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless management either intends to liquidate theCompany or to cease operations, or has no realistic alternative but to do so.

Management is responsible for the preparation and fair presentation of the financial statements inaccordance with the Regulations Governing the Preparation of Financial Reports by Securities
Issuers, and for such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whether due to fraud
or error.

Responsibilities of Management and Those Charged with Governance for the Financial
Statements

2.

1.

The following were the main audit procedures for the key audit matter mentioned above:

Since the Company introduced a brand new fleet of A350-900 this year, the adjusted allocationbase should be applied. Moreover, the carrying amount of flight equipment and the amount ofdepreciation expense recognized would be subject to the allocation of acquisition costs and theapplied useful life, which were made in accordance with management’s judgment. Therefore, we
identified the acquisition costs of the new fleet as a key audit matter.

Due to the lack of an open trading market for aircrafts, the range of disposal prices for aircrafts
varies significantly, and the expected transaction value of aircrafts reflecting the carrying amountof noncurrent assets held for sale was difficult to evaluate. Therefore, we identified noncurrent
assets held for sale as a key audit matter.

The board of directors of the Company resolved to dispose of several aircrafts. According to
IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, impairment losses fromthe disposal of aircrafts were recognized as the differences between the expected transaction value
and the carrying amount of the aircrafts, and then the aircrafts were reclassified as noncurrent
assets held for sale. As of December 31, 2017, the carrying amount of the aircrafts held for sale
was NT$309,330 thousand, and the Company recognized an impairment loss of NT$3,571,301
thousand. Refer to Notes 4, 5 and 12 in the accompanying financial statements for the related
detailed information.

Impairment Loss of Noncurrent Assets Held for Sale

Acquiring the internal financial forecasts and the estimate of future taxable income, andreviewing the rationality of management’s assumptions.

1.

The following are the main audit procedures for the key audit matter mentioned above:

The difference between the amount representative of the Company’s financial position and its tax
base are material to the financial statements as a whole in the aviation industry. Moreover,deferred tax assets arising from tax losses are dependent on future taxable income and the reversalof existing taxable temporary differences, which involve management’s judgment when assessing
the realization of tax losses. As there is a significant level of judgment involved in valuing thedeferred tax assets, we have deemed this to be a key audit matter.

190

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditors’ report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditors’ report. However, future
events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions andevents in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Company to express an opinion on the financial statements.
We are responsible for the direction, supervision and performance of the audit. We remainsolely responsible for our audit opinion.

3.

4.

5.

6.

-4-

From the matters communicated with those charged with governance, we determine those mattersthat were of most significance in the audit of the financial statements for the year ended December
31, 2017 and are therefore the key audit matters. We describe these matters in our auditors’ report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.

We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, related safeguards.

We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.

Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.

2.

Notice to Readers-5-

For the convenience of readers, the independent auditors’ report and the accompanying financial
statements have been translated into English from the original Chinese version prepared and usedin the Republic of China. If there is any conflict between the English version and the original
Chinese version or any difference in the interpretation of the two versions, the Chinese-language
independent auditors’ report and financial statements shall prevail.

The accompanying financial statements are intended only to present the financial position,
financial performance and cash flows in accordance with accounting principles and practices
generally accepted in the Republic of China and not those of any other jurisdictions. The
standards, procedures and practices to audit such financial statements are those generally appliedin the Republic of China.

March 22, 2018

Deloitte & Touche
Taipei, Taiwan
Republic of China

The engagement partners on the audit resulting in this independent auditors’ report are Chen-Hsin
Yang and Li-Chi Chen.

191

The accompanying notes are an integral part of the financial statements.

TOTAL

Total equity

EQUITY (Notes 19 and 25)
Share capital
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated retained earnings (accumulated deficit)
Total retained earnings
Other equity
Treasury shares

Total liabilities

Total noncurrent liabilities

NONCURRENT LIABILITIESFinancial liabilities at fair value through profit or loss - noncurrent (Notes 4, 5, 7 and 30)
Derivative financial liabilities for hedging - noncurrent (Notes 4, 5, 8 and 30)
Bonds payable - noncurrent (Notes 4, 19, 25, 30 and 31)
Loans and debts - noncurrent (Notes 18, 30 and 32)
Provisions - noncurrent (Notes 4, 5 and 23)
Deferred tax liabilities (Notes 4 and 27)
Capital lease obligations - noncurrent (Notes 4, 20, 30 and 32)
Deferred revenue - noncurrent (Notes 4, 5 and 22)
Accrued pension costs (Notes 4, 5 and 24)
Other noncurrent liabilities (Note 30)

Total current liabilities

CURRENT LIABILITIESFinancial liabilities at fair value through profit or loss - current (Notes 4, 5, 7 and 30)
Short-term bills payable (Note 18)
Derivative financial liabilities for hedging - current (Notes 4, 5, 8 and 30)
Notes and accounts payable (Note 30)
Notes and accounts payable - related parties (Notes 30 and 31)
Other payables (Notes 21 and 26)
Current tax liabilities (Notes 4 and 27)
Provisions - current (Notes 4, 5 and 23)
Deferred revenue - current (Notes 4, 5 and 22)
Bonds payable and put option of convertible bonds - current portion (Notes 4, 19, 25, 30 and 31)
Loans and debts - current (Notes 18, 30 and 32)
Capital lease obligations - current portion (Notes 4, 20, 30 and 32)
Other current liabilities (Note 30)

LIABILITIES AND EQUITY

TOTAL

Total noncurrent assets

NONCURRENT ASSETS
Derivative financial assets for hedging - noncurrent (Notes 4, 5, 8 and 30)
Financial assets carried at cost - noncurrent, net of current portion (Notes 9 and 30)
Investments accounted for using the equity method (Notes 4 and 13)
Property, plant and equipment (Notes 4, 5, 14 and 32)
Investment properties (Notes 4 and 15)
Other intangible assets (Notes 4 and 16)
Deferred tax assets (Notes 4, 5 and 27)
Other noncurrent assets (Notes 17, 20, 30, 32 and 33)

Total current assets

CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6 and 30)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 30)
Derivative financial assets for hedging - current (Notes 4, 5, 8 and 30)
Receivables:
Notes and accounts, net (Notes 4, 5, 10 and 30)
Notes and accounts - related parties (Notes 30 and 31)
Other receivables
Current tax assets (Notes 4 and 27)
Inventories, net (Notes 4 and 11)
Noncurrent assets held for sale (Notes 4, 5 and 12)
Other current assets (Note 17)

ASSETSBALANCE SHEETSDECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD.

100

27

1
1
-

206,092
1,458,313
1,664,405(107,641)(43,372)
57,023,237

26
-

73

154,894,755

54,709,846
799,999

47

10
29
4
1
3
-

26

1
5
7
2
9
1
1

100

82

5
67
1
1
2
6

99,969,391

926
6,994
21,350,000
61,907,978
7,352,194
38,946
596,000
1,818,265
6,158,744
739,344

54,925,364

8,655
77,639297,952
1,494,006
10,908,752
2
406,457
14,048,025
4,367,100
18,814,633
1,580,000
2,922,143$ 211,917,992$$ 211,917,992

173,984,296

64,177
11,551,369
142,265,548
2,047,448
989,327
4,974,941
12,091,486

18

4
4
2

8,044,940
510,588532,974
24,0968,610,958
426,553
3,219,735
37,933,696

8-%$ 16,563,559
293

2017
Amount55,783,817

287,224
76,486(157,618)
206,092
112,264(43,372)

54,708,901
799,932

155,755,626

91,415,821

2,775
19,838,044
52,833,478
6,770,951
114,772
3,562,000
1,808,903
6,217,346
267,552

64,339,805

900,000
20,854
638,876
1,347,007
9,634,022
2
13,404,227
2,700,000
31,816,140
1,254,000
2,624,677$ 211,539,443$$ 211,539,443

171,630,951

3,268
120,200
10,051,325
129,121,632
2,047,448
1,115,101
5,749,714
23,422,263

39,908,492

7,825,504
439,509
833,754
21,652
8,338,980
185,100
2,476,800$ 19,734,590
1,200
51,403

2016
Amount

100

26

-

26
-

74

43

9
25
3
2
1
3
-

31

1
1
5
6
1
15
1
1

100

81

5
61
1
3
11

19

4
1
4
1

9
-

%

360,980(4,980,870)(1,277,807)

NONOPERATING INCOME AND EXPENSES
Other income (Notes 9 and 26)
Other gains and losses (Notes 8, 9, 12, 13, 14 and 26)
Finance cost (Notes 8, 26 and 31)
Share of the profit of associates and joint ventures(Note 13)

-7-

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit plans (Notes 4
and 24)
Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method
Income tax relating to items that will not bereclassified subsequently to profit or loss
(Note 27)

NET INCOME

INCOME TAX EXPENSE (Notes 4, 5 and 27)

PROFIT BEFORE INCOME TAX

Total nonoperating income and expenses

7,358,114

OPERATING PROFIT--(211,952)

109,687

(1)

2

-

2

(3)

1

(3)
(1)

5

8

13

87

100

%

(645,219)

2,208,066

880,137

3,088,203(4,269,911)

1,627,786

10,608,283

17,966,397

121,848,814$ 139,815,211

OPERATING EXPENSES (Notes 4, 24, 26 and 31)

GROSS PROFITCOSTS (Notes 4, 8, 11, 24, 26 and 31)

REVENUE (Notes 4, 26 and 31)

2017
Amount

STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

CHINA AIRLINES, LTD.

-

-

-

1

1

(2)

-

1
(2)
(1)

3

9

12

88

100

%

100,195(Continued)(234,797)(589,382)

571,540

965,711

1,537,251(2,938,456)

100,602593,451(2,410,921)(1,221,588)

4,475,707

10,800,273

15,275,980

112,248,884$ 127,524,864

2016
Amount

192

$

$

-

42,744

$
$

0.40
0.39

1,240,677

-8-

1

(1)

-

(11,212)(967,389)-%(134,857)(116,580)

The accompanying notes are an integral part of the financial statements.

EARNINGS PER SHARE (NEW TAIWANDOLLARS; Note 28)
Basic
DilutedTOTAL COMPREHENSIVE INCOME FOR THE
YEAR

Other comprehensive loss for the year, net ofincome tax

Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 25)
Cash flow hedges (Notes 4 and 25)
Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method (Notes 4 and 25)
Income tax relating to items that may bereclassified subsequently to profit or loss
(Notes 25 and 27)

2017
Amount

STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

CHINA AIRLINES, LTD.

$

$

$
$

%

-

-

-

-

-

(Concluded)

0.10
0.10

26,103(545,437)(37,401)(4,057)(80,104)
300,1092016
Amount

-

-

-

-

Appropriation of 2015 earnings
Legal reserve
Special reserve
Cash dividends - $0.458522382 per share

Change in capital surplus from dividends distributed tosubsidiaries

Net income for the year ended December 31, 2016

Other comprehensive income (loss) for the year ended
December 31, 2016, net of income tax

Total comprehensive income (loss) for the year ended
December 31, 2016

-

-

-

Net income for the year ended December 31, 2017

Other comprehensive income (loss) for the year ended
December 31, 2017, net of income tax

Total comprehensive income (loss) for the year ended
December 31, 2017

The accompanying notes are an integral part of the financial statements.

$ 54,709,846-

Difference between cost of the acquisition of subsidiaries
and net value

BALANCE AT DECEMBER 31, 2017

-

945

-

Change in capital surplus from investments in associates
and joint ventures accounted for using the equity method

Convertible bonds converted to common shares

Compensation of deficit - capital surplus

54,708,901-

Difference between cost of the acquisition of subsidiaries
and net value

BALANCE AT DECEMBER 31, 2016-

$ 54,708,901

Change in capital surplus from investments in associates
and joint ventures accounted for using the equity method

BALANCE AT JANUARY 1, 2016

Share Capital

STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD.

193

$

$

799,999

-

-

-

-

(64)

131

-

799,932

-

-

-

1,517

-

-

-

798,415

Capital Surplus$$

206,092

-

-

-

-

-

-

(81,132)

287,224

-

-

-

-

287,224----

Legal Reserve

$

$

-

-

-

-

-

-

-

(76,486)

76,486----76,486----

Special Reserve

Retained Earnings$ 1,458,313

1,460,582(747,484)

2,208,066(2,269)--157,618(157,618)(152,444)(723,984)

571,540-(287,224)(76,486)(2,508,525)(3,536)(1,638)$ 2,872,235

UnappropriatedEarnings(Accumulated
Deficit)$$(34,986)(113,550)(113,550)

-

-

-

-

-

78,564(79,395)(79,395)

-

-

-

-

-

157,959

Exchange
Differences on
Translating
Foreign
Operations

$

$

1,774

60

60

-

-

-

-

-

1,714

(41)

(41)

-

-

-

-

-

1,755

Other Equity
Unrealized
Gain (Loss) on
Available-forsale Financial
Assets$$(74,429)(106,415)(106,415)

-

-

-

-

-

31,986257,983

257,983

-

-

-

-

-

(225,997)

Cash Flow
Hedges$$(43,372)

-

-

-

-

-

-

-

(43,372)

-

-

-

-

-

-

-

(43,372)

Treasury
Shares Held by
Subsidiaries$ 57,023,237

1,240,677(967,389)

2,208,066(2,269)

(64)

1,076

-

55,783,817

26,103(545,437)

571,540

1,517(2,508,525)(3,536)(1,638)$ 58,269,896

Total Equity

194
$

$

2016

- 10 -

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax
Adjustments to reconcile pretax profit to net cash generated from (usedin) operating activities:
Bad-debt expenses
Depreciation expenses
Amortization expenses
Net loss on fair value change of financial assets and liabilities held
for trading
Interest income
Dividend income
Share of profit of associates and joint ventures
Loss on disposal of financial assets carried at cost
Gain on disposal of property, plant and equipment
Gain on disposal of investments accounted for using the equity
method(Gain) loss on disposal of noncurrent assets held for sale
Loss on inventories and property, plant and equipment
Impairment loss recognized on property, plant and equipment
Net gain on foreign currency exchange
Loss on repurchase of bonds payable
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leasebacks
Impairment loss recognized on financial assets carried at cost
Impairment loss recognized on noncurrent assets held for sale
Changes in operating assets and liabilities
Financial assets held for trading
Financial liabilities held for trading
Derivative financial assets for hedging
Notes and accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Other current assets
Notes and accounts payable
Accounts payable - related parties
Other payables
Deferred revenue
Provisions
Other current liabilities
Accrued pension liabilities
Cash generated from operations
Interest received
Dividends received
49,878
16,588,758
138,554
29,909(188,006)(59,099)(100,602)
346(80,617)
26,429207,019717,758(10,773)
41,943
1,221,588
2,011,115(14,512)
347,868
134,448
13,096(785,159)
106,633(61,401)(359,928)(355,393)(353,373)(668)(1,490,845)
1,398,073(366,218)
275,042(3,337,565)
17,281,549
178,640
893,380(Continued)

33,385(176,329)(9,564)(1,627,786)(5,839)(101,105)(252,467)
642,423
690,579(343,681)
1,277,807
2,524,079(14,512)56,023
3,571,301(32,185)
9,580(271,309)(71,079)
266,338(591,043)(733,731)(305,161)
146,999
2,073,621
653,161(1,138,140)
157,417(703,821)
26,486,083
192,138
639,454

1,537,251

50,00017,375,194
247,725

3,088,203- 11 -

The accompanying notes are an integral part of the financial statements.

$ 16,563,559

19,734,590

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

(3,171,031)(68,245)(4,276,664)(900,000)
5,850,000(2,700,000)
30,380,000(36,947,007)
233,015(192,672)-(Concluded)$ 19,734,590

18,507,429

1,227,161

35,2884,464,850

900,000
10,000,000(994,705)(2,400,000)
34,499,000(35,052,725)
98,282(76,477)(2,508,525)(20,460,585)(146,408)
167,312(24,724,783)
5,693,791(265,615)
206,714

380,850(107,935)
180,381(24,215,469)(121,951)(24,867,173)

5,579(100,000)(2,196,021)
514,561
384,285

17,187,608$ (1,121,355)(44,606)2016(1,240,837)(953,218)
82,534
1,128,472

26,041,051$ (1,245,421)(31,203)2017

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIESNet cash (used in) generated from financing activities

CASH FLOWS FROM FINANCING ACTIVITIES(Decrease) increase in short-term bills payable
Proceeds from issue of bonds payable
Exercise of put options of bonds payable
Repayments of bonds payable
Proceeds from long-term debts
Repayments of long-term debts and capital lease obligations
Proceeds of guarantee deposits received
Refunds of guarantee deposits received
Dividends paid to owners of the Company

Net cash used in investing activities

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds of the sale of financial assets carried at cost
Acquisition of investments accounted for by the equity method
Payments for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of noncurrent assets held for sale
Proceeds from disposal of investments accounted for using the equity
methodIncrease in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Refunds of prepayments for aircraft
Increase in computer software costs
Decrease in restricted assets

Net cash generated from operating activities

Interest paid
Income tax paid

STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars)

2017

CHINA AIRLINES, LTD.

CHINA AIRLINES, LTD.

195

- 12 -

The amendment “Disclosures for Non-financial Assets” clarifies that the recoverable amount of an asset
or a cash-generating unit is disclosed only when an impairment loss on the asset has been recognized orreversed during the period. Furthermore, if the recoverable amount of an item of property, plant andequipment for which impairment loss has been recognized or reversed is the fair value less costs ofdisposal, the Company is required to disclose the fair value hierarchy. If the fair value measurements
are categorized within Level 3, the valuation technique and key assumptions used to measure the fairvalue are disclosed. The discount rate used is disclosed if such fair value less costs of disposal ismeasured by using the present value technique. The amendment should be applied retrospectively
starting from January 1, 2017. Refer to Notes 12 and 14 for the related disclosures.

Amendments to IAS 36 “Impairment of Assets”

Except for the following, whenever applied, the initial application of the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs
endorsed and issued into effect by the FSC would not have any material impact on the Company’s
accounting policies:a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports
by Securities Issuers (FSC) and the International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)
endorsed and issued into effect by the FSC

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

The financial statements were approved by the board of directors and authorized for issue on March 22,
2018.

2. APPROVAL OF FINANCIAL STATEMENTS

The major shareholders of the Company are the China Aviation Development Foundation (CADF) and the
National Development Fund (NDF), Executive Yuan. As of both December 31, 2017 and 2016, CADF
and NDF held a combined 43.63% of the Company’s shares. As of December 31, 2017 and 2016, theCompany had 12,654 and 12,657 employees, respectively.

China Airlines, Ltd. (the “Company”) was founded in 1959 and its shares have been listed on the Taiwan
Stock Exchange since February 26, 1993. The Company primarily provides air transport services forpassengers and cargo. Its other operations include (a) mail services; (b) ground services and routine
aircraft maintenance; (c) major maintenance of flight equipment; (d) communications and data processing
services to other airlines; (e) sale of aircraft parts, equipment and entire aircraft; and (f) leasing of aircrafts.

January 1, 2018
January 1, 2018

January 1, 2017
January 1, 2017

January 1, 2018
January 1, 2018

January 1, 2018
January 1, 2018

January 1, 2018

Note 2January 1, 2018

Effective Date
Announced by IASB (Note 1)- 13 -

Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or afterJanuary 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods
beginning on or after January 1, 2018.

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.

Annual Improvements to IFRSs 2014-2016 Cycle
Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions”
Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments withIFRS 4 Insurance Contracts”
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures”
IFRS 15 “Revenue from Contracts with Customers”
Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue fromContracts with Customers”
Amendment to IAS 7 “Disclosure Initiative”
Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”
Amendments to IAS 40 “Transfers of Investment Property”
IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”

New, Amended or Revised Standards and Interpretations(the “New IFRSs”)

b. The Regulations Governing the Preparation of Financial Reports by Securities Issuers and theInternational Financial Reporting Standards (IFRS)When the amendments are applied retrospectively from January 1, 2017, the disclosures of related party
transactions and the impairment of goodwill are enhanced. Refer to Note 31 for related disclosures.

The amendments stipulate that other companies or institutions of which the chairman of the board of
directors or president serves as the chairman of the board of directors or the president of the Company,or is the spouse or second immediate family of the chairman of the board of directors or president of theCompany are deemed to have a substantive related party relationship, unless it can be demonstrated thatno control, joint control, or significant influence exists. Furthermore, the amendments require thedisclosure of the names of the related parties and the relationships with whom the Company has
significant transactions. If the transactions or balance with a specific related party is 10% or more of
the Company’s respective total transactions or balance, such transactions should be separately disclosedby the name of each related party.

The amendments include additions of several accounting items and requirements for disclosures of
impairment of non-financial assets as a consequence of the IFRSs endorsed and issued into effect by the
FSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments
also include an emphasis on certain recognition and measurement considerations and add requirements
for disclosures of related party transactions and goodwill.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION

Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

CHINA AIRLINES, LTD.

196

- 14 -

For purchased or originated credit-impaired financial assets, the Company takes into account the
expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate.
Subsequently, any changes in expected losses are recognized as a loss allowance with acorresponding gain or loss recognized in profit or loss.

IFRS 9 requires impairment loss on financial assets to be recognized using the “Expected Credit
Losses Model”. A loss allowance is required for financial assets measured at amortized cost,investments in debt instruments measured at FVTOCI, lease receivables, contract assets arisingfrom IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments andfinancial guarantee contracts. A loss allowance for 12-month expected credit losses is required fora financial asset if its credit risk has not increased significantly since initial recognition. A loss
allowance for full-lifetime expected credit losses is required for a financial asset if its credit risk has
increased significantly since initial recognition and is not low. However, a loss allowance forfull-lifetime expected credit losses is required for trade receivables that do not constitute a financing
transaction.

Unlisted shares measured at cost will be measured at fair value instead.

The Company analyzed the facts and circumstances of its financial assets that exist at December 31,
2017 and performed the assessment of the impact of IFRS 9 on the classification and measurementof financial assets. Under IFRS 9:

Except for above, all other financial assets are measured at fair value through profit or loss.
However, the Company may make an irrevocable election to present subsequent changes in the fairvalue of an equity investment (that is not held for trading) in other comprehensive income, with
only dividend income generally recognized in profit or loss. No subsequent impairment
assessment is required, and the cumulative gain or loss previously recognized in othercomprehensive income cannot be reclassified from equity to profit or loss.

b) For debt instruments, if they are held within a business model whose objective is achieved byboth the collecting of contractual cash flows and the selling of financial assets, the financial
assets are measured at fair value through other comprehensive income (FVTOCI) and areassessed for impairment. Interest revenue is recognized in profit or loss using the effective
interest method, and other gains or losses shall be recognized in other comprehensive income,
except for impairment gains or losses and foreign exchange gains and losses. When the debt
instruments are derecognized or reclassified, the cumulative gain or loss previously recognizedin other comprehensive income is reclassified from equity to profit or loss.

a) For debt instruments, if they are held within a business model whose objective is to collectcontractual cash flows, the financial assets are measured at amortized cost and are assessed for
impairment continuously with any impairment loss recognized in profit or loss. Interest
revenue is recognized in profit or loss using the effective interest method; andFor the Company’s debt instruments that have contractual cash flows that are solely payments ofprincipal and interest on the principal amount outstanding, their classification and measurement are
as follows:

With regard to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.

Classification, measurement and impairment of financial assets

1) IFRS 9 “Financial Instruments”$

1,458,313(107,641)
57,023,237

11,551,369
211,917,992

64,177$60
47,45047,5104,491
47,510107,196(64,177)

Adjustments
Arising from
InitialApplication$

1,458,373(60,191)
57,070,747

11,555,860
211,965,502

107,196-

Adjusted
Carrying
Amount as ofJanuary 1, 2018







- 15 -

Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; andRecognize revenue when the Company satisfies a performance obligation.

When applying IFRS 15, the Company recognizes revenue by applying the following steps:

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,
and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

The main changes in hedge accounting amended the application requirements for hedge accounting
to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes
include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening
the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging
derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing
retrospective effectiveness assessment with the principle of economic relationship between thehedging instrument and the hedged item.

Hedge accounting

Unappropriated retained earnings
Other equity
Total effect on equity

EquityFinancial assets at fair value through othercomprehensive income
Financial assets carried at cost
Investments accounted for using theequity method
Total effect on assets

Noncurrent assets

December 31, 2017

Impact on Assets and Equity

Carrying
Amount as ofDecember 31,
2017

The anticipated impact on assets, liabilities and equity of retrospective application of therequirements for the classification, measurement and impairment of financial assets as of January 1,
2018 is set out below:

The Company elects not to restate prior reporting periods when applying the requirements for theclassification, measurement and impairment of financial assets under IFRS 9 with the cumulative
effect of the initial application recognized at the date of initial application and will provide thedisclosures related to the classification and the adjustment information upon initial application of
IFRS 9.

197

b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); andJanuary 1, 2019 (Note 3)
January 1, 2021
January 1, 2019- 16 -

Except for the above impact, as of the date the financial statements were authorized for issue, theCompany is continuously assessing the possible impact that the application of other standards andinterpretations will have on the Company’s financial position and financial performance, and will
disclose the relevant impact when the assessment is completed.

When IFRS 16 becomes effective, the Company may elect to apply this standard either retrospectively
to each prior reporting period presented or retrospectively with the cumulative effect of the initial
application of this standard recognized at the date of initial application.

The application of IFRS 16 is not expected to have a material impact on the accounting of the Company
as lessor.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for
all leases on the balance sheets except for low-value and short-term leases. The Company may elect toapply the accounting method similar to the accounting for operating leases under IAS 17 to the
low-value and short-term leases. On the statements of comprehensive income, the Company shouldpresent the depreciation expense charged on right-of-use assets separately from the interest expense
accrued on lease liabilities; interest is computed using the effective interest method. On the statementsof cash flows, cash payments for the principal portion of lease liabilities are classified within financing
activities; cash payments for the interest portion are classified within operating activities.

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related
interpretations.

IFRS 16 “Leases”

Note 3: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting fromJanuary 1, 2019.

Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.

- 17 -

Assets and liabilities that are not classified as current are classified as noncurrent.

c. Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12
months after the reporting period.

b. Liabilities due to be settled within 12 months after the reporting period; anda. Liabilities held primarily for the purpose of trading;Current liabilities include:c. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability
for at least 12 months after the reporting period.

b. Assets expected to be realized within 12 months after the reporting period; anda. Assets held primarily for the purpose of trading;Current assets include:

Current and Noncurrent Assets and Liabilities

When preparing these parent company only financial statements, the Company used the equity method toaccount for its investments in subsidiaries, associates and joint ventures. In order for the amounts of the
net profit for the year, other comprehensive income for the year and total equity in the parent company only
financial statements to be the same with the amounts attributable to the owners of the Company in its
consolidated financial statements, adjustments arising from the differences in accounting treatments
between the parent company only basis and the consolidated basis were made to investments accounted forusing the equity method, the share of profit or loss of subsidiaries, associates and joint ventures, the shareof other comprehensive income of subsidiaries, associates and joint ventures and the related equity items, as
appropriate, in these parent company only financial statements.

c. Level 3 inputs are unobservable inputs for an asset or liability.

a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

To be determined by IASB

January 1, 2019

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fairvalue measurement inputs are observable and based on the significance of the inputs to the fair value
measurement in its entirety, are described as follows:

Basis of Preparation

The financial statements have been prepared in accordance with the Regulations Governing the Preparationof Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

Statement of Compliance

4. SIGNIFICANT ACCOUNTING POLICIESJanuary 1, 2019
January 1, 2019 (Note 2)

Effective Date
Announced by IASB (Note)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.

Annual Improvements to IFRSs 2015-2017 Cycle
Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”
IFRS 16 “Leases”
IFRS 17 “Insurance Contracts”
Amendments to IAS 28 “Long-term Interests in Associates and Joint
Ventures”
IFRIC 23 “Uncertainty Over Income Tax Treatments”

New IFRSs

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

In identifying performance obligations, IFRS 15 and the related amendments require that a good orservice is distinct if it is capable of being distinct (for example, the Company regularly sells it
separately) and the promise to transfer it is distinct within the context of the contract (i.e. the natureof the promise in the contract is to transfer each good or service individually rather than to transfer
a combined output).

198- 18 -

Noncurrent assets classified as held-for-sale are measured at the lower of their previous carrying amountand fair value less costs to sell. Recognition of depreciation of those assets would cease.

Noncurrent assets are classified as held-for-sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the noncurrent asset is available for immediate sale in its present condition.
To meet the criteria for the sale being highly probable, the appropriate level of management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within one
year from the date of classification.

Noncurrent Assets Held for Sale

Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations
and items for in-flight sale and are stated at the lower of cost or net realizable value. The costs ofinventories sold or consumed are determined using the weighted-average method.

Inventories

Cash equivalents, consisting of commercial paper and time deposits, are highly liquid financial instrumentswith maturities of three months or less when acquired and with carrying amounts that approximate their fairvalues.

Cash Equivalents

On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect ofthat operation attributable to the owners of the Company are reclassified to profit or loss.

For the purposes of presenting financial statements, the assets and liabilities of the Company’s foreign
operations are translated into New Taiwan dollars using exchange rates prevailing at the end of eachreporting period. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising are recognized in other comprehensive income (attributed to the owners of theCompany and non-controlling interests as appropriate).

Exchange differences arising on the retranslation of non-monetary items are included in profit or loss forthe period except for exchange differences arising from the retranslation of non-monetary items in respectof which gains and losses are recognized directly in other comprehensive income, in which case, theexchange differences are also recognized directly in other comprehensive income.

b. Exchange differences on transactions entered into in order to hedge certain foreign currency risks.

a. Exchange differences on foreign currency borrowings relating to assets under construction for future
productive use, which are included in the cost of those assets when they are regarded as an adjustment
to interest costs on those foreign currency borrowings;

Exchange differences on monetary items arising from settlement or translation are recognized in profit orloss in the period in which they arise except for:In preparing the financial statements of the Company, transactions in currencies other than the Company’sfunctional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the datesof the transactions. At the end of each reporting period, monetary items denominated in foreign currencies
are retranslated at the rates prevailing at that date. Non-monetary items that are measured at historical costin a foreign currency are not retranslated. Non-monetary items measured at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value wasdetermined.

Foreign Currencies- 19 -

Under the equity method, an investment in an associate and jointly controlled entity is initiallyrecognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss andother comprehensive income of the associate and jointly ventures. The Company also recognizes thechanges in the Company’s share of equity of associates and jointly ventures attributable to theCompany.

The Company uses the equity method to account for its investments in associates and joint ventures.

An associate is an entity over which the Company has significant influence and that is neither asubsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby theCompany and other parties that have joint control of the arrangement and the rights to the net assets of
the arrangement.

b. Investments in associates and joint ventures

Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits andlosses from upstream with a subsidiary and side stream transactions between subsidiaries are recognizedin the Company’s financial statements only to the extent of interests in the subsidiary that are notrelated to the Company.

When the Company ceases to have control over a subsidiary, any retained investment is measured atfair value at that date and the difference between the previous carrying amount of the subsidiary
attributable to the retained interest and its fair value is included in the determination of the gain or loss.
Furthermore, the Company accounts for all amounts previously recognized in other comprehensive
income in relation to that subsidiary on the same basis as would be required if the Company had
directly disposed of the related assets or liabilities.

The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired isrecognized as goodwill. Goodwill is not amortized. The acquisition-date fair value of the net
identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss.

When the Company’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary(which includes any carrying amount of the investment in subsidiary accounted for by the equity
method and long-term interests that, in substance, form part of the Company’s net investment in thesubsidiary), the Company continues recognizing its share of further losses.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s lossof control over the subsidiaries are accounted for as equity transactions. Any difference between the
carrying amounts of the investment and the fair value of the consideration paid or received isrecognized directly in equity.

Under the equity method, the investment is initially recognized at cost and the carrying amount isincreased or decreased to recognize the Company’s share of the profit or loss and other comprehensive
income of the subsidiary after the date of acquisition. Besides, the Company also recognizes theCompany’s share of the change in other equity of the subsidiary.

Subsidiaries (including special purpose entities) are the entities controlled by the Company.

a. Investment in subsidiaries

Investments in subsidiaries, associates and jointly controlled entities are accounted for by the equity
method.

Investments Accounted for by the Equity Method

199

Freehold land is not depreciated.

- 20 -

Property, plant and equipment are tangible items that are held for use in the production or supply of goods
or services, for rental to others, or for administrative purposes and are expected to be used for more than
one period. The cost of an item of property, plant and equipment shall be recognized as an asset if, andonly if, it is probable that future economic benefits associated with the item will flow to the Company; andthe cost of the item can be measured reliably. Property, plant and equipment are stated at cost lessrecognized accumulated depreciation and recognized accumulated impairment loss.

Property, Plant and Equipment

When the Company transacts with its associate and joint ventures, profits and losses resulting from thetransactions with the associate are recognized in the Company’ financial statements only to the extent ofinterests in the associate and the jointly controlled entity that are not related to the Company.

The Company discontinues the use of the equity method from the date on which it ceases to havesignificant influence and joint control. Any retained investment is measured at fair value at that date
and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference
between the previous carrying amount of the associate and the jointly controlled entity attributable to
the retained interest and its fair value is included in the determination of the gain or loss on disposal of
the associate and the jointly controlled entity. The Company accounts for all amounts previously
recognized in other comprehensive income in relation to that associate and the jointly controlled entity
on the same basis as would be required if that associate had directly disposed of the related assets or
liabilities.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a single
asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized
forms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognized to the extent that the recoverable amount of the investment subsequently increases.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable
assets and liabilities of an associate and joint ventures recognized at the date of acquisition isrecognized as goodwill, which is included within the carrying amount of the investment and is notamortized. Any excess of the Company’s share of the net fair value of the identifiable assets andliabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When the Company’s share of losses of an associate and joint ventures equals or exceeds its interest inthat associate and joint ventures which includes any carrying amount of the investment accounted forusing the equity method and long-term interests that, in substance, form part of the Company’s net
investment in the associate and joint ventures entity, the Company discontinues recognizing its share offurther losses. Additional losses and liabilities are recognized only to the extent that the Company has
incurred legal obligations, or constructive obligations, or made payments on behalf of that associate andjoint ventures.

When the Company subscribes for additional new shares of an associate and joint ventures at apercentage different from its existing ownership percentage, the resulting carrying amount of theinvestment differs from the amount of the Company’s proportionate interest in the associate and joint
ventures. The Company records such a difference as an adjustment to investments with thecorresponding amount charged or credited to capital surplus. If the Company’s ownership interest is
reduced due to the subscription of additional new shares of the associate and jointly controlled entity,
the proportionate amount of the gains or losses previously recognized in other comprehensive income inrelation to that associate and joint ventures is reclassified to profit or loss on the same basis as would be
required had the investee directly disposed of the related assets or liabilities. When the adjustment
should be debited to capital surplus, but the capital surplus recognized from investments accounted forusing the equity method is insufficient, the shortage is debited to retained earnings.

- 21 -

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the Company uses the estimated cash flows discounted by the future pre-tax discount rate, and thediscount rate reflects current the market time value of money and the specific risks to the asset for estimatedfuture cash flows not yet adjusting to the market.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.

At the end of each reporting period, the Company reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assets havesuffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimatedin order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable
amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit towhich the asset belongs. Corporate assets are allocated to the individual cash-generating units on areasonable and consistent basis; otherwise, corporate assets are allocated to the smallest Company of
cash-generating units on a reasonable and consistent allocation basis.

Impairment of Tangible and Intangible Assets Other Than Goodwill

Intangible assets with finite useful lives that are acquired separately are initially measured at cost andsubsequently measured at cost less accumulated amortization and accumulated impairment loss.
Amortization is recognized on a straight-line basis. The estimated useful lifives, residual values, andamortization methods are reviewed at the end of each reporting period, with the effects of any changes inthe estimates being accounted for on a prospective basis. The residual value of an intangible asset with afinite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset
before the end of its economic life.

Intangible Assets

Any gain or loss arising on the derecognition of investment properties is calculated as the difference
between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss inthe period in which the property is derecognized.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initialrecognition, investment properties are measured at cost less accumulated depreciation and accumulated
impairment loss.

Investment properties are properties held to earn rentals or for capital appreciation. Investment properties
also include land held for a currently undetermined future use.

Investment Properties

Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment isdetermined as the difference between the sales proceeds and the carrying amount of the asset and isrecognized in profit or loss.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets. Assets are depreciated over the shorter of the lease term and their useful lives using thestraight-line method.

Depreciation is recognized using the straight-line method. Each significant part is depreciated separately.
The estimated useful lives, residual values and depreciation methods are reviewed at the end of eachreporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

200- 22 -

Loans and receivables (including trade receivables, cash and cash equivalents, debt investmentswith no active market, and other receivables are measured using the effective interest method atamortized cost less any impairment, except for short-term receivables when the effect of
discounting is immaterial.

b) Loans and receivables

Financial assets at fair value through profit or loss are stated at fair value, with any gains orlosses arising on remeasurement recognized in profit or loss. The net gain or loss recognizedin profit or loss incorporates any dividend or interest earned on the financial asset. Fair value
is determined in the manner described in Note 30.

Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.

a) Financial assets at fair value through profit or loss

Financial assets may be classified into the following specified categories: Financial assets at fairvalue through profit or loss, held-to maturity investments, available-for-sale financial assets andloans and receivables. The classification of financial assets depends on their nature and the
purpose identified at their original recognition. The Company’s financial assets consist of thefollowing categories: Financial assets at fair value through profit or loss, available-for-salefinancial assets and loans and receivables.

1) Measurement category

All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis. All regular way purchases or sales of financial assets means buy or sell financial assets in the
period made by regulation or market convention.

a. Financial assets

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deducted fromthe fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.

Financial assets and financial liabilities are recognized when the Company becomes a party to thecontractual provisions of the instruments.

Financial Instruments

When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amountthat would have been determined had no impairment loss been recognized for the asset or cash-generating
unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

- 23 -For financial assets that are carried at cost, the amount of the impairment loss is measured as thedifference between such an asset’s carrying amount and the present value of the estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Such
impairment loss will not be reversed in subsequent periods.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit orloss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment
loss is recognized in other comprehensive income. In respect of available-for-sale debt securities,
impairment loss is subsequently reversed through profit or loss if an increase in the fair value of theinvestment can be objectively related to an event occurring after the recognition of the impairment
loss.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the period.

d) The disappearance of an active market for that financial asset because of financial difficulties.

c) It becoming probable that the borrower will enter bankruptcy or financial re-organization; orb) Breach of contract, such as a default or delinquency in interest or principal payments;a) Significant financial difficulty of the issuer or counterparty;

For all other financial assets, objective evidence of impairment could include the following:

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the
security below its cost is considered to be objective evidence of impairment.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the investment (at the date the impairment is reversed)
does not exceed what the amortized cost would have been had the impairment not been recognized.

For financial assets measured at amortized cost, the amount of the impairment loss recognized is thedifference between such an asset’s carrying amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, such as trade receivables and other receivables,
assets are assessed for impairment on a collective basis even if they were assessed not to be
impaired individually. Objective evidence of impairment for a portfolio of receivables could
include the Group’s past experience with collecting payments, an increase in the number of delayed
payments in the portfolio past the average credit period of 60 days, as well as observable changes innational or local economic conditions that correlate with defaults on receivables.

Financial assets, other than those at fair value through profit or loss and available-for-sale financial
assets, are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired when there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset, the estimated future cash
flows of the investment have been affected.

2) Impairment of financial assets

201- 24 -

The component parts of compound instruments (i.e. convertible bonds) issued by the Company areclassified separately as financial liabilities and equity in accordance with the substance of thecontractual arrangements and the definitions of a financial liability and an equity instrument.

d. Convertible bonds

The Company derecognizes financial liabilities only when the obligation is discharged, canceled or
expired. The difference between the carrying amount of such a financial liability derecognized
and the consideration paid, including any non-cash assets transferred or liabilities assumed, isrecognized in profit or loss.

2) Derecognition of financial liabilities

Except for derivative financial instruments, all the financial liabilities are measured at amortizedcost using the effective interest method.

1) Subsequent measurementc. Financial liabilities

The repurchase of the Company’s own equity instruments is recognized in and deducted directly fromequity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of
the Company’s own equity instruments.

An equity instrument is the residual interest in any contract after all liabilities are deducted from theCompany’s assets. Equity instruments issued by the Company are recognized at the proceeds received,
net of direct issue costs.

Debt and equity instruments issued by the Company are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of afinancial liability and an equity instrument.

b. Equity instruments

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss
that had been recognized in other comprehensive income is recognized in profit or loss.

The Company derecognizes a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another party.

3) Derecognition of financial assets

The carrying amount of a financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables and other receivables, where the carrying amount isreduced through the use of an allowance account. When a trade receivable and other receivables
are considered uncollectable, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against the allowance account. Changes
in the carrying amount of the allowance account are recognized in profit or loss except foruncollectable trade receivables and other receivables that are written off against the allowanceaccount.

- 25 -

The associated gains or losses that were recognized in other comprehensive income are reclassified fromequity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in thesame period as when the hedged item affects profit or loss. If a hedge of a forecasted transaction
subsequently results in the recognition of a non-financial asset or a non-financial liability, the associatedgains and losses that were recognized in other comprehensive income are removed from equity and areincluded in the initial cost of the non-financial asset or non-financial liability.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion isrecognized immediately in profit or loss.

The Company enters into some derivative transactions that aim to manage interest rates, foreign exchange
rates, fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging
transactions are defined as cash flow hedges. When entering into hedging transactions, the Company has
prepared official documents that describe the hedging relationship between hedging instruments and items
which have been hedged, the objective of risk management, the hedging strategy, and the way to evaluate
the effectiveness of the hedging instrument.

Hedge Accounting

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into andare subsequently remeasured to their fair value at the end of each reporting period. The resulting gainor loss is recognized in profit or loss immediately unless the derivative is designated and effective as ahedging instrument, in which event, the timing of the recognition in profit or loss depends on the natureof the hedging relationship. When the fair value of a derivative financial instrument is positive, thederivative is recognized as a financial asset; when the fair value of a derivative financial instrument isnegative, the derivative is recognized as a financial liability.

The Company enters into a variety of derivative financial instruments to manage its exposure to interest
rate, foreign exchange rate and fuel price risks, including foreign exchange forward contracts, interest
rate swaps, currency options and fuel swaps.

e. Derivative financial instruments

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity
components in proportion to the allocation of the gross proceeds. Transaction costs relating to theequity component are recognized directly in equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability component.

The conversion option classified as equity is determined by deducting the amount of the liability
component from the fair value of the compound instrument as a whole. This is recognized andincluded in equity, net of income tax effects, and is not subsequently remeasured. In addition, theconversion option classified as equity will remain in equity until the conversion option is exercised, inwhich case, the balance recognized in equity will be transferred to capital surplus - share premium.
When the conversion option remains unexercised at maturity, the balance recognized in equity will betransferred to capital surplus - share premiums.

On initial recognition, the fair value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible instruments. This amount is recorded as a liability on anamortized cost basis using the effective interest method until extinguished upon conversion or the
instrument’s maturity date. Any embedded derivative liability is measured at fair value.

202- 26 -

Assets held under finance leases are initially recognized as assets of the Company at the lower of theirfair value at the inception of the lease or the present value of the minimum lease payments. The
corresponding liability to the lessee is included in the balance sheets as a finance lease obligation.

The Company as lessee

a. Financial leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.

Leasing

Interest income from a financial asset is recognized when it is probable that the economic benefits willflow to the Company and the amount of income can be measured reliably. Interest income is accrued
on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Dividend income from investments is recognized when a shareholder’s right to receive payment has
been established provided that it is probable that the economic benefits will flow to the Company andthe amount of income can be measured reliably.

b. Dividend and interest income

Passenger fares and cargo revenue are recognized when transport service is provided. The value of
unused passenger tickets is recognized as “advance tickets - sales”.

a. Rendering of services

Revenue Recognition

The amount recognized as a provision is the best estimate of the expenditure required to settle the present
obligation, taking into account the risks and uncertainties surrounding the obligation as of the balance sheet
date. When a provision is measured using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows. When the aircraft lease contracts expire and will
be returned to lessor, should assess if existing obligations exist and required to recognize as provision whensigning of the lease contract.

The Company recognizes provisions when the Company has a present obligation (legal or constructive)
arising from past events (legal or constructive obligation), payment for the obligation is probable, and theexpenditure for settling the obligation can be estimated reliably.

Provisions

Hedge accounting is discontinued prospectively when the Company revokes the designated hedging
relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it nolonger meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument thathas been previously recognized in other comprehensive income from the period when the hedge was
effective remains separately in equity until the forecasted transaction occurs. When a forecasted
transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately
in profit or loss.

- 27 -

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related services.

a. Short-term employee benefits

Employee Benefits

In the event that lease incentives are received when entering into operating leases, such incentives
are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction ofrental expense on a straight-line basis, except where another systematic basis is more representativeof the time pattern in which economic benefits from the leased asset are consumed.

Operating lease payments are recognized as expenses on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rentals arising under operating leases arerecognized as expenses in the period in which they are incurred.

2) The Company as lessee

Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease unless another systematic basis is representative of the time pattern of the lessee’s
benefit from the use of the leased asset.

1) The Company as lessor

c. Operating lease

If the selling price is equal to the fair value, the transaction gain or loss should be recognized
immediately. If the selling price is above fair value, the difference between the fair value and thebook value of the gain or loss should be recognized immediately; only the part of the selling pricewhich is above fair value shall be deferred and amortized over the period of the lease.

2) Operating leases

This transaction does not actually dispose of the assets. The accounting treatment used treats thetransaction as if it did not occur, and the assets are continuously recognized at the book value of theasset before sale.

1) Financial leases

For a sale and leaseback transaction, if it meets the condition whereby all the risks and rewards ofownership of the leased asset are essentially transferred to the lessee, the sale and leaseback transaction
is classified as a finance lease. If part of the significant risks and rewards of ownership of the leased
asset remain with the lessor (i.e. the buyer), the sale and leaseback transaction is classified as an
operating lease.

b. Sales and leasebacks

Minimum lease payments are apportioned between finance expenses and reductions of the leaseobligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financeexpenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying
assets, in which case, they are capitalized in accordance with the Company’s general policy on
borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are
incurred.

203- 28 -

Income tax expense represents the sum of the current tax and deferred tax.

Taxation

The fair value determined at the grant date of the equity-settled share-based payments is expensed on astraight-line basis over the vesting period, based on the Group’s estimate of equity instrument that will
eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value
determined at the grant date of the equity-settled share-based payments is recognized as an expense in fullat the grant date when the granted share options vest immediately.

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments
at the grant date.

Share-based Payment Arrangements

A portion of passenger revenue attributable to the rewards for the frequent flyer program is deferred. The
entity should recognize this deferred revenue as revenue only when the entity has fulfilled its obligations on
the granting of rewards or when the period for converting the mileage to rewards has expired.

The Company has a “Dynasty Flyer Program” through which program members can convert accumulated
mileage to a cabin upgrade, free tickets and other member reward.

Frequent Flyer Programs

Other than that which is stated above, all other borrowing costs are recognized in profit or loss in the period
in which they are incurred.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets(assets which are substantially ready for their intended use or sale through a fairly long period) are added tothe cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Borrowing Costs

Net defined benefit liabilities (assets) represent the actual deficit in the Company’s defined benefit
plans.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined
contribution retirement benefit plan are determined using the projected unit credit method. Service
cost (including current service cost and past service cost) and net interest on the net defined benefit
liabilities (assets) are recognized as employee benefits expense in the period in which they occur.
Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest),
is recognized in other comprehensive income in the period in which it occurs. Remeasurement
recognized in other comprehensive income is reflected immediately in retained earnings and will not bereclassified to profit or loss.

Payments to the defined contribution retirement benefit plan are recognized as expenses whenemployees have rendered services entitling them to the contributions.

b. Retirement benefits- 29 -

Routine maintenance costs are recognized in profit or loss in the period in which they are incurred.

Maintenance and Overhaul Costs

Current and deferred taxes are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current and deferredtaxes are also recognized in other comprehensive income or directly in equity, respectively.

c. Current and deferred taxes for the year

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period inwhich the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that havebeen enacted or substantively enacted by the end of the reporting period. The measurement ofdeferred tax liabilities and assets reflects the tax consequences that would follow from the manner inwhich the Company expects, at the end of the reporting period, to recover or settle the carrying amountof its assets and liabilities.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at theend of each reporting period and recognized to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates and interests in joint ventures, except where the Company is able to control
the reversal of the temporary difference and it is probable that the temporary difference will not reversein the foreseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that there will be
sufficient taxable profit against which to utilize the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.

Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities in the financial statements and the corresponding tax bases used in the computation of taxable
profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all deductible temporary differences, unused loss
carryforwards and unused tax credits for purchases of machinery, equipment and technology, researchand development expenditures, and personnel training expenditures to the extent that it is probable thattaxable profit will be available against which those deductible temporary differences can be utilized.

b. Deferred tax

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided foras income tax in the year the shareholders approve the retention of these earnings.

The Company’s current tax liabilities are calculated by the tax rate was legislated or substantiallylegislated at the balance sheet date.

The current tax liabilities are based on current taxable profit. Since part of the income and expenses
are taxable or deductible in other periods, or in accordance with the relevant tax laws are taxable ordeductible, current taxable profit differs from net profit reported in the statements of comprehensive
income.

a. Current tax

204
As stated in Note 4, “Frequent Flyer Programs”, a portion of passenger revenue attributable to the awardingof frequent flyer benefits is deferred until the awards are given out. The deferment of the revenue isestimated on the basis of historical trends of breakage and redemption, which is then used to project the
expected claiming of these benefits. Changes in fair value per mileage or the redemption rate may have amaterial impact on deferred revenue.

The Company is subject to income taxes in numerous jurisdictions. Where the final tax payable differsfrom the amounts that were initially recognized, these differences will affect the income tax and deferred
tax provisions in the period in which the differences are determined. Deferred tax assets are recognizedfor deductible temporary differences to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences can be used. When evaluating the realizability of adeferred tax asset, management uses significant accounting judgments and estimates, including expected
future revenue growth and profit margins, income tax exemption periods, the use of tax credits, tax
planning and certain assumptions. Changes in the industry environment and regulations will result in amaterial adjustment of the deferred tax asset.

- 30 -The Company’s management uses its judgment in selecting an appropriate valuation technique for financial
instruments with no quoted market prices in an active market. Valuation techniques commonly used bymarket practitioners are applied. For derivative financial instruments, assumptions are based on quoted
market rates adjusted for specific features of the instruments. Other financial instruments are valued using
a discounted cash flow analysis based on assumptions supported, where possible, by observable market
prices, interest rates or oil prices (if applicable). The chosen valuation techniques and assumptions used
may affect the fair value of financial instruments.

Fair Value of Derivatives and Other Financial Instruments

The Company assesses the receivables portfolio monthly for impairment. Impairment evidence may
include observable changes in debtors’ solvency and national or local economic conditions that correlatewith defaults on receivables settlement. Management’s analysis of expected cash flows is based on pastexperience of loss on assets with similar credit risk characteristics. The Company periodically reviews themethods of determining, and assumptions on, the expected amount and timing of cash flows to reduce thedifference between the estimated and the actual losses.

Estimated Impairment of Trade Receivables

Frequent Flyer Programs

Income Taxes- 31 -

When the carrying amount of noncurrent assets held for sale is lower than fair value, the difference between
the carrying amount and fair value is recognized as impairment loss, and the fair value was determinedbased on the quote of potential buyers, the market price of similar assets, etc.

Impairment of Noncurrent Assets Held for Sale

The impairment of flight equipment was based on the recoverable amount of those assets, which is thehigher of fair value less costs to sell or value-in-use of those assets. Any changes in the market price or
future cash flows will affect the recoverable amount of those assets and may lead to the recognition of
additional or reversal of impairment losses.

Impairment of Flight Equipment

Maintenance reserve is based on the requirement under lease contracts to reflect maintenance costs that may
arise on lease expirations. Estimation of this reserve is based on the past maintenance experience with thesame or similar type of aircraft; incurred overhaul costs; and historical operating performance data.
Changes in judgment or estimations may have a material impact on the amount of maintenance reserve.

Maintenance Reserve for Operating Lease Aircrafts

The present value of defined benefit obligations at the end of the reporting period are calculated using
actuarial assumptions. Those assumptions, which are based on management’s judgment and estimates,
comprise the discount rate and expected return on plan assets. Changes in actuarial assumptions may havea material impact on the amount of defined benefit obligations.

Defined Benefit Obligations

Flight equipment is depreciated on a straight-line basis at rates that can be used to write down their cost to
their estimated residual values at the end of their useful lives. The estimates of the useful lives andresidual values of the flight equipment are made by the Company on the basis of past experience and fleet
operation performance in the industry. Due to changes in the fleet plan, the board of directors of theCompany has decided to change the useful lives of four 747-400 (GE) from 20 to 16-17 years since January
1, 2018 in order to meet the economic benefits and number of years of consumption. It is estimated thatthe depreciation expense will increase by approximately NT$770 million annually.

Depreciation of Property, Plant and Equipment - Flight Equipment

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of thereporting period that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are discussed below.

Key Sources of Estimation Uncertainty

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised if the revisions affect only that
period or in the period of the revisions and future periods if the revisions affect both current and future
periods.

In the application of the Company’s accounting policies shown on Note 4, management is required to makejudgments, estimates and assumptions about the carrying amounts of assets and liabilities that are notreadily apparent from other sources. The estimates and associated assumptions are based on historicalexperience and other factors that are considered relevant. Actual results may differ from these estimates.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY

The overhaul costs of an owned or leased aircraft that meet the criteria for fixed asset capitalization andengines as replacement parts for aircraft and engines are capitalized and amortized over the expected annual
overhaul cycle using the straight-line depreciation method.

205$ 19,734,590

34,1297,208,550$ 16,563,559$

3,078,150
9,413,761

46,287
8,284,609

2016

3,098,063
5,134,600$

2017

December 31

0.08%-2%
1.3%-12.9%
0.42%-1.40%

0%-2%
0.59%-4.2%
0.38%-2.2%$ 23,629$--

Buy forward contracts

December 31, 2016

Buy forward contracts

December 31, 2017

NTD/USD

NTD/USD

Currency- 32 -

2017.01.26

2018.01.13-2019.01.31

Maturity Date

NTD32,258/USD1,000

NTD194,030/USD6,500

Notional Amount(In Thousands)

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge
accounting were as follows:

9,581

$

$

2017.03.09-2017.06.22

Maturity Date

1.01%-1.14%

Range ofInterest Rates
Paid

TAIBOR rate

Range of Interest Rates
Received- 33 -The Company entered into foreign exchange forward contracts to minimize the risk of changes inforeign currency rates on the cash flow exposure related to fuel payments and aircraft payments, which
will be paid in U.S. dollars.

b. Foreign exchange forward contracts

The interest rate swaps settle on a quarterly basis. The Company will settle the difference between the
fixed and floating interest rates on a net basis.

NT$ 2,500,000

December 31, 2016

Notional Amount(In Thousands)

The outstanding interest rate swap contracts at the end of the reporting period were as follows:

8,655
926

Derivative financial instruments (not under hedge accounting)Current
Noncurrent$

The Company entered into interest rate swap contracts to mitigate the risk of changes in interest rates on
the cash flow exposure related to the outstanding floating rate debt. All swapped fixed interest rate
swap out the floating rate interest rate swap contracts are designated as cash flow hedges.

1,200

Financial liabilities held for trading$a. Interest rate swaps$$ 84,633

Derivative financial instruments (not under hedge accounting)Foreign exchange forward contracts

2016$ 20,854
2,775

3,855
19,774$ 77,639
6,994$$ 54,671$ 51,403
3,268$ 54,671

2016$ 23,629

84,633

293

293
-

293

December 31$ 84,633

$

$

$

$

2017

The fair value of each derivative contract is determined using quotes from financial institutions.

-

December 31

Current
Noncurrent

Cash flow hedges
Interest rate swaps
Foreign exchange forward contracts

Derivative financial liabilities under hedge accounting

Current
Noncurrent

Cash flow hedges
Foreign exchange forward contracts

Derivative financial assets under hedge accounting

8. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

Financial assets held for trading - current

2017

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)Bank balanceTime deposits with original maturities of less than three months
Repurchase agreements collateralized by bonds

2016

2017

December 31

The market rate intervals of cash in banks and cash equivalents at the end of the reporting period were as
follows:

Cash on hand and revolving funds
Checking accounts and demand deposits
Cash equivalents
Time deposits with original maturities of less than three months
Repurchase agreements collateralized by bonds

6. CASH AND CASH EQUIVALENTS

206

NTD/USD

NTD/USD2017.01.13-2018.10.25

2018.01.16-2019.06.21

Maturity Date

NTD5,019,355/USD155,600

NTD6,649,254/USD222,750

Notional Amount(In Thousands)$ (345,675)(10,390)(71,630)$ (427,695)$ (52,034)(2,814)(11,654)$ (66,502)

Classified according to financial asset
measurement categories
Available-for-sale financial assets

Unlisted preference shares
Everest Investment Holdings Ltd.
(AH)

Unlisted common shares
Everest Investment Holdings Ltd.
(AH)
Jardine Air Terminal Services
Chung Hwa Express Co.

$

$

$

- 34 -

64,17764,177473

52,704
11,00063,704

-

14
15
11

473

52,70456,023
11,000119,727$ 120,200$ 120,200

$

-

14
15
11

December 31
2017
2016
Carrying% ofCarrying% ofAmountOwnership
AmountOwnership

9. FINANCIAL ASSETS CARRIED AT COST

The amount of gains and losses on hedging instruments for the year ended 2017 and 2016 reclassified
from profit or loss to prepayments for equipment was $100,367 thousand and $154,970 thousand,respectively.

Increase in operating costs
Increase in finance costs
Other foreign exchange losses

For the Year Ended December 31
2017
2016

Gains and losses on hedging instruments reclassified from equity to profit or loss were included in thefollowing line items in the statements of comprehensive income:Buy forward contracts

December 31, 2016

Buy forward contracts

December 31, 2017

Currency

The outstanding foreign exchange forward contracts at the end of the reporting period were as follows:$ 7,825,504

522,523$ 8,044,940

$

2016

7,450,185(147,204)
7,302,981

361,910December 31

7,825,667(142,637)
7,683,030$

2017$ 7,625,731
546,565
166,684$ 8,338,980$ 8,610,958

2016$ 7,970,618
569,294
71,046

December 31- 35 -The operating costs for the years ended December 31, 2017 and 2016 included losses from inventory
write-downs of $324,447 thousand and $196,000 thousand, respectively.

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services

2017$ 147,204$ 142,637
Ending Balance

11. INVENTORIES$$ 147,204
50,000(54,567)

Beginning balance
Impairment loss recognized on receivables
Amounts written off during current period

99,78849,878(2,462)For the Year Ended December 31
2017
2016

Movements in the allowance for impairment loss recognized on notes receivable and accounts receivable
were as follow:

The average credit period was 7 to 45 days. In determining the recoverability of an account receivable,
the Company considered any change in the credit quality of the account receivable since the date credit was
initially granted to the end of the reporting period, and the allowance for impairment loss was based on theestimated irrecoverable amounts determined by reference to the Company’s past default experience with therespective counterparties and analyses of their current financial positions.

Accounts receivable
Less: Allowance for impairment loss

Accounts receivable

Notes receivable

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

On the reporting date, the above unlisted share investments held by the Company were measured at cost
after deducting impairment losses because their ranges of reasonable fair value estimates were significant
and unable to be reasonably evaluated. Thus, the management considered their fair values unable to bemeasured.

207$ 185,100-

2016$ 185,100

2017$ 309,330
117,223$ 426,553

December 31

Cal Park
Mandarin Airlines
Cal-Dynasty International
Taiwan Air Cargo Terminal
Tigerair Taiwan Co., Ltd.
Taoyuan International Airport Services
Cal-Asia Investment
Sabre Travel Network (Taiwan)
Cal Hotel
Taiwan Airport Services
Hwa Hsia

Unlisted companies

a. Investment in subsidiaries

Investments in subsidiaries
Investments in associates
Investments in jointly controlled entities- 36 -

9,827,299
793,477
930,5932016$ 1,529,375
1,125,057
1,244,328
1,261,894
362,861
649,189
450,305
438,502387,375
231,316
71,534(Continued)

December 31$ 1,522,696
1,211,739
1,185,323
1,339,450
915,135
654,104
478,933
450,600
435,965
259,459
83,014

2017

7,925,771
1,319,526
806,0282016$ 10,051,325$

December 31$ 11,551,369

$

2017

13. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Long-term equity investments in Asian Compressor Technology Services were reclassified to noncurrent
assets held for sale. For related information, refer to Note 13,b.

In 2017 and 2016, the Company recognized impairment losses of $3,571,301 thousand and $347,868
thousand, respectively. In 2017 and 2016, the Company recognized disposal gains and losses of $252,467
thousand and $(26,429) thousand, respectively. The fair value was determined by transactions of therelated market, and the proposed sale price was based on the current status of the aircrafts. The fair value
is classified as level 3.

To enhance its competitiveness, the Company plans to introduce new aircrafts and retire old aircrafts
according to a planned schedule. Such aircrafts, classified as noncurrent assets held for sale, had an
original book value which was higher than the expected sale price and which was recognized as an
impairment loss. However, the actual loss shall be identified by the actual sale price.

Aircrafts held for saleLong-term equity investments held for sale - Asian Compressor
technology services

12. NONCURRENT ASSETS HELD FOR SALE

$ 9,827,299$ 1,231,548
25,90425,992
7,437-

110,128
25,46430,961
7,418
32
32

2016

$ 7,925,771(Continued)$

December 31

90%
54%
100%
94%
100%
49%
100%
94%
47%
100%
100%
100%
51%
100%
25%
-

2016
80%
54%
100%
94%
100%
49%
100%
94%
47%
100%
100%
100%
51%
100%
25%
100%
100%

December 31- 37 -The board of directors reached an agreement to purchase 10% of the shares of Tigerair Taiwan Co., Ltd.,
which was held by Roar Aviation III Pte. Ltd., in December 2016. The transaction was completed in
January 2017.

The Company increased its investment in Taiwan Aircraft Maintenance and Engineering Co., Ltd., withpayments of $490,000 thousand, $700,000 thousand and $100,000 thousand in April and November
2017 and October 2016, respectively, for the purpose of building hangars.

The Company liquidated Freighter Princess Ltd. and Freighter Prince Ltd., because the lease contracts
related to these subsidiaries expired. A disposal loss of $61 thousand was recognized.

Each of the Company’s holdings of the issued share capital of Taoyuan International Airport Service,Taiwan Airport Service and Global Sky Express did not exceed 50%, but since the Company had
control over these investees, they were listed as subsidiaries.

Tigerair Taiwan Co., Ltd.
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
Taoyuan International Airport Services
Cal-Asia Investment
Sabre Travel Network (Taiwan)
Taiwan Airport Services
Cal Hotel
Hwa Hsia
Taiwan Aircraft Maintenance And Engineering Co., Ltd.
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.

2017

At the end of the reporting period, the proportion of ownership and voting rights in subsidiaries held by
the Company were as follows:

Taiwan Aircraft Maintenance And Engineering Co., Ltd.
Yestrip
Dynasty Holidays
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.

2017

208
493,077
300,400
793,477

$

$

2017

$

515,051
267,371
279,176
257,9282016(391,718)$ 1,319,526$

December 31$ 1,146,623

2016

20%
36%
-

December 31

20%
36%
25%
26%

2016

24,47086,757
88,943
21,819$ 221,989$

51,02875,674
109,815
26,136$ 262,653$

2016- 38 -In October 2017, the Company signed a contract with a non-related party, MB Aerospace, to sell all of
its holdings of Asian Compressor Technology Services, and the Company reclassified its holdings ofAsian Compressor Technology Services as noncurrent assets held for sale at book value. The
transaction was completed and all payments were settled in January 2018.

In August 2017, the Company sold all of its holdings of Science Park Logistics to a non-related party,
HCT Logistics Co., Ltd. The agreed upon price was $380,850 thousand, and a disposal gain of$101,166 thousand was recognized.

China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics

2017

The recognized investment income of associates accounted for using the equity method were as
follows:

China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics

2017

As the end of the reporting period, the proportion of ownership and voting rights in associates held by
the Company were as follows:

China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics

Unlisted companies

b. Investments in associates

The share of profit or loss

2017

The share of profit or loss of subsidiaries recognized under the equity method was as follows:$ 806,028$ 930,593

2016$ 638,980
167,048-

December 31$ 756,965
171,229
2,399

2017

51%
55%
49%

December 31

51%
55%
-

2016

$ 259,174$ 229,667$ 208,039
21,628-$ 235,871
23,354(51)- 39 -

The financial statements used as a basis of the amounts of and related information on the investments
accounted for using the equity method and the share of profit or loss and other comprehensive incomeof those investments for the years ended December 31, 2017 and 2016 were all independently audited,
except of China Aircraft Services and Nordam Asia Limited. However, the management determinedthat there would have been no significant adjustments had this investee’s financial statements been
independently audited.

The Company’s shares of other comprehensive income of subsidiaries, associates and jointly controlled
entities were losses of $(223,164) thousand and $(238,854) thousand in 2017 and 2016, respectively.

China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia

2016

2017

December 31

Details of the investment income attributable to investments in jointly controlled entities were as
follows:

To enhance the Company's maintenance capabilities, the Company established a joint venture with the
US Nordam Aerospace Company in December 2017 to provide thrust reversers and composite repair
services in Asia under the Nordam brand.

The Company signed a joint venture agreement with the Taikoo Company to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both parties havethe majority power in the board of directors to pose a motion for veto, and therefore the Company does
not have control.

China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia

2017

At the end of the reporting period, the percentages of ownership and voting rights in jointly controlled
entities held by the Company were as follows:

China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia

The investments in jointly controlled entities were as follows:c. Investments in jointly controlled entities

209

$

$

$

$

$

$

$

$

-

-

193,013

193,013---

193,013

193,013
-

$

$

$

$

$

$

$

$

(3,717,055)(3,550,002)(170,979)
3,926-

7,304,328

7,277,753
32,517(5,942)-(3,550,002)(3,449,160)(174,689)
73,847-

7,277,753

7,323,803
61,704(108,160)
406

Buildings$ (135,671,634)$ (135,129,522)(15,017,928)
4,022,065(690,579)
11,144,330$ 261,114,631$ 246,308,549
662,706(4,549,486)
18,692,862$ (135,129,522)$ (128,886,336)(14,058,579)
5,609,896(717,758)
2,923,255$ 246,308,549$ 228,454,181
1,814,211(6,336,888)
22,377,045

FlightEquipment- 40 -

Reclassification is mainly from prepaid equipment.

Balance at December 31,
2017

Balance at January 1,
2017
Depreciation expense
Disposals
Impairment losses
Reclassification

Accumulated depreciationand impairment

Balance at December 31,
2017

Balance at January 1,
2017
Additions
Disposals
Reclassification

Cost

Balance at December 31,
2016

Balance at January 1,
2016
Depreciation expense
Disposals
Impairment losses
Reclassification

Accumulated depreciationand impairment

Balance at December 31,
2016

Balance at January 1,
2016
Additions
Disposals
Reclassification

Cost

Freehold Land

14. PROPERTY, PLANT AND EQUIPMENT

28,307,255

27,481,679(393,403)
1,218,979

25,594,436

28,307,255(479,936)(2,232,883)$ (13,613,023)$ (15,347,140)(1,889,207)
619,775
3,003,549$$$ (15,347,140)$ (13,715,235)(2,031,998)
393,403
6,690

$

$

Equipment
under FinanceLeases

$

$

$

$

$

$

$

$

(5,102,584)(5,014,501)(297,080)
200,761
8,236

6,163,436

6,076,227
257,995(211,216)
40,430(5,014,501)(4,847,510)(323,492)
155,518983

6,076,227

5,892,037
320,106(158,177)
22,261Others$ (158,104,296)$ (159,041,165)(17,375,194)
4,846,527(690,579)
14,156,115$ 300,369,844$ 288,162,797
953,218(5,246,580)
16,500,409$ (159,041,165)$ (150,898,241)(16,588,758)
6,232,664(717,758)
2,930,928$ 288,162,797$ 269,344,713
2,196,021(6,996,628)
23,618,691

Total

For details on services, major business offices and the country where the above associates and jointly
controlled entities are registered, refer to Table 6, “Names, Locations, And Other Information of
Investees Over Which the Company Exercises Significant Influence” and, Table 7, “Investments In
Mainland China”, following the Notes to Financial Statements.

18-25 years
10-20 years
12-20 years
6-8 years
3-10 years
8-12 years
3-15 years
5-12 years

5 years
3-5 years

25 years
3-13 years
3-15 years

45-55 years
10-25 years

2016$ 2,047,448

December 31$ 2,047,448

2017- 41 -All of the Company’s investment properties were held under freehold interest.

The fair value of the investment properties held by the Company are $2,473,771 thousand and $2,316,300
thousand as of December 31, 2017 and 2016, respectively. The fair value valuation was performed byindependent qualified professional valuers, and the future income evaluated by management was based onmarket transactions.

The investment properties (land) held by the Company located in Nankan were leased to others.

Carrying amount
Investment properties

15. INVESTMENT PROPERTIES

Based on the particularity of risk in the aviation industry, all of the Company’s assets such as aircrafts, realestate, and movable property are adequately insured to diversify the potential risk related to operations.

Refer to Note 32 for the carrying amounts of property, plant and equipment pledged by the Company.

Regarding changes in fleet composition, current and forecasted market values, and other technical factors,
the Company recognized impairment losses on a part of aircraft equipment of $690,579 thousand and$717,758 thousand in 2017 and 2016, respectively.

Building
Main buildings
Others
Machinery and equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersFlight equipment and equipment under finance leases
Airframes
Aircraft cabins
EnginesHeavy maintenance on aircrafts
Engine overhauls
Landing gear overhauls
Repairable spare parts
Improvement of aircrafts

The above items of property, plant and equipment were depreciated on a straight-line basis over theestimated useful life of the asset:

210
$
$

$

$ 1,783,403$ 1,783,403
121,951-$ 1,905,354

Balance at December 31, 2016

Balance at January 1, 2017
Additions
Amortization expense

Balance at December 31, 2017

(916,027)(668,302)(247,725)(668,302)(529,748)(138,554)-

990,307265,615(138,554)(2,267)$989,327$ 1,115,101
121,951(247,725)$ 1,115,101$

Net Value$ 23,422,263

2,476,800$ 12,091,486$

166,236
2,091,371
219,193$ 21,845,682
1,036,525
521,229
18,827

3,219,735

$

$

2016

$ 10,578,892
1,069,595
424,196
18,803

315,372
2,391,132
513,231$2017

December 31- 42 -The prepayments for aircrafts comprised the prepaid deposits and capitalized interest from the purchase of
A350-900 aircrafts. For details of the A350-900 aircrafts purchase contracts, refer to Note 33. The
rights to purchase the six confirmed orders of 777-300ER aircrafts were transferred to the aircraft leasing
company upon delivery of the aircrafts. Then, all six aircrafts were leased back. As of May 2016, all theaircrafts had been delivered, and the Company was refunded with deposits for the aircraft purchases.

Prepayments for aircrafts
Prepayments - long-term
Refundable deposits
Other financial assets

Noncurrent

Temporary payments
Prepayments
OthersCurrent

17. OTHER ASSETS

The above items of other intangible assets were amortized on a straight-line basis over 2-10 years.

$

Accumulated
Amortization$ 1,520,055
265,615(2,267)

Computer
Software Costs

Balance at January 1, 2016
Additions
Amortization expense
Reclassification

16. OTHER INTANGIBLE ASSETS

2017

-

$ 61,907,97826,100,000
37,89780,722,611
18,814,633

2016$ 52,833,478

37,200,000
64,186
84,649,618
31,816,140$ 31,183,999
16,329,805

2016

0.758%$ 900,000$ 900,000-

December 31--

December 31$ 23,949,000
30,711,508

$

$

2017

December 31, 2017
December 31, 2016

Interest rates

December 31, 2017
December 31, 2016

Translated to New Taiwan dollars

December 31, 2017
December 31, 2016

Original currency- 43 -

0.92%-1.56%
0.92%-1.60%

54,660,508
46,464,267$ 54,660,508
46,464,267

1,049,537

32,5360.8539%-4.39%(Continued)$

Currency
New Taiwan
Dollars
U.S. Dollars

Bank loans (New Taiwan dollars and U.S. dollars) are repayable quarterly, semiannually or in lumpsum upon maturity. Related information is summarized as follows:

For information on secured bank loans which were secured by buildings, machinery equipment andflight equipment, refer to Note 32.

Less: Current portion

Unsecured bank loans
Secured bank loans
Commercial paper
Proceeds from issue
Less: Unamortized discountb. Long-term debts

Annual discount rate

Commercial paper
Less: Unamortized discount on bills payablea. Short-term bills payable

18. BORROWINGS

211

2007/5/242029/11/9
2005/3/42028/10/18
2005/1/182017/9/21(Concluded)-

2013.01.172018.01.17

Five-year private unsecured bonds - issued
at par in January 2013; repayable in
January 2017 and 2018; 1.6% interestp.a., payable annually
Seven-year private unsecured bonds issued at par in January 2013; repayable
in January 2019 and 2020; 1.85% interestp.a., payable annually
Five-year unsecured bonds - issued at par in
May 2016; repayable in May 2020 and2021; 1.19% interest p.a., payableannually- 44 -

2016.05.262021.05.26

2013.01.172020.01.17

PeriodCategory

Related issuance conditions were as follows:

Less: Current portion and put option of convertible bonds

Unsecured corporate bonds first-time issued in 2013
Unsecured corporate bonds first-time issued in 2016
Unsecured corporate bonds second-time issued in 2016
Unsecured corporate bonds first-time issued in 2017
Unsecured corporate bonds second-time issued in 2017
Convertible bonds - fifth issue

19. BONDS PAYABLE

1.19

1.85

1.6

(Continued)

Principal repayable in
January of 2017 and2018; indicator rate;
payable annuallyPrincipal repayable in
January of 2019 and2020; indicator rate;
payable annuallyPrincipal repayable in May
of 2020 and 2021; interest
p.a. payable annually

Rate
(%)

$ 19,838,044$ 21,350,000

Conditions$ 10,900,000
5,000,000
5,000,000
1,638,044
22,538,044
2,700,000

2016

8,200,000
5,000,000
5,000,000
2,350,000
3,500,000
1,667,100
25,717,100
4,367,100$

2017

December 31

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The
NIFs, with various maturities until December 2021, were used by the Company to guarantee
commercial paper which it issued. The commercial paper was issued at discount rates of
0.9983%-1.2897% in 2017 and 1.0510%-1.4580% in 2016.

December 31, 2016

December 31, 2017

Periods

Currency
New Taiwan
Dollars
U.S. Dollars

Principal repayable on due
date; indicator rate;
payable annuallyPrincipal repayable on due
date; indicator rate;
payable annually2017.5.192024.5.19

2017.10.122020.10.12- 45 -

c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.

b. The holders can request that the Company repurchase their bonds at 100.75% face value on the third
anniversary of the offering date. Because the holders can exercise selling rights on December 26,
2016, the Company reclassified the bonds payable to “current portion of bonds payable” in December
2015. The Company paid $994,705 thousand to the holders of the bonds payable who exercised theput options, and the difference between the payment amount and carrying amount recognized was a loss
on the bonds payable buy back of $41,943 thousand, for which the Company reclassified the remaining
face value to noncurrent assets.

a. The holders may demand a lump-sum payment for the bonds upon maturity.

The Company issued the fifth issue of unsecured convertible bonds, and the issuance conditions were as
follows:

The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand,and the purchasers of the bonds included Mandarin Airlines Co., Ltd. and Sabre Travel Network (Taiwan)Co., Ltd., who held a face value of $300,000 thousand which were eliminated in the Company’s
consolidated financial statements.

2013.12.262018.12.26

2017.10.122022.10.12

1.14

1.75

1.20

1.08

Rate
(%)

Principal repayable in
1.45
October of 2021 and2022; indicator rate;
payable annually
Except for converting toshare capital or buying
back, principal repayable
in December of 2018
(Concluded)

Principal repayable in
September of 2020 and2021; interest p.a. payableannually
Principal repayable on due
date; indicator rate;
payable annually

2016.09.272021.09.27

Five-year unsecured bonds - issued at par in
September 2016; repayable in September
2020 and 2021; 1.08% interest p.a.,payable annually
Three-year private unsecured bonds - issued
at par in May 2017; repayable on due
date; interest of 1.2% p.a., payableannually
Seven-year private unsecured bonds issued at par in May 2017; repayable ondue date; interest of 1.75% p.a., payableannually
Three-year private unsecured bonds - issued
at par in October 2017; repayable on due
date; interest of 1.14% p.a., payableannually
Five-year private unsecured bonds - issued
at par in October 2017; repayable in
October 2021 and 2022; 1.45% interestp.a., payable annually
Five-year convertible bonds - issued at
discount in December 2013; repayable inlump sum upon maturity; 1.8245%
discount rate p.a.

2017.5.192020.5.19

Conditions

PeriodCategory

212$ 1,254,000
3,562,000$ 4,816,000
1.0323%1.0980%$ 1,580,000
596,000$ 2,176,000
1.0617%1.1317%

Current
Noncurrent- 46 -The Company rented planes, headquarters, and hangars under various operating lease contracts expiring
on various dates until May 2028. The Company does not have a bargain purchase option to acquire
the leased planes and hangars at the expiration of the lease periods.

b. Operating leases (including sale-leasebacks - operating leases)

The Company had leased A330-300 aircrafts, totaling three aircrafts, under sale-leaseback financeleases as of December 31, 2017. The lease terms are from June 2006 to April 2019. During the leaseterm, the Company retained all risks and rewards attached to the aircrafts and engines and enjoyed thesame substantive rights as were enjoyed prior to the transaction. Interest rate underlying all
obligations under finance leases were floated. Therefore, the minimum lease payments under thesale-leaseback aircraft contracts are not inclusive of interest expense.

Interest rate

$ 4,816,000$ 2,176,000

Present value of minimum lease payments

2016$ 1,254,000
3,562,000

December 31$ 1,580,000
596,000

2017

Within one year
Beyond one year and within five years

Minimum lease payments - flight equipmenta. Sale-leasebacks - finance leases

20. LEASING$ 81,262,826$ 76,300,616

Fuel costs
Ground service expenses
Repair expenses
Interest expenses
Short-term employee benefits
Terminal surcharges
Commission expenses
Others

21. OTHER PAYABLES

Minimum lease payments- 47 -

9,889,910
38,106,256
33,266,660$$ 10,145,139
39,313,550
26,841,927

3,243,742
1,089,306
842,845
290,9022,332,644
659,454407,109
2,042,750$$

9,634,022

2,490,290
1,158,563
848,200
288,038
1,668,366
668,710
391,857
2,119,998

2016$ 9,662,625

December 31$ 10,908,752

$

2017

$ 9,989,732

For the Year Ended December 31
2017
2016

The lease payments recognized in profit or loss for the current period were as follows:

Up to 1 year
Over 1 year to 5 years
Over 5 years

2016$ 5,481,379

Liability component at the date of issuance

On November 5, 2017, the Company’s board of directors resolved to issue its 2018 second, five-year
unsecured convertible bonds for $6,012,000 thousand, at a coupon rate of 100.2% and a conversion priceset at NT$13.2, on January 30, 2018.

The minimum lease payments in the future for the non-cancelable operating lease commitments were as
follows:$ 6,000,000(518,621)

Proceeds from issuance
Equity component

December 31

As of December 31, 2017 and 2016, the refundable deposits paid by the Company under operating lease
contracts were $208,995 thousand and $293,188 thousand, respectively. Part of the refundable
deposits is secured by credit guarantees. The credit guarantees were $1,394,791 thousand and$1,459,935 thousand, respectively.

The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability
component was 1.8245% per annum on initial recognition.

2017

The rental rates stated in the aircraft lease agreements are fixed or floated. If the agreed-upon rental
rate is floating and will be revised monthly or semiannually. Subleasing is not allowed for all the leasearrangements. As of December 31, 2017, the Company has rented eleven A330-300 aircrafts, fifteen
737-800 aircrafts and ten 777-300ER aircrafts under operating contracts; the lease terms range from 8 to
12 years.

d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s common shares. The initial conversion price was set at NT$12.24, which is subject toadjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of July 31, 2016, there was adjustment the conversion price to NT$11.64, corporate bonds with aface value of $3,316,800 thousand had been converted to 270,985 thousand units of common shares.

213$ 15,213,130$ 15,866,290$$

Current
Noncurrent$ 6,770,951$ 6,770,951$ 6,770,951
2,524,079(1,138,140)(398,239)$ 7,758,651

Balance at December 31, 2016

Balance at January 1, 2017
Additional provisions recognized
Usage
Effect of exchange rate changes

Balance at December 31, 2017

- 48 -$ 5,033,257
2,011,115(366,218)
92,797

Balance at January 1, 2016
Additional provisions recognized
Usage
Effect of exchange rate changes

Aircraft Lease
Contract

The Company rented flight equipment under operating lease agreements. Under the contracts (some of theleased flight equipment’s lease payments are calculated monthly), when the lease expires and the equipment
is returned to the lessor, the flight equipment has to be repaired according to the expected years of use,
number of flight hours, flight cycle and the number of engine revolutions. The Company had existingobligations to recognize provisions when signing a lease or during the lease term.

$ 7,758,651

6,770,951$ 6,770,951$ 7,758,651

Operating leases - aircrafts
406,457
7,352,194

2016

December 31$ 13,404,227
1,808,903

2,427,565
12,785,565$ 14,048,025
1,818,265$

2016$ 15,213,130

2,450,702
13,415,588

December 31$ 15,866,290

$

2017

2017

23. PROVISIONS

Current
Noncurrent

Frequent flyer programs
Advance ticket sales

22. DEFERRED REVENUE

Balance at January 1, 2016
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial gain - changes in financial
assumptions
Actuarial loss - experience adjustments
Recognized in other comprehensive income- 49 -(4,826)(4,826)(147,479)
741,687594,208(18,079)(18,079)$ (1,803,890)

Fair Value ofthe Plan Assets

639,972
114,773754,745$ 10,769,419

Present Valueof the Defined
BenefitObligation

Movements in net defined benefit liabilities (assets) were as follows:$(147,479)
741,687
589,382(Continued)(4,826)

639,972
96,694
736,666

8,965,529

Net Defined
BenefitLiabilities(Assets)

6,217,346$$

Net defined benefit liabilities

6,158,744$ 11,176,204(4,958,858)

2016$ 11,956,223(5,797,479)

December 31

Present value of defined benefit obligation
Fair value of plan assets

2017

The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as
follows:

Before the end of each year, the Company assesses the balance in the pension fund. If the amount of
the balance in the pension fund is inadequate to pay retirement benefits for employees who conform toretirement requirements in the next year, the Company is required to fund the difference in one
appropriation that should be made before the end of March of the next year. The pension fund ismanaged by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right toinfluence the investment policy and strategy.

The Company adopted the defined benefit plan under the Labor Standards Law, under which pension
benefits are calculated on the basis of the length of service and average monthly salaries of the six
months before retirement. The Company contribute amounts equal to 15% of total monthly salaries
and wages to a pension fund administered by the pension fund monitoring committee. Pension
contributions are deposited in the Bank of Taiwan in the committee’s name.

b. Defined benefit plans

The Company adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, an entity makes monthly contributions toemployees’ individual pension accounts at 6% of monthly salaries and wages.

a. Defined contribution plans

24. RETIREMENT BENEFIT PLANS

214(61,568)(61,568)

15,362
15,362(1,482,710)
690,295$ (5,797,479)

832,125
126,826
958,951

372,284
257,573
629,857(690,295)(118,494)$ 11,956,223$

6,158,744(Concluded)(118,494)

372,284
257,573645,219(1,482,710)-

15,362

832,125
65,258897,383(165,978)6,217,346$ (3,908,253)-

Net Defined
BenefitLiabilities(Assets)

Discount rate
Expected rate of salary increase- 50 -

2016
1.29%
1.00%

December 31

1.01%
1.00%

2017

The actuarial valuations of the present value of the defined benefit obligation were carried out by
qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations wereas follows:3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the
future salaries of plan participants. Thus, an increase in the salaries of the plan participants will
increase the present value of the defined benefit obligations.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on theplan’s debt investments.

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities,bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the
mandated management. Based on relevant regulations, the return generated by plan assets should
not be below the interest rate for a two-year time deposit with local banks.

Through the defined benefit plans under the Labor Standards Law, the Company is exposed to thefollowing risks:(4,958,858)(165,978)11,176,204

Balance at December 31, 2017

$ (3,908,253)
776,190

Fair Value ofthe Plan Assets(776,190)$

Contributions from the employer
Benefits paid
Payment to employees direct from theemployer
Balance at December 31, 2016
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial gain - changes in financial
assumptions
Actuarial loss - experience adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
Payment to employees direct from theemployer

Present Valueof the Defined
BenefitObligation$ (496,081)$ 538,301$ 517,191$ (485,527)$ 557,651$ (523,509)

2016$ (534,890)$ 580,412

December 31

10 years

The average duration of the defined benefit obligation2016
6,000,000$ 60,000,000$ 54,708,901

6,000,000$ 60,000,000$ 54,709,846

December 31
2017- 51 -For the years ended December 31, 2017, the Company issued the 5th domestic unsecured convertible
bonds, and holders of such bonds amounting to $1,100 thousand applied for conversion, for which 95
thousand of the Company’s common shares were exchanged. In accordance with the law, theCompany may apply for a change of registration after issuing new shares.

Numbers of shares authorized (in thousands)
Amount of shares authorized
Amount of shares issued

Common sharesa. Share capital

25. EQUITY$ 691,530$ 688,096

The expected contributions to the plan for the next year

10 years

2016

2017

December 31

The sensitivity analysis presented above may not be representative of the actual change in the present
value of the defined benefit obligation as it is unlikely that the change in assumptions would occur inisolation of one another as some of the assumptions may be correlated.

Discount rate
0.5% increase
0.5% decrease
Expected rate of salary increase
0.5% increase
0.5% decrease2017

If possible reasonable change in each of the significant actuarial assumptions will occur and all otherassumptions will remain constant, the present value of the defined benefit obligation would increase(decrease) as follows:

215$ 799,932$ 799,999
Legal reserve
Special reserve
Cash dividends$

145,831
118,810
1,193,670

Appropriationof Earnings$0.2181820086

Dividends Per
Share (NT$)

The appropriation of earnings for 2017 should be resolved in the board of directors meeting to beheld on March 22, 2018. The appropriation and dividends per share were as follows:

Legal reserve
Special reserve
Cash dividends- 52 -$

287,224
76,4862,508,525

Appropriationof Earnings$0.458522382

Dividends Per
Share (NT$)

The appropriation and dividends per share resolved in the shareholders’ meeting on June 24, 2016
were as follows:

1) Appropriation of earnings and dividends per share in 2015

The distribution of profit surplus shall be approved in the annual shareholders’ meeting held in thefollowing year and shall be accounted for in that year.

According to amended Company Act, where the Company made profit in a fiscal year, the profit shallbe first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10%of the remaining profit, setting aside or reversing a special reserve in accordance with the laws andregulations, and then any remaining profit together with any undistributed retained earnings shall be
used by the Company’s board of directors as the basis for proposing a distribution plan with due
consideration of any future aircraft acquisition plans and fund demand, which should be resolved in theshareholders’ meeting for the distribution of dividends and bonuses to shareholders by cash or shares(cash dividends cannot be less than 30% of total dividends distributed). However, if the Company’s
profit before tax in a fiscal year after deductions for the abovementioned items is not sufficient forearnings distribution, retained earnings can be used as a supplement for the deficiency. If theCompany has no deficit in a fiscal year, the Company can distribute all or part of the capital surplus bycash or shares with due consideration of finance, marketing and management requirements inaccordance with the laws and regulations.

c. Appropriation of earnings and dividend policy

Balance at December 31, 2016

Balance at January 1, 2016
Exchange differences ontranslating the foreign
operations
Cumulative loss arising onchanges in fair value ofhedging instruments
Cumulative gain arising onchanges in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax$- 53 -

78,564(12,909)
13,618

-

$

1,714

(41)
-

-

-

-

1,755

-

$

(80,104)$ 157,959

Unrealized
Exchange
Differences on Gain (Loss) on
Translating
Available-forForeign
sale Financial
Operations
AssetsThe movement of other equity items is as follows:d. Other equity items$

31,986

8,893(51,019)582,665(282,556)-$ (225,997)

Cash Flow
Hedges$ 112,264(Continued)(4,057)(37,401)

582,665(282,556)(80,104)$ (66,283)

Total

When the Company distributes undistributed earnings for the years after 1998, except for non-ROC
residents shareholders, all shareholders can receive an imputation tax credit calculated according to theTax Deduction Ratio on the distribution date.

2,673
11,747
1,019
146,684
85,3392,673
11,747955
146,589
85,3393) Appropriation of earnings and dividends per share in 2017

The capital surplus from long-term investments and employee shares options expired and dividends
distributed to subsidiaries may not be used for any purpose, expect for offsetting a deficit. As forcapital surplus from conversion of convertible bonds payable may not be used for any purpose.

$ 552,470$ 552,696

The legal reserve of $81,132 thousand and special reserve of $76,486 thousand used to offset
deficits was resolved by the shareholders in their meeting on June 22, 2017.

The appropriation of earnings should be resolved in the shareholders’ meeting to be held on June 27,
2018.

2016

December 31
20172) Appropriation of earnings in 2016

The capital surplus from shares issued in excess of par (additional paid-in capital from issuance ofcommon shares) may be used to offset a deficit; in addition, when the Company has no deficit, suchcapital surplus may be distributed as cash dividends or transferred to capital (limited to a certain
percentage of the Company’s paid-in capital).

Issue of shares in excess of par value and conversion premium
Distribution of cash dividends to treasury shares held bysubsidiaries
Expired employee share options
Long-term investments
Bonds payable equity component
Othersb. Capital surplus

216
1,774

$ (34,986)(9,653)
19,818

166,869(283,449)-

31,986$ (74,429)$

Cash Flow
Hedges$ (107,641)(Concluded)(11,212)42,744

166,869(283,449)(134,857)$ 112,264

Total- 54 -

Company’s shares held by its subsidiaries reclassified frominvestment in shares to treasury shares

For the year ended December 31, 2016

Company’s shares held by its subsidiaries reclassified frominvestment in shares to treasury shares

For the year ended December 31, 2017

Purpose of Treasury Shares

2,889

2,889

Number of
Shares,Beginningof Year--

Reduction
Duringthe Year

2,889

2,889

Number of
Shares,Endof YearTreasury shares are the Company’s shares held by its subsidiaries, as of December 31, 2017 and 2016
were as follows:(Shares in Thousands)e. Treasury shares60-(1,619)22,926$--

Balance at December 31, 2017

-

1,714

-

$

-

78,564(134,857)$

Balance at January 1, 2017
Exchange differences arising ontranslating the foreign
operations
Cumulative loss arising onchanges in fair value ofhedging instruments
Cumulative gain arising onchanges in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax

Unrealized
Exchange
Differences on Gain (Loss) on
Translating
Available-forForeign
sale Financial
Operations
Assets

2,075
814

2,075
814

Shares(In Thousands)$ 19,294
7,572$ 26,866$ 26,866$ 33,654$ 33,654$ 19,294
7,572$ 24,169
9,485

Market Value$ 24,169
9,485

Carrying
AmountInterest income
Subsidy income
Dividend income
Othersb. Other income

Passenger
Cargo
Othersa. Revenue

26. NET INCOME- 55 -$ 127,524,864$ 86,298,238
35,353,349
5,873,277$ 188,006
168,377
59,099177,969$ 593,451$ 176,329
32,332
9,564
142,755$ 360,980

For the Year Ended December 31
2017
2016

$ 139,815,211$ 90,560,375
42,970,102
6,284,734

For the Year Ended December 31
2017
2016

The above acquisitions by subsidiaries of the Company’s shares in previous years was due toinvestment planning. The shares of the Company held by its subsidiaries were treated as treasury
shares. The subsidiaries can exercise shareholders’ rights on these treasury shares, except for therights to subscribe for the Company’s new shares and voting rights.

Mandarin Airlines
Hwa Hsia

December 31, 2016

Mandarin Airlines
Hwa Hsia

December 31, 2017

Subsidiary217

258,306(33,385)
101,105
4,920(3,571,301)(690,579)(56,023)(993,913)$ (4,980,870)$

54,188(29,909)(164)(495,350)(347,868)(717,758)(874,060)$ (2,410,921)$

For the Year Ended December 31
2017
2016

Property, plant and equipment
Intangible assets

e. Depreciation and amortization expenses

Capitalization interest
Capitalization rate

- 56 -

Information about capitalized interest was as follows:

Interest expense
Bonds payable
Bank loans
Interest on obligations under finance leases
Loss on derivatives designated as hedging instruments in cash
flow hedge accounting relationships reclassified from equity
to profit or loss

d. Finance costs$ 419,593
1.45%-1.73%$ 16,588,758
138,554$ 16,727,312(Continued)$ 17,375,194
247,725$ 17,622,919

For the Year Ended December 31
2017
2016

$ 212,557
1.31%-1.41%$ 1,221,588

297,032
845,987
68,179$ 1,277,807$

10,390321,457
907,915
45,621

2,814$

For the Year Ended December 31
2017
2016

The Company has been named as a defendant, together with other airline members of the Association ofAsia Pacific Airlines, in a civil class action lawsuit filed at the U.S. Northern District Court ofCalifornia by a group of passengers who alleged that there was an antitrust violation in December 2007.
After consulting with the lawyers and considering the cost of litigation, the Company settled with theplaintiff in the amount of US$19,500 thousand, and the settlement was recognized in 2017 financial
statement. The settlement funds will be divided into four-phase payments in three years.

Gain on disposal property, plant and equipment and noncurrent
assets held for sale
Net loss on financial assets as held for trading
Gain (loss) on disposal of investment
Gain (loss) on foreign exchange, net
Impairment loss recognized on noncurrent assets held for saleImpairment loss recognized on flight equipment
Impairment loss on financial assets carried at cost
Othersc. Other gains and losses$

138,554(Concluded)

1,241,611$$ 21,224,769$ 17,376,793
3,847,976$ 19,983,158$ 15,179,456
1,167,348
3,636,354

344,228
897,383$

1,049,178

312,512736,666$ 19,719,636$ 15,901,818
3,817,818$ 18,670,458$ 14,176,230
1,175,417
3,318,811$$

For the Year Ended December 31
2017
2016

247,725$ 16,588,758$ 17,375,194$$ 16,290,250
298,508$ 17,097,228
277,966- 57 -

Information on the employees’ compensation and remuneration of directors and supervisors resolved by
the Company’s board of directors in 2017 and 2016 are available on the Market Observation Post
System website of the Taiwan Stock Exchange.

Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date the annual financial statements are authorized for issue are adjusted in
the year that the bonus and remuneration were recognized. If there is a change in the proposed
amounts after the annual financial statements were authorized for issue, the differences are recorded asa change in the accounting estimate.

The Company distributes employees’ compensation at rates of no less than 3% of net profit before
income tax and employees’ compensation. For the years ended December 31, 2017 and 2016,
employees’ compensation was $799,768 thousand and $382,318 thousand, respectively, of the base net
profit.

An analysis of employee benefits expense by function
Operating costs
Operating expenses

Other employee benefits
Salary expenses
Labor and health insurance
Personnel service expenses

Post-employment benefits
Defined contribution plans
Defined benefit plans

f. Employee benefits expense

An analysis of amortization by function
Operating expenses

An analysis of deprecation by function
Operating costs
Operating expenses

For the Year Ended December 31
2017
2016

218
$ 965,711

19,624(116)$ 880,137$

946,203

27,142
1,617
851,378$

For the Year Ended December 31
2017
2016

- 58 -

Total income tax recognized in other comprehensive income

Recognized in other comprehensive income
Translation of foreign operations
Fair value revaluation of hedging instruments for cash flow
hedgesActuarial gain or loss on defined benefit plan

Deferred tax

b. Income tax recognized in other comprehensive income

965,71162,794$

13,618$ 152,431$(51,019)
100,195

22,926
19,818109,687$

For the Year Ended December 31
2017
2016

880,137

470,203
476,000(116)

239,378
612,000
1,617$$

Income tax expense recognized in profit or loss

142,079(393,931)(9,481)
19,624-

5,122
691,804(283,157)(938,764)
17,236
9,906

261,333$$

Income tax expense calculated at the statutory rate (17%)
Add (deduct) tax effects of:Nondeductible expenses in determining taxable income
Temporary differences
Tax-exempt income
Loss carryforwards - current used
Overseas income tax expense
Additional income tax under the Alternative Minimum Tax Act
Deferred tax
Temporary differences
Unrecognized loss carryforwards and investment tax credits
Adjustments for prior years’ tax

524,995$ 1,537,251$ 3,088,203

Profit before tax

For the Year Ended December 31
2017
2016

A reconciliation of accounting profit and income tax expense is as follows:

Income tax expense recognized in profit or loss

Current tax
Current year
Prior year adjustment
Deferred tax
Current year

The major components of tax expense were as follows:a. Income tax recognized in profit or loss

27. INCOME TAX

85,94928,823
114,772$$$ 5,749,714

199,092
593,708
2,322,951$ 1,061,207
421,695
1,151,061

Temporary differences
Defined benefit plans
Frequent flyer programs
Maintenance reserve
Allowance for reduction of
inventory
OthersLoss carryforwards

Deferred tax assets(54,228)(54,939)915(204)(905,606)

38,274
465,069(1,543,182)(114,922)
4,411
244,744- 59 -(995,722)$ 6,690,802(564,470)(31,254)
295,408
26,191(210,207)(511,390)$$

Recognized in
Profit or Loss

$

$

$

$

Recognized in
Profit or Loss

172,901
849,476
2,834,341$ 1,525,482
452,949855,653

Beginning
Balance

For the year ended December 31, 2016

Temporary differences
Depreciation difference fromfixed assets
Unrealized exchange gains
OthersDeferred tax liabilities

Temporary differences
Defined benefit plans
Frequent flyer programs
Maintenance reserves
Allowance for reduction of
inventory
OthersLoss carryforwards

Deferred tax assets

Beginning
Balance

For the year ended December 31, 2017c. Deferred tax assets and liabilities(21,598)(21,598)

130,833

21,146-109,687-$$

54,634(45,561)-

100,195-

Recognized in
Other
Comprehensive Income

$

$

$

$

Recognized in
Other
Comprehensive Income

EndingBalance

38,94631,010915
7,021$ 5,749,714(Continued)

199,092
593,708
2,322,951$ 1,061,207
421,695
1,151,061$$$ 4,974,941

237,366
1,079,923
779,769$ 1,055,972
426,106
1,395,805

EndingBalance219

125,008
47,443

172,451

$

$

$

$

(49,519)(39,059)(10,460)

Recognized in
Profit or Loss$$

(8,160)(8,160)$$114,772(Concluded)

85,94928,823EndingBalance$ 15,486,879$ 11,764,885
2,899,496
619,799
202,699

UnusedAmount7,300,000

2016

2016
$ 102,527

2017$ 195,252- 60 -

Due to the amendment of Income Tax Law promulgated in February 2018, which repeals integrated
income tax, the Company expect that there were no creditable tax ratios when distributing earnings in
2018.

The Company accumulated deficit as of December 31, 2016; thus, there were no expected creditable tax
ratios.

Imputation credit accounts

e. Integrated income tax

2019
2021
2022
2026

Expiry Year$

December 31$ 10,900,000

d. Unused tax loss carryforwards as of December 31, 2017 were as follows:

Loss carryforwards
Expiry in 20192017

December 31

Deductible temporary differences, unused loss carryforwards and unused investment credits for which
no deferred tax assets have been recognized in the balance sheets are as follows:

In February 2018, the President of the Republic of China announced the amendment of the Income Tax
Law, which adjusted the income tax rate from 17% to 20%, and it will be implemented in 2018. In
addition, the tax rate applicable to undistributed earnings in 2018 will be reduced from 10% to 5%.
Deferred tax assets and liabilities that were recognized on December 31, 2017 are expected to increaseby $877,931 thousand and $6,873 thousand, respectively, due to changes in tax rates.

Temporary differences
Depreciation difference fromfixed assets
OthersDeferred tax liabilities

Beginning
Balance

Recognized in
Other
Comprehensive Income

0.40
0.39

$
$

0.10
0.10

5,684,052

145,763
70,2595,468,030

5,515,339

47,337

5,468,002

571,540$$ 2,232,867

571,540-$
24,801$ 2,208,066

For the Year Ended December 31
2017
2016

$
$

For the Year Ended December 31
2017
2016

- 61 -

To support its operating activities and purchase of aircraft, the Company needs to maintain sufficient
capital. Therefore, the goal of capital management is to ensure financial resources and operating plan isable to support the future working capital, capital expenditures, debt repayment and dividend expenses andother needs.

The Company manages its capital to ensure that entities in the Company will be able to continue as going
concerns while maximizing the return to stakeholders through the optimization of the debt and equity
balance. The capital structure of the Company consists of net debt (borrowings offset by cash and cash
equivalents) and equity of the Company comprising issued capital, reserves, retained earnings, other equity
and non-controlling interests.

29. CAPITAL MANAGEMENT

If the Company offers to settle compensation or bonuses paid to employees in cash or shares, the Company
assumes the entire amount of the compensation or bonuses would be settled in shares, and the resulting
potential shares were included in the weighted average number of shares outstanding used in thecomputation of diluted earnings per share, if the effect is dilutive. Such dilutive effect of the potential
shares was included in the computation of diluted earnings per share until the number of shares to be
distributed to employees is resolved in the following year.

Weighted average number of common shares used in thecomputation of diluted earnings per share

Weighted average number of common shares in computation of basic
earnings per share
Effect of potentially dilutive common shares:
Convertible bonds
Employees’ compensation or bonuses issued to employees

Earnings used in the computation of diluted earnings per share

Earnings used in the computation of basic earnings per share
Effect of potentially dilutive common shares:
Interest on convertible bonds (after tax)

Basic earnings per share
Diluted earnings per share

28. EARNINGS PER SHARE

The income tax returns of the Company through 2015 have been examined by the tax authorities.

f. Income tax returns

220$ 25,717,100
80,722,611

Fair Value$ 25,818,511
82,735,255

2017
Fair Value$ 22,580,069
86,734,531

2016$ 22,538,044
84,649,618

Carrying
AmountFinancial assets at FVTPL
Derivative instruments
Derivative financial assets
for hedging
Derivative financial
liabilities for hedging

December 31, 2017

-

-

-

$

$

$

- 62 -

Level 1$$$

84,633293

9,581

Level 2$$$

Level 3

-

-

-

$

$

$

84,633

293

9,581

Total

c) Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).

b) Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. derived from prices); anda) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;

The following table provides an analysis of financial instruments that are measured subsequent toinitial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fairvalue is observable:

2) Fair value measurements recognized in the balance sheets

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying amounts are their fair values. The fair values of long-term debts and private bonds with
fixed interest rates are estimated at the present value of expected cash flows discounted at rates of
0.75% in 2017 and 1.191% in 2016 prevailing in the market for long-term debts (Level 2). The
fair values of bonds payable are based on those which are traded in the stock exchange and based onquoted market prices (Level 1).

Bonds payable
Bank loans

Financial liabilities

Carrying
AmountDecember 31

1) Fair value of financial instruments not carried at fair value

a. Fair values of financial instruments

30. FINANCIAL INSTRUMENTS

$

$

$

Level 1

-

-

-

$

$

$

23,62954,671

1,200

Level 2$$$

Level 3

-

-

-

$

$

$

23,62954,671

1,200

Total

The fair values of derivatives (except options) have been
determined based on discounted cash flow analyses using
interest yield curves applicable for the duration of thederivatives. The estimates and assumptions that theCompany used to determine the fair values are identical tothose used in the pricing of financial instruments for market
participants.

Valuation Techniques and Inputs- 63 -

Financial liabilities at FVTPL
Derivative financial liabilities for hedging
Financial liabilities at amortized cost (Note 2)

Financial liabilities

Financial assets at FVTPL
Available-for-sale financial assets (Note 3)
Derivative financial assets for hedging
Loans and receivables (Note 1)

Financial assets

b. Categories of financial instruments

$

9,581
84,633
121,598,470

$

2016

23,629122,866,720

1,200
120,200
54,671
29,522,622

December 31

64,177
293
26,095,060

2017

Because the individual fair values of some financial instruments and non-financial instruments
need not be disclosed, the total fair value disclosed is not the total value of the Company’s
financial and non-financial instruments.

The fair values of currency options and fuel options are determined using option pricing models
where the significant unobservable inputs are implied fluctuation. An increase in the implied
fluctuation used in isolation would result in a decrease in the fair value of currency options andfuel options.

e) Valuation techniques and inputs applied for Level 3 fair value measurement

Derivatives - foreignexchange forward
contracts and interest
rate swaps

Financial Instrumentsd) Valuation techniques and inputs applied for Level 2 fair value measurement

There were no transfers between Level 2 and 3 in the current and prior periods.

Financial assets at FVTPL
Derivative instruments
Derivative financial assets
for hedging
Derivative financial
liabilities for hedging

December 31, 2016

221

- 64 -

The following details the Company’s sensitivity to a one dollar increase and decrease in the
New Taiwan dollar (i.e. the functional currency) against the U.S. dollar. The sensitivity
amount used when reporting foreign currency risk internally to key management personnel andwhich represents management’s assessment of the reasonably possible change in foreignexchange rates is one dollar. The sensitivity analysis included only outstanding foreign
currency denominated monetary items and foreign exchange forward contracts designated as
cash flow hedges and adjusts their translation at the end of the reporting period for the New
Taiwan dollar strengthening or weakening one dollar against the U.S. dollar.

The Company is mainly exposed to the U.S. dollar.

Sensitivity analysis

The Company enters into currency option to hedge against the risks of changes in related
exchange rates, and enters into foreign exchange forward contracts to hedge against the risks ofchanges in the related exchange rates of foreign-currency assets, liabilities and commitments.

a) Foreign currency risk

The Company enters into forward contracts, foreign currency option contracts, and interest swap
contracts with fair values that are highly negatively correlated to the fair values of hedged items andevaluates the hedging effectiveness of these instruments periodically.

The Company is primarily exposed to the financial risks of changes in foreign currency exchange
rates and interest rates. The Company entered into derivative financial instruments to manage its
exposure to foreign currency risk and interest rate risk.

1) Market risk

In addition, the Company has a risk management committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging portion. This committee
informs the Company of global economic and financial conditions, controls the Company’s entire
financial risk resulting from changes in the financial environment and fuel prices, and develops thestrategy and response to avoid financial risk with the assistance of financial risk experts to effect risk
management.

The Company has risk management and hedging strategies to respond to changes in the economic,
financial environment and in the fuel market. To reduce the financial risks from changes in interest
rates, in exchange rates and in fuel prices, the Company has its operating costs stay within a specified
range by using appropriate financial hedging instruments and hedging percentages in accordance withthe “Processing Program of Derivative Financial Instrument Transactions” approved by Company
shareholders to reduce the impact of market price on earnings. These risks include market risk(including foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

c. Financial risk management objectives and policies

Note 3: The balances include financial assets measured at cost.

Note 2: The balances of financial liabilities measured at amortized cost comprised short-term loans,short-term notes payable, notes and accounts payable, accounts payable - related parties, otherpayables, bonds payable and long-term loans, capital lease obligations, provisions, part ofother current liabilities, part of other noncurrent liabilities and guarantee deposits.

Note 1: The balances of loans and receivables measured at amortized cost comprised cash and cash
equivalents, notes and accounts receivable, accounts receivable - related parties, otherreceivables, refundable deposits, other financial assets and other restricted financial assets.

$ 26,258,421
86,645,240$ 27,717,100
80,898,611- 65 -

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting
in financial loss to the Company. The Company’s credit risk, primarily comes from accounts
receivable generated from operating activities and bank deposits generated from investing activities,
fixed investment income and other financial instruments, operation related credit risk and financial
credit risk are managed separately.

2) Credit risk

After considering the fuel market conditions and the cost of hedging, the Company will set fueloptions contracts with financial institution to avoid the risk of fuel price fluctuations. The
Company has not signed contracts still not settling as of December 31, 2017.

The Company is exposed to fuel price risk on its purchase of aviation fuel.

c) Other price risk

Had interest rates increased one yard (25 basis) and had all other variables been held constant,
the Company’s pre-tax profit for the year ended December 31, 2016 would have decreased by$216,613 thousand.

Had interest rates increased one yard (25 basis) and had all other variables been held constant,
the Company’s pre-tax profit for the year ended December 31, 2017 would have decreased by$202,247 thousand.

The sensitivity analyses below were determined based on the Company’s exposure to interest
rates for both derivatives and non-derivative instruments at the end of the reporting period.
For floating rate liabilities, the analysis was prepared assuming the amount of the liability
outstanding at the end of the reporting period was outstanding for the whole year. One yard
(25 basis) increase or decrease was used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.

Sensitivity analysis

Fair value interest rate risk
Cash flow interest rate risk

2016

2017

December 31

The carrying amount of the Company’s financial liabilities with exposure to interest rates at theend of the reporting period were as follows.

The risk is managed by the Company through maintaining an appropriate mix of fixed andfloating rate borrowings, and using interest rate swap contracts and forward interest rate
contracts.

The Company enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates.

b) Interest rate risk

When the New Taiwan dollar increases one dollar against the U.S. dollar and all other variables
are held constant, there will be an increase in pre-tax profit in 2017 of $109,319 thousand andan increase in pre-tax profit in 2016 of $9,026 thousand.

222- 66 -

Bank loans with a repayment on demand clause were included in the second column of the tablebelow regardless of whether or not the banks would choose to exercise early their rights to
repayment. The maturity dates for other non-derivative financial liabilities were based on theagreed-upon repayment dates. The Company’s liquidity analysis for its derivative financial
instruments is also shown in the following table. The table was based on the undiscounted
contractual net cash inflows and outflows on derivative instruments that settle on a net basis, andthe undiscounted gross cash inflows and outflows on those derivatives that require gross settlement.
When the amount payable or receivable is not fixed, the amount disclosed has been determined byreference to the projected interest rates as illustrated by yield curves at the end of the reporting
period.

The following table shows the remaining contractual maturity analysis of the Company’s financial
liabilities with agreed-upon repayment periods, which were based on the date the Company may berequired to pay the first repayment and financial liabilities is evaluated based on undiscounted cash
flows, including cash flows of interest and principal.

Liquidity and interest risk rate table

The objective of the Company’s management of liquidity is to maintain cash and cash equivalents
sufficient for operating purposes, marketable securities with high liquidity and loan commitmentsthat are sufficient to ensure that the Group has adequate financial flexibility.

3) Liquidity risk

Endorsements given by the Company on behalf of its subsidiaries can be found in Note 31,g.

Credit risk on bank deposits, investments income and other financial instruments are measured andmonitor by the Company’s finance department. The Company’s trading partners and other parties
were well-performing banks and financial institutions, corporations, and government agencies, andso the risk of counterparties failing to discharge an obligation is low; therefore, there is no
significant credit risk.

Financial credit risk

Since the customers of the industry is dispersed and non-related, the credit risk concentration is notcritical aviation.

To assess individual customers, the Company consider into the financial condition of the customers,
the credit rating agency rating, the Company’s internal credit rating, transaction history and current
economic conditions and many other factors that may affect the repayment. Sometimes, theCompany uses certain credit enhancement tools to reduce the credit risk of specific customers.

The Company has established procedures to management operations related credit risk to maintainthe quality of accounts receivable.

Operation - related credit risk$

5,326,925$ 31,763,912

18,2002,926,237

154,430

6,994
301,932

2,023,600

17,915,408

2,775
4,603,556

2,000,320

15,213,937

3,003,429

452,833

20,651,932-

27,019,287

15,707,452-

31,768,363

602,263-

1,014,142-

16,291,168

5+ Years

$

$

-

2016
$ 14,424,006$ 25,181,000

5,033,023--

5,033,023

5+ Years$ 17,305,310$

December 31$ 48,078,078$

2-5 Years$ 48,124,052$

2-5 Years

2017$ 24,824,017$

1-2 Years$ 20,402,364$

1-2 Years- 67 -

Taiwan Aircargo Terminal Company
Taoyuan International Airport Service Co., Ltd.
Sabre Travel Network (Taiwan), Ltd.
Taiwan Airport Service Co., Ltd.
Taiwan Airport Service (Samoa)
Hwa Hsia

Namea. Related parties’ names and relationships

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary(Continued)

Relationship with the Company

Except for the disclosures stated in other notes, transactions between the Company and its related partiesare disclosed below:

31. RELATED-PARTY TRANSACTIONS

2,654
75,412

419,399

1.338427,424,092

975,984

401,382$
4,521,325

326,152

0.016$

1.24771.05083 Months to
1 Year$ 15,913,848$ 10,119,067

1-3 Months

50,7171,911,231

26,9222,790,923

Unused bank loan limit (unsecured)

Loan commitments

Capital leaseobligations
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

1.4142

17,7005,900

1,375,827

1.1800$12,558,373

225,869

3 Months to
1 Year

7,069,453$

1-3 Months

1.1084

1.0789The Weighted
Average
Effective
Interest Rate(%)

December 31, 2016

Capital leaseobligations
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

The Weighted
Average
Effective
Interest Rate(%)

December 31, 2017

223

Related Party Type- 68 -

Subsidiary
Major shareholder of theCompany
Associate
Joint venture investment

Subsidiary
Major shareholder of the Company
Associate
Joint venture investmentc. Purchases

Other income

Account Items

b. Operating income

Related Party Type$ 3,081,697$
71,852$ 745,686$ 1,857,684$ 2,881,974$
63,084$ 656,653$ 1,613,899

For the Year Ended December 31
2017
2016

2,552
14,325

$
$

$
$

1,938
46,461$ 3,051,374$
28,328$ 2,937,333$
31,971For the Year Ended December 31
2017
2016

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Associate
Associate (disposal in August 2017)
Associate
Associate
Associate
Associate
Associate
Joint venture investment
Joint venture investment
Joint venture investment
Director of the Company and major
shareholder
Director, key management personnel,
chairman, general manager of theCompany, spouse and second-degree
relative(Concluded)

Yestrip
Global Sky Express
Mandarin Airlines
Cal Park
Cal Hotel Co., Ltd.
Cal-Asia Investment
Dynasty Holidays, Inc.
Cal-Dynasty International Inc.
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance and Engineering Co., Ltd.
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Aircraft Service
Airport Air Cargo Terminal (Xiamen) Co., Ltd.
Airport Air Cargo Service (Xiamen) Co., Ltd.
Eastern United International Logistics (Hong Kong)
China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia Ltd.
China Aviation Development Foundation

OthersRelationship with the Company

Name502,2296,431
1,928
510,588$$$

December 31$

2017439,509435,946
501
1,550
1,512

2016

903,200
116,525
469,827
4,454

791,178
120,824
431,502
3,503

2016

$ 1,347,007$

December 31$ 1,494,006

$

2017

- 69 -In March 2010, the Company signed with CAL Park a yearly renewable operating lease agreement to
use the Operating and Aviation Headquarters building of the Taiwan Taoyuan International Airport.
In 2017 and 2016, the Company paid rentals of about $228,942 thousand and $217,210 thousand,respectively.

Under an operating lease agreement, the Company rented flight training machines and flight simulatorsfrom China Aviation Development Foundation to train pilots. The Company paid the rental based on
usage hours. In 2017 and 2016, the Company paid rentals of about $71,852 thousand and $63,084
thousand, respectively.

For fleet scheduling, the Company rented planes from Mandarin Airlines under an operating leaseagreements beginning from July 2003. The Company paid the rental by flight hours. The contract
was terminated in May 2016. The payments of flight rentals were $17,519 thousand in 2016.

The Company rented out planes to Mandarin Airlines under an operating lease contract. The monthly
rent received is based on flight hours. In 2017 and 2016, the rentals received amounted to $1,105,171
thousand and $1,022,817 thousand, respectively.

f. Leases of properties (operating leases)

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.

Subsidiary
Associate
Joint venture investment
Major shareholder of the Company

Related Party Typee. Accounts payable - related parties (generated by operations)

The receivables are not guaranteed, and there is no allowance for doubtful accounts related to accounts
receivable - related parties. The payment periods of such accounts were within 30 to 90 days, andthere are no overdue payments.

Subsidiary
Associate
Joint venture investment
Major shareholder of the Company

Related Party Typed. Accounts receivable - related parties (generated by operations)

224$ 2,850,000
318,611405,998

ActualAmount Used

$ 3,850,000
1,080,000
180,000
919,742

Authorized
AmountDecember 31$ 2,783,000
436,418
438,740

ActualAmount Used

2016

250
50

$

250,000
50,000December 31, 2016
Aggregate
Units
Par/Dollars

46,805
4,007
50,812$$$$60,01747,74812,269For the Year Ended December 31
2017
2016

The remuneration of directors and key executives was determined by the remuneration committee
having regard to the performance of individuals and market trends.

Short-term employee benefits
Post-employment benefits

Compensation of key management personnel

In 2017, interest expenses was $3,570 thousand. This bonds payable will be paid off in May 2021.
As of December 31, 2017 the interest payable was $2,142 thousand.

Mandarin Airlines
Sabre Travel Network (Taiwan)

The first issue of unsecured bonds in 2016

Related Party

Property, plant and equipment- 70 -

2016$ 52,801,264

2017$ 39,041,679

December 31

The following assets were pledged or mortgaged as collateral for long-term bank loans, lease obligations
and business transactions:32. PLEDGED ASSETSi.

$ 3,850,000
1,080,000
1,055,604

Authorized
Amount2017

Related parties that invested in the first issue of unsecured bonds in 2016 (Note 19) are summarized asfollows:

h. Bonds payable - related parties

Cal Park
Taiwan Air Cargo Terminal
Cal Hotel
Tigerair Taiwan

The Company

g. Endorsements and guarantees

Monetary items
USD
EUR
HKD
JPY
RMB

Financial liabilities

Monetary items
USD
EUR
HKD
JPY
RMB

Financial assets

December 31, 2017

- 71 -$

406,155
5,957
77,9294,848,134
120,472

290,336
21,347
293,677
5,164,642
365,624

Foreign
Currencies(In Thousands)

29.850735.71433.81830.26484.583029.850735.71433.81830.26484.5830Exchange Rate

12,124,021
212,759
297,556
1,283,786
552,123$ 8,666,739
762,410
1,212,346
1,367,597
1,675,654

Carrying
Amount

The following information was aggregated by the foreign currencies other than functional currencies of theCompany entities and the exchange rates between foreign currencies and respective functional currencies
were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

34. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESIn January 2008, the Company entered into a contract to buy fourteen A350-900 aircrafts from Airbus, withthe option to buy six more A350-900 aircrafts, with aggregate listing purchase prices of US$3,933,235
thousand and US$1,802,645 thousand, respectively. The expected period of delivery of the aircrafts wasfrom 2016 to 2018. As of December 31, 2017, ten of the aircrafts had been delivered to the Company, andthe aggregated listing purchase price of the remaining ten aircrafts was $1,150,984 thousand, which has
been paid in the amount of US$287,746 thousand (recognized as prepayments for aircrafts).

As of December 31, 2017, the Company had commitments and contingent liabilities which were as follows:

33. COMMITMENTS AND CONTINGENT LIABILITIES

225

$

250,734
6,511
84,4504,408,042
106,305

240,758
15,642
273,058
4,799,620
428,196

Foreign
Currencies(In Thousands)

32.258134.0136
4.15800.27704.642532.258134.0136
4.15800.27704.6425

Exchange Rate

8,088,204
221,448
351,141
1,221,028
493,520$ 7,764,768
532,068
1,135,374
1,329,495
1,987,898

Carrying
AmountNone.

- 72 -

8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached).

7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 4 (attached).

6) Disposals of individual real estates at costs or prices of at least NT$100 million or 20% of thepaid-in capital: None.

5) Acquisitions of individual real estates at costs or price of at least NT$100 million or 20% of thepaid-in capital: None.

4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20%of the paid-in capital: Table 3 (attached).

3) Marketable securities held: Table 2 (attached).

2) Endorsements/guarantees provided: Table 1 (attached).

1) Financing provided:a. Following are the additional disclosures required by the Securities and Futures Bureau for the Company
and its investees:

35. ADDITIONAL DISCLOSURESFor the years ended December 31, 2017 and 2016, the Company’s net foreign exchange gains (losses) were
$4,920 thousand and $(495,350) thousand, respectively. It is impractical to disclose net foreign exchange
gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions.

Monetary items
USD
EUR
HKD
JPY
RMB

Financial liabilities

Monetary items
USD
EUR
HKD
JPY
RMB

Financial assets

December 31, 2016

- 73 -The Company mainly engages in air transportation services for passengers, cargo and others. The major
revenue-generating asset is the fleet, which is jointly used for passenger and cargo services. Thus, theCompany’s sole reportable segment is the flight segment. For operating segment reporting in the financial
statements, the Company’s reportable segment comprises the flight and the non-flight businessdepartments.

36. SEGMENT INFORMATION

b. Investment in mainland China: Table 7 (attached).

10) Derivative financial transactions: Notes 7 and 8.

9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 6 (attached).

$ 3,850,000
1,080,000
180,000
1,079,101$ 3,850,000
1,080,000
1,055,604$ 2,850,000
318,611405,998- 74 -

Based on the Company’s guidelines, the allowable aggregate amount of collateral guarantee is up to 50% of the Company’s shareholders’ equity.

$ 11,404,647
11,404,647
11,404,647
11,404,647

Note 2:

100% subsidiary
54% subsidiary
100% subsidiary
100% subsidiary by direct
and indirect holdings

Nature of Relationship

ActualBorrowingAmount

-

6.75
1.89
1.85

Ratio ofAccumulated
Value ofAmount ofCollaterals
Collateral toProperty, Plant Net Equity ofor Equipment
the Latest
Financial
Statement (%)

Based on the Company’s guidelines, the maximum amount of guarantee to an individual counterparty is up to 20% of the Company’s shareholders’ equity.

China Airlines
Cal Park(the “Company”) Taiwan Air Cargo Terminal
Cal Hotel
Tigerair Taiwan Ltd.

Name

Limit on EachCounterparty’s
Maximum
Endorsement/
Balance for the Ending Balance
Guarantee
PeriodAmount(Note 1)

Note 1:0No.

Endorsement/
Guarantee
ProviderCounterparty

ENDORSEMENT/GUARANTEE PROVIDEDFOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

226$ 28,511,619
28,511,619
28,511,619
28,511,619

Maximum
Collateral/
Guarantee
Amounts
Allowable(Note 2)

Y
Y
Y
Y

N
N
N
N

N
N
N
N

Endorsement/ Endorsement/ Endorsement/
Guarantee
Guarantee
Guarantee
Given by Parent
Given on Behalf
Given byon Behalf of
Subsidiaries on of Companies in
Subsidiaries Behalf of Parent Mainland China

TABLE 1Marketable Security Type and Issuer/Name-

Financial assets at fair value through profit or loss - current

Parent company Available-for-sale financial assets - current

Financial assets at fair value through profit or loss - current

Available-for-sale financial assets - noncurrent

Financial assets at fair value through profit or loss - current
Financial assets at fair value through profit or loss - current
Financial assets at fair value through profit or loss - current

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

Financial assets at fair value through profit or loss - current

Note 2: The Company does not issue shares because it is a limited company.

- 75 -

Note 1: The subsidiary’s net asset value was $60,524 thousand, which included common shares and preference shares as of and for the year ended December 31, 2017.

Beneficiary certificates
Taishin 1699 Money Market Fund

SharesChina Airlines-

Beneficial certificatesFuh Hwa Emerging Market Short-term Income
Fund

Hwa Hsia-

SharesTransAsia Airways

Taiwan Airport Services-

Beneficiary certificatesFranklin Templeton SinoAm Money Market FundFSITC Taiwan Money Market Fund
Allianz Global Investors Money Market Fund

Sabre Travel Network (Taiwan)--

Parent company Available-for-sale financial assets - current

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent-

SharesTaikoo (Xiamen) Landing Gear Services
Taikoo Spirit Aerospace Systems (Jinjiang)
Composite

Beneficiary certificates
Barclays America Bonds Fund

SharesChina Airlines

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

Financial Statement Account-Relationshipwith the Holding
Company

Cal-Asia Investment

Mandarin Airlines

China Airlines (“Parent company”) Shares
Everest Investment Holdings Ltd. - common shares
Everest Investment Holdings Ltd. - preference
sharesChung Hua Express Co.
Jardine Air Terminal Services

Holding Company Name

MARKETABLE SECURITIES HELDDECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

227

349,523

814,152

4,568,824

2,277,786

6,709,255
5,664,992
5,368,495-

1,000,000

2,074,628

1,100,000
12,000,000

1,359,368
135,937

Number of
Shares/Units

$

4,700

9,485

50,166-68,926
86,14866,86919,89830,03024,16911,000-52,704
473

-

-

-

0.40

-

2.59
5.45

-

-

11.00
15.00

13.59
-

December 31, 2017
Percentage
CarryingofAmountOwnership
(%)

$

4,700

9,485

50,166-68,926
86,14866,86931,15225,43430,03024,16927,9609,167

60,524-Market Valueor Net Asset
Value

-

-

-

-

-

Note 2
Note 2---

Note 1
Note 1Note

TABLE 2Financial Statement
Account

Counterparty(Note 2)

-

-

$

-

-

$

-

-

$

-

-

-

-

$

-

-

- 76 -

Paid-in capital refers to paid-in capital of the indicated parent company. If the shares issued by an issuer have no par value or a par value other than NT$10 per share, the threshold of 20% of paid-in capital, as set out in the preceding item, shall be replaced by 10% of equity attributable toowners of the indicated parent company, as stated in the respective balance sheet.

--Ending Balance
Number ofAmountShares

Note 4:$Gain (Loss) on
Disposal

The cumulative amount of acquired and disposed of marketable securities are required to be calculated separately to determine whether they are at least NT$300 million or 20% of the paid-in capital.

--

Disposal (Note 3)
Carrying
AmountAmountNote 3:--

Number of
SharesThe marketable securities in this table refer to shares, bonds, beneficial certificates and the securities derived from the above items.

-

Subsidiary$

Acquisition (Note 3)
Number ofAmountSharesMarketable securities which are recognized as investments accounts for using the equity method are required to be filled in the second column.

-

Beginning Balance
Number ofAmountShares

Non-related party

Relationship(Note 2)

Note 1:

SharesScience Park Logistics Investments accounted HCT Logistics Co.,for using the equity
Ltd.
methodTaiwan Aircraft
Investments accounted Taiwan Aircraft
Maintenance andfor using the equity
Maintenance andEngineering Co.,
methodEngineering Co.,
Ltd.
Ltd.

Type and Name ofMarketable
Securities (Note 1)

TABLE 3Note 2:China Airlines, Ltd.

Company Name

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

228

Taiwan Air Cargo Terminal
Hua Hsia
Mandarin Airlines
Mandarin Airlines
China Pacific Catering Services
Cal Park
Taiwan Airport Services
Taoyuan International Airport Service
Kaohsiung Catering Services
China Aircraft Services
Cal Hotel
Tigerair Taiwan
China Pacific Laundry Services
Eastern United International Logistics

Taoyuan International Airport Service

Taiwan Airport Services

Tigerair Taiwan

Mandarin Airlines

Related Party

China Airlines, Ltd.
(“China Airlines”)

Company Name

Same parent company

Same parent company

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Equity-method investee
Subsidiary
Subsidiary
Equity-method investee
Equity-method investee

Nature of Relationship

Purchase

Purchase

Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Sale
Purchase
Purchase

Purchase/
Sale

121,505

152,384

507,489
334,375(2,495,101)
147,9141,737,819
228,942
375,579
1,193,551
376,678
197,713
136,681(288,954)
119,865
138,905- 77 -$

Amount

1.78

2.59

0.42
0.27
(1.78)
0.12
1.43
0.19
0.31
0.98
0.31
0.16
0.11
(0.21)
0.10
0.11

% of
Total

Transaction Details

1 month

30 days

30 days
2 months
2 months
2 months
90 days
2 months
40 days
40 days
60 days
30 days
1 month
1 month
2 months
2 months

Payment Terms
$

-

-

-

-

-

-

$

(17,825)(30,344)(48,735)(49,140)
452,488(339,274)(440,739)(67,871)(355,885)(70,948)(30,260)(10,140)
38,796(29,088)(14,769)(1.42)(4.79)(3.34)(3.37)
4.99(23.28)(30.24)(4.66)(24.42)(4.87)(2.08)(0.70)
0.43(2.00)(1.01)

Note/Account Payable or
Receivable% ofPayment Terms Ending Balance
Total

Abnormal Transaction
Unit PriceTOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

229

-

-

-

Note

TABLE 4

China Airlines

China Airlines

China Airlines

Mandarin Airlines

China Pacific Catering Services

Taoyuan International Airport Service

Parent company

Parent company

Parent company

Subsidiary

Nature of Relationship355,885

440,739

339,274$ 452,488

Ending Balance(Note)

3.51

4.08

Note

Note

Turnover Rate$

Amount- 78 -

Note: Accounts receivable and revenue were not directly correlated because of the particular industry characteristics, and therefore the turnover rate was not applicable.

Mandarin Airlines

Related Party

China Airlines, Ltd. (“China Airlines”)

Company Name

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALDECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

230
-

-

-

-

-

-

-

-

Action Taken

Overdue

355,764

440,698

307,390$ 271,899

Amounts Received
in Subsequent
Period

$

-

-

-

-

Allowance for
Bad Debts

TABLE 5

The Company signed a contract to sell all of its holding in Asian Compressor Technology Services, and reclassified it as noncurrent assets held for sale at book value.

Note 5:- 79 -

Taiwan Aircraft Maintenance and Engineering Co., Ltd. invested capital in the amount of $490,000 thousand and $700,000 thousand in April 2017 and November 2017, respectively.

Note 4:US$HK$

The Company does not issue shares because it is a limited company.

5,877

3,329

Represents the consolidated financial information of the foreign holding company disclosed in accordance with local regulations.

US$

HK$

Note 3:

Airport services and investment

Forwarding and storage of air cargo

Note 2:

Samoa

Hong Kong

5,877

3,329

200,000
11,658-26,265
20,400
2,500
US$
1
US$
1
1,600,000
160,000
JPY

77,2701,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
77,322
12,289140,240
465,000
214,745
137,500$

December 31,
2016

Adopted the treasury shares method in recognizing investment income or loss.

Taiwan Airport Service (Samoa)

Taiwan Airport Services

200,000
11,6582,450

26,265
20,4002,500
US$1,648,387
1,350,000
JPY

77,2701,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
3,704
12,289140,240
465,000
137,500$

December 31,
2017

Investment Amount

Note 1:

Eastern United International Logistics

Cal-Asia Investment

Taoyuan, Taiwan
Air transportation and maintenance of aircraft
Airport services

Aircraft maintenanceTaipei, Taiwan
Tokyo, Japan
Taipei, Taiwan
Cayman Islands
Cayman Islands
Taipei, Taiwan
Taoyuan, Taiwan

Yestrip
Dynasty Holidays
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd.
Nordam Asia Ltd.

Taipei, Taiwan
Taipei, Taiwan

Taoyuan, Taiwan

Hwa Hsia

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Real estate lease and international trade
Air transportation and maintenance of aircraft
Air cargo and storage
A holding company, real estate and hotel services
In-flight catering
Airport services
General investment
Sale and maintenance of hardware and software
Airport services
Research, manufacture and maintenance of engines
Airport services
In-flight catering
Hotel business
Storage and customs of services
Cleaning and leasing of the towel of airlines, hotels,
restaurants and health clubs
Cleaning of aircraft and maintenance of machine andequipment
Travel businessTravel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Air transportation and maintenance of aircraft
Aircraft maintenance

Main Business and ProductTaoyuan, Taiwan
Taipei, Taiwan
Taoyuan, Taiwan
Los Angeles, U.S.A.
Taoyuan, Taiwan
Taoyuan, Taiwan
Territory of the British Virgin Islands
Taipei, Taiwan
Hong Kong International Airport
Taoyuan, Taiwan
Taipei, Taiwan
Kaohsiung, Taiwan
Taoyuan, Taiwan
Tainan, Taiwan
Taoyuan, Taiwan

Location

Cal Park
Mandarin Airlines
Taiwan Air Cargo Terminal
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Sabre Travel Network (Taiwan)
China Aircraft Service
Asian Compressor Technology Services
Taiwan Airport Services
Kaohsiung Catering Services
Cal Hotel Co., Ltd
Science Park Logistics
China Pacific Laundry Services

Investee Company

Mandarin Airlines

China Airlines, Ltd.

Investor Company

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE YEAR ENDED DECEMBER 31, 2017
(New Taiwan Dollars and Foreign Currencies in Thousands, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

231-

1,050,000

20,000,000
469,755

245,000

1,600,000
408
250,000
180,000,000
135,000,000

77,270150,000,000
188,154,025
135,000,000
2,614,500
43,911,000
34,300,000
7,172,346
13,021,042
28,400,000
370,440
20,626,644
14,329,759
46,500,000
13,750,000

100.00

35.00

10.00
1.08

49.00

100.00
51.00
25.00
90.00
100.00100.00100.0093.99
54.00
100.0051.00
49.00
100.00
93.93
20.00
47.35
35.78
100.0055.00$

370,322

43,171

101,682
5,902

2,399

25,90425,992
7,437
915,135
1,231,548

83,014

1,522,696
1,211,739
1,339,450
1,185,323
756,965
654,104
478,933
450,600
493,077
259,459
300,400
435,965
171,229

Balance as of December 31, 2017
Percentage
Number ofof
Carrying
Shares/Units Ownership
Amount(%)$

25,143

13,726572,953
108,330(104)

440(4,725)
6,876
572,953(68,580)

11,28010,017
125,570
190,444
34,695472,248248,207
31,191
182,046
122,349
363,033
108,331242,473
48,59083,91942,461Net Income(Loss) of theInvestee$

25,143

4,804

57,295
1,167

(51)

440
(2,410)1,719
514,897(68,580)

11,28010,017118,023
102,840
34,695
235,871
121,622
31,191
171,004
24,47088,94351,29586,757
48,59021,81923,354

Investment
Income (Loss)

Note 3---Note 4Note 1

Note 1
Note 2
Note 5-Note

TABLE 6

Landing gear
1,101,194
maintenance services (US$ 36,890)

Composite material

Taikoo (Xiamen) Landing
Gear Services

Taikoo Spirit Aerospace
Systems (Jinjang)

Investment Amount
Authorized by Investment
Commission, MOEA

$647,805 (Note 3)

Accumulated Investment in
Mainland China as ofDecember 31, 2017

$266,287 (US$8,920)

348,149
11,663)Forwarding and storage64,161of air cargo(RMB 14,000)

Airport Air Cargo Service(Xiamen) Co., Ltd.

(US$

Forwarding and storage $ 1,028,781
of air cargo(RMB 224,480)

Main Business andProduct

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Investee Company Name

Indirect(Note 1)

Indirect(Note 1)

Indirect(Note 1)

Indirect(Note 1)

18,985636)

64,2152,151)

58,133
1,947)$34,213,942 (Note 4)

Limit on Investment

(US$

(US$

(US$

$
124,955 $(US$4,186)

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-infrom Taiwan as
TypeCapitalof January 1,
2017

INVESTMENTS IN MAINLAND CHINAFOR THE YEAR ENDED DECEMBER 31, 2017
(New Taiwan Dollars/Renminibi/U.S. Dollars In Thousands, Unless Stated Otherwise)
China Airlines

CHINA AIRLINES, LTD. AND INVESTEES

232
Outflow

-

-

-

-

- 80 -$

Inflow

Investment Flow

-

-

-

-

Net Income(Loss) of
the Investee

(US$

(US$

(US$

18,985636)

64,2152,151)--

58,133
99,528
1,947) (RMB 22,105)$
124,955 $
79,880(US$
4,186) (RMB 17,741)

Accumulated
Outflow ofInvestment
from Taiwan asof December 31,
2017

5.45

2.59

14.00

14.00

% Ownershipof Direct orIndirect
Investment

(RMB

-

-

(RMB

19,8984,342)---

26,129875)(Note 2)

(Continued)

13,952
128,035 $3,095) (RMB 27,937) (US$83,6342,802)(Note 2)

Accumulated
InwardRemittance ofEarnings as ofDecember 31,
2017$
12,098 $242,549 $(RMB 2,484) (RMB 52,924) (US$Investment
Gain (Loss)

Carrying
Amountas ofDecember 31,
2017

TABLE 7

(US$

-

-

$

Inward$328,776 (Note 4)Upper Limit on the Amount of
Investment Stipulated by
Investment Commission, MOEA

57,515
1,927)$
119,951 $(US$
4,018)

Outward

Remittance of Funds

-

-

(US$

57,51599,5281,927) (RMB 22,105)

14.00

14.00

% Ownershipof Direct orIndirect
Investment

Accumulated
Repatriation of
Investment
Income as ofDecember 31,
2017

(RMB

13,934
128,256
3,095) (RMB 27,985) (US$- 81 -

Note 6: The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the year-end rates of refer for the reporting period.

Note 5: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in mainland China.

(Concluded)

41,9881,407)$
11,183 $
241,265 $
113,622(RMB 2,484) (RMB 52,644) (US$3,806)

Investment
Income (Loss)

Carrying
Amount as ofDecember 31,
2017

Note 4: The limit stated in the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjustment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.

Note 3: The amount comprised US$19,828,324, RMB4,200,000 and NT$36,666,667.

Note 2: The inward remittance of earnings in 2017 amounted to US$2,801,749 and US$875,330.

Net Income(Loss) of theInvestee$
119,951 $
79,880(US$
4,018) (RMB 17,741)

Accumulated
Outward
Remittance forInvestment
from Taiwan asof December 31,
2017

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in mainland China.

$177,466 (US$5,945)$177,466 (US$5,945)

Indirect(Note 5)Investment Amounts Authorized by
Investment Commission, MOEA

Forwarding and storage64,161of air cargo(RMB 14,000)

Airport Air Cargo Service(Xiamen) Co., Ltd.

Indirect(Note 5)

Accumulated Outward
Remittance for Investment in
Mainland China as of December 31, 2017

Forwarding and storage $ 1,028,781
of air cargo(RMB 224,480)

Main Business andProduct

Accumulated
Outward
Remittance for
Method ofInvestment
Paid-in Capital
Investment
from Taiwan asof January 1,
2017

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Investee Company

Taiwan Airport Services

233

China Airlines Co., Ltd.
Chairman：Ho,Nuan-Hsuan