China Airlines, Ltd. and Subsidiaries
Consolidated Financial Statements for theNine Months Ended September 30, 2018 and 2017 andIndependent Auditors’ Review ReportINDEPENDENT AUDITORS’ REVIEW REPORTThe Board of Directors and the Shareholders
China Airlines, Ltd.
Introduction
We have reviewed the accompanying consolidated balance sheets of China Airlines, Ltd. and its
subsidiaries (the “Group”) as of September 30, 2018 and 2017, the related consolidated statementsof comprehensive income for the three-month periods ended September 30, 2018 and 2017 and forthe nine-month periods ended September 30, 2018 and 2017, the consolidated statements ofchanges in equity and cash flows for the nine-month periods then ended, and the related notes tothe consolidated financial statements, including a summary of significant accounting policies(collectively referred to as the “consolidated financial statements”). 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 andInternational Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into
effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is toexpress a conclusion on the consolidated financial statements based on our reviews.
We did not review the financial statements of some subsidiaries included in the consolidated
financial statements of the Group, but such statements were reviewed by other auditors. Our
conclusion, insofar as it relates to the amounts included in the consolidated financial statements forthese subsidiaries, is based solely on the report of other auditors. The total assets of thesesubsidiaries were NT$5,508,205 thousand, which constituted 2.44% of the consolidated total assets
as of September 30, 2018, and the total revenue was NT$6,800,331 thousand, which constituted
5.39% of the consolidated total revenues for the nine-month period ended September 30, 2018.
Scope of Review
Except as explained in the following paragraph, we conducted our reviews in accordance with theStatement of Auditing Standard No. 65 “Review of Financial Information Performed by the
Independent Auditor of the Entity”. A review of consolidated financial statements consists ofmaking inquiries, primarily of persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is substantially less in scope than an
audit and consequently does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Basis for Qualified Conclusion
As disclosed in Notes 14 and 15 to the consolidated financial statements, the financial statements ofsome non-significant subsidiaries included in the consolidated financial statements (other thanthose mentioned in the second paragraph) and some investments accounted for using the equity
method were not reviewed. As of September 30, 2018 and 2017, the combined total assets ofthese non-significant subsidiaries were NT$17,465,404 thousand and NT$15,206,985 thousand,respectively, representing 7.73% and 6.81%, respectively, of the consolidated total assets, and-1-

combined total liabilities of these non-significant subsidiaries were NT$6,761,671 thousand andNT$6,130,646 thousand, respectively, representing 4.08% and 3.73%, respectively, of theconsolidated total liabilities; for the three-month periods ended September 30, 2018 and 2017 andfor the nine-month periods ended September 30, 2018 and 2017, the amounts of the combined
comprehensive income of these non-significant subsidiaries were NT$333,270 thousand,
NT$239,617 thousand, NT$881,191 thousand and NT$631,803 thousand, respectively,
representing 27.54%, 7.78%, 50.67% and 61.56%, respectively, of the consolidated total
comprehensive income. As of September 30, 2018 and 2017, the aforementioned investments
accounted for using the equity method were NT$2,215,025 thousand and NT$2,678,739 thousand,respectively; and for the three-month periods and nine months ended September 30, 2018 and 2017,
the Group’s share of the profit of such investments accounted for using the equity method were
NT$81,098 thousand, NT$130,154 thousand, NT$244,917 thousand and NT$385,762 thousand,respectively.
Qualified Conclusion
Based on our reviews, except for the adjustments, if any, as might have been determined to benecessary had the financial statements of the non-significant subsidiaries and investments
accounted for by using the equity method as described in the preceding paragraph been reviewed,
nothing has come to our attention that caused us to believe that the accompanying consolidated
financial statements do not present fairly, in all material respects, the consolidated financial
position of the Group as of September 30, 2018 and 2017, its consolidated financial performancefor the three-month periods ended September 30, 2018 and 2017 and for the nine-month periods
ended September 30, 2018 and 2017, and its consolidated cash flows for the nine-month periods
then ended in accordance with the Regulations Governing the Preparation of Financial Reports by
Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting”
endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.
The engagement partners on the reviews resulting in this independent auditors’ review report are
Chen-Hsin Yang and Li-Chi Chen.

Deloitte & Touche
Taipei, Taiwan
Republic of China
November 8, 2018
Notice to Readers
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 review such consolidated financial statements arethose generally applied in the Republic of China.
For the convenience of readers, the independent auditors’ review 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’ review report and consolidated financial statements
shall prevail.

-2-

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In Thousands of New Taiwan Dollars)

September 30, 2018
(Reviewed)
Amount%ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6, 19 and 33)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 33)
Derivative financial assets for hedging - current (Notes 4 and 33)
Financial assets at amortized cost (Note 9)
Financial assets for hedging - current (Notes 4 and 33)
Notes and accounts receivable, net (Notes 4, 5, 11 and 33)
Notes and accounts receivable - related parties (Notes 33 and 34)
Other receivables (Note 33)
Current tax assets (Notes 4 and 29)
Inventories, net (Notes 4 and 12)
Noncurrent assets held for sale (Notes 4, 5 and 13)
Other assets - current (Notes 6 and 19)

$

10
4
4
3

21

47,411,834

141,155
2,215,025
160,485,264
2,075,414
1,205,427
5,076,766
6,357,696

1
71
1
1
2
3

177,556,747$ 226,072,700

NONCURRENT ASSETS
Financial assets at fair value through other comprehensive income - noncurrent (Note 8)
Derivative financial assets for hedging - noncurrent (Notes 4 and 33)
Financial assets carried at cost - noncurrent, net of current portion (Notes 10 and 33)
Investments accounted for using the equity method (Notes 4 and 15)
Property, plant and equipment (Notes 4, 5, 16 and 35)
Investment properties (Notes 4 and 17)
Other intangible assets (Notes 4 and 18)
Deferred income tax asset (Notes 4, 5 and 29)
Other assets - noncurrent (Notes 19, 22, 33, 35 and 36)
Total noncurrent assets

23,227,915
216,967
1,213,420
73,2839,816,550
7,254
851,520
55,6398,692,990
110,778
4,249,637

10
1
4
4
2

48,515,953$

September 30, 2017
(Reviewed)
Amount%22,585,332
306,839293
8,604,265
8,359
714,41332,487
8,731,755
426,553
6,001,538

Total current assets

TOTAL

December 31, 2017
(Audited)
Amount%$25,848,493
279,822
18,8808,297,352
8,920
468,504
48,934
8,662,991
494,686
3,282,388

12
4
4
1

21

47,410,970

21

84,0752,507,346
153,617,531
2,075,624
1,019,345
5,519,332
13,664,545

1
68
1
1
2
6

65
83,885
2,678,739
146,904,608
2,075,693
1,025,808
5,550,436
17,544,598

1
66
1
3
8

79

178,487,798

79

175,863,832

79

100

$ 225,899,632

100$ 223,274,802

100$

33,03010,00013,36046,558638,453
691,440
11,408,984
79,08264,945
15,371,818
2,700,000
27,740,345
1,755,615
3,714,231

5
7
1
13
1
2

LIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loans (Note 20)
Short-term bills payable (Note 20)
Financial liabilities at fair value through profit or loss - current (Notes 4, 5, 7 and 33)
Derivative financial liabilities for hedging - current (Notes 4 and 33)
Financial liabilities for hedging - current (Notes 4 and 33)
Notes and accounts payable (Note 33)
Contract liabilities - current (Notes 4, 5 and 24)
Notes and accounts payable - related parties (Notes 33 and 34)
Other payables (Notes 23 and 33)
Current tax liabilities (Notes 4 and 29)
Provisions - current (Notes 4, 5, 25 and 33)
Deferred revenue - current (Notes 4, 5 and 24)
Bonds payable and put options of convertible bonds - current portion (Notes 4, 21, 27 and 33)
Loans and debts - current portion (Notes 20, 33 and 35)
Capital lease obligations - current portion (Notes 4, 22, 33 and 35)
Other current liabilities (Note 33)$

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

6
7
2
9
1
2

27

60,289,113

27

64,267,861

29

23,953,991
60,101,196
1,834,709
8,430,469
187,003
12,265
7,940,784
770,713

11
27
1
4
3
-

926
6,994
21,050,000
65,753,503
8,013,583
190,682
636,222
1,818,265
8,101,565
881,260

9
29
4
1
4
-

2,634
4,957
19,209,457
62,088,579
8,559,375
194,929
725,832
1,801,082
7,164,649
449,216

9
28
4
1
3
-

Total noncurrent liabilities

103,231,130

46

106,453,000

47

100,200,710

45

Total liabilities

165,745,189

73

166,742,113

74

164,468,571

74

54,709,846
1,209,977

24
1

54,709,846
799,99924-

54,709,846
799,99924-

351,923
118,810
1,269,502
1,740,235
84,257(301,354)

1
1-

206,092
1,458,313
1,664,405(107,641)(43,372)1
1-

206,092
950,198
1,156,290(46,547)(43,372)1
1-

57,442,961

26

57,023,237

25

56,576,216

25

2,884,550

12,134,282

1

2,230,015

1

60,327,511

27

59,157,519

26

58,806,231

26$ 226,072,700

100$ 225,899,632

100$ 223,274,802

100

Total current liabilities
NONCURRENT LIABILITIESFinancial liabilities at fair value through profit or loss - noncurrent (Notes 4, 5, 7 and 33)
Derivative financial liabilities for hedging - noncurrent (Notes 4 and 33)
Bonds payable - noncurrent (Notes 4, 21, 27 and 33)
Loans and debts - noncurrent (Notes 20, 33 and 35)
Contract liabilities - noncurrent (Notes 4, 5 and 24)
Provisions - noncurrent (Notes 4, 5, 25 and 33)
Deferred tax liabilities (Notes 4 and 29)
Capital lease obligations - noncurrent (Notes 4, 22, 33 and 35)
Deferred revenue - noncurrent (Notes 4, 5 and 24)
Accrued pension costs (Notes 4, 5 and 26)
Other noncurrent liabilities (Note 33)

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 21 and 27)
Share capital
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated retained earnings
Total retained earnings
Other equity
Treasury shares
Total equity attributable to owners of the Company
NON-CONTROLLING INTERESTS (Note 27)
Total equity
TOTAL

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated November 8, 2018)

-3-

1,063
4,700
1,260,116
17,461,822
538,320
13,594,067
126,389
511,301
4,439,988
19,735,094
707,333
4,133,866

8
6
2
9
2

62,514,059$

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In Thousands of New Taiwan Dollars, Except Earnings (Losses) Per Share)(Reviewed, Not Audited)

For the Three Months Ended September 30
2018
2017
Amount%Amount%REVENUE (Notes 4, 28 and 34)

45,196,764

100

40,542,703

100$ 126,207,626

100$ 114,495,782

100

COSTS (Notes 4, 9, 12, 18, 25,
26, 28 and 34)

39,886,608

88

33,474,463

83

113,144,293

89

98,605,365

86

GROSS PROFIT

5,310,156

12

7,068,240

17

13,063,333

11

15,890,417

14

OPERATING EXPENSES(Notes 4, 26 and 28)

3,414,923

8

3,366,153

8

9,970,057

8

9,755,078

9

OPERATING PROFIT

1,895,233

4

3,702,087

9

3,093,276

3

6,135,339

5

148,500

1

131,8671

437,024-435,2031(115,677)-

51,590-(473,347)-(3,944,936)(3)(349,414)(1)(345,594)(1)(1,015,475)(1)(1,013,780)(1)

81,098-130,154-244,917-385,762-(235,493)-(31,983)-(806,881)(1)(4,137,751)(3)

PROFIT BEFORE INCOME
TAX

1,659,740

4

3,670,104

92,286,395

2

1,997,588

2

INCOME TAX EXPENSE(Notes 4, 5 and 29)

433,103

1

619,2821

657,000

1

808,389

1

NET INCOME FOR THE
PERIOD

1,226,637

3

3,050,822

8

1,629,395

1

1,189,199

1

4,265

-

-

-

21,761---(7,603)---

10,835

-

-

-

235
(3,103)---(14,050)
18,546-(Continued)

NON-OPERATING INCOME
AND EXPENSES
Other income (Notes 8 and 28)
Other gains and losses(Notes 10, 13, 15, 16, 28
and 31)
Finance costs (Notes 9, 28
and 33)
Share of the profit of associates
and joint ventures (Note 15)
Total non-operating
income and expenses

OTHER COMPREHENSIVEINCOME (LOSS)
Items that will not bereclassified subsequently to
profit or loss
Gain on hedging instruments
subject to basis adjustment(Notes 4, 27 and 33)
Unrealized (loss) gain on
investments in equity
instruments designated as
at fair value through othercomprehensive income(Notes 4 and 27)
Income tax relating to items
that will not bereclassified subsequently
to profit or loss (Note 29)$$

For the Nine Months Ended September 30
2018
2017
Amount%Amount%-4-

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In Thousands of New Taiwan Dollars, Except Earnings (Losses) Per Share)(Reviewed, Not Audited)

For the Three Months Ended September 30
2018
2017
Amount%Amount%Items that may be reclassified
subsequently to profit orloss:
Exchange differences ontranslating foreign
operations (Notes 4
and 27)
Cash flow hedges (Notes 4
and 27)
Gain on hedging instruments
not subject to basis
adjustment (Notes 4, 27
and 33)
Income tax relating to items
that may be reclassified
subsequently to profit orloss (Note 29)$

10,079-(124,213)

-

-

-

-

(71,854)---

98,702----(5,706)-(17,678)-

33,196-(16,525)-

27,551-

109,649-(162,871)-$

1,210,112

3$

3,078,373

8$

1,739,044

1$

1,026,328

1$

1,080,506
146,1313-$

2,951,880
98,9428-$

1,269,440
359,9551-$

952,467
236,7321-$

1,226,637

3$

3,050,822

8$

1,629,395

1$

1,189,199

1$

1,070,299
139,8133-$

2,978,279
100,0948-$

1,383,645
355,399

1-$

793,656
232,6721-$

1,210,112

3$

3,078,373

8$

1,739,044

1$

1,026,328

1

Other comprehensive
income (loss) for theperiod, net of income
tax
TOTAL COMPREHENSIVEINCOME (LOSS) FOR THE
PERIODNET INCOME (LOSS)ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interests

TOTAL COMPREHENSIVEINCOME ATTRIBUTABLE
TO:
Owners of the Company
Non-controlling interests

EARNINGS (LOSSES) PER
SHARE (NEW TAIWANDOLLARS; Note 30)
Basic
Diluted$$(23,546)

-

-

3,491

-

-

29,766

11,004

-

(880)

0.20
0.18

$

For the Nine Months Ended September 30
2018
2017
Amount%Amount
%

$
$

0.54
0.53

$

$
$

0.23
0.22

$

$
$

0.17
0.17

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated November 8, 2018)-5-(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(In Thousands of New Taiwan Dollars)(Reviewed, Not Audited)

Equity Attributable to Owners of the Company

Retained Earnings

BALANCE AT JANUARY 1, 2017

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

UnappropriatedEarnings(Accumulated
Deficits)$ 54,708,901

$

$

$

$

799,932

287,224

76,486(157,618 )Exchange
Differences on
Translating
Foreign Operations$

78,564

Unrealized Gain
(Loss) on
Available-for-saleFinancial Assets
$

1,714

Other Equity
Unrealized Gain on
Financial Assets at
Fair
Value Through
Other
Comprehensive
Income$-Cash Flow Hedges$

31,986

Gain (Loss) on
Hedging
Instruments$-

Treasury Shares
$

Total

(43,372 )$ 55,783,817

Non-controlling
Interests

Total Equity$

2,083,381$ 57,867,198

Convertible bonds converted to ordinary shares

945

131

-

-

-

-

-

-

-

-

-

1,076

-

1,076

Disposal of capital surplus of investments inassociates accounted for by using the equity
method

-

(64 )

-

-

-

-

-

-

-

-

-

(64 )

-

(64 )

Compensation of deficits for 2016--

(81,132 )(76,486 )

157,618

-

-

-

-

-

-

-

-

-

Difference between cost and net value fromacquiring subsidiaries

-

-

-

-

(2,269 )

-

-

-

-

-

-

(2,269 )(46,118 )(48,387 )Net profit for the nine months ended
September 30, 2017

-

-

-

-

952,467

-

-

-

-

-

-

952,467

236,732

1,189,199

Other comprehensive loss for the nine months
ended September 30, net of income tax

-

-

-

-

-

(99,208 )--(59,603 )--(158,811 )(4,060 )(162,871 )Total comprehensive income (loss) for the ninemonths ended September 30, 2017

-

-

-

-

952,467(99,208 )--(59,603 )--793,656

232,672

1,026,328

Cash dividends from subsidiaries paid to
non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

(39,920 )(39,920 )BALANCE AT SEPTEMBER 30, 2017

$ 54,709,846$

799,999$

206,092$-$

950,198$(20,644 )

$

1,714

$

-

$

(27,617 )$-$(43,372 )$ 56,576,216$

2,230,015$ 58,806,231

BALANCE AT JANUARY 1, 2018

$ 54,709,846$

799,999$

206,092$-$

1,458,313$(34,986 )

$

1,774

$

-

$

(74,429 )$-$(43,372 )$ 57,023,237$

2,134,282$ 59,157,519

Effect of retrospective application andretrospective restatement

-

-

-

-

60

-

(1,774 )42,351

74,429(74,429 )-

40,637-

40,637BALANCE AT JANUARY 1, 2018 AS
RESTATED

54,709,846

799,999

206,092-

1,458,373(34,986 )-

42,351-(74,429 )(43,372 )

57,063,874

2,134,282

59,198,156

Issuance of convertible bonds-

409,978

-

-

-

-

-

-

-

-

-

409,978-

409,978

Basis adjustment to gain on hedging instruments

-

-

-

-

-

-

-

-

-

37,116-

37,116-

37,116

Appropriation of 2017 earnings
Legal reserve
Special reserve
Cash dividends - $0.2181820086--

145,831-

118,810-(145,831 )(118,810 )(1,193,670 )

-

-

-

-

-

-

(1,193,670 )-(1,193,670 )Net profit for the nine months ended
September 30, 2018

-

-

-

-

1,269,440

-

-

-

-

-

-

1,269,440

359,955

1,629,395

Other comprehensive income (loss) for the ninemonths ended September 30, 2018, net ofincome tax

-

-

-

-

-

12,014

-

8,560

-

93,631-

114,205(4,556 )109,649

Total comprehensive income for the nine months
ended September 30, 2018

-

-

-

-

1,269,440

12,014

-

8,560

-

93,631-

1,383,645

355,399

1,739,044

Cash dividends from subsidiaries paid to
non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

(171,019 )(171,019 )Non-controlling interests arising from acquisitionof subsidiaries

-

-

-

-

-

-

-

-

-

-

-

-

565,888565,888

Buy-back of ordinary shares

-

-

-

-

-

-

-

-

-

-

(257,982 )(257,982 )-(257,982 )(301,354 )$ 57,442,961

2,884,550$ 60,327,511

BALANCE AT SEPTEMBER 30, 2018

$ 54,709,846$

1,209,977$

351,923$

118,810$

1,269,502$(22,972 )The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated November 8, 2018)

-6-

$

-

$

50,911$-$

56,318$$

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands of New Taiwan Dollars)(Reviewed, Not Audited)

For the Nine Months Ended
September 30
2018
2017
CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax
Adjustments to reconcile net cash generated from (used in) operating
activities:
Depreciation expenses
Amortization expenses
Bad-debts expense
Net (gain) loss on fair value changes of financial assets andliabilities held for trading
Interest income
Dividend income
Share of profit of associates and joint ventures
Loss (gain) on disposal of property, plant and equipment
Loss (gain) on disposal of noncurrent assets held for sale
Gain on disposal of investments
Loss on financial assets carried at cost
Loss on inventory and property, plant and equipment
Impairment loss recognized on property, plant and equipment andnoncurrent assets held for sale
Net loss (gain) on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leasebacks
Changes in operating assets and liabilities
Financial assets and liabilities held for trading
Financial assets mandatorily classified as at fair value through profit
or loss
Notes and accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Other current assets
Notes and accounts payable
Accounts payable - related parties
Other payables
Contract liabilities
Deferred revenue
Provisions
Other current liabilities
Accrued pension liabilities
Other liabilities
Cash generated from operations-7-$

2,286,395$

1,997,588

14,379,980
142,226
37,491

13,707,159
195,164
38,006(10,204)(226,694)(7,705)(244,917)
280,195
368,992(450,195)
550,382

27,488(156,833)(9,057)(385,762)(215)(147,568)(119,739)
56,023
601,565

60,812311,002
1,015,475
2,577,389(10,884)

3,692,410(189,646)
1,013,780
2,371,400(10,884)-

124,146732,365(1,235,248)
117,328(103,940)(290,784)
157,879
540,038
149,009476,974
1,103,553(2,309,957)
117,238(214,214)
8,796
20,308,777(14,893)(5,295)
351,722(554,836)
1,597,777(435,870)
295,765(177,870)
543,818(920,122)
270,548(804,232)
18,911
22,970,448(Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands of New Taiwan Dollars)(Reviewed, Not Audited)

For the Nine Months Ended
September 30
2018
2017
Interest received
Dividends received
Interest paid
Income tax paid$

Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of noncurrent assets held for sale
Payments for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of investments accounted for by using theequity method
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Increase in computer software costs(Increase) decrease in restricted assets
Acquisition of subsidiaries
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Decrease in short-term loans
Increase in short-term bill payable
Decrease in short-term bills payable
Payments for buy-back ordinary shares
Proceeds from issuance of bonds payable
Repayments of bonds payable
Proceeds of long-term debts and capital lease obligations
Repayments of long-term debts and capital lease obligations
Proceeds of guarantee deposits received
Refunds of guarantee deposits received
Proceeds from acquisition of subsidiaries' shares
Dividends paid to owners of the Company
Cash dividends paid to non-controlling interests
Net cash used in financing activities
EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES-8-

182,837
224,301(1,081,492)(162,870)$

143,127
458,880(1,057,576)(141,286)

19,471,553

22,373,593

688,427(4,128,575)
300,162

836,768(6,711,221)
80,840(81,314)204,834(10,562,015)(129,832)(27,670)
136,769

380,850(158,364)
174,876(11,824,421)(83,936)1,362-(13,599,214)(17,303,246)

1,150,000(1,270,000)
350,060(350,060)(257,982)
6,012,000(2,700,000)
12,292,996(19,048,299)
120,609(63,773)(1,193,670)(171,019)

120,000(225,000)(890,000)
2,350,000(2,700,000)
21,247,000(23,096,592)
122,192(86,715)(48,387)(39,920)(5,129,138)(3,247,422)(100,618)(241,629)(Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands of New Taiwan Dollars)(Reviewed, Not Audited)

For the Nine Months Ended
September 30
2018
2017
NET INCREASE IN CASH AND CASH EQUIVALENTS$

642,583$

1,581,296

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD

22,585,332

24,267,197

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD$ 23,227,915$ 25,848,493

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated November 8, 2018)-9-(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)(Reviewed, Not Audited)

1. GENERAL INFORMATION
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 is primarily involved in (a) air transport services
for passengers, cargo and mail; (b) ground services and routine aircraft maintenance; (c) major maintenanceof flight equipment; (d) communications and data processing services to other airlines; (e) the sale ofaircraft parts, aviation equipment and (f) leasing of aircraft.
The major shareholders of the Company are the China Aviation Development Foundation (“CADF”) andthe National Development Fund (“NDF”), Executive Yuan. As of September 30, 2018, December 31,
2017 and September 30, 2017, CADF and NDF held a combined 43.63% of the Company’s shares.

2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statement of the Company and its subsidiaries (collectively, the “Group”) wereapproved by the board of directors and authorized for issue on November 8, 2018.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS
a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports
by Securities Issuers and the International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)(collectively, the “IFRSs”) endorsed and issued into effect by the FSC
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:
1) IFRS 9 “Financial Instruments” and related amendments
IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, withconsequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards.
IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets
and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.
The requirements for classification, measurement and impairment of financial assets have been
applied retrospectively from January 1, 2018, and the requirements for hedge accounting have been
applied prospectively. IFRS 9 is not applicable to items that have already been derecognized at
December 31, 2017.

- 10 -

Classification, measurement and impairment of financial assets
On the basis of the facts and circumstances that existed as of January 1, 2018, the Group has
performed an assessment of the classification of recognized financial assets and has elected not torestate prior reporting periods.
The following table shows the original measurement categories and carrying amounts under IAS 39
and the new measurement categories and carrying amounts under IFRS 9 for each class of theGroup’s financial assets and financial liabilities as of January 1, 2018.
Measurement Category
IAS 39IFRS 9Financial Asset
Equity securities

Financial assets carried at
costTime deposits withoriginal maturities ofmore than 3 months(other financial assets)
Principal-protected notes(other financial assets)

Loans and receivables

Loans and receivables

Financial Asset

Carrying AmountIAS 39IFRS 9Fair value through othercomprehensive income(i.e. FVTOCI) - equity
instruments
Amortized cost$

Financial assets at fair value
through profit or loss (i.e.
FVTPL)IAS 39Carrying
Amountas ofJanuary 1,
2018

Reclassifications$$

84,075$131,585

1,323,095

1,323,095

483,318

483,318

Remeasurements

IFRS 9Carrying
Amount asofJanuary 1,
2018

Retained
Earnings
Effect on
January 1,
2018

Other
EquityEffect on
January 1,
2018

$

$

$

$

Remarka)c)RemarkFVTOCI
Equity instruments
Add: Reclassification from FVTPL(IAS 39)
Add: Financial assets carried at cost
(IAS 39)

-

-

-

-

-

$

-

60

(60 )

b)

40,637a)84,07547,510131,585$ 84,075$ 47,510$ 131,585$

60$ 40,577a) Investments in unlisted shares previously carried at cost under IAS 39 have been classified as
designated as at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an
increase of $47,510 thousand was recognized in both financial assets at FVTOCI and other
equity - unrealized gain (loss) on financial assets at FVTOCI on January 1, 2018.
b) Mutual funds held by investments accounted for using the equity method previously classified
as available-for-sale under IAS 39 were classified mandatorily as at FVTPL under IFRS 9,
because the contractual cash flows are not solely payments of principal and interest on theprincipal outstanding and they are not equity instruments. The retrospective adjustment
resulted in a decrease of $60 thousand in other equity - unrealized gain (loss) on
available-for-sale financial assets and an increase of $60 thousand in retained earnings on
January 1, 2018.
c) Contracts such as principal-protected notes signed by the Group and financial institutions are
hybrid instruments. Since the related master contracts included in these hybrid instruments areassets within the scope of IFRS 9, the overall master contracts should be classified under IFRS
9.
d) Except for the above, the remaining financial assets classified as loans and receivables
amounting to $34,792,801 thousand based on IAS 39 are classified as financial assets at
amortized cost under IFRS 9.
e) In line with the equity adjustments above, the Group’s deferred tax liabilities increased by$6,873 thousand.
- 11 -

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers
and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations. Refer to Note 4 for related accounting policies.
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). The Group chooses to apply retroactively IFRS 15 only for contracts that have
not yet been completed on the conversion date. Also, the revenue-related amount received should
be recognized as contract liabilities. Therefore, the previously classified deferred revenue - current
and noncurrent are reclassified to contract liabilities - current and noncurrent which amounted to$16,375,789 thousand and $1,818,265 thousand, respectively, on January 1, 2018.
b. New IFRSs in issue but not yet endorsed and issued into effect by the FSC
Effective Date
Announced by IASB (Note 1)

New IFRSs
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”
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”

January 1, 2019
January 1, 2019 (Note 2)
To be determined by IASB
January 1, 2019
January 1, 2019 (Note 3)
January 1, 2019
January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.
Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.
Note 3: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting fromJanuary 1, 2019.
IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related
interpretations.
Definition of a lease
Upon initial application of IFRS 16, the Group will elect to apply the guidance of IFRS 16 in
determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on orafter January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not bereassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

- 12 -

The Group as lessee
Upon initial application of IFRS 16, the Group will recognize right-of-use assets, or investment
properties if the right-of-use assets meet the definition of investment properties, and lease liabilities for
all leases on the consolidated balance sheets except for those whose payments under low-value andshort-term leases will be recognized as expenses on a straight-line basis. On the consolidated
statements of comprehensive income, the Group will present the depreciation expense charged onright-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 forthe principal portion of lease liabilities will be classified within financing activities; cash payments forthe interest portion will be classified within operating activities. Currently, payments under operatinglease contracts, including property interest qualified as investment properties, are recognized as
expenses on a straight-line basis. Cash flows for operating leases are classified within operating
activities on the consolidated statements of cash flows. Leased assets and finance lease payables arerecognized for contracts classified as finance leases.
The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial
application of this standard recognized on January 1, 2019. Comparative information will not berestated.
Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases
with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining
lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019.
Right-of-use assets will be measured at an amount equal to the lease liabilities, adjusted by the amountof any prepaid or accrued lease payments. The Group will apply IAS 36 to all right-of-use assets.
For leases currently classified as finance leases under IAS 17, the carrying amount of right-of-use assets
and lease liabilities on January 1, 2019 will be determined as the carrying amount of the leased assets
and finance lease payables as of December 31, 2018.
If the Group determines that a sale and leaseback transaction does not satisfy the requirements of IFRS
15 to be accounted for as a sale of an asset, it will be accounted for as a financing transaction. If it
satisfies the requirements to be accounted for as a sale of an asset, the Group will recognize only theamount of any gain or loss which relates to the rights transferred to the buyer-lessor. Currently, theleaseback portion is classified as either a finance lease or an operating lease and accounted for
differently.
The Group will not reassess sale and leaseback transactions entered into before January 1, 2019 todetermine whether the transfer of an underlying asset satisfies the requirements in IFRS 15 to beaccounted for as a sale. Upon initial application of IFRS 16, the aforementioned transitional provision
for a lessee will apply to the leaseback portion. In addition, for asset currently accounted for as a saleand a finance lease applying IAS 17, the Group will continue to amortize any gains on sales over thelease term.
The Group as lessor
The Group will not make any adjustments for leases in which it is a lessor and will account for thoseleases with the application of IFRS 16 starting from January 1, 2019.
Except 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.

- 13 -

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC
Effective Date
Announced by IASB (Note 1)

New IFRSs
Amendments to IFRS 3 “Business Definition”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between An Investor and Its Associate or Joint Venture”
IFRS 17 “Insurance Contracts”
Amendments to IAS 1 and IAS 8 “Definition of Materiality”

January 1, 2020 (Note 2)
To be determined by IASB
January 1, 2021 (Note 3)
January 1, 2021 (Note 3)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.
Note 2: Business combinations that began after January 1, 2020 and acquisition of assets after the
aforesaid date, are subjected to the amendment.
Note 3: Deferred during the annual period after January 1, 2020 are subjected to the amendment.
Except 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.

4. SIGNIFICANT ACCOUNTING POLICIESExcept for the policies listed below, the accounting policies adopted for these consolidated financial
statements are the same as those for the consolidated financial statements for the year ended December 31,
2017.
Statement of Compliance
The consolidated financial statements have been prepared in accordance with the Regulations Governing
the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial Reporting” asendorsed by the FSC. Disclosure information included in these interim consolidated financial statements
is less than the disclosures required in a full set of annual consolidated financial statements.
Basis of Consolidation
The consolidated financial statements reporting principles are the same as those for the consolidated
financial statements for the year ended December 31, 2017.
Financial Instruments
Financial assets and financial liabilities are recognized when a group entity becomes a party to thecontractual provisions of the instruments.
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 FVTPL) are added to or deducted from the fair value of thefinancial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized
immediately in profit or loss.

- 14 -

Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
a. Measurement categories
2018
Financial assets are classified into the following categories: Financial assets at FVTPL, financial
assets at amortized cost, and investments in equity instruments at FVTOCI.
1) Financial assets at FVTPL
Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified ordesignated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investmentsin equity instruments which are not designated as at FVTOCI and debt instruments that do not meet
the amortized cost criteria or the FVTOCI criteria.
Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arisingon remeasurement recognized in profit or loss. Fair value is determined in the manner described in
Note 33.
2) Financial assets at amortized cost
Financial assets that meet the following conditions are subsequently measured at amortized cost:a) The financial asset is held within a business model whose objective is to hold financial assets inorder to collect contractual cash flows; andb) The contractual terms of the financial asset give rise on specified dates to cash flows that aresolely payments of principal and interest on the principal amount outstanding.
Subsequent to initial recognition, financial assets at amortized cost, including cash and cash
equivalents, trade receivables, other receivables and other financial assets, are measured atamortized cost, which equals the gross carrying amount determined using the effective interest
method less any impairment loss. Exchange differences are recognized in profit or loss.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of afinancial asset.
Cash equivalents include time deposits with original maturities within 3 months from the date ofacquisition, which are highly liquid, readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in value. These cash equivalents are held for the purpose of
meeting short-term cash commitments.
3) Investments in equity instruments at FVTOCI
On initial recognition, the Group may make an irrevocable election to designate investments inequity instruments as at FVTOCI. Designation at FVTOCI is not permitted if an equity
investment is held for trading or if it is contingent consideration recognized by an acquirer in abusiness combination.
Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains
and losses arising from changes in fair value recognized in other comprehensive income andaccumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss
on disposal of the equity investments; instead, they will be transferred to retained earnings.
- 15 -

Dividends on these investments in equity instruments are recognized in profit or loss when theGroup’s right to receive the dividends is established, unless the dividends clearly represent a
recovery of part of the cost of an investment.
2017
Financial assets are classified into the following categories: Financial assets at fair value throughprofit or loss, available-for-sale financial assets, and loans and receivables.
1) Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss when such financial assets areeither held for trading or designated as at fair value through profit or loss.
Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses
arising on remeasurement recognized in profit or loss. Fair value is determined in the manner
described in Note 33.
2) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated as available-for-saleor are not classified as loans and receivables, held-to-maturity investments or financial assets at fairvalue through profit or loss.
Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts ofavailable-for-sale monetary financial assets (relating to changes in foreign currency exchange rates,interest income calculated using the effective interest method and dividends on available-for-sale
equity investments) are recognized in profit or loss. Other changes in the carrying amount ofavailable-for-sale financial assets are recognized in other comprehensive income and will bereclassified to profit or loss when such investments are disposed of or are determined to be
impaired.
Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s
right to receive the dividends is established.
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 carried at cost less any identified
impairment loss at the end of each reporting period and presented in a separate line item as financial
assets carried at cost. If, in a subsequent period, the fair value of the financial assets can bereliably measured, the financial assets are remeasured at fair value. The difference between the
carrying amount and the fair value is recognized in other comprehensive income on financial assets.
Any impairment losses are recognized in profit and loss.
3) Loans and receivables
Loans and receivables (including trade receivables, cash and cash equivalents, other financial assets
and other receivables) are measured using the effective interest method at amortized cost less any
impairment, except for short-term receivables when the effect of discounting is immaterial.
Cash equivalents include time deposits with original maturities within 3 months from the date ofacquisition, which are highly liquid, readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in value. These cash equivalents are held for the purpose of
meeting short-term cash commitments.

- 16 -

b. Impairment of financial assets
2018
The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost(including trade receivables), as well as contract assets.
The Group always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables and otherreceivables. For all other financial instruments, the Group recognizes lifetime ECLs when there has
been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk
on a financial instrument has not increased significantly since initial recognition, the Group measuresthe loss allowance for that financial instrument at an amount equal to 12-month ECLs.
Expected credit losses reflect the weighted average of credit losses with the respective risks of a default
occurring as the weights. Lifetime ECL represents the expected credit losses that will result from all
possible default events over the expected life of a financial instrument. In contrast, 12-month ECL
represents the portion of lifetime ECL that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting date.
The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with acorresponding adjustment to their carrying amounts through a loss allowance account, except forinvestments in debt instruments that are measured at FVTOCI, for which the loss allowance isrecognized in other comprehensive income and does not reduce the carrying amounts of the financial
assets.
2017
Financial assets, other than those at fair value through profit or loss, 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, as a result of one or more events that occurred after the initial recognition of
the financial assets, that the estimated future cash flows of the investments have been affected.
For financial assets at amortized cost, such as trade receivables and other receivables, such assets areassessed 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 pastexperience 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 in national or local economic
conditions that correlate with defaults on receivables.
For a financial asset at amortized cost, the amount of the impairment loss recognized is the difference
between the asset’s carrying amount and the present value of its estimated future cash flows, discounted
at the financial asset’s original effective interest rate.
For financial assets at amortized cost, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment wasrecognized, the previously recognized impairment loss is reversed through profit or loss 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 any 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.

- 17 -

For all other financial assets, objective evidence of impairment could include significant financial
difficulty of the issuer or counterparty, breach of contract such as a default or delinquency in interest or
principal payments, it becoming probable that the borrower will enter bankruptcy or financial
re-organization, or the disappearance of an active market for those financial assets because of financial
difficulties.
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.
In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss
is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss isrecognized 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.
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.
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 trade receivables and other receivables are
considered uncollectible, they are written off against the allowance account. Subsequent recoveries ofamounts 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 for uncollectible tradereceivables and other receivables that are written off against the allowance account.
c. Derecognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows from theasset expire or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another party.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amountand the sum of the consideration received and receivable and the cumulative gain or loss that had beenrecognized in other comprehensive income is recognized in profit or loss.
Equity instruments
Debt and equity instruments issued by a group entity 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.
Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue
costs.
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, issue or cancellation of theCompany’s own equity instruments.
Financial liabilities
1) Subsequent measurement
All financial liabilities are measured at amortized cost using the effective interest method.
- 18 -

2) Derecognition of financial liabilities
The difference between the carrying amount of a financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in
profit or loss.
Hedge Accounting
The Group designates certain hedging instruments, which include derivatives, embedded derivatives andnon-derivatives in respect of foreign currency risk, as cash flow hedges. Hedges of foreign exchange risk
on firm commitments are accounted for as cash flow hedges.
Cash flow hedges
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 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 in which 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 andincluded in the initial cost of the non-financial asset or non-financial liability.
Before 2017, hedge accounting was discontinued prospectively when the Group revoked the designatedhedging relationship; when the hedging instrument expired or was sold, terminated, or exercised; or when
the hedging instrument no longer met the criteria for hedge accounting. Starting from 2018, the Groupdiscontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; forinstance, when the hedging instrument expires or is sold, terminated or exercised. The cumulative gain orloss on the hedging instrument that has been previously recognized in other comprehensive income fromthe period in which 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 inequity is recognized immediately in profit or loss.
Revenue Recognition
When applying IFRS 15 during 2018, the Group recognizes revenue by applying the following steps:






Identifying the contract with the customer;
Identifying the performance obligations in the contract;
Determining the transaction price;
Allocating the transaction price to the performance obligations in the contract; andRecognizing revenue when the Group satisfies a performance obligation.

Shipping service revenue
Passenger and cargo revenue are recognized as revenue when the passengers and goods are actually carried.
When the tickets are sold, due to the fact that the fulfillment obligations of the shipment have not been met,
the relevant amount of revenue is first recorded as contract liabilities until passengers actually board.
Before 2017, the relevant amounts were recorded as deferred revenue.

- 19 -

Employee Benefits
Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determinedpension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since thattime and for significant plan amendments, settlements, or other significant one-off events.
Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period
income taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax
income the tax rate that would be applicable to expected total annual earnings. Changes during period due
to tax law is consistent with the transaction that generates tax consequences has the same accounting
principle, should recognize profit or loss, other comprehensive income or directly included in equity in thecurrent period.
Business Combinations
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of theacquirer’s previously held equity interests in the acquiree over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed.
When a business combination is achieved in stages, the Group’s previously held equity interest in an
acquiree is remeasured to fair value at the acquisition date, and the resulting gain or loss is recognized in
profit or loss or other comprehensive income. Amounts arising from interests in the acquiree prior to theacquisition date that have previously been recognized in other comprehensive income are recognized on thesame basis as would be required if those interests were directly disposed of by the Group.
If the initial accounting for a business combination is incomplete by the end of the reporting period inwhich the combination occurs, the Group reports provisional amounts for the items for which theaccounting is incomplete. Those provisional amounts are adjusted retrospectively during the measurement
period, or additional assets or liabilities are recognized, to reflect new information obtained about facts andcircumstances that existed as of the acquisition date that, if known, would have affected the amounts
recognized as of that date.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
Except for the following, the critical accounting judgments and key sources of estimation uncertainty forthese interim consolidated financial statements are the same as those applied for the consolidated financial
statements for the year ended December 31, 2017.
a. Estimated impairment of financial assets - 2018
The provision for the impairment of trade receivables is based on assumptions about the risk of default
and expected loss rates. The Group uses judgment in making these assumptions and in selecting the
inputs to the impairment calculation, based on the Group’s past history, existing market conditions aswell as forward-looking estimates at the end of each reporting period. For details of the key
assumptions and inputs used, see Note 11. Where the actual future cash inflows are less than
expected, a material impairment loss may arise.

- 20 -

b. Estimated impairment of trade receivables - 2017
When there is objective evidence of impairment loss, the Group takes into consideration the estimationof future cash flows. The amount of impairment loss is measured as the difference between an asset’s
carrying amount and the present value of its estimated future cash flows (excluding future credit losses
that have not been incurred) discounted at the financial asset’s original effective interest rate. Where
the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

Cash on hand and revolving fund
Checking accounts and demand deposits
Cash equivalents
Time deposits with original maturities of lessthan three months
Repurchase agreements collateralized by bonds

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

377,849
8,802,191

374,445
11,427,766

408,046
9,356,923

11,693,895
2,353,980

4,812,734
5,970,387

12,037,496
4,046,028$ 23,227,915$ 22,585,332$ 25,848,493

The market rate intervals of cash in the bank and cash equivalents at the end of the reporting period were as
follows:

Bank balanceTime deposits with original maturities of less than
three months
Repurchase agreements collateralized by bonds

September 30,
2018

December 31,
2017

September 30,
2017

0%-1.90%0%-2.00%

0%-2.00%

0.4%-4.00%
0.40%-4.70%

0.59%-4.20%
0.36%-2.20%

0.59%-3.78%
0.38%-1.66%

The amount of time deposits with original maturities of more than three months for December 31, 2017 and
September 30, 2017 were $1,323,095 thousand and $684,496 thousand, respectively, and the respective
market rate intervals were 0.16%-1.42% and 0.16%-1.065%, which were recognized as other current assets.
(Refer to Note 19).

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
September 30,
2018

December 31,
2017

September 30,
2017

Financial assets at FVTPL - current
Financial assets mandatorily classified as at
FVTPL
Non-derivative financial assets
Beneficial certificates$ 216,967$-$$ 306,839$-

Financial assets held for trading - current
Non-derivative financial assets
Beneficial certificates- 21 --$ 279,822(Continued)

September 30,
2018

December 31,
2017

September 30,
2017

Financial liabilities held for trading
Derivative financial instruments (not under hedge
accounting) - foreign exchange forward
contracts
Current
Noncurrent

$
$

1,063
-

$
$

8,655
926

$
$

13,3602,634(Concluded)

Notional Amount(In Thousands)

Currency

Maturity Date

NTD/USD

2018.10.31-2019.1.31

NTD61,162/USD2,000

NTD/USD

2018.01.31-2019.01.31

NTD194,030/USD6,500

NTD/USD2017.10.31-2019.1.31

NTD424,242/USD14,000

September 30, 2018
Buy forward contracts
December 31, 2017
Buy forward contracts
September 30, 2017
Buy forward contracts

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 2018
Investments in Equity Instruments
September 30,
2018
Noncurrent
Foreign investments
Unlisted shares
Domestic investments
Unlisted shares$ 117,573
23,582$ 141,155

These investments in equity instruments are not held for trading. Instead, they are held for medium- tolong-term strategic purposes. Accordingly, the management elected to designate these investments inequity instruments as at FVTOCI as it believes that recognizing short-term fluctuations in theseinvestments’ fair values in profit or loss would not be consistent with the Group’s strategy of holding theseinvestments for long-term purposes. These investments in equity instruments were classified asavailable-for-sale and financial assets carried at cost under IAS 39. Refer to Notes 3 and 10 for
information relating to their reclassification and comparative information for 2017.

- 22 -

9. FINANCIAL ASSETS AT AMORTIZED COST - 2018
September 30,
2018
Current
Time deposits with original maturities of more than 3 months (e)$ 1,213,420

The interest rates for time deposits with original maturities of more than 3 months ranged from 0.40% to
2.88% as of the end of the reporting period. The time deposits were classified as other financial assets
under IAS 39. Refer to Notes 3, 6 and 19 for information relating to their reclassification and comparative
information for 2017.

10. FINANCIAL ASSETS CARRIED AT COST - 2017
December 31,
2017
Carrying
Value
Unlisted ordinary shares
Unlisted preferred sharesClassified according to financial asset measurement categories
Available-for-sale financial assets

September 30,
2017
Carrying
Value$

83,602473$

83,412
473$

84,075$83,885$84,075$83,885Due to the permanent decrease in the value of an investment held by the Group, the Group recognized an
impairment loss of $56,023 thousand for the nine months ended September 30, 2017.
Management believed that the above unlisted equity investments held by the Group had fair values whichcannot be reliably measured, because the range of reasonable fair value estimates was so significant.
Therefore, they were carried at cost less impairment at the end of the reporting period.

11. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

642,101

362,855444,756

Accounts receivable
At amortized cost
Gross carrying amountLess: Allowance for impairment loss

9,393,707(219,258)
9,174,449

8,423,278(181,868)
8,241,410

8,074,845(222,249)
7,852,596$ 9,816,550$ 8,604,265$ 8,297,352- 23 -

For the nine months ended September 30, 2018
The average credit period was 7 to 55 days. In determining the recoverability of a trade receivable, theGroup considered any change in the credit quality of the receivable since the date credit was initiallygranted 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. The Group adopted a policyof only dealing with entities that are rated the equivalent of investment grade or higher and obtaining
sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
Credit rating information is obtained from independent rating agencies where available or, if not available,
the Group uses other publicly available financial information or its own trading records to rate its major
customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored
and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit
exposure is controlled by counterparty limits that are reviewed and approved by the risk management
committee annually.
The Group applies the simplified approach to allowing for expected credit losses prescribed by IFRS 9,which permits the use of lifetime expected loss allowance for all trade receivables. The expected credit
losses on trade receivables are estimated using a provision matrix by reference to past default experience
with the debtors and an analysis of the debtors’ current financial position, adjusted for general economic
conditions of the industry in which the debtors operate and an assessment of both the current as well as theforecasted direction of economic conditions at the reporting date. As the Group’s historical credit loss
experience does not show significantly different loss patterns for different customer segments, the loss
allowance based on the past due status is not further distinguished according to the different segments of theGroup’s customer base.
The Group writes off a trade receivable when there is information indicating that the debtor is experiencing
severe financial difficulty and there is no realistic prospect of recovery. For accounts receivable that havebeen written off, the Group continues to engage in enforcement activity to attempt to recover thereceivables which are due. Where recoveries are made, these are recognized in profit or loss.
The following table details the loss allowance of trade receivables based on the Group’s provision matrix.
September 30, 2018
Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Total

Expected credit loss rate

0.05%

0.15%

0.87%

21.19%

97.56%-

Gross carrying amount
Loss allowance (lifetime
ECLs)$ 7,279,852$ 1,555,679(3,497)(2,261)

Amortized cost

$ 7,276,355$ 1,553,418$

280,440$(2,438)$- 24 -

278,00278,432$(16,618)$

61,814$

199,304$ 9,393,707(194,444)(219,258)

4,860$ 9,174,449

The movements of the loss allowance of trade receivables were as follows:
For the Nine
Months Ended
September 30,
2018
Balance at January 1, 2018 per IAS 39
Adjustment on initial application of IFRS 9
Balance at January 1, 2018 per IFRS 9
Add: Net remeasurement of loss allowance
Less: Amounts written off
Foreign exchange gains and losses$ 181,868
181,868
37,491(1,103)
1,002

Balance at September 30, 2018

$ 219,258

September 30, 2017
The Group applied the same credit policy in 2018 and 2017.
Movement in the allowance for impairment loss recognized on notes receivable and trade receivables wereas follows:
For the Nine
Months Ended
September 30,
2017
Beginning balance
Impairment loss recognized on receivables
Amounts written off during current period
Amounts receivable during current period
Effects of exchange rate changes$ 191,398
38,006(7,058)(86)(11)

Ending balance$ 222,249

12. INVENTORIES

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
Others

September 30,
2018

December 31,
2017

September 30,
2017$ 7,810,991
561,817
299,701
20,481$ 8,082,993
576,429
71,046
1,287$ 8,034,146
558,467
66,861
3,517$ 8,692,990$ 8,731,755$ 8,662,991

The operating costs recognized for the nine months ended September 30, 2018 and 2017 included losses
from inventory write-downs of $369,226 thousand and $325,686 thousand, respectively. And theoperating costs for the three months ended September 30, 2018 and 2017 included losses from inventory
write-downs of $44,828 thousand and $100,968 thousand, respectively.

- 25 -

13. NONCURRENT ASSETS HELD FOR SALE
September 30,
2018

December 31,
2017

September 30,
2017$ 110,778$ 309,330$ 494,686-

117,223-$ 110,778$ 426,553$ 494,686

Aircraft held for saleLong-term equity investments held for sale Asian Compressor Technology Services

To enhance its competitiveness, the Company plans to introduce new aircraft and retire old aircraft
according to a planned schedule. Such aircraft, classified as noncurrent assets held for sale, had an
original carrying amount 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.
The Company recognized impairment losses of $10,812 thousand and $3,571,301 thousand for the ninemonths ended September 30, 2018 and 2017. Some aircraft had completed the planned disposal
procedures, and the Company recognized the disposal gains and losses of $(368,992) thousand and$147,568 thousand for the nine months ended September 30, 2018 and 2017, respectively.
The Company hasn’t recognized impairment losses for the three months ended September 30, 2018 and2017. Some aircraft had completed the planned disposal procedures, and the Company recognized thedisposal gains and losses of $0 and $82,544 thousand for the three months ended June 30, 2018 and 2017,
respectively.
The related measurement of fair value is a Level 3 measure to which the second-hand market and theconditions of the aircraft were referred.

14. SUBSIDIARIES
Subsidiaries included in the consolidated financial statements are as follows:

Investor Company
China Airlines, Ltd.

Investee Company
Cal-Dynasty International
Cal-Asia Investment
Hwa Hsia
Yestrip
Cal Park
Cal Hotel Co., Ltd.
Sabre Travel Network (Taiwan)
Mandarin Airlines

Cal-Dynasty International
Taiwan Airport Services

Taiwan Air Cargo Terminal (Note)
Dynasty Holidays
Taoyuan International Airport Services
Taiwan Airport Services (Note)
Global Sky Express
Tigerair Taiwan Co., Ltd. (Note)
Taiwan Aircraft Maintenance And
Engineering Co., Ltd.
Kaohsiung Catering Services, Ltd.
Dynasty Properties Co., Ltd.
Dynasty Hotel of Hawaii, Inc.
Taiwan Airport Service (Samoa)

Main Businesses and Products

Proportion of Ownership (%)
September 30,
December 31,
September 30,
2018
2017
2017

A holding company, real estate andhotel 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
Travel businessAirport services
Airport services
Forwarding and storage of air cargo
Air transportation
Aircraft maintenance

100

100

100

100
100

100
100

100
100

100
100
100
94

100
100
100
94

100
100
100
94

94

94

94

59
51
49
48
25
100
100

59
51
49
48
25
100
100

59
51
49
48
25
100
100

In-flight catering
Real estate management
Hotel businessAirport supporting service andinvestment

54
100
100
100

36
100
100
100

36
100
100
100

Note: Proportion of ownership is considered from the Group view.

- 26 -

The Company increased its investments with a payment of $490,000 thousand and $700,000 thousand to
Taiwan Aircraft Maintenance and Engineering Co., Ltd. for the purpose of building hangars in April 2017
and November 2017, respectively.
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. The financial information for the nine months ended
September 30, 2018 and 2017 of these subsidiaries was reported according to information that was notindependently reviewed except for that of Mandarin Airlines and Tigerair Taiwan Co., Ltd.
The Group’s respective holdings of the issued share capital of China Pacific Catering Services, China
Pacific Laundry Services and Delica International Co., Ltd. exceeded 50%, yet the Group did not havecontrol over the investees. For related information, refer to Note 15,b.
The Group paid $243,743 thousand on March 7, 2018 to acquire an additional 18% of Kaohsiung Catering,
Ltd. (Kaohsiung Catering) of which the Group’s holding of the issued share capital exceeded 50%.
Kaohsiung Catering is listed as a subsidiary because the Group has control over the investee. For thedisclosure of the Group’s acquisition of Kaohsiung Catering, refer to Note 31.

15. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates
Investments in jointly controlled entities

September 30,
2018

December 31,
2017

September 30,
2017$ 1,299,878
915,147$ 1,576,753
930,593$ 1,793,417
885,322$ 2,215,025$ 2,507,346$ 2,678,739

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

a. Investments in associates
The amount of investments in associates were as follows:

Unlisted companies
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.

498,423484,941
271,346

493,077
300,400
483,814
256,291

507,323
274,504
248,904
472,183
246,760

45,16843,171

43,743$ 1,299,878$ 1,576,753$ 1,793,417- 27 -

At the end of the reporting period, the proportion of ownership and voting rights of associates held by
the Group were as follows:
Proportion of Ownership and Voting Rights
September 30,
December 31,
September 30,
2018
2017
2017

Name of Associate
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.
Note:

20%
- (Note)
28%
28%

20%
36%
28%
28%

20%
36%
25%
28%
28%

35%

35%

35%

Kaohsiung Catering Services was listed as a subsidiary on March 7, 2018.

The recognized investment income of associates accounted for using the equity method were as
follows:

China Aircraft Services
Asian Compressor Technology
Services
Kaohsiung Catering Services
Science Park Logistics
Airport Air Cargo Terminal(Xiamen)
Airport Air Cargo Service(Xiamen)Eastern United International
Logistics (Holdings) Ltd.

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

$

$

1,889

$

6,314

922

$

21,769-31,402
23,554
2,208

15,113-69,36560,12021,819

4,944

4,889

17,465

15,265

8,581

6,507

24,213

20,790

1,444

643

3,515

1,757

61,228$ 210,885

16,858$75,517$

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.
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 a noncurrent asset held forsale at its carrying amount. The transaction was completed and all payments were settled in January
2018. The total transaction price was $471,132 thousand, and a disposition gain of $353,909 thousand
was recognized.

- 28 -

b. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:
September 30,
2018

December 31,
2017

September 30,
2017$ 740,529
164,390
2,361
7,867

$ 756,965
171,2292,399-$ 718,468
166,854-$ 915,147$ 930,593$ 885,322

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.
Delica International Co., Ltd.

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:
Proportion of Ownership and Voting Rights
September 30,
December 31,
September 30,
2018
2017
2017
China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.
Delica International Co., Ltd.

51%
55%
49%
51%

51%
55%
49%
-

51%
55%
-

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 sides havethe right to make major motion vetoes on the board of directors, and therefore, the Group does not havecontrol.
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. NORDAM has filed for Chapter 11 bankruptcy reorganization in the
USA on July 22, 2018 to solve the business disputation with their cooperative partner, so their company
operation was not impact.
To expand the Group’s catering business, Kaohsiung Catering entered into a joint venture agreementwith a Japanese brand company to invest in Delica International Co, Ltd., with the Japanese brandcompany having the right to make decisions on operations, and therefore, the Group does not havecontrol.
Details of the investment income attributable to investments in jointly controlled entitles were as
follows:

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.
Delica International Co., Ltd.

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

60,133
4,107-$

48,2466,391-$ 171,665
12,062(38)-$ 158,251
16,626-$64,240$54,637$ 183,689$ 174,877- 29 -

The investments accounted for using the equity method and the share of profit or loss and othercomprehensive income of those investments was based on the jointly controlled entities’ financial
statement which were not independently reviewed.
For information on the major businesses and products, the locations of the major business offices, andthe countries of registration for the above entities, refer to Tables 6 and 7 (names, locations, and related
information of investees on which the Company exercises significant influence and investment in
mainland China) following the notes to the consolidated financial statements.

16. PROPERTY, PLANT AND EQUIPMENT

Freehold Land

Buildings

FlightEquipment

Equipment
under FinanceLeasesOthersTotal

Cost
Balance at January 1,
2017
Additions
Disposals
Reclassification
Net exchange differences
Balance at September 30,
2017$965,174(34,554)$

13,104,983
705,740(5,917)(61,252)$ 248,262,079
4,431,993(2,647,394)
4,034,925-$

28,898,891
1,300,854(279,416)(3,933,349)-$

15,981,800
272,634(266,327)
52,415(6,209)$ 307,212,927
6,711,221(3,199,054)
153,991(102,015)$

930,620$

13,743,554$ 254,081,603$

25,986,980$

16,034,313$ 310,777,070

$

-

$

(5,781,555)(384,135)
3,902
27,018-$ (135,893,108)(11,353,769)
2,172,303
11,152,860(121,109)$ (15,846,688)(1,424,314)
419,255
3,003,549-$(9,554,839)(544,731)
252,816(5,199)5,282-$ (167,076,190)(13,706,949)
2,848,276
14,151,210
32,300(121,109)$-$(6,134,770)$ (134,042,823)$ (13,848,198)$(9,846,671)$ (163,872,462)$

922,626
12,908-$

13,698,308
43,240(11,523)
4,515
23,002$ 263,427,144
2,766,009(19,649,879)
6,679,877-$$

16,230,011
1,319,326(219,967)
65,862
2,424$ 320,465,645
4,128,575(21,692,591)
8,047,949
25,494

220,318-

256,368

553,390

Accumulated depreciationand impairment
Balance at January 1,
2017
Depreciation expenses
Disposals
Net exchange differences
Reclassification
Impairment loss
Balance at September 30,
2017
Cost
Balance at January 1,
2018
Additions
Disposals
Reclassification
Net exchange differences
Acquisitions throughbusiness combinations
Balance at September 30,
2018

76,704

26,187,556(1,811,222)
1,284,787
68-$

1,012,238$

13,977,860$ 253,223,151$

25,661,189$

17,654,024$ 311,528,462

$

-

$

(6,137,495)(323,030)
10,500(11,132)$ (136,594,765)(11,865,067)
19,171,301
9,254,397-$ (14,142,872)(1,513,272)
1,532,046(1)$(9,972,982)(678,401)
217,303
16,969(6,697)$ (166,848,114)(14,379,770)
20,931,150
9,271,366(17,830)$-$(6,461,157)$ (120,034,134)$ (14,124,099)$ (10,423,808)$ (151,043,198)

Accumulated depreciationand impairment
Balance at January 1,
2018
Depreciation expenses
Disposals
Reclassification
Net exchange differences
Balance at September 30,
2018- 30 -

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful life of theasset:
Buildings
Main buildings
Others
Machinery equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersAssets leased to others
Flight equipment and equipment under finance leases
Airframes
Aircraft cabins
EnginesHeavy maintenance on aircraft
Engine overhauls
Landing gear overhauls
Repairable spare parts
Leased aircraft improvements

45-55 years
10-25 years
25 years
3-13 years
3-15 years
5 years
3-5 years
3-5 years
15-25 years
7-20 years
10-20 years
6-8 years
3-10 years
7-12 years
3-15 years
5-12 years

Regarding changes in fleet composition and the future retirement plan, the Group recognized impairment
losses on aircraft equipment for the nine months ended September 30, 2018 and 2017 of $50,000 thousand
and $121,109 thousand based on the difference between the recoverable amount, which applied the fairvalue (Level 3), and the carrying amount. The fair value was determined based on aircraft conditions andmarket estimates.
Refer to Note 35 for the carrying amounts of property, plant and equipment pledged by the Group.
Based on the particularity of risk in the aviation industry, all of the Group’s assets such as aircraft, realestate, and movable property are adequately insured to diversify the potential risk related to operations.

17. INVESTMENT PROPERTIES

Carrying amount
Investment properties

September 30,
2018

December 31,
2017

September 30,
2017$ 2,075,414$ 2,075,624$ 2,075,693

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.
The fair values of the investment properties held by the Group were both $2,506,230 thousand as ofDecember 31, 2017 and September 30, 2017. In addition, management assessed that there is no
significant difference in the fair values of September 30, 2018 and December 31, 2017.
The fair value valuations were performed by independent qualified professional valuers, and the future
income evaluated by management was based on market transactions.
All of the Group’s investment properties were held under freehold interests.

- 31 -

18. OTHER INTANGIBLE ASSETS

Computer
Software Cost

Relationship
Between
Clients

Accumulated
Amortization

Net Value

Balance at January 1, 2017
Additions
Amortization expenses
Effects of exchange rate changes$ 1,898,154
83,936-$-$(761,039)(195,164)(79)$ 1,137,115
83,936(195,164)(79)

Balance at September 30, 2017

$ 1,982,090

$

-

$

(956,282)$ 1,025,808

Balance at January 1, 2018
Additions
Amortization expenses
Acquisitions through businesscombinations
Reclassification
Effects of exchange rate changes$ 2,039,602
129,832-$-$ (1,020,257)(142,226)$ 1,019,345
129,832(142,226)

186,197
-

(540)
69

186,883
11,524
69

Balance at September 30, 2018

$ 2,182,184

186,197$ (1,162,954)$ 1,205,427

686
12,064$

The above other intangible assets are amortized on a straight-line basis over 2-16 years.

19. OTHER ASSETS
September 30,
2018

December 31,
2017

September 30,
2017$688,640
2,725,130
125,881709,986$ 1,806,413
464,258
2,834,936
895,931$$ 4,249,637$ 6,001,538$ 3,282,388

Current
Other financial assets
Temporary payments
Prepayments
Restricted assets
Others684,496441,662
1,701,622
144,053
310,555

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. The losses on the effective portion of the cash flow hedges reclassified
from equity for nine months ended September 30, 2017 were $9,038 thousand, which were classified as
operating costs in the statement of comprehensive income.

- 32 -

September 30,
2018

December 31,
2017

September 30,
2017$2,863,721
2,080,215
1,271,578
131,551
2,667
7,964

$ 10,942,604
1,164,604
1,377,136
161,398
18,803-$ 14,464,620
1,584,651
1,323,913
161,394
2,845
7,175

$

6,357,696$ 13,664,545$ 17,544,598

Noncurrent
Prepayments for aircraft
Prepayments - long-term
Refundable deposits
Restricted assets
Other financial assets
OthersThe prepayments for aircraft comprised the prepaid deposits and capitalized interest from the purchase of
A350-900 and ATR72-600 aircraft. For details of the contract for the purchase of the A350-900 aircraft,refer to Note 36.

20. BORROWINGSa. Short-term loans

Bank loans - unsecured

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

Interest rates-

120,000

33,030-1.04%-1.05%

1.10%

September 30,
2018

December 31,
2017

September 30,
2017

$

-

$

-

$

10,000
-

$

-

$

-

$

10,000b. Short-term and bills payable

Commercial paper
Less: Unamortized discount on bills payable

Annual discount rate-

- 33 --

1.18%

c. Long-term debts

Unsecured bank loans
Secured bank loans
Commercial paper
Proceeds from issue
Less: Unamortized discounts

September 30,
2018

December 31,
2017

September 30,
2017$ 16,398,834
32,220,986$ 26,820,000
32,176,074$ 28,504,833
32,849,057

31,280,000
63,53079,836,290
19,735,094

26,100,000
37,89785,058,177
19,304,674

28,500,000
24,96689,828,924
27,740,345$ 60,101,196$ 65,753,503$ 62,088,579

0.92%-1.44%

0.92%-1.72%

0.65%-1.82%

Less: Current portion

Interest rates

Secured bank loans were secured by freehold land, buildings, machinery equipment and flightequipment. For details of such security, refer to Note 35.
September 30,
2018

December 31,
2017

September 30,
20172007.5.242030.4.25

2007.5.242029.11.9

2006.7.112029.6.29

Periods

Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable quarterly, semiannuallyor in lump sum upon maturity.
The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The
NIFs, with various maturities until March 2022, were used by the Group to guarantee the commercial
paper issued. As of September 30, 2018, December 31, 2017 and September 30, 2017, suchcommercial paper was issued at discount rates of 1.0580%-1.2960%, 0.9983%-1.2897% and0.9983%-1.2897%, respectively.

21. BONDS PAYABLE

Unsecured corporate bonds first-time issued in2013
Unsecured corporate bonds first-time issued in2016
Unsecured corporate bonds second-time issued in2016
Unsecured corporate bonds first-time issued in2017
Unsecured corporate bonds second-time issued in
2017

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

- 34 -

5,500,000

8,200,000

8,200,000

4,700,000

4,700,000

4,700,000

5,000,000

5,000,000

5,000,000

2,350,000

2,350,000

2,350,000

3,500,000

3,500,000(Continued)

Convertible bonds issued the fifth time
Convertible bonds issued the sixth time

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

Less: Current portion and put option of
convertible bonds

1,689,988
5,653,991
28,393,979

1,667,100
25,417,100

1,659,457
21,909,457

4,439,988

4,367,100

2,700,000$ 23,953,991$ 21,050,000$ 19,209,457(Concluded)

Conditions

Rate (%)

Principal repayable in January of 2017and 2018; indicator rate; payableannually
Principal repayable in January of 2019and 2020; indicator rate; payableannually
Principal repayable in May of 2020 and2021; interest p.a. payable annually

1.60

2016.9.27-2021.9.27

Principal repayable in May of 2020 and2021; interest p.a. payable annually

1.08

2017.5.19-2020.5.19

Principal repayable on due date;indicator rate; payable annually

1.20

2017.5.19-2024.5.19

Principal repayable on due date;indicator rate; payable annually

1.75

2017.10.12-2020.10.12

Principal repayable on due date;indicator rate; payable annually

1.14

2017.10.12-2022.10.12

Principal repayable in October of 2021
and 2022; indicator rate; payableannually
Unless bonds are converted to sharecapital or redeemed, principal
repayable one time in December
2018; 1.8245 discount rate p.a.
Unless bonds are converted to sharecapital or redeemed, principal
repayable one time in January 2023;
1.3821 discount rate p.a.

1.45

Related issuance conditions were as follows:
Category

PeriodFive-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% interest p.a., payable annually
Five-year unsecured bonds - issued at par in May 2016;
repayable in May 2020 and 2021; 1.19% interest p.a.,payable annually
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.,payable annually
Seven-year private unsecured bonds - issued at par in May
2017; repayable on due date; interest of 1.75% p.a.,payable annually
Three-year private unsecured bonds - issued at par in
October 2017; repayable on due date; interest of 1.14%
p.a., payable annually
Five-year private unsecured bonds - issued at par in October
2017; repayable in October 2021 and 2022; 1.45%
interest p.a., payable annually
Five-year convertible bonds - issued at discount in
December 2013; repayable in lump sum upon maturity;
1.8245% discount rate p.a.

2013.1.17-2018.1.17

Five-year convertible bonds - issued at discount in January
2018; repayable in lump sum upon maturity; 1.3821%
discount rate p.a.

2018.1.30-2023.1.30

2013.1.17-2020.1.17

2016.5.26-2021.5.26

2013.12.26-2018.12.26

1.85

1.19

-

-

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 and Sabre Travel Network (Taiwan), who held
a cumulative face value of $300,000 thousand which was eliminated from the consolidated financial
statements.
The Company issued the fifth issue of its unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
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 part of the holders exercise selling rights on December 26,
2016, the Company paid $994,705 thousand to the holders of the bonds payable who exercised the put
options, and the difference between the payment amount and carrying amount recognized was a loss on
the bonds payable buy back.

- 35 -

c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.
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 ordinary 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 August 14, 2018, the conversion price was adjusted to NT$11.38, and corporate bonds with a facevalue of $3,316,800 thousand were converted to 270,985 thousand shares of ordinary shares.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability
component was 1.8245% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,000,000(518,621)

Liability component at the date of issuance$ 5,481,379

The Company issued the sixth issue of its unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at face value on the third anniversaryof the offering date. The holders can exercise the right to sell on January 30, 2021.
c. The Company may redeem the bonds at face value between April 30, 2018 and December 20, 2022
under certain conditions.
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 ordinary shares. The initial conversion price was set at NT$13.2, 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 August 14, 2018, the conversion price was adjusted to NT$12.9.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability
component was 1.3821% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,012,000(409,978)Liability component at the date of issuance$ 5,602,022- 36 -

22. LEASING
a. Sale-leaseback finance leases
September 30,
2018

December 31,
2017

September 30,
2017

Within one year
Beyond one year and within five years$

670,000-$ 1,580,000
596,000$ 1,726,000
670,000

Present value of minimum lease payments$

670,000$ 2,176,000$ 2,396,000

1.0617%1.1317%

1.0617%1.1317%

Minimum lease payments - flight equipment

Interest rates

1.0617%

The Group had leased one A330-300 aircraft under sale-leaseback contracts under finance leases as of
September 30, 2018. The lease terms are from June 2006 to April 2019. During the lease term, theGroup retained all risks and rewards attached to the aircraft and engines and enjoyed the same
substantive rights as were enjoyed prior to the transaction. The interest rates underlying all obligations
under such finance leases were floating. Therefore, the minimum lease payments under thesale-leaseback aircraft contracts do not include interest expense.
b. Finance leases
Taiwan Air Cargo Terminal Co. (“TACT”) entered into a terminal construction contract. Refer toNote 36 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.
September 30,
2018

December 31,
2017

September 30,
2017$37,822
12,48650,308(710)$

37,48440,851
78,335(792)$

30,39857,40087,798(2,351)$49,598$77,543$85,447$37,333
12,265$37,32140,222$

29,61555,832$

49,598$77,543$85,447

Minimum lease payments - Cargo Terminaland others
Within one year
Beyond one year and within five years
Less: Finance costs
Present value of minimum lease payments
Present value of minimum lease payments Cargo Terminal and others
Within one year
Beyond one year and within five years

Discount rate

4.756%- 37 -

4.756%

4.756%(Continued)

Total amount of present value of minimum
lease payments
Current
Noncurrent

September 30,
2018

December 31,
2017

September 30,
2017$707,333
12,265$ 1,617,321
636,222$ 1,755,615
725,832$

719,598$ 2,253,543$ 2,481,447(Concluded)c. Operating lease arrangements (include sale-leaseback operating leases)
The Company, Mandarin Airlines, Tigerair Taiwan Co., Ltd. and Taiwan Air Cargo Terminal rented
planes and hangars under various operating lease contracts expiring on various dates of up to 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.
Of the rental rates stated in the aircraft lease agreements, some are fixed and some are floating. If theagreed-upon rental rate is floating and will be revised monthly or semiannually, subleasing is notallowed for all the lease arrangements. As of September 30, 2018, the Group has rented elevenA330-300 planes, fifteen 737-800 planes, ten 777-300ER planes, six ERJ190 planes, three ATR72-600
planes and ten A320-200 planes under operating contracts for which the lease terms range from 6 to 12
years.
As of September 30, 2018, December 31, 2017 and September 30, 2017, the refundable deposits paidby the Group under operating lease contracts were $871,445 thousand, $807,629 thousand and$898,068 thousand, respectively. Some of the guarantees were secured by credit guarantees, andoutstanding credit guarantees as of September 30, 2018, December 31, 2017 and September 30, 2017
were $1,467,752 thousand, $1,394,791 thousand and $1,415,923 thousand, respectively.
The future minimum lease payments for the non-cancelable operating lease commitments were as
follows:

Up to 1 year
Over 1 year to 5 years
Over 5 years

September 30,
2018

December 31,
2017

September 30,
2017$ 11,948,214
43,500,913
24,232,200$ 11,499,501
43,175,899
29,762,766$ 11,402,423
43,053,332
31,376,924$ 79,681,327$ 84,438,166$ 85,832,679

The lease payments recognized in profit or loss for the current period were as follows:

Minimum lease payments

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$ 2,991,058$ 8,717,449- 38 -$ 2,891,306$ 8,631,115

23. OTHER PAYABLES

Fuel costs
Ground service expenses
Repair expenses
Interest expenses
Short-term employee benefits
Terminal surcharges
Commission expenses
Others

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

4,068,459
1,345,208
1,193,528
212,9022,312,632
893,254
322,483
3,245,601$ 13,594,067

3,484,288
1,187,329
926,686
290,9022,550,551
876,108
407,109
3,310,096

2,800,530
1,182,311
1,058,017
197,765
2,255,736
739,944286,6422,888,039$ 13,033,069$ 11,408,984

September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

24. CONTRACT LIABILITIES/DEFERRED REVENUE

Frequent flyer program
Advance ticket sales

Current
Noncurrent

2,439,045
16,857,486

2,450,877
15,743,177

2,425,479
14,747,421$ 19,296,531$ 18,194,054$ 17,172,900$ 17,461,822
1,834,709$ 16,375,789
1,818,265$ 15,371,818
1,801,082$ 19,296,531$ 18,194,054$ 17,172,900

The advances received originally included in deferred revenue were reclassified as the contract liabilities
after the application of IFRS 15 on January 1, 201825. PROVISIONS
September 30,
2018

December 31,
2017

September 30,
2017

Operating leases - aircraft$ 8,941,770$ 8,489,308$ 8,624,320

Current
Noncurrent

$

$

$

511,3018,430,469$ 8,941,770- 39 -

475,725
8,013,583$ 8,489,308

64,9458,559,375$ 8,624,320

Aircraft Lease
Contracts
Balance at January 1, 2017
Additional provisions recognized
Usage
Effects of exchange rate changes$ 7,490,154
2,371,400(920,122)(317,112)

Balance at September 30, 2017

$ 8,624,320

Balance at January 1, 2018
Additional provisions recognized
Usage
Effects of exchange rate changes$ 8,489,308
2,577,389(2,309,957)
185,030

Balance at September 30, 2018

$ 8,941,770

The Company and Mandarin Airlines leased flight equipment under operating lease agreements. Under
the contracts, when the leases expire and the equipment is returned to the lessor, the flight equipment has tobe repaired according to the expected years of use, number of flight hours, flight cycles and the number ofengine revolution. The Company and Mandarin Airlines 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 to the contract, Tigerair had to pay the maintenancereserve accounted for by using the number of flying hours.

26. RETIREMENT BENEFIT PLANS
Employee benefits expense in respect of the Group’s defined benefit retirement plan were calculated using
the actuarially determined pension cost discount rate as of December 31, 2017 and 2016.

Operating costs
Operating expenses

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

254,727
115,296$

188,430
87,386$

762,769
342,315$565,228
226,366$

370,023$

275,816$ 1,105,084$

791,594

27. EQUITY
a. Share capital
Ordinary shares

Number of shares authorized (in thousands)
Amount of shares authorized
Amount of shares issued

September 30,
2018

December 31,
2017

September 30,
2017

6,000,000$ 60,000,000$ 54,709,846

6,000,000$ 60,000,000$ 54,709,846

6,000,000$ 60,000,000$ 54,709,846- 40 -

b. Capital surplus

Issuance of shares in excess of par value andconversion premium
Treasury share transactions
Employee share options expired
Long-term investments
Bonds payable - equity component
Others

September 30,
2018

December 31,
2017

September 30,
2017$552,696
2,673
11,747955
556,567
85,339$552,696
2,673
11,747955
146,589
85,339$552,696
2,673
11,747955
146,589
85,339$ 1,209,977$

799,999$

799,999

The capital surplus from shares issued in excess of par (including additional paid-in capital from theissuance of ordinary shares and treasury share transactions) and donations may be used to offset
deficits; in addition, when the Group has no deficit, such capital surplus may be distributed as cash
dividends or transferred to capital (but limited to a certain percentage of the Group’s paid-in capital on
yearly basis).
The capital surplus arising from long-term investments and employee share options may not be used forany reason except to offset deficits. The capital surplus arising from share options for employees andconvertible bonds, cannot be used.
c. Appropriation of earnings and dividend policy
Under the dividend policy as set forth in the Company’s Articles of Incorporation (the “Articles”)
amended on June 24, 2016 based on the amended Company Act, where the Company made profit in a
fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting
aside as a legal reserve 10% of the remaining profit, setting aside or reversing a special reserve inaccordance with the laws and regulations, 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 demands,
which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses toshareholders 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 for earnings distribution, retained earnings can be used as a supplement for the
deficiency. If the Company has no deficit in a fiscal year, the Company can distribute all or part of thecapital surplus by cash or shares with due consideration of finance, marketing and management
requirements in accordance with the laws and regulations.
The distribution of dividends should be resolved and recognized in the shareholders’ meeting in thefollowing year.
1) Appropriation of earnings in 2016
The legal reserve of $81,132 thousand and special reserve of $76,486 thousand used to offset
deficits were resolved by the shareholders in their meeting on June 22, 2017.

- 41 -

2) Appropriation of earnings in 2017
The appropriation of earnings for 2017 was resolved in the board of directors meeting on September
28, 2018. The appropriation of earnings and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Special reserve
Cash dividends$

145,831
118,810
1,193,670

Dividends Per
Share (NT$)$0.2181820086

d. Other equity items
The movements of other equity items were as follows:

Exchange
Differences on
Translating
Foreign
Operations
Balance on January 1,
2017
Exchange differences ontranslating foreign
operations
Cumulative loss onchanges in fair value ofhedging instruments
Cumulative gain onchanges in fair value ofhedging instruments
reclassified to profit orloss
Effects of income tax
Other comprehensive
income recognized in
the period
Balance on September 30,
2017
Balance on January 1,
2018
Adjustments on initial
application of IFRS 9
Balance on January 1,
2018 after IFRS 9
adjustments
Exchange differences ontranslating foreign
operations
Cumulative loss onchanges in fair value ofhedging instruments
Cumulative gain onchanges in fair value ofhedging instruments
reclassified to profit orloss
Unrealized gain on
financial assets at fairvalue through othercomprehensive income$

78,564

Unrealized
Gain (Loss) on
Available-forsale Financial
Assets$

Unrealized
Gain (Loss) on
Financial
Assets at Fair
Value Through
Other
Comprehensive
Income

1,714

$

-

Cash Flow
Hedges$31,986

Gain (Loss) on
Hedging
Instruments

$

Total

-

$ 112,264(118,908)

-

-

-

-

(118,908)---(244,526)-(244,526)

19,700--172,714
12,209-172,71431,909(99,208)--(59,603)-(158,811)$ (20,644)

$

1,714

$

-

$ (27,617)$-$ (46,547)$ (34,986)

$

1,774

$

-

$ (74,429)$-$ (107,641)-(1,774)42,351

74,429(74,429)

40,577(34,986)-

42,351-(74,429)(67,064)

14,702----

14,702----

88,842

88,842----

31,554

10,835

-

-

-

-

$

31,554

10,835(Continued)- 42 -

Exchange
Differences on
Translating
Foreign
Operations
Effect of change in tax
rate
Effects of income tax
Other comprehensive
income (loss)
recognized in the
periodTransfers of initialcarrying amount ofhedged items
Balance on September 30,
2018

$

1,198
(3,886)

Unrealized
Gain (Loss) on
Available-forsale Financial
Assets$

Unrealized
Gain (Loss) on
Financial
Assets at Fair
Value Through
Other
Comprehensive
Income-$(1,209)(1,066)

Cash Flow
Hedges$-Gain (Loss) on
Hedging
Instruments

$

2,530
(29,295)

Total

$

2,519
(34,247)

12,014

-

8,560

-

93,631

114,205

-

-

-

-

37,116

37,116$ (22,972)

$

-

$

50,911$-$

56,318$84,257(Concluded)e. Non-controlling interests
For the Nine Months Ended
September 30
2018
2017
Beginning balance
Net income attributable to non-controlling interests
Exchange differences on translating foreign operations
Effects of income tax
Cumulative loss on changes in fair value of hedging instruments
Gain on hedging instruments
Cumulative gain on changes in fair value of hedging instruments
reclassified to profit or loss
Acquisition of non-controlling interests in subsidiaries
Non-controlling interests arising from acquisition of subsidiaries
Dividends paid by subsidiaries
Ending balance$ 2,134,282
359,955(4,623)23$ 2,083,381
236,732(5,305)
1,287
(106)
-

44
(4,556)565,888(171,019)

64(4,060)(46,118)(39,920)$ 2,884,550$ 2,230,015

f. Treasury shares(Shares in Thousands)

Purpose of Treasury Shares

Buy back towrite off

Company’s
shares held by its
subsidiaries

Total

Number of Shares, January 1, 2018
Addition during the year

27,603

2,889
-

2,889
27,603

Number of Shares, September 30, 2018

27,6032,889

30,492

Number of Shares, January 1, 2017
Addition during the year

-

2,889
-

2,889
-

Number of Shares, September 30, 2017

-

2,889

2,889

- 43 -

Treasury shares are the Company’s shares held by its subsidiaries as of September 30, 2018 and 2017
and were as follows:
Shares(In Thousands)

Subsidiary

Carrying
AmountMarket Value$ 19,190
7,531$ 19,190
7,531$ 26,721$ 26,721$ 24,169
9,485$ 24,169
9,485$ 33,654$ 33,654$ 23,443
9,200$ 23,443
9,200$ 32,643$ 32,643

September 30, 2018
Mandarin Airlines
Hwa Hsia

2,075
814

December 31, 2017
Mandarin Airlines
Hwa Hsia

2,075
814

September 30, 2017
Mandarin Airlines
Hwa Hsia

2,075
814

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’ right on these treasury shares, except for the right to subscribe for theCompany’s new shares and voting rights.
To maintain the Company’s credit standing and shareholders’ rights and interests, the board of directors
decided to buy back shares of the Company from Taiwan Stock Exchange at a price from $9 to $14 pershare. The expected period of purchase is from August 10, 2018 to October 9, 2018. As of
September 30, 2018, 27,603 thousand shares had been repurchased. Under the Securities ExchangeAct, the treasury shares held by the Company cannot be pledged and are not entitled to dividends
distribution and voting rights, etc.

28. NET INCOME
a. Revenue
For the Three Months Ended
September 30
2018
2017
Passenger
Cargo
OthersFor the Nine Months Ended
September 30
2018
2017

$ 28,600,603
13,196,780
3,399,381$ 26,724,874
11,179,232
2,638,597$ 81,780,806
35,040,268
9,386,552$ 76,571,150
30,129,719
7,794,913$ 45,196,764$ 40,542,703$ 126,207,626$ 114,495,782- 44 -

Refer to Note 24 for the balance of contract liabilities related to customer contracts.
b. Other income

Interest income
Dividend income
OthersFor the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

59,515
3,069
69,283$ 226,694
7,705
202,625$ 156,833
9,057
269,313$ 131,867$ 437,024$ 435,203

85,17663,324$$ 148,500
c. Other gains and losses

Gain (loss) on disposal ofproperty, plant andequipment
Gain (loss) on disposal of
noncurrent assets held forsale
Net gain (loss) on financial
assets classified as held for
sale
Gain (loss) on disposal ofinvestments
Gain or loss on foreignexchange, net
Impairment loss recognized on
property, plant andequipment and noncurrent
assets held for sale
Loss on financial assets carriedat costOthersFor the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

$

$

2,764

$

(2,498)(280,195)

$

215

-

82,544(368,992)

147,568

1,041

787

10,204(27,488)(6,231)

119,800

450,195

119,739(59,751)

33,825(22,408)(84,770)--(60,812)(3,692,410)(53,500)(182,868)(201,339)(56,023)(351,767)(473,347)$ (3,944,936)(115,677)- 45 -$

51,590$d. Finance costs

Interest expense
Bonds payable
Bank loans
Interest on obligations underfinancial leases
Loss on derivatives
designated as hedging
instruments in cash flow
hedge accounting
relationships reclassified
from equity to profit orloss

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

$

101,337
245,469$$

80,320252,626

297,699
701,992$

233,427735,276

2,608

12,64815,78442,263

-

-

-

2,814

345,594$ 1,015,475$ 1,013,780

349,414$

Capitalization rate

1.22%-1.24%

1.31%-1.37%

1.16%-1.31%

1.31%-1.41%

Capitalization interest

$

$

$

$

7,332

46,301

37,174

175,217e. Depreciation and amortization expenses

Property, plant, equipment
Investment properties
Intangible assets
Depreciation and amortization
expenses
An analysis of depreciation byfunction
Operating costs
Operating expenses

An analysis of amortization byfunction
Operating costs
Operating expenses

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

4,841,657
70
49,742$4,552,496
70
66,706$ 14,379,770
210
142,226$ 13,706,949
210
195,164$

4,891,469$

4,619,272$ 14,522,206$ 13,902,323$

4,615,657
226,070$

4,382,636
169,930$ 13,707,154
672,826$ 13,202,026
505,133$

4,841,727$

4,552,566$ 14,379,980$ 13,707,159

$

3,167
46,575$141
66,565$

7,486
134,740$

141
195,023$

49,742$

66,706$142,226$

195,164- 46 -

f. Employment benefits expense

Post-employment benefits
Defined contribution plans
Defined benefit plans

Other employee benefits
Salary expenses
Personnel service expenses

An analysis of employee
benefits expense by function
Operating costs
Operating expenses

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

135,144370,023$

123,268
275,816$

403,346
1,105,084$

358,836
791,594$505,167$

399,084$

1,508,430$

1,150,430$

5,312,293
1,364,359$

5,208,110
1,364,674$ 15,629,251
4,270,161$ 14,877,120
4,065,845$

6,676,652$

6,572,784$ 19,899,412$ 18,942,965$

6,068,834
1,112,985$

5,825,101
1,146,767$ 17,799,326
3,608,516$ 16,694,579
3,398,816$

7,181,819$

6,971,868$ 21,407,842$ 20,093,395

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 nine months ended September 30, 2018, the employees’ compensation was$448,826 thousand, for the three months ended September 30, 2018, the employees’ compensation was$380,019 thousand of the base net profit. For the nine months ended September 30, 2017, theCompany has experienced a deficit, and therefore, no employees’ compensation was estimated.
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.
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 at the Market Observation Post
System website of the Taiwan Stock Exchange.

- 47 -

29. INCOME TAX
a. Income tax expense recognized in profit or loss
The major components of tax expense (benefit) were as follows:

Current tax
Current year
Prior year adjustments
Deferred tax
Current year
Adjustments to deferred tax
attributable to changes intax rates and laws
Income tax expense recognizedin profit or loss

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

$

$

79,221-$

57,840(1,247)

202,710
4,866$

141,173
1,617

353,882562,689

1,353,982

665,599--(904,558)-

433,103$619,282$

657,000$

808,389

In February 2018, it was announced that the Income Tax Law in the ROC. 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%.
b. Income tax recognized in other comprehensive income
For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

$

Deferred tax
Recognized in othercomprehensive income
Translation of foreign
operations
Fair value changes offinancial assets at
FVTOCI
Fair value revaluation ofhedging instruments forcash flow hedging
Effect of change in tax rate
Total income tax recognized inother comprehensive income

$

2,371

$

(646)

(3,886)$

20,9801,088-(1,066)-(4,104)-(5,060)-(29,295)
2,519

12,216-(5,706)$ (31,728)

(645)

$

$

33,196c. Income tax assessment
Income tax returns for 2016 of the Company and those for 2015 of its subsidiaries have been examinedby the tax authorities.

- 48 -

30. EARNINGS (LOSSES) PER SHARE
The numerators and denominators used in calculating earnings and losses per share were as follows:
For the Three Months Ended
September 30
2018
2017
Basic earnings (losses) per share
Diluted earnings (losses) per share

Earnings (losses) used in thecomputation of basic earnings
per share
Effects of potentially dilutive
ordinary shares:
Interest on convertible bonds(after tax)
Earnings (losses) used in thecomputation of diluted earnings(losses) per share
Weighted average number ofordinary shares in computationof basic earnings (losses) per
share
Effects of potentially dilutive
ordinary shares:
Convertible bonds
Employees’ compensation orbonuses issued to employees
Weighted average number ofordinary shares used in thecomputation of diluted earnings(losses) per share

$
$

0.20
0.18

$
$

0.54
0.53

For the Nine Months Ended
September 30
2018
2017
$
$

0.23
0.22

$
$

0.17
0.17

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$ 1,080,506$ 2,951,880$ 1,269,440

27,2606,257

75,243$ 1,107,766$ 2,958,137$ 1,344,683

5,456,887

5,468,018

5,464,345

5,468,007

600,241

145,775

551,779

145,786

41,0834,427

54,042

6,833

6,098,211

5,618,220

6,070,166

5,620,626$

952,467

18,485$970,952

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 and losses per share, if the effect is dilutive. Such dilutive effect of thepotential shares was included in the computation of diluted earnings and losses per share until the numberof shares to be distributed to employees is resolved in the following year.

- 49 -

31. BUSINESS COMBINATIONSAs stated in Note 14, the other disclosures of the Group’s acquisition of Kaohsiung Catering on March 7,
2018 are as follows:a. Acquisition-related cash amounting to $243,743 thousand.
b. Assets acquired and liabilities assumed at the date of acquisition.
AssetsCurrent assets (included cash and cash equivalents of $380,512)
Property, plant and equipment
Intangible assets
Other assets
Total assets
Liabilities
Identifiable net assets$

918,033
553,390
186,883
49,4791,707,785(486,356)$ 1,221,429

c. The Company acquired the control of Kaohsiung Catering (the date of acquisition), and the 35.78%
equity held by the equity method was remeasured at the fair value of the acquisition date and thedifference recognized in gain on disposal of investment is $69,671 thousand.
d. The non-controlling interest of Kaohsiung Catering (46.33% of equity) was valued $565,888 thousand;at the fair value of the identifiable net assets attributed to the non-controlling interest on the date ofacquisition.
e. The bargain purchase benefit of $26,615 thousand of Kaohsiung Catering(the date of acquisition) was
measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s
previously held equity interests in the acquiree over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed.
f. Impact of acquisitions of the Group
From the acquisition date, the operating results from the acquired company, which are included in the
consolidated statements of comprehensive income, are as follows:
Kaohsiung
Catering
Revenue
Profit$ 1,274,117$ 173,765

Had these business combinations been in effect at the beginning of the annual reporting period, theGroup’s revenue from continuing operations would have been $1,034,989 thousand and the profit fromcontinuing operations would have been $140,905 thousand for the six months ended June 30, 2018.
This pro-forma information is for illustrative purposes only and is not necessarily an indication of therevenue and results of operations of the Group that actually would have been achieved had theacquisition been completed on January 1, 2018, nor is it intended to be a projection of future results.

32. CAPITAL MANAGEMENT
The goal, policies and procedures as well as the composition of the Group’s capital management are thesame as those stated in Note 31 in the Group’s consolidated financial statements for the year ended
December 31, 2017.
- 50 -

33. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
Financial instruments not evaluated at fair value
Except as detailed in the following table, the management considers the carrying amounts of financial
assets and financial liabilities recognized in the financial statements as approximating their fair values.
September 30, 2018
Carrying
AmountFair Value

December 31, 2017
Carrying
AmountFair Value

September 30, 2017
Carrying
AmountFair Value

Financial liabilities
Bonds payable
Loans and debt

$ 28,393,979
79,836,290$ 28,469,383
79,844,683$ 25,417,100
85,058,177$ 25,818,511
87,070,820$ 21,909,457
89,828,924$ 22,313,019
93,842,980

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying amounts are their fair values. As of September 30, 2018, December 31, 2017 and September
30, 2017, 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 0.6976%, 0.75% and 1.566%,
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).
b. Financial instruments evaluated at fair value - on a non-recurring basis
The following table provides an analysis of financial instruments that are measured subsequent to initialrecognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value isobservable:
1) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;2) 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); and3) Level 3 fair value measurements are those derived from valuation techniques that include inputs forthe asset or liability that are not based on observable market data (unobservable inputs).
September 30, 2018
Level 1
Financial assets at FVTPL
Domestic money market funds
Financial assets at FVTOCI
Investments in equity
instruments
United shares - domestic
Unlisted shares - foreign

Level 2

Level 3

Total

$ 216,967

$

-

$

-

$

-

$

-

$

23,582
117,573

$

-

$

-

$ 141,155- 51 -$ 216,967$

23,582
117,573$ 141,155(Continued)

Level 1

Level 2

Level 3

Total

Financial liabilities at FVTPL
Derivative instruments

$

-

$

1,063

$

-

$

1,063

Financial assets for hedging

$

-

$

53,815$

19,468$73,283Financial liabilities for hedging

$

-

$

4,700

$

-

$
4,700
(Concluded)

December 31, 2017
Level 1

Level 2

Level 3

Total

Financial assets at FVTPL
Beneficial certificates$ 306,839

$

-

$

-

$ 306,839

Financial liabilities at FVTPL
Derivative instruments

$

-

$

9,581

$

-

$

9,581

Derivative financial assets forhedging

$

-

$

293

$

-

$

293

Derivative financial liabilities forhedging$-$

89,289$-$89,289September 30, 2017
Level 1

Level 2

Level 3

Total

Financial assets at FVTPL
Domestic money market funds$ 279,822

$

-

$

-

$ 279,822

Financial liabilities at FVTPL
Derivative instruments

$

-

$

15,994$-$

15,994

Derivative financial assets forhedging$-$

18,945$-$

18,945Derivative financial liabilities forhedging$-$

51,515$-$51,515

There were no transfers between Levels 1 and 2 in the current periods.
4) Valuation techniques and inputs applied for Level 2 fair value measurement
Financial Instrument
Derivative instruments

Valuation Techniques and Inputs
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 the Group
used to determine the fair values are identical to those used in
the pricing of financial instruments for market participants.

- 52 -

5) Valuation techniques and inputs applied for Level 3 fair value measurement
The fair values of foreign exchanges and fuel options are determined using option pricing models
where the significant unobservable inputs are implied fluctuation. Changes in the implied
fluctuations used in isolation would result in a increase or decrease in the fair value of the foreignexchange forward contracts and fuel options.
The domestic unlisted equity investment is based on the comparative company valuation to estimate
the fair value. The main assumptions are based on the multiplier of the market price of thecomparable listed company and the net value per share, which have considered the liquidity
discount. The higher the multiplier or the lower the liquidity discount, the higher the fair value ofthe relevant financial instruments. The multiplier on September 30, 2018 ranged from 0.85 to
18.68, and the liquidity discount is 80%.
The movements of Level 3 financial instruments are as follows:
Derivative
Instruments

EquityInstruments

Balance at January 1,2018
Adjustments on initial application of IFRS 9
Other comprehensive income recognized during the period$

19,468$

Balance at September 30,2018$

19,468$ 141,155

84,07547,5109,570

There were no financial assets measured using Level 3 fair value measurements in 2017.
Because some financial instruments and nonfinancial instruments may not have their fair values
disclosed, the total fair value disclosed herein is not the total value of the Group’s collective
instruments.
c. Categories of financial instruments
September 30,
2018

December 31,
2017

September 30,
2017

$

$

$

Financial assets
Financial assets at FVTPL
Available-for-sale financial assets (Note 3)
Financial assets for hedging
Derivative financial assets for hedging
Loans and receivables (Note 1)
Financial assets at amortized cost (Note 4)
Financial assets at FVTOCI - equity
instrument investment

216,967
73,28336,648,336

306,839
84,075
293
35,276,119-

279,82283,885
18,94536,939,970-

141,155

-

-

1,063
4,700
134,196,720

9,581
89,289127,928,250

15,99451,515
136,774,434

Financial liabilities
Financial liabilities at FVTPL
Financial liabilities for hedging
Derivative financial liabilities for hedging
Financial liabilities at amortized cost (Note 2)

Note 1: The balances of loans and receivables measured at amortized cost, which comprise cash andcash equivalents, notes and accounts receivable, accounts receivable - related parties, otherreceivables, refundable deposits, other financial assets and other restricted financial assets.
- 53 -

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, parts ofother current liabilities, parts of other noncurrent liabilities and guarantee deposits.
Note 3: The balances of available-for-sale financial assets compromised financial assets carried at
cost.
Note 4: 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 and other restricted financial assets.
d. Financial risk management objectives and policies
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,
exchange rates and in fuel prices, the Group has its operating costs stay within a specified range byusing appropriate financial hedging instruments and hedging percentages in accordance with the“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 currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
In addition, the Group has a risk committee, which meets periodically to evaluate the performance of
derivative instruments and determine the appropriate hedging percentage. This committee informs theGroup of global economic and financial conditions, controls the entire financial risk resulting fromchanges in the financial environment and fuel prices, and develops the strategy and response to avoid
financial risk with the assistance of financial risk experts to effect risk management.
1) Market 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 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.
a) Foreign currency risk
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
The Group was mainly exposed to the U.S. dollar.
The following details the Group’s sensitivity to increase and decrease in New Taiwan dollars(the functional currency) against the relevant foreign currencies.
U.S. dollars
increase/decrease one dollar against New Taiwan dollars used when reporting foreign currency
risk internally to key management personnel and represents management’s assessment of thereasonably 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- 54 -

period for U.S. dollars increase/decrease one dollar against New Taiwan dollars change in
foreign currency rates.
When New Taiwan dollars increase one dollar against U.S. dollars and all other variables were
held constant, there would be an decrease in pre-tax profit for the nine months ended September
30, 2018 of $31,615 thousand and a decrease in pre-tax profit for the nine months ended
September 30, 2017 of $35,020 thousand.
For the nine months ended September 30, 2018
The Group’s hedging strategy is to enter into foreign exchange forward contracts to avoid
exchange rate exposure of its foreign currency denominated receipts and payments and to
manage exchange rate exposure of its aircraft prepayments in the next year. Thosetransactions are designated as cash flow hedges. When forecasted purchases actually takeplace, basis adjustments are made to the initial carrying amounts of hedged items.
For the hedges of highly probable aircraft prepayments, as the critical terms (i.e. the notionalamount, useful life and underlying asset) of the foreign exchange forward contracts and theircorresponding hedged items are the same, the Group performs a qualitative assessment of theeffectiveness, and it is expected that the value of the foreign exchange forward contracts and thevalue of the corresponding hedged items will systematically change in the opposite direction in
response to movements in the underlying exchange rates.
The following table summarizes the information relating to the hedges of foreign currency risk.
September 30, 2018
Hedging Instruments
Cash flow hedge
Aircraft rentals forward exchange
contracts
Aircraft prepayments forward exchange
contracts

Currency

Notional
AmountMaturity

Forward Rate

NTD/USD

NTD2,064,067/
USD67,495

2018.10.52019.9.25

28.3-31.2

NTD/USD

NTD1,070,336/
USD35,000

2018.10.152018.10.19

28.8-30.7

Line Item in
Balance Sheet

Carrying AmountAsset
Liability

Financial assets forhedging/liabilities forhedging
Financial assets forhedging/liabilities forhedging$ 29,568

24,247

$

3,328

1,372

The above mentioned hedging instruments continue to be applied to hedging accounting. The
book value of other equity which belongs to each hedging item (aircraft rentals in U.S. dollars
and Aircraft prepayment) are $26,240 thousand and $22,875 thousand, respectively.
For the nine months ended September 30, 2018
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedge
Aircraft rentals
Aircraft prepayments

Note:

$

Increase in operating costs- 55 -

AmountReclassified toProfit and Lossand theAdjusted Line
Item

79,234
21,761$ (29,512)-$ 100,995$(29,512)(Note)

For the nine months ended September 30,2018
AmountReclassified to
P/L and the
Adjusted Line
Item

Comprehensive Income

Hedging Gains(Loss)
Recognized in
OCI

Cash flow hedge
Aircraft rentals
Aircraft prepayments$ (7,599)
4,265

$

4,866
-

$ (3,334)

$

4,866

Note:

(Note)

Decrease in operating costs.

The amount of gains and losses on hedging instruments for the nine months ended September
30, 2018 reclassified from profit or loss to prepayments for equipment was $37,116 thousand.
And the amount of gains and losses on hedging instruments for the three months ended
September 30, 2018 reclassified from profit or loss to prepayments for equipment was $0.
b) Interest rate risk
The Group enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates.
The Group was exposed to interest rate risk because entities in the Group borrowed funds atboth fixed and floating interest rates. The risk is managed by the Group by maintaining anappropriate mix of fixed and floating rate borrowings and using interest rate swap contracts andforward interest rate contracts.
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.

Fair value interest rate risk
Financial liabilities
Cash flow interest rate risk
Financial liabilities

September 30,
2018

December 31,
2017

September 30,
2017$ 30,393,979$ 27,537,100$ 23,952,487

78,555,888

85,311,720

90,310,371

Sensitivity analysis
The sensitivity analysis below was 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.
Had interest rates increased one yard (25 basis) points and had all other variables been held
constant, the Group’s pretax profit for the nine months ended September 30, 2018 would havedecreased by $147,292 thousand.
- 56 -

Had interest rates increased one yard (25 basis) point and had all other variables been held
constant, the Group’s pretax profit for the nine months ended September 30, 2017 would havedecreased by $169,332 thousand.
c) Other price risk
The Group was exposed to fuel price risk on its purchase of aviation fuel. The Group enters
into fuel swaps contract to hedge against adverse risks on fuel price changes.
September 30, 2018
Hedging Instrument
Cash flow hedges fuel options

Currency

US$

Notional
Amount

NT$19,468

Maturity

Forward Rate

2018.10.312018.11.30

US$77.00US$92.85

Line Item in
Balance Sheet

Financial assets forhedging

Carrying AmountAsset
Liability$ 19,468$-

Hedge accounting is continued to be applied to the abovementioned hedging instruments
continue to be applied to hedging accounting. The carrying amount of other equity which
belongs to each hedging item (fuel payments) is $19,468 thousand.
For the nine months ended September 30, 2018

Hedging Gain
(Loss)
Recognized in
OCI

Comprehensive Income
Cash flow hedges - fuel options

Note:

AmountReclassified to
P/L and the
Adjusted LineItem

$ 19,468$ (2,086)(Note)

Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeAmountReclassified toProfit and Lossand theAdjusted LineItem

$ 18,603$ (5,008)(Note)

Increase in operating costs.

For the three months ended September 30, 2018

Comprehensive Income
Cash flow hedges - fuel options

Note:

Increase in operating costs.

- 57 -

Sensitivity analysis
The sensitivity analysis below was determined based on the exposure to fuel price risks at theend of the reporting period.
For the Nine Months Ended September 30
2018
2017
Other
Other
CompreComprehensive
hensive
Pre-tax Profit
IncomePre-tax Profit
IncomeIncrease
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)(Decrease)
Fuel price increase 5%
Fuel price decrease 5%$ 10,856(3,016)$ 14,205(15,739)

$

-

$

-

d) Hedge accounting in 2017
The relevant hedging strategies of the Group in 2017 are the same as the aforementioned in2018, except for the following special instructions.
Derivative financial instrument for hedging
December 31,
2017

September 30,
2017

Derivative financial assets under hedge accounting
Foreign exchange forward contracts$

293$ 18,945

Current
Noncurrent

$

293
-

$ 18,880
65

$

293

$ 18,945

Foreign exchange forwards contracts$ 89,289$ 51,515

Current
Noncurrent$ 82,295
6,994$ 46,558
4,957$ 89,289$ 51,515

Derivative financial liabilities under hedge accounting

The fair value of each derivative contract is determined using quotes from financial institutions.
Cash flow hedges
Foreign exchange forward contracts
The Group entered into foreign exchange forward contracts to minimize cash flow exposure
related to fuel payments and aircraft payments, which will be paid in U.S. dollars.

- 58 -

December 31, 2017

Buy forward contracts

Currency

Maturity Date

Notional Amount(In Thousands)

NTD/USD

2018.1.5-2019.6.21

NTD7,105,942/USD236,924

Maturity Date

Notional Amount(In Thousands)

September 30, 2017

Currency
Buy forward contracts

NTD/USD2017.10.2-2019.6.21 NTD5,807,515/USD191,720

Gains and losses of hedging instruments reclassified from equity to profit or loss were includedin the following line items in the consolidated statements of comprehensive income:

Increase in operating costs
Increase in finance costs
Other foreign exchange losses

For the Three
Months Ended
September 30,
2017

For the Nine
Months Ended
September 30,
2017$ (14,491)(5,810)$ (35,419)(2,814)(22,138)$ (20,301)$ (60,371)

The amount of gains and losses on hedging instruments for the nine months ended September
30, 2017 reclassified from profit or loss to prepayments for equipment was $103,369 thousand.
And the amount of gains and losses on hedging instruments for the three months ended
September 30, 2017 reclassified from profit or loss to prepayments for equipment was $12,831
thousand.
2) Credit risk
The goal, policies and procedure of credit risk management are same as consolidated financial
statement in 2017. Related illustration can be referred to in Note 32.
3) Liquidity risk
The goal, policies and procedures of liquidity risk management are same as consolidated financial
statement in 2017. Related illustration can be referred to in Note 32.

- 59 -

34. RELATED-PARTY TRANSACTIONS
The balances and transactions between the Company and its subsidiaries, including remaining accountbalance, revenue and expense, have been eliminated upon consolidation and are not disclosed in this note.
Unless otherwise stated, the transactions between the Group and other business related parties are as
follows:
a. The related parties’ names and relationships
Name

Relationship with the Company

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.
Delica International Co., Ltd.
China Aviation Development Foundation
Others

Associate (become subsidiary in March 2018)
Associate (disposal in August 2017)
Associate (disposal in January 2018)
Associate
Associate
Associate
Associate
Joint venture investment
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

b. Operating income

Account
Items

For the Three Months Ended
September 30
Related Party Type
2018
2017

Other income Major shareholdersof the Company
Associate
Joint venture
investment

For the Nine Months Ended
September 30
2018
2017

$

5,887

$

9,373

$ 24,395$ 25,142

$
$

239
9,926

$
386
$ 10,444$
487$ 31,330$ 1,621$ 35,455

c. Purchases

Related Party Type
Major shareholders of theCompany
Associate
Joint venture investment

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$
$
$

$
54,831$ 383,150$ 1,446,459

13,307
107,717483,642- 60 -$$$

21,405
203,646477,352$
56,695$ 529,058$ 1,405,931

d. Accounts receivable - related parties (generated by operations)
September 30,
2018

Related Party Type
Major shareholders of the Company
Associates
Joint venture investments

December 31,
2017

September 30,
2017

$

1,766
5,488

$

1,928
6,431

$

3,041
196
5,683

$

7,254

$

8,359

$

8,920

The receivables are not guaranteed, and there is no allowance for doubtful accounts related to accountreceivables - related parties. The payment period of such accounts were within 30 to 90 days, andthere are no overdue payments.
e. Accounts payable - related parties (generated by operations)
September 30,
2018

Related Party Type
Major shareholders of the Company
Associates
Joint venture investments

$

3,752
53,226481,342$ 538,320

December 31,
2017$

September 30,
2017

4,454
116,525
469,827$$ 590,806

6,765
143,435
541,240$ 691,440

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.
f. Leases of properties (operating leases)
Under an operating lease agreement, the Company rented flight training machines and flight simulatorsfrom China Aviation Development Foundation to train pilots, and the Company paid the rental based on
usage hours. As of September 30, 2018 and 2017, the rental paid was $54,831 thousand and $56,695
thousand, respectively; for the three months ended September 30, 2018 and 2017, the Company’s paid
rentals amounted to $13,307 thousand and $21,405 thousand.
g. Endorsements and assurances
September 30, 2018
Total Amount Amount Used

December 31, 2017
Total Amount Amount Used

September 30, 2017
Total Amount Amount Used

$ 3,850,000
1,080,000
1,076,427$ 2,661,850
415,931$ 3,850,000
1,080,000
1,055,604$ 2,850,000
318,611405,998$ 3,850,000
1,080,000
180,000
1,068,500$ 2,750,000
338,249
412,150

2,000,000

302,097

-

-

-

-

The Company
Cal Park
Taiwan Air Cargo Terminal
Cal Hotel Co., Ltd.
Taigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenanceand Engineering Co., Ltd.

- 61 -

h. Compensation of key management personnel

Short-term employee benefits
Post-employment benefits

For the Three Months Ended
September 30
2018
2017

For the Nine Months Ended
September 30
2018
2017

$

9,366
800

$

10,118946$

34,503
2,519$

34,1102,897$

10,166$

11,064$37,022$37,007

The remuneration of directors and key executives was determined by the remuneration committee basedon the performance of individuals and market trends.

35. PLEDGED ASSETS
The following assets were pledged or mortgaged as collateral for long-term bank loans, lease obligations
and business transactions:

Property, plant and equipment
Restricted assets

September 30,
2018

December 31,
2017

September 30,
2017$ 39,259,124
257,432$ 39,821,666
161,398$ 82,269,516
305,447$ 39,516,556$ 39,983,064$ 82,574,963

The above restricted assets included pledged time deposits and demand deposits restricted due to loan
agreements.

36. COMMITMENTS AND CONTINGENT LIABILITIESAs of September 30, 2018, the Group had commitments and contingent liabilities (except for thosementioned in other notes) as follows:a. In January 2008, the Company entered into a contract to buy fourteen A350-900 aircraft from Airbus,
with the option to buy six more A350-900 aircraft, with aggregate purchase prices of US$3,933,235
thousand and US$1,802,645 thousand, respectively. The expected period of delivery of the aircraft
was from 2016 to 2018. As of September 30, 2018, thirteen of the aircraft had been handed over to theCompany, and the total list price of the remaining one aircraft was US$287,746 thousand, which has
been paid in the amount of US$71,937 thousand (recognized as prepayments for aircraft).
b. For operation needs, the board of directors of Mandarin Airlines resolved to enter into a contract to buy
six ATR72-600 aircraft, and the total list price of the six aircraft was $120,000 thousand. The
expected delivery period ranges from June 2018 to June 2020. As of September 2018, two of theaircraft had been handed over to the company, and the total list price of the remaining four aircraft was$80,000 thousand, a portion of which has been paid in the amount of US$8,162 thousand (recognized as
prepayments for aircraft).

- 62 -

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 the CAA to TACT. 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 approval from the Taoyuan
Airport Corporation and the CAA in July 2013 and July 2015, respectively.
The total expenditure of the main construction project mentioned above was $6,840,000 thousand. As
of June 30, 2017, TACT had signed the following construction contracts with non-related parties:

Client NameContract Title

CECI Engineering
Consultant, Inc., Taiwan

Cargo Terminal Expansion Construction Consultant
Contract

Contract
Amount (VAT
Included)$552,285

As of September 30, 2018, the accumulated consultant service expense and construction equipment
amounted to $473,599 thousand (VAT included) and $5,126,571 thousand (VAT included),
respectively. Upon completion of the projects, the amount of $460,578 thousand (VAT included) and$5,116,895 thousand (VAT included) were reclassified to property, plant and equipment. The
remaining accumulated payments were recognized under construction in progress.
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.
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%.
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.
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.
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 fees.
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- 63 -

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 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.
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 September 30, 2018, $1,291,575 thousand was paid(recognized as construction in progress).

37. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESThe 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:(Foreign Currencies in Thousands)
September 30, 2018
Foreign
Currencies

Exchange Rate

Carrying
Amount438,565
19,520281,665
7,035,282
436,50730.581035.5872
3.90630.26904.4346$ 13,411,760
694,678
1,100,268
1,892,469
1,935,731

408,950
6,735
89,3905,150,536
165,240

30.581035.5872
3.90630.26904.4346

12,506,103
239,679
349,182
1,385,480
732,771

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY

- 64 -

December 31, 2017
Foreign
Currencies

Exchange Rate

Carrying
Amount351,90221,358
293,872
6,147,548
469,24129.850735.71433.81830.26484.5830$ 10,504,521
762,786
1,122,091
1,627,871
2,150,530

418,839
5,971
87,927
4,972,250
150,67829.850735.71433.81830.26484.583012,503,415
213,250
335,732
1,316,652
690,557

Exchange Rate

Carrying
Amount396,180
14,374257,365
5,482,202
576,21430.303035.71433.87900.26894.5393$ 12,005,435
513,353
987,104
1,474,154
2,615,605

326,989
5,489
94,824
4,849,975
143,832

30.303035.71433.87900.26894.53939,908,749
196,024
366,9141,304,153
652,896

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY
September 30, 2017
Foreign
Currencies
Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY

For the three months ended September 30, 2018 and 2017, net foreign exchange (losses) gains were$(59,751) thousand and $33,825 thousand, respectively. For the nine months ended September 30, 2018and 2017, net foreign exchange losses were $22,408 thousand and $84,770 thousand, respectively. It isimpractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to thevariety of the foreign currency transactions and functional currencies of the group entities.

- 65 -

38. ADDITIONAL DISCLOSURESa. Following are the additional disclosures required by the Securities and Futures Bureau for the Company
and its investees:
1) Financing provided:

None2) Endorsements/guarantees provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)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)5) Acquisitions of individual real estate at costs or price of at least NT$300 million or 20% of thepaid-in capital: None
6) Disposals of individual real estate at cost or prices of at least NT$300 million or 20% of the paid-in
capital: None
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)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached)9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 6 (attached)10) Derivative financial transactions (Notes 7 and 33)
b. Investments in mainland China: Table 7 (attached)c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 8 (attached)

39. SEGMENT INFORMATION
Segment Information
The Company mainly engages in air transportation services for passengers, cargo and others. Its major
revenue-generating asset is its aircraft fleet, which is used jointly for passenger and cargo services. Thus,
the Company’s sole reportable segment is its flight segment. For operating segment reporting in the
consolidated financial statements, the reportable segment of the Company and its subsidiaries comprises theflight and the non-flight business departments. The accounting policy applied for reportable segments are
consistent with the policies mentioned in Note 4.

- 66 -

For the nine months ended September 30, 2018 and 2017, financial information of segments is listed below:
For the Nine Months Ended September 30, 2018
Air
Adjustments
Transportation
Othersand Write-offs
Total
Operating revenue$ 123,973,681$

7,656,010$(5,422,065)

Operation profit and loss
Interest revenue
Investment income accounted for using
the equity method
Revenue
Financial costs
Expenses$$

1,080,789$(17,458)

2,029,945$

3,093,276
226,694
244,91762,277(1,015,475)(325,294)

Gain before income tax
Identifiable assets
Investments accounted for using theequity method
Assets$ 126,207,626$$ 151,587,006$ 10,973,672$-

2,286,395$ 162,560,678
2,215,025
61,296,997

Total assets$ 226,072,700
For the Nine Months Ended September 30, 2017
Air
Adjustments
Transportation
Othersand Write-offs
Total

Operating revenue$ 113,397,815$

5,861,685$(4,763,718)

Operation profit and loss
Interest revenue
Investment income accounted for using
the equity method
Revenue
Financial costs
Expenses$$732,649$-

5,402,690$

6,135,339
156,833
385,762
463,344(1,013,780)(4,129,910)

Loss before income tax
Identifiable assets
Investments accounted for using theequity method
Assets$ 114,495,782$$ 140,095,339$

8,884,962$-

1,997,588$ 148,980,301
2,678,739
71,615,762

Total assets$ 223,274,802- 67 -TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIESENDORSEMENTS/GUARANTEES PROVIDEDFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Counter party
Endorsement/
Guarantee
Provider

No.

0

Name

China Airlines
Cal Park(the “Company”) Taiwan Air Cargo Terminal
Tigerair Taiwan Ltd.
Taiwan Aircraft Maintenanceand Engineering Co., Ltd.

Nature of Relationship100% subsidiary
54% subsidiary
100% subsidiary by direct
and indirect holdings
100% subsidiary

Limits on EachCounter party’s
Maximum
Endorsement/
Balance for the Ending Balance
Guarantee
PeriodAmounts(Note 1)

ActualBorrowingAmount$ 11,488,592
11,488,592
11,488,592$ 3,850,000
1,080,000
1,081,792$ 3,850,000
1,080,000
1,076,427$ 2,661,850
415,931

11,488,592

2,000,000

2,000,000

302,097

Note 1:

Based on the Group’s guidelines, the maximum amount of guarantee to an individual counter-party is up to 20% of the Group’s shareholders’ equity.

Note 2:

Based on the Group’s guidelines, the allowable aggregate amount of collateral guarantee is up to 50% of the Group’s shareholders’ equity.

- 68 -

Ratio ofAccumulated
Value ofAmount ofCollaterals
Collateral toProperty, Plant, Net Equity ofor Equipment
the Latest
Financial
Statement (%)$

Maximum
Collateral/
Guarantee
Amounts
Allowable(Note 2)Endorsement/ Endorsement/ Endorsement/
Guarantee
Guarantee
Guarantee
Given by Parent
Given byGiven on Behalf
on Behalf of
Subsidiaries on of Companies in
Subsidiaries Behalf of Parent Mainland China

-

6.70%
1.88%
1.87%

$ 28,721,481
28,721,481
28,721,481

Yes
Yes
Yes

No
No
No

No
No
No

-

3.48%

28,721,481

Yes

No

No

TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES HELDSEPTEMBER 30, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

Marketable Securities Type and Issuer/Name

Relationshipwith theHoldingCompany

China Airlines (the “Company”) Shares
Everest Investment Holdings Ltd. - common shares-

Everest Investment Holdings Ltd. - preferred shares-

Chung Hua Express Co.

-

Jardine Air Terminal Services
The Grand Hi Lai Hotel-

Mandarin Airlines

Cal-Asia Investment

Sabre Travel Network (Taiwan)

Taiwan Airport Services

Hwa Hsia

SharesChina Airlines

Financial Statement AccountFinancial assets at fair value through other comprehensive
income - noncurrent
Financial assets at fair value through other comprehensive
income - noncurrent
Financial assets at fair value through other comprehensive
income - noncurrent
Financial assets at fair value through profit or loss - current
Financial assets at fair value through profit or loss - current

Parent company Financial assets at fair value through other comprehensive
income - noncurrent

Shares/Units

1,359,368

September 30, 2018
Percentage Market Value
Carryingofor Net Asset
AmountOwnership
Value
(%)

$

$

84,783

Note

77,075

13.59

135,937

7,708-

1,100,000

23,582

11.00

23,582-

12,000,000
4,021

-

15.00
0.02

-

-

2,074,628

19,190-19,190--Note 2

Beneficial certificates
Barclays America Bonds Fund-

Financial assets at fair value through profit or loss - current

1,000,000

30,459-30,459-

SharesTaikoo (Xiamen) Landing Gear Services
Taikoo Spirit Aerospace Systems (Jinjiang) Composite-

Financial assets at fair value through profit or loss - current
Financial assets at fair value through other comprehensive
income - noncurrent-

32,7902.59
5.45

32,790-Beneficial certificatesFranklin Templeton SinoAm Money Market FundFSITC Taiwan Money Market FundFSITC Money Market Fund-

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

9,627,238
6,321,858
6,607,058

39,005
17,483
1,511-

39,005
17,483
1,511-

SharesTransAsia Airways-

Financial assets at fair value through profit or loss - current

2,277,786---

Parent company Financial assets at fair value through other comprehensive
income - noncurrent

814,152

7,531

-

7,531

-

349,523

4,715

-

4,715

-

SharesChina Airlines

Beneficial certificates
Taishin 1699 Money Market Fund-

Financial assets at fair value through profit or loss - current

0.40(Continued)- 69 -

Holding Company Name

Kaohsiung Catering Services

Marketable Securities Type and Issuer/Name

Beneficial certificates
Prudential Financial Money Market Fund

Relationshipwith theHoldingCompany

Financial Statement Account-Financial assets at fair value through profit or loss - current

Shares/Units

7,939,173

September 30, 2018
Percentage Market Value
Carryingofor Net Asset
AmountOwnership
Value
(%)

$ 123,794-$ 123,794

Note-

Note 1: This table only lists financial assets that are IFRS 9 regulated.
Note 2: Total fair value of Everest Investment Holdings Ltd.’s ordinary and preferred shares is $84,783 thousand.
(Concluded)- 70 -TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name

China Airlines, Ltd.

Tigerair Taiwan Co.,Ltd.

Relationship(Note 2)Beginning Balance
Number ofAmountSharesInvestments accounted MB Aerospacefor using the equity
methodInvestments accounted Mandarin Airlines
for using the equity
methodNon-related party-

Non-related party

NT-dollar 100%
Financial assets at fair President Securities
principal-protectedvalue through profit Corp.
structural products
or loss - current

Non-related party

Type and Name ofMarketable
Securities (Note 1)
SharesAsian Compressor
Technology
Services
Kaohsiung Catering
Services

Financial Statement
Account

Counterparty(Note 2)$Acquisition (Note 3)
Number ofAmountShares

-

-

-

-

-

300,000$

Disposal (Note 3)
Carrying
AmountAmountNumber of
Shares

-

-

$

-

-

-

-

-

-

3,030,000-

3,330,000$

Gain (Loss) on
Disposal-$Ending Balance
Number ofAmountShares

-

-

$

-

-

-

-

-

3,330,000---

Note 1:

The marketable securities in this table refer to shares, bonds, beneficial certificates and the securities derived from the above items.

Note 2:Marketable securities which are recognized as investments accounts for using the equity method are required to be filled in the second column.

Note 3The 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.

Note 4Paid-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.

- 71 -TABLE 4

CHINA AIRLINES, LTD. AND SUBSIDIARIESTOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd.

Mandarin Airlines

Related Party

Nature of Relationship

Purchase/
Sale

% of
Total

438,877
324,042(1,790,877)
178,825925,088
1,347,757
173,466
300,416
252,926(258,372)
105,345
166,3270.43
0.32(1.62)
0.18
0.91
1.32
0.17
0.30
0.25
(0.23)
0.10
0.16

30 days
40 days
2 months
2 months
40 days
90 days
2 months
60 days
2 months
1 months
1 months
2 months

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee

Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Sale
Purchase
Purchase

Equity-method investee

Purchase

135,263

0.13

Taiwan Airport Services

Same parent company

Purchase

113,250Same parent company

Purchase

132,751

Tigerair Taiwan Co., Ltd. Taoyuan International Airport Services$

AmountTaiwan Air Cargo Terminal
Taiwan Airport Services
Mandarin Airlines
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
Cal Park
Kaohsiung Catering Services
Hwa Hsia
Tigerair Taiwan Co., Ltd.
Tigerair Taiwan Co., Ltd.
Eastern United International Logistics(Holdings) Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd- 72 -

Note/Account Payable or
Receivable% ofPayment Terms Ending Balance
Total

Abnormal Transaction
Payment Terms

Unit Price$--

30 days-

2.01

1 months

2.42

1 months$

Note(48,297)(73,677)
421,694(297,548)(352,387)(460,480)(121,426)(78,512)(51,462)
41,080(35,497)(21,689)(5.66)(8.64)
4.20(34.89)(41.32)(54.00)(14.24)(9.21)(6.03)
0.41(4.16)(2.54)--(30,256)(3.55)---(27,204)(2.23)---(15,593)(2.61)-TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALSEPTEMBER 30, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Overdue
Company Name

Related Party

Nature of RelationshipEnding Balance

Turnover Rate

$ 421,694

Note

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

297,548

China Pacific Catering Services

China Airlines

Investor in equity-method

Taoyuan International Airport Service

China Airlines

Cal Park

China Airlines

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for
Bad Debts--$ 235,308

Note

-

-

271,868-

460,480

3.99

-

-

159,308-

Parent company

352,387

3.48

-

-

203,971-

Parent company

121,426

3.81

-

-

121,426-

Note: Accounts receivable and revenue were not directly correlated because of the particular industry characteristics, and therefore, the turnover rate was not applicable.

- 73 -$-TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(New Taiwan Dollars/U.S. Dollars/Hong Kong Dollars/Japanese Yen in Thousands, Unless Stated Otherwise)

Investor Company

China Airlines, Ltd.

Investee Company

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
Taiwan Airport Services
Kaohsiung Catering Services
Cal Hotel Co., Ltd
China Pacific Laundry Services
Hwa Hsia
Yestrip
Dynasty Holidays
Global Sky Express
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd.
NORDAM Asia Ltd.

Location

Main Businesses and Products

Taoyuan, Taiwan
Taipei, Taiwan
Taoyuan, Taiwan
Los Angeles, U.S.A.

Real estate lease and international trade
Air transportation and maintenance of aircraft
Air cargo and storage
A holding company, real estate and hotel
services
Taoyuan, Taiwan
In-flight catering
Taoyuan, Taiwan
Airport services
Territory of the British Virgin Islands General investment
Taipei, Taiwan
Sale and maintenance of hardware andsoftwareHong Kong International Airport
Airport services
Taipei, Taiwan
Airport services
Kaohsiung, Taiwan
In-flight catering
Taoyuan, Taiwan
Hotel businessTaoyuan, Taiwan
Cleaning and leasing of the towel of airlines,
hotels, restaurants and health clubs
Taoyuan, Taiwan
Cleaning of aircraft and maintenance ofmachine and equipment
Taipei, Taiwan
Travel businessTokyo, Japan
Travel business
Taipei, Taiwan
Forwarding and storage of air cargo
Taipei, Taiwan
Air transportation and maintenance of aircraft
Taoyuan, Taiwan
Aircraft maintenance

Investment Amount
September 30, December 31,
2018
2017

Balance as of September 30, 2018
Number ofPercentage ofCarrying
SharesOwnership
AmountNet Income(Loss) of theInvestee

Investment
Income (Loss)$

1,500,000
2,042,368
1,350,000
US$ 26,145$

1,500,000
2,042,368
1,350,000
US$ 26,145

150,000,000
188,154,025
135,000,000
2,614,500

100.0093.99
54.00
100.00$$439,110147,000
US$
7,172
52,200439,110147,000
US$
7,172
52,20043,911,000
34,300,000
7,172,346
13,021,042

51.00
49.00
100.0093.93

740,529745,705
469,891
413,204

HK$HK$

58,00012,289140,240
465,000
137,500

28,400,000
20,626,644
21,494,637
46,500,000
13,750,000

20.00
47.35
53.67
100.0055.00

77,27077,27026,265
20,4002,500
1,600,000
1,350,000

58,00012,289383,846
465,000
137,500
77,270JPY

26,265
20,4002,500
1,648,387
1,350,000

JPY$

1,505,704
1,255,109
1,477,603
1,250,359

1,403
45,137
255,839
35,107

Note

1,403
42,425
138,153
35,107Note 1
Note 2

336,599
236,854
21,870144,167

171,665
116,058
21,870135,415-

498,423
275,665
623,309443,800
164,390

4,610
100,185
184,464
7,834
21,930922
47,43799,002
7,834
12,062-100.0085,844

12,94812,948Note 11,600,000
408
250,000
180,000,000
135,000,000

100.00
51.00
25.00
90.00
100.0025,16322,2296,629
1,843,935
1,158,814(345)(8,234)
3,668
1,020,897(72,735)(345)(4,199)917
918,807(72,735)-

Taoyuan, Taiwan

Composite repair and manufacturing business

2,450

2,450

245,000

49.00

2,361

(79)

(38)

200,000
11,658200,000
11,65820,000,000
469,755

10.00
1.08

204,882
6,207

1,020,897
100,185

102,090
1,079-

Mandarin Airlines

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Taipei, Taiwan
Taipei, Taiwan

Air transportation and maintenance of aircraft
Airport services

Cal-Asia Investment

Eastern United International Logistics

Hong Kong

Forwarding and storage of air cargo

HK$

3,329

HK$

3,329

1,050,000

35.00

45,16810,042

3,515-

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

US$

5,877

-

100.00377,898

20,30820,308Note 3Kaohsiung Catering
Services

Delica International Co., Ltd

Kaohsiung, Taiwan

Catering business-

1,020,000

51.00

7,867

-

-

Note 4Note 1:Adopted the treasury share method in recognizing investment income or loss.

Note 2:

Represents the consolidated financial information of the foreign holding company disclosed in accordance with local regulations.

Note 3:

The Company does not issue shares because it is a limited company.

Note 4:

Investee acquired by merger.

10,200- 74 -TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIESINVESTMENTS IN MAINLAND CHINAFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(New Taiwan Dollars/Renminbi/U.S. Dollars In Thousands, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Businesses andProducts

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan
Capitalas ofJanuary 1, 2018

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Forwarding and storage $995,477of air cargo(RMB 224,480)

Indirect(Note 1)

Airport Air Cargo Service(Xiamen) Co., Ltd.

Forwarding and storage
62,084of air cargo(RMB 14,000)

Indirect(Note 1)

Taikoo (Xiamen) Landing
Gear Services

Landing gear
1,128,135
maintenance services (US$ 36,890)

Indirect(Note 1)

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

Indirect(Note 1)

356,667(US$ 11,663)$
128,011 $(US$4,186)

Investment Flows

Outflow

Accumulated
Outflow ofInvestment
from Taiwan
as of
September 30,
2018

Inflow--(US$59,555
1,947)

65,7862,151)

-

(US$

-

(US$

19,450636)$

Limit on Investment$272,802 (US$8,920)$661,663 (Note 3)$36,196,507 (Note 4)

Investment
Gain (Loss)

Accumulated
InwardRemittance ofEarnings as of
September 30,
2018$
128,011 $63,821(US$4,186) (RMB 13,878)

14

$
(RMB

8,530 $
243,315 $
1,943) (RMB 54,867) (US$85,6802,802)(Note 2)

-

14

(US$

59,55588,695
1,947) (RMB 19,286)

11,796
135,867(RMB 2,700) (RMB 30,637) (US$26,769875)(Note 2)65,7862,151)

-

2.589

-

-

-

(US$

-

5.45

-

32,790(RMB 7,394)

-

(US$

19,450636)-

Investment Amounts
Authorized by Investment Commission,
MOEA

Net Income(Loss) of
the Investee

Carrying
Amountas of
September 30,
2018

-

-

Accumulated Investment in Mainland
China as of September 30, 2018

% Ownershipof Direct orIndirect
Investment(Continued)- 75 -

Taiwan Airport Services

Investee Company

Accumulated
Outward
Remittance forMain Businesses andMethod ofPaid-in Capital
Investment
Products
Investment
from Taiwan asof January 1,
2018

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Forwarding and storage $995,477of air cargo(RMB 224,480)

Indirect(Note 5)$
122,886 $(US$4,018)

Airport Air Cargo Service(Xiamen) Co., Ltd.

Forwarding and storage
62,084of air cargo(RMB 14,000)

Indirect(Note 5)

(US$

Remittance of Funds

Outward

58,922
1,927)

Accumulated
Outward
Remittance forInvestment
from Taiwan
as of
September 30,
2018

Inward

-

$

-

-

14%

58,922
88,695
1,927) (RMB 19,286)

14%

(US$

Investment Amounts Authorized by
Investment Commission, MOEA

Upper Limit on the Amount of
Investment Stipulated by
Investment Commission, MOEA

$181,808 (US$5,945)$181,808 (US$5,945)$349,314 (Note 6)% Ownershipof Direct orIndirect
Investment$
122,886 $
63,821(US$
4,018) (RMB 13,878)-

Accumulated Outward
Remittance for Investment in
Mainland China as of September 30,
2018

Net Income(Loss) of theInvestee

Investment
Income (Loss)

Accumulated
Carrying
Repatriation ofAmount as ofInvestment
September 30, Income as of
2018
September 30,
2018

$
(RMB

8,935 $
241,627 $
116,402
1,943) (RMB 54,487) (US$3,806)(RMB

12,417
135,4792,700) (RMB 30,551) (US$43,015
1,407)

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in mainland China.
Note 2: As of September 30, 2018, the inward remittance of earnings amounted to US$2,801,749 and US$875,330.
Note 3: The amount comprised US$19,828,324, RMB4,200,000 and NT$36,666,667.
Note 4: The limit stated in the Investment Commission’s regulation, “The Review Principle of Investment or Technical Cooperation in mainland China,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 5: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in mainland China.
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.
(Concluded)- 76 -TABLE 8

CHINA AIRLINES, LTD. AND SUBSIDIARIES
BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIESFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(In Thousands of New Taiwan Dollars)Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Financial Statement Account0

China Airlines, Ltd.

Mandarin Airlines
Mandarin Airlines
Tigerair Taiwan Ltd.
Taoyuan International Airport Service
Taiwan Airport Services
Hwa Hsia
Mandarin Airlines
Tigerair Taiwan Ltd.
China Pacific Catering Services
Cal Park
Mandarin Airlines
Mandarin Airlines
Taoyuan International Airport Service
Cal Park
Mandarin Airlines
Kaohsiung Catering Services

a
a
a
a
a
a
a
a
a
a
a
a
a
a
a
a

Passenger revenue
Other operating income
Other operating income
Terminal and landing fees
Terminal and landing fees
Terminal and landing fees
Flight operation costs
Flight operation costs
Other operating cost
Other operating costAccounts receivable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Bonds payable - noncurrent
Passenger service cost

1

Taiwan Air Cargo Terminal

China Airlines, Ltd.

b

Sales revenue

2

Mandarin Airlines

China Airlines, Ltd.
China Airlines, Ltd.
Taiwan Airport Services
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.

b
b
c
b
b
b
b

Passenger revenue
Flight operation costs
Flight operation costs
Operating expense
Accounts receivable - related parties
Held-to-maturity financial assets
Notes and accounts payable - related parties

3

Taoyuan International Airport Services

Tigerair Taiwan Ltd.
China Airlines, Ltd.
China Airlines, Ltd.

cbb

Airport service revenue
Airport service revenue
Accounts receivable - related parties

AmountTransaction Criteria% of Total
Consolidated
Total Revenue
or Assets$ 1,584,360
206,517258,372
925,088
324,042
252,926
178,825
105,345438,877
173,466
421,694
297,548352,387
121,426
250,000
300,416

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

1.26
0.16
0.20
0.73
0.26
0.20
0.14
0.08
0.35
0.14
0.18
0.13
0.15
0.05
0.11
0.24

438,877

The same as ordinary transactions

0.35

178,825
1,584,360
113,250
206,517
297,548
250,000
421,694

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

0.14
1.26
0.09
0.16
0.13
0.11
0.18

132,751925,088352,387

The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

0.11
0.73
0.15
(Continued)- 77 -

Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Financial Statement AccountAmountTransaction Criteria% of Total
Consolidated
Total Revenue
or Assets

4

Taiwan Airport Services

China Airlines, Ltd.
Mandarin AirlinesbcOperating revenue
Operating revenue$ 324,042
113,250

The same as ordinary transactions
The same as ordinary transactions

0.26
0.09

5

Hwa Hsia

China Airlines, Ltd.

b

Operating revenue

252,926

The same as ordinary transactions

0.20

6

Cal Park
Cal Park

China Airlines, Ltd.
China Airlines, Ltd.

bb

Operating revenue
Accounts receivable - related parties

173,466
121,426

The same as ordinary transactions
The same as ordinary transactions

0.14
0.05

7

Tigerair Taiwan Ltd.
Tigerair Taiwan Ltd.
Tigerair Taiwan Ltd.

China Airlines, Ltd.
China Airlines, Ltd.
Taoyuan International Airport ServicebbcOperating expense
Operating revenue
Flight operation costs

258,372
105,345
132,751

The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

0.20
0.08
0.11

8

Kaohsiung Catering Services

China Airlines, Ltd.

b

Operating revenue

300,416

The same as ordinary transactions

0.24

Note 1: Three kinds of business relationships between China Airlines, Ltd. and its subsidiaries were as follows:a. Parent to subsidiaries.
b. Subsidiaries to parent.
c. Subsidiaries to subsidiaries.
Note 2: Intercompany transactions were written off in the consolidated financial statements.
Note 3: The Company only discloses transaction amounts or balances of more than $100,000 thousand.
(Concluded)- 78 -