China Airlines, Ltd. and Subsidiaries
Consolidated Financial Statements for the
Six Months Ended June 30, 2019 and 2018 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 June 30, 2019 and 2018, the related consolidated statements ofcomprehensive income for the three-month periods ended June 30, 2019 and 2018 and for thesix-month periods ended June 30, 2019 and 2018, the consolidated statements of changes in equity
and cash flows for the six-month periods then ended, and the related notes to the consolidated
financial statements, including a summary of significant accounting policies (collectively referred
to as the “consolidated financial statements”). Management is responsible for the preparation andfair presentation of the consolidated financial statements in accordance with the Regulations
Governing the Preparation of Financial Reports by Securities Issuers and International AccountingStandard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial
Supervisory Commission of the Republic of China. Our responsibility is to express 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$13,872,020 thousand and NT$5,347,586 thousand, which constituted 4.73%
and 2.33% of the consolidated total assets as of June 30, 2019 and 2018, and the total revenue was
NT$4,905,056 thousand and NT$4,426,054 thousand, which constituted 5.89% and 5.46% of theconsolidated total revenues for the six-month periods ended June 30, 2019 and 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 13 and 14 to the consolidated financial statements, the financial statements ofsome non-significant subsidiaries included in the consolidated financial statements referred to in
the first paragraph and some investments accounted for using the equity method were not reviewed.
As of June 30, 2019 and 2018, the combined total assets of these non-significant subsidiaries were
NT$23,284,052 thousand and NT$17,281,673 thousand, respectively, representing 7.94% and-1-

7.53%, respectively, of the consolidated total assets, and combined total liabilities of these
non-significant subsidiaries were NT$12,332,446 thousand NT$6,607,113 thousand, respectively,
representing 5.24% and 3.88%, respectively, of the consolidated total liabilities; for thethree-month periods and for the six-month periods ended June 30, 2019 and 2018, the amounts ofthe combined comprehensive income of these non-significant subsidiaries were NT$332,113
thousand, NT$379,330 thousand, NT$557,817 thousand and NT$547,921 thousand, respectively,
representing (67.52%), 93.69%, (79.31%) and 103.59%, respectively, of the consolidated total
comprehensive income. As of June 30, 2019 and 2018, the aforementioned investments accounted
for using the equity method were NT$2,367,567 thousand and NT$2,349,376 thousand,respectively; and for the three-month periods ended and for the six-month periods ended June 30,
2019 and 2018, the amounts of the Group’s share of the profit of such investments accounted forusing the equity method were NT$87,895 thousand, NT$82,104 thousand, NT$157,799 thousand
and NT$163,819 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 June 30, 2019 and 2018, its consolidated financial performance for thethree-month periods ended June 30, 2019 and 2018 and for the six-month periods ended June 30,
2019 and 2018, and its consolidated cash flows for the six-month periods then ended in accordancewith 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.
The engagement partners on the reviews resulting in this independent auditors’ review report are
Huang, Jui Chan and Cheng, Shiuh Ran.

Deloitte & Touche
Taipei, Taiwan
Republic of China
August 7, 2019
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)

June 30, 2019
(Reviewed)
AmountASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6 and 33)
Financial assets at fair value through profit or loss - current (Notes 4, 7 and 33)
Financial assets at amortized cost (Notes 4, 9 and 33)
Financial assets for hedging - current (Notes 4 and 33)
Notes and accounts receivable, net (Notes 4, 5, 10 and 33)
Notes and accounts receivable - related parties (Notes 33 and 34)
Other receivables (Note 33)
Current tax assets (Notes 4 and 28)
Inventories, net (Notes 4 and 11)
Noncurrent assets held for sale (Notes 4 and 12)
Other assets - current (Notes 6 and 18)%

June 30, 2018
(Reviewed)
Amount%$ 23,348,904
279,701
1,339,154
38,572
9,865,930
10,3381,229,387
37,1238,220,667
2,709,373

8
1
3
3
1

$ 24,937,537
206,001
3,856,660
32,906
10,038,528
9,043
879,191
18,9488,654,710
46,154
4,147,882

11
2
4
4
2

$ 24,862,418
456,278
812,643
56,393
9,197,482
8,414
829,734
29,296
8,896,609
110,778
4,553,949

11
4
1
4
2

47,079,149

16

52,827,560

23

49,813,994

22

130,606
2,367,567
158,181,473
72,742,812
2,075,205
1,187,784
5,225,931
4,131,020

1
54
25
1
2
1

132,191
2,200,149
163,107,718
2,075,345
1,210,796
5,152,070
3,430,753

1
71
1
1
2
1

149,980
2,349,376
162,229,320
2,075,484
1,206,857
5,370,186
6,299,787

1
71
1
2
3

246,042,398

84

177,309,022

77

179,680,990

78$ 293,121,547

100$ 230,136,582

100$ 229,494,984

100

Total current assets
NONCURRENT ASSETS
Financial assets at fair value through other comprehensive income - noncurrent (Note 4, 8 and 33)
Investments accounted for using the equity method (Notes 4 and 14)
Property, plant and equipment (Notes 4, 5, 15 and 35)
Right-of-use assets (Notes 4, 21 and 35)
Investment properties (Notes 4 and 16)
Other intangible assets (Notes 4 and 17)
Deferred income tax asset (Notes 4, 5 and 28)
Other assets - noncurrent (Notes 18, 21, 33, 35 and 36)
Total noncurrent assets
TOTAL

December 31, 2018
(Audited)
Amount%LIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loans (Notes 19 and 33)
Short-term bills payable (Note 19)
Financial liabilities at fair value through profit or loss - current (Notes 4, 7 and 33)
Financial liabilities for hedging - current (Notes 3, 4, 21 and 33)
Notes and accounts payable (Note 33)
Notes and accounts payable - related parties (Notes 33 and 34)
Contract liabilities - current (Notes 4, 5 and 23)
Other payables (Notes 22 and 33)
Current tax liabilities (Notes 4 and 28)
Lease liabilities - current (Notes 3, 4, 21 and 25)
Provisions - current (Notes 4, 5, 24 and 33)
Bonds payable and put options of convertible bonds - current portion (Notes 4, 20 and 33)
Loans and debts - current portion (Notes 19, 33 and 35)
Capital lease obligations - current portion (Notes 4, 21 and 33)
Other current liabilities (Note 33)

$

221
560
1,594,487
532,815
19,546,455
14,146,198
164,181
321,075
4,445,900
15,709,487
633,398
3,855,115

1
9
6
2
7
2

24

60,949,892

33,206,454
25,412,707
56,579,627
2,049,234
9,469,265
193,631
29,198,565
8,662,756
622,134

11
9
19
1
3
10
3
-

Total noncurrent liabilities

165,394,373

Total liabilities

Total current liabilities
NONCURRENT LIABILITIESFinancial liabilities for hedging - noncurrent (Notes 3, 4, 21 and 33)
Bonds payable - noncurrent (Notes 4, 20 and 33)
Loans and debts - noncurrent (Notes 19, 33 and 35)
Contract liabilities - noncurrent (Notes 4 and 23)
Provisions - noncurrent (Notes 4, 24 and 33)
Deferred tax liabilities (Notes 4 and 28)
Lease liabilities - non-current (Notes 3, 4, 21 and 35)
Capital lease obligations - noncurrent (Notes 4, 21, 33 and 35)
Accrued pension costs (Notes 4, 5 and 25)
Other noncurrent liabilities (Note 33)

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 20 and 26)
Share capital
Capital surplus
Retained earnings (accumulated deficits)
Legal reserve
Special reserve
Unappropriated retained earnings (accumulated deficits)
Total retained earnings (accumulated deficits)
Other equity
Treasury shares
Total equity attributable to owners of the Company
NON-CONTROLLING INTERESTS (Note 26)
Total equity
TOTAL

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated August 7, 2019)-3-

6,167,457
1,546,528
541,965
21,251,986
13,430,894
232,768
4,561,017
53,8186,600,000
9,463,029
6,103,156

2
1
7
5
2
2
3
2

69,952,618$$

230,000
219,9622,453
3,078
1,235,601
539,888
17,661,741
12,136,771
64,189778,409
4,432,240
20,819,750
781,352
5,423,919

1
8
5
2
9
3

27

64,329,353

28

28,473,710
60,686,148
1,903,665
8,473,464
188,447
2,945
8,803,382
607,845

12
26
1
4
4
-

23,934,340
62,764,279
1,841,330
8,347,427
179,029
21,6507,920,864
781,331

10
27
1
4
4
-

56

109,139,606

47

105,790,250

46

235,346,991

80

170,089,498

74

170,119,603

74

54,209,846
1,241,214

19-

54,209,846
1,241,21424-

54,709,846
1,209,977

24
1

466,416
12,967(686,463)(207,080)(200,614)(43,372)-

351,923
118,810
1,144,928
1,615,661
58,223(43,372)1
1-351,923
118,810
188,996659,729
94,464(43,372)-

54,999,994

19

57,081,572

25

56,630,644

25

2,774,562

1

2,965,512

1

2,744,737

1

57,774,556

20

60,047,084

26

59,375,381

26$ 293,121,547

100$ 230,136,582

100$ 229,494,984

100

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 June 30
2019
2018
Amount%Amount

For the Six Months Ended June 30
2019
2018
Amount%Amount%%REVENUE (Notes 4, 27 and 34)$ 42,892,312

100$ 41,275,835

100$ 83,297,660

100$ 81,010,862

100

COSTS (Notes 4, 11, 17, 21, 24,
25, 27, 28 and 36)

38,595,777

90

37,316,665

90

74,787,686

90

73,257,685

90

GROSS PROFIT

4,296,535

10

3,959,170

10

8,509,974

10

7,753,177

10

OPERATING EXPENSES(Notes 4, 25 and 27)

3,724,015

9

3,181,949

8

7,175,981

8

6,555,134

8

572,5201

777,2212

1,333,993

2

1,198,043

2

172,623-

156,2991

325,879-

288,524-(170,434)-(298,968)(1 )(236,875)-(357,670)-(844,417)(2 )(350,509)(1 )(1,720,248)(2 )(666,061)(1 )

87,895-

82,104-

157,799-

163,819-(754,333)(2 )(411,074)(1 )(1,473,445)(2 )(571,388)(1 )PROFIT (LOSS) BEFOREINCOME TAX(181,813)(1 )

366,147

1(139,452)-

626,655

1

INCOME TAX (BENEFIT)
EXPENSE (Notes 4 and 28)

109,077-

155,280-

298,3141

223,897-

NET INCOME (LOSS) FOR
THE PERIOD(290,890)(1 )

210,8671(437,766)(1 )

402,7581--

54,057---

17,496-(18,971)-

17,024-(2,065)-

18,438-4,275(14,696)-(22,718)
48,363-851(1,214)-(14,285)
21,649(Continued)

OPERATING PROFITNON-OPERATING INCOME
AND EXPENSES
Other income (Note 27)
Other gains and losses(Notes 12, 15 and 27)
Finance costs (Notes 27
and 33)
Share of the profit of associates
and joint ventures (Note 14)
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
Unrealized gain on
investments in equity
instruments designated as
at fair value through othercomprehensive income
Income tax relating to items
that will not bereclassified subsequently
to profit or loss (Note 28)-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 June 30
2019
2018
Amount%AmountItems that may be reclassified
subsequently to profit orloss:
Exchange differences ontranslating foreign
operations (Notes 4
and 26)
Gain on hedging instruments
not subject to basis
adjustment (Notes 4, 21,
26 and 33)
Income tax relating to items
that may be reclassified
subsequently to profit orloss (Note 28)$

TOTAL COMPREHENSIVEINCOME (LOSS) FOR THE
PERIODNET INCOME (LOSS)ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interests

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

EARNINGS (LOSSES) PER
SHARE (NEW TAIWANDOLLARS; Note 30)
Basic
Diluted-(234,490)$%

61,282-

26,046--

103,810-(358,236)

45,799(186,321)-(19,433)
145,659-(201,017)-

194,022-$(491,907)(1 )$

404,8891$(442,759)
151,869(1 )-$

63,442
147,425$(290,890)

(1 )

$

$

(641,416)
149,509(1 )-$(491,907)(1 )Other comprehensive
income (loss) for theperiod, net of income
tax

2,370

For the Six Months Ended June 30
2019
2018
Amount%Amount33,625--87,698-67,842(264,348)-(16,798)
104,525-(265,562)-

126,174-$(703,328)(1 )$

528,9321

1$(686,463)
248,697(1 )-$

188,934
213,824-

210,8671$(437,766)(1 )$

402,758-$

258,718
146,1711-$(953,773)
250,445(1 )-$

313,346
215,5861-$

404,8891$(703,328)(1 )$

528,932

1$(0.08)$(0.08)$ 0.01$ 0.01$$(0.13)$(0.13)$%$ 0.03$ 0.03

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated August 7, 2019)(Concluded)-5-

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, 2018

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

UnappropriatedEarnings(Accumulated
Deficits)$ 54,709,846

$

$

$

$

799,999

206,092-

1,458,313

Exchange
Differences on
Translating
Foreign Operations$(34,986 )Unrealized Gain
(Loss) on
Available-for-saleFinancial Assets
$

1,774

Other Equity
Unrealized Gain on
Financial Assets at
Fair Value
Through Other
Comprehensive
Income$-Cash Flow Hedges$(74,429 )Gain (Loss) on
Hedging
Instruments$-

Treasury Shares
$

Total

(43,372 )$ 57,023,237

Non-controlling
Interests

Total Equity$

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 six months ended June 30,
2018

-

-

-

-

188,934

-

-

-

-

-

-

188,934

213,824

402,758

Other comprehensive income for the six months
ended June 30, 2018, net of income tax

-

-

-

-

-

26,902-

15,075-82,435-

124,412

1,762

126,174

Total comprehensive income for the six months
ended June 30, 2018

-

-

-

-

188,934

26,902-

15,075-82,435-313,346

215,586

528,932

Cash dividends from subsidiaries paid to
non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

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

-

-

-

-

-

-

-

-

-

-

-

-

565,888565,888

BALANCE AT JUNE 30, 2018

$ 54,709,846$

1,209,977$

351,923$

118,810$

188,996$(8,084 )$-$57,426$-$45,122$(43,372 )$ 56,630,644$

2,744,737$ 59,375,381

BALANCE AT JANUARY 1, 2019

$ 54,209,846$

1,241,214$

351,923$

118,810$

1,144,928$(9,664 )$-$42,619$-$25,268$(43,372 )$ 57,081,572$

2,965,512$ 60,047,084

Appropriation of 2018 earnings
Legal reserve
Special reserve
Cash dividends - $0.20960737--

114,493-(105,843 )-(114,493 )
105,843(1,136,278 )

-

-

-

-

-

-

(1,136,278 )-(1,136,278 )Net profit (loss) for the six months ended June30, 2019

-

-

-

-

(686,463 )

-

-

-

-

-

-

(686,463 )

248,697(437,766 )Other comprehensive loss for the six months
ended June 30, 2019, net of income tax

-

-

-

-

-

19,706-(1,214 )-(285,802 )-(267,310 )

1,748(265,562 )Total comprehensive income (loss) for the six
months ended June 30, 2019

-

-

-

-

(686,463 )

19,706-(1,214 )-(285,802 )-(953,773 )

250,445(703,328 )Cash dividends from subsidiaries paid to
non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

(416,438 )(416,438 )Loss of control of subsidiaries

-

-

-

-

-

8,368

-

105

-

-

-

8,473

(24,957 )(16,484 )BALANCE AT JUNE 30, 2019

$ 54,209,846(43,372 )$ 54,999,994

2,774,562$ 57,774,556$

1,241,214$

466,416$

12,967$(686,463 )$

18,410

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated August 7, 2019)

-6-

$

-

$

41,510$-$(260,534 )$$CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands of New Taiwan Dollars)(Reviewed, Not Audited)

For the Six Months Ended
June 30
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIESIncome (loss) before income tax
Adjustments to reconcile net cash generated from (used in) operating
activities:
Depreciation expenses
Amortization expenses
Bad-debt 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) loss on disposal of investments
Loss on inventory and property, plant and equipment
Impairment loss recognized on property, plant and equipment andnoncurrent assets held for sale
Net (gain) loss on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leasebacks
Changes in operating assets and liabilities
Financial assets mandatorily classified as at fair value through profit
or loss
Financial assets and liabilities held for trading
Notes and accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Financial assets at amortized cost
Other current assets
Notes and accounts payable
Accounts payable - related parties
Other payables
Contract liabilities
Provisions
Other current liabilities
Accrued pension liabilities
Other liabilities
Cash generated from operations
Interest received-7-$(139,452)$

626,655

16,490,382
101,533
14,382

9,538,253
92,48424,884(23,042)(194,430)(6,700)(157,799)(5,458)
10,462(7,656)
381,788(9,163)(141,518)(7,705)(163,819)
282,959
368,992(456,426)
447,903

476,460
1,720,248
2,100,313-

60,812
222,364
666,061
1,696,073(7,256)

15,846(68,379)
195,574(192,866)(246,963)
300,3032,294,539
710,277(489,142)
105,013(168,563)
1,851,965(1,452,256)
517,947(140,528)
1,060
23,994,858
184,615

493,441(337,291)
34,027(57,775)(469,909)
812,643(537,777)
456,738
67,721(1,018,619)
1,309,854(1,223,154)
148,368(235,245)
13,934
12,698,509
107,464(Continued)

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

For the Six Months Ended
June 30
20192018
Dividends received
Interest paid
Income tax paid$

658,408(1,735,507)(265,436)$

28,807(751,904)(100,072)

Net cash generated from operating activities

22,836,938

11,982,804

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
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Increase in computer software costs
Increase in restricted assets
Net cash outflow on disposal of associates
Acquisition of subsidiaries

35,692(2,638,353)
38,428(141,954)
131,469(4,094,312)(81,022)(6,844)(17,413)-694,658(2,092,336)
294,571(17,001)
57,363(9,314,366)(81,461)(27,576)
136,769(6,774,309)(10,349,379)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Decrease in short-term loans
Increase in short-term bills payable
Decrease in short-term bills payable
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
Repayments of the principal portion of lease liabilities
Proceeds of guarantee deposits received
Refunds of guarantee deposits received
Cash dividends paid to non-controlling interests

350,060(350,060)
3,500,000(4,445,900)
1,726,863(12,117,617)(5,810,165)
80,786(74,443)(416,438)

400,000(290,000)
289,962(70,000)
6,012,000(2,700,000)
11,594,850(14,519,274)
86,653(31,104)(171,019)

Net cash generated from (used in) financing activities(17,556,914)

602,068(94,348)

41,593(Continued)

Net cash used in investing activities

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES-8-

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

For the Six Months Ended
June 30
2019
2018
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS$ (1,588,633)$

2,277,086

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD

24,937,537

22,585,332

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD$ 23,348,904$ 24,862,418

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated August 7, 2019)-9-(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(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 and 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 June 30, 2019, December 31, 2018 andJune 30, 2018, CADF and NDF held a combined 44.03%, 44.03% and 43.63% of the Company’s shares.

2. APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its subsidiaries (collectively, the “Group”) wereapproved by the board of directors and authorized for issue on August 7, 2019.

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, the initial application of the amendments to the Regulations Governing the
Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by
the FSC did not have any material impact on the Group’s accounting policies: IFRS 16 “Leases”
IFRS 16 provides a comprehensive model for the identification of lease arrangements and theirtreatment in the financial statements of both lessee and lessor. It supersedes IAS 17 “Leases”,
IFRIC 4 “Determining whether an Arrangement contains a Lease”, and a number of related
interpretations. Refer to Note 4 for information relating to the relevant accounting policies.
Definition of a lease
The Group elects to apply the guidance of IFRS 16 in determining whether contracts are, or contain,
a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified
as containing a lease under IAS 17 and IFRIC 4 are not reassessed and are accounted for inaccordance with the transitional provisions under IFRS 16.

- 10 -

The Group as lessee
The Group recognizes right-of-use assets and lease liabilities for all leases on the consolidatedbalance sheets except for those whose payments under low-value asset and short-term leases arerecognized as expenses on a straight-line basis. On the consolidated statements of comprehensive
income, the Group presents the depreciation expense charged on right-of-use assets separately fromthe interest expense accrued on lease liabilities; interest is computed using the effective interest
method. On the consolidated statements of cash flows, cash payments for the principal portion oflease liabilities are classified within financing activities; cash payments for the interest portion areclassified within financing activities. Prior to the application of IFRS 16, payments under operatinglease contracts, including property interest qualified as investment properties, were recognized as
expenses on a straight-line basis. Prepaid lease payments for land use rights were recognized as
prepayments for leases. Cash flows for operating leases were classified within operating activities
on the consolidated statements of cash flows. Leased assets and finance lease payables wererecognized on the consolidated balance sheets for contracts classified as finance leases.
Lease liabilities were recognized on January 1, 2019 for leases previously classified as operatingleases under IAS 17. Lease liabilities were 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 are measured at either an amount equal to the lease liabilities, adjusted by theamount of any prepaid or accrued lease payments, or their carrying amount as if IFRS 16 had been
applied since the commencement date, but discounted using the aforementioned incremental
borrowing rate, the Group applies IAS 36 to all right-of-use assets.
Leasehold which was previously accounted for as an operating lease under IAS 17, qualifies as aninvestment property. A lease liability for that leasehold is recognized and measured at the present
value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on
January 1, 2019.
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 is accounted for as a financing transaction. If it
satisfies the requirements to be accounted for as a sale of an asset, the Group recognizes only theamount of any gain or loss which relates to the rights transferred to the buyer-lessor. Prior to theapplication of IFRS 16, the leaseback portion is classified as either a finance lease or an operatinglease and accounted for differently.
The Group does 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 applies to the leaseback portion. In addition, for assets previously accounted
for as a finance lease under IAS 17, the Group continues to amortize any gains on sales over thelease term.

- 11 -

The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on
January 1, 2019 was 2.58%. The difference between the (i) lease liabilities recognized and (ii)
operating lease commitments on December 31, 2018 is explained as follows:
The future minimum lease payments of non-cancellable operating leasecommitments on December 31, 2018

$ 78,030,370

Undiscounted amounts on January 1, 2019

$ 78,030,370

Discounted amounts using the incremental borrowing rate on January 1, 2019
Add: Finance lease payable on December 31, 2018
Add: Adjustments as a result of a different treatment of extension andtermination options
Add: Other
Less: Derivative financial instruments for hedging$ 67,420,164
633,775

Lease liabilities recognized on January 1, 2019

$ 36,296,387

8,010,753
2,151,203(41,919,508)

The Group as lessor
The Group does not make any adjustments for leases in which it is a lessor, and it accounts for thoseleases with the application of IFRS 16 starting from January 1, 2019.
The impact on assets, liabilities and equity as of January 1, 2019 from the initial application of IFRS
16 is set out as follows:

As OriginallyStated on
January 1, 2019

Adjustments
Arising from
InitialApplication

Restated on
January 1, 2019

Prepayments for leases
Refundable deposits
Right-of-use assets
Property, plant and equipment

$

$

$

Total effect on assets$ 165,058,453$ 77,582,030$ 242,640,483

Lease liabilities - current
Lease liabilities - non-current
Finance lease payables
Accrued rent payable
Financial liabilities for hedging - current
Financial liabilities for hedging non-current

$

$

$

Total effect on liabilities$

861,045
1,089,690
163,107,718

633,77590
560(861,045)(25,617)78,499,374(30,682)

3,924,776
32,371,611(633,775)(90)
5,947,449

1,064,073
78,499,374
163,077,036

3,924,776
32,371,611
5,948,009-

35,972,059

35,972,059

634,425$ 77,582,030$ 78,216,455

b. The IFRSs endorsed by the Financial Supervisory Commission (FSC) for application starting from 2020
Effective Date
Announced by IASBNew IFRSs
Amendments to IFRS 3 “Definition of a Business”
Amendments to IAS 1 and IAS 8 “Definition of Material”- 12 -

January 1, 2020 (Note 1)
January 1, 2020 (Note 2)

Note 1: The Group shall apply these amendments to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or afterJanuary 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.
Note 2: The Group shall apply these amendments prospectively for annual reporting periods
beginning on or after January 1, 2020.
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.
c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC
Effective Date
Announced by IASB (Note)

New IFRSs
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”
Note:

To be determined by IASB
January 1, 2021

Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on orafter their respective effective dates.

The application of new IFRSs announced by IASB but not yet endorsed and issued into effect by the
FSC would not have any material impact on the Group’s accounting policies, as of the date theconsolidated financial statements were authorized for issue, the Group is continuously assessing thepossible 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,
2018.
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 isless 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, 2018.

- 13 -

Leases2019
At the inception of a contract, the Group assesses whether the contract is, or contains, a lease.
a. The Group as lessor
Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks
and rewards of ownership to the lessee. All other leases are classified as operating leases.
b. The Group as lessee
The Group recognizes right-of-use assets and lease liabilities for all leases at the commencement date ofa lease, except for short-term leases and low-value asset leases accounted for applying a recognition
exemption where lease payments are recognized as expenses on a straight-line basis over the leaseterms.
Right-of-use assets are initially measured at cost, which comprises the initial measurement of leaseliabilities adjusted for lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease
incentives received. Right-of-use assets are subsequently measured at cost less accumulated
depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities.
Right-of-use assets are presented on a separate line in the consolidated balance sheets.
Right-of-use assets are depreciated using the straight-line method from the commencement dates to theearlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.
Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed
payments, in-substance fixed payments, variable lease payments which depend on an index or a rate,
residual value guarantees. The lease payments are discounted using the interest rate implicit in a lease,
if that rate can be readily determined. If that rate cannot be readily determined, the Group uses thelessee’s incremental borrowing rate.
Subsequently, lease liabilities are measured at amortized cost using the effective interest method, withinterest expense recognized over the lease terms. When there is a change in a lease term, a change in theamounts expected to be payable under a residual value guarantee, a change in the assessment of an
option to purchase an underlying asset, or a change in future lease payments resulting from a change in
an index or a rate used to determine those payments, the Group remeasures the lease liabilities with acorresponding adjustment to the right-of-use-assets. Lease liabilities are presented on a separate line in
the consolidated balance sheets.
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the
periods in which they are incurred.
For sale and leaseback transactions, if the transfer of an asset satisfies the requirements of IFRS 15 to beaccounted for as a sale, the Group recognizes only the amount of any gain or loss which relates to therights transferred to the buyer-lessor, and adjusts the off-market terms to measure the sale proceeds atfair value. If the transfer does not satisfy the requirements of IFRS 15 to be accounted for as a sale, it isaccounted for as a financing transaction.

- 14 -

2018
Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.
a. Financial leases
The Group as lessee
Assets held under finance leases are initially recognized as assets of the Company at the lower of theirfair value at the inception of the lease or the present value of the minimum lease payments. The
corresponding liability to the lessee is included in the balance sheets as a finance lease obligation.
Minimum lease payments are apportioned between finance expenses and reductions of the leaseobligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financeexpenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying
assets, in which case, they are capitalized in accordance with the Company’s general policy on
borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are
incurred.
b. Sales and leasebacks
For a sale and leaseback transaction, if it meets the condition whereby all the risks and rewards ofownership of the leased asset are essentially transferred to the lessee, the sale and leaseback transaction
is classified as a finance lease. If part of the significant risks and rewards of ownership of the leased
asset remain with the lessor (i.e. the buyer), the sale and leaseback transaction is classified as an
operating lease.
1) Financial leases
This transaction does not actually dispose of the assets. The accounting treatment used is to treat thetransaction as if it did not occur, and the assets are continuously recognized at the book value of theasset before sale.
2) Operating leases
If the selling price is equal to the fair value, it is regarded as an ordinary sales transaction and thegain or loss should be recognized immediately. If the selling price is above fair value, the difference
between the fair value and the book value of the gain or loss should be recognized immediately;
only the part of the selling price which is above fair value shall be deferred and amortized over theperiod of the lease.
c. Operating leases
1) The Group as lessor
Lease income from operating leases is recognized as income on a straight-line basis over the
relevant lease period, unless another systematic basis is more representative of the timeline in which
the lessee benefits from the leased asset.
2) The Group as lessee
Operating lease payments are recognized as expenses on a straight-line basis over the lease period,
unless another systematic basis is more representative of the timeline in which the lessee benefits
from the leased asset. Under operating leases, contingent rentals are recognized as expenses in the
period in which they are incurred.
- 15 -

The lease incentives for the signing of operating leases are recognized as liabilities. The incentive
benefit is recognized as a reduction in rental expenses on a straight-line basis, unless anothersystematic basis is more representative of the timeline in which the lessee realizes the benefits.
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 thetax rate that would be applicable to expected total annual earnings.
Business Combinations
When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated
as the aggregate of the fair value of the consideration received and any investment retained in the former
subsidiary at its fair value at the date when control is lost The Group accounts for all amounts recognized inother comprehensive income in relation to that subsidiary on the same basis as would be required had theGroup directly disposed of the related assets or liabilities.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
The critical accounting judgments and key sources of estimation uncertainty for these interim consolidated
financial statements are the same as those applied for the consolidated financial statements for the year
ended December 31, 2018.

6. CASH AND CASH EQUIVALENTS

Cash on hand and revolving funds
Checking accounts and demand deposits
Cash equivalentTime deposits with original maturities of lessthan three months
Repurchase agreements collateralized by bonds$

June 30,2019

December 31,
2018

227,671
9,234,222$

413,1397,770,200

June 30,2018$

410,989
6,518,244

12,569,690
1,317,321

15,784,323
969,875

13,066,481
4,866,704$ 23,348,904$ 24,937,537$ 24,862,418- 16 -

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

June 30,2019

December 31,
2018

June 30,
2018

0%-1.90%0%-1.90%0%-1.90%

0.59%-3.50%
0.43%-2.83%

0.59%-3.55%
0.63%-3.30%

0.40%-4.60%
0.40%-2.77%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
June 30,2019

December 31,
2018

June 30,
2018

Financial assets at FVTPL - current
Financial assets mandatorily classified as at
FVTPL
Hybrid financial assets
Derivative instruments
Non-derivative financial assets
Beneficial certificates

$

5,447

$

-

$

-

274,254

206,001

456,278$ 279,071$ 206,001$ 456,278$$$

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

-

221

2,453

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge
accounting were as follows:

Currency

Maturity Date

Notional Amount(In Thousands)

June 30, 2019
Buy forward contracts

NTD/USD

2019.7.29-2019.10.29

NTD155,280/USD5,000

NTD/USD

2019.1.2-2019.1.31

NTD30,923/USD1,000

NTD/USD

2018.7.31-2019.1.31

NTD106,907/USD3,500

December 31, 2018
Buy forward contracts
June 30, 2018
Buy forward contracts- 17 -

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 2019
Investments in Equity Instruments
June 30,2019

December 31,
2018

June 30,
2018$ 106,669$ 110,445$ 124,237

23,937

21,74625,743$ 130,606$ 132,191$ 149,980

Noncurrent
Foreign investments
Unlisted shares
Domestic investments
Unlisted shares

These investments in equity instruments are not held for trading. Instead, they are held for medium tolong-term strategic purposes and are expected to profit through long-term investment. Accordingly, themanagement elected to designate these investments in equity instruments as at FVTOCI as they believes
that recognizing short-term fluctuations in these investments’ fair values in profit or loss would not be
consistent with the Group’s strategy of holding these investments for long-term purposes.

9. FINANCIAL ASSETS AT AMORTIZED COST - 2019
June 30,2019

December 31,
2018$ 1,339,154$ 3,856,660

June 30,
2018

Current
Time deposits with original maturities of morethan 3 months (e)$812,643

The range of interest rates for time deposits with original maturities of more than 3 months wereapproximately 0.40%-2.80%, 0.40%-1.36% and 0.64%-2.47% per annum as of June 30, 2019, December
31, 2018 and June 30, 2018, respectively.

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE, NET
June 30,
2019
Notes receivable$

608,079

December 31,
2018$598,824

June 30,
2018$

540,127

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

- 18 -

9,464,819(206,968)
9,257,851

9,667,010(227,306)
9,439,704

9,865,930$ 10,038,528

8,864,598(207,243)
8,657,355$

9,197,482

The average credit period was 7 to 55 days. In determining the recoverability of a accounts 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 policy of
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 andthe 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 accounts 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 aswell as the forecasted direction of economic conditions at the reporting date. As the Group’s historicalcredit loss experience does not show significantly different loss patterns for different customer segments,
the for loss allowance based on past due status is not further distinguished according to the different
segments of the Group’s customer base.
The Group writes off accounts receivable when there is information indicating that the debtor isexperiencing severe financial difficulty and there is no realistic prospect of recovery. For accounts
receivable that have been written off, the Group continues to engage in enforcement activity to attempt torecover the receivables which are due. Where recoveries are made, these are recognized in profit or loss.
The following table details the loss allowance of accounts receivable based on the Group’s provision
matrix.
June 30, 2019
Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Total

Expected credit loss rate

0.06%

0.21%

1.12%

19.48%

97.46%-

Gross carrying amount
Loss allowance (lifetime
ECLs)$ 7,400,031$ 1,484,996(4,339)(3,169)Amortized cost

$ 7,395,692$ 1,481,827$

Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Total

Expected credit loss rate

0.06%

0.06%

3.67%

21.78%

97.50%-

Gross carrying amount
Loss allowance (lifetime
ECLs)$ 7,856,048$ 1,424,421(4,546)(856)

Amortized cost

$ 7,851,502$ 1,423,565$

306,445$(3,445)303,000

90,263$(17,579)$

72,684$

183,084$ 9,464,819(178,436)(206,968)

4,648$ 9,257,851

December 31, 2018$

103,498$(3,796)$- 19 -

99,702

76,415$(16,642)$

59,773$

206,628$ 9,667,010(201,466)(227,306)

5,162$ 9,439,704

June 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%

0.02%

0.32%

12.13%

94.95%-

Gross carrying amount
Loss allowance (lifetime
ECLs)$ 6,777,913$ 1,525,721(3,229)(320)

Amortized cost

$ 6,774,684$ 1,525,401$

270,118

$

(874)
$

88,562$$ 8,864,598(192,078)(207,243)

10,206$ 8,657,355(10,742)202,284

269,244$

77,820$The movements of the loss allowance of accounts receivable were as follows:
For the Six Months Ended
June 3020192018
Balance at January 1
Add: Net remeasurement of loss allowance
Less: Amounts written off
Foreign exchange gains and losses
Loss of control of subsidiaries$ 227,306
14,382(34,703)(17)$ 181,868
24,884(462)
953-

Balance at June 30$ 206,968$ 207,243

June 30,2019

December 31,
2018

June 30,2018$ 7,342,824
563,877
285,396
28,570$ 7,847,082
556,365
227,975
23,288$ 7,785,486
568,970
521,595
20,558$ 8,220,667$ 8,654,710$ 8,896,609

11. INVENTORIES, NET

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
OthersThe operating costs for the six months ended June 30, 2019 and 2018 included losses from inventory
write-downs of $266,052 thousand and $324,398 thousand, respectively. And the operating costs for thethree months ended June 30, 2019 and 2018 included losses from inventory write-downs of $3,078
thousand and $107,999 thousand, respectively.

12. NONCURRENT ASSETS HELD FOR SALE
June 30,2019
Aircraft held for sale$

December 31,
2018
-

$

46,154

June 30,2018$ 110,778

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, and would be continuously assessed whether there are further impairments in subsequent periods.
However, the actual loss shall be identified by the actual sale price.
- 20 -

The Company recognized impairment losses of $0 and $10,812 thousand for the six months ended June 30,
2019 and 2018. Some aircraft had completed the planned disposal procedures, and the Company recognized
the disposal losses of $10,462 thousand and $368,992 thousand for the six months ended June 30, 2019 and2018, respectively.
The Company recognized impairment losses of $0 and $10,812 thousand for the three months ended June30, 2019 and 2018. Some aircraft had completed the planned disposal procedures, and the Company
recognized the disposal gains and losses of $0 and $244,702 thousand for the three months ended June 30,
2019 and 2018, respectively.
The fair value measurement is classified as Level 3, and the fair value was determined according to similartransactions of the related market and the proposed sale price which was based on the current status of theaircraft.

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

Investor Company
China Airlines, Ltd.

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

Cal-Dynasty International
Taiwan Airport Services

Note:

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 Service, Ltd.
Dynasty Properties Co., Ltd.
Dynasty Hotel of Hawaii, Inc.
Taiwan Airport Service (Samoa)

Main Businesses and Products

Proportion of Ownership (%)
June 30,
December 31,
June 30,
2019
2018
2018

A holding company, real estate and hotel
services
General investing
Cleaning of aircraft and maintenance ofmachine and equipment
Travel business
Real estate leasing and international trade
Hotel business
Sale and maintenance of hardware andsoftware
Air transportation and maintenance of
aircraft
Air cargo and storage
Travel businessAirport services

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
20
49

59
51
49

59
51
49

Airport services
Forwarding and storage of air cargo
Air transportation
Aircraft maintenance

48
25
100
100

48
25
100
100

48
25
100
100

In-flight catering
Real estate management
Hotel businessAirport supporting service and investing

54
100
100
100

54
100
100
100

54
100
100
100

Proportion of ownership is considered from the Group view.

Except that the Company has control over Taoyuan International Airport Service, Taiwan Airport Service
and Global Sky Express, the others are investees that the Company had more than 50% of their voting
shares. The above financial information of the subsidiaries for the six months ended June 30, 2019 and2018 of these subsidiaries was reported according to reports that was not reviewed by independent auditors,
except for 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 the related information, please refer to Note 14, b.

- 21 -

The Group paid $243,743 thousand on March 7, 2018 to acquire an additional 18% of the issued sharecapital of Kaohsiung Catering, Ltd. (Kaohsiung Catering). The Group’s holding of the issued share capitalof Kaohsiung Catering exceeds 50%; therefore, Kaohsiung Catering is listed as a subsidiary because theGroup has control over the investee. For the disclosure of the Group’s acquisition of Kaohsiung Catering,please refer to Note 30.
The board of directors of the Company decided to sell part of the equity of Dynasty Holidays to H.I.S.
Taiwan Co., Ltd. on January 21, 2019, and completed the transaction on January 31, 2109. After the sale ofthe equity, the Group’s holding of the issued share capital decreased from 51% to 20%. Dynasty Holidays
was classified as an associate since the Group lost control of the subsidiary. Therefore, the relevant assets
and liabilities were not consolidated in the current period, and only the profit and loss from January 1, 2019
to January 31, 2019 was consolidated. For the information about the disposal of the subsidiary, please refer
to Note 31.
In order to prepare the listing of Tigerair Taiwan Co., Ltd. and comply with the rules relating to theexamination for public listing, the release of the shares of Tigerair Taiwan Co., Ltd. held by the Company
and Mandarin Airlines was resolved in the shareholders’ meeting of the Company on June 25, 2019, and in
the shareholders’ meeting of Mandarin Airlines on June 27, 2019. The shares shall be subscribed by all
shareholders of the Company and Mandarin Airlines on the basis of the percentage of shareholdings. For
the subscribed shares that the original shareholders waive or for the under-subscribed portion, the chairman
is authorized to contact specific persons to subscribe. The subscription price is set at $41 per share, and it isexpected to complete the delivery and transfer of shares are expected to be completed on September 30,
2019.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates
Investments in jointly controlled entities

June 30,2019

December 31,
2018

June 30,2018$ 1,275,351
1,092,216$ 1,217,863
982,286$ 1,310,369
1,039,007$ 2,367,567$ 2,200,149$ 2,349,376

June 30,2019

December 31,
2018

June 30,
2018

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

Unlisted companies
China Aircraft Services
Dynasty Holidays
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics(Holdings) Ltd.

$

510,687
11,034457,084
248,676$

497,362442,891
233,417$494,259
497,988272,738

47,87044,19345,384$ 1,275,351$ 1,217,863$ 1,310,369- 22 -

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
June 30,
December 31,
June 30,
2019
2018
2018

Name of Associate
China Aircraft Services
Dynasty Holidays
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics(Holdings) Ltd.

20%
20%
28%
28%

20%
51%
28%
28%

20%
51%
28%
28%

35%

35%

35%

The recognized investment income of associates accounted for using the equity method were as
follows:
For the Three Months Ended
June 30
2019
2018
China Aircraft Services
Dynasty Holidays
Kaohsiung Catering Services
Airport Air Cargo Terminal(Xiamen)
Airport Air Cargo Service(Xiamen)Eastern United International
Logistics (Holdings) Ltd.

$

5,059
607
-

$

For the Six Months Ended
June 30
2019
2018

710
-

$

6,909
604
-

$

(967)
15,113

6,368

9,013

10,50812,521

6,969

8,720

13,39815,632

1,677

1,095

3,334

2,071

$ 20,680$ 19,538$ 34,753$ 44,370

The investments accounted for using the equity method and the share of profit or loss and othercomprehensive income of those investments were based on the associates’ financial statements whichhave not been reviewed. However, the management determined that there would have been no
significant adjustments to the related information presented in these consolidated financial statements
had this investee’s financial statements been independently reviewed.
b. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:
June 30,
2019
China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia Ltd.
Delica International Co., Ltd.

$

December 31,
2018

June 30,2018

921,127
160,861
2,358
7,870

$

805,157
166,901
2,358
7,870

$

$ 1,092,216$

982,286$ 1,039,007- 23 -

868,496
160,283
2,361
7,867

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
June 30,
December 31,
June 30,
2019
2018
2018
China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia Ltd.
Delica International Co., Ltd.

51%
55%
49%
51%

51%
55%
49%
51%

51%
55%
49%
51%

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 have theright 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.
The recognized investment income of jointly controlled entitles accounted for using the equity method
were as follows:

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

For the Three Months Ended
June 30
20192018

For the Six Months Ended
June 30
2019
2018

$

62,855
4,360-$

58,1514,414
1-$ 115,970
7,076-$ 111,532
7,955
(38)
-

$

67,215$62,566$ 123,046$ 119,449

The investments accounted for by using the equity method and the share of profit or loss and othercomprehensive income of those investments were based on the jointly controlled entities’ financial
statements which have not been reviewed. However, the management determined that there would havebeen no significant adjustments had this investee’s financial statements been independently reviewed.
For information on the major businesses and products and the locations of registration for the major
business offices of the above entities, refer to Tables 5 and 6 (names, locations, and related informationof investees on which the Company exercises significant influence and investment in mainland China)
following the notes to the consolidated financial statements.

- 24 -

15. PROPERTY, PLANT AND EQUIPMENT

Freehold Land

Equipment
under FinanceLeasesBuildings

FlightEquipment

13,698,308
33,096(5,516)1,500
20,069$ 263,427,144
1,239,682(19,420,213)
6,079,768-

220,318-

OthersTotal

Cost
Balance at January 1,
2018
Additions
Disposals
Reclassification
Net exchange differences
Acquisitions throughbusiness combinations
Balance at June 30, 2018$922,626
11,260$76,704$

26,187,556(1,486,240)
769,406173$-

16,230,011
819,558(163,180)
67,6742,172$ 320,465,645
2,092,336(21,075,149)
6,918,348
33,674

256,368

553,390$

1,010,590$

13,967,775$ 251,326,381$

25,470,895$

17,212,603$ 308,988,244

$

-

$

(6,137,495)(213,532)
4,493(9,731)$ (136,594,765 )(7,881,876)
18,998,845
9,268,354-$ (14,142,872)(992,671)
1,207,065(48)$(9,972,982)(450,034)
161,830
2,978(6,483)$ (166,848,114)(9,538,113)
20,372,233
9,271,332(16,262)$-$(6,356,265)$ (116,209,442 )$ (13,928,526)$ (10,264,691)$ (146,758,924)$

1,015,564
5,067$

13,993,585
25,623(751)
9,014$ 259,695,130
2,105,992(1,823,636)
28,070,020-$$

17,917,780
506,738(191,330)
297,578924$ 318,427,067
2,638,353(2,684,438)
3,235,785
15,005--(2,158)(6,632)

18,529,532$ 321,625,140

Accumulated depreciationand impairment
Balance at January 1,
2018
Depreciation expenses
Disposals
Reclassification
Net exchange differences
Balance at June 30, 2018
Cost
Balance at January 1,
2019
Additions
Disposals
Reclassification
Net exchange differences
Loss of control ofsubsidiaries
Balance at June 30, 2019-25,805,008(668,721)(25,131,813)(4,474)$

1,020,631$

14,027,471$ 288,047,506

$

-

$

$

-

$

(6,574,873)(219,666)
751(4,481)$ (123,507,657 )(9,350,459)
1,716,659(14,621,872)-$ (14,634,822)(627,716)
638,039
14,622,387-$ (10,601,997)(466,346)
188,765689(4,907)$ (155,319,349)(10,664,187)
2,544,214
1,204(9,388)

-

-

2,112

1,727

3,839

(6,798,269)$ (145,763,329 )-$ (10,882,069)$ (163,443,667)

Accumulated depreciationand impairment
Balance at January 1,
2019
Depreciation expenses
Disposals
Reclassification
Net exchange differences
Loss of control ofsubsidiaries
Balance at June 30, 2019

$

-

$

$

The reclassification mostly enumerated the amount of prepayments for equipment.

- 25 -

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 three months ended June 30, 2018 and for the six months ended June30, 2018 of $0 thousand and $50,000 thousand based on the difference between the recoverable amount,which applied the fair value (Level 3), and the carrying amount. The fair value was determined based on
aircraft conditions and market 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.

16. INVESTMENT PROPERTIES

Carrying amount
Investment properties

June 30,2019

December 31,
2018

June 30,2018$ 2,075,205$ 2,075,345$ 2,075,484

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, 2018 and June 30, 2018, respectively. In addition, management assessed that there is no
significant difference in the fair values of June 30, 2019 and December 31, 2018.
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.

- 26 -

17. OTHER INTANGIBLE ASSETS
Relationship
Between
Clients

Computer
Software Cost

Accumulated
Amortization

Net Value-$ (1,020,257)(92,484)$ 1,019,345
81,461(92,484)

186,197
-

(540)
128

186,883
11,524
128

Balance at January 1, 2018
Additions
Amortization expenses
Acquisition through businesscombination
Reclassification
Effects of exchange rate changes$ 2,039,602
81,461-$

Balance at June 30, 2018

$ 2,133,813$

186,197$ (1,113,153)$ 1,206,857

Balance at January 1, 2019
Additions
Amortization expenses
Disposal of subsidiaries$ 2,237,382
81,022(3,858)$186,197-$ (1,212,783)(101,533)
1,357$ 1,210,796
81,022(101,533)(2,501)

Balance at June 30, 2019

$ 2,314,546$

186,197$ (1,312,959)$ 1,187,784

686
12,064-

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

18. OTHER ASSETS
June 30,2019

December 31,
2018884,250
1,121,026
20,832
683,265$

June 30,
2018

Current
Temporary payments
Prepayments
Restricted assets
Others$556,860
3,028,808
18,623
543,591$

253,116
3,309,893
125,234
865,706$ 2,709,373$ 4,147,882$ 4,553,949$$

529,963
1,603,400
1,089,690
100,141
107,559$ 3,022,361
1,802,617
1,333,004
131,419
10,386$ 3,430,753$ 6,299,787

Noncurrent
Prepayments for aircraft
Prepayments - long-term
Refundable deposits
Restricted assets
Others363,001
2,489,306
1,076,790
99,224
102,699$ 4,131,020

The prepayments for aircraft comprised the prepaid deposits and capitalized interest from the purchase of
A350-900, ATR72-600, A321neo and 777F aircraft. A350-900 has been fully delivered in October 2018.
For details of the contract for the purchase of the ATR72-699, A321neo and B777F aircraft, refer to Note36.

- 27 -

19. BORROWINGSa. Short-term loans
June 30,
2019
Bank loans - unsecured$

Interest rates

December 31,
2018
-

$

-

June 30,2018$ 230,000--

0.89%-1.40%

June 30,2019

December 31,
2018

June 30,
2018

b. Short-term bills payable

Commercial paper
Less: Unamortized discount on bills payable

Annual discount rate

$

-

$

-

$ 220,000
38

$

-

$

-

$ 219,962--

0.97%-1.06%

June 30,2019

December 31,
2018

June 30,
2018

3,112,000
36,314,281$

c. Long-term borrowings

Unsecured bank loans
Secured bank loans
Commercial paper
Proceeds from issue
Less: Unamortized discount$9,354,457
36,330,211$ 20,067,000
32,783,418

26,650,000
33,62566,042,656
9,463,029

30,770,000
59,03376,395,635
15,709,487

30,800,000
66,38983,584,029
20,819,750$ 56,579,627$ 60,686,148$ 62,764,279

0.93%-1.46%

0.92%-1.46%

0.6%-1.56%

Less: Current portion

Interest rates

Secured bank loans were secured by flight equipment, buildings, and other equipment; refer to Note 35.
Bank loans (denominated in New Taiwan dollars and U.S. dollars) are repayable quarterly,
semiannually or in lump sum upon maturity. The related information is summarized as follows:
Periods- 28 -

June 30,2019

December 31,
2018

June 30,20182007.8.242030.4.25

2007.5.242030.4.25

2007.5.242030.4.25

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 paperissued. As of June 30, 2019, December 31, 2018 and June 30, 2018, such commercial paper was issued
at discount rates of 1.1250%-1.1660%, 1.0693%-1.2960% and 1.0517%-1.2897%, respectively.

20. 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 in2017
Unsecured corporate bonds second-time issued in2018
Unsecured corporate bonds first-time issued in2019
Convertible bonds issued the fifth time
Convertible bonds issued the sixth time$

June 30,2019

December 31,
2018

2,750,000$

5,500,000

June 30,2018$

5,500,000

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

3,500,000

4,500,000

4,500,000-

3,500,000
5,712,707
32,012,707

1,695,900
5,673,710
32,919,610

1,682,240
5,634,340
28,366,580

6,600,000

4,445,900

4,432,240$ 25,412,707$ 28,473,710$ 23,934,340

Less: Current portion and put options ofconvertible bonds

Related issuance conditions were as follows:
Category

PeriodConditions

Rate (%)

Five-year private unsecured bonds - issued at par in January
2013; repayable in January 2017 and 2018; 1.6% interestp.a., payable annually
Seven-year private unsecured bonds - issued at par in
January 2013; repayable in January 2019 and 2020;
1.85% 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 annually2013.01.17-2018.01.17

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

2016.09.27-2021.09.27

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

1.08

2017.05.19-2020.05.19

Principal repayable on due date;indicator rate; payable annually

1.20

2017.05.19-2024.05.19

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

1.45

2013.01.17-2020.01.17

2016.05.26-2021.05.26

1.85

1.19

(Continued)- 29 -

Category

PeriodConditions

Rate (%)

Five-year private unsecured bonds - issued at par in
November 2018; repayable in November 2022 and 2023;
1.45% interest p.a., payable annually
Seven-year private unsecured bonds - issued at par in
November 2018; repayable in November 2024 and 2025;
1.45% interest p.a., payable annually
Five-year private unsecured bonds - issued at par in June
2019; repayable in June 2023 and 2024; 1.10% interestp.a., payable annually
Seven-year private unsecured bonds - issued at par in June
2019; repayable in June 2025 and 2026; 1.32% interestp.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.

2018.11.30-2023.11.30

1.32

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

2018.01.30-2023.01.30

Principal repayable in November of2022 and 2023; indicator rate;
payable annuallyPrincipal repayable in November of2024 and 2025; indicator rate;
payable annuallyPrincipal repayable in June of 2023 and2024; indicator rate; payableannually
Principal repayable in June of 2025 and2026; 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.

2018.11.30-2025.11.30

2019.06.21-2024.06.21

2019.06.21-2026.06.21

2013.12.26-2018.12.26

1.45

1.10

1.32

-

-

(Concluded)
The Company issued its 2016 first unsecured corporate bonds of $5,000,000 thousand, and the purchasersof the bonds included Mandarin Airlines and Sabre Travel Network (Taiwan) who held a cumulative facevalue 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% of the face value on thethird anniversary of the offering date. Because the holders can exercise selling rights on December 26,
2016, the Company reclassified the bonds payable to “current portion of bonds payable” in December
2015. The Company paid $994,705 thousand to the holders of the bonds payable who exercised the put
options, and the difference between the payment amount and carrying amount recognized was a loss on
the bonds payable buy-back, for which the Company reclassified the remaining face value to noncurrent
assets.
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.
e. The corporate bonds expired on December 26, 2018. The Company has repaid all the amount payable
on January 8, 2018, and the related capital surplus-options were included under capital surplus - other.

- 30 -

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 July 29, 2019, the conversion price was adjusted to NT$12.6.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability component
was 1.3821% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,012,000(409,978)Liability component at the date of issuance$ 5,602,022

The seventh issue of the Company’s unsecured convertible bonds was resolved by the board of directors of
the Company on August 7, 2019. The cumulative face value of the bonds shall not exceed $3,000,000
thousand. The bonds are issued at 100%-100.5% of the face value, and the issuance period is 5 years.

21. LEASE AGREEMENTS
Year 2019a. Right-of-use assets - 2019
June 30, 2019
Carrying amounts
Land
Buildings
Flight equipment
Other equipment$

8,337,415
1,116,424
63,287,704
1,269$ 72,742,812- 31 -

For the Six
Months Ended
June 30, 2019
Additions to right-of-use assets
Depreciation for right-of-use assets
Land
Buildings
Flight equipment
Other equipment$

992,516$

217,225
369,355
5,238,410
1,065$ 5,826,055
b. Lease liabilities - 2019
June 30, 2019
Carrying amounts
Current
Non-current$ 4,561,017$ 29,198,565

Range of discount rate for lease liabilities (include US lease hedging instruments):
June 30, 2019Land
Buildings
Flight equipment
Other equipment

0%-2.87%0%-3.04%
2.00%-3.34%
1.06%-1.73%

c. Financial liabilities under hedge accounting
The Company specifics a part of US lease contract as a hedging instruments to avoid exchange
fluctuations is US dollar passenger revenue, and applies the accounting treatment of cash flow hedging.
The lease information is as follows:
Maturity Date
June 30, 2019

Subject

Carrying Value

2021.4.15-2028.5.15 Financial liabilities for hedging current
Financial liabilities for hedging non-current$

6,164,197
33,206,454

Influence of comprehensive income

For the six months ended June 30, 2019
For the three months ended June 30, 2019

- 32 -

Recognized in
Other
Comprehensive
IncomeReclassified toIncome$ (361,201)(236,337)$ (19,046)(19,046)

d. China Airlines, Mandarin Airlines and Tigerair Taiwan leased ten 777-300ER planes, ten A330-300
planes, fifteen 737-800 planes, ten A320-200 planes, six ERJ190 planes and three ART72-600 planes
for operation, lease period are 6 to 12 years from February 2006 to May 2028. The rental pricing
method is partly a fixed amount of funds, and some of them are floating rents, floating rents areaccording to benchmark ratio, the rent is revised every half year. When the lease expires, the leaseagreements have no purchase rights.
The information of refundable deposits and opening of credit letter due to rental of planes:
June 30, 2019
Refundable deposits
Credit guarantees$

680,085
1,632,939

CAL Park, and Taoyuan International Airport Service signed a BOT contract with a land leaseagreement, refer to Note 36. The lease includes an option to extend the lease, as it is not possible toextend the lease, the amount of the lease related to the period covered by the option is not included in
the lease liability.
If the amount of the extended lease period is included in the lease liability, the lease liability will
increase by $868,070 thousand on June 30, 2019.
Taiwan Air Cargo Terminal Co. and CAA signed a BOT contract with a land lease agreement. For
details, please refer to Note 36.
The Company signed a rental letter of intent for six A321neo with Air Lease Corporation, which is
expected to be introduced between 2021 and 2022.
The Company signed a rental letter of intent for eight A321neo with CALC Lease Corporation, which is
expected to be introduced in 2022.
e. Other lease information
The Company use operating lease agreement for investment properties, refer to Note 16.
2019

Short-term and low price lease payment
Total of lease cash outflow

For the Three
Months Ended
June 30, 2019

For the Six
Months Ended
June 30, 2019$12,672$ (3,167,427)$
20,975$ (5,975,528)

The Company choose to waive the recognition of the contract provisions for the short-term leases andlow price lease, and does not recognize the related right-of-use assets and lease liabilities for such lease.

- 33 -

Year 2018a. Sale-leaseback finance leases
December 31,
2018

June 30,
2018

Within one year
Beyond one year and within five years$ 596,000-$ 744,000-

Present value of minimum lease payments$ 596,000$ 744,000

Interest rates

1.0680%1.0617%

Minimum lease payments - flight equipment

The Group had leased one A330-300 aircraft under sale-leaseback finance leases as of December 31,
2018 and June 30, 2018. The lease terms started from June 2006 to April 2019. During the lease terms,
the Group retained all risks and rewards attached to the aircraft and engines and enjoyed the same
substantive rights as those prior to the transactions. The interest rates underlying all obligations underthese finance leases were floating. Therefore, the minimum lease payments under the sale-leaseback
aircraft contracts do not include interest expenses.
b. Finance leases
Taiwan Air Cargo Terminal Co. (“TACT”) entered into a terminal construction contract. Refer to Note
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.
December 31,
2018

June 30,
2018

Minimum lease payments - cargo terminal and other
Within one year
Beyond one year and within five years$

37,9982,974
40,972(629)$

37,732
22,034
59,766(764)$

40,343$59,002$37,3982,945$

37,352
21,650$40,343$59,002

Less: Finance costs
Present value of minimum lease payments
Present value of minimum lease payments cargo terminal and other
Within one year
Beyond one year and within five years

Discount rate
Total amount of present value of minimum lease payments
Current
Noncurrent- 34 -

4.756%

4.756%$ 633,398
2,945$ 781,352
21,650$ 636,343$ 803,002

c. Operating lease arrangements (include sale-leaseback operating leases)
For the operating lease arrangements, please refer to the consolidated financial statements for the year
ended December 31, 2018 and six months ended June 30, 2018.
As of December 31, 2018 and June 30, 2018, the refundable deposits paid by the Group under operatinglease contracts were $693,466 thousand and $878,064 thousand, respectively. Some of the guarantees
were secured by credit guarantees, and outstanding credit guarantees as of December 31, 2018 and June30, 2018 were $1,682,774 thousand and $1,484,683 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

December 31,
2018

June 30,2018$ 11,785,442
44,559,429
21,685,499$ 11,952,916
43,849,780
26,411,617$ 78,030,370$ 82,214,313

The lease payments recognized in expense for the current period were as follows:
For the Three
Months Ended
June 30, 2019

For the Six
Months Ended
June 30, 2019

$ 2,837,931$ 5,726,391

June 30,2019

December 31,
2018

June 30,
2018

4,216,674
1,233,643
1,178,949
205,977
1,847,542
988,249
440,077
3,319,783$

Minimum lease payments

22. OTHER PAYABLES

Fuel costs
Ground service expenses
Repair expenses
Interest expenses
Short-term employee benefits
Terminal surcharges
Commission expenses
Others$$ 13,430,894- 35 -

3,822,018
1,167,214
1,031,700
266,268
2,237,409
1,151,578
484,341
3,985,670$ 14,146,198$

3,765,074
1,228,836
1,036,876
197,655
1,854,685
926,047
269,137
2,858,461$ 12,136,771

23. CONTRACT LIABILITIESFrequent flyer program
Advance ticket sales$

June 30,2019

December 31,
2018

2,677,014
20,624,206$

2,493,551
18,956,569

June 30,2018$

2,474,863
17,028,208$ 23,301,220$ 21,450,120$ 19,503,071$ 21,251,986
2,049,234$ 19,546,455
1,903,665$ 17,661,741
1,841,330$ 23,301,220$ 21,450,120$ 19,503,071

June 30,2019

December 31,
2018

June 30,
2018

Operating leases - aircraft$ 9,523,083$ 8,794,539$ 9,125,836

Current
Noncurrent

$

$

$

Current
Noncurrent

24. PROVISIONS

53,8189,469,265$ 9,523,083

321,075
8,473,464$ 8,794,539

778,4098,347,427$ 9,125,836
Aircraft Lease
Contracts

Balance at January 1, 2018
Additional provisions recognized
Usage
Effects of exchange rate changes$ 8,489,308
1,696,073(1,223,154)
163,609

Balance at June 30, 2018

$ 9,125,836

Balance at January 1, 2019
Additional provisions recognized
Usage
Effects of exchange rate changes$ 8,794,539
2,100,313(1,452,256)
80,487

Balance at June 30, 2019

$ 9,523,083

The Company and Mandarin Airlines leased flight equipment under operating lease agreements. Under thecontracts, when the leases expire and the equipment is returned to the lessor, the flight equipment has to be
repaired according to the expected years of use, number of flight hours, flight cycles and the number 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 underoperating lease agreements. In accordance to the contract, Tigerair had to pay the maintenance reserve
accounted for by using the number of flying hours.

- 36 -

25. RETIREMENT BENEFIT PLANS
Employee benefits expense in respect of the Group’s defined benefit retirement plans were calculated using
the actuarially determined pension cost discount rates as of December 31, 2018 and 2017.

Operating costs
Operating expenses

For the Three Months Ended
June 30
20192018

For the Six Months Ended
June 3020192018$ 245,897
118,118$ 254,674
113,743$ 491,769
224,841$ 508,042
227,019$ 364,015$ 368,417$ 716,610$ 735,061

June 30,2019

December 31,
2018

June 30,2018

7,000,000$ 70,000,000$ 54,209,846

6,000,000$ 60,000,000$ 54,209,846

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

June 30,2019

December 31,
2018

June 30,2018

26. EQUITY
a. Share capital
Ordinary shares

Number of shares authorized (in thousands)
Amount of shares authorized
Amount of shares issued
b. Capital surplus

Issuance of shares in excess of par value andconversion premium
Gain on sale of treasury shares held bysubsidiaries
Retirement of treasury shares
Employee share options expired
Long-term investments
Bonds payable - equity component
Others$

315,114$315,114$552,696

3,303
33,513
11,747955
409,978
466,604

3,303
33,513
11,747955
409,978
466,604

2,673
11,747955
556,567
85,339$ 1,241,214$ 1,241,214$ 1,209,977

The capital surplus from share 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 a
yearly basis).
The capital surplus arising from long-term investments, employee share options and the distribution of
cash dividends to treasury share held by subsidiaries may not be used for other purposes but to offset
deficits. The capital surplus arising from share options for employees and convertible bonds cannot be
used.

- 37 -

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 2017
The appropriation of earnings for 2017 was resolved in the shareholders’ meeting on June 27, 2018.
The appropriations 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

2) Appropriation of earnings in 2018
The appropriation of earnings for 2018 was resolved in the shareholders’ meeting on June 25, 2019.
The appropriations and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Cash dividends$- 38 -

114,493
1,136,278

Dividends Per
Share (NT$)$0.20960737

d. Other equity items
The movement of other equity items is as follows:

Exchange
Differences on
Translating
Foreign
Operations
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
Effect of change in tax
rate
Effects of income tax
Other comprehensive
income recognized in
the period
Transfers of initialcarrying amount ofhedged items
Balance on June 30, 2018
Balance on January 1,
2019
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
Effects of income tax
Other comprehensive
income recognized in
the period
Disposal of subsidiaries
Balance on June 30, 2019

$ (34,986)

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

Unrealized
Gain (Loss) on
Financial
Assets at Fair
Value Through
Other
Comprehensive
Income1,774$

Cash Flow
Hedges-$ (74,429)

Gain (Loss) on
Hedging
Instruments
$

Total

-

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

74,429(74,429)

40,577(34,986)-

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

31,961----

31,961----

73,62973,629----31,467

31,467--

18,438--18,438

1,198(6,257)-(1,209)(2,154)-2,530(25,191)

2,519(33,602)

26,902-

15,075-82,435

124,412

-

-

-

-

37,116

37,116$(8,084)$-$57,426$-$45,122$

94,464$(9,664)$-$42,619$-$25,268$58,223$24,322----

24,322----(347,505)(347,505)

-

-

-

-

(10,755)(10,755)(4,616)-(2,065)851-

72,458(2,065)68,693

19,706
8,368-(1,214)105-(285,802)-(267,310)
8,473-$ (260,534)$ (200,614)

18,410$-- 39 -$

41,510$e. Non-controlling interests
For the Six Months Ended
June 3020192018
Beginning balance
Net income attributable to non-controlling interests
Exchange differences on translating foreign operations
Gain/(loss) on hedging instruments
Cumulative gain (loss) on changes in fair value of hedging
instruments reclassified to profit or loss

$ 2,965,512
248,697
1,724
92$ 2,134,282
213,824
1,664
109(46,118)(68)
1,748(24,957)(416,438)

(11)
1,762
565,888(171,019)$ 2,774,562$ 2,744,737

Acquisition of non-controlling interests in subsidiaries
Non-controlling interests arising from acquisition of subsidiaries
Dividends paid by subsidiaries
Ending balance
f. Treasury shares

Treasury shares are the Company’s share held by its subsidiaries as of June 30, 2019 and 2018 and are
as follows:(Shares in Thousands)
Number of
Shares,Beginningof Year

Purpose of Treasury Shares

Reduction
Duringthe Year

Number of
Shares,Endof YearSix months ended June 30, 2018
Company’s shares held by its subsidiaries reclassified frominvestments in shares of ordinary shares to treasury share

2,889

-

2,889

2,889

-

2,889

Six months ended June 30, 2019
Company’s shares held by its subsidiaries reclassified frominvestments in shares of ordinary shares to treasury share

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 20,414
8,011$ 20,414
8,011$ 28,425$ 28,425(Continued)

June 30, 2019
Mandarin Airlines
Dynasty Aerotech International Corp.

2,075
814

- 40 -

Shares(In Thousands)

Subsidiary

Carrying
AmountMarket Value$ 22,821
8,956$ 22,821
8,956$ 31,777$ 31,777$ 19,750
7,751$ 19,750
7,751$ 27,501$ 27,501(Concluded)

December 31, 2018
Mandarin Airlines
Dynasty Aerotech International Corp.

2,075
814

June 30, 2018
Mandarin Airlines
Dynasty Aerotech International Corp.

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’ rights on these treasury shares, except for the rights 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 50,000
thousand shares had been repurchased. The treasury shares held by the Company has retired on
December 18, 2018, share capital decreases $500,000 thousand, additional paid-in capital in excess of
par-ordinary share decreases $2,906 thousand and additional paid-in capital - treasury share increases$33,513 thousand. Under the Securities Exchange Act, the treasury shares held by the Company cannot
be pledged and are not entitled to dividends distribution and voting rights, etc.

27. NET INCOME
a. Revenue
For the Three Months Ended
June 3020192018
Passenger
Cargo
OthersFor the Six Months Ended
June 30
20192018$ 28,206,142
10,956,320
3,729,850$ 26,430,861
11,661,833
3,183,141$ 55,456,289
21,118,018
6,723,353$ 53,180,203
21,843,488
5,987,171$ 42,892,312$ 41,275,835$ 83,297,660$ 81,010,862

Refer to Note 23 for the balance of contract liabilities related to customer contracts.

- 41 -

b. Other income

Interest income
Dividend income
OthersFor the Three Months Ended
June 30
20192018

For the Six Months Ended
June 30
2019
2018

$

81,902
7,705
66,692$ 194,430
6,700
124,749$ 141,518
7,705
139,301$ 156,299$ 325,879$ 288,524

97,47575,148$ 172,623$

c. Other gains and losses

Gain on disposal of property,
plant and equipment
Gain (loss) on disposal of
noncurrent assets held forsale
Net gain (loss) on financial
assets classified as held for
sale
Loss on disposal of investments
Gain or loss on foreignexchange, net
Impairment loss recognized on
property, plant andequipment and noncurrent
assets held for sale
OthersFor the Three Months Ended
June 30
20192018

For the Six Months Ended
June 30
2019
2018

$

$

4,109

$

(4,638)5,458$ (282,959)-(244,702)(10,462)(368,992)

11,902-

6,297-

23,042
7,656

9,163
456,426(119,984)

17,752(146,884)

37,343(66,461)(10,812)(62,865)(115,685)(60,812)(147,839)$ (170,434)$ (298,968)$ (236,875)$ (357,670)

d. Finance costs
For the Three Months Ended
June 302019
2018
Interest expense
Bonds payable
Bank loans
Interest on obligations underfinancial leases
Interest on lease liabilities$

106,316
207,333$

530,768$

844,417

Capitalization rate

1.273%1.337%

Capitalization interest

$

1,310

- 42 -$

103,703240,586$

200,991
427,084

6,220-

1,092,173

350,509$ 1,720,248

1.16%1.21%$

For the Six Months Ended
June 3020192018

11,071$

13,176$1.250%1.337%
$

2,381

196,362456,523

666,061
1.16%1.31%$

29,842

e. Depreciation and amortization expenses
For the Three Months Ended
June 30
2019
2018
Property, plant, equipment
Right of use assets
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 Six Months Ended
June 30
2019
2018

$

5,364,344
2,919,622
70
51,691$

4,748,314
70
42,025$ 10,664,187
5,826,055
140
101,533$

9,538,113
140
92,484$

8,335,727$

4,790,409$ 16,591,915$

9,630,737$

7,931,615
352,421$4,524,078
224,306$ 15,683,520
806,862$

9,091,497
446,756$

8,284,036$

4,748,384$ 16,490,382$

9,538,253$

3,167
48,524$

3,168
38,857$

6,333
95,200$4,319
88,165$51,691$42,025$

101,533$

92,484f. Employment benefits expense
For the Three Months Ended
June 30
2019
2018
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 Six Months Ended
June 30
2019
2018

$

141,414364,015$

138,604
368,417$282,253
716,610$268,202735,061$

505,429$

507,021$998,863$

1,003,263$

5,172,756
1,693,221$

5,191,756
1,371,161$ 10,446,358
3,412,551$ 10,316,958
2,905,802$

6,865,977$

6,562,917$ 13,858,909$ 13,222,760$

6,094,292
1,277,114$

5,857,154
1,212,784$ 12,137,935
2,719,837$ 11,730,492
2,495,531$

7,371,406$

7,069,938$ 14,857,772$ 14,226,023- 43 -

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 six months ended June 30, 2018, the employees’ compensation was $68,807
thousand of the base net profit. For the three months ended June 30, 2018, the employees’
compensation was $57,471 thousand. For the three months ended June 30, 2019 and the six months
ended June 30, 2019, the Company has experienced a deficit, and therefore, no employees’
compensation is 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 compensation and remuneration are recognized. If there is a change inthe 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 2019 and 2018 is available at the Market Observation Post System
website of the Taiwan Stock Exchange.

28. INCOME TAX
a. Income tax expense recognized in profit or loss
The major components of tax expense (benefit) were as follows:
For the Three Months Ended
June 30
2019
2018
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$$

169,869532$

80,1002,141

For the Six Months Ended
June 30
2019
2018

$

317,904
532$

123,489
4,866(61,324)73,039(20,122)1,000,100---(904,558)

109,077$

155,280$

298,314$

223,897

In February 2018, it was announced that the Income Tax Law in the R.O.C. was amended and, startingfrom 2018, the corporate income tax rate has been adjusted from 17% to 20%. In addition, the rate of
the corporate surtax applicable to unappropriated earnings has been reduced from 10% to 5%.

- 44 -

b. Income tax recognized in other comprehensive income
For the Three Months Ended
June 30
20192018

For the Six Months Ended
June 3020192018

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$ (1,392)$ (12,814)$ (4,616)$ (6,257)

4,275(3,403)851(2,154)47,191-(25,934)-

72,458-(25,191)
2,519$ 50,074$ (42,151)$ 68,693$ (31,083)

c. Income tax assessments
Income tax returns for 2017 of the Company and its subsidiaries have been examined by the tax
authorities.

29. EARNINGS (LOSSES) PER SHARE
For the Three Months Ended
June 3020192018
Basic earnings (losses) per share
Diluted earnings (losses) per share
Earnings (losses) used in thecomputation of basic earnings
per share
Weighted average number ofordinary shares in computationof basic earnings (losses) per
share
Effects of potentially dilutive
ordinary shares:
Employees’ compensation orbonuses issued to employees
Weighted average number ofordinary shares used in thecomputation of diluted earnings(losses) per share$ (0.08)$ (0.08)$$$(442,759)$

For the Six Months Ended
June 30
2019
2018

0.01
0.01

63,442$ (0.13)$ (0.13)$$$(686,463)

$

0.03
0.03

188,934

5,418,096

5,468,096

5,418,096

5,468,096

-

6,037

-

15,5705,418,096

5,474,133

5,418,096

5,483,666- 45 -

If the Group offers to settle compensation or bonuses paid to employees in cash or shares, the Groupassumes 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 (losses) per share, if the effect is dilutive. Such dilutive effects of thepotential shares was included in the computation of diluted earnings (losses) per share until the number ofshares to be distributed to employees is resolved in the following year.

30. BUSINESS COMBINATIONSAs stated in Note 13, 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 thousandat the fair value of the identifiable net assets attributed to the non-controlling interests on the date ofacquisition.
e. The bargain purchase benefit of $26,615 thousand of Kaohsiung Catering (the date of acquisition) was
measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s
previously held equity interests in the acquiree over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed.
f. Impact of acquisitions of the Group
From the acquisition date, the operating results from the acquired company, which are included in the
consolidated statements of comprehensive income, are as follows:
Kaohsiung
Catering
Revenue
Profit$ 707,494$ 89,530- 46 -

Had these business combinations been in effect at the beginning of the annual reporting period, theGroup’s revenue from continuing operations would have been $81,338,357 thousand and the profit
from continuing operations would have been $440,233 thousand for the six months ended June 30,
2019. This pro-forma information is for illustrative purposes only and is not necessarily an indication of
the revenue 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.

31. DISPOSAL OF SUBSIDIARIESOn January 21, 2019, the board of directors of the Company decided to sell part of Dynasty Holidays to
H.I.S. Taiwan Co., Ltd. for disposal price of $34,036 thousand and a disposition of $7,656 thousand. Afterthe disposal, the proportion of ownership decrease from 51% to 20%, loss control to the subsidiary.
a. Consideration received from disposals
Consideration received in cash and cash equivalents$ 34,036

b. Analysis of assets and liabilities on the date control was lost
Current assets
Cash and cash equivalents
Other current assets
Non-current assets
Current liabilities
Non-current liabilities$ 51,449
47,51017,035(49,742)(15,318)

Net assets disposed of$ 50,934

c. Gain on disposals of subsidiaries
Consideration received
Net assets disposed of
Fair value of equity
Non-controlling interests
Reclassification of other comprehensive income in respect ofsubsidiaries$ 34,036(50,934)
10,187
24,957

Gain on disposal$(10,590)
7,656

d. Net cash inflow on disposal of subsidiaries
Consideration received in cash and cash equivalents
Less: Cash and cash equivalent balances disposed of$ 34,036(51,449)$ (17,413)

32. CAPITAL MANAGEMENT
The goals, policies and procedures as well as the composition of the Group’s capital management are thesame as those stated in Note 32 in the Group’s consolidated financial statements for the year ended
December 31, 2018.

- 47 -

33. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
Financial instruments net evaluated at fair value
Except as detailed in the following table, the Group’s management considers the carrying amounts offinancial assets and financial liabilities recognized in these consolidated financial statements asapproximating their fair values.
June 30, 2019
Carrying
AmountFair Value

December 31, 2018
Carrying
AmountFair Value

June 30, 2018
Carrying
AmountFair Value

Financial liabilities
Bonds payable
Loans and debts$ 32,012,707
66,042,656$ 32,059,708
66,042,656$ 32,919,610
76,395,635$ 31,651,865
74,404,225$ 28,366,580
83,584,029$ 28,494,399
85,597,346

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying amounts are their fair values. As of June 30, 2019, December 31, 2018 and June 30, 2018, thefair values of long-term debts and private bonds with fixed interest rates were estimated at the present
value of expected cash flows discounted at rates of 0.67%, 0.68% and 0.70%, respectively, prevailing in
the market for long-term debts (Level 2). Fair values of bonds payable were the same as identicalliabilities trading on the over-the-counter exchange and were based on quoted market prices (Level 1).
b. Financial instruments evaluated at fair value
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 (i.e. unobservable inputs).
June 30, 2019
Level 1
Financial assets at FVTPL
Domestic money market
funds
Derivative instruments

Level 2

Level 3

Total$

274,254
-

$

5,447

$

-

$

274,2545,447$

274,254

$

5,447

$

-

$

279,701(Continued)- 48 -

Level 1
Financial assets at FVTOCI
Investments in equity
instruments
Unlisted shares domestic
Unlisted shares foreign$

Level 2-$

Level 3

-

-

$

-

Total

23,937$

106,669

23,937
106,669

$

-

$

-

$

130,606$

130,606

Derivative financial assets
for hedging

$

-

$

32,327

$

6,245

$

38,572Derivative financial
liabilities for hedging$-$ 39,373,445$

466$ 39,373,911(Concluded)

December 31, 2018
Level 1
Financial assets at FVTPL
Domestic money market
funds
Financial assets at FVTPL
Investments in equity
instruments
Unlisted shares domestic
Unlisted shares foreign

Level 2

Level 3

Total$

206,001

$

-

$

-

$

206,001

$

-

$

-

$

21,746$

21,746--

110,445

110,445

$

-

$

-

$

132,191$

132,191

Financial liabilities at
FVTPL
Derivative instruments

$

-

$

221

$

-

$

221

Derivative financial assets
for hedging

$

-

$

28,005

$

4,901

$

32,906

Derivative financial
liabilities for hedging

$

-

$

560

$

-

$

560

- 49 -

June 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$

456,278

$

-

$

-

$

456,278

$

-

$

-

$

25,743$25,743--

124,237

124,237

$

-

$

-

$

149,980$

149,980

Financial liabilities at
FVTPL
Derivative instruments

$

-

$

2,453

$

-

$

2,453

Derivative financial assets
for hedging

$

-

$

55,528$865$

56,393

Derivative financial
liabilities for hedging

$

-

$

3,078

$

-

$

3,078

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

Valuation Techniques and Inputs
The fair values of derivatives (except options) have been determinedbased on discounted cash flow analyses using interest yield curves
applicable for the duration of the derivatives. The estimates andassumptions that the Group used to determine the fair values are
identical to those used in the pricing of financial instruments formarket participants.

5) Valuation techniques and inputs applied for Level 3 fair value measurement
The fair values of foreign exchange and fuel options are determined using option pricing models
where the significant unobservable inputs are implied fluctuations. Changes in the implied
fluctuations used in isolation would result in an increase or decrease in the fair values 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.

- 50 -

The multiplicator and liquidity discount of Level 3 financial instruments are as follows:

Multiplicator

Liquidity
Discount

0.74-15.29
0.74-15.29
0.85-18.68

80%
80%
80%

Derivative
Instruments

EquityInstruments

Balance at January 1, 2019
Recognized in other comprehensive income

$

4,901
878

$ 132,191(1,585)

Balance at June 30, 2019

$

5,779

$ 130,606

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

$

865

$

Balance at June 30, 2018$865

$ 149,980

June 30, 2019
December 31, 2018
June 30, 2018
The movements of Level 3 financial instruments are as follows:

84,07547,51018,395

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
June 30,2019

December 31,
2018279,701
38,572
36,997,307
130,606$

June 30,
2018

Financial assets
Financial assets at FVTPL
Derivative financial assets for hedging
Financial assets at amortized cost (Note 1)
Financial assets at FVTOCI$

206,001
32,90640,496,618
132,191$456,278
56,39337,303,075
149,980

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

39,373,911
123,848,566

221
560
127,271,892

2,453
3,078
138,351,437

Note 1: The balances include financial assets measured at amortized cost, which comprise cash andcash equivalents, notes and accounts receivable, accounts receivable - related parties, otherreceivables, refundable deposits and other restricted financial assets.
Note 2: The balance 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.

- 51 -

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 toforeign 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 the reasonably possible change in foreign exchange rates. The
sensitivity analysis included only outstanding foreign currency denominated monetary items
and foreign currency forward contracts designated as cash flow hedges, and adjusts theirtranslation at the end of the reporting 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 a decrease in pre-tax losses and increase in pre-tax othercomprehensive income gain and losses for the six months ended June 30, 2019 of $773,362
thousand and $1,216,486 thousand and a decrease in pre-tax profit and decrease in pre-tax othercomprehensive income gain and loss for the six months ended June 30, 2018 of $32,248
thousand and $73,594 thousand, respectively.
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. Those transactions
are designated as cash flow hedges. When forecasted purchases actually take place, basis
adjustments are made to the initial carrying amounts of hedged items.
- 52 -

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.
June 30, 2019
Hedging Instruments
Cash flow hedge
Aircraft rentals forward exchange
contracts

Currency

NT$/US$

Notional
Amount

NT$1,591,584/
US$51,249

Maturity

2019.7.82020.6.8

ForwardRate

Line Item in
Balance Sheet

29.7-31.3

Financial assets forhedging/liabilities
for hedging

Carrying AmountAsset
Liability$ 32,327$

2,794

The above hedging instruments are continuously applied to hedging accounting. The book valueof other equity which belongs to each hedging items (aircraft rentals in U.S. dollar) are $29,533
thousand.
December 31, 2018
Hedging Instruments
Cash flow hedge
Aircraft rentals forward exchange
contracts

Currency

NT$/US$

Notional
AmountMaturity

NT$2,265,231/
US$13,620

2019.1.72019.12.26

ForwardRate

Line Item in
Balance Sheet

28.3-30.9

Financial assets forhedging/liabilities
for hedging

Carrying AmountAsset
Liability$ 28,005$

560

The above hedging instruments are continuously applied to hedging accounting. The book valueof other equity which belongs to each hedging items (aircraft rentals in U.S. dollar) are $27,445
thousand.
June 30, 2018
Hedging Instruments
Cash flow hedge
Aircraft rentals forward exchange
contracts

Aircraft prepayment- forward
exchange contracts

Currency

NT$/US$

NT$/US$

Notional
AmountMaturity

NT$1,664,451/
US$54,594

2018.7.52019.6.21

NT$579,268/
US$19,000

2018.10.15

ForwardRate

Line Item in
Balance Sheet

28.3-31.2

Financial assets forhedging current/liabilities
for hedging current
Financial assets forhedging non-current/
liabilities forhedging non-current
Financial assets forhedging/liabilities
for hedging

28.8-30.2

Carrying AmountAsset
Liability$ 36,918

$

-

-

3,078

18,610-

The above hedging instruments are continuously applied to hedging accounting. The book valueof other equity which belongs to each hedging item (aircraft rentals in U.S. dollar and Aircraft
prepayment) are $33,840 thousand and $18,610 thousand, respectively.

- 53 -

For the six months ended June 30, 2019
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedge
Aircraft rentals
Note:

$

2,087

AmountReclassified toProfit and Lossand theAdjusted LineItem

$ 36,961(Note)

Decrease in operating costs or foreign exchange loss.

For the three months ended June 30, 2019
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedge
Aircraft rentals
Note:

$

2,989

AmountReclassified toProfit and Lossand theAdjusted LineItem

$ 19,872(Note)

Decrease in operating costs or foreign exchange loss.

For the six months ended December 31, 2018
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedge
Aircraft rentals
Aircraft prepayments

Note:

$

Increase in operating costs.

- 54 -

AmountReclassified toProfit and Lossand theAdjusted Line
Item

86,833
17,496$ (34,378)-$ 104,329$ (34,378)(Note)

For the three months ended June 30, 2018

Comprehensive Income

Hedging Gains(Losses)
Recognized in
OCI

AmountReclassified to
P/L and the
Adjusted Line
Item

Cash flow hedge
Aircraft rentals
Aircraft prepayment$ 104,946
54,057$ (55,880)-$ 159,003$ (55,880)

Note:(Note)

Increase in operating costs.

The amount of gains and losses on hedging instruments for the six months ended June 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 June 30,2018 reclassified from profit or loss to prepayments for equipment was $(7,039) thousand.
b) Interest rate risk
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 liabilities with exposure to interest rates at the endof the reporting period were as follows.

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

June 30,2019

December 31,
2018

June 30,2018$ 80,432,067$ 34,919,610$ 30,816,542

90,753,529

75,031,97882,387,031

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 six months ended June 30, 2019 would havedecreased by $113,442 thousand.

- 55 -

Had interest rates increased one yard (25 basis) point and had all other variables been held
constant, the Group’s pretax profit for the six months ended June 30, 2018 would havedecreased by $102,984 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.
June 30, 2019
Hedging Instrument

Currency

Cash flow hedges - fueloptions

US$

Notional
Amount
NT$5,779

Maturity

ForwardRate

Line Item in
Balance Sheet

Carrying AmountAsset
Liability

2019.9.302020.3.31

US$55US$82.5

Financial assets forhedging current/liabilities
for hedging current

$

6,245

$

466

The above hedging instruments are continuously applied to hedging accounting. The carrying
amount of other equity which belongs to each hedging item (fuel payments) is $5,779 thousand.
December 31, 2018
Hedging Instrument

Currency

Cash flow hedges - fueloptions

US$

Notional
AmountMaturity

NT$4,901

2019.1.312019.12.31

ForwardRate
US$72US$88

Line Item in
Balance Sheet

Carrying AmountAsset
Liability

Financial assets forhedging - current

$

4,901

$

-

The above hedging instruments are continuously applied to hedging accounting. The carrying
amount of other equity which belongs to each hedging item (fuel payments) is $4,901 thousand.
June 30, 2018
Hedging Instrument

Currency

Cash flow hedges - fueloptions

US$

Notional
Amount
NT$865Maturity

ForwardRate

Line Item in
Balance Sheet

Carrying AmountAsset
Liability

2018.6.302018.9.30

US$79.95US$95.00

Financial assets forhedging

$

865

$

-

The above hedging instruments are continuously applied to hedging accounting. The carrying
amount of other equity which belongs to each hedging item (fuel payments) is $865 thousand.
For the six months ended June 30, 2019
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedges - fuel options
Note:

$

Increasing in operating costs.

- 56 -

878

AmountReclassified toProfit and Lossand theAdjusted LineItem
$ (7,092)(Note)

For the three months ended June 30, 2019

Comprehensive Income
Cash flow hedges - fuel options
Note:

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

$ (1,143)$ (6,165)

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

(Note)

Increasing in operating costs.

For the six months ended June 30, 2018

Comprehensive Income
Cash flow hedges - fuel options
Note:

$

865

$

2,922

(Note)

Increasing in operating costs.

For the three months ended June 30, 2018

Hedging Gains(Losses)
Recognized in
OCI

Comprehensive Income
Cash flow hedge - fuel optionNote:$ (1,136)

AmountReclassified to
P/L and the
Adjusted Line
Item
$

2,922

(Note)

Increase in operating costs.

Sensitivity analysis
The sensitivity analysis below was determined based on the exposure to fuel price risks at theend of the reporting period.
For the Six Months Ended June 30
2019
2018
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%$-- 57 -

$

-

$

-

$

-

2) Credit risk
The goal, policies and procedure of credit risk management are same as consolidated financial
statement in 2018. Related illustration can be referred in Note 33.
3) Liquidity risk
The objectives, policies and procedures of liquidity risk management are same as consolidated
financial statement in 2018. Related illustration can be referred in Note 33.
Liquidity and interest risk rate table
The following table shows the remaining contractual maturity analysis of the Group’s financial
liabilities with agreed-upon repayment periods, which were based on the date the Group may berequired to pay the first repayment and financial liabilities is evaluated based on undiscounted cash
flows, including cash flows of interest and principal.
Bank loans with a repayment on demand clause were included in the second column of the tablebelow regardless of whether or not the banks would choose to exercise early their rights to
repayment. The maturity dates for other non-derivative financial liabilities were based on theagreed-upon repayment dates. The Group’s liquidity analysis for its derivative financial instruments
is also shown in the following table. The table was based on the undiscounted contractual net cash
inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted grosscash inflows and outflows on those derivatives that require gross settlement. When the amountpayable or receivable is not fixed, the amount disclosed has been determined by reference to theprojected interest rates as illustrated by yield curves at the end of the reporting period.
June 30, 2019
The Weighted
Average
Effective
Interest Rate(%)
Finance leaseliabilities
Floating interest rate
liabilities
Hedging instruments
Bonds payable

0.7958Less than 1Year

1 to 5 Years

Over 5 Years

5,766,579$ 22,486,711$ 10,420,218

9,881,052
7,310,026
6,772,030

39,337,815
29,380,226
19,201,464

17,849,433
7,022,822
4,551,438$ 29,729,687$ 110,406,216$ 39,843,911$

1.2842
1.1431- 58 -

December 31, 2018
The Weighted
Average
Effective
Interest Rate(%)
Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Hedging instruments
Bonds payable

1.3104

Less than 1Year

1 to 5 Years

Over 5 Years

$

$

$

641,5243,024-

1.8105

14,853,360

42,143,959

20,810,464

0.1034
1.39052,000,517
239,138
5,999,321

30,835,449

1,051,418$ 23,733,860$ 72,982,432$ 21,861,882

Less than 1Year

1 to 5 Years

Over 5 Years

$

$

$

June 30, 2018
The Weighted
Average
Effective
Interest Rate(%)
Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Hedging instruments
Bonds payable

1.0680783,496

21,833-1.084924,048,845

73,974,023

14,865,012

1.06801.39072,005,900
3,078
4,523,615

21,077,898

1,013,907$ 31,364,934$ 95,073,743$ 15,878,919

34. TRANSACTIONS WITH RELATED PARTIESThe balances and transactions between the Company and its subsidiaries, which are related parties of theCompany, including remaining account balances, revenue and expense, have been eliminated upon
consolidation and are not disclosed in this note. Besides information disclosed elsewhere in the other notes,
details between the Group and other related parties are disclosed as follows:a. Related party’ name and relationships
Related Party Name

Relationship with the Company

Kaohsiung Catering Services
Asian Compressor Technology Services
China Aircraft Service
Airport Air Cargo Terminal (Xiamen) Co., Ltd.

- 59 -

Associate (become subsidiary in March 2018)
Associate (disposal in January 2018)
Associate
Associate(Continued)

Related Party Name

Relationship with the Company

Airport Air Cargo Service (Xiamen) Co., Ltd.
Eastern United International Logistics (Hong Kong)
Dynasty Holidays
China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia Ltd.
Delica International Co., Ltd.
China Aviation Development Foundation
Others

Associate
Associate
Associate (become associate in January 2019)
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 relatives(Concluded)b. Operating income

Account
Items

For the Three Months Ended
June 30
Related Party Type
2019
2018

Other income Major shareholdersof the Company
Associate
Joint venture
investment

$

5,843

$

$
13
$ 10,601

For the Six Months Ended
June 30
2019
2018

7,921

$ 10,968$ 18,508$
182$ 10,659$
39$ 21,246$
248$ 21,404

c. Purchases of goods

Related Party TypeFor the Three Months Ended
June 30
20192018

For the Six Months Ended
June 3020192018$ 12,458$ 85,604$ 482,524$ 23,782$ 192,845$ 940,207$ 41,524$ 275,433$ 962,817

December 31,
2018

June 30,
2018

Major shareholders of theCompany
Associate
Joint venture investment$ 17,659$ 103,333$ 479,129

d. Accounts receivable - related parties (generated by operations)
June 30,
2019

Related Party Type
Major shareholders of the Company
Joint venture investment

$

2,519
7,819

$

1,454
7,589

$

2,471
5,943

$

10,338

$

9,043

$

8,414

The receivables are not guaranteed, and there is no allowance for doubtful accounts related to accounts
receivable - related parties. The payment periods of such accounts were within 30 to 90 days, and there
are no overdue payments.

- 60 -

e. Accounts payable - related parties (generated by operations)
June 30,
2019

Related Party Type
Major shareholder of the Company
Associate
Joint venture investment$

December 31,
2018

5,762
46,288489,915$$ 541,965

3,368
54,948474,499

June 30,2018$$ 532,815

5,717
52,485
481,686$ 539,888

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.
f. Lease arrangements
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 June 30, 2019 and 2018, the Company paid rentals of $23,782 thousand and $41,524
thousand, respectively; for the three months ended June 30, 2019 and 2018, the Company’s paid rentals
amounted to $12,458 thousand and $17,659 thousand.
g. Endorsements and guarantees
June 30, 2019
Authorized
AmountAmountUsed

December 31, 2018
Authorized
AmountAmountUsed

June 30, 2018
Authorized
AmountAmountUsed$ 3,850,000
1,080,000
1,089,966$ 2,234,550
422,390$ 3,850,000
1,080,000
1,081,792$ 2,339,700
418,491$ 3,850,000
1,080,000
1,073,768$ 2,744,850
414,6632,000,000

1,022,277

2,000,000

605,547

2,000,000-

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

h. Compensation of key management personnel
For the Three Months Ended
June 3020192018
Short-term employee benefits
Post-employment benefits

For the Six Months Ended
June 30
2019
2018

$

9,018
399

$ 10,368
789$ 22,637
1,274$ 25,137
1,719

$

9,417

$ 11,157$ 23,911$ 26,856

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

- 61 -

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
Right-of-use asset
Restricted assets

June 30,2019

December 31,
2018

June 30,
2018$ 37,242,967
72,742,812
120,056$ 42,066,242
118,764$ 43,976,919
256,653$ 110,105,835$ 42,185,006$ 44,233,572

36. COMMITMENTS AND CONTINGENT LIABILITIESAs of June 30, 2019, the Group had commitments and contingent liabilities (except for those mentioned inother notes) as follows:a. For operation needs, the board of directors of Mandarin Airlines resolved to enter into a contract with
AVIONS DE TRANSPORT REGIONAL G.I.E to purchase six ATR72-600 aircraft, and the total list
price of the six aircraft was $120,000 thousand. The expected delivery period ranges from July 2018 toJune 2020. As of June 30, 2019, four of the aircraft has been handed over to the company, and the total
list price of the lefts two aircraft was $40,000 thousand, which has been paid in the amount of
US$2,078 thousand (recognized as prepayments for aircraft).
b. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil
Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20
years from the date of transfer of the chartered operation rights from CAA to TACT. TACT filed an
application for a 10-year extension of the COP for the cargo terminals in the Taiwan Taoyuan
International Airport and Kaohsiung International Airport and received the approval from the Taoyuan
Airport Corporation and CAA in July 2013 and July 2015, respectively.
However, TACT filed an arbitration for the total amount of $6,840,000 thousand based on theconstruction contract.
As of June 30, 2019, TACT had signed the following construction contracts with unrelated parties:

Client NameContract Title

CECI Engineering
Consultant, Inc., Taiwan

Cargo Terminal Expansion Construction Consultant
Contract

Contract
Amount (VAT
Included)$ 552,285

As of June 30, 2019, the cumulated consultant service expense and construction equipment had
amounted to $481,776 thousand (VAT included) and $5,170,332 thousand (VAT included),
respectively. Upon completion of the projects, the amount of $468,755 thousand (VAT included) and$5,156,356 thousand (VAT included) were reclassified to property, plant and equipment. The remaining
cumulative 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.

- 62 -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%.
c. 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 thefirst 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 inInfrastructure Projects,” which states that rental calculation in the development stage should include theland value added tax plus the necessary maintenance fee; in the operation period, rentals are 60% of theamount based on the National Building Land Rental Standard plus land value tax, value-added tax andthe necessary maintenance fee.
During the 50 years beginning from the initial operation date of CAL Park to the end of the construction
period, CAL Park should pay royalties based on the operating revenue estimated in the financial plan of
its investment execution proposal. If the sales and business tax declared and filed by a business entity
for a single year exceeds 10% of the operating revenue as estimated in the financial plan in its
investment execution proposal, CAL Park should pay additional royalties at 10% of this excess.
CAL Park should 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.
d. Taiwan Aircraft Maintenance Company contracted out Ronggong Engineering Co., Ltd. for aconstruction repair project. The contract expiration date is March 5, 2019, and the estimated total costof the project is $1.980 billion. As of June 30, 2019, $1,807,171 thousand was paid (recognized as
construction in progress).
e. The Company failed to mediate labor disputes with the labor union. After obtaining the right to strike,the labor union went on strike on February 8, 2019, and the flights resumed normal operation on
February 14, 2019. A total of 214 flights was cancelled and the accumulated revenue loss was about$500 million. The initial estimated compensation for customer losses and other expenditures were about$54 million (recognized as operating cost).
f. In June 2019, the Company signed a contract with Airbus S.A.S. to purchase fourteen A321neo aircraft
and an option to purchase five A321neo aircraft. The total list price of the fourteen aircraft is$2,131,707 thousand, and the list price of the option to purchase five aircraft is $769,922 thousand. The
expected delivery period of the fourteen aircraft ranges from 2024 to June 2026. As of June 30, 2019,the list price of the fourteen aircraft has been paid in the amount of US$1,400 thousand (recognized as
prepayments for aircraft).

- 63 -

g. In June 2019, the Company signed a contract with the Boeing Company to purchase three B777F
aircraft and an option to purchase three B777F aircraft. The total list price of the three aircraft is$1,118,022 thousand, and the expected delivery period of the three aircraft is in 2020. In addition, theCompany reached an agreement with the Boeing Company to exercise the option to purchase three
B777F aircraft in August 2019, and the total list of the three aircraft is also $1,118,022 thousand.

37. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESThe following information was aggregated by the foreign currencies other than functional currencies ofeach group entity, and the exchange rates between foreign currencies and respective functional currencies
were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:(Foreign Currencies in Thousands)
June 30, 2019
Foreign
Currencies

Exchange Rate

Carrying
AmountFinancial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

425,683
16,504
221,531
4,897,518
293,157

31.0559 (USD:NTD)
35.3357 (EUR:NTD)
3.9777 (HKD:NTD)
0.2886 (JPY:NTD)
4.5188 (RMB:NTD)$ 13,219,981
583,163881,173
1,413,443
1,324,713

2,471,781
7,043
87,9686,481,054
150,199

31.0559 (USD:NTD)
35.3357 (EUR:NTD)
3.9777 (HKD:NTD)
0.2886 (JPY:NTD)
4.5188 (RMB:NTD)

76,763,374
248,875
349,517
1,870,466
678,716

Exchange Rate

Carrying
AmountFinancial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB
December 31, 2018
Foreign
Currencies
Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

533,10920,519302,930
6,479,942
394,503- 64 -

30.7692 (USD:NTD)
35.2113 (EUR:NTD)
3.9231 (HKD:NTD)
0.2778 (JPY:NTD)
4.4803 (RMB:NTD)$ 16,403,335
722,514
1,188,425
1,800,967
1,767,491(Continued)

Foreign
Currencies

Exchange Rate

Carrying
AmountFinancial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

$

391,865
6,516
79,716
5,586,337
150,52930.7692 (USD:NTD)
35.2113 (EUR:NTD)
3.9231 (HKD:NTD)
0.2778 (JPY:NTD)
4.4803 (RMB:NTD)$ 12,057,386
229,440
310,978
1,552,067
674,413(Concluded)

June 30, 2018
Foreign
Currencies

Exchange Rate

Carrying
AmountFinancial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

410,813
17,541
245,821
6,036,963
539,66430.4878 (USD:NTD)
35.4610 (EUR:NTD)
3.8865 (HKD:NTD)
0.2755 (JPY:NTD)
4.5998 (RMB:NTD)$ 12,524,797
622,005
955,382
1,663,167
2,482,348

382,065
6,195
85,1555,292,499
159,005

30.4878 (USD:NTD)
35.4610 (EUR:NTD)
3.8865 (HKD:NTD)
0.2755 (JPY:NTD)
4.5998 (RMB:NTD)

11,648,331
219,694
330,956
1,458,071
731,391

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

For the three months ended June 30, 2019 and 2018, net foreign exchange gains and (losses) were$(119,984) thousand and $17,752 thousand, respectively; and for the six months ended June 30, 2019 and2018, net foreign exchange gains (losses) were $(146,884) thousand and $37,343 thousand, respectively. It
is impractical 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: None
2) 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: None
5) Acquisitions of individual real estate at costs or prices of at least NT$300 million or 20% of thepaid-in capital: None
6) Disposals of individual real estate at costs 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 3 (attached)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 4 (attached)9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 5 (attached)10) Trading in derivative instruments (Notes 7 and 33)
b. Investments in mainland China: Table 6 (attached)c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 7 (attached)

39. SEGMENT INFORMATION
Segment Information
The Group 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 Group’s sole reportable segment is its flight segment. For operating segment reporting in the
consolidated financial statements, the reportable segment of the Group and its subsidiaries comprises theflight and the non-flight business departments. The accounting policies applied for reportable segments are
consistent with the policies aforementioned in Note 4.

- 66 -

For the six months ended June 30, 2019 and 2018, financial information of segments is listed below:
For the Six Months Ended June 30, 2019
Air
Adjustments
Transportation
Othersand Write-offs
Operating revenue$ 81,335,439$

5,426,472$(3,464,251)

Operating profit and loss
Interest revenue
Investment income accounted for using
the equity method
Revenue
Finance costs
Expenses$$735,562$(43,586)

642,017$ 83,297,660$$$ 149,065,429$ 11,191,249$-(139,452)$ 160,256,678
2,367,567
130,497,302

Total assets$ 293,121,547
For the Six Months Ended June 30, 2018
Air
Adjustments
Transportation
Othersand Write-offs

Operating revenue$ 79,672,973$

4,909,554$(3,571,665)

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

657,289$(10,138)

550,892

Total$ 81,010,862$

1,198,043
141,518
163,819(5,730)(666,061)(204,934)

Gain before income tax
Identifiable assets
Investments accounted for using theequity method
Assets

1,333,993
194,430
157,799
174,038(1,720,248)(279,464)

Loss before income tax
Identifiable assets
Investments accounted for using theequity method
AssetsTotal$$ 153,582,948$ 10,721,856$-

626,655$ 164,304,804
2,349,376
62,840,804

Total assets$ 229,494,984- 67 -TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIESENDORSEMENTS/GUARANTEES PROVIDEDFOR THE SIX MONTHS ENDED JUNE 30, 2019
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Counter-partyNo.

0Endorsement/
Guarantee Provider

China Airlines(the “Company”)

Name

Cal Park
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$ 10,999,999
10,999,999
10,999,999$ 3,850,000
1,080,000
1,106,778$ 3,850,000
1,080,000
1,089,966$ 2,234,550
422,390

10,999,999

2,000,000

2,000,000

1,022,277

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
Amount ofValue of
Collateral toCollaterals
Net Equity of
Property, Plant,
the Latest
or Equipment
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

-

7.00
1.96
1.98

$ 27,499,997
27,499,997
27,499,997

Yes
Yes
Yes

No
No
No

No
No
No

-

3.64

27,499,997

Yes

No

No

TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES HELDJUNE 30, 2019
(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. - ordinary 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

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

June 30, 2019
Percentage Market Value
Carryingofor Net Asset
AmountOwnership
Value
(%)

Shares/Units

1,359,368$

59,382

13.59

135,937

5,938-

1,100,000

23,937

12,000,000
4,021

-

2,074,628

20,414$65,320Note

Note 1

-

-

11.00

23,937

-

15.00
0.02

-

-

-

20,414-

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-

41,3492.59
5.45

41,349Note 2
Note 2

Beneficial certificates
FSITC Money Market Fund
Franklin Templeton SinoAm Money Market Fund-

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

252,216
3,880,060

45,05240,156-45,05240,156-

SharesTransAsia Airways-

Financial assets at fair value through profit or loss - current

2,277,786---

Beneficial certificatesFuh Hwa Global Short-term Income FundFuh Hwa Emerging Market Short-term Income FundFuh Hwa Global Bond 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

1,039,109
730,495
543,321

12,602
8,283
8,037

12,602
8,283
8,037

-

0.40

-

Dynasty Aerotech International
Corp.

SharesChina Airlines

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

814,152

8,011

-

8,011

(Continued)- 69 -

Holding Company Name

Kaohsiung Catering Services

Relationshipwith theHoldingCompany

Financial Statement AccountBeneficial certificates
Taishin 1699 Money Market Fund-

Financial assets at fair value through profit or loss - current

349,523

Beneficiary certificates
Prudential Financial Money Market Fund
Prudential Financial Return Fund-

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

5,407,832
4,493,628

Marketable Securities Type and Issuer/Name

June 30, 2019
Percentage Market Value
Carryingofor Net Asset
AmountOwnership
Value
(%)

Shares/Units

$

4,734

-

85,39070,000

-

$

Note

4,734

-

85,39070,000-Note 1: The subsidiary’s net equity value was $65,320 thousand for the six months ended June 30, 2019, which included ordinary shares and preference shares.
Note 2: The Company does not issue shares because it is a limited company.
Note 3: The table only listed financial assets that are IFRS 9 regulated.
(Concluded)- 70 -TABLE 3

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 SIX MONTHS ENDED JUNE 30, 2019
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd.
(“China Airlines”)

Related Party

Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Mandarin Airlines
China Pacific Catering Services
Taoyuan International Airport Service
Taiwan Airport Services
Kaohsiung Catering Services
Dynasty Aerotech International Corp.
Tigerair Taiwan Co., Ltd.
Eastern United International Logistics(Holdings) Ltd.

Nature of Relationship

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

Purchase/
Sale
Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Sale
Purchase$Amount% of
Total

205,561
115,644(1,150,256)
113,871882,000
493,410
182,811
294,014169,155(184,371)
105,375

0.31
0.17(1.60)
0.17
1.32
0.74
0.27
0.44
0.25
(0.26)
0.16- 71 -

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

Abnormal Transaction
Payment Terms
30 days
40 days
2 months
2 months
90 days
40 days
40 days
60 days
2 months
1 months
2 months

Unit Price
$

-

-

$

(36,962)(127)
465,809(303,195)(469,313)(357,938)(76,703)(64,318)(50,690)
41,015(14,708)(1.34)
4.20(11.00)(17.03)(12.99)(2.78)(2.33)(1.84)
0.37(0.53)Note

TABLE 4

CHINA AIRLINES, LTD. AND SUBSIDIARIESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL
JUNE 30, 2019
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Overdue
Company Name

Related Party

Nature of RelationshipEnding Balance

Turnover Rate

$ 465,809

Note

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

303,195

China Pacific Catering Services

China Airlines

Parent company

Taoyuan International Airport Service

China Airlines

Parent company

Note:

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for
Bad Debts--$ 456,169

Note

-

-

289,849-

469,313

3.82

-

-

156,825-

357,938

2.73

-

-

203,717-

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

- 72 -$-TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE SIX MONTHS ENDED JUNE 30, 2019
(In Thousands of New Taiwan Dollars, 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
Dynasty Aerotech International Corp.
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
Real estate lease and international trade
Taipei, Taiwan
Air transportation and maintenance of aircraft
Taoyuan, Taiwan
Air cargo and storage
Los Angeles, U.S.A.
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 and software
Hong 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 of machineand 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
December 31,
June 30, 20192018

Balance as of June 30, 2019
Number ofPercentage ofCarrying
SharesOwnership
AmountNet Income(Loss) of theInvestee$

1,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
12,289383,846
465,000
137,500

150,000,000
188,154,025
135,000,000
2,614,500
43,911,000
34,300,000
7,172,346
13,021,042
28,400,000
20,626,644
21,494,637
46,500,000
13,750,000

100.0093.99
54.00
100.0051.00
49.00
100.00
93.93
20.00
47.35
53.67
100.0055.00$

77,27077,270100.0026,265
20,4002,500
1,648,387
1,350,000

1,600,000
160
250,000
180,000,000
135,000,000

1,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
12,289383,846
465,000
137,500$

77,270JPY

26,2658,000
2,500
1,648,387
1,350,000

JPY$

1,521,629
1,270,353
1,430,942
1,297,025
921,127
725,187
505,002376,233
510,687
272,991
591,803
463,114160,861

Investment
Income (Loss)

Note(6,514) $73,221
110,548
18,241
227,391
169,271
14,716
104,806
34,543
81,124
148,338
1,065
12,86517,013
68,836
59,69818,241
115,970
82,943
14,71698,444
6,909
38,412
72,3361,875
7,076

Note 4
Notes 1 and 4
Note 2
Note 5Note 4-

98,107

8,998

9,006

Notes 1 and 4

100.00
20.00
25.00
90.00
100.0026,81911,034
6,521
2,232,184
1,044,783

1,126
2,067
3,301
469,557(83,355)

1,167
109
825
422,613(83,355)

Note 4Note 4

Taoyuan, Taiwan

Composite repair and manufacturing business

2,450

2,450

245,000

49.00

2,358

-

-

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

10.00
1.08

248,0196,209

469,557
81,124

46,956876-

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

47,870

9,526

3,334

-

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

US$

5,877

-

100.00403,795

11,671

11,671

Note 3Kaohsiung, Taiwan

Catering business

10,2001,020,000

51.00

7,870

-

-

Kaohsiung Catering Services Delica International Co., Ltd.

Note 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:

Difference caused by lease arrangement between consolidated entities.

Note 5:Difference caused by acquisition.

10,200- 73 -TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIESINVESTMENTS IN MAINLAND CHINAFOR THE SIX MONTHS ENDED JUNE 30, 2019
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Businesses andProducts

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan as
Capitalof
January 1, 2019

Investment Flows

Outflow

Inflow

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

Forwarding and storage $ 1,149,932
of air cargo(RMB 254,480)

Indirect(Note 1)$
129,999 $(US$4,186)

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

Forwarding and storage
63,263of air cargo(RMB 14,000)

Indirect(Note 1)60,4801,947)-(US$

Taikoo (Xiamen) Landing
Gear Services

Landing gear
2,580,435
maintenance services (US$ 83,090)

Indirect(Note 1)66,8072,151)-(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

Indirect(Note 1)

19,752
636)

-

(US$

Accumulated Outward Remittance forInvestment in Mainland China as ofJune 30, 2019$277,038 (US$8,920)(US$362,205
11,663)

Accumulated
Outflow ofInvestment
from Taiwan asofJune 30, 2019

-

$

-

Net Income(Loss) of
the Investee% Ownershipof Direct orIndirect
Investment

Investment
Gain (Loss)

Carrying
Amountas ofJune 30, 2019$
129,999 $38,339(US$
4,186) (RMB 8,396)

14.00

60,48049,071
1,947) (RMB 10,746)

14.00

(US$

66,8072,151)

2.59

-

(US$

19,752636)

5.45

41,349

(US$

-

-

-

Accumulated
InwardRemittance ofEarnings as ofJune 30, 2019$
(RMB

5,141 $
229,291 $1,175) (RMB 50,742) (US$87,0112,802)(Note 2)

(RMB

6,528
124,399
1,504) (RMB 27,530) (US$27,184875)(Note 2)

Investment Amounts
Upper Limit on the Amount of
Authorized by Investment Commission, Investments Stipulated by the Investment
MOEA
Commission, MOEA
$671,432 (Note 3)$34,664,734 (Note 4)(Continued)- 74 -

Taiwan Airport Services

Investee Company

Accumulated
Outward
Remittance forMain Businesses andMethod ofPaid-in Capital
Investment
Products
Investment
from Taiwan asof January 1,
2019

Remittance of Funds

Outward

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

Forwarding and storage $ 1,149,932
of air cargo(RMB 254,480)

Indirect(Note 5)$
124,794 $(US$4,018)

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

Forwarding and storage
63,263of air cargo(RMB 14,000)

Indirect(Note 5)

(US$

59,837
1,927)

Accumulated
Outward
Remittance forInvestment
from Taiwan asof June 30, 2019

Inward

-

$

-

-

$
124,794 $38,339(US$
4,018) (RMB 8,396)

14.00

59,83749,071
1,927) (RMB 10,746)

14.00

(US$

Accumulated Outward
Remittance for Investment in
Mainland China as of June 30, 2019

Investment Amounts Authorized by
Investment Commission, MOEA

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

$184,631 (US$5,945)$184,631 (US$5,945)$45,923 (Note 6)

Net Income(Loss) of theInvestee% Ownershipof Direct orIndirect
Investment

Investment
Income (Loss)

Carrying
Amount as ofJune 30, 2019

Accumulated
Repatriation of
Investment
Income as ofJune 30, 2019$
(RMB

5,367 $
227,793 $
118,209
1,175) (RMB 50,411) (US$3,806)(RMB

6,870
124,277
1,504) (RMB 27,502) (US$43,683
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 June 30, 2019, 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 period-end rates and those of gains (losses), at the average of the period-end rates of refer for the reporting period.
(Concluded)- 75 -TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIES
BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIESFOR THE SIX MONTHS ENDED JUNE 30, 2019
(In Thousand 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
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Taoyuan International Airport Service
Sabre Travel Network (Taiwan)
Kaohsiung Catering Services
Taiwan Air Cargo Terminal
Mandarin Airlines
Taoyuan International Airport Services
Mandarin Airlines
Kaohsiung Catering Services

a
a
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
Other operating cost
Other operating costAccounts receivable - related parties
Dividends receivable
Dividends receivable
Dividends receivable
Dividends receivable
Accounts payable - related parties
Accounts payable - related parties
Bonds payable - noncurrent
Passenger service cost

1

Taiwan Air Cargo Terminal

China Airlines, Ltd.
China Airlines, Ltd.

bb

Sales revenue
Dividends payable

2

Mandarin Airlines

China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.

b
b
b
b
b
b

Passenger revenue
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

China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.

b
b
b

4

Taiwan Airport Services

China Airlines, Ltd.

5

Hwa Hsia

China Airlines, Ltd.

AmountTransaction Criteria% to Total
Consolidated
Total Revenue
or Assets$ 1,016,510
133,746
184,371493,410
182,811
169,155
113,871
205,561
115,644465,809113,375
176,361
143,350
162,000
303,195
357,938
250,000
294,014The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

1.22
0.16
0.22
0.59
0.22
0.20
0.14
0.25
0.14
0.16
0.04
0.06
0.05
0.06
0.10
0.12
0.09
0.35

205,561
162,000

The same as ordinary transactions
The same as ordinary transactions

0.25
0.06

113,871
1,016,510
133,746
303,195
250,000
465,809

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
1.22
0.16
0.10
0.09
0.16

Airport service revenue
Accounts receivable - related parties
Dividends payable

493,410
357,938
113,375

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

0.59
0.12
0.04

b

Operating revenue

182,811The same as ordinary transactions

0.22

b

Operating revenue

169,155

The same as ordinary transactions

0.20(Continued)- 76 -

Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Financial Statement Account6

Cal Park

China Airlines, Ltd.

b

Operating revenue

7

Tigerair Taiwan Ltd.

China Airlines, Ltd.

b

8

Kaohsiung Catering Services

China Airlines, Ltd.
China Airlines, Ltd.

9

Sabre Travel Network (Taiwan)

China Airlines, Ltd.

Amount$Transaction Criteria% to Total
Consolidated
Total Revenue
or Assets

115,644

The same as ordinary transactions

0.14

Operating expense

184,371

The same as ordinary transactions

0.22

b
b

Operating revenue
Dividends receivable

294,014143,350

The same as ordinary transactions
The same as ordinary transactions

0.35
0.05

b

Dividends payable

176,361

The same as ordinary transactions

0.06

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)- 77 -