China Airlines, Ltd. and Subsidiaries
Consolidated Financial Statements for theYears Ended December 31, 2016 and 2015 andIndependent Auditors’ Report

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordancewith the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports andConsolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2016 are
all the same as the companies required to be included in the consolidated financial statements of parent
and subsidiary companies as provided in International Financial Reporting Standard 10 “Consolidated
Financial Statements.”

Relevant information that should be disclosed in the consolidated financial

statements of affiliates has all been disclosed in the consolidated financial statements of parent andsubsidiary companies.

Hence, we have not prepared a separate set of consolidated financial statementsof affiliates.

Very truly yours,
CHINA AIRLINES, LTD.
By

March 30, 2017-1-

INDEPENDENT AUDITORS’ REPORTThe Board of Directors and the Stockholders
China Airlines, Ltd.
OpinionWe have audited the accompanying consolidated financial statements of China Airlines, Ltd. andits subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31,
2016 and 2015, and the consolidated statements of comprehensive income, changes in equity andcash flows for the years then ended, and the notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as of December 31, 2016 and 2015, andits consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with the Regulations Governing the Preparation of Financial Reports by Securities
Issuers, and International Financial Reporting Standards (IFRS), International AccountingStandards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued
into effect by the Financial Supervisory Commission of the Republic of China.
Basis for Opinion
We conducted our audits in accordance with the Regulations Governing Auditing and Attestationof Financial Statements by Certified Public Accountants and auditing standards generally acceptedin the Republic of China. Our responsibilities under those standards are further described in the
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of ourreport. We are independent of the Group in accordance with The Norm of Professional Ethics for
Certified Public Accountant of the Republic of China, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the consolidated financial statements for the year ended December 31, 2016. These
matters were addressed in the context of our audit of the consolidated financial statements as awhole, and in forming our opinion thereon, and we do not provide a separate opinion on thesematters.

-2-

The key audit matters in the audit of the consolidated financial statements of the Group are statedbelow:
Deferred Income Tax Assets
Due to suffering tax losses in previous years, the Group was granted loss carryforwards which canbe used against taxable income in a certain period. The Group recognized the loss carryforwards
as deferred tax assets to the extent that the taxable profit in the future will be available against theloss carryforwards. As of December 31, 2016, the Group recognized tax losses as deferred tax
assets, in New Taiwan dollars (NT$), in the amount of NT$2,380,873 thousand. Refer to Notes 4,
5 and 29 in the accompanying consolidated financial statement for the related detailed information.
The difference between the amount representative of the Group’s financial position and its tax baseare material to the consolidated financial statements as a whole in the aviation industry. Moreover,deferred tax assets arising from tax losses are dependent on future taxable income and the reversalof existing taxable temporary differences, which involve management’s judgment when assessing
the realization of tax losses. As there is a significant level of judgment involved in valuing thedeferred tax assets, we have deemed this to be a key audit matter.
The following are the main audit procedures for the key audit matter mentioned above:1.

Acquiring the internal financial forecasts and the estimate of future taxable income, andreviewing the rationality of management’s assumptions.

2.

Acquiring information about the differences between the Group’s financial position and its tax
base, and assessing the rationality of reconciliations and the realization schedule of temporary
differences to verify whether they are consistent with management’s financial forecasts.

Non-current Assets Held for Sale
The board of directors of the Group resolved to dispose of several aircrafts. According to IFRS 5“Non-current Assets Held for Sale and Discontinued Operations”, impairment losses from thedisposal of aircrafts were recognized as the differences between the expected transaction value andthe carrying amount of the aircrafts, and then the aircrafts were reclassified as non-current assets
held for sale. As of December 31, 2016, the carrying amount of the non-current assets held forsale was NT$185,100 thousand. Refer to Notes 4, 5 and 13 in the accompanying consolidated
financial statements for the related detailed information.
Due to the lack of an open trading market for aircrafts, prices for the disposal of aircrafts varies
significantly, and the expected transaction value of aircrafts reflecting the carrying amount of
non-current assets held for sale was difficult to evaluate. Therefore, we identified non-current
assets held for sale as a key audit matter.
The following were the main audit procedures for the key audit matter mentioned above:1.

Conducting an assessment on the transaction value based on industry-recognized publications,
historical selling prices of similar aircraft models, and the suggested price proposed by abroker and observing the subsequent transactions.

2.

Discussing the retirement schedule with the accountable department, and reviewing whether
the correspondences and the latest quote were consistent with the market value claimed bymanagement.

-3-

Acquisition Costs of a New Fleet
In accordance with IAS 16 “Property, Plant and Equipment”, acquisition costs of aircrafts shouldbe allocated into several significant components, including airframe, airframe overhaul, engine,engine overhaul, landing gear, etc., and should be depreciated over different useful lives. As of
December 31, 2016, the carrying amount of flight equipment was NT$112,368,971 thousand.
Refer to Notes 4, 5, and 16 in the accompanying consolidated financial statements for the related
detailed information.
Since the Group introduced a brand new fleet of A350-900s this year, the allocation base should be
adjusted. Moreover, the carrying amount related to the aircrafts and the amount of depreciation
expense recognized would be subject to the allocation of acquisition costs and the applied usefullife, which were made in accordance with management’s judgment. Therefore, we identified theacquisition costs of the new fleet as a key audit matter.
The following were the main audit procedures for the key audit matter mentioned above:
1.

Reviewing the certificates issued by the aircraft and engine manufacturers, the suggested
operating cost of the aircraft manufacturer, and the historical experience of the maintenancedepartment to assess the rationale used to determine the division amount by management.

2.

Conducting an assessment on the rationality of useful life on the basis of fleet performance in
the industry, historical experience of fleet operations, and documents that described the basis
used by management to determine the useful life of its new fleet.

Other Matter
We have also audited the parent company only financial statements of China Airlines, Ltd. as ofand for the years ended December 31, 2016 and 2015 on which we have issued an unmodified
opinion.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with the Regulations Governing the Preparation of Financial Reports by
Securities Issuers, and International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC)
endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China,
and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, management is responsible for assessing theGroup’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends toliquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance, including the audit committee and supervisors, are responsible foroverseeing the Group’s financial reporting process.

-4-

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditors’ report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with the auditing standards
generally accepted in the Republic of China will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually orin the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of an audit in accordance with the auditing standards generally accepted in the Republic ofChina, we exercise professional judgment and maintain professional skepticism throughout theaudit. We also:1.

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.

2.

Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.

3.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

4.

Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditors’ report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditors’ report.
However, future events or conditions may cause the Group to cease to continue as a going
concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
6.

Obtain sufficient and appropriate audit evidence regarding the financial information of entities
or business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision, and performance of the groupaudit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.

-5-

We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those mattersthat were of most significance in the audit of the consolidated financial statements for the year
ended December 31, 2016 and are therefore the key audit matters. We describe these matters in
our auditors’ report unless law or regulation precludes public disclosure about the matter or when,in extremely rare circumstances, we determine that a matter should not be communicated in ourreport because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
The engagement partners on the audit resulting in this independent auditors’ report are Chen-Hsin
Yang and Li-Chi Chen.

Deloitte & Touche
Taipei, Taiwan
Republic of China
March 30, 2017

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 audit such consolidated financial statements are thosegenerally applied in the Republic of China.
For the convenience of readers, the independent auditors’ report and the accompanying
consolidated financial statements have been translated into English from the original Chineseversion prepared and used in the Republic of China. If there is any conflict between the English
version and the original Chinese version or any difference in the interpretation of the two versions,the Chinese-language independent auditors’ report and consolidated financial statements shallprevail.

-6-

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2016 AND 2015
(In Thousands of New Taiwan Dollars)

2016
Amount%2015
Amount%$ 24,267,197
416,641
58,44911-$ 23,491,085
542,326
52,582

11-

8,353,785
3,562
952,320
28,2598,434,386
185,100
4,638,502

4
4
2

7,610,677
3,874
1,032,622
9,849
8,300,398
670,455
3,928,747

3
1
4
2

47,338,201

21

45,642,615

21

3,268
140,357
2,866,431
140,136,737
2,075,903
1,137,115
6,256,665
24,546,082

1
62
1
1
3
11

1,710
19,08011,216
223,9112,877,777
129,628,866
2,076,182
1,009,678
7,188,415
33,246,859

1
58
1
1
3
15

177,162,558

79

176,283,694

79$ 224,500,759

100$ 221,926,309

100$

135,000
900,000
20,854
869,712555,829
11,465,254
48,687
81,925
14,820,860
2,700,000
32,268,540
1,284,001
3,455,062

5
7
1
14
1
2

$

173,289
9,995
313,689
1,229,575
493,754
12,296,548
75,64520,186
13,112,086
4,944,106
30,092,112
1,457,957
4,001,510

1
5
6
2
14
1
2

68,605,724

30

68,220,452

31

2,775
19,538,044
56,962,187
7,408,229
273,610
3,645,304
1,808,903
7,956,835
431,950

9
25
3
2
1
4
-

11,291
10,900,000
57,691,505
6,167,295
340,681
5,197,147
1,863,929
10,553,574
423,892

5
26
3
2
1
5
-

Total noncurrent liabilities

98,027,837

44

93,149,314

42

Total liabilities

166,633,561

74

161,369,766

73

54,708,901
799,93225-

54,708,901
798,41525-

287,224
76,486(157,618)
206,092
112,264(43,372)-

2,872,235
2,872,235(66,283)(43,372)

1
1-

55,783,817

25

58,269,896

26

2,083,381

1

2,286,647

1

57,867,198

26

60,556,543

27$ 224,500,759

100$ 221,926,309

100

ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6, 19 and 32)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 32)
Derivative financial assets for hedging - current (Notes 4, 5, 9 and 32)
Receivables:
Notes and accounts, net (Notes 4, 5, 11 and 32)
Notes and accounts - related parties (Notes 32 and 33)
Other receivables (Notes 4 and 32)
Current tax assets (Notes 4 and 29)
Inventories, net (Notes 4 and 12)
Noncurrent assets held for sale (Notes 4, 5 and 13)
Other assets - current (Notes 6 and 19)
Total current assets
NONCURRENT ASSETS
Financial assets at fair value through profit or loss - noncurrent (Notes 4, 5, 7 and 32)
Available-for-sale financial assets - noncurrent, net of current portion (Notes 4, 8 and 32)
Derivative financial assets for hedging - noncurrent (Notes 4, 5, 9 and 32)
Financial assets carried at cost - noncurrent, net of current portion (Notes 10 and 32)
Investments accounted for by the equity method (Notes 4 and 15)
Property, plant and equipment (Notes 4, 5, 16 and 34)
Investment properties (Notes 4 and 17)
Other intangible assets (Notes 4 and 18)
Deferred income tax asset (Notes 4, 5 and 29)
Other assets - noncurrent (Notes 19, 22, 32, 34 and 35)
Total noncurrent assets
TOTAL

LIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loans (Note 20)
Short-term bills payable (Note 20)
Derivative financial liabilities for hedging - current (Notes 4, 5, 9 and 32)
Notes and accounts payable (Note 32)
Notes and accounts payable - related parties (Notes 32 and 33)
Other payables (Notes 23 and 28)
Current tax liabilities (Notes 4 and 29)
Provisions - current (Notes 4, 5 and 25)
Deferred revenue - current (Notes 4, 5 and 24)
Bonds payable and put option of convertible bonds - current portion (Notes 4, 21, 27 and 32)
Loans and debts - current portion (Notes 20, 32 and 34)
Capital lease obligations - current portion (Notes 4, 22, 32 and 34)
Other current liabilities (Note 32)
Total current liabilities
NONCURRENT LIABILITIES
Derivative financial liabilities for hedging - noncurrent (Notes 4, 5, 9 and 32)
Bonds payable - noncurrent (Notes 4, 21, 27 and 32)
Loans and debts - noncurrent (Notes 20, 32 and 34)
Provisions - noncurrent (Notes 4, 5 and 25)
Deferred tax liabilities (Notes 4 and 29)
Capital lease obligations - noncurrent (Notes 4, 22, 32 and 34)
Deferred revenue - noncurrent (Notes 4, 5 and 24)
Accrued pension costs (Notes 4, 5 and 26)
Other noncurrent liabilities (Note 32)

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

The accompanying notes are an integral part of the consolidated financial statements.

-7-

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands of New Taiwan Dollars, Except Earning Per Share)%

2015
Amount%$ 141,079,107

100$ 145,056,217

100

COSTS (Notes 4, 9, 12, 26, 28 and 33)

123,073,201

87

124,787,843

86

GROSS PROFIT

18,005,906

13

20,268,374

14

OPERATING EXPENSES (Notes 4, 26 and 28)

13,441,219

10

12,139,177

8

OPERATING PROFIT

4,564,687

3

8,129,197

6

759,139(2,688,096)(1,292,865)

1
(2)
(1)

3,231,179(2,957,838)(1,783,793)

2
(2)
(1)

536,986-

516,140-(2,684,836)(2)(994,312)(1)

PRETAX PROFIT

1,879,851

1

7,134,885

5

INCOME TAX EXPENSE (Notes 4, 5 and 29)

1,168,911

1

1,208,675

1

710,940-

5,926,210

4(940,795)-(676,833)-(66,815)-(4,428)-

159,935(847,675)-

115,062(566,199)-(112,092)-

REVENUES (Notes 4, 28 and 33)

NONOPERATING INCOME AND LOSS
Other income (Notes 4, 10 and 28)
Other gains and losses (Notes 9, 13, 16 and 28)
Finance cost (Notes 9 and 28)
Share of the profit of associates and joint ventures(Note 15)
Total nonoperating income and loss

NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit plans (Note 26)
Share of the other comprehensive income ofassociates and joint ventures accounted forusing the equity method (Notes 4, 15 and 27)
Income tax relating to items that will not bereclassified subsequently to profit or loss
(Note 29)
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 27)

-8-

2016
Amount

67,515(Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands of New Taiwan Dollars, Except Earning Per Share)

2016
AmountUnrealized gain (loss) on available-for-salefinancial assets (Notes 4 and 27)
Cash flow hedges (Notes 4 and 27)
Share of the other comprehensive income ofassociates and joint ventures accounted forusing the equity method (Notes 4, 15 and 27)
Income tax relating to items that may bereclassified subsequently to profit or loss
(Note 29)$

NET INCOME ATTRIBUTABLE TO:
Owner of the Company
Non-controlling interests

TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Owner of the Company
Non-controlling interests

EARNING PER SHARE (NEW TAIWAN DOLLARS;
Note 30)
Basic
Diluted

1

(41)

-

765

-

(33,955)
166,006-(374,281)
1,835,959

1(681,669)-

1,269,760

1$

29,271-$

7,195,970

5$

571,540
139,400-$

5,763,714
162,4964-$

710,940-$

5,926,210

4$

26,103
3,168-$

7,072,042
123,9285-$

29,271-$

7,195,970

5

0.10
0.10

The accompanying notes are an integral part of the consolidated financial statements.

-9-(6,393)
2,148,353

-

$
$

$

%

312,094

Other comprehensive income (loss) for the year,
net of income tax
TOTAL COMPREHENSIVE INCOME FOR THE
YEAR

%

2015
Amount

$
$

1.06
1.06

(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands of New Taiwan Dollars)

Equity Attributable to Owners of the Company
Other Equity
Retained Earnings

BALANCE AT JANUARY 1, 2015

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

UnappropriatedEarnings(Accumulated
Deficit)$ 52,491,666

$

$

$

-

$ (3,870,736)

1,992,415-

Exchange
Differences on
Translating
Foreign
Operations$

99,852

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

Treasury Shares
Held by
Subsidiaries

Cash Flow
Hedges4,015$ (2,009,565)

$

Total

(43,372)$ 48,664,275

Non-controlling
Interests

Total Equity$

2,321,737$ 50,986,012

Compensation of deficit - capital surplus-(1,511,953)--

1,511,953

-

-

-

-

-

-

-

Change in capital surplus from investments in associates and joint ventures
accounted for by using equity method

-

64

-

-

-

-

-

-

-

64

-

64

2,217,235

317,889

-

-

-

-

-

-

-

2,535,124-

2,535,124Difference between cost of the acquisition of subsidiaries and net value

-

-

-

-

(1,609)

-

-

-

-

(1,609)(1,965)(3,574)

Net income for the year ended December 31, 2015

-

-

-

-

5,763,714

-

-

-

-

5,763,714

162,496

5,926,210

Other comprehensive income (loss) for the year ended December 31, 2015,
net of income tax

-

-

-

-

(531,087)

58,107(2,260)1,783,568-

1,308,328(38,568)

1,269,760

Total comprehensive income (loss) for the year ended December 31, 2015

-

-

-

-

5,232,627

58,107(2,260)1,783,568-

7,072,042

123,928

7,195,970

Cash dividend from subsidiaries paid to non-controlling interest

-

-

-

-

-

-

-

-

-

-

(157,053)(157,053)

54,708,901

798,415--

2,872,235

157,959

1,755(225,997)(43,372)

58,269,896

2,286,647

60,556,543

Change in capital surplus from investments in associates and joint ventures
accounted for by using equity method

-

-

-

-

(1,638)

-

-

-

-

(1,638)-(1,638)Difference between cost of the acquisition of subsidiaries and net value

-

-

-

-

(3,536)

-

-

-

-

(3,536)(4,548)(8,084)

Appropriation of 2015 the earning
Legal reserve
Special reserve
Cash dividends - $0.458522382 per share--

287,224-

76,486-(287,224)(76,486)(2,508,525)

-

-

-

-

(2,508,525)-(2,508,525)

Change in capital surplus from dividends distributed to subsidiaries

-

1,517

-

-

-

-

-

-

-

1,517

-

1,517

Net income for the year ended December 31, 2016

-

-

-

-

571,540

-

-

-

-

571,540

139,400

710,940

Other comprehensive income (loss) for the year ended December 31, 2016,
net of income tax

-

-

-

-

(723,984)(79,395)(41)

257,983-(545,437)(136,232)(681,669)

Total comprehensive income (loss) for the year ended December 31, 2016

-

-

-

-

(152,444)(79,395)(41)

257,983-

26,103

3,168

29,271

Cash dividend from subsidiaries paid to non-controlling interest

-

-

-

-

-

-

-

-

-

-

(201,886)(201,886)(43,372)$ 55,783,817

2,083,381$ 57,867,198

Convertible bonds converted to common shares

BALANCE AT DECEMBER 31, 2015

BALANCE AT DECEMBER 31, 2016

$ 54,708,901$

799,932$

287,224$

76,486$

The accompanying notes are an integral part of the consolidated financial statements.

- 10 -(157,618)$

78,564

$

1,714

$

31,986$$

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands of New Taiwan Dollars)

2016
CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax
Adjustments to reconcile to net cash generated from (used in)operating activities:
Depreciation expenses
Amortization expenses
Bad-debt expense
Net loss (gain) on fair value change of financial assets and liabilities
held for trading
Interest income
Dividend income
Share of profit of associates and joint ventures
Loss on disposal of financial assets measured at cost
Gain on disposal of property, plant and equipment and noncurrent
assests held foe saleImpairment loss recognized on available-for-sale financial assets
Impairment loss recognized on property, plant, equipment andnoncurrent assets held for sale
Loss on inventories and property, plant and equipment
Impairment loss recognized on financial assets carried at cost
Net loss (gain) on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leaseback
Loss on repurchase of bonds payable
Changes in operating assets and liabilities
Decrease (increase) in financial assets held for trading
Decrease on derivate financial assets for hedging
Decrease (increase) in notes and accounts receivable
Increase in other receivables
Increase in inventories
Increase in other current assets(Decrease) increase in notes and accounts payable(Decrease) increase in other payables
Increase in deferred revenue
Decrease in provisions
Increase in other current liabilities
Decrease in accrued pension liabilities
Increase (decrease) in other liabilities
Cash generated from operations
Interest received
Dividends received
Interest paid
Income tax paid
Net cash generated from operating activities- 11 -$

1,879,851

2015$

7,134,885

17,545,523
147,486
83,657

17,261,774
70,04049,45835,678(242,801)(59,099)(536,986)
346(150,871)(466,923)(1,884,052)(516,140)-(53,419)
19,005(13,155)
3,408

1,065,626
207,019
71,826(3,855)
1,292,865
2,613,011(14,512)41,943

2,468,372
389,274
487,075
1,783,793
2,079,169(14,512)-91,72913,096(731,012)(15,595)(358,861)(293,137)(514,807)(1,166,447)
1,651,689(1,393,565)
399,500(3,532,023)
22,045
18,265,776
239,461
513,203(1,195,427)(186,641)(157,350)
1,770,746(205,127)(1,248,012)(1,252,816)
828,156
569,765
2,006,907(237,716)
512,938(296,385)(14,555)
30,958,146
487,0092,382,066(1,797,212)(239,316)

17,636,372

31,790,693(Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands of New Taiwan Dollars)

2016
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available-for-sale financial assets
Proceeds on share redemption of financial assets measured at cost
Proceeds of the sale of financial assets measured at cost
Payments to acquire financial assets for hedging
Acquisition of associates
Proceeds from disposal of noncurrent assets held for sale
Payment 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
Refund in prepayments for aircrafts
Increase in computer software cost
Decrease (increase) in restricted assets
Net cash used in investing activities

$

63
5,579
384,285(9,906,807)
519,489(250,177)
333,973(17,754,915)
5,693,791(277,235)
230,3382015$

245,242(13,096)(64,091)(6,711,363)
20,914(915,853)
780,503(13,472,830)
10,186,049(408,721)(88,332)(21,021,616)(10,441,578)

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans(Decrease) increase in short-term bills payable
Proceeds from issue of bonds payable
Exercise the put option of bonds payable
Repayments of bonds payable
Proceeds of long-term debts
Repayments of long-term debts and capital lease obligations
Proceeds of guarantee deposits received
Refund of guarantee deposits received
Dividends paid to owners of the Company
Cash dividends paid to non-controlling interest
Acquisition of subsidiaries' shares(35,000)
890,0059,700,000(994,705)(2,400,000)
35,241,000(35,501,395)
121,440(94,448)(2,508,525)(201,886)(8,084)(4,190,523)(2,078,113)(8,585,000)
16,626,343(19,601,536)
124,621(121,159)(157,053)(3,574)

Net cash generated from (used in) financing activities

4,208,402(17,985,994)

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES(47,046)(340,187)

NET INCREASE IN CASH AND CASH EQUIVALENTS

776,1123,022,934

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR

23,491,085

20,468,151

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

$ 24,267,197$ 23,491,085

The accompanying notes are an integral part of the consolidated financial statements.

- 12 -(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION
China Airlines, Ltd. (the “Company”) was founded in 1959 and its stocks have been listed on the Taiwan
Stock Exchange since February 26, 1993. The Company primarily provides air transport services forpassengers and cargo. Its other operations include (a) mail services; (b) ground services and routine
aircraft maintenance; (c) major maintenance of flight equipment; (d) communications and data processing
services to other airlines; (e) the sale of aircraft parts, equipment and entire aircraft; and (f) leasing ofaircrafts.
The major stockholders of the Company are the China Aviation Development Foundation (CADF) and the
National Development Fund (NDF), Executive Yuan. As of December 31, 2016 and 2015, CADF and
NDF held 43.63% of the Company’s shares.

2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statement of the Company and its subsidiaries (collectively the “Group”) wereapproved by the board of directors and authorized for issue on March 30, 2017.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS
a. 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) endorsed by the FSC for application
starting from 2017
Rule No. 1050050021 and Rule No. 1050026834 issued by the FSC stipulated that starting January 1,
2017, the Group should apply the amendments to the Regulations Governing the Preparation of
Financial Reports by Securities Issuers and the IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)
issued by the IASB and endorsed by the FSC for application starting from 2017.
New, Amended or Revised Standards and Interpretations(the “New IFRSs”)
Annual Improvements to IFRSs 2010-2012 Cycle
Annual Improvements to IFRSs 2011-2013 Cycle
Annual Improvements to IFRSs 2012-2014 Cycle
Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities:
Applying the Consolidation Exception”
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in
Joint Operations”
IFRS 14 “Regulatory Deferral Accounts”
Amendment to IAS 1 “Disclosure Initiative”
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable
Methods of Depreciation and Amortization”

Effective Date
Announced by IASB (Note 1)
July 1, 2014 (Note 2)
July 1, 2014
January 1, 2016 (Note 3)
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
(Continued)- 13 -

New, Amended or Revised Standards and Interpretations(the “New IFRSs”)
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants”
Amendment to IAS 19 “Defined Benefit Plans: Employee
Contributions”
Amendment to IAS 27 “Equity Method in Separate Financial
Statements”
Amendment to IAS 36 “Impairment of Assets: Recoverable Amount
Disclosures for Non-financial Assets”
Amendment to IAS 39 “Novation of Derivatives and Continuation of
Hedge Accounting”
IFRIC 21 “Levies”

Effective Date
Announced by IASB (Note 1)
January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014
January 1, 2014
January 1, 2014
(Concluded)Note 1: Unless stated otherwise, the above New or amended IFRSs are effective for annual periods
beginning on or after their respective effective dates.
Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on orafter July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition
date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; theremaining amendments are effective for annual periods beginning on or after July 1, 2014.
Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that
occur in annual periods beginning on or after January 1, 2016; the remaining amendments are
effective for annual periods beginning on or after January 1, 2016.
The initial application in 2017 of the above IFRSs and related amendments to the Regulations
Governing the Preparation of Financial Reports by Securities Issuers would not have any material
impact on the Group’s accounting policies, except for the following:
1) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities
Issuers
The amendments include additions of several accounting items and requirements for disclosures of
impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for
application starting from 2017. In addition, as a result of the post implementation review of IFRSs
in Taiwan, the amendments also include emphasis on certain recognition and measurement
considerations and add requirements for disclosures of related party transactions and goodwill.
The amendments stipulate that other companies or institutions of which the chairman of the boardof directors or president serves as the chairman of the board of directors or the president, or is the
spouse or second immediate family of the chairman of the board of directors or president of theGroup are deemed to have a substantive related party relationship, unless it can be demonstrated
that no control, joint control, or significant influence exists. Furthermore, the amendments require
the disclosure of the names of the related parties and the relationship with whom the Group hassignificant transaction. If the transaction or balance with a specific related party is 10% or more of
the Group’s respective total transaction or balance, such transaction should be separately disclosedby the name of each related party.
The amendments also require additional disclosure if there is a significant difference between theactual operation after business combination and the expected benefit on acquisition date.
The disclosures of related party transactions and impairment of goodwill will be enhanced when theabove amendments are retrospectively applied in 2017.
- 14 -

2) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”
The amendment clarifies that the recoverable amount of an asset or a cash-generating unit isdisclosed only when an impairment loss on the asset has been recognized or reversed during theperiod. Furthermore, if the recoverable amount of an item of property, plant and equipment for
which impairment loss has been recognized or reversed is fair value less costs of disposal, theGroup is required to disclose the fair value hierarchy. If the fair value measurements are
categorized within [Level 2/Level 3], the valuation technique and key assumptions used to measure
the fair value are disclosed. The discount rate used is disclosed if such fair value less costs ofdisposal is measured by using present value technique. The amendment will be applied
retrospectively.
Except for the above impacts, as of the date the consolidated financial statements were authorized for
issue, the Group continues assessing other possible impacts that application of the aforementioned
amendments and the related amendments to the Regulations Governing the Preparation of Financial
Reports by Securities Issuers will have on the Group’s financial position and financial performance, andwill disclose these other impacts when the assessment is completed.
b. New IFRSs in issue but not yet endorsed by the FSC
The Group has not applied the following IFRSs issued by the IASB but not yet endorsed by the FSC.
The FSC announced that, IFRS 9 and IFRS 15 will take effect starting January 1, 2018. As of the datethe consolidated financial statements were authorized for issue, the FSC has not announced the effective
dates of other new IFRSs.
Effective Date
Announced by IASB (Note 1)

New IFRSs
Annual Improvements to IFRSs 2014-2016 Cycle
Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions”
Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments withIFRS 4 Insurance Contracts”
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”
IFRS 15 “Revenue from Contracts with Customers”
Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue fromContracts with Customers”
IFRS 16 “Leases”
Amendment to IAS 7 “Disclosure Initiative”
Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”
Amendments to IAS 40 “Transfers of Investment Property”
IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”

Note 2January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
To be determined by IASB
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.

- 15 -

Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or afterJanuary 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods
beginning on or after January 1, 2018.
The initial application of the above New IFRSs, whenever applied, would not have any material impact
on the Group’s accounting policies, except for the following:1) IFRS 9 “Financial Instruments”
Recognition and measurement of financial assets
With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.
For the Group’s debt instruments that have contractual cash flows that are solely payments ofprincipal and interest on the principal amount outstanding, their classification and measurement are
as follows:a) For debt instruments, if they are held within a business model whose objective is to collect thecontractual cash flows, the financial assets are measured at amortized cost and are assessed for
impairment continuously with impairment loss recognized in profit or loss, if any. Interest
revenue is recognized in profit or loss by using the effective interest method;b) For debt instruments, if they are held within a business model whose objective is achieved byboth the collecting of contractual cash flows and the selling of financial assets, the financial
assets are measured at fair value through other comprehensive income (FVTOCI) and areassessed for impairment. Interest revenue is recognized in profit or loss by using the effective
interest method, and other gain or loss shall be recognized in other comprehensive income,
except for impairment gains or losses and foreign exchange gains and losses. When the debt
instruments are derecognized or reclassified, the cumulative gain or loss previously recognizedin other comprehensive income is reclassified from equity to profit or loss.
Except for above, all other financial assets are measured at fair value through profit or loss.
However, the Group may make an irrevocable election to present subsequent changes in the fairvalue of an equity investment (that is not held for trading) in other comprehensive income, with
only dividend income generally recognized in profit or loss. No subsequent impairment
assessment is required, and the cumulative gain or loss previously recognized in othercomprehensive income cannot be reclassified from equity to profit or loss.
The impairment of financial assets
IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit
Losses Model”. The credit loss allowance is required for financial assets measured at amortized
cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arisingfrom IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments andfinancial guarantee contracts. A loss allowance for the 12-month expected credit losses is required
for a financial asset if its credit risk has not increased significantly since initial recognition. A loss
allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has
increased significantly since initial recognition and is not low. However, a loss allowance for fulllifetime expected credit losses is required for trade receivables that do not constitute a financing
transaction.

- 16 -

For purchased or originated credit-impaired financial assets, the Group takes into account the
expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate.
Subsequently, any changes in expected losses are recognized as a loss allowance with acorresponding gain or loss recognized in profit or loss.
Hedge accounting
The main changes in hedge accounting amended the application requirements for hedge accounting
to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes
include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening
the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging
derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing
retrospective effectiveness assessment with the principle of economic relationship between thehedging instrument and the hedged item.
2) IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.
Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for
all leases on the balance sheets except for low-value and short-term leases. The Group may electto apply the accounting method similar to the accounting for operating lease under IAS 17 to the
low-value and short-term leases. On the statements of comprehensive income, the Group shouldpresent the depreciation expense charged on the right-of-use asset separately from interest expense
accrued on the lease liability; interest is computed by using effective interest method. On thestatements of cash flows, cash payments for the principal portion of the lease liability are classified
within financing activities; cash payments for interest portion are classified within operating
activities.
The application of IFRS 16 is not expected to have a material impact on the accounting of theGroup as lessor.
When IFRS 16 becomes effective, the Group may elect to apply this Standard either retrospectively
to each prior reporting period presented or retrospectively with the cumulative effect of the initial
application of this Standard recognized at the date of initial application.
3) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”
The amendment clarifies that the difference between the carrying amount of the debt instrument
measured at fair value and its tax base gives rise to a temporary difference, even though there are
unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying
amount of the debt instrument by sale or by holding it and collecting contractual cash flows.
In addition, in determining whether to recognize a deferred tax asset, the Group should assess adeductible temporary difference in combination with all of its other deductible temporary
differences, unless the tax law restricts the utilization of losses to deduction against income of a
specific type, in which case, a deductible temporary difference is assessed in combination only withother deductible temporary differences of the appropriate type. The amendment also stipulates
that, when determining whether to recognize a deferred tax asset, the estimate of probable futuretaxable profit may include some of the Group’s assets for more than their carrying amount if there issufficient evidence that it is probable that the Group will achieve this, and that the estimate for
future taxable profit should exclude tax deductions resulting from the reversal of deductible
temporary differences.

- 17 -

4) IFRS 15 “Revenue from Contracts with Customers” and related amendment
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,
and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations from January 1, 2018.
When applying IFRS 15, an entity shall recognize revenue by applying the following steps:






Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; andRecognize revenue when the entity satisfies a performance obligation.

In identifying performance obligations, IFRS 15 and related amendment require that a good orservice is distinct if it is capable of being distinct (for example, the Group regularly sells it
separately) and the promise to transfer it is distinct within the context of the contract (i.e. the natureof the promise in the contract is to transfer each of those goods or services individually rather thanto transfer combined items). The Group enters into contracts with its customers. In eachcontract, each product or service has its stand-alone selling price. Under the contract, the Group
provides a significant service of integrating the goods and services into the combined output
specified in the contract. Therefore, the goods and services promised in the contract are notconsidered as distinct.
Under IFRS 15, the Group will allocate the transaction price to each performance obligation
identified in the contract on a relative stand-alone selling price basis. Under current standard, theGroup applies residual value method to allocate the amount of revenue to be recognized.
Except for the above impact, as of the date the financial statements were authorized for issue, the Groupis continuously assessing the possible impact that the application of other standards and interpretations
will have on the Group’s financial position and financial performance, and will disclose the relevant
impact when the assessment is completed.

4. SIGNIFICANT ACCOUNTING POLICIESStatement of Compliance
The consolidated financial statements have been prepared in accordance with the Regulations Governing
the Preparation of Financial Reports by Securities Issuers, other regulations (please specify) and IFRSs as
endorsed and issued into effect by the FSC.
Basis of Preparation
The consolidated financial statements have been prepared on the historical cost basis except for financial
instruments which are measured at fair value.
The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fairvalue measurement inputs are observable and based on the significance of the inputs to the fair value
measurement in its entirety, are described as follows:a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for theasset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and- 18 -

c. Level 3 inputs are unobservable inputs for the asset or liability.
Current and Noncurrent Assets and Liabilities
Current assets include assets held primarily for the purpose of trading, assets expected to be realized withintwelve months after the reporting period, and cash and cash equivalents unless the asset is restricted frombeing exchanged or used to settle a liability for at least twelve months after the reporting period. All otherassets such as property, plant and equipment, investment properties, intangible assets and other assets thatare not classified as current are classified as noncurrent.
Current liabilities include liabilities held primarily for the purpose of trading, liabilities due to be settled
within twelve months after the reporting period. Terms of a liability that could, at the option of thecounterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and the entities
controlled by the Company.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies into line with those used by the Company.
All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.
Total comprehensive income of subsidiaries is attributed to the owners of the Company and to thenon-controlling interests even if this results in the non-controlling interests having a deficit balance.
Foreign Currencies
In preparing the consolidated financial statement of the Group, transactions in currencies other than theentity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at thedates of the transactions. At the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured athistorical cost in a foreign currency are not retranslated. Non-monetary items measured at fair value thatare denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value
was determined.
Exchange differences on monetary items arising from settlement or translation are recognized in profit orloss in the period in which they arise except for:a. Exchange differences on foreign currency borrowings relating to assets under construction for future
productive use, which are included in the cost of those assets when they are regarded as an adjustment
to interest costs on those foreign currency borrowings;
b. Exchange differences on transactions entered into in order to hedge certain foreign currency risks.
Exchange differences arising on the retranslation of non-monetary items are included in profit or loss forthe period except for exchange differences arising from the retranslation of non-monetary items in respectof which gains and losses are recognized directly in other comprehensive income, in which case, theexchange differences are also recognized directly in other comprehensive income.
For the purposes of presenting consolidated financial statement, the assets and liabilities of the Group’s
foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of eachreporting period. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising are recognized in other comprehensive income (attributed to the owners of theCompany and non-controlling interests as appropriate).

- 19 -

On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect ofthat operation attributable to the owners of the Company are reclassified to profit or loss.
Cash Equivalents
Cash equivalents, consisting of commercial paper and time deposits, are highly liquid financial instrumentswith maturities of three months or less when acquired and with carrying amounts that approximate their fairvalues.
Inventories
Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations
and items for in-flight sale and are stated at the lower of cost or net realizable value. The costs ofinventories sold or consumed are determined using the weighted-average method.
Noncurrent Assets Held for Sale
Non-current assets are classified as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the non-current asset is available for immediate sale in its present condition.
To meet the criteria for the sale being highly probable, the appropriate level of management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within one
year from the date of classification.
Non-current assets classified as held for sale are measured at the lower of their previous carrying amountand fair value less costs to sell. Recognition of depreciation of those assets would cease.
Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor
an interest in a joint venture. Joint venture is a joint arrangement whereby the Group and other parties thathave joint control of the arrangement have rights to the net assets of the arrangement.
The Group uses the equity method to account for its investments in associates and joint ventures.
Under the equity method, investments in an associate and a joint venture are initially recognized at cost andadjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of
the associate and joint venture. The Group also recognizes the changes in the Group’s share of equity of
associates and joint venture attributable to the Group.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets
and liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which isincluded within the carrying amount of the investment and is not amortized. Any excess of the Group’s
share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after
reassessment, is recognized immediately in profit or loss.
When the Group subscribes for additional new shares of the associate and joint venture at a percentage
different from its existing ownership percentage, the resulting carrying amount of the investment differsfrom the amount of the Group’s proportionate interest in the associate and joint venture. The Group
records such a difference as an adjustment to investments with the corresponding amount charged or
credited to capital surplus - changes in the Group’s share of equity of associates and joint ventures. If theGroup’s ownership interest is reduced due to the additional subscription of the new shares of associate andjoint venture, the proportionate amount of the gains or losses previously recognized in other comprehensive
income in relation to that associate and joint venture is reclassified to profit or loss on the same basis as
would be required if the investee had directly disposed of the related assets or liabilities. When the- 20 -

adjustment should be debited to capital surplus, but the capital surplus recognized from investments
accounted for by the equity method is insufficient, the shortage is debited to retained earnings.
When the Group’s share of losses of an associate and a joint venture equals or exceeds its interest in thatassociate and joint venture (which includes any carrying amount of the investment accounted for by theequity method and long-term interests that, in substance, form part of the Group’s net investment in theassociate and joint venture), the Group discontinues recognizing its share of further losses. Additional
losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, orconstructive obligations, or made payments on behalf of that associate and joint venture.
The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset
by comparing its recoverable amount with its carrying amount. Any impairment loss recognized isdeducted from the carrying amount of the investment. Any reversal of that impairment loss is recognized
to the extent that the recoverable amount of the investment subsequently increases.
The Group discontinues the use of the equity method from the date on which its investment ceases to be an
associate and a joint venture. Any retained investment is measured at fair value at that date and the fairvalue is regarded as its fair value on initial recognition as a financial asset. The difference between theprevious carrying amount of the associate and the joint venture attributable to the retained interest and its
fair value is included in the determination of the gain or loss on disposal of the associate and the joint
venture. The Group accounts for all amounts previously recognized in other comprehensive income inrelation to that associate and the joint venture on the same basis as would be required if that associate had
directly disposed of the related assets or liabilities. If an investment in an associate becomes aninvestment in a joint venture or an investment in a joint venture becomes an investment in an associate, theGroup continues to apply the equity method and does not remeasure the retained interest.
Property, Plant and Equipment
Property, plant and equipment are tangible items that are held for use in the production or supply of goods
or services, for rental to others, or for administrative purposes; and are expected to be used more than one
period. The cost of an item of property, plant and equipment shall be recognized as assets if, and only if itis probable that future economic benefits associated with the item will flow to the entity; and the cost of theitem can be measured reliably. Property, plant and equipment are stated at cost, less recognizedaccumulated depreciation and recognized accumulated impairment loss.
Freehold land is not depreciated.
Depreciation is recognized using the straight-line method. Each significant part is depreciated separately.
The estimated useful lives, residual values and depreciation method are reviewed at the end of eachreporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets. Assets are depreciated over the shorter of the lease term and their useful lives using thestraight-line method.
Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment isdetermined as the difference between the sales proceeds and the carrying amount of the asset and isrecognized in profit or loss.
Investment Properties
Investment properties are properties held to earn rentals or for capital appreciation. Investment properties
also include land held for a currently undetermined future use.

- 21 -

Investment properties are measured initially at cost, including transaction costs. Subsequent to initialrecognition, investment properties are measured at cost less accumulated depreciation and accumulated
impairment loss.
Depreciation is recognized using the straight-line method. The estimated useful life residual value arereviewed at the end of each reporting period.
Any gain or loss arising on derecognition of the property is calculated as the difference between the net
disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period inwhich the property is derecognized.
Intangible Assets
Intangible assets with finite useful lives that are acquired separately are initially measured at cost andsubsequently measured at cost less accumulated amortization and accumulated impairment loss.
Amortization is recognized on a straight-line basis. The estimated useful life, residual value, andamortization method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. The residual value of an intangible asset with a finite
useful life shall be assumed to be zero unless the Group expects to dispose of the intangible asset before theend of its economic life.
Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible
assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order todetermine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which theasset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable andconsistent basis; otherwise corporate assets are allocated to the smallest group of cash-generating units on areasonable and consistent allocation basis.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the Company use the estimated cash flows to be discounted by future pre-tax discount rate, the discount rate
reflects current market time value of money and the specific risks to the asset that the estimated future cash
flows have not yet adjusted to the market.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.
When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amountthat would have been determined had no impairment loss been recognized for the asset or cash-generating
unit in prior years. A reversal of an impairment loss is recognized in profit or loss.
Financial Instruments
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual
provisions of the instruments.

- 22 -

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deducted fromthe fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.
a. Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis. All regular way purchases or sales of financial assets means buy or sell financial assets in the
period made by regulation or market convention.
1) Measurement category
Financial assets are classified into the following specified categories: Financial assets at fair value
through profit or loss, available-for-sale financial assets and loans and receivables. The
classification of financial assets is depending on their nature and purpose of the original recognition.
Financial assets are classified into the following categories: Financial assets at fair value throughprofit or loss and available-for-sale financial assets.
a) Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.
Financial assets at fair value through profit or loss are stated at fair value, with any gains orlosses arising on remeasurement recognized in profit or loss. The net gain or loss recognizedin profit or loss incorporates any dividend or interest earned on the financial asset. Fair value
is determined in the manner described in Note 32.
b) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity investments orfinancial assets at fair value through profit or loss.
Changes in the carrying amount of available-for-sale financial assets are recognized in othercomprehensive income and will be reclassified to profit or loss when the investment is disposedof or is determined to be impaired.
Dividends on available-for-sale equity instruments are recognized in profit or loss when the
Company’s right to receive the dividends is established.
Available-for-sale equity investments that do not have a quoted market price in an active market
and whose fair value cannot be reliably measured and derivatives that are linked to and must be
settled by delivery of such unquoted equity investments are measured at cost less any identified
impairment loss at the end of each reporting period and are presented in a separate line item asfinancial assets carried at cost. If, in a subsequent period, the fair value of the financial assets
can be reliably measured, the financial assets are remeasured at fair value. The difference
between carrying amount and fair value is recognized in profit or loss or other comprehensive
income on financial assets.

- 23 -

c) Loans and receivables
Loans and receivables (including trade receivables, cash and cash equivalent, debt investmentswith no active market, and other receivables are measured at amortized cost using the effective
interest method, less any impairment, except for short-term receivables when the effect of
discounting is immaterial.
2) Impairment of financial assets
Financial assets, other than those at fair value through profit or loss and available-for-sale financial
assets, are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired when there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset, the estimated future cash
flows of the investment have been affected.
For financial assets carried at amortized cost, such as trade receivables and other receivables, assets
are assessed for impairment on a collective basis even if they were assessed not to be impaired
individually. Objective evidence of impairment for a portfolio of receivables could include theGroup’s past experience of collecting payments, an increase in the number of delayed payments inthe portfolio past the average credit period of 60 days, as well as observable changes in national or
local economic conditions that correlate with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the financial asset’s original effective interest rate.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the investment at the date the impairment is reversed
does not exceed what the amortized cost would have been had the impairment not been recognized.
For available-for-sale equity investments, a significant or prolonged decline in the fair value of the
security below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include the followings:a) Significant financial difficulty of the issuer or counterparty;b) Breach of contract, such as a default or delinquency in interest or principal payments;c) It becoming probable that the borrower will enter bankruptcy or financial re-organization; ord) The disappearance of an active market for that financial asset because of financial difficulties.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the period.
In respect of available-for-sale equity securities, impairment loss previously recognized in profit orloss are not reversed through profit or loss. Any increase in fair value subsequent to an
impairment loss is recognized in other comprehensive income. In respect of available-for-saledebt securities, impairment loss are subsequently reversed through profit or loss if an increase in thefair value of the investment can be objectively related to an event occurring after the recognition of
the impairment loss.

- 24 -

For financial assets that are carried at cost, the amount of the impairment loss is measured as thedifference between the asset’s carrying amount and the present value of the estimated future cash
flows discounted at the current market rate of return for a similar financial asset. Such impairment
loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all
financial assets with the exception of trade receivables and other receivables, where the carrying
amount is reduced through the use of an allowance account. When a trade receivable and otherreceivables are considered uncollectable, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited against the allowance account.
Changes in the carrying amount of the allowance account are recognized in profit or loss except foruncollectable trade receivables and other receivables that are written off against the allowanceaccount.
3) Derecognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another party.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss
that had been recognized in other comprehensive income is recognized in profit or loss.
b. Equity instruments
Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity
in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
An equity instrument is residual interest in any contract after the Group’s assets minus all liabilities.
Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue
costs.
Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity.
No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of theCompany’s own equity instruments.
c. Financial liabilities
1) Subsequent measurement
Except for derivative financial instruments, all the financial liabilities are measured at amortizedcost using the effective interest method.
2) Derecognition of financial liabilities
The Group derecognizes financial liabilities only when the obligation is discharged, canceled or
expired. The difference between the carrying amount of the financial liability derecognized andthe consideration paid, including any non-cash assets transferred or liabilities assumed, isrecognized in profit or loss.

- 25 -

d. Convertible bonds
The component parts of compound instruments (convertible bonds) issued by the Company areclassified separately as financial liabilities and equity in accordance with the substance of thecontractual arrangements and the definitions of a financial liability and an equity instrument.
On initial recognition, the fair value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible instruments. This amount is recorded as a liability on anamortized cost basis using the effective interest method until extinguished upon conversion or the
instrument’s maturity date. Any embedded derivative liability is measured at fair value.
The conversion option classified as equity is determined by deducting the amount of the liability
component from the fair value of the compound instrument as a whole. This is recognized andincluded in equity, net of income tax effects, and is not subsequently remeasured. In addition, theconversion option classified as equity will remain in equity until the conversion option is exercised, inwhich case, the balance recognized in equity will be transferred to capital surplus - share premium.
When the conversion option remains unexercised at maturity, the balance recognized in equity will betransferred to capital surplus - share premium.
Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity
components in proportion to the allocation of the gross proceeds. Transaction costs relating to theequity component are recognized directly in equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability component.
e. Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest
rate, foreign exchange rate and fuel price risks, including foreign exchange forward contracts, interest
rate swaps, currency options and fuel swaps.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into andare subsequently remeasured to their fair value at the end of each reporting period. The resulting gainor loss is recognized in profit or loss immediately unless the derivative is designated and effective as ahedging instrument, in which event the timing of the recognition in profit or loss depends on the natureof the hedge relationship. When the fair value of derivative financial instruments is positive, thederivative is recognized as a financial asset; when the fair value of derivative financial instruments isnegative, the derivative is recognized as a financial liability.
Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rates, exchange rates,
fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging transactions
are defined as cash flow hedge. When entering into hedging transactions, the Company has prepared
official documents that describe the hedging relationship between hedging instruments and items been
hedged, objective of risk management, hedging strategy, and the way to evaluate the effectiveness of thehedging instrument.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion isrecognized immediately in profit or loss.

- 26 -

The associated gains or losses that were recognized in other comprehensive income are reclassified fromequity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in thesame period when the hedged item affects profit or loss. If a hedge of a forecast transaction subsequently
results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses
that were recognized in other comprehensive income are removed from equity and are included in the initialcost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued prospectively when the Group revokes the designated hedging
relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it nolonger meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument thathas been previously recognized in other comprehensive income from the period when the hedge was
effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is
no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit orloss.
Provisions
The Group recognizes provisions when the Group has a present obligation (legal or constructive) arisingfrom past events (legal or constructive obligation), payment for the obligation is probable, and theexpenditure for settling the obligation can be estimated reliably.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present
obligation, taking into account the risks and uncertainties surrounding the obligation as of the balance sheet
date. When a provision is measured using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows.
Aircraft lease contracts
When the aircraft lease contracts expire and will be returned to lessor, should assess if existing obligations
exist and required to recognize as provision when signing of the lease contract.
Revenue Recognition
a. Rendering of services
Passenger fares and cargo revenue are recognized when transport service is provided. The value of
unused passenger tickets is recognized as “advance ticket - sales”.
b. Dividend and interest income
Dividend income from investments is recognized when the shareholder’s right to receive payment has
been established provided that it is probable that the economic benefits will flow to the Group and theamount of income can be measured reliably.
Interest income from a financial asset is recognized when it is probable that the economic benefits willflow to the Group and the amount of income can be measured reliably. Interest income is accrued on atime basis, by reference to the principal outstanding and at the effective interest rate applicable.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.

- 27 -

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 reduction 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 rents 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 that all the risks and rewards of ownershipof the leased asset is essentially transferred to the lessee, the sale and leaseback type is a finance lease.
If part of the significant risks and rewards of the leased asset ownership remain with the lessor (thebuyer), the sale and leaseback type is an operating lease.
1) Financial lease
This transaction does not actually dispose of the assets, the accounting treatment deemedtransaction did not occur, and use the book value of the asset before sale continuing recognition of
the asset.
2) Operating lease
If the selling price is equal to the fair value, the transaction gain or loss should be recognized
immediately. If selling price is above fair value, the difference between the fair value and thebook value of the gain or loss should be recognized immediately; only the part of selling price
above fair value shall be deferred and amortized over the period of the lease.
c. Operating lease1) The Group as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease unless another systematic basis is representative of the time pattern of the lessee’s
benefit from the use of the leased asset.
2) The Group as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rents arising under operating leases arerecognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives arerecognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more representative of thetime pattern in which economic benefits from the leased asset are consumed.

- 28 -

Employee Benefits
a. Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related service.
b. Retirement benefits
Payments to the defined contribution retirement benefit plan are recognized as an expense whenemployees have rendered services entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined
contribution retirement benefit plan are determined using the projected unit credit method. Service
cost (including current service cost, past service cost, and net interest on the net defined benefit liability(asset) are recognized as employee benefits expense in the period in which they occur.
Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest),
is recognized in other comprehensive income in the period in which it occurs. Remeasurement
recognized in other comprehensive income is reflected immediately in retained earnings and will not bereclassified to profit or loss.
Net defined benefit liability represents the actual deficit in the Group’s defined benefit plan.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets(assets are substantially ready for their intended use or sale through a fairly long period) are added to thecost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which
they are incurred.
Frequent Flyer Program
The Company has a “Dynasty Flyer Program” through which program members can convert accumulated
mileage to a cabin upgrade, free tickets and other member reward.
A portion of passenger revenue attributable to the rewards for the frequent flyer program is deferred. The
entity should recognize this deferred revenue as revenue only when the entity has fulfilled its obligations on
the granting of rewards or when the period for converting the mileage to rewards has expired.
Share-based Payment Arrangements
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments
at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on astraight-line basis over the vesting period, based on the Group’s estimate of equity instrument that will
eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value
determined at the grant date of the equity-settled share-based payments is recognized as an expense in fullat the grant date when the share options granted vest immediately.

- 29 -

Taxation
Income tax expense represents the sum of the current tax and deferred tax.
a. Current tax
The current tax liabilities are based on current taxable profit. Since part of the income and expenses
are taxable or deductible in other periods, or in accordance with the relevant tax laws are taxable ordeductible, current taxable profit differs from net profit reported in the consolidated statements ofcomprehensive income.
The Group’s current tax liabilities are calculated by the tax rate has been legislative or substantial
legislative at the balance sheet date.
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided foras income tax in the year the stockholders approve the retention of these earnings.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
b. Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities in the consolidated financial statements and the corresponding tax bases used in thecomputation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment
and technology, research and development expenditures, and personnel training expenditures to theextent that it is probable that taxable profits will be available against which those deductible temporary
differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to control thereversal of the temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that there will be
sufficient taxable profits against which to utilize the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all orpart of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at theend of each reporting period and recognized to the to the extent that it has become probable that futuretaxable profit will allow the deferred tax asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period inwhich the liability is settled or the asset realized, based on tax rates (and tax laws) that have beenenacted or substantively enacted by the end of the reporting period. The measurement of deferred tax
liabilities and assets reflects the tax consequences that would follow from the manner in which theGroup expects, at the end of the reporting period, to recover or settle the carrying amount of its assets
and liabilities.
c. Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current and deferred
tax are also recognized in other comprehensive income or directly in equity respectively.
- 30 -

Maintenance and Overhaul Costs
Routine maintenance costs are recognized in profit or loss in the period in which they are incurred.
The overhaul costs of the owned or leased aircraft that meet the criteria for fixed asset capitalization andengines as replacement parts for aircraft and engines are capitalized, and amortized over the expectedannual overhaul cycle using straight-line depreciation method.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
In the application of the Group’s accounting policies shown on Note 4, management is required to makejudgments, estimates and assumptions about the carrying amounts of assets and liabilities that are notreadily apparent from other sources. The estimates and associated assumptions are based on historicalexperience and other factors that are considered relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both current and future periods.
Key Sources of Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of thereporting period that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are discussed below.
Income Taxes
The Group is subject to income taxes in numerous jurisdictions. Where the final tax payable differs fromthe amounts that were initially recognized, these differences will affect the income tax and deferred tax
provisions in the period in which the differences are determined. Deferred tax assets are recognized for
deductible temporary differences to the extent that it is probable that taxable profits will be available
against which the deductible temporary differences can be used. When evaluating the realizability of thedeferred tax asset, management uses significant accounting judgments and estimates, including expected
future revenue growth and profit margins, income tax exemption periods, the use of tax credits, tax
planning and certain assumptions. Changes in the industry environment and regulations will result in amaterial adjustment of the deferred tax asset.
Estimated Impairment of Trade Receivables
The Group assesses the receivables portfolios monthly for impairment. Impairment evidences may
include observable changes in debtors’ solvency and national or local economic conditions that correlatewith default on receivable settlement. Management’s analysis of expected cash flows is based on pastexperience of loss on assets with similar credit risk characteristics. The Group periodically reviews themethods of determining, and assumptions on, the expected amount and timing of cash flows to reduce thedifference between the estimated and the actual losses.

- 31 -

Fair Value of Derivatives and Other Financial Instruments
The Group’s management uses its judgment in selecting an appropriate valuation technique for financial
instruments with no quoted market prices in an active market. Valuation techniques commonly used bymarket practitioners are applied. For derivative financial instruments, assumptions are based on quoted
market rates adjusted for specific features of the instruments. Other financial instruments are valued using
a discounted cash flow analysis based on assumptions supported, where possible, by observable market
prices or rates. The chosen valuation techniques and assumptions used are possible effecting in
determining the fair value of financial instruments.
Depreciation of Property, Plant and Equipment - Flight Equipment
Flight equipment are depreciated on a straight-line basis at rates that can be used to write down their cost to
their estimated residual values at the end of their useful lives. The estimates of the useful lives andresidual values of the flight equipment are made by the Group on the basis of past experience and fleet
operation performance in the industry.
Defined Benefit Obligations
The present value of defined benefit obligations at the end of the reporting period are calculated using
actuarial assumptions. Those assumptions, which are based on management’s judgment and estimates,
comprise the discount rate and expected return on plan assets. Changes in actuarial assumptions may havea material impact on the amount of defined benefit obligations.
Maintenance Reserve for Operating Lease Aircraft
Maintenance reserve is based on the requirement under lease contracts to reflect maintenance costs that may
arise on lease expiry. Estimation of this reserve is based on the past maintenance experience on the sameor similar type of aircraft; incurred overhaul costs; and historical operating performance data. Changes injudgment or estimations may have a material impact on the amount of maintenance reserve.
Frequent Flyer Program
As stated in Note 4, Frequent Flyer Program, a portion of passenger revenue attributable to the awarding of
frequent flyer benefits is deferred until the awards are given out. The deferment of the revenue isestimated on the basis of historical trends of breakage and redemption, which is then used to project the
expected claiming of these benefits. Changes in fair value per mileage or redemption rate may have amaterial impact on deferred revenue.
Impairment of Flight Equipment
The impairment of flight equipment was based on the recoverable amount of those assets, which is thehigher of fair value less costs to sell or value-in-use of those assets. Any changes in the market price or
future cash flows will affect the recoverable amount of those assets and may lead to recognition of
additional or reversal of impairment losses.
Impairment of Non-Current Assets Held For Sale
When the carrying amount of non-current assets held for sale are lower than fair value, the difference
between carrying amount and fair value recognized as impairment loss, and the fair value was determinedbased on the quote of potential buyers, and the market price of similar assets.

- 32 -

6. CASH AND CASH EQUIVALENTS
December 31
2016
Cash on hand and revolving fund
Checking accounts and demand deposits
Cash equivalents
Time deposits with original maturities of less than three months
Repurchase agreements collateralized by bonds

$

2015

359,106
9,266,679$

478,223
6,070,236

3,698,109
10,943,303

16,163,452
779,174$ 24,267,197$ 23,491,085

The market rate intervals of cash in bank and cash equivalents at the end of the reporting period were as
follows:
December 31

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

2016

2015

0.05%-2%
0.13%-12.9%
0.33%-1.40%

0%-1.5%
0.27%-7.25%
0.42%-0.51%

The amount of time deposits with original maturities more than three months for the years ended December
31, 2016 and 2015 were $1,267,927 thousand and $1,653,927 thousand, respectively, and the market rateintervals were 0.16%-2.45% and 0.295%-4.1%, which were recognized as other current assets. (Refer toNote 19).

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
December 31
2016

2015

Financial assets held for trading - current
Derivative financial instruments (not under hedge accounting)Foreign exchange forward contracts
Non-derivative financial assets
Beneficial certificates

$

1,200

$

63,818415,441

478,508$ 416,641$ 542,326$$

Financial assets held for trading - noncurrent
Derivative financial instruments (not under hedge accounting)Foreign exchange forward contracts- 33 --

1,710

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

Currency

Notional Amount(In Thousands)

Maturity Date

December 31, 2016
Buy forward contracts

NTD/USD2017.01.26

NTD32,258/USD1,000

NTD/USD

2016.01.08-2017.01.26

December 31, 2015
Buy forward contracts

NTD3,276,316/USD99,600

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 31
2016
Carrying
Value

2015
% of
Ownership

Carrying
Value

% of
Ownership-$ 19,080-

Non-current
Domestic listed company
Trans Asia Airways$-

On November 22, 2016, the board of the directors of TransAsia Airways (TNA) resolved to dissolve TNA.
Therefore, the Group recognized an impairment loss on its investment related to TNA of $19,005 thousand.
Furthermore, the Group recognized a full allowance for bad debts to the accounts receivable related toTNA.

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING
December 31
2016

2015

Derivative financial assets under hedge accounting
Foreign exchange forward contracts
Currency options
Fuel options

Current
Non-current- 34 -$

61,63483$

51,06012,403335$

61,717$

63,798$58,4493,268$

52,582
11,216$

61,717$

63,798(Continued)

December 31
2016

2015

Derivative financial liabilities under hedge accounting
Interest rate swaps
Currency options
Fuel options
Foreign exchange forwards contracts

Current
Non-current

$

3,855
19,774$

12,702
12,660299,618-$

23,629$ 324,980$

20,8542,775$ 313,689
11,291$

23,629$ 324,980(Concluded)

The fair value of each derivative contract is determined using quotes from financial institutions.
Cash Flow Hedge
a. Interest rate swaps
The Group entered into interest rate swap contracts to mitigate the risk of changes in interest rates on
the cash flow exposure related to the outstanding floating rate debt. All swapped fixed interest rate
swap out the floating rate interest rate swap contracts are designated as cash flow hedges. The
outstanding interest rate swap contracts at the end of the reporting period were as follows:

Notional Amount(In Thousands)

Maturity Date

Range ofInterest Rates
Paid

Range of Interest Rates
Received2017.03.09-2017.06.22

1.01%-1.14%

TAIBOR rate

2016.11.28-2017.06.22

1.01%-1.14%

TAIBOR rate

December 31, 2016
NT$2,500,000
December 31, 2015
NT$3,000,000

The interest rate swaps settle on a quarterly basis. The Company will settle the difference between the
fixed and floating interest rates on a net basis.
b. Currency options
The Group entered into currency option to minimize the risk of changes in foreign currency rate on the
cash flow exposure related to fuel payments, which will be paid in U.S. dollars.

- 35 -

The outstanding currency options at the end of the reporting period were as follows:

Currency

Maturity Date

JPY/USD
JPY/USD

2016.01.08-2016.12.09
2016.01.08-2016.12.09

Notional Amount(In Thousands)

December 31, 2015
Buy USD call option
Sell USD put option

JPY3,446,570/USD28,400
JPY3,364,604/USD28,400

c. Fuel options
The Group used fuel options to minimize the risk of changes in fuel price related to operating cost.
The outstanding fuel options at the end of the reporting period were as follows:
Notional Amount(In Thousands)

Currency

Maturity Date

USD

2017.01.05-2018.02.08

NTD83

USD
USD

2016.01.05-2016.12.07
2016.01.05-2016.12.07

NTD335NTD299,618

December 31, 2016
Buy fuel call option
December 31, 2015
Buy fuel call option
Sell fuel put option

Based on the Taiwan Stock Exchange’s regulation for the public companies’ monthly declarations on
the trading of derivative financial instruments, the contractual amounts are shown at the absolute valuesof the fair values because fuel swap contracts only have notional amounts.
d. Foreign exchange forward
The Group entered into foreign exchange forward contracts to minimize cash flow exposure related tofuel payments and aircraft payments, which will be paid in U.S. dollars.
The outstanding foreign exchange forward contracts at the end of the reporting period were as follows:

Currency

Maturity Date

Notional Amount(In Thousands)

NTD/USD2017.01.03-2018.10.25

NTD5,381,178/USD167,078

NTD/USD

2016.01.18-2017.05.23

NTD1,076,882/USD32,920

December 31, 2016
Buy forward contracts
December 31, 2015
Buy forward contracts- 36 -

Gains and losses of hedging instruments reclassified from equity to profit or loss were included in thefollowing line items in the consolidated statements of comprehensive income:For the Year Ended December 31
2016
2015
Increase in operating cost
Increase in finance cost
Other foreign exchange gain (loss)$(352,960)(10,390)(71,460)$ (2,582,480)(7,151)
34,786$(434,810)$ (2,554,845)

The amount of gains and losses on hedging instruments reclassified from profit or loss to prepayments
for equipment was $154,970 thousand in 2016.

10. FINANCIAL ASSETS CARRIED AT COST
December 31
2016
Carrying
Value
Unlisted common stocks
Everest Investment Holdings Ltd. (AH)
Jardine Aviation Service
Taikoo (Xiamen) Landing Gear Service
Co., Ltd.
Taikoo Spirt Aerospace Systems (Jin
Jiang) Composite Co., Ltd.
Chung Hwa Express Co.
Regal International Advertising$

52,70456,02314
15-

Carrying
Value

$

% of
Ownership

52,70456,02314
15

675,791

6

20,157
11,000139,884

5
11-

21,995
11,0005,925
223,438

5
11
6

473

-

473

Unlisted preferred stocks
Everest Investment Holdings Ltd. (AH)

Classified according to financial asset
measurement categories
Available-for-sale financial assets

2015
% of
Ownership-$ 140,357$ 223,911$ 140,357$ 223,911

The Group recognized an impairment loss of $71,826 thousand, which was classified as other gains (losses)
for the year ended December 31, 2016, due to the permanent decline of the value of Taikoo (Xiamen)
Landing Gear Service Co., Ltd.
The Company and the other airlines in the Asian Region set up Abacus International Holdings (AH
Company), which owned Abacus Distribution Systems. Due to strategic adjustments, AH Company
disposed of its shares of Abacus Distribution Systems. The board of directors of AH Company resolved
and approved of the return of the gain on the disposal to stockholders by cash dividends and shareredemptions. The Company received cash dividends of $1,660,687 thousand and share redemptions of$245,242 thousand from AH Company. AH Company changed its name to Everest Investment Holdings
Ltd. after the disposal of its aforementioned subsidiary.

- 37 -

On the reporting date, the above unlisted stock investments held by the Group were measured at cost after
deducting impairment losses because their range of reasonable fair value estimates were significant andunable to be reasonably evaluated. Thus, the management considered their fair values unable to bemeasured.

11. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE
December 31
2016
Notes receivable

$

2015

525,797$

344,479

Accounts receivable
Accounts receivable
Less: Allowance for impairment loss

8,019,386(191,398)
7,827,988

7,376,125(109,927)
7,266,198$ 8,353,785$ 7,610,677

The average credit period was 7 to 55 days. In determining the recoverability of an account receivable,
the Group considered any change in the credit quality of the account receivable since the date credit was
initially granted to the end of the reporting period, and any allowance for impairment loss was based on theestimated irrecoverable amounts determined by reference to the Group’s past default experience with thecounterparty and an analysis of the counterparty’s current financial position.
Movement in the allowance for impairment loss recognized on notes receivable and trade receivables wereas follow:
For the Year Ended December 31
2016
2015
Beginning balance
Impairment loss recognized on receivables
Amounts written off during current period
Exchange influence$ 109,927
83,657(2,462)276$

66,13149,458(5,292)(370)

Ending balance$ 191,398$ 109,927

12. INVENTORIES
December 31

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
Others2016

2015$ 7,713,264
553,327
166,684
1,111$ 7,648,352
507,603
143,489954$ 8,434,386$ 8,300,398

The operating costs recognized for the years ended December 31, 2016 and 2015 included losses frominventory write-downs of $196,000 thousand and $151,688 thousand, respectively.

- 38 -

13. NON-CURRENT ASSETS HELD FOR SALE
December 31

Aircrafts held for sale

2016

2015

$ 185,100$ 670,455

To enhance its competitiveness, the Company implemented a replacement plan to introduce new aircrafts
and retire old aircrafts. From August 2015, several resolutions were successively made by the Company’sboard of directors to dispose of several aircrafts and the Company reclassified those aircrafts as non-current
assets held-for-sale. The difference between the original carrying amount and the expected transaction
value was recognized as an impairment loss, and the Company will assess if further impairment arises insubsequent periods. The actual amount of loss is determined based on the actual selling price of eachaircraft. In 2016 and 2015, the Company recognized impairment losses of $347,868 thousand and$1,899,372 thousand, respectively. In 2016, the Company recognized a loss on the disposal of non-current
assets held for sale of $26,429 thousand.

14. SUBSIDIARIES
Subsidiary included in the consolidated financial statements:

Investor Company
China Airlines, Ltd.

Investee Company

Main Businesses and Products

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

Cal-Dynasty
International
Taiwan Airport Services
Hwa Hsia

Taiwan Air Cargo Terminal(Note)
Dynasty Holidays
Taoyuan International Airport
Services
Taiwan Airport Services (Note)
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Tigerair Taiwan Co., Ltd. (Note)
Taiwan Aircraft Maintenance
And Engineering Co., Ltd.
Dynasty Properties Co., Ltd.
Dynasty Hotel of Hawaii, Inc.
Taiwan Airport Service (Samoa)
Hwa Shin Building Safeguard

Proportion of
Ownership
December 31
2016
2015

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

100

100

100
100

100
100

100
100
100
94

100
100
100
94

94

94

59

59

Travel businessAirport services

51
49

51
49

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

48
25
100
100
90
100

47
25
100
100
90
100

Real estate management
Hotel businessAirport supporting service and investment
Building security and maintenanceservices

100
100
100
-

100
100
100
100

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

- 39 -

To facilitate the integration of resources and business management of the Group, on August 1, 2016, Hwa
Hsia Co., Ltd. merged with Hwa Shin Building Safeguard Co., Ltd. (the dissolved company) and was thesurviving entity. All of the assets, liabilities and other rights and obligations were transferred to Hwa Hsia
Co., Ltd.
Considering the Group’s development strategy, Mandarin Airlines bought 323,367 shares of Taiwan
Airport Services for a total of $8,084 thousand over the course of the current year.
The Company increased its investments with a payment of $100,000 thousand to Taiwan Aircraft
Maintenance and Engineering Co., Ltd. in October 2016 for the purpose of building hangars.
To integrate the resources of the Group, the board of directors reached an agreement to purchase 10% of theshares of Tigerair Taiwan, which were held by Roar Aviation III Pte. Ltd., in December 2016. The
transaction was completed in January 2017.
Each of the Company’s holdings of the issued share capital of Taoyuan International Airport Service,Taiwan Airport Service and Global Sky Express did not exceed 50%, but since the Company had control
over these investees, they were listed as subsidiaries. The financial information for the years ended
December 31, 2016 and 2016 of these subsidiaries was reported according to information that was
independently audited.
The Group’s holding of the issued share capital of China Pacific Catering Services and China Pacific
Laundry Services exceeded 50%, yet the Group did not have control over the investees. For related
information, refer to Note 15,b.

15. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
December 31

Investments in associates
Investments in jointly controlled entities

2016

2015

$ 2,060,403
806,028$ 2,010,774
867,003$ 2,866,431$ 2,877,777

a. The amount of investment in associates were as follows:
December 31
2016

2015

Unlisted companies
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.
Prepaid long-term investments - Science Park Logistics$

515,051
267,371
279,176
257,928
467,041
230,888
42,9482,060,403-$ 2,060,403- 40 -$

490,824
244,903
263,091
185,226
494,665
226,066
41,908
1,946,683
64,091$ 2,010,774

On December 18, 2015 the board of Science Park Logistics (SPL) approved the issuance of commonshares for cash with the date of right issuances granted on was December 25, 2015. The board of theCompany reached an agreement to purchase $64,091 thousand of common shares, which were remitted
to SPL. SPL completed the registration of this subscription on January 22, 2016.
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 andVoting Rights
December 31
2016
2015

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

20%
36%
25%
26%
28%
28%
35%

20%
36%
25%
28%
28%
28%
35%

The investment income of associates recognized accounted for using equity method were as follows:
2016
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Airport air Cargo Terminal (Xiamen)
Airport air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

$

2015

51,02875,674
109,815
26,136
14,307
24,742
5,617$ 307,319$

46,24758,084
93,375
16,37318,44922,362
6,759$ 261,649

Other comprehensive income of associates accounted for by using the equity method in 2016 and 2015
are losses in the amounts of $(1,325) thousands and $(1,720) thousand, respectively.
The financial statements used as a basis of the amounts of and related information on the investments
accounted for by using the equity method and the share of profit or loss and other comprehensive
income of those investments for the years ended December 31, 2016 and 2015 were all independently
audited, except those of China Aircraft Services and Eastern United International Logistics (Holding)Ltd. However, the management determined that there would have been no significant adjustments had
this investee’s financial statements been independently audited.
b. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services- 41 -

2016

2015$ 638,980
167,048$ 705,134
161,869$ 806,028$ 867,003

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 andVoting Rights
December 31
2016
2015
China Pacific Catering Services
China Pacific Laundry Services

51%
55%

51%
55%

The Group entered into a joint venture agreement with the Taikoo Group to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both parties havethe majority power in the board of directors to pose a motion for veto, and therefore the Group does nothave control.
Details of investment income attributable to investment in jointly controlled entitles were as follows:
For the Year Ended December 31
2016
2015
China Pacific Catering Services
China Pacific Laundry Services$ 208,039
21,628$ 231,012
23,479$ 229,667$ 254,491

Other comprehensive income of associates accounted for by using the equity method in 2016 and 2015
are losses in the amounts of $(65,531) thousand and $(1,943) thousand, respectively.
The investments in jointly controlled entities accounted for by using the equity method and the Group’s
shares of their profit or loss and other comprehensive income were based on the jointly controlled
entities’ financial statements which had not been reviewed by independent auditors.
For details on services, major business offices and the country where the above associates and jointly
controlled entities are registered, refer to Table 5, “Names, Locations, And Other Information Of
Investees On Which The Company Exercises Significant Influence” and Table 6, “Investments In
Mainland China” following these Notes to Consolidated Financial Statements.

16. PROPERTY, PLANT AND EQUIPMENT
December 31
2016

2015

Cost
Freehold land
Buildings
Flight equipment
Equipment under finance leases
Machinery equipment
Office equipment
Leased assets$- 42 -

965,174
13,104,983
248,262,079
28,898,891
10,317,327
1,086,015
120,100$

976,427
13,140,158
229,849,035
28,087,404
9,930,186
1,044,598
129,372(Continued)

December 31
2016
Leasehold improvements
Construction in progress

$

2015

3,958,811
499,547$

3,928,846
134,888$ 307,212,927$ 287,220,914$$

Accumulated depreciation and impairment loss
Buildings
Flight equipment
Equipment under finance leases
Machinery equipment
Office equipment
Leased assets
Leasehold improvements

Net value

Freehold Land

Buildings

FlightEquipment

5,781,555
135,893,108
15,846,688
6,964,422
894,997
101,882
1,593,538

5,355,804
128,953,990
14,201,904
6,598,390
839,931
113,276
1,528,753$ 167,076,190$ 157,592,048$ 140,136,737$ 129,628,866(Concluded)

Equipment
under FinanceLeasesOthersTotal

Cost
Balance at January 1,
2015
Additions
Disposals
Reclassification
Net exchange difference
Balance at December 31,
2015$

953,614
22,813$13,085,921
45,404(31,102)590
39,345$ 232,035,450
5,640,527(3,085,768)(4,741,174)-$

33,985,116
394,939(550,429)(5,742,222)-$

14,697,246
630,493(330,385)
165,938
4,598$ 294,757,347
6,711,363(3,997,684)(10,316,868)
66,756$

976,427$

13,140,158$ 229,849,035$

28,087,404$

15,167,890$ 287,220,914

$

-

$

(4,794,850)(562,749)
18,015(55)(16,165)$ (121,645,204)(13,852,657)
2,878,909(569,000)
4,233,962-$ (16,998,403)(2,104,460)
550,430
4,350,529-$(8,663,824)(741,629)
325,893
2,250(3,040)$ (152,102,281)(17,261,495)
3,773,247(569,000)
8,586,686(19,205)$-$(5,355,804)$ (128,953,990)$ (14,201,904)$(9,080,350)$ (157,592,048)$

976,427(11,253)$

13,140,158
93,660(110,227)406(19,014)$ 229,849,035
7,964,882(6,339,141)
16,787,303-$

28,087,404
1,017,510(410,271)
204,248-$

15,167,890
858,094(293,592)
252,436(3,028)$ 287,220,914
9,934,146(7,153,231)
17,244,393(33,295)$

965,174$

13,104,983$ 248,262,079$

28,898,891$

15,981,800

Accumulated depreciationand impairment
Balance at January 1,
2015
Depreciation expense
Disposals
Impairment loss
Reclassification
Net exchange difference
Balance at December 31,
2015
Cost
Balance at January 1,
2016
Additions
Disposals
Reclassification
Net exchange difference
Balance at December 31,
2016$ 307,212,927(Continued)- 43 -

Freehold Land

Buildings

FlightEquipment

Equipment
under FinanceLeasesOthers

Total

Accumulated depreciationand impairment
Balance at January 1,
2016
Depreciation expense
Disposals
Impairment loss
Reclassification
Net exchange difference
Balance at December 31,
2016

$

-

$

(5,355,804)(508,403)
74,3498,303$ (128,953,990)(14,209,081)
5,612,149(717,758)
2,375,572-$ (14,201,904)(2,061,900)
410,271
6,690
155

$

(9,080,350)(765,860)
288,884
631
1,856

$

-

$

(5,781,555)$ (135,893,108)$ (15,846,688)$(9,554,839)$ (157,592,048)(17,545,244)
6,385,653(717,758)
2,382,893
10,314$ (167,076,190)(Concluded)
Property, plant and equipment were depreciated on a straight-line basis over the estimated useful life of theasset:
Building
Main buildings
Others
Machinery equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersAssets leased to others
Flying equipment and equipment under finance leases
Airframes
Aircraft cabins
EnginesHeavy maintenance on aircrafts
Engine overhauls
Landing gear overhauls
Repairable spare parts
Leased aircraft improvements

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, current and forecasted market value, and other technical factors,
the Group recognized impairment losses on aircraft equipment in 2016 and 2015 of $717,758 thousand and$569,000 thousand, respectively.
Refer to Note 34 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 aircrafts, realestate, and movable property are adequately insured to diversify the potential risk related to operations.

- 44 -

The Group generated the following non-cash investment activities related to the purchase of property, plantand equipment in 2016:
December 31,
2016
Increase in property, plant and equipment
Increase in retentions payable on construction contracts
Capitalized interest paid

$ 9,934,146(25,647)(1,692)

Purchase of property, plant and equipment paid

$ 9,906,807

17. INVESTMENT PROPERTIES
December 31

Carrying amount
Investment properties

2016

2015

$ 2,075,903$ 2,076,182

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 value of the investment properties held by the Group was $2,348,759 thousand as of both
December 31, 2016 and 2015.
The fair value valuation was 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 interest.

Cost

Accumulated
Impairment
andDepreciation

Net Value

Balance on January 1, 2015
Additions$ 2,082,390-$(5,929)(279)$ 2,076,461(279)

Balance on December 31, 2015

$ 2,082,390$(6,208)$ 2,076,182

Balance on January 1, 2016
Additions$ 2,082,390-$(6,208)(279)$ 2,076,182(279)

Balance on December 31, 2016

$ 2,082,390$(6,487)$ 2,075,903- 45 -

18. OTHER INTANGIBLE ASSETS
Computer
Software Cost

Accumulated
Amortization

Net Value

Balance at January 1, 2015
Additions
Amortization expense$ 1,214,465
408,721-$(543,468)(70,040)$

Balance at December 31, 2015

$ 1,623,186$(613,508)$ 1,009,678

Balance at January 1, 2016
Additions
Amortization expense
Reclassification
Exchange influence$ 1,623,186
277,235(2,267)-$(613,508)(147,486)(45)$ 1,009,678
277,235(147,486)(2,267)(45)

Balance at December 31, 2016

$ 1,898,154$(761,039)$ 1,137,115

670,997408,721(70,040)

The above other intangible assets were depreciated on a straight-line basis over 2-12 years.

19. OTHER ASSETS
December 31
2016

2015

Current
Other financial assets
Temporary payments
Prepayments
Restricted assets
Others$1,267,927
355,0032,429,741
178,193
407,638$

1,653,927
632,661
1,146,659
500
495,000$

4,638,502$

3,928,747

Noncurrent
Prepayments for aircrafts
Prepayments - long-term
Refundable deposits
Restricted assets
Other financial assets
Others$ 20,942,278
2,020,389
1,389,464
144,835
18,82730,289$ 28,714,476
2,522,891
1,489,112
504,924
14,144
1,312$ 24,546,082$ 33,246,859

The prepayments for aircrafts comprised the prepaid deposits and capitalized interest from the purchase of
A350-900 and 777-300ER aircrafts. For details of the contract for the purchase of the A350-900 aircrafts,
refer to Note 35. The rights to the six confirmed orders of 777-300 ER aircrafts were transferred to theaircraft leasing company upon delivery of the aircrafts. Then, all six aircrafts were leased back. As of
May 2016, all the aircrafts had been delivered, and the Group was refunded with deposits for the aircraft
purchases.

- 46 -

The Group designated its time deposits with original maturities of more than three months which wereclassified as other financial instruments as cash flow hedges to hedge exchange rate exposure from theexpenditure of aircraft rentals. As of December 31, 2016, the book value of the hedging instruments was$455,037 thousand. The losses on the effective portion of the cash flow hedges reclassified from equity
for 2016 were $2,884 thousand, which were classified as operating costs in the statement of comprehensive
income.

20. BORROWINGSa. Short-term loans
December 31
2016

2015

Bank loans - unsecured$ 135,000$ 173,289

Interest rates

1.51%-2%

1.25%-1.8636%

b. Short-term and bills payable
December 31
2016
Commercial paper
Less: Unamortized discount on bills payable

Annual discount rate

2015

$ 900,000-$

10,0005$ 900,000

$

9,995

0.758%

1.3%

c. Long-term debts
December 31

Unsecured bank loans
Secured bank loans
Commercial paper
Proceeds from issue
Less: Unamortized discountLess: Current portion

2016

2015

$ 33,993,999
18,100,914$ 31,231,342
25,342,804

37,200,000
64,18689,230,727
32,268,540

31,275,000
65,52987,783,617
30,092,112$ 56,962,187$ 57,691,505

For information on secured bank loans which were secured by freehold land, buildings, machinery
equipment and flight equipment, refer to Note 34.

- 47 -

Bank loans (New Taiwan dollars and U.S. dollars) are repayable quarterly, semiannually or in lumpsum upon maturity. Related information is summarized as follows:
Currency
New Taiwan
Dollars
U.S. Dollars
Original currency
December 31, 2016
December 31, 2015

$ 51,045,365
52,533,784$

32,536
122,827

Translated to New Taiwan dollars
December 31, 2016
December 31, 2015

51,045,365
52,533,784

1,049,548
4,040,362

0.92%-2.27%
1.1432%2.613%

0.8539%-4.39%
0.4067%4.39%

2005/3/42029/2/4
2004/12/162029/2/4

2005/1/182017/9/21
2004/6/282017/9/21

Interest rates
December 31, 2016
December 31, 2015

Periods
December 31, 2016
December 31, 2015

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The
NIFs, with various maturities until February 2021, were used by the Group to guarantee commercial
papers issued. As of December 31, 2016 and 2015, the commercial papers were issued at discountrates of 1.0510%-1.4580% and 1.2407%-1.5833%, respectively.

21. BONDS PAYABLE
December 31
2016
Secured corporate bonds first-time issued in 2011
Unsecured corporate bonds first-time issued in 2013
Unsecured corporate bonds first-time issued in 2016
Unsecured corporate bonds second-time issued in 2016
Convertible bonds - fifth time
Less: Current portion and put option of convertible bonds$

10,900,000
4,700,000
5,000,000
1,638,044
22,238,044
2,700,000$ 19,538,044- 48 -

2015$

2,400,000
10,900,000
2,544,106
15,844,106
4,944,106$ 10,900,000Related issuance conditions were as follows:
Category

PeriodConditions

Rate (%)

Five-year secured domestic bonds - issued at par in
May 2011; repayable in May 2014, May 2015 andMay 2016; 1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in
May 2011; repayable in May 2014, May 2015 andMay 2016; 1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in
May 2011; repayable in May 2014, May 2015 andMay 2016; 1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in
May 2011; repayable in May 2014, May 2015 andMay 2016; 1.35% interest p.a., payable annually
Five-year private unsecured bonds - issued at par in
January 2013; repayable in January 2017 and 2018;
1.6% interest p.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 and2021; 1.08% interest p.a., payable annually
Five-year convertible bonds - issued at discount in
December 2013; repayable in lump sum uponmaturity; 1.8245% discount rate p.a.

2011.05.20-2016.05.20

Principal repayable in May of2014, 2015 and 2016; indicatorrate; payable annuallyPrincipal repayable in May of2014, 2015 and 2016; indicatorrate; payable annuallyPrincipal repayable in May of2014, 2015 and 2016; indicatorrate; payable annuallyPrincipal repayable in May of2014, 2015 and 2016; indicatorrate; payable annuallyPrincipal repayable in January of2017 and 2018; indicator rate;
payable annuallyPrincipal repayable in January of2019 and 2020; indicator rate;
payable annuallyPrincipal repayable in May of2020 and 2021; interest p.a.
payable annuallyPrincipal repayable in May of2020 and 2021; interest p.a.
payable annually
Except for converting to sharecapital or buying back, principal
repayable in December of 2018

1.35

2011.05.20-2016.05.20

2011.05.20-2016.05.20

2011.05.20-2016.05.20

2013.01.17-2018.01.17

2013.01.17-2020.01.17

2016.05.26-2021.05.26

2016.09.27-2021.09.27

2013.12.26-2018.12.26

1.35

1.35

1.35

1.6

1.85

1.19

1.08

-

The above indicator rate is the 90 days’ commercial paper rates of Taiwan’s secondary market.
The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand,and the purchasers of the bonds included Mandarin Airlines Co., Ltd. and Sabre Travel Network (Taiwan)Co., Ltd., who held a face value of $300,000 thousand which was eliminated from the consolidated
financial statements.
The Company issued the fifth issue of unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at 100.75% face value on the third
anniversary of the offering date. Because the holders can exercise selling rights on December 26,
2016, the Company reclassified the bonds payable to “current portion of bonds payable” in December
2015. The Company paid $994,705 thousand to the holders of the bonds payable who exercised theput options, and the difference between the payment amount and carrying amount recognized was a loss
on the bonds payable buy back of $41,943 thousand, for which the Company reclassified the remaining
face value to non-current asset.
c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.

- 49 -

d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s common shares. The initial conversion price was set at NT$12.24, which is subject toadjustment if there is a capital injection by cash, stock dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of July 31, 2016, there was adjustment the conversion price to NT$11.64, corporate bonds with aface value of $3,315,700 thousand had been converted to 270,890 thousand of common shares.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability
component was 1.8245% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,000,000(518,621)

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

22. LEASING
a. Sale-leasebacks - finance leases
December 31
2016

2015

Within one year
Later than one year and no later than five years$ 1,254,000
3,562,000$ 1,428,467
5,079,133

Present value of minimum lease payments$ 4,816,000$ 6,507,600

Interest rates

1.0323%1.0980%

1.1828%1.5667%

Minimum lease payments -flight equipment

As of December 31, 2016, the Company leased engines and a total of four A330-300 and B747-400
aircrafts by sale-leaseback contracts under finance leases. The lease terms are from April 2006 to
April 2019. During the lease term, the Company retained all risks and rewards attached to the aircrafts
and engines and enjoyed the same substantive rights as were enjoyed prior to the transactions. Interest
rate underlying all obligation under finance leases were floated. Therefore, the minimum lease
payments under the sale-leaseback aircraft contracts are not inclusive of interest expense.

- 50 -

b. Finance leases
Taiwan Air Cargo Terminal Co. (TACT) entered into a terminal construction contract. Refer to Note
35 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
2016

2015

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

30,131
85,244
115,375(2,070)$37,697
117,433
155,130(7,626)$113,305$

147,504$

30,001
83,304$29,490118,014$

113,305$

147,504

Less: Financial cost
Present value of minimum lease payments
Present value of minimum lease payments - cargoterminal 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

4.756%

4.96%$ 1,284,001
3,645,304$ 1,457,957
5,197,147$ 4,929,305$ 6,655,104

c. Operating lease arrangements (include sale-leaseback-operating lease)
China Airlines, Ltd., Mandarin Airlines, Tigerair Taiwan and Taiwan Air Cargo Terminal rented
planes, hangars and etc. under various operating lease contracts expiring on various dates until May
2028. The Group does not have a bargain purchase option to acquire the leased planes and hangar at
the expiration of the lease periods.
The rental rates stated in the aircraft lease agreements some are fixed and some are floated. If theagreed-upon rental rate is floating and will be revised monthly or semiannually, subleasing is notallowed for all the lease arrangements. As of December 31, 2016, the Group has rented elevenA330-300 planes, thirteen B737-800 planes, ten 777-300ER planes, six ERJ 190 planes and eight
A320-200 planes under operating contracts which the lease terms range from 8 to 12 years, with anextension option.
As of December 31, 2016 and 2015, the refundable deposits paid by the Group under operating lease
contracts were $982,988 thousand and $952,520 thousand, respectively. Part of the refundable
deposits is secured by credit guarantees, and outstanding credit guarantee as of December 31 2016 and2015 were $1,459,935 thousand and $1,304,259 thousand.

- 51 -

The future minimum lease payments for the non-cancelable operating lease commitments were as follows:
December 31
2016
Up to 1 year
Over 1 year to 5 years
Over 5 years

2015$ 10,431,969
39,692,972
33,360,179$

8,896,478
33,344,415
32,325,852$ 83,485,120$ 74,566,745

The lease payments recognized in profit or loss for the current period were as follows:
For the Year Ended December 31
2016
2015
Minimum lease payments$ 10,723,726$

7,896,856

23. OTHER PAYABLES
December 31
2016
Fuel costs
Ground service expenses
Repair expenses
Interest expense
Short-term employee benefits
Terminal surcharges
Commission expenses
Others$2015

2,664,944
902,879
968,371294,751
1,926,538
748,070
391,857
3,567,844$ 11,465,254$

2,038,041
1,135,152
916,442
262,601
3,310,173
781,621450,492
3,402,026$ 12,296,548

24. DEFERRED REVENUE
December 31
2016Frequent flyer program
Advance ticket sales$

Current
Noncurrent- 52 -

2,427,565
14,202,198

2015$

2,610,667
12,365,348$ 16,629,763$ 14,976,015$ 14,820,860
1,808,903

13,112,086
1,863,929$ 16,629,763$ 14,976,015

25. PROVISIONS
December 31
2016

2015

Operating lease-aircraft$ 7,490,154$ 6,187,481

Current
Non-current$$

81,925
7,408,229$ 7,490,154

20,186
6,167,295$ 6,187,481
Aircraft Lease
Contract

Balance at January 1, 2015
Additional provisions recognized
Usage
Effect of exchange rate changes$ 4,303,780
2,079,169(237,716)
42,248

Balance at December 31, 2015

$ 6,187,481

Balance at January 1, 2016
Additional provisions recognized
Usage
Effect of exchange rate changes$ 6,187,481
2,613,011(1,393,565)
83,227

Balance at December 31, 2016

$ 7,490,154

The Company and Mandarin Airlines leased flight equipment under operating lease agreements. Under
the contracts, when the leases expire and the equipment is returned to the lessor, the flight equipment has tobe repaired according to the expected years of use, number of flight hours, flight cycles and the number ofengine revolutions. The Group had existing obligations to recognize provisions when signing a lease or
during the lease term. Tigerair Taiwan Co., Ltd. also leased flight equipment under operating leaseagreements. In accordance to the contract, Tigerair had to pay the maintenance reverse accounted for thenumber of flying hours.

26. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The Group adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed
defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’
individual pension accounts at 6% of monthly salaries and wages.
Employees in U.S. and Japan of China Airlines Co., Ltd. and subsidiaries are members of U.S. andJapan government retirement benefit plans. Subsidiaries should appropriate specific portion to
retirement benefit plans. The obligation to the government retirement benefit plans of China Airlines
Co., Ltd. and subsidiaries is appropriating specific portion amount.

- 53 -

b. Defined benefit plans
The defined benefit plan adopted by the Company and in accordance with the Labor Standards Law isoperated by the government. Pension benefits are calculated on the basis of the length of service andaverage monthly salaries of the six months before retirement. The Company and subsidiary contributeamounts equal to 2%-15% of total monthly salaries and wages to a pension fund administered by thepension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in thecommittee’s name. Before the end of each year, the Group assesses the balance in the pension fund.
If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees
who conform to retirement requirements in the next year, the Group is required to fund the difference in
one appropriation that should be made before the end of March of the next year. The pension fund ismanaged by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Group has no right toinfluence the investment policy and strategy.
The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans
were as follows:
December 31
2016

2015

Present value of funded defined benefit obligation
Fair value of plan assets$ 15,119,110(7,162,275)$ 14,436,208(3,882,634)

Deficit (net defined benefit liability)$

7,956,835$ 10,553,574

Present Valueof the Defined
BenefitObligation

Fair Value ofthe Plan Assets

Net Defined
BenefitLiability (Asset)$ 14,073,849$ (3,880,941)$ 10,192,908

400,144
243,257
643,401(67,747)(67,747)

400,144
175,510575,654-(40,100)(40,100)

15,335-

15,335

189,433-

189,433

512,165
716,933(874,179)(123,796)
14,436,208(40,100)(768,025)
874,179(3,882,634)

512,165
676,833(768,025)(123,796)
10,553,574(Continued)

Movements in net defined benefit liability (asset) were as follows:

Balance at January 1, 2015
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial (gain) loss - changes indemographic assumptions
Actuarial (gain) loss - changes in financial
assumptions
Actuarial (gain) loss - experience
adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
OthersBalance at December 31, 2015

- 54 -

Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial (gain) loss - changes indemographic assumptions
Actuarial (gain) loss - changes in financial
assumptions
Actuarial (gain) loss - experience
adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
OthersBalance at December 31, 2016

Present Valueof the Defined
BenefitObligation

Fair Value ofthe Plan Assets

Net Defined
BenefitLiability (Asset)

$

$

$

742,100
161,780
903,880(45,264)(45,264)

742,100
116,516
858,616

-

7,254

7,254

6,094

-

6,094

(233,100)-(233,100)

1,160,547
933,541(979,274)(175,245)

7,254(4,221,019)
979,274114

1,160,547
940,795(4,221,019)(175,131)$ 15,119,110$ (7,162,275)$

7,956,835(Concluded)

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to thefollowing risks:
1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities,bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the
mandated management. However, in accordance with relevant regulations, the return generated byplan assets should not be below the interest rate for a 2-year time deposit with local banks.
2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on theplan’s debt investments.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the
future salaries of plan participants. As such, an increase in the salary of the plan participants will
increase the present value of the defined benefit obligation.
The actuarial valuations of the present value of the defined benefit obligation were carried out by
qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations wereas follows:
December 31

Discount rate(s)Expected rate(s) of salary increase- 55 -

2016

2015

1.000%-1.625%
1.000%-2.000%

1.250%-2.000%
1.000%-2.250%

If possible reasonable change in each of the significant actuarial assumptions will occur and all otherassumptions will remain constant, the present value of the defined benefit obligation would increase(decrease) as follows:
December 31,
2016
Discount rate(s)0.5% increase
0.5% decrease
Expected rate(s) of salary increase
0.5% increase
0.5% decrease$ (659,696)
715,139(688,912)
646,851

The sensitivity analysis presented above may not be representative of the actual change in the present
value of the defined benefit obligation as it is unlikely that the change in assumptions would occur inisolation of one another as some of the assumptions may be correlated.
December 31
2016

2015

The expected contributions to the plan for the next year

$ 880,886$ 757,933

The average duration of the defined benefit obligation

7-13 years

7-13 years

27. EQUITY
a. Share capital
Common shares
December 31

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

2016

2015

6,000,000$ 60,000,000$ 54,708,901

6,000,000$ 60,000,000$ 54,708,901

The Company issued the 5th domestic unsecured convertible bonds, and the convertible bonds holders
applied for conversion in the amount of $2,713,900 thousand. The common shares exchanged were in
the amount of $221,724 thousand and are entitled to have their registration changed after the issuance of
new shares.
b. Capital surplus
December 31

Issuance of stock in excess of par value and conversion premium
Employee stock options expired
Long-term investment
Gain on sale of treasury shares held by subsidiaries
Bonds payable equity component
Others- 56 -

2016

2015$ 552,470
11,747
1,019
2,673
146,684
85,339$ 552,470
11,7471,019
1,156
232,023-$ 799,932$ 798,415

The capital surplus from shares issued in excess of par (including additional paid-in capital fromissuance of common shares and treasury share transactions) and donations may be used to offset
deficits; in addition, when the Company has no deficit, such capital surplus may be distributed as cash
dividends or transferred to capital (but limited to a certain percentage of the Company’s paid-in capitalon yearly basis).
The capital surplus from long-term investments and employee stock options expired may not be used
for any purpose. Besides, capital surplus from conversion of employee stock and convertible bonds
payable may not be used for any purpose.
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 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 demand, whichshould be resolved in the stockholders’ meeting for the distribution of dividends and bonuses tostockholders by cash or stock (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 stock with due consideration of finance, marketing and management
requirements in accordance with the laws and regulations.
For the earnings distribution under the Articles before the amendment, refer to Note 27 of theconsolidated financial statements for the year ended December 31, 2015.
The distribution of dividends should be resolved and recognized in the stockholders’ meeting in thefollowing year.
1) Appropriation of earnings in 2014
On June 26, 2015, the stockholders resolved to offset the accumulated deficit in 2014. The deficit
included a net loss of $751,232 thousand, other retained earnings of $47,471 thousand,unappropriated deficits of $3,161,115 thousand, and a remaining amount of accumulated deficit of$3,864,876 thousand. The Company offset the accumulated deficit against the legal reserve of$1,511,953 thousand. No bonus to employees was appropriated for 2014 because of the net loss inthat year.
2) Appropriation of earnings in 2015
The appropriation of earnings for 2015 was resolved in the stockholders’ meeting on June 24, 2016.
The appropriations and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Special reserve
Cash dividends$- 57 -

287,224
76,4862,508,525

Dividends Per
Share (NT$)$0.458522382

The board of directors proposed to use a legal reserve of $81,132 thousand to offset the deficit. The
compensation of deficit for 2016 is still to be approved in the stockholders’ meeting.
When the Company distributes undistributed earnings for the years after 1998, except for non-ROC
residents stockholders, all stockholders can receive the imputation tax credit calculated by the Tax
Deduction Ratio on the distribution date.
d. Others equity items
The movement of other equity items is as follows:
Exchange
Unrealized
Differences on Gain (Loss) on
Translating
Available-forForeign
sale Financial
Operations
AssetsCash Flow
Hedge

Total

Balance on January 1, 2015
Exchange differences arising ontranslating the foreign
operations
Unrealized gain (loss) on
available-for-sale financial
assetsCash flow hedge on changes infair value of hedging
instruments
Cumulative gain (loss) arisingon changes in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax

$

4,015

$ (2,009,565)$ (1,905,698)

67,413--67,413-(3,025)-(3,025)--(405,674)(405,674)--

2,555,302

2,555,302(9,306)765-(366,060)

765(375,366)

Balance on December 31, 2015$

157,959

$

1,755

$

(225,997)$(66,283)

Balance on January 1, 2016
Exchange differences arising ontranslating the foreign
operations
Cash flow hedge on changes infair value of hedging
instruments
Cumulative gain (loss) arisingon changes in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax$

157,959

$

1,755

$

(225,997)$(66,283)

Balance on December 31, 2016$

99,852$(93,013)--(93,013)--(278,201)(278,201)--

589,024

589,024

13,618(41)-(52,840)(41)(39,222)78,564- 58 -

$

1,714

$

31,986$112,264

e. Non-controlling interest
For the Year Ended December 31
2016
2015
Beginning balance
Net income attributable to non-controlling interest
Foreign exchange difference
Unrealized gain or loss on financial instrument
Actuarial gains and losses on defined benefit plan
Cash flow hedge on changes in fair value of hedging instruments
Cumulative gain (loss) arising on changes in fair value ofhedging instruments reclassified to profit or loss
Effect on income tax
Acquisition of non-controlling interests in subsidiaries
Dividends paid by subsidiaries$ 2,286,647
139,400(19,079)(183,431)
515$ 2,321,737
162,496102(3,368)(42,305)(818)

756
65,007(4,548)(201,886)

(457)
8,278
(1,965)(157,053)

Ending balance$ 2,083,381$ 2,286,647

f. Treasury shares
Treasury shares are the Company’s shares held by its subsidiaries as of December 31, 2016 and 2015
were as follows:(Shares in Thousands)
Number of
Shares,Beginningof Year

Purpose of Treasury Shares

Reduction
Duringthe Year(Note)

Number of
Shares,Endof YearYear ended December 31, 2016
Company’s shares held by its subsidiaries reclassified frominvestments in shares to treasury shares

2,889

-

2,889

2,889

-

2,889

Year ended December 31, 2015
Company’s shares held by its subsidiaries reclassified frominvestments in shares to treasury shares

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 19,294
7,572$ 19,294
7,572$ 26,866$ 26,866$ 24,895
9,770$ 24,895
9,770$ 34,665$ 34,665

December 31, 2016
Mandarin Airlines
Hwa Hsia

2,075
814

December 31, 2015
Mandarin Airlines
Hwa Hsia

2,075
814

- 59 -

Above subsidiaries acquisition of the Company’s shares in previous years was due to investment
planning.
The shares of the Company held by its subsidiaries were treated as treasury shares. The subsidiaries
can exercise stockholders’ right on these treasury shares, except for the rights to subscribe for theCompany’s new shares and voting rights.

28. NET INCOME
a. Revenue
For the Year Ended December 31
2016
2015
Passenger
Cargo
Others$ 95,282,373
35,721,425
10,075,309$ 94,962,055
40,292,840
9,801,322$ 141,079,107$ 145,056,217

b. Other income
For the Year Ended December 31
2016
2015
Interest income
Subsidy income
Dividend income
Others$242,801
168,377
59,099288,862$

466,923
184,5121,884,052
695,692$

759,139$ 3,231,179

c. Other gains and losses
For the Year Ended December 31
2016
2015
Gain on disposal property, plant and equipment and noncurrent
assets held for saleNet gain (loss) arising on financial assets classified as held for
tradingGain or loss on foreign exchange, net
Impairment loss on noncurrent assets held for saleImpairment loss on property, plant and equipment
Others$53,419$13,155(35,678)(629,965)(347,868)(717,758)(1,010,246)

150,871
244,045(1,899,372)(569,000)(897,537)$ (2,688,096)$ (2,957,838)

The mediation of labor-management disputes between the Company and Taoyuan Flight Attendants
Union (TFAU) was unsuccessful. TFAU acquired the right to strike through a strike vote and started
the strike at 12 a.m. on June 24, 2016, and the scheduled flights resumed as usual on June 25, 2016 after
both parties reached a consensus. For other related information, refer to the Taiwan Stock Exchange
Market Observation Post System.

- 60 -

The Company provided a compensatory plan to the passengers and the agents who suffered losses fromthe strike, and the related compensation expense was about $201,000 thousand.
d. Finance costs
For the Year Ended December 31
2016
2015
Interest expense
Bonds payable
Bank loans
Interest on obligations under financial leases
Loss arising on derivatives as designated hedging instruments
in cash flow hedge accounting relationship reclassified fromequity to profit or loss$

294,890
912,945
74,640$292,242
1,343,488
140,912

10,3907,151$ 1,292,865$ 1,783,793

Information of interest capitalization was as follows:
For the Year Ended December 31
2016
2015
Capitalization interest
Capitalization rate

$ 421,285
1.45%-1.73%$ 344,835
1.74%-1.80%

e. Depreciation and amortization expense
For the Year Ended December 31
2016
2015
Property, plant, equipment
Investment property
Intangible asset$ 17,545,244
279
147,486$ 17,261,495
279
70,040Depreciation and amortization expense$ 17,693,009$ 17,331,814

An analysis of depreciation by function
Operating costs
Operating expenses$ 16,839,497
706,026$ 16,507,474
754,300$ 17,545,523$ 17,261,774$

32
147,454$810
69,230$147,486$

70,040An analysis of amortization by function
Operating costs
Operating expenses- 61 -

f. Employee benefits expense
For the Year Ended December 31
2016
2015
Post-employment benefits
Defined contribution plan
Defined benefit plan

Other employee benefits
Salary expenses
Personnel service expenses

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

425,860
858,616$

375,888575,654$

1,284,476$

951,542$ 18,931,016
5,249,939$ 18,509,223
4,806,080$ 24,180,955$ 23,315,303$ 20,827,112
4,638,319$ 19,701,524
4,565,321$ 25,465,431$ 24,266,845

To be in compliance with the Company Act as amended in June 2016, the Articles stipulate the
distribution of employees’ compensation at rates of no less than 3% of the net profit before income tax
and employees’ compensation. For the years ended December 31, 2016 and 2015, the employees’
compensation was $382,318 thousand and $1,810,196 thousand, respectively, of the base net profit.
The employees’ compensation in cash for the years ended December 31, 2016 and 2015 was approvedby the Company’s board of directors on January 17, 2017 and January 15, 2016, respectively.
Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date that the annual consolidated financial statements are authorized for issue
are adjusted in the year that the bonuses and remuneration were recognized. If there is a change in the
proposed amounts after the annual consolidated financial statements are authorized for issue, thedifferences are recorded as a change in the accounting estimate.
Information on the employees’ compensation and remuneration of directors and supervisors resolved by
the Company’s board of directors in 2016 and 2015 is available on the Market Observation Post System
website of the Taiwan Stock Exchange.

- 62 -

29. INCOME TAX
a. Income tax expense recognized in profit or loss
The major components of tax expense (benefit) were as follows:
For the Year Ended December 31
2016
2015
Current tax
Current year
Prior year adjustment
Income tax on unappropriated earnings$$

209,185
1,985

3,085

1

992,790

997,504$ 1,168,911$ 1,208,675

Deferred tax
Current year
Income tax expense recognized in profit or loss

173,195(159)

A reconciliation of accounting profit and income tax expense were as follows:
For the Year Ended December 31
2016
2015
Profit before tax$ 1,879,851$ 7,134,885

Income tax expense calculated at the statutory rate (17%)
Effect on different tax of subsidiaries govern by other region
Effect on adjustment to income tax
Non-deductible expenses in determining taxable income
Temporary differences
Tax-exempt income
Additional income tax under the Alternative Minimum Tax Act
Loss carryforwards - current used
Loss carryforwards - generated
Oversea income tax expense
Deferred tax
Temporary differences
Unrecognized loss carryforwards, investment tax credits andtemporary difference
Adjustments for prior years’ tax$

319,574
33,055$ 1,212,930
20,960145,181(478,805)(88,767)
3,085(12,495)
235,828
19,624

16,798517,465(67,063)
1(1,648,737)
108,570
57,378350,309944,522642,481(159)

43,866
1,985

Income tax expense recognized in profit or loss

$ 1,168,911$ 1,208,675

2016

2015

b. Income tax recognized in other comprehensive income

Deferred tax
Recognized in other comprehensive income
Translation of foreign operations
Hedging instruments fair value revaluation for cash flow
hedging
Actuarial gain or loss on defined benefit plan
Total income tax recognized in other comprehensive income- 63 -$

19,101$(9,061)(53,056)
159,935(365,220)115,062$ 125,980$ (259,219)

c. Deferred tax assets and liabilities
For the year ended December 31, 2016

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$ 1,789,811
452,949
1,037,489
174,650
894,828
2,838,688$(598,541)(31,254)
212,586
26,191(197,579)(457,815)$

159,935(44,711)
-

$

(562)
-

$ 1,351,205
421,695
1,250,075
200,841
651,976
2,380,873$ 7,188,415$ (1,046,412)$

115,224$(562)$ 6,256,665

$

2,534
125,008
213,139$(2,534)(39,059)(12,029)$(10,756)$(2,693)$85,949187,661$

340,681$(53,622)$(10,756)$(2,693)$

273,610

Exchange
Difference

EndingBalance

Deferred tax assets
Temporary differences
Defined benefit plan
Frequent flyer program
Maintenance reserve
Allowance for reduction of inventory
OthersLoss carryforward

Deferred tax liabilities
Temporary differences
Unrealized foreign exchange gain
Depreciation difference from fixed assets
OthersFor the year ended December 31, 2015

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$ 1,735,354
432,196
726,728
150,185
1,080,038
4,399,542$(50,813)20,753
310,761
24,465
180,419(1,560,854)$

105,270(365,243)
-

$

(386)
-

$ 1,789,811
452,949
1,037,489
174,650
894,828
2,838,688$ 8,524,043$ (1,075,269)$(259,973)

$

(386)

$ 7,188,415$

108,903
126,488
9,792
178,406$(106,369)(1,480)20,968$(9,792)
9,038

$

4,727

$

2,534
125,008
213,139$

423,589$(86,881)

$

(754)

$

4,727

$

340,681

Exchange
Difference

EndingBalance

Deferred tax assets
Temporary differences
Defined benefit plan
Frequent flyer program
Maintenance reserve
Allowance for reduction of inventory
OthersLoss carryforward

Deferred tax liabilities
Temporary differences
Unrealized foreign exchange gain
Depreciation difference from fixed assets
Defined benefits plan
Others- 64 -

Deductible temporary differences, unused loss carryforwards and unused investment credits for which
no deferred tax assets have been recognized in the balance sheets.
December 31
Loss carryforwards
2019
2020
2021
2022
2023
2024
2025
2026

Difference in depreciation

2016

2015

$ 7,300,000
22,02080,080125,568
127,707
233,693638,257
1,126,110$ 4,500,000
95,68280,080125,538
127,797
233,703
638,502-$ 9,653,435$ 5,801,302$$

229,761

6,743

d. Unused tax loss carryforwards as of December 31, 2016 were as follows:
UnusedAmountExpiry Year
China Airlines, Ltd.
2019
2021
2022
2026

$ 17,328,027
2,899,496
619,799
117,099$ 20,964,421

Mandarin Airline Co., Ltd.
2023
2026

$

50,917
600,548$

651,465$

199,654586,357
752,865$

1,538,876$

22,02045,156
9,617$

76,793(Continued)

Tigerair Taiwan Co., Ltd.
2024
2025
2026

Cal Hotel Co., Ltd.
2020
2021
2022

- 65 -

UnusedAmountExpiry Year
Taiwan Air Cargo Terminal Limited
2021
2022
2023
2024
2025
2026

$

34,923
115,951
102,248
34,04833,77541,495$362,440$

18,124
31,476$

49,600$14,964(Concluded)

Taiwan Aircraft Maintenance And Engineering Co., Ltd.
2025
2026

Hwa Hsia2026

e. Integrated income tax
December 31

Imputation credit accounts

2016

2015

$ 102,527$ 551,908

The actual creditable tax ratio on December 31, 2015 was 20.22%. The Company accumulated a
deficit for which to be compensated for the year ended December 31, 2016, and therefore there was notax deduction ratio resulting from earnings distribution.
Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputationcredits allocated to ROC resident stockholders of the Company was calculated based on the creditableratio as of the date of dividend distribution.
f. Income tax assessment
The income tax returns for 2014 of the Company and its subsidiaries, except for the matters mentioned
below, have been examined by the tax authorities.
The income tax return of TACT for 2001 was assessed by the tax authorities with an additional income
tax payable amounting to $129,350 thousand for the excessive distribution of the imputation credit
account (“ICA”) to TACT’s shareholder and a fine equivalent to one fold of the excessive distribution.
TACT disagreed with the assessment and appealed for reinvestigation, administrative appeal andadministrative proceedings but the Supreme Administrative Court affirmed the additional tax paymentof $129,350 thousand on December 8, 2011, and TACT made the additional tax payment. Because thedecision of the court on the amount of fine remained the same, TACT filed an administrative remedy,
and the High Administrative Court had reached a decision on June 15, 2016, however, TACT refused toaccept the resolution and appealed to the Supreme Administrative Court on July 4, 2016.
Nevertheless, TACT recognized a provision for fine in the amount of $59,501 thousand.
- 66 -

30. EARNING PER SHARE
The numerators and denominators used in calculating earnings per share were as follows:
For the Year Ended December 31
2016
2015
Basic earnings per share
Diluted earnings per share

$
$

0.10
0.10

$
$

1.06
1.00

For the Year Ended December 31
2016
2015
Earnings used in the computation of basic earnings per share
Effect of potentially dilutive common shares:
Interest on convertible bonds (after tax)$

Earnings used in the computation of diluted earnings per share$

571,540$ 5,763,714-

47,716

571,540$ 5,811,430

For the Year Ended December 31
2016
2015
Weighted average number of common shares in computation of basic
earnings per share
Effect of potentially dilutive common shares:
Convertible bonds
Employees’ compensation or bonus issue to employees
Weighted average number of common shares used in thecomputation of diluted earnings per share

5,468,002

5,432,728

47,337

255,186
150,850

5,515,339

5,838,764

If the Group offered to settle compensation or bonuses paid to employees in cash or shares, the Groupassumed the entire amount of the compensation or bonus would be settled in shares and the resulting
potential shares were included in the weighted average number of shares outstanding used in thecomputation of diluted earnings per share, if the effect is dilutive. Such dilutive effect of the potential
shares was included in the computation of diluted earnings per share until the number of shares to be
distributed to employees is resolved in the following year.

31. CAPITAL MANAGEMENTThe Group manages its capital to ensure that entities in the Group will be able to continue as going
concerns while maximizing the return to stakeholders through the optimization of the debt and equity
balance. The capital structure of the Group consists of net debt (borrowings offset by cash and cash
equivalents) and equity of the Group comprising issued capital, reserves, retained earnings, other equity andnon-controlling interests.
To support its operating activities and purchase of aircraft, the Group needs to maintain sufficient capital.
Therefore, the goal of capital management is to ensure financial resources and operating plan is able tosupport the future working capital, capital expenditures, debt repayment and dividend expenses and otherneeds.

- 67 -

32. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
1) Financial instruments not evaluated at fair value
Except as detailed in the following table, the management considers the carrying amounts offinancial assets and financial liabilities recognized in the financial statements as approximating theirfair values.
December 31
2016
Carrying
Amount$ 22,238,044
89,230,727

2015
Fair Value

Carrying
AmountFair Value$ 22,580,069
91,315,640$ 15,844,106
87,783,617$ 16,459,680
87,944,264

Financial liabilities
Bonds payable
Loans and debt

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying values are their fair values. As of December 31, 2016 and 2015, the fair values oflong-term debts and private bonds with fixed interest rates are estimated at the present value of
expected cash flows discounted at rates of 1.191% and 0.433%, respectively, prevailing in themarket for long-term debts (Level 2). Fair values of bond payable trading in OTC and based onquoted market prices (Level 1).
2) Fair value measurements recognized in the balance sheets
The following table provides an analysis of financial instruments that are measured subsequent toinitial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fairvalue is observable:a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;b) Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. derived from prices); andc) Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
December 31, 2016
Level 1
Financial assets at FVTPL
Derivative instrument
Beneficial certificates

Level 2

Level 3

Total$

415,441

$

1,200
-

$

-

$

1,200
415,441$

415,441

$

1,200

$

-

$

416,641

Derivative financial assets
for hedging

$

-

$

61,634$83$

61,717

Derivative financial
liabilities for hedging

$

-

$

23,629$-$23,629- 68 -

December 31, 2015
Level 1
Financial assets at FVTPL
Derivative instrument
Beneficial certificates

Level 2

Level 3

Total$

478,508$

65,528-$-$65,528478,508$

478,508$

65,528$-$544,036

Available-for-sale financial
assetsSecurities listed indomestic$

19,080

$

-

$

-

$

19,080Derivative financial assets
for hedging

$

-

$

51,060$12,738$63,798Derivative financial
liabilities for hedging

$

-

$

12,702$

312,278$

324,980

There were no transfers between Levels 1 and 2 in the current periods.
d) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value
measurement
Financial Instruments
Derivatives - foreign currency
forward contracts andinterest rate swaps

Valuation Techniques and Inputs
Discounted cash flow.
Future cash flows are estimated based on observable forward
exchange rates at the end of the reporting period andcontract forward rates, discounted at a rate that reflects thecredit risk of various counterparties.

e) Valuation techniques and inputs applied for the purpose of measuring Level 3 fair value
measurement
The fair values of foreign exchanges and fuel options are determined using option pricing
models where the significant unobservable inputs are implied fluctuation. An increase in theimplied fluctuation used in isolation would result in a decrease in the fair value of foreignexchanges and fuel options.
Because some financial instruments and non-financial instruments cannot show their fair value,
the total fair value showed by these disclosure are not total value of the Group.

- 69 -

b. Categories of financial instruments
December 31
2016

2015

Financial assets
Financial assets at FVTPL
Available-for-sale financial assets (Note 3)
Derivative financial assets for hedging
Loans and receivables (Note 1)$

416,641
140,357
61,71736,576,111$

544,036
242,991
63,79835,800,865$ 37,194,826$ 36,651,690$$

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

23,629130,110,449$ 130,134,078

324,980
125,241,381$ 125,566,361

Note 1: The balances include loans and receivables measured at amortized cost, which comprise cash
and cash equivalents, notes and accounts receivable, accounts receivable - related parties,
other receivables, refundable deposits, other financial assets and other restricted financial
assets.
Note 2: The balances include financial liabilities measured at amortized cost, which compriseshort-term loans, short-term notes payable, notes and accounts payable, accounts payable related parties, other payables, bonds payable and long-term loans, capital lease obligations,part of other current liabilities, part of other noncurrent liabilities and guarantee deposits.
Note 3: The balances include financial assets measured at cost.
c. 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 Groupstockholders 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 management committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging percentage. This
committee informs the Group of global economic and financial conditions, controls the entire financial
risk resulting from changes in the financial environment and fuel prices, and develops the strategy andresponse to avoid financial risk with the assistance of financial risk experts to effect risk management.
1) Market risk
The Group is primarily exposed to the financial risks of changes in foreign currency exchange rates
and interest rates. The Group entered into derivative financial instruments to manage its exposure
to foreign currency risk and interest rate risk.

- 70 -

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 a one dollar increase or decrease in the New
Taiwan dollar (the functional currency) against the relevant foreign currencies (i.e. the U.S.
dollar). This is the sensitivity rate used when reporting foreign currency risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis included only outstanding foreign
currency denominated monetary items and foreign currency forward contracts designated as
cash flow hedges and adjusts their translation at the end of the reporting period for a one U.S.
dollars increase/decrease against the New Taiwan dollar.
When the New Taiwan dollar strengthens one dollar against the U.S. dollar and all othervariables were held constant, there would be a decrease in pre-tax profit in 2016 of $47,622
thousand and a decrease in pre-tax profit in 2015 of $157,849 thousand.
b) Interest rate risk
The Group enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates.
The risk is managed by the Group by maintaining an appropriate mix of fixed and floating rateborrowings, and using interest rate swap contracts and forward interest rate contracts.
The carrying amount of the Group’s financial assets and financial liabilities with exposure tointerest rates at the end of the reporting period were as follows.
December 31

Fair value interest rate risk
Cash flow interest rate risk

2016

2015

$ 26,093,421
91,339,655$ 16,723,881
93,742,231

Sensitivity analysis
The sensitivity analyses below were determined based on the Group’s exposure to interest rates
for both derivatives and non-derivative instruments at the end of the reporting period. For
floating rate liabilities, the analysis was prepared assuming the amount of the liability
outstanding at the end of the reporting period was outstanding for the whole year. A one yard
(25 basis) point increase or decrease was used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.

- 71 -

Had interest rates been one yard (25 basis) points higher and had all other variables been held
constant, the Group’s pretax profit for the year ended December 31, 2016 would have decreased
by $228,349 thousand.
Had interest rates increased one yard (25 basis) point and had all other variables been held
constant, the Group’s pretax profit for the year ended December 31, 2015 would have decreased
by $63,464 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.
Sensitivity analysis
The sensitivity analyses below were determined based on the exposure to fuel price risks at theend of the reporting period.
For the Year Ended December 31
2016
2015
Other
Other
CompreComprehensive
hensive
Pre-tax Profit
IncomePre-tax Profit
IncomeIncrease
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)(Decrease)
Fuel price increase of5%
Fuel price decrease of
5%

$

75
-

$

(110)
(185)

$

10,084$ (29,805)(10,188)(110,077)

2) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting
in financial loss to the Group. The Group’s credit risk, primarily comes from accounts receivable
generated from operating activities and bank deposits generated from investing activities, fixed
investment income and other financial instruments, operation related credit risk and financial credit
risk are managed separately.
Operation - related credit risk
The Group has established procedures to management operations related credit risk to maintain thequality of accounts receivable.
To assess individual customers, the Group consider into the financial condition of the customers,
the credit rating agency rating, the Group’s internal credit rating, transaction history and current
economic conditions and many other factors that may affect the repayment. Sometimes, the Group
uses certain credit enhancement tools to reduce the credit risk of specific customers.
Since the customers of the industry is dispersed and non-related, the credit risk concentration is notcritical aviation.

- 72 -

Financial credit risk
Credit risk on bank deposits, investments income and other financial instruments are measured andmonitor by the Group’s finance department. The Group’s trading partners and other parties were
well-performing banks and financial institutions, corporations, and government agencies, the risk ofCounterparties fail to discharge an obligation is low, therefore there is no significant credit risk.
3) Liquidity risk
The objective of the Group’s management of liquidity is to maintain cash and cash equivalents are
sufficient for operating purpose, marketable securities with high liquidity and sufficient Loan
Commitments and ensure the Group has adequate financial flexibility.
Liquidity and interest risk rate tables
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, andthe undiscounted gross cash inflows and outflows on those derivatives that require gross settlement.
When the amount payable or receivable is not fixed, the amount disclosed has been determined byreference to the projected interest rates as illustrated by yield curves at the end of the reporting
period.
December 31, 2016
The Weighted
Average
Effective
Interest Rate(%)
Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

1.1462

1-3 Months

3 Months to
1 Year$$321,459

962,542

1-2 Years$

2-5 Years

2,998,391$

5+ Years

648,913

$

-

1.192

4,426,559

27,023,603

15,047,722

32,803,858

7,340,794

0.016

401,268

419,109---1.3384

2,655-

18,2002,700,000

2,775
4,338,044

15,200,000-

5,151,941$ 31,123,454$ 22,386,932$ 48,652,771$- 73 -$

7,340,794

December 31, 2015
The Weighted
Average
Effective
Interest Rate(%)
Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

1.29341-3 Months

3 Months to
1 Year$$364,897

1,101,266

1-2 Years$

2-5 Years

1,548,611$

5+ Years

3,647,955

$

-

1.325

6,987,461

22,453,633

33,930,613

20,588,242

2,225,669

4.374

175,109475,464

463,574

413,789

97,664

1.3798114,455-

205,861
4,944,106

4,664-

10,900,000-

7,641,922$ 29,180,330$ 35,947,462$ 35,549,986$$

2,323,333

Loan commitments
December 31

Unused bank loan limit (unsecured)

2016

2015

$ 14,424,006$ 22,172,000

33. RELATED-PARTY TRANSACTIONS
The transactions, accounts balances, income and expenses between related parties were eliminated from theconsolidated report and, therefore, were not disclosed in this note. Except for the disclosures stated inother notes, transactions between the Group and its related parties are disclosed below:
a. Operating transactions
Sales of Goods
For the Year Ended
December 31
2016
2015
Associates
Jointly controlled entities
Major stockholders

$
$
$

2,552
14,32528,328

$
$
$

2,321
13,95034,835Purchases of Goods
For the Year Ended
December 31
2016
2015
$ 657,104$ 1,613,899$
63,084$ 581,173$ 1,531,649$
78,374

The amount of accounts receivable - related parties at reporting dates were as follows:
December 31
2016
Associates
Jointly controlled entities
Major stockholders- 74 -

2015

$

500
1,550
1,512

$

182
599
3,093

$

3,562

$

3,874

The amount of accounts payable - related parties at reporting dates were as follows:
December 31
2016
Associates
Jointly controlled entities
Major stockholders

2015$ 120,824
431,502
3,503$

98,245388,371
7,138$ 555,829$ 493,754

The outstanding accounts payable from related parties are unsecured and will be paid in cash, the termsof making collections and payables is from 30 days to 90 days; accounts receivable from related parties
does not gather any deposit, and no expense was recognized for allowance for impairment loss.
b. Lease of properties (operating leases)
Under an operating lease agreement, the Company rented flight training machines and flight simulatorsfrom China Aviation Development Foundation to train pilots, the Company paid the rental on usage
hours. In 2016 and 2015, the Company had paid rentals of about $63,084 thousand and $78,374
thousand, respectively.
c. Endorsements and guarantees
December 31
2016

2015

Authorized
AmountActualAmount Used

Authorized
AmountActualAmount Used

$ 3,850,000
1,080,000
180,000
919,742$ 2,783,000
436,418
438,740$ 3,400,000
1,080,000
236,629
180,000
937,895$ 2,739,000
486,815
236,629
6,343
447,399

The Company
Cal Park
Taiwan Air Cargo Terminal
Freighter Prince Ltd.
Cal Hotel
Tigerair Taiwan

d. Compensation of key management personnel
For the Year Ended December 31
2016
2015
Short-term employee benefits
Post-employment benefits$ 47,748
12,269$ 45,813
3,865$ 60,017$ 49,678

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

- 75 -

34. PLEDGED ASSETS
The following assets had been pledged or mortgaged as collaterals for long-term bank loans, leaseobligations and business transactions:
December 31

Property, plant and equipment
Restricted assets - noncurrent
Pledged certificate deposits
US treasury bill

2016

2015

$ 77,847,771$ 90,642,565

323,028-

268,790236,634$ 78,170,799$ 91,147,989

The above US Treasury bill had been pledged as collaterals for Freighter Prince Ltd., which classified as
restricted assets - noncurrent.

35. COMMITMENTS AND CONTINGENT LIABILITIESAs of December 31, 2016, the Group had commitments and contingent liabilities (except for thosementioned in other notes) as follows:a. In January 2008, the Company entered into a contract to buy fourteen A350-900 aircrafts from Airbus,
with the option to buy six more A350-900 aircrafts, with aggregate purchase prices of US$3,933,235
thousand and US$1,802,645 thousand, respectively. The expected period of delivery of the aircrafts
was from 2016 to 2018. As of December 31, 2016, four of the aircrafts had been handed over to theCompany, and the total list price of the remaining ten aircrafts was US$2,839,377 thousand, which has
been paid in the amount of US$637,908 thousand (recognized as prepayments for aircrafts).
b. For the future development of the Company’s business, the Company entered into a lease contract with
BOC Aviation with a letter to lease six 737-800 aircrafts. The expected delivery period would begin
from September 2016. As of December 31, 2016, four of the aircrafts have been handed over to theCompany.
c. Tigerair Taiwan entered into a lease contract for four A320-200 aircrafts with a 10-year lease term on
July, November and December 2015. Two of the four aircrafts were delivered in January and June
2016. The expected delivery date of the remaining aircrafts are in February and December 2017.
d. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil
Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20
years from the date of transfer of the chartered operation rights from CAA to TACT. The terminal
expansion and improvements and the equipment installation and upgrade in the Taiwan Taoyuan
International Airport cargo terminal and Kaohsiung cargo terminal were expected to be completed in
the first 10 years of the COP. This construction project was approved by TACT’s board of directors in
2003. The total estimated expense of the construction project was $8,490,000 thousand. The
designated start of the project was from 2004 and the construction began in 2008. 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.
The original total expenditure of the previous main construction project was $8,490,000 thousand.
However, TACT filed an arbitration for the total amount of expenditure in 2012 to revise the total
amount to $6,840,000 thousand.

- 76 -

As of December 31, 2016, TACT had signed the following construction contracts with unrelatedparties:

Client NameContract Title

CECI Engineering
Consultant, Inc., Taiwan
Chen-Jia Construction Co.

Cargo Terminal Expansion Construction Consultant
Contract
Paint steel columns and roof renewal works Contract

Contract
Amount (VAT
Included)$552,285
86,380

As of December 31, 2016, the cumulated consultant service expense and construction equipment had
amounted to $464,642 thousand (VAT included) and $4,952,609 thousand (VAT included),
respectively. Upon completion of the projects, the amount of $459,850 thousand (VAT included) and$4,874,635 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.
e. TACT should pay royalties to Taoyuan Airport Corporation and CAA during the chartered operation
period. The calculation is based on annual sales (including operating revenue and nonoperating
revenue but excluding the rental revenue from specific district), and Taoyuan Airport Corporation and
CAA has the option to adjust the royalty rates every 3 years starting from the date of transfer of thechartered operation right on the basis of actual revenue and expenditure. These rates were listed asfollows:
Annual Operating AmountRoyalty Rate

Below $2 billion
Above $2 billion but below $4 billion
Above $4 billion but below $6 billion
Above $6 billion but below $8 billion
Above $8 billion but below $10 billion
Above $10 billion but below $12 billion
Above $12 billion

6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%

f. CAL Park Co., Ltd. (“CAL Park”) signed “Taiwan Taoyuan International Airport Aviation Operation
Center (including Airport Hotel) Construction Operating Contract” with the CAA on September 20,
2006. However, on November 1, 2010, the Taoyuan Airport Corporation took over the CAA’s rights
on this contract from the CAA. The contract is effective for 50 years (consisting of the development
stage and operating period) from the contract date. Three years before contract expiry date, CAL Park
has the first option to renew the contract once with a 20-year extension.
CAL Park’s business scope includes providing business and other operating space related to civil airtransport, hotels, aviation service and related industries adhered to the base and essential services law
and approved by the Taoyuan Airport Corporation.
CAL Park should pay land rentals on the date of the registration of surface rights. The rental rates forthe development stage differ from those for the operation period. The rental rates should follow
Article No. 2 of the “Regulations for Favorable Rentals Regarding Public Land Lease and Superficies
in Infrastructure Projects,” which states that rental calculation in the development stage should include
the land value added tax plus the necessary maintenance fee; in the operation period, rentals are 60% of
the amount based on the National Building Land Rental Standard plus land value tax, value-added tax
and the necessary maintenance fee.
- 77 -CAL Park should pay construction and operation security deposits of $100,000 thousand (using a
refundable certificate deposit recognized under deposits-in). If CAL Park complies with the contract
terms within three months after the initial operation date, half of the security deposits will be refundedinterest free, and the remaining amount will be refunded within three months after the end of theoperating period and the completion of asset transfer. In May 2011, CAL Park received the refunded
security deposits of $50,000 thousand without interest.
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.
g. The Group has been named as a defendant, together with other airline members of the Association ofAsia Pacific Airlines, in a civil class action lawsuit filed at the U.S. Northern District Court ofCalifornia by a group of passengers who alleged that there was an antitrust violation in December 2007.
The Company has properly joined the defendants’ Joint Defense Group.

36. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESThe following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:
December 31, 2016
Foreign
Currencies

Exchange Rate

Carrying
Amount310,384
15,665
273,060
5,138,687
483,54832.258134.0136
4.15800.27704.6425$ 10,012,403
532,807
1,135,385
1,423,417
2,244,088

259,1456,512
94,831
4,442,045
137,773

32.258134.0136
4.15800.27704.64258,359,536
221,486
394,306
1,230,446
639,614

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY

- 78 -

December 31, 2015
Foreign
Currencies

Exchange Rate

Carrying
Amount371,091
16,153
230,469
1,769,067
2,105,839

32.8947
35.97124.24450.2731
5.0659$ 12,206,940
569,778
978,224
483,136
10,667,121

153,815
8,353
87,413
4,632,721
150,973

32.8947
35.97124.24450.2731
5.06595,059,699
299,732
371,024
1,265,198764,813

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY

For the years ended December 31, 2016 and 2015, the Group’s net foreign exchange gains (losses) were$(629,965) thousand and $244,045 thousand, respectively. It is impractical to disclose net foreignexchange gains (losses) by each significant foreign currency due to the variety of the foreign currencytransactions and functional currencies of the group entities.

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

None2) Endorsement/guarantee 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) Acquisition of individual real estates at costs or price of at least NT$100 million or 20% of thepaid-in capital: None
6) Disposal of individual real estates at costs or prices of at least NT$100 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)- 79 -

9) Names, locations, and related information of investees on which the Company exercises significant
influence: Table 5 (attached)10) Derivative financial transactions (Notes 7 and 9)
b. Investment in Mainland China: Table 6 (attached)c. Business relationship and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 7 (attached)

38. SEGMENT INFORMATION
a. Segment information
The Group mainly engages in air transportation services for passengers and cargo; the services include
airport service, storage service, and other air transportation services which are below the financial
threshold for an operating segment of the Group. Therefore, the Group’s main reportable segment is
air transportation. The accounting policies of the reportable segment are consistent with theaccounting policies described in Note 4.
Air
Transportation

For the Year Ended December 31, 2016
Adjustment andOthersWrite-off

Operating revenue$ 139,471,090$

7,873,653$(6,265,636)

Operation profit and losses
Interest revenue
Investment income accounted forby the equity method
Revenue
Financial cost
Expense$$950,070$-

3,614,617$ 141,079,107$

4,564,687
242,801
536,986
535,162(1,292,865)(2,706,920)

Profit before income tax
Identifiable assets
Investment accounted for by theequity method
AssetsTotal$$ 132,546,517$

9,666,123

1,879,851$ 142,212,640
2,866,431
79,421,688

Total assets$ 224,500,759- 80 -

Air
Transportation

For the Year Ended December 31, 2015
Adjustment andOthersWrite-off

Operating revenue$ 144,223,961$

7,526,765$(6,694,509)

Operation profit and losses
Interest revenue
Investment income accounted forby the equity method
Revenue
Financial cost
Expense$$843,152$

21,291

7,264,754

Total$ 145,056,217$

8,129,197
466,923
516,140
3,038,744(1,783,793)(3,232,326)

Profit before income tax$

Identifiable assets
Investment accounted for by theequity method
Assets$ 122,602,185$

9,671,914$(53)

7,134,885$ 132,274,046
2,877,777
86,774,486

Total assets$ 221,926,309

b. Geographical segment
The geographical segment information of the Company and its subsidiaries in 2016 and 2015 are listed
below:For the Year Ended December 31, 2016

Operating revenue
Operation profit
and losses
Interest revenue
Investment income
accounted for by
the equity
methodRevenue
Interest expense
ExpenseAmerica

Northeast Asia

Southeast Asia

EuropeAustralia$

40,063,516$

27,017,443$

30,470,044$

11,770,672$

5,047,106$

19,267,568$

1,305,147$(215,992 )$(429,148 )$(19,411 )$89,410$1,560,699

Domestic

Adjustment andEliminations

Consolidation$

13,708,394$(6,265,636 )$ 141,079,107$

2,273,982

$

-

China

4,564,687
242,801

536,986
535,162(1,292,865 )(2,706,920 )Profit before
income tax
Identifiable assets
Investment
accounted for by
the equity
methodAssets$$$1,434,169$

17,785$98,711

$

5,160

$

3,026

$

13,740$ 140,640,049$-

1,879,851$ 142,212,640

2,866,431
79,421,688

Total assets$ 224,500,759

For the Year Ended December 31, 2015

Operating revenue
Operation profit
and losses
Interest revenue
Investment income
accounted for by
the equity
methodRevenue
Interest expense
ExpenseAmerica

Northeast Asia

Southeast Asia

EuropeAustralia$

43,255,614$

26,519,512$

31,150,308$

12,529,410$

4,318,055$

20,470,330$

2,439,067$

1,321,000$(827,756 )$

69,964$

229,823$

2,141,393

Domestic

Adjustment andEliminations

Consolidation$

13,507,497$(6,694,509 )$ 145,056,217$

2,734,416$

21,290China

8,129,197
466,923

516,140
3,038,744(1,783,793 )(3,232,326 )Profit before
income tax
Identifiable assets
Investment
accounted for by
the equity
methodAssets$$$1,459,834$

11,477$

145,471

$

5,229

$

4,354

$

14,091$ 130,633,643

$

(53 )

7,134,885$ 132,274,046

2,877,777
86,774,486

Total assets$ 221,926,309- 81 -TABLE 1

CHINA AIRLINES, LTD. AND INVESTEESENDORSEMENT/GUARANTEE PROVIDEDFOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Counter-party
Endorsement/
Guarantee
Provider

No.

0

Name

China Airlines
Cal Park(the “Company”) Taiwan Air Cargo Terminal
Freighter Prince Ltd.
Cal Hotel
Tigerair Taiwan Ltd.

Nature of Relationship100% subsidiary
54% subsidiary
100% subsidiary
100% subsidiary
90% subsidiary by direct
and indirect holdings

Limit on EachCounter-party’s
Maximum
Endorsement/
Balance for the Ending Balance
Guarantee
PeriodAmount(Note 1)

$ 11,156,763
11,156,763
11,156,763
11,156,763
11,156,763$ 3,850,000
1,080,000
240,586
180,000
953,579$ 3,850,000
1,080,000
180,000
919,742ActualBorrowingAmount$ 2,783,000
436,418
438,740

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

Note 1:

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

Note 2:

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

- 82 -

-

6.90
1.94
0.32
1.65

Maximum
Collateral/
Guarantee
Amounts
Allowable(Note 2)

$ 27,891,909
27,891,909
27,891,909
27,891,909
27,891,909

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

Y
Y
Y
Y
Y

N
N
N
N
N

N
N
N
N
N

TABLE 2

CHINA AIRLINES, LTD. AND INVESTEESMARKETABLE SECURITIES HELDDECEMBER 31, 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

Marketable Security Type and Issuer/Name

China Airlines (“Parent company”) Stock
Everest Investment Holdings Ltd. - common stockEverest Investment Holdings Ltd. - preferred stock
Chung Hua Express Co.
Jardine Air Terminal Services
Mandarin Airlines

Stock
China Airlines
Beneficiary certificatesFuh Hwa Money Market Fund
Barclays America Bonds Fund

Cal-Asia Investment

Sabre Travel Network (Taiwan)

Taiwan Airport Services

Hwa Hsia

Relationshipwith the Holding
Company-

Financial Statement AccountNumber of
Shares/Units

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

1,359,368
135,937
1,100,000
12,000,000

Parent company Available-for-sale financial asset - current

December 31, 2016
Percentage
ofCarrying Value
Ownership(%)$

52,704473
11,00056,023

13.59
11.00
15.00

2,074,628

19,29415,302,543
1,000,000

Market Valueor Net Asset
Value

$

Note

64,474
21,487
6,921

Note 1
Note 1--

19,294-

184,235
32,361-

184,235
32,361--

20,157

5.83
5.45(48,552)
24,577Note 2
Note 2-

3,321
57,58454,85550,90027,502----Financial assets at fair value through profit or loss - current
Financial assets at fair value through profit or loss - current-

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

Beneficiary certificates
Mirae Asset Solomon Money Market Fund
Mega Diamond Money Market Fund
Franklin Templeton SinoAm Money Market FundFSITC Taiwan Money Market FundFSITC Money Market Fund-

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

265,726
4,637,003
5,360,663
3,360,289
155,632

3,321
57,58454,85550,90027,502

Stock
TransAsia Airways-

Available-for-sale financial asset - noncurrent

2,277,786-

814,152

7,572

-

7,572

-

349,523

4,683

-

4,683

-

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

Stock
China Airlines
Beneficiary certificates
Taishin 1699 Money Market Fund

Parent company Available-for-sale financial asset - current-

Financial assets at fair value through profit or loss - current

Note 1: The subsidiary’s net asset value was $64,474 thousand, which included common stock and preferred stock as of and for the year ended December 31, 2016.
Note 2: The Company does not issue stocks because it is a limited company.

- 83 -

0.4

TABLE 3

CHINA AIRLINES, LTD. AND INVESTEESTOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd.
(“China Airlines”)

Related Party

Taiwan Air Cargo Terminal
Hua Hsia
Mandarin Airlines
China Pacific Catering Services
Cal Park
Taiwan Airport Services
Taoyuan International Airport Service
Kaohsiung Catering Services
China Aircraft Services
Cal Hotel
Tigerair Taiwan
China Pacific Laundry Services

Nature of Relationship

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

Purchase/
Sale
Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Sale
Purchase$Amount% to
Total

Payment Terms

Unit Price

427,875
314,048(2,575,551)
1,504,966
217,210369,255
1,148,069
291,814210,390
180,110(313,019)
108,933

0.38
0.28
2.02
1.34
0.19
0.33
1.02
0.26
0.19
0.16
0.25
0.10

30 days
2 months
2 months
90 days
2 months
40 days
40 days
60 days
30 days
1 month
1 month
2 months$- 84 -

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

Abnormal Transaction

-

-

$

(43,767)(55,480)
377,970(411,698)(57,018)(61,101)(323,510)(68,324)(34,786)(17,772)
37,418(19,804)(2.99)(3.79)
4.06(28.14)(3.90)(4.18)(22.11)(4.67)(2.38)(1.21)
0.40(1.35)Note-

TABLE 4

CHINA AIRLINES, LTD. AND INVESTEESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALDECEMBER 31, 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name

Related Party

Nature of Relationship

OverdueEnding Balance(Note)

Turnover Rate

$ 377,970

5.76

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

227,693

China Pacific Catering Services

China Airlines

Parent company

Taoyuan International Airport Service

China Airlines

Parent company

AmountAllowance for
Bad Debts--$ 208,856

0.36

-

-

18,230-411,698

3.85

-

-

265,889-

323,510

3.63

-

-

323,510-

Note: Transactions with subsidiaries have been written off in consolidated financial report.

- 85 -$

Action Taken

Amounts Received
in Subsequent
Period$-TABLE 5

CHINA AIRLINES, LTD. AND INVESTEESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investment Amount
Investor Company

Investee Company

Location

Cal Park
Mandarin Airlines
Taiwan Air Cargo Terminal
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Sabre Travel Network (Taiwan)
China Aircraft Service
Asian Compressor Technology Services
Taiwan Airport Services
Kaohsiung Catering Services
Cal Hotel Co., Ltd
Science Park Logistics
China Pacific Laundry Services

Taoyuan, Taiwan
Taipei, Taiwan
Taoyuan, Taiwan
Los Angeles, U.S.A.
Taoyuan, Taiwan
Taoyuan, Taiwan
Territory of the British Virgin Islands
Taipei, Taiwan
Hong Kong International Airport
Taoyuan, Taiwan
Taipei, Taiwan
Kaohsiung, Taiwan
Taoyuan, Taiwan
Tainan, Taiwan
Taoyuan, Taiwan

Hwa Hsia

Taoyuan, Taiwan

Yestrip
Dynasty Holidays
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd.

Taipei, Taiwan
Tokyo, Japan
Taipei, Taiwan
Cayman Islands
Cayman Islands
Taipei, Taiwan
Taoyuan, Taiwan

Real estate lease and international trade
Air transportation and maintenance of aircraft
Air cargo and storage
A holding company, real estate and hotel services
In-flight catering
Airport services
General investment
Sale and maintenance of hardware and software
Airport services
Research, manufacture and maintenance of engines
Airport services
In-flight catering
Hotel business
Storage and customs of services
Cleaning and leasing of the towel of airlines, hotels,
restaurants and health clubs
Cleaning of aircraft and maintenance of machine andequipment
Travel businessTravel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Air transportation and maintenance of aircraft
Aircraft maintenance

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

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

China Airlines, Ltd.

Main Business and ProductDecember 31,
2016

December 31,
2015

$

$

1,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
77,322
12,289140,240
465,000
214,745
137,500

1,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
77,322
12,289140,240
465,000
150,654
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
7,732,200
20,626,644
14,329,759
46,500,000
18,633,937
13,750,000

100.0093.99
54.00
100.0051.00
49.00
100.00
93.93
20.00
24.50
47.35
35.78
100.0026.00
55.00

77,27077,270100.0026,265
20,400
2,500
US$
1
US$
1
1,600,000
60,0001,600,000
408
250,000
1,000
1,000
160,000,000
16,000,000

200,000
3,574
HK$
US$

77,27026,265
20,400
2,500
US$
1
US$
1
1,600,000
160,000
JPY

Balance as of December 31, 2016
Percentage
SharesofCarrying Value
Ownership

200,000
11,658

1,529,375
1,125,057
1,261,894
1,244,328
638,980
649,189
450,305
438,502515,051
279,176
231,316
267,371387,375
257,928
167,048$

Investment
Income (Loss)

Note

18,551 $(227,787)
25,537
29,135407,920
277,247(47,074)
186,479
255,141448,224
116,081
211,499
73,500100,522
39,324

18,551(215,240)
13,791
29,135208,039
135,850(47,074)
175,169
51,028109,815
54,96675,67473,50026,136
21,628Note 1
Note 2
Note 5-71,534

19,412

19,037Note 1100.0051.00
25.00
100.00100.0080.00
100.0025,46430,9617,418
32
32
362,861
110,128

304
5,139
6,783
(778,025)(31,603)

304
2,621
1,695
(622,420)(31,603)-

20,000,000
469,755

10.00
1.08

45,3585,261(778,025)
116,081(77,803)
1,003

Note 43,329

1,050,000

35.00

42,94816,049

5,617

-

5,877

-

100.00349,211

19,581

19,581

Note 3JPY$

Net Income(Loss) of theInvestee

Note 1:Adopted the treasury stock 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 stocks because it is a limited company.

Note 4:

Have acquired non-controlling interests of Taiwan Airport Services from September 2015.

Note 5:On December 18, 2015 the board of Science Park Logistics (SPL) approved the issuance of common stock for cash and with the date of right issues granted on was December 25, 2015. The board of Company has reached an agreement to purchase $64,091 thousand which had been remitted
to SPL by December 31, 2015. SPL completed the registration of this subscription on January 22, 2016.

- 86 -TABLE 6

CHINA AIRLINES, LTD. AND INVESTEESINVESTMENTS IN MAINLAND CHINAFOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars/Renminibi/U.S. Dollars, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Business andProduct

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan as
Capitalof January 1,
2016

Investment Flow

Outflow

Inflow

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

Forwarding and storage $ 1,042,154of air cargo(RMB 224,480)

Indirect(Note 1)$135,031 $(US$4,186)

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

Forwarding and storage64,995of air cargo(RMB 14,000)

Indirect(Note 1)

62,821
1,947)-(US$

Taikoo (Xiamen) Landing
Gear Services

Landing gear
1,190,000
maintenance services (US$ 36,890)

Indirect(Note 1)

69,3942,151)-(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material-

Shanghai Eastern Aircraft
MaintenanceAircraft line
maintenance

Shanghai Eastern UnitedInternational

376,226
11,663)

Indirect(Note 1)

(US$

20,516
636)

-

(US$

100,000
3,100)

Indirect(Note 2)

(US$

8,000
248)

-

(US$

Forwarding of air cargo
and ocean freight(US$32,2581,000)

Indirect(Notes 3
and 8)

5,532
172)

-

(US$

Accumulated Investment in
Mainland China as ofDecember 31, 2016

Investment Amount
Authorized by Investment
Commission, MOEA

Limit on Investment$241,194 (US$7,477)$464,423 (Note 5)$34,720,319 (Note 6)

Accumulated
Outflow ofInvestment
from Taiwan asof December 31,
2016% Ownershipof Direct orIndirect
Investment

Net Income(Loss) of
the Investee

Accumulated
Carrying Value
Inwardas ofRemittance ofDecember 31, Earnings as of2016
December 31,
2016

Investment
Gain (Loss)$(US$

41,831 $1,297) (US$93,200 $48,9722,889) (RMB 10,549)

14.00

18,258566) (US$44,56384,691
1,381) (RMB 18,242)

14.00

(US$

69,3942,151)

-

5.83

-

(US$

20,516
636)

-

5.45

-

(US$

8,000
248)

-

8.00

(US$

5,532
172)

-

-

(US$

-

-

-

-

$
(RMB

7,153 $
234,169 $1,477) (RMB 50,440) (US$90,3792,802)(Note 4)

(RMB

12,371
115,330
2,554) (RMB 24,842) (US$28,236875)(Note 4)--

20,157
4,342)

-

-

-

-

-

-

-

(RMB

(Continued)- 87 -

Taiwan Airport Services

Investee Company

Main Business andProduct

Accumulated
Outward
Remittance for
Method ofPaid-in Capital
Investment
Investment
from Taiwan asof January 1,
2016

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

Forwarding and storage $ 1,042,154of air cargo(RMB 224,480)

Indirect(Note 7)$
132,516 $(US$4,108)

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

Forwarding and storage64,995of air cargo(RMB 14,000)

Indirect(Note 7)

(US$

62,161
1,927)

Remittance of Funds

OutwardAccumulated
Outward
Remittance forInvestment
from Taiwan asof December 31,
2016

Inward

-

$

-

-

$
132,516 $48,972(US$
4,108) (RMB 10,549)

14.00

62,161
84,691
1,927) (RMB 18,242)

14.00

(US$

Accumulated Outward
Remittance for Investment in
Mainland China as of December 31, 2016

Investment Amounts Authorized by
Investment Commission, MOEA

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

$191,778 (US$5,945)$191,778 (US$5,945)$293,115 (Note 6)

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

Investment
Income (Loss)

Carrying
Amount as ofDecember 31,
2016

Accumulated
Repatriation of
Investment
Income as ofDecember 31,
2016

$
(RMB

7,154 $
232,872 $
122,785
1,477) (RMB 50,160) (US$3,806)(RMB

12,371
115,558
2,554) (RMB 24,891) (US$45,374
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: The Company invested in China Aircraft Services, which in turn, invested in a company located in mainland China.
Note 3: Cal-Asia Investment invested in Eastern United International Logistics (Holdings), which in turn, invested in a company located in mainland China.
Note 4: The inward remittance of earnings in 2016 amounted to US$2,801,749 and US$875,330.
Note 5: The amount comprised US$12,655,978, RMB4,200,000 and NT$36,666,667.
Note 6: The limit stated in the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjustment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 7: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in mainland China.
Note 8: Eastern United International Logistics (Holdings) Ltd. had disposed the investee company, and the company was preparing for declaration to Investment Commission.
Note 9: The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the year-end rates of refer for the reporting period.
(Concluded)- 88 -TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIES
BUSINESS RELATIONSHIP AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINE, LTD. AND ITS SUBSIDIARIESFOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)Intercompany Transactions
No.

0

Company Name

China Airlines, Ltd.

Related Party

Natural of
Relationship(Note 1)

Global Sky Express
Mandarin Airlines
Taiwan Air Cargo Terminal
Mandarin Airlines
Taoyuan International Airport Services
Sabre Travel Network Taiwan
Taiwan Airport Services
Hwa Hsia
Dynasty Holidays
Global Sky Express
Yestrip
Cal Hotel
Tigerair Taiwan
Taiwan Aircraft Maintenance and Engineering
Taoyuan International Airport Services
Taiwan Airport Services
Hwa Hsia
Mandarin Airlines
Tigerair Taiwan
Taiwan Air Cargo Terminal
Dynasty Holidays
Cal-Dynasty International
Yestrip
Cal Park
Cal Hotel
Sabre Travel Network Taiwan
Mandarin Airlines
Sabre Travel Network Taiwan
Taiwan Air Cargo Terminal
Mandarin Airlines
Sabre Travel Network Taiwan
Global Sky Express
Yestrip
Cal Hotel
Tigerair Taiwan
Taiwan Aircraft Maintenance and Engineering

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

Accounts

Other operating revenue
Passenger revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Other operating revenue
Terminal and landing fees
Terminal and landing fees
Terminal and landing fees
Passenger costs
Passenger costs
Other operating cost
Other operating cost
Other operating cost
Other operating cost
Other operating cost
Other operating cost
Operating expense
Interest expense
Interest expense
Accounts receivable - related parties
Accounts receivable - related parties
Accounts receivable - related parties
Accounts receivable - related parties
Accounts receivable - related parties
Accounts receivable - related parties
Accounts receivable - related parties
Accounts receivable - related parties

Amount

$80,8912,207,698
12,270367,853
3,013
8,570
10,970
9,391
1,793
2,520
14,8205,808
313,019
13,299
1,148,069
369,255
314,048
87,823
12,070427,875
47,59058,094
16,904217,210
180,111
2,926
1,785
357
1,021
377,970914
2,887
13,547535
37,418977

Transaction Criteria

The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
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% to Total
Consolidated
Total Revenue
or Assets
0.06
1.56
0.01
0.26
0.01
0.01
0.01
0.01
0.22
0.01
0.81
0.26
0.22
0.06
0.01
0.30
0.03
0.04
0.01
0.15
0.13
0.17
0.01
0.02
(Continued)- 89 -

Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Accounts

Taiwan Airport Services
Taiwan Air Cargo Terminal
Mandarin Airlines
Taoyuan International Airport Services
Sabre Travel Network (Taiwan)
Taiwan Airport Services
Hwa Hsia
Yestrip
Cal Hotel
Cal Park
Tigerair Taiwan
Mandarin Airlines
Sabre Travel Network (Taiwan)
Mandarin Airlines
Sabre Travel Network (Taiwan)

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

Accounts receivable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties
Interest payable
Interest payable
Bond payable - noncurrent
Bond payable - noncurrent

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

677
43,767
227,693
323,510
16
61,101
55,4803,376
17,77257,018
1,446
1,785
357
250,000
50,000The 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

0.02
0.10
0.14
0.03
0.02
0.01
0.03
0.11
0.02

1

Taiwan Air Cargo Terminal

China Airlines, Ltd.
Mandarin Airlines
Taoyuan International Airport Services
China Airlines, Ltd.
Hwa Hsia
China Airlines, Ltd.
China Airlines, Ltd.
Taoyuan International Airport Services
Mandarin Airlines
Hwa Hsia

b
c
c
b
c
b
b
c
c
c

Sales revenue
Sales revenue
Sales revenue
Operating costs
Operating costs
Accounts receivable - related parties
Accounts payable - related parties
Accounts receivable - related parties
Accounts receivable - related parties
Accounts payable - related parties

427,875
14,656
7,628
12,27011,67943,767
1,021
797
1,484
1,110

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

0.30
0.01
0.01
0.01
0.02
-

2

Mandarin Airlines

China Airlines, Ltd.
China Airlines, Ltd.
Taiwan Airport Services
Taoyuan International Airport Services
Taiwan Air Cargo Terminal
Hwa Hsin
Tigerair Taiwan
Tigerair Taiwan
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
Taiwan Airport Services
Taoyuan International Airport Services
Taiwan Air Cargo Terminal

b
b
c
c
c
c
c
c
b
b
b
b
b
b
c
c
c

Passenger revenue
Passenger costs
Terminal and landing fees
Terminal and landing fees
Terminal and landing fees
Terminal and landing fees
Operating revenue
Accounts receivable - related parties
Operating expense
Interest revenue
Notes accounts payable - related parties
Interest receivable
Held-to-maturity financial assets
Notes accounts payable - related parties
Notes accounts payable - related parties
Accounts payable - related parties
Accounts payable - related parties

87,8232,207,698
105,426
38,71914,656
1,105
5,868
249
367,853
1,785
227,693
1,785
250,000
377,970
13,2083,439
1,484

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

0.06
1.56
0.07
0.03
0.01
0.26
0.10
0.11
0.17
0.01
(Continued)- 90 -

Intercompany Transactions
Related Party

Natural of
Relationship(Note 1)

No.

Company Name

3

Taoyuan International Airport Services

Mandarin Airlines
Tigerair Taiwan
China Airlines, Ltd.
China Airlines, Ltd.
Taiwan Air Cargo Terminal
China Airlines, Ltd.
Mandarin Airlines
Tigerair Taiwan
Taiwan Air Cargo Terminal

c
c
b
b
c
b
c
c
c

Airport service revenue
Airport service revenue
Airport service revenue
Operating expense
Operating costs
Accounts receivable - related parties
Accounts receivable - related parties
Accounts receivable - related parties
Accounts payable - related parties

4

Cal-Dynasty International

China Airlines, Ltd.

b5

Sabre Travel Network Taiwan

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

6

Taiwan Airport Services

7

Accounts

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

38,71990,3181,148,069
3,013
7,628
323,510
3,439
11,657797

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

0.03
0.06
0.81
0.14
0.01
-

Operating revenue

58,094The same as ordinary transactions

0.04

b
b
b
b
b
b
b

Service revenue
Operating expense
Interest revenue
Accounts receivable - related parties
Interest receivable
Held-to-maturity financial assets
Accounts payable - related parties

2,926
8,570
357
16
357
50,000914

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

0.01
0.02
-

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

b
c
b
b
b
c

Operating revenue
Operating revenue
Operating expense
Accounts receivable - related parties
Accounts payable - related parties
Accounts receivable - related parties

369,255
105,426
10,97061,101
677
13,208The 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

0.26
0.07
0.01
0.03
0.01

Hwa Hsia

China Airlines, Ltd.
Taiwan Air Cargo Terminal
Mandarin Airlines
China Airlines, Ltd.
China Airlines, Ltd.
Taiwan Air Cargo Terminal

b
c
c
b
b
c

Operating revenue
Operating revenue
Operating revenue
Operating expense
Accounts receivable - related parties
Accounts receivable - related parties

314,048
11,6791,105
9,391
55,4801,110

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

0.22
0.01
0.01
0.02
-

8

Dynasty Holidays

China Airlines, Ltd.
China Airlines, Ltd.

bb

Operating revenue
Operating expense

47,590
1,793

The same as ordinary transactions
The same as ordinary transactions

0.03
-

9

Global Sky Express

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

bbbOperating costs
Operating expense
Accounts payable - related parties

80,8912,520
2,887

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

0.06
-

10

Yestrip

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

b
b
b
b

Operating revenue
Operating expense
Accounts receivable - related parties
Accounts payable - related parties

16,904
14,2803,367
13,547The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

0.01
0.01
0.01
(Continued)- 91 -

Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Accounts

11

Cal Park

China Airlines, Ltd.
Cal Hotel
China Airlines, Ltd.
Cal HotelbcbcOperating revenue
Operating revenue
Accounts receivable - related parties
Accounts receivable - related parties

12

Cal Hotel

China Airlines, Ltd.
China Airlines, Ltd.
Cal Park
China Airlines, Ltd.
China Airlines, Ltd.
Cal Park

b
b
c
b
b
c

13

Tigerair Taiwan

China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
China Airlines, Ltd.
Mandarin Airlines
Mandarin Airlines
Taoyuan International Airport Services
Taoyuan International Airport Services

14

Taiwan Aircraft Maintenance andEngineering

China Airlines, Ltd.
China Airlines, Ltd.

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

217,210
82,25657,018294

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

0.15
0.06
0.03
-

Operating revenue
Operating expense
Operating costs
Accounts receivable - related parties
Accounts payable - related parties
Accounts payable - related parties

180,111
5,808
82,256
17,772535
294

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

0.13
0.06
0.01
-

b
b
b
b
c
c
c
c

Operating expense
Passenger revenue
Accounts receivable - related parties
Accounts payable - related parties
Operating expense
Accounts payable - related parties
Terminal and landing fees
Accounts payables

313,019
12,0701,446
37,4185,868
249
90,318
11,657The 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

0.22
0.01
0.02
0.04
0.01

b
b

Operating expense
Accounts payable - related parties

13,299977

The same as ordinary transactions
The same as ordinary transactions

0.01-

Note 1: Three kinds of business relationships between China Airline, 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 consolidated financial report.
(Concluded)- 92 -