China Airlines, Ltd. and Subsidiaries
Consolidated Financial Statements for theThree Months Ended March 31, 2018 and 2017 andIndependent Auditors’ Review ReportINDEPENDENT AUDITORS’ REVIEW REPORTThe Board of Directors and the Shareholders
China Airlines, Ltd.
Introduction
We have reviewed the accompanying consolidated balance sheets of China Airlines, Ltd. and its
subsidiaries (the “Group”) as of March 31, 2018 and 2017, the related consolidated statements ofcomprehensive income, changes in equity and cash flows for the three-month periods then ended
and the related notes, including a summary of significant accounting policies (collectively referred
to as the “consolidated financial statements”). Management is responsible for the preparation andfair presentation of the consolidated financial statements in accordance with the Regulations
Governing the Preparation of Financial Reports by Securities Issuers and International AccountingStandard 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on the
consolidated financial statements based on our reviews.
We did not review the financial statements of some non-significant subsidiaries included in the
consolidated financial statements of the Group, but such statements were reviewed by otherauditors. Our conclusion, insofar as it relates to the amounts included in the consolidated
financial statements for these non-significant subsidiaries, is based solely on the reports of otherauditors. The total assets of these non-significant subsidiaries were NT$5,266,148 thousand,which constituted 2.31% of the consolidated total assets as of March 31, 2018, and the total
revenue was NT$2,330,498 thousand, which constituted 5.87% of the consolidated total revenue
for the three-month period ended March 31, 2018.
Scope of Review
Except as explained in the following paragraph, we conducted our reviews in accordance with theStatement of Auditing Standard No. 65 “Review of Financial Information Performed by the
Independent Auditor of the Entity”. A review of consolidated financial statements consists ofmaking inquiries, primarily of persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is substantially less in scope than an
audit and consequently does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Basis for Qualified Conclusion
As disclosed in Notes 14 and 15 to the accompanying consolidated financial statements, thefinancial statements of some non-significant subsidiaries and investments accounted for using theequity method were not reviewed. As of March 31, 2018 and 2017, the combined total assets ofthese non-significant subsidiaries were NT$17,191,528 thousand and NT$14,638,402 thousand,respectively, representing 7.53% and 6.65%, respectively, of the consolidated total assets, and the
combined total liabilities of these non-significant subsidiaries were NT$6,290,635 thousand
NT$6,607,495 thousand, respectively, representing 3.74% and 3.97%, respectively, of theconsolidated total liabilities; for the three-month periods ended March 31, 2018 and 2017, the-1-amounts of the combined comprehensive income of these non-significant subsidiaries were
NT$171,137 thousand and NT$154,878 thousand, respectively, representing 565% and (3.86)%,
respectively, of the consolidated total comprehensive income. As of March 31, 2018 and 2017,
the aforementioned investments accounted for using the equity method were NT$2,279,493
thousand and NT$2,864,853 thousand, respectively; and for the three-month periods ended March
31, 2018 and 2017, the Group’s share of the profit of such investments accounted for using theequity method were NT$81,772 thousand and NT$119,280 thousand, respectively.
Qualified Conclusion
Based on our reviews, except for the adjustments, if any, as might have been determined to benecessary had the financial statements of the non-significant subsidiaries and investments
accounted for by using the equity method as described in the preceding paragraph been reviewed,
nothing has come to our attention that caused us to believe that the accompanying consolidated
financial statements do not present fairly, in all material respects, the consolidated financial
position of the Group as of March 31, 2018 and 2017 and its consolidated financial performanceand its consolidated cash flows for the three-month periods then ended in accordance with theRegulations Governing the Preparation of Financial Reports by Securities Issuers, and International
Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the
Financial Supervisory Commission of the Republic of China.
The engagement partners on the reviews resulting in this independent auditors’ review report are
Chen-Hsin Yang and Li-Chi Chen.

Deloitte & Touche
Taipei, Taiwan
Republic of China
May 10, 2018

Notice to Readers
The accompanying consolidated financial statements are intended only to present the consolidated
financial position, financial performance and cash flows in accordance with accounting principles
and practices generally accepted in the Republic of China and not those of any other jurisdictions.
The standards, procedures and practices to review such consolidated financial statements arethose generally applied in the Republic of China.
For the convenience of readers, the independent auditors’ review report and the accompanying
consolidated financial statements have been translated into English from the original Chineseversion prepared and used in the Republic of China. If there is any conflict between the English
version and the original Chinese version or any difference in the interpretation of the two versions,the Chinese-language independent auditors’ review report and consolidated financial statements
shall prevail.
-2-

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

March 31, 2018
(Reviewed)
AmountASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6, 19 and 33)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 33)
Financial assets at amortized cost (Note 9)
Derivative financial assets for hedging - current (Notes 4, 5, 9 and 33)
Financial assets for hedging - current (Notes 4 and 33)
Notes and accounts receivable, net (Notes 4, 5, 11 and 33)
Notes and accounts receivable - related parties (Notes 33 and 34)
Other receivables (Note 33)
Current tax assets (Notes 4 and 29)
Inventories, net (Notes 4 and 12)
Noncurrent assets held for sale (Notes 4, 5 and 13)
Other assets - current (Notes 6 and 19)

$

%

21

46,656,143

21

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

1
68
1
1
2
6

219
139,301
2,864,853
138,040,700
2,075,833
1,118,115
6,097,719
23,178,238

1
63
1
3
11

79

178,487,798

79

173,514,97879$ 228,431,263

100$ 225,899,632

100$ 220,171,121

100$

30,00020,00010,797
94,761
1,092,755
531,628
16,584,300
11,338,760
61,525739,029
4,424,611
23,140,173
1,471,348
3,820,191

1
7
5
2
10
1
2

$

$

1,798,030
1,839,989
34,836
156,569
832,657
568,951
10,281,073
79,442
709,405
14,856,171
2,700,000
34,638,911
1,283,992
3,791,470

1
1
5
7
1
16
1
2

63,359,878

Total noncurrent assets

10
1
4
4
2

48,653,145$

22,585,332
306,839293
8,604,265
8,359
714,41332,487
8,731,755
426,553
6,001,538

10
4
4
3

21

47,411,834

133,291
2,279,493
160,389,245
2,075,553
1,098,975
5,478,287
8,323,274

1
70
1
1
2
4

179,778,118

$

%

11
4
4
2

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

21,851,248
1,643,514
1,066,954
2,369
9,233,895
10,928774,728
29,276
8,757,780
520,139
4,762,314

March 31, 2017
(Reviewed)
Amount23,783,871
469,1874,316
8,305,835
6,432
668,555
31,945
8,705,860
620,236
4,059,906

Total current assets

TOTAL

December 31, 2017
(Audited)
Amount%LIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loans (Note 20)
Short-term bills payable (Note 20)
Financial liabilities at fair value through profit or loss - current (Notes 4, 5, 7 and 33)
Derivative financial liabilities for hedging - current (Notes 4 and 33)
Financial liabilities for hedging - current (Notes 4 and 33)
Notes and accounts payable (Note 33)
Notes and accounts payable - related parties (Notes 33 and 34)
Contract liabilities - current (Notes 4, 5 and 24)
Other payables (Notes 23 and 33)
Current tax liabilities (Notes 4 and 29)
Provisions - current (Notes 4, 5, 25 and 33)
Deferred revenue - current (Notes 4, 5 and 24)
Bonds payable and put options of convertible bonds - current portion (Notes 4, 21, 27 and 33)
Loans and debts - current portion (Notes 20, 33 and 35)
Capital lease obligations - current portion (Notes 4, 22, 33 and 35)
Other current liabilities (Note 33)

120,000
8,655
82,295483,884
590,806
13,033,069
28,722475,725
16,375,789
4,367,100
19,304,674
1,617,321
3,801,073

6
7
2
9
1
2

28

60,289,113

27

73,571,496

34

5,121
23,914,970
61,555,721
1,810,534
8,146,896
163,816
552,975
7,930,513
899,629

10
27
1
4
4
-

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

9
29
4
1
4
-

6,848
11,501
16,845,439
55,829,355
7,086,423
213,433
3,322,496
1,755,916
7,301,471
419,646

8
25
3
2
1
3
-

Total noncurrent liabilities

104,980,175

46

106,453,000

47

92,792,528

42

Total liabilities

168,340,053

74

166,742,113

74

166,364,024

76

54,709,846
1,209,977

24-

54,709,846
799,99924-

54,708,901
799,932

25-

206,092
1,488,946
1,695,038(93,773)(43,372)1
1-

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

287,224
76,486(3,920,762)(3,557,052)(175,830)(43,372)

(2)
(2)
-

57,477,716

25

57,023,237

25

51,732,579

23

2,613,494

1

2,134,282

1

2,074,518

1

60,091,210

26

59,157,519

26

53,807,097

24$ 228,431,263

100$ 225,899,632

100$ 220,171,121

100

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

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

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated May 10, 2018)-3-

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

For the Three Months Ended March 31
2018
2017
Amount%Amount%REVENUE (Notes 4, 28 and 34)$ 39,735,027

100$ 35,796,465

100

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

35,938,474

90

32,997,085

92

GROSS PROFIT

3,796,553

10

2,799,380

8

OPERATING EXPENSES (Notes 4, 26 and 28)

3,373,242

9

3,168,810

9423,3111(369,430)(1)

132,225(154,988)(315,552)(1)

140,798(3,080,848)(326,690)(8)(1)

81,772-

119,280-(256,543)(1)(3,147,460)(9)

PROFIT (LOSS) BEFORE INCOME TAX

166,768-(3,516,890)(10)

INCOME TAX EXPENSE (Notes 4, 5 and 29)

68,617-

196,477-

NET INCOME (LOSS) FOR THE PERIOD

98,151-(3,713,367)(10)(36,561)

-

-

-

1,414

-

-

-

8,433
(26,714)-(Continued)

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

OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified subsequently to
profit or loss:
Loss on hedging instruments subject to basis
adjustment
Unrealized gain on investments in equity
instruments designated as at fair value throughother comprehensive income
Income tax relating to items that will not bereclassified subsequently to profit or loss
(Note 29)

-4-

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

For the Three Months Ended March 31
2018
2017
Amount%Amount%Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 27)
Cash flow hedges (Notes 4 and 27)
Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method
Income tax relating to items that may bereclassified subsequently to profit or loss
(Note 29)$

(147,996)(208,539)

(1)

-

-

-

2,635

-

59,462-(67,848)-(297,073)(1)$

30,303-$ (4,010,440)

(11)

$

30,57367,578-$ (3,760,875)
47,508(10)-$

98,151-$ (3,713,367)

(10)

$

(40,291)
70,594-$ (4,048,969)
38,529(11)-$30,303-$ (4,010,440)(11)

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

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

EARNINGS (LOSSES) PER SHARE (NEW TAIWANDOLLARS; Note 30)
Basic
Diluted$$(27,657)--(16,112)

0.01
0.01

$

$
$

(0.69)(0.69)

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated May 10, 2018)-5-(Concluded)

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

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

Equity Attributable to Owners of the Company
Other Equity
Unrealized Gainon Financial
Exchange
Unrealized Gain
AssetsUnappropriatedDifferences on(Loss) on
at Fair Value
Earnings
Translating
Available-forThrough Other(Accumulated
Foreignsale Financial
Comprehensive
Deficits)
Operations
AssetsIncome$ 54,708,901

$

$

$

$

Retained Earnings

BALANCE AT JANUARY 1, 2017799,932

287,224

76,486(157,618)$

78,564

$

1,714

$

-

Gain (Loss) on
Hedging
Instruments

Cash Flow
Hedges$31,986$-

Treasury Shares
Held by
Subsidiaries
$

Total

(43,372)$ 55,783,817

Non-controlling
Interests

Total Equity$

2,083,381$ 57,867,198

Difference between cost and net value ofacquired subsidiaries

-

-

-

-

(2,269)

-

-

-

-

-

-

(2,269)(46,118)(48,387)

Net profit (loss) for the three months ended
March 31, 2017

-

-

-

-

(3,760,875)

-

-

-

-

-

-

(3,760,875)

47,508(3,713,367)

Other comprehensive loss for the threemonths ended March 31, 2017, net ofincome tax

-

-

-

-

-

(114,408)--(173,686)--(288,094)(8,979)(297,073)

Total comprehensive income (loss) for thethree months ended March 31, 2017

-

-

-

-

(3,760,875)(114,408)--(173,686)--(4,048,969)

38,529(4,010,440)

Cash dividends from subsidiaries paid to
non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

(1,274)(1,274)$ (3,920,762)$(35,844)

$

1,714

$

-

$

(141,700)$-$(43,372)$ 51,732,579$

2,074,518$ 53,807,097$$(34,986)

$

1,774

$

-

$

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

2,134,282$ 59,157,519

BALANCE AT MARCH 31, 2017

$ 54,708,901$

799,932$

287,224$

76,486BALANCE AT JANUARY 1, 2018

$ 54,709,846$

799,999$

206,092$-

1,458,313

Effect of retrospective application andretrospective restatement

-

-

-

-

60

-

(1,774)42,351

74,429(74,429)-

40,637-

40,637BALANCE AT JANUARY 1, 2018 AS
RESTATED

54,709,846

799,999

206,092-

1,458,373(34,986)-

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

57,063,874

2,134,282

59,198,156

Issuance of convertible bonds-

409,978

-

-

-

-

-

-

-

-

-

409,978-

409,978

Basis adjustment to gain on hedging
instruments

-

-

-

-

-

-

-

-

-

44,155-

44,155-

44,155

Net profit for the three months ended
March 31, 2018

-

-

-

-

30,573

-

-

-

-

-

-

30,57367,57898,151Other comprehensive income (loss) for thethree months ended March 31, 2018, netof income tax

-

-

-

-

-

(22,947)

-

1,454

-

(49,371)-(70,864)

3,016(67,848)

Total comprehensive income (loss) for thethree months ended March 31, 2018

-

-

-

-

30,573(22,947)

-

1,454

-

(49,371)-(40,291)

70,59430,303

Non-controlling interests arising fromacquisition of subsidiaries

-

-

-

-

-

-

-

-

-

-

-

-

408,618

408,618(43,372)$ 57,477,716

2,613,494$ 60,091,210

BALANCE AT MARCH 31, 2018

$ 54,709,846$

1,209,977$

206,092$-$

1,488,946$(57,933)

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated May 10, 2018)

-6-

$

-

$

43,805$-$(79,645)$$

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

For the Three Months Ended
March 31
2018
2017
CASH FLOWS FROM OPERATING ACTIVITIESIncome (loss) before income tax
Adjustments to reconcile net cash generated from (used in) operating
activities:
Depreciation expenses
Amortization expenses
Bad-debt expense
Net (gain) loss on fair value changes of financial assets andliabilities held for trading
Interest income
Share of profit of associates and joint ventures
Loss on disposal of property, plant and equipment
Loss (gain) on disposal of noncurrent assets held for sale
(Gain) loss on disposal of investments
Loss on inventories and property, plant and equipment
Impairment loss recognized on property, plant and equipment andnoncurrent assets held for saleNet gain on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leasebacks
Changes in operating assets and liabilities
Financial assets and liabilities held for trading
Notes and accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Other current assets
Accounts payable
Accounts payable - related parties
Other payables
Contract liabilities
Deferred revenue
Provisions
Other current liabilities
Accrued pension liabilities
Other liabilities
Cash generated from operations
Interest received
Dividends received from associates
Interest paid
Income tax paid
Net cash generated from operating activities-7-$

166,768$ (3,516,890)

4,788,327
49,455
12,325

4,639,963
61,663
12,648(2,866)(59,616)(81,772)
278,321
124,290(360,140)
404,188

36,572(42,747)(119,280)
1,151(25,140)
61
328,377

50,000(146,230)
315,552
865,122(3,628)2,842,383(289,739)
326,690818,629(3,628)(691,721)(359,757)
24,890(20,693)(340,853)(175,325)
456,971(94,607)(1,763,276)
202,672(301,966)(25,683)(221,575)(13,170)
3,076,003
41,844(395,770)(23,971)(49,431)(202,798)
101,822
316,568(510,614)
569,733(238,172)
167,343(950,727)(16,298)(164,140)
335,821(667,504)
17,1703,779,486
44,72952,986(428,354)(15,408)

2,698,106

3,433,439(Continued)

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

For the Three Months Ended
March 31
2018
2017
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from noncurrent assets held for sale
Payments for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Increase in computer software costs
Increase in restricted assets
Acquisition of subsidiaries
Net cash used in investing activities$

540,811(1,395,006)
292,881(9,090)31,429(5,610,010)(30,819)(28,096)
136,769$

332,551(1,462,397)
18,848(54,190)97,447(3,475,613)(42,721)(4,427)-(6,071,131)(4,590,502)

50,000(140,000)
20,000(2,700,000)
6,617,000(7,208,421)
49,600(27,511)
6,012,000-

1,710,000(50,000)
939,989(2,700,000)
6,013,000(5,065,831)
50,117(33,758)(48,387)(1,274)

2,672,668

813,856

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES(33,727)(140,119)NET DECREASE IN CASH AND CASH EQUIVALENTS(734,084)(483,326)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD

22,585,332

24,267,197

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD$ 21,851,248$ 23,783,871

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Decrease in short-term loans
Increase in short-term bills payable
Repayments of bonds payable
Proceeds of long-term debts and capital lease obligations
Repayments of long-term debts and capital lease obligations
Proceeds of guarantee deposits received
Refunds of guarantee deposits received
Acquisition of subsidiaries' shares
Issuance of corporate bonds
Cash dividends paid to non-controlling interests
Net cash generated from financing activities

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated May 10, 2018)-8-(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)(Reviewed, Not Audited)

1. GENERAL INFORMATION
China Airlines, Ltd. (the “Company”) was founded in 1959 and its shares have been listed on the Taiwan
Stock Exchange since February 26, 1993. The Company is primarily involved in (a) air transport services
for passengers, cargo and mail; (b) ground services and routine aircraft maintenance; (c) major maintenanceof flight equipment; (d) communications and data processing services to other airlines; (e) the sale ofaircraft parts, aviation equipment and (f) leasing of aircrafts.
The major shareholders of the Company are the China Aviation Development Foundation (“CADF”) andthe National Development Fund (“NDF”), Executive Yuan. As of March 31, 2018, December 31, 2017
and March 31, 2017, CADF and NDF held a combined 43.63% of the Company’s shares.

2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statement of the Company and its subsidiaries (collectively, the “Group”) wereapproved by the board of directors and authorized for issue on May 10, 2018.

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

-9-

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

Financial assets carried at
costTime deposits with original
maturities of more than 3months (other financial
assets)Principal-protected notes(other financial assets)

Loans and receivables

Loans and receivables

Financial Asset

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

Financial assets at fairvalue through profit orloss (i.e. FVTPL)IAS 39Carrying
Amount asof January 1,
2018

Reclassifications$$

84,075$131,585

1,323,095

1,323,095

483,318

483,318

Remeasurements

IFRS 9Carrying
Amount asof January 1,
2018

Retained
Earnings
Effect on
January 1,
2018

Other
EquityEffect on
January 1,
2018

$

$

$

$

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

84,075$84,075$--47,510131,585

47,510$ 131,585

60
-

$

60

$

(60 )

b)

40,637a)40,577a) Investments in unlisted shares previously carried at cost under IAS 39 have been classified as
designated as at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an
increase of $47,510 thousand was recognized in both financial assets at FVTOCI and other
equity - unrealized gain (loss) on financial assets at FVTOCI on January 1, 2018.
b) Mutual funds held by investments accounted for using the equity method previously classified
as available-for-sale under IAS 39 were classified mandatorily as at FVTPL under IFRS 9,
because the contractual cash flows are not solely payments of principal and interest on theprincipal outstanding and they are not equity instruments. The retrospective adjustment
resulted in a decrease of $60 thousand in other equity - unrealized gain (loss) on
available-for-sale financial assets and an increase of $60 thousand in retained earnings on
January 1, 2018.
c) Contracts such as principal-protected notes signed by the Group and financial institutions are
hybrid instruments. Since the related master contracts included in these hybrid instruments areassets within the scope of IFRS 9, the overall master contracts should be classified under IFRS
9.
d) Except for the above, the remaining financial assets classified as loans and receivables
amounting to $34,792,801 thousand based on IAS 39 are classified as financial assets at
amortised cost under IFRS 9.
e) In line with the equity adjustments above, the Group’s deferred tax liabilities increased by$6,873 thousand.
- 10 -

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers
and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations. Refer to Note 4 for related accounting policies.
In identifying performance obligations, IFRS 15 and the related amendments require that a good orservice is distinct if it is capable of being distinct (for example, the Group regularly sells it
separately) and the promise to transfer it is distinct within the context of the contract (i.e. the natureof the promise in the contract is to transfer each good or service individually rather than to transfer a
combined output). The Group chooses to apply retroactively IFRS 15 only for contracts that have
not yet been completed on the conversion date. Also, the revenue-related amount received should
be recognized as contract liabilities. Therefore, the previously classified deferred revenue - current
and noncurrent are reclassified to contract liabilities - current and noncurrent which amounted to$16,375,789 thousand and $1,818,265 thousand, respectively, on January 1, 2018.
b. New IFRSs in issue but not yet endorsed and issued into effect by the FSC
Effective Date
Announced by IASB (Note 1)

New IFRSs
Annual Improvements to IFRSs 2015-2017 Cycle
Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between An Investor and Its Associate or Joint Venture”
IFRS 16 “Leases”
IFRS 17 “Insurance Contracts”
Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and Joint
Ventures”
IFRIC 23 “Uncertainty Over Income Tax Treatments”

January 1, 2019
January 1, 2019 (Note 2)
To be determined by IASB
January 1, 2019 (Note 3)
January 1, 2021
January 1, 2019 (Note 4)
January 1, 2019
January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.
Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.
Note 3: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting fromJanuary 1, 2019.
Note 4: The Group shall apply these amendments to plan amendments, curtailments or settlements
occurring on or after January 1, 2019.
IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related
interpretations.

- 11 -

Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for allleases on the consolidated balance sheets except for low-value and short-term leases. The Group may
elect to apply the accounting method similar to the accounting for operating leases under IAS 17 to
low-value and short-term leases. On the consolidated statements of comprehensive income, the Groupshould present the depreciation expense charged on right-of-use assets separately from the interest
expense accrued on lease liabilities; interest is computed using the effective interest method. On the
consolidated statements of cash flows, cash payments for the principal portion of lease liabilities areclassified within financing activities; cash payments for the interest portion are classified within
operating activities. The lease liabilities arising from lease contracts denominated in foreign
currencies are evaluated at the current exchange rate on the balance sheet date, and the exchange
differences are included in the current profit or loss.
The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as
lessor.
When IFRS 16 becomes effective, the Group may elect to apply this standard either retrospectively toeach prior reporting period presented or retrospectively with the cumulative effect of the initial
application of this standard recognized at the date of initial application.
Except for the above impact, as of the date the consolidated financial statements were authorized for
issue, the Group is continuously assessing the possible impact that the application of other standards
and interpretations will have on the Group’s financial position and financial performance and will
disclose the relevant impact when the assessment is completed.

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

- 12 -

Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
a. Measurement categories
2018
Financial assets are classified into the following categories: Financial assets at FVTPL, financial
assets at amortized cost, and investments in equity instruments at FVTOCI.
1) Financial assets at FVTPL
Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified ordesignated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investmentsin equity instruments which are not designated as at FVTOCI and debt instruments that do not meet
the amortized cost criteria or the FVTOCI criteria.
Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arisingon remeasurement recognized in profit or loss. Fair value is determined in the manner described in
Note 33.
2) Financial assets at amortized cost
Financial assets that meet the following conditions are subsequently measured at amortized cost:a) The financial asset is held within a business model whose objective is to hold financial assets inorder to collect contractual cash flows; andb) The contractual terms of the financial asset give rise on specified dates to cash flows that aresolely payments of principal and interest on the principal amount outstanding.
Subsequent to initial recognition, financial assets at amortized cost, including cash and cash
equivalents, trade receivables, other receivables and other financial assets, are measured atamortized cost, which equals the gross carrying amount determined using the effective interest
method less any impairment loss. Exchange differences are recognized in profit or loss.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of afinancial asset.
Cash equivalents include time deposits with original maturities within 3 months from the date ofacquisition, which are highly liquid, readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in value. These cash equivalents are held for the purpose of
meeting short-term cash commitments.
3) Investments in equity instruments at FVTOCI
On initial recognition, the Group may make an irrevocable election to designate investments inequity instruments as at FVTOCI. Designation at FVTOCI is not permitted if an equity
investment is held for trading or if it is contingent consideration recognized by an acquirer in abusiness combination.
Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains
and losses arising from changes in fair value recognized in other comprehensive income andaccumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss
on disposal of the equity investments; instead, they will be transferred to retained earnings.
- 13 -

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

- 14 -

b. Impairment of financial assets
2018
The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost(including trade receivables), as well as contract assets.
The Group always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables and otherreceivables. For all other financial instruments, the Group recognizes lifetime ECLs when there has
been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk
on a financial instrument has not increased significantly since initial recognition, the Group measuresthe loss allowance for that financial instrument at an amount equal to 12-month ECLs.
Expected credit losses reflect the weighted average of credit losses with the respective risks of a default
occurring as the weights. Lifetime ECL represents the expected credit losses that will result from all
possible default events over the expected life of a financial instrument. In contrast, 12-month ECL
represents the portion of lifetime ECL that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting date.
The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with acorresponding adjustment to their carrying amounts through a loss allowance account, except forinvestments in debt instruments that are measured at FVTOCI, for which the loss allowance isrecognized in other comprehensive income and does not reduce the carrying amounts of the financial
assets.
2017
Financial assets, other than those at fair value through profit or loss, are assessed for indicators of
impairment at the end of each reporting period. Financial assets are considered to be impaired when
there is objective evidence, as a result of one or more events that occurred after the initial recognition of
the financial assets, that the estimated future cash flows of the investments have been affected.
For financial assets at amortized cost, such as trade receivables and other receivables, such assets areassessed for impairment on a collective basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables could include the Group’s pastexperience with collecting payments, an increase in the number of delayed payments in the portfolio
past the average credit period of 60 days, as well as observable changes in national or local economic
conditions that correlate with defaults on receivables.
For a financial asset at amortized cost, the amount of the impairment loss recognized is the difference
between the asset’s carrying amount and the present value of its estimated future cash flows, discounted
at the financial asset’s original effective interest rate.
For financial assets at amortized cost, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment wasrecognized, the previously recognized impairment loss is reversed through profit or loss to the extent
that the carrying amount of the investment (at the date the impairment is reversed) does not exceed what
the amortized cost would have been had the impairment not been recognized.
For any available-for-sale equity investments, a significant or prolonged decline in the fair value of the
security below its cost is considered to be objective evidence of impairment.

- 15 -

For all other financial assets, objective evidence of impairment could include significant financial
difficulty of the issuer or counterparty, breach of contract such as a default or delinquency in interest or
principal payments, it becoming probable that the borrower will enter bankruptcy or financial
re-organization, or the disappearance of an active market for those financial assets because of financial
difficulties.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the period.
In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss
is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss isrecognized in other comprehensive income. In respect of available-for-sale debt securities,
impairment loss is subsequently reversed through profit or loss if an increase in the fair value of theinvestment can be objectively related to an event occurring after the recognition of the impairment loss.
For financial assets that are carried at cost, the amount of the impairment loss is measured as thedifference between such an asset’s carrying amount and the present value of the estimated future cash
flows discounted at the current market rate of return for a similar financial asset. Such impairment
loss will not be reversed in subsequent periods.
The carrying amount of a financial asset is reduced by the impairment loss directly for all financial
assets, with the exception of trade receivables and other receivables, where the carrying amount isreduced through the use of an allowance account. When trade receivables and other receivables are
considered uncollectible, they are written off against the allowance account. Subsequent recoveries ofamounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss except for uncollectible tradereceivables and other receivables that are written off against the allowance account.
c. Derecognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows from theasset expire or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another party.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amountand the sum of the consideration received and receivable and the cumulative gain or loss that had beenrecognized in other comprehensive income is recognized in profit or loss.
Equity instruments
Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity
in accordance with the substance of the contractual arrangements and the definitions of a financial liability
and an equity instrument.
Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue
costs.
Repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity.
No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s
own equity instruments.
Financial liabilities
a. Subsequent measurement
All financial liabilities are measured at amortized cost using the effective interest method.
- 16 -

b. Derecognition of financial liabilities
The difference between the carrying amount of a financial liability derecognized and the consideration
paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.
Hedge Accounting
The Group designates certain hedging instruments, which include derivatives, embedded derivatives andnon-derivatives in respect of foreign currency risk, as cash flow hedges. Hedges of foreign exchange risk
on firm commitments are accounted for as cash flow hedges.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion isrecognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassified fromequity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in thesame period in which the hedged item affects profit or loss. If a hedge of a forecasted transaction
subsequently results in the recognition of a non-financial asset or a non-financial liability, the associatedgains and losses that were recognized in other comprehensive income are removed from equity andincluded in the initial cost of the non-financial asset or non-financial liability.
Before 2017, hedge accounting was discontinued prospectively when the Group revoked the designatedhedging relationship; when the hedging instrument expired or was sold, terminated, or exercised; or when
the hedging instrument no longer met the criteria for hedge accounting. Starting from 2018, the Groupdiscontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; forinstance, when the hedging instrument expires or is sold, terminated or exercised. The cumulative gain orloss on the hedging instrument that has been previously recognized in other comprehensive income fromthe period in which the hedge was effective remains separately in equity until the forecasted transaction
occurs. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated inequity is recognized immediately in profit or loss.
Revenue Recognition
When applying IFRS 15, the Group recognizes revenue by applying the following steps:






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

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

- 17 -

Employee Benefits
Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determinedpension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since thattime and for significant plan amendments, settlements, or other significant one-off events.
Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period
income taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax
income the tax rate that would be applicable to expected total annual earnings.
Business Combinations
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of theacquirer’s previously held equity interests in the acquiree over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed.
When a business combination is achieved in stages, the Group’s previously held equity interest in an
acquiree is remeasured to fair value at the acquisition date, and the resulting gain or loss is recognized in
profit or loss or other comprehensive income. Amounts arising from interests in the acquiree prior to theacquisition date that have previously been recognized in other comprehensive income are recognized on thesame basis as would be required if those interests were directly disposed of by the Group.
If the initial accounting for a business combination is incomplete by the end of the reporting period inwhich the combination occurs, the Group reports provisional amounts for the items for which theaccounting is incomplete. Those provisional amounts are adjusted retrospectively during the measurement
period, or additional assets or liabilities are recognized, to reflect new information obtained about facts andcircumstances that existed as of the acquisition date that, if known, would have affected the amounts
recognized as of that date.
Goodwill
Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisitionof the business less accumulated impairment loss.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units
or groups of cash-generating units (referred to as “cash-generating units”) that is expected to benefit fromthe synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually or more
frequently when there is an indication that the unit may be impaired, by comparing its carrying amount,
including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a
cash-generating unit was acquired in a business combination during the current annual period, that unit
shall be tested for impairment before the end of the current annual period. If the recoverable amount of
the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce thecarrying amount of any goodwill allocated to the unit and then pro rata to the other assets of the unit basedon the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit orloss. Any impairment loss recognized for goodwill is not reversed in subsequent periods.
If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that
unit, the goodwill associated with the operation which is disposed of is included in the carrying amount of
the operation when determining the gain or loss on disposal and is measured on the basis of the relativevalues of the operation disposed of and the portion of the cash-generating unit retained.

- 18 -

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
Except for the following, the critical accounting judgments and key sources of estimation uncertainty forthese interim consolidated financial statements are the same as those applied for the consolidated financial
statements for the year ended December 31, 2017.
a. Estimated impairment of financial assets - 2018
The provision for the impairment of trade receivables is based on assumptions about the risk of default
and expected loss rates. The Group uses judgment in making these assumptions and in selecting the
inputs to the impairment calculation, based on the Group’s past history, existing market conditions aswell as forward-looking estimates at the end of each reporting period. For details of the key
assumptions and inputs used, see Note 11. Where the actual future cash inflows are less than
expected, a material impairment loss may arise.
b. Estimated impairment of trade receivables - 2017
When there is objective evidence of impairment loss, the Group takes into consideration the estimationof future cash flows. The amount of impairment loss is measured as the difference between an asset’s
carrying amount and the present value of its estimated future cash flows (excluding future credit losses
that have not been incurred) discounted at the financial asset’s original effective interest rate. Where
the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS
March 31,2018
Cash on hand and revolving fund
Checking accounts and demand deposits
Cash equivalents
Time deposits with original maturities of lessthan three months
Repurchase agreements collateralized by bonds$

418,632
8,041,758

December 31,
2017$374,445
11,427,766

March 31,2017$

462,051
9,288,987

10,979,115
2,411,743

4,812,734
5,970,387

4,485,204
9,547,629$ 21,851,248$ 22,585,332$ 23,783,871

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

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

March 31,2018

December 31,
2017

March 31,2017

0%-1.9%

0%-2%

0%-2%

0.59%-4.7%
0.38%-2.00%

0.59%-4.2%
0.36%-2.2%

1.5%-4.35%
0.4%-1.53%

The amount of time deposits with original maturities of more than three months for December 31, 2017 andMarch 31, 2017 were $1,323,095 thousand and $758,083 thousand, respectively, and the respective market
rate intervals were 0.16%-1.42% and 0.13%-1.38%, which were recognized as other current assets. (Refer
to Note 19).

- 19 -

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)March 31,2018

December 31,
2017

March 31,2017

$ 1,072,237$$

Financial assets at FVTPL - current
Financial assets mandatorily classified as at
FVTPL
Hybrid financial assets
Principal-protected notes
Non-derivative financial assets
Beneficial certificates
Financial products--

478,427
92,8501,643,514---

306,839

469,187

Financial assets held for trading - current
Non-derivative financial assets
Beneficial certificates$ 1,643,514$

306,839$

469,187

$
$

$
$

8,655
926

$
$

34,836
6,848

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

10,797-a. The Group and the bank have signed principal-protected notes with a duration of 1 to 3 months and anegotiated interest rate range of 0.63% to 4.24%.
b. At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge
accounting were as follows:
Notional Amount(In Thousands)

Currency

Maturity Date

NTD/USD

2018.4.30-2019.1.31

NTD145,773/USD5,000

NTD/USD

2018.1.31-2019.1.31

NTD194,030/USD6,500

NTD/USD2017.4.28-2019.1.31

NTD1,060,606/USD35,000

March 31, 2018
Buy forward contracts
December 31, 2017
Buy forward contracts
March 31, 2017
Buy forward contracts- 20 -

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 2018
Investments in Equity Instruments
March 31, 2018
Noncurrent
Foreign investments
Unlisted shares
Domestic investments
Unlisted shares$ 107,548
25,743$ 133,291

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

9. FINANCIAL ASSETS AT AMORTIZED COST - 2018
March 31, 2018
Current
Time deposits with original maturities of more than 3 months (e)$ 1,066,954

The interest rates for time deposits with original maturities of more than 3 months ranged from 0.64% to1.07% as of the end of the reporting period. The time deposits were classified as other financial assets
under IAS 39. Refer to Notes 3, 6 and 19 for information relating to their reclassification and comparative
information for 2017.

10. FINANCIAL ASSETS CARRIED AT COST - 2017
December 31,
2017
Carrying
Value
Unlisted common shares
Unlisted preferred sharesClassified according to financial asset measurement categories
Available-for-sale financial assets- 21 -March 31,
2017
Carrying
Value$

83,602473$ 138,828
473$

84,075$ 139,301$

84,075$ 139,301

Management believed that the above unlisted equity investments held by the Group had fair values whichcannot be reliably measured, because the range of reasonable fair value estimates was so significant.
Therefore, they were carried at cost less impairment at the end of the reporting period.

11. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable

March 31,2018

December 31,
2017

March 31,
2017

$

$

$

700,640

362,855

606,684

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

8,727,916(194,661)
8,533,255

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

7,901,930(202,779)
7,699,151$ 9,233,895$ 8,604,265$ 8,305,835

For the three months ended March 31, 2018
The average credit period was 7 to 55 days. In determining the recoverability of a trade receivable, theGroup considered any change in the credit quality of the receivable since the date credit was initiallygranted to the end of the reporting period, and any allowance for impairment loss was based on theestimated irrecoverable amounts determined by reference to the Group’s past default experience with thecounterparty and an analysis of the counterparty’s current financial position. The Group adopted a policyof only dealing with entities that are rated the equivalent of investment grade or higher and obtaining
sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
Credit rating information is obtained from independent rating agencies where available or, if not available,
the Group uses other publicly available financial information or its own trading records to rate its major
customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored
and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit
exposure is controlled by counterparty limits that are reviewed and approved by the risk management
committee annually.
The Group applies the simplified approach to allowing for expected credit losses prescribed by IFRS 9,which permits the use of lifetime expected loss allowance for all trade receivables. The expected credit
losses on trade receivables are estimated using a provision matrix by reference to past default experience
with the debtors and an analysis of the debtors’ current financial position, adjusted for general economic
conditions of the industry in which the debtors operate and an assessment of both the current as well as theforecasted direction of economic conditions at the reporting date. As the Group’s historical credit loss
experience does not show significantly different loss patterns for different customer segments, the loss
allowance based on the past due status is not further distinguished according to the different segments of theGroup’s customer base.
The Group writes off a trade receivable when there is information indicating that the debtor is experiencing
severe financial difficulty and there is no realistic prospect of recovery. For accounts receivable that havebeen written off, the Group continues to engage in enforcement activity to attempt to recover thereceivables which are due. Where recoveries are made, these are recognized in profit or loss.

- 22 -

The following table details the loss allowance of trade receivables based on the Group’s provision matrix.
March 31, 2018
Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Total

Expected credit loss rate

0.06%

0.03%

0.32%

11.29%

96.56%-

Gross carrying amount
Loss allowance (lifetime
ECLs)$ 7,175,503$ 1,003,312(4,661)(278)

Amortized cost

$ 7,170,842$ 1,003,034$

281,463

$

(909)
$

280,554

81,653$(9,218)$72,435$

185,985$ 8,727,916(179,595)(194,661)

6,390$ 8,533,255

The movements of the loss allowance of trade receivables were as follows:
For the Three
Months Ended
March 31, 2018
Balance at January 1, 2018 per IAS 39
Adjustment on initial application of IFRS 9
Balance at January 1, 2018 per IFRS 9
Add: Net remeasurement of loss allowance
Less: Amounts written off
Foreign exchange gains and losses$ 181,868
181,868
12,325(477)
945

Balance at March 31, 2018

$ 194,661

March 31, 2017
The Group applied the same credit policy in 2018 and 2017.
Movement in the allowance for impairment loss recognized on notes receivable and trade receivables wereas follow:
For the Three
Months Ended
March 31, 2017
Beginning balance
Impairment loss recognized on receivables
Amounts written off during current period
Effects of exchange rate changes$ 191,398
12,648(1,099)(168)

Ending balance$ 202,779- 23 -

12. INVENTORIES

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
OthersMarch 31,2018

December 31,
2017

March 31,2017

$ 7,848,161
576,017
312,725
20,877$ 8,082,993
576,429
71,046
1,287$ 7,899,528
560,618
243,082
2,632$ 8,757,780$ 8,731,755$ 8,705,860

The operating costs recognized for the three months ended March 31, 2018 and 2017 included losses frominventory write-downs of $216,399 thousand and $245,313 thousand, respectively.

13. NONCURRENT ASSETS HELD FOR SALE

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

March 31,2018

December 31,
2017

March 31,2017

$ 520,139$ 309,330$ 620,236-

117,223-$ 520,139$ 426,553$ 620,236

To enhance its competitiveness, the Company plans to introduce new aircrafts and retire old aircrafts
according to a planned schedule. Such aircrafts, classified as noncurrent assets held for sale, had an
original carrying amount which was higher than the expected sale price and which was recognized as an
impairment loss. However, the actual loss shall be identified by the actual sale price.
For the three months ended March 31 2017, the Company recognized impairment losses of $2,721,274
thousand. For the three months ended March 31 2018, the Company retired a part of its old aircrafts andrecognized disposal losses of $124,290 thousand. The fair value was determined according to similartransactions of the related market, and the proposed sale price was based on the current status of theaircrafts. The fair value measurement is classified as Level 3.

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

Investor Company
China Airlines, Ltd.

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

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

Proportion of Ownership (%)
March 31,
December 31,
March 31,
2018
2017
2017
100

100

100

100
100

100
100

100
100

100
100
100
94

100
100
100
94

100
100
100
94

94

94

94

59

59

59

(Continued)- 24 -

Investor Company

Cal-Dynasty International
Taiwan Airport Services

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

Main Businesses and Products

Proportion of Ownership (%)
March 31,
December 31,
March 31,
2018
2017
2017

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

51
49
48
25
100
100

51
49
48
25
100
100

51
49
48
25
100
100

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

54
100
100
100

36
100
100
100

36
100
100
100

(Concluded)
Note: Proportion of ownership is considered from the Group view.
The Company increased its investments with a payment of $490,000 thousand, $700,000 thousand and$100,000 thousand to Taiwan Aircraft Maintenance and Engineering Co., Ltd. for the purpose of building
hangars in April 2017, November 2017 and October 2016, respectively.
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 three months
ended March 31, 2018 and 2017 of these subsidiaries was reported according to information that was notindependently reviewed except for that of Mandarin Airlines and Tigerair Taiwan Co., Ltd.
The Group’s respective holdings of the issued share capital of China Pacific Catering Services, China
Pacific Laundry Services and Delica International Co., Ltd. exceeded 50%, yet the Group did not havecontrol over the investees. For related information, refer to Note 15,b.
The Group paid $243,743 thousand on March 7, 2018 to acquire an additional 18% of Kaohsiung Catering,
Ltd. (Kaohsiung Catering) of which the Group’s total holding of the issued share capital exceeded 50%.
Because the Group did have control over the investee, Kaohsiung Catering is listed as a subsidiary. For
the disclosure of the Group’s acquisition of Kaohsiung Catering, refer to Note 31.

15. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates
Investments in jointly controlled entities

March 31,2018

December 31,
2017

March 31,2017

$ 1,284,152
995,341$ 1,576,753
930,593$ 2,003,442
861,411$ 2,279,493$ 2,507,346$ 2,864,853- 25 -

a. Investments in associates
The amount of investments in associates were as follows:
March 31,2018

December 31,
2017

March 31,
2017

$

$

$

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

479,209493,563
266,631493,077
300,400
483,814
256,291

495,566
295,436
232,020
266,716
446,560
225,598

44,74943,171

41,546$ 1,284,152$ 1,576,753$ 2,003,442

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

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

20%
28%
28%

20%
36%
28%
28%

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

35%

35%

35%

The investment income recognized for associates accounted for using the equity method were as
follows:
For the Three Months Ended
March 312018
2017
China Aircraft Services
Asian Compressor Technology Services
Kaohsiung Catering Services
Science Park Logistics
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

$ (1,677)
15,170
3,508
6,912
976

$

9,196
16,25917,636
8,787
4,110
7,036
873

$ 24,889$ 63,897

In August 2017, the Group sold all of its holdings of Science Park Logistics to a non-related party, HCT
Logistics Co., Ltd. The agreed upon price was $380,850 thousand, and a disposal gain of $101,166
thousand was recognized.
- 26 -In October 2017, the Group signed a contract with a non-related party, MB Aerospace, to sell all of its
holdings of Asian Compressor Technology Services and reclassified it as a noncurrent asset held forsale at its carrying amount. The transaction was completed and all payments were settled in January
2018.
The investments accounted for using the equity method and the share of profit or loss and othercomprehensive income of those investments were based on the associates’ financial statements whichhave not been reviewed. However, the management determined that there would have been no
significant adjustments to the related information presented in these consolidated financial statements
had this investee’s financial statements been independently reviewed.
b. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:

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

March 31,2018

December 31,
2017

March 31,2017

$ 810,345
174,770
2,360
7,866

$ 756,965
171,2292,399-$ 690,064
171,347-$ 995,341$ 930,593$ 861,411

At the end of the reporting period, the proportion of ownership and voting rights in jointly controlled
entities held by the Group were as follows:
Proportion of Ownership and Voting Rights
March 31,
December 31,
March 31,
2018
2017
2017
China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.
Delica International Co., Ltd.

51%
55%
49%
51%

51%
55%
49%
-

51%
55%
-

The Group entered into a joint venture agreement with the Taikoo Group to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both sides havethe right to make major motion vetoes on the board of directors, and therefore, the Group does not havecontrol.
To enhance the Group's maintenance capabilities, the Company established a joint venture with the US
Nordam Aerospace Group in December 2017 to provide thrust reversers and composite repair services
in Asia under the Nordam brand.
To expand the Group’s catering business, Kaohsiung Catering entered into a joint venture agreement toinvest in Delica International Co, Ltd., with the other company have the right to make decisions on
operations, and therefore, the Group does not have control.

- 27 -

Details of the investment income attributable to investments in jointly controlled entitles were as
follows:
For the Three Months Ended
March 312018
2017
China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.
Delica International Co., Ltd.

$ 53,381
3,541
(39)
-

$ 51,084
4,299-$ 56,883$ 55,383

The investments accounted for using the equity method and the share of profit or loss and othercomprehensive income of those investments was based on the jointly controlled entities’ financial
statement which were not independently reviewed. However, the management determined that there
would have been no significant adjustments had this investee’s financial statements been independently
reviewed.
For information on the major businesses and products, the locations of the major business offices, andthe countries of registration for the above entities, refer to Tables 6 and 7 (names, locations, and related
information of investees on which the Company exercises significant influence and investment in
mainland China) following the notes to the consolidated financial statements.

16. PROPERTY, PLANT AND EQUIPMENT

Freehold Land

Buildings

FlightEquipment

Equipment
under FinanceLeasesOthersTotal

Cost
Balance at January 1,
2017
Additions
Disposals
Reclassification
Net exchange differences
Balance at March 31,
2017$965,174(34,554)$

13,104,983
835
(615)
(61,255)$ 248,262,079
1,254,442(470,333)(5,222,028)-$

28,898,891
1,696(3,971,938)-$

15,981,800
226,245(110,960)
45,643(6,200)$ 307,212,927
1,483,218(581,908)(9,148,323)(102,009)$

930,620$

13,043,948$ 243,824,160$

24,928,649$

16,136,528$ 298,863,905

$

-

$

(5,781,555)(126,225)
615
27,038$ (135,893,108)(3,835,478)
407,583(121,109)
7,517,109-$ (15,846,688)(495,349)
2,948,084-$(9,554,839)(182,841)
108,473
(245)
5,330

$ (167,076,190)(4,639,893)
516,671(121,109)
10,464,948
32,368$-$(5,880,127)$ (131,925,003)$ (13,393,953)$(9,624,122)

Accumulated depreciationand impairment
Balance at January 1,
2017
Depreciation expenses
Disposals
Impairment loss
Reclassification
Net exchange differences
Balance at March 31,
2017$ (160,823,205)(Continued)- 28 -

Freehold Land

Equipment
under FinanceLeasesBuildings

FlightEquipment

13,698,308
13,360(44)885(21,876)$ 263,427,144
911,208(18,776,532)
858,370-

198,378-

OthersTotal

Cost
Balance at January 1,
2018
Additions
Disposals
Reclassification
Net exchange differences
Acquisitions throughbusiness combinations
Balance at March 31,
2018$922,626(12,306)$

38,195$26,187,556(1,245,852)
269,366-$-

16,230,011
470,438(89,845)
49,816(2,239)$ 320,465,645
1,395,006(20,112,273)
1,178,437(36,421)

163,398

399,971$

948,515$

13,889,011$ 246,420,190$

25,211,070$

16,821,579$ 303,290,365

$

-

$

(6,137,495)(104,679)
44
10,210$ (136,594,765)(3,976,314)
18,412,073(50,000)
9,320,501-$ (14,142,872)(489,372)
966,677-$(9,972,982)(217,892)
77,759(3,884)
1,871$ (166,848,114)(4,788,257)
19,456,553(50,000)
9,316,617
12,081$-$(6,231,920)$ (112,888,505)$ (13,665,567)$ (10,115,128)

Accumulated depreciationand impairment
Balance at January 1,
2018
Depreciation expenses
Disposals
Impairment loss
Reclassification
Net exchange differences
Balance at March 31,
2018$ (142,901,120)(Concluded)
Property, plant and equipment were depreciated on a straight-line basis over the estimated useful life of theasset:
Buildings
Main buildings
Others
Machinery equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersAssets leased to others
Flight equipment and equipment under finance leases
Airframes
Aircraft cabins
EnginesHeavy maintenance on 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 and the future retirement plan, the Group recognized impairment
losses on aircraft equipment for the three months ended March 31, 2018 of $50,000 thousand based on the
difference between the recoverable amount, which applied the fair value (Level 3), and the carrying
amount. The fair value was determined based on aircraft conditions and market estimates.
Refer to Note 35 for the carrying amounts of property, plant and equipment pledged by the Group.

- 29 -

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.

17. INVESTMENT PROPERTIES

Carrying amount
Investment properties

March 31,2018

December 31,
2017

March 31,2017

$ 2,075,553$ 2,075,624$ 2,075,833

The investment properties held by the Group were land located in Nankan and buildings in Taipei, whichwere all leased to others. The buildings were depreciated on a straight-line basis over 55 years.
The fair values of the investment properties held by the Group were $2,506,230 thousand and $2,348,759
thousand as of December 31, 2017 and March 31, 2017, respectively. In addition, management assessedthat there is no significant difference in the fair values of March 31, 2018 and December 31, 2017.
The fair value valuations were performed by independent qualified professional valuers, and the future
income evaluated by management was based on market transactions.
All of the Group’s investment properties were held under freehold interests.

18. OTHER INTANGIBLE ASSETS
Computer
Software Cost

Accumulated
Amortization

Goodwill

Net Value

Balance at January 1, 2017
Additions
Amortization expenses
Effects of exchange rate changes$ 1,898,154
42,721-$-$(761,039)(61,663)(58)$ 1,137,115
42,721(61,663)(58)

Balance at March 31, 2017

$ 1,940,875

$

-

$

(822,760)$ 1,118,115

Balance at January 1, 2018
Additions
Amortization expenses
Acquisitions through businesscombinations
Reclassification
Effects of exchange rate changes$ 2,039,602
30,819-$-$ (1,020,257)(49,455)$ 1,019,345
30,819(49,455)

85,958-(540)
98

86,644
11,524
98

Balance at March 31, 2018

$ 2,083,171

85,958$ (1,070,154)$ 1,098,975

686
12,064$

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

- 30 -

19. OTHER ASSETSMarch 31,2018

December 31,
2017

March 31,2017

Current
Other financial assets
Temporary payments
Prepayments
Restricted assets
Others$186,5223,739,364
161,550
674,878$

1,806,413
464,258
2,834,936
895,931$758,083
285,898
2,515,205
144,011356,709$

4,762,314$

6,001,538$

4,059,906$

5,503,297
1,349,216
1,363,121
96,3983,582
7,660$ 10,942,604
1,164,604
1,377,136
161,398
18,803-$ 19,620,004
2,062,921
1,318,113
166,160
2,845
8,195

$

8,323,274$ 13,664,545$ 23,178,238

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

20. BORROWINGSa. Short-term loans

Bank loans - unsecured

March 31,2018

December 31,
2017

March 31,
2017

$

$

120,000$ 1,798,030

1.16%

1.04%-1.05%

0.94%-3.33%

March 31,2018

December 31,
2017

March 31,2017$

20,000-$-$ 1,840,000
11$

20,000$-$ 1,839,989

Interest rates

30,000b. Short-term and bills payable

Commercial paper
Less: Unamortized discount on bills payable

Annual discount rate

0.44%

- 31 --

0.858%-1.14%

c. Long-term debts

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

March 31,2018

December 31,
2017

March 31,2017

$ 21,876,833
34,081,325$ 26,820,000
32,176,074$ 30,257,833
23,262,403

28,800,000
62,26484,695,894
23,140,173

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

37,000,000
51,97090,468,266
34,638,911$ 61,555,721$ 65,753,503$ 55,829,355

Less: Current portion

Secured bank loans were secured by freehold land, buildings, machinery equipment and flightequipment. For details of such security, refer to Note 35.
Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable quarterly, semiannuallyor in lump sum upon maturity. Related information is summarized as follows:
Currency
New Taiwan
Dollars
U.S. Dollars
Original currency
March 31, 2018
December 31, 2017
March 31, 2017

$ 55,958,158
58,996,074
53,018,115$

16,570Translated to New Taiwan dollars
March 31, 2018
December 31, 2017
March 31, 2017

55,958,158
58,996,074
53,018,115

502,121

0.92%-1.56%
0.92%-1.72%
0.92%-1.82%

0.9704%-4.39%

2007.5.242029.11.9
2007.5.242029.11.9
2005.4.202029.1.5-

Interest rates
March 31, 2018
December 31, 2017
March 31, 2017
Periods
March 31, 2018
December 31, 2017
March 31, 2017

- 32 -

2005.5.122017.9.21

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The
NIFs, with various maturities until March 2022, were used by the Group to guarantee the commercial
paper issued. As of March 31, 2018, December 31, 2017 and March 31, 2017, such commercial paper
was issued at discount rates of 1.0517%-1.2987%, 0.9983%-1.2897% and 1.058%-1.496%,
respectively.

21. BONDS PAYABLE
March 31,2018
Unsecured corporate bonds first-time issued in2013
Unsecured corporate bonds first-time issued in2016
Unsecured corporate bonds second-time issued in2016
Unsecured corporate bonds first-time issued in2017
Unsecured corporate bonds second-time issued in2017
Convertible bonds issued the fifth time
Convertible bonds issued the sixth time$

5,500,000

December 31,
2017$

8,200,000

March 31,2017$

8,200,000

4,700,000

4,700,000

4,700,000

5,000,000

5,000,000

5,000,000

2,350,000

2,350,000-

3,500,000
1,674,611
5,614,970
28,339,581

3,500,000
1,667,100
25,417,100

1,645,439
19,545,439

4,424,611

4,367,100

2,700,000$ 23,914,970$ 21,050,000$ 16,845,439

Conditions

Rate (%)

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

1.60

2016.9.27-2021.9.27

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

1.08

2017.5.19-2020.5.19

Principal repayable on due date;indicator rate; payable annually

1.20

2017.5.19-2024.5.19

Principal repayable on due date;indicator rate; payable annually

1.75

2017.10.12-2020.10.12

Principal repayable on due date;indicator rate; payable annually

1.14

2017.10.12-2022.10.12

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

1.45

Less: Current portion and put option of
convertible bonds

Related issuance conditions were as follows:
Category

PeriodFive-year private unsecured bonds - issued at par in January
2013; repayable in January 2017 and 2018; 1.6% interestp.a., payable annually
Seven-year private unsecured bonds - issued at par in
January 2013; repayable in January 2019 and 2020;
1.85% interest p.a., payable annually
Five-year unsecured bonds - issued at par in May 2016;
repayable in May 2020 and 2021; 1.19% interest p.a.,payable annually
Five-year unsecured bonds - issued at par in September
2016; repayable in September 2020 and 2021; 1.08%
interest p.a., payable annually
Three-year private unsecured bonds - issued at par in May
2017; repayable on due date; interest of 1.2% p.a.,payable annually
Seven-year private unsecured bonds - issued at par in May
2017; repayable on due date; interest of 1.75% p.a.,payable annually
Three-year private unsecured bonds - issued at par in
October 2017; repayable on due date; interest of 1.14%
p.a., payable annually
Five-year private unsecured bonds - issued at par in October
2017; repayable in October 2021 and 2022; 1.45%
interest p.a., payable annually
Five-year convertible bonds - issued at discount in
December 2013; repayable in lump sum upon maturity;
1.8245% discount rate p.a.

2013.1.17-2018.1.17

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

2018.1.30-2023.1.30

2013.1.17-2020.1.17

2016.5.26-2021.5.26

2013.12.26-2018.12.26- 33 -

1.85

1.19

-

-

The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand,and the purchasers of the bonds included Mandarin Airlines and Sabre Travel Network (Taiwan), who held
a cumulative face value of $300,000 thousand which was eliminated from the consolidated financial
statements.
The Company issued the fifth issue of its unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at 100.75% face value on the third
anniversary of the offering date. Because part of the holders exercise selling rights on December 26,
2016, the Company paid $994,705 thousand to the holders of the bonds payable who exercised the put
options, and the difference between the payment amount and carrying amount recognized was a loss on
the bonds payable buy back.
c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.
d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s common shares. The initial conversion price was set at NT$12.24, which is subject toadjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of July 31, 2016, the conversion price was adjusted to NT$11.64, and corporate bonds with a facevalue of $3,316,800 thousand were converted to 270,985 thousand shares of common shares.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability
component was 1.8245% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,000,000(518,621)

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

The Company issued the sixth issue of its unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at face value on the third anniversaryof the offering date. The holders can exercise the right to sell on January 30, 2021.
c. The Company may redeem the bonds at face value between April 30, 2018 and December 20, 2022
under certain conditions.
d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s common shares. The initial conversion price was set at NT$13.2.

- 34 -

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

22. LEASING
a. Sale-leaseback finance leases
March 31,2018

December 31,
2017

March 31,2017

Within one year
Beyond one year and within five years$ 1,434,000
522,000$ 1,580,000
596,000$ 1,254,000
3,248,500

Present value of minimum lease payments$ 1,956,000$ 2,176,000$ 4,502,500

Interest rates

1.0617%1.1317%

1.0617%1.1317%

1.068%-1.131%

Minimum lease payments - flight equipment

The Group had leased the engines of a total of three aircrafts, A330-300, under sale-leaseback contracts
under finance leases as of March 31, 2018. The lease terms are from June 2006 to April 2019.
During the lease term, the Group retained all risks and rewards attached to the aircrafts and engines andenjoyed the same substantive rights as were enjoyed prior to the transaction. The interest rates
underlying all obligations under such finance leases were floating. Therefore, the minimum lease
payments under the sale-leaseback aircraft contracts do not include interest expense.
b. Finance leases
Taiwan Air Cargo Terminal Co. (“TACT”) entered into a terminal construction contract. Refer toNote 36 for the terms of the contract. Dynasty Holiday Co., Ltd. signed a long-term equipment lease
contract, and the lease contract is a finance lease contract.
March 31,2018

December 31,
2017

March 31,2017$

37,61931,496
69,115(792)$

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

30,58976,002
106,591(2,603)$68,323$77,543$103,988(Continued)

Minimum lease payments - Cargo Terminaland others
Within one year
Beyond one year and within five years
Less: Finance costs
Present value of minimum lease payments- 35 -

March 31,
2018

December 31,
2017

March 31,2017$

37,34830,975$37,32140,222$

29,99273,996$

68,323$77,543$103,988

Present value of minimum lease payments Cargo Terminal and others
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%

4.756%

4.756%$ 1,471,348
552,975$ 1,617,321
636,222$ 1,283,992
3,322,496$ 2,024,323$ 2,253,543$ 4,606,488(Concluded)c. Operating lease arrangements (include sale-leaseback operating leases)
The Company, Mandarin Airlines, Tigerair Taiwan Co., Ltd. and Taiwan Air Cargo Terminal rented
planes and hangars under various operating lease contracts expiring on various dates of up to May 2028.
The Group does not have a bargain purchase option to acquire the leased planes and hangar at the
expiration of the lease periods.
Of the rental rates stated in the aircraft lease agreements, some are fixed and some are floating. If theagreed-upon rental rate is floating and will be revised monthly or semiannually, subleasing is notallowed for all the lease arrangements. As of March 31, 2018, the Group has rented eleven A330-300
planes, fifteen 737-800 planes, ten 777-300ER planes, six ERJ190 planes, three ATR72-600 planes andten A320-200 planes under operating contracts for which the lease terms range from 6 to 12 years.
As of March 31, 2018, December 31, 2017 and March 31, 2017, the refundable deposits paid by theGroup under operating lease contracts were $885,807 thousand, $807,629 thousand and $935,739
thousand, respectively. Some of the guarantees were secured by credit guarantees, and outstanding
credit guarantees as of March 31, 2018, December 31, 2017 and March 31, 2017 were $1,362,259
thousand, $1,394,791 thousand and $1,415,924 thousand, respectively.
The future minimum lease payments for the non-cancelable operating lease commitments were as
follows:

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

March 31,2018

December 31,
2017

March 31,2017

$ 11,393,712
42,052,693
27,266,965$ 11,499,501
43,175,899
29,762,766$ 10,085,309
38,389,249
30,029,724$ 80,713,370$ 84,438,166$ 78,504,282- 36 -

The lease payments recognized in profit or loss for the current period were as follows:
For the Three Months Ended
March 312018
2017
Minimum lease payments$ 2,888,460$ 2,890,726

December 31,
2017

March 31,2017

23. OTHER PAYABLES
March 31,2018
Fuel costs
Ground service expenses
Repair expenses
Interest expenses
Short-term employee benefits
Terminal surcharges
Commission expenses
Others$3,390,667
1,259,301
797,988
210,832
1,708,040
909,226
342,9032,719,803$ 11,338,760$

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

2,846,998
1,321,136
845,844
169,395
2,078,816
708,169
382,971
1,927,744$ 13,033,069$ 10,281,073

March 31,2018

December 31,
2017

March 31,2017

2,444,407
15,950,427$

24. CONTRACT LIABILITIES/DEFERRED REVENUE

Frequent flyer program
Advance ticket sales

Current
Noncurrent$

2,450,877
15,743,177$

2,358,483
14,253,604$ 18,394,834$ 18,194,054$ 16,612,087$ 16,584,300
1,810,534$ 16,375,789
1,818,265$ 14,856,171
1,755,916$ 18,394,834$ 18,194,054$ 16,612,087

The advances received originally included in deferred revenue were reclassified as the contract liabilities
after the application of IFRS 15 on January 1, 201825. PROVISIONSMarch 31,2018

December 31,
2017

March 31,2017

Operating leases - aircraft$ 8,885,925$ 8,489,308$ 7,795,828

Current
Noncurrent

$

$

$

739,029
8,146,896$ 8,885,925- 37 -

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

709,405
7,086,423$ 7,795,828

Aircraft Lease
Contracts
Balance at January 1, 2017
Additional provisions recognized
Usage
Effects of exchange rate changes$ 7,490,154
818,629(164,140)(348,815)

Balance at March 31, 2017

$ 7,795,828

Balance at January 1, 2018
Additional provisions recognized
Usage
Effects of exchange rate changes$ 8,489,308
865,122(301,966)(166,539)

Balance at March 31, 2018

$ 8,885,925

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

26. RETIREMENT BENEFIT PLANS
Employee benefits expense in respect of the Group’s defined benefit retirement plan were calculated using
the actuarially determined pension cost discount rate as of December 31, 2017 and 2016.
For the Three Months Ended
March 312018
2017
Operating costs
Operating expenses$ 253,368
113,276$ 188,378
67,690$ 366,644$ 256,068

March 31,2018

December 31,
2017

March 31,2017

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

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

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

27. EQUITY
a. Share capital
Common shares

Numbers of shares authorized (in thousands)
Amount of shares authorized
Amount of shares issued- 38 -

For the year ended December 31, 2017, the Company issued the 5th domestic unsecured convertible
bonds, and holders of such bonds amounting to $1,100 thousand applied for conversion, for which 95
thousand of the Company’s common shares were exchanged. In accordance with the law, theCompany may apply for a change of registration after issuing new shares.
b. Capital surplus

Issuance of shares in excess of par value andconversion premium
Gain on sale of treasury shares held bysubsidiaries
Employee share options expired
Long-term investments
Bonds payable - equity component
OthersMarch 31,2018

December 31,
2017

March 31,
2017

$

$

$

552,696
2,673
11,747955
556,567
85,339$ 1,209,977

552,696
2,673
11,747955
146,589
85,339$799,999552,470
2,673
11,747
1,019
146,684
85,339$799,932

The capital surplus from shares issued in excess of par (including additional paid-in capital from theissuance of common shares and treasury share transactions) and donations may be used to offset
deficits; in addition, when the Group has no deficit, such capital surplus may be distributed as cash
dividends or transferred to capital (but limited to a certain percentage of the Group’s paid-in capital on
yearly basis).
The capital surplus arising from long-term investments and employee share options may not be used forany reason except to offset deficits. The capital surplus arising from share options for employees andconvertible bonds, cannot be used.
c. Appropriation of earnings and dividend policy
Under the dividend policy as set forth in the Company’s Articles of Incorporation (the “Articles”)
amended on June 24, 2016 based on the amended Company Act, where the Company made profit in a
fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting
aside as a legal reserve 10% of the remaining profit, setting aside or reversing a special reserve inaccordance with the laws and regulations, and then any remaining profit together with any undistributed
retained earnings shall be used by the Company’s board of directors as the basis for proposing a
distribution plan with due consideration of any future aircraft acquisition plans and fund demands,
which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses toshareholders by cash or shares (cash dividends cannot be less than 30% of total dividends distributed).
However, if the Company’s profit before tax in a fiscal year after deductions for the abovementioned
items is not sufficient for earnings distribution, retained earnings can be used as a supplement for the
deficiency. If the Company has no deficit in a fiscal year, the Company can distribute all or part of thecapital surplus by cash or shares with due consideration of finance, marketing and management
requirements in accordance with the laws and regulations.
The distribution of dividends should be resolved and recognized in the shareholders’ meeting in thefollowing year.
1) Appropriation of earnings in 2016
The legal reserve of $81,132 thousand and special reserve of $76,486 thousand used to offset
deficits were resolved by the shareholders in their meeting on June 22, 2017.

- 39 -

2) Appropriation of earnings in 2017
The appropriation of earnings for 2017 was resolved in the board of directors meeting on March 22,
2018. The appropriation of earnings and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Special reserve
Cash dividends$

145,831
118,810
1,193,670

Dividends Per
Share (NT$)$0.2181820086

The appropriation of earnings should be resolved in the shareholders’ meeting to be held on June27, 2018.
When the Company distributes earnings for the years after 1998, except for non-ROC resident
shareholders, all shareholders can receive imputation tax credit calculated using the Tax Deduction
Ratio on the distribution date.
d. Other equity items
The movement of other equity items is as follows:

Exchange
Differences on
Translating
Foreign
Operations
Balance on January 1,
2017
Exchange differences ontranslating foreign
operations
Cumulative loss onchanges in fair value ofhedging instruments
Cumulative gain onchanges in fair value ofhedging instruments
reclassified to profit orloss
Effects of income tax
Other comprehensive
income recognized in
the period
Balance on March 31,
2017
Balance on January 1,
2018
Adjustments on initial
application of IFRS 9
Balance on January 1,
2018 after IFRS 9
adjustments
Exchange differences ontranslating foreign
operations$

78,564

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

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

1,714

$

-

Cash Flow
Hedges$31,986

Gain (Loss) on
Hedging
Instruments

$

Total

-

$ 112,264(136,323)

-

-

-

-

(136,323)---(272,310)-(272,310)

21,915--64,232
34,392-64,23256,307(114,408)--(173,686)-(288,094)$ (35,844)

$

1,714

$

-

$ (141,700)$-$ (175,830)$ (34,986)

$

1,774

$

-

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

74,429(74,429)

40,577(34,986)-

42,351-(74,429)(67,064)(30,702)

-

-

-

-

(30,702)(Continued)- 40 -

Exchange
Differences on
Translating
Foreign
Operations
Cumulative loss onchanges in fair value ofhedging instruments
Cumulative gain onchanges in fair value ofhedging instruments
reclassified to profit orloss
Unrealized gain on
financial assets at fairvalue through othercomprehensive income
Effect of change in tax
rate
Effects of income tax
Other comprehensive
income (loss)
recognized in the
periodTransfers of initialcarrying amount ofhedged items
Balance on March 31,
2018

$

-

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

Unrealized
Gain (Loss) on
Financial
Assets at Fair
Value Through
Other
Comprehensive
Income-$-Gain (Loss) on
Hedging
Instruments

Total

-

$ (74,169)$ (74,169)

Cash Flow
Hedges

$

-

-

-

-

21,525

21,525

-

-

1,414

-

-

1,414

1,198
6,557

-

(1,209)
1,249

-

2,530
743

2,519
8,549

(22,947)

-

1,454

-

(49,371)(70,864)

-

-

-

-

44,155

44,155-$ (79,645)$ (57,933)

$

-

$

43,805$$ (93,773)(Concluded)e. Non-controlling interests
For the Three Months Ended
March 312018
2017
Beginning balance
Net income attributable to non-controlling interests
Exchange differences on translating foreign operations
Effects of income tax
Cumulative loss on changes in fair value of hedging instruments
Loss on hedging instruments
Cumulative gain (loss) on changes in fair value of hedging
instruments reclassified to profit or loss
Acquisition of non-controlling interests in subsidiaries
Non-controlling interests arising from acquisition of subsidiaries
Dividends paid by subsidiaries$ 2,134,282
67,5783,045(6)$ 2,083,381
47,508(11,673)
3,155
(641)
-

(23)
408,618-

180(46,118)(1,274)Ending balance$ 2,613,494$ 2,074,518- 41 -

f. Treasury shares
Treasury shares are the Company’s shares held by its subsidiaries as of March 31, 2018 and 2017 andwere as follows:(Shares in Thousands)
Number of
Shares,Beginningof Year

Purpose of Treasury Shares

Reduction
Duringthe Year

Number of
Shares,Endof YearThree months ended March 31, 2018
Company’s shares held by its subsidiaries reclassified frominvestments in shares of common shares to treasury shares

2,889

-

2,889

2,889

-

2,889

Three months ended March 31, 2017
Company’s shares held by its subsidiaries reclassified frominvestments in shares of common shares to treasury shares

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 22,406
8,793$ 22,406
8,793$ 31,199$ 31,199$ 24,169
9,485$ 24,169
9,485$ 33,654$ 33,654$ 21,887
8,589$ 21,887
8,589$ 30,476$ 30,476

March 31, 2018
Mandarin Airlines
Hwa Hsia

2,075
814

December 31, 2017
Mandarin Airlines
Hwa Hsia

2,075
814

March 31, 2017
Mandarin Airlines
Hwa Hsia

2,075
814

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

- 42 -

28. NET INCOME
a. Revenue
For the Three Months Ended
March 312018
2017
Passenger
Cargo
Others$ 26,749,342
10,181,655
2,804,030$ 24,434,529
8,905,204
2,456,732$ 39,735,027$ 35,796,465

Refer to Note 24 for the balance of contract liabilities related to customer contracts.
b. Other income
For the Three Months Ended
March 312018
2017
Interest income
Subsidy income
Others$59,616
1,897
70,712$ 132,225$

42,747
6,389
91,662$ 140,798

c. Other gains and losses
For the Three Months Ended
March 312018
2017
Loss on disposal of property, plant and equipment
Gain (loss) on disposal of noncurrent assets held for saleNet gain (loss) on financial assets classified as held for sale
Gain (loss) on disposal of investments
Gain (loss) on foreign exchange, net
Impairment loss recognized on property, plant and equipment
and noncurrent assets held for sale
Others$$- 43 -(278,321)(124,290)
2,866
360,140
19,591$(1,151)
25,140(36,572)(61)(140,600)(50,000)(84,974)(2,842,383)(85,221)(154,988)$ (3,080,848)

d. Finance costs
For the Three Months Ended
March 312018
2017
Interest expense
Bonds payable
Bank loans
Interest on obligations under financial leases
Loss arising on derivatives designated as hedging instruments
in cash flow hedge accounting reclassified from equity to
profit or loss$

92,659215,937
6,956$

77,953
232,412
14,492-

1,833$ 315,552$ 326,690

Information of interest capitalization was as follows:
For the Three Months Ended
March 312018
2017
Capitalization interest$ 18,771$ 71,558

Capitalization rate

1.1889%1.3117%

1.3849%1.4140%

e. Depreciation and amortization expenses
For the Three Months Ended
March 312018
2017
Property, plant, equipment
Investment properties
Intangible assets$ 4,788,257
70
49,455$ 4,639,893
70
61,663

Depreciation and amortization expenses$ 4,837,782$ 4,701,626

An analysis of depreciation by function
Operating costs
Operating expenses$ 4,565,877
222,450$ 4,474,078
165,885$ 4,788,327$ 4,639,963$

147
49,308$61,663$49,455$61,663An analysis of amortization by function
Operating costs
Operating expenses- 44 -

f. Employment benefits expense
For the Three Months Ended
March 312018
2017
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$

129,598
366,644$

116,784
256,068$

496,242$

372,852$ 5,125,202
1,534,641$ 4,880,596
1,385,337$ 6,659,843$ 6,265,933$ 5,873,338
1,282,747$ 5,475,470
1,163,315$ 7,156,085$ 6,638,785

To be in compliance with the Company Act as amended, the Articles stipulate the distribution of
employees’ compensation at rates of no less than 3% of the net profit before income tax and employees’
compensation. For the three months ended March 31, 2018, the employees’ compensation was$11,336 thousand of the base net profit. For the three months ended March 31, 2017, the Company
has experienced a deficit, and therefore, no employees’ compensation is estimated.
Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date that the annual consolidated financial statements are authorized for issue
are adjusted in the year that the bonuses and remuneration were recognized. If there is a change in the
proposed amounts after the annual consolidated financial statements are authorized for issue, thedifferences are recorded as a change in the accounting estimate.
Information on the employees’ compensation and remuneration of directors and supervisors resolved by
the Company’s board of directors in 2017 and 2016 are available on the Market Observation Post
System website of the Taiwan Stock Exchange.

29. INCOME TAX
a. Income tax expense recognized in profit or loss
The major components of tax expense (benefit) were as follows:
For the Three Months Ended
March 312018
2017
Current tax
Current year
Adjustments for prior periods$- 45 -

43,3892,725$

33,541(Continued)

For the Three Months Ended
March 3120182017
Deferred tax
Current year
Adjustments to deferred tax attributable to changes in tax rates
and laws
Income tax expense recognized in profit or loss

$ 927,061$ 162,936(904,558)-$

68,617$ 196,477(Concluded)

In February 2018, it was announced that the Income Tax Law in the R.O.C. was amended and, startingfrom 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of
the corporate surtax applicable to unappropriated earnings will be reduced from 10% to 5%.
b. Income tax recognized in other comprehensive income
For the Three Months Ended
March 3120182017
Deferred tax
Recognized in other comprehensive income
Translation of foreign operations
Fair value changes of financial assets at FVTOCI
Hedging instruments’ fair value revaluation for cash flow
hedging
Effect of change in tax rate$

Total income tax recognized in other comprehensive income

7,755
1,249

$ 25,054
-

743
1,321

34,408-$ 11,068$ 59,462

c. Income tax assessment
Income tax returns for 2015 of the Company and its subsidiaries have been examined by the tax
authorities.

30. EARNING (LOSSES) PER SHARE
The numerators and denominators used in calculating earnings and losses per share were as follows:
For the Three Months Ended
March 312018
2017
Basic earnings (losses) per share
Diluted earnings (losses) per share$$

Earnings (losses) used in the computation of diluted earnings (losses)
per share- 46 -

$

0.01
0.01

$ (0.69)$ (0.69)

30,573$ (3,760,875)

For the Three Months Ended
March 312018
2017
Weighted average number of common shares in computation of basic
earnings (losses) per share
Effect of potentially dilutive common shares:
Employees’ compensation or bonus issued to employees
Weighted average number of common shares used in thecomputation of diluted earnings (losses) per share

5,465,208

5,468,002

17,922-

5,483,130

5,468,002

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

31. BUSINESS COMBINATIONSAs stated in Note 14, the other disclosures of the Group’s acquisition of Kaohsiung Catering on March 7,
2018 are as follows:a. Acquisition-related cash amounting to $243,743 thousand.
b. Assets acquired and liabilities assumed at the date of acquisition.
According to IFRS 3 “Business Combination”, all assets acquired and liabilities assumed in a businesscombination are measured at the acquisition-date fair value, and the measurement period cannot exceed
one year from the acquisition date. At the date of the approval of the consolidated financial
statements, the fair value evaluation of the Group’s acquisition of Kaohsiung Catering has not been
completed, so the identifiable assets of Kaohsiung Catering are tentatively set at $881,973 thousand(including cash and cash equivalents of $380,512 thousand) and its non-controlling interests aretentatively set at $408,618 thousand.
c. The goodwill and identifiable intangible assets acquired by the Group from the combination are
tentatively set at $85,958 thousand and $686 thousand, respectively.
d. Impact of acquisitions on the results of the GroupThe results of the acquirees since the acquisition date included in the consolidated statements ofcomprehensive income were as follows:
Kaohsiung
Catering
Revenue
Profit$ 174,199$ 24,214- 47 -

Had these business combinations been in effect at the beginning of the annual reporting period, theGroup’s revenue from continuing operations would have been $501,694 thousand and the profit fromcontinuing operations would have been $66,371 thousand for the three months ended March 31, 2018.
This pro-forma information is for illustrative purposes only and is not necessarily an indication of therevenue and results of operations of the Group that actually would have been achieved had theacquisition been completed on January 1, 2018, nor is it intended to be a projection of future results.

32. CAPITAL MANAGEMENT
The goal, policies and procedures as well as the composition of the Group’s capital management are thesame as those stated in Note 30 in the Group’s consolidated financial statements for the year ended
December 31, 2017.

33. 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.
March 31, 2018
Carrying
AmountFair Value

December 31, 2017
Carrying
AmountFair Value

March 31, 2017
Carrying
AmountFair Value$ 28,339,581
84,695,894$ 25,417,100
85,058,177$ 19,545,439
90,468,266

Financial liabilities
Bonds payable
Loans and debt

$ 28,478,640
86,709,013$ 25,818,511
87,070,820$ 19,621,634
92,508,673

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying amounts are their fair values. As of March 31, 2018, December 31, 2017 and March 31,
2017, the fair values of long-term debts and private bonds with fixed interest rates are estimated at
the present value of expected cash flows discounted at rates of 0.713%, 0.75% and 1.3370%,
respectively, prevailing in the market for long-term debts (Level 2). Fair values of bond payable
trading in OTC and based on quoted market prices (Level 1).
2) Financial instruments evaluated at fair value - on a non-recurring basis
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); and- 48 -

c) Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
March 31, 2018
Level 1
Financial assets at FVTPL
Domestic money market
funds
Principal-protected notes
Financial products

Financial assets at FVTOCI
Investments in equity
instruments
United shares domestic
Unlisted shares foreign

Level 2

Level 3

Total$

478,427-$

1,072,237
92,850$-$$478,427$ 1,165,087$-$ 1,643,514

$

-

$

$

25,743---$

107,548

478,427
1,072,237
92,85025,743
107,548

$

-

$

-

$

133,291$

133,291

Financial liabilities at
FVTPL
Derivative instruments

$

-

$

10,797$-$

10,797

Financial assets for hedging

$

-

$

368

$

2,001

$

2,369

Financial liabilities forhedging$-$

99,882$-$

99,882

December 31, 2017
Level 1

Level 2

Level 3

Total

Financial assets at FVTPL
Beneficial certificates$ 306,839

$

-

$

-

$ 306,839

Financial liabilities at
FVTPL
Derivative instruments

$

-

$

9,581

$

-

$

9,581

Derivative financial assets
for hedging

$

-

$

293

$

-

$

293

Derivative financial
liabilities for hedging

$

-

$

89,289$-$89,289- 49 -

March 31, 2017
Level 1

Level 2

Level 3

Total

Financial assets at FVTPL
Beneficial certificates$ 469,187

$

-

$

-

$ 469,187

Financial liabilities at
FVTPL
Derivative instruments

$

-

$

41,684$-$

41,684

Derivative financial assets
for hedging

$

-

$

4,535

$

-

$

4,535

Derivative financial
liabilities for hedging$-$ 168,070$-$ 168,070

There were no transfers between Levels 1 and 2 in the current periods.
d) Valuation techniques and inputs applied for Level 2 fair value measurement
Financial Instrument
Derivative instruments foreign exchange forward
contracts and interest rate
swaps/principal-protected
notes/financial products

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 Level 3 fair value measurement
The fair values of fuel options are determined using option pricing models where the significant
unobservable inputs are implied fluctuation. An increase in the implied fluctuation used inisolation would result in a decrease in the fair value of fuel options.
The domestic unlisted equity investment is based on the comparative company valuation toestimate the fair value. The main assumptions are based on the multiplier of the market priceof the comparable listed company and the net value per share, which have considered theliquidity discount. The higher the multiplier or the lower the liquidity discount, the higher thefair value of the relevant financial instruments. The multiplier on March 31, 2018 ranged from0.85 to 18.68, and the liquidity discount is 80%.
The movements of Level 3 financial instruments are as follows:
Derivative
Instruments

EquityInstruments

Balance at January 1, 2018
Adjustments on initial application of IFRS 9
Other comprehensive income recognized during theperiod$$Balance at March 31, 2018$-

40,637

2,001

1,454

2,001

$ 42,091

There were no financial assets measured using Level 3 fair value measurements in 2017.
- 50 -

Because some financial instruments and nonfinancial instruments may not have their fair values
disclosed, the total fair value disclosed herein is not the total value of the Group’s collective
instruments.
b. Categories of financial instruments
March 31,2018

December 31,
2017

1,643,514
2,369
34,647,163
133,291$

March 31,2017

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

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

469,187
139,301
4,535
35,839,259-

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

10,797
99,882
137,456,484

9,581
89,289127,928,250

41,684
168,070
137,427,090

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,provisions, parts of other current liabilities, parts of other noncurrent liabilities and guarantee
deposits.
Note 3: The balances include the financial assets carried at cost.
Note 4: The balances include financial assets measured at amortized cost, which comprise cash andcash equivalents, notes and accounts receivable, accounts receivable - related parties, otherreceivables, refundable deposits and other restricted financial assets.
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 fuel prices, the Group has its operating costs stay within a specified range by using
appropriate financial hedging instruments and hedging percentages in accordance with the “Processing
Program of Derivative Financial Instrument Transactions” approved by the Group shareholders to
reduce the impact of market price changes on earnings. These risks include market risk (including
currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

- 51 -

In addition, the Group has a risk committee, which meets periodically to evaluate the performance of
derivative instruments and determine the appropriate hedging percentage. This committee informs theGroup of global economic and financial conditions, controls the entire financial risk resulting fromchanges in the financial environment and fuel prices, and develops the strategy and response to avoid
financial risk with the assistance of financial risk experts to effect risk management.
1) Market risk
The Group is primarily exposed to the market risks of changes in foreign currency exchange rates,interest rates and fuel prices. The Group entered into derivative financial instruments to manage
its exposure to those related risk.
The Group enters into forward contracts, fuel option contracts, and interest swap contracts with fairvalues that are highly negatively correlated to the fair values of hedged items and evaluates thehedging effectiveness of these instruments periodically.
a) Foreign currency risk
The Group engages in ticket sales and purchase transactions which denominated in foreign
currency, which exposed to risks on change in exchange rates. The Group uses forward
contracts to manage risk within the scope of the Group’s policy of management exchange raterisk.
Sensitivity analysis
The Group was mainly exposed to the U.S. dollar.
The following details the Group’s sensitivity to increase and decrease in New Taiwan dollars(the functional currency) against the relevant foreign currencies.
U.S. dollars
increase/decrease one dollar against New Taiwan dollars used when reporting foreign currency
risk internally to key management personnel and represents management’s assessment of thereasonably possible change in foreign exchange rates. The sensitivity analysis included only
outstanding foreign currency denominated monetary items and foreign currency forward
contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting
period for U.S. dollars increase/decrease one dollar against New Taiwan dollars change in
foreign currency rates.
When New Taiwan dollars increase one dollar against U.S. dollars and all other variables were
held constant, there would be an increase in pre-tax profit for the three months ended March 31,2018 of $1,915 thousand and a decrease in pre-tax profit for the three months ended March 31,2017 of $59,061 thousand.
For the three months ended March 31, 2018
The Group’s hedging strategy is to enter into foreign exchange forward contracts to avoid
exchange rate exposure of its foreign currency denominated receipts and payments and to
manage exchange rate exposure of its aircraft prepayments in the next year. Thosetransactions are designated as cash flow hedges. When forecasted purchases actually takeplace, basis adjustments are made to the initial carrying amounts of hedged items.
For the hedges of highly probable aircraft prepayments, as the critical terms (i.e. the notionalamount, useful life and underlying asset) of the foreign exchange forward contracts and theircorresponding hedged items are the same, the Group performs a qualitative assessment of theeffectiveness, and it is expected that the value of the foreign exchange forward contracts and thevalue of the corresponding hedged items will systematically change in the opposite direction in
response to movements in the underlying exchange rates.
- 52 -

The following table summarizes the information relating to the hedges of foreign currency risk.
March 31, 2018
Hedging Instruments
Cash flow hedge
Aircraft rentals - forward
exchange contracts
Aircraft prepayments forward exchange contracts

Notional
AmountMaturity

Forward Rate

NTD/USD

NTD2,173,270/
USD74,367

2018.4.92019.6.21

28.8-30

NTD/USD

NTD1,224,490/
USD42,000

2018.6.152018.10.15

28.3-32

Currency

Line Item in
Balance Sheet

Carrying AmountAsset
Liability

Financial assets forhedging/liabilities
for hedging
Financial assets forhedging/liabilities
for hedging

$

360

8

$

71,46628,416

Hedge accounting is continued to be applied to the abovementioned hedging instruments. The
carrying amount of other equity which belongs to each hedging item (i.e. aircraft rentals
denominated in U.S. dollars and aircraft prepayments) are $(71,106) thousand and $(28,408)
thousand, respectively.
For the three months ended March 31, 2018

Comprehensive Income

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

Cash flow hedge
Aircraft rentals
Aircraft prepayments$ (18,113)(36,561)$ 21,502-$ (54,674)$ 21,502(Note)

Note: Increase in operating costs
The amount of gains and losses on hedging instruments for the three months ended March 31,2018 reclassified from profit or loss to prepayments for equipment was $44,155 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 Group was exposed to interest rate risk because entities in the Group borrowed funds atboth fixed and floating interest rates. The risk is managed by the Group by maintaining anappropriate mix of fixed and floating rate borrowings and using interest rate swap contracts andforward interest rate contracts.
The carrying amount of the Group’s financial assets and financial liabilities with exposure tointerest rates at the end of the reporting period were as follows.

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

March 31,2018

December 31,
2017

March 31,2017

$ 30,389,581$ 27,537,100$ 25,577,167

84,720,218

85,311,720

92,681,045- 53 -

Sensitivity analysis
The sensitivity analysis below was determined based on the Group’s exposure to interest rates
for both derivatives and non-derivative instruments at the end of the reporting period. For
floating rate liabilities, the analysis was prepared assuming the amount of the liability
outstanding at the end of the reporting period was outstanding for the whole year. A one yard
(25 basis) point increase or decrease was used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.
Had interest rates increased one yard (25 basis) points and had all other variables been held
constant, the Group’s pretax profit for the three months ended March 31, 2018 would havedecreased by $52,950 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 three months ended March 31, 2017 would havedecreased by $57,926 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.
March 31, 2018
Hedging Instrument
Cash flow hedges - fuel options

Notional
AmountCurrency
USD

NTD2,001

Maturity

Forward Rate

2018.4.302018.6.30

USD79.95-84.2

Line Item in
Balance Sheet
Financial assets forhedging

Carrying AmountAsset
Liability
$

2,001

$

-

Hedge accounting is continued to be applied to the abovementioned hedging instruments. The
carrying amount of other equity which belongs to each hedging item (fuel payments) is $2,001
thousand.
For the three months ended March 31, 2018
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedges - fuel options$- 54 -

2,001

AmountReclassified toProfit and Lossand theAdjusted Line
Item
$

-

Sensitivity analysis
The sensitivity analysis below was determined based on the exposure to fuel price risks at theend of the reporting period.
For the Three Months Ended March 31
2018
2017
Other
Other
CompreComprehensive
hensive
Pre-tax Profit
IncomePre-tax Profit
IncomeIncrease
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)(Decrease)
Fuel price increase 5%
Fuel price decrease 5%

$

8,999
-

$

6,997
(2,001)

$

-

$

-

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

March 31,2017

Derivative financial assets under hedge accounting
Foreign exchange forward contracts

$

293

$

4,535

Current
Noncurrent

$

293
-

$

4,316
219

$

293

$

4,535

$

89,289$

1,402
166,668$

89,289$ 168,070$

82,295
6,994$ 156,569
11,501$89,289$ 168,070

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

Current
Noncurrent

The fair value of each derivative contract is determined using quotes from financial institutions.
Cash flow hedgesi.

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- 55 -

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

2017.5.24-2017.6.22

1.01%-1.06%

Range of Interest
Rates Received

March 31, 2017
NT$1,500,000

TAIBOR Rate

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.
ii. Foreign exchange forward contracts
The Group entered into foreign exchange forward contracts to minimize cash flow exposure
related to fuel payments and aircraft payments, which will be paid in U.S. dollars.
The outstanding foreign exchange forward contracts at the end of the reporting period wereas follows:

Currency

Maturity Date

Notional Amount(In Thousands)

December 31, 2017
Buy forward contracts NTD/USD

2018.01.05-2019.06.21 NTD7,105,942/USD236,924

March 31, 2017
Buy forward contracts NTD/USD

2017.4.5-2019.3.15

NTD4,771,540/USD157,209

Gains and losses of hedging instruments reclassified from equity to profit or loss were
included in the following line items in the consolidated statements of comprehensive
income:For the Three
Months Ended
March 31, 2017
Increase in operating costs
Increase in finance costs
Other foreign exchange losses$ (2,747)(1,833)(5,644)$ (10,224)

The amount of gains and losses on hedging instruments for the three months ended March
31, 2017 reclassified from profit or loss to prepayments for equipment was $51,577
thousand.

- 56 -

2) Credit risk
The goal, policies and procedure of credit risk management are same as consolidated financial
statement in 2017. Related illustration can be referred to in Note 31.
3) Liquidity risk
The goal, policies and procedures of liquidity risk management are same as consolidated financial
statement in 2017. Related illustration can be referred to in Note 31.

34. RELATED-PARTY TRANSACTIONS
The transactions between subsidiaries (obtain business) relationship with China Airlines, Ltd., remaining
account balance, revenue and expense are eliminated when combined, which is not disclosed in the note.
Unless otherwise stated, the transactions between the merged company and other business related parties
are as follows:a. The related parties’ names and relationships
Name

Relationship with the Company

Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Aircraft Service
Airport Air Cargo Terminal (Xiamen) Co., Ltd.
Airport Air Cargo Service (Xiamen) Co., Ltd.
Eastern United International Logistics (Hong Kong)
China Pacific Catering Services
China Pacific Laundry Services
Nordam Asia Ltd.
Delica International Co., Ltd.
China Aviation Development Foundation
Others

Associate (become subsidiary in March 2018)
Associate (disposal in August 2017)
Associate (disposal in January 2018)
Associate
Associate
Associate
Associate
Joint venture investment
Joint venture investment
Joint venture investment
Joint venture investment
Director of the Company and major shareholder
Director, key management personnel, chairman,
general manager of the Group, spouse andsecond-degree relative

b. Operating income

Account Items
Other income

Related Party Type
Major shareholders of the Company
Associates
Joint venture investments- 57 -For the Three Months Ended
March 31
2018
2017
$
$
$

10,58766
10,745

$
$
$

6,970
635
8,231

c. Purchases
For the Three Months Ended
March 312018
2017

Related Party Type
Major shareholders of the Company
Associates
Joint venture investments$ 23,865$ 172,100$ 483,688$ 15,592$ 155,407$ 456,925

December 31,
2017

March 31,2017

d. Accounts receivable - related parties (generated by operations)
March 31,2018

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

$

4,943
5,985

$

6,431
1,928

$

2,571
270
3,591

$

10,928

$

8,359

$

6,432

The receivables are not guaranteed, and there is no allowance for doubtful accounts related to accountreceivables - related parties. The payment period of such accounts was within 30 to 90 days, and there
are no overdue payments.
e. Accounts payable - related parties (generated by operations)
March 31,2018

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

10,79932,471
488,358$ 531,628

December 31,
2017$

March 31,
2017

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

5,379
82,739480,833$ 568,951

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.
f. Leases (operating leases)
The Company has signed a lease contract with the China Aviation Industry Development Foundation
for pilot trainings. The Company has leased the flight trainer and simulator, and the rental was
calculated based on use hours. As of March 31, 2018 and 2017, the rental paid was $23,865 thousand
and $15,592 thousand, respectively.
g. Endorsements and assurances
March 31, 2018
Total Amount Amount Used

December 31, 2017
Total Amount Amount Used

March 31, 2017
Total Amount Amount Used

$ 3,850,000
1,080,000
1,035,754$ 2,767,000
277,905
396,529$ 3,850,000
1,080,000
1,055,604$ 2,850,000
318,611405,998$ 3,850,000
1,080,000
180,000
1,068,500$ 2,796,000
398,592
412,150

2,000,000

-

-

-

-

-

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

- 58 -

h. Compensation of key management personnel
For the Three Months Ended
March 312018
2017
Short-term employee benefits
Post-employment benefits$

14,769930$

13,172972$

15,699$14,144

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

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

Property, plant and equipment
Restricted assets

March 31,2018

December 31,
2017

March 31,2017

$ 39,114,661
257,948$ 39,821,666
161,398$ 75,086,441
310,171$ 39,372,609$ 39,983,064$ 75,396,612

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

36. COMMITMENTS AND CONTINGENT LIABILITIESAs of March 31, 2018, the Group had commitments and contingent liabilities (except for those mentioned
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 March 31, 2018, twelve of the aircrafts had been handed over to theCompany, and the total list price of the remaining two aircrafts was US$575,492 thousand, which has
been paid in the amount of US$143,873 thousand (recognized as prepayments for aircrafts).
b. For operation needs, the board of directors of Mandarin Airlines resolved to enter into a contract to buy
six ATR72-600 aircrafts, and the total list price of the six aircrafts was $120,000 thousand. The
expected delivery period ranges from June 2018 to June 2020, which has been paid in the amount of
US$13,034 thousand (recognized as prepayments for aircrafts).

- 59 -

c. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil
Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20
years from the date of transfer of the chartered operation rights from CAA to TACT. The terminal
expansion and improvements and the equipment installation and upgrade in the Taiwan Taoyuan
International Airport cargo terminal and Kaohsiung cargo terminal were expected to be completed in
the first 10 years of the COP. This construction project was approved by TACT’s board of directors in
2003. TACT filed an application for a 10-year extension of the COP for the cargo terminals in the
Taiwan Taoyuan International Airport and Kaohsiung International Airport and received the approval
from the Taoyuan Airport Corporation and CAA in July 2013 and July 2015, respectively.
However, TACT filed an arbitration for the total amount of expenditure in 2012 to revise the total
amount to $6,840,000 thousand.
As of March 31, 2018, TACT had signed the following construction contracts with unrelated parties:

Client NameContract Title

CECI Engineering
Consultant, Inc., Taiwan

Cargo Terminal Expansion Construction Consultant
Contract

Contract
Amount (VAT
Included)$552,285

As of March 31, 2018, the cumulated consultant service expense and construction equipment had
amounted to $473,599 thousand (VAT included) and $5,062,567 thousand (VAT included),
respectively. Upon completion of the projects, the amount of $460,578 thousand (VAT included) and$5,062,556 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.
TACT should pay royalties to Taoyuan Airport Corporation and the CAA during the charteredoperation period. The calculation is based on annual sales (including operating and nonoperating
revenue but excluding the rental revenue from specific districts), and Taoyuan Airport Corporation and
the CAA have the option to adjust the royalty rates every 3 years starting from the date of transfer of thechartered operation rights on the basis of actual revenue and expenditures. The current royalty rate is
6%.
d. CAL Park Co., Ltd. (“CAL Park”) signed “Taiwan Taoyuan International Airport Aviation Operation
Center (including Airport Hotel) Construction Operating Contract” with the CAA on September 20,
2006. However, on November 1, 2010, the Taoyuan Airport Corporation took over the CAA’s rights
on this contract from the CAA. The contract is effective for 50 years (consisting of the development
stage and operating period) from the contract date. Three years before contract expiry date, CAL Park
has the first option to renew the contract once with a 20-year extension.
CAL Park’s business scope includes providing business and other operating space related to civil airtransport, hotels, aviation service and related industries adhered to the base and essential services law
and approved by the Taoyuan Airport Corporation.

- 60 -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.
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.
e. Taiwan Aircraft Maintenance Company contracted out Ronggong Engineering Co., Ltd. for aconstruction repair project. The contract expiration date is November 5, 2018, and the estimated total
cost of the project is $1.906 billion. As of March 31, 2018, $651,775 thousand was paid (recognized
as construction in progress).

37. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESThe following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:(Foreign Currencies in Thousands)
March 31, 2018
Foreign
Currencies

Exchange Rate

Carrying
Amount398,412
20,462
176,329
7,262,918
517,755

29.154535.84233.70920.27414.6425$ 11,615,502
733,422654,041
1,990,795
2,403,679

411,070
5,817
94,2535,370,355
169,508

29.154535.84233.70920.27414.6425

11,984,544
208,494
349,602
1,472,026
786,940

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY
- 61 -

December 31, 2017
Foreign
Currencies

Exchange Rate

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

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

Exchange Rate

Carrying
AmountFinancial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY
March 31, 2017
Foreign
Currencies
Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

325,318
16,012200,161
5,447,204
465,80330.3030
32.3625
3.90630.27084.3995

298,117
5,028
85,7195,294,297
139,575

30.3030
32.3625
3.90630.27084.3995$9,858,124
518,177
781,889
1,475,099
2,049,302

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY

9,033,839
162,717334,840
1,433,611
614,056

For the three months ended March 31, 2018 and 2017, net foreign exchange gains (losses) were $19,591
thousand and $(140,600) thousand, respectively. It is impractical to disclose net foreign exchange gains(losses) by each significant foreign currency due to the variety of the foreign currency transactions andfunctional currencies of the group entities.

- 62 -

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

None2) Endorsements/guarantees provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20%of the paid-in capital: Table 3 (attached)5) Acquisitions of individual real estate at costs or price of at least NT$300 million or 20% of thepaid-in capital: None
6) Disposals of individual real estate at cost or prices of at least NT$300 million or 20% of the paid-in
capital: None
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 4 (attached)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached)9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 6 (attached)10) Derivative financial transactions (Notes 7 and 33)
b. Investments in mainland China: Table 7 (attached)c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 8 (attached)

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

- 63 -

For the three months ended March 31, 2018 and 2017, financial information of segments is listed below:
For the Three Months Ended March 31, 2018
Air
Adjustments
Transportation
Othersand Write-offs
Operating revenue$ 39,085,225$

2,226,413$(1,576,611)

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

234,037$-

189,274$ 39,735,027$$$ 152,037,256$ 10,427,542$-

166,768$ 162,464,798
2,279,493
63,686,972

Total assets$ 228,431,263
For the Three Months Ended March 31, 2017
Air
Adjustments
Transportation
Othersand Write-offs

Operating revenue$ 35,393,406$

1,892,978$(1,489,919)

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

196,083$-(565,513)

Total$ 35,796,465$(369,430)
42,747
119,280
44,164(326,690)(3,026,961)

Loss before income tax
Identifiable assets
Investments accounted for using theequity method
Assets423,31159,616
81,772
34,156(315,552)(116,535)

Gain before income tax
Identifiable assets
Investments accounted for using theequity method
AssetsTotal$$ 131,360,784$

8,755,749$-(3,516,890)$ 140,116,533
2,864,853
77,189,735

Total assets$ 220,171,121- 64 -TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIESENDORSEMENTS/GUARANTEES PROVIDEDFOR THE THREE MONTHS ENDED MARCH 31, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Counter-party
Endorsement/
Guarantee
Provider

No.

0

Name

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

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

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

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

ActualBorrowingAmount$ 11,495,543
11,495,543
11,495,543$ 3,850,000
1,080,000
1,079,101$ 3,850,000
1,080,000
1,035,754$ 2,767,000
277,905
396,529

11,495,543

2,000,000

2,000,000-

Note 1:

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

Note 2:

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

- 65 -$

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

-

6.70
1.88
1.80

$ 28,738,858
28,738,858
28,738,858

Yes
Yes
Yes

No
No
No

No
No
No

-

3.48

28,738,858

Yes

No

No

TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES HELDMARCH 31, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

Marketable Securities Type and Issuer/Name

Relationshipwith theHoldingCompany

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

Everest Investment Holdings Ltd. - preferred shares-

Chung Hua Express Co.

-

Jardine Air Terminal Services
The Grand Hi Lai Hotel-

Mandarin Airlines

Cal-Asia Investment

Sabre Travel Network (Taiwan)

Taiwan Airport Services

SharesChina Airlines

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

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

March 31, 2018
Percentage Market Value
Carryingofor Net Asset
AmountOwnership
Value
(%)

Shares/Units

1,359,368$$

86,279Note

78,435

13.59

135,937

7,844-

1,100,000

25,743

11.00

25,743-

12,000,000
4,021

-

15.00
0.02

-

-

2,074,628

22,406-

22,406--Note 2

Beneficial certificates
Barclays America Bonds Fund-

Financial assets at fair value through profit or loss - current

1,000,000

29,014-29,014-

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

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

21,2692.59
5.45

21,269-Beneficial certificatesFranklin Templeton SinoAm Money Market FundFSITC Taiwan Money Market FundFSITC Money Market Fund-

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

8,655,461
6,321,858
7,689,476

89,02096,245
95,885-89,02096,245
95,885-

SharesTransAsia Airways-

Financial assets at fair value through profit or loss - current

2,277,786---

Beneficial certificatesFuh Hwa Emerging Market Short-term Income Fund-

Financial assets at fair value through profit or loss - current

4,568,824

39,76439,764-

0.40-(Continued)- 66 -

Holding Company Name

Hwa Hsia

Kaohsiung Catering Services

Tigerair Taiwan Co., Ltd.

Marketable Securities Type and Issuer/Name

SharesChina Airlines

Relationshipwith theHoldingCompany

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

March 31, 2018
Percentage Market Value
Carryingofor Net Asset
AmountOwnership
Value

Shares/Units

814,152

$

8,793

-

$

Note

8,793

-

Beneficial certificates
Taishin 1699 Money Market Fund-

Financial assets at fair value through profit or loss - current

349,523

4,705

-

4,705

-

Beneficial certificates
Prudential Financial Money Market Fund-

Financial assets at fair value through profit or loss - current

7,939,173

123,794-

123,794--

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

1,000,000
29,155
13,9271,000,000
29,155
13,927--

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

29,155

29,155-

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

92,85092,850Capital guarantee products
NT-dollar 100% principal-protected structural products
US-dollar 100% principal-protected structural products
Chinese-yen 100% principal-protected structural
products
US dollar-denominated interest rate intervalinterest-bearing guarantee structural products
Financial productsBank of China accumulation monthly-day plan-

Note 1: This table only lists financial assets that are IFRS 9 regulated.
Note 2: Total fair value of Everest Investment Holdings Ltd.’s common and preferred shares is $86,279 thousand.
(Concluded)- 67 -TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE THREE MONTHS ENDED MARCH 31, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name

China Airlines, Ltd.

Tigerair Taiwan Co.,Ltd.

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

Non-related party

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

Non-related party

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

Financial Statement
Account

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

-

-

-

-

-

300,000$

Disposal (Note 3)
Carrying
AmountAmountNumber of
Shares

-

-

$

-

-

-

-

-

-

2,200,000-

1,500,000$

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

-

-

$

-

-

-

-

-

1,500,000--

1,000,000

Note 1:

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

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

Note 3The cumulative amount of acquired and disposed of marketable securities are required to be calculated separately to determine whether they are at least NT$300 million or 20% of the paid-in capital.

Note 4Paid-in capital refers to paid-in capital of the indicated parent company. If the shares issued by an issuer have no par value or a par value other than NT$10 per share, the threshold of 20% of paid-in capital, as set out in the preceding item, shall be replaced by 10% of equity attributable toowners of the indicated parent company, as stated in the respective balance sheet.

- 68 -TABLE 4

CHINA AIRLINES, LTD. AND SUBSIDIARIESTOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE THREE MONTHS ENDED MARCH 31, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd.
(“China Airlines”)

Related Party

Taiwan Air Cargo Terminal
Taiwan Airport Services
Mandarin Airlines
Taoyuan International Airport Service
China Pacific Catering Services

Nature of Relationship

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee

Purchase/
Sale

Amount% of
Total

Purchase
Purchase
Sale
Purchase
Purchase$ 132,928
103,872(568,978)300,306
454,4170.41
0.32(1.63)
0.93
1.41- 69 -

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

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

Unit Price$--$ (24,088)(70,444)452,017(351,395)(468,488)(2.2)(6.44)
4.87(32.14)(42.85)Note-TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALMARCH 31, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Overdue
Company Name

Related Party

Nature of RelationshipEnding Balance

Turnover Rate

$ 452,017

Note

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

288,362

China Pacific Catering Services

China Airlines

Parent company

Taoyuan International Airport Service

China Airlines

Parent company

Note:

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for
Bad Debts--$ 195,525

Note

-

-

286,563-

468,488

4.00

-

-

157,842-351,395

3.40

-

-

193,829-

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

- 70 -$-TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE THREE MONTHS ENDED MARCH 31, 2018
(New Taiwan Dollars/U.S. Dollars/Hong Kong Dollars/Japanese Yen in Thousands, Unless Stated Otherwise)

Investor Company

China Airlines, Ltd.

Investee Company

Cal Park
Mandarin Airlines
Taiwan Air Cargo Terminal
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Sabre Travel Network (Taiwan)
China Aircraft Service
Taiwan Airport Services
Kaohsiung Catering Services
Cal Hotel Co., Ltd
China Pacific Laundry Services
Hwa Hsia
Yestrip
Dynasty Holidays
Global Sky Express
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd.
NORDAM Asia Ltd.

Location

Main Businesses and Products

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

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

Investment Amount
December 31,
March 31, 20182017

Balance as of March 31, 2018
Number ofPercentage ofCarrying
SharesOwnership
AmountNet Income(Loss) of theInvestee$

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

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

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

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

51.00
49.00
100.00
93.93

HK$

HK$

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

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

77,27058,00012,289383,846
465,000
137,500
77,270JPY

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

JPY$

1,523,880
1,147,527
1,375,883
1,169,753

Investment
Income (Loss)

Note

1,185 $
(67,884)
67,46912,183

1,185(63,804)
36,433
12,183Note 1
Note 2810,345673,976492,553
488,355

104,668
40,554
6,237
40,19553,381
19,872
6,237
37,755

-

20.00
47.35
53.67
100.0055.00

479,209272,312572,308
437,849
174,770(8,385)22,84152,4791,883
6,437(1,677)
10,81528,163
1,883
3,541

-

77,270100.0085,475

2,460

2,460

Note 1

26,265
20,4002,500
1,600,000
1,350,000

1,600,000
408
250,000
180,000,000
135,000,000

100.00
51.00
25.00
90.00
100.0025,19923,912
7,668
1,233,931
1,210,294(705)(5,757)927
359,023(21,254)(705)(2,936)232
323,121(21,254)-

Taoyuan, Taiwan

Composite repair and manufacturing business

2,450

2,450

245,000

49.00

2,360

(80)

(39)

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

10.00
1.08

94,466
6,194

359,023
22,84135,902
246-

Mandarin Airlines

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Taipei, Taiwan
Taipei, Taiwan

Air transportation and maintenance of aircraft
Airport services

Cal-Asia Investment

Eastern United International Logistics

Hong Kong

Forwarding and storage of air cargo

HK$

3,329

HK$

3,329

1,050,000

35.00

44,749

2,789

976

-

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

US$

5,877

-

100.00380,182

5,005

5,005

Note 3-

1,020,000

51.00

7,866

-

-

Note 4Kaohsiung Catering
Services

Kaohsiung, Taiwan

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

Note 2:

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

Note 3:

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

Note 4:

Investee acquired by merger.

10,200- 71 -TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIESINVESTMENTS IN MAINLAND CHINAFOR THE THREE MONTHS ENDED MARCH 31, 2018
(New Taiwan Dollars/Renminbi/U.S. Dollars In Thousands, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Businesses andProducts

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan as
Capitalof
January 1, 2018

Investment Flows

Outflow

Inflow

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

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

Indirect(Note 1)$122,040 $(US$4,186)

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

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

Indirect(Note 1)

56,777
1,947)-(US$

Taikoo (Xiamen) Landing
Gear Services

Landing gear
1,075,510
maintenance services (US$ 36,890)

Indirect(Note 1)

62,7172,151)-(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

Indirect(Note 1)

18,542
636)

-

(US$

(US$

340,029
11,663)

Accumulated
Outflow ofInvestment
from Taiwan asofMarch 31, 2018

-

$

-

56,77725,5291,947) (RMB 5,541)

14.00

(US$

62,7172,151)

-

2.589

-

(US$

18,542
636)

-

5.45

-

(US$

-

Limit on Investment$260,076 (US$8,920)$634,251 (Note 3)$36,054,726 (Note 4)

Investment
Gain (Loss)

14.00

-

Investment Amounts
Authorized by Investment Commission,
MOEA

Accumulated
Carrying
InwardAmountRemittance ofas ofEarnings as ofMarch 31, 2018
March 31, 2018$
122,040 $12,954(US$
4,186) (RMB 2,812)-

Accumulated Investment in Mainland
China as of March 31, 2018

% Ownershipof Direct orIndirect
Investment

Net Income(Loss) of
the Investee$(RMB

1,694 $
247,529 $394) (RMB 53,318) (US$81,6842,802)(Note 2)

(RMB

3,338
133,300776) (RMB 28,713) (US$25,520875)(Note 2)-

(RMB

21,2694,581)(Continued)- 72 -

Taiwan Airport Services

Investee Company

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

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

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

Indirect(Note 5)$
117,153 $(US$
4,018)

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

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

Indirect(Note 5)

(US$

Remittance of Funds

Outward56,173
1,927)

Accumulated
Outward
Remittance forInvestment
from Taiwan asof March 31,
2018

Inward

-

$

-

-

$
117,153 $
12,954(US$
4,018) (RMB 2,812)

14

56,17325,5291,927) (RMB 5,541)

14

(US$

Accumulated Outward
Remittance for Investment in
Mainland China as of March 31, 2018

Investment Amounts Authorized by
Investment Commission, MOEA

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

$173,327 (US$5,945)$173,327 (US$5,945)$345,088 (Note 4)

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

Accumulated
Carrying
Repatriation of
Investment
Amount as ofInvestment
Income (Loss)
March 31, 2018 Income as ofMarch 31, 2018$
(RMB

1,814 $
246,034 $
110,972394) (RMB 52,996) (US$3,806)(RMB

3,574
133,331776) (RMB 28,719) (US$41,0091,407)

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in mainland China.
Note 2: As of March 31, 2018, the inward remittance of earnings amounted to US$2,801,749 and US$875,330.
Note 3: The amount comprised US$19,828,324, RMB4,200,000 and NT$36,666,667.
Note 4: The limit stated in the Investment Commission’s regulation, “The Review Principle of Investment or Technical Cooperation in mainland China,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 5: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in mainland China.
Note 6: The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the year-end rates of refer for the reporting period.
(Concluded)- 73 -TABLE 8

CHINA AIRLINES, LTD. AND SUBSIDIARIES
BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIESFOR THE THREE MONTHS ENDED MARCH 31, 2018
(In Thousands of New Taiwan Dollars)Intercompany Transactions
No.

0

Company Name

China Airlines, Ltd.

Related Party

Natural of
Relationship(Note 1)

Mandarin Airlines
Taoyuan International Airport Service
Taiwan Airport Services
Taiwan Air Cargo Terminal
Mandarin Airlines
Mandarin Airlines
Taoyuan International Airport Service
Mandarin Airlines

a
a
a
a
a
a
a
a

Passenger revenue
Terminal and landing fees
Terminal and landing fees
Other operating costs
Accounts receivable - related parties
Accounts payable - related parties
Accounts payable - related parties
Bonds payable - noncurrent

Financial Statement AccountAmountTransaction Criteria% of Total
Consolidated
Total Revenue
or Assets$ 491,081
300,306
103,872
132,928452,017
288,362
351,395
250,000

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

1.24
0.76
0.26
0.33
0.2
0.13
0.15
0.11

1

Taiwan Air Cargo Terminal

China Airlines, Ltd.

b

Sales revenue

132,928

The same as ordinary transactions

0.33

2

Mandarin Airlines

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

b
b
b
b

Flight operation costs
Accounts receivable - related parties
Financial assets at amortized cost
Notes and accounts payable - related parties

491,081
288,362250,000
452,017

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

1.24
0.13
0.11
0.20

3

Taoyuan International Airport Services

China Airlines, Ltd.
China Airlines, Ltd.

bb

Airport service revenue
Accounts receivable - related parties

300,306
351,395

The same as ordinary transactions
The same as ordinary transactions

0.76
0.15

4

Taiwan Airport Services

China Airlines, Ltd.

b

Operating revenue

103,872

The same as ordinary transactions

0.26

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

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