China Airlines, Ltd. and Subsidiaries
Consolidated Financial Statements for theNine Months Ended September 30, 2019 and 2018 andIndependent Auditors’ Review ReportINDEPENDENT AUDITORS’ REVIEW REPORTThe Board of Directors and the Shareholders
China Airlines, Ltd.
Introduction
We have reviewed the accompanying consolidated balance sheets of China Airlines, Ltd. and its
subsidiaries (the “Group”) as of September 30, 2019 and 2018, the related consolidated statements ofcomprehensive income for the three-month periods ended September 30, 2019 and 2018 and for thenine-month periods ended September 30, 2019 and 2018, the consolidated statements of changes in equity
and cash flows for the nine-month periods then ended, and the related notes to the consolidated financial
statements, including a summary of significant accounting policies (collectively referred to as the“consolidated financial statements”). Management is responsible for the preparation and fair presentationof the consolidated financial statements in accordance with the Regulations Governing the Preparation of
Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial
Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic ofChina. Our responsibility is to express a conclusion on the consolidated financial statements based on ourreviews.
We did not review the financial statements of some subsidiaries included in the consolidated financial
statements of the Group, but such statements were reviewed by other auditors. Our conclusion, insofar as
it relates to the amounts included in the consolidated financial statements for these subsidiaries, is based
solely on the report of other auditors. The total assets of these subsidiaries were NT$13,644,652 thousand
and NT$5,508,205 thousand, which constituted 4.57% and 2.44% of the consolidated total assets as of
September 30, 2019 and 2018, and the total revenue was NT$2,501,275 thousand, NT$2,374,277
thousand, NT$7,406,331 thousand and NT$6,800,331 thousand, which constituted 5.82%, 5.25%, 5.86%
and 5.39% of the consolidated total revenues for the three-month periods ended September 30, 2019 and2018 and for the nine-month periods ended September 30, 2019 and 2018.
Scope of Review
Except as explained in the following paragraph, we conducted our reviews in accordance with theStatement of Auditing Standard No. 65 “Review of Financial Information Performed by the Independent
Auditor of the Entity”. A review of consolidated financial statements consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and otherreview procedures. A review is substantially less in scope than an audit and consequently does not enable
us to obtain assurance that we would become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Basis for Qualified Conclusion
As disclosed in Notes 13 and 14 to the consolidated financial statements, the financial statements of somenon-significant subsidiaries included in the consolidated financial statements (other than those mentioned
in the second paragraph) and some investments accounted for using the equity method were not reviewed.
As of September 30, 2019 and 2018, the combined total assets of these non-significant subsidiaries were
NT$22,460,780 thousand and NT$17,465,404 thousand, respectively, representing 7.53% and 7.73%,-1-

respectively, of the consolidated total assets, and combined total liabilities of these non-significant
subsidiaries were NT$11,665,344 thousand and NT$6,761,671 thousand, respectively, representing
4.89% and 4.08%, respectively, of the consolidated total liabilities; for the three-month periods ended
September 30, 2019 and 2018 and for the nine-month periods ended September 30, 2019 and 2018, theamounts of the combined comprehensive income of these non-significant subsidiaries were NT$297,334
thousand, NT$333,270 thousand, NT$855,151 thousand and NT$881,191 thousand, respectively,
representing 59.93%, 27.54%, (412.73%) and 50.67%, respectively, of the consolidated total
comprehensive income. As of September 30, 2019 and 2018, the aforementioned investments accounted
for using the equity method were NT$2,186,140 thousand and NT$2,215,025 thousand, respectively; andfor the three-month periods ended and for the nine-month periods ended September 30, 2019 and 2018,the amounts of the Group’s share of the profit of such investments accounted for using the equity method
were NT$77,114 thousand, NT$81,098 thousand, NT$234,913 thousand and NT$244,917 thousand,respectively.
Qualified Conclusion
Based on our reviews, except for the adjustments, if any, as might have been determined to be necessary
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 ourattention that caused us to believe that the accompanying consolidated financial statements do not present
fairly, in all material respects, the consolidated financial position of the Group as of September 30, 2019and 2018, its consolidated financial performance for the three-month periods ended September 30, 2019and 2018 and for the nine-month periods ended September 30, 2019 and 2018, and its consolidated cash
flows for the nine-month periods then ended in accordance with the Regulations Governing the
Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim
Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the
Republic of China.
The engagement partners on the reviews resulting in this independent auditors’ review report are Huang,
Jui Chan and Cheng, Shiuh Ran.

Deloitte & Touche
Taipei, Taiwan
Republic of China
November 7, 2019

Notice to Readers
The accompanying consolidated financial statements are intended only to present the consolidated
financial position, financial performance and cash flows in accordance with accounting principles andpractices 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 are those 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 Chinese version
prepared and used in the Republic of China. If there is any conflict between the English version and theoriginal Chinese version or any difference in the interpretation of the two versions, the Chinese-language
independent auditors’ review report and consolidated financial statements shall prevail.
-2-

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

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

September 30, 2018
(Reviewed)
Amount%$ 28,831,065
374,123
1,079,048
12,3609,255,225
10,5691,366,847
59,664
8,762,322
1,738,484

10
3
3
1

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

11
2
4
4
2

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

10
1
4
4
2

51,489,707

17

52,827,560

23

48,515,953

21

126,069
2,186,140
149,644,024
74,143,766
2,075,135
1,211,693
5,211,294
12,346,491

1
50
25
1
2
4

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

1
71
1
1
2
1

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

1
71
1
1
2
3

246,944,612

83

177,309,022

77

177,556,747

79$ 298,434,319

100$ 230,136,582

100$ 226,072,700

100

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

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

$

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

1
9
6
2
7
2

24

60,949,892

46,107,551
22,932,632
59,560,240
2,155,198
10,061,365
204,421
16,620,938
8,665,398
487,138

15
8
20
1
3
6
3
-

Total noncurrent liabilities

166,794,881

Total liabilities

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

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 21 and 26)
Share capital
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated retained earnings
Total retained earnings
Other equity
Treasury shares
Total equity attributable to owners of the Company
NON-CONTROLLING INTERESTS (Note 26)
Total equity
TOTAL

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

10,0002,115
8,883,631
1,675,597
550,376
20,836,928
13,257,560
336,9712,486,709
53,326
9,100,000
9,775,624
4,595,396

3
1
7
4
1
3
3
2

71,564,233

$

$

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

8
6
2
9
2

27

62,514,059

27

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

12
26
1
4
4
-

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

11
27
1
4
3
-

56

109,139,606

47

103,231,130

46

238,359,114

80

170,089,498

74

165,745,189

73

54,209,846
2,448,22018
154,209,846
1,241,21424-

54,709,846
1,209,977

24
1

466,416
12,967(346,425)
132,958(193,441)(43,372)-

351,923
118,810
1,144,928
1,615,661
58,223(43,372)1
1-351,923
118,810
1,269,502
1,740,235
84,257(301,354)

1
1-56,554,211

19

57,081,572

25

57,442,961

26

3,520,994

1

2,965,512

1

2,884,550

1

60,075,205

20

60,047,084

26

60,327,511

27$ 298,434,319

100$ 230,136,582

100$ 226,072,700

100

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

For the Three Months Ended September 30
2019
2018
Amount%Amount%REVENUE (Notes 4, 27 and 34)

43,004,648

100

45,196,764

100$ 126,302,308

100$ 126,207,626

100

COSTS (Notes 4, 11, 15, 21, 24,
25, 27, 34 and 36)

37,878,124

88

39,886,608

88

112,665,810

89

113,144,293

89

GROSS PROFIT

5,126,524

12

5,310,156

12

13,636,498

11

13,063,333

11

OPERATING EXPENSES(Notes 4, 17, 25 and 27)

3,664,622

9

3,414,923

8

10,840,603

99,970,057

8

OPERATING PROFIT

1,461,902

3

1,895,233

42,795,895

2

3,093,276

3

190,2451

148,5001

516,124-

437,024-(254,192)(1 )(115,677)-(491,067)-(473,347)-(803,383)(2 )(349,414)(1 )(2,523,631)(2 )(1,015,475)(1 )77,114-81,098-234,913-244,917-(790,216)(2 )(235,493)-(2,263,661)(2 )(806,881)(1 )PROFIT BEFORE INCOME
TAX

671,6861

1,659,740

4532,234-

2,286,395

2

INCOME TAX EXPENSE(Notes 4 and 28)

176,171-433,103

1

474,485-

657,000

1

NET INCOME FOR THE
PERIOD495,51511,226,637

3

57,749-1,629,395

1

603

-

4,265

-

603

-

21,761-(2,939)-(7,603)-(5,004)-

10,835-25(2,311)-

235(3,103)-876(3,525)-(14,050)
18,546(Continued)

NON-OPERATING INCOME
AND EXPENSES
Other income (Note 27)
Other gains and losses(Notes 12, 15 and 27)
Finance costs (Notes 27
and 33)
Share of the profit of associates
and joint ventures (Note 14)
Total non-operating
income and expenses

OTHER COMPREHENSIVEINCOME (LOSS)
Items that will not bereclassified subsequently to
profit or loss
Gain on hedging instruments
subject to basis adjustment
Unrealized (loss) gain on
investments in equity
instruments designated as
at fair value through othercomprehensive income
Income tax relating to items
that will not bereclassified subsequently
to profit or loss (Note 28)$$

For the Nine Months Ended September 30
2019
2018
Amount%Amount%-4-

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

For the Three Months Ended September 30
2019
2018
Amount%Amount%Items that may be reclassified
subsequently to profit orloss:
Exchange differences ontranslating foreign
operations (Notes 4
and 26)
Gain on hedging instruments
not subject to basis
adjustment (Notes 4, 21,
26 and 33)
Income tax relating to items
that may be reclassified
subsequently to profit orloss (Note 28)$(23,546)-(6,411)--

11,004-(318,338)(4,510)
2,930

-

(880)
(13,422)

-

619

-

(16,525)-$

496,1341$

1,210,1123$

340,038
155,4771-$

1,080,506
146,131$495,5151$$

347,814148,3201-$

496,134

1

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

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

EARNINGS (LOSSES) PER
SHARE (NEW TAIWANDOLLARS; Note 29)
Basic
Diluted$$(32,457)-

39,897

0.06
0.06

$

For the Nine Months Ended September 30
2019
2018
Amount%Amount%10,079--98,702-

63,332(261,417)-(17,678)
91,103-(264,942)-

109,649-$(207,193)-$

1,739,044

1

3
-

$

(346,425)
404,174-$

1,269,440
359,9551-

1,226,637

3$

57,749-$1,629,395

1$

1,070,299
139,8133-$(605,959)
398,766-$

1,383,645
355,3991-$

1,210,112

3$(207,193)-$

1,739,044

1

$
$

0.20
0.18

$

$
$

(0.06)(0.06)

$

$
$

0.23
0.22

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

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

Equity Attributable to Owners of the Company

Retained Earnings

BALANCE AT JANUARY 1, 2018

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

UnappropriatedEarnings(Accumulated
Deficits)$ 54,709,846

$

$

$

$

799,999

206,092-

1,458,313

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

1,774

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

Treasury Shares
$

Total

(43,372 )$ 57,023,237

Non-controlling
Interests

Total Equity$

2,134,282$ 59,157,519

Effect of retrospective application andretrospective restatement

-

-

-

-

60

-

(1,774 )42,351

74,429(74,429 )-

40,637-

40,637BALANCE AT JANUARY 1, 2018 AS
RESTATED

54,709,846

799,999

206,092-

1,458,373(34,986 )-

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

57,063,874

2,134,282

59,198,156

Issuance of convertible bonds-

409,978

-

-

-

-

-

-

-

-

-

409,978-

409,978

Basis adjustment to gain on hedging instruments

-

-

-

-

-

-

-

-

-

37,116-

37,116-

37,116

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

145,831-

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

-

-

-

-

-

-

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

-

-

-

-

1,269,440

-

-

-

-

-

-

1,269,440

359,955

1,629,395

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

-

-

-

-

-

12,014

-

8,560

-

93,631-

114,205(4,556 )109,649

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

-

-

-

-

1,269,440

12,014

-

8,560

-

93,631-

1,383,645

355,399

1,739,044

Cash dividends from subsidiaries paid to
non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

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

-

-

-

-

-

-

-

-

-

-

-

-

565,888565,888

Buy-back of ordinary shares

-

-

-

-

-

-

-

-

-

-

(257,982 )(257,982 )-(257,982 )BALANCE AT SEPTEMBER 30, 2018

$ 54,709,846$

1,209,977$

351,923$

118,810$

1,269,502$(22,972 )$-$

50,911$-$

56,318$(301,354 )$ 57,442,961$

2,884,550$ 60,327,511

BALANCE AT JANUARY 1, 2019

$ 54,209,846$

1,241,214$

351,923$

118,810$

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

2,965,512$ 60,047,084

Basis adjustment to gain on hedging instruments

-

-

-

-

-

-

-

-

-

(603 )-(603 )-(603 )

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

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

-

-

-

-

-

-

(1,136,278 )-(1,136,278 )Actual disposal of interests in subsidiaries-

1,207,006

-

-

-

-

-

-

-

-

-

1,207,006

7,302

1,214,308

Net profit (loss) for the nine months ended
September 30, 2019

-

-

-

-

(346,425 )

-

-

-

-

-

-

(346,425 )

404,174

57,749Other comprehensive income (loss) for the ninemonths ended September 30, net of income tax

-

-

-

-

-

(2,616 )-(4,128 )-(252,790 )-(259,534 )(5,408 )(264,942 )Total comprehensive income (loss) for the ninemonths ended September 30, 2019

-

-

-

-

(346,425 )(2,616 )-(4,128 )-(252,790 )-(605,959 )

398,766(207,193 )Cash dividends from subsidiaries paid to
non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

(416,438 )(416,438 )Non-controlling interests arising from acquisitionof subsidiaries

-

-

-

-

-

-

-

-

-

-

-

-

590,809590,809

Loss of contract of subsidiaries

-

-

-

-

-

8,368

-

105

-

-

-

8,473

(24,957 )(16,484 )(43,372 )$ 56,554,211

3,520,994$ 60,075,205

BALANCE AT SEPTEMBER 30, 2019

$ 54,209,846$

2,448,220$

466,416$

12,967$(346,425 )$(3,912 )The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche auditors’ review report dated November 7, 2019)

-6-

$

-

$

38,596$-$(228,125 )$$CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands of New Taiwan Dollars)(Reviewed, Not Audited)

For the Nine Months Ended
September 30
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax
Adjustments to reconcile net cash generated from (used in) operating
activities:
Depreciation expenses
Amortization expenses
Bad-debts expense
Net (gain) loss on fair value changes of financial assets andliabilities held for trading
Interest income
Dividend income
Share of profit of associates and joint ventures
Loss (gain) on disposal of property, plant and equipment
Loss (gain) on disposal of noncurrent assets held for sale
Gain on disposal of investments
Loss on inventory and property, plant and equipment
Impairment loss recognized on property, plant and equipment andnoncurrent assets held for saleFinance costs
Net loss (gain) on foreign currency exchange
Loss on sale-leasebacks
Recognition of provisions
OthersAmortization of unrealized gain on sale-leasebacks
Changes in operating assets and liabilities
Financial assets mandatorily classified as at fair value through profit
or loss
Financial liabilities held for trading
Notes and accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Financial assets at amortized cost
Other current assets
Notes and accounts payable
Accounts payable - related parties
Other payables
Contract liabilities
Provisions
Other current liabilities
Accrued pension liabilities
Other liabilities
Cash generated from operations-7-$532,234$

2,286,395

24,582,494
149,150
20,434

14,379,980
142,226
37,491(43,641)(287,238)(18,009)(234,913)(25,280)
10,462(7,656)502,317(10,204)(226,694)(7,705)(244,917)
280,195
368,992(450,195)
550,382

2,523,631
516,116
103,775
3,293,355(2,063)-60,812
1,015,475
311,0022,577,389(10,884)(124,447)
1,894
701,910(140,527)(127,624)(294,431)
2,329,087
1,878,230
173,523
150,336(822,899)
1,543,090(2,051,888)
649,837(137,886)
1,102
35,344,475

732,365(1,235,248)
117,328(103,940)(290,784)(1,213,420)
1,371,299
540,038
149,009476,974
1,103,553(2,309,957)
117,238(214,214)
8,796
20,308,777(Continued)

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

For the Nine Months Ended
September 30
2019
2018
Interest received
Dividends received
Interest paid
Income tax paid$

Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of noncurrent assets held for sale
Payments for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Increase in computer software costs(Increase) decrease in restricted assets
Proceeds from disposal of associates accounted for using the equity
methodNet cash outflow on disposal of subsidiaries (Note 31)
Acquisition of subsidiaries (Note 30)
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Decrease in short-term loans
Increase in short-term bill payable
Decrease in short-term bills payable
Payments for buy-back ordinary shares
Proceeds from issuance of bonds payable
Repayments of bonds payable
Proceeds of long-term debts and capital lease obligations
Repayments of long-term debts and capital lease obligations
Repayments of the principal portion of lease liabilities
Proceeds of guarantee deposits received
Refunds of guarantee deposits received
Proceeds from sale-leasebacks
Dividends paid to owners of the Company
Cash dividends paid to non-controlling interests
Net cash used in financing activities-8-272,090
260,714(2,483,505)(356,524)$

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

33,037,250

19,471,553

35,692(4,075,360)
66,784(347,289)
141,930(12,864,504)(152,548)
453

688,427(4,128,575)
300,162(81,314)204,834(10,562,015)(129,832)(27,670)

1,505,664(17,413)-

136,769(15,706,591)(13,599,214)

360,060(350,060)
3,500,000(4,445,900)
7,532,213(14,629,858)(8,624,846)
122,618(104,852)
4,905,660(1,136,278)(416,438)

1,150,000(1,270,000)
350,060(350,060)(257,982)
6,012,000(2,700,000)
12,292,996(19,048,299)
120,609(63,773)(1,193,670)(171,019)(13,287,681)(5,129,138)(Continued)

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

For the Nine Months Ended
September 30
2019
2018
EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES$(149,450)$(100,618)

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS

3,893,528

642,583

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD

24,937,537

22,585,332

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD$ 28,831,065$ 23,227,915

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

CHINA AIRLINES, LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)(Reviewed, Not Audited)

1. GENERAL INFORMATION
China Airlines, Ltd. (the “Company”) was founded in 1959 and its shares have been listed on the Taiwan
Stock Exchange since February 26, 1993. The Company is primarily involved in (a) air transport services
for passengers, cargo and mail; (b) ground services and routine aircraft maintenance; (c) major maintenanceof flight equipment; (d) communications and data processing services to other airlines; (e) the sale ofaircraft parts, aviation equipment and (f) the sale and leasing of aircraft.
The major shareholders of the Company are the China Aviation Development Foundation (“CADF”) andthe National Development Fund (“NDF”), Executive Yuan. As of September 30, 2019, December 31, 2018
and September 30, 2018, CADF and NDF held a combined 44.03%, 44.03% and 43.63%, respectively, of
the Company’s shares.

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

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

- 10 -

The Group as lessee
The Group recognizes right-of-use assets and lease liabilities for all leases on the consolidated balance
sheets except for those whose payments under low-value asset and short-term leases are recognized as
expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group
presents the depreciation expense charged on right-of-use assets separately 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 are classified within
financing activities; cash payments for the interest portion are classified within financing activities.
Prior to the application of IFRS 16, payments under operating lease contracts, including property
interest qualified as investment properties, were recognized as expenses on a straight-line basis. Prepaid
lease payments for land use rights were recognized as prepayments for leases. Cash flows for operatingleases were classified within operating activities on the consolidated statements of cash flows. Leased
assets and finance lease payables were recognized on the consolidated balance sheets for contracts
classified as finance leases.
Lease liabilities were recognized on January 1, 2019 for leases previously classified as operating leases
under IAS 17. Lease liabilities were measured at the present value of the remaining lease payments,
discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets aremeasured at either an amount equal to the lease liabilities, adjusted by the amount of any prepaid or
accrued lease payments, or their carrying amount as if IFRS 16 had been applied since thecommencement date, but discounted using the aforementioned incremental borrowing rate, the Groupapplies IAS 36 to all right-of-use assets.
Leasehold which was previously accounted for as an operating lease under IAS 17, qualifies as aninvestment property. A lease liability for that leasehold is recognized and measured at the present valueof the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January
1, 2019.
If the Group determines that a sale and leaseback transaction does not satisfy the requirements of IFRS
15 to be accounted for as a sale of an asset, it is accounted for as a financing transaction. If it satisfies
the requirements to be accounted for as a sale of an asset, the Group recognizes only the amount of any
gain or loss which relates to the rights transferred to the buyer-lessor. Prior to the application of IFRS
16, the leaseback portion is classified as either a finance lease or an operating lease and accounted for
differently.
The Group does not reassess sale and leaseback transactions entered into before January 1, 2019 todetermine whether the transfer of an underlying asset satisfies the requirements in IFRS 15 to beaccounted for as a sale. Upon initial application of IFRS 16, the aforementioned transitional provision
for a lessee applies to the leaseback portion. In addition, for assets previously accounted for as a financelease under IAS 17, the Group continues to amortize any gains on sales over the lease term.
The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on
January 1, 2019 was 2.58%. The difference between the (i) lease liabilities recognized and (ii) operatinglease commitments on December 31, 2018 is explained as follows:
The future minimum lease payments of non-cancellable operating leasecommitments on December 31, 2018
Undiscounted amounts on January 1, 2019

$ 78,030,370$ 78,030,370(Continued)- 11 -

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

Lease liabilities recognized on January 1, 2019

$ 36,296,387(Concluded)

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

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

As OriginallyStated on
January 1, 2019

Adjustments
Arising from
InitialApplication

Restated on
January 1, 2019

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

$

$

$

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

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

633,775
90
560
-

$

$

Total effect on liabilities$

634,425$ 77,582,030

861,045
1,089,690
163,107,718(861,045)(25,617)78,499,374(30,682)

3,924,776
32,371,611(633,775)(90)
5,947,449
35,972,059

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

3,924,776
32,371,611
5,948,009
35,972,059$ 78,216,455

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

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

Note 1: The Group shall apply these amendments to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or afterJanuary 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.
Note 2: The Group shall apply these amendments prospectively for annual reporting periods
beginning on or after January 1, 2020.

- 12 -

Except for the above impact, as of the date the consolidated financial statements were authorized for
issue, the Group is continuously assessing the possible impact that the application of other standards
and interpretations will have on the Group’s financial position and financial performance and will
disclose the relevant impact when the assessment is completed.
c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC
Effective Date
Announced by IASB (Note)

New IFRSs

Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark January 1, 2020
Reform”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
To be determined by IASB
between an Investor and its Associate or Joint Venture”
IFRS 17 “Insurance Contracts”
January 1, 2021
Note:

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

The application of new IFRSs announced by IASB but not yet endorsed and issued into effect by the
FSC would not have any material impact on the Group’s accounting policies, as of the date theconsolidated financial statements were authorized for issue, the Group is continuously assessing thepossible impact that the application of other standards and interpretations will have on the Group’s
financial position and financial performance and will disclose the relevant impact when the assessment
is completed.

4. SIGNIFICANT ACCOUNTING POLICIESExcept for the policies listed below, the accounting policies adopted for these consolidated financial
statements are the same as those for the consolidated financial statements for the year ended December 31,
2018.
Statement of Compliance
The consolidated financial statements have been prepared in accordance with the Regulations Governing
the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial Reporting” asendorsed by the FSC. Disclosure information included in these interim consolidated financial statements isless than the disclosures required in a full set of annual consolidated financial statements.
Basis of Consolidation
The consolidated financial statements reporting principles are the same as those for the consolidated
financial statements for the year ended December 31, 2018.
Leases2019
At the inception of a contract, the Group assesses whether the contract is, or contains, a lease.
a. The Group as lessor
Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks
and rewards of ownership to the lessee. All other leases are classified as operating leases.

- 13 -

b. The Group as lessee
The Group recognizes right-of-use assets and lease liabilities for all leases at the commencement date ofa lease, except for short-term leases and low-value asset leases accounted for applying a recognition
exemption where lease payments are recognized as expenses on a straight-line basis over the leaseterms.
Right-of-use assets are initially measured at cost, which comprises the initial measurement of leaseliabilities adjusted for lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease
incentives received. Right-of-use assets are subsequently measured at cost less accumulated
depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities.
Right-of-use assets are presented on a separate line in the consolidated balance sheets.
Right-of-use assets are depreciated using the straight-line method from the commencement dates to theearlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.
Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed
payments, in-substance fixed payments, variable lease payments which depend on an index or a rate,
residual value guarantees. The lease payments are discounted using the interest rate implicit in a lease,
if that rate can be readily determined. If that rate cannot be readily determined, the Group uses thelessee’s incremental borrowing rate.
Subsequently, lease liabilities are measured at amortized cost using the effective interest method, withinterest expense recognized over the lease terms. When there is a change in a lease term, a change in theamounts expected to be payable under a residual value guarantee, a change in the assessment of an
option to purchase an underlying asset, or a change in future lease payments resulting from a change in
an index or a rate used to determine those payments, the Group remeasures the lease liabilities with acorresponding adjustment to the right-of-use-assets. Lease liabilities are presented on a separate line in
the consolidated balance sheets.
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the
periods in which they are incurred.
For sale and leaseback transactions, if the transfer of an asset satisfies the requirements of IFRS 15 to beaccounted for as a sale, the Group recognizes only the amount of any gain or loss which relates to therights transferred to the buyer-lessor, and adjusts the off-market terms to measure the sale proceeds atfair value. If the transfer does not satisfy the requirements of IFRS 15 to be accounted for as a sale, it isaccounted for as a financing transaction.
2018
Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.
a. Financial leases
The Group as lessee
Assets held under finance leases are initially recognized as assets of the Company at the lower of theirfair value at the inception of the lease or the present value of the minimum lease payments. The
corresponding liability to the lessee is included in the balance sheets as a finance lease obligation.

- 14 -

Minimum lease payments are apportioned between finance expenses and reductions of the leaseobligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financeexpenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying
assets, in which case, they are capitalized in accordance with the Company’s general policy on
borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are
incurred.
b. Sales and leasebacks
For a sale and leaseback transaction, if it meets the condition whereby all the risks and rewards ofownership of the leased asset are essentially transferred to the lessee, the sale and leaseback transaction
is classified as a finance lease. If part of the significant risks and rewards of ownership of the leased
asset remain with the lessor (i.e. the buyer), the sale and leaseback transaction is classified as an
operating lease.
1) Financial leases
This transaction does not actually dispose of the assets. The accounting treatment used is to treat thetransaction as if it did not occur, and the assets are continuously recognized at the book value of theasset before sale.
2) Operating leases
If the selling price is equal to the fair value, it is regarded as an ordinary sales transaction and thegain or loss should be recognized immediately. If the selling price is above fair value, the difference
between the fair value and the book value of the gain or loss should be recognized immediately;
only the part of the selling price which is above fair value shall be deferred and amortized over theperiod of the lease.
c. Operating leases
1) The Group as lessor
Lease income from operating leases is recognized as income on a straight-line basis over the
relevant lease period, unless another systematic basis is more representative of the timeline in which
the lessee benefits from the leased asset.
2) The Group as lessee
Operating lease payments are recognized as expenses on a straight-line basis over the lease period,
unless another systematic basis is more representative of the timeline in which the lessee benefits
from the leased asset. Under operating leases, contingent rentals are recognized as expenses in the
period in which they are incurred.
The lease incentives for the signing of operating leases are recognized as liabilities. The incentive
benefit is recognized as a reduction in rental expenses on a straight-line basis, unless anothersystematic basis is more representative of the timeline in which the lessee realizes the benefits.
Employee Benefits
Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determinedpension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since thattime and for significant plan amendments, settlements, or other significant one-off events.

- 15 -

Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period income
taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax income thetax rate that would be applicable to expected total annual earnings.
Business Combinations
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control
over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amountsof the interests of the Group and the fair value of the consideration paid or received is recognized directly inequity.
When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated
as the difference between (i) the aggregate of the fair value of the consideration received and any
investment retained in the former subsidiary at its fair value at the date when control is lost and (ii) the
assets (including any goodwill) and liabilities and any non-controlling interests of the former subsidiary attheir carrying amounts at the date when control is lost. The Group accounts for all amounts recognized inother comprehensive income in relation to that subsidiary on the same basis as would be required had theGroup directly disposed of the related assets or liabilities.

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

6. CASH AND CASH EQUIVALENTS

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

September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

152,002
10,061,172

413,1397,770,200

377,849
8,802,191

15,998,451
2,619,440

15,784,323
969,875

11,693,895
2,353,980$ 28,831,065$ 24,937,537$ 23,227,915

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

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

September 30,
2019

December 31,
2018

September 30,
2018

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

0.59%-3.50%
0.51%-2.80%

0.59%-3.55%
0.63%-3.30%

0.40%-4.00%
0.40%-4.70%- 16 -

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

December 31,
2018

September 30,
2018

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

16,864$-$-357,259

206,001

216,967$ 374,123$ 206,001$ 216,967$$$

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

2,115

221

1,063

Currency

Maturity Date

Notional Amount(In Thousands)

NTD/USD

2019.10.1-2020.7.31

NTD1,009,317/USD32,500

NTD/USD

2019.1.2-2019.1.31

NTD30,923/USD1,000

NTD/USD

2018.10.31-2019.1.31

NTD61,162/USD2,000

September 30, 2019
Buy forward contracts
December 31, 2018
Buy forward contracts
September 30, 2018
Buy forward contracts

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

December 31,
2018

September 30,
2018$ 104,952$ 110,445$ 117,573

21,117

21,746

23,582$ 126,069$ 132,191$ 141,155

Noncurrent
Foreign investments
Unlisted shares
Domestic investments
Unlisted shares- 17 -

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

9. FINANCIAL ASSETS AT AMORTIZED COST
September 30,
2019

December 31,
2018

September 30,
2018$ 1,079,048$ 3,856,660$ 1,213,420

Current
Time deposits with original maturities of morethan 3 months

The range of interest rates for time deposits with original maturities of more than 3 months wereapproximately 0.40%-2.80%, 0.40%-1.36% and 0.40%-2.88% per annum as of September 30, 2019,
December 31, 2018 and September 30, 2018, respectively.

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE, NET

Notes receivable

September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

480,343598,824

642,101

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

8,987,872(212,990)
8,774,882

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

9,255,225$ 10,038,528

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

9,816,550

The average credit period was 7 to 55 days. In determining the recoverability of a accounts receivable, theGroup considered any change in the credit quality of the receivable since the date credit was initiallygranted to the end of the reporting period, and any allowance for impairment loss was based on theestimated irrecoverable amounts determined by reference to the Group’s past default experience with thecounterparty and an analysis of the counterparty’s current financial position. The Group adopted a policy of
only dealing with entities that are rated the equivalent of investment grade or higher and obtaining
sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
Credit rating information is obtained from independent rating agencies where available or, if not available,
the Group uses other publicly available financial information or its own trading records to rate its major
customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored andthe aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure
is controlled by counterparty limits that are reviewed and approved by the risk management committee
annually.

- 18 -

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 accounts receivables. The expected credit
losses on accounts receivables are estimated using a provision matrix by reference to past default
experience with the debtors and an analysis of the debtors’ current financial position, adjusted for general
economic conditions of the industry in which the debtors operate and an assessment of both the current aswell as the forecasted direction of economic conditions at the reporting date. As the Group’s historicalcredit loss experience does not show significantly different loss patterns for different customer segments,
the loss allowance based on the past due status is not further distinguished according to the different
segments of the Group’s customer base.
The Group writes off accounts receivable when there is information indicating that the debtor isexperiencing severe financial difficulty and there is no realistic prospect of recovery. For accounts
receivable that have been written off, the Group continues to engage in enforcement activity to attempt torecover the receivables which are due. Where recoveries are made, these are recognized in profit or loss.
The following table details the loss allowance of accounts receivable based on the Group’s provision
matrix.
September 30, 2019
Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Total

Expected credit loss rate

0.02%

0.41%

1.02%

23.44%

98.95%-

Gross carrying amount
Loss allowance (lifetime
ECLs)$ 6,980,406$ 1,401,461(1,368)(5,728)

Amortized cost

$ 6,979,038$ 1,395,733$

Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Total

Expected credit loss rate

0.06%

0.06%

3.67%

21.78%

97.50%-

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

Amortized cost

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

Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Total

Expected credit loss rate

0.05%

0.15%

0.87%

21.19%

97.56%-

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

Amortized cost

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

332,956$(3,404)
329,552

89,657$(21,015)$

68,642$

183,392$ 8,987,872(181,475)(212,990)

1,917$ 8,774,882

December 31, 2018$

103,498$(3,796)
99,702

76,415$(16,642)$

59,773$

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

5,162$ 9,439,704

September 30, 2018$

280,440$(2,438)$- 19 -

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

61,814$

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

4,860$ 9,174,449

The movements of the loss allowance of accounts receivable were as follows:
For the Nine Months Ended
September 30
2019
2018
Balance at January 1
Add: Net remeasurement of loss allowance
Less: Amounts written off
Foreign exchange gains and losses
Loss of control of subsidiaries$ 227,306
20,434(34,734)
1(17)$ 181,868
37,491(1,103)
1,002-

Balance at September 30$ 212,990$ 219,258

September 30,
2019

December 31,
2018

September 30,
2018$ 7,569,585
570,877
591,656
30,204$ 7,847,082
556,365
227,975
23,288$ 7,810,991
561,817
299,701
20,481$ 8,762,322$ 8,654,710$ 8,692,990

11. INVENTORIES

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
OthersThe operating costs recognized for the nine months ended September 30, 2019 and 2018 included losses
from inventory write-downs of $302,420 thousand and $369,226 thousand, respectively. And the operating
costs for the three months ended September 30, 2019 and 2018 included losses from inventory write-downs
of $36,368 thousand and $44,828 thousand, respectively.

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

December 31,
2018$

46,154September 30,
2018$ 110,778

To enhance its competitiveness, the Company plans to introduce new aircraft and retire old aircraft
according to a planned schedule. Such aircraft, classified as noncurrent assets held for sale, had an original
carrying amount which was higher than the expected sale price and which was recognized as an impairment
loss and would be continuously assessed whether there are further impairments in subsequent periods.
However, the actual loss shall be identified by the actual sale price.
The Company recognized impairment losses of $0 and $10,812 thousand for the nine months ended
September 30, 2019 and 2018. Some aircraft had completed the planned disposal procedures, and theCompany recognized the disposal losses of $10,462 thousand and $368,992 thousand for the nine months
ended September 30, 2019 and 2018, respectively.
The fair value measurement is classified as Level 3, and the fair value was determined according to similartransactions of the related market and the proposed sale price which was based on the current status of theaircraft.

- 20 -

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

Investor Company
China Airlines, Ltd.

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

Cal-Dynasty International
Taiwan Airport Services

Note:

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

Main Businesses and Products

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

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

100

100

100

100
100

100
100

100
100

100
100
100
94

100
100
100
94

100
100
100
94

94

94

94

59
20
49
48
25
78
100

59
51
49
48
25
100
100

59
51
49
48
25
100
100

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

54
100
100
100

54
100
100
100

54
100
100
100

Proportion of ownership is considered from the Group view.

Except that the Company has control over Taoyuan International Airport Service, Taiwan Airport Service
and Global Sky Express, the others are investees that the Company had more than 50% of their voting
shares. The above financial information of the subsidiaries for the nine months ended September 30, 2019and 2018 of these subsidiaries was reported according to reports that were not reviewed by independent
auditors, except for Mandarin Airlines and Tigerair Taiwan Co., Ltd.
The Group’s respective holdings of the issued share capital of China Pacific Catering Services, China
Pacific Laundry Services and Delica International Co., Ltd. exceeded 50%, yet the Group did not havecontrol over the investees. For the related information, please refer to Note 14, b.
The Group paid $243,743 thousand on March 7, 2018 to acquire an additional 18% of the issued sharecapital of Kaohsiung Catering, Ltd. (Kaohsiung Catering). The Group’s holding of the issued share capitalof Kaohsiung Catering exceeds 50%; therefore, Kaohsiung Catering is listed as a subsidiary because theGroup has control over the investee. For the disclosure of the Group’s acquisition of Kaohsiung Catering,please refer to Note 30.
The board of directors of the Company decided to sell part of the equity of Dynasty Holidays to H.I.S.
Taiwan Co., Ltd. on January 21, 2019, and completed the transaction on January 31, 2109. After the sale ofthe equity, the Group’s holding of the issued share capital decreased from 51% to 20%. Dynasty Holidays
was classified as an associate since the Group lost control of the subsidiary. Therefore, the relevant assets
and liabilities were not consolidated in the current period, and only the profit and loss from January 1, 2019
to January 31, 2019 was consolidated. For the information about the disposal of the subsidiary, please refer
to Note 31.

- 21 -

In order to prepare the listing of Tigerair Taiwan Co., Ltd. and comply with the rules relating to theexamination for public listing, the release of the shares of Tigerair Taiwan Co., Ltd. held by the Company
and Mandarin Airlines was resolved in the shareholders’ meeting of the Company on June 25, 2019, and in
the shareholders’ meeting of Mandarin Airlines on June 27, 2019. The shares shall be subscribed by all
shareholders of the Company and Mandarin Airlines on the basis of the percentage of shareholdings. For
the subscribed shares that the original shareholders waived or for the undersubscribed portion, the chairman
was authorized to contact specific persons to subscribe. The subscription price was set at $41 per share. In
October 2019, the stock price was fully paid and the shares were completely delivered and transferred. The
proceeds from disposal were $1,805,117 thousand, and the related gain on disposal was $1,214,308
thousand and recognized in the capital surplus account.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates
Investments in jointly controlled entities

September 30,
2019

December 31,
2018

September 30,
2018$ 1,261,309
924,831$ 1,217,863
982,286$ 1,299,878
915,147$ 2,186,140$ 2,200,149$ 2,215,025

September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

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

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

511,627
10,685445,444245,663497,362442,891
233,417

498,423484,941
271,346

47,89044,19345,168$ 1,261,309$ 1,217,863$ 1,299,878

At the end of the reporting period, the proportion of ownership and voting rights of associates held by
the Group were as follows:

Name of Associate

Proportion of Ownership and Voting Rights
September 30,
December 31,
September 30,
2019
2018
2018

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

- 22 -

20%
20%
28%
28%

20%
51%
28%
28%

20%
51%
28%
28%

35%

35%

35%

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

Note:

$

3,350
(307)

$

For the Nine Months Ended
September 30
2019
2018

1,889
-

$ 10,259
297

$

922
-

-

-

-

15,113

4,623

4,944

15,131

17,465

5,925

8,581

19,32324,213

1,756

1,444

5,090

3,515

$ 15,347$ 16,858$ 50,100$ 61,228

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

b. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:
September 30,
2019

December 31,
2018

September 30,
2018$ 748,584
166,019
2,358
7,870

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

$ 740,529
164,390
2,361
7,867

$ 924,831$ 982,286$ 915,147

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

At the end of the reporting period, the proportion of ownership and voting rights in jointly controlled
entities held by the Group were as follows:
Proportion of Ownership and Voting Rights
September 30,
December 31,
September 30,
2019
2018
2018
China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia Ltd.
Delica International Co., Ltd.

51%
55%
49%
51%

51%
55%
49%
51%

51%
55%
49%
51%

The Group entered into a joint venture agreement with the Taikoo Group to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both sides have theright to make major motion vetoes on the board of directors, and therefore, the Group does not havecontrol.

- 23 -

To enhance the Group’s maintenance capabilities, the Company established a joint venture with the US
Nordam Aerospace Group in December 2017 to provide thrust reversers and composite repair services
in Asia under the Nordam brand. NORDAM has filed for Chapter 11 bankruptcy reorganization in the
USA on July 22, 2018 to solve the business disputation with their cooperative partner, so their company
operation was not impact.
To expand the Group’s catering business, Kaohsiung Catering entered into a joint venture agreementwith a Japanese brand company to invest in Delica International Co, Ltd., with the Japanese brandcompany having the right to make decisions on operations, and therefore, the Group does not havecontrol.
The recognized investment income of jointly controlled entitles accounted for using the equity method
were as follows:

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

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

56,6095,158-$

60,133
4,107-$ 172,579
12,234-$ 171,665
12,062(38)-$

61,767$64,240$ 184,813$ 183,689

The investments accounted for using the equity method and the share of profit or loss and othercomprehensive income of those investments was based on the jointly controlled entities’ financial
statement which were not independently reviewed.
For information on the major businesses and products, the locations of the major business offices, andthe countries of registration for the above entities, refer to Tables 5 and 6 (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.

15. PROPERTY, PLANT AND EQUIPMENT

Freehold Land

Equipment
under FinanceLeasesBuildings

FlightEquipment

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

220,318-

13,977,860$ 253,223,151

OthersTotal

Cost
Balance at January 1,
2018
Additions
Disposals
Reclassification
Net exchange differences
Acquisitions throughbusiness combinations
Balance at September 30,
2018$922,626
12,908-$76,704$

1,012,238$$

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

$

-

$

25,661,189$

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

256,368

553,390

17,654,024$ 311,528,462(Continued)- 24 -

Freehold Land

Buildings

FlightEquipment

Equipment
under FinanceLeasesOthers

Total

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

$

-

$

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

1,015,564
5,067$

13,993,585
166,759(896)
1,903,479
8,987$ 259,695,130
3,291,168(20,386,082)
28,797,237-$$

17,917,780
617,433(260,493)(1,592,848)
49,188$ 318,427,067
4,075,360(21,316,192)
3,976,055
63,242--(2,158)(6,632)

16,728,902$ 305,218,900

Cost
Balance at January 1,
2019
Additions
Disposals
Reclassification
Net exchange differences
Loss of control ofsubsidiaries
Balance at September 30,
2019-25,805,008(668,721)(25,131,813)(4,474)$

1,020,631$

16,071,914$ 271,397,453

$

-

$

$

-

$

(6,574,873)(343,162)
896(4,459)$ (123,507,657 )(14,082,491)
14,639,276(14,621,264)-$ (14,634,822)(671,116)
638,039
14,665,787-$ (10,601,997)(701,853)
252,190(26,300)(4,909)$ (155,319,349)(15,798,622)
15,530,401
18,223(9,368)

-

-

2,112

1,727

3,839

(6,921,598)$ (137,572,136 )-$ (11,081,142)

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

-

$

-

$

$

$ (155,574,876)(Concluded)
The reclassification mostly enumerated the amount of prepayments for equipment and leased aircraft
buybacks.
Property, plant and equipment are depreciated on a straight-line basis over the estimated useful life of theasset:
Buildings
Main buildings
Others
Machinery equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersAssets leased to others

45-55 years
10-25 years
25 years
3-13 years
3-15 years
5 years
3-5 years
3-5 years(Continued)- 25 -

Flight equipment and equipment under finance leases
Airframes
Aircraft cabins
EnginesHeavy maintenance on aircraft
Engine overhauls
Landing gear overhauls
Repairable spare parts
Leased aircraft improvements

15-25 years
7-20 years
10-20 years
6-8 years
3-10 years
7-12 years
3-15 years
5-12 years(Concluded)

Regarding changes in fleet composition and the future retirement plan, the Group recognized impairment
losses on aircraft equipment for the nine months ended September 30, 2019 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.
Based on the particularity of risk in the aviation industry, all of the Group’s assets such as aircraft, realestate, and movable property are adequately insured to diversify the potential risk related to operations.

16. INVESTMENT PROPERTIES

Carrying amount
Investment properties

September 30,
2019

December 31,
2018

September 30,
2018$ 2,075,135$ 2,075,345$ 2,075,414

The investment properties held by the Group were land located in Nankan and buildings in Taipei, whichwere all leased to others. The buildings were depreciated on a straight-line basis over 55 years.
The fair values of the investment properties held by the Group were both $2,506,230 thousand as ofDecember 31, 2018 and September 30, 2018. In addition, management assessed that there is no significant
difference in the fair values of September 30, 2019 and December 31, 2018.
The fair value valuations were performed by independent qualified professional valuers, and the future
income evaluated by management was based on market transactions.
All of the Group’s investment properties were held under freehold interests.

- 26 -

17. OTHER INTANGIBLE ASSETS
Relationship
Between
Clients

Computer
Software Cost

Accumulated
Amortization

Net Value-$ (1,020,257)(142,226)$ 1,019,345
129,832(142,226)

186,197
-

(540)
69

186,883
11,524
69

Balance at January 1, 2018
Additions
Amortization expenses
Acquisitions through businesscombinations
Reclassification
Effects of exchange rate changes$ 2,039,602
129,832-$

Balance at September 30, 2018

$ 2,182,184$

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

Balance at January 1, 2019
Additions
Amortization expenses
Disposal of subsidiaries$ 2,237,382
152,548(3,858)$186,197-$ (1,212,783)(149,150)
1,357$ 1,210,796
152,548(149,150)(2,501)

Balance at September 30, 2019

$ 2,386,072$

186,197$ (1,360,576)$ 1,211,693

686
12,064-

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

18. OTHER ASSETS
September 30,
2019

December 31,
2018

September 30,
2018$589,714573,104
17,418558,248$556,860
3,028,808
18,623
543,591$

688,640
2,725,130
125,881709,986$

1,738,484$

4,147,882$

4,249,637$

7,968,038
2,868,813
1,257,502
99,224
152,914$529,963
1,603,400
1,089,690
100,141
107,559$

2,863,721
2,080,215
1,271,578
131,551
10,631$ 12,346,491$

3,430,753$

6,357,696

Current
Temporary payments
Prepayments
Restricted assets
OthersNoncurrent
Prepayments for aircraft
Prepayments - long-term
Refundable deposits
Restricted assets
OthersThe prepayments for aircraft comprised the prepaid deposits and capitalized interest from the purchase of
A350-900, ATR72-600, A321neo and B777F aircraft. A350-900 has been fully delivered in October 2018.
For details of the contract for the purchase of the ATR72-699, A321neo and B777F aircraft, refer to Note36.

- 27 -

19. BORROWINGSa. Short-term bills payable
September 30,
2019
Commercial paper
Less: Unamortized discount on bills payable

Annual discount rate

December 31,
2018

September 30,
2018$ 10,000
-

$

-

$

-

$ 10,000

$

-

$

-

0.53%

-

-

September 30,
2019

December 31,
2018

September 30,
2018

$

$

9,354,457
36,330,211$ 16,398,834
32,220,986

32,561,667
53,95969,335,864
9,775,624

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

31,280,000
63,53079,836,290
19,735,094$ 59,560,240$ 60,686,148$ 60,101,196

1.07%-1.46%

0.92%-1.46%

0.92%-1.44%

b. Long-term borrowings

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

Interest rates

1,560,500
35,267,656

Secured bank loans were secured by flight equipment, buildings, and other equipment; refer to Note 35.
September 30,
2019

December 31,
2018

September 30,
2018

2008.2.262030.4.25

2007.5.242030.4.25

2007.5.242030.4.25

Periods

Bank loans (denominated in New Taiwan dollar) are repayable quarterly, semiannually or in lump sum
upon maturity.
The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs,
with various maturities until August 2024, were used by the Group to guarantee the commercial paperissued. As of September 30, 2019, December 31, 2018 and September 30, 2018, such commercial paper
was issued at discount rates of 1.1273%-1.1680%, 1.0693%-1.2960% and 1.0580%-1.2960%,
respectively.

- 28 -

20. BONDS PAYABLE

Unsecured corporate bonds first-time issued in2013
Unsecured corporate bonds first-time issued in2016
Unsecured corporate bonds second-time issued in2016
Unsecured corporate bonds first-time issued in2017
Unsecured corporate bonds second-time issued in2017
Unsecured corporate bonds second-time issued in2018
Unsecured corporate bonds first-time issued in2019
Convertible bonds issued the fifth time
Convertible bonds issued the sixth time

September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

2,750,000

5,500,000

5,500,000

4,700,000

4,700,000

4,700,000

5,000,000

5,000,000

5,000,000

2,350,000

2,350,000

2,350,000

3,500,000

3,500,000

3,500,000

4,500,000

4,500,000-

3,500,000
5,732,632
32,032,632

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

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

9,100,000

4,445,900

4,439,988$ 22,932,632$ 28,473,710$ 23,953,991

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
Principal repayable in November of2022 and 2023; indicator rate;
payable annuallyPrincipal repayable in November of2024 and 2025; indicator rate;
payable annually

1.45

Less: Current portion and put option of
convertible bonds

Related issuance conditions were as follows:
Category
Five-year private unsecured bonds - issued at par in January
2013; repayable in January 2017 and 2018; 1.6% interestp.a., payable annually
Seven-year private unsecured bonds - issued at par in
January 2013; repayable in January 2019 and 2020;
1.85% interest p.a., payable annually
Five-year unsecured bonds - issued at par in May 2016;
repayable in May 2020 and 2021; 1.19% interest p.a.,payable annually
Five-year unsecured bonds - issued at par in September
2016; repayable in September 2020 and 2021; 1.08%
interest p.a., payable annually
Three-year private unsecured bonds - issued at par in May
2017; repayable on due date; interest of 1.2% p.a.,payable annually
Seven-year private unsecured bonds - issued at par in May
2017; repayable on due date; interest of 1.75% p.a.,payable annually
Three-year private unsecured bonds - issued at par in
October 2017; repayable on due date; interest of 1.14%
p.a., payable annually
Five-year private unsecured bonds - issued at par in October
2017; repayable in October 2021 and 2022; 1.45%
interest p.a., payable annually
Five-year private unsecured bonds - issued at par in
November 2018; repayable in November 2022 and 2023;
1.45% interest p.a., payable annually
Seven-year private unsecured bonds - issued at par in
November 2018; repayable in November 2024 and 2025;
1.45% interest p.a., payable annually

Period2013.1.17-2018.1.17

2013.1.17-2020.1.17

2016.5.26-2021.5.26

2018.11.30-2023.11.30

2018.11.30-2025.11.30

1.85

1.19

1.32

1.45

(Continued)- 29 -

Category

PeriodConditions

Rate (%)

Five-year private unsecured bonds - issued at par in June
2019; repayable in June 2023 and 2024; 1.10% interestp.a., payable annually
Seven-year private unsecured bonds - issued at par in June
2019; repayable in June 2025 and 2026; 1.32% interestp.a., payable annually
Five-year convertible bonds - issued at discount in
December 2013; repayable in lump sum upon maturity;
1.8245% discount rate p.a.

2019.06.21-2024.06.21

1.10

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

2018.01.30-2023.01.30

Principal repayable in June of 2023 and2024; indicator rate; payableannually
Principal repayable in June of 2025 and2026; indicator rate; payableannually
Unless bonds are converted to sharecapital or redeemed, principal
repayable one time in December
2018; 1.8245 discount rate p.a.
Unless bonds are converted to sharecapital or redeemed, principal
repayable one time in January 2023;
1.3821 discount rate p.a.

2019.06.21-2026.06.21

2013.12.26-2018.12.26

1.32

-

-

(Concluded)
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% of the face value on thethird anniversary of the offering date. Because the holders can exercise selling rights on December 26,
2016, the Company reclassified the bonds payable to “current portion of bonds payable” in December
2015. The Company paid $994,705 thousand to the holders of the bonds payable who exercised the put
options, and the difference between the payment amount and carrying amount recognized was a loss on
the bonds payable buy-back, for which the Company reclassified the remaining face value to noncurrent
assets.
c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.
d. Between April 30, 2018 and January 30, 2023 (except for the period between the former dividend date
and the date of the dividend declaration on record), holders may convert the bonds to the Company’s
ordinary shares. The initial conversion price was set at NT$12.24, which is subject to adjustment if
there is a capital injection by cash, share dividend distribution, and the proportion of cash dividends per
share in market price exceeding 1.5%. Because the Company distributed cash dividends as of August
14, 2018, the conversion price was adjusted to NT$11.38, and corporate bonds with a face value of$3,316,800 thousand were converted to 270,985 thousand shares of ordinary shares.
e. The corporate bonds expired on December 26, 2018. The Company has repaid all the amount payable
on January 8, 2018, and the related capital surplus-options were included under capital surplus - other.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability component
was 1.8245% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,000,000(518,621)

Liability component at the date of issuance$ 5,481,379- 30 -

The Company issued the sixth issue of its unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at face value on the third anniversaryof the offering date. The holders can exercise the right to sell on January 30, 2021.
c. The Company may redeem the bonds at face value between April 30, 2018 and December 20, 2022
under certain conditions.
d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s ordinary shares. The initial conversion price was set at NT$13.2, which is subject toadjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of July 29, 2019, the conversion price was adjusted to NT$12.6.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability component
was 1.3821% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,012,000(409,978)Liability component at the date of issuance$ 5,602,022

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

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

7,877,463
965,033
65,300,533
737$ 74,143,766- 31 -

Additions to right-of-use assets
Depreciation for right-of-use assets
Land
Buildings
Flight equipment
Other equipment

For the Three
Months Ended
September 30,
2019

For the Nine
Months Ended
September 30,
2019$ 4,914,316$ 5,906,832$$

109,227
186,892
2,660,957
531$ 2,957,607

326,452
556,247
7,899,367
1,596$ 8,783,662

b. Lease liabilities - 2019
September 30,
2019
Carrying amounts
Current
Non-current$ 2,486,709$ 16,620,938

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

0%-2.87%0%-3.56%
2.00%-3.34%
1.06%-1.73%

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

Subject

Carrying Value

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

8,877,961
46,107,551

Influence of comprehensive income

For the nine months ended September 30, 2019
For the three months ended September 30, 2019
- 32 -

Recognized in
Other
Comprehensive
IncomeReclassified toIncome$ (292,684)
68,517$ (41,438)(22,392)

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

871,324
1,776,641

CAL Park, and Taoyuan International Airport Service signed a BOT contract with a land leaseagreement, refer to Note 36. The lease includes an option to extend the lease, as it is not possible toextend the lease, the amount of the lease related to the period covered by the option is not included in
the lease liability. If the amount of the extended lease period is included in the lease liability, the leaseliability will increase by $870,977 thousand on September 30, 2019.
Taiwan Air Cargo Terminal Co. and CAA signed a BOT contract with a land lease agreement. For
details, please refer to Note 36.
The Company signed a rental letter of intent for six A321neo with Air Lease Corporation, which is
expected to be introduced between 2021 and 2022.
The Company signed a rental letter of intent for eight A321neo with CALC Lease Corporation, which is
expected to be introduced in 2022.
Tigerair Taiwan Co., Ltd. signed a rental letter of intent for eight A321neo with ICBC Lease
Corporation, which is expected to be introduced in 2021.
In order to revitalize assets and strengthen the financial structure, the Company sold five of its own
A330-300 aircraft to Altavair L.P. in September 2019 by sale-and-leaseback for $4,905,660 thousand.
The lease term was 5 to 6 years and a loss of $103,775 thousand was incurred. The lease agreement had
no terms for lease renewal or offtake rights. The annual lease payments for each aircraft are US$5,389
thousand to US$5,437 thousand.
e. Other lease information
The Company uses operating lease agreement for investment properties, refer to Note 16.
2019

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

For the Three
Months Ended
September 30,
2019

For the Nine
Months Ended
September 30,
2019

$
9,312
$ (4,327,016)$
30,287$ (10,302,544)

The Company chooses to waive the recognition of the contract provisions for the short-term leases andlow price lease, and does not recognize the related right-of-use assets and lease liabilities for such lease.
- 33 -

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

September 30,
2018

Within one year
Beyond one year and within five years$ 596,000-$ 670,000-

Present value of minimum lease payments$ 596,000$ 670,000

Interest rates

1.0680%1.0617%

Minimum lease payments - flight equipment

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

September 30,
2018

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

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

37,822
12,48650,308(710)$

40,343$49,598$37,3982,945$

37,333
12,265$40,343$49,598Less: Finance costs
Present value of minimum lease payments
Present value of minimum lease payments cargo terminal and other
Within one year
Beyond one year and within five years

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

4.756%

4.756%$ 633,398
2,945$ 707,333
12,265$ 636,343$ 719,598

c. Operating lease arrangements (include sale-leaseback operating leases)
For the operating lease arrangements, please refer to the consolidated financial statements for the year
ended December 31, 2018 and nine months ended September 30, 2018.
As of December 31, 2018 and September 30, 2018, the refundable deposits paid by the Group underoperating lease contracts were $693,466 thousand and $871,445 thousand, respectively. Some of theguarantees were secured by credit guarantees, and outstanding credit guarantees as of December 31,
2018 and September 30, 2018 were $1,682,774 thousand and $1,467,752 thousand, respectively.
The future minimum lease payments for the non-cancelable operating lease commitments were as
follows:

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

December 31,
2018

September 30,
2018$ 11,785,442
44,559,429
21,685,499$ 11,948,214
43,500,913
24,232,200$ 78,030,370$ 79,681,327

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

For the Nine
Months Ended
September 30,
2019$ 2,991,058$ 8,717,449

September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

Minimum lease payments

22. OTHER PAYABLES

Fuel costs
Ground service expenses
Repair expenses
Interest expenses
Short-term employee benefits
Terminal surcharges
Commission expenses
Others3,510,835
1,241,298
1,370,331
238,784
1,961,213
888,168
417,058
3,629,873$ 13,257,560- 35 -

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

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

23. CONTRACT LIABILITIESFrequent flyer program
Advance ticket sales

September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

2,794,251
20,197,875

2,493,551
18,956,569

2,439,045
16,857,486$ 22,992,126$ 21,450,120$ 19,296,531$ 20,836,928
2,155,198$ 19,546,455
1,903,665$ 17,461,822
1,834,709$ 22,992,126$ 21,450,120$ 19,296,531

September 30,
2019

December 31,
2018

September 30,
2018

Operating leases - aircraft$ 10,114,691$

8,794,539$

8,941,770

Current
Noncurrent$

53,326
10,061,365$

321,075
8,473,464$

511,3018,430,469$ 10,114,691$

8,794,539$

8,941,770

Current
Noncurrent

24. PROVISIONS

Aircraft Lease
Contracts
Balance at January 1, 2018
Additional provisions recognized
Usage
Effects of exchange rate changes$

8,489,308
2,577,389(2,309,957)
185,030

Balance at September 30, 2018$

8,941,770

Balance at January 1, 2019
Additional provisions recognized
Usage
Effects of exchange rate changes$

8,794,539
3,293,355(2,051,888)
78,685

Balance at September 30, 2019

$ 10,114,691

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

- 36 -

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

Operating costs
Operating expenses

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

245,848
98,085$

254,727
115,296$$

343,933$

370,023$ 1,060,543$ 1,105,084

September 30,
2019

December 31,
2018

September 30,
2018

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

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

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

September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

737,617
322,926$

762,769
342,315

26. EQUITY
a. Share capital
Ordinary shares

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

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

315,114315,114552,696

3,303
33,513
11,747
115,149
409,978

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

2,673
11,747955
556,567

1,092,812
466,604

466,604

85,339$ 2,448,220$ 1,241,214$ 1,209,977

The capital surplus from share issued in excess of par (including additional paid-in capital from theissuance of ordinary shares and treasury share transactions) and the difference in sale price of shares ofsubsidiaries and book value 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 acertain percentage of the Group’s paid-in capital on a yearly basis).

- 37 -

The capital surplus arising from long-term investments, employee share options and the distribution of
cash dividends to treasury share held by subsidiaries may not be used for other purposes but to offset
deficits. The capital surplus arising from share options for employees and convertible bonds cannot be
used.
c. Appropriation of earnings and dividend policy
Under the dividend policy as set forth in the Company’s Articles of Incorporation (the “Articles”)
amended on June 24, 2016 based on the amended Company Act, where the Company made profit in a
fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting
aside as a legal reserve 10% of the remaining profit, setting aside or reversing a special reserve inaccordance with the laws and regulations, and then any remaining profit together with any undistributed
retained earnings shall be used by the Company’s board of directors as the basis for proposing a
distribution plan with due consideration of any future aircraft acquisition plans and fund demands,
which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses toshareholders by cash or shares (cash dividends cannot be less than 30% of total dividends distributed).
However, if the Company’s profit before tax in a fiscal year after deductions for the abovementioned
items is not sufficient for earnings distribution, retained earnings can be used as a supplement for the
deficiency. If the Company has no deficit in a fiscal year, the Company can distribute all or part of thecapital surplus by cash or shares with due consideration of finance, marketing and management
requirements in accordance with the laws and regulations.
The distribution of dividends should be resolved and recognized in the shareholders’ meeting in thefollowing year.
1) Appropriation of earnings in 2017
The appropriation of earnings for 2017 was resolved in the shareholders’ meeting on June 27, 2018.
The 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

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

114,493
1,136,278

In addition, the amount of appropriated special reserve was $105,843 thousand.

- 38 -

Dividends Per
Share (NT$)$0.20960737

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

Exchange
Differences on
Translating
Foreign
Operations
Balance on January 1, 2018
Adjustments on initial
application of IFRS 9
Balance on January 1, 2018
after IFRS 9 adjustments
Exchange differences ontranslating foreign
operations
Cumulative loss on changes
in fair value of hedging
instruments
Cumulative gain on changes
in fair value of hedging
instruments reclassified to
profit or loss
Unrealized gain on financial
assets at fair value throughother comprehensive
incomeEffect of change in tax rate
Effects of income tax
Other comprehensive income(loss) recognized in the
periodTransfers of initial carrying
amount of hedged items
Balance on September 30,
2018
Balance on January 1, 2019
Exchange differences ontranslating foreign
operations
Cumulative loss on changes
in fair value of hedging
instruments
Cumulative gain on changes
in fair value of hedging
instruments reclassified to
profit or loss
Unrealized gain on financial
assets at fair value throughother comprehensive
incomeEffects of change in tax rate
Effects of income tax
Other comprehensive income
recognized in the period
Disposal of subsidiaries
Transfers of initial carrying
amount of hedged items
Balance on September 30,
2019$ (34,986 )Unrealized Gain
(Loss) on
Available-forsale Financial
Assets$

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

Cash Flow
Hedges-$ (74,429 )Gain (Loss) on
Hedging
Instruments
$

Total

-

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

74,429(74,429 )

40,577(34,986 )-

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

14,702----

14,702----

88,842

88,842----

31,55431,554

1,198(3,886 )-10,835(1,209 )(1,066 )-2,530(29,295 )

10,8352,519(34,247 )12,014

-

8,560

-

93,631

114,205

-

-

-

-

37,116

37,116$ (22,972 )

$

-

$

50,911$-$

56,318$84,257$$-$42,619$-$25,268$58,223$(9,664 )(2,188 )

-

-

-

-

(2,188 )

-

-

-

-

(322,550 )(322,550 )

-

-

-

-

6,000

6,000

(428 )-(5,004 )876-

63,760(5,004 )64,208(2,616 )8,368-(4,128 )105-(252,790 )-(259,534 )
8,473

-

-

-

-

(603 )(603 )-$ (228,125 )$ (193,441 )(3,912 )$-$- 39 -

38,596$

e. Non-controlling interests
For the Nine Months Ended
September 30
2019
2018
Beginning balance
Net income attributable to non-controlling interests
Exchange differences on translating foreign operations
Gain on hedging instruments
Cumulative gain on changes in fair value of hedging instruments
reclassified to profit or loss
Disposal of subsidiaries
Disposal of part equity of subsidiaries
Non-controlling interests arising from acquisition of subsidiaries
Dividends paid by subsidiaries
Ending balance$ 2,965,512
404,174(4,223)(695)$ 2,134,282
359,955(4,623)23(490)(5,408)(24,957)
598,111(416,438)

44(4,556)565,888(171,019)$ 3,520,994$ 2,884,550

f. Treasury shares(Shares in Thousands)

Purpose of Treasury Shares

Buy Back To
Write Off

Company’s
Shares Held By
Its Subsidiaries

Total

Number of Shares, January 1, 2019
Addition during the year

-

2,889
-

2,889
-

Number of Shares, September 30, 2019

-

2,889

2,889

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

27,603

2,889
-

2,889
27,603

Number of Shares, September 30, 2018

27,6032,889

30,492

Treasury shares are the Company’s shares held by its subsidiaries as of September 30, 2019 and 2018
and were as follows:

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value

2,075
814

$ 18,838
7,393$ 18,838
7,393$ 26,231$ 26,231(Continued)

September 30, 2019
Mandarin Airlines
Dynasty Aerotech International Corp.

- 40 -

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value

2,075
814

$ 22,821
8,956$ 22,821
8,956$ 31,777$ 31,777$ 19,190
7,531$ 19,190
7,531$ 26,721$ 26,721(Concluded)

December 31, 2018
Mandarin Airlines
Dynasty Aerotech International Corp.

September 30, 2018
Mandarin Airlines
Dynasty Aerotech International Corp.

2,075
814

The above acquisitions by subsidiaries of the Company’s shares in previous years was due toinvestment planning.
The shares of the Company held by its subsidiaries were treated as treasury shares. The subsidiaries can
exercise shareholders’ right on these treasury shares, except for the right to subscribe for theCompany’s new shares and voting rights.
To maintain the Company’s credit standing and shareholders’ rights and interests, the board of directors
decided to buy back shares of the Company from Taiwan Stock Exchange at a price from $9 to $14 pershare. The expected period of purchase is from August 10, 2018 to October 9, 2018. As of 50,000
thousand shares had been repurchased. The treasury shares held by the Company has retired on
December 18, 2018, share capital decreases $500,000 thousand, additional paid-in capital in excess of
par-ordinary share decreases $2,906 thousand and additional paid-in capital - treasury share increases$33,513 thousand. Under the Securities Exchange Act, the treasury shares held by the Company cannot
be pledged and are not entitled to dividends distribution and voting rights, etc.

27. NET INCOME
a. Revenue
For the Three Months Ended
September 30
2019
2018
Passenger
Cargo
OthersFor the Nine Months Ended
September 30
2019
2018

$ 29,095,844
10,681,772
3,227,032$ 28,600,603
13,196,780
3,399,381$ 84,552,133
31,799,790
9,950,385$ 81,780,806
35,040,268
9,386,552$ 43,004,648$ 45,196,764$ 126,302,308$ 126,207,626

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

- 41 -

b. Other income

Interest income
Dividend income
OthersFor the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

85,17663,324$ 287,238
18,009210,877$ 226,694
7,705
202,625$ 148,500$ 516,124$ 437,024

92,80811,30986,128$ 190,245$

c. Other gains and losses

Gain (loss) on disposal ofproperty, plant andequipment
Gain (loss) on disposal of
noncurrent assets held forsale
Net gain (loss) on financial
assets classified as held for
sale
Gain (loss) on disposal ofinvestments
Gain or loss on foreignexchange, net
Impairment loss recognized on
property, plant andequipment and noncurrent
assets held for sale
Loss on sale-and-lease back
OthersFor the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

$

19,822$

2,764

25,280$ (280,195)--(10,462)(368,992)

20,5991,041

43,641

10,204-(6,231)

7,656

450,195(108,675)(59,751)(255,559)(22,408)(103,775)(82,163)(53,500)(103,775)(197,848)(60,812)(201,339)$ (254,192)$ (115,677)$ (491,067)$ (473,347)

d. Finance costs

Interest expense
Bonds payable
Bank loans
Interest on obligations underfinancial leases
Interest on lease liabilities

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

$

$

528,799$

Capitalization rate

Capitalization interest

107,329
167,255

803,383$

1.258%1.622%$

14,836- 42 -

101,337
245,469$

297,699
701,992

2,608-

1,620,972

15,784-349,414$ 2,523,631$ 1,015,475

1.248%1.622%

1.16%1.31%

1.22%1.24%$

308,320594,339

7,332$

17,217$

37,174

e. Depreciation and amortization expenses

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

An analysis of amortization byfunction
Operating costs
Operating expenses

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

5,134,435
2,957,607
70
47,617$

4,841,657
70
49,742$ 15,798,622
8,783,662
210
149,150$ 14,379,770
210
142,226$

8,139,729$

4,891,469$ 24,731,644$ 14,522,206$

7,672,019
420,093$

4,615,657
226,070$ 23,355,539
1,226,955$ 13,707,154
672,826$

8,092,112$

4,841,727$ 24,582,494$ 14,379,980

$

3,026
44,591$

3,167
46,575$

9,359
139,791$

7,486
134,740$

47,617$49,742$

149,150$

142,226

f. Employment benefits expense

Post-employment benefits
Defined contribution plans
Defined benefit plans

Other employee benefits
Salary expenses
Personnel service expenses

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

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

144,664
343,933$

135,144370,023$

426,917
1,060,543$

403,346
1,105,084$

488,597$505,167$

1,487,460$

1,508,430$

5,174,355
1,658,510$

5,312,293
1,364,359$ 15,620,713
5,071,061$ 15,629,251
4,270,161$

6,832,865$

6,676,652$ 20,691,774$ 19,899,412$

6,079,205
1,242,257$

6,068,834
1,112,985$ 18,217,140
3,962,094$ 17,799,326
3,608,516$

7,321,462$

7,181,819$ 22,179,234$ 21,407,842- 43 -

To be in compliance with the Company Act as amended, the Articles stipulate the distribution of
employees’ compensation at rates of no less than 3% of the net profit before income tax and employees’
compensation. For the nine months ended September 30, 2018, the employees’ compensation was$448,826 thousand of the base net profit. For the three months ended September 30, 2018, theemployees’ compensation was $380,019 thousand. For the three months ended September 30, 2019 andthe nine months ended September 30, 2019, the Company has experienced a deficit, and therefore, noemployees’ compensation is estimated.
Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date that the annual consolidated financial statements are authorized for issue
are adjusted in the year that the compensation and remuneration are recognized. If there is a change inthe proposed amounts after the annual consolidated financial statements are authorized for issue, thedifferences are recorded as a change in the accounting estimate.
Information on the employees’ compensation and remuneration of directors and supervisors resolved by
the Company’s board of directors in 2019 and 2018 is available at the Market Observation Post System
website of the Taiwan Stock Exchange.

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

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

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

$

$

161,942(36)$

79,221-

479,846496$

202,710
4,866

14,265353,882(5,857)

1,353,982---(904,558)

176,171$433,103$

474,485$

657,000

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

- 44 -

b. Income tax recognized in other comprehensive income
For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

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

Total income tax recognized inother comprehensive income

4,188

$

2,371

$

(428)

$ (3,886)

25

1,088

876

(1,066)(8,698)-(4,104)-

63,760-(29,295)
2,519

(645)

$ 64,208$ (31,728)$ (4,485)$

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

29. EARNINGS (LOSSES) PER SHARE
For the Three Months Ended
September 30
2019
2018
Basic earnings (losses) per share
Diluted earnings (losses) per share

Earnings (losses) used in thecomputation of basic earnings
per share
Effects of potentially dilutive
ordinary shares:
Interest on convertible bonds(after tax)
Earnings (losses) used in thecomputation of diluted earnings(losses) per share

$
$

0.06
0.06

$
$

For the Nine Months Ended
September 30
2019
2018

0.20
0.18

$ (0.06)$ (0.06)

$
$

0.23
0.22

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

$

$

340,038$ 1,080,506

19,92427,260359,962$ 1,107,766- 45 -$(346,425)$ 1,269,440-

75,243(346,425)$ 1,344,683(Continued)

For the Three Months Ended
September 30
2019
2018
Weighted average number ofordinary shares in computationof basic earnings (losses) per
share
Effects of potentially dilutive
ordinary shares:
Convertible bonds
Employees’ compensation orbonuses issued to employees
Weighted average number ofordinary shares used in thecomputation of diluted earnings(losses) per share

For the Nine Months Ended
September 30
2019
2018

5,418,096

5,456,887

5,418,096

5,464,345

476,190

600,241-

551,779-

41,083-54,042

5,894,286

6,098,211

5,418,096

6,070,166(Concluded)

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

30. BUSINESS COMBINATIONSAs stated in Note 13, the other disclosures of the Group’s acquisition of Kaohsiung Catering on March 7,
2018 are as follows:a. Acquisition-related cash amounting to $243,743 thousand.
b. Assets acquired and liabilities assumed at the date of acquisition.
AssetsCurrent assets (included cash and cash equivalents of $380,512)
Property, plant and equipment
Intangible assets
Other assets
Total assets
Liabilities
Identifiable net assets$

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

c. The Company acquired the control of Kaohsiung Catering (the date of acquisition), and the 35.78%
equity held by the equity method was remeasured at the fair value of the acquisition date and thedifference recognized in gain on disposal of investment is $69,671 thousand.
d. The non-controlling interest of Kaohsiung Catering (46.33% of equity) was valued $565,888 thousand;at the fair value of the identifiable net assets attributed to the non-controlling interest on the date ofacquisition.

- 46 -

e. The bargain purchase benefit of $26,615 thousand of Kaohsiung Catering(the date of acquisition) was
measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s
previously held equity interests in the acquiree over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed.
f. Impact of acquisitions of the Group
From the acquisition date, the operating results from the acquired company, which are included in the
consolidated statements of comprehensive income, are as follows:
Kaohsiung
Catering
Revenue
Profit$ 1,274,117$ 156,375

Had these business combinations been in effect at the beginning of the annual reporting period, theGroup’s revenue from continuing operations would have been $126,535,121 thousand and the profit
from continuing operations would have been $1,666,870 thousand for the nine months ended September
30, 2018. This pro-forma information is for illustrative purposes only and is not necessarily anindication of the revenue and results of operations of the Group that actually would have been achieved
had the acquisition been completed on January 1, 2018, nor is it intended to be a projection of future
results.

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

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

Net assets disposed of$ 50,934

c. Gain on disposals of subsidiaries
Consideration received
Net assets disposed of
Fair value of equity
Non-controlling interests
Reclassification of other comprehensive income in respect of subsidiaries$ 34,036(50,934)
10,187
24,957(10,590)

Gain on disposal$- 47 -

7,656

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

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

33. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
Financial instruments not evaluated at fair value
Except as detailed in the following table, the Group’s management considers the carrying amounts offinancial assets and financial liabilities recognized in these consolidated financial statements asapproximating their fair values.
September 30, 2019
Carrying
AmountFair Value

December 31, 2018
Carrying
AmountFair Value

September 30, 2018
Carrying
AmountFair Value

Financial liabilities
Bonds payable
Loans and debt

$ 32,032,632
69,335,864$ 32,025,831
69,335,864$ 32,919,610
76,395,635$ 31,651,865
74,404,225$ 28,393,979
79,836,290$ 28,469,383
79,844,683

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying amounts are their fair values. As of September 30, 2019, December 31, 2018 and September
30, 2018, the fair values of long-term debts and private bonds with fixed interest rates were estimated at
the present value of expected cash flows discounted at rates of 0.65%, 0.68% and 0.70%, respectively,
prevailing in the market for long-term debts (Level 2). Fair values of bonds payable were the same as
identical liabilities trading on the over-the-counter exchange and were based on quoted market prices(Level 1).
b. Financial instruments evaluated at fair value - on a non-recurring basis
The following table provides an analysis of financial instruments that are measured subsequent to initialrecognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value isobservable:
1) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;2) Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. derived from prices); and- 48 -

3) Level 3 fair value measurements are those derived from valuation techniques that include inputs forthe asset or liability that are not based on observable market data (unobservable inputs).
September 30, 2019
Level 1
Financial assets at FVTPL
Domestic money market funds
Derivative instruments

Level 2

Level 3

Total$

357,259-$

16,864$-$357,259
16,864$357,259$

16,864$--$374,123

$

-

$

-

$

21,117104,952$

21,117104,952

$

-

$

-

$

126,069$

126,069

Financial liabilities at FVTPL
Derivative instruments

$

-

$

2,115

$

-

$

2,115

Derivative financial assets forhedging

$

-

$

6,230

$

6,130

$

12,360Derivative financial liabilities forhedging$-$ 54,986,873

$

4,309

$ 54,991,182

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

December 31, 2018
Level 1
Financial assets at FVTPL
Domestic money market funds

Level 2

Level 3

Total$

206,001

$

-

$

-

$

206,001

$

-

$

-

$

21,746
110,445$

21,746
110,445

$

-

$

-

$

132,191$

132,191

Financial liabilities at FVTPL
Derivative instruments

$

-

$

221

$

-

$

221

Derivative financial assets forhedging$-$

28,005

$

4,901

$

32,906

Derivative financial liabilities forhedging

$

-

$

560

$

-

$

560

Financial assets at FVTPL
Investments in equity instruments
Unlisted shares - domestic
Unlisted shares - foreign- 49 -

September 30, 2018
Level 1
Financial assets at FVTPL
Domestic money market funds

Level 2

Level 3

Total$

216,967

$

-

$

-

$

216,967

$

-

$

-

$

23,582
117,573$

23,582
117,573

$

-

$

-

$

141,155$

141,155

Financial liabilities at FVTPL
Derivative instruments

$

-

$

1,063

$

-

$

1,063

Derivative financial assets forhedging$-$

53,815$

19,468$73,283

Derivative financial liabilities forhedging

$

-

$

4,700

$

-

$

4,700

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

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

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

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

September 30, 2019
December 31, 2018
September 30, 2018

- 50 -

Multiplicator

Liquidity
Discount

0.74-15.29
0.74-15.29
0.85-18.68

80%
80%
80%

Derivative
Instruments

EquityInstruments

Balance at January 1, 2019
Recognized in other comprehensive income

$

4,901
(3,080)$ 132,191(6,122)

Balance at September 30, 2019

$

1,821

$ 126,069

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

19,468$

Balance at September 30, 2018$19,468$ 141,155

84,07547,5109,570

Because some financial instruments and nonfinancial instruments may not have their fair values
disclosed, the total fair value disclosed herein is not the total value of the Group’s collective
instruments.
c. Categories of financial instruments
September 30,
2019

December 31,
2018

September 30,
2018

$

$

$

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

374,123
12,36041,927,268
126,069

206,001
32,90640,496,618
132,191

216,967
73,28336,648,336
141,155

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

2,115
54,991,182
127,666,956

221
560
127,271,892

1,063
4,700
134,196,720

Note 1: The balances include financial assets measured at amortized cost, which comprise cash andcash equivalents, notes and accounts receivable, accounts receivable - related parties, otherreceivables, refundable deposits and other restricted financial assets.
Note 2: The balance of financial liabilities measured at amortized cost comprised short-term loans,short-term notes payable, notes and accounts payable, accounts payable - related parties, otherpayables, bonds payable and long-term loans, capital lease obligations, provisions, parts ofother current liabilities, parts of other noncurrent liabilities and guarantee deposits.
d. Financial risk management objectives and policies
The Group has risk management and hedging strategies to respond to changes in the economic andfinancial environment and in the fuel market. To reduce the financial risks from changes in interest,
exchange rates and in fuel prices, the Group has its operating costs stay within a specified range byusing appropriate financial hedging instruments and hedging percentages in accordance with the“Processing Program of Derivative Financial Instrument Transactions” approved by the Group
shareholders to reduce the impact of market price changes on earnings. These risks include market risk(including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

- 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 financial risks of changes in foreign currency exchange rates
and interest rates. The Group entered into derivative financial instruments to manage its exposure toforeign currency risk and interest rate risk.
The Group enters into forward contracts, foreign currency option contracts, and interest swap
contracts with fair values that are highly negatively correlated to the fair values of hedged items andevaluates the hedging effectiveness of these instruments periodically.
a) Foreign currency risk
The Group enters into foreign currency option contracts to hedge against the risks on change in
related exchange rates, enters into forward contracts to hedge against the risks on changes inforeign-currency assets, liabilities and commitments in the related exchange rates.
Sensitivity analysis
The Group was mainly exposed to the U.S. dollar.
The Group was mainly exposed to the U.S. dollar. The following details the Group’s sensitivity
to increase and decrease in New Taiwan dollars (the functional currency) against the relevant
foreign currencies. U.S. dollars increase/decrease one dollar against New Taiwan dollars used
when reporting foreign currency risk internally to key management personnel and represents
management’s assessment of the reasonably possible change in foreign exchange rates. The
sensitivity analysis included only outstanding foreign currency denominated monetary items
and foreign currency forward contracts designated as cash flow hedges, and adjusts theirtranslation at the end of the reporting period for U.S. dollars increase/decrease one dollar against
New Taiwan dollars change in foreign currency rates.
When New Taiwan dollars increase one dollar against U.S. dollars and all other variables were
held constant, there would be a increase in pre-tax profit and increase in pre-tax othercomprehensive income gain and losses for the nine months ended September 30, 2019 of$115,507 thousand and $1,748,005 thousand and a decrease in pre-tax profit and decrease in
pre-tax other comprehensive income gain and loss for the nine months ended September 30,
2018 of $31,615 thousand and $102,495 thousand, respectively.
For the nine months ended September 30, 2019
The Group’s hedging strategy is to enter into foreign exchange forward contracts to avoid
exchange rate exposure of its foreign currency denominated receipts and payments and to
manage exchange rate exposure of its aircraft prepayments in the next year. Those transactions
are designated as cash flow hedges. When forecasted purchases actually take place, basis
adjustments are made to the initial carrying amounts of hedged items.

- 52 -

For the hedges of highly probable aircraft prepayments, as the critical terms (i.e. the notionalamount, useful life and underlying asset) of the foreign exchange forward contracts and theircorresponding hedged items are the same, the Group performs a qualitative assessment of theeffectiveness, and it is expected that the value of the foreign exchange forward contracts and thevalue of the corresponding hedged items will systematically change in the opposite direction in
response to movements in the underlying exchange rates.
The following table summarizes the information relating to the hedges of foreign currency risk.
September 30, 2019
Hedging Instruments
Cash flow hedge
Aircraft rentals forward exchange
contracts
Aviation fuel - forward
exchange contracts

Notional
AmountMaturity

NTD/USD

NTD383,659/
USD12,354

2019.10.252020.8.19

29.7-30.8

NTD/USD

NTD357,143/
USD11,500

2019.11.272020.8.31

30.4-31.2

Currency

Forward RateLine Item in
Balance Sheet

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

Carrying AmountAsset
Liability

$

5,892

$

338

192

1,169

The abovementioned hedging instruments continue to be applied to hedging accounting. The
book value of other equity which belongs to each hedging item (aircraft rentals in U.S. dollars
and aviation fuel) are $5,700 thousand and $(831) thousand, respectively.
December 31, 2018
Hedging Instruments

Cash flow hedge
Aircraft rentals forward exchange
contracts

Currency

NTD/USD

Notional
AmountMaturity

NTD2,265,231/
USD13,620

2019.1.72019.12.26

ForwardRate

Line Item in
Balance Sheet

28.3-30.9

Financial assets forhedging - current/
liabilities for hedging current

Carrying AmountAsset
Liability$ 28,005$

560

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

Currency

Notional
AmountMaturity

ForwardRate

Line Item in
Balance Sheet

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

NTD/USD

NTD2,064,067/
USD67,495

2018.10.52019.9.25

28.3-31.2

NTD/USD

NTD1,070,336/
USD35,000

2018.10.152018.10.19

28.8-30.7

Carrying AmountAsset
Liability$ 29,568

24,247

$

3,328

1,372

The above hedging instruments are continuously applied to hedging accounting. The book valueof other equity which belongs to each hedging item (aircraft rentals in U.S. dollar and Aircraft
prepayment) are $26,240 thousand and $22,870 thousand, respectively.

- 53 -

For the nine months ended September 30, 2019

Comprehensive Income

Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeCash flow hedge
Aircraft rentals
Aviation fuelAircraft prepayments$ (21,743)
(831)
603

$

45,4142,265-$ (21,971)$

47,679Note:

AmountReclassified toProfit and Lossand theAdjusted Line
Item

(Note)

Decrease in operating costs or foreign exchange loss.

For the three months ended September 30, 2019

Comprehensive Income

Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeCash flow hedge
Aircraft rentals
Aviation fuelAircraft prepayments$ (23,830)
(831)
(603)

$

8,453
2,265
-

$ (24,058)$

10,718

Note:

AmountReclassified toProfit and Lossand theAdjusted Line
Item

(Note)

Decrease in operating costs or foreign exchange loss.

The amount of gains and losses on hedging instruments for the nine months ended September
30, 2019 reclassified from profit or loss to prepayments for equipment was $603 thousand.
And the amount of gains and losses on hedging instruments for the three months ended
September 30, 2019 reclassified from profit or loss to prepayments for equipment was $603
thousand.
For the nine months ended September 30, 2018
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedge
Aircraft rentals
Aircraft prepayments$- 54 -

AmountReclassified toProfit and Lossand theAdjusted Line
Item

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

Note:

Decrease in operating costs or foreign exchange loss.

For the three months ended September 30, 2018
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedge
Aircraft rentals
Aircraft prepayment

Note:

AmountReclassified toProfit and Lossand theAdjusted Line
Item$

(7,599)
4,265

$

4,866
-

$

(3,334)$4,866(Note)

Decrease in operating costs.

The amount of gains and losses on hedging instruments for the nine months ended September
30, 2018 reclassified from profit or loss to prepayments for equipment was $37,116 thousand.
And the amount of gains and losses on hedging instruments for the three months ended
September 30, 2018 reclassified from profit or loss to prepayments for equipment was $0
thousand.
b) Interest rate risk
The Group was exposed to interest rate risk because entities in the Group borrowed funds atboth fixed and floating interest rates. The risk is managed by the Group by maintaining anappropriate mix of fixed and floating rate borrowings and using interest rate swap contracts andforward interest rate contracts.
The carrying amount of the Group’s financial liabilities with exposure to interest rates at the endof the reporting period were as follows.

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

September 30,
2019

December 31,
2018

September 30,
2018$ 95,678,592$ 34,919,610$ 30,393,979

79,793,065

75,031,97878,555,888

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.

- 55 -

Had interest rates increased one yard (25 basis) points and had all other variables been held
constant, the Group’s pretax profit for the nine months ended September 30, 2019 would havedecreased by $149,612 thousand.
Had interest rates increased one yard (25 basis) points and had all other variables been held
constant, the Group’s pretax profit for the nine months ended September 30, 2018 would havedecreased by $147,292 thousand.
c) Other price risk
The Group was exposed to fuel price risk on its purchase of aviation fuel. The Group enters into
fuel swaps contract to hedge against adverse risks on fuel price changes.
September 30, 2019
Hedging Instrument

Currency

Cash flow hedges - fueloptions

US$

Notional
Amount
NT$1,821

Maturity

ForwardRate

Line Item in
Balance Sheet

2019.12.312020.6.30

US$55US$82.5

Financial assets forhedging - current/
liabilities forhedging - current

Carrying AmountAsset
Liability
$

6,130

$

4,309

The above hedging instruments are continuously applied to hedging accounting. The carrying
amount of other equity which belongs to each hedging item (fuel payments) is $1,821 thousand.
December 31, 2018
Hedging Instrument

Currency

Cash flow hedges - fueloptions

US$

Notional
Amount
NT$4,901

Maturity
2019.1.312019.12.31

ForwardRate
US$72US$88

Line Item in
Balance Sheet
Financial assets forhedging - current

Carrying AmountAsset
Liability
$

4,901

$

-

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

Currency

Cash flow hedges - fueloptions

US$

Notional
Amount
NT$19,468

Maturity

ForwardRate

Line Item in
Balance Sheet2018.10.312018.11.30

US$77.00US$92.85

Financial assets forhedging - current

Carrying AmountAsset
Liability$ 19,468$-

The above hedging instruments are continuously applied to hedging accounting. The carrying
amount of other equity which belongs to each hedging item (fuel payments) is $19,468
thousand.
For the nine months ended September 30, 2019

Hedging Gain
(Loss)
Recognized in
OCI

Comprehensive Income
Cash flow hedges - fuel options

Note:$ (3,080)

Increase in operating costs.

- 56 -

AmountReclassified to
P/L and the
Adjusted LineItem
$ (11,751)(Note)

For the three months ended September 30, 2019

Comprehensive Income
Cash flow hedges - fuel options

Note:

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

$ (3,958)$ (4,659)(Note)

Increase in operating costs.

For the nine months ended September 30, 2018

Hedging Gain
(Loss)
Recognized in
OCI

Comprehensive Income
Cash flow hedges - fuel options

Note:

AmountReclassified to
P/L and the
Adjusted LineItem

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

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

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

Increase in operating costs.

For the three months ended September 30, 2018

Comprehensive Income
Cash flow hedges - fuel options

Note:

Increase in operating costs.

Sensitivity analysis
The sensitivity analysis below was determined based on the exposure to fuel price risks at theend of the reporting period.
For the Nine Months Ended September 30
2019
2018
Other
Other
CompreComprehensive
hensive
Pre-tax Profit
IncomePre-tax Profit
IncomeIncrease
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)(Decrease)
Fuel price increase 5%
Fuel price decrease 5%$- 57 -$-$ 10,856(3,016)$ 14,205(15,739)

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

1.1513

Less than 1Year

1 to 5 Years

Over 5 Years

3,496,714$ 11,579,171$

8,464,150
10,385,182
6,857,878

45,970,241
42,351,815
19,201,333

16,213,392
7,913,453
4,551,404$ 29,203,924$ 119,102,560$ 37,104,764$

1.2842
1.1423- 58 -

8,426,515

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

1.3104

Less than 1
Year$641,524

1 to 5 Years

Over 5 Years

$

$

3,024

-

1.8105

14,853,360

42,143,959

20,810,464

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

30,835,449

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

Less than 1Year

1 to 5 Years

Over 5 Years$$

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

1.0680$713,097

12,363-0.9945535,292

244,318578

1.18001.39075,324
2,837
4,742,878

23,856,580

1,013,907

5,999,428$ 24,113,261$- 59 -$

1,014,485

34. RELATED-PARTY TRANSACTIONS
The balances and transactions between the Company and its subsidiaries, which are related parties of theCompany, including remaining account balance, revenue and expense, have been eliminated upon
consolidation and are not disclosed in this note. Unless otherwise stated, the transactions between the Groupand other business related parties are as follows:a. Related party’ name and relationships
Related Party Name

Relationship with the Company

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

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

b. Operating income

Account
Items

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

Other income Major shareholdersof the Company
Associate
Joint venture
investment$

For the Nine Months Ended
September 30
2019
2018

6,605

$

5,887

$ 17,573$ 24,395$ 1,198$ 10,636

$
$

239
9,926

$ 1,237$ 31,882$
487$ 31,330

c. Purchases of goods

Related Party Type
Major shareholders of theCompany
Associate
Joint venture investment

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$
$
$

$
38,605$ 304,617$ 1,433,102

14,823
111,772
492,895- 60 -$$$

13,307
107,717483,642$
54,831$ 383,150$ 1,446,459

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

Related Party Type
Major shareholders of the Company
Joint venture investments

December 31,
2018

September 30,
2018

$

2,797
7,772

$

1,454
7,589

$

1,766
5,488

$

10,569

$

9,043

$

7,254

The receivables are not guaranteed, and there is no allowance for doubtful accounts related to accountreceivables - related parties. The payment period of such accounts were within 30 to 90 days, and there
are no overdue payments.
e. Accounts payable - related parties (generated by operations)
September 30,
2019

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

December 31,
2018

5,994
46,133498,249$$ 550,376

September 30,
2018

3,368
54,948474,499$$ 532,815

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

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.
f. Lease arrangements (operating leases)
Under an operating lease agreement, the Company rented flight training machines and flight simulatorsfrom China Aviation Development Foundation to train pilots, and the Company paid the rental based on
usage hours. As of September 30, 2019 and 2018, the rental paid was $38,605 thousand and $54,831
thousand, respectively; for the three months ended September 30, 2019 and 2018, the Company’s paid
rentals amounted to $14,823 thousand and $13,307 thousand.
g. Endorsements and assurances
September 30, 2019
Authorized
AmountAmount Used

December 31, 2018
Authorized
AmountAmount Used

September 30, 2018
Authorized
AmountAmount Used

$ 3,850,000
1,080,000
1,089,966$ 2,151,550
422,390$ 3,850,000
1,080,000
1,081,792$ 2,339,700
418,491$ 3,850,000
1,080,000
1,076,427$ 2,661,850
415,9312,000,000

1,095,827

2,000,000

605,547

2,000,000

302,097

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

h. Compensation of key management personnel

Short-term employee benefits
Post-employment benefits

For the Three Months Ended
September 30
2019
2018

For the Nine Months Ended
September 30
2019
2018

$

7,721
533

$

9,366
800

$

30,3581,807$

34,503
2,519

$

8,254

$

10,166$32,165$37,022- 61 -

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
Right-of-use asset
Restricted assets

September 30,
2019

December 31,
2018

September 30,
2018$ 33,391,634
74,143,766
116,642$ 42,066,242
118,764$ 43,043,751
257,432$ 107,652,042$ 42,185,006$ 43,301,183

36. COMMITMENTS AND CONTINGENT LIABILITIESAs of September 30, 2019, the Group had commitments and contingent liabilities (except for thosementioned in other notes) as follows:a. For operation needs, the board of directors of Mandarin Airlines resolved to enter into a contract with
AVIONS DE TRANSPORT REGIONAL G.I.E to purchase six ATR72-600 aircraft, and the total list
price of the six aircraft was $120,000 thousand. The expected delivery period ranges from July 2018 toJune 2020. As of September 30, 2019, four of the aircraft has been handed over to the company, and thetotal list price of the lefts two aircraft was $40,000 thousand, which has been paid in the amount of
US$4,157 thousand (recognized as prepayments for aircraft).
b. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil
Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20
years from the date of transfer of the chartered operation rights from CAA to TACT. TACT filed an
application for a 10-year extension of the COP for the cargo terminals in the Taiwan Taoyuan
International Airport and Kaohsiung International Airport and received the approval from the Taoyuan
Airport Corporation and CAA in July 2013 and July 2015, respectively.
However, TACT filed an arbitration for the total amount of $6,840,000 thousand based on theconstruction contract.
As of September 30, 2019, TACT had signed the following construction contracts with unrelatedparties:

Client NameContract Title

CECI Engineering
Consultant, Inc., Taiwan

Cargo Terminal Expansion Construction Consultant
Contract- 62 -

Contract
Amount (VAT
Included)$ 552,285

As of September 30, 2019, the cumulated consultant service expense and construction equipment had
amounted to $481,776 thousand (VAT included) and $5,200,777 thousand (VAT included),
respectively. Upon completion of the projects, the amount of $468,755 thousand (VAT included) and$5,188,935 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%.
c. CAL Park Co., Ltd. (“CAL Park”) signed “Taiwan Taoyuan International Airport Aviation Operation
Center (including Airport Hotel) Construction Operating Contract” with the CAA on September 20,
2006. However, on November 1, 2010, the Taoyuan Airport Corporation took over the CAA’s rights on
this contract from the CAA. The contract is effective for 50 years (consisting of the development stage
and operating period) from the contract date. Three years before contract expiry date, CAL Park has thefirst option to renew the contract once with a 20-year extension.
CAL Park’s business scope includes providing business and other operating space related to civil airtransport, hotels, aviation service and related industries adhered to the base and essential services law
and approved by the Taoyuan Airport Corporation.
CAL Park should pay land rentals on the date of the registration of surface rights. The rental rates forthe development stage differ from those for the operation period. The rental rates should follow Article
No. 2 of the “Regulations for Favorable Rentals Regarding Public Land Lease and Superficies inInfrastructure Projects,” which states that rental calculation in the development stage should include theland value added tax plus the necessary maintenance fee; in the operation period, rentals are 60% of theamount based on the National Building Land Rental Standard plus land value tax, value-added tax andthe necessary maintenance fees.
During the 50 years beginning from the initial operation date of CAL Park to the end of the construction
period, CAL Park should pay royalties based on the operating revenue estimated in the financial plan of
its investment execution proposal. If the sales and business tax declared and filed by a business entity
for a single year exceeds 10% of the operating revenue as estimated in the financial plan in its
investment execution proposal, CAL Park should pay additional royalties at 10% of this excess.
CAL Park should submit the asset transfer plan within five years before the expiry date of the charteredoperation period, begin the negotiation of the asset transfer contract, and complete the assignation nolater than three years before the expiry date of the chartered period. If CAA decides not to keep thebuilding and equipment on the base area, CAL Park should remove all related building and equipment
within three months after the expiry date.
d. The Company failed to mediate labor disputes with the labor union. After obtaining the right to strike,the labor union went on strike on February 8, 2019, and the flights resumed normal operation on
February 14, 2019. A total of 214 flights was cancelled and the accumulated revenue loss was about$500 million. The initial estimated compensation for customer losses and other expenditures were about$54 million (recognized as operating cost).

- 63 -

e. In October 2019, the Company signed a contract with Airbus S.A.S. to purchase eleven A321neo
aircraft and an option to purchase five A321neo aircraft. The total list price of the eleven aircraft is
US$1,676,413 thousand, and the list price of the option to purchase five aircraft is US$769,922
thousand. The expected delivery period of the eleven aircraft ranges from 2024 to 2026. As of October
31, 2019, the list price of the fourteen aircraft has been paid in the amount of US$17,014 thousand(recognized as prepayments for aircraft). In October 2019, the Company signed a contract with
International Aero Engines Company to purchase four backup engines of A321neo. The total list priceof the four engines is US$60,289 thousand.
f. In July and August 2019, the Company signed a contract with the Boeing Company to purchase three
B777F aircraft and exercised the option to purchase three B777F aircraft. The total list price of the six
aircraft is US$2,320,315 thousand, and the expected delivery period is from 2020 to 2023. As of
September 30, 2019, the list price has been paid in the amount of US$241,650 thousand (recognized as
prepayments for aircraft).
g. In September 2019, Tigerair Taiwan Co., Ltd. signed a contract with Airbus S.A.S. to purchase sevenA320neo aircraft and an option to purchase two A320neo aircraft. The total list price of the sevenaircraft is US$729,746 thousand, and the list price of the option to purchase two aircraft is US$208,499
thousand. The expected delivery period of the seven aircraft ranges from 2025 to 2028. As of
September 30, 2019, the list price of the seven aircraft has been paid in the amount of US$1,150
thousand (recognized as prepayments for aircraft). In addition, in October 2019, Tigerair Taiwan Co.,
Ltd. signed a contract with International Aero Engines Company to purchase two backup engines ofA320neo aircraft. The total list price of the two engines is US$27,345 thousand.

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

Exchange Rate

Carrying
Amount598,610
19,054
199,139
3,855,949
402,001

31.0559
33.8983
3.95730.28754.3592$ 18,590,366
645,899
788,052
1,108,574
1,752,405

2,518,476
7,135
86,773
6,399,067
172,552

31.0559
33.8983
3.95730.28754.3592

78,213,548
241,861
343,388
1,839,703
752,188

Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

- 64 -

December 31, 2018
Foreign
Currencies

Exchange Rate

Carrying
Amount533,10920,519302,930
6,479,942
394,50330.7692
35.21133.92310.27784.4803$ 16,403,335
722,514
1,188,425
1,800,967
1,767,491

391,865
6,516
79,716
5,586,337
150,52930.7692
35.21133.92310.27784.4803

12,057,386
229,440
310,978
1,552,067
674,413

Exchange Rate

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

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

30.581035.5872
3.90630.26904.4346

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

Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB
September 30, 2018
Foreign
Currencies
Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

For the three months ended September 30, 2019 and 2018, net foreign exchange losses were $108,675
thousand and $59,751 thousand, respectively. For the nine months ended September 30, 2019 and 2018, net
foreign exchange losses were $255,559 thousand and $22,408 thousand, respectively. It is impractical todisclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of theforeign currency transactions and functional currencies of the group entities.

- 65 -

38. ADDITIONAL DISCLOSURESa. Following are the additional disclosures required by the Securities and Futures Bureau for the Company
and its investees:
1) Financing provided: None
2) Endorsements/guarantees provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20%of the paid-in capital: None
5) Acquisitions of individual real estate at costs or 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 3 (attached)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 4 (attached)9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 5 (attached)10) Trading in derivative instruments (Notes 7 and 33)
b. Investments in mainland China: Table 6 (attached)c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 7 (attached)

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

- 66 -

For the nine months ended September 30, 2019 and 2018, financial information of segments is listed below:
For the Nine Months Ended September 30, 2019
Air
Adjustments
Transportation
Othersand Write-offs
Total
Operating revenue$ 123,620,400$

8,238,960$(5,557,052)

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

1,126,506$(65,044)

1,734,433$

2,795,895
287,238
234,913
231,939(2,523,631)(494,120)

Gain before income tax
Identifiable assets
Investments accounted for using theequity method
Assets$ 126,302,308$$ 140,548,394$ 11,170,765$-

532,234$ 151,719,159
2,186,140
144,529,020

Total assets$ 298,434,319
For the Nine Months Ended September 30, 2018
Air
Adjustments
Transportation
Othersand Write-offs
Total

Operating revenue$ 123,973,681$

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

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

1,080,789$(17,458)

2,029,945$

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

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

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

Total assets$ 226,072,700- 67 -TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIESENDORSEMENTS/GUARANTEES PROVIDEDFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(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
78% subsidiary by direct
and indirect holdings
100% subsidiary

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

ActualBorrowingAmount$ 11,310,842
11,310,842
11,310,842$ 3,850,000
1,080,000
1,106,778$ 3,850,000
1,080,000
1,089,966$ 2,151,550
422,390

11,310,842

2,000,000

2,000,000

1,095,827

Note 1:

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

Note 2:

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

- 68 -

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

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

-

6.81
1.91
1.93

$ 28,277,105
28,277,105
28,277,105

Yes
Yes
Yes

No
No
No

No
No
No

-

3.54

28,277,105

Yes

No

No

TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES HELDSEPTEMBER 30, 2019
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

Marketable Securities Type and Issuer/Name

Relationshipwith theHoldingCompany

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

Dynasty Aerotech International
Corp.

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

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

Shares/Units

1,359,368$

59,14813.59

135,937

5,915-

1,100,000

21,117

12,000,000
4,021

-

2,074,628

18,838$65,063

Note

Note 1

-

-

11.00

21,117

-

15.00
0.02

-

-

-

18,838-

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-

39,8892.59
5.45

39,889Note 2
Note 2

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

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

346,821
7,816,048

62,03281,006-62,03281,006-

SharesTransAsia Airways-

Financial assets at fair value through profit or loss - current

2,277,786---

Beneficial certificatesFuh Hwa Global Short-term Income FundFuh Hwa Global Bond Fund-

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

1,671,657
1,233,211

20,416
18,674-

20,416
18,674-

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

814,152

7,393

-

7,393

-

349,523

4,741

-

4,741

-

SharesChina Airlines

Beneficial certificates
Taishin 1699 Money Market Fund-

Financial assets at fair value through profit or loss - current

0.40(Continued)- 69 -

Holding Company Name

Kaohsiung Catering Services

Marketable Securities Type and Issuer/Name

Beneficial certificates
Prudential Financial Money Market Fund
Prudential Financial Return Fund
Taishin 1699 Money Market Fund

Relationshipwith theHoldingCompany

Financial Statement Account-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

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

Shares/Units

5,407,832
4,493,628
1,106,807$

85,39070,00015,000-$85,39070,00015,000Note-

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

CHINA AIRLINES, LTD. AND SUBSIDIARIESTOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

Related Party

Nature of Relationship

Purchase/
Sale

% of
Total

379,527
173,466(1,709,623)
173,267
1,343,596
902,977
129,782332,679
436,558
259,520(267,244)
119,586
154,9900.38
0.17(1.56)
0.17
1.34
0.90
0.13
0.33
0.43
0.26
(0.24)
0.12
0.15

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

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

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

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

Mandarin Airlines

Taiwan Airport Services

Same parent company

Purchase

142,123

2.51

Same parent company

Purchase

149,361

2.56

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

AmountChina Airlines, Ltd.

- 71 -

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

Abnormal Transaction
Payment Terms

Unit Price$--

1 months-

1 months

-

$

Note

(37,752)(127)
424,113(257,419)(477,056)(379,217)(30,109)(76,202)(94,872)(64,550)
41,840(47,347)(15,470)(1.34)(0.00)(9.12)(16.91)(13.44)(1.07)(2.70)(3.36)(2.29)
0.43(1.68)(0.55)--(35,302)(2.67)--(22,400)(3.45)-TABLE 4

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

Overdue
Company Name

Related Party

Nature of RelationshipEnding Balance

Turnover Rate

$ 424,113

Note

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

257,419

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--$ 424,113

Note

-

-

254,875-

477,056

3.84

-

-

164,564-

379,217

3.24

-

-

235,268-

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

- 72 -$-TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(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

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
China Pacific Catering Services
Taoyuan, Taiwan
In-flight catering
Taoyuan International Airport Services Taoyuan, Taiwan
Airport services
Cal-Asia Investment
Territory of the British Virgin Islands General investment
Sabre Travel Network (Taiwan)
Taipei, Taiwan
Sale and maintenance of hardware andsoftware
China Aircraft Service
Hong Kong International Airport
Airport services
Taiwan Airport Services
Taipei, Taiwan
Airport services
Kaohsiung Catering Services
Kaohsiung, Taiwan
In-flight catering
Cal Hotel Co., Ltd
Taoyuan, Taiwan
Hotel business
China Pacific Laundry Services
Taoyuan, Taiwan
Cleaning and leasing of the towel of airlines,
hotels, restaurants and health clubs
Dynasty Aerotech International Corp. Taoyuan, Taiwan
Cleaning of aircraft and maintenance ofmachine and equipment
Yestrip
Taipei, Taiwan
Travel businessDynasty Holidays
Tokyo, Japan
Travel business
Global Sky Express
Taipei, Taiwan
Forwarding and storage of air cargo
Tigerair Taiwan Co., Ltd.
Taipei, Taiwan
Air transportation and maintenance of aircraft
Taiwan Aircraft Maintenance andTaoyuan, Taiwan
Aircraft maintenanceEngineering Co., Ltd.
NORDAM Asia Ltd.
Taoyuan, Taiwan
Composite repair and manufacturing business

Investment Amount
September 30, December 31,
2019
2018

Balance as of September 30, 2019
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$

58,00012,289383,846
465,000
137,500

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

77,27028,814
179,651
91,784
29,635Note 4
Notes 1 and 4
Note 2748,584
782,172
505,507422,630

353,578285,569
33,536
154,202172,579
139,929
33,536
144,842

-

20.00
47.35
53.67
100.0055.00

511,627
285,899628,673456,828
166,019

51,293
119,902223,485(5,481)
22,243

10,25956,773
109,205(4,411)
12,234Note 5Note 4-

77,270100.0089,148

14,796

14,812

Notes 1 and 4

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

1,600,000
160
250,000
140,256,275
135,000,000

100.00
20.00
25.00
70.13
100.0024,977
10,6856,911
1,900,403
992,897

(744)
533
4,861
702,833(135,241)

(675)
(198)
1,215
624,785(135,241)

Note 4Note 4
-

2,450

2,450

245,000

49.00

2,358

-

-

-

155,800
11,658200,000
11,65815,584,000
469,755

7.79
1.08

211,1546,503

702,833
119,90269,336
1,291-

77,270JPY

26,2658,000
2,500
1,284,460
1,350,000

JPY

1,533,430
1,495,031
1,463,028
1,308,383

Note(6,281) $191,126
169,965
29,63558,00012,289383,846
465,000
137,500$

Investment
Income (Loss)

Mandarin Airlines

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Taipei, Taiwan
Taipei, Taiwan

Air transportation and maintenance of aircraft
Airport services

Cal-Asia Investment

Eastern United International Logistics

Hong Kong

Forwarding and storage of air cargo

HK$

3,329

HK$

3,329

1,050,000

35.00

47,89014,542

5,090-

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

US$

5,877

-

100.00394,305

16,576

16,576Note 3Kaohsiung, Taiwan

Catering business

10,2001,020,000

51.00

7,870

-

-

Kaohsiung Catering Services Delica International Co., Ltd

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

Note 2:

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

Note 3:

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

Note 4:

Difference caused by lease arrangement between consolidated entities.

Note 5:Difference caused by acquisition.

10,200- 73 --TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIESINVESTMENTS IN MAINLAND CHINAFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(New Taiwan Dollars/Renminbi/U.S. Dollars In Thousands, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Businesses andProducts

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan
Capitalas ofJanuary 1, 2019

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

Forwarding and storage $ 1,109,329
of air cargo(RMB 254,480)

Indirect(Note 1)

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

Forwarding and storage
61,029of air cargo(RMB 14,000)

Indirect(Note 1)

Taikoo (Xiamen) Landing
Gear Services

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

Indirect(Note 1)

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

Indirect(Note 1)

362,205(US$ 11,663)$
129,999 $(US$4,186)

Investment Flows

Outflow

Accumulated
Outflow ofInvestment
from Taiwan
as of
September 30,
2019

Inflow--(US$60,4801,947)

66,8072,151)

-

(US$

-

(US$

19,752636)$$
129,999 $57,013(US$
4,186) (RMB 12,571)

14.00

-

14.00

(US$

60,48070,688
1,947) (RMB 15,587)

66,8072,151)

2.589

-

(US$

5.45

(US$

19,752636)

39,889(RMB 9,151)-

Investment Amounts
Authorized by Investment Commission,
MOEA

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

$277,038 (US$8,920)$670,762 (Note 3)$36,045,123 (Note 4)

Investment
Gain (Loss)

Carrying
Amountas of
September 30,
2019

-

-

Accumulated Outward Remittance forInvestment in Mainland China as of
September 30, 2019

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

Accumulated
InwardRemittance ofEarnings as of
September 30,
2019

$
(RMB

7,149 $
223,743 $
1,760) (RMB 51,327) (US$87,0112,802)(Note 2)

(RMB

9,427
122,961
2,182) (RMB 28,207) (US$27,184875)(Note 2)

(Continued)- 74 -

Taiwan Airport Services

Investee Company

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

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

Forwarding and storage $ 1,109,329
of air cargo(RMB 254,480)

Indirect(Note 5)$
124,794 $(US$4,108)

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

Forwarding and storage
61,029of air cargo(RMB 14,000)

Indirect(Note 5)

(US$

Remittance of Funds

Outward59,837
1,927)

Accumulated
Outward
Remittance forInvestment
from Taiwan
as of
September 30,
2019

Inward

-

$

-

-

14

59,83770,6881,927) (RMB 15,587)

14

(US$

Investment Amounts Authorized by
Investment Commission, MOEA

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

$184,631 (US$5,945)$184,631 (US$5,945)$362,280 (Note 6)% Ownershipof Direct orIndirect
Investment$
124,794 $57,013(US$
4,108) (RMB 12,571)-

Accumulated Outward Remittance forInvestment in Mainland China as of
September 30, 2019

Net Income(Loss) of theInvestee

Investment
Income (Loss)

Accumulated
Carrying
Repatriation ofAmount as ofInvestment
September 30, Income as of
2019
September 30,
2019

$
(RMB

7,982 $
221,701 $118,2091,760) (RMB 50,858) (US$3,806)(RMB

9,896
122,7022,182) (RMB 28,148) (US$43,683
1,407)

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in mainland China.
Note 2: As of September 30, 2019, the inward remittance of earnings amounted to US$2,801,749 and US$875,330.
Note 3: The amount comprised US$19,828,324, RMB4,200,000 and NT$36,666,667.
Note 4: The limit stated in the Investment Commission’s regulation, “The Review Principle of Investment or Technical Cooperation in mainland China,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 5: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in mainland China.
Note 6: The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the year-end rates of refer for the reporting period.
(Concluded)- 75 -TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIES
BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIESFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(In Thousands of New Taiwan Dollars)Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Financial Statement Account0

China Airlines, Ltd.

Mandarin Airlines
Mandarin Airlines
Tigerair Taiwan Ltd.
Taoyuan International Airport Service
Taiwan Airport Services
Dynasty Aerotech International Corp.
Mandarin Airlines
Tigerair Taiwan Ltd.
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Mandarin Airlines
Taoyuan International Airport Service
Mandarin Airlines
Kaohsiung Catering Services

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

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

1

Taiwan Air Cargo Terminal

China Airlines, Ltd.

b

Sales revenue

2

Mandarin Airlines

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

b
b
c
b
b
b
b

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

3

Taoyuan International Airport Services

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

c
b
b

4

Taiwan Airport Services

China Airlines, Ltd.
Mandarin Airlines

5

Dynasty Aerotech International Corp.

China Airlines, Ltd.

Amount(Note 2)

Transaction Criteria% of Total
Consolidated
Total Revenue
or Assets$ 1,516,373
193,250
267,244
902,977
332,679
259,520
173,267
119,586
379,527
173,466
424,113257,419379,217250,000
436,558

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

1.20
0.15
0.21
0.71
0.26
0.21
0.14
0.09
0.30
0.14
0.14
0.09
0.13
0.08
0.35

379,527

The same as ordinary transactions

0.30

173,267
1,516,373
142,123
193,250
257,419
250,000
424,113The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions
The same as ordinary transactions

0.14
1.20
0.11
0.15
0.09
0.08
0.14

Airport service revenue
Airport service revenue
Accounts receivable - related parties

149,361
902,977
379,217

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

0.12
0.71
0.13

b
c

Operating revenue
Operating revenue

332,679
142,123

The same as ordinary transactions
The same as ordinary transactions

0.26
0.11

b

Operating revenue

259,520

The same as ordinary transactions

0.21(Continued)- 76 -

Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Amount(Note 2)Financial Statement Account6

Cal Park

China Airlines, Ltd.

b

Operating revenue

7

Tigerair Taiwan Ltd.

China Airlines, Ltd.
China Airlines, Ltd.
Taoyuan International Airport Service

b
b
c

8

Kaohsiung Catering Services

China Airlines, Ltd.

b$

Transaction Criteria% of Total
Consolidated
Total Revenue
or Assets

173,466

The same as ordinary transactions

0.14

Operating expense
Operating revenue
Terminal and building fees

267,244
119,586
149,361

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

0.21
0.09
0.12

Operating revenue

436,558

The same as ordinary transactions

0.34

Note 1: Three kinds of business relationships between China Airlines, Ltd. and its subsidiaries were as follows:a. Parent to subsidiaries.
b. Subsidiaries to parent.
c. Subsidiaries to subsidiaries.
Note 2: Intercompany transactions were written off in the consolidated financial statements.
Note 3: The Company only discloses transaction amounts or balances of more than $100,000 thousand.
(Concluded)- 77 -