China Airlines, Ltd.
Financial Statements for theYears Ended December 31, 2018 and 2017 andIndependent Auditors’ ReportINDEPENDENT AUDITORS’ REPORTThe Board of Directors and the Shareholders
China Airlines, Ltd.
OpinionWe have audited the accompanying financial statements of China Airlines, Ltd. (the “Company”),
which comprise the balance sheets as of December 31, 2018 and 2017, and the statements ofcomprehensive income, changes in equity and cash flows for the years then ended, and the notes tothe financial statements, including a summary of significant accounting policies. (collectively
referred to as the “financial statements”)
In our opinion, the accompanying financial statements present fairly, in all material respects, thefinancial position of the Company as of December 31, 2018 and 2017, and its financial
performance and its cash flows for the years then ended in accordance with the Regulations
Governing the Preparation of Financial Reports by Securities Issuers and other regulations.
Basis for Opinion
We conducted our audits in accordance with the Regulations Governing Auditing and Attestationof Financial Statements by Certified Public Accountants and auditing standards generally acceptedin the Republic of China. Our responsibilities under those standards are further described in the
Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are
independent of the Company in accordance with The Norm of Professional Ethics for Certified
Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements for the year ended December 31, 2017. These matters wereaddressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
The key audit matters in the audit of the financial statements of the Company are stated below:
Passenger Revenue Recognition
In accordance with IFRS 15 “Revenue from Contracts with Customers”, passenger sales areaccounted for as contract liabilities before relevant transportation services are provided. After
providing the related services, contract liabilities are reclassified to passenger revenue. As of
December 31, 2018, passenger revenue was NT$94,248,291 thousand. Refer to Notes 4 and 27 to
the accompanying consolidated financial statements for related detailed information.

-1-

Since relevant sales can only be recognized as passenger revenue when passengers actuallyboarded, confirmation from each passenger holding the ticket who actually boarded involves acomplicated process; therefore, we identified passenger revenue recognition as a key audit matter.
The main audit procedures that we performed included the following:1.

We understood and tested the internal control related to the process of revenue from passenger,
including manual and automatic control.

2.

We understood and tested the effectiveness of the information system related to the process ofpassenger revenue.

3.

We sampled several flight tickets, which were flown and recognized as revenue, to verify
whether the boarding date matched the date recorded on the tickets, from advanced sales
tickets

New Aircraft Acquisition Cost
In accordance with IAS 16 “Property, Plant and Equipment”, aircraft acquisition costs wereallocated into several significant components, which include airframe, airframe overhaul, engine,engine overhaul, landing gear, etc., and are depreciated over different useful lives. As of December
31, 2018, the carrying amount of the flight equipment was NT$133,222,119 thousand. Refer toNotes 4, 5 and 15 to the accompanying financial statements for related detailed information.
Since the Company introduced A350-900 brand new aircraft this year, the allocation base wasadjusted. Moreover, the carrying amount of the flight equipment and the depreciation expense
recognized will be subject to the allocation of acquisition cost and the estimated useful life, whichwere made in accordance with management’s judgment. Therefore, we identified new aircraft
acquisition cost as a key audit matter.
The main audit procedures that we performed included the following:1.

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

2.

We conducted an assessment on the rationality of the aircraft’s useful life based on aircraft
performance in the industry, historical experience of aircraft operations, and documents that
described the basis used by management to determine the useful life of its new aircraft.

Other Matter - Audited by Other Independent Auditors
Some investments accounted for using the equity method and disclosure information in Note 14
were audited by other independent auditors, and our audit opinion is based solely on the audit
report of other independent auditors. As of December 31, 2018, the aforementioned investment
accounted for using the equity method was NT$1,805,921 thousand, representing 0.84% of total
assets. For the year ended December 31, 2018, comprehensive income (including share of profit orloss of subsidiaries, associates and joint ventures and share of other comprehensive income (loss)of subsidiaries, associates and joint ventures accounted for using the equity method) was
NT$890,786 thousand.

-2-

Responsibilities of Management and Those Charged with Governance for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial statements inaccordance with the Regulations Governing the Preparation of Financial Reports by Securities
Issuers, and for such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, management is responsible for assessing the Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless management either intends to liquidate theCompany or to cease operations, or has no realistic alternative but to do so.
Those charged with governance, including the audit committee and supervisors, are responsible foroverseeing the Company’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ reportthat includes our opinion. Reasonable assurance is a high level of assurance, but is not a guaranteethat an audit conducted in accordance with the auditing standards generally accepted in the
Republic of China will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of thesefinancial statements.
As part of an audit in accordance with the auditing standards generally accepted in the Republic ofChina, we exercise professional judgment and maintain professional skepticism throughout theaudit. We also:1.

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

2.

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

3.

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

4.

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

-3-

5.

Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions andevents in a manner that achieves fair presentation.

6.

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

We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those mattersthat were of most significance in the audit of the financial statements for the year ended December
31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partners on the audit resulting in this independent auditors’ report are Chen-Hsiu
Yang and Jui-Chan Huang.

Deloitte & Touche
Taipei, Taiwan
Republic of China
March 20, 2019

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

-4-CHINA AIRLINES, LTD.
BALANCE SHEETSDECEMBER 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars)

2018
AmountASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6 and 32)
Derivative financial assets for hedging - current (Notes 4 and 32)
Financial assets at amortized cost (Notes 9 and 32)
Financial assets for hedging - current (Notes 4 and 32)
Receivables:
Notes and accounts, net (Notes 4, 11 and 32)
Accounts - related parties (Notes 32 and 33)
Other receivables
Current tax assets (Notes 4 and 28)
Inventories, net (Notes 4 and 12)
Non-current assets held for sale (Notes 4 and 13)
Other current assets (Note 18)%$ 18,688,022
2,310,000
27,3549
1-$ 16,563,559
293
-

8
-

9,280,662
298,311656,790
15,8108,451,892
46,154
3,157,864

4
4
2

8,044,940
510,588532,974
24,0968,610,958
426,553
3,219,735

4
4
2

42,932,859

20

37,933,696

18

83,366
13,158,355
149,029,054
2,047,448
979,708
4,561,346
2,122,085

6
69
1
1
2
1

64,177
11,551,369
142,265,548
2,047,448
989,327
4,974,941
12,091,486

5
67
1
1
2
6

171,981,362

80

173,984,296

82$ 214,914,221

100$ 211,917,992

100

Total current assets
NON-CURRENT ASSETS
Financial assets at fair value through other comprehensive income - non-current (Notes 4, 8 and 32)
Financial assets measured at cost - non-current (Notes 4, 10 and 32)
Investments accounted for using the equity method (Notes 4 and 14)
Property, plant and equipment (Notes 4, 15 and 34)
Investment properties (Notes 4 and 16)
Other intangible assets (Notes 4 and 17)
Deferred tax assets (Notes 4 and 28)
Other non-current assets (Notes 18, 21 and 32)
Total non-current assets
TOTAL

2017
Amount%LIABILITIES AND EQUITYCURRENT LIABILITIESFinancial liabilities at fair value through profit or loss - current (Notes 4, 7 and 32)
Derivative financial liabilities for hedging - current (Notes 4 and 32)
Financial liabilities for hedging - current (Notes 4 and 32)
Notes and accounts payable (Note 32)
Contract liabilities current (Notes 4 and 23)
Accounts payable - related parties (Notes 32 and 33)
Other payables (Notes 22 and 27)
Current tax liabilities (Notes 4 and 28)
Provisions - current (Notes 4 and 24)
Deferred revenue - current (Notes 4 and 23)
Bonds payable and put option of convertible bonds - current (Notes 4, 20, 26, 32 and 33)
Loans and debts - current (Notes 18, 32 and 34)
Capital lease obligations - current portion (Notes 4, 21, 32 and 34)
Other current liabilities (Note 32)

$

8,655
77,639297,952
1,494,006
10,908,752
2
406,457
14,048,025
4,367,100
18,814,633
1,580,000
2,922,143

1
5
7
2
9
1
1

25

54,925,364

26

28,773,710
56,827,738
1,903,665
7,730,114
21,195
6,932,783
463,610

13
27
1
4
3
-

926
6,994
21,350,000
61,907,978
7,352,194
38,946
596,000
1,818,265
6,158,744
739,344

10
29
4
1
3
-

Total non-current liabilities

102,652,815

48

99,969,391

47

Total liabilities

157,832,649

73

154,894,755

73

54,209,846
1,241,21425
1

54,709,846
799,99926-

351,923
118,810
1,144,928
1,615,661
58,223(43,372)1
1-

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

57,081,572

27

57,023,237

27$ 214,914,221

100$ 211,917,992

100

Total current liabilities
NON-CURRENT LIABILITIESFinancial liabilities at fair value through profit or loss - non-current (Notes 4, 7 and 32)
Derivative financial liabilities for hedging - non-current (Notes 4 and 32)
Bonds payable - non-current (Notes 4, 20, 26, 32 and 33)
Loans and debts - non-current (Notes 19, 32 and 34)
Contract liabilities - non-current (Notes 4 and 23)
Provisions - non-current (Notes 4 and 24)
Deferred tax liabilities (Notes 4 and 28)
Capital lease obligations - non-current (Notes 4, 21, 32 and 34)
Deferred revenue - non-current (Notes 4 and 23)
Accrued pension costs (Notes 4, 5 and 25)
Other non-current liabilities (Note 32)

EQUITY (Notes 20 and 26)
Share capital
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated retained earnings
Total retained earnings
Other equity
Treasury shares
Total equity
TOTAL

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

-5-

221
239
1,198,647
17,065,481
1,583,684
11,739,299
2
268,901
4,445,900
15,335,005
596,000
2,946,455

1
8
1
5
2
7
1

55,179,834$

CHINA AIRLINES, LTD.
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2018
Amount%2017
Amount%REVENUE (Notes 4, 27 and 33)$ 150,264,792

100$ 139,815,211

100

COSTS (Notes 4, 12, 27 and 33)

137,614,956

92

121,848,814

87

GROSS PROFIT

12,649,836

8

17,966,397

13

OPERATING EXPENSES (Notes 4, 27 and 33)

10,802,269

7

10,608,283

8OPERATING PROFIT

1,847,567

1

7,358,114

5

420,416(559,230)(1,312,044)(1)

360,980(4,980,870)(1,277,807)

(3)
(1)

1,918,922

1

1,627,786

1

468,064-(4,269,911)(3)2,315,631

1

3,088,203

2

525,270-

880,137-

1,790,361

1

2,208,066

2

23,884---(23,830)---(674,905)-(645,219)(1)(105,569)-(211,952)-

127,120-

109,687(Continued)

NON-OPERATING INCOME AND EXPENSES
Other income (Note 27)
Other gains and losses (Notes 10, 13, 15 and 27)
Finance costs (Notes 10, 27 and 33)
Share of the profit of associates and joint ventures(Note 14)
Total non-operating income and expenses
PROFIT BEFORE INCOME TAX
INCOME TAX EXPENSE (Notes 4, and 28)
NET INCOME
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to
profit or loss:
Gain on hedging instruments subject to basis
adjustments (Notes 4, 26 and 32)
Unrealized (loss) gain on investments in equity
instruments designated as at fair value throughother comprehensive income (Notes 4 and 26)
Remeasurement of defined benefit plans (Notes 4
and 25)
Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method
Income tax relating to items that will not bereclassified subsequently to profit or loss
(Note 28)

-6-

CHINA AIRLINES, LTD.
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2018
AmountItems that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 26)
Cash flow hedges (Notes 4 and 26)
Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method (Notes 4 and 26)
Gain on hedging instruments not subject to basis
adjustment (Notes 4, 26 and 32)
Income tax relating to items that may bereclassified subsequently to profit or loss
(Note 28)$

Other comprehensive loss for the year, net ofincome tax
TOTAL COMPREHENSIVE INCOME FOR THE
YEAR$

EARNINGS PER SHARE (NEW TAIWANDOLLARS; Note 28)
Basic
Diluted%34,140--29,573--(11,212)-75,454---(18,193)-

42,744-(532,326)-(967,389)(1)

1,258,035

1

1,240,677

1

0.33
0.32

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

$%(134,857)(116,580)

$
$

-7-

2017
Amount

$

$
$

0.40
0.39

(Concluded)

CHINA AIRLINES, LTD.
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars)

Retained Earnings

BALANCE AT JANUARY 1, 2017
Compensation of deficit - capital surplus

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

UnappropriatedEarnings(Accumulated
Deflect)$ 54,708,901

$

$

$

$

799,932

287,224

76,486(157,618)

Exchange
Differences on
Translating
Foreign
Operations

Unrealized Gain
(Loss) on
Available-forsale Financial
Assets$$78,564

1,714

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

Cash Flow
Hedges$31,986$-

Treasury Shares
Held by
Subsidiaries$

Total Equity(43,372)$ 55,783,817--(81,132)(76,486)

157,618

-

-

-

-

-

-

-

945

131

-

-

-

-

-

-

-

-

-

1,076

Changes in capital surplus from investments in associates and joint
ventures accounted for using the equity method

-

(64)

-

-

-

-

-

-

-

-

-

(64)

Difference between cost of the acquisition of subsidiaries and net value

-

-

-

-

(2,269)

-

-

-

-

-

-

(2,269)Net income for the year ended December 31, 2017

-

-

-

-

2,208,066

-

-

-

-

-

-

2,208,066

Other comprehensive income (loss) for the year ended December 31, 2017,
net of income tax

-

-

-

-

(747,484)(113,550)

60-(106,415)--(967,389)

Total comprehensive income (loss) for the year ended December 31, 2017

-

-

-

-

1,460,582(113,550)

60-(106,415)--

1,240,677

54,709,846

799,999

206,092-

1,458,313(34,986)

1,774-(74,429)-(43,372)

57,023,237

-

-

-

-

60

-

(1,774)42,351

74,429(74,429)-

40,63754,709,846

799,999

206,092-

1,458,373(34,986)-

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

57,063,874

Issuance of convertible bonds-

409,978

-

-

-

-

-

-

-

-

-

409,978

Basis adjustments to gain on hedging instruments

-

-

-

-

-

-

-

-

-

12,118-

12,118

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

145,831-

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

-

-

-

-

-

-

(1,193,670)

Changes in capital surplus from dividends distributed to subsidiaries

-

630

-

-

-

-

-

-

-

-

-

630

Net income for the year ended December 31, 2018

-

-

-

-

1,790,361

-

-

-

-

-

-

1,790,361

Other comprehensive income (loss) for the year ended December 31, 2018,
net of income tax

-

-

-

-

(645,495)

25,322-

268-

87,579-(532,326)

Total comprehensive income (loss) for the year ended December 31, 2018

-

-

-

-

1,144,866

25,322-

268-

87,579-1,258,035

Treasury shares acquired

-

-

-

-

-

-

-

-

-

-

(469,393)(469,393)(500,000)

30,607

-

-

-

-

-

-

-

-

469,393-(43,372)$ 57,081,572

Convertible bonds converted to ordinary shares

BALANCE AT DECEMBER 31, 2017
Effect of retrospective application and retrospective restatement
BALANCE AT JANUARY 1, 2018 AS RESTATED

Treasury shares retired
BALANCE AT DECEMBER 31, 2018

$ 54,209,846$

1,241,214$

351,923$

118,810$

1,144,928

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

-8-$(9,664)$-$42,619$-$25,268$

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars)

2018
CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax
Adjustments for:Bad debt expenses
Depreciation expenses
Amortization expenses
Net loss on fair value changes of financial assets and liabilities held
for trading
Interest income
Dividend income
Share of profit of associates and joint ventures
Loss (gain) on disposal of property, plant and equipment
Gain on disposal of investments accounted for using the equity
methodLoss (gain) on disposal of non-current assets held for sale
Loss on inventories and property, plant and equipment
Impairment loss recognized on property, plant and equipment
Net gain on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leasebacks
Impairment loss recognized on financial assets measured at cost
Impairment loss recognized on non-current assets held for sale
Changes in operating assets and liabilities
Financial assets held for trading
Financial assets mandatorily classified as at fair value through profit
or loss
Financial liabilities mandatorily classified as at fair value throughprofit or loss
Notes and accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Financial assets at amortized cost - current
Other current assets
Notes and accounts payable
Accounts payable - related parties
Other payables
Contract liabilities
Deferred revenue
Provisions
Other current liabilities
Accrued pension liabilities
Cash generated from operations
Interest received
Dividends received

-9-

$

2017

2,315,631$

3,088,203

50,00018,192,291
165,050

50,00017,375,194
247,725(11,076)(274,189)(9,603)(1,918,922)
273,308

33,385(176,329)(9,564)(1,627,786)(5,839)(450,195)
368,992
623,01250,000288,598
1,312,044
2,566,045(13,888)
75,437(101,105)(252,467)
642,423
690,579(343,681)
1,277,807
2,524,079(14,512)56,023
3,571,301-(32,185)

11,076-(9,359)(1,260,344)
212,277(94,232)(225,553)(2,310,000)
62,151
878,219
89,678513,674
3,102,855(2,539,210)
10,515
99,13522,143,417
244,604
624,834

9,580(271,309)(71,079)
266,338(591,043)(733,731)(305,161)
146,999
2,073,621
653,161(1,138,140)
157,417(703,821)
26,486,083
192,138
639,454(Continued)

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars)

2018

2017

$ (1,242,278)(19,085)$ (1,245,421)(31,203)21,751,492

26,041,051(243,743)(2,561,987)
330,136
688,427(1,240,837)(953,218)
82,534
1,128,472(51,378)
103,593(13,798,867)(155,431)

380,850(107,935)
180,381(24,215,469)(121,951)(15,689,250)(24,867,173)(469,393)
10,512,000(2,700,000)
17,200,000(27,339,868)
118,367(67,905)(1,193,670)(900,000)
5,850,000(2,700,000)
30,380,000(36,947,007)
233,015(192,672)-(3,940,469)(4,276,664)

2,690(68,245)

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS

2,124,463(3,171,031)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR

16,563,559

19,734,590

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

$ 18,688,022$ 16,563,559

Interest paid
Income tax paid
Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of investments accounted for by the equity method
Payments for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of non-current assets held for sale
Proceeds from disposal of investments accounted for using the equity
methodIncrease in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Increase in computer software costs
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term bills payable
Payments for buy-back of treasury shares
Proceeds from issuance of bonds payable
Repayments of bonds payable
Proceeds from long-term borrowings
Repayments of long-term borrowings and capital lease obligations
Proceeds from guarantee deposits received
Refunds of guarantee deposits received
Dividends paid to owners of the Company
Net cash used in financing activities
EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIESThe accompanying notes are an integral part of the financial statements.

- 10 -(Concluded)

CHINA AIRLINES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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 primarily provides air transport services forpassengers and cargo. Its other operations include (a) mail services; (b) ground services and routine aircraft
maintenance; (c) major maintenance of flight equipment; (d) communications and data processing services
to other airlines; (e) the sale of aircraft parts, equipment and the entire aircraft; and (f) leasing of aircraft.
The major shareholders of the Company are the China Aviation Development Foundation (CADF) and the
National Development Fund (NDF), Executive Yuan. As of December 31, 2018 and 2017, CADF and NDF
held a combined 44.03% and 43.63% of the Company’s shares. As of December 31, 2018 and 2017, theCompany had 12,418 and 12,654 employees, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the Company’s board of directors and authorized for issue on
March 20, 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 (FSC) and the International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)
endorsed and issued into effect by the FSC
Except for the following, whenever applied, the initial application of the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs
endorsed and issued into effect by the FSC would not have any material impact on the Company’s
accounting policies:
1) IFRS 9 “Financial Instruments” and related amendments
IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, withconsequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards.
IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets
and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.
The requirements for classification, measurement and impairment of financial assets have been
applied retrospectively starting from January 1, 2018, and the requirements for hedge accounting
have been applied prospectively. IFRS 9 is not applicable to items that have already been
derecognized as of December 31, 2017.
On the basis of the facts and circumstances that existed as of January 1, 2018, the Company has
performed an assessment of the classification of recognized financial assets and has elected not torestate prior reporting periods.

- 11 -

The following table shows the original measurement categories and carrying amounts under IAS 39
and the new measurement categories and carrying amounts under IFRS 9 for each class of theCompany’s financial assets and financial liabilities as of January 1, 2018.
Measurement Category
IAS 39IFRS 9Financial Asset
Equity securities

Financial assets
measured at cost

IAS 39Carrying
Amountas ofJanuary 1,
2018

Financial Asset

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

Reclassifications

Remeasurements$

64,177$ 107,196

Retained
Earnings
Effect on
January 1,
2018

IFRS 9Carrying
Amount as ofJanuary 1, 2018

Other
EquityEffect on
January 1,
2018

FVTOCI
Equity instruments
Add: Financial assets measured atcost (IAS 39)
Investments using equity method

$

-

$

64,177

11,551,369$ 11,551,369$$

64,17743,019$4,491$

47,510107,196$

11,555,860$

11,603,056

60

$

$

60

42,9594,491$

47,450a) Investments in unlisted shares previously measured at cost under IAS 39 have been classified as
designated as at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an
increase of $43,019 thousand was recognized in both financial assets at FVTOCI and other
equity - unrealized gain (loss) on financial assets at FVTOCI on January 1, 2018.
b) Investment using equity method previously measured at cost have been classified as designatedas at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an increase of$4,491 thousand was recognized in both investment using equity method and other equity unrealized gain (loss) on financial assets at FVTOCI on January 1, 2018.
c) Mutual funds held by investments accounted for using the equity method previously classified
as available-for-sale under IAS 39 were classified mandatorily as at FVTPL (FVTPL) under
IFRS 9, because the contractual cash flows are not solely payments of principal and interest on
the principal outstanding and they are not equity instruments. The retrospective adjustment
resulted in a decrease of $60 thousand in other equity - unrealized gain (loss) on
available-for-sale financial assets and an increase of $60 thousand in retained earnings on
January 1, 2018.
d) Except for the above, the remaining financial assets classified as loans and receivables
amounting to $26,095,060 thousand based on IAS 39 are classified as financial assets at
amortized cost under IFRS 9.
e) In line with the equity adjustments above, the Company’s deferred tax liabilities increased by$6,873 thousand.
2) IFRS 15 “Revenue from Contracts with Customers” and related amendments
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers
and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations. Refer to Note 4 for related accounting policies.

- 12 -

In identifying performance obligations, IFRS 15 and the related amendments require that a good orservice is distinct if it is capable of being distinct (for example, the Company regularly sells it
separately) and the promise to transfer it is distinct within the context of the contract (i.e. the natureof the promise in the contract is to transfer each good or service individually rather than to transfer
a combined output). The Company chooses to apply retroactively IFRS 15 only for contracts thathave not yet been completed on the conversion date. Also, the revenue-related amount received
should be recognized as contract liabilities. Therefore, the previously classified deferred revenue current and non-current are reclassified to contract liabilities - current and non-current whichamounted to $14,048,025 thousand and $1,818,265 thousand, respectively, on January 1, 2018.
b. 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”) endorsedby the FSC for application starting from 2019
Effective Date
Announced by IASB (Note 1)

New IFRSs
Annual Improvements to IFRSs 2015-2017 Cycle
Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”
IFRS 16 “Leases”
Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and Joint
Ventures”
IFRIC 23 “Uncertainty over Income Tax Treatments”

January 1, 2019
January 1, 2019 (Note 2)
January 1, 2019
January 1, 2019 (Note 3)
January 1, 2019
January 1, 2019

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

- 13 -

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

- 14 -

The Company as lessor
The Company will not make any adjustments for leases in which it is a lessor and will account for thoseleases with the application of IFRS 16 starting from January 1, 2019.
Carrying
Amount as ofDecember 31,
2018

Adjustments
Arising from
InitialApplication

Adjusted
Carrying
Amount as ofJanuary 1, 2019

Prepaid rent
Refundable deposits
Right-of-use assets
Other financial assets$

699,098
377,577-$$

Total effect on assets$

1,076,675

Lease liabilities - current
Lease liabilities - non-current$

Total effect on liabilities$(699,098)(215,426)
69,988,735
189,808

162,151
69,988,735
189,808$ 69,264,019$ 70,340,694

-

$

$

-

$ 69,264,019

8,746,080
60,517,939

8,746,080
60,517,939$ 69,264,019

Except for the above impact, as of the date the standalone financial statements were authorized for issue,
the Company is continuously assessing the possible impact that the application of other standards andinterpretations will have on the Company’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 1)

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

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

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.
Note 2: Business combinations that began after January 1, 2020 and acquisition of assets after the
aforesaid date, are subjected to the amendment.
Note 3: The amendment is applied for the annual period beginning after January 1, 2020.
Except for the above impact, as of the date the standalone financial statements were authorized for issue,
the Company is continuously assessing the possible impact that the application of other standards andinterpretations will have on the Company’s financial position and financial performance and will
disclose the relevant impact when the assessment is completed.

- 15 -

4. SIGNIFICANT ACCOUNTING POLICIESStatement of Compliance
The financial statements have been prepared in accordance with the Regulations Governing the Preparationof Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.
Basis of Preparation
The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fairvalue measurement inputs are observable and based on the significance of the inputs to the fair value
measurement in its entirety, are described as follows:a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); andc. Level 3 inputs are unobservable inputs for an asset or liability.
When preparing these parent company only financial statements, the Company used the equity method toaccount for its investments in subsidiaries, associates and joint ventures. In order for the amounts of the net
profit for the year, other comprehensive income for the year and total equity in the parent company only
financial statements to be the same with the amounts attributable to the owners of the Company in its
standalone financial statements, adjustments arising from the differences in accounting treatments between
the parent company only basis and the standalone basis were made to investments accounted for using theequity method, the share of profit or loss of subsidiaries, associates and joint ventures, the share of othercomprehensive income of subsidiaries, associates and joint ventures and the related equity items, as
appropriate, in these parent company only financial statements.
Current and Non-current Assets and Liabilities
Current assets include:a. Assets held primarily for the purpose of trading;b. Assets expected to be realized within 12 months after the reporting period; andc. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability
for at least 12 months after the reporting period.
Current liabilities include:a. Liabilities held primarily for the purpose of trading;b. Liabilities due to be settled within 12 months after the reporting period; andc. Liabilities for which the Company does not have an unconditional right to defer settlement for at least
12 months after the reporting period.
Assets and liabilities that are not classified as current are classified as non-current.

- 16 -

Foreign Currencies
In preparing the financial statements of the Company, transactions in currencies other than the Company’sfunctional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the datesof the transactions. At the end of each reporting period, monetary items denominated in foreign currencies
are retranslated at the rates prevailing at that date. Non-monetary items that are measured at historical costin a foreign currency are not retranslated. Non-monetary items measured at fair value that are denominatedin foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined.
Exchange differences on monetary items arising from settlement or translation are recognized in profit orloss in the period in which they arise except for:a. Exchange differences on foreign currency borrowings relating to assets under construction for future
productive use, which are included in the cost of those assets when they are regarded as an adjustment
to interest costs on those foreign currency borrowings;
b. Exchange differences on transactions entered into in order to hedge certain foreign currency risks.
Exchange differences arising on the retranslation of non-monetary items are included in profit or loss forthe period except for exchange differences arising from the retranslation of non-monetary items in respectof which gains and losses are recognized directly in other comprehensive income, in which case, theexchange differences are also recognized directly in other comprehensive income.
For the purposes of presenting financial statements, the assets and liabilities of the Company’s foreign
operations are translated into New Taiwan dollars using exchange rates prevailing at the end of eachreporting period. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising are recognized in other comprehensive income (attributed to the owners of theCompany and non-controlling interests as appropriate).
On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect ofthat operation attributable to the owners of the Company are reclassified to profit or loss.
Inventories
Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations
and items for in-flight sale and are stated at the lower of cost or net realizable value. The costs ofinventories sold or consumed are determined using the weighted-average method.
Non-current Assets Held for Sale
Non-current assets are classified as held-for-sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the Non-current asset is available for immediate sale in its present condition.
To meet the criteria for the sale being highly probable, the appropriate level of management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within one
year from the date of classification.
Non-current assets classified as held-for-sale are measured at the lower of their previous carrying amountand fair value less costs to sell. Recognition of depreciation of those assets would cease.
Investments Accounted for by the Equity Method
Investments in subsidiaries, associates and jointly controlled entities are accounted for by the equity
method.
a. Investment in subsidiaries- 17 -

Subsidiaries (including special purpose entities) are the entities controlled by the Company.
Under the equity method, the investment is initially recognized at cost and the carrying amount isincreased or decreased to recognize the Company’s share of the profit or loss and other comprehensive
income of the subsidiary after the date of acquisition. Besides, the Company also recognizes theCompany’s share of the changes in other equity of the subsidiary.
Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s lossof control over the subsidiaries are accounted for as equity transactions. Any difference between the
carrying amounts of the investment and the fair value of the consideration paid or received isrecognized directly in equity.
When the Company’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary(which includes any carrying amount of the investment in subsidiary accounted for by the equity
method and long-term interests that, in substance, form part of the Company’s net investment in thesubsidiary), the Company continues recognizing its share of further losses.
The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired isrecognized as goodwill. Goodwill is not amortized. The acquisition-date fair value of the net
identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss.
When the Company ceases to have control over a subsidiary, any retained investment is measured atfair value at that date and the difference between the previous carrying amount of the subsidiary
attributable to the retained interest and its fair value is included in the determination of the gain or loss.
Furthermore, the Company accounts for all amounts previously recognized in other comprehensive
income in relation to that subsidiary on the same basis as would be required if the Company had
directly disposed of the related assets or liabilities.
Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits andlosses from upstream with a subsidiary and side stream transactions between subsidiaries are recognizedin the Company’s financial statements only to the extent of interests in the subsidiary that are notrelated to the Company.
b. Investments in associates and joint ventures
An associate is an entity over which the Company has significant influence and that is neither asubsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby theCompany and other parties that have joint control of the arrangement and the rights to the net assets of
the arrangement.
The Company uses the equity method to account for its investments in associates and joint ventures.
Under the equity method, an investment in an associate and jointly controlled entity is initiallyrecognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss andother comprehensive income of the associate and jointly ventures. The Company also recognizes thechanges in the Company’s share of equity of associates and jointly ventures attributable to theCompany.

- 18 -

When the Company subscribes for additional new shares of an associate and joint ventures at apercentage different from its existing ownership percentage, the resulting carrying amount of theinvestment differs from the amount of the Company’s proportionate interest in the associate and joint
ventures. The Company records such a difference as an adjustment to investments with thecorresponding amount charged or credited to capital surplus. If the Company’s ownership interest is
reduced due to the subscription of additional new shares of the associate and jointly controlled entity,
the proportionate amount of the gains or losses previously recognized in other comprehensive income inrelation to that associate and joint ventures is reclassified to profit or loss on the same basis as would be
required had the investee directly disposed of the related assets or liabilities. When the adjustment
should be debited to capital surplus, but the capital surplus recognized from investments accounted forusing the equity method is insufficient, the shortage is debited to retained earnings.
When the Company’s share of losses of an associate and joint ventures equals or exceeds its interest inthat associate and joint ventures which includes any carrying amount of the investment accounted forusing the equity method and long-term interests that, in substance, form part of the Company’s net
investment in the associate and joint ventures entity, the Company discontinues recognizing its share offurther losses. Additional losses and liabilities are recognized only to the extent that the Company has
incurred legal obligations, or constructive obligations, or made payments on behalf of that associate andjoint ventures.
Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable
assets and liabilities of an associate and joint ventures recognized at the date of acquisition isrecognized as goodwill, which is included within the carrying amount of the investment and is notamortized. Any excess of the Company’s share of the net fair value of the identifiable assets andliabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.
The entire carrying amount of the investment (including goodwill) is tested for impairment as a single
asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized
forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized
to the extent that the recoverable amount of the investment subsequently increases.
The Company discontinues the use of the equity method from the date on which it ceases to havesignificant influence and joint control. Any retained investment is measured at fair value at that date andthe fair value is regarded as its fair value on initial recognition as a financial asset. The difference
between the previous carrying amount of the associate and the jointly controlled entity attributable to
the retained interest and its fair value is included in the determination of the gain or loss on disposal of
the associate and the jointly controlled entity. The Company accounts for all amounts previously
recognized in other comprehensive income in relation to that associate and the jointly controlled entity
on the same basis as would be required if that associate had directly disposed of the related assets or
liabilities.
When the Company transacts with its associate and joint ventures, profits and losses resulting from thetransactions with the associate are recognized in the Company’ financial statements only to the extent ofinterests in the associate and the jointly controlled entity that are not related to the Company.
Property, Plant and Equipment
Property, plant and equipment are tangible items that are held for use in the production or supply of goods
or services, for rental to others, or for administrative purposes and are expected to be used for more than
one period. The cost of an item of property, plant and equipment shall be recognized as an asset if, and only
if, it is probable that future economic benefits associated with the item will flow to the Company; and thecost of the item can be measured reliably. Property, plant and equipment are stated at cost less recognizedaccumulated depreciation and recognized accumulated impairment loss.
Freehold land is not depreciated.

- 19 -

Depreciation is recognized using the straight-line method. Each significant part is depreciated separately.
The estimated useful lives, residual values and depreciation methods are reviewed at the end of eachreporting period, with the effects of any changes in the estimates accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets. Assets are depreciated over the shorter of the lease term and their useful lives using the straight-line
method.
Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment isdetermined as the difference between the sales proceeds and the carrying amount of the asset and isrecognized in profit or loss.
Investment Properties
Investment properties are properties held to earn rentals or for capital appreciation. Investment properties
also include land held for a currently undetermined future use.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initialrecognition, investment properties are measured at cost less accumulated depreciation and accumulated
impairment loss.
Any gain or loss arising on the derecognition of investment properties is calculated as the difference
between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss inthe period in which the property is derecognized.
Intangible Assets
Intangible assets with finite useful lives that are acquired separately are initially measured at cost andsubsequently measured at cost less accumulated amortization and accumulated impairment loss.
Amortization is recognized on a straight-line basis. The estimated useful lives, residual values, andamortization methods are reviewed at the end of each reporting period, with the effects of any changes inthe estimates being accounted for on a prospective basis. The residual value of an intangible asset with afinite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset
before the end of its economic life.
Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assets havesuffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimatedin order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable
amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit towhich the asset belongs. Corporate assets are allocated to the individual cash-generating units on areasonable and consistent basis; otherwise, corporate assets are allocated to the smallest group of
cash-generating units on a reasonable and consistent allocation basis.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the Company uses the estimated cash flows discounted by the future pre-tax discount rate, and thediscount rate reflects the current market time value of money and the specific risks to the asset for estimatedfuture cash flows not yet adjusting to the market.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.
- 20 -

When an impairment loss is subsequently is reversed, the carrying amount of the asset or cash-generating
unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying
amount that would have been determined had no impairment loss been recognized for the asset or
cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.
Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to thecontractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issuance of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of thefinancial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized
immediately in profit or loss.
a. Financial assets
All regular purchases or sales of financial assets are recognized and derecognized on a trade date basis.
All regular purchases or sales of financial assets are buy or sell of financial assets in the period set byregulation or market convention.
1) Measurement category
2018
Financial assets are classified into the following categories: financial assets at FVTPL, financial
assets at amortized cost, and investments in equity instruments at FVTOCI.
a) Financial assets at FVTPL
Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified
or designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include
investments in equity instruments which are not designated as at FVTOCI and debt instrumentsthat do not meet the amortized cost criteria or the FVTOCI criteria.
Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses
arising on remeasurement recognized in profit or loss. Fair value is determined in the manner
described in Note 33.
b) Financial assets at amortized cost
Financial assets that meet the following conditions are subsequently measured at amortized
cost:
i.

The financial asset is held within a business model whose objective is to hold financial
assets in order to collect contractual cash flows; andii. The contractual terms of the financial asset give rise on specified dates to cash flows that aresolely payments of principal and interest on the principal amount outstanding.

- 21 -

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash
equivalents, trade receivables, other receivables and other financial assets, are measured atamortized cost, which equals the gross carrying amount determined using the effective interest
method less any impairment loss. Exchange differences are recognized in profit or loss.
Interest income is calculated by applying the effective interest rate to the gross carrying amountof a financial asset.
Cash equivalents include time deposits with original maturities within 3 months from the date ofacquisition, which are highly liquid, readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value. These cash equivalents are held for the
purpose of meeting short-term cash commitments.
c) Investments in equity instruments at FVTOCI
On initial recognition, the Company may make an irrevocable election to designate investmentsin equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if an equity
investment is held for trading or if it is contingent consideration recognized by an acquirer in abusiness combination.
Investments in equity instruments at FVTOCI are subsequently measured at fair value withgains and losses arising from changes in fair value recognized in other comprehensive income
and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit orloss on disposal of the equity investments; instead, they will be transferred to retained earnings.
Dividends on these investments in equity instruments are recognized in profit or loss when the
Company’s right to receive the dividends is established, unless the dividends clearly represent a
recovery of part of the cost of an investment.
2017
Financial assets are classified into the following categories: Financial assets at FVTPL,
available-for-sale financial assets, and loans and receivables.
a) Financial assets at FVTPL
Financial assets are classified as at FVTPL when such financial assets are either held for tradingor designated as at FVTPL.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on
remeasurement recognized in profit or loss. Fair value is determined in the manner described in
Note 32.
b) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity investments orfinancial assets at FVTPL.
Available-for-sale financial assets are measured at fair value. Changes in the carrying amountsof available-for-sale monetary financial assets (relating to changes in foreign currency exchange
rates, interest income calculated using the effective interest method and dividends onavailable-for-sale equity investments) are recognized in profit or loss. Other changes in the
carrying amount of available-for-sale financial assets are recognized in other comprehensive
income and will be reclassified to profit or loss when such investments are disposed of or are
determined to be impaired.
- 22 -

Dividends on available-for-sale equity instruments are recognized in profit or loss when the
Company’s right to receive the dividends is established.
Available-for-sale equity investments that do not have a quoted market price in an active market
and whose fair value cannot be reliably measured and derivatives that are linked to and must be
settled by delivery of such unquoted equity investments are measured at cost less any identified
impairment loss at the end of each reporting period and presented in a separate line item asfinancial assets measured at cost. If, in a subsequent period, the fair value of the financial assets
can be reliably measured, the financial assets are remeasured at fair value. The difference
between the carrying amount and the fair value is recognized in other comprehensive income on
financial assets. Any impairment losses are recognized in profit and loss.
c) Loans and receivables
Loans and receivables (including trade receivables, cash and cash equivalents, other financial
assets and other receivables) are measured at amortized cost using the effective interest method,at amortized cost less any impairment, except for short-term receivables when the effect of
discounting is immaterial.
Cash equivalents include time deposits with original maturities within 3 months from the date ofacquisition, which are highly liquid, readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value. These cash equivalents are held for the
purpose of meeting short-term cash commitments.
2) Impairment of financial assets
2018
The Company recognizes a loss allowance for expected credit losses on financial assets at
amortized cost (including trade receivables), as well as contract assets.
The Company always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables
and other receivables. For all other financial instruments, the Company recognizes lifetime ECLs
when there has been a significant increase in credit risk since initial recognition. If, on the other
hand, the credit risk on a financial instrument has not increased significantly since initialrecognition, the Company measures the loss allowance for that financial instrument at an amountequal to 12-month ECLs.
Expected credit losses reflect the weighted average of credit losses with the respective risks of a
default occurring as the weights. Lifetime ECL represents the expected credit losses that will result
from all possible default events over the expected life of a financial instrument. In contrast,
12-month ECL represents the portion of lifetime ECL that is expected to result from default eventson a financial instrument that are possible within 12 months after the reporting date.
The Company recognizes an impairment gain or loss in profit or loss for all financial instrumentswith a corresponding adjustment to their carrying amounts through a loss allowance account, except
for investments in debt instruments that are measured at FVTOCI, for which the loss allowance isrecognized in other comprehensive income and does not reduce the carrying amounts of thefinancial assets.

- 23 -

2017
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end ofeach reporting period. Financial assets are considered to be impaired when there is objective
evidence, as a result of one or more events that occurred after the initial recognition of the financial
assets, that the estimated future cash flows of the investments have been affected.
For financial assets at amortized cost, such as trade receivables and other receivables, such assets
are assessed for impairment on a collective basis even if they were assessed not to be impaired
individually. Objective evidence of impairment for a portfolio of receivables could include theCompany’s past experience with collecting payments, an increase in the number of delayed
payments in the portfolio past the average credit period of 60 days, as well as observable changes innational or local economic conditions that correlate with defaults on receivables.
For a financial asset at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of its estimated future cash
flows, discounted at the financial asset’s original effective interest rate.
For financial assets at amortized cost, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment wasrecognized, the previously recognized impairment loss is reversed through profit or loss to theextent that the carrying amount of the investment (at the date the impairment is reversed) does notexceed what the amortized cost would have been had the impairment not been recognized.
For any available-for-sale equity investments, a significant or prolonged decline in the fair value ofthe security below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include significant financial
difficulty of the issuer or counterparty, breach of contract such as a default or delinquency ininterest or principal payments, it becoming probable that the borrower will enter bankruptcy or
financial re-organization, or the disappearance of an active market for those financial assets becauseof financial difficulties.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the period.
In respect of available-for-sale equity securities, impairment loss previously recognized in profit orloss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment
loss is recognized in other comprehensive income. In respect of available-for-sale debt securities,
impairment loss is subsequently reversed through profit or loss if an increase in the fair value of theinvestment can be objectively related to an event occurring after the recognition of the impairment
loss.
For financial assets that are measured at cost, the amount of the impairment loss is measured as thedifference between such an asset’s carrying amount and the present value of the estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Such
impairment loss will not be reversed in subsequent periods.
The carrying amount of a financial asset is reduced by the impairment loss directly for all financial
assets, with the exception of trade receivables and other receivables, where the carrying amount isreduced through the use of an allowance account. When trade receivables and other receivables are
considered uncollectible, they are written off against the allowance account. Subsequent recoveriesof amounts previously written off are credited against the allowance account. Changes in the
carrying amount of the allowance account are recognized in profit or loss except for uncollectible
trade receivables and other receivables that are written off against the allowance account.

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3) Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows fromthe asset expire or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another party.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss
that had been recognized in other comprehensive income is recognized in profit or loss.
b. Equity instruments
Debt and equity instruments issued by the Company entity are classified as either financial liabilities oras equity in accordance with the substance of the contractual arrangements and the definitions of afinancial liability and an equity instrument.
Equity instruments issued by the Company entity are recognized at the proceeds received, net of direct
issue costs.
Repurchase of the Company’s own equity instruments is recognized in and deducted directly fromequity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of theCompany’s own equity instruments.
c. Financial liabilities
1) Subsequent measurement
All financial liabilities are measured at amortized cost using the effective interest method.
2) Derecognition of financial liabilities
The difference between the carrying amount of a financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in
profit or loss.
d. Convertible bonds
The component parts of compound instruments (i.e. convertible bonds) issued by the Company areclassified separately as financial liabilities and equity in accordance with the substance of thecontractual arrangements and the definitions of a financial liability and an equity instrument.
On initial recognition, the fair value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible instruments. This amount is recorded as a liability on anamortized cost basis using the effective interest method until extinguished upon conversion or the
instrument’s maturity date. Any embedded derivative liability is measured at fair value.
The conversion option classified as equity is determined by deducting the amount of the liability
component from the fair value of the compound instrument as a whole. This is recognized and includedin equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion
option classified as equity will remain in equity until the conversion option is exercised, in which case,the balance recognized in equity will be transferred to capital surplus - share premiums. When theconversion option remains unexercised at maturity, the balance recognized in equity will be transferred
to capital surplus - share premiums.

- 25 -

Transaction costs that relate to the issuance of the convertible notes are allocated to the liability andequity components in proportion to the allocation of the gross proceeds. Transaction costs relating to
the equity component are recognized directly in equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability component.
e. Derivative financial instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to interest
rate, foreign exchange rate and fuel price risks, including foreign exchange forward contracts, interest
rate swaps, currency options and fuel swaps.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into andare subsequently remeasured to their fair value at the end of each reporting period. The resulting gain orloss is recognized in profit or loss immediately unless the derivative is designated and effective as ahedging instrument, in which event, the timing of the recognition in profit or loss depends on the natureof the hedging relationship. When the fair value of a derivative financial instrument is positive, thederivative is recognized as a financial asset; when the fair value of a derivative financial instrument isnegative, the derivative is recognized as a financial liability.
Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rates, foreign exchange
rates, fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging
transactions are defined as cash flow hedges. When entering into hedging transactions, the Company has
prepared official documents that describe the hedging relationship between hedging instruments and items
which have been hedged, the objective of risk management, the hedging strategy, and the way to evaluate
the effectiveness of the hedging instrument.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion isrecognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassified fromequity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in thesame period as when the hedged item affects profit or loss. If a hedge of a forecasted transaction
subsequently results in the recognition of a non-financial asset or a non-financial liability, the associatedgains and losses that were recognized in other comprehensive income are removed from equity and areincluded in the initial cost of the non-financial asset or non-financial liability.
Before 2017, hedge accounting was discontinued prospectively when the Company revoked the designatedhedging relationship; when the hedging instrument expired or was sold, terminated, or exercised; or when
the hedging instrument no longer met the criteria for hedge accounting. Starting from 2018, the Company
discontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; forinstance, when the hedging instrument expires or is sold, terminated or exercised. The cumulative gain orloss on the hedging instrument that has been previously recognized in other comprehensive income fromthe period in which the hedge was effective remains separately in equity until the forecasted transaction
occurs. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity
is recognized immediately in profit or loss.
Provisions
The Company recognizes provisions when the Company has a present obligation (legal or constructive)
arising from past events (legal or constructive obligation), payment for the obligation is probable, and theexpenditure for settling the obligation can be estimated reliably.

- 26 -

The amount recognized as a provision is the best estimate of the expenditure required to settle the present
obligation, taking into account the risks and uncertainties surrounding the obligation as of the balance sheet
date. When a provision is measured using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows. When the aircraft lease contracts expire and will
be returned to lessor, the Company will assess if there are existing obligations and if a provision is required
when signing the lease contract.
Revenue Recognition
When applying IFRS 15 during 2018, the Company recognizes revenue by applying the following steps:






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

Shipping service revenue
Passenger and cargo revenue are recognized as revenue when the passengers and goods are actually carried.
When the tickets are sold, due to the fact that the fulfillment obligations of the shipment have not been met,
the relevant amount of revenue is first recorded as contract liabilities until passengers actually board.
Before 2017, the relevant amounts were recorded as deferred revenue.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.
a. Financial leases
The Company as lessee
Assets held under finance leases are initially recognized as assets of the Company at the lower of theirfair value at the inception of the lease or the present value of the minimum lease payments. The
corresponding liability to the lessee is included in the balance sheets as a finance lease obligation.
Minimum lease payments are apportioned between finance expenses and reductions of the leaseobligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financeexpenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying
assets, in which case, they are capitalized in accordance with the Company’s general policy on
borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are
incurred.
b. Sales and leasebacks
For a sale and leaseback transaction, if it meets the condition whereby all the risks and rewards ofownership of the leased asset are essentially transferred to the lessee, the sale and leaseback transaction
is classified as a finance lease. If part of the significant risks and rewards of ownership of the leased
asset remain with the lessor (i.e. the buyer), the sale and leaseback transaction is classified as an
operating lease.

- 27 -

1) Financial leases
This transaction does not actually dispose of the assets. The accounting treatment used is to treats
the transaction as if it did not occur, and the assets are continuously recognized at the book value ofthe asset before sale.
2) Operating leases
If the selling price is equal to the fair value, the transaction gain or loss should be recognized
immediately. If the selling price is above fair value, the difference between the fair value and thebook value of the gain or loss should be recognized immediately; only the part of the selling pricewhich is above fair value shall be deferred and amortized over the period of the lease.
c. Operating leases
1) The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease unless another systematic basis is representative of the time pattern of the lessee’s
benefit from the use of the leased asset.
2) The Company as lessee
Operating lease payments are recognized as expenses on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rentals arising under operating leases arerecognized as expenses in the period in which they are incurred.
In the event that lease incentives are received when entering into operating leases, such incentives
are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction ofrental expense on a straight-line basis, except where another systematic basis is more representativeof the time pattern in which economic benefits from the leased asset are consumed.
Employee Benefits
a. Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related services.
b. Retirement benefits
Payments to the defined contribution retirement benefit plan are recognized as expenses whenemployees have rendered services entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined
contribution retirement benefit plan are determined using the projected unit credit method. Service cost(including current service cost and past service cost) and net interest on the net defined benefit
liabilities (assets) are recognized as employee benefits expense in the period in which they occur.
Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest),
is recognized in other comprehensive income in the period in which it occurs. Remeasurement
recognized in other comprehensive income is reflected immediately in retained earnings and will not bereclassified to profit or loss.
Net defined benefit liabilities (assets) represent the actual deficit in the Company’s defined benefit
plans.
- 28 -

Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets(assets which are substantially ready for their intended use or sale through a fairly long period) are added tothe cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
Other than that which is stated above, all other borrowing costs are recognized in profit or loss in the period
in which they are incurred.
Frequent Flyer Programs
The Company has a “Dynasty Flyer Program” through which program members can convert accumulated
mileage to a cabin upgrade, free tickets and other member rewards.
A portion of passenger revenue attributable to the rewards for the frequent flyer program is deferred. The
Company recognizes this deferred revenue as revenue only when the Company has fulfilled its obligations
on the granting of rewards or when the period for converting the mileage to rewards has expired.
Share-based Payment Arrangements
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments
at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on astraight-line basis over the vesting period, based on the Company’s estimate of equity instrument that will
eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value
determined at the grant date of the equity-settled share-based payments is recognized as an expense in fullat the grant date when the granted share options are vested immediately.
Taxation
Income tax expense represents the sum of the current tax and deferred tax.
a. Current tax
The current tax liabilities are based on current taxable profit. Since part of the income and expenses aretaxable or deductible in other periods, or in accordance with the relevant tax laws are taxable ordeductible, current taxable profit differs from net profit reported in the statements of comprehensive
income.
The Company’s current tax liabilities are calculated by the tax rate was legislated or substantiallylegislated at the balance sheet date.
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided foras income tax in the year the shareholders approve the retention of these earnings.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

- 29 -

b. Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities in the financial statements and the corresponding tax bases used in the computation of taxable
profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred
tax assets are generally recognized for all deductible temporary differences, unused loss carryforwards
and unused tax credits for purchases of machinery, equipment and technology, research anddevelopment expenditures, and personnel training expenditures to the extent that it is probable thattaxable profit will be available against which those deductible temporary differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates and interests in joint ventures, except where the Company is able to control
the reversal of the temporary difference and it is probable that the temporary difference will not reversein the foreseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that there will be
sufficient taxable profit against which to utilize the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at theend of each reporting period and recognized to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period inwhich the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that havebeen enacted or substantively enacted by the end of the reporting period. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which theCompany expects, at the end of the reporting period, to recover or settle the carrying amount of its
assets and liabilities.
c. Current and deferred taxes for the year
Current and deferred taxes are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current and deferredtaxes are also recognized in other comprehensive income or directly in equity, respectively.
Maintenance and Overhaul Costs
Routine maintenance costs are recognized in profit or loss in the period in which they are incurred.
The overhaul costs of an owned or leased aircraft that meet the criteria for fixed asset capitalization are
capitalized as replacements for aircraft and engines and are depreciated on a straight line basis over the
expected annual overhaul cycle.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
In the application of the Company’s accounting policies as disclosed in Note 4, management is required tomake judgments, estimations and assumptions about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. The estimates and associated assumptions are based on historicalexperience and other factors that are considered relevant. Actual results may differ from these estimates.

- 30 -

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised if the revisions affect only that
period or in the period of the revisions and future periods if the revisions affect both current and future
periods.
Key Sources of Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of thereporting period that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are discussed below.
Depreciation of Property, Plant and Equipment - Flight Equipment
Flight equipment is depreciated on a straight-line basis at rates that can be used to write down their cost to
their estimated residual values at the end of their useful lives. The estimates of the useful lives and residual
values of the flight equipment are made by the Company on the basis of past experience and fleet operation
performance in the industry. Due to changes in the fleet plan, the board of directors of the Company has
decided to change the expected useful lives of four 747-400 (GE) from 20 to 16-17 years since January 1,
2018 in order to meet the economic benefits and number of years of consumption. It is estimated that the
depreciation expense will increase by approximately NT$770 million annually.
Defined Benefit Obligations
The present value of defined benefit obligations at the end of the reporting period are calculated using
actuarial assumptions. Those assumptions, which are based on management’s judgment and estimates,
comprise the discount rate and expected return on plan assets. Changes in actuarial assumptions may have amaterial impact on the amount of defined benefit obligations.

6. CASH AND CASH EQUIVALENTS
December 31
2018
Cash on hand and revolving funds
Checking accounts and demand deposits
Cash equivalents
Time deposits with original maturities of less than three months
Repurchase agreements collateralized by bonds

$

2017

51,264
6,367,527$

46,287
8,284,609

12,269,231-

3,098,063
5,134,600$ 18,688,022$ 16,563,559

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

Bank balanceTime deposits with original maturities of less than three months
Repurchase agreements collateralized by bonds- 31 -

2018

2017

0%-1.90%
0.60%-3.55%-

0%-2%
0.59%-4.2%
0.38%-2.2%

7. FINANCIAL INSTRUMENTS AT FVTPL (FVTPL)
December 31
2018

2017

Financial liabilities held for trading
Derivative financial instruments (not under hedge accounting)Current
Non-current

$
$

221
-

$
$

8,655
926

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge
accounting were as follows:
Notional Amount(In Thousands)

Currency

Maturity Date

NTD/USD

2019.01.2-2019.01.31

NTD30,923/USD1,000

NTD/USD

2018.01.13-2019.01.31

NTD194,030/USD6,500

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

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 2018
Investments in Equity Instruments
December 31,
2018
Non-current
Foreign investments
Unlisted shares
Domestic investments
Unlisted shares$ 61,620
21,746$ 83,366

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

- 32 -

9. FINANCIAL ASSETS AT AMORTIZED COST - 2018
December 31,
2018
Current
Time deposits with original maturities of more than 3 months (e)$ 2,310,000

The interest rates for time deposits with original maturities of more than 3 months ranged from 0.40% to
0.68% as of the end of the reporting period. The time deposits were classified as other financial assets under
IAS 39. Refer to Notes 3, 6 and 18 for information relating to their reclassification and comparative
information for 2017.

10. FINANCIAL ASSETS MEASURED AT COST - 2017
December 31,
2018
Unlisted ordinary shares
Unlisted preference shares$ 63,704
473$ 64,177Classified according to financial asset measurement categories
Available-for-sale financial assets$ 64,177

Due to the permanent decrease in the value of Jardine Aviation Service held by the Company, the Company
recognized an impairment loss of $56,023 thousand in June 2017, which was classified as other gains andlosses.
On the reporting date, the above unlisted share investments held by the Company were measured at cost
after deducting impairment losses because their range of reasonable fair value estimates were significant
and unable to be reasonably evaluated. Thus, the management considered their fair values unable to bemeasured.

11. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE
December 31
2018
Notes receivable$

596,7392017$

361,910

Accounts receivable
Accounts receivable
Less: Allowance for impairment loss

- 33 -

8,875,002(191,079)
8,683,923

7,825,667(142,637)
7,683,030$ 9,280,662$ 8,044,940

For the year ended December 31, 2018
The average credit period was 7 to 55 days. In determining the recoverability of a trade receivable, theCompany 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 Company’s past default experience with thecounterparty and an analysis of the counterparty’s current financial position. The Company adopted apolicy 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 Company uses other publicly available financial information or its own trading records to rate its major
customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored
and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit
exposure is controlled by counterparty limits that are reviewed and approved by the risk management
committee annually.
The Company applies the simplified approach to allowing for expected credit losses prescribed by IFRS 9,which permits the use of lifetime expected loss allowance for all trade receivables. The expected credit
losses on trade receivables are estimated using a provision matrix by reference to past default experience
with the debtors and an analysis of the debtors’ current financial position, adjusted for general economic
conditions of the industry in which the debtors operate and an assessment of both the current as well as theforecasted direction of economic conditions at the reporting date. As the Company’s historical credit loss
experience does not show significantly different loss patterns for different customer segments, the loss
allowance based on the past due status is not further distinguished according to the different segments of theCompany’s customer base.
The Company writes off a trade 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 Company continues to engage in enforcement activity to attempt
to recover the receivables which are due. Where recoveries are made, these are recognized in profit or loss.
The following table details the loss allowance of trade receivables based on the Company’s provision
matrix.
December 31, 2018
Not Past Due

Up to 30 Days

31 to 60 Days

61 to 90 Days

Over 90 Days

Expected credit loss rate

0.06%

0.06%

3.67%

21.78%

97.5%

Gross carrying amount
Loss allowance (lifetime
ECLs)$ 7,291,910$ 1,331,529(1,149)(699)

Amortized cost

$ 7,290,761$ 1,330,830$

36,819$(3,796)$- 34 -

33,023

41,920$(12,611)$29,309$

Total

172,824$ 8,875,002(172,824)(191,079)-$ 8,683,923

The movements of the loss allowance of trade receivables were as follows:
For the Year
Ended
December 31,
2018
Balance at January 1, 2018 per IAS 39
Adjustment on initial application of IFRS 9
Balance at January 1, 2018 per IFRS 9
Add: Net remeasurement of loss allowance
Less: Amounts written off
Foreign exchange gains and losses$ 142,637
142,637
50,000(2,555)
997

Balance at December 31, 2018

$ 191,079

December 31, 2017
The Company applied the same credit policy in 2018 and 2017.
Movement in the allowance for impairment loss recognized on notes receivable and trade receivables wereas follows:
For the Year
Ended
December 31,
2017
Beginning balance
Impairment loss recognized on receivables
Amounts written off during the current period$ 147,204
50,000(54,567)

Ending balance$ 142,637

12. INVENTORIES
December 31

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

2018

2017

$ 7,669,834
554,084
227,974$ 7,970,618
569,294
71,046$ 8,451,892$ 8,610,958

The operating costs for the years ended December 31, 2018 and 2017 included losses from inventory
write-downs of $371,275 thousand and $324,447 thousand, respectively.

- 35 -

13. NON-CURRENT ASSETS HELD FOR SALE
December 31
2018
Aircraft held for saleLong-term equity investments held for sale - Asian Compressor
Technology Services

$

$

2017

46,154$ 309,330-

117,223

46,154$ 426,553

To enhance its competitiveness, the Company plans to introduce new aircraft and retire old aircraft
according to a planned schedule. Such aircraft, classified as Non-current assets held for sale, had an original
book value which was higher than the expected sale price and which was recognized as an impairment loss.
However, the actual loss shall be identified by the actual sale price.
In 2018 and 2017, the Company recognized impairment losses of $75,437 thousand and $3,571,301
thousand, respectively. In 2018 and 2017, the Company recognized disposal gains and losses of $(368,992)
thousand and $252,467 thousand, respectively. The fair value was determined by transactions of the related
market, and the proposed sale price was based on the current status of the aircraft. The fair value isclassified as Level 3.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
December 31
2018
Investments in subsidiaries
Investments in associates
Investments in jointly controlled entities2017$ 11,686,577
497,362
974,416$

9,827,299
793,477
930,593$ 13,158,355$ 11,551,369

a. Investment in subsidiaries
December 31
2018

2017

Unlisted companies
Tigerair Taiwan Co., Ltd.
CAL Park
Mandarin Airlines
CAL-Dynasty International
Taiwan Air Cargo Terminal
Taoyuan International Airport Services
CAL-Asia Investment
Sabre Travel Network (Taiwan)
CAL Hotel
Taiwan Airport Services
Hwa Hsia
Taiwan Aircraft Maintenance And Engineering Co., Ltd.

- 36 -$

1,805,921
1,507,445
1,201,109
1,266,921
1,533,244
755,619494,098
454,149
461,239
266,775
89,101
1,128,138$

915,135
1,522,696
1,211,739
1,185,323
1,339,450
654,104
478,933
450,600
435,965
259,459
83,014
1,231,548(Continued)

December 31
2018
Yestrip
Dynasty Holidays
Global Sky Express
Kaohsiung Catering Services

$

2017

26,946
26,0596,996
662,817$25,90425,992
7,437-$ 11,686,577$

9,827,299(Concluded)

At the end of the reporting period, the proportion of ownership and voting rights in subsidiaries held by
the Company were as follows:
December 31

Tigerair Taiwan Co., Ltd.
Taiwan Air Cargo Terminal
CAL Park
Mandarin Airlines
CAL-Dynasty International
Taoyuan International Airport Services
CAL-Asia Investment
Sabre Travel Network (Taiwan)
Taiwan Airport Services
CAL Hotel
Hwa Hsia
Taiwan Aircraft Maintenance And Engineering Co., Ltd.
Dynasty Holidays
Yestrip
Global Sky Express
Kaohsiung Catering Services

2018

2017

90%
54%
100%
94%
100%
49%
100%
94%
47%
100%
100%
100%
51%
100%
25%
54%

90%
54%
100%
94%
100%
49%
100%
94%
47%
100%
100%
100%
51%
100%
25%
-

Each of the Company’s holdings of the issued share capital of Taoyuan International Airport Service,Taiwan Airport Service and Global Sky Express did not exceed 50%, but since the Company had
control over these investees, they were listed as subsidiaries.
The Company increased its investment in Taiwan Aircraft Maintenance and Engineering Co., Ltd., withpayments of $490,000 thousand, $700,000 thousand in April and November 2017, for the purpose ofbuilding hangars.
The Company paid $243,743 thousand on March 7, 2018 to acquire an additional 18% of Kaohsiung
Catering, Ltd. (Kaohsiung Catering) of which the Company’s holding of the issued share capital
exceeded 50%. Kaohsiung Catering is listed as a subsidiary because the Company has control over theinvestee. For the disclosure of the Company’s acquisition of Kaohsiung Catering, refer to Note 30.
The share of profit or loss of subsidiaries recognized under the equity method was as follows:

The share of profit or loss

- 37 -

20182017$ 1,628,453$ 1,146,623

b. Investments in associates
December 31
2018

2017

$ 497,362-$ 493,077
300,400$ 497,362$ 793,477

Unlisted companies
China Aircraft Services
Kaohsiung Catering Services

At the end of the reporting period, the proportion of ownership and voting rights in associates held by
the Company were as follows:
December 31

China Aircraft Services
Kaohsiung Catering Services
Note:

2018

2017

20%
(Note)

20%
36%

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

The recognized investment income of associates accounted for using the equity method were as
follows:
2018
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics

2017

$

6,402
-

$

24,47086,757
88,943
21,819$6,402$ 221,989

In August 2017, the Company sold all of its holdings of Science Park Logistics to a non-related party,
HCT Logistics Co., Ltd. The agreed upon price was $380,850 thousand, and a disposal gain of$101,166 thousand was recognized.
In October 2017, the Company signed a contract with a non-related party, MB Aerospace, to sell all of
its holdings of Asian Compressor Technology Services, and reclassified it as Non-current assets held
for sale at book value. The transaction was completed and all payments were settled in January 2018.
The total transaction price was $471,132 thousand, and a disposition gain of $353,909 thousand wasrecognized.

- 38 -

c. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia

2018

2017

$ 805,157
166,901
2,358$ 756,965
171,2292,399$ 974,416$ 930,593

At the end of the reporting period, the percentages of ownership and voting rights in jointly controlled
entities held by the Company were as follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia

2018

2017

51%
55%
49%

51%
55%
49%

The Company signed a joint venture agreement with the Taikoo Company to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both parties havethe majority power in the board of directors to pose a motion for veto, and therefore the Company does
not have control.
To enhance the Company’s maintenance capabilities, the Company established a joint venture with the
US NORDAM Aerospace Company in December 2017 to provide thrust reversers and composite repair
services in Asia under the NORDAM brand. NORDAM has filed for bankruptcy reorganization in the
USA on July 22, 2018 to solve the business disputation with, their cooperative partner, so theircompany operation was not impact.
Details of the investment income attributable to investments in jointly controlled entities were as
follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services
NORDAM Asia

2018

2017

$ 267,413
16,695(41)$ 235,871
23,354(51)$ 284,067$ 259,174

The Company’s shares of other comprehensive income of subsidiaries, associates and jointly controlled
entities were losses of $(75,996) thousand and $(223,164) thousand in 2018 and 2017, respectively.
The financial statements used as a basis of the amounts of and related information on the investments
accounted for using the equity method and the share of profit or loss and other comprehensive incomeof those investments for the years ended December 31, 2018 and 2017 were all independently audited,
except of China Aircraft Services and NORDAM Asia Limited. However, the management determinedthat there would have been no significant adjustments had this investee’s financial statements been
independently audited.

- 39 -

For details on services, major business offices and the country where the above associates and jointly
controlled entities are registered, refer to Table 6, “Names, Locations, And Other Information of
Investees Over Which the Company Exercises Significant Influence” and, Table 7, “Investments In
Mainland China”, following the notes to financial statements.

15. PROPERTY, PLANT AND EQUIPMENT

Freehold Land

FlightEquipment

Buildings

Equipment
under FinanceLeasesOthersTotal

Cost
Balance at January 1,
2017
Additions
Disposals
Reclassification
Balance at December 31,
2017$

193,013-$

7,277,753
32,517(5,942)-$ 246,308,549
662,706(4,549,486)
18,692,862$

28,307,255(479,936)(2,232,883)$

6,076,227
257,995(211,216)
40,430$ 288,162,797
953,218(5,246,580)
16,500,409$

193,013$7,304,328$ 261,114,631$

25,594,436$

6,163,436$ 300,369,844

$

-

$

(3,550,002)(170,979)
3,926-$ (135,129,522)(15,017,928)
4,022,065(690,579)
11,144,330$ (15,347,140)(1,889,207)
619,775
3,003,549$(5,014,501)(297,080)
200,761
8,236$ (159,041,165)(17,375,194)
4,846,527(690,579)
14,156,115

$

-

$

(3,717,055)$ (135,671,634)$ (13,613,023)$(5,102,584)$ (158,104,296)$

193,013-$7,304,328
41,016(10,349)542$ 261,114,631
2,308,683(20,305,928)
12,462,241$

25,594,436(1,811,222)
1,428,463$

6,163,436
212,288(108,752)
73,574$ 300,369,844
2,561,987(22,236,251)
13,964,820$

193,013$

7,335,537$ 255,579,627$

25,211,677$

6,340,546$ 294,660,400

$

-

$

(3,717,055)(172,873)
9,326-$ (135,671,634)(15,732,018)
19,813,183(50,000)
9,283,041$ (13,613,023)(1,993,631)
1,532,046-$(5,102,584)(293,769)
89,841(12,196)$ (158,104,296)(18,192,291)
21,444,396(50,000)
9,270,845$-$(3,880,602)$ (122,357,428)$ (14,074,608)$(5,318,708)$ (145,631,346)

Accumulated depreciationand impairment
Balance at January 1,
2017
Depreciation expense
Disposals
Impairment losses
Reclassification
Balance at December 31,
2017
Cost
Balance at January 1,
2018
Additions
Disposals
Reclassification
Balance at December 31,
2018
Accumulated depreciationand impairment
Balance at January 1,
2018
Depreciation expense
Disposals
Impairment losses
Reclassification
Balance at December 31,
2018

Reclassification is mainly from prepaid equipment.

- 40 -

The above items of property, plant and equipment are depreciated on a straight-line basis over the estimateduseful life of the asset:
Building
Main buildings
Others
Machinery and equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersFlight equipment and equipment under finance leases
Airframes
Aircraft cabins
EnginesHeavy maintenance on aircraft
Engine overhauls
Landing gear overhauls
Repairable spare parts
Leased aircraft improvements

45-55 years
10-25 years
25 years
3-13 years
3-15 years
5 years
3-5 years
18-25 years
10-20 years
12-20 years
6-8 years
3-10 years
8-12 years
3-15 years
5-12 years

Regarding changes in fleet composition, current and forecasted market values, and other technical factors,
the Company recognized impairment losses on a part of aircraft equipment of $50,000 thousand and$690,579 thousand in 2018 and 2017, respectively.
Refer to Note 34 for the carrying amounts of property, plant and equipment pledged by the Company.
Based on the particularity of risk in the aviation industry, all of the Company’s assets such as aircraft, realestate, and movable property are adequately insured to diversify the potential risk related to operations.

16. INVESTMENT PROPERTIES
December 31

Carrying amount
Investment properties

2018

2017

$ 2,047,448$ 2,047,448

The investment properties (land) held Company, located in Nankan, were leased to others.
The fair value of the investment properties held by the Company was $2,473,771 thousand as of December
31, 2018 and 2017, respectively. The fair value valuation was performed by independent qualified
professional valuers, and the future income evaluated by management was based on market transactions.
All of the Company’s investment properties were held under freehold interest.

- 41 -

17. OTHER INTANGIBLE ASSETS
Computer
Software Costs

Accumulated
Amortization

Balance at January 1, 2017
Additions
Amortization expense$ 1,783,403
121,951-$(668,302)(247,725)$ 1,115,101
121,951(247,725)

Balance at December 31, 2017

$ 1,905,354$(916,027)$

989,327

Balance at January 1, 2018
Additions
Amortization expense$ 1,905,354
155,431-$(916,027)(165,050)$

989,327
155,431(165,050)

Balance at December 31, 2018

$ 2,060,785$ (1,081,077)$

979,708

Net Value

The above items of other intangible assets are amortized on a straight-line basis over 2-10 years.

18. OTHER ASSETS
December 31
2018

2017

Current
Temporary payments
Prepayments
Others$290,6622,549,376
317,826$

315,372
2,391,132
513,231$

3,157,864$

3,219,735$

223,745
1,501,429
377,577
19,334$ 10,578,892
1,069,595
424,196
18,803$

2,122,085$ 12,091,486

Non-current
Prepayments for aircraft
Prepayments - long-term
Refundable deposits
Other financial assets

The prepayments for aircraft comprised the prepaid deposits and capitalized interest from the purchase of
A350-900 aircraft. For details on the A350-900 aircraft purchase contracts, refer to Note 35.

- 42 -

19. BORROWINGS
Long-term Borrowings
December 31

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

2018

2017

7,749,000
34,171,875$ 23,949,000
30,711,508

30,300,000
58,132
72,162,743
15,335,005

26,100,000
37,89780,722,611
18,814,633$ 56,827,738$ 61,907,9780.92%-1.46%

0.92%-1.56%$

Less: Current portion

Interest rates

For information on secured bank loans which were secured by buildings, machinery equipment and flightequipment, refer to Note 34.
Bank loans (New Taiwan dollars and U.S. dollars) are repayable quarterly, semiannually or in lump sum
upon maturity. Related information is summarized as follows:
December 31

Periods

2018

2017

2007/5/242030/4/25

2007/5/242029/11/9

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs,
with various maturities until December 2021, were used by the Company to guarantee commercial paper
which it issued. The commercial paper was issued at discount rates of 1.0693%-1.2960% in 2017 and
0.9983%-1.2897% in 2016.

20. BONDS PAYABLE
December 31
2018
Unsecured corporate bonds first-time issued in 2013
Unsecured corporate bonds first-time issued in 2016
Unsecured corporate bonds second-time issued in 2016
Unsecured corporate bonds first-time issued in 2017
Unsecured corporate bonds second-time issued in 2017
Unsecured corporate bonds first-time issued in 2018
Convertible bonds - fifth-time issue
Convertible bonds - sixth-time issue
Less: Current portion and put option of convertible bonds$

5,500,000
5,000,000
5,000,000
2,350,000
3,500,000
4,500,000
1,695,900
5,673,710
33,219,610
4,445,900$ 28,773,710- 43 -

2017$

8,200,000
5,000,000
5,000,000
2,350,000
3,500,000
1,667,100
25,717,100
4,367,100$ 21,350,000Related issuance conditions were as follows:
Rate
(%)

Category

PeriodConditions

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% interestp.a., payable annually
Five-year unsecured bonds - issued at par in
May 2016; repayable in May 2020 and2021; 1.19% interest p.a., payableannually
Five-year unsecured bonds - issued at par in
September 2016; repayable in
September 2020 and 2021; 1.08% interestp.a., payable annually
Three-year private unsecured bonds - issued
at par in May 2017; repayable on due
date; interest of 1.2% p.a., payableannually
Seven-year private unsecured bonds issued at par in May 2017; repayable ondue date; interest of 1.75% p.a., payableannually
Three-year private unsecured bonds - issued
at par in October 2017; repayable on due
date; interest of 1.14% p.a., payableannually
Five-year private unsecured bonds - issued
at par in October 2017; repayable in
October 2021 and 2022; 1.45% interestp.a., payable annually
Five-year private unsecured bonds - issued
at par in November 2018; repayable inNovember 2022 and 2023; 1.32% interestp.a., payable annually
Seven-year private unsecured bonds issued at par in November 2018;
repayable in November 2022 and 2023;
1.45% interest p.a., payable annually
Five-year convertible bonds - issued at
discount in December 2013; repayable inlump sum upon maturity; 1.8245%
discount rate p.a.
Five-year convertible bonds - issued at
discount in January 2018; repayable inlump sum upon maturity; 1.3821%
discount rate p.a.

2013.01.172018.01.17

Principal repayable in
January of 2017 and2018; indicator rate;
payable annuallyPrincipal repayable in
January of 2019 and2020; indicator rate;
payable annuallyPrincipal repayable in May
of 2020 and 2021; interest
p.a. payable annually

1.6

Principal repayable in
September of 2020 and2021; interest p.a. payableannually
Principal repayable on due
date; indicator rate;
payable annually

1.08

2017.05.192024.05.19

Principal repayable on due
date; indicator rate;
payable annually

1.75

2017.10.122020.10.12

Principal repayable on due
date; indicator rate;
payable annually

1.14

2017.10.122022.10.12

Principal repayable in
October of 2021 and2022; indicator rate;
payable annuallyPrincipal repayable inNovember of 2022 and2023; indicator rate;
payable annuallyPrincipal repayable inNovember of 2022 and2023; indicator rate;
payable annually
Except for converting toshare capital or buying
back, principal repayable
in December of 2018
Except for converting toshare capital or buying
back, principal repayable
in December of 2023

1.45

2013.01.172020.01.17

2016.05.262021.05.26

2016.09.272021.09.27

2017.05.192020.05.19

2018.11.302023.11.30

2018.11.302025.11.30

2013.12.262018.12.26

2018.01.302023.01.30- 44 -

1.85

1.19

1.20

1.32

1.45

-

-

The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand,and the purchasers of the bonds included Mandarin Airlines Co., Ltd. and Sabre Travel Network (Taiwan)Co., Ltd., which held a face value of $300,000 thousand, and the amount was eliminated in the Company’s
standalone financial statements.
The Company issued the fifth issue of unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at 100.75% face value on the third
anniversary of the offering date. Because the holders can exercise selling rights on December 26, 2016,
the Company reclassified the bonds payable to “current portion of bonds payable” in December 2015.
The Company paid $994,705 thousand to the holders of the bonds payable who exercised the put
options, and the difference between the payment amount and carrying amount recognized was a loss on
the bonds payable buy back of $41,943 thousand, for which the Company reclassified the remaining
face value to Non-current assets.
c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.
d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s ordinary shares. The initial conversion price was set at NT$12.24, which is subject toadjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of July 31, 2016, there was adjustment the conversion price to NT$11.64, corporate bonds with aface value of $3,316,800 thousand had been converted to 270,985 thousand units of ordinary shares.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability component
was 1.8245% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,000,000(518,621)

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

The Company issued the sixth issue of its unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at face value on the third anniversaryof the offering date. The holders can exercise the right to sell on January 30, 2021.
c. The Company may redeem the bonds at face value between April 30, 2018 and December 20, 2022
under certain conditions.
d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s ordinary shares. The initial conversion price was set at NT$13.2, which is subject toadjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of August 14, 2018, the conversion price was adjusted to NT$12.9.

- 45 -

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

21. LEASING
a. Sale-leasebacks - finance leases
December 31
2018

2017

Minimum lease payments - flight equipment
Within one year
Later than one year and no later than five years$

596,000-$ 1,580,000
596,000

Present value of minimum lease payments$

596,000$ 2,176,000

Current
Non-current$

596,000-$ 1,580,000
596,000$

596,000$ 2,176,000Interest rates

1.0680%1.0617%1.1317%

As of December 31, 2017, the Company had leased A330-300 aircraft, totaling three aircraft, undersale-leaseback finance leases. The lease terms are from June 2006 to April 2019. During the lease term,
the Company retained all risks and rewards attached to the aircraft and engines and enjoyed the same
substantive rights as were enjoyed prior to the transaction. Interest rate underlying all obligations underfinance leases were floated. Therefore, the minimum lease payments under the sale-leaseback aircraft
contracts are not inclusive of interest expense.
b. Operating leases (including sale-leasebacks - operating leases)
The Company rented planes, headquarters, and hangars under various operating lease contracts expiring
on various dates until May 2028. The Company does not have a bargain purchase option to acquire theleased planes and hangars at the expiration of the lease periods.
The rental rates stated in the aircraft lease agreements are fixed or floated. If the agreed-upon rental rate
is floating and will be revised monthly or semiannually. Subleasing is not allowed for all the leasearrangements. As of December 31, 2017, the Company has rented eleven A330-300 aircraft, fifteen
737-800 aircraft and ten 777-300ER aircraft under operating contracts; the lease terms range from 8 to
12 years.
As of December 31, 2018 and 2017, the refundable deposits paid by the Company under operating lease
contracts were $215,425 thousand and $208,995 thousand, respectively. Part of the refundable deposits
is secured by credit guarantees. The credit guarantees were $1,437,707 thousand and $1,394,791
thousand, respectively.

- 46 -

The minimum lease payments in the future for the non-cancelable operating lease commitments are as
follows:
December 31

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

2018

2017

9,943,373
38,789,047
19,441,872$ 10,145,139
39,313,550
26,841,927$ 68,174,292$ 76,300,616$

The lease payments recognized in profit or loss for the current period are as follows:
For the Year Ended December 31
2018
2017
Minimum lease payments$ 10,024,963$

9,989,732

22. OTHER PAYABLES
December 31
2018
Fuel costs
Ground service expenses
Repair expenses
Interest expenses
Short-term employee benefits
Terminal surcharges
Commission expenses
Others$2017

3,571,314
1,089,125
960,138
260,179
2,053,442
914,171484,341
2,406,589$ 11,739,299$

3,243,742
1,089,306
842,845
290,9022,332,644
659,454407,109
2,042,750$ 10,908,752

23. CONTRACT LIABILITIES/DEFERRED REVENUE
December 31
2018
Contract
Liabilities
Frequent flyer programs
Advance ticket sales$

Current
Non-current

2,489,950
16,479,196

2017
Deferred
Revenue$

2,450,702
13,415,588$ 18,969,146$ 15,866,290$ 17,065,481
1,903,665$ 14,048,025
1,818,265$ 18,969,146$ 15,866,290

Amendments to IFRS 15 on January 1, 2018, the related account of deferred revenue was reclassified ascontract liabilities.
- 47 -

24. PROVISIONS
December 31
2018

2017

Operating leases - aircraft$ 7,999,015$ 7,758,651

Current
Non-current$$

268,901
7,730,114$ 7,999,015

406,457
7,352,194$ 7,758,651

The Company rented flight equipment under operating lease agreements. Under the contracts (some of theleased flight equipment’s lease payments are calculated monthly), when the lease expires 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 cycle and the number of engine revolutions. The Company had existingobligations to recognize provisions when signing a lease or during the lease term.
Aircraft Lease
Contract
Balance at January 1, 2017
Additional provisions recognized
Usage
Effect of exchange rate changes$ 6,770,951
2,524,079(1,138,140)(398,239)

Balance at December 31, 2017

$ 7,758,651

Balance at January 1, 2018
Additional provisions recognized
Usage
Effect of exchange rate changes$ 7,758,651
2,566,045(2,539,210)
213,529

Balance at December 31, 2018

$ 7,999,015

25. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The Company adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, an entity makes monthly contributions toemployees’ individual pension accounts at 6% of monthly salaries and wages.
b. Defined benefit plans
The Company adopted the defined benefit plan under the Labor Standards Law, under which pension
benefits are calculated on the basis of the length of service and average monthly salaries of the six
months before retirement. The Company contribute amounts equal to 15% of total monthly salaries andwages to a pension fund administered by the pension fund monitoring committee. Pension contributions
are deposited in the Bank of Taiwan in the committee’s name.

- 48 -

Before the end of each year, the Company assesses the balance in the pension fund. If the amount of thebalance in the pension fund is inadequate to pay retirement benefits for employees who conform toretirement requirements in the next year, the Company is required to fund the difference in one
appropriation that should be made before the end of March of the next year. The pension fund ismanaged by the Bureau of Labor Funds, Ministry of Labor (the “Bureau”); the Company has no right toinfluence the investment policy and strategy.
The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as
follows:
December 31
2018

2017

Present value of defined benefit obligation
Fair value of plan assets$ 13,117,255(6,184,472)$ 11,956,223(5,797,479)

Net defined benefit liabilities$$

6,932,783

6,158,744

Movements in net defined benefit liabilities (assets) were as follows:

Balance at January 1, 2017
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial gain - changes in financial
assumptions
Actuarial loss - experience adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
Payment to employees direct from theemployer
Balance at December 31, 2017
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial gain - changes in financial
assumptions
Actuarial loss - experience adjustments
Recognized in other comprehensive income

Present Valueof the Defined
BenefitObligation

Fair Value ofthe Plan Assets

Net Defined
BenefitLiabilities(Assets)$ 11,176,204$ (4,958,858)$

832,125
126,826
958,951(61,568)(61,568)

832,125
65,258897,383-

15,362

15,362372,284
257,573
629,857(690,295)

15,362(1,482,710)
690,295

372,284
257,573645,219(1,482,710)-(118,494)
11,956,223(5,797,479)(118,494)
6,158,744

1,263,193
116,231
1,379,424(56,995)(56,995)

1,263,193
59,236
1,322,429-(168,987)(168,987)

283,774
560,118
843,892(168,987)

283,774
560,118
674,905
Continued)- 49 -

6,217,346

Present Valueof the Defined
BenefitObligation

Fair Value ofthe Plan Assets

Net Defined
BenefitLiabilities(Assets)(897,483)$ (1,058,494)
897,483$ (1,058,494)(174,390)
9,589

Contributions from the employer
Benefits paid
Payment to employees direct from theemployer
Effect on income tax$(174,390)
9,589-

Balance at December 31, 2018

$ 13,117,255$ (6,184,472)$

6,932,783(Concluded)

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

Discount rate
Expected rate of salary increase

2018

2017

0.93%
1.00%

1.01%
1.00%

If possible reasonable change in each of the significant actuarial assumptions will occur and all otherassumptions will remain constant, the present value of the defined benefit obligation would increase(decrease) as follows:
December 31

Discount rate
0.5% increase
0.5% decrease
Expected rate of salary increase
0.5% increase
0.5% decrease- 50 -

20182017$ (576,271)$ 626,381$ (534,890)$ 580,412$ 601,326$ (563,743)$ 557,651$ (523,509)

The sensitivity analysis presented above may not be representative of the actual change in the present
value of the defined benefit obligation as it is unlikely that the change in assumptions would occur inisolation of one another as some of the assumptions may be correlated.
December 31
2018

2017

The expected contributions to the plan for the next year

$ 722,820$ 688,096

The average duration of the defined benefit obligation

9.8 years

10 years

26. EQUITY
a. Share capital
Ordinary shares
December 31

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

2018

2017

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

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

For the years ended December 31, 2017, the Company issued the 5th domestic unsecured convertible
bonds, and holders of such bonds amounting to $1,100 thousand applied for conversion, for which 95
thousand of the Company’s ordinary shares were exchanged. In accordance with the law, the Company
may apply for a change of registration after issuing new shares.
b. Capital surplus
December 31
2018
Income of convertible bonds in excess of par value andconversion premium
Gain on sale of treasury shares held by subsidiaries
Retirement of treasury shares
Expired employee share options
Long-term investments
Bonds payable equity component
Others$2017

315,1143,303
33,513
11,747955
409,978
466,604$

318,020
2,673
11,747955
146,589
320,015$ 1,241,214$

799,999

The capital surplus from shares issued in excess of par (additional paid-in capital from issuance ofordinary shares) may be used to offset a deficit; in addition, when the Company has no deficit, suchcapital surplus may be distributed as cash dividends or transferred to capital (limited to a certain
percentage of the Company’s paid-in capital).
The capital surplus from long-term investments and employee shares options expired and dividends
distributed to subsidiaries may not be used for any purpose, expect for offsetting a deficit. As for capitalsurplus from conversion of convertible bonds payable may not be used for any purpose.

- 51 -

c. Appropriation of earnings and dividend policy
According to amended Company Act, where the Company made profit in a fiscal year, the profit shallbe first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10%of the remaining profit, setting aside or reversing a special reserve in accordance with the laws andregulations, and then any remaining profit together with any undistributed retained earnings shall be
used by the Company’s board of directors as the basis for proposing a distribution plan with due
consideration of any future aircraft acquisition plans and fund demand, which should be resolved in theshareholders’ meeting for the distribution of dividends and bonuses to shareholders 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 forearnings 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 the capital surplus by cash or
shares with due consideration of finance, marketing and management requirements in accordance withthe laws and regulations.
The distribution of profit surplus shall be approved in the annual shareholders’ meeting held in thefollowing year and shall be accounted for in that year.
1) Appropriation of earnings in 2016
The legal reserve of $81,132 thousand and special reserve of $76,486 thousand used to offset
deficits was resolved by the shareholders in their meeting on June 22, 2017.
2) Appropriation of earnings and dividends per share in 2017
The appropriation of earnings for 2017 shall be resolved in the board of directors meeting to be heldon March 22, 2018. The appropriation and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Special reserve
Cash dividends$

145,831
118,810
1,193,670

Dividends Per
Share (NT$)$0.2181820086

3) Appropriation of earnings in 2018
The appropriation of earnings for 2018 shall be resolved in the board of directors meeting to be heldon March 20, 2019. The appropriation and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Cash dividends$

114,493
1,136,278

Dividends Per
Share (NT$)$0.20960737

Company undistributed special reserve of $105,844 thousand.
The appropriation of earnings for 2018 shall be resolved in the shareholders’ meeting to be held on
June 25, 2019.

- 52 -

d. Other equity items
The movement of other equity items is as follows:
Exchange
Differences on
Translating
Foreign
Operations
Balance at January 1,
2017
Exchange differences ontranslating foreign
operations
Cumulative loss onchanges in fair value ofhedging instruments
Cumulative gain onchanges in fair value ofhedging instruments
reclassified to profit orloss
Share of profit ofassociates accounted
for using equity
methodEffects of income tax
Other comprehensive
income recognized in
the period
Balance at December 31,
2017
Balance at January 1,
2018
Adjustments on initial
application of IFRS 9
Balance at January 1,
2018 after IFRS 9
adjustments
Exchange differences ontranslating foreign
operations
Cumulative loss onchanges in fair value ofhedging instruments
Cumulative gain onchanges in fair value ofhedging instruments
reclassified to profit orloss
Unrealized gain on
financial assets at
FVTOCI
Share of profit orassociates accounted
for using equity
methodEffect of change in tax
rate
Effects of income tax
Other comprehensive
income (loss)
recognized in the
periodTransfers of initialcarrying amount ofhedged items
Balance at December 31,
2018$

78,564

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

Unrealized
Gain (Loss) on
Financial
Assets at
FVTOCI

1,714

$

-

Cash Flow
Hedges$31,986

Gain (Loss) on
Hedging
Instruments

$

Total

-

$ 112,264(134,857)

-

-

-

-

(134,857)---(283,449)-(283,449)---

166,869-

166,869(1,619)22,92660--(9,653)
19,818-(11,212)42,744(113,550)

60--(106,415)-(219,905)$ (34,986)

$

1,774

$

-

$ (74,429)$-$ (107,641)$ (34,986)

$

1,774

$

-

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

74,429(74,429)

40,577(34,986)-

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

34,140----34,140----84,98484,984----

14,354

14,354--(23,830)--(23,830)(3,188)-24,760-8,001

29,573

1,198(6,828)-(1,209)
547

-

2,530
(22,290)

2,519(28,571)

25,322-

268-

87,579113,169

-

-

-

-

12,118

12,118(9,664)$-- 53 -$

42,619$-$25,268$58,223

e. Treasury shares
Treasury shares are the Company’s shares held by its subsidiaries, as of December 31, 2018 and 2017
were as follows:(Shares in Thousands)

Purpose of Treasury Shares

Buy Back toWrite off

Number of shares, January 1, 2018
Addition during the year
Reduction during the year

Company’s
Shares Held by
Its Subsidiaries

Total

50,000(50,000)

2,889
-

2,889
50,000(50,000)

Number of shares, December 31, 2018

-

2,889

2,889

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

-

2,889
-

2,889
-

Number of shares, December 31, 2017

-

2,889

2,889

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 22,821
8,956$ 22,821
8,956$ 31,777$ 31,777$ 24,169
9,485$ 24,169
9,485$ 33,654$ 33,654

December 31, 2018
Mandarin Airlines
Hwa Hsia

2,075
814

December 31, 2017
Mandarin Airlines
Hwa Hsia

2,075
814

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

- 54 -

27. NET INCOME
a. Revenue
For the Year Ended December 31
2018
2017
Passenger
Cargo
Others$ 94,248,291
49,422,018
6,594,483$ 90,560,375
42,970,102
6,284,734$ 150,264,792$ 139,815,211

b. Other income
For the Year Ended December 31
2018
2017
Interest income
Subsidy income
Dividend income
Others$ 274,189
11,2009,603
125,424$ 176,329
32,332
9,564
142,755$ 420,416$ 360,980

c. Other gains and losses
For the Year Ended December 31
2018
2017
(Loss) gain on disposal property, plant and equipment(Loss) gain on Non-current assets held for sale
Net loss on financial assets as held for trading
Gain (loss) on disposal of investment
Gain (loss) on foreign exchange, net
Impairment loss recognized on Non-current assets held for saleImpairment loss recognized on flight equipment
Impairment loss on financial assets measured at cost
Others$(273,308)(368,992)
11,076450,195
10,812(75,437)(50,000)(263,576)$

5,839
252,467(33,385)
101,105
4,920(3,571,301)(690,579)(56,023)(993,913)$(559,230)$ (4,980,870)

The Company has been named as a defendant, together with other airline members of the Association ofAsia Pacific Airlines, in a civil class action lawsuit filed at the US Northern District Court of California
by a group of passengers who alleged that there was an antitrust violation in December 2007.
After consulting with the lawyers and considering the cost of litigation, the Company settled with theplaintiff in the amount of US$19,500 thousand, and the settlement was recognized in 2017 financial
statement. The settlement funds will be divided into four-phase payments in three years.

- 55 -

d. Finance costs
For the Year Ended December 31
2018
2017
Interest expense
Bonds payable
Bank loans
Interest on obligations under finance leases
Loss on derivatives designated as hedging instruments in cash
flow hedge accounting relationships reclassified from equity
to profit or loss$

414,564
882,190
15,290$321,457
907,915
45,621-

2,814$ 1,312,044$ 1,277,807$ 37,174
1.16%-1.31%$ 212,557
1.31%-1.41%

Information about capitalized interest was as follows:
Capitalization interest
Capitalization rate
e. Depreciation and amortization expenses
For the Year Ended December 31
2018
2017
Property, plant and equipment
Intangible assets

An analysis of depreciation by function
Operating costs
Operating expenses

An analysis of amortization by function
Operating expenses$ 18,192,291
165,050$ 17,375,194
247,725$ 18,357,341$ 17,622,919$ 17,907,878
284,413$ 17,097,228
277,966$ 18,192,291$ 17,375,194$$

165,050

247,725

f. Employee benefits expense
For the Year Ended December 31
2018
2017
Post-employment benefits
Defined contribution plans
Defined benefit plans- 56 -$

365,707
1,322,429$

344,228
897,383$

1,688,136$

1,241,611(Continued)

For the Year Ended December 31
2018
2017
Other employee benefits
Salary expenses
Labor and health insurance
Personnel service expenses

An analysis of employee benefits expense by function
Operating costs
Operating expenses$ 15,010,513
1,242,585
3,610,480$ 15,179,456
1,167,348
3,636,354$ 19,863,578$ 19,983,158$ 17,751,051
3,800,663$ 17,376,793
3,847,976$ 21,551,714$ 21,224,769(Concluded)

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 year ended December 31, 2017, the employees’ compensation was $799,768
thousand, respectively, of the base net profit. The employees’ compensation and profit bonus for theyear ended December 31, 2018 was $51,656 thousand and $594,810 thousand.
Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date the annual financial statements are authorized for issue are adjusted in
the year that the bonus and remuneration were recognized. If there is a change in the proposed amounts
after the annual financial statements were authorized for issue, the differences 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 2018 and 2017 is available on the Market Observation Post System
website of the Taiwan Stock Exchange.

28. INCOME TAX
a. Income tax recognized in profit or loss
The major components of tax expense were as follows:
For the Year Ended December 31
2018
2017
Current tax
Current year
Prior year adjustment
Deferred tax
Current year
Effect of income tax$

22,506
4,866$

1,366,740(868,842)

Income tax expense recognized in profit or loss

- 57 -$

525,270

27,142
1,617
851,378-$

880,137

A reconciliation of accounting profit and income tax expense is as follows:
For the Year Ended December 31
2018
2017
Profit before tax
Income tax expense calculated at the statutory rate (20% for2018, 17% for 2017)
Add (deduct) tax effects of:Nondeductible expenses in determining taxable income
Tax-exempt income
Overseas income tax expense
Additional income tax under the Alternative Minimum Tax Act
Unrecognized loss carryforwards and investment tax credits
Effect of income tax
Adjustments for prior years’ tax
Other
Income tax expense recognized in profit or loss

$ 2,315,631$ 3,088,203$$

463,126
20,098(343,107)
22,506
1,227,000(868,842)
4,866
(377)

$

525,270

524,995
5,122(283,157)
17,236
9,906
612,000
1,617(7,582)$880,137

It was announced that the Income Tax Law in the ROC. was amended and, starting from 2018, thecorporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate
surtax applicable to unappropriated earnings will be reduced from 10% to 5%.
b. Income tax recognized in other comprehensive income
For the Year Ended December 31
2018
2017
Deferred tax
Recognized in other comprehensive income
Translation of foreign operations
Fair value revaluation of hedging instruments for cash flow
hedgesActuarial gain or loss on defined benefit plan
Fair value changes of financial assets at FVTOCI
Effect of income tax
Total income tax recognized in other comprehensive income- 58 -$(6,828)$22,926(22,290)134,979
547
2,519

19,818109,687-$ 108,927$ 152,431

c. Deferred tax assets and liabilities
For the year ended December 31, 2018

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$ 1,055,972
426,106
1,395,805$$

EndingBalance

Deferred tax assets
Temporary differences
Defined benefit plans
Frequent flyer programs
Maintenance reserve
Allowance for reduction of
inventory
OthersLoss carryforwards

237,366
1,079,923
779,769

205,081
83,954
279,168
96,287(420,179)(779,769)

134,980-$ 1,396,033
510,060
1,674,973(13,117)-333,653646,627$ 4,561,346$ 4,974,941$(535,458)$

121,863$$(31,010)$-Deferred tax liabilities
Temporary differences
Depreciation difference fromfixed assets
Unrealized foreign exchange
gains
Others (Note)

31,010915
13,894$
Note:

45,819(915)(5,635)$(37,560)$

12,936$

12,936

21,195$21,195

Included adjustments on initial application due to tax rate changes $6,873 thousand fromIFRS 9.

For the year ended December 31, 2017

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$ 1,061,207
421,695
1,151,061$$

EndingBalance

Deferred tax assets
Temporary differences
Defined benefit plans
Frequent flyer programs
Maintenance reserves
Allowance for reduction of
inventory
OthersLoss carryforwards

199,092
593,708
2,322,951$ 5,749,714- 59 -(114,922)
4,411
244,744
38,274
465,069(1,543,182)$(905,606)$

109,687-$ 1,055,972
426,106
1,395,805

21,146-237,366
1,079,923
779,769

130,833$ 4,974,941(Continued)

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$85,94928,823$(54,939)
915
(204)

$

(21,598)$

31,010
915
7,021

$

114,772$(54,228)$(21,598)$

38,946(Concluded)

EndingBalance

Deferred tax liabilities
Temporary differences
Depreciation difference fromfixed assets
Unrealized exchange gains
Others

Deductible temporary differences, unused loss carryforwards and unused investment credits for which
no deferred tax assets have been recognized in the balance sheets are as follows:
December 31

Loss carryforwards
2019
2021
2022
2026
2028

Other

2018

2017

$ 11,790,770
2,899,496
619,799
202,699
1,326,528$ 10,900,000-$ 16,839,292$ 10,900,000$$

39,142-d. Unused tax loss carryforwards as of December 31, 2018 were as follows:
UnusedAmountExpiry Year
2019
2021
2022
2026
2028

$ 11,790,770
2,899,496
619,799
202,699
1,326,528$ 16,839,292

e. Income tax returns
The income tax returns of the Company through 2016 have been examined by the tax authorities.

- 60 -

29. EARNINGS PER SHARE
For the Year Ended December 31
2018
2017
Basic earnings per share
Diluted earnings per share

$
$

0.33
0.32

$
$

0.40
0.39

For the Year Ended December 31
2018
2017
Earnings used in the computation of basic earnings per share
Effect of potentially dilutive ordinary shares:
Interest on convertible bonds (after tax)

$ 1,790,361$ 2,208,066

81,46324,801

Earnings used in the computation of diluted earnings per share$ 1,871,824$ 2,232,867

5,453,579

5,468,030

457,4818,821

145,763
70,2595,919,881

5,684,052

Weighted average number of ordinary shares in computation of basic
earnings per share
Effect of potentially dilutive ordinary shares:
Convertible bonds
Employees’ compensation or bonuses issued to employees
Weighted average number of ordinary shares used in thecomputation of diluted earnings per share

If the Company offers to settle compensation or bonuses paid to employees in cash or shares, the Company
assumes 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 per share, if the effect is dilutive. Such dilutive effect of the potential
shares was included in the computation of diluted earnings per share until the number of shares to be
distributed to employees is resolved in the following year.

30. BUSINESS COMBINATIONSAs stated in Note 14, the other disclosures of the Company’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.
- 61 -

d. The non-controlling interest of Kaohsiung Catering (46.33% of equity) was valued $565,888 thousand;at the fair value of the identifiable net assets attributed to the non-controlling interest on the date ofacquisition.
e. The bargain purchase benefit of $26,615 thousand of Kaohsiung Catering (the date of acquisition) was
measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s
previously held equity interests in the acquiree over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed.
f. Impact of acquisitions of the Company
From the acquisition date, the operating results from the acquired company, which are included in thestandalone statements of comprehensive income, are as follows:
Kaohsiung
Catering
Profit$ 123,261

Had these business combinations been in effect at the beginning of the annual reporting period, theCompany’s profit from continuing operations would have been $1,810,474 thousand. This pro-forma
information is for illustrative purposes only and is not necessarily an indication of the revenue andresults of operations of the Company 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. CAPITAL MANAGEMENTThe Company manages its capital to ensure that entities in the Company will be able to continue as going
concerns while maximizing the return to stakeholders through the optimization of the debt and equity
balance. The capital structure of the Company consists of net debt (borrowings offset by cash and cash
equivalents) and equity of the Company comprising issued capital, reserves, retained earnings, other equity
and non-controlling interests.
To support its operating activities and purchase of aircraft, the Company needs to maintain sufficient
capital. Therefore, the goal of capital management is to ensure financial resources and operating plan is able
to support the future working capital, capital expenditures, debt repayment and dividend expenses and otherneeds.

32. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
December 31
2018

2017

Carrying
AmountFair Value

Carrying
AmountFair Value$ 33,219,610
72,162,743$ 31,651,865
70,171,333$ 25,717,100
80,722,611$ 25,818,511
82,735,255

Financial liabilities
Bonds payable
Bank loans- 62 -

Some long-term borrowings and capital lease obligations are floating-rate financial liabilities, so theircarrying amounts are their fair values. The fair values of long-term borrowings and private bonds with
fixed interest rates are estimated at the present value of expected cash flows discounted at rates of
0.68% in 2018 and 0.75% in 2017 prevailing in the market for long-term borrowings (Level 2). The fairvalues of bonds payable are based on those which are traded in the stock exchange and based on quoted
market prices (Level 1).
b. Fair value measurements recognized in the balance sheets
The following table provides an analysis of financial instruments that are measured subsequent to initialrecognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value isobservable:
1) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;2) Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. derived from prices); and3) Level 3 fair value measurements are those derived from valuation techniques that include inputs forthe asset or liability that are not based on observable market data (unobservable inputs).
December 31, 2018
Level 1
Financial assets at FVTOCI
Investments in equity
instruments
United shares - domestic
Unlisted shares - foreign

Level 2

Level 3

Total

$

-

$

-

$

21,746
61,620$21,746
61,620

$

-

$

-

$

83,366$

83,366

Financial liabilities at FVTPL
Derivative instruments

$

-

$

221

$

-

$

221

Financial assets for hedging

$

-

$

22,453

$

4,901

$

27,354

Financial liabilities for hedging

$

-

$

239

$

-

$

239

December 31, 2017
Level 1
Financial assets at FVTPL
Derivative instruments
Derivative financial assets forhedging
Derivative financial liabilities forhedging

Level 2

Level 3

Total

$

-

$

9,581

$

-

$

9,581

$

-

$

293

$

-

$

293

$

-

$

84,633$-$

84,633

There were no transfers between Level 2 and 3 in the current and prior periods.

- 63 -

4) Valuation techniques and inputs applied for Level 2 fair value measurement
Financial Instruments

Valuation Techniques and Inputs

Derivatives - foreign exchange
forward contracts andinterest rate swaps

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 Company
used to determine the fair values are identical to those used in
the pricing of financial instruments for market participants.

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

EquityInstruments

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

$

4,901

$ 64,177
43,019(23,830)

Balance at December 31, 2018

$

4,901

$ 83,366

There were no financial assets measured using Level 3 fair value measurements in 2017.
Because the individual fair values of some financial instruments and non-financial instruments neednot be disclosed, the total fair value disclosed is not the total value of the Company’s financial andnon-financial instruments.

- 64 -

c. Categories of financial instruments
December 31
2018

2017

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

27,354
31,630,697
83,366$64,177
293
26,095,060-

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

221
239
120,519,575

9,581
84,633
121,598,470

Note 1: The balances of loans and receivables measured at amortized cost comprised cash and cash
equivalents, notes and accounts receivable, accounts receivable - related parties, otherreceivables, refundable deposits, other financial assets and other restricted financial assets.
Note 2: The balances of financial liabilities measured at amortized cost comprised short-term debts,
short-term notes payable, notes and accounts payable, accounts payable - related parties, otherpayables, bonds payable and long-term loans, capital lease obligations, provisions, part ofother current liabilities, part of other non-current liabilities and guarantee deposits.
Note 3: The balances include financial assets measured at cost.
Note 4: The balances include loans and receivables measured at amortized cost, which comprise cash
and cash equivalents, notes and accounts receivable, accounts receivable - related parties,
other receivables, refundable deposits and other restricted financial assets.
d. Financial risk management objectives and policies
The Company has risk management and hedging strategies to respond to changes in the economic,
financial environment and in the fuel market. To reduce the financial risks from changes in interest rates,in exchange rates and in fuel prices, the Company has its operating costs stay within a specified range
by using appropriate financial hedging instruments and hedging percentages in accordance with the“Processing Program of Derivative Financial Instrument Transactions” approved by Company
shareholders to reduce the impact of market price on earnings. These risks include market risk(including foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
In addition, the Company has a risk management committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging portion. This committee
informs the Company of global economic and financial conditions, controls the Company’s entire
financial risk resulting from changes in the financial environment and fuel prices, and develops thestrategy and response to avoid financial risk with the assistance of financial risk experts to effect risk
management.

- 65 -

1) Market risk
The Company is primarily exposed to the financial risks of changes in foreign currency exchange
rates and interest rates. The Company entered into derivative financial instruments to manage its
exposure to foreign currency risk and interest rate risk.
The Company 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 Company enters into currency option to hedge against the risks of changes in related
exchange rates, and enters into foreign exchange forward contracts to hedge against the risks ofchanges in the related exchange rates of foreign-currency assets, liabilities and commitments.
Sensitivity analysis
The Company is mainly exposed to the U.S. dollar.
The following details the Company’s sensitivity to a one dollar increase and decrease in the
New Taiwan dollar (i.e. the functional currency) against the U.S. dollar. The sensitivity amountused when reporting foreign currency risk internally to key management personnel and which
represents management’s assessment of the reasonably possible change in foreign exchange
rates is one dollar. The sensitivity analysis included only outstanding foreign currency
denominated monetary items and foreign exchange forward contracts designated as cash flow
hedges and adjusts their translation at the end of the reporting period for the New Taiwan dollar
strengthening or weakening one dollar against the U.S. dollar.
When the New Taiwan dollar increases one dollar against the U.S. dollar and all other variables
are held constant, there will be an increase in pre-tax profit in 2018 of $86,030 thousand and anincrease in pre-tax profit in 2017 of $109,319 thousand.
For the year ended December 31, 2018
The Company’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.
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 Company performs a qualitative assessment of
the effectiveness, and it is expected that the value of the foreign exchange forward contracts andthe value of the corresponding hedged items will systematically change in the opposite direction
in response to movements in the underlying exchange rates.

- 66 -

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

Currency

NTD/USD

Notional
AmountMaturity

Forward Rate

NTD1,669,231/
USD54,250

2019.1.172019.12.23

28.3-30.7

Line Item in
Balance Sheet

Carrying AmountAsset
Liability

Financial assets forhedging/liabilities forhedging$ 22,453$

239

The above mentioned hedging instruments continue to be applied to hedging accounting. The
book value of other equity which belongs to each hedging item (aircraft rentals in U.S. dollars
and Aircraft prepayment) are $22,214 thousand.
For the year ended December 31, 2018

Comprehensive Income

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

Cash flow hedge
Aircraft rentals
Aircraft prepayments$ 70,553
23,884$ (4,933)-$ 94,437$ (4,933)

Note:(Note)

Increase in operating costs.

And the amount of gains and losses on hedging instruments for the three months ended
December 31, 2018 reclassified from profit or loss to prepayments for equipment was $12,118
thousand.
b) Interest rate risk
The Company enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates.
The risk is managed by the Company through maintaining an appropriate mix of fixed andfloating rate borrowings, and using interest rate swap contracts and forward interest rate
contracts.
The carrying amount of the Company’s financial liabilities with exposure to interest rates at theend of the reporting period were as follows.
December 31

Fair value interest rate risk
Cash flow interest rate risk

- 67 -

20182017$ 33,523,710
70,758,743$ 27,717,100
80,898,611

Sensitivity analysis
The sensitivity analyses below were determined based on the Company’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. One yard (25basis) increase or decrease was used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.
Had interest rates increased one yard (25 basis) and had all other variables been held constant,
the Company’s pre-tax profit for the year ended December 31, 2018 would have decreased by$176,897 thousand.
Had interest rates increased one yard (25 basis) and had all other variables been held constant,
the Company’s pre-tax profit for the year ended December 31, 2017 would have decreased by$202,247 thousand.
c) Other price risk
The Company was exposed to fuel price risk on its purchase of aviation fuel. The Company
enters into fuel swap contracts to hedge against adverse risks on fuel price changes.
December 31, 2018
Hedging Instrument
Cash flow hedges fuel options

Currency

USD

Notional
Amount

NT$4,901

Maturity

Forward Rate

2019.1.312019.12.31

US$72-US$88

Line Item in
Balance Sheet

Financial assets forhedging

Carrying AmountAsset
Liability

$

4,901

$

-

Hedge accounting is continued to be applied to the abovementioned hedging instruments
continue to be applied to hedging accounting. The carrying amount of other equity which
belongs to each hedging item (fuel payments) is $4,901 thousand.
For the year ended December 31, 2018
Hedging Gain
(Loss)
Recognized in
Other
Comprehensive
IncomeComprehensive Income
Cash flow hedges - fuel options
Note:

$

Increase in operating costs.

- 68 -

4,901

AmountReclassified toProfit and Lossand theAdjusted LineItem
$ (9,421)(Note)

Sensitivity analysis
The sensitivity analysis below was determined based on the exposure to fuel price risks at theend of the reporting period.
For the Year Ended December 31
2018
2017
Other
Other
CompreComprehensive
hensive
Pre-tax Profit
IncomePre-tax Profit
IncomeIncrease
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)(Decrease)
Fuel price increase of5%
Fuel price decrease of
5%

$

-

$

-

-

$

-

$

-

-

d) Hedge accounting in 2017
The relevant hedging strategies of the Company in 2017 are the same as the aforementioned in2018, except for the following special instructions.
Derivative financial instrument for hedging
December 31,
2017
Derivative financial assets under hedge accounting
Foreign exchange forward contracts$

293

Current
Non-current

$

293
-

$

293

Derivative financial liabilities under hedge accounting
Foreign exchange forwards contracts$ 84,633

Current
Non-current$ 77,639
6,994$ 84,633

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

- 69 -Cash flow hedges
Foreign exchange forward contracts.
The Company entered into foreign exchange forward contracts to minimize cash flow exposure
related to fuel payments and aircraft payments, which will be paid in U.S. dollars.
December 31, 2017

Currency
Buy forward contracts

NTD/USD

Maturity Date

Notional Amount(In Thousands)

2018.1.16-2019.6.21 NTD6,649,254/USD222,750

Gains and losses of hedging instruments reclassified from equity to profit or loss were includedin the following line items in the standalone statements of comprehensive income:December 31,
2017
Increase in operating costs
Increase in finance costs
Other foreign exchange losses$ (52,034)(2,814)(11,654)$ (66,502)

The amount of gains and losses on hedging instruments for the year ended December 31, 2017
reclassified from profit or loss to prepayments for equipment was $103,369 thousand.
2) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting
in financial loss to the Company. The Company’s credit risk, primarily comes from accounts
receivable generated from operating activities and bank deposits generated from investing activities,
fixed investment income and other financial instruments, operation related credit risk and financial
credit risk are managed separately.
Operation - related credit risk
The Company has established procedures to management operations related credit risk to maintainthe quality of accounts receivable.
To assess individual customers, the Company consider into the financial condition of the customers,
the credit rating agency rating, the Company’s internal credit rating, transaction history and current
economic conditions and many other factors that may affect the repayment. Sometimes, theCompany uses certain credit enhancement tools to reduce the credit risk of specific customers.
Since the customers of the industry is dispersed and non-related, the credit risk concentration is notcritical aviation.

- 70 -

Financial credit risk
Credit risk on bank deposits, investments income and other financial instruments are measured andmonitor by the Company’s finance department. The Company’s trading partners and other parties
were well-performing banks and financial institutions, corporations, and government agencies, andso the risk of counterparties failing to discharge an obligation is low; therefore, there is no
significant credit risk.
Endorsements given by the Company on behalf of its subsidiaries can be found in Note 31,g.
3) Liquidity risk
The objective of the Company’s management of liquidity is to maintain cash and cash equivalents
sufficient for operating purposes, marketable securities with high liquidity and loan commitmentsthat are sufficient to ensure that the Company has adequate financial flexibility.
Liquidity and interest risk rate table
The following table shows the remaining contractual maturity analysis of the Company’s financial
liabilities with agreed-upon repayment periods, which were based on the date the Company 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 Company’s liquidity analysis for its derivative financial
instruments is also shown in the following table. The table was based on the undiscounted
contractual net cash inflows and outflows on derivative instruments that settle on a net basis, andthe undiscounted gross cash inflows and outflows on those derivatives that require gross settlement.
When the amount payable or receivable is not fixed, the amount disclosed has been determined byreference to the projected interest rates as illustrated by yield curves at the end of the reporting
period.
December 31, 2018
The Weighted
Average
Effective
Interest Rate(%)
Capital leaseobligations
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

1.0627

1-3 Months

3 Months to
1 Year

$$75,583526,160

1-2 Years$

2-5 Years-$

5+ Years-$-

1.10846,870,598

7,179,976

14,045,872

25,807,093

18,293,128

1.18002,005,900

-

-

-

-

1.3905239
4,877,118

1,122,203

6,496,270

24,339,179

1,051,418

8,828,339$ 20,542,142$ 50,146,272$ 19,344,546$ 13,829,438$- 71 -

December 31, 2017
The Weighted
Average
Effective
Interest Rate(%)
Capital leaseobligations
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

1.0789

1-3 Months

3 Months to
1 Year$$225,869

1,375,827

1-2 Years$

2-5 Years

154,430$

5+ Years

452,833$-

1.1084

7,069,453

12,558,373

17,915,408

27,019,287

16,291,168

1.18005,900

17,7002,023,600--

1.4142

26,9222,790,923

50,7171,911,231

6,994
301,932

20,651,932

1,014,142$ 10,119,067$ 15,913,848$ 20,402,364$ 48,124,052$ 17,305,310

Loan commitments
December 31

Unused bank loan limit (unsecured)

2018

2017

$ 17,337,100$ 25,181,000

33. RELATED-PARTY TRANSACTIONS
Except for the disclosures stated in other notes, transactions between the Company and its related partiesare disclosed below:
a. Related parties’ names and relationships
Name

Relationship with the Company

Taiwan Aircargo Terminal Company
Taoyuan International Airport Service Co., Ltd.
Sabre Travel Network (Taiwan), Ltd.
Taiwan Airport Service Co., Ltd.
Taiwan Airport Service (Samoa)
Hwa Hsia
Yestrip
Global Sky Express
Mandarin Airlines
CAL Park
CAL Hotel Co., Ltd.
CAL-Asia Investment
Dynasty Holidays, Inc.
CAL-Dynasty International Inc.
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance and Engineering Co., Ltd.
Kaohsiung Catering Services

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Associate (become subsidiary in March2018)
Associate (disposal in August 2017)
Associate (disposal in January 2018)(Continued)

Science Park Logistics
Asian Compressor Technology Services- 72 -

Name

Relationship with the Company

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.
China Aviation Development Foundation
Others

Associate
Associate
Associate
Associate
Joint venture investment
Joint venture investment
Joint venture investment
Director of the Company and major
shareholder
Director, key management personnel,
chairman, general manager of theCompany, spouse and second-degree
relative(Concluded)b. Operating income

Account Items
Other income

Related Party Type
Subsidiary
Major shareholder of theCompany
Associate
Joint venture investment

For the Year Ended December 31
2018
2017
$ 2,651,423$
28,670$ 2,937,333$
31,971

$
$

$
$

523
41,4101,938
46,461c. Purchases
For the Year Ended December 31
2018
2017

Related Party Type
Subsidiary
Major shareholder of the Company
Associate
Joint venture investment$ 3,843,308$
64,188$ 501,609$ 1,912,995$ 3,081,697$
71,852$ 745,686$ 1,857,684

d. Accounts receivable - related parties (generated by operations)
December 31
Related Party Type2018

Subsidiary
Joint venture investment
Major shareholder of the Company

2017

$

289,268
7,589
1,454

$

502,229
6,431
1,928

$

298,311$510,588

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

- 73 -

e. Accounts payable - related parties (generated by operations)
December 31
Related Party Type2018

Subsidiary
Associate
Joint venture investment
Major shareholder of the Company

2017$ 1,050,869
54,948474,499
3,368$

903,200
116,525
469,827
4,454$ 1,583,684$ 1,494,006

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.
f. Leases of properties (operating leases)
The Company rented out planes to Mandarin Airlines under an operating lease contract. The monthly
rent received is based on flight hours. In 2018 and 2017, the rentals received amounted to $1,685,494
thousand and $1,105,171 thousand, respectively.
Under an operating lease agreement, the Company rented flight training machines and flight simulatorsfrom China Aviation Development Foundation to train pilots. The Company paid the rental based on
usage hours. In 2018 and 2017, the Company paid rentals of about $64,188 thousand and $71,852
thousand, respectively.
In March 2010, the Company signed with CAL Park a yearly renewable operating lease agreement to
use the Operating and Aviation Headquarters building of the Taiwan Taoyuan International Airport. In
2018 and 2017, the Company paid rentals of about $231,288 thousand and $228,942 thousand,respectively.
g. Endorsements and guarantees
December 31
2018

2017

Authorized
AmountActualAmount Used

Authorized
AmountActualAmount Used

$ 3,850,000
1,080,000
1,081,792
2,000,000$ 2,339,700
418,491
605,457$ 3,850,000
1,080,000
1,055,604-$ 2,850,000
318,611405,998-

The Company
CAL Park
Taiwan Air Cargo Terminal
Tigerair Taiwan
Taiwan Air Craft Maintenance- 74 -

h. Bonds payable - related parties
Related parties that invested in the first issue of unsecured bonds in 2016 (Note 19) are summarized asfollows:
December 31, 2017
Aggregate
Units
Par/Dollars

Related Party
The first issue of unsecured bonds in 2017
Mandarin Airlines
Sabre Travel Network (Taiwan)

250
50

$

250,000
50,000In 2018, interest expenses was $3,570 thousand. This bonds payable will be paid off in May 2021. As of
December 31, 2018 the interest payable was $2,142 thousand.
i.

Compensation of key management personnel
For the Year Ended December 31
2018
2017
Short-term employee benefits
Post-employment benefits$

44,551
3,295$

46,805
4,007$

47,846$50,812

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

34. PLEDGED ASSETS
The following assets were pledged or mortgaged as collateral for long-term bank loans, lease obligations
and business transactions:
December 31

Property, plant and equipment

2018

2017

$ 37,468,142$ 39,041,679

35. COMMITMENTS AND CONTINGENT LIABILITIESAs of December 31, 2017, the Company had commitments and contingent liabilities which were as follows:
In January 2008, the Company entered into a contract to buy fourteen A350-900 aircraft from Airbus, withthe option to buy six more A350-900 aircraft, as of December 31, 2018, fourteenth of the aircraft had been
handed over to the Company.

- 75 -

36. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATEThe Company failed to mediate labor disputes with the labor unions. After obtaining the right to strike, thelabor union went on strike at 0:00 February 8, 2019, and the flights resumed normal operation on February
14, 2019. The initial estimated compensation for customer losses and various expenses were $154 million.
For other information, refer to “Pubic Information Observatory” of the Taiwan Stock Exchange.

37. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESThe following information was aggregated by the foreign currencies other than functional currencies of theCompany entities 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:
December 31, 2018
Foreign
Currencies(In Thousands)

Exchange Rate

Carrying
Amount440,565
20,511
297,496
5,521,288
345,777

30.7692
35.21133.92310.27784.4803$ 13,555,830
722,232
1,167,107
1,533,814
1,549,187

355,535
6,511
70,9004,866,894
126,53930.7692
35.21133.92310.27784.4803

10,939,528
229,264
278,149
1,352,023
566,931

Exchange Rate

Carrying
AmountFinancial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB
December 31, 2017
Foreign
Currencies(In Thousands)
Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

- 76 -

290,336
21,347
293,677
5,164,642
365,62429.850735.71433.81830.26484.5830$8,666,739
762,410
1,212,346
1,367,597
1,675,654(Continued)

Foreign
Currencies(In Thousands)

Exchange Rate

Carrying
AmountFinancial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

$

406,155
5,957
77,9294,848,134
120,472

29.850735.71433.81830.26484.5830$ 12,124,021
212,759
297,556
1,283,786
552,123(Concluded)

For the years ended December 31, 2018 and 2017, the Company’s net foreign exchange gains (losses) were
$10,812 thousand and $4,920 thousand, respectively. It is impractical to disclose net foreign exchange gains(losses) by each significant foreign currency due to the variety of the foreign currency transactions.

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: Table 3 (attached).
5) Acquisitions of individual real estates at costs or price of at least NT$100 million or 20% of thepaid-in capital: None.
6) Disposals of individual real estates at costs or prices of at least NT$100 million or 20% of thepaid-in capital: None.
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 4 (attached).
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached).
9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 6 (attached).
10) Derivative financial transactions: Notes 7 and 32.
b. Investment in mainland China: Table 7 (attached).

- 77 -

39. SEGMENT INFORMATIONThe Company mainly engages in air transportation services for passengers, cargo and others. The major
revenue-generating asset is the fleet, which is jointly used for passenger and cargo services. Thus, theCompany’s sole reportable segment is the flight segment. For operating segment reporting in the financial
statements, the Company’s reportable segment comprises the flight and the non-flight businessdepartments.

- 78 -TABLE 1

CHINA AIRLINES, LTD. AND INVESTEESENDORSEMENT/GUARANTEE PROVIDEDFOR THE YEAR ENDED DECEMBER 31, 2018
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Counter-party
Endorsement/
Guarantee
Provider

No.

0

Name

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

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

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

ActualBorrowingAmount$ 11,416,314
11,416,314
11,416,314$ 3,850,000
1,080,000
1,087,224$ 3,850,000
1,080,000
1,081,792$ 2,339,700
418,491

11,416,314

2,000,000

2,000,000

605,457

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

Note 1:

Based on the Company’s guidelines, the maximum amount of guarantee to an individual counterparty is up to 20% of the Company’s shareholders’ equity.

Note 2:

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

- 79 -

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

-

6.74
1.89
1.90

$ 28,540,786
28,540,786
28,540,786

Y
Y
Y

N
N
N

N
N
N

-

3.50

28,540,786

Y

N

N

TABLE 2

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

Holding Company Name

Marketable Security Type and Issuer/Name

China Airlines (“Parent company”) Shares
Everest Investment Holdings Ltd. - ordinary shares
Everest Investment Holdings Ltd. - preference
sharesChung Hua Express Co.
Jardine Air Terminal Services
The Grand Hi Lai Hotel
Mandarin Airlines

SharesChina Airlines
Beneficiary certificates
Barclays America Bonds FundCAL-Asia Investment

Sabre Travel Network (Taiwan)

Taiwan Airport Services

Kaohsiung Catering Services

Financial Statement AccountNumber of
Shares/Units-

Financial assets at FVTOCI - non-current
Financial assets at FVTOCI - non-current

1,495,305
135,937-

Financial assets at FVTOCI - non-current
Financial assets at FVTPL - current
Financial assets at FVTPL - current

Parent company Financial assets at FVTOCI - non-current

December 31, 2018
Percentage
CarryingofAmountOwnership(%)$

Market Valueor Net Asset
Value

$

61,620Note

56,018
5,602

13.59
-

Note 1

1,100,000
12,000,000
4,021

21,746
-

11.00
15.00
0.02

21,746-2,074,628

22,821-

22,821-1,000,000

30,837-30,837--

48,8252.59
5.45

48,825Note 2
Note 2-

36,041----

Financial assets at FVTPL - current-

Financial assets at FVTPL - current
Financial assets at FVTOCI - non-current

Beneficiary certificatesFranklin Templeton SinoAm Money Market Fund-

Financial assets at FVTPL - current

3,492,097

36,041

SharesTransAsia Airways-

Financial assets at FVTPL - current

2,277,786--

Financial assets at FVTPL - current

787,007

9,042

-

9,042

-

814,152

8,956

-

8,956

-

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

Beneficial certificatesFuh Hwa Emerging Market Short-term Income
Fund
Hwa Hsia

Relationshipwith the Holding
Company

SharesChina Airlines

Parent company Financial assets at FVTOCI - non-current

0.4

Beneficiary certificates
Taishin 1699 Money Market Fund-

Financial assets at FVTPL - current

349,523

4,721

-

4,721

-

Beneficiary certificates
Prudential Financial Money Market Fund-

Financial assets at FVTPL - current

7,939,173

125,360-

125,360(Continued)- 80 -

Note 1: The subsidiary’s net asset value was $61,620 thousand, which included ordinary shares and preference shares as of and for the year ended December 31, 2018.
Note 2: The Company does not issue shares because it is a limited company.
Note 3: The table only lists financial assets that are IFRS 9 regulated.
(Concluded)- 81 -TABLE 3

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

Company Name

China Airlines, Ltd.

Tigerair Taiwan Co.,
Ltd.

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

Financial Statement
Account

Counterparty(Note 2)

Investments accounted MB Aerospacefor using the equity
methodInvestments accounted TransAsia Airways
for using the equity
methodNT-dollar 100%
Financial assets at
principal-protected
FVTPL - current
structural products

President Securities
Corp.

Relationship(Note 2)Beginning Balance
Number ofAmountShares

Non-related party-

Non-related party

Non-related party$

Acquisition (Note 3)
Number ofAmountShares

-

-

-

-

-

300,000$

Disposal (Note 3)
Carrying
AmountAmountNumber of
Shares

-

-

$

-

-

-

-

-

-

3,030,000-

3,330,000$

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

-

-

$

-

-

-

-

-

3,330,000---

Note 1:

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

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

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

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

- 82 -TABLE 4

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

China Airlines, Ltd.
(“China Airlines”)

Related Party

Nature of Relationship

Purchase/
Sale$

Amount% of
Total

Payment Terms

Unit Price599,309434,538
231,288
107,273(2,155,732)
236,744
1,247,054
462,577
333,255(336,530)
141,030
238,356
1,784,963
180,238
128,033

0.44
0.32
0.17
0.08
(1.43)
0.17
0.91
0.34
0.24
(0.22)
0.10
0.17
1.30
0.13
0.09

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

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

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

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

Mandarin Airlines

Taiwan Airport Services

Same parent company

Purchase

152,652

2.71

Tigerair Taiwan

Taoyuan International Airport Service

Same parent company

Purchase

CAL Hotel

CAL Park

Same parent company

Purchase- 83 -

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

Abnormal Transaction

-

-

-

1 months

179,798(3.28) 1 months

114,28128.70

1 months$

Note(5.40)(8.77)(14.24)(1.64)
2.35(32.64)(42.82)(8.75)(6.37)
0.42(2.53)(2.60)(53.35)(3.75)(2.30)--(46,076)(74,816)(121,426)(13,982)
235,253(278,323)(365,115)(74,641)(54,352)
42,084(21,538)(22,145)(454,920)(31,988)(19,579)--(24,608)(2.02)---(17,699)(2.96)-(388)(17.50)-TABLE 5

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

Overdue
Company Name

Related Party

Nature of RelationshipEnding Balance

Turnover Rate

$ 235,253

Note

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

278,323

China Pacific Catering Services

China Airlines

Parent company

CAL Park

China Airlines

Taoyuan International Airport Service

China Airlines

Note:

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for
Bad Debts--$ 235,253

Note

-

-

276,142-454,920

3.90

-

-

301,208-

Parent company

121,426

1.90

-

-

121,426-

Parent company

365,115

3.48

-

-

362,163-

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

- 84 -$-TABLE 6

CHINA AIRLINES, LTD. AND INVESTEESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE YEAR ENDED DECEMBER 31, 2018
(In Thousands of New Taiwan Dollars and Foreign Currencies in Thousands, Unless Stated Otherwise)

Investment Amount
Investor Company

Investee Company

Location

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

Taoyuan, Taiwan
Taipei, Taiwan
Taoyuan, Taiwan
Los Angeles, USA
Taoyuan, Taiwan
Taoyuan, Taiwan
Territory of the British Virgin Islands
Taipei, Taiwan
Hong Kong International Airport
Taipei, Taiwan
Kaohsiung, Taiwan
Taoyuan, Taiwan
Taoyuan, Taiwan

Hwa Hsia

Taoyuan, Taiwan

Yestrip
Dynasty Holidays
Global Sky Express
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd.
NORDAM Asia Ltd.

Taipei, Taiwan
Tokyo, Japan
Taipei, Taiwan
Taipei, Taiwan
Taoyuan, Taiwan

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

Aircraft maintenance

Mandarin Airlines

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Taipei, Taiwan
Taipei, Taiwan

Air transportation and maintenance of aircraft
Airport services

CAL-Asia Investment

Eastern United International Logistics

Hong Kong

Forwarding and storage of air cargo

HK$

3,329

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

Kaohsiung Catering
Services

Delica International Co., Ltd

Kaohsiung, Taiwan

Catering business

China Airlines, Ltd.

Main Business and Product

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

Note 2:

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

Note 3:

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

Note 4:

Investee acquired by merger.

Note 5:Difference cause by acquisition.

December 31,
2018

December 31,
2017

$

$

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

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

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

100.0093.99
54.00
100.0051.00
49.00
100.00
93.93
20.00
47.35
53.67
100.0055.00

77,27077,270100.0089,101

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

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

100.00
51.00
25.00
90.00
100.00

2,450

2,450

245,000

200,000
11,658200,000
11,658HK$US$

77,270JPY

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

10,200- 85 -

Balance as of December 31, 2018
Percentage
Number ofof
Carrying
Shares/Units Ownership
Amount(%)

JPY$

1,507,445
1,201,109
1,533,244
1,266,921
805,157
755,619494,098
454,149
497,362
266,775
662,817461,239
166,901

Net Income(Loss) of theInvestee

Investment
Income (Loss)

$

$

3,143
24,824359,195
43,975524,339282,254
26,115
188,247
32,012
133,894
296,678
25,27430,355Note

3,143
22,878
193,964
43,975
267,413138,305
26,115
176,820
6,402
63,399138,460
25,274
16,695Note 1
Note 2
Note 5-

14,616

14,439Note 1

26,946
26,0596,996
1,805,921
1,128,138

1,437(2,297)
5,137
981,713(103,410)

1,438(1,172)
1,284
883,542(103,410)

-

49.00

2,358

(83)

(41)

20,000,000
469,755

10.00
1.08

200,658
6,068

981,713
133,894

98,171
1,442

-

3,329

1,050,000

35.00

44,193

19,703

6,865

-

5,877

-

100.00388,910

27,35327,353Note 3

10,2001,020,000

51.00

7,870

3

2

Note 4TABLE 7

CHINA AIRLINES, LTD. AND INVESTEESINVESTMENTS IN MAINLAND CHINAFOR THE YEAR ENDED DECEMBER 31, 2018
(In Thousands of New Taiwan Dollars/Renminibi/U.S. Dollars in Thousands, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Business andProduct

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

Investment Flow

Outflow

Inflow

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

Forwarding and storage $ 1,140,143
of air cargo(RMB 254,480)

Indirect(Note 1)

$ 128,799(US$ 4,186)

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

Forwarding and storage
62,724of air cargo(RMB 14,000)

Indirect(Note 1)

59,921
1,947)-(US$

Taikoo (Xiamen) Landing
Gear Services

Landing gear
1,135,077
maintenance services (US$ 36,890)

Indirect(Note 1)

66,191
2,151)-(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

Indirect(Note 1)

19,569
636)

-

(US$

(US$

358,862
11,663)$

Accumulated Investment in
Mainland China as ofDecember 31, 2018

Investment Amount
Authorized by Investment
Commission, MOEA

Limit on Investment$274,481 (US$8,920)$665,586 (Note 3)$36,028,250 (Note 4)

Accumulated
Outflow ofInvestment
from Taiwan asof December 31,
2018

-

$

-

% Ownershipof Direct orIndirect
Investment

Net Income(Loss) of
the Investee

Carrying
Amountas ofDecember 31,
2018

Investment
Gain (Loss)

Accumulated
InwardRemittance ofEarnings as ofDecember 31,
2018$
128,799 $
80,455(US$
4,186) (RMB 17,650)

14.00

59,921
114,760
1,947) (RMB 25,175)

14.00

(US$

66,191
2,151)

-

2.59

-

-

-

(US$

19,569
636)

-

5.45

-

48,825(RMB 10,898)

-

(US$

-

-

-

$
11,307 $222,073 $(RMB 2,471) (RMB 49,567) (US$86,2082,802)(Note 2)

16,130116,600
3,525) (RMB 26,025) (US$26,933875)(Note 2)(RMB

(Continued)- 86 -

Taiwan Airport Services

Investee Company

Main Business andProduct

Accumulated
Outward
Remittance for
Method ofPaid-in Capital
Investment
Investment
from Taiwan asof January 1,
2018

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

Forwarding and storage $ 1,140,143
of air cargo(RMB 254,480)

Indirect(Note 5)$
123,642 $(US$4,018)

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

Forwarding and storage
62,724of air cargo(RMB 14,000)

Indirect(Note 5)

(US$

59,285
1,927)

Remittance of Funds

OutwardAccumulated
Outward
Remittance forInvestment
from Taiwan asof December 31,
2018

Inward

-

$

-

-

$
123,642 $
80,455(US$
4,018) (RMB 17,650)

1459,285
114,760
1,927) (RMB 25,175)

14

(US$

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

Investment Amounts Authorized by
Investment Commission, MOEA

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

$182,926 (US$5,945)$182,926 (US$5,945)$338,046 (Note 4)

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

Investment
Income (Loss)

Carrying
Amount as ofDecember 31,
2018

Accumulated
Repatriation of
Investment
Income as ofDecember 31,
2018$
11,264 $
220,818 $
117,118(RMB 2,471) (RMB 49,287) (US$3,806)(RMB

16,066
116,817
3,525) (RMB 26,073) (US$43,2801,407)

Note 1: China Airlines, Ltd. the “Company” invested in CAL-Asia Investment, which, in turn, invested in a company located in mainland China.
Note 2: The inward remittance of earnings in 2017 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, “Investment or Technical Cooperation in Mainland China Adjustment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 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)- 87 -