China Airlines, Ltd. and Subsidiaries
Consolidated Financial Statements for theThree Months Ended March 31, 2017 and 2016 andIndependent Auditors’ Review ReportINDEPENDENT AUDITORS’ REVIEW REPORTThe Board of Directors and the Stockholders
China Airlines, Ltd.
We have reviewed the accompanying balance sheets of China Airlines, Ltd. (the “Company”) andits subsidiaries (collectively, the “Group”) as of March 31, 2017 and 2016, and the related
consolidated statements of comprehensive income, changes in equity and cash flows for the threemonths ended March 31, 2017 and 2016. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to issue a report on these
consolidated financial statements based on our reviews.
We conducted our reviews in accordance with Statement of Auditing Standards No. 36 “Review of
Financial Statements” issued by the Auditing Standards Committee of the Accounting Researchand Development Foundation of the Republic of China. A review consists principally of applying
analytical procedures to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit conducted in accordancewith auditing standards generally accepted in the Republic of China, the objective of which is theexpression of an opinion regarding the consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
As disclosed in Notes 14 and 15 to the accompanying consolidated financial statements, thefinancial statements of some non-significant subsidiaries and investments accounted for by theequity method were not reviewed. As of March 31, 2017 and 2016, the total combined assets ofthese non-significant subsidiaries were NT$14,638,402 thousand and NT$14,819,909 thousand,respectively, representing 6.65% and 6.78%, respectively, of the Group’s total consolidated assets,
and the total combined liabilities of these subsidiaries as of March 31, 2017 and 2016 were
NT$6,607,495 thousand and NT$6,508,560 thousand, respectively, representing 3.97% and 4.16%,
respectively, of the Group’s total consolidated liabilities. For the three months ended March 31,2017 and 2016, the combined comprehensive income of these subsidiaries were NT$154,878
thousand and NT$197,642 thousand, respectively, representing (3.86%) and 13.72%, respectively,of the Group’s consolidated total comprehensive income. As of March 31, 2017 and 2016, theaforementioned investments accounted for by the equity method were NT$2,864,853 thousand andNT$2,975,485 thousand, respectively; for the three months ended March 31, 2017 and 2016, theGroup’s share of the profit of associates and joint ventures were NT$119,280 thousand
NT$122,623 thousand, respectively.

-1-Based on our reviews, except for the effects of adjustments, if any, as might have been determined
to be necessary had the financial statements of these non-significant subsidiaries and investments
accounted for by the equity method as described in the preceding paragraph been reviewed, we are
not aware of any material modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with the Regulations Governing the
Preparation of Financial Reports by Securities Issuers and the International Accounting Standard
34 “Interim Financial Reporting” endorsed by the Financial Supervisory Commission of the
Republic of China.

Deloitte & Touche
Taipei, Taiwan
Republic of China
May 11, 2017

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

-2-

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

March 31, 2017
(Reviewed)
Amount%ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6, 19 and 32)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 32)
Derivative financial assets for hedging - current (Notes 4, 5, 9 and 32)
Receivables:
Notes and accounts, net (Notes 4, 5, 11 and 32)
Notes and accounts - related parties (Notes 32 and 33)
Other receivables (Note 32)
Current tax assets (Notes 4 and 29)
Inventories, net (Notes 4 and 12)
Noncurrent assets held for sale (Notes 4, 5 and 13)
Other assets - current (Notes 6 and 19)

December 31, 2016
(Audited)
Amount%March 31, 2016
(Reviewed)
Amount%$ 23,783,871
469,187
4,316

11
-

$ 24,267,197
416,641
58,44911-$ 22,745,106
418,644
31,20510-8,305,835
6,432
668,555
31,945
8,705,860
620,236
4,059,906

4
4
2

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

4
4
2

7,148,855
5,388
1,002,518
16,4898,089,709
670,455
4,372,146

3
1
4
2

46,656,143

21

47,338,201

21

44,500,515

20

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

1
63
1
3
11

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

1
62
1
1
3
11

17,113
222,256
2,975,485
127,935,480
2,076,112
1,079,349
6,875,284
32,838,779

1
59
1
1
3
15

173,514,978

79

177,162,558

79

174,019,858

80$ 220,171,121

100$ 224,500,759

100$ 218,520,373

100$

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

1
1
5
7
1
16
1
2

$

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

5
7
1
14
1
2

$

118,215
13,297323,139
710,351
491,009
10,618,410
116,343
30,798
11,540,960
7,655,696
27,911,852
1,457,957
4,348,474

5
5
4
13
1
2

73,571,496

34

68,605,724

30

65,336,501

30

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

8
25
3
2
1
3
-

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

9
25
3
2
1
4
-

6,640
8,200,000
58,987,517
6,176,767
325,040
4,830,828
1,789,354
10,448,204
432,900

4
27
3
2
1
5
-

Total noncurrent liabilities

92,792,528

42

98,027,837

44

91,197,250

42

Total liabilities

166,364,024

76

166,633,561

74

156,533,751

72

54,708,901
799,93225-

54,708,901
799,93225-

54,708,901
798,41525-

287,224-

287,224---(3,920,762)(3,920,762)(3,633,538)(175,830)(43,372)

(2)
(2)
(2)
-

(157,618)(157,618)
129,606
112,264(43,372)-

4,331,012
4,331,012
4,331,012(130,554)(43,372)2
2
2-

51,656,093

23

55,707,331

25

59,664,402

27

2,074,518

1

2,083,381

1

2,322,220

1

53,730,611

24

57,790,712

26

61,986,622

28$ 220,094,635

100$ 224,424,273

100$ 218,520,373

100

Total current assets
NONCURRENT ASSETS
Available-for-sale financial assets - noncurrent, net of current portion (Notes 4, 8 and 32)
Derivative financial assets for hedging - noncurrent (Notes 4, 5, 9 and 32)
Financial assets carried at cost - noncurrent, net of current portion (Notes 10 and 32)
Investments accounted for by the equity method (Notes 4 and 15)
Property, plant and equipment (Notes 4, 5, 16 and 34)
Investment properties (Notes 4 and 17)
Other intangible assets (Notes 4 and 18)
Deferred income tax asset (Notes 4, 5 and 29)
Other assets - noncurrent (Notes 19, 22, 32, 34 and 35)
Total noncurrent assets
TOTAL

LIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loans (Note 20)
Short-term bills payable (Note 20)
Financial liabilities at fair value through profit or loss - current (Notes 4, 5, 7 and 32)
Derivative financial liabilities for hedging - current (Notes 4, 5, 9 and 32)
Notes and accounts payable (Note 32)
Notes and accounts payable - related parties (Notes 32 and 33)
Other payable (Note 23)
Current tax liabilities (Notes 4 and 29)
Provisions - current (Notes 4, 5, 25 and 32)
Deferred revenue - current (Notes 4, 5 and 24)
Bonds payable and put option of convertible bonds - current portion (Notes 4, 21, 27 and 32)
Loans and debts - current portion (Notes 20, 32 and 34)
Capital lease obligations - current portion (Notes 4, 22, 32 and 34)
Other current liabilities (Note 32)
Total current liabilities
NONCURRENT LIABILITIESFinancial liabilities at fair value through profit or loss - noncurrent (Notes 4, 5, 7 and 32)
Derivative financial liabilities for hedging - noncurrent (Notes 4, 5, 9 and 32)
Bonds payable - noncurrent (Notes 4, 21, 27 and 32)
Loans and debts - noncurrent (Notes 20, 32 and 34)
Provisions - noncurrent (Notes 4, 5, 25 and 32)
Deferred tax liabilities (Notes 4 and 29)
Capital lease obligations - noncurrent (Notes 4, 22, 32 and 34)
Deferred revenue - noncurrent (Notes 4, 5 and 24)
Accrued pension costs (Notes 4, 5 and 26)
Other noncurrent liabilities (Note 32)

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

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche review report dated May 11, 2017)-3-

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

For the Three Months Ended March 31
2017
2016
Amount%Amount%REVENUES (Notes 4, 28 and 33)$ 35,796,465

100$ 34,999,023

100

COSTS (Notes 4, 9, 12, 19, 25, 26, 28 and 33)

32,997,085

92

29,250,258

83

GROSS PROFIT

2,799,380

8

5,748,765

17

OPERATING EXPENSES (Notes 4, 26 and 28)

3,168,810

9

3,377,551

10

OPERATING PROFIT (LOSS)(369,430)(1)2,371,2147

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

156,044(439,240)(345,266)(1)(1)

119,280-

123,610-(3,147,460)(9)(504,852)(2)(3,516,890)(10)

1,866,362

5

INCOME TAX EXPENSE (Notes 4, 5 and 29)

196,477-

358,897

1

NET INCOME (LOSS) FOR THE PERIOD(3,713,367)(10)

1,507,465

4(147,996)-(50,373)-(208,539)(1)(1,967)(25,066)(Continued)

NON-OPERATING INCOME AND EXPENSES
Other income (Note 28)
Other gains and losses (Notes 9, 13, 16 and 28)
Finance costs (Notes 9 and 28)
Share of the profit of associates and joint ventures(Note 15)
Total non-operating income and expenses
PROFIT (LOSS) BEFORE INCOME TAXOTHER COMPREHENSIVE INCOME (LOSS)
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 27)
Unrealized loss on available-for-sale financial
assets (Notes 4 and 27)
Cash flow hedges (Notes 4 and 27)-4-

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

For the Three Months Ended March 31
2017
2016
Amount%Amount%Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method (Notes 4,15 and 27)
Income tax relating to items that may bereclassified subsequently to profit or loss
(Note 29)$--

59,462Other comprehensive loss for the period, net ofincome tax

(987)

-

-

11,191-(297,073)(1)(67,202)-

TOTAL COMPREHENSIVE INCOME (LOSS) FOR
THE PERIOD$ (4,010,440)

(11)

$

1,440,263

4

NET INCOME (LOSS) ATTRIBUTABLE TO:
Owner of the Company
Non-controlling interests$ (3,760,875)
47,508(10)-$

1,463,951
43,5144-$ (3,713,367)

(10)

$

1,507,465

4$ (4,048,969)
38,529(11)-$

1,399,680
40,5834-$ (4,010,440)

(11)

$

1,440,263

4

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

EARNINGS (LOSSES) PER SHARE (NEW TAIWANDOLLARS; Note 30)
Basic
Diluted$$(0.69)(0.69)

$

$
$

0.27
0.26

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche review report dated May 11, 2017)-5-(Concluded)

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

BALANCE AT JANUARY 1, 2016

Capital Stock

Capital Surplus

Equity Attributable to Owners of the Company
Other Equity
Retained Earnings
Exchange
Unrealized
Unappropriated Differences on
Gain (Loss) on
Earnings
Translating
Available-for(Accumulated
Foreignsale Financial
Legal Reserve
Special Reserve
Deficits)
Operations
Assets$ 54,708,901$$

798,415-$-$ 2,872,235$

157,959$

1,755

Cash Flow
HedgesTreasury Stock
Held by
Subsidiaries$$(225,997)

Total

Non-controlling
Interests

Total Equity(43,372)$ 58,269,896$ 2,286,647$ 60,556,543

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

-

-

-

-

(1,638)

-

-

-

-

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

-

-

-

-

(3,536)

-

-

-

-

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

Net income for the three months ended March 31, 2016

-

-

-

-

1,463,951

-

-

-

-

1,463,951

43,514

1,507,465

Other comprehensive loss for the three months ended March 31,
2016, net of income tax

-

-

-

-

-

(41,924)(1,925)(20,422)-(64,271)(2,931)(67,202)

Total comprehensive income (loss) for the three months ended
March 31, 2016

-

-

-

-

1,463,951(41,924)(1,925)(20,422)-

1,399,680

40,583

1,440,263

Cash dividends from subsidiaries paid to non-controlling interests

-

-

-

-

-

-

-

-

-

-

(462)

(462)

$ 4,331,012$

116,035

$

(170)

$

(246,419)$(43,372)$ 59,664,402$ 2,322,220$ 61,986,622$$

78,564

$

1,714

$

31,986$(43,372)$ 55,783,817$ 2,083,381$ 57,867,198

BALANCE AT MARCH 31, 2016

$ 54,708,901$

798,415

$

-

$

-

BALANCE AT JANUARY 1, 2017

$ 54,708,901$

799,932$

287,224$

76,486(157,618)

Difference between cost and net value of acquired subsidiaries

-

-

-

-

(2,269)

-

-

-

-

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

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

-

-

-

-

(3,760,875)

-

-

-

-

(3,760,875)

47,508(3,713,367)

Other comprehensive loss for the three months ended March 31,
2017, net of income tax

-

-

-

-

-

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

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

-

-

-

-

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

38,529(4,010,440)

Cash dividends from subsidiaries paid to non-controlling interests

-

-

-

-

-

-

-

-

-

-

(1,274)(1,274)76,486$ (3,920,762)(43,372)$ 51,732,579$ 2,074,518$ 53,807,097

BALANCE AT MARCH 31, 2017

$ 54,708,901$

799,932$

287,224$

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche review report dated May 11, 2017)-6-$(35,844)

$

1,714

$

(141,700)$

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

For the Three Months Ended
March 31
2017
2016
CASH FLOWS FROM OPERATING ACTIVITIESIncome (loss) before income tax
Adjustments to reconcile net cash generated from (used in) operating
activities:
Depreciation expenses
Amortization expenses
Bad-debt expense
Net loss on fair value changes of financial assets and liabilities held
for trading
Interest income
Share of profit of associates and joint ventures(Gain) loss on disposal of property, plant and equipment
Gain on disposal of noncurrent assets held for sale
Loss on disposal of investments
Loss on inventories and property, plant and equipment
Impairment loss recognized on property, plant and equipment andnoncurrent assets held for sale
Net (gain) loss on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leasebacks
Changes in operating assets and liabilities(Increase) decrease in financial assets and liabilities held for trading
Decrease in derivative financial assets for hedging
Increase in notes and accounts receivable
Decrease in accounts receivable - related parties
Increase in other receivables
Decrease (increase) in inventories(Increase) decrease in other current assets
Decrease in notes and accounts payable
Increase (decrease) in accounts payable - related parties
Decrease in other payables
Decrease in deferred revenue
Decrease in provisions
Increase in other current liabilities
Decrease in accrued pension liabilities
Increase (decrease) in other liabilities
Cash generated from operations
Interest received
Dividends received from associates
Interest paid
Income tax paid
Net cash generated from operating activities-7-$ (3,516,890)$

1,866,362

4,639,963
61,663
12,6484,267,927
23,312
10,78536,572(42,747)(119,280)
1,151(25,140)
61
328,377

25,374(91,229)(123,610)(3,395)
156,5072,842,383(289,739)
326,690818,629(3,628)624,537
345,266
600,052(3,628)(49,431)(202,798)
101,822
316,568(510,614)
569,733(238,172)
167,343(950,727)(16,298)(164,140)
335,821(667,504)
17,1703,779,486
44,72952,986(428,354)(15,408)

111,347
13,096(314,199)
67,282
26,228111,184(490,565)(207,305)(254,060)(1,742,458)(1,126,462)(567,391)
404,120(116,749)(55,220)
3,557,108
91,260(439,257)(15,513)3,433,439

3,193,598(Continued)

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

For the Three Months Ended
March 31
2017
2016
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from noncurrent assets held for sale
Payment for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Increase in computer software costs
Decrease (increase) in restricted assets
Refund in prepayments for aircrafts
Net cash used in investing activities$

332,551(1,462,397)
18,848(54,190)97,447(3,475,613)(42,721)(4,427)-$(2,376,090)
5,768(122,105)
87,305(3,038,066)(92,935)
436,1082,858,833(4,590,502)(2,241,182)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Decrease in short-term loans
Increase (decrease) in short-term bills payable
Repayments of bonds payable
Proceeds of long-term debts and capital lease obligations
Repayments of long-term debts and capital lease obligations
Proceeds of guarantee deposits received
Refund of guarantee deposits received
Acquisition of subsidiaries' stock
Cash dividends paid to non-controlling interests

1,710,000(50,000)
939,989(2,700,000)
6,013,000(5,065,831)
50,117(33,758)(48,387)(1,274)20,000(75,000)(9,995)
7,371,000(8,550,385)
30,165(15,322)(8,084)(462)

Net cash generated from (used in) financing activities

813,856(1,238,083)

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES(140,119)(460,312)

NET DECREASE IN CASH AND CASH EQUIVALENTS(483,326)(745,979)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD24,267,197

23,491,085

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD$ 23,783,871$ 22,745,106

The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche review report dated May 11, 2017)-8-(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)(Reviewed, Not Audited)

1. GENERAL INFORMATION
China Airlines, Ltd. (the “Company”) was founded in 1959 and its stocks have been listed on the Taiwan
Stock Exchange since February 26, 1993. The Company is primarily involved in (a) air transport services
for passengers, cargo and mail; (b) ground services and routine aircraft maintenance; (c) major maintenanceof flight equipment; (d) communications and data processing services to other airlines; (e) the sale ofaircraft parts, aviation equipment and (f) leasing of aircrafts.
The major stockholders of the Company are the China Aviation Development Foundation (“CADF”) andthe National Development Fund (“NDF”), Executive Yuan. As of March 31, 2017, December 31, 2016
and March 31, 2016, CADF and NDF held a combined 43.63% of the Company’s stock.

2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statement of the Company and its subsidiaries (collectively, the “Group”) wereapproved by the board of directors and authorized for issue on May 11, 2017.

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 Group’s
accounting policies:
1) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”
The amendment clarifies that the recoverable amount of an asset or a cash-generating unit isdisclosed only when an impairment loss on the asset has been recognized or reversed during theperiod. Furthermore, if the recoverable amount of an item of property, plant and equipment for
which an impairment loss has been recognized or reversed is the fair value less costs of disposal, theGroup is required to disclose the fair value hierarchy. If the fair value measurements are
categorized within Level 3, the valuation technique and key assumptions used to measure the fairvalue are disclosed. The discount rate used is disclosed if such fair value less costs of disposal ismeasured by using the present value technique. The amendment should be applied retrospectively
from January 1, 2017. Refer to Notes 13 and 16 for related disclosures.

-9-2) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities
Issuers
The amendments include additions of several accounting items and requirements for disclosures of
impairment of non-financial assets as a consequence of the IFRSs endorsed and issued into effect by
the FSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, theamendments also include emphasis on certain recognition and measurement considerations and add
requirements for disclosures of related party transactions and goodwill.
The amendments stipulate that other companies or institutions of which the chairman of the boardof directors or president serves as the chairman of the board of directors or the president, or is the
spouse or second immediate family of the chairman of the board of directors or president of theGroup are deemed to have a substantive related party relationship, unless it can be demonstrated
that no control, joint control, or significant influence exists. Furthermore, the amendments require
the disclosure of the names of the related parties and the relationship with whom the Group hassignificant transaction. If the transaction or balance with a specific related party is 10% or more of
the Group’s respective total transaction or balance, such transaction should be separately disclosedby the name of each related party.
When the amendments are applied retrospectively from January 1, 2017, the disclosures of related
party transactions and the impairment of goodwill are enhanced. Refer to Note 33 for related
disclosures.
b. New IFRSs in issue but not yet endorsed by the FSC
The Group has not applied the following New IFRSs issued by the IASB but not yet endorsed by the
FSC.
The FSC announced that, IFRS 9 and IFRS 15 will take effect starting January 1, 2018. As of the datethe consolidated financial statements were authorized for issue, the FSC has not announced the effective
dates of other New IFRSs.
Effective Date
Announced by IASB (Note 1)

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

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

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after their respective effective dates.
Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or afterJanuary 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods
beginning on or after January 1, 2018.
The initial application of the above New IFRSs, whenever applied, would not have any material impact
on the Group’s accounting policies, except for the following:1) IFRS 9 “Financial Instruments”
Recognition and measurement of financial assets
With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.
For the Group’s debt instruments that have contractual cash flows that are solely payments ofprincipal and interest on the principal amount outstanding, their classification and measurement are
as follows:a) For debt instruments, if they are held within a business model whose objective is to collect thecontractual cash flows, the financial assets are measured at amortized cost and are assessed for
impairment continuously with impairment loss recognized in profit or loss, if any. Interest
revenue is recognized in profit or loss by using the effective interest method;b) For debt instruments, if they are held within a business model whose objective is achieved byboth the collecting of contractual cash flows and the selling of financial assets, the financial
assets are measured at fair value through other comprehensive income (FVTOCI) and areassessed for impairment. Interest revenue is recognized in profit or loss by using the effective
interest method, and other gain or loss shall be recognized in other comprehensive income,
except for impairment gains or losses and foreign exchange gains and losses. When the debt
instruments are derecognized or reclassified, the cumulative gain or loss previously recognizedin other comprehensive income is reclassified from equity to profit or loss.
Except for above, all other financial assets are measured at fair value through profit or loss.
However, the Group may make an irrevocable election to present subsequent changes in the fairvalue of an equity investment (that is not held for trading) in other comprehensive income, with
only dividend income generally recognized in profit or loss. No subsequent impairment
assessment is required, and the cumulative gain or loss previously recognized in othercomprehensive income cannot be reclassified from equity to profit or loss.
The impairment of financial assets
IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit
Losses Model”. The credit loss allowance is required for financial assets measured at amortized
cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arisingfrom IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments andfinancial guarantee contracts. A loss allowance for the 12-month expected credit losses is required
for a financial asset if its credit risk has not increased significantly since initial recognition. A loss
allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has
increased significantly since initial recognition and is not low. However, a loss allowance for fulllifetime expected credit losses is required for trade receivables that do not constitute a financing
transaction.
- 11 -

For purchased or originated credit-impaired financial assets, the Group takes into account the
expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate.
Subsequently, any changes in expected losses are recognized as a loss allowance with acorresponding gain or loss recognized in profit or loss.
Hedge accounting
The main changes in hedge accounting amended the application requirements for hedge accounting
to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes
include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening
the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging
derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing
retrospective effectiveness assessment with the principle of economic relationship between thehedging instrument and the hedged item.
2) IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.
Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for
all leases on the balance sheets except for low-value and short-term leases. The Group may electto apply the accounting method similar to the accounting for operating lease under IAS 17 to the
low-value and short-term leases. On the statements of comprehensive income, the Group shouldpresent the depreciation expense charged on the right-of-use asset separately from interest expense
accrued on the lease liability; interest is computed by using effective interest method. On thestatements of cash flows, cash payments for the principal portion of the lease liability are classified
within financing activities; cash payments for interest portion are classified within operating
activities.
When IFRS 16 becomes effective, the Group may elect to apply this Standard either retrospectively
to each prior reporting period presented or retrospectively with the cumulative effect of the initial
application of this Standard recognized at the date of initial application.
3) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”
This amendment clarifies that the difference between the carrying amount of the debt instrument
measured at fair value and its tax base gives rise to a temporary difference, even though there are
unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying
amount of the debt instrument by sale or by holding it and collecting contractual cash flows.
In addition, in determining whether to recognize a deferred tax asset, the Group should assess adeductible temporary difference in combination with all of its other deductible temporary
differences, unless the tax law restricts the utilization of losses to deduction against income of a
specific type, in which case, a deductible temporary difference is assessed in combination only withother deductible temporary differences of the appropriate type. The amendment also stipulates
that, when determining whether to recognize a deferred tax asset, the estimate of probable futuretaxable profit may include some of the Group’s assets for more than their carrying amount if there issufficient evidence that it is probable that the Group will achieve this, and that the estimate for
future taxable profit should exclude tax deductions resulting from the reversal of deductible
temporary differences.

- 12 -

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

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

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

4. SIGNIFICANT ACCOUNTING POLICIESExcept for the policies listed below, the accounting policies adopted for these consolidated financial
statements are same as those for the consolidated financial statements for the year ended December 31,
2016.
Statement of Compliance
The consolidated financial statements have been prepared in accordance with the Regulations Governing
the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial Reporting” asendorsed by the FSC. Disclosure information included in these interim consolidated financial statements
is less than the disclosures required in a full set of annual consolidated financial statements.
Basis of Consolidation
Principles for preparing consolidated financial statements
These consolidated financial statements incorporate the financial statements of the Company and theentities controlled by the Company (i.e. its subsidiaries, including special purpose entities).
Control is achieved when the Company has the power to govern the financial and operating policies of anentity so as to obtain benefits from its activities.

- 13 -

When necessary, adjustments are made to the financial statements of subsidiaries, to ensure thatsubsidiaries’ accounting policies are consistent with the Company.
All intra-group transactions, balances, income and expenses are written of in consolidation financial
statement.
Non-controlling interests shall be presented in the consolidated balance sheets within equity and separatelyfrom the equity of the owners of the Company. The total comprehensive income of subsidiaries is
attributed to the owners of the Company and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance. The proportion of ownership and main businesses ofsubsidiaries can be found in Note 14 and Table 5 following the notes to the consolidated financial
statements.
Retirement Benefits
Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determinedpension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since thattime and for significant plan amendments, settlements, or other significant one-off events.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period
income taxes are assessed on an annual basis and calculated by applying to an interim period's pre-tax
income the tax rate that would be applicable to expected total annual earnings.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
Material accounting judgments, estimates and assumptions adopted for these consolidated financial
statements are same as those for the consolidated financial statements for the year ended December 31,
2016.

6. CASH AND CASH EQUIVALENTS
March 31,2017
Cash on hand and revolving fund
Checking accounts and demand deposits
Cash equivalents
Time deposits with original maturities of lessthan three months
Repurchase agreements collateralized by bonds$

462,051
9,288,987

December 31,
2016$359,106
9,266,679

March 31,2016$

351,302
7,844,273

4,485,204
9,547,629

3,698,109
10,943,303

13,880,888
668,643$ 23,783,871$ 24,267,197$ 22,745,106- 14 -

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

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

March 31,2017

December 31,
2016

March 31,
2016

0%-2%

0.05%-2%0%-1.11%

1.5%-4.35%
0.4%-1.53%

0.13%-12.9%
0.33%-1.40%

0.3%-7.25%
0.38%-0.46%

The amount of time deposits with original maturities of more than three months for March 31, 2017,
December 31, 2016 and March 31, 2016 were $758,083 thousand, $1,267,927 thousand and $2,030,162
thousand, respectively, and the respective market rate intervals were 0.13%-1.38%, 0.16%-2.45% and0.41%-1.23%, which were recognized as other current assets. (Refer to Note 19).

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)March 31,2017

December 31,
2016

March 31,2016

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

$

-

$

1,200

$

12,393

469,187

415,441406,251$ 469,187$ 416,641$ 418,644

$
$

$
$

$
$

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

34,836
6,848-

13,297-At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge
accounting were as follows:

Maturity Date

Notional Amount(In Thousands)

NTD/USD2017.4.28-2019.1.31

NTD1,060,606/USD35,000

NTD/USD2017.1.26

NTD/USD

2016.4.1-2017.1.26

Currency
March 31, 2017
Buy forward contracts
December 31, 2016
Buy forward contracts

NTD32,258/USD1,000

March 31, 2016
Buy forward contracts- 15 -

NTD1,993,569/USD62,000

8. AVAILABLE-FOR-SALE FINANCIAL ASSETSMarch 31, 2017
% ofCarrying
OwnerAmountship

December 31, 2016
% ofCarrying
OwnerAmountship

March 31, 2016
% ofCarrying
OwnerAmount
ship

$

$

$ 17,113

Non-current
Domestic market
TransAsia Airways

-

-

-

-

-

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

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING
March 31,2017

December 31,
2016

March 31,2016

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

Current
Non-current

$

4,535
-

$

61,63483$

25,810
5,355
40

$

4,535

$

61,717$

31,205

$

4,316
219

$

58,4493,268$

31,205
-

$

4,535

$

61,717$

31,205$

1,402
166,668-$

3,855
19,774-$

12,457
157,00951,705
108,608$ 168,070$

23,629$ 329,779$ 156,569
11,501$

20,8542,775$ 323,139
6,640$ 168,070$

23,629$ 329,779

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

Current
Non-current- 16 -

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

Notional Amount(In Thousands)

Maturity Date

Range ofInterest Rates
Paid

Range of Interest Rates
Received2017.5.24-2017.6.22

1.01%-1.06%

TAIBOR Rate2017.3.9-2017.6.22

1.01%-1.14%

TAIBOR Rate

2016.11.28-2017.6.22

1.01%-1.14%

TAIBOR Rate

March 31, 2017
NT$1,500,000
December 31, 2016
NT$2,500,000
March 31, 2016
NT$3,000,000

The interest rate swaps are settled on a quarterly basis. The Group will settle the difference between
the fixed and floating interest rates on a net basis.
b. Currency options
The Group entered into currency options to minimize the risk of changes in foreign currency rates on its
cash flow exposure related to fuel payments, which will be paid in U.S. dollars.
The outstanding currency options at the end of the reporting period were as follows:

Currency

Maturity Date

Notional Amount(In Thousands)

JPY/USD
JPY/USD

2016.4.1-2016.12.19
2016.4.1-2016.12.19

JPY3,957,720/USD33,100
JPY3,865,889/USD33,100

March 31, 2016
Buy USD call option
Sell USD put optionc. Fuel options
The Group used fuel options to minimize the risk of changes in fuel prices related to operating costs.

- 17 -

The outstanding fuel options at the end of the reporting period were as follows:
Notional Amount(In Thousands)

Currency

Maturity Date

USD

2017.1.5-2017.2.8

NTD83

USD
USD

2016.4.30-2017.1.31
2016.4.30-2017.1.31

NTD40
NTD108,608

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

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

Currency

Maturity Date

Notional Amount(In Thousands)

NTD/USD2017.4.5-2019.3.15

NTD4,771,540/USD157,209

NTD/USD2017.1.3-2018.10.23

NTD5,381,178/USD167,078

NTD/USD

2016.4.1-2018.3.16

NTD6,462,532/USD200,882

March 31, 2017
Buy forward contracts
December 31, 2016
Buy forward contracts
March 31, 2016
Buy forward contracts

Gains and losses of hedging instruments reclassified from equity to profit or loss were included in thefollowing line items in the consolidated statements of comprehensive income:For the Three Months Ended
March 312017
2016
Increase in operating costs
Increase in finance costs
Other foreign exchange losses$- 18 -(2,747)(1,833)(5,644)$ (248,546)(1,279)(216)$ (10,224)$ (250,041)

The amount of gains and losses on hedging instruments for the three months ended March 31, 2017 and2016 reclassified from profit or loss to prepayments for equipment was $51,577 thousand and $512
thousand, respectively.

10. FINANCIAL ASSETS CARRIED AT COST

Unlisted common stocks
Everest Investment
Holdings Ltd. (AH)
Jardine Aviation
Service
Taikoo (Xiamen)
Landing Gear Service
Co., Ltd.
Taikoo Spirt Aerospace
Systems (Jin Jiang)
Composite Co., Ltd.
Chung Hwa Express
Co.
Regal International
Advertising
Unlisted preferred stocks
Everest Investment
Holdings Ltd. (AH)

Classified according tofinancial asset
measurement categories
Available-for-salefinancial assets

March 31, 2017
% ofCarrying
OwnerValueship

December 31, 2016
% ofCarrying
OwnerValue
ship

March 31, 2016
% ofCarrying
OwnerValue
ship

$

$

$

52,70414

52,70414

52,70414

56,02315

56,02315

56,023

15

-

6

-

6

74,507

6

19,101

5

20,157

5

21,624

5

11,00011

11,00011

11,00011

138,828-

139,884-

5,925
221,783

6

473

-

473

-

473

-

$ 139,301$ 140,357$ 222,256$ 139,301$ 140,357$ 222,256

The Group recognized an impairment loss of $71,826 thousand, which was classified as other gains (losses)
for the year ended December 31, 2016, due to the permanent decline in the value of Taikoo (Xiamen)
Landing Gear Service Co., Ltd.
On the reporting date, the above unlisted stock investments held by the Group were measured at cost after
deducting impairment losses because their range of reasonable fair value estimates were significant andunable to be reasonably evaluated. Thus, the management considered their fair values unable to bemeasured.

- 19 -

11. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable

March 31,2017

December 31,
2016

March 31,
2016

$

$

$

606,684

525,797374,216

Accounts receivable
Accounts receivable
Less: Allowance for impairment loss

7,901,930(202,779)
7,699,151

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

6,896,252(121,613)
6,774,639$ 8,305,835$ 8,353,785$ 7,148,855

The average credit period was 7 to 55 days. In determining the recoverability of an account receivable,
the Company considered any change in the credit quality of the account receivable since the date credit was
initially granted to the end of the reporting period, and any allowance for impairment loss was based on theestimated irrecoverable amounts determined by reference to the Company’s past default experience with thecounterparty and an analysis of the counterparty’s current financial position.
Movement in the allowance for impairment loss recognized on notes receivable and trade receivables wereas follow:
For the Three Months Ended
March 312017
2016
Beginning balance
Impairment loss recognized on receivables
Amounts written off during current period
Amounts recovered during current period
Effects of exchange rate changes$ 191,398
12,648(1,099)(168)$ 109,927
10,785(226)
1,127

Ending balance$ 202,779$ 121,613

March 31,2017

December 31,
2016

March 31,2016

$ 7,899,528
560,618
243,082
2,632$ 7,713,264
553,327
166,684
1,111$ 7,409,023
528,151
149,560
2,975$ 8,705,860$ 8,434,386$ 8,089,709

12. INVENTORIES

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
OthersThe operating costs recognized for the three months ended March 31, 2017 and 2016 included losses frominventory write-downs of $245,313 thousand and $99,185 thousand, respectively.

- 20 -

13. NON-CURRENT ASSETS HELD FOR SALE

Aircrafts held for sale

March 31,2017

December 31,
2016

March 31,2016

$ 620,236$ 185,100$ 670,455

To enhance its competitiveness, the Company plans to introduce new aircrafts and retire old aircrafts
according to a planned schedule. For the three months ended March 31, 2016, such aircrafts classified as
non-current assets held for sale had a difference between the original book value and the expected sale pricewhich was recognized as an impairment loss of $2,721,274 thousand. However, the actual loss shall beidentified by the actual sale price. As such, for the aircrafts which have completed the disposal
procedures, the Company recognized $25,140 thousand in disposal gains. The related measurement of fairvalue is a Level 3 measure for which the second-hand market and the conditions of the aircrafts werereferred.

14. SUBSIDIARIES
Subsidiaries included in the consolidated financial statements:

Investor Company
China Airlines, Ltd.

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

Taiwan Airport Services

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

Hwa Hsia

Hwa Shin Building Safeguard

Cal-Dynasty International

Main Businesses and Products

Proportion of Ownership (%)
March 31,
December 31,
March 31,
2017
2016
2016

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

100

100

100

100
100

100
100

100
100

100
100
100
94

100
100
100
94

100
100
100
94

94

94

94

59
51
49
48
25
100
100

59
51
49
48
25
100
100
90
100

59
51
49
48
25
100
100
90
100

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

100
100
100

100
100
100

100
100
100

-

-

100

Note: Proportion of ownership is considered from the Group view.
The Group no longer leases aircrafts, and therefore the Group liquidated Freighter Princess Ltd. andFreighter Prince Ltd.
To integrate the resources of the Group, the board of directors reached an agreement to purchase 10% of thestock of Tigerair Taiwan Co., Ltd., which were held by Roar Aviation III Pte. Ltd., in December 2016.
The transaction was completed in January 2017.
To facilitate the integration of resources and business management of the Group, on August 1, 2016, Hwa
Hsia Co., Ltd. merged with Hwa Shin Building Safeguard Co., Ltd. (the dissolved company) and was thesurviving entity. All of the assets, liabilities and other rights and obligations were transferred to Hwa Hsia
Co., Ltd.

- 21 -

The Company increased its investment in Taiwan Aircraft Maintenance and Engineering Co., Ltd. with apayment of $100,000 thousand in October 2016 for the purpose of building hangars.
Each of the Company’s holdings of the issued capital stock of Taoyuan International Airport Service,Taiwan Airport Service and Global Sky Express did not exceed 50%, but since the Company had control
over these investees, they were listed as subsidiaries. The financial information for the three months
ended March 31, 2017 and 2016 of these subsidiaries was reported according to information that was notindependently reviewed except for that of Mandarin Airlines and Tigerair Taiwan Co., Ltd.
The Group’s holding of the issued capital stock of China Pacific Catering Services and China Pacific
Laundry Services exceeded 50%, yet the Group did not have control over the investees. For related
information, refer to Note 15,b.

15. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD

Investments in associates
Investments in jointly controlled entities

March 31,2017

December 31,
2016

March 31,2016

$ 2,003,442
861,411$ 2,060,403
806,028$ 2,051,203
924,282$ 2,864,853$ 2,866,431$ 2,975,485

March 31,2017

December 31,
2016

March 31,
2016

$

$

$

a. The amount of investments in associates were as follows:

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

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

515,051
267,371
279,176
257,928
467,041
230,888

497,550
259,441
287,340
251,764
487,233
226,263

41,54642,94841,612$ 2,003,442$ 2,060,403$ 2,051,203

At the end of the reporting period, the proportion of ownership and voting rights of associates held by
the Group were as follows:
Proportion of Ownership and Voting Rights
March 31,
December 31,
March 31,
2017
2016
2016

Name of Associate
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics(Holdings) Ltd.
- 22 -

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

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

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

35%

35%

35%

The investment income recognized for associates accounted for by using the equity method were as
follows:
For the Three Months Ended
March 312017
2016
China Aircraft Services
Asian Compressor Technology Services
Kaohsiung Catering Services
Science Park Logistics
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

$

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

$ 16,982
24,25014,538
4,084
963
4,107
420

$ 63,897$ 65,344

March 31,2017

December 31,
2016

March 31,2016

$ 690,064
171,347$ 638,980
167,048$ 758,697
165,585$ 861,411$ 806,028$ 924,282

b. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:

China Pacific Catering Services
China Pacific Laundry Services

At the end of the reporting period, the proportion of ownership and voting rights in jointly controlled
entities held by the Group were as follows:
Proportion of Ownership and Voting Rights
March 31,
December 31,
March 31,
2017
2016
2016
China Pacific Catering Services
China Pacific Laundry Services

51%
55%

51%
55%

51%
55%

The Group entered into a joint venture agreement with the Taikoo Group to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both sides havethe right to make major motion vetoes on the board, and therefore the Group does not have control.
Details of the investment income attributable to investments in jointly controlled entitles were as
follows:
For the Three Months Ended
March 312017
2016
China Pacific Catering Services
China Pacific Laundry Services- 23 -$ 51,084
4,299$ 54,550
3,716$ 55,383$ 58,266

Other comprehensive income or loss of associates accounted for using the equity method in the threemonths ended March 31, 2017 and 2016 are $0 thousand and $(987) thousand, respectively.
The investments accounted for using the equity method and the share of profit or loss and othercomprehensive income of those investments was based on the jointly controlled entities’ financial
statement which were not independently reviewed.
For information on the major businesses and products, the locations of the major business offices, andthe countries of registration for the above entities, refer to Tables 5 and 6 (names, locations, and related
information of investees on which the Company exercises significant influence and investment in
mainland China) following the notes to the consolidated financial statements.

16. PROPERTY, PLANT AND EQUIPMENT
March 31,2017

December 31,
2016

930,620
13,043,948
243,824,160
24,928,649
10,378,878
1,060,536
119,769
3,931,705
645,640$

March 31,
2016

Cost
Freehold land
Buildings
Flight equipment
Equipment under finance leases
Machinery equipment
Office equipment
Leased assets
Leasehold improvements
Construction in progress$

965,174
13,104,983
248,262,079
28,898,891
10,317,327
1,086,015
120,100
3,958,811
499,547$

963,341
13,122,524
230,445,927
28,432,531
10,066,439
1,066,987
126,366
3,900,340
178,553$ 298,863,905$ 307,212,927$ 288,303,008

$

$

$

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

Net value

5,880,127
131,925,003
13,393,953
7,067,688
880,264
102,190
1,573,980

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

5,471,714
131,333,579
14,357,279
6,698,945
851,562
108,110
1,546,339$ 160,823,205$ 167,076,190$ 160,367,528$ 138,040,700$ 140,136,737$ 127,935,480- 24 -

Freehold Land

Buildings

FlightEquipment

Equipment
under FinanceLeasesOthersTotal

Cost
Balance at January 1,
2016
Additions
Disposals
Reclassification
Net exchange differences
Balance at March 31,
2016$

976,427(13,086)$

13,140,158
5,782
(871)
(22,545)$ 229,849,035
1,727,202(1,677,594)
547,284-$

28,087,404
371,453(345,312)
318,986-$

15,167,890
271,653(72,155)(26,438)(2,265)$ 287,220,914
2,376,090(2,095,932)
839,832(37,896)$

963,341$

13,122,524$ 230,445,927$

28,432,531$

15,338,685$ 288,303,008

$

-

$

(5,355,804)(126,548)
871
9,767

$ (128,953,990)(3,454,578)
1,622,352(547,363)-$ (14,201,904)(500,687)
345,312-$(9,080,350)(186,044)
64,821(5,098)1,715$ (157,592,048)(4,267,857)
2,033,356(552,461)
11,482$-$(5,471,714)$ (131,333,579)$ (14,357,279)$(9,204,956)$ (160,367,528)$

965,174(34,554)$

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

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

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

930,620$

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

24,928,649$

16,136,528$ 298,863,905

$

-

$

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

$ (167,076,190)(4,639,893)
516,671(121,109)
10,464,948
32,368$-$(5,880,127)$ (131,925,003)$ (13,393,953)$(9,624,122)$ (160,823,205)

Accumulated depreciationand impairment
Balance at January 1,
2016
Depreciation expenses
Disposals
Reclassification
Net exchange differences
Balance at March 31,
2016
Cost
Balance at January 1,
2017
Additions
Disposals
Reclassification
Net exchange differences
Balance at March 31,
2017
Accumulated depreciationand impairment
Balance at January 1,
2017
Depreciation expenses
Disposals
Impairment loss
Reclassification
Net exchange differences
Balance at March 31,
2017

Property, plant and equipment were depreciated on a straight-line basis over the estimated useful life of theasset:
Buildings
Main buildings
Others
Machinery equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersAssets leased to others

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

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

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

Regarding changes in fleet composition and the future retirement plan, the Group recognized impairment
losses on aircraft equipment for the year ended March 31, 2017 of $121,109 thousand based on the
difference between the recoverable amount, which applied the fair value (Level 3), and the book value.
The fair value was determined based on aircraft conditions and market estimates.
Refer to Note 34 for the carrying amounts of property, plant and equipment pledged by the Group.
Based on the particularity of risk in the aviation industry, all of the Group’s assets such as aircrafts, realestate, and movable property are adequately insured to diversify the potential risk related to operations.

17. INVESTMENT PROPERTIES

Carrying amount
Investment properties

March 31,2017

December 31,
2016

March 31,2016

$ 2,075,833$ 2,075,903$ 2,076,112

The investment properties held by the Group were land located in Nankan and buildings in Taipei, whichwere all leased to others. The buildings were depreciated on a straight-line basis over 55 years.
The fair value of the investment properties held by the Group was $2,348,759 thousand as of March 31,
2017, December 31, 2016 and March 31, 2016.
All of the Group’s investment properties were held under freehold interests.

Cost

Accumulated
Depreciation

Net Value

Balance on January 1, 2016
Additions$ 2,082,390-$(6,208)(70)$ 2,076,182(70)

Balance on March 31, 2016

$ 2,082,390$(6,278)$ 2,076,112

Balance on January 1, 2017
Additions$ 2,082,390-$(6,487)(70)$ 2,075,903(70)

Balance on March 31, 2017

$ 2,082,390$(6,557)$ 2,075,833- 26 -

18. OTHER INTANGIBLE ASSETS
Computer
Software Cost

Accumulated
Amortization

Balance at January 1, 2016
Additions
Amortization expenses
Effects of exchange rate changes$ 1,623,186
92,935-$(613,508)(23,312)48$ 1,009,678
92,935(23,312)
48

Balance at March 31, 2016

$ 1,716,121$(636,772)$ 1,079,349

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

Balance at March 31, 2017

$ 1,940,875$(822,760)$ 1,118,115

Net Value

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

19. OTHER ASSETSMarch 31,2017

December 31,
2016

March 31,
2016

Current
Other financial assets
Temporary payments
Prepayments
Restricted assets
Others$758,083
285,898
2,515,205
144,011356,709$1,267,927
355,0032,429,741
178,193
407,638$

2,030,162
963,196
1,154,207
36,367
188,214$

4,059,906$

4,638,502$

4,372,146

Noncurrent
Prepayments for aircrafts
Prepayments - long-term
Refundable deposits
Restricted assets
Other financial assets
Others$ 19,620,004
2,062,921
1,318,113
166,160
2,845
8,195

$ 20,942,278
2,020,389
1,389,464
144,835
18,82730,289$ 28,810,244
2,411,274
1,497,098
96,29014,2299,644$ 23,178,238$ 24,546,082$ 32,838,779

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

- 27 -

The Group designated its time deposits with original maturities of more than three months, which wereclassified as other financial instruments, as cash flow hedges in order to hedge exchange rate exposure fromthe expenditure on aircraft rentals. As of March 31, 2017, the book value of the hedging instruments was$101,323 thousand. The losses on the effective portion of the cash flow hedges reclassified from equity
for the three months ended March 31, 2017 were $2,611 thousand and were classified as operating costs inthe statement of comprehensive income.

20. BORROWINGSa. Short-term loans
March 31,2017

December 31,
2016

March 31,
2016

Bank loans - unsecured$ 1,798,030$$

Interest rates

0.94%-3.33%

1.51%-2%

1.53%-1.65%

March 31,2017

December 31,
2016

March 31,2016

$ 1,840,000
11$

900,000-$-$ 1,839,989$

900,000$-

135,000

118,215b. Short-term and bills payable

Commercial paper
Less: Unamortized discount on bills payable

Annual discount rate

0.858%-1.14%

0.758%-March 31,2017

December 31,
2016

March 31,2016

$ 30,257,833
23,262,403$ 33,993,999
18,100,914$ 31,079,090
22,965,525

37,000,000
51,97090,468,266
34,638,911

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

32,900,000
45,24686,899,369
27,911,852$ 55,829,355$ 56,962,187$ 58,987,517

c. Long-term debts

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

Secured bank loans were secured by freehold land, buildings, machinery equipment and flightequipment. Refer to Note 34.

- 28 -

Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable quarterly, semiannuallyor in lump sum upon maturity. Related information is summarized as follows:
Currency
New Taiwan
Dollars
U.S. Dollars
Original currency
March 31, 2017
December 31, 2016
March 31, 2016

$ 53,018,115
51,045,365
50,953,369$

16,57032,536
96,138Translated to New Taiwan dollars
March 31, 2017
December 31, 2016
March 31, 2016

53,018,115
51,045,365
50,953,369

502,121
1,049,548
3,091,246

0.92%-1.82%
0.92%-2.27%
1.0833%-3.15%

0.9704%-4.39%
0.8539%-4.39%
0.2376%-4.39%

Interest rates
March 31, 2017
December 31, 2016
March 31, 2016
Periods
March 31, 2017
December 31, 2016
March 31, 20162005.4.20-2029.1.5 2005.5.12-2017.9.21
2005.3.4-2029.2.4 2005.1.18-2017.9.21
2004.12.16-2029.2.4 2004.6.28-2017.9.21

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The
NIFs, with various maturities until February 2021, were used by the Group to guarantee the commercial
paper issued. As of March 31, 2017, December 31, 2016 and March 31, 2016, such commercial paper
was issued at discount rates of 1.058%-1.496%, 1.0510%-1.4580% and 1.2213%-1.5213%,
respectively.

21. BONDS PAYABLE
March 31,2017
Secured corporate bonds first-time issued in 2011
Unsecured corporate bonds first-time issued in2013
Unsecured corporate bonds first-time issued in2016
Unsecured corporate bonds second-time issued in2016
Convertible bonds issued the fifth time$

December 31,
2016
-

$

-

March 31,2016$

2,400,000

8,200,000

10,900,000

10,900,000

4,700,000

4,700,000-

5,000,000
1,645,439
19,545,439

5,000,000
1,638,044
22,238,044

2,555,696
15,855,696

2,700,000

2,700,000

7,655,696$ 16,845,439$ 19,538,044

Less: Current portion and put option of
convertible bonds- 29 -$

8,200,000

Related issuance conditions were as follows:
Category
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year private unsecured bonds - issued at par in January
2013; repayable in January 2017 and 2018; 1.6% interestp.a., payable annually
Seven-year private unsecured bonds - issued at par in
January 2013; repayable in January 2019 and 2020;
1.85% interest p.a., payable annually
Five-year unsecured bonds - issued at par in May 2016;
repayable in May 2020 and 2021; 1.19% interest p.a.,payable annually
Five-year unsecured bonds - issued at par in September
2016; repayable in September 2020 and 2021; 1.08%
interest p.a., payable annually
Five-year convertible bonds - issued at discount in
December 2013; repayable in lump sum upon maturity;
1.8245% discount rate p.a.

PeriodConditions

Rate (%)

Principal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in January of 2017and 2018; indicator rate; payableannually
Principal repayable in January of 2019and 2020; indicator rate; payableannually
Principal repayable in May of 2020 and2021; interest p.a. payable annually

1.35

2016.9.27-2021.9.27

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

1.08

2013.12.26-2018.12.26

Unless bonds are converted to capitalstock or redeemed, principal
repayable one time in December
2018; 1.8245 discount rate p.a.

-

2011.5.20-2016.5.20

2011.5.20-2016.5.20

2011.5.20-2016.5.20

2011.5.20-2016.5.20

2013.1.17-2018.1.17

2013.1.17-2020.1.17

2016.5.26-2021.5.26

1.35

1.35

1.35

1.60

1.85

1.19

The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand,and the purchasers of the bonds included Mandarin Airlines and Sabre Travel Network (Taiwan), who held
a cumulative face value of $300,000 thousand which was eliminated from the consolidated financial
statements.
The Company issued the fifth issue of its unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request that the Company repurchase their bonds at 100.75% face value on the third
anniversary of the offering date. Because the holders can exercise selling rights on December 26,
2016, the Company reclassified the bonds payable to “current portion of bonds payable” in December
2015. The Company paid $994,705 thousand to the holders of the bonds payable who exercised theput options, and the difference between the payment amount and carrying amount recognized was a loss
on the bonds payable buy back, for which the Company reclassified the remaining face value tonon-current asset.
c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.
d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend
date and the date of the dividend declaration on record), holders may convert the bonds to theCompany’s common stock. The initial conversion price was set at NT$12.24, which is subject toadjustment if there is a capital injection by cash, stock dividend distribution, and the proportion of cash
dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends
as of July 31, 2016, the conversion price was adjusted to NT$11.64, and corporate bonds with a facevalue of $3,315,700 thousand were converted to 270,890 thousand shares of common stock.

- 30 -

The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate of the liability
component was 1.8245% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,000,000(518,621)

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

22. LEASING
a. Sale-leaseback finance leases
March 31,2017

December 31,
2016

March 31,2016

Within one year
Beyond one year and within five years$ 1,254,000
3,248,500$ 1,254,000
3,562,000$ 1,428,467
4,722,017

Present value of minimum lease payments$ 4,502,500$ 4,816,000$ 6,150,484

Interest rates

1.068%-1.131%

1.0323%1.0980%

1.1317%-1.63%

Minimum lease payments - flight equipment

The Group had leased the engines of a total of four aircrafts, A330-300 and 747-400, undersale-leaseback contracts under finance leases as of March 31, 2017. The lease terms are from June
2006 to April 2019. During the lease term, the Group retained all risks and rewards attached to theaircrafts and engines and enjoyed the same substantive rights as were enjoyed prior to the transaction.
The interest rates underlying all obligations under such finance leases were floating. Therefore, theminimum lease payments under the sale-leaseback aircraft contracts do not include interest expense.
b. Finance leases
Taiwan Air Cargo Terminal Co. (“TACT”) entered into a terminal construction contract. Refer toNote 35 for the terms of the contract. Dynasty Holiday Co., Ltd. signed a long-term equipment lease
contract, and the lease contract is a finance lease contract.
March 31,2017

December 31,
2016

March 31,2016$

30,58976,002
106,591(2,603)$30,131
85,244
115,375(2,070)$29,718
118,959
148,677(10,376)$

103,988$

113,305$

138,301(Continued)

Minimum lease payments - Cargo Terminaland others
Within one year
Beyond one year and within five years
Less: Finance costs
Present value of minimum lease payments- 31 -

March 31,
2017

December 31,
2016

March 31,2016$

29,99273,996$30,001
83,304$29,490108,811$

103,988$

113,305$

138,301

Present value of minimum lease payments Cargo Terminal and others
Within one year
Beyond one year and within five years

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

4.756%

4.756%

4.96%$ 1,283,992
3,322,496$ 1,284,001
3,645,304$ 1,457,957
4,830,828$ 4,606,488$ 4,929,305$ 6,288,785(Concluded)c. Operating lease arrangements (include sale-leaseback operating leases)
The Company, Mandarin Airlines, Tigerair Taiwan Co., Ltd. and Taiwan Air Cargo Terminal rented
planes and hangars under various operating lease contracts expiring on various dates of up to May 2028.
The Group does not have a bargain purchase option to acquire the leased planes and hangar at the
expiration of the lease periods.
Of the rental rates stated in the aircraft lease agreements, some are fixed and some are floating. If theagreed-upon rental rate is floating and will be revised monthly or semiannually, subleasing is notallowed for all the lease arrangements. As of March 31, 2017, the Group has rented eleven A330-300
planes, fifteen B737-800 planes, ten B777-300ER planes, six ERJ190 planes and nine A320-200 planes
under operating contracts for which the lease terms range from 8 to 12 years.
As of March 31, 2017, December 31, 2016 and March 31, 2016, the refundable deposits paid by theGroup under operating lease contracts were $935,739 thousand, $982,988 thousand and $956,214
thousand, respectively. Part of the guarantees is secured by credit guarantees, and outstanding credit
guarantees as of March 31, 2017, December 31, 2016 and March 31, 2016 were $1,415,924 thousand,$1,459,935 thousand and $1,274,903 thousand.
The future minimum lease payments for the non-cancelable operating lease commitments were as
follows:

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

March 31,2017

December 31,
2016$ 10,085,309
38,389,249
30,029,724$ 10,431,969
39,692,972
33,360,179$$ 78,504,282$ 83,485,120$ 91,157,424- 32 -March 31,2016
9,253,207
38,207,457
43,696,760

The lease payments recognized in profit or loss for the current period were as follows:
For the Three Months Ended
March 312017
2016
Minimum lease payments$ 2,890,726$ 2,469,865

December 31,
2016

March 31,2016

23. OTHER PAYABLES
March 31,2017
Fuel costs
Ground service expenses
Repair expenses
Interest expenses
Short-term employee benefits
Terminal surcharges
Commission expenses
Others$2,846,998
931,166
845,844
169,395
2,078,816
708,169
382,9712,317,714$

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

1,780,709
1,427,763
908,379
117,417
2,338,115
823,576
442,0392,780,412$ 10,281,073$ 11,465,254$ 10,618,410

March 31,2017

December 31,
2016

March 31,2016

2,358,483
14,253,604$

24. DEFERRED REVENUE

Frequent flyer program
Advance ticket sales$

2,427,565
14,202,198$

2,460,154
10,870,160$ 16,612,087$ 16,629,763$ 13,330,314$ 14,856,171
1,755,916$ 14,820,860
1,808,903$ 11,540,960
1,789,354$ 16,612,087$ 16,629,763$ 13,330,314

March 31,2017

December 31,
2016

March 31,2016

Operating leases - aircraft$ 7,795,828$ 7,490,154$ 6,207,565

Current
Non-current

$

$

$

Current
Noncurrent

25. PROVISIONS

709,405
7,086,423$ 7,795,828- 33 -

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

30,7986,176,767$ 6,207,565

Aircraft Lease
Contracts
Balance at January 1, 2016
Additional provisions recognized
Usage
Effects of exchange rate changes$ 6,187,481
600,052(567,391)(12,577)

Balance at March 31, 2016

$ 6,207,565

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

Balance at March 31, 2017

$ 7,795,828

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

26. RETIREMENT BENEFIT PLANS
Employee benefits expense in respect of the Group’s defined benefit retirement plan were calculated using
the actuarially determined pension cost discount rate as of December 31, 2016 and 2015.
For the Three Months Ended
March 312017
2016
Operating costs
Operating expenses$ 188,378
67,690$ 149,632
63,870$ 256,068$ 213,502

March 31,2017

December 31,
2016

March 31,2016

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

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

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

27. EQUITY
a. Capital stock
Common stock

Numbers of stock authorized (in thousands)
Amount of stock authorized
Amount of stock issued- 34 -

b. Capital surplus

Issuance of stock in excess of par value andconversion premium
Gain on sale of treasury stock held bysubsidiaries
Employee stock options expired
Long-term investment
Bonds payable equity component
OthersMarch 31,2017

December 31,
2016

March 31,2016

$ 552,470$ 552,470$ 552,470

2,673
11,747
1,019
146,684
85,3392,673
11,747
1,019
146,684
85,3391,156
11,7471,019
232,023-$ 799,932$ 799,932$ 798,415

The capital surplus from shares issued in excess of par (including additional paid-in capital fromissuance of common stock and treasury stock transactions) and donations may be used to offset deficits;in addition, when the Group has no deficit, such capital surplus may be distributed as cash dividends ortransferred to capital (but limited to a certain percentage of the Group’s paid-in capital on yearly basis).
The capital surplus arising from long-term investments and employee stock options may not be used fornothing but to offset deficits. The capital surplus arising from stock option for employees andconvertible bonds, cannot be used.
c. Appropriation of earnings and dividend policy
Under the dividend policy as set forth in the Company’s Articles of Incorporation (the “Articles”)
amended on June 24, 2016 based on the amended Company Act, where the Company made profit in a
fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting
aside as a legal reserve 10% of the remaining profit, setting aside or reversing a special reserve inaccordance with the laws and regulations, and then any remaining profit together with any undistributed
retained earnings shall be used by the Company’s board of directors as the basis for proposing a
distribution plan with due consideration of any future aircraft acquisition plans and fund demands,
which should be resolved in the stockholders’ meeting for the distribution of dividends and bonuses tostockholders by cash or stock (cash dividends cannot be less than 30% of total dividends distributed).
However, if the Company’s profit before tax in a fiscal year after deductions for the abovementioned
items is not sufficient for earnings distribution, retained earnings can be used as a supplement for the
deficiency. If the Company has no deficit in a fiscal year, the Company can distribute all or part of thecapital surplus by cash or stock with due consideration of finance, marketing and management
requirements in accordance with the laws and regulations.
The distribution of dividends should be resolved and recognized in the stockholders’ meeting in thefollowing year.
Appropriation of earnings in 2015
The appropriation of earnings for 2015 was resolved in the stockholders’ meeting on June 24, 2016.
The appropriation and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Special reserve
Cash dividends$- 35 -

287,224
76,4862,508,525

Dividends Per
Share (NT$)$0.458522382

Appropriation of earnings in 2016
The Company proposed to compensate its deficit using a legal reserve of $81,132 thousand on March
30, 2017. The proposal for its 2016 deficit compensation was to be resolved in the stockholder’smeeting held on June 22, 2017.
When the Company distributes undistributed earnings for the years after 1998, except for non-ROC
residents stockholders, all stockholders can receive the imputation tax credit calculated by the Tax
Deduction Ratio on the distribution date.
d. Others equity items
The movement of other equity items is as follows:
Exchange
Unrealized
Differences on Gain (Loss) on
Translating
Available-forForeign
sale Financial
Operations
AssetsCash Flow
Hedges

Total

1,755

$ (225,997)$ (66,283)(49,976)--(49,976)

-

(938)

-

(938)

-

-

(273,593)(273,593)--

249,649

249,649

8,052

(987)
-

3,522

(987)
11,574

Balance on January 1, 2016
Exchange differences ontranslating foreign operations
Unrealized loss onavailable-for-sale financial
assetsCumulative loss on changes infair value of hedging
instruments
Cumulative gain on changes infair value of hedging
instruments reclassified to
profit or loss
Share of exchange differencesof associates accounted forusing the equity method
Effects of income tax$ 157,959

Balance on March 31, 2016

$ 116,035

$

(170)

$ (246,419)$ (130,554)

Balance on January 1, 2017
Exchange differences ontranslating foreign operations
Cumulative loss on changes infair value of hedging
instruments
Cumulative gain on changes infair value of hedging
instruments reclassified to
profit or loss
Effects of income tax

$

$

1,714

$

31,986$ 112,264

Balance on March 31, 2017

$ (35,844)

78,564$(136,323)--(136,323)--(272,310)(272,310)

21,915-64,232
34,39264,23256,307

1,714$ (141,700)$ (175,830)- 36 -$

e. Non-controlling interests
For the Three Months Ended
March 312017
2016
Beginning balance
Net income attributable to non-controlling interests
Exchange differences on translating foreign operations
Unrealized gain (loss) on financial assets
Acquisition of non-controlling interests in subsidiaries
Effects of income tax
Cumulative loss on changes in fair value of hedging instruments
Cumulative gain on changes in fair value of hedging instruments
reclassified to profit or loss
Dividends paid by subsidiaries$ 2,083,381
47,508(11,673)(46,118)
3,155
(641)

$ 2,286,647
43,514(397)(1,029)(4,548)(383)(2,026)180(1,274)904(462)

Ending balance$ 2,074,518$ 2,322,220

f. Treasury stock
Treasury stock are the Company’s stock held by its subsidiaries as of March 31, 2017 and 2016 andwere as follows:(Shares in Thousands)
Number of
Shares,Beginningof Year

Purpose of Treasury Stock

Reduction
Duringthe Year(Note)

Number of
Shares,Endof YearThree months ended March 31, 2017
Company’s stock held by its subsidiaries reclassified frominvestments in shares of stock to treasury stock

2,889

-

2,889

2,889

-

2,889

Three months ended March 31, 2016
Company’s stock held by its subsidiaries reclassified frominvestments in shares of stock to treasury stock

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 21,887
8,589$ 21,887
8,589$ 30,476$ 30,476(Continued)

March 31, 2017
Mandarin Airlines
Hwa Hsia

2,075
814

- 37 -

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 19,294
7,572$ 19,294
7,572$ 26,866$ 26,866$ 23,858
9,363$ 23,858
9,363$ 33,221$ 33,221(Concluded)

December 31, 2016
Mandarin Airlines
Hwa Hsia

2,075
814

March 31, 2016
Mandarin Airlines
Hwa Hsia

2,075
814

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

28. NET INCOME
a. Revenue
For the Three Months Ended
March 312017
2016
Passenger
Cargo
Others$ 24,434,529
8,905,204
2,456,732$ 24,727,731
7,806,929
2,464,363$ 35,796,465$ 34,999,023

b. Other income
For the Three Months Ended
March 312017
2016
Interest income
Subsidy income
Others$42,747
6,389
91,662$ 140,798- 38 -$

91,2297,450
57,365$ 156,044

c. Other gains and losses
For the Three Months Ended
March 312017
2016
Gain (loss) on disposal of property, plant and equipment
Gain on disposal of noncurrent assets held for sale
Net loss arising on financial assets classified as held for trading
Loss on disposal of investments
Loss on foreign exchange, net
Impairment loss recognized on property, plant and equipment
and noncurrent assets held for sale
Others$(1,151)
25,140(36,572)(61)(140,600)$

3,395(25,374)(234,787)(2,842,383)(85,221)$ (3,080,848)(182,474)$(439,240)d. Finance costs
For the Three Months Ended
March 312017
2016
Interest expense
Bonds payable
Bank loans
Interest on obligations under financial leases
Loss arising on derivatives designated as hedging instruments
in cash flow hedge accounting reclassified from equity to
profit or loss$

77,953
232,412
14,492$

66,061
258,932
18,994

1,833

1,279

$ 326,690$ 345,266

Information of interest capitalization was as follows:
For the Three Months Ended
March 312017
2016
Capitalization interest$

71,558$ 108,743

Capitalization rate

1.3849%1.4140%

1.6670%1.7347%

e. Depreciation and amortization expenses
For the Three Months Ended
March 312017
2016
Property, plant, equipment
Investment properties
Intangible assets$ 4,639,893
70
61,663$ 4,267,857
70
23,312

Depreciation and amortization expenses$ 4,701,626$ 4,291,239(Continued)- 39 -

For the Three Months Ended
March 312017
2016
An analysis of depreciation by function
Operating costs
Operating expenses

An analysis of amortization by function
Operating costs
Operating expenses$ 4,474,078
165,885$ 4,096,792
171,135$ 4,639,963$ 4,267,927$

61,663$32
23,280$61,663$23,312(Concluded)

f. Employment benefits expense
For the Three Months Ended
March 312017
2016
Post-employment benefits
Defined contribution plan
Defined benefit plan

Other employee benefits
Salary expenses
Personnel service expenses

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

116,784
256,068$

101,802
213,502$372,852$

315,304$ 4,880,596
1,385,337$ 4,998,672
1,403,194$ 6,265,933$ 6,401,866$ 5,475,470
1,163,315$ 5,319,244
1,397,926$ 6,638,785$ 6,717,170

To be in compliance with the Company Act as amended, the Articles stipulate the distribution of
employees’ compensation at rates of no less than 3% of the net profit before income tax and employees’
compensation. For the three months ended March 31, 2016, the employees’ compensation was$490,826 thousand of the base net profit. For the three months ended March 31, 2017, the Company
has deficit, and therefore no employees’ compensation to be estimated.
Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date that the annual consolidated financial statements are authorized for issue
are adjusted in the year that the bonuses and remuneration were recognized. If there is a change in the
proposed amounts after the annual consolidated financial statements are authorized for issue, thedifferences are recorded as a change in the accounting estimate.

- 40 -

Information on the employees’ compensation and remuneration of directors and supervisors resolved by
the Company’s board of directors in 2016 are available on the Market Observation Post System websiteof the Taiwan Stock Exchange.

29. INCOME TAX
a. Income tax expense recognized in profit or loss
The major components of tax expense (benefit) were as follows:
For the Three Months Ended
March 312017
2016
Current tax
Current year
Deferred tax
Current year$

Income tax expense recognized in profit or loss

33,541$

49,162

162,936

309,735$ 196,477$ 358,897

b. Income tax recognized in other comprehensive income
For the Three Months Ended
March 312017
2016
Deferred tax
Recognized in other comprehensive income
Translation of foreign operations
Hedging instruments fair value revaluation for cash flow
hedging$ 25,054$

6,930

34,4084,261$ 59,462$ 11,191

March 31,2017

December 31,
2016

March 31,2016

$ 102,527$ 102,527$ 554,402

Total income tax recognized in other comprehensive income
c. Integrated income tax

Imputation credit accounts

The actual creditable tax ratio on December 31, 2015 was 20.22%. The Company accumulated a
deficit for which to be compensated for the year ended December 31, 2016, and therefore there was notax deduction ratio resulting from its earnings distribution.
Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputationcredits allocated to ROC resident stockholders of the Company were calculated based on the creditableratio as of the date of the dividends distribution.
d. Income tax assessment
Except for the matters mentioned below, the income tax returns for 2014 of the Company and its
subsidiaries have been examined by the tax authorities.

- 41 -

The income tax return of TACT for 2001 was assessed by the tax authorities with an additional income
tax payable amounting to $129,350 thousand for the excessive distribution into imputation credits
account (“ICA”) of TACT’s stockholders, and a fine equivalent to one fold of the excessive distribution
was assigned. TACT disagreed with the assessment and appealed for a reinvestigation, an
administrative appeal and administrative proceedings, but the Supreme Administrative Court affirmed
the additional tax payment of $129,350 thousand on December 8, 2011, and TACT made the additional
tax payment. Because the decision of the court on the amount of fine remained the same, TACT filed
for an administrative remedy, and the High Administrative Court reached a decision on June 15, 2016;
however, TACT refused to accept the resolution and appealed to the Supreme Administrative Court on
July 4, 2016. Nevertheless, TACT recognized a provision for the fine in the amount of $59,501
thousand.

30. EARNING PER SHARE
The numerators and denominators used in calculating earnings and losses per share were as follows:
For the Three Months Ended
March 312017
2016
Basic earnings per share
Diluted earnings per share$ (0.69)$ (0.69)

$
$

0.27
0.26

Earnings used in the computation of basic earnings per share
Effect of potentially dilutive common stock:
Interest on convertible bonds (after tax)

$ (3,760,875)$ 1,463,951-

10,223

Earnings used in the computation of diluted earnings per share$ (3,760,875)$ 1,474,174

For the Three Months Ended
March 312017
2016
Weighted average number of common stock in computation of basic
earnings per share
Effect of potentially dilutive common stock:
Convertible bonds
Employees’ compensation or bonus issued to employees
Weighted average number of common stock used in the computationof diluted earnings per share

5,468,002

5,468,002-

219,306
67,1885,468,002

5,754,496

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

31. CAPITAL MANAGEMENT
The goal, policies and procedures as well as the composition of the Group’s capital management are sameas those stated in Note 31 in the Group’s consolidated financial statements for the year ended December 31,
2016.

- 42 -

32. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
1) Financial instruments not evaluated at fair value
Except as detailed in the following table, the management considers the carrying amounts offinancial assets and financial liabilities recognized in the financial statements as approximating theirfair values.
March 31, 2017
Carrying
AmountFair Value

December 31, 2016
Carrying
AmountFair Value

March 31, 2016
Carrying
AmountFair Value$ 19,545,439
90,468,266$ 22,238,044
89,230,727$ 15,855,696
86,899,369

Financial liabilities
Bonds payable
Loans and debt

$ 19,621,634
92,508,673$ 22,580,069
91,315,640$ 16,279,481
86,956,059

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying amounts are their fair values. As of March 31, 2017, December 31, 2016 and March 31,
2016, the fair values of long-term debts and private bonds with fixed interest rates are estimated at
the present value of expected cash flows discounted at rates of 1.3370%, 1.191% and 0.749%,
respectively, prevailing in the market for long-term debts (Level 2). Fair values of bond payable
trading in OTC and based on quoted market prices (Level 1).
2) Financial instruments evaluated at fair value - on a non-recurring basis
The following table provides an analysis of financial instruments that are measured subsequent toinitial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fairvalue is observable:a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;b) Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. derived from prices); andc) Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
March 31, 2017
Level 1

Level 2

Level 3

Total

Financial assets at FVTPL
Domestic money market
fund$ 469,187

$

-

$

-

$ 469,187

Financial liabilities at
FVTPL
Derivative instrument

$

-

$

41,684$-$

41,684

Derivative financial assets
for hedging

$

-

$

4,535

$

-

$

4,535

Derivative financial
liabilities for hedging$-$ 168,070$-$ 168,070- 43 -

December 31, 2016
Level 1
Financial assets at FVTPL
Derivative instrument
Beneficial certificates$

Level 2

Level 3

Total

415,441

$

1,200
-

$

-

$

1,200
415,441$ 415,441

$

1,200

$

-

$ 416,641

Derivative financial assets
for hedging

$

-

$

61,634$83$

61,717

Derivative financial
liabilities for hedging

$

-

$

23,629$-$23,629March 31, 2016
Level 1
Financial assets at FVTPL
Derivative instrument
Domestic money market
fund$

Level 2-$

Level 3

12,393406,251

$

Total

-

-

$

12,393-406,251$ 406,251$

12,393$-$ 418,644

Financial liabilities at
FVTPL
Derivative instrument

$

-

$

13,297$-$

13,297Available-for-sale financial
assetsSecurities listed indomestic$

17,113

$

-

$

-

$

17,113

Derivative financial assets
for hedging

$

-

$

25,810

$

5,395

$

31,205Derivative financial
liabilities for hedging$-$ 169,466$ 160,313$ 329,779

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

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

- 44 -e) Valuation techniques and inputs applied for Level 3 fair value measurement
The fair values of foreign exchanges and fuel options are determined using option pricing
models where the significant unobservable inputs are implied fluctuation. An increase in theimplied fluctuation used in isolation would result in a decrease in the fair value of foreignexchanges and fuel options.
Because some financial instruments and nonfinancial instruments cannot show their fair value,
the total fair value showed by these disclosure are not total value of the Group.
b. Categories of financial instruments
March 31,2017

December 31,
2016469,187
139,301
4,535
35,839,259$

March 31,2016

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

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

418,644
239,369
31,20534,576,012$ 36,452,282$ 37,194,826$ 35,265,230

$

$

$

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

41,684
168,070
137,427,090$ 137,636,844

23,629137,600,603$ 137,624,232

13,297329,779
127,911,079$ 128,254,155

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash
and cash equivalents, notes and accounts receivable, accounts receivable - related parties,
other receivables, refundable deposits, other financial assets and other restricted financial
assets.
Note 2: The balances included financial liabilities measured at amortized cost, which compriseshort-term loans, short-term notes payable, notes and accounts payable, accounts payable related parties, other payables, bonds payable and long-term loans, capital lease obligations,provisions, parts of other current liabilities, parts of other noncurrent liabilities and guarantee
deposits.
Note 3: The balances include the financial assets measured at cost.
c. Financial risk management objectives and policies
The Group has risk management and hedging strategies to respond to changes in the economic andfinancial environment and in the fuel market. To reduce the financial risks from changes in interest,
exchange rates and in fuel prices, the Group has its operating costs stay within a specified range byusing appropriate financial hedging instruments and hedging percentages in accordance with the“Processing Program of Derivative Financial Instrument Transactions” approved by the Groupstockholders to reduce the impact of market price changes on earnings. These risks include market
risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

- 45 -

In addition, the Group has a risk committee, which meets periodically to evaluate the performance of
derivative instruments and determine the appropriate hedging percentage. This committee informs theGroup of global economic and financial conditions, controls the entire financial risk resulting fromchanges in the financial environment and fuel prices, and develops the strategy and response to avoid
financial risk with the assistance of financial risk experts to effect risk management.
1) Market risk
The Group is primarily exposed to the financial risks of changes in foreign currency exchange rates
and interest rates. The Group entered into derivative financial instruments to manage its exposure
to foreign currency risk and interest rate risk.
The Group enters into forward contracts, foreign currency option contracts, and interest swap
contracts with fair values that are highly negatively correlated to the fair values of hedged items andevaluates the hedging effectiveness of these instruments periodically.
a) Foreign currency risk
The Group enters into foreign currency option contracts to hedge against the risks on change in
related exchange rates, enters into forward contracts to hedge against the risks on changes inforeign-currency assets, liabilities and commitments in the related exchange rates.
Sensitivity analysis
The Group was mainly exposed to the U.S. dollar.
The following details the Group’s sensitivity to increase and decrease in New Taiwan dollars(the functional currency) against the relevant foreign currencies.
U.S. dollars
increase/decrease one dollar against New Taiwan dollars used when reporting foreign currency
risk internally to key management personnel and represents management’s assessment of thereasonably possible change in foreign exchange rates. The sensitivity analysis included only
outstanding foreign currency denominated monetary items and foreign currency forward
contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting
period for U.S. dollars increase/decrease one dollar against New Taiwan dollars change in
foreign currency rates.
When New Taiwan dollars increase one dollar against U.S. dollars and all other variables were
held constant, there would be a decrease in pre-tax profit for the three months ended March 31,2017 of $59,061 thousand and an increase in pre-tax profit for the three months ended March
31, 2016 of $338,346 thousand, respectively.
b) Interest rate risk
The Group enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates.
The Group was exposed to interest rate risk because entities in the Group borrowed funds atboth fixed and floating interest rates. The risk is managed by the Group by maintaining anappropriate mix of fixed and floating rate borrowings, and using interest rate swap contracts andforward interest rate contracts.

- 46 -

The carrying amount of the Group’s financial assets and financial liabilities with exposure tointerest rates at the end of the reporting period were as follows.

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

March 31,2017

December 31,
2016

March 31,2016

$ 25,577,167$ 26,093,421$ 16,543,475

92,681,045

91,339,655

92,618,590

Sensitivity analysis
The sensitivity analyses below were determined based on the Group’s exposure to interest rates
for both derivatives and non-derivative instruments at the end of the reporting period. For
floating rate liabilities, the analysis was prepared assuming the amount of the liability
outstanding at the end of the reporting period was outstanding for the whole year. A one yard
(25 basis) point increase or decrease was used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.
Had interest rates increased one yard (25 basis) points and had all other variables been held
constant, the Group’s pretax profit for the three months ended March 31, 2017 would havedecreased by $231,703 thousand.
Had interest rates increased one yard (25 basis) point and had all other variables been held
constant, the Group’s pretax profit for the three months ended March 31, 2016 would havedecreased by $231,546 thousand.
c) Other price risk
The Group was exposed to fuel price risk on its purchase of aviation fuel. The Group enters
into fuel swaps contract to hedge against adverse risks on fuel price changes.
Sensitivity analysis
The sensitivity analyses below were determined based on the exposure to fuel price risks at theend of the reporting period.
For the Three Months Ended March 31
2017
2016
Other
Other
CompreComprehensive
hensive
Pre-tax Profit
IncomePre-tax Profit
IncomeIncrease
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)(Decrease)
Fuel price increase 5%
Fuel price decrease 5%

$

-

$

-

$

7,031
(7,113)$ 21,375(11,128)

2) Credit risk
The goal, policies and procedure of credit risk management are same as consolidated financial
statement in 2016. Related illustration can be referred to Note 32.

- 47 -

3) Liquidity risk
The goal, policies and procedures of liquidity risk management are same as consolidated financial
statement in 2016. Related illustration can be referred to Note 32.

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

Relationship with the Company

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

Associates
Associates
Associates
Associates
Associates
Associates
Associates
Joint venture investment
Joint venture investment
Director of the Company and major stockholder
Merged company’s director, major managementlevel, chairman, general manager, their spouseand second-degree relatives.

b. Operating income

Account Items
Other income

Related Party TypeFor the Three Months Ended
March 312017
2016

Major stockholder of the Company
Associates
Joint venture investments

$
$
$

6,970
635
8,231

$
$
$

8,847
775
3,342

Related Party TypeFor the Three Months Ended
March 312017
2016

c. Purchases

Major stockholder of the Company
Associates
Joint venture investments$ 15,592$ 155,407$ 456,925- 48 -$ 20,034$ 166,370$ 394,336

d. Accounts receivable - related parties (generated by operations)
March 31,2017

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

December 31,
2016

March 31,
2016

$

2,571
270
3,591

$

1,512
500
1,550

$

3,346
307
1,735

$

6,432

$

3,562

$

5,388

The receivables are not guaranteed, and there is no allowance for doubtful accounts related to accountreceivables - related parties. The payment period of such accounts was within 30 to 90 days, and there
are no overdue payments.
e. Accounts payable - related parties (generated by operations)
March 31,2017

Related Party Type
Major stockholder of the Company
Associates
Joint venture investments
China Pacific Catering Services
Others$5,379
82,739December 31,
2016
$

3,503
120,824

March 31,
2016
$

7,302
81,788

460,760
20,073411,698
19,804384,309
17,610$ 568,951$ 555,829$ 491,009

The remaining balance of notes and accounts payable - related parties will be paid in cash if they are notsecured.
f. Leases (operating leases)
The Company has signed a lease contract with the China Aviation Industry Development Foundation
for pilot’s training. The Company has leased the flight trainer and simulator and the rental was
calculated based on use hours. As of March 31, 2017 and 2016 the rental paid was $15,592 thousand
and $20,034 thousand, respectively.
g. Endorsements and assurances
March 31, 2017
Total Amount Amount Used

December 31, 2016
Total Amount Amount Used

March 31, 2016
Total Amount Amount Used

$ 3,850,000
1,080,000
180,000
1,068,500$ 3,850,000
1,080,000
180,000
919,742$ 3,400,000
1,080,000
180,000
916,785

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

$ 2,796,000
398,592
412,150- 49 -$ 2,783,000
436,418
438,740$ 2,656,000
491,515
4,757
437,329

h. Compensation of key management personnel
For the Three Months Ended
March 312017
2016
Short-term employee benefits
Post-employment benefits$ 13,172972$ 17,145
804$ 14,144$ 17,949

The remuneration of directors and key executives was determined by the remuneration committee basedon 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:

Property, plant and equipment
Restricted assets

March 31,2017

December 31,
2016

March 31,2016

$ 75,086,441
310,171$ 77,847,771
323,028$ 86,496,097
132,657$ 75,396,612$ 78,170,799$ 86,628,754

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

35. COMMITMENTS AND CONTINGENT LIABILITIESAs of March 31, 2017, the Group had commitments and contingent liabilities (except for those mentioned
in other notes) as follows:a. In January 2008, the Company entered into a contract to buy fourteen A350-900 aircrafts from Airbus,
with the option to buy six more A350-900 aircrafts, with aggregate purchase prices of US$3,933,235
thousand and US$1,802,645 thousand, respectively. The expected period of delivery of the aircrafts
was from 2016 to 2018. As of March 31, 2017, five of the aircrafts had been handed over to theCompany, and the total list price of the remaining nine aircrafts was US$2,557,978 thousand, which has
been paid in the amount of US$567,558 thousand (recognized as prepayments for aircrafts).
b. Tigerair Taiwan entered into a lease contract for four A320-200 aircrafts with a 10-year lease term on
July, November and December 2015. Three of the four aircrafts were delivered. The expected
delivery date of the remaining aircraft is in December 2017.

- 50 -

c. Taiwan Air Cargo Terminal Co. (“TACT”) signed a terminal construction contract with the Civil
Aeronautics Administrations (“CAA”) on January 14, 2000. The chartered operation period (“COP”)
is 20 years from the date of transfer of the chartered operation rights from CAA to TACT. The
terminal expansion and improvements and the equipment installation and upgrade in the Taiwan
Taoyuan International Airport cargo terminal and Kaohsiung cargo terminal were expected to becompleted in the first 10 years of the COP. This construction project was approved by TACT’s boardof directors in 2003. The total estimated expense of the construction project was $8,490,000 thousand.
The designated start of the project was from 2004 and the construction began in 2008. TACT filed an
application for a 10-year extension of the COP for the cargo terminals in the Taiwan Taoyuan
International Airport and Kaohsiung International Airport and received the approval from the Taoyuan
Airport Corporation and CAA in July 2013 and July 2015, respectively.
The original total expenditure of the previous main construction project was $8,490,000 thousand.
However, TACT filed an arbitration for the total amount of expenditure in 2012 to revise the total
amount to $6,840,000 thousand.
As of March 31, 2017, TACT had signed the following construction contracts with unrelated parties:

Client NameContract Title

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

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

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

As of March 31, 2017, the cumulated consultant service expense and construction equipment had
amounted to $464,642 thousand (VAT included) and $4,969,858 thousand (VAT included),
respectively. Upon completion of the projects, the amount of $459,850 thousand (VAT included) and$4,891,873 thousand (VAT included) were reclassified to property, plant, and equipment. The
remaining cumulative payments were recognized under construction in progress.
Assets acquired from cargo terminal improvements, equipment acquisition and subsequent equipment
acquisition and replacement will be transferred to the government without any compensation when thechartered operating license expires.
d. TACT should pay royalties to Taoyuan Airport Corporation and CAA during the chartered operation
period. The calculation is based on annual sales (including operating revenue and nonoperating
revenue but excluding the rental revenue from specific district), and Taoyuan Airport Corporation and
CAA has the option to adjust the royalty rates every 3 years starting from the date of transfer of thechartered operation right on the basis of actual revenue and expenditure. These rates were listed asfollows:
Annual Operating AmountRoyalty Rate

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

6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%- 51 -

e. CAL Park Co., Ltd. (“CAL Park”) signed “Taiwan Taoyuan International Airport Aviation Operation
Center (including Airport Hotel) Construction Operating Contract” with the CAA on September 20,
2006. However, on November 1, 2010, the Taoyuan Airport Corporation took over the CAA’s rights
on this contract from the CAA. The contract is effective for 50 years (consisting of the development
stage and operating period) from the contract date. Three years before contract expiry date, CAL Park
has the first option to renew the contract once with a 20-year extension.
CAL Park’s business scope includes providing business and other operating space related to civil airtransport, hotels, aviation service and related industries adhered to the base and essential services law
and approved by the Taoyuan Airport Corporation.
CAL Park should pay land rentals on the date of the registration of surface rights. The rental rates forthe development stage differ from those for the operation period. The rental rates should follow
Article No. 2 of the “Regulations for Favorable Rentals Regarding Public Land Lease and Superficies
in Infrastructure Projects,” which states that rental calculation in the development stage should include
the land value added tax plus the necessary maintenance fee; in the operation period, rentals are 60% of
the amount based on the National Building Land Rental Standard plus land value tax, value-added tax
and the necessary maintenance fee.
CAL Park should pay construction and operation security deposits of $100,000 thousand (using a
refundable certificate deposit recognized under deposits-in). If CAL Park complies with the contract
terms within three months after the initial operation date, half of the security deposits will be refundedinterest free, and the remaining amount will be refunded within three months after the end of theoperating period and the completion of asset transfer. In May 2011, CAL Park received the refunded
security deposits of $50,000 thousand without interest.
During the 50 years beginning from the initial operation date of CAL Park to the end of the construction
period, CAL Park should pay royalties based on the operating revenue estimated in the financial plan of
its investment execution proposal. If the sales and business tax declared and filed by a business entity
for a single year exceeds 10% of the operating revenue as estimated in the financial plan in its
investment execution proposal, CAL Park should pay additional royalties at 10% of this excess.
CAL Park should submit the asset transfer plan within five years before the expiry date of the charteredoperation period, begin the negotiation of the asset transfer contract, and complete the assignation nolater than three years before the expiry date of the chartered period. If CAA decides not to keep thebuilding and equipment on the base area, CAL Park should remove all related building and equipment
within three months after the expiry date.
f. Taiwan Aircraft Maintenance Company contracted out Ronggong Engineering Co., Ltd. for aconstruction repair project. The contract expiration date is June 15, 2018, and estimated total cost of
the project is $1.906 billion. As of March 31, 2017, $24,616 thousand was paid (recognized as
construction in progress).
g. The Group has been named as a defendant, together with other airline members of the Association ofAsia Pacific Airlines, in a civil class action lawsuit filed at the U.S. Northern District Court ofCalifornia by a group of passengers who alleged that there was an antitrust violation in December 2007.
The Company has properly joined the defendants’ Joint Defense Group.

- 52 -

36. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESThe following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:
March 31, 2017
Foreign
Currencies

Exchange Rate

Carrying
Amount325,318
16,012200,161
5,447,204
465,80330.3030
32.3625
3.90630.27084.3995$ 9,858,124
518,177
781,889
1,475,099
2,049,302

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

30.3030
32.3625
3.90630.27084.39959,033,839
162,717334,840
1,433,611
614,056

Foreign
Currencies

Exchange Rate

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

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

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

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY
December 31, 2016

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY

- 53 -

March 31, 2016
Foreign
Currencies

Exchange Rate

Carrying
Amount552,552
16,459276,464
1,698,945
1,144,666

32.1543
36.3636
4.15110.28644.9801$ 17,766,940
598,496
1,147,628
516,426
5,700,544

238,219
6,028
74,542
4,781,895
157,067

32.1543
36.3636
4.15110.28644.9801

7,659,750
219,206
309,433
1,369,527
782,209

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
CNY

For the three months ended March 31, 2017 and 2016, net foreign exchange losses were $140,600 thousand
and $234,787 thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) byeach significant foreign currency due to the variety of the foreign currency transactions and functional
currencies of the group entities.

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

None2) Endorsements/guarantees provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20%of the paid-in capital: None
5) Acquisitions of individual real estate at costs or price of at least NT$100 million or 20% of thepaid-in capital: None
6) Disposals of individual real estate at cost or prices of at least NT$100 million or 20% of the paid-in
capital: None
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 3 (attached)- 54 -

8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 4 (attached).
9) Names, locations, and related information of investees over which the Company exercises
significant influence: Table 5 (attached).
10) Derivative financial transactions (Notes 7 and 9)
b. Investments in mainland China: Table 6 (attached)c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 7 (attached)

38. SEGMENT INFORMATION
Segment Information
The Company mainly engages in air transportation services for passengers, cargo and others. Its major
revenue-generating asset is its aircraft fleet, which is used jointly for passenger and cargo services. Thus,
the Company’s sole reportable segment is its flight segment. For operating segment reporting in the
consolidated financial statements, the reportable segment of the Company and its subsidiaries comprises theflight and the non-flight business departments. The accounting policy applied for reportable segments is
consistent with the policy mentioned in Note 4.
For the three months ended March 31, 2017, financial information of segment was listed below:
For the Three Months Ended March 31, 2017
Air
Adjustments
Transportation
Othersand Write-offs
Operating revenue$ 35,393,406$

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

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

196,083$-(565,513)$ 35,796,465$(369,430)
42,747
119,280
44,164(326,690)(3,026,961)

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

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

Total assets$ 220,171,121- 55 -

For the Three Months Ended March 31, 2016
Air
Adjustments
Transportation
Othersand Write-offs
Operating revenue$ 34,645,086$

1,907,887$(1,553,950)

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

236,977$-

2,134,237$ 34,999,023$

2,371,214
91,229123,61048,047(345,266)(422,472)

Profit before income tax
Identifiable assets
Investments accounted for by theequity method
AssetsTotal$$ 120,961,758$

9,618,832$-

1,866,362$ 130,580,590
2,975,485
84,964,297

Total assets$ 218,520,372- 56 -TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIESENDORSEMENTS/GUARANTEES PROVIDEDFOR THE THREE MONTHS ENDED MARCH 31, 2017
(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
Cal Hotel
Tigerair Taiwan Ltd.

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

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

$ 10,346,516
10,346,516
10,346,516
10,346,516$ 3,850,000
1,080,000
180,000
1,079,101$ 3,850,000
1,080,000
180,000
1,068,500

ActualBorrowingAmount$ 2,796,000
398,592
412,150

Note 1:

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

Note 2:

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

- 57 -

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

-

7.44
2.09
0.35
2.07

Maximum
Collateral/
Guarantee
Amounts
Allowable(Note 2)

$ 25,866,290
25,866,290
25,866,290
25,866,290

Endorsement/ Endorsement/ Endorsement/
Guarantee
Guarantee
Guarantee
Given by Parent
Given byGiven on Behalf
on Behalf of
Subsidiaries on of Companies in
Subsidiaries Behalf of Parent Mainland China

Ｙ
Ｙ
Ｙ
Ｙ

Ｎ
Ｎ
Ｎ
Ｎ

Ｎ
Ｎ
Ｎ
Ｎ

TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES HELDMARCH 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

Marketable Securities Type and Issuer/Name

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

Cal-Asia Investment

Sabre Travel Network (Taiwan)

Taiwan Airport Services

Hwa Hsia

Stock
China Airlines

Relationshipwith theHoldingCompany-

Financial Statement AccountShares/Units

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

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

Parent company Available-for-sale financial assets - current

March 31, 2017
Percentage Market Value
Carryingofor Net Asset
AmountOwnership
Value$

52,704473
11,00056,023

13.59
11.00
15.00

2,074,628

21,88715,302,543
1,000,000$

Note

64,474
21,487
11,344Note 1
Note 1--

21,887-

182,768
30,390-182,768
30,390--19,101

5.83
5.45(46,386)
23,341

Note 2
Note 2-

3,323
57,62954,901
70,95064,539---Beneficial certificatesFuh Hwa Money Market Fund
Barclays America Bonds Fund-

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

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

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

Beneficial certificates
Mirae Asset Solomon Money Market Fund
Mega Diamond Money Market Fund
Franklin Templeton Sinoam Money Market FundFSITC Taiwan Money Market FundFSITC Money Market Fund-

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

265,726
4,637,003
5,360,663
4,679,785
364,915

3,323
57,62954,901
70,95064,539Stock
TransAsia Airways-

Available-for-sale financial assets - noncurrent

2,277,786-

814,152

8,589

-

8,589

-

349,523

4,687

-

4,687

-

Stock
China Airlines
Beneficial certificates
Taishin 1699 Money Market Fund

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

Financial assets at fair value through profit or loss - current

Note 1: The subsidiary’s net asset value was $64,474 thousand, which included common stock and preferred stock as of and for the year ended December 31, 2016.
Note 2: The net asset value was calculated using the unaudited financial statements for the one month ended January 31, 2017, because the investee’s audited financial statements were not prepared on time.

- 58 -

0.40

TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIESTOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE THREE MONTHS ENDED MARCH 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd.
(“China Airlines”)

Related Party

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

Nature of Relationship

Subsidiary
Equity-method investee
Subsidiary
Subsidiary

Purchase/
Sale

Amount

% to
Total

Sale
Purchase
Purchase
Purchase$ (568,057)
428,109284,106
105,039

1.77
1.42
0.94
0.35

- 59 -

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

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

Unit Price$--$ 461,339(460,760)(330,067)(42,458)

5.18(35.20)(25.22)(3.24)Note-

TABLE 4

CHINA AIRLINES, LTD. AND SUBSIDIARIESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALMARCH 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Overdue
Company Name

Related Party

Nature of RelationshipEnding Balance

Turnover Rate

$ 461,339

Note

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

264,731China Pacific Catering Services

China Airlines

Parent company

Taoyuan International Airport Service

China Airlines

Parent company

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for
Bad Debts--$ 303,623

Note

-

-

264,731-

460,760

3.93

-

-

137,942-

330,067

3.48

-

-

179,289-

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

- 60 -$-TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE THREE MONTHS ENDED MARCH 31, 2017
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company

China Airlines, Ltd.

Investee Company

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

Location

Main Businesses and Products

Taoyuan, Taiwan
Real estate lease and international trade
Taipei, Taiwan
Air transportation and maintenance of aircraft
Taoyuan, Taiwan
Air cargo and storage
Los Angeles, U.S.A.
A holding company, real estate and hotel services
Taoyuan, Taiwan
In-flight catering
Taoyuan, Taiwan
Airport services
Territory of the British Virgin Islands General investment
Taipei, Taiwan
Sale and maintenance of hardware and software
Hong Kong International Airport
Airport services
Taoyuan, Taiwan
Research, manufacture and maintenance of engines
Taipei, Taiwan
Airport services
Kaohsiung, Taiwan
In-flight catering
Taoyuan, Taiwan
Hotel business
Tainan, Taiwan
Storage and customs of services
Taoyuan, Taiwan
Cleaning and leasing of the towel of airlines, hotels,
restaurants and health clubs
Taoyuan, Taiwan
Cleaning of aircraft and maintenance of machine andequipment
Taipei, Taiwan
Travel businessTokyo, Japan
Travel business
Taipei, Taiwan
Forwarding and storage of air cargo
Taipei, Taiwan
Air transportation and maintenance of aircraft
Taoyuan, Taiwan
Aircraft maintenance

Investment Amount
December 31,
March 31, 20172016

Balance as of March 31, 2017
Number ofPercentage ofCarrying
SharesOwnership
AmountNet Income(Loss) of theInvestee$

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

150,000,000
188,154,025
135,000,000
2,614,500
43,911,000
34,300,000
7,172,346
13,021,042
28,400,000
7,732,200
20,626,644
14,329,759
46,500,000
18,633,937
13,750,000

100.0093.99
54.00
100.0051.00
49.00
100.00
93.93
20.00
24.50
47.35
35.78
100.00
26.00
55.00

$

77,27077,270100.0026,265
20,4002,500
1,600,000
160,000

1,600,000
408
250,000
180,000,000
16,000,000

200,000
11,6581,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000
US$
7,172
52,200
HK$ 58,000
77,322
12,289140,240
465,000
214,745
137,500$

77,270JPY

26,265
20,4002,500
1,648,387
160,000

JPY

1,534,849
1,074,582
1,277,292
1,178,710
690,064
672,579
433,063474,199495,566
295,436
234,362232,020
407,693266,716
171,347Note5,475 $
(46,135)
28,515
10,165100,166
47,735
6,555
38,00445,98066,36521,75749,29020,31833,797
7,816

5,475(43,363)
15,398
10,16551,084
23,3906,555
35,698
9,196
16,25910,302
17,636
20,3188,787
4,299

Note 1
Note 2-

73,178

1,643

1,643

Note 1100.00
51.00
25.00
90.00
100.0024,93427,7107,813
452,860
99,584(530)(2,508)
1,581
62,216(10,545)(530)(1,279)395
55,234(10,545)-

20,000,000
469,755

10.00
1.08

50,3185,331

62,216
21,757

6,222
234

-

-

Mandarin Airlines

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Taipei, Taiwan
Taipei, Taiwan

Air transportation and maintenance of aircraft
Airport services

Cal-Asia Investment

Eastern United International Logistics

Hong Kong

Forwarding and storage of air cargo

HK$

3,329

HK$

3,329

1,050,000

35.00

41,546

2,494

873

-

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

US$

5,877

-

100.00336,173

5,425

5,425

Note 3Note 1:Adopted the treasury stock method in recognizing investment income or loss.

Note 2:

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

Note 3:

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

- 61 -

200,000
11,658$Investment
Income (Loss)TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIESINVESTMENTS IN MAINLAND CHINAFOR THE THREE MONTHS ENDED MARCH 31, 2017
(In Thousands of New Taiwan Dollars/Renminbi/U.S. Dollars, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Businesses andProducts

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan as
Capitalof
January 1, 2017

Investment Flows

Outflow

Accumulated
Outflow ofInvestment
from Taiwan asofMarch 31, 2017

Inflow

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

Forwarding and storage $987,593of air cargo(RMB 224,480)

Indirect(Note 1)$
126,848 $(US$4,186)-

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

Forwarding and storage
61,593of air cargo(RMB 14,000)

Indirect(Note 1)59,013
1,947)-(US$

Taikoo (Xiamen) Landing
Gear Services

Landing gear
1,117,879
maintenance services (US$ 36,890)

Indirect(Note 1)

65,1882,151)-(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

Shanghai Eastern Aircraft
MaintenanceAircraft line
maintenance

Shanghai Eastern UnitedInternational

353,424
11,663)

Indirect(Note 1)

(US$

19,273
636)

-

(US$

93,9393,100)

Indirect(Note 2)

(US$

7,515
248)

-

(US$

Forwarding of air cargo
and ocean freight(US$30,3031,000)

Indirect(Note 3)

5,197
172)

-

(US$

$

-

59,01325,7401,947) (RMB 5,652)

14.00

(US$

65,1882,151)

-

5.83

-

(US$

19,273
636)

-

5.45

-

(US$

7,515
248)

-

8.00

-

-

(US$

5,197
172)

-

-

-

-

(US$

-

-

-

Limit on Investment$283,034 (US$9,340)$656,003 (Note 5)$32,284,258 (Note 6)

Investment
Gain (Loss)

14.00

-

Investment Amounts
Authorized by Investment Commission,
MOEA

Accumulated
Carrying
InwardAmountRemittance ofas ofEarnings as ofMarch 31, 2017
March 31, 2017$
126,848 $15,149(US$
4,186) (RMB 3,326)-

Accumulated Investment in Mainland
China as of March 31, 2017

% Ownershipof Direct orIndirect
Investment

Net Income(Loss) of
the Investee

$
(RMB

(RMB

2,121 $
223,960 $124,212466) (RMB 50,906) (US$4,099)(Note 4)
3,603
112,775791) (RMB 25,634) (US$26,525875)(Note 4)-

(RMB

19,101
4,342)(Continued)- 62 -

Taiwan Airport Services

Investee Company

Accumulated
Outward
Remittance forMain Businesses andMethod ofPaid-in Capital
Investment
Products
Investment
from Taiwan asof January 1,
2017

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

Forwarding and storage $987,593of air cargo(RMB 224,480)

Indirect(Note 7)$
124,485 $(US$4,108)

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

Forwarding and storage
61,593of air cargo(RMB 14,000)

Indirect(Note 7)

(US$

Remittance of Funds

Outward59,394
1,927)

Accumulated
Outward
Remittance forInvestment
from Taiwan asof March 31,
2017

Inward

-

$

-

-

$
124,485 $15,149(US$
4,108) (RMB 3,326)

14

58,39425,7401,927) (RMB 5,652)

14

(US$

Accumulated Outward
Remittance for Investment in
Mainland China as of March 31, 2017

Investment Amounts Authorized by
Investment Commission, MOEA

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

$180,152 (US$5,945)$180,152 (US$5,945)$296,909 (Note 6)

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

Accumulated
Carrying
Repatriation of
Investment
Amount as ofInvestment
Income (Loss)
March 31, 2017 Income as ofMarch 31, 2017$
(RMB

1,989 $
222,600 $115,333466) (RMB 50,597) (US$3,806)(RMB

3,433
112,823791) (RMB 25,645) (US$42,636
1,407)

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in mainland China.
Note 2: The Company invested in China Aircraft Services, which in turn, invested in a company located in mainland China.
Note 3: Cal-Asia Investment invested in Eastern United International Logistics (Holdings), which in turn, invested in a company located in mainland China. The investee company had disposed, and the Company was preparing for declaration to
Investment commission.
Note 4: As of March 31, 2017, the inward remittance of earnings amounted to US$2,801,749 and US$875,330.
Note 5: The amount comprised US$19,828,324, RMB4,200,000 and NT$36,666,667.
Note 6: The limit stated in the Investment Commission’s regulation, “The Review Principle of Investment or Technical Cooperation in mainland China,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 7: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in mainland China.
Note 8: 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)- 63 -TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIES
BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIESFOR THE THREE MONTHS ENDED MARCH 31, 2017
(In Thousands of New Taiwan Dollars)Intercompany Transactions
No.

Company Name

Related Party

Natural of
Relationship(Note 1)

Financial Statement Account0

China Airlines, Ltd.

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

a
a
a
a
a
a
a

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

1

Taiwan Air Cargo Terminal

China Airlines, Ltd.

b

2

Mandarin Airlines

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

3

Taoyuan International Airport Services

China Airlines, Ltd.
China Airlines, Ltd.

AmountTransaction Criteria% to Total
Consolidated
Total Revenue
or Assets$ 486,366
284,106
105,039
461,339
264,731330,067
250,000

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

1.36
0.79
0.29
0.21
0.12
0.15
0.11

Sales revenue

105,039

The same as ordinary transactions

0.29

b
b
b
b

Flight operation costs
Accounts receivable - related parties
Held-to-maturity financial assets
Notes and accounts payable - related parties

486,366
264,731250,000
461,339

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

1.36
0.12
0.11
0.21

b
b

Airport service revenue
Accounts receivable - related parties

284,106
330,067

The same as ordinary transactions
The same as ordinary transactions

0.79
0.15

Note 1: Three kinds of business relationships between China Airlines, Ltd. and its subsidiaries were as follows:a. Parent to subsidiaries.
b. Subsidiaries to parent.
c. Subsidiaries to subsidiaries.
Note 2: Intercompany transactions were written off in the consolidated financial statements.

- 64 -