CAL — Annual Report 2021

Nov 15, 2021

China Airlines, Ltd.

Financial Statements for the Years Ended December 31, 2021 and 2020 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders China Airlines, Ltd.

Opinion

We have audited the accompanying financial statements of China Airlines, Ltd. (the “Company”), which comprise the balance sheets as of December 31, 2021 and 2020, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2021. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter in the audit of the Company’s financial statements is stated below:

Recognition of Cargo Revenue

In accordance with IFRS 15 “Revenue from Contracts with Customers”, cargo sales are accounted for as cargo revenue after relevant transportation services have been provided. For the year ended December 31, 2021, cargo revenue amounted to NT$124,249,632 thousand. Refer to Notes 4 and 25 to the accompanying financial statements for detailed information.

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Cargo rates are highly affected by the supply and demand of the market and sales can only be recognized after relevant transportation services are provided, The input, processing and maintenance of freight information on the airway bills involve manual operations. Therefore, we identified the recognition of cargo revenue as a key audit matter.

Our main audit procedures performed included the following:

1. We understood the internal controls related to the recognition of cargo revenue, including manual and automatic controls.

2. We understood and tested the effectiveness of the information system related to the recognition of cargo revenue.

3. We sampled the airway bills, confirmed that cargo rates were consistent with those stated in airway bills, and verified the amount of cargo revenue.

Other Matter - Audited by Other Independent Auditors

The financial statements of some investments accounted for using the equity method in Note 12 were audited by other independent auditors, and our audit opinion is based solely on the reports of other auditors. As of December 31, 2021 and 2020, the aforementioned investments accounted for using the equity method amounted to NT$2,955,909 thousand and NT$2,304,113 thousand, representing 1.09% and 0.88% of the total assets, respectively. For the years ended December 31, 2021 and 2020, the combined share of profit (loss) and other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using the equity method amounted to NT$(1,739,024) thousand and NT$(952,289) thousand, representing (18.44%) and (98.48%) of the total comprehensive income, respectively.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

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As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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

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

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

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

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

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

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

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2021 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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The engagement partners on the audits resulting in this independent auditors’ report are Jui-Chan Huang and Shiuh-Ran Cheng.

Deloitte & Touche Taipei, Taiwan Republic of China

March 15, 2022

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

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

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CHINA AIRLINES, LTD.

BALANCE SHEETS DECEMBER 31, 2021 AND 2020 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4, 6 and 29) Financial assets at amortized cost - current (Notes 8 and 29) Financial assets for hedging - current (Notes 4, 6 and 29) Notes and accounts receivable, net (Notes 4, 10 and 29) Notes and accounts receivable - related parties (Note 30) Other receivables Current tax assets (Notes 4 and 26) Inventories (Notes 4 and 10) Non-current assets held for sale (Notes 4 and 11) Other current assets (Note 16) Total current assets NON-CURRENT ASSETS Financial assets at fair value through other comprehensive income - non-current (Notes 4, 7 and 29) Investments accounted for using the equity method (Notes 4 and 12) Property, plant and equipment (Notes 4, 13 and 31) Right-of-use assets (Notes 4, 19 and 31) Investment properties (Notes 4 and 14) Other intangible assets (Notes 4 and 15) Deferred tax assets (Notes 4 and 26) Other non-current assets (Notes 16, 19 and 29) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term bills payable (Notes 17 and 29) Financial liabilities for hedging - current (Notes 4, 19 and 29) Notes and accounts payable (Note 29) Notes and accounts payable - related parties (Note 30) Other payables (Notes 20 and 25) Current tax liabilities Lease liabilities - current (Notes 4 and 19) Contract liabilities current (Notes 4 and 21) Provisions - current (Notes 4 and 22) Current portion of bonds payable and put option of convertible bonds (Notes 4, 18, 29 and 30) Current portion of long-term borrowings (Notes 17, 29 and 31) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Financial liabilities for hedging - non-current (Notes 4, 19 and 29) Bonds payable (Notes 4, 18, 29 and 30) Long-term borrowings (Notes 17, 29 and 31) Contract liabilities - non-current (Notes 4 and 21) Provisions - non-current (Notes 4 and 22) Deferred tax liabilities (Notes 4 and 26) Lease liabilities - non-current (Notes 4 and 19) Net defined benefit liabilities - non-current (Notes 5 and 23) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY (Notes 18 and 24) Share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated retained earnings (accumulated deficit) Total retained earnings (accumulated deficit) Other equity Treasury shares Total equity TOTAL		2021 Amount % $ 35,913,117 13 11,923,194 5 3,563,319 1 12,990,399 5 54,474 - 543,768 - 52,282 - 8,380,327 3 36,719 - 389,191 - 73,846,790 27 55,458 - 12,830,025 5 115,174,548 42 50,965,378 19 2,047,448 1 754,349 - 5,234,304 2 9,742,416 4 196,803,926 73 $ 270,650,716 100 $ - - 8,437,648 3 826,989 - 733,837 - 12,865,006 5 2,880,785 1 882,538 1 3,416,733 1 2,578,812 1 2,525,000 1 8,351,129 3 2,168,227 1 45,666,704 17 27,839,847 10 11,125,026 4 76,804,516 29 635,633 - 15,229,888 6 822,368 - 9,677,756 4 8,359,189 3 446,216 - 150,940,439 56 196,607,143 73 59,412,243 22 2,694,529 1 - - - - 9,253,848 3 9,253,848 3 2,713,828 1 (30,875) - 74,043,573 27 $ 270,650,716 100		2020
				Amount % $ 19,959,820 8 5,863,137 2 7,613,636 3 9,198,055 4 101,424 - 427,722 - 60,129 - 8,093,152 3 89,296 - 452,414 - 51,858,785 20 147,161 - 12,321,157 5 126,414,462 48 54,555,761 21 2,047,448 1 867,453 - 4,981,859 2 7,715,679 3 209,050,980 80 $ 260,909,765 100 $ 8,088,882 3 8,126,239 3 1,128,517 1 588,234 - 7,128,080 3 2 - 842,592 - 3,218,846 1 - - 12,132,859 5 14,798,442 6 687,317 - 56,740,010 22 32,455,333 13 10,300,000 4 68,815,395 26 1,761,104 1 13,741,244 5 875,388 - 10,055,776 4 8,217,395 3 388,637 - 146,610,272 56 203,350,282 78 54,209,846 21 1,187,327 - - - - - (350,581) - (350,581) - 2,543,766 1 (30,875) - 57,559,483 22 $ 260,909,765 100

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

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CHINA AIRLINES, LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4, 25 and 30) OPERATING COSTS (Notes 4, 10, 25 and 30) GROSS PROFIT OPERATING EXPENSES (Notes 4, 25 and 30) PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Other income (Note 25) Other gains and losses (Notes 11, 12, 13 and 25) Finance costs (Notes 25 and 30) Share of profit or loss of subsidiaries, associates and joint ventures (Note 12) Total non-operating income and expenses PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 26) NET INCOME FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Gain (loss) on hedging instruments subject to basis adjustment (Notes 4, 24 and 29) Unrealized gain (loss) on investments in equity instruments at fair value through other comprehensive income (Notes 4 and 24) Remeasurement of defined benefit plans (Notes 4 and 23) Share of the other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using the equity method (Notes 4 and 24)		2021 Amount % $ 132,140,248 100 106,229,554 80 25,910,694 20 6,590,298 5 19,320,396 15 374,625 - (1,971,900) (1) (2,164,174) (2) (3,585,007) (3) (7,346,456) (6) 11,973,940 9 2,594,035 2 9,379,905 7 (75,214) - (91,703) - (35,512) - 2,831 -		2020
				Amount % $ 106,327,123 100 95,190,179 89 11,136,944 11 6,252,089 6 4,884,855 5 440,761 - (523,827) - (2,780,363) (3) (1,850,331) (2) (4,713,760) (5) 171,095 - 31,095 - 140,000 - (474,202) - 39,305 - (494,218) (1) (9,095) - (Continued)

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CHINA AIRLINES, LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Income tax related to items that will not be reclassified subsequently to profit or loss (Note 26) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of the financial statements of foreign operations (Notes 4 and 24) Share of the other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using the equity method (Notes 4 and 24) Gain on hedging instruments not subject to basis adjustment (Notes 4, 24 and 29) Income tax related to items that may be reclassified subsequently to profit or loss (Note 26) Other comprehensive income for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE (NEW TAIWAN DOLLARS; Note 27) Basic Diluted		2021 Amount % $ 21,236 - 17,597 - 2,087 - 264,168 - (56,353) - 49,137 - $ 9,429,042 7 $ 1.67 $ 1.54		2020
				Amount % $ 163,172 - (101,142) - 4,205 - 2,098,393 2 (399,450) - 826,968 1 $ 966,968 1 $ 0.03 $ 0.03
				$

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

(Concluded)

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CHINA AIRLINES, LTD.

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 (In Thousands of New Taiwan Dollars)

Share Capital Capital Surplus BALANCE AT JANUARY 1, 2020 $ 54,209,846 $ 2,488,907 Issuance of employee share options by subsidiaries - 172 Changes in percentage of ownership interests in subsidiaries - - Basis adjustment to gain (loss) on hedging instruments - - Appropriation of 2019 earnings Legal reserve - - Special reserve - - Capital surplus used to cover accumulated deficit - (1,297,843) Net profit for the year ended December 31, 2020 - - Other comprehensive income (loss) for the year ended December 31, 2020, net of income tax - - Total comprehensive income (loss) for the year ended December 31, 2020 - - Disposal of treasury shares - (3,909) BALANCE AT DECEMBER 31, 2020 54,209,846 1,187,327 Basis adjustment to gain (loss) on hedging instruments - - Appropriation of 2020 earnings Capital surplus used to cover accumulated deficit - (350,581) Issuance of employee share options by subsidiaries - 540 Changes in percentage of ownership interests in subsidiaries - - Net profit for the year ended December 31, 2021 - - Other comprehensive income (loss) for the year ended December 31, 2021, net of income tax - - Total comprehensive income (loss) for the year ended December 31, 2021 - - Equity component of convertible bonds issued by the Company - 188,862 Convertible bonds converted to ordinary shares 5,202,397 1,668,381 BALANCE AT DECEMBER 31, 2021 $ 59,412,243 $ 2,694,529	Retained Earnings Legal Reserve Special Reserve Unappropriated Earnings (Accumulated Deficit) $ 466,416 $ 12,967 $ (1,777,225) - - - - - (169,272) - - - (466,416) - 466,416 - (12,967) 12,967 - - 1,297,843 - - 140,000 - - (319,576) - - (179,576) - - (1,734) - - (350,581) - - - - - 350,581 - - - - - (104,639) - - 9,379,905 - - (21,418) - - 9,358,487 - - - - - - $ - $ - $ 9,253,848	Other Equity Unrealized Exchange Differences on Valuation Gain (Loss) on Financial Assets at Translation of the Financial Statements of Foreign Operations Fair Value Through Other Comprehensive Income Gain (Loss) on Hedging Instruments Treasury Shares Held by Subsidiaries $ (54,707) $ 107,262 $ 1,143,678 $ (43,372) - - - - - - - - - - 200,989 - - - - - - - - - - - - - - - - - (79,545) (35,903) 1,261,992 - (79,545) (35,903) 1,261,992 - - - - 12,497 (134,252) 71,359 2,606,659 (30,875) - - 99,507 - - - - - - - - - - - - - - - - - 14,173 (76,871) 133,253 - 14,173 (76,871) 133,253 - - - - - - - - - $ (120,079) $ (5,512) $ 2,839,419 $ (30,875)	Total Equity $ 56,553,772 172 (169,272) 200,989 - - - 140,000 826,968 966,968 6,854 57,559,483 99,507 - 540 (104,639) 9,379,905 49,137 9,429,042 188,862 6,870,778 $ 74,043,573

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

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CHINA AIRLINES, LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expense Amortization expense Expected credit loss recognized on trade receivables Net gain on fair value changes of financial assets and liabilities at fair value through profit or loss Interest income Dividend income Share of loss (profit) of subsidiaries, associates and joint ventures Loss (gain) on disposal of property, plant and equipment Loss on disposal of investments Impairment loss recognized on property, plant and equipment Loss on inventory and property, plant and equipment Net gain on foreign currency exchange Impairment loss recognized on investments accounted for using the equity method Finance costs Recognition of provisions Loss on sale and leaseback transactions Others Changes in operating assets and liabilities Financial assets mandatorily classified as at fair value through profit or loss Financial liabilities at fair value through profit or loss Notes and accounts receivable Accounts receivable - related parties Other receivables Inventories Other current assets Notes and accounts payable Accounts payable - related parties Other payables Contract liabilities Provisions Other current liabilities Defined benefit liabilities Cash generated from operations Interest received Dividends received Interest paid Income tax paid Net cash generated from operating activities	2021 $ 11,973,940 26,503,214 179,111 38,474 - (132,220) (8,355) 3,585,007 932,718 540 - 1,391,279 (895,534) 136,672 2,164,174 5,796,335 342,080 (3,625) - - (3,875,256) 46,950 (117,036) (1,009,933) 70,928 (278,147) 145,603 5,815,179 (927,584) (1,476,769) 1,474,423 106,282 51,978,450 129,028 213,017 (2,140,081) (45,987) 50,134,427	2020 $ 171,095 28,018,746 169,158 3,000 (3,596) (208,081) (8,720) 1,850,331 (8,005) - 424,573 471,518 (1,048,369) 46,757 2,780,363 5,580,416 - 1,876 4,030 (11,749) (1,467,229) 130,962 107,524 (70,344) 1,701,803 (59,328) (881,200) (3,724,692) (15,840,648) (705,117) (1,915,678) 134,432 15,643,828 228,141 842,919 (2,966,777) (23,308) 13,724,803 (Continued)

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CHINA AIRLINES, LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at amortized cost Proceeds from sale of financial assets at amortized cost Purchase of financial assets for hedging Proceeds from sale of financial assets for hedging Acquisition of investments and joint ventures accounted for using the equity method Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in refundable deposits Decrease in refundable deposits Increase in prepayments for equipment Increase in computer software costs Net cash inflow on disposal of subsidiary Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term bill payable Proceeds from issuance of bonds payable Repayments of bonds payable Proceeds from long-term borrowings Repayments of long-term borrowings Repayments of the principal portion of lease liabilities Proceeds of guarantee deposits received Refund of guarantee deposits received Proceeds from sale and leaseback transactions Net cash (used in) generated from financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2021 $ (11,956,286) 5,863,137 (7,126,515) 11,110,497 (4,527,062) (1,702,245) 586,395 (79,357) 104,584 (12,182,071) (66,007) 9,730 (19,965,200) (8,088,882) 4,500,000 (6,300,000) 40,224,874 (38,683,066) (8,769,985) 273,890 (200,415) 2,810,098 (14,233,486) 17,556 15,953,297 19,959,820 $ 35,913,117	2020 $ (5,896,451) 1,460,450 (10,269,055) 2,363,897 (1,837,845) (859,654) 23,385 (18,214) 34,599 (9,966,342) (95,217) - (25,060,447) 8,088,882 - (10,000,000) 40,200,000 (18,912,651) (8,909,975) 166,697 (146,566) - 10,486,387 183,063 (666,194) 20,626,014 $ 19,959,820

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

(Concluded)

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NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD.

1. GENERAL INFORMATION

China Airlines, Ltd. (the “Company”) was founded in 1959 and its shares have been listed on the Taiwan Stock Exchange since February 26, 1993. The Company is primarily involved in (a) air transport services for passengers, cargo and mail; (b) ground services and routine aircraft maintenance; (c) major maintenance of flight equipment; (d) communications and data processing services to other airlines; (e) the sale of aircraft parts, equipment and the entire aircraft; and (f) leasing of aircraft.

The major shareholders of the Company are China Aviation Development Foundation (CADF) and National Development Fund (NDF), Executive Yuan. As of December 31, 2021 and 2020, CADF and NDF jointly held 40.17% and 44.03%, respectively of the Company’s shares. For the years ended December 31, 2021 and 2020, the average number of employees of the Company was 11,078 and 11,534, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s board of directors on March 15, 2022.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

• a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

• The application of the IFRSs endorsed and issued into effect by the FSC did not have any material impact on the Company’s accounting policies.

• b. The IFRSs endorsed by the FSC for application starting from 2022

New IFRSs “Annual Improvements to IFRS Standards 2018-2020” Amendments to IFRS 3 “Reference to the Conceptual Framework” Amendments to IAS 16 “Property, Plant and Equipment - Proceeds before Intended Use” Amendments to IAS 37 “Onerous Contracts - Cost of Fulfilling a Contract”	Effective Date Announced by IASB
	January 1, 2022 (Note 1) January 1, 2022 (Note 2) January 1, 2022 (Note 3) January 1, 2022 (Note 4)

• Note 1: The amendments to IFRS 9 will be applied prospectively to modifications and exchanges of financial liabilities that occur on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IAS 41 “Agriculture” will be applied prospectively to the fair value measurements on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IFRS 1 “First-time Adoptions of IFRSs” will be applied retrospectively for annual reporting periods beginning on or after January 1, 2022.

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• Note 2: The amendments are applicable to business combinations for which the acquisition date is on or after the beginning of the annual reporting period beginning on or after January 1, 2022.

• Note 3: The amendments are applicable to property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after January 1, 2021.

• Note 4: The amendments are applicable to contracts for which the entity has not yet fulfilled all its obligations on January 1, 2022.

The application of new IFRSs endorsed by the FSC for application starting from 2022 would not have any material impact on the Company’s accounting policies. As of the date the financial statements were authorized for issue, the Company has assessed that the application of other standards and interpretations will not have a material impact on the Company’s financial position and financial performance.

• c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between An Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IFRS 17 Amendments to IFRS 17 “Initial Application of IFRS 9 and IFRS 17 - Comparative Information” Amendments to IAS 1 “Classification of Liabilities as Current or Non-current” Amendments to IAS 1 “Disclosure of Accounting Policies” Amendments to IAS 8 “Definition of Accounting Estimates” Amendments to IAS 12 “Deferred Tax related to Assets and Liabilities arising from a Single Transaction”

Effective Date Announced by IASB (Note 1)

To be determined by IASB January 1, 2023 January 1, 2023 January 1, 2023 January 1, 2023 January 1, 2023 (Note 2) January 1, 2023 (Note 3) January 1, 2023 (Note 4)

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

• Note 2: The amendments will be applied prospectively for annual reporting periods beginning on or after January 1, 2023.

• Note 3: The amendments are applicable to changes in accounting estimates and changes in accounting policies that occur on or after the beginning of the annual reporting period beginning on or after January 1, 2023.

• Note 4: Except for deferred taxes that will be recognized on January 1, 2022 for temporary differences associated with leases and decommissioning obligations, the amendments will be applied prospectively to transactions that occur on or after January 1, 2022.

As of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

The financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and other regulations.

Basis of Preparation

The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

• a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

• b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• c. Level 3 inputs are unobservable inputs for an asset or liability.

When preparing these parent company only financial statements, the Company used the equity method to account for its investments in subsidiaries, associates and joint ventures. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owners of the Company in its consolidated financial statements, adjustments arising from the differences in accounting treatments between the parent company only basis and the consolidated basis were made to investments accounted for using the equity method, the share of profit or loss of subsidiaries, associates and joint ventures, the share of other comprehensive income of subsidiaries, associates and joint ventures and the related equity items, as appropriate, in these parent company only financial statements.

Current and Non-current Assets and Liabilities

Current assets include:

• a. Assets held primarily for the purpose of trading;

• b. Assets expected to be realized within 12 months after the reporting period; and

• c. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

• a. Liabilities held primarily for the purpose of trading;

• b. Liabilities due to be settled within 12 months after the reporting period; and

• c. Liabilities for which the Company does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

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Foreign Currencies

In preparing the Company’s financial statements, transactions in currencies other than the Company’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items denominated in a foreign currency measured at historical cost are not retranslated.

Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise except for exchange differences on:

• a. Foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; and

• b. Transactions entered into in order to hedge certain foreign currency risks.

Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income.

For the purposes of presenting financial statements, the assets and liabilities of the Company’s foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate).

On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

Inventories

Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations and items for in-flight sale and are stated at the lower of cost or net realizable value. The costs of inventories sold or consumed are determined using the weighted-average method.

Non-current Assets Held for Sale

Non-current assets are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the Non-current asset is available for immediate sale in its present condition. To meet the criteria for the sale being highly probable, the appropriate level of management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets classified as held-for-sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Recognition of depreciation of those assets would cease.

Investments Accounted for Using the Equity Method

The Company uses the equity method to account for its investments in subsidiaries, associates and joint ventures.

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• a. Investment in subsidiaries

Subsidiaries (including special purpose entities) are the entities controlled by the Company.

Under the equity method, the investment is initially recognized at cost and adjusted therefore to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. Besides, the Company also recognizes the change in Company’s share of the other equity of the subsidiary.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control of the subsidiaries are accounted for as equity transactions. The Company recognizes directly in equity any difference between the carrying amounts of the investment and the fair value of the consideration paid or received.

When the Company’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary (which includes any carrying amount of the investment in subsidiary accounted for using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary that constitutes a business at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary that constitutes a business over the cost of acquisition is recognized immediately in profit or loss.

When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of the previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides this, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required had the Company directly disposed of the related assets or liabilities.

Profit or loss resulting from downstream transactions is eliminated in full only in the parent company only financial statements. Profit and loss resulting from upstream transactions and transactions between subsidiaries is recognized only in the parent company only financial statements and only to the extent of interests in the subsidiaries that are not related to the Company.

• b. Investments in associates and joint ventures

An associate is an entity over which the Company has significant influence and which is neither a subsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby the Company and other parties that have joint control of the arrangement and the rights to the net assets of the arrangement.

The Company uses the equity method to account for its investments in associates and joint ventures. Under the equity method, investments in an associate and a joint venture is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate and joint venture. The Company also recognizes the changes in the Company’s share of equity of associates and joint ventures attributable to the Company.

When the Company subscribes for additional new shares of an associate and joint ventures at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate and joint venture. The Company records such a difference as an adjustment to investments with the

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corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the subscription of additional new shares of the associate and joint venture, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and joint venture is reclassified to profit or loss on the same basis as would be required had the investee directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for using the equity method is insufficient, the shortage is debited to retained earnings.

When the Company’s share of losses of an associate and a joint venture equals or exceeds its interest in that associate and joint venture which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the associate and joint venture, the Company discontinues recognizing its share of further loss. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate and joint venture.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate and a joint venture recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Company discontinues the use of the equity method from the date on which its investment ceases be an associate and a joint venture. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate and joint venture attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and joint venture. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate and joint venture on the same basis as would be required had that associate directly disposed of the related assets or liabilities.

When the Company transacts with its associate and joint venture, profits and losses resulting from the transactions with the associate and joint venture are recognized in the Company’s financial statements only to the extent of interests in the associate and the joint venture that are not related to the Company.

Property, Plant and Equipment

Property, plant and equipment are tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used for more than one period. The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Company; and the cost of the item can be measured reliably. Property, plant and equipment are stated at cost less recognized accumulated depreciation and recognized accumulated impairment loss.

Freehold land is not depreciated.

Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period. The impact of any changes in accounting estimates is accounted for on a prospective basis under IAS 8,“Accounting Policies, Changes in Accounting Estimates and Errors”.

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Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. Assets are depreciated over the shorter of the lease term and their useful lives using the straight-line method.

An item of property, plant and equipment will be derecognized upon its disposal, or when no future benefits can be expected from its use or disposal. On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

Investment Properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties also include land held for a currently undetermined future use.

Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss.

An investment property will be derecognized upon its disposal, or when no future benefits can be expected from its use or disposal. On derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount of the asset is included in profit or loss.

Intangible Assets

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful lives, residual values, and amortization methods are reviewed at the end of each reporting period. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset before the end of its economic life. The impact of any changes in accounting estimates is accounted for on a prospective basis under IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”.

Impairment of Tangible and Intangible Assets Other Than Goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis; otherwise, corporate assets are allocated to the smallest group of cash-generating units on a reasonable and consistent allocation basis.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the Company uses the estimated cash flows discounted by the future pre-tax discount rate, and the discount rate reflects the current market time value of money and the specific risks to the asset for estimated future cash flows not yet adjusting to the market.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.

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When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

Financial Instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

• a. Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. All regular way purchases or sales of financial assets are buy or sell of financial assets in the period set by regulation or market convention.

• 1) Measurement categories

Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost, and investments in equity instruments at FVTOCI.

• a) Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified or designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI.

Financial assets at FVTPL are subsequently measured at fair value, and any remeasurement gains or losses on such financial assets are recognized in profit or loss. Fair value is determined in the manner described in Note 29.

• b) Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

• i. The financial assets are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• ii. The contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, trade receivables, other receivables and other financial assets, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

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Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• c) Investments in equity instruments at FVTOCI

On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if an equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead, they will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of an investment.

• 2) Impairment of financial assets

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables), as well as contract assets.

The Company always recognizes lifetime expected credit losses (ECLs) for trade receivables and other receivables. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECLs represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represents the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The impairment loss of all financial assets is recognized in profit or loss by a reduction in their carrying amounts through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and the carrying amounts of such financial assets are not reduced.

• 3) Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

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On derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

• b. Equity instruments

Equity instruments issued by the Company are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument.

Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

The repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

• c. Financial liabilities

• 1) Subsequent measurement

Except for derivative financial instruments, all financial liabilities are measured at amortized cost using the effective interest method.

2) Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

d. Convertible bonds

The component parts of compound instruments (i.e. convertible bonds) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

On initial recognition, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or the instrument’s maturity date. Any embedded derivative liability is measured at fair value.

The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to capital surplus - share premiums. When the conversion option remains unexercised at maturity, the balance recognized in equity will be transferred to capital surplus - share premiums.

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Transaction costs that relate to the issuance of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component.

• e. Derivative financial instruments

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate, foreign exchange rate and fuel price risks, including foreign exchange forward contracts, interest rate swaps, currency options and fuel options.

Derivatives are initially recognized at fair value at the date on which the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event, the timing of the recognition in profit or loss depends on the nature of the hedging relationship. When the fair value of a derivative financial instrument is positive, the derivative is recognized as a financial asset; when the fair value of a derivative financial instrument is negative, the derivative is recognized as a financial liability.

Derivatives embedded in hybrid contracts that contain financial asset hosts that is within the scope of IFRS 9 are not separated; instead, the classification is determined in accordance with the entire hybrid contract. Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of IFRS 9 (e.g., financial liabilities) are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts, and the host contracts are not measured at FVTPL.

Hedge Accounting

The Company designates certain hedging instruments, which include derivatives and non-derivatives in respect of foreign currency risk, as cash flow hedges. When entering into hedging transactions, the Company has prepared official documents that describe the hedging relationship between hedging instruments and items which have been hedged, the objective of risk management, the hedging strategy, and the way to evaluate the effectiveness of the hedging instrument.

The effective portion of gains and losses on derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gains or losses relating to the ineffective portion are recognized immediately in profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as reclassification adjustments in the line items relating to the hedged item in the same period in which the hedged item affects profit or loss. If a hedge of a forecasted transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses that were recognized in other comprehensive income are removed from equity and included in the initial cost of the non-financial asset or non-financial liability.

Starting from 2018, the Company discontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; for instance, when the hedging instrument expires or is sold, terminated or exercised. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period (in which the hedge was effective) remains separately in equity until the forecasted transaction occurs. When a forecasted transaction is no longer expected to occur, the gains or losses accumulated in equity are recognized immediately in profit or loss.

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Provisions

The Company recognizes provisions when the Company has a present obligation (legal or constructive obligation) arising from past events, the payment for the obligation is probable, and the expenditure for settling the obligation can be reliably estimated.

The amount recognized as a provision is measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured at the estimate of the cash flows to settle the present obligation, its carrying amount is the present value of those cash flows. When the aircraft lease contracts of the Company expire and will be returned to lessor, the Company will assess if there are existing obligations and if a provision is required to be recognized when signing the lease contract.

Revenue Recognition

The Company recognizes revenue by applying the following steps:

• Identifying the contract with the customer;

• Identifying the performance obligations in the contract;

• Determine the transaction price;

• Allocate the transaction price to the performance obligations in the contract; and

• Recognize revenue when the Company satisfies a performance obligation.

Shipping service revenue

Passenger and cargo revenue are recognized as revenue when the passengers and goods are actually carried. When the tickets are sold, due to the fact that the fulfillment of performance obligations of the shipment have not been met, the relevant amount of revenue is initially recorded as contract liabilities until passengers actually board.

Leasing

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease.

The Company as lessee

The Company recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease incentives received. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented on a separate line in the balance sheets.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms. However, if leases transfer ownership of the underlying assets to the Company by the end of the lease terms or if the costs of right-of-use assets reflect that the Company will exercise a purchase option, the Company depreciates the right-of-use assets from the commencement dates to the end of the useful lives of the underlying assets.

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Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments, in-substance fixed payments, variable lease payments which depend on an index or a rate, residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating a lease if the lease term reflects such termination, less any lease incentives payable. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee’s incremental borrowing rate will be used.

Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term, a change in the amounts expected to be payable under a residual value guarantee, a change in the assessment of an option to purchase an underlying asset, or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Company remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line in the balance sheets.

Variable lease payments that do not depend on an index or a rate are recognized as expenses in the periods in which they are incurred.

For sale and leaseback transactions, if the transfer of an asset satisfies the requirements of IFRS 15 to be accounted for as a sale, the Company recognizes only the amount of any gain or loss which relates to the rights transferred to the buyer-lessor, and adjusts the off-market terms to measure the sale proceeds at fair value. If the transfer does not satisfy the requirements of IFRS 15 to be accounted for as a sale, it is accounted for as a financing transaction.

Employee Benefits

• a. Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services.

• b. Retirement benefits

Payments to the defined contribution retirement benefit plan are recognized as expenses when employees have rendered services entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined retirement benefit plan are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur. Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liabilities represent the actual deficit in the Company’s defined benefit plans.

Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (assets which are substantially ready for their intended use or sale through a fairly long period) are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

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Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other than that which is stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

Government Grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to them and that the grants will be received.

Government grants related to income are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs that the grants intend to compensate.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognized in profit or loss in the period in which they are received.

The benefit of a government loan received at a below-market rate of interest is treated as a government grant measured as the difference between the proceeds received and the fair value of the loan based on prevailing market interest rates.

Frequent Flyer Programs

The Company has a “Dynasty Flyer Program” through which program members can convert accumulated mileage to a cabin upgrade, free tickets and other member rewards.

A portion of passenger revenue attributable to the rewards for the frequent flyer program is deferred. The Company recognizes this deferred revenue as revenue only when the Company has fulfilled its obligations on the granting of rewards or when the period for converting the mileage to rewards has expired.

Share-based Payment Arrangements

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instrument that will eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value determined at the grant date of the equity-settled share-based payments is recognized as an expense in full at the grant date when the granted share options are vested immediately.

Taxation

Income tax expense represents the sum of the current tax and deferred tax.

• a. Current tax

The current tax liabilities are based on current taxable profit. Since part of the income and expenses are taxable or deductible in other periods, or in accordance with the relevant tax laws are taxable or deductible, current taxable profit differs from net profit reported in the statements of comprehensive income. The Company’s current tax liabilities are calculated by the tax rate was legislated or substantially legislated at the balance sheet date.

According to the Income Tax Law in the ROC, an additional tax on unappropriated earnings is provided for in the year the shareholders approve the retain earnings.

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Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

• b. Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carryforwards and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profit will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profit against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

• c. Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

Maintenance and Overhaul Costs

Routine maintenance costs are recognized in profit or loss in the period in which they are incurred.

The overhaul costs of an owned or leased aircraft that meet the criteria for fixed asset capitalization are capitalized as replacements for aircraft and engines and are depreciated on a straight line basis over the expected annual overhaul cycle.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies as disclosed in Note 4, management is required to make judgments, estimations and assumptions on the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

• 25 -

The Company considers the possible impact of the COVID-19 in economic when making its critical accounting estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods.

Key Sources of Estimation Uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Defined Benefit Obligations

The present value of defined benefit obligations at the end of the reporting period is calculated using actuarial assumptions. Those assumptions, which are based on management’s judgments and estimates, comprise the discount rate and expected return on plan assets. Changes in actuarial assumptions may have a material impact on the amount of defined benefit obligations.

Useful Lives of Property, Plant and Equipment - Flight Equipment

Flight equipment are measured at cost less residual value and are depreciated on a straight-line basis over their estimated useful lives. The estimated useful lives and residual values are evaluated based on the Company’s historical experience and current usage condition in the aviation industry. Because of the change in fleet planning, the Company's board of directors resolved to modify the estimated useful lives of fourteen B747-400F freighters from 25 years to 24 years and the estimated useful lives of three A330-300 aircraft from 20 years to 18 years, effective on January 1, 2022, in order to match the economic benefits with the useful lives. It is estimated that the depreciation expense in 2022 will increase by $720 million.

6. CASH AND CASH EQUIVALENTS

Cash on hand and revolving funds Checking accounts and demand deposits Cash equivalents Time deposits with original maturities of less than three months Repurchase agreements collateralized by bonds		December 31	December 31
		2021 $ 36,905 22,579,423 9,279,778 4,017,011 $ 35,913,117	2020 $ 65,987 12,864,010 5,880,682 1,149,141 $ 19,959,820

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

Bank balance Time deposits with original maturities of less than three months Repurchase agreements collateralized by bonds	December 31
	2021 2020 0.00%-1.90% 0.00%-1.90% 0.17%-0.39% 0.30%-0.55% 0.35%-0.45% 0.41%-0.49%

• 26 -

The Company designated some deposits denominated in USD and repurchase agreements collateralized by bonds as hedging instruments to avoid exchange rate fluctuations on final payments of aircraft orders and prepayments for equipment, and applied cash flow hedge accounting to hedge its foreign exchange exposure. The contract information is as follows:

			Carrying
	Maturity Date	Subject	Value
December 31, 2021	2022.2.7-2022.2.14	Financial assets for hedging - current	$ 3,545,706
December 31, 2020	2021.1.4-2021.11.1	Financial assets for hedging - current	7,613,636
Impact on comprehensive income (loss)

			Recognized in
			Other
			Comprehensive
			Income (Loss)
For the year ended December	31,	2021	$ (75,214)
For the year ended December	31,	2020	(372,632)

For the years ended December 31, 2021 and 2020, the amount of hedging instrument settlements recognized as prepayments for equipment was $99,507 thousand and $81,111 thousand, respectively.

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments

Non-current Foreign investments Unlisted shares Domestic investments Unlisted shares		December 31	December 31
		2021 $ 26,654 28,804 $ 55,458	2020 $ 117,457 29,704 $ 147,161

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

8. FINANCIAL ASSETS AT AMORTIZED COST

Current Time deposits with original maturities of more than 3 months		**December 31 **	**December 31 **
		2021 $ 11,923,194	2020 $ 5,863,137

• 27 -

The range of interest rates for time deposits with original maturities of more than 3 months was approximately 0.37%-0.53% and 0.40%-0.53% per annum as of December 31, 2021 and 2020, respectively.

9. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable Accounts receivable At amortized cost Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2021 $ 968 13,193,912 (204,481) 12,989,431 $ 12,990,399	2020 $ - 9,363,777 (165,722) 9,198,055 $ 9,198,055

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

The Company applies the simplified approach to allowing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss allowance for all trade receivables. The expected credit losses on accounts receivable are estimated using a provision matrix by reference to past default experience with the debtors and an analysis of the debtors’ current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecasted direction of economic conditions at the reporting date. As the Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the loss allowance based on the past due status is not further distinguished according to the different segments of the Company’s customer base.

The Company writes off accounts receivable when there is information indicating that the debtor is experiencing severe financial difficulty and there is no realistic prospect of recovery. For accounts receivable that have been written off, the Company continues to engage in enforcement activity to attempt to recover the past due receivables. Where recoveries are made, these are recognized in profit or loss.

• 28 -

The following table details the loss allowance of trade receivables based on the Company’s provision matrix.

December 31, 2021

Expected credit loss rate Gross carrying amount Loss allowance (lifetime ECLs) Amortized cost December 31, 2020 Expected credit loss rate Gross carrying amount Loss allowance (lifetime ECLs) Amortized cost	Not Past Due 0.55% $ 13,047,164 (72,047) $ 12,975,117 Not Past Due - $ 9,167,202 (59) $ 9,167,143	1 to 30 Days Past Due 4.21% $ 12,970 (546) $ 12,424 1 to 30 Days Past Due 1.04% $ 29,463 (309) $ 29,154	31 to 60 Days Past Due 50.17% $ 3,794 (1,904) $ 1,890 31 to 60 Days Past Due 47.77% $ 3,366 (1,608) $ 1,758	61 to 90 Days Past Due 100% $ 2,486 (2,486) $ - 61 to 90 Days Past Due 100% $ 2,887 (2,887) $ -	Over 90 Days Past Due 100% $ 127,498 (127,498) $ - Over 90 Days Past Due 100% $ 160,859 (160,859) $ -	Total $ 13,193,912 (204,481) $ 12,989,431 Total - $ 9,363,777 (165,722) $ 9,198,055

The movements of the loss allowance of accounts receivables were as follows:

Balance at January 1 Add: Net remeasurement of loss allowance Add: Amounts recovered Less: Amounts written off Balance at December 31	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2021 $ 165,722 38,474 565 (280) $ 204,481	2020 $ 180,104 3,000 - (17,382) $ 165,722

10. INVENTORIES

Aircraft spare parts Items for in-flight sale Work in process - maintenance services		December 31	December 31
		2021 $ 7,230,203 616,051 534,073 $ 8,380,327	2020 $ 7,251,353 627,437 214,362 $ 8,093,152

The operating costs for the years ended December 31, 2021 and 2020 included losses from inventory write-downs of $731,317 thousand and $190,548 thousand, respectively.

• 29 -

11. NON-CURRENT ASSETS HELD FOR SALE

Aircraft held for sale		December	31
		2021 $ 36,719	2020 $ 89,296

To enhance its competitiveness, the Company plans to introduce new aircraft and retire old aircraft according to a planned schedule. Such aircraft, classified as non-current assets held for sale, had an original carrying amount which was higher than the expected sale price and which was recognized as an impairment loss, and would be continuously assessed whether there are further impairments in subsequent periods. However, the actual loss shall be identified by the actual sale price.

The fair value measurement is classified as Level 3 and the fair value was determined according to similar transactions of the related market and the proposed sale prices were based on the current status of the aircraft.

12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries Investments in associates Investments in joint ventures a. Investment in subsidiaries Unlisted companies Tigerair Taiwan Co., Ltd. CAL Park Mandarin Airlines CAL-Dynasty International Taiwan Air Cargo Terminal Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) CAL Hotel Taiwan Airport Services Dynasty Aerotech International Corp. Taiwan Aircraft Maintenance And Engineering Co., Ltd. Yestrip Global Sky Express Kaohsiung Catering Services		**December 31 **	**December 31 **
		2021 2020 $ 12,147,062 $ 11,155,607 - 282,471 682,963 883,079 $ 12,830,025 $ 12,321,157 December 31
		2021 $ 2,955,909 1,656,167 1,787,355 1,169,505 1,691,853 613,697 514,959 190,694 335,242 137,378 147,608 557,917 - 7,630 381,148 $ 12,147,062	2020 $ 2,304,113 1,605,033 1,223,259 1,188,110 1,556,133 602,688 469,979 232,883 405,353 200,794 136,630 699,793 10,270 7,643 512,926 $ 11,155,607

• 30 -

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

Tigerair Taiwan Co., Ltd. Taiwan Air Cargo Terminal CAL Park Mandarin Airlines CAL-Dynasty International Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) Taiwan Airport Services CAL Hotel Dynasty Aerotech International Corp. Taiwan Aircraft Maintenance And Engineering Co., Ltd. Yestrip Global Sky Express Kaohsiung Catering Services	December 31
	2021 2020 78% 76% 54% 54% 100% 100% 97% 94% 100% 100% 49% 49% 100% 100% 94% 94% 47% 47% 100% 100% 100% 100% 100% 100% - 100% 25% 25% 54% 54%

The Company has control over Taoyuan International Airport Service, Taiwan Airport Service and Global Sky Express despite its ownership of less than 50%. Therefore, they were listed as subsidiaries.

To strengthen the capital structure of Tigerair Taiwan Co., Ltd., the board of directors of the Company approved the plan to issue ordinary shares for cash at $25 per share on August 6, 2020. The Company subscribed for 47,228 thousand shares in October 2020 and 26,286 thousand shares in November 2020. The proportion of ownership of the Group increased to 76%. Because the shares were subscribed at a percentage different from its existing ownership percentage, the Company’s retained earnings decreased by $169,272 thousand.

Tigerair Taiwan Co., Ltd. planned to issue ordinary shares for cash to meet the needs for funds. The board of directors of the Company approved the plan to issue ordinary shares for cash at $25 per share on August 5, 2021. The Company subscribed for 101,212 thousand shares in September 2021. The proportion of ownership of the Group increased to 82%. Because the shares were subscribed at a percentage different from its existing ownership percentage, the Company’s retained earnings decreased by $54,449 thousand.

To strengthen the capital structure of Mandarin Airlines, the board of directors of the Company approved the plan to issue ordinary shares for cash at $10 per share on August 26, 2021. The Company subscribed for 199,677 thousand shares in September 2021. The proportion of ownership of the Group increased to 97%. Because the shares were subscribed at a percentage different from its existing ownership percentage, the Company’s retained earnings decreased by $50,190 thousand.

The liquidation of Yestrip Co., Ltd. was completed on April 22, 2021, and the Company recognized a liquidation loss of $540 thousand.

The share of profit or loss of subsidiaries recognized under the equity method was as follows:

	2021	2020
Share of profit (loss)	$ (3,103,103)	$ (1,590,853)

• 31 -

b. Investments in associates

Unlisted companies China Aircraft Services Dynasty Holidays		December 31	December 31
		2021 $ - - $ -	2020 $ 277,234 5,237 $ 282,471

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

China Aircraft Services Dynasty Holidays (Note) The investment (loss) gain recognized for associates accounted follows: China Aircraft Services Dynasty Holidays		**December 31 **
	for	2021 2020 20% 20% 20% 20% using the equity method was as 2021 2020 $ (269,573) $ (102,758) (1,436) (4,740) $ (271,009) $ (107,498)

The investment (loss) gain recognized for associates accounted for using the equity method was as follows:

c. Investments in joint ventures

The investments in joint ventures were as follows:

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia		**December 31 **	**December 31 **
		2021 $ 533,251 120,876 28,836 $ 682,963	2020 $ 695,959 149,353 37,767 $ 883,079

At the end of the reporting period, the proportion of ownership and voting rights in joint ventures held by the Company was as follows:

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia	**December 31 **
	2021 2020 51% 51% 55% 55% 49% 49%

• 32 -

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

The investment (loss) gain recognized for joint ventures accounted for using the equity method was as follows:

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia		**December 31 **	**December 31 **
		2021 $ (172,546) (29,418) (8,931) $ (210,895)	2020 $ (136,459) (15,475) (46) $ (151,980)

The Company’s shares of other comprehensive income of subsidiaries, associates and joint ventures were $4,918 thousand and $(4,890) thousand in 2021 and 2020, respectively.

The investments accounted for using the equity method and the share of profit or loss and other comprehensive income of subsidiaries, associates, and joint ventures were based on these investees’ financial statements which have been audited, except for China Aircraft services. However, the management determined that there would have been no significant adjustments had this investee’s financial statements been independently audited.

For information on the major businesses and products and the locations of registration for the major business offices of the above entities, refer to Tables 7 and 8 (names, locations, and related information of investees on which the Company exercises significant influence and investment in mainland China) following the notes to the financial statements.

13. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2020 Additions Disposals Reclassification Balance at December 31, 2020 Accumulated depreciation and impairment Balance at January 1, 2020 Depreciation expense Disposals Impairment losses Reclassification Balance at December 31, 2020 Balance at December 31, 2020, net value	Freehold Land $ 193,013 - (11,420 ) - $ 181,593 $ - - - - - $ - $ 181,593	Buildings $ 7,383,758 19,464 (369,651 ) - $ 7,033,571 $ (4,056,383 ) (180,609 ) 369,651 - - $ (3,867,341) $ 3,166,230	Flight Equipment $ 266,907,914 621,587 (3,718,075 ) 11,792,738 $ 275,604,164 $ (140,336,300 ) (17,588,803 ) 3,446,678 (424,573 ) 1,489,158 $ (153,413,840) $ 122,190,324	Others $ 6,509,647 218,603 (171,769 ) 8,269 $ 6,564,750 $ (5,571,763 ) (293,613 ) 171,378 - 5,563 $ (5,688,435) $ 876,315	Total $ 280,994,332 859,654 (4,270,915 ) 11,801,007 $ 289,384,078 $ (149,964,446 ) (18,063,025 ) 3,987,707 (424,573 ) 1,494,721 $ (162,969,616) $ 126,414,462 (Continued)

• 33 -

Cost Balance at January 1, 2021 Additions Disposals Reclassification Balance at December 31, 2021 Accumulated depreciation and impairment Balance at January 1, 2021 Depreciation expense Disposals Reclassification Balance at December 31, 2021 Balance at December 31, 2021, net value	Freehold Land $ 181,593 - - - $ 181,593 $ - - - - $ - $ 181,593	Buildings $ 7,033,571 47,818 - 181,818 $ 7,263,207 $ (3,867,341 ) (181,641 ) - - $ (4,048,982) $ 3,214,225	Flight Equipment $ 275,604,164 1,185,464 (46,086,944 ) 10,347,647 $ 241,050,331 $ (153,413,840 ) (15,776,982 ) 39,169,370 (136,004) $ (130,157,456) $ 110,892,875	Others $ 6,564,750 468,963 (71,274 ) (166,717) $ 6,795,722 $ (5,688,435 ) (291,085 ) 69,765 (112) $ (5,909,867) $ 885,855	Total $ 289,384,078 1,702,245 (46,158,218 ) 10,362,748 $ 255,290,853 $ (162,969,616 ) (16,249,708 ) 39,239,135 (136,116) $ (140,116,305) $ 115,174,548

(Concluded)

Reclassification is mainly resulted from the transfer of prepayments for equipment.

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful life of the asset as follows:

Building Main buildings 45-55 years Others 10-25 years Machinery and equipment Electro-mechanical equipment 25 years Others 3-13 years Office equipment 3-15 years Leasehold improvements Building improvements 5 years Others 3-5 years Flight equipment and equipment under finance leases Airframes 18-25 years Aircraft cabins 10-20 years Engines 12-20 years Heavy maintenance on aircraft 6-8 years Engine overhauls 3-10 years Landing gear overhauls 8-12 years Repairable spare parts 3-15 years Leased aircraft improvements 5-12 years

Regarding changes in fleet composition and the retirement schedule, the Company measured the recoverable amount of some flight equipment by deducting the transaction costs from fair value (level 3). The Company recognized an impairment loss on a part of aircraft equipment of $424,573 thousand in 2020. The fair value is determined by reference to factors such as the condition of the flight equipment and possible market estimates.

Refer to Note 31 for the carrying amounts of aircraft equipment and right-of-use assets pledged by the Company.

Based on the particularity of risk in the aviation industry, all of the Company’s assets such as aircraft, real estate, and movable property are adequately insured to diversify the potential risk related to operations.

• 34 -

The Company disposed of a portion of flight equipment and recognized a loss of $950,980 thousand for the three months ended June 30, 2021.

14. INVESTMENT PROPERTIES

Carrying amount Investment properties		December 31	December 31
		2021 $ 2,047,448	2020 $ 2,047,448

The investment properties held by the Company were land located in Nankan, which were leased to others.

The fair value of the investment properties held by the Company were both $2,456,472 thousand as of December 31, 2021 and 2020, respectively. The fair value valuation was performed by independent qualified professional valuers, and the future income evaluated by management was based on market transactions. All of the Company’s investment properties were held under freehold interest.

15. OTHER INTANGIBLE ASSETS

Computer Software Costs Accumulated Amortization Balance at January 1, 2020 $ 2,218,356 $ (1,247,058) Additions 95,217 - Amortization expense - (169,158) Reclassification (765,786) 735,882 Balance at December 31, 2020 $ 1,547,787 $ (680,334) Balance at January 1, 2021 $ 1,547,787 $ (680,334) Additions 66,007 - Amortization expense - (179,111) Balance at December 31, 2021 $ 1,613,794 $ (859,445)	Net Value $ 971,298 95,217 (169,158) (29,904) $ 867,453 $ 867,453 66,007 (179,111) $ 754,349

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

16. OTHER ASSETS

Current Temporary payments Prepayments Others		**December 31 **	**December 31 **
		2021 $ 24,846 175,433 188,912 $ 389,191	2020 $ 19,111 134,055 299,248 $ 452,414

(Continued)

• 35 -

Non-current Prepayments for aircraft Prepayments - long-term Refundable deposits Other financial assets		**December 31 **	**December 31 **
		2021 $ 8,058,743 1,116,502 548,674 18,497 $ 9,742,416	2020 $ 5,069,541 2,042,609 585,451 18,078 $ 7,715,679 (Concluded)

The prepayments for aircraft comprised the prepaid deposits and capitalized interest from the purchase of A321neo and B777F aircraft. For details on the A321neo and B777F aircraft purchase contracts, refer to Note 32.

17. BORROWINGS

• a. Short-term bills payable

Commercial paper Less: Unamortized discount on bills payable Annual discount rate		**December 31 **	**December 31 **
		2021 $ - - $ - -	2020 $ 8,100,000 11,118 $ 8,088,882 0.99%-1.00%

b. Long-term borrowings

Unsecured bank loans Secured bank loans Commercial paper Proceeds from issuance Less: Unamortized discounts Less: Current portion Interest rates		**December 31 **	**December 31 **
		2021 $ 30,850,000 29,232,563 25,100,000 26,918 85,155,645 8,351,129 $ 76,804,516 0.81%-1.22%	2020 $ 21,650,000 32,885,883 29,100,000 22,046 83,613,837 14,798,442 $ 68,815,395 0.81%-1.22%

Secured bank loans are secured by flight equipment, refer to Note 31.

• 36 -

Bank loans (denominated in New Taiwan dollars) are repayable quarterly, semiannually or in lump sum upon maturity. The related information is summarized as follows:

Periods	December 31
	2021 2020 2016/6/27- 2032/6/30 2016/6/27- 2032/6/30

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs, with various maturities until September 2026, were used by the Company to guarantee commercial paper issued. As of December 31, 2021 and 2020, such commercial papers were issued at discount rates of 0.985%-1.0907% and 1.0263%-1.1167%, respectively.

In accordance with the “Regulations on Relief and Revitalization Measures for Industries and Enterprises Affected by Severe Pneumonia with Novel Pathogens” endorsed by the Ministry of Transportation and Communications and the “Operational Guides on Relief Loan Guarantees for Ailing Aviation Industry Affected by Severe Pneumonia with Novel Pathogens”, the Company applied for a special loan project to maintain its operation, and the fund along with subsidized interest rates were provided by the government. The total amount of the loans is $29,350 million, which shall be repaid within 2 years and 4 years from the date of initial drawdown. As of December 31, 2021, the Company had made a drawdown in the amount of $29,350 million.

18. BONDS PAYABLE

Unsecured corporate bonds first-time issued in 2016 Unsecured corporate bonds second-time issued in 2016 Unsecured corporate bonds first-time issued in 2017 Unsecured corporate bonds second-time issued in 2017 Unsecured corporate bonds first-time issued in 2018 Unsecured corporate bonds first-time issued in 2019 Convertible bonds sixth-time issued Convertible bonds seventh-time issued Less: Current portion and put option of convertible bonds		December 31	December 31
		2021 $ - - 1,000,000 1,300,000 4,500,000 3,500,000 379,284 2,970,742 13,650,026 2,525,000 $ 11,125,026	2020 $ 2,500,000 2,500,000 1,000,000 2,600,000 4,500,000 3,500,000 5,832,859 - 22,432,859 12,132,859 $ 10,300,000

• 37 -

Related issuance conditions were as follows:

			Rate
Category	Period	Conditions	(%)
Five-year unsecured bonds - issued at par in	2016.05.26-	Principal repayable in May of	1.19
May 2016; repayable in May 2020 and	2021.05.26	2020 and 2021; indicator
2021; 1.19% interest p.a., payable annually		rate; payable annually
Five-year unsecured bonds - issued at par in	2016.09.27-	Principal repayable in	1.08
September 2016; repayable in	2021.09.27	September of 2020 and
September 2020 and 2021; 1.08% interest		2021; indicator rate;
p.a., payable annually		payable annually
Three-year private unsecured bonds - issued at	2017.05.19-	Principal repayable on due	1.20
par in May 2017; repayable on due date;	2020.05.19	date; indicator rate;
interest of 1.2% p.a., payable annually		payable annually
Seven-year private unsecured bonds - issued at	2017.05.19-	Principal repayable on due	1.75
par in May 2017; repayable on due date;	2024.05.19	date; indicator rate;
interest of 1.75% p.a., payable annually		payable annually
Three-year private unsecured bonds - issued at	2017.10.12-	Principal repayable on due	1.14
par in October 2017; repayable on due date;	2020.10.12	date; indicator rate;
interest of 1.14% p.a., payable annually		payable annually
Five-year private unsecured bonds - issued at	2017.10.12-	Principal repayable in	1.45
par in October 2017; repayable in October	2022.10.12	October of 2021 and 2022;
2021 and 2022; 1.45% interest p.a., payable		indicator rate; payable
annually		annually
Five-year private unsecured bonds - issued at	2018.11.30-	Principal repayable in	1.32
par in November 2018; repayable in	2023.11.30	November of 2022 and
November 2022 and 2023; 1.32% interest		2023; indicator rate;
p.a., payable annually		payable annually
Seven-year private unsecured bonds - issued at	2018.11.30-	Principal repayable in	1.45
par in November 2018; repayable in	2025.11.30	November of 2024 and
November 2024 and 2025; 1.45% interest		2025; indicator rate;
p.a., payable annually		payable annually
Five-year private unsecured bonds - issued at	2019.06.21-	Principal repayable in June of	1.10
par in June 2019; repayable in June 2023	2024.06.21	2023 and 2024; indicator
and 2024; 1.10% interest p.a., payable		rate; payable annually
annually
Seven-year private unsecured bonds - issued at	2019.06.21-	Principal repayable in June of	1.32
par in June 2019; repayable in June 2025	2026.06.21	2025 and 2026; indicator
and 2026; 1.32% interest p.a., payable		rate; payable annually
annually
Five-year convertible bonds - issued at	2018.01.30-	Unless bonds are converted to	-
discount in January 2018; repayable in lump	2023.01.30	share capital or redeemed,
sum upon maturity; 1.3821% discount rate		principal repayable in
p.a.		January of 2023; 1.3821%
		discount rate p.a.
Five-year convertible bonds - issued at	2021.04.28-	Unless bonds are converted to	-
discount in April 2021; repayable in lump	2026.04.28	share capital or redeemed,
sum upon maturity; 0.8612% discount rate		principal repayable in April
p.a.		of 2026; 0.8612% discount
		rate p.a.

• 38 -

The Company issued the sixth issue of its unsecured convertible bonds, and the issuance conditions were as follows:

• a. The holders may demand a lump-sum payment for the bonds upon maturity.

• b. The holders can request that the Company repurchase their bonds at face value on the third anniversary of the offering date. The holders can exercise the right to sell on January 30, 2021.

• c. The Company may redeem the bonds at face value between April 30, 2018 and December 20, 2022 under certain conditions. The Company resolved to exercise the right of redemption on January 14, 2022. The reference date of redemption of the bonds is March 9, 2022 and the expected face value of redemption is $200 thousand.

• d. Between April 30, 2018 and January 30, 2023 (except for the period between the former dividend date and the date of the dividend declaration on record), holders may convert their bonds into the Company’s ordinary shares. The initial conversion price was set at NT$13.2, which is subject to adjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends on July 29, 2019, the conversion price was adjusted to NT$12.6. As of December 31, 2021, a total face value of NT$5,615,200 thousand of convertible bonds was converted into 445,650 thousand ordinary shares of the Company.

The convertible bonds contain both liability and equity components. The equity component was presented in equity under the heading of capital surplus - options. The effective interest rate of the liability component was 1.3821% per annum on initial recognition.

Proceeds from issuance $ 6,012,000 Equity component (409,978) Liability component at the date of issuance $ 5,602,022

The Company issued the seventh issue of its unsecured convertible bonds, and the issuance conditions were as follows:

• a. The holders may demand a lump-sum payment for the bonds upon maturity.

• b. The holders can request that the Company repurchase their bonds at face value on the third anniversary of the offering date. The holders can exercise the right to sell on April 28, 2024.

• c. The Company may redeem the bonds at face value between July 28, 2021 and March 18, 2026 under certain conditions.

• d. Between July 28, 2021 and April 28, 2026 (except for the period between the former dividend date and the date of the dividend declaration on record), holders may convert their bonds into the Company’s ordinary shares. The initial conversion price was set at NT$19 per share, which is subject to adjustment if there is a capital injection by cash or share dividend distribution. As of December 31, 2021, a total face value of NT$1,417,200 thousand of convertible bonds was converted into 74,589 thousand ordinary shares of the Company.

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 0.8612% per annum on initial recognition.

• 39 -

Proceeds from issuance Equity component Liability component at the date of issuance

$ 4,500,000 (188,862) $ 4,311,138

19. LEASE AGREEMENTS

• a. Right-of-use assets

Carrying amounts Land Buildings Flight equipment Other equipment Additions to right-of-use assets Depreciation for right-of-use assets Land Buildings Flight equipment Other equipment		**December 31 **	**December 31 **
	2021 2020 $ 3,428,611 $ 3,367,875 6,584,950 6,986,866 40,951,799 44,201,020 18 - $ 50,965,378 $ 54,555,761 For the Year Ended December 31
		2021 $ 7,274,961 $ 181,729 309,471 9,762,276 30 $ 10,253,506	2020 $ 2,084,799 $ 172,757 383,898 9,399,066 - $ 9,955,721

• b. Lease liabilities

Carrying amounts Current Non-current		**December 31 **	**December 31 **
		2021 $ 882,538 $ 9,677,756	2020 $ 842,592 $ 10,055,776

Range of discount rate for lease liabilities (including leases denominated in USD designated as hedging instruments):

Land Buildings Flight equipment Other equipment	**December 31 **
	2021 2020 0.81%-1.65% 1.09%-1.65% 0%-2.98% 0%-3.56% 0.68%-3.16% 0.68%-3.16% 0% -

• 40 -

• c. Financial liabilities under hedge accounting

The Company specifies a part of aircraft leases denominated in USD as hedging instruments to avoid exchange rate fluctuations in passenger revenue and applies the accounting treatment of cash flow hedging. The lease information is as follows:

			Maturity Date	Subject	Carrying Value	Carrying Value
December	31,	2021	2022.2.9-2033.12.12	Financial liabilities for hedging -	$	8,434,893
				current
				Financial liabilities for hedging -		27,839,847
				non-current
December	31,	2020	2022.2.9-2028.5.15	Financial liabilities for hedging -		8,120,445
				current
				Financial liabilities for hedging -		32,455,333
				non-current

Influence of comprehensive income

			Recognized in	Recognized in
				Other
			Comprehensive		Reclassified to
				Income		Income
For the year ended December	31,	2021	$	252,250	$	679,554
For the year ended December	31,	2020		2,099,550		352,674

• d. Material leasing activities and terms

China Airlines leased ten 777-300ER planes, twenty A330-300 planes, fifteen 737-800 planes and two A321neo planes for operation, lease period are 3 to 16 years from February 2006 to December 2033. The rental pricing method is partly a fixed amount of funds, and some of them are floating rents, floating rents are according to benchmark ratio, the rent is revised every half year. When the lease expires, the lease agreements have no purchase rights.

The information of refundable deposits and opening of credit letter due to rental of planes:

Refundable deposits Credit guarantees	December 31
	2021 2020 $ 414,720 $ 438,117 1,295,594 1,330,772

• e. Lease agreement signed but not yet delivered

In September 2019, the Company signed a rental contract for six A321neo with Air Lease Corporation, which is expected to be introduced between 2021 and 2022. As of December 31, 2021, two A321neo have been delivered.

In October 2019, the Company signed a rental contract for eight A321neo with CALC Lease Corporation, which is expected to be delivered in 2024.

The Company also signed related aircraft purchase agreement, please refer to Note 32 for details.

• 41 -

f. Sale and leaseback transactions

In order to revitalize assets and strengthen financial structure, the Company signed a sale and leaseback agreement for five A330-300 with CALC Lease Corporation in June 2021 and September 2021. Those aircraft were sold for $2,810,098 thousand and the Company recognized a loss of $342,080 thousand. The lease term is 4 years without renewal option or right of first refusal and the annual lease payments for each aircraft are US$4,200 thousand to US$4,823 thousand.

g. Aircraft leases

In order to revitalize assets, the Company signed a lease agreement for two 747-400F with US Cargo Company in August 2021 and September 2021.

h. Other lease information

The Company uses operating lease agreement for investment properties, refer to Note 14.

Short-term leases and low-value asset leases Total cash outflow for leases	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2021 $ 17,347 $ (10,064,135)	2020 $ 16,450 $ (10,528,143)

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

20. OTHER PAYABLES

Short-term employee benefits Fuel costs Repair expenses Ground service expenses Terminal surcharges Commission expenses Interest expenses Others		**December 31 **	**December 31 **
		2021 $ 5,513,432 3,005,174 1,467,390 763,012 716,531 149,296 82,063 1,168,108 $ 12,865,006	2020 $ 1,592,141 1,718,503 285,146 956,831 346,952 184,363 116,168 1,927,976 $ 7,128,080

• 42 -

21. CONTRACT LIABILITIES

Frequent flyer programs Advance ticket sales Current Non-current		December 31	December 31
		2021 $ 2,797,038 1,255,328 $ 4,052,366 $ 3,416,733 635,633 $ 4,052,366	2020 $ 2,657,942 2,322,008 $ 4,979,950 $ 3,218,846 1,761,104 $ 4,979,950

22. PROVISIONS

Operating leases - aircraft Current Non-current		**December 31 **	**December 31 **
		2021 $ 17,808,700 $ 2,578,812 15,229,888 $ 17,808,700	2020 $ 13,741,244 $ - 13,741,244 $ 13,741,244

The Company 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 to be repaired according to the expected years of use, number of flight hours, flight cycles and the number of engine revolution. The Company had existing obligations to recognize provisions when signing a lease or during the lease term.

	Aircraft Lease	Aircraft Lease
		Contracts
Balance at January 1, 2020	$	9,431,736
Additional provisions recognized		5,580,416
Usage		(705,117)
Effect of foreign currency exchange differences		(565,791)
Balance at December 31, 2020	$	13,741,244
Balance at January 1, 2021	$	13,741,244
Additional provisions recognized		5,796,335
Usage		(1,476,769)
Effect of foreign currency exchange differences		(252,110)
Balance at December 31, 2021	$	17,808,700

• 43 -

23. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. b. Defined benefit plans

The defined benefit plans adopted by the Company in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the 6 months before retirement. The Company contribute amounts equal to 15% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name.

Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (the “Bureau”); the Company has no right to influence the investment policy and strategy.

The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liabilities		**December 31 **	**December 31 **
		2021 $ 14,958,292 (6,599,103) $ 8,359,189	2020 $ 14,458,016 (6,240,621) $ 8,217,395

Movements in net defined benefit liabilities were as follows:

Balance at January 1, 2020 Service cost Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial loss - changes in financial assumptions Actuarial loss - experience adjustments Recognized in other comprehensive income	Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets $ 13,932,511 $ (6,343,766) 1,186,945 - 96,038 (43,803) 1,282,983 (43,803) - (213,741) 498,254 - 209,705 - 707,959 (213,741)	Net Defined Benefit Liabilities (Assets) $ 7,588,745 1,186,945 52,235 1,239,180 (213,741) 498,254 209,705 494,218 (Continued)

• 44 -

Contributions from the employer Benefits paid Direct payment to employees Exchange differences on foreign plans Balance at December 31, 2020 Service cost Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial loss - changes in demographic assumptions Actuarial loss - changes in financial assumptions Actuarial loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Benefits paid Direct payment to employees Exchange differences on foreign plans Balance at December 31, 2021	Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets $ - $ (933,458) (1,294,147) 1,294,147 (154,058) - (17,232) - 14,458,016 (6,240,621) 1,169,022 - 47,178 (20,267) 1,216,200 (20,267) - (92,874) 379,091 - (452,370) - 201,665 - 128,386 (92,874) - (951,768) (706,427) 706,427 (123,638) - (14,245) - $ 14,958,292 $ (6,599,103)	Net Defined Benefit Liabilities (Assets) $ (933,458) - (154,058) (17,232) 8,217,395 1,169,022 26,911 1,195,933 (92,874) 379,091 (452,370) 201,665 35,512 (951,768) - (123,638) (14,245) $ 8,359,189 (Concluded)

Through the defined benefit plans under the Labor Standards Act, the Company is exposed to the following risks:

• 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a two-year time deposit with local banks.

• 2) Interest risk: A decrease in the government bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

• 3) Salary risk: The present value of the defined benefit obligation is calculated using the future salaries of plan participants. As such, an increase in the salaries of the plan participants will increase the present value of the defined benefit obligation.

• 45 -

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations are as follows:

Discount rate Expected rate of salary increase	**December 31 **
	2021 2020 0.68% 0.34% 1.00% 1.00%

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

Discount rate 0.25% increase 0.25% decrease Expected rate of salary increase 0.5% increase 0.5% decrease		December 31	December 31
		2021 $ (317,393) $ 331,820 $ 634,785 $ (605,931)	2020 $ (318,904) $ 332,769 $ 651,673 $ (610,077)

The above sensitivity analysis may not be representative of the actual changes in the present value of the defined benefit obligation as it is unlikely that changes in assumptions will occur in isolation of one another as some of the assumptions may be correlated.

Expected contributions to the plan for the next year Average duration of the defined benefit obligation		December 31	December 31
		2021 $ 766,706 9 years	2020 $ 740,777 9.5 years

24. EQUITY

• a. Share capital

Ordinary shares

Number of shares authorized (in thousands of shares) Amount of shares authorized Amount of shares issued		**December 31 **	**December 31 **
		2021 7,000,000 $ 70,000,000 $ 59,412,243	2020 7,000,000 $ 70,000,000 $ 54,209,846

The Company issued the 6th and the 7th domestic unsecured convertible bonds, and the holders of the convertible bonds applied for conversion in the amount of $7,032,400 thousand from April 1, 2021 to December 31, 2021. The number of ordinary shares exchanged was 520,329 thousand and entitled to registration change after the issuance of new shares.

• 46 -

b. Capital surplus

Issuance of shares in excess of par value and conversion premium Retirement of treasury shares Expired employee share options Long-term investments Equity component of convertible bonds Others		December 31	December 31
		2021 $ 1,668,381 - - 540 155,676 869,932 $ 2,694,529	2020 $ 146,351 33,513 11,747 119,134 409,978 466,604 $ 1,187,327

The capital surplus from shares issued in excess of par (including additional paid-in capital from the conerted convertible bonds) and the difference in sale price of share of subsidiaries and book value may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital (but limited to a certain percentage of the Company’s paid-in capital on a yearly basis).

The capital surplus arising from long-term investments, expired employee share options, dividends distributed to subsidiaries and retirement of treasury shares may not be used for any purpose, except for offsetting a deficit. The capital surplus arising from the conversion of convertible bonds may not be used for any purpose.

c. Appropriation of earnings and dividend policy

Under the dividend policy as set forth in the Company’s Articles of Incorporation (the “Articles”), where the Company made a profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing a special reserve in accordance 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, which is to distribute dividends and bonus no less than 50% of the remaining profit and undistributed retained earnings. The dividends and bonus mentioned above can be distributed in the form of new shares or cash, and the cash dividends should be no less than 30% of the total dividends.

Under the Company Act, if surplus earnings are distributed in the form of new shares, the distribution of shares shall be approved in the meeting of the board of directors; if such earnings are distributed in the form of cash, the cash distribution shall be authorized after a resolution has been adopted by a majority vote at a meeting of the board of directors attended by two-thirds of the total number of directors; and in addition, a report of such distribution shall be submitted to the shareholders’ meeting. If the Company has no loss, according to laws and regulations, the Company can distribute its capital reserve, in whole or in part, by issuing new shares or cash based on financial, business and management considerations. If such surplus earnings is distributed in the form of new shares, it shall be approved by a meeting of the board of directors; if such surplus earning is distributed in the form of cash, it shall be authorized after a resolution has been adopted by a majority vote at a meeting of the board of directors attended by two-thirds of the total number of directors; and in addition thereto a report of such distribution shall be submitted to the shareholders’ meeting.

• 47 -

Under the dividend policy as set forth in the Company’s Articles of Incorporation (the “Articles”) 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 in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan with due consideration of any future aircraft acquisition plans and fund demands, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders by cash or shares (cash dividends cannot be less than 30% of total dividends distributed). However, if the Company’s profit before tax in a fiscal year after deductions for the abovementioned items is not sufficient for earnings distribution, retained earnings can be used as a supplement for the deficiency.

The distribution of dividends should be resolved and recognized in the shareholders’ meeting in the following year.

1) Offsetting deficit in 2020

On August 12, 2021, the offsetting of deficit in 2020 was resolved and recognized in the shareholders’ meeting. The deficit included a net income of $140,000 thousand and negative adjustment of other retained earnings of $490,581 thousand; thus, the remaining amount of accumulated deficit was $350,581 thousand. The deficit was offset by the capital reserve of $350,581 thousand.

• 2) Appropriation of earnings in 2021

On March 15, 2022, the appropriation of earnings in 2021 which was resolved in the meeting of the Company’s board of directors, was as follows:

	Appropriation	Appropriation	Dividends Per
	of	Earnings	Share (NT$)
Legal reserve	$	925,385	$-
Cash dividends		5,000,000	0.83636529

The appropriation of earnings in 2021 is subject to the resolution of the shareholders in their meetings on May 26, 2022.

d. Other equity items

The movement of other equity items were as follows:

	Exchange
	Differences on
	the Translation
	of the Financial	Unrealized Gain
	Statements of		(Loss) on	Gain (Loss) on
	Foreign	Financial Assets		Hedging
	Operations	at FVTOCI		Instruments	Total
Balance at January 1, 2020	$ (54,707)	$	107,262	$ 1,143,678	$ 1,196,233
Exchange differences on the
translation of the financial
statements of foreign operations	(101,142)		-	-	(101,142)
Gain on hedging instruments	-		-	1,907,401	1,907,401
					(Continued)

• 48 -

Exchange Differences on the Translation of the Financial Statements of Foreign Operations Unrealized Gain (Loss) on Financial Assets at FVTOCI Gain (Loss) on Hedging Instruments Cumulative loss on changes in fair value of hedging instruments reclassified to profit or loss $ - $ - $ (283,210) Unrealized gain on financial assets at FVTOCI - 39,305 - Share of other comprehensive income (loss) from associates and joint ventures accounted for using equity method 1,368 (84,893) 2,837 Effects of income tax 20,229 9,685 (365,036) Other comprehensive income (loss) recognized in the period (79,545) (35,903) 1,261,992 Transferred to hedged items - - 200,989 Balance at December 31, 2020 $ (134,252) $ 71,359 $ 2,606,659 Balance at January 1, 2021 $ (134,252) $ 71,359 $ 2,606,659 Exchange differences on the translation of the financial statements of foreign operations 17,597 - - Gain on hedging instruments - - 861,256 Cumulative loss on changes in fair value of hedging instruments reclassified to profit or loss - - (672,302) Unrealized gain on financial assets at FVTOCI - (91,703) - Share of other comprehensive income (loss) from associates and joint ventures accounted for using equity method 95 (4,161) 1,992 Effects of income tax (3,519) 18,993 (57,693) Other comprehensive income (loss) recognized in the period 14,173 (76,871) 133,253 Transferred to hedged items - - 99,507 Balance at December 31, 2021 $ (120,079) $ (5,512) $ 2,839,419

Total $ (283,210) 39,305 (80,688) (335,122) 1,146,544 200,989 $ 2,543,766 $ 2,543,766 17,597 861,256 (672,302) (91,703) (2,074) (42,219) 70,555 99,507 $ 2,713,828 (Concluded)

e. Treasury shares

Treasury shares are the Company’s shares held by its subsidiaries, as of December 31, 2021 and 2020 were as follows:

(In Thousands of Shares)

	Number of
	Shares,	Reduction	Number of
	Beginning of	During the	Shares, End of
Period of Treasury Shares	Year	Year	Year
For the year ended December 31, 2021	2,075	-	2,075
For the year ended December 31, 2020	2,889	(814)	2,075

• 49 -

Subsidiary Shares Held by Subsidiaries (In Thousands of Shares) December 31, 2021 Mandarin Airlines 2,075 December 31, 2020 Mandarin Airlines 2,075	Carrying Amount Market Value $ 57,156 $ 57,156 $ 24,999 $ 24,999

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

Dynasty Aerotech International Corp. sold a total of 814 thousand shares of the Company in 2020 and the disposal price was $6,854 thousand.

25. NET INCOME

a. Revenue

Passenger Cargo Others Other income Interest income Dividend income Others	For the Year Ended	For the Year Ended	For the Year Ended	December 31
	2021 $ 3,433,751 $ 124,249,632 4,456,865 $ 132,140,248 $ For the Year Ended		$	2020 20,508,133 81,692,574 4,126,416 106,327,123 December 31
			$
		2021 $ 132,220 8,355 234,050 $ 374,625		2020 $ 208,081 8,720 223,960 $ 440,761

b. Other income

• 50 -

c. Other gains and losses

(Loss) gain on disposal property, plant and equipment Gain on financial assets mandatorily classified as at FVTPL Net foreign exchange (losses) gains Impairment loss recognized on investments accounted for using equity method Impairment loss recognized on property, plant and equipment Loss on disposal of investments Loss on sale and leaseback transactions Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2021 $ (932,718) - (123,671) (136,672) - (540) (342,080) (436,219) $ (1,971,900)	2020 $ 8,005 3,596 259,796 (46,757) (424,573) - - (323,894) $ (523,827)

d. Finance costs

Interest expense Bonds payable Bank loans Interest on lease liabilities Capitalization interest Capitalization rate Depreciation and amortization expenses Property, plant and equipment Right-of-use assets Intangible assets An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2021 2020 $ 262,951 $ 344,034 624,420 834,611 1,276,803 1,601,718 $ 2,164,174 $ 2,780,363 $ 42,440 $ 75,701 0.55%-1.11% 0.71%-1.45% For the Year Ended December 31
		2021 $ 16,249,708 10,253,506 179,111 $ 26,682,325 $ 25,933,079 570,135 $ 26,503,214 $ 179,111	2020 $ 18,063,025 9,955,721 169,158 $ 28,187,904 $ 27,360,911 657,835 $ 28,018,746 $ 169,158

e. Depreciation and amortization expenses

• 51 -

f. Employee benefits expense

Post-employment benefits Defined contribution plans Defined benefit plans Other employee benefits Salary expenses Personnel service expenses An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2021 $ 330,826 1,195,933 $ 1,526,759 $ 16,170,192 4,880,662 $ 21,050,854 $ 17,960,614 4,616,999 $ 22,577,613	2020 $ 347,320 1,239,180 $ 1,586,500 $ 12,892,488 4,452,116 $ 17,344,604 $ 14,918,454 4,012,650 $ 18,931,104

According to the Company’s articles, the Company accrues compensation of employees at rates of no less than 3% of the net profit before income tax and compensation of employees. When the Company has an accumulated deficit, the Company shall set aside some amounts to offset the deficit in advance. For the year ended December 31, 2021, the estimated amount of compensation of employees was $366,429 thousand, and for the year ended December 31, 2020, the compensation of employees was not estimated since the Company had an accumulated deficit.

Material differences between such estimated amounts and the amounts proposed by the board of directors on or before the date that the annual financial statements are authorized for issue are adjusted in the year that the compensation and remuneration are recognized. If there is a change in the proposed amounts after the annual financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate.

Information on the compensation of employees resolved by the Company’s board of directors is available at the Market Observation Post System website of the Taiwan Stock Exchange.

26. INCOME TAX

a. Income tax recognized in profit or loss

Major components of income tax expense were as follows:

Current tax Current year Adjustments for prior year Deferred tax Current year Adjustments for prior year Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2021 $ 2,926,770 7,846 (331,894) (8,687) $ 2,594,035	2020 $ 15,676 280 (67,746) 82,885 $ 31,095

• 52 -

A reconciliation of accounting profit and income tax expense was as follows:

Profit before tax from continuing operations Income tax expense calculated at the statutory rate Effects of adjustments to income tax Nondeductible expenses in determining taxable income Tax-exempt income Overseas income tax expense Unrecognized loss carryforwards and investment tax credits Adjustments for prior years’ tax Adjustments for prior years’ deferred tax Income tax expense recognized in profit or loss b. Income tax recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2021 $ 11,973,940 $ 2,394,788 695,244 (541,481) 33,815 12,510 7,846 (8,687) $ 2,594,035	2020 $ 171,095 $ 34,219 369,518 (334,324) 15,676 (137,159) 280 82,885 $ 31,095

Deferred tax Recognized in other comprehensive income Translation of foreign operations Fair value changes of hedging instruments for cash flow hedges Remeasurement of defined benefit plans Fair value changes of financial assets at FVTOCI Total income tax recognized in other comprehensive income	For the Year Ended	For the Year Ended	December 31
		2021 $ (3,519) (57,693) 7,102 18,993 $ (35,117)	2020 $ 20,229 (365,036) 98,844 9,685 $ (236,278)

• 53 -

• c. Deferred tax assets and liabilities

For the year ended December 31, 2021

Deferred tax assets Temporary differences Defined benefit obligations Frequent flyer programs Maintenance reserve Allowance for impairment loss of inventories Others Deferred tax liabilities Temporary differences Unrealized foreign exchange gains Others	Opening Balance Recognized in Profit or Loss Recognized in Other Compre- hensive Income $ 1,656,388 $ 34,651 $ 7,102 547,877 35,395 - 2,359,334 (71,261) - 253,209 26,922 - 165,051 230,398 (10,762) $ 4,981,859 $ 256,105 $ (3,660) $ 143,100 $ (84,477) $ - 732,288 - 31,457 $ 875,388 $ (84,477) $ 31,457	Closing Balance $ 1,698,141 583,272 2,288,073 280,131 384,687 $ 5,234,304 $ 58,623 763,745 $ 822,368

For the year ended December 31, 2020

Deferred tax assets Temporary differences Defined benefit obligations Frequent flyer programs Maintenance reserve Allowance for impairment loss of inventories Others	Opening Balance Recognized in Profit or Loss Recognized in Other Compre- hensive Income $ 1,527,211 $ 30,333 $ 98,844 590,694 (42,817) - 2,063,485 295,849 - 294,799 (41,590) - 280,953 (195,593) 79,691 $ 4,757,142 $ 46,182 $ 178,535	Closing Balance $ 1,656,388 547,877 2,359,334 253,209 165,051 $ 4,981,859 (Continued)

• 54 -

Deferred tax liabilities Temporary differences Unrealized foreign exchange gains Others	Opening Balance Recognized in Profit or Loss Recognized in Other Compre- hensive Income $ 81,778 $ 61,322 $ - 317,475 - 414,813 $ 399,253 $ 61,322 $ 414,813	Closing Balance $ 143,100 732,288 $ 875,388 (Concluded)

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

Loss carryforwards Expiry in 2028 Expiry in 2029 Others		December 31	December 31
		2021 $ - - $ - $ 6,476,757	2020 $ 495,779 1,439,287 $ 1,935,066 $ 4,479,141

• d. As of December 31, 2021, the Company has no unused loss carryforwards.

• e. Income tax assessments

The income tax returns of the Company through 2018 have been examined by the tax authorities.

27. EARNINGS PER SHARE

Basic earnings per share (NT$ per share) Diluted earnings per share (NT$ per share) Net Profit for The Year Earnings used in the computation of basic earnings per share Effect of potentially dilutive ordinary shares: Interest on convertible bonds (after tax) Earnings used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2021 2020 $ 1.67 $ 0.03 $ 1.54 $ 0.03 For the Year Ended December 31
		2021 $ 9,379,905 72,638 $ 9,452,543	2020 $ 140,000 - $ 140,000

• 55 -

The weighted average number of ordinary shares outstanding (in thousands of shares) was as follows:

Weighted average number of ordinary shares used in computation of basic earnings per share Effect of potentially dilutive ordinary shares: Compensation of employees Convertible bonds Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended	For the Year Ended	December 31
		2021 5,615,684 13,300 512,144 6,141,128	2020 5,418,776 - - 5,418,776

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

28. CAPITAL MANAGEMENT

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. The capital structure of the Company consists of net debt (borrowings offset by cash and cash equivalents) and equity of the Company (comprising issued capital, reserves, retained earnings and other equity items).

To support operating activities and purchase of aircraft, the Company needs to maintain sufficient capital. Therefore, the goal of capital management is to ensure that financial resources and operating plan is able to support the future working capital, capital expenditures, debt repayment, dividend payments and other needs in the next 12 months.

29. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments not measured at fair value

Financial liabilities Bonds payable	**December 31 **	**December 31 **
	2021 Carrying Amount Fair Value $ 13,650,026 $ 14,557,830	2020
		Carrying Amount Fair Value $ 22,432,859 $ 22,609,683

Lease liabilities and long-term debts are floating-rate financial liabilities, so their carrying amounts are their fair values. Fair values of bond payable trading in OTC are based on quoted market prices (included in the Level 1 categories).

• 56 -

• b. Fair value of financial instruments measured at fair value on a recurring basis

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable:

• 1) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

• 2) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• 3) Level 3 fair value measurements are those derived from valuation techniques that include inputs for an asset or liability that are not based on observable market data (unobservable inputs).

December 31, 2021

Financial assets at FVTOCI Investments in equity instruments Unlisted shares - domestic Unlisted shares - foreign Financial liabilities at FVTPL Financial assets for hedging Financial liabilities for hedging December 31, 2020 Financial assets at FVTOCI Investments in equity instruments Unlisted shares - domestic Unlisted shares - foreign Financial liabilities at FVTPL Financial assets for hedging Financial liabilities for hedging	Level 1 $ - - $ - $ 3,545,706 $ 36,274,740 Level 1 $ - - $ - $ 7,613,636 $ 40,575,778	Level 2 $ - - $ - $ - $ - Level 2 $ - - $ - $ - $ 5,794	Level 3 $ 28,804 26,654 $ 55,458 $ 17,613 $ 2,755 Level 3 $ 29,704 117,457 $ 147,161 $ - $ -	Total $ 28,804 26,654
				$ 55,458
				$ 3,563,319
				$ 36,277,495
				Total $ 29,704 117,457
				$ 147,161
				$ 7,613,636
				$ 40,581,572

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

• 57 -

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

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

• 5) Valuation techniques and inputs applied for Level 3 fair value measurement

The fair values of fuel options are determined using option pricing models where the significant unobservable inputs are implied fluctuation. Changes in the implied fluctuation used in isolation would result in an increase or decrease in the fair value of the fuel options.

The domestic and foreign unlisted equity investments are based on the comparative company valuation to estimate the fair value. The main assumptions are based on the multiplier of the market price of the comparable listed company and the net value per share, which have considered the liquidity discount. The higher the multiplier or the lower the liquidity discount, the higher the fair value of the relevant financial instruments.

The movements of financial instruments based on Level 3 fair value measurement are as follows:

		Liquidity	Liquidity
	Multiplier	Discount
December 31, 2021	0.74-14.31		80%
December 31, 2020	0.79-16.32		80%
	Derivative		Equity
	Instruments	Instruments
Balance at January 1, 2021	$ -	$	147,161
Recognized in other comprehensive income	6,124		(91,703)
Balance at December 31, 2021	$ 6,124	$	55,458
	Derivative		Equity
	Instruments	Instruments
Balance at January 1, 2020	$ 5,524	$	107,856
Recognized in other comprehensive income	(5,524)		39,305
Balance at December 31, 2020	$ -	$	147,161

Because some financial instruments and nonfinancial instruments may not have their fair values disclosed, the total fair value disclosed herein is not the total value of the Company’s collective instruments.

• 58 -

c. Categories of financial instruments

Financial assets Financial assets for hedging Financial assets at amortized cost (Note 1) Financial assets at FVTOCI - investments in equity instruments Financial liabilities Financial liabilities for hedging Financial liabilities at amortized cost (Note 2)	December 31
	2021 2020 $ 3,563,319 $ 7,613,636 50,292,213 36,153,687 55,458 147,161 36,277,495 40,581,572 142,057,713 148,012,657

• Note 1: The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, time deposits with original maturities of more than 3 months, notes and accounts receivable, accounts receivable - related parties, other receivables, refundable deposits and other restricted financial assets.

• Note 2: The balance include financial liabilities measured at amortized cost, which comprise short-term notes payable, notes and accounts payable, accounts payable - related parties, other payables, bonds payable and long-term loans, lease liabilities, provisions, parts of other current liabilities, parts of other noncurrent liabilities and guarantee deposits.

d. Financial risk management objectives and policies

The Company has risk management and hedging strategies to respond to changes in the economic and financial environment and in the fuel market. To reduce the financial risks from changes in interest exchange rates and in fuel prices, the Company has its operating costs stay within a specified range by using appropriate financial hedging instruments and hedging percentages in accordance with the “Processing Program of Derivative Financial Instrument Transactions” approved by the Company’s shareholders to reduce the impact of market price on earnings. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

In addition, the Company has a risk committee, which meets periodically to evaluate the performance of derivative instruments and determine the appropriate hedging percentage. This committee informs the Company of global economic and financial conditions, controls the entire financial risk resulting from changes in the financial environment and fuel prices, and develops the strategy and response to avoid financial risk with the assistance of financial risk experts to effect risk management.

1) Market risk

The Company is primarily exposed to the financial risks of changes in foreign currency exchange rates and interest rates. The Company entered into derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk.

The Company enters into forward contracts, foreign currency option contracts, and interest swap contracts with fair values that are highly negatively correlated to the fair values of hedged items and evaluates the hedging effectiveness of these instruments periodically.

• 59 -

a) Foreign currency risk

The Company enters into foreign currency option to hedge against the risks of changes in related exchange rates, and enters into foreign exchange forward contracts to hedge against the risks on changes in foreign-currency assets, liabilities and commitments in the related exchange rates.

Sensitivity analysis

The Company was mainly exposed to the U.S. dollar.

An increase/decrease in U.S. dollars against New Taiwan dollars when reporting foreign currency risk internally to key management personnel represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items, and adjusts their translation at the end of the reporting period for U.S. dollars increase/decrease by one dollar against New Taiwan dollars in foreign currency rates. When New Taiwan dollars increased by one dollar against U.S. dollars and all other variables were held constant, there would be a decrease in pre-tax profit of $401,972 thousand and an increase in pre-tax other comprehensive income of $1,181,518 thousand for the year ended December 31, 2021; there would be an increase in pre-tax profit of $126,947 thousand and an increase in pre-tax other comprehensive income of $1,155,267 thousand for the year ended December 31, 2020.

The Company’s hedging strategy is to enter into foreign exchange forward contracts to avoid exchange rate exposure of its foreign currency denominated receipts and payments and to manage exchange rate exposure of its aircraft prepayments in the future. Those transactions are designated as cash flow hedges. When forecasted purchases actually take place, basis adjustments are made to the initial carrying amounts of hedged items.

For the hedges of highly probable aircraft prepayments, as the critical terms (i.e. the notional amount, useful life and underlying asset) of the foreign exchange forward contracts and their corresponding hedged items are the same, the Company performs a qualitative assessment of the effectiveness, and it is expected that the value of the foreign exchange forward contracts and the value of the corresponding hedged items will systematically change in the opposite direction in response to movements in the underlying exchange rates.

The following table summarizes the information relating to the hedges of foreign currency risk. Please refer to Note 19 for aircraft rental contracts for hedging.

December 31, 2021

Notional Line Item in Hedging Instruments Currency Amount Maturity Forward Rate Balance Sheet Cash flow hedge Aviation fuel - forward exchange contracts NTD/USD $ - - - Financial assets for hedging - current/liabilities for hedging - current	Carrying Amount
	Asset Liability $ - $ -

The abovementioned hedging instruments applied hedge accounting. The book value of other equity for each hedging item (aviation fuel in U.S. dollars) was $0.

• 60 -

For the year ended December 31, 2021

								Amount
					Hedging Gains		Reclassified to
					Recognized in		Profit and Loss
					Other			and the
					Comprehensive		Adjusted Line
Comprehensive Income					Income			Item
Cash flow hedge
Aviation fuel					$ 5,794			$ (6,844)
December 31, 2020
		Notional			Line Item in		Carrying Amount
Hedging Instruments	Currency	Amount	Maturity	Forward Rate	Balance Sheet		Asset	Liability
Cash flow hedge
Aviation fuel - forward	NTD/USD	NTD142,045/	2021.1.29-	29.4-29.8	Financial assets for hedging -	$	-	$ 5,794
exchange contracts		USD5,000	2021.5.28		current/liabilities for
					hedging - current

The abovementioned hedging instruments applied hedge accounting. The book value of other equity for each hedging item (aviation fuel in U.S. dollars) was $(5,794) thousand.

For the year ended December 31, 2020

			Amount
	Hedging Gains		Reclassified to
	Recognized in		Profit and Loss
		Other	and the
	Comprehensive		Adjusted Line
Comprehensive Income		Income	Item
Cash flow hedge
Aviation fuel	$	4,367	$ (16,616)
Aircraft prepayments		(101,570)	-
Maintenance costs		-	5
	$	(97,203)	$ (16,611)

For the year ended December 31, 2020, the amount of hedging instruments reclassified to prepayments for equipment was $119,878 thousand.

• b) Interest rate risk

The Company enters into interest swap contracts to hedge against the risks on change in net liabilities interest rates.

The risk is managed by the Company through maintaining an appropriate mix of fixed and floating rate borrowings, and using interest rate swap contracts and forward interest rate contracts.

• 61 -

The carrying amount of the Company’s financial liabilities with exposure to interest rates at the end of the reporting period were as follows.

Fair value interest rate risk Cash flow interest rate risk Sensitivity analysis	December 31
	2021 2020 $ 49,924,766 $ 63,008,637 95,715,939 102,601,087

The sensitivity analysis below was determined based on the Company’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A one yard (25 basis points) 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 by one yard (25 basis points) and all other variables been held constant, the Company’s pre-tax profit for the year ended December 31, 2021 would have decreased by $239,290 thousand.

Had interest rates increased by one yard (25 basis points) and all other variables been held constant, the Company’s pre-tax profit for the year ended December 31, 2020 would have decreased by $256,503 thousand.

• c) Other price risk

The Company was exposed to fuel price risk on its purchase of aviation fuel. The Company enters into fuel options contracts to hedge against adverse risks on fuel price changes.

December 31, 2021

Notional Line Item in Hedging Instrument Currency Amount Maturity Forward Rate Balance Sheet Cash flow hedges Aviation fuel - fuel options USD NTD 6,124 2022.1.31- 2022.09.30 USD 62- USD121.75 Financial assets for hedging - current/liabilities for hedging - current	Carrying Amount
	Asset Liability $ 17,613 $ 2,755

The abovementioned hedging instruments applied hedge accounting. The book value of other equity for each hedging item (fuel payments in U.S. dollars) was $6,124 thousand.

For the year ended December 31, 2021

	Hedging Gains	Amount
	(Losses)	Reclassified to
	Recognized in	Profit and Loss
	Other	and the
	Comprehensive	Adjusted Line
Comprehensive Income	Income	Item
Cash flow hedge
Fuel options	$ 6,124	$ (408)	(Note)

Note: Increase in operating costs.

• 62 -

December 31, 2020

Notional Line Item in Hedging Instrument Currency Amount Maturity Forward Rate Balance Sheet Cash flow hedges Aviation fuel - fuel options USD - - - Financial assets for hedging - current/liabilities for hedging - current	Carrying Amount
	Asset Liability $ - $ -

The abovementioned hedging instruments applied hedge accounting. The book value of other equity for each hedging item (fuel payments in U.S. dollars) was $0.

For the year ended December 31, 2020

		Hedging Gains	Amount
		(Losses)	Reclassified to
		Recognized in	Profit and Loss
		Other	and the
		Comprehensive	Adjusted Line
Comprehensive Income		Income	Item
Cash flow hedge
Fuel options		$ (5,524)	$ (52,853)	(Note)
Note:	Increase in operating costs.

Sensitivity analysis

The sensitivity analysis below was determined based on the exposure to fuel price risks at the end of the reporting period.

Fuel price increase 5% Fuel price decrease 5%	For the Year Ended December 31	For the Year Ended December 31
	2021 Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ - $ 306 - (306)	2020
		Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ 1,479 $ - (1,479) -

• 2) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. The Company’s credit risk primarily comes from accounts receivable generated from operating activities, bank deposits generated from investing activities, fixed income investments and other financial instruments. Operation related credit risk and financial credit risk are managed separately.

Operation - related credit risk

The Company has established procedures to manage operation related credit risk to maintain the quality of accounts receivable.

• 63 -

To assess the risk of individual customers, the Company consider into the financial condition of the customers, the credit rating agency rating, the Company’s internal credit rating, transaction history and current economic conditions and many other factors that may affect the repayment. Sometimes, the Company uses certain credit enhancement tools to reduce the credit risk of specific customers.

Since the customers of the aviation industry are dispersed and non-related, the credit risk concentration is not critical.

Financial credit risk

Credit risk on bank deposits, fixed income investments and other financial instruments are measured and monitored by the Company’s finance department. The Company’s counterparties and other parties are well-performing banks and financial institutions, corporations, and government agencies, and so the risk of counterparties failing to discharge an obligation is low; therefore, there is no significant credit risk.

Endorsements given by the Company on behalf of its subsidiaries can be found in Note 30(g).

• 3) Liquidity risk

The objective of the Company’s management of liquidity is to maintain cash and cash equivalents sufficient for operating purposes, marketable securities with high liquidity and loan commitments that are sufficient to ensure that the Company has adequate financial flexibility.

Liquidity and interest risk rate table

The following table shows the remaining contractual maturity analysis of the Company’s financial liabilities with agreed-upon repayment periods, which were based on the date the Company may be required to pay the first repayment and financial liabilities is evaluated based on undiscounted cash flows, including cash flows of interest and principal.

Bank loans with a repayment on demand clause were included in the second column of the table below regardless of whether or not the banks would choose to exercise early their rights to repayment. The maturity dates for other non-derivative financial liabilities were based on the agreed-upon repayment dates. The Company’s liquidity analysis for its derivative financial instruments is also shown in the following table. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross cash inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by yield curves at the end of the reporting period.

• 64 -

December 31, 2021

The Weighted Average Effective Interest Rate (%) Lease liabilities 1.6254 Floating interest rate liabilities 0.8719 Hedging instruments 2.9022 Bonds payable 1.4686	Less than 1 Year $ 892,433 9,093,638 9,375,841 2,740,146 $ 22,102,058	1 to 5 Years $ 2,397,555 66,508,245 28,118,375 12,303,091 $ 109,327,266	Over 5 Years $ 9,732,481 11,061,580 1,532,555 - $ 22,326,616

December 31, 2020

The Weighted Average Effective Interest Rate (%) Less than 1 Year Lease liabilities 1.6265 $ 915,897 Floating interest rate liabilities 0.9102 15,559,492 Hedging instruments 3.0492 9,249,609 Bonds payable 1.2311 12,685,204 $ 38,410,202 Loan commitments Undrawn bank loan commitments (unsecured)		1 to 5 Years Over 5 Years $ 2,778,984 $ 9,929,842 54,822,466 14,752,347 32,978,809 1,815,449 9,303,608 1,280,779 $ 99,883,867 $ 27,778,417 December 31
		2021 2020 $ 24,164,000 $ 21,559,000

30. TRANSACTIONS WITH RELATED PARTIES

Besides information disclosed elsewhere in the other notes, details of transactions between the Company and other related parties are disclosed below:

• a. Related party name and relationship

Related Party Name Taiwan Aircargo Terminal Company Taoyuan International Airport Service Co., Ltd. Sabre Travel Network (Taiwan), Ltd. Taiwan Airport Service Co., Ltd. Taiwan Airport Service (Samoa)	Relationship with the Company
	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary (Continued)

• 65 -

Related Party Name Dynasty Aerotech International Corp. Yestrip Global Sky Express Mandarin Airlines CAL Park CAL Hotel Co., Ltd. CAL-Asia Investment CAL-Dynasty International Inc. Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd. Kaohsiung Catering Services China Aircraft Service Airport Air Cargo Terminal (Xiamen) Co., Ltd. Airport Air Cargo Service (Xiamen) Co., Ltd. Eastern United International Logistics (Hong Kong) Dynasty Holidays, Inc. China Pacific Catering Services China Pacific Laundry Services NORDAM Asia Ltd. Delica International Co., Ltd. China Aviation Development Foundation Others

Relationship with the Company

Subsidiary Subsidiary (the liquidation was completed in April 2021) Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Associate Associate Associate Associate Associate Joint venture Joint venture Joint venture Joint venture Director of the Company and major shareholder Director, key management personnel, chairman, general manager of the Company, spouse and second-degree relative (Concluded)

• b. Operating income

Account Items Related Party Type Other income Subsidiary Major shareholder of the Company Associate Joint venture Purchases of goods Related Party Type Subsidiary Major shareholder of the Company Associate Joint venture	For the Year Ended	For the Year Ended	For the Year Ended	December 31
	2021 $ 211,470 $ 12,634 $ 56 $ 20,365 **For the Year Ended **			2020 $ 696,100 $ 5,097 $ 122 $ 22,445 **December 31 **
		2021 $ 2,860,980 $ 28,574 $ 536,086 $ 221,802	2020 $ 2,611,679 $ 11,417 $ 457,005 $ 516,347

• c. Purchases of goods

• 66 -

• d. Accounts receivable - related parties (generated by operations)

Related Party Type Subsidiary Joint venture Major shareholder of the Company		December 31	December 31
		2021 $ 52,126 1,563 785 $ 54,474	2020 $ 99,757 1,667 - $ 101,424

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

• e. Accounts payable - related parties (generated by operations)

Related Party Type Subsidiary Associate Joint venture Major shareholder of the Company		December 31	December 31
		2021 $ 603,265 68,826 59,930 1,816 $ 733,837	2020 $ 459,667 52,187 76,380 - $ 588,234

The remaining balance of accounts payable - related parties will be paid in cash if they are not secured.

• f. Lease arrangements (operating leases)

The Company rented out planes to Mandarin Airlines under an operating lease contract. The monthly rental received is based on flight hours. For the years ended December 31, 2021 and 2020, the rentals received amounted to $606,176 thousand and $384,080 thousand, respectively.

Under an operating lease agreement, the Company rented flight training machines and flight simulators from China Aviation Development Foundation to train pilots. The Company paid the rental based on usage hours. For the years ended December 31, 2021 and 2020, the Company paid rentals of $28,574 thousand and $11,417 thousand, respectively.

In March 2010, the Company signed a yearly renewable operating lease agreement to use the Operating and Aviation Headquarters building of the Taiwan Taoyuan International Airport with CAL Park. For the years ended December 31, 2021 and 2020, the Company paid rentals of $215,098 thousand and $207,003 thousand, respectively.

• g. Endorsements and guarantees

The Company CAL Park Tigerair Taiwan Taiwan Air Craft Maintenance	**December 31 **	**December 31 **
	2021 Amount Endorsed Amount Utilized $ 3,850,000 $ 1,663,320 2,590,360 258,454 2,000,000 1,459,000	2020
		Amount Endorsed Amount Utilized $ 3,850,000 $ 1,892,540 2,656,591 265,062 2,000,000 1,336,000

• 67 -

h. Bonds payable - related parties

Related parties that invested in the first issue of unsecured bonds in 2016 (refer to Note 19) were summarized as follows:

Related Party The first issue of unsecured bonds in 2016 Mandarin Airlines Sabre Travel Network (Taiwan)	December 31, 2020
	Units Aggregate Par/Dollars 125 $ 125,000 25 25,000

For the year ended December 31, 2020, the interest expense was $2,499 thousand. As of December 31, 2020 the interest payable was $1,071 thousand. This bonds payable had been paid off in May 2021.

• i. Remuneration of key management personnel

Short-term employee benefits Post-employment benefits	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2021 $ 42,093 42,123 $ 84,216	2020 $ 33,376 2,525 $ 35,901

The remuneration of directors and key executives, as determined by the remuneration committee, is based on the performance of individuals and market trends.

31. ASSETS PLEDGED AS COLLATERAL FOR SECURITY

The following assets were pledged or mortgaged as collateral for long-term bank loans, lease liabilities and business transactions:

Property, plant and equipment Right-of-use assets		**December 31 **	**December 31 **
		2021 $ 27,994,773 50,965,378 $ 78,960,151	2020 $ 30,113,171 54,555,761 $ 84,668,932

• 68 -

32. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

In addition to those disclosed in the other notes, significant commitments and contingent liabilities of the Company at December 31, 2021 were as follows:

• a. In October 2019, the Company signed a contract with Airbus S.A.S. to purchase eleven A321neo aircraft and an option to purchase five A321neo aircraft. The total list price of the eleven aircraft is US$1,676,413 thousand, and the list price of the option to purchase five aircraft is US$769,922 thousand. The expected delivery periods of the eleven aircraft are from 2024 to 2026. As of December 31, 2021, the list price had been paid in the amount of US$32,578 thousand (recognized as prepayments for aircraft). In October 2019, the Company signed a contract with International Aero Engines Company to purchase four backup engines of A321neo. The total list price of the four engines is US$60,289 thousand. As of December 31, 2021, one backup engine has been delivered, for details please refer to Note 19.

• b. In July and August 2019, the Company signed a contract with the Boeing Company to purchase three 777F aircraft and exercised the option to purchase three 777F aircraft. The expected delivery periods are from 2020 to 2023. In January 2022, the Company signed an additional contract with the Boeing Company to purchase another four 777F aircraft. The expected delivery periods are from 2023 to 2024. The total list price of the ten aircraft is US$3,914,818 thousand. As of December 31, 2021, three out of ten aircraft have been delivered. The total list price of the remaining seven aircraft is US$1,172,357 thousand, and the list price has been paid in the amount of US$234,471 thousand (recognized as prepayments for aircraft).

33. IMPACT OF COVID-19

Since the outbreak of the Covid-19 in January 2020, the coronavirus has become a pandemic. The pandemic has now spread around the world and most countries have not removed their travel restrictions. Because the number of inbound and outbound passengers has decreased significantly, the Company adjusts the proportion between passenger aircraft and cargo aircraft used in operations to comply with the government’s epidemic prevention policy and cater to market demand. The Company reduces the frequency of passenger air services that have been severely affected, uses the passenger aircraft to support the cargo flight arrangement and expands the function of all-cargo aircraft to maximize the opportunities from air cargo business. Since March 2020, cargo has become the main source of revenue for the Company.

The Company continues to adjust the response measures according to the situation. In addition, to ensure the adequate liquidity, the Company also implements measures for human resource management such as postponing the hiring of newcomers, relaxing the application of special leave, loosening the restrictions on leave without pay, encouraging employees to take leave, adjusting working hours and salaries, etc. The Company’s policies to control spending include suspension of non-urgent capital expenditures, reduction in unnecessary expenses for administrative management and sales, negotiation with suppliers for a lower price and postponement of payments.

For the years ended December 31, 2021 and 2020, because of the COVID-19 pandemic, the Company received subsidies of $1,425,517 thousand and $1,251,632 thousand, respectively, for airport landing fees and parking fees, etc. The subsidies for housing and land rental, and salary and interest expense were $933,457 thousand and $745,820 thousand, respectively. These subsidies were recognized as other income or deduction from other expenses.

The Company has obtained relief loan from the government. Refer to Note 17 for details on the amount of loan and its allocation.

• 69 -

34. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company and the exchange rates between foreign currencies and respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

(In Thousands of Foreign Currencies)

December 31, 2021

		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	1,067,289	27.7008	$ 29,564,749
EUR		24,699	31.4465	776,692
HKD		545,975	3.5499	1,938,155
JPY		4,949,258	0.2407	1,191,286
RMB		751,761	4.3459	3,267,076
Financial liabilities
Monetary items
USD		1,846,834	27.7008	51,158,785
EUR		3,724	31.4465	117,113
HKD		65,519	3.5499	232,587
JPY		2,806,634	0.2407	675,557
RMB		107,893	4.3459	468,894
December 31, 2020
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	640,411	28.4091	$ 18,193,504
EUR		18,246	34.8432	635,752
HKD		338,880	3.6603	1,240,403
JPY		3,417,972	0.2750	939,942
RMB		546,452	4.3440	2,373,786
Financial liabilities
Monetary items
USD		1,927,625	28.4091	54,762,089
EUR		6,513	34.8432	226,949
HKD		72,397	3.6603	264,994
JPY		2,986,256	0.2750	821,220
RMB		136,957	4.3440	594,941

• 70 -

For the years ended December 31, 2021 and 2020, the Company’s net foreign exchange gains (losses) were $(123,671) thousand and $259,796 thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions.

35. ADDITIONAL DISCLOSURES

• a. Following are the additional disclosures required by the Securities and Futures Bureau for the Company and its investees:

• 1) Financing provided to others: Table 1 (attached).

• 2) Endorsements/guarantees provided: Table 2 (attached).

• 3) Marketable securities held: Table 3 (attached).

• 4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: Table 4 (attached).

• 5) Acquisitions of individual real estates at costs of at least NT$100 million or 20% of the paid-in capital: None.

• 6) Disposals of individual real estates at 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 the paid-in capital: Table 5 (attached).

• 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 6 (attached).

• 9) Names, locations, and related information of investees over which the Company exercises significant influence: Table 7 (attached).

• 10) Trading in derivative instruments: Notes 7 and 29.

• b. Information on investments in mainland China: Table 8 (attached).

• c. Information of major shareholders: Table 9 (attached).

36. SEGMENT INFORMATION

The Company mainly engages in air transportation services for passengers, cargo and others. The major revenue-generating asset is its aircraft fleet, which is jointly used for passenger and cargo services. Thus, the Company’s sole reportable segment is flight segment. For the disclosure of operating segment in the consolidated financial statements, the reportable segment of the Group comprises flight and non-flight business departments. The related information of reportable segment has been disclosed in the consolidated financial statements.

• 71 -

TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2021 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Lender	Borrower	Financial Statement Account	Related Party	Highest Balance for the Period	Ending Balance	Actual Amount Borrowed	Interest Rate (%)	Nature of Financing	Business Transaction Amount	Reasons for Short-term Financing	Allowance for Impairment Loss	Collateral	Collateral	Financing Limit for Each Borrower	Aggregate Financing Limit	Note
													Item	Value
1	Cal-Dynasty International	Dynasty Hotel of Hawaii, Inc.	Notes receivable	Y	$ 100,000	$ 96,953	$ 96,953	2.25	Short-term financing facility is necessary	$ -	Operating cycle capital expenditure	$ -		$ -	$ 141,266	$ 282,532

Note 1: The maximum amount of loans to others by the Company is up to 40% of the Company's net worth as stated in its latest financial statements.

Note 2: The maximum amount of loans to an individual counterparty by the Company is up to 20% of the Company's net worth as stated in its latest financial statements.

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TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES

ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2021 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorsor/ Guarantor	Endorsee/Guarantee	Endorsee/Guarantee	Limit on Endorsement/ Guarantee Given on Behalf of Each Party (Note 1)	Maximum Amount Endorsed/ Guaranteed During the Period	Outstanding Endorsement/ Guarantee at the End of the Period	Actual Amount Borrowed	Amount Endorsed/ Guaranteed by Collateral	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Aggregate Endorsement/ Guarantee Limit (Note 2)	Endorsement/ Guarantee Given by Parent on Behalf of Subsidiaries	Endorsement/ Guarantee Given by Subsidiaries on Behalf of Parent	Endorsement/ Guarantee Given on Behalf of Companies in Mainland China
		Name	Relationship
0	China Airlines (the “Company”)	CAL Park Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd.	100% owned subsidiary 82.27% owned subsidiary by direct and indirect holdings 100% owned subsidiary	$ 14,808,715 14,808,715 14,808,715	$ 3,850,000 2,671,771 2,000,000	$ 3,850,000 2,590,360 2,000,000	$ 1,663,320 258,454 1,459,000	$ - - -	5.20 3.50 2.70	$ 37,021,787 37,021,787 37,021,787	Y Y Y	N N N	N N N

Note 1: Based on the Company’s guidelines, the maximum amount of guarantee to an individual counterparty is up to 20% of the Company’s shareholders’ equity.

Note 2: Based on the Company’s guidelines, the allowable aggregate amount of collateral guarantee is up to 50% of the Company’s shareholders’ equity.

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TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2021

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name	Type and Name of Marketable Securities	Relationship with the Holding Company	Financial Statement Account		December 31, 2021	December 31, 2021		Note
				Number of Shares/Units	Carrying Amount	Percentage of Ownership (%)	Market Value or Net Asset Value
China Airlines (“Parent company”) Mandarin Airlines Cal-Asia Investment Sabre Travel Network (Taiwan) Taiwan Airport Services Dynasty Aerotech International Corp. Kaohsiung Catering Services Tiger Taiwan Co., Ltd.	Shares Everest Investment Holdings Ltd. - ordinary shares Everest Investment Holdings Ltd. - preference shares Chung Hua Express Co. Jardine Air Terminal Services The Grand Hi Lai Hotel Shares China Airlines Shares Taikoo (Xiamen) Landing Gear Services Taikoo Spirit Aerospace Systems (Jinjiang) Composite Beneficiary certificates FSITC Money Market Fund Shares TransAsia Airways Beneficiary certificates Taishin 1699 Money Market Fund Beneficiary certificates Prudential Financial Money Market Fund Taishin 1699 Money Market Fund Government bond Philippines government bond	- - - - - Parent company - - - - - - - -	Financial assets at FVTOCI - non-current Financial assets at FVTOCI - non-current Financial assets at FVTOCI - non-current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTOCI - non-current Financial assets at FVTPL - current Financial assets at FVTOCI - non-current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at amortized cost - current	1,359,368 135,937 1,100,000 12,000,000 4,021 2,074,628 - - 273,999 2,277,786 349,523 5,407,832 1,106,807 -	$ 24,231 2,423 28,804 - - 57,156 - 12,426 49,379 - 4,781 86,480 15,140 552	13.59 - 11.00 15.00 0.02 - 2.59 5.45 - 0.40 - - - Not applicable	$ 26,654 - 28,804 - - 57,156 - 12,426 49,379 - 4,781 86,480 15,140 552	Note 1 - - - - - Note 2 Note 2 - - - - - -

Note 1: The subsidiary’s net asset value was $26,654 thousand, which included ordinary shares and preference shares as of December 31, 2021.

Note 2: The Company does not issue shares because it is a limited company.

Note 3: The table only lists financial assets that are in accordance with IFRS 9.

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TABLE 4

CHINA AIRLINES, LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED OR DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2021

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Type and Name of Marketable Securities (Note 1)	Financial Statement Account	Counterparty (Note 2)	Relationship (Note 2)	Beginning Balance	Beginning Balance	Acquisition (Note 3)	Acquisition (Note 3)		Disposal (Note 3)	Disposal (Note 3)		Ending	Balance
					Number of Shares	Amount	Number of Shares	Amount	Number of Shares	Amount	Carrying Amount	Gain (Loss) on Disposal	Number of Shares	Amount
China Airlines, Ltd. (the “Company”)	Mandarin Airlines Tiger Taiwan Co., Ltd.	Investment accounted for using the equity method Investment accounted for using the equity method	Mandarin Airlines Tiger Taiwan Co., Ltd.	Subsidiary Subsidiary	- -	$ - -	- -	$ - -	- -	$ - -	$ - -	$ - -	- -	$ - -

Note 1: Marketable securities included shares, bonds, beneficiary certificates and marketable securities derived from the above stated items.

Note 2: Marketable securities recognized as investments accounted for using the equity method shall be included in these two columns, others are exempt.

• Note 3: Accumulated acquisition and disposal amount should be evaluated separately whether it reaches NT$300 million or 20% of the paid-in capital by their market value.

• Note 4: Paid-in capital is the parent company’s paid-in capital. When the issuer issues shares without face value or face value other than NT$10, according to the policy for the transaction price of 20% of the paid-in capital, it is calculated based on 10% of the equity attributable to the owner of the parent company in balance sheets.

• 75 -

TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2021

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Related Party	Relationship		Transaction Details	Transaction Details		Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable or Payable	Notes/Accounts Receivable or Payable	Note
			Purchase/ Sale	Amount	% of Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% of Total
China Airlines, Ltd. (“China Airlines”) Mandarin Airlines Cal Hotel	Dynasty Aerotech International Corp. Cal Hotel Co., Ltd. Mandarin Airlines Taiwan Air Cargo Terminal Taoyuan International Airport Service Global Sky Express Tigerair Taiwan Co., Ltd. CAL Park Taiwan Aircraft Maintenance and Engineering Co., Ltd. Eastern United International Logistics China Pacific Catering Services Taiwan Airport Services Tigerair Taiwan Co., Ltd. CAL Park	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee Equity-method investee Same parent company Same parent company Same parent company	Purchase Purchase Sale Purchase Purchase Sale Sale Sale Purchase Purchase Purchase Purchase Purchase Purchase	$ 363,578 138,264 ( 127,598) 747,778 1,113,547 ( 201,463) ( 147,001) 215,222 149,036 478,437 204,687 120,005 164,165 106,157	0.34 0.13 (0.10) 0.70 1.05 (0.15) (0.11) 0.2 0.14 0.45 0.19 3.53 0.15 73.25	2 months 1 month 2 months 30 days 40 days 15 days 1 month 2 months 2 months 2 months 90 days 1 month 1 month 1 month	$ - - - - - - - - - - - - - -	- - - - - - - - - - - - - -	$ ( 37,949) ( 29,503) 26,347 ( 62,743) ( 251,044) 11,320 - - ( 55,763) ( 57,497) ( 56,930) (965) - (128)	(2.43) (1.89) 1.69 (4.02) (16.08) 0.08 0.00 0.00 (0.41) (3.68) (3.65) (3.37) 0.00 (0.68)	- - - - - - - - - - - - - -

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TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2021

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Related Party	Relationship	Ending Balance	Turnover Rate	Overdue	Overdue	Amounts Received in Subsequent Period	Allowance for Impairment Loss
					Amount	Action Taken
Mandarin Airlines Taoyuan International Airport Service	China Airlines China Airlines	Parent company Parent company	$ 154,849 251,044	Note 4.77	$ - -	- -	$ 152,307 251,044	$ - -

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

• 77 -

TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE FOR THE YEAR ENDED DECEMBER 31, 2021

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Business and Product	Original Investment Amount	Original Investment Amount	As of	December 31, 2021	December 31, 2021	Net Income (Loss) of the Investee	Share of profit (Loss)	Note
				December 31, 2021	December 31, 2020	Number of Shares	Percentage of Ownership (%)	Carrying Amount
China Airlines, Ltd. Mandarin Airlines CAL-Asia Investment Taiwan Airport Services Kaohsiung Catering Services	CAL Park Mandarin Airlines Taiwan Air Cargo Terminal Cal-Dynasty International China Pacific Catering Services Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) China Aircraft Service Taiwan Airport Services Kaohsiung Catering Services Cal Hotel Co., Ltd. China Pacific Laundry Services Dynasty Aerotech International Corp. Yestrip Dynasty Holidays Global Sky Express Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd. NORDAM Asia Ltd. Tigerair Taiwan Co., Ltd. Taiwan Airport Services Eastern United International Logistics Taiwan Airport Service (Samoa) Delica International Co., Ltd.	Taoyuan, Taiwan Taipei, Taiwan Taoyuan, Taiwan Los Angeles, USA Taoyuan, Taiwan Taoyuan, Taiwan Territory of the British Virgin Islands Taipei, Taiwan Hong Kong International Airport Taipei, Taiwan Kaohsiung, Taiwan Taoyuan, Taiwan Taoyuan, Taiwan Taoyuan, Taiwan Taipei, Taiwan Tokyo, Japan Taipei, Taiwan Taipei, Taiwan Taoyuan, Taiwan Taoyuan, Taiwan Taipei, Taiwan Taipei, Taiwan Hong Kong Samoa Kaohsiung, Taiwan	Real estate lease and international trade Air transportation and maintenance of aircraft Air cargo and storage A holding company, real estate and hotel services In-flight catering Airport services General investment Sale and maintenance of hardware and software Airport services Airport services In-flight catering Hotel business Cleaning and leasing of the towel of airlines, hotels, restaurants and health clubs Cleaning of aircraft and maintenance of machine and equipment Travel business Travel business Forwarding and storage of air cargo Air transportation and maintenance of aircraft Aircraft maintenance Aircraft maintenance Air transportation and maintenance of aircraft Airport services Forwarding and storage of air cargo Airport services and investment Catering business	$ 1,500,000 4,039,140 1,350,000 US$ 26,145 439,110 147,000 US$ 7,172 52,200 HK$ 58,000 12,289 383,846 465,000 137,500 77,270 - JPY 8,000 2,500 5,640,197 1,350,000 37,975 154,330 11,658 HK$ 3,329 US$ 5,877 10,200	$ 1,500,000 2,042,368 1,350,000 US$ 26,145 439,110 147,000 US$ 7,172 52,200 HK$ 58,000 12,289 383,846 465,000 137,500 77,270 26,265 JPY 20,400 2,500 3,109,907 1,350,000 37,975 154,330 11,658 HK$ 3,329 US$ 5,877 10,200	150,000,000 387,831,234 135,000,000 2,614,500 43,911,000 34,300,000 7,172,346 13,021,042 28,400,000 20,626,644 21,494,637 46,500,000 13,750,000 77,270 - 160 250,000 313,631,656 70,000,000 3,797,500 15,433,000 469,755 1,050,000 - 1,020,000	100.00 96.96 54.00 100.00 51.00 49.00 100.00 93.93 20.00 47.35 53.67 100.00 55.00 100.00 100.00 20.00 25.00 78.41 100.00 49.00 3.86 1.08 35.00 100.00 51.00	$ 1,656,167 1,787,355 1,691,853 1,169,505 533,251 613,697 514,959 190,694 - 137,378 381,148 335,242 120,876 147,608 - - 7,630 2,955,909 557,918 28,836 145,453 3,125 52,147 406,340 7,867	$ 17,182 (1,565,065) 542,784 10,237 (338,326) 40,319 50,423 (44,817) (1,347,865) (125,763) (70,287) (70,040) (53,487) 48,620 - (7,181) 7,748 (2,269,379) (141,846) (18,227) (2,269,379) (125,763) 43,480 32,655 4	$ 59,549 (1,484,975) 293,078 10,954 (172,546) 19,756 50,423 (42,097) (269,573) (59,549) (48,695) (70,111) (29,418) 48,649 - (1,436) 1,937 (1,740,148) (141,875) (8,931) (113,068) (1,354) 15,218 32,655 2	Note 4 Notes 1 and 4 - Note 2 - - - - - - Note 5 Note 4 - Note 4 - - - Note 4 Note 4 - - - - Note 3 -

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

Note 2: Represents the consolidated financial information of the foreign holding company disclosed in accordance with local regulations.

Note 3: The Company does not issue shares because it is a limited company.

Note 4: The difference is due to lease arrangement between consolidated entities.

Note 5: The difference is due to acquisition.

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TABLE 8

CHINA AIRLINES, LTD. AND SUBSIDIARIES

INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2021 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

China Airlines

Investee Company	Main Businesses and Products	Main Businesses and Products	Paid-in Capital	Method of investment	Method of investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2021	Remittance of Funds	Remittance of Funds	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2021	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss)	Carrying Amount as of December 31, 2021	Accumulated Repatriation of Investment Income as of December 31, 2021
							Outward	Inward
Airport Air Cargo Terminal (Xiamen) Co., Ltd. Airport Air Cargo Service (Xiamen) Co., Ltd. Taikoo (Xiamen) Landing Gear Services Taikoo Spirit Aerospace Systems (Jinjiang)	Forwarding and storage of air cargo Forwarding and storage of air cargo Landing gear maintenance services Composite material		$ 1,105,954 (RMB 254,480) 60,843 (RMB 14,000) 2,301,662 (US$ 83,090) 323,075 (US$ 11,663)	Indirect (Note 1) Indirect (Note 1) Indirect (Note 1) Indirect (Note 1)		$ 115,955 (US$ 4,186) 53,946 (US$ 1,947) 59,590 (US$ 2,151) 17,618 (US$ 636)	$ - - - -	$ - - - -	$ 115,955 (US$ 4,186) 53,946 (US$ 1,947) 59,590 (US$ 2,151) 17,618 (US$ 636)	$ 130,500 (RMB 30,106) 102,619 (RMB 23,674) - -	14.00 14.00 2.59 5.45	$ 18,264 (RMB 4,215) 14,362 (RMB 3,314) - -	$ 256,967 (RMB 59,128) 149,504 (RMB 34,401) - 12,426 (RMB 2,859)	$ 97,966 (US$ 3,537) (Note 2) 43,228 (US$ 1,561) (Note 2) - 9,875 (US$ 357)
Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2021		Investment Amount Authorized by the Investment Commission, MOEA			Upper Limit on the Amount of Investments Stipulated by the Investment Commission, MOEA
$247,109 (US$8,920)		$604,181 (Note 3)			$46,323,011 (Note 4)

(Continued)

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Taiwan Airport Services

Investee Company	Main Businesses and Products	Main Businesses and Products	Paid-in Capital	Method of Investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2021	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2021	Remittance of Funds	Remittance of Funds	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2021	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss)	Carrying Amount as of December 31, 2021	Accumulated Repatriation of Investment Income as of December 31, 2021
							Outward	Inward
Airport Air Cargo Terminal (Xiamen) Co., Ltd. Airport Air Cargo Service (Xiamen) Co., Ltd.	Forwarding and storage of air cargo Forwarding and storage of air cargo		$ 1,105,954 (RMB 254,480) 60,843 (RMB 14,000)	Indirect (Note 5) Indirect (Note 5)	$ 111,312 (US$ 4,018) 53,373 (US$ 1,927)		$ - -	$ - -	$ 111,312 (US$ 4,018) 53,373 (US$ 1,927)	$ 130,500 (RMB 30,106) 102,619 (RMB 23,674)	14.00 14.00	$ 18,270 (RMB 4,215) 14,367 (RMB 3,314)	$ 256,091 (RMB 58,888) 149,467 (RMB 34,421)	$ 125,793 (US$ 4,541) 57,945 (US$ 2,092)
Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2021		Investment Amounts Authorized by the Investment Commission, MOEA				Upper Limit on the Amount of Investment Stipulated by Investment Commission, MOEA
$164,684 (US$5,945)		$164,684 (US$5,945)				$174,080 (Note 4)

Note 1: The Company invested in CAL-Asia Investment, which invested in a company located in mainland China.

Note 2: As of December 31,2021, the inward remittance of earnings amounted to US$3,536,561 and US$1,560,538.

Note 3: The amount comprised US$19,828,324, RMB4,200,000 and NT$36,666,667.

Note 4: The limit stated in the Investment Commission’s regulation “The Review Principle of Investment or Technical Cooperation in Mainland China” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.

Note 5: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which invested in a company located in mainland China.

Note 6: The RMB and U.S. dollar amounts of assets are converted at period-end rates and the gains (losses) are converted at the average of the period-end rates for the reporting period.

(Concluded)

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TABLE 9

CHINA AIRLINES, LTD.

INFORMATION OF MAJOR SHAREHOLDERS DECEMBER 31, 2021

Name of Major Shareholder	Shares	Shares
	Number of Shares	Percentage of Ownership (%)
China Aviation Development Foundation (CADF) National Development Fund (NDF)	1,867,341,935 519,750,519	31.43 8.74

• Note 1: The information of major shareholders presented in this table is provided by the Taiwan Depository & Clearing Corporation based on the number of ordinary shares and preference shares held by shareholders with ownership of 5% or greater, that have been issued without physical registration (including treasury shares) by the Company as of the last business day for the current quarter. The share capital in the consolidated financial statements may differ from the actual number of shares that have been issued without physical registration because of different preparation basis.

• Note 2: If a shareholder delivers the shareholdings to the trust, the above information will be disclosed by the individual truster who opened the trust account. For shareholders who declare insider shareholdings with ownership greater than 10% in accordance with the Security and Exchange Act, the shareholdings include shares held by shareholders and those delivered to the trust over which shareholders have rights to determine the use of trust property. For information relating to insider shareholding declaration, please refer to Market Observation Post System.

• 81 -