CAL - Audit Report / Information 2019

China Airlines, Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018 and Independent Auditors’ Report

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2019 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard 10 “Consolidated Financial Statements.” Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we have not prepared a separate set of consolidated financial statements of affiliates.

Very truly yours,

CHINA AIRLINES, LTD.

Hsieh, Su-Chien March 18, 2020

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders China Airlines, Ltd.

Opinion

We have audited the accompanying consolidated financial statements of China Airlines, Ltd. and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. (collectively referred to as the “consolidated financial statements”)

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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 Consolidated Financial Statements section of our report. We are independent of the Group 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 consolidated financial statements for the year ended December 31, 2019. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The key audit matters in the audit of the consolidated financial statements of the Group are stated below:

Passenger Revenue Recognition

In accordance with IFRS 15 “Revenue from Contracts with Customers”, passenger sales are accounted for as contract liabilities before relevant transportation services are provided. After providing the related services, contract liabilities are reclassified to passenger revenue. For the year ended December 31, 2019, passenger revenue was NT$111,413,435 thousand. Refer to Notes 4 and 27 to the accompanying consolidated financial statements for related detailed information.

Since relevant sales can only be recognized as passenger revenue when passengers actually boarded, confirmation from each passenger holding the ticket who actually boarded involves a complicated process; therefore, we identified passenger revenue recognition as a key audit matter.

The main audit procedures that we performed included the following:

We understood and tested the internal control related to the process of revenue from passenger, including manual and automatic control.
We understood and tested the effectiveness of the information system related to the process of passenger revenue.
We sampled several flight tickets, which were flown and recognized as revenue, to verify whether the boarding date matched the date recorded on the tickets, from advanced sales tickets.

Initial Application of IFRS 16 (Leases) - Aircraft

In accordance with IFRS 16 “Leases”, aircraft leases initially classified as finance leases under IAS 17 should be recognized as Right-of-use assets and lease liabilities in the consolidated balances sheet. As of December 31, 2019, the carrying amount of Right-of-use assets and lease liabilities (including financial liabilities for hedging) relating to aircraft leases are NT$62,052,701 thousand and NT$60,114,778 thousand, respectively. Refer to Notes 4 and 21 to the accompanying consolidated financial statements for related detailed information.

China Airlines, Mandarin Airlines and Tigerair Taiwan leased ten 777-300ER planes, fifteen A330-300 planes, fifteen 737-800 planes, ten A320-200 planes, six ERJ190 planes and three ART72-600 planes for operation. Because the lease term of aircraft is higher and the amount of rental is higher, the percentage of right-of-use assets and lease liabilities of the aircraft in the consolidated balance sheets is high. The parameters and lease terms are determined by the management, and the calculation of the lease liabilities will affect the carrying amount and depreciation expense of the right-of-use assets and lease liabilities (including financial liabilities for hedging) relating to aircrafts. Therefore, we identified initial application of IFRS 16 - Aircrafts as a key audit matter.

The main audit procedures that we performed included the following:

We understood and tested the effectiveness of the information system related to the calculation of lease liabilities.
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We selected one of the rental payments schedule of the aircraft from the lease calculation system, to recalculate amount of the lease liabilities balance and financial cost and amortization of right-of-use, and related carrying amount. Also, we selected several aircraft lease contracts from the carrying amounts of aircraft lease liability, and checked if there was any difference between rental in the aircraft rental payment schedule and lease term in the contracted rentals. And we checked if the lease term used the rental payment schedule was consistent with the contract.

Other Matter Audit by Other Independent Auditors

We did not audit some subsidiaries which were included in the consolidated financial statements. The financial statements and disclosed information were audited by other independent auditors, and our audit opinion is based solely on the audit report of other independent auditors.

As of December 31, 2019, total assets of these subsidiaries amounted to NT$13,337,093 thousand dollars, representing 4.55% of the total assets. For the year ended December 31, 2019, revenue from these subsidiaries amounted to NT$9,513,321thousand dollars, representing 5.65% of the total revenue.

Other Matter Parent Company Only Financial Statements

We have also audited the parent company only financial statements of China Airlines, Ltd. as of and for the years ended December 31, 2019 and 2018 on which we have issued an unmodified opinion.

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’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 Group or to cease operations, or has no realistic alternative but to do so.

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated financial statements.

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:

Identify and assess the risks of material misstatement of the consolidated 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.
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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
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 Group’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 consolidated 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 Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group 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 consolidated financial statements for the year ended December 31, 2019 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.

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

Deloitte & Touche Taipei, Taiwan Republic of China

March 18, 2020

Notice to Readers

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

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

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4, 6, 19 and 33) Financial assets at fair value through profit or loss - current (Notes 4, 7 and 32) Financial assets at amortized cost (Notes 9 and 32) Financial assets for hedging - current (Notes 4 and 32) Notes and accounts receivable, net (Notes 4, 10 and 32) Notes and accounts receivable - related parties (Notes 32 and 33) Other receivables (Notes 4 and 32) Current tax assets (Notes 4 and 29) Inventories, net (Notes 4 and 11) Non-current assets held for sale (Notes 4, 5 and 12) Other assets - current (Notes 6 and 18) Total current assets NON-CURRENT ASSETS Financial assets at fair value through other comprehensive income - non-current (Notes 8 and 32) Financial assets at amortized cost (Notes 4 and 9) Investments accounted for using the equity method (Notes 4 and 14) Property, plant and equipment (Notes 4, 5, 15 and 35) Right-of-use assets (Notes 4, 21 and 35) Investment properties (Notes 4 and 16) Other intangible assets (Notes 4 and 17) Deferred income tax asset (Notes 4, 5 and 29) Other assets - non-current (Notes 18, 21, 32 and 34) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term debts (Note 19) Financial liabilities at fair value through profit or loss - current (Notes 4, 5, 7 and 32) Financial liabilities for hedging - current (Notes 4, 21 and 32) Notes and accounts payable (Note 32) Accounts payable - related parties (Notes 32 and 33) Other payables (Notes 22 and 32) Current tax liabilities (Notes 4 and 29) Lease liabilities - current (Notes 3, 4 and 21) Provisions - current (Notes 4 and 24) Contract liabilities - current (Note 23) Bonds payable and put option of convertible bonds - current portion (Notes 4, 20, 27 and 32) Loans and debts - current portion (Notes 19, 32 and 35) Capital lease obligations - current portion (Notes 4, 21, 32 and 35) Other current liabilities (Note 33) Total current liabilities NON-CURRENT LIABILITIES Derivative financial liabilities for hedging - non-current (Notes 3, 4, 21 and 33) Bonds payable - non-current (Notes 4, 20, 27 and 32) Loans and debts - non-current (Notes 19, 32 and 35) Contract liabilities - non-current (Notes 4 and 23) Provisions - non-current (Notes 4 and 24) Deferred tax liabilities (Notes 4 and 29) Lease liabilities - non-current (Notes 3, 4, 21 and 25) Capital lease obligations - non-current (Notes 4, 21, 32 and 35) Accrued pension costs (Notes 4, 5 and 25) Other non-current liabilities (Note 32) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 20 and 26) Share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated retained earnings (accumulated deficits) Total retained earnings Other equity Treasury shares Total equity attributable to owners of the Company NON-CONTROLLING INTERESTS (Note 26) Total equity TOTAL		2019 Amount % $ 28,459,528 10 512,192 - 2,355,095 1 9,626 - 8,520,834 3 10,348 - 774,206 - 54,689 - 8,470,113 3 - - 2,655,711 1 51,822,342 18 209,221 - 105,586 - 2,223,793 1 145,886,971 50 71,033,617 24 2,075,068 1 1,182,692 - 5,337,626 2 13,171,063 4 241,225,637 82 $ 293,047,979 100 $ 380,000 - 11,749 - 8,618,506 3 1,495,606 1 542,015 - 13,187,972 5 374,178 - 2,340,873 1 360,393 - 21,060,773 7 10,000,000 3 14,148,892 5 - - 3,830,570 1 76,351,527 26 42,420,205 15 22,052,625 8 53,514,891 18 2,236,311 1 10,011,464 3 557,142 - 15,801,724 5 - - 9,435,035 3 534,938 - 156,564,335 53 232,915,862 79 54,209,846 19 2,488,907 1 466,416 - 12,967 - (1,777,225) - (1,297,842) - 1,196,233 - (43,372) - 56,553,772 20 3,578,345 1 60,132,117 21 $ 293,047,979 100		2018
				Amount % $ 24,937,537 11 206,001 - 3,856,660 2 32,906 - 10,038,528 4 9,043 - 879,191 - 18,948 - 8,654,710 4 46,154 - 4,147,882 2 52,827,560 23 132,191 - - - 2,200,149 1 163,107,718 71 - - 2,075,345 1 1,210,796 1 5,152,070 2 3,430,753 1 177,309,022 77 $ 230,136,582 100 $ - - 221 - 560 - 1,594,487 1 532,815 - 14,146,198 6 164,181 - - - 321,075 - 19,546,455 9 4,445,900 2 15,709,487 7 633,398 - 3,855,115 2 60,949,892 27 - - 28,473,710 12 60,686,148 26 1,903,665 1 8,473,464 4 188,447 - - - 2,945 - 8,803,382 4 607,845 - 109,139,606 47 170,089,498 74 54,209,846 24 1,241,214 - 351,923 - 118,810 - 1,144,928 1 1,615,661 1 58,223 - (43,372) - 57,081,572 25 2,965,512 1 60,047,084 26 $ 230,136,582 100

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

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

REVENUE (Notes 4, 27 and 34) COSTS (Notes 4, 9, 11, 17, 24, 25, 27 and 34) GROSS PROFIT OPERATING EXPENSES (Notes 4, 25 and 27) OPERATING PROFIT NON-OPERATING INCOME AND LOSS Other income (Notes 4, 8 and 27) Other gains and losses (Notes 10, 12, 14, 15, 27 and 31) Finance costs (Notes 9, 27 and 32) Share of the profit of associates and joint ventures (Note 14) Total non-operating income and loss PRETAX PROFIT (LOSS) INCOME TAX EXPENSE (Notes 4, 5 and 29) NET (LOSS) INCOME OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: (Loss) gain on hedging instruments subject to basis adjustment (Notes 4, 27 and 33) Unrealized gain on investments in equity instruments designated as at fair value through other comprehensive income (Note 8) Remeasurement of defined benefit plans (Notes 4 and 26) Share of other comprehensive loss of associates and joint ventures accounted for using the equity method (Notes 4, 15 and 31) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 28)		2019 Amount % $ 168,444,160 100 151,757,232 90 16,686,928 10 14,021,107 8 2,665,821 2 718,988 - (473,812) - (3,340,119) (2) 332,305 - (2,762,638) (2) (96,817) - 578,185 - (675,002) - (17,705) - 79,392 - (781,793) - (32,102) - 145,166 - (607,042) -		2018
				Amount % $ 170,711,607 100 153,504,076 90 17,207,531 10 13,185,148 8 4,022,383 2 606,453 1 (534,848) - (1,379,985) (1) 367,246 - (941,134) - 3,081,249 2 808,565 1 2,272,684 1 23,884 - 930 - (851,866) - (33,242) - 187,881 - (672,413) - (Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (Notes 4 and 27) Gain on hedging instruments not subject to basis adjustment (Notes 4, 27 and 33) Income tax relating to items that may be reclassified subsequently to profit or loss (Note 28) Other comprehensive gain (loss) for the year, net of income tax TOTAL COMPREHENSIVE (LOSS) INCOME FOR THE YEAR NET INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interests EARNINGS PER SHARE (NEW TAIWAN DOLLARS; Note 30) Basic Diluted		2019 Amount % $ (72,952) - 1,411,623 - (268,871) - 1,069,800 - 462,758 - $ (212,244) - $ (1,199,798) (1) 524,796 1 $ (675,002) - $ (647,085) - 434,841 - $ (212,244) - $ (0.22) $ (0.22)		2018
				Amount % $ 26,567 - 85,341 - (17,858) - 94,050 - (578,363) - $ 1,694,321 1 $ 1,790,361 1 482,323 - $ 2,272,684 1 $ 1,258,035 1 436,286 - $ 1,694,321 1 $ 0.33 $ 0.32


				$
				$
		$		$
		$		$
		$		$

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

(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

		Equity Attributable to Owner	s of the Company
Share Capital Capital Surplus $ 54,709,846 $ 799,999 - - 54,709,846 799,999 - 409,978 - - - - - - - - - 630 - - - - - - - - - - (500,000 ) 30,607 - - 54,209,846 1,241,214 - - - - - - - - - 606 - 1,247,087 - - - - - - - - - - - - $ 54,209,846 $ 2,488,907	Retained Earnings Unappropriated Earnings (Accumulated Legal Reserve Special Reserve Deficits) $ 206,092 $ - $ 1,458,313 - - 60 206,092 - 1,458,373 - - - - - - 145,831 - (145,831 ) - 118,810 (118,810 ) - - (1,193,670 ) - - - - - 1,790,361 - - (645,495) - - 1,144,866 - - - - - - - - - - - - 351,923 118,810 1,144,928 - - - 114,493 - (114,493 ) - (105,843 ) 105,843 - - (1,136,278 ) - - - - - - - - (1,199,798 ) - - (577,427) - - (1,777,225) - - - - - - - - - $ 466,416 $ 12,967 $ (1,777,225)		Other Equity		Gain (Loss) on Treasury Shares Hedging Held by Instruments Subsidiaries $ - $ (43,372 ) (74,429) - (74,429 ) (43,372 ) - - 12,118 - - - - - - - - - - - 87,579 - 87,579 - - - - (469,393 ) - 469,393 - - 25,268 (43,372 ) (603 ) - - - - - - - - - - - - - 1,119,013 - 1,119,013 - - - - - - - $ 1,143,678 $ (43,372)
		Exchange Differences on Translating A Foreign Operations $ (34,986 ) - (34,986 ) - - - - - - - 25,322 25,322 - - - - (9,664 ) - - - - - - - (53,411) (53,411) - - 8,368 $ (54,707)	Unrealized Gain on Financial Asset at Unrealized Gain Fair Value (Loss) on Through Other vailable-for-sale Comprehensive Financial Assets Income C $ 1,774 $ - (1,774) 42,351 - 42,351 - - - - - - - - - - - - - - - 268 - 268 - - - - - - - - - 42,619 - - - - - - - - - - - - - - - 64,538 - 64,538 - - - - - 105 $ - $ 107,262	ash Flow Hedges $ (74,429 ) 74,429 - - - - - - - - - - - - - - - - - - - - - - - - - - - $ -

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

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CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) Income before income tax Adjustments for operating activities: Depreciation expenses Amortization expenses Expected credit loss recognized on trade receivables Net gain on fair value changes of financial assets and liabilities held for trading Interest income Dividend income Share of profit of associates and joint ventures (Gain) loss on disposal of property, plant and equipment Gain on disposal of investments accounted for using the equity method Loss on disposal of non-current assets held for sale Impairment loss on non-current assets held for sale Impairment loss recognized on property, plant, equipment Loss on inventories and property, plant and equipment Net (gain) loss on foreign currency exchange Finance costs Recognition of provisions Amortization of unrealized on sale - leasebacks Others Amortization of unrealized gain on sale-leasebacks Changes in operating assets and liabilities Financial assets mandatorily classified as at fair value through profit or loss Financial liabilities mandatorily classified as 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 Accrued pension liabilities Other liabilities Cash generated from operations Interest received Dividends received	2019 $ (96,817) 32,601,400 198,237 24,096 (27,580) (417,446) (21,422) (332,305) (32,460) (7,656) 10,462 - - 572,026 (59,987) 3,340,119 4,608,924 103,775 (1,484) - (278,741) 11,528 1,564,298 66,538 (49,138) (118,317) 548,156 (14,326) (224,931) (832,288) 1,847,286 (2,799,314) 202,815 (149,678) (5,155) 40,230,615 401,190 355,311	2018 $ 3,081,249 19,325,083 191,979 49,824 (11,168) (330,710) (9,603) (367,246) 270,597 (450,195) 368,992 75,437 50,000 623,022 298,787 1,379,985 3,386,052 - - (13,888) 269,682 (9,359) (1,304,948) 253,540 (100,400) (288,941) 15,763 993,434 (97,753) 535,211 3,256,101 (3,310,089) 73,958 (205,340) 2,698 28,001,754 301,465 228,636 (Continued)

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CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of amortized cost financial assets Disposal of amortized cost financial assets Proceeds from disposal of non-current assets held for sale Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in refundable deposits Decrease in refundable deposits Increase in prepayments for equipment Increase in long-term lease receivable Increase in computer software costs Decrease in restricted assets Proceeds from disposal of associates accounted for using the equity method Proceeds from acquisition of joint ventures accounted for using the equity method Net cash outflow on disposal of subsidiaries (Note 31) Acquisition of subsidiaries (Note 30) Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments for buy-back of ordinary shares Decrease in short-term debts Proceeds from issuance of bonds payable Repayments of bonds payable Proceeds from long-term borrowings Repayments of long-term borrowings and capital lease obligations Repayments of the principal portion of lease liabilities Proceeds from guarantee deposits received Refunds of guarantee deposits received Proceeds from sale - leasebacks Dividends paid to owners of the Company Cash dividends paid to non-controlling interests Net cash used in financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES	2019 $ (3,124,960) (335,544) 37,526,612 (2,089,871) 3,447,202 35,692 (3,316,078) 71,194 (440,443) 218,547 (15,658,898) - (172,639) 38,636 1,866,474 (35,525) (17,413) - (16,053,122) - 380,000 3,500,000 (4,445,900) 9,078,690 (17,819,750) (11,692,310) 180,360 (149,198) 4,905,660 (1,135,672) (416,438) (17,614,558) (336,941)	2018 $ (1,319,690) (185,208) 27,026,957 (3,460,496) 1,621,546 688,427 (4,608,600) 333,284 (265,335) 391,487 (14,991,412) (785) (184,223) 59,726 - - - 136,769 (20,279,612) (469,393) (120,000) 10,512,000 (2,700,000) 18,285,457 (28,587,288) - 126,578 (70,204) - (1,193,040) (171,019) (4,386,909) (8,231) (Continued)

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CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

NET INCREASE 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	2019 $ 3,521,991 24,937,537 $ 28,459,528	2018 $ 2,352,205 22,585,332 $ 24,937,537

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

(Concluded)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

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

The major shareholders of the Company are the China Aviation Development Foundation (CADF) and the National Development Fund (NDF), Executive Yuan. As of December 31, 2019 and 2018, CADF and NDF both held 44.03% of the Company’s shares.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) were approved by the Company’s board of directors on March 18, 2020.

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

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

Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC did not have material impact on the Group’s accounting policies:

IFRS 16 “Leases”

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessee and lessor. It supersedes IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, and a number of related interpretations. Refer to Note 4 for information relating to the relevant accounting policies.

Definition of a lease

The Group elected to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 are not be reassessed and accounted for in accordance with the transitional provisions under IFRS 16.

14 -

The Group as lessee

The Group recognizes right-of-use assets, or investment properties if the right-of-use assets meet the definition of investment properties, and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value and short-term leases are recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group presents the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities are classified within financing activities; cash payments for the interest portion are classified within operating activities. Prior to the application of IFRS 16, payments under operating lease contracts, including property interest qualified as investment properties, were recognized as expenses on a straight-line basis. Cash flows for operating leases were classified within operating activities on the consolidated statements of cash flows. Leased assets and finance lease payables were recognized on the consolidated balance sheets for contracts classified as finance leases.

Lease liabilities were recognized on January 1, 2019 for leases classified as operating leases under IAS 17. Lease liabilities are measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments. The Group applies IAS 36 to all right-of-use assets.

For leases classified as finance leases under IAS 17, the carrying amount of right-of-use assets and lease liabilities on January 1, 2019 was determined as the carrying amount of the leased assets and finance lease payables as of December 31, 2018.

If the Group determines that a sale and leaseback transaction does not satisfy the requirements of IFRS 15 to be accounted for as a sale of an asset, it is accounted for as a financing transaction. If it satisfies the requirements to be accounted for as a sale of an asset, the Group recognizes only the amount of any gain or loss which relates to the rights transferred to the buyer-lessor. Prior to the application of IFRS 16, the leaseback portion is classified as either a finance lease or an operating lease and accounted for differently.

The Group does not reassess sale and leaseback transactions entered into before January 1, 2019 to determine whether the transfer of an underlying asset satisfies the requirements in IFRS 15 to be accounted for as a sale. Upon initial application of IFRS 16, the aforementioned transitional provision for a lessee is applied to the leaseback portion. In addition, for asset accounted for as a sale and a finance lease under IAS 17, the Group continues to amortize any gains on sales over the lease term.

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The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 was 2.58%. The difference between the (i) lease liabilities recognized and (ii) operating lease commitments on December 31, 2018 is explained as follows:

The future minimum lease payments of non-cancellable operating lease
commitments on December 31, 2018

Undiscounted amount on January 1, 2019

Discounted amount using the incremental borrowing rate on January 1, 2019

Add: Finance lease payable on December 31, 2018
Add: Adjustments as a result of a different treatment of extension and termination
options
Add: Other
Less: Derivative financial instruments for hedging

Lease liabilities recognized on January 1, 2019

$ 78,030,370
$ 78,030,370
$ 67,420,164
633,775
8,191,127
1,970,829
(41,919,508)
$ 36,296,387

The Group as lessor

The Group does not make any adjustments to leases in which it is a lessor and accounts for those leases under IFRS 16 starting from January 1, 2019.

The impact on assets, liabilities and equity as of January 1, 2019 from the initial application of IFRS 16 is set out as follows:

As Originally
Stated on
January 1, 2019
Prepayments for leases
$ 861,045
Refundable deposits
1,089,690
Right-of-use assets
-
Property, plant and equipment
163,107,718

Total effect on assets
$ 165,058,453

Lease liabilities - current
$ -
Lease liabilities - non-current
-
Finance lease payables
633,775
Accrued rent payable
90
Financial liabilities for hedging - current
560
Financial liabilities for hedging - non-current
-

Total effect on liabilities
$ 634,425

Adjustments
Arising from
Initial
Application
Restated on
January 1, 2019
$ (861,045) $ -

(25,617)
1,064,073

78,499,374
78,499,374

(30,682)
163,077,036
$ 77,582,030
$ 242,640,483
$ 3,924,776 $ 3,924,776

32,371,611
32,371,611

(633,775)
-

(90)
-

5,947,449
5,948,009

35,972,059

35,972,059
$ 77,582,030
$ 78,216,455

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

Effective Date New IFRSs Announced by IASB Amendments to IFRS 3 “Definition of Business” January 1, 2020 (Note 1) Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark January 1, 2020 (Note 2) Reform” Amendments to IAS 1 and IAS 8 “Definition of Materiality” January 1, 2020 (Note 3)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: Business combinations that began after January 1, 2020 and acquisition of assets after the aforesaid date are subjected to the amendment.
Note 3: The amendment is applied for the annual period beginning after January 1, 2020.

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

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

Effective Date New IFRSs Announced by IASB (Note) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined by IASB between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 “Clarify the Classification of Liabilities as January 1, 2022 Current or Non-current”

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

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

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

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Basis of Preparation

The consolidated 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:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
2) 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
3) Level 3 inputs are unobservable inputs for an asset or liability.

Current and Non-current Assets and Liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;
2) Assets expected to be realized within 12 months after the reporting period; and
3) 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:

1) Liabilities held primarily for the purpose of trading;
2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and
3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

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

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company. Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statements of profit or loss and other comprehensive income from the effective dates of acquisitions up to the effective dates of disposals, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

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Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the interests of the Group and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company.

When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and any investment retained in the former subsidiary at its fair value at the date when control is lost and (ii) the assets (including any goodwill) and liabilities and any non-controlling interests of the former subsidiary at their carrying amounts at the date when control is lost. The Group accounts for all amounts recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required had the Group directly disposed of the related assets or liabilities.

Foreign Currencies

In preparing the consolidated financial statements of the Group, transactions in currencies other than the Company’s functional currency (i.e. 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 that are measured at historical cost in a foreign currency are not retranslated. 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.

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:

a. Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
b. Exchange differences on transactions entered into in order to hedge certain foreign currency risks.

Exchange differences arising on the retranslation of non-monetary items are included in profit or loss 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 purpose of presenting consolidated financial statements, the assets and liabilities of the Group’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. Exchange 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.

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Business Combinations

Where the consideration the Group transfers in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and considered as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments being made against goodwill or gains on bargain purchases. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period about facts and circumstances that existed as of the acquisition date.

When a business combination is achieved in stages, the Group’s previously held equity interest in an acquiree is remeasured to fair value at the acquisition date, and the resulting is recognized in profit or loss or other comprehensive income. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are recognized on the same basis as would be required if those interests were directly disposed of by the Group

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted retrospectively during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.

Inventories

Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations and items for in-flight sales 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 in Associates and Joint Ventures

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

The Group 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 are initially recognized at cost and adjusted thereafter to recognize the Group’s share of profit or loss and other comprehensive income of the associate and joint venture. The Group also recognizes the changes in the Group’s share of equity of associates and joint venture attributable to the Group.

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Any excess of the cost of acquisition over the Group’s share of net fair value of the identifiable assets and liabilities of an associate 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 Group’s share of net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When the Group subscribes for additional new shares of an associate and joint venture at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate and joint venture. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Group’s share of equity of associates and joint ventures. If the Group’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 Group’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 Group’s net investment in the associate and joint venture), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate and joint venture.

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 deducted from 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 Group discontinues the use of the equity method from the date on which its investment ceases to 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 the 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 the joint venture. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate and the joint venture on the same basis as would be required had that associate directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Group continues to apply the equity method and does not remeasure the retained interest.

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 Group 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, with the effects of any changes in the estimates accounted for on a prospective basis.

21 -

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

Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Investment Properties

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

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

Depreciation is recognized using the straight-line method. The estimated useful lives and residual values are reviewed at the end of each reporting period.

Any gain or loss arising on the derecognition of investment properties is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in which the property is derecognized.

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, with the effects of any changes in the estimates being accounted for on a prospective basis. The residual value of an intangible asset with a finite useful life shall be assumed zero unless the Group expects to dispose of the intangible asset before the end of its economic life.

Impairment of Tangible and Intangible Assets Other Than Goodwill

At the end of each reporting period, the Group 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 Group 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 Group 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.

22 -

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

1) Measurement category

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

a) Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified or designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. Fair value is determined in the manner described in Note 33.

b) Financial assets at amortized cost

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

i. The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
ii. The contractual terms of the financial asset 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.

23 -

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

The Group always recognizes lifetime expected credit losses (ECLs) for trade receivables and other receivables. For all other financial instruments, the Group recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Group 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 ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The 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 Group 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.

24 -

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

b. Equity instruments

Debt and equity instruments issued by the Group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

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

Repurchase of the Group’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 financial liabilities at FVTPL, 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.

Transaction costs that relate to the issue 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.

25 -
e. Derivative financial instruments

The Group 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 swaps and fuel swaps.

Derivatives are initially recognized at fair value at the date 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.

Hedge Accounting

The Company enters into some derivative transactions that aim to manage interest rates, foreign exchange rates, fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging transactions are defined as cash flow hedges. When entering into hedging transactions, the Company has prepared official documents that describe the hedging relationship between hedging instruments and items which have been hedged, the objective of risk management, the hedging strategy, and the way to evaluate the effectiveness of the hedging instrument.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is 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 a reclassification adjustment in the line item relating to the hedged item in the same period as when the hedged item affects profit or loss. If a hedge of a forecasted transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses that were recognized in other comprehensive income are removed from equity and are included in the initial cost of the non-financial asset or non-financial liability.

Starting from 2018, the Group 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 gain or loss accumulated in equity is recognized immediately in profit or loss.

Provisions

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

The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation, taking into account the risks and uncertainties surrounding the obligation as of the balance sheet date. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

26 -

Aircraft lease contracts

When an aircraft lease contracts expires and the leased item will be returned to the lessor, the Group will assess if there are existing obligations exist and if it is required to recognize a provision when signing the lease contract.

Revenue Recognition

When applying IFRS 15 during 2018, the Group 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 Group satisfies a performance obligation.

Shipping service revenue

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

Leasing

2019

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

The Group as lessee

The Group 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 consolidated 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 Group by the end of the lease terms or if the costs of right-of-use assets reflect that the Group will exercise a purchase option, the Group depreciates the right-of-use assets from the commencement dates to the end of the useful lives of the underlying assets.

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 Group uses the lessee’s incremental borrowing rate.

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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 Group remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. Lease liabilities are presented on a separate line in the consolidated balance sheets.

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

For sale and leaseback transactions, if the transfer of an asset satisfies the requirements of IFRS 15 to be accounted for as a sale, the Group 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.

2018

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

a. Financial leases

The Group as lessee

Assets held under finance leases are initially recognized as assets of the Company at the lower of their fair value at the inception of the lease or the present value of the minimum lease payments. The corresponding liability to the lessee is included in the balance sheets as a finance lease obligation.

Minimum lease payments are apportioned between finance expenses and reductions of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case, they are capitalized in accordance with the Company’s general policy on borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are incurred.

b. Sales and leasebacks

For a sale and leaseback transaction, if it meets the condition whereby all the risks and rewards of ownership of the leased asset are essentially transferred to the lessee, the sale and leaseback transaction is classified as a finance lease. If part of the significant risks and rewards of ownership of the leased asset remain with the lessor (i.e. the buyer), the sale and leaseback transaction is classified as an operating lease.

1) Financial leases

This transaction does not actually dispose of the assets. The accounting treatment used is to treat the transaction as if it did not occur, and the assets are continuously recognized at the book value of the asset before sale.

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2) Operating leases

If the selling price is equal to the fair value, the transaction gain or loss should be recognized immediately. If the selling price is above fair value, the difference between the fair value and the book value of the gain or loss should be recognized immediately; only the part of the selling price which is above fair value shall be deferred and amortized over the period of the lease.

c. Operating leases
1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the lessee’s benefit from the use of the leased asset.

2) The Group as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as expenses in the period in which they are incurred.

In the event that lease incentives are received when entering into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Employee Benefits

a. Short-term employee benefits

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

b. Retirement benefits

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

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

Net defined benefit liabilities (assets) represent the actual deficit in the Group’s defined benefit plans.

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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.

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

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

Frequent Flyer Programs

The Company has a “Dynasty Flyer Program” through which program members can convert accumulated mileage to a cabin upgrade, free tickets and other member rewards and operates a “Tigerclub Member Privilege Program” to provide members with accumulated ticket reward bonuses, which can be used to offset the payments for airfare, luggage fees, priority check-ins, and ordering of meals in flight cabins. A portion of passenger revenue attributable to the rewards for the frequent flyer program is deferred. The Company should 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 Group’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 consolidated statements of comprehensive income.

The Group’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, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve the retention of these earnings.

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

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b. Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated 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 Group 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 Group 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 JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

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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 causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Depreciation of Property, Plant and Equipment - Flight Equipment

Flight equipment is depreciated on a straight-line basis at rates that can be used to write down their cost to their estimated residual values at the end of their useful lives. The estimates of the useful lives and residual values of the flight equipment are made by the Group on the basis of past experience and fleet operation performance in the industry. Due to changes in the fleet plan, the board of directors of the Company has decided to change the expected useful lives of four 747-400 (GE) from 20 to 16-17 years since January 1, 2018 in order to meet the economic benefits and number of years of consumption. It is estimated that the depreciation expense will increase by approximately NT$770 million annually.

Defined Benefit Obligations

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

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
		2019 $ 483,951 7,206,938 16,565,821 4,202,818 $ 28,459,528	2018 $ 413,139 7,770,200 15,784,323 969,875 $ 24,937,537

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
	2019 2018 0%-1.9% 0%-1.9% 0.59%-3.55% 0.59%-3.55% 0.47%-0.7% 0.63%-3.30%

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7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)

Financial assets-current Financial assets mandatorily classified at FVTPL Derivative financial instruments (not under hedge accounting) Foreign exchange forward contracts Non-derivative financial assets Beneficial certificates Financial liabilities held for trading Derivative financial instruments (not under hedge accounting) - foreign exchange forward contracts		December 31	December 31
		2019 $ 434 511,758 $ 512,192 $ 11,749	2018 $ - 206,001 $ 206,001 $ 221

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

			Notional Amount
	Currency	Maturity Date	(In Thousands)
December 31, 2019
Buy forward contracts	NTD/USD	2020.01.15-2020.07.31	NTD570,571/USD19,000
December 31, 2018
Buy forward contracts	NTD/USD	2019.01.02-2019.01.31	NTD30,923/USD1,000

8. FINANCIAL ASSETS AT FVTOCI

Investments in Equity Instruments

Non-current Foreign investments Unlisted shares Domestic investments Unlisted shares		December 31	December 31
		2019 $ 182,356 26,865 $ 209,221	2018 $ 110,445 21,746 $ 132,191

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

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9. FINANCIAL ASSETS AT AMORTIZED COST

Current Time deposits with original maturities of more than 3 months Non-current Time deposits with original maturities of more than 1 year		December 31	December 31
		2019 $ 2,355,095 $ 105,586	2018 $ 3,856,660 $ -

The interest rates for time deposits with original maturities of more than 3 months ranged from 0.60% to 1.30% and 0.40% to 1.36% as of 2019 and 2018.

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable Accounts receivable Accounts receivable Less: Allowance for impairment loss		December 31	December 31
		2019 $ 299,245 8,440,254 (218,665) 8,221,589 $ 8,520,834	2018 $ 598,824 9,667,010 (227,306) 9,439,704 $ 10,038,528

The average credit period was 7 to 55 days. In determining the recoverability of a trade receivable, the Group 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 Group’s past default experience with the counterparty and an analysis of the counterparty’s current financial position. The Group adopted a policy of only dealing with entities that are rated the equivalent of investment grade or higher and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. Credit rating information is obtained from independent rating agencies where available or, if not available, the Group uses other publicly available financial information or its own trading records to rate its major customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually.

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

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

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

December 31, 2019

Not Past Due Up to 30 Days 31 to 60 Days 61 to 90 Days Over 90 Days Expected credit loss rate 0.12% 0.15% 6.16% 15.25% 97.18% Gross carrying amount $ 6,705,662 $ 1,332,640 $ 97,700 $ 113,716 $ 190,536 Loss allowance (lifetime ECLs) (8,123) (2,019) (6,021) (17,340) (185,162) Amortized cost $ 6,697,539 $ 1,330,621 $ 91,679 $ 96,376 $ 5,374 December 31, 2018	Total $ 8,440,254 (218,665) $ 8,221,589

Not Past Due Up to 30 Days 31 to 60 Days 61 to 90 Days Over 90 Days Expected credit loss rate 0.06% 0.06% 3.67% 21.78% 97.5% Gross carrying amount $ 7,856,048 $ 1,424,421 $ 103,498 $ 76,415 $ 206,628 Loss allowance (lifetime ECLs) (4,546) (856) (3,796) (16,642) (201,466) Amortized cost $ 7,851,502 $ 1,423,565 $ 99,702 $ 59,773 $ 5,162	Total $ 9,667,010 (227,306) $ 9,439,704

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

Balance at January 1 Add: Net remeasurement of loss allowance Less: Amounts written off Foreign exchange gains and losses Loss of control of subsidiaries Balance at December 31, 2018	For the Year Ended	For the Year Ended	December 31
		2019 $ 227,306 24,096 (32,717) (3) (17) $ 218,665	2018 $ 181,868 49,824 (2,975) (1,411) - $ 227,306

11. INVENTORIES

Aircraft spare parts Items for in-flight sale Work in process - maintenance services Others		December 31	December 31
		2019 $ 7,578,125 571,601 283,933 36,454 $ 8,470,113	2018 $ 7,847,082 556,365 227,975 23,288 $ 8,654,710

The operating costs recognized for the years ended December 31, 2019 and 2018 included losses from

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inventory write-downs of $327,919 thousand and $371,275 thousand, respectively.

12. NON-CURRENT ASSETS HELD FOR SALE

Long-term equity investments held for sale - Asian Compressor Technology Services		December	31
		2019 $ -	2018 $ 46,154

To enhance its competitiveness, the Company plans to introduce new aircraft and retire old aircraft according to a planned schedule. Such aircraft, classified as non-current assets held for sale, had an original book value which was higher than the expected sale price and which was recognized as an impairment loss. However, the actual loss shall be identified by the actual sale price.

In 2019 and 2018, the Company recognized impairment losses of $0 thousand and $75,436 thousand, respectively. In 2019 and 2018, the Company recognized disposal losses of $10,462 thousand and $368,992 thousand, respectively. The fair value was determined by transactions of the related market, and the proposed sale price was based on the current status of the aircraft. The fair value is classified as level 3.

13. SUBSIDIARIES

Subsidiary included in the consolidated financial statements:

Investor Company
Investee Company
Main Businesses and Products
China Airlines, Ltd.
Tigerair Taiwan Co., Ltd. (Note) Air transportation
Taiwan Aircraft Maintenance
And Engineering Co., Ltd.
Aircraft maintenance
CAL-Dynasty International
A holding company, real estate and hotel
services
CAL-Asia Investment
General investment
Dynasty Aerotech International
Corp.
Cleaning of aircraft and maintenance of
machine and equipment
Yestrip
Travel business
Cal Park
Real estate lease and international trade
Cal Hotel Co., Ltd.
Hotel business
Sabre Travel Network (Taiwan) Sale and maintenance of hardware and
software
Mandarin Airlines
Air transportation and maintenance of
aircraft
Taiwan Air Cargo Terminal
(Note)
Air cargo and storage
Kaohsiung Catering Services,
Ltd.
In-flight catering
Dynasty Holidays
Travel business
Taoyuan International Airport
Services
Airport services
Taiwan Airport Services (Note) Airport services
Global Sky Express
Forwarding and storage of air cargo
Cal-Dynasty
Dynasty Properties Co., Ltd.
Real estate management
International
Dynasty Hotel of Hawaii, Inc.
Hotel business
Taiwan Airport Services Taiwan Airport Service (Samoa) Airport supporting service and investment

Proportion of
Ownership (%)

December 31

2019
2018
77
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
94
94
94
94
59
59
54
54
20
51
49
49
48
48
25
25
100
100
100
100

100
100

Note: Proportion of ownership is considered from the perspective of the Group.

Except that the Company has control over Taoyuan International Airport Service, Taiwan Airport Service

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and Global Sky Express, the others are investees that the Company had more than 50% of their voting shares. The above financial information of the subsidiaries for the years ended December 31, 2019 and 2018 of these subsidiaries was reported according to reports that were not reviewed by independent auditors.

The Group paid $243,743 thousand on March 7, 2018 to acquire an additional 18% of the issued share capital of Kaohsiung Catering, Ltd. (Kaohsiung Catering). The Group’s holding of the issued share capital of Kaohsiung Catering exceeds 50%; therefore, Kaohsiung Catering is listed as a subsidiary because the Group has control over the investee. For the disclosure of the Group’s acquisition of Kaohsiung Catering, please refer to Note 30.

The board of directors of the Company decided to sell part of the equity of Dynasty Holidays to H.I.S. Taiwan Co., Ltd. on January 21, 2019, and completed the transaction on January 31, 2109. After the sale of the equity, the Group’s holding of the issued share capital decreased from 51% to 20%. Dynasty Holidays was classified as an associate since the Group lost control of the subsidiary. Therefore, the relevant assets and liabilities were not consolidated in the current period, and only the profit and loss from January 1, 2019 to January 31, 2019 was consolidated. For the information about the disposal of the subsidiary, please refer to Note 31.

In order to prepare the listing of Tigerair Taiwan Co., Ltd. and comply with the rules relating to the examination for public listing, the release of the shares of Tigerair Taiwan Co., Ltd. held by the Company and Mandarin Airlines was resolved in the shareholders’ meeting of the Company on June 25, 2019, and in the shareholders’ meeting of Mandarin Airlines on June 27, 2019. The shares shall be subscribed by all shareholders of the Company and Mandarin Airlines on the basis of the percentage of shareholdings. For the subscribed shares that the original shareholders waived or for the undersubscribed portion, the chairman was authorized to contact specific persons to subscribe. The subscription price was set at $41 per share. In October 2019, the stock price was fully paid and the shares were completely delivered and transferred. The proceeds from disposal were $1,866,474 thousand, and the related gain on disposal was $1,254,633 thousand and recognized in the capital surplus account.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates Investments in jointly controlled entities		December 31	December 31
		2019 $ 1,208,495 1,015,298 $ 2,223,793	2018 $ 1,217,863 982,286 $ 2,200,149

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

Unlisted companies China Aircraft Services Kaohsiung Catering Services Airport Air Cargo Terminal (Xiamen) Airport Air Cargo Service (Xiamen) Eastern United International Logistics (Holdings) Ltd.		December 31	December 31
		2019 $ 461,263 10,004 446,161 248,350 42,717 $ 1,208,495	2018 $ 497,362 - 442,891 233,417 44,193 $ 1,217,863

At the end of the reporting period, the proportion of ownership and voting rights in associates held by

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the Group were as follows:

Name of Associate China Aircraft Services Dynasty Holidays (Note) Airport air Cargo Terminal (Xiamen) Airport air Cargo Service (Xiamen) Eastern United International Logistics (Holdings) Ltd.	Proportion of Ownership and Voting Rights
	December 31
	2019 2018 20% 20% 20% 51% 28% 28% 28% 28% 35% 35%

Note:Dynasty Holidays was list as an associate on January 1, 2019.

The investment income of associates accounted for using the equity method were as follows:

China Aircraft Services Kaohsiung Catering Services Dynasty Holidays Airport air Cargo Terminal (Xiamen) Airport air Cargo Service (Xiamen) Eastern United International Logistics (Holdings) Ltd.	2019 $ 10,365 - 15 21,535 25,146 3,387 $ 60,448	2018 $ 6,402 15,113 - 22,571 32,196 6,895 $ 83,177

Other comprehensive income of associates accounted for using the equity method in 2019 and 2018 are both losses in the amounts of $0 thousand.

The financial statements used as a basis of the amounts of and related information on the investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2019 and 2018 were all independently audited, except those of China Aircraft Services and Eastern United International Logistics (Holding) Ltd. However, the management determined that there would have been no significant adjustments had this investee’s financial statements been independently audited.

b. Investments in jointly controlled entities

The investments in jointly controlled entities were as follows:

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia Ltd. Delica International Co., Ltd.		December 31	December 31
		2019 $ 801,071 168,547 37,813 7,867 $ 1,015,298	2018 $ 805,157 166,901 2,358 7,870 $ 982,286

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At the end of the reporting period, the proportion of ownership and voting rights in jointly controlled entities held by the Group were as follows:

entities held by the Group were as follows:
China Pacific Catering Services China Pacific Laundry Services NORDAM Asia Ltd. Delica International Co., Ltd.	Proportion of Ownership and Voting Rights
	December 31
	2019 2018 51% 51% 55% 55% 49% 49% 51% 51%

The Group entered into a joint venture agreement with the Taikoo Group to invest in China Pacific Catering Services and China Pacific Laundry Services. According to the agreement, both parties have the majority power in the board of directors to pose a motion for veto, and therefore the Group does not have control.

To enhance the Group’s maintenance capabilities, the Company established a joint venture with the US NORDAM Aerospace Group in December 2017, planning to provide thrust reversers and composite repair services in Asia under the NORDAM brand. NORDAM has filed for Chapter 11 bankruptcy reorganization in the USA on July 22, 2018 to solve the business disputation with their cooperative partner, so their company operation was not impacted. As a result, NORDAM Asia suspended its operation from October 5, 2018 to October 4, 2019 and resumed business on October 4, 2019. The Company increased the capital of NORDAM Asia by $35,525 thousand in November 2019.

To expand the Group’s catering business, Kaohsiung Catering entered into a joint venture agreement with a Japanese brand company to invest in Delica International Co, Ltd., with the Japanese brand company having the right to make decisions on operations, and therefore, the Group does not have control.

Details of investment income attributable to investment in jointly controlled entities were as follows:

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia Ltd. Delica International Co., Ltd.	For the Year Ended	For the Year Ended	December 31
		2019 $ 256,899 15,030 (70) (2) $ 271,857	2018 $ 267,413 16,695 (41) 2 $ 284,069

Other comprehensive income of associates accounted for using the equity method in 2019 and 2018 are losses in the amounts of $(32,101) thousand and $(33,242) thousand, respectively.

The financial statements used as a basis of the amounts of and related information on the investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2019 and 2018 were all independently audited, except of NORDAM Asia Limited. However, the management determined that there would have been no significant adjustments had this investee’s financial statements been independently audited.

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

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15. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2018 Additions Disposals Reclassification Net exchange difference Gain of acquisitions through business combinations Balance at December 31, 2018 Accumulated depreciation and impairment Balance at January 1, 2018 Depreciation expense Disposals Impairment loss Reclassification Net exchange difference Balance at December 31, 2018 Balance at December 31, 2018, net value Cost Balance at January 1, 2019 Additions Disposals Reclassification Net exchange difference Loss of control of subsidiaries Balance at December 31, 2019 Accumulated depreciation and impairment Balance at January 1, 2019 Depreciation expense Disposals Reclassification Net exchange difference Loss of control of subsidiaries Balance at December 31, 2019 Balance at December 31, 2019, net value	Freehold Land $ 922,626 - - - 16,234 76,704 $ 1,015,564 $ - - - - - - $ - $ 1,015,564 $ 1,015,564 - - - (13,065 ) - $ 1,002,499 $ - - - - - - $ - $ 1,002,499	Buildings $ 13,698,308 57,998 (11,803 ) (227 ) 28,991 220,318 $ 13,993,585 $ (6,137,495 ) (433,450 ) 10,049 - - (13,977) $ (6,574,873) $ 7,418,712 $ 13,993,585 209,413 (1,130 ) 1,906,078 (23,883 ) - $ 16,084,063 $ (6,574,873 ) (466,943 ) 1,014 - 12,262 - $ (7,028,540) $ 9,055,523	Flight Equipment $ 263,427,144 2,684,337 (20,307,375 ) 13,661,640 - 229,384 $ 259,695,130 $ (136,594,765 ) (15,960,477 ) 19,814,544 (50,000 ) 9,283,041 - $ (123,507,657) $ 136,187,473 $ 259,695,130 2,248,856 (20,698,042 ) 30,831,748 - - $ 272,077,692 $ (123,507,657 ) (18,571,992 ) 14,899,562 (14,706,083 ) - - $ (141,886,170) $ 130,191,522	Equipment under Finance Leases $ 26,187,556 - (1,811,222 ) 1,428,463 211 - $ 25,805,008 $ (14,142,872 ) (2,023,924 ) 1,532,046 - - (72) $ (14,634,822) $ 11,170,186 $ 25,805,008 - (668,721 ) (25,131,813 ) - (4,474) $ - $ (14,634,822 ) (741,852 ) 79,866 15,294,696 - 2,112 $ - $ -	Others $ 16,230,011 1,868,212 (313,727 ) 103,296 3,003 26,985 $ 17,917,780 $ (9,972,982 ) (906,953 ) 292,136 - (11,655 ) (2,543) $ (10,601,997) $ 7,315,783 $ 17,917,780 864,223 (393,058 ) (1,537,494 ) (2,458 ) (2,158) $ 16,846,835 $ (10,601,997 ) (921,246 ) 355,222 (45,103 ) 1,989 1,727 $ (11,209,408) $ 5,637,427	Total $ 320,465,645 4,610,547 (22,444,127 ) 15,193,172 48,439 553,391 $ 318,427,067 $ (166,848,114 ) (19,324,804 ) 21,648,775 (50,000 ) 9,271,386 (16,592) $ (155,319,349) $ 163,107,718 $ 318,427,067 3,322,492 (21,760,951 ) 6,068,519 (39,406 ) (6,632) $ 306,011,089 $ (155,319,349 ) (20,702,033 ) 15,335,664 543,510 14,251 3,839 $ (160,124,118) $ 145,886,971

40 -

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

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 Assets leased to others 3-5 years Flight equipment and equipment under finance leases Airframes 15-25 years Aircraft cabins 7-20 years Engines 10-20 years Heavy maintenance on aircraft 6-8 years Engine overhauls 3-10 years Landing gear overhauls 7-12 years Repairable spare parts 3-15 years Leased aircraft improvements 5-12 years

Regarding changes in fleet composition, current and forecasted market value, and other technical factors, the Group recognized impairment losses on aircraft equipment in 2018 of $50,000 thousand. The fair value was determined based on aircraft conditions and market estimates.

Refer to Note 35 for the carrying amounts of property, plant and equipment pledged by the Group.

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

The Group generated the following non-cash investment activities related to the purchase of property, plant and equipment in 2019 and 2018:

Increase in property, plant and equipment Capitalized interest paid Purchase of property, plant and equipment paid		December 31	December 31
		2019 $ 3,322,492 (6,414) $ 3,316,078	2018 $ 4,610,547 (1,947) $ 4,608,600

16. INVESTMENT PROPERTIES

Carrying amount Investment properties		December 31	December 31
		2019 $ 2,075,068	2018 $ 2,075,345

The investment properties held by the Group were land located in Nankan and buildings in Taipei, which were all leased to others. The buildings are depreciated on a straight-line basis over 55 years.

41 -

The fair value of the investment properties held by the Group was $2,506,230 thousand as of both December 31, 2019 and 2018, respectively. In addition, management assessed that there is no significant difference in the fair value of December 31, 2019 and 2018.

The above 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 Group’s investment properties were held under freehold interest.

Balance at January 1, 2018 Depreciation expense Balance at December 31, 2018 Balance at January 1, 2019 Depreciation expense Balance at December 31, 2019	Cost Accumulated $ 2,082,390 $ (6,766) - (279) $ 2,082,390 $ (7,045) $ 2,082,390 $ (7,045) - (277) $ 2,082,390 $ (7,322)	Net Value $ 2,075,624 (279) $ 2,075,345 $ 2,075,345 (277) $ 2,075,068

17. OTHER INTANGIBLE ASSETS

Computer Software Cost Balance at January 1, 2018 $ 2,039,602 Additions 184,223 Amortization expenses - Acquisitions through business combinations 686 Reclassification 12,871 Effects of exchange rate changes - Balance at December 31, 2018 $ 2,237,382 Balance at January 1, 2019 $ 2,237,382 Additions 172,639 Amortization expenses - Disposal of subsidiaries (3,858) Effects of exchange rate changes - Balance at December 31, 2019 $ 2,406,163	Relationship Between Clients Accumulated Amortization $ - $ (1,020,257) - - - (181,943) 186,197 (10,036) - (540) - (7) $ 186,197 $ (1,212,783) $ 186,197 $ (1,212,783) - - - (198,237) - 1,357 - (5) $ 186,197 $ (1,409,668)	Net Value $ 1,019,345 184,223 (181,943) 176,847 12,331 (7) $ 1,210,796 $ 1,210,796 172,639 (198,237) (2,501) (5) $ 1,182,692

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

42 -

18. OTHER ASSETS

Current Temporary payments Prepayments Restricted assets Others Non-current Prepayments for aircraft Prepayments - long-term Refundable deposits Restricted assets Other financial assets Others		December 31	December 31
		2019 $ 296,759 1,690,368 14,618 653,966 $ 2,655,711 $ 8,863,861 2,819,575 1,261,611 64,213 19,103 142,700 $ 13,171,063	2018 $ 556,860 3,028,808 18,623 543,591 $ 4,147,882 $ 529,963 1,603,400 1,089,690 100,141 19,335 88,224 $ 3,430,753

The prepayments for aircraft comprised the prepaid deposits and capitalized interest from the purchase of A350-900, ATR72-600, A321neo, A320neo and B777F aircrafts. For details on the aircraft purchase contracts, refer to Note 36.

19. BORROWINGS

a. Short-term debts

Bank loans - unsecured Interest rates		December 31	December 31
	2019 $ 380,000 0.95%-1.07%		2018 $ - -

b. Long-term borrowings

Unsecured bank loans Secured bank loans Commercial paper Proceeds from issue Less: Unamortized discount Less: Current portion Interest rates		December 31	December 31
		2019 $ 1,929,827 34,064,099 31,730,000 60,143 67,663,783 14,148,892 $ 53,514,891 0.55%-1.73%	2018 $ 9,354,457 36,330,211 30,770,000 59,033 76,395,635 15,709,487 $ 60,686,148 0.92%-1.46%

43 -

For information on secured bank loans which were secured by buildings, machinery equipment and flight equipment, refer to Note 35.

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

Periods	December 31
	2019 2018 2008.2.26- 2030.4.25 2007.5.24- 2030.4.25

The Group has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs, with various maturities until December 2021, were used by the Group to guarantee commercial papers issued. As of December 31, 2019 and 2018, the commercial papers were issued at discount rates of 1.1300%-1.3380% and 1.0693%-1.2960%, respectively.

20. BONDS PAYABLE

Unsecured corporate bonds first-time issued in 2013 Unsecured corporate bonds first-time issued in 2016 Unsecured corporate bonds second-time issued in 2016 Unsecured corporate bonds first-time issued in 2017 Unsecured corporate bonds second-time issued in 2017 Unsecured corporate bonds first-time issued in 2018 Unsecured corporate bonds first-time issued in 2019 Convertible bonds - fifth-time issues Convertible bonds - sixth-time issues Less: Current portion and put option of convertible bonds		December 31	December 31
		2019 $ 2,750,000 4,700,000 5,000,000 2,350,000 3,500,000 4,500,000 3,500,000 - 5,752,625 32,052,625 10,000,000 $ 22,052,625	2018 $ 5,500,000 4,700,000 5,000,000 2,350,000 3,500,000 4,500,000 - 1,695,900 5,673,710 32,919,610 4,445,900 $ 28,473,710

Related issuance conditions were as follows:

		Rate
Period	Conditions	(%)
2013.01.17-	Principal repayable in	1.60
2018.01.17	January of 2017 and
	2018; indicator rate;
	payable annually.
2013.01.17-	Principal repayable in	1.85
2020.01.17	January of 2019 and
	2020; indicator rate;
	payable annually.
2016.05.26-	Principal repayable in May	1.19
2021.05.26	of 2020 and 2021; interest
	p.a. payable annually.
		(Continued)

			Rate
Category	Period	Conditions	(%)
Five-year unsecured bonds - issued at par in	2016.09.27-	Principal repayable in	1.08
September 2016; repayable in September 2020	2021.09.27	September of 2020 and
and 2021; 1.08% interest p.a., payable		2021; interest p.a. payable
annually.		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 par	2017.10.12-	Principal repayable in	1.45
in October 2017; repayable in October 2021	2022.10.12	October of 2021 and
and 2022; 1.45% interest p.a., payable		2022; indicator rate;
annually.		payable annually.
Five-year private unsecured bonds - issued at par	2018.11.30-	Principal repayable in	1.32
in November 2018; repayable in	2023.11.30	November of 2022 and
November 2022 and 2023; 1.32% interest p.a.,		2023; indicator rate;
payable annually		payable annually
Five-year private unsecured bonds - issued at par	2018.11.30-	Principal repayable in	1.45
in November 2018; repayable in	2025.11.30	November of 2022 and
November 2022 and 2023; 1.45% interest p.a.,		2023; indicator rate;
payable annually		payable annually
Five-year private unsecured bonds - issued at par	2019.06.21-	Principal repayable in June	1.10
in June 2019; repayable in June 2023 and	2024.06.21	of 2023 and 2024;
2024; 1.10% interest p.a., payable annually		indicator rate; payable
		annually
Seven-year private unsecured bonds - issued at	2019.06.21-	Principal repayable in June	1.32
par in June 2019; repayable in June 2025 and	2026.06.21	of 2025 and 2026;
2026; 1.32% interest p.a., payable annually		indicator rate; payable
		annually
Five-year convertible bonds - issued at discount	2013.12.26-	Except for converting to	-
in December 2013; repayable in lump sum	2018.12.26	share capital or buying
upon maturity; 1.8245% discount rate p.a.		back, principal repayable
		in December of 2018
Five-year convertible bonds - issued at discount	2018.01.30-	Except for converting to	-
in December 2013; repayable in lump sum	2023.01.30	share capital or buying
upon maturity; 1.3821% discount rate p.a.		back, principal repayable
		in December of 2023
			(Concluded)

21. LEASING

2019

a. Right-of-use assets - 2019

	December 31,	December 31,
		2019
Carrying amounts
Land	$	8,153,382
Buildings		824,955
Flight equipment		62,052,701
Other equipment		2,579
	$	71,033,617
	For	Year Ended
	December 31,
		2019
Additions to right-of-use assets	$	5,863,625
Depreciation for right-of-use assets
Land	$	376,425
Buildings		798,933
Flight equipment		10,721,575
Other equipment		2,157
	$	11,899,090
Lease liabilities - 2019
	December 31,
		2019
Carrying amounts
Current	$	2,340,873
Non-current	$	15,801,724

b. Lease liabilities - 2019

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Range of discount rate for lease liabilities (include US lease hedging instruments):

	December 31,
	2019
Land	1.09%-1.65%
Buildings	0%-3.56%
Flight equipment	2.49%-3.34%
Other equipment	1.06%-1.50%

c. Financial liabilities under hedge accounting

The Group specifics a part of US lease contract as a hedging instruments to avoid exchange fluctuations is US dollar passenger revenue, and applies the accounting treatment of cash flow hedging. The lease information is as follows:

			Maturity Date	Subject	Carrying Value	Carrying Value
December	31,	2019	2021.4.15-2028.5.15	Financial liabilities for hedging -	$	8,577,482
				current
				Financial liabilities for hedging -		42,420,205
				non-current

Influence of comprehensive income

			Recognized in
			Other
			Comprehensive	Reclassified to
			Income	Income
For the year ended December	31,	2019	$1,457,058	$ (24,029)

d. As lessees, China Airlines, Mandarin Airlines and Tigerair Taiwan leased ten 777-300ER planes, fifteen A330-300 planes, fifteen 737-800 planes, ten A320-200 planes, six ERJ190 planes and three ART72-600 planes for operation, lease period are 6 to 12 years from February 2006 to May 2028. The rental pricing method is partly a fixed amount of funds, and some of them are floating rents, floating rents 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:

	December 31,	December 31,
		2019
Refundable deposits	$	737,895
Credit guarantees		1,717,953

CAL Park, and Taoyuan International Airport Service signed a BOT contract with a land lease agreement, for the details for the lease agreement, please refer to Note 35. The lease includes an option to extend the lease, as it is not possible to extend the lease, the amount of the lease related to the period covered by the option is not included in the lease liability. If the amount of the extended lease period is included in the lease liability, the lease liability will increase by $873,293 thousand on December 31, 2019.

Taiwan Air Cargo Terminal Co. and CAA signed a BOT contract with a land lease agreement. For details, please refer to Note 36.

48 -
e. The Company signed a rental contract for six A321neo with Air Lease Corporation, which is expected to be introduced between 2021 and 2022.

The Company signed a rental letter of intent for eight A321neo with CALC Lease Corporation, which is expected to be introduced in 2022.

Tigerair Taiwan Co., Ltd. signed a rental letter of intent for eight A321neo with ICBC Lease Corporation, which is expected to be introduced in 2021.

f. In order to revitalize assets and strengthen the financial structure, the Company sold five of its own A330-300 aircraft to Altavair L.P. in September 2019 by sale-and-leaseback for $4,905,660 thousand. The lease term was 5 to 6 years and a loss of $103,775 thousand was incurred. The lease agreement had no terms for lease renewal or offtake rights. The annual lease payments for each aircraft are US$5,389 thousand to US$5,437 thousand.
g. Other lease information

The Group uses operating lease agreement for investment properties, refer to Note 16.

Short-term and low price lease payment Total of lease cash outflow	For the Year Ended December 31, 2019 $ 52,675 $ (13,884,367)

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

2018

1) Sale-leaseback finance leases

	December 31,
	2018
Minimum lease payments-flight equipment
Within one year	$ 596,000
Beyond one year and within five years	-
Present value of minimum lease payments	$ 596,000
Interest rates	1.0680%

The Group had leased one A330-300 aircraft under sale-leaseback finance leases as of December 31, 2018. The lease terms started from June 2006 to April 2019. During the lease terms, the Group retained all risks and rewards attached to the aircraft and engines and enjoyed the same substantive rights as those prior to the transactions. The interest rates underlying all obligations under these finance leases were floating. Therefore, the minimum lease payments under the sale-leaseback aircraft contracts do not include interest expenses.

49 -

2) Finance leases

Taiwan Air Cargo Terminal Co. (“TACT”) entered into a terminal construction contract. Refer to Note 36 for the terms of the contract. Dynasty Holiday Co., Ltd. signed a long-term equipment lease contract, and the lease contract is a finance lease contract.

	December 31,	December 31,
		2018
Minimum lease payments-cargo terminal and other
Within one year	$	37,998
Beyond one year and within five years		2,974
		40,972
Less: Finance costs		(629)
Present value of minimum lease payments	$	40,343
Present value of minimum lease payments -
cargo terminal and other
Within one year	$	37,398
Beyond one year and within five years		2,945
	$	40,343
Discount rate		4.756%
Total amount of present value of minimum lease payments
Current	$	633,398
Noncurrent		2,945
	$	636,343

3) Operating lease arrangements (include sale-leaseback operating leases)

For the operating lease arrangements, please refer to the consolidated financial statements for the year ended December 31, 2018.

As of December 31, 2018, the refundable deposits paid by the Group under operating lease contracts were $693,466 thousand. Some of the guarantees were secured by credit guarantees, and outstanding credit guarantees as of December 31, 2018 were $1,682,774 thousand.

The future minimum lease payments for the non-cancelable operating lease commitments were as follows:

Up to 1 year Over 1 year to 5 years Over 5 years	December 31, 2018 $ 11,785,442 44,559,429 21,685,499 $ 78,030,370

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The lease payments recognized in expense for the current period were as follows:

Minimum lease payments	For the Year Ended December 31, 2018 $ 11,735,495

22. OTHER PAYABLES

Fuel costs Ground service expenses Repair expenses Interest expense Short-term employee benefits Terminal surcharges Commission expenses Others		December 31	December 31
		2019 $ 3,723,213 1,262,878 1,208,875 219,660 2,040,718 1,122,532 509,520 3,100,576 $ 13,187,972	2018 $ 3,822,018 1,167,214 1,031,700 266,268 2,237,409 1,151,578 484,341 3,985,670 $ 14,146,198

23. CONTRACT LIABILITIES/DEFERRED REVENUE

Frequent flyer programs Advance ticket sales Current Non-current		December 31	December 31	December 31
		2019 Contract Liabilities $ 2,895,535 20,401,549 $ 23,297,084 $ 21,060,773 2,236,311 $ 23,297,084		2018
				Contract Liabilities $ 2,493,551 18,956,569 $ 21,450,120 $ 19,546,455 1,903,665 $ 21,450,120

24. PROVISIONS

Operating leases - aircraft Current Non-current		December 31	December 31
		2019 $ 10,371,857 $ 360,393 10,011,464 $ 10,371,857	2018 $ 8,794,539 $ 321,075 8,473,464 $ 8,794,539

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	Aircraft Lease	Aircraft Lease
		Contract
Balance at January 1, 2018	$	8,489,308
Additional provisions recognized		3,386,052
Usage		(3,310,089)
Effect of exchange rate changes		229,268
Balance at December 31, 2018	$	8,794,539
Balance at January 1, 2019	$	8,794,539
Additional provisions recognized		4,608,924
Usage		(2,799,314)
Effect of exchange rate changes		(232,292)
Balance at December 31, 2019	$	10,371,857

The Group 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 revolutions. The Group had existing obligations to recognize provisions when signing a lease or during the lease term. Tigerair Taiwan Co., Ltd. also leased flight equipment under operating lease agreements. In accordance to the contract, Tigerair must pay maintenance reserves monthly according to the actual number of flight hours.

25. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Group adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

Employees based in the United states and Japan of China Airlines Co., Ltd. and subsidiaries are members of the United states and Japan government retirement benefit plans. Subsidiaries should appropriate a specific portion to retirement benefit plans. The obligation to the government retirement benefit plans of China Airlines Co., Ltd. and subsidiaries is to appropriate a specific portion amount.

b. Defined benefit plans

The defined benefit plan adopted by the Company and in accordance with the Labor Standards Law is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company and subsidiary contribute amounts equal to 2%-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 Group 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 Group 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 Group has no right to influence the investment policy and strategy.

52 -

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

Present value of funded defined benefit obligation Fair value of plan assets Deficit (net defined benefit liabilities)		December 31	December 31
		2019 $ 18,457,304 (9,022,269) $ 9,435,035	2018 $ 17,464,856 (8,661,474) $ 8,803,382

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

Balance at January 1, 2018 Service cost Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial (gain) loss - changes in demographic assumptions Actuarial (gain) loss - changes in financial assumptions Actuarial (gain) loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Benefits paid Others Balance at December 31, 2018 Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial (gain) loss - changes in demographic assumptions Actuarial (gain) loss - changes in financial assumptions Actuarial (gain) loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Benefits paid Others Balance at December 31, 2019	Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets $ 16,149,382 $ (8,047,817) 1,384,213 - 163,283 (82,595) 1,547,496 (82,595) - (236,287) 15,538 - 344, 716 - 727,899 - 1,088,153 (236,287) - (1,486,550) (1,210,839) 1,210,839 (109,336) (19,064) 17,464,856 (8,661,474) 1,321,600 - 161,808 (86,234) 1,483,408 (86,234) - (308,223) 15,959 - 440,374 - 633,683 - 1,090,016 (308,223) - (1,418,970) (1,452,632) 1,452,632 (128,344) - $ 18,457,304 $ (9,022,269)	Net Defined Benefit Liabilities (Assets) $ 8,101,565 1,384,213 80,688 1,464,901 (236,287) 15,538 344, 716 727,899 851,866 (1,486,550) - (128,400) 8,803,382 1,321,600 75,574 1,397,174 (308,223) 15,959 440,374 633,683 781,793 (1,418,970) - (128,344) $ 9,435,035

53 -

Through the defined benefit plans under the Labor Standards Law, the Group 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 2-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 by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

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

Discount rate(s) Expected rate(s) of salary increase	December 31
	2019 2018 0.63%-1.10% 0.86%-1.35% 1.00%-2.50% 1.00%-2.50%

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

Discount rate(s) 0.5% increase 0.5% decrease Expected rate(s) of salary increase 0.5% increase 0.5% decrease	December 31
	2019 2018 $ (939,308) $ (777,193) 1,000,771 841,488 969,324 811,485 (927,180) (760,793)

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

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		December 31	December 31
		2019 $ 930,963 8-11 years	2018 $ 916,927 8-12 years

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26. EQUITY

a. Share capital

Ordinary shares

Numbers of authorized shares (in thousands) Amount of authorized shares Amount of issued shares		December 31	December 31
		2019 7,000,000 $ 70,000,000 $ 54,209,846	2018 6,000,000 $ 60,000,000 $ 54,209,846

b. Capital surplus

Issuance of convertible bonds in excess of par value and conversion premium Dividend distributed to subsidiaries Retirement of treasury shares Expired employee share options Long-term investments Bonds payable equity component Difference in sale price of shares of subsidiaries and book value Others		December 31	December 31
		2019 $ 315,114 3,909 33,513 11,747 118,962 409,978 1,129,080 466,604 $ 2,488,907	2018 $ 315,114 3,303 33,513 11,747 955 409,978 - 466,604 $ 1,241,214

The capital surplus from shares issued in excess of par (including additional paid-in capital from issuance of ordinary shares and treasury share transactions) and the difference in sale price of shares of subsidiaries and book value may be used to offset deficits; 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 yearly basis).

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

c. Appropriation of earnings and dividend policy

According to 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 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 demand, 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.

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The Company shall set aside profits as a legal reserve untill the legal reserve amounts to the authorized capital. The legal reserve could be used for making good the deficit of the Company. If the Company has no deficit in a fiscal year, the Company can distribute all or part of the capital surplus by cash or shares with due consideration of finance, marketing and management requirements in accordance with the laws and regulations.

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

1) Appropriation of earnings in 2017

The appropriation of earnings for 2017 was resolved in the shareholders’ meeting on June 27, 2018. The appropriations and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per
	of	Earnings	Share (NT$)
Legal reserve	$	145,831
Special reserve		118,810
Cash dividends		1,193,670	$0.2181820086

2) Appropriation of earnings in 2018

The appropriation of earnings for 2018 was resolved in the shareholders’ meeting on June 25, 2019. The appropriation and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per
	of	Earnings	Share (NT$)
Legal reserve	$	114,493
Cash dividends		1,136,278	$0.20960737
Company reversed special reserve of $105,843 thousand.

3) Offsetting deficits in 2019

On March 18, 2020, the board proposed to offset the accumulated deficit in 2019. The deficit included a net loss of $1,199,798 thousand, negative adjustment of other retained earnings of $577,427 thousand, the remaining amount of accumulated deficit was $1,777,225 thousand.

The offsetting of deficits for 2019 is subject to the resolution of the shareholders in the shareholder’s meeting to be held on June 23, 2020.

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d. Other equity items

The movement of other equity items is as follows:

Exchange Differences on Translating Foreign Operations Unrealized Gain (Loss) on Available-for- sale Financial Assets Unrealized Gain (Loss) on Financial Assets at FVTOCI Balance at January 1, 2018 $ (34,986 ) $ 1,774 $ - Adjustments on initial application of IFRS 9 - (1,774) 42,351 Balance at January 1, 2018 after IFRS 9 adjustments (34,986 ) - 42,351 Exchange differences on translating foreign operations 29,897 - - Cumulative loss on changes in fair value of hedging instruments - - - Cumulative gain on changes in fair value of hedging instruments reclassified to profit or loss - - - Unrealized gain on financial assets at FVTOCI - - 930 Effect of change in tax rate 1,198 - (1,209 ) Effects of income tax (5,773) - 547 Other comprehensive income (loss) recognized in the period 25,322 - 268 Transfers of initial carrying amount of hedged items - - - Balance at December 31, 2018 $ (9,664) $ - $ 42,619 Balance at January 1, 2019 $ (9,664 ) $ - $ 42,619 Exchange differences on translating foreign operations (65,246 ) - - Cumulative loss on changes in fair value of hedging instruments - - - Cumulative gain on changes in fair value of hedging instruments reclassified to profit or loss - - - Unrealized gain on financial assets at FVTOCI - - 79,392 Effects of income tax 11,835 - (14,854) Other comprehensive income (loss) recognized in the period (53,411) - 64,538 Disposal of subsidiaries 8,368 105 Transfers of initial carrying amount of hedged items - - - Balance at December 31, 2019 $ (54,707) $ - $ 107,262	Cash Flow Hedges Gain (Loss) on Hedging Instruments $ (74,429 ) $ - 74,429 (74,429) - (74,429 ) - - - 77,435 - 31,731 - - - 2,530 - (24,117) - 87,579 - 12,118 $ - $ 25,268 $ - $ 25,268 - - - 1,378,603 - 20,014 - - - (279,604) - 1,119,013 - - (603) $ - $ 1,143,678	Total $ (107,641 ) 40,577 (67,064 ) 29,897 77,435 31,731 930 2,519 (29,343) 113,169 12,118 $ 58,223 $ 58,223 (65,246 ) 1,378,603 20,014 79,392 (282,623) 1,130,140 8,473 (603) $ 1,196,233

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e. Non-controlling interests

Beginning balance Net income attributable to non-controlling interests Foreign exchange differences Actuarial gains and losses on defined benefit plans Cash flow hedge on changes in fair value of hedging instruments Cumulative gain (loss) arising on changes in fair value of hedging instruments reclassified to profit or loss Effect on income tax Disposal of subsidiaries Disposal of part equity of subsidiaries Acquisition of non-controlling interests in subsidiaries Dividends paid by subsidiaries Ending balance	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 2,965,512 524,796 (7,706) (100,136) (13,227) 8,528 22,586 (89,955) (24,957) 619,387 - (416,438) $ 3,578,345	2018 $ 2,134,282 482,323 (3,330) (69,654) (46) 105 26,888 (72,925) - - 565,963 (171,019) $ 2,965,512

f. Treasury shares

Treasury shares are the Company’s shares held by its subsidiaries as of December 31, 2019 and 2018 were as follows:

			(Shares in Thousands)	(Shares in Thousands)
			Company’s
	Buy Back	to	Shares Held by
Purpose of Treasury Shares	Write off		Its Subsidiaries	Total
Number of shares, January 1, 2018		-	2,889	2,889
Addition during the year	50,000		-	50,000
Reduction during the year	(50,000)		-	(50,000)
Number of shares, December 31, 2018		-	2,889	2,889
Number of shares, January 1, 2019		-	2,889	2,889
Addition during the year		-	-	-
Reduction during the year		-	-	-
Number of shares, December 31, 2019		-	2,889	2,889
	Shares		Carrying
Subsidiary	(In Thousands)		Amount	Market Value
December 31, 2019
Mandarin Airlines	2,075		$ 18,796	$ 18,796
Dynasty Aerotech International Corp.	814		7,376	7,376
			$ 26,172	$ 26,172
				(Continued)

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Subsidiary Shares (In Thousands) December 31, 2018 Mandarin Airlines 2,075 Dynasty Aerotech International Corp. 814	Carrying Amount Market Value $ 22,821 $ 22,821 8,956 8,956 $ 31,777 $ 31,777 (Concluded)

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.

To maintain the Company’s credit standing and shareholders’ rights and interests, the board of directors decided to buy back shares of the Company from Taiwan Stock Exchange at a price from $9 to $14 per share. The expected period of purchase is from August 10, 2018 to October 9, 2018. As of 50,000 thousand shares had been repurchased. The treasury shares held by the Company has retired on December 18, 2018, share capital decreases $500,000 thousand, additional paid-in capital in excess of par-ordinary share decreases $2,906 thousand and additional paid-in capital - treasury share increases $33,513 thousand. Under the Securities Exchange Act, the treasury shares held by the Company cannot be pledged and are not entitled to dividends distribution and voting rights, etc.

27. NET INCOME

a. Revenue

Passenger Cargo Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 111,413,435 43,793,256 13,237,469 $ 168,444,160	2018 $ 108,345,648 49,847,065 12,518,894 $ 170,711,607

b. Other income

Interest income Subsidy income Dividend income Others	For the Year Ended	For the Year Ended	December 31
		2019 $ 417,446 38,621 21,422 241,499 $ 718,988	2018 $ 330,710 11,200 9,603 254,940 $ 606,453

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c. Other gains and losses

(Loss) gain on disposal property, plant and equipment (Loss) gain on non-current assets held for sale Net gain (loss) on financial assets at FVTPL Gain (loss) on disposal of investments Gain (loss) on foreign exchange, net Impairment loss on non-current assets held for sale Impairment loss on property, plant and equipment Loss on sale and - leaseback Others	For the Year Ended	For the Year Ended	December 31
		2019 $ 32,460 (10,462) 27,580 7,656 (141,611) - - (103,775) (285,660) $ (473,812)	2018 $ (270,597) (368,992) 11,168 450,195 41,843 (75,437) (50,000) - (273,028) $ (534,848)

d. Finance costs

Interest expense Bonds payable Bank loans Interest on obligations under financial leases Loss on derivatives designated as hedging instruments in cash flow hedge accounting relationships reclassified from equity to profit or loss Capitalization interest Capitalization rate	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 429,457 771,280 - 2,139,382 $ 3,340,119 $ 46,528 1.01%-1.35%	2018 $ 412,422 949,483 18,080 - $ 1,379,985 $ 41,925 1.16%-1.45%

e. Depreciation and amortization expense

Property, plant, equipment Right of use assets Investment properties Intangible assets Depreciation and amortization expense An analysis of depreciation by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 20,702,033 11,899,090 277 198,237 $ 32,799,637 $ 30,927,997 1,673,403 $ 32,601,400	2018 $ 19,324,804 - 279 191,979 $ 19,517,062 $ 18,648,142 676,941 $ 19,325,083 (Continued)

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An analysis of amortization by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 12,380 185,857 $ 198,237	2018 $ 10,597 181,382 $ 191,979 (Concluded)

f. Employee benefits expense Post-employment benefits Defined contribution plan Defined benefit plan Other employee benefits Salary expenses Personnel service expenses An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 574,809 1,397,174 $ 1,971,983 $ 20,813,757 5,506,867 $ 26,320,624 $ 23,699,685 4,592,922 $ 28,292,607	2018 $ 538,915 1,464,901 $ 2,003,816 $ 20,910,604 5,791,627 $ 26,702,231 $ 23,857,265 4,848,782 $ 28,706,047

According to the Company’s articles, the Company accrued employees’ compensation at rates of no less than 3% of the net profit before income tax and employees’ compensation, and accrued profit bonus at a certain rate of profit before tax on the basis of the collective agreement signed with the China Airlines Employees Union. The employees’ compensation and profit bonus for the year ended December 31, 2018 was $51,656 thousand and $594,810 thousand. For the year ended December 31, 2019, the Company has experienced a deficit, and therefore, no employee’s compensation is estimated.

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

Information on the employees’ compensation and remuneration of directors and supervisors resolved by the Company’s board of directors in 2019 and 2018 is available on the Market Observation Post System website of the Taiwan Stock Exchange.

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28. INCOME TAX

a. Income tax expense recognized in profit or loss

The major components of tax expense were as follows:

Current tax Current year Prior year adjustment Income tax on unappropriated earnings Deferred tax Current year Adjustments to deferred tax attributable to changes in tax rates and laws Effect of income tax 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
		2019 $ 523,670 (5,546) 378 35,149 24,534 - $ 578,185	2018 $ 264,527 10,592 35 1,465,482 1,861 (933,932) $ 808,565

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

Profit before tax Income tax expense calculated at the statutory rate (% for 2019, 20% for 2018) Effect on different tax of subsidiaries govern by other region Effect on adjustment to income tax Non-deductible expenses in determining taxable income Tax-exempt income Income tax on unappropriated earnings (5%) Income basic tax Oversea income tax expense Unrecognized loss carryforwards, investment tax credits and temporary difference Adjustments for prior years’ tax Adjustments to deferred tax attributable to changes in tax rates and laws Adjustments to changes in tax rates and laws Other 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
		2019 $ (96,817) $ (19,362) 1,680 16,936 (45,861) 378 8,468 11,157 586,135 (5,546) 24,534 - (334) $ 578,185	2018 $ 3,081,249 $ 616,250 7,391 20,662 (25,730) 35 - 22,786 1,088,650 10,592 1,861 (933,932) - $ 808,565

The Income Tax Law of the ROC was amended and, starting from 2018, the corporate income tax rate was adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to unappropriated earnings was reduced from 10% to 5%.

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b. Income tax recognized in other comprehensive income

Deferred tax Recognized in other comprehensive income Translation of foreign operations Fair value changes of financial assets at FVTOCI Hedging instruments fair value revaluation for cash flow hedging Actuarial gain or loss on defined benefit plan Effect of income tax Total income tax recognized in other comprehensive income	2019 $ 13,454 (14,854) (278,664) 156,359 - $ (123,705)	2018 $ (4,657) 547 (24,128) 187,368 10,893 $ 170,023

c. Deferred tax assets and liabilities

For the year ended December 31, 2019

Deferred tax assets Temporary differences Defined benefit plans Frequent flyer programs Maintenance reserves Allowance for reduction of inventory Others Deferred tax liabilities Temporary differences Unrealized foreign exchange gains Others (Note)	Beginning Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income $ 1,765,052 $ (29,560 ) $ 156,359 510,060 82,917 - 1,811,848 428,155 - 335,711 (38,854 ) - 729,399 (429,580) 15,113 $ 5,152,070 $ 13,078 $ 171,472 $ 17 $ 81,760 $ - 188,430 (8,999) 295,177 $ 188,447 $ 72,761 $ 295,177	Exchange Difference $ - - - - 1,006 $ 1,006 $ - 757 $ 757	Ending Balance $ 1,891,851 592,977 2,240,003 296,857 315,938
			$ 5,337,626
			$ 81,777 475,365
			$ 557,142

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For the year ended December 31, 2018

Deferred tax assets Temporary differences Defined benefit plans Frequent flyer programs Maintenance reserves Allowance for reduction of inventory Others Loss carryforwards Deferred tax liabilities Temporary differences Unrealized foreign exchange gains Depreciation difference from fixed assets Others (Note)	Beginning Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income $ 1,381,538 $ 180,560 $ 195,742 426,106 83,954 - 1,507,285 304,563 - 239,115 96,596 - 1,143,871 (397,832 ) (18,546 ) 821,417 (821,417) - $ 5,519,332 $ (553,576) $ 177,196 $ 915 $ (898 ) $ - 31,010 (31,010 ) - 165,630 11,743 7,173 $ 197,555 $ (20,165) $ 7,173	Exchange Difference $ - - - 479 - $ 479 $ - - 3,884 $ 3,884	Acquisition Consolidated $ 7,212 - - - 1,427 - $ 8,639 $ - - - $ -	Ending Balance $ 1,765,052 510,060 1,811,848 335,711 729,399 - $ 5,152,070 $ 17 - 188,430 $ 188,447

Note: Included adjustments on initial application due to tax rate changes $6,873 thousand from IFRS 9.

Deductible temporary differences, and unused loss carryforwards for which no deferred tax assets have been recognized in the consolidated balance sheets.

Loss carryforwards 2019 2021 2022 2025 2026 2027 2028 2029 Difference in depreciation		December 31	December 31
		2019 $ - 2,899,496 619,799 18,124 546,899 68,415 1,706,913 955,250 $ 6,814,896 $ 1,348,096	2018 $ 11,790,770 2,899,496 620,769 18,124 818,198 68,415 1,513,001 - $ 17,728,773 $ 90,350

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d. Unused tax loss carryforwards as of December 31, 2019 were as follows:

Expiry Year China Airlines, Ltd. 2021 2022 2026 2028 2029 Mandarin Airline Co., Ltd. 2026 2028 Taiwan Aircraft Maintenance And Engineering Co., Ltd. 2025 2026 2027 2028 2029	Unused Amount $ 2,899,496 619,799 202,699 1,519,941 760,157 $ 6,002,092 $ 312,724 83,821 $ 396,545 $ 18,124 31,476 68,415 103,151 195,093 $ 416,259

e. Income tax assessment

The income tax returns for 2017 of the Company and its subsidiaries have been examined by the tax authorities.

29. EARNING PER SHARE

The numerators and denominators used in calculating earnings per share were as follows:

Basic earnings per share Diluted earnings per share 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	For the Year Ended December 31
		2019 $ (0.22) $ (0.22) $ (1,199,798) - $ (1,199,798)	$	2018 $ 0.33 $ 0.32 1,790,361 81,463 1,871,824
			$

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Thousand unit Weighted average number of ordinary shares in computation of basic earnings per share Effect of potentially dilutive ordinary shares: Convertible bonds Employees’ compensation or bonuses issued to employees Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended	For the Year Ended	December 31
		2019 5,418,096 - - 5,418,096	2018 5,453,579 457,481 8,821 5,919,881

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

30. BUSINESS COMBINATIONS

As stated in Note 14, the other disclosures of the Group’s acquisition of Kaohsiung Catering on March 7, 2018 are as follows:

a. Acquisition-related cash amounting to $243,743 thousand.
b. Assets acquired and liabilities assumed at the date of acquisition.

Assets Current assets (included cash and cash equivalents of $380,512) Property, plant and equipment Intangible assets Other assets Total assets Liabilities Identifiable net assets	$ 918,033 553,390 186,883 49,479 1,707,785 (486,356) $ 1,221,429

c. The Company acquired the control of Kaohsiung Catering (the date of acquisition), and the 35.78% equity held by the equity method was remeasured at the fair value of the acquisition date and the difference recognized in gain on disposal of investment is $69,671 thousand.
d. The non-controlling interest of Kaohsiung Catering (46.33% of equity) was valued $565,888 thousand; at the fair value of the identifiable net assets attributed to the non-controlling interest on the date of acquisition.
e. The bargain purchase benefit of $26,615 thousand of Kaohsiung Catering (the date of acquisition) was measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interests in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
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f. Impact of acquisitions of the Group

From the acquisition date, the operating results from the acquired Company, which are included in the consolidated statements of comprehensive income, are as follows:

Revenue Profit	Kaohsiung Catering $ 1,823,950
	$ 229,665

Had these business combinations been in effect at the beginning of the annual reporting period, the Group’s revenue from continuing operations would have been $171,039,102 thousand and the profit from continuing operations would have been $2,310,159 thousand. This pro-forma information is for illustrative purposes only and is not necessarily an indication of the revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on January 1, 2018, nor is it intended to be a projection of future results.

31. DISPOSAL OF SUBSIDIARIES

On January 21, 2019, the board of directors of the Company decided to sell part of Dynasty Holidays to H.I.S. Taiwan Co., Ltd. for disposal price of $34,036 thousand and a disposition of $7,656 thousand. After the disposal, the proportion of ownership decrease from 51% to 20%, loss control to the subsidiary.

a. Consideration received from disposals

Consideration received in cash and cash equivalents

b. Analysis of assets and liabilities on the date control was lost
Current assets
Cash and cash equivalents

Other current assets
Non-current assets
Current liabilities

Non-current liabilities

Net assets disposed of

c. Gain on disposals of subsidiaries
Consideration received

Net assets disposed of

Fair value of equity
Non-controlling interests
Reclassification of other comprehensive income in respect of subsidiaries

Gain on disposal

d. Net cash inflow on disposal of subsidiaries
Consideration received in cash and cash equivalents

Less: Cash and cash equivalent balances disposed of

$ 34,036
$ 51,449
47,510
17,035
(49,742)
(15,318)
$ 50,934
$ 34,036
(50,934)
10,187
24,957
(10,590)
$ 7,656
$ 34,036
(51,449)
$ (17,413)

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32. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Group consists of net debt (borrowings offset by cash and cash equivalents) and equity of the Group comprising issued capital, reserves, retained earnings, other equity and non-controlling interests.

To support its operating activities and purchase of aircraft, the Group needs to maintain sufficient capital. Therefore, the goal of capital management is to ensure financial resources and operating plan is able to support the future working capital, capital expenditures, debt repayment and dividend expenses and other needs.

33. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments
1) Financial instruments not evaluated at fair value

Except as detailed in the following table, the management considers the carrying amounts of financial assets and financial liabilities recognized in the financial statements as approximating their fair values.

Financial liabilities Bonds payable Loans and debt	December 31	December 31
	2019 Carrying Amount Fair Value $ 32,052,625 $ 32,062,874 67,663,783 67,663,783	2018
		Carrying Amount Fair Value $ 33,919,610 $ 31,651,865 76,395,635 74,404,225

Some long-term borrowings and capital lease obligations are floating-rate financial liabilities, so their carrying amounts are their fair values. As of December 31, 2019 and 2018, the fair values of long-term borrowings and private bonds with fixed interest rates are estimated at the present value of expected cash flows discounted at rates of 0.67% and 0.68%, respectively, prevailing in the market for long-term borrowings (Level 2). Fair values of bond payable trading in OTC and based on quoted market prices (Level 1).

2) Fair value measurements recognized in the balance sheets

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 is observable:

a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
b) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
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c) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

December 31, 2019 Financial assets at FVTPL Domestic money market funds Foreign exchange agreement Financial assets at FVTOCI Investments in equity instruments United shares - domestic Unlisted shares - foreign Financial liabilities at FVTPL Derivative instruments Financial assets for hedging Financial liabilities for hedging December 31, 2018 Financial assets at FVTPL Domestic money market funds	Level 1 $ 511,758 - $ 511,758 $ - - $ - $ - $ - $ 50,997,687 Level 1 $ 206,001	Level 2 $ - 434 $ 434 $ - - $ - $ 11,749 $ 147 $ 37,069 Level 2 $ -	Level 3 $ - - $ - $ 26,865 182,356 $ 209,221 $ - $ 9,479 $ 3,955 Level 3 $ -	Total $ 511,758 434 $ 512,192 $ 26,865 182,356 $ 209,221 $ 11,749 $ 9,626 $ 51,038,711 Total $ 206,001 (Continued)

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Financial assets at FVTOCI Investments in equity instruments United shares - domestic Unlisted shares - foreign Financial liabilities at FVTPL Derivative instruments Financial assets for hedging Financial liabilities for hedging	Level 1 $ - - $ - $ - $ - $ -	Level 2 $ - - $ - $ 221 $ 28,005 $ 560	Level 3 $ 21,746 110,445 $ 132,191 $ - $ 4,901 $ -	Total $ 21,746 110,445 $ 132,191 $ 221 $ 32,906 $ 560 (Concluded)

There were no transfers between Levels 1 and 2 in the current periods.

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

Financial Instruments Derivatives - foreign exchange forward contracts and interest rate swaps	Valuation Techniques and Inputs
	Discounted cash flows. Future cash flows are estimated based on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

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

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

The domestic unlisted equity investment is based on the comparative company valuation to estimate the fair value. The main assumptions are based on the multiplier of the market price of 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.

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The movements of Level 3 financial instruments are as follows:

			Liquidity	Liquidity
	Multiplicator		Discount
December 31, 2019	0.75-13.23			80%
December 31, 2018	0.74-15.29			80%
	Derivative			Equity
	Instruments		Instruments
Balance at January 1, 2019	$	4,901	$	132,191
Recognized in other comprehensive income		623		77,030
Balance at December 31, 2019	$	5,524	$	209,221
Balance at January 1, 2018	$	-	$	84,075
Adjustments on initial application of IFRS 9		-		47,510
Other comprehensive income recognized during the
period		4,901		606
Balance at December 31, 2018	$	4,901	$	132,191

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

b. Categories of financial instruments

Financial assets Financial assets at FVTPL Financial assets for hedging Financial assets at amortized cost (Note 1) Financial assets at FVTPCI - equity instrument investment Financial liabilities Financial liabilities at FVTPL Financial liabilities for hedging Financial liabilities at amortized cost (Note 2)	December 31
	2019 2018 $ 512,192 $ 206,001 9,626 32,906 41,479,556 40,496,618 209,221 132,191 11,749 221 51,038,711 560 134,240,993 127,271,892

Note 1: The balances include loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivable, accounts receivable - related parties, other receivables, refundable deposits, other financial assets and other restricted financial assets.
Note 2: The balances include financial liabilities measured at amortized cost, which comprise short-term debts, short-term notes payable, notes and accounts payable, accounts payable - related parties, other payables, bonds payable, long-term loans, lease liabilities payable, lease liabilities, provisions, part of other current liabilities, part of other non-current liabilities and guarantee deposits.
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c. Financial risk management objectives and policies

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

In addition, the Group has a risk management committee, which meets periodically to evaluate the performance of derivative instruments and determine the appropriate hedging percentage. This committee informs the Group 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 Group is primarily exposed to the financial risks of changes in foreign currency exchange rates and interest rates. The Group entered into derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk. The Group enters into foreign exchange 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.

a) Foreign currency risk

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

Sensitivity analysis

The Group was mainly exposed to the US dollar.

The following details the Group’s sensitivity to a one dollar increase or decrease in the New Taiwan dollar (the functional currency) against the relevant foreign currencies (i.e. the US dollar). This is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges and adjusts their translation at the end of the reporting period for a one US dollars increase/decrease against the New Taiwan dollar.

When New Taiwan dollars increase one dollar against U.S. dollars and all other variables were held constant, there would be a increase in pre-tax profit and increase in pre-tax other comprehensive income gain and losses for the year ended December 31, 2019 of $105,266 thousand and $1,612,256 thousand and a decrease in pre-tax profit and decrease in pre-tax other comprehensive income gain and loss for the year ended December 31, 2018 of $91,397 thousand and $13,620 thousand, respectively.

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

72 -

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 Group 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.

December 31, 2019

Notional
Line Item in
Hedging Instruments
Currency
Amount
Maturity
Forward Rate
Balance Sheet
Cash flow hedge
Aircraft rentals -
forward exchange
contracts
NTD/USD
NTD509,507/
USD16,967
2020.1.21-
2020.12.24
29.5-30.8
Financial assets for
hedging - current/
liabilities for hedging -
current
Aviation fuel - forward
exchange contracts
NTD/USD
NTD660,661/
USD22,000
2020.2.27-
2020.11.30
29.7-30.7
Financial assets for
hedging - current/
liabilities for hedging -
current
Aircraft prepayments-
forward exchange
contracts
NTD/USD
NTD1,411,411/
USD47,000
2020.11.4
29.6-30.5
Financial assets for
hedging - current/
liabilities for hedging -
current

Carrying Amount
Asset
Liability
$ 38
$ 8,491
32
10,193
77
18,385

The abovementioned hedging instruments continue to be applied to hedging accounting. The book value of other equity which belongs to each hedging item (aircraft rentals in U.S. dollars, aviation fuel and aircraft prepayments) are $(8,453) thousand, $(10,161) thousand and $(18,308) thousand, respectively.

December 31, 2018

	Notional			Line Item in		Carrying Amount	Carrying Amount
Hedging Instruments Currency	Amount	Maturity	Forward Rate Balance Sheet			Asset	Liability
Cash flow hedge
Aircraft rentals - NTD/USD	NTD2,265,231/	2019.1.7-	28.3-30.9	Financial assets for		$ 28,005	$	560
forward exchange	USD13,620	2019.12.26		hedging/liabilities	for
contracts				hedging
The above mentioned hedging instruments continue to				be applied to hedging accounting.				The
book value of other equity which belongs to each hedging item (aircraft rentals in U.S.							dollars
and Aircraft prepayment)	are $27,445	thousand.
For the year ended December 31, 2019
			Hedging Gain		Amount
				(Loss)	Reclassified to
			Recognized in		Profit and Loss
				Other	and the
			Comprehensive		Adjusted Line
Comprehensive Income				Income		Item
Cash flow hedge
Aircraft rentals			$ (35,897)		$	9,137	(Note)
Aviation fuel				(10,161)		(53)
Aircraft prepayments				(17,705)		-
			$ (63,763)		$	9,084

The above mentioned hedging instruments continue to be applied to hedging accounting. The book value of other equity which belongs to each hedging item (aircraft rentals in U.S. dollars and Aircraft prepayment) are $27,445 thousand.

Note: Increase in operating costs or exchange loss.

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And the amount of gains and losses on hedging instruments for the year ended December 31, 2019 reclassified from profit or loss to prepayments for equipment was $(603) thousand.

For the year ended December 31, 2018

	Hedging Gain	Hedging Gain	Amount
		(Loss)	Reclassified to
	Recognized in		Profit and Loss
		Other	and the
	Comprehensive		Adjusted Line
Comprehensive Income		Income	Item
Cash flow hedge
Aircraft rentals	$	80,440	$ (22,415)	(Note)
Aircraft prepayments		23,884	-
	$	104,324	$ (22,415)

Note: Increase in operating costs.

And the amount of gains and losses on hedging instruments for the year ended December 31, 2018 reclassified from profit or loss to prepayments for equipment was $12,118 thousand.

b) Interest rate risk

The Group enters into interest swap contracts to hedge against the risks on change in net liabilities interest rates. The risk is managed by the Group by maintaining an appropriate mix of fixed and floating rate borrowings, and using interest rate swap contracts and forward interest rate contracts.

The carrying amount of the Group’s financial assets and 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
	2019 2018 $ 91,414,806 $ 34,919,610 77,821,887 75,031,978

The sensitivity analyses below were determined based on the Group’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A one yard (25 basis) point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

Had interest rates increased one yard (25 basis) points higher and had all other variables been held constant, the Group’s pre-tax profit for the year ended December 31, 2019 would have decreased by $194,555 thousand.

Had interest rates increased one yard (25 basis) points higher and had all other variables been held constant, the Group’s pre-tax profit for the year ended December 31, 2018 would have decreased by $187,580 thousand.

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c) Other price risk

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

December 31, 2019

Notional Line Item in Hedging Instrument Currency Amount Maturity Forward Rate Balance Sheet Cash flow hedges - fuel options USD NT$5,524 2020.3.31- 2020.12.31 US$49.65- US$80.75 Financial assets for hedging	Carrying Amount
	Asset Liability $ 9,479 $ 3,955

Hedge accounting is continued to be applied to the abovementioned hedging instruments continue to be applied to hedging accounting. The carrying amount of other equity which belongs to each hedging item (fuel payments) is $5,524 thousand.

December 31, 2018

Notional Line Item in Hedging Instrument Currency Amount Maturity Forward Rate Balance Sheet Cash flow hedges - fuel options USD NT$4,901 2019.1.31- 2019.12.31 US$72-US$88 Financial assets for hedging	Carrying Amount
	Asset Liability $ 4,901 $ -

For the year ended December 31, 2019

		Hedging Gain	Amount
		(Loss)	Reclassified to
		Recognized in	Profit and Loss
		Other	and the
		Comprehensive	Adjusted Line
Comprehensive Income		Income	Item
Cash flow hedges - fuel options		$ 623	$ (13,597)	(Note)
Note:	Increase in operating costs.
For the year ended December 31, 2018
		Hedging Gain	Amount
		(Loss)	Reclassified to
		Recognized in	Profit and Loss
		Other	and the
		Comprehensive	Adjusted Line
Comprehensive Income		Income	Item
Cash flow hedges - fuel options		$ 4,901	$ (9,421)	(Note)
Note:	Increase in operating costs.

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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 of 5% Fuel price decrease of 5%	For the Year Ended December 31	For the Year Ended December 31
	2019 Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ - $ 7,973 - -	2018
		Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ - $ - - -

2) Credit risk

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

Operation - related credit risk

The Group has established procedures to management operations related credit risk to maintain the quality of accounts receivable.

To assess individual customers, the Group consider into the financial condition of the customers, the credit rating agency rating, the Group’s internal credit rating, transaction history and current economic conditions and many other factors that may affect the repayment. Sometimes, the Group uses certain credit enhancement tools to reduce the credit risk of specific customers. Since the customers of the industry is dispersed and non-related, the credit risk concentration is not critical aviation.

Financial credit risk

Credit risk on bank deposits, investments income and other financial instruments are measured and monitor by the Group’s finance department. The Group’s trading partners and other parties were 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.

3) Liquidity risk

The objective of the Group’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 Group has adequate financial flexibility.

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Liquidity and interest risk rate table

The following table shows the remaining contractual maturity analysis of the Group’s financial liabilities with agreed-upon repayment periods, which were based on the date the Group may 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 Group’s liquidity analysis for its derivative financial instruments is also shown in the following table. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted 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.

December 31, 2019

The Weighted Average Effective Interest Rate (%) Less than 1 Year Lease liabilities 1.1613 $ 3,357,996 Floating interest rate liabilities 1.9058 15,254,687 Derivative instruments 3.1131 10,060,822 Bonds payable 2.2573 10,823,905 - $ 39,497,410 December 31, 2018 The Weighted Average Effective Interest Rate (%) Less than 1 Year Lease liabilities 1.3104 $ 641,524 Floating interest rate liabilities 1.8105 14,853,360 Fixed interest rate liabilities 0.1034 2,000,517 Hedging instruments - 239,138 Bonds payable 1.3905 5,999,321 $ 23,733,860	1 to 5 Years $ 10,622,204 36,274,033 39,729,062 19,871,174 $ 106,496,473 1 to 5 Years $ 3,024 42,143,959 - - 30,835,449 $ 72,982,432	Over 5 Years $ 8,949,194 16,785,664 6,373,333 3,383,401 $ 35,491,592 Over 5 Years $ - 20,810,464 - - 1,051,418 $ 21,861,882

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Loan commitments

Unused bank loan limit (unsecured)

December 31 2019 2018 $ 18,422,000 $ 17,337,000

34. RELATED-PARTY TRANSACTIONS

The transactions, accounts balances, income and expenses between related parties were eliminated from the consolidated report and, therefore, were not disclosed in this note. Except for the disclosures stated in other notes, transactions between the Group and its related parties are disclosed below:

a. Related parties’ names and relationships

Name Relationship with the Company

Dynasty Holidays Associate (become associate in January 2019) Kaohsiung Catering Services Subsidiary (become subsidiary in March 2018) China Aircraft Service Associate Airport Air Cargo Terminal (Xiamen) Co., Ltd. Associate Airport Air Cargo Service (Xiamen) Co., Ltd. Associate Eastern United International Logistics (Hong Kong) Associate China Pacific Catering Services Joint venture investment China Pacific Laundry Services Joint venture investment NORDAM Asia Ltd. Joint venture investment Delica International Co., Ltd. Joint venture investment China Aviation Development Foundation Director of the Company and major shareholder Others Director, key management personnel, chairman, general manager of the Group, spouse and second-degree relative

b. Operating income

Account Items Related Party Type Other income Major shareholder of the Company Associate Joint venture investment Purchases Related Party Type Major shareholder of the Company Associate Joint venture investment	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2019 2018 $ 25,457 $ 28,670 $ 1,239 $ 523 $ 42,457 $ 41,410 For the Year Ended December 31
		2019 $ 56,474 $ 414,106 $ 1,911,091	2018 $ 64,188 $ 501,609 $ 1,912,995

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

Related Party Type Joint venture investment Major shareholder of the Company		December 31	December 31
		2019 $ 7,760 2,588 $ 10,348	2018 $ 7,589 1,454 $ 9,043

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 Associate Joint venture investment Major shareholder of the Company		December 31	December 31
		2019 $ 51,333 484,700 5,982 $ 542,015	2018 $ 54,948 474,499 3,368 $ 532,815

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

f. Leases of properties (operating leases)

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 on usage hours. In 2019 and 2018, the Company had paid rentals of about $56,474 thousand and $64,188 thousand, respectively.

g. Endorsements and guarantees

The Company CAL Park Taiwan Air Cargo Terminal Tigerair Taiwan Taiwan Air Craft Maintenance	December 31	December 31
	2019 Authorized Amount Actual Amount Used $ 3,850,000 $ 2,129,400 1,080,000 - 3,012,668 685,444 2,000,000 1,279,827	2018
		Authorized Amount Actual Amount Used $ 3,850,000 $ 2,339,700 1,080,000 - 1,081,792 418,491 2,000,000 605,457

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h. Compensation 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
		2019 $ 39,693 2,362 $ 42,055	2018 $ 44,551 3,295 $ 47,846

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

35. PLEDGED ASSETS

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

Property, plant and equipment Right-of-use assets Restricted assets - non-current Pledged certificate deposits		December 31	December 31
		2019 $ 31,260,801 71,033,617 130,052 $ 102,424,470	2018 $ 42,066,242 - 169,925 $ 42,236,167

36. COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2019, except for the disclosures stated in other notes, the Group had commitments and contingent liabilities (except for those mentioned in other notes) as follows:

a. For operation needs, the board of directors of Mandarin Airlines resolved to enter into a contract to buy six ATR72-600 aircraft, and the total list price of the six aircraft was $120,000 thousand. The expected delivery period ranges from June 2018 to June 2020, as of December 31, 2019, four of the aircraft has been handed over to the company, and the total list price of the lefts two aircraft was $40,000 thousand, which has been paid in the amount of US$8,314 thousand (recognized as prepayments for aircraft).
b. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20 years from the date of transfer of the chartered operation rights from CAA to TACT. The terminal expansion and improvements and the equipment installation and upgrade in the Taiwan Taoyuan International Airport cargo terminal and Kaohsiung cargo terminal were expected to be completed in the first 10 years of the COP. This construction project was approved by TACT’s board of directors in 2003. TACT filed an application for a 10-year extension of the COP for the cargo terminals in the Taiwan Taoyuan International Airport and Kaohsiung International Airport and received the approval from the Taoyuan Airport Corporation and CAA in July 2013 and July 2015, respectively.

The original total expenditure of the previous main construction project was $8,490,000 thousand. However, TACT filed an arbitration for the total amount of expenditure in 2012 to revise the total amount to $6,840,000 thousand.

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As of December 31, 2019, TACT had signed the following construction contracts with unrelated parties:

		Contract
		Amount (VAT
Client Name	Contract Title	Included)
CECI Engineering	Cargo Terminal Expansion Construction Consultant	$ 552,285
Consultant, Inc., Taiwan	Contract

As of December 31, 2019, the cumulated consultant service expense and construction equipment had amounted to $481,776 thousand (VAT included) and $5,212,622 thousand (VAT included), respectively. Upon completion of the projects, the amount of $468,755 thousand (VAT included) and $5,200,780 thousand (VAT included) were reclassified to property, plant, and equipment. The remaining cumulative payments were recognized under construction in progress.

Assets acquired from cargo terminal improvements, equipment acquisition and subsequent equipment acquisition and replacement will be transferred to the government without any compensation when the chartered operating license expires.

TACT should pay royalties to Taoyuan Airport Corporation and the CAA during the chartered operation period. The calculation is based on annual sales (including operating and non-operating revenue but excluding the rental revenue from specific districts), and Taoyuan Airport Corporation and the CAA have the option to adjust the royalty rates every 3 years starting from the date of transfer of the chartered operation rights on the basis of actual revenue and expenditures. The current royalty rate is 6%.

c. CAL Park Co., Ltd. (“CAL Park”) signed “Taiwan Taoyuan International Airport Aviation Operation Center (including Airport Hotel) Construction Operating Contract” with the CAA on September 20, 2006. However, on November 1, 2010, the Taoyuan Airport Corporation took over the CAA’s rights on this contract from the CAA. The contract is effective for 50 years (consisting of the development stage and operating period) from the contract date. Three years before contract expiry date, CAL Park has the first option to renew the contract once with a 20-year extension.

CAL Park’s business scope includes providing business and other operating space related to civil air transport, hotels, aviation service and related industries adhered to the base and essential services law and approved by the Taoyuan Airport Corporation.

CAL Park should pay land rentals on the date of the registration of surface rights. The rental rates for the development stage differ from those for the operation period. The rental rates should follow Article No. 2 of the “Regulations for Favorable Rentals Regarding Public Land Lease and Superficies in Infrastructure Projects,” which states that rental calculation in the development stage should include the land value added tax plus the necessary maintenance fee; in the operation period, rentals are 60% of the amount based on the National Building Land Rental Standard plus land value tax, value-added tax and the necessary maintenance fee.

During the 50 years beginning from the initial operation date of CAL Park to the end of the construction period, CAL Park should pay royalties based on the operating revenue estimated in the financial plan of its investment execution proposal. If the sales and business tax declared and filed by a business entity for a single year exceeds 10% of the operating revenue as estimated in the financial plan in its investment execution proposal, CAL Park should pay additional royalties at 10% of this excess.

81 -

CAL Park should submit the asset transfer plan within five years before the expiry date of the chartered operation period, begin the negotiation of the asset transfer contract, and complete the assignation no later than three years before the expiry date of the chartered period. If CAA decides not to keep the building and equipment on the base area, CAL Park should remove all related building and equipment within three months after the expiry date.

d. The Company failed to mediate labor disputes with the labor union. After obtaining the right to strike, the labor union went on strike on February 8, 2019, and the flights resumed normal operation on February 14, 2019. A total of 214 flights was cancelled and the accumulated revenue loss was about $500 million. The initial estimated compensation for customer losses and other expenditures were about $54 million (recognized as operating cost).
e. In October 2019, the Company signed a contract with Airbus S.A.S. to purchase eleven A321neo aircraft and an option to purchase five A321neo aircraft. The total list price of the eleven aircraft is US$1,676,413 thousand, and the list price of the option to purchase five aircraft is US$769,922 thousand. The expected delivery period of the eleven aircraft ranges from 2024 to 2026. As of December 31, 2019, the list price has been paid in the amount of US$17,014 thousand (recognized as prepayments for aircraft). In October 2019, the Company signed a contract with International Aero Engines Company to purchase four backup engines of A321neo. The total list price of the four engines is US$60,289 thousand.
f. In July and August 2019, the Company signed a contract with the Boeing Company to purchase three B777F aircraft and exercised the option to purchase three B777F aircraft. The total list price of the six aircraft is US$2,320,315 thousand, and the expected delivery period is from 2020 to 2023. As of December 30, 2019, the list price has been paid in the amount of US$241,650 thousand (recognized as prepayments for aircraft).
g. In September 2019, Tigerair Taiwan Co., Ltd. signed a contract with Airbus S.A.S. to purchase seven A320neo aircraft and an option to purchase two A320neo aircraft. The total list price of the seven aircraft is US$729,746 thousand, and the list price of the option to purchase two aircraft is US$208,499 thousand. The expected delivery period of the seven aircraft ranges from 2025 to 2028. As of December 30, 2019, the list price has been paid in the amount of US$9,324 thousand (recognized as prepayments for aircraft). In addition, in December 2019, Tigerair Taiwan Co., Ltd. signed a contract with International Aero Engines Company to purchase two backup engines of A320neo aircraft. The total list price of the two engines is US$27,345 thousand.

37. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

By the end of January 2020, the Coronavirus that originated from Wuhan, the capital city of Hubei province in China, became a pandemic. The Company has complied and continues to comply with the travel alerts issued by the Taiwan Centers for Disease Control and has cancelled flights between several countries like China, Hong Kong, Japan and Korea. Other flights have flexible capacity depending on the reduction of demand. So far, the air transport services for passengers have been severely affected. In addition to adjusting the operation, the Company also takes measures about funding assistance, human resources, reducing expenditure, and asks the government for help in three main areas including guarantee for its operation, relief from the burden, and a recovery plan.

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38. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

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

December 31, 2019

		Foreign
	Currencies (In			Carrying
	Thousands)		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	658,407	30.0300	$ 19,771,957
EUR		18,401	33.6700	619,571
HKD		228,234	3.8595	880,868
JPY		6,262,272	0.2766	1,732,130
CNY		425,343	4.3048	1,831,012
Financial liabilities
Monetary items
USD		2,480,896	30.0300	74,501,305
EUR		7,638	33.6700	257,155
HKD		74,651	3.8595	288,117
JPY		6,584,434	0.2766	1,821,237
CNY		153,196	4.3048	659,478
December 31, 2018
		Foreign
	Currencies (In			Carrying
	Thousands)		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	532,196	30.7692	$ 16,375,237
EUR		20,519	35.2113	722,514
HKD		302,930	3.9231	1,188,425
JPY		6,479,942	0.2778	1,800,967
CNY		394,503	4.4803	1,767,491
Financial liabilities
Monetary items
USD		441,798	30.7692	13,593,777
EUR		7,806	35.2113	274,873
HKD		79,716	3.9231	310,978
JPY		5,586,337	0.2778	1,552,067
CNY		150,536	4.4803	674,446

83 -

For the years ended December 31, 2019 and 2018, the Group’s net foreign exchange gain (losses) were $(141,611) thousand and $41,843 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 and functional currencies of the group entities.

39. ADDITIONAL DISCLOSURES

a. Following are the additional disclosures required by the Securities and Futures Bureau for the Company and its investees:
1) Financing provided: None
2) Endorsements/guarantees provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)
4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: Table 3 (attached)
5) Acquisitions of individual real estates at costs or price of at least NT$300 million or 20% of the paid-in capital: None
6) Disposals of individual real estates at costs or prices of at least NT$300 million or 20% of the paid-in capital: None
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 4 (attached)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 5 (attached)
9) Names, locations, and related information of investees over which the Company exercises significant influence: Table 6 (attached)
10) Derivative financial transactions (Notes 7 and 8)
b. Investment in mainland China: Table 7 (attached)
c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries: Table 8 (attached)
84 -

40. SEGMENT INFORMATION

a. Segment information

The Group mainly engages in air transportation services for passengers and cargo; the services include airport service, storage service, and other air transportation services which are below the financial threshold for an operating segment of the Group. Therefore, the Group’s main reportable segment is air transportation. The accounting policies of the reportable segment are consistent with the accounting policies described in Note 4.

Operating revenue Operation profit and losses Interest revenue Investments income accounted for using the equity method Revenue Financial costs Expenses Profit before income tax Identifiable assets Investments accounted for using the equity method Assets Total assets Operating revenue Operation profit and losses Interest revenue Investments income accounted for using the equity method Revenue Financial costs Expenses Profit before income tax Identifiable assets Investments accounted for using the equity method Assets Total assets	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019
	Air Transportation Others Adjustments and Write-offs $ 164,492,453 $ 11,067,323 $ (7,115,616) $ 1,302,647 $ 1,449,620 $ (86,446) $ 209,397,850 $ 15,915,060 (6,317,254) For the Year Ended December 31, 2018			Total $ 168,444,160 $ 2,665,821 417,446 332,305 495,249 (3,340,119) (667,519) $ (96,817) $ 218,995,656 2,223,793 71,828,530 $ 293,047,979
	Air Transportation $ 167,370,925 $ 2,617,116 $ 154,007,329	Others $ 10,430,156 $ 1,429,884 $ 11,036,945	Adjustments and Write-offs $ (7,089,474) $ (24,617) 138,787	Total $ 170,711,607 $ 4,022,383 330,710 367,246 157,301 (1,379,985) (416,406) $ 3,081,249 $ 165,183,062 2,200,149 62,753,370 $ 230,136,582

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b. Geographical segment

The geographical segment information of the Company and its subsidiaries in 2019 and 2018 are listed below:

Operating revenue Operation profit and losses Interest revenue Investments income accounted for using the equity method Revenue Interest expense Expenses Profit before income tax Identifiable assets Investments accounted for using the equity method Assets Total assets Operating revenue Operation profit and losses Interest revenue Investments income accounted for using the equity method Revenue Interest expense Expenses Profit before income tax Identifiable assets Investments accounted for using the equity method Assets Total assets					For the Yea	r Ended December 31	, 2019
		America $ 40,324,160 $ (507,237) $ 1,399,591	Northeast Asia $ 39,232,038 $ 2,537,003 $ 222,584	Southeast Asia $ 33,354,405 $ (3,497,592) $ 154,074	Europe $ 15,638,657 ($ 868,091) $ 26,707 For the Yea	Australia $ 7,073,170 $ (139,573) $ 8,985 r Ended December 31	China $ 21,790,943 $ 1,913,140 $ 50,948 , 2018	Domestic $ 18,146,403 $ 3,314,617 $ 223,450,021	Adjustment and Eliminations $ (7,115,616) ($ 86,446) $ (6,317,254)	Consolidation $ 168,444,160 $ 2,665,821 417,446 332,305 495,249 (3,340,119 ) (667,519) $ (96,817) $ 218,995,656 2,223,793 71,828,530 $ 293,047,979
		America $ 43,278,890 $ 582,721 $ 1,328,004	Northeast Asia $ 38,464,450 $ 2,717,255 $ 15,520	Southeast Asia $ 34,132,301 $ (2,412,823) $ 94,631	Europe $ 16,092,452 ($ 756,263) $ 2,796	Australia $ 6,760,146 $ (904,416) $ 2,619	China $ 22,114,227 $ 2,454,935 $ 10,174	Domestic $ 16,958,615 $ 2,365,591 $ 163,590,530	Adjustment and Eliminations $ (7,089,474) ($ 24,617) $ 138,787	Consolidation $ 170,711,607 $ 4,022,383 330,710 367,246 146,667 (1,369,351 ) (416,406) $ 3,081,249 $ 165,183,061 2,200,149 62,753,372 $ 230,136,582

86 -

TABLE 1

CHINA AIRLINES, LTD. AND INVESTEES

ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorsement/ Guarantee Provider	Counterparty	Counterparty	Limit on Each Counterparty’s Endorsement/ Guarantee Amount (Note 1)	Maximum Balance for the Period	Ending Balance	Actual Borrowing Amount	Value of Collaterals Property, Plant or Equipment	Ratio of Accumulated Amount of Collateral to Net Equity of the Latest Financial Statement (%)	Maximum Collateral/ Guarantee Amounts Allowable (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	Nature of Relationship
0	China Airlines (the “Company”)	CAL Park Taiwan Air Cargo Terminal Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd.	100% subsidiary 54% subsidiary 77.17% subsidiary by direct and indirect holdings 100% subsidiary	$ 11,310,754 11,310,754 11,310,754 11,310,754	$ 3,850,000 1,080,000 3,055,475 2,000,000	$ 3,850,000 1,080,000 3,012,668 2,000,000	$ 2,129,400 - 685,444 1,279,827	$ - - - -	6.81 1.91 5.33 3.54	$ 28,276,886 28,276,886 28,276,886 28,276,886	Y Y Y Y	N N 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.

87 -

TABLE 2

CHINA AIRLINES, LTD. AND INVESTEES

MARKETABLE SECURITIES HELD DECEMBER 31, 2019

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

Holding Company Name	Marketable Security Type and Issuer/Name	Relationship with the Holding Company	Financial Statement Account		December 31, 2019	December 31, 2019		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.	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 HAECO Composite Structures (Jinjiang) Beneficiary certificates Franklin Templeton SinoAm Money Market Fund FSITC Money Market Fund Allianz Global Investors Taiwan Money Market Fund Capital Money Market Fund Shares TransAsia Airways Beneficial certificates Fuh Hwa Emerging Market Short-term Income Fund Fuh Hwa Global Bond Fund Shares China Airlines Beneficiary certificates Taishin 1699 Money Market Fund	- - - - - Parent company - - - - - - - - - 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 FVTPL - current Financial assets at FVTPL - current Financial assets at FVTOCI - non-current Financial assets at FVTPL - current	1,359,368 135,937 1,100,000 12,000,000 4,021 2,074,628 - - 7,816,048 497,740 6,444,010 2,842,146 2,277,786 1,671,657 1,233,211 814,152 349,523	$ 73,628 7,363 26,865 - - 18,796 - 101,365 81,124 89,145 81,065 46,035 - 20,253 18,045 7,376 4,748	13.59 - 11.00 15.00 0.02 - 2.59 5.45 - - - - 0.4 - - - -	$ 80,991 - 26,865 - - 18,796 - 101,365 81,124 89,145 81,065 46,035 - 20,253 18,045 7,376 4,748	Note 1 - Note 2 Note 2 - - - - -
							(Continued)

88 -

Holding Company Name	Marketable Security Type and Issuer/Name	Relationship with the Holding Company	Financial Statement Account		December 31, 2019	December 31, 2019		Note
				Number of Shares/Units	Carrying Amount	Percentage of Ownership (%)	Market Value or Net Asset Value
Kaohsiung Catering Services Tigerair Taiwan Co., Ltd.	Beneficiary certificates Prudential Financial Money Market Fund Prudential Financial Return Fund Taishin 1699 Money Market Fund Government bond Philippines government bond	- - - -	Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current Amortized cost financial assets	5,407,832 4,493,628 1,106,807 -	$ 85,886 70,423 15,035 299	- - - Not applicable	$ 85,885 70,423 15,035 299	-

Note 1: The subsidiary’s net asset value was $80,991 thousand, which included ordinary shares and preference shares as of and for the year ended December 31, 2019.

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

Note 3: The table only lists financial assets that are IFRS 9 regulated.

(Concluded)

89 -

TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2019

(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.	Shares Tigerair Taiwan Co., Ltd.	Investments accounted for using the equity method	(Note 5)	Non-related party	-	$ -	-	$ -	-	$ -	$ -	$ -	-	$ -

Note 1: The marketable securities in this table refer to shares, bonds, beneficial certificates and the securities derived from the above items.

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

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

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

Note 5: Subsidiaries planning initial public offering release stocks.

90 -

TABLE 4

CHINA AIRLINES, LTD. AND INVESTEES

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, 2019

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

Company Name	Related Party	Nature of Relationship		Transaction Details	Transaction Details		Abnormal Transaction	Abnormal Transaction	Note/Account Payable or Receivable	Note/Account Payable or Receivable	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 Tigerair Taiwan	Taiwan Air Cargo Terminal Taiwan Airport Services Mandarin Airlines Mandarin Airlines Tigerair Taiwan Tigerair Taiwan Taoyuan International Airport Service Kaohsiung Catering Services Hua Hsia CAL Park Cal Hotel Global Sky Express Eastern United International Logistics China Pacific Laundry Services China Pacific Catering Services China Aircraft Services Taiwan Airport Services CAL Park Taoyuan International Airport Service	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee Equity-method investee Equity-method investee Equity-method investee Same parent company Same parent company Same parent company	Purchase Purchase Sale Purchase Sale Purchase Purchase Purchase Purchase Purchase Purchase Sale Purchase Purchase Purchase Purchase Purchase Purchase Purchase	$ 524,457 445,472 (1,971,462) 242,114 (373,811) 152,914 1,220,422 561,443 349,602 231,288 135,687 (101,421) 216,368 120,088 1,791,003 169,400 189,853 114,281 197,179	0.39 0.33 1.35 0.18 0.26 0.11 0.90 0.42 0.26 0.17 0.10 0.07 0.16 0.09 1.33 0.13 2.56 26.07 2.53	30 days 40 days 2 months 2 months 1 months 1 months 40 days 60 days 2 months 2 months 1 months 15 days 2 months 2 months 90 days 30 days 1 months 1 months 1 months	$ - - - - - - - - - - - - - - - - - -	- - - - - - - - - - - - - - - - - -	$ (41,017) (77,970) 158,123 (247,997) 42,642 (31,210) (347,127) (99,649) (37,860) (127) (40,293) 3,888 (23,430) (20,118) (464,582) (27,679) (27,760) (382) (24.389)	(1.52) (2.90) 1.83 (9.21) 0.49 (1.16) (12.90) (3.70) (1.41) - (1.50) 0.05 (0.87) (0.75) (17.26) (1.03) (3.74) (0.53) (3.66)	- - - - - - - - - - - - - - - - - -

91 -

TABLE 5

CHINA AIRLINES, LTD. AND INVESTEES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2019

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

Company Name	Related Party	Nature of Relationship	Ending Balance	Turnover Rate	Overdue	Overdue	Amounts Received in Subsequent Period	Allowance for Bad Debts
					Amount	Action Taken
China Airlines, Ltd. (“China Airlines”) Mandarin Airlines China Pacific Catering Services Taoyuan International Airport Service	Mandarin Airlines China Airlines China Airlines China Airlines	Subsidiary Parent company Parent company Parent company	$ 158,123 247,997 464,582 347,127	Note Note 3.90 3.43	$ - - - -	- - - -	$ 158,123 245,364 311,356 340,924	$ - - - -

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

92 -

TABLE 6

CHINA AIRLINES, LTD. AND INVESTEES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE FOR THE YEAR ENDED DECEMBER 31, 2019

(In thousands of New Taiwan Dollars and Foreign Currencies in Thousands, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Business and Product	Investment Amount	Investment Amount	Balance a	s of December 31, 2019	s of December 31, 2019	Net Income (Loss) of the Investee	Investment Income (Loss)	Note
				December 31, 2019	December 31, 2018	Number of Shares/Units	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 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 8,000 2,500 1,272,063 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 1,648,387 1,350,000 2,450 200,000 11,658 HK$ 3,329 US$ 5,877 10,200	150,000,000 188,154,025 135,000,000 2,614,500 43,911,000 34,300,000 7,172,346 13,021,042 28,400,000 20,626,644 21,494,637 46,500,000 13,750,000 77,270 1,600,000 160 250,000 138,906,275 135,000,000 3,797,500 15,433,000 469,755 1,050,000 - 1,020,000	100.00 93.99 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 69.45 100.00 49.00 7.72 1.08 35.00 100.00 51.00	$ 1,552,310 1,494,603 1,517,946 1,276,546 801,071 737,245 559,562 460,213 461,263 276,134 661,170 479,259 168,547 88,313 25,268 10,004 7,294 1,946,328 921,989 37,813 216,243 6,281 42,717 347,551 7,867	$ 1,163 204,018 271,552 41,262 511,121 291,522 30,820 195,347 51,828 156,861 292,632 16,787 27,327 17,008 (480) (894) 6,392 808,718 (206,151) (144) 808,718 156,861 9,678 23,107 (4)	$ 47,694 191,322 146,642 41,262 256,899 142,846 30,819 183,490 10,365 74,274 142,886 18,020 15,030 16,857 (384) (480) 1,598 699,039 (206,149) (70) 77,587 1,689 3,387 23,107 (2)	Note 4 Notes 1 and 4 Note 4 Notes 2 and 4 - - - - - - Note 5 Note 4 - Notes 1 and 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: Difference caused by lease arrangement between consolidated entities.

Note 5: Difference cause by acquisition.

93 -

TABLE 7

CHINA AIRLINES, LTD. AND INVESTEES

INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2019 (In thousands of New Taiwan Dollars/Renminbi/US Dollars)

China Airlines

Investee Company Name	Main Business and Product	Main Business and Product	Total Amount of Paid-in Capital	Investment Type	Investment Type	Accumulated Outflow of Investment from Taiwan as of January 1, 2019	Investment Flow	Investment Flow	Accumulated Outflow of Investment from Taiwan as of December 31, 2019	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss)	Carrying Amount as of December 31, 2019	Accumulated Inward Remittance of Earnings as of December 31, 2019
							Outflow	Inflow
Airport Air Cargo Terminal (Xiamen) Co., Ltd. Airport Air Cargo Service (Xiamen) Co., Ltd. Taikoo (Xiamen) Landing Gear Services HAECO Composite Structures (Jinjiang)	Forwarding and storage of air cargo Forwarding and storage of air cargo Landing gear maintenance services Composite material		$ 10,95,480 (RMB 254,480) 60,267 (RMB 14,000) 2,495,195 (US$ 83,090) 350,240 (US$ 11,663)	Indirect (Note 1) Indirect (Note 1) Indirect (Note 1) Indirect (Note 1)		$ 125,705 (US$ 4,186) 58,482 (US$ 1,947) 64,601 (US$ 2,151) 19,099 (US$ 636)	$ - - - -	$ - - - -	$ 125,705 (US$ 4,186) 58,482 (US$ 1,947) 64,601 (US$ 2,151) 19,099 (US$ 636)	$ 76,711 (RMB 17,107) 89,573 (RMB 19,975) - -	14.00 14.00 2.589 5.45	$ 10,795 (RMB 2,395) 12,606 (RMB 2,796) - -	$ 223,683 (RMB 51,962) 124,071 (RMB 28,822) - 42,718 (RMB 9,923)	$ 86,208 (US$ 2,802) (Note 2) 26,933 (US$ 875) (Note 2) - -

Accumulated Investment in Mainland China as of December 31, 2019		Investment Amount Authorized by Investment Commission, MOEA			Limit on Investment
$267,886 (US$8,920)		$650,192 (Note 3)			$36,079,270 (Note 4)

(Continued)

94 -

Taiwan Airport Services

Investee Company	Main Business and Product	Main Business and Product	Paid-in Capital	Method of Investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2019	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2019	Remittance of Funds	Remittance of Funds	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2019	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Income (Loss)	Carrying Amount as of December 31, 2019	Accumulated Repatriation of Investment Income as of December 31, 2019
							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		$ 1,095,480 (RMB 254,480) 60,267 (RMB 14,000)	Indirect (Note 5) Indirect (Note 5)	$ 120,671 (US$ 4,018) 57,860 (US$ 1,927)		$ - -	$ - -	$ 120,671 (US$ 4,018) 57,860 (US$ 1,927)	$ 76,711 (RMB 17,107) 89,573 (RMB 19,975)	14.00 14.00	$ 10,740 (RMB 2,395) 12,540 (RMB 2,796)	$ 222,478 (RMB 51,682) 124,279 (RMB 28,870)	$ 114,304 (US$ 3,806) 42,240 (US$ 1,407)

Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2019		Investment Amounts Authorized by Investment Commission, MOEA				Upper Limit on the Amount of Investment Stipulated by Investment Commission, MOEA
$178,532 (US$5,945)		$178,532 (US$5,945)				$349,906 (Note 4)

Note 1: China Airlines, Ltd. the “Company” invested in CAL-Asia Investment, which, in turn, invested in a company located in mainland China.

Note 2: The inward remittance of earnings in 2019 amounted to US$2,801,749 and US$875,330.

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

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

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

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

(Concluded)

95 -

TABLE 8

CHINA AIRLINES, LTD. AND SUBSIDIARIES

BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 2019

(In Thousands of New Taiwan Dollars)

No.	Company Name	Related Party	Natural of Relationship (Note 1)		Intercompany Transactions	Intercompany Transactions
				Financial Statement Account	Amount	Transaction Criteria	% of Total Consolidated Total Revenue or Assets
0	China Airlines, Ltd.	Mandarin Airlines Mandarin Airlines Tigerair Taiwan Co., Ltd. Mandarin Airlines Taoyuan International Airport Services Taiwan Airport Service Dynasty Aerotech International Corp. Taiwan Air Cargo Terminal CAL Park Cal Hotel Co., Ltd. Kaohsiung Catering Services Mandarin Airlines Mandarin Airlines Taoyuan International Airport Services Mandarin Airlines	a a a a a a a a a a a a a a a	Passenger revenue Other operating revenue Other operating revenue Passenger costs Airport service costs Airport service costs Airport service costs Other operating costs Other operating costs Other operating costs Other operating costs Accounts receivable - related parties Accounts payable - related parties Accounts payable - related parties Bonds payable - non-current	$ 1,728,158 243,304 373,811 242,114 1,220,422 445,472 349,602 524,457 231,288 135,687 561,443 158,123 247,997 347,127 250,000	The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions	1.03 0.14 0.22 0.14 0.72 0.26 0.21 0.31 0.14 0.08 0.33 0.05 0.08 0.11 0.08
1	Taiwan Air Cargo Terminal	China Airlines, Ltd.	b	Sales revenue	524,457	The same as ordinary transactions	0.31
2	Mandarin Airlines	China Airlines, Ltd. Taiwan Airport Service China Airlines, Ltd. China Airlines, Ltd. China Airlines, Ltd. China Airlines, Ltd. China Airlines, Ltd.	b c b b b b b	Passenger costs Airport service costs Passenger revenue Operating expenses Accounts receivable - related parties Financial assets at amortized costs Notes payable and accounts payable - related parties	1,728,158 189,853 242,114 243,304 247,997 250,000 158,123	The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions	1.03 0.11 0.14 0.14 0.08 0.08 0.05
3	Taoyuan International Airport Services	Tigerair Taiwan Co., Ltd. China Airlines, Ltd. China Airlines, Ltd.	c b b	Airport service revenue Airport service revenue Accounts receivable - related parties	197,179 1,220,422 347,127	The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions	0.12 0.72 0.11
4	Taiwan Airport Service	China Airlines, Ltd. Mandarin Airlines	b c	Operating revenue Operating revenue	445,472 189,853	The same as ordinary transactions The same as ordinary transactions	0.26 0.11
5	Dynasty Aerotech International Corp.	China Airlines, Ltd.	b	Operating revenue	349,602	The same as ordinary transactions	0.21

(Continued)

96 -

No.	Company Name	Related Party	Natural of Relationship (Note 1)		Intercompany Transactions	Intercompany Transactions
				Financial Statement Account	Amount	Transaction Criteria	% of Total Consolidated Total Revenue or Assets
6	CAL Park	China Airlines, Ltd. Cal Hotel Co., Ltd.	b c	Operating revenue Operating revenue	$ 231,288 114,281	The same as ordinary transactions The same as ordinary transactions	0.14 0.07
7	Cal Hotel Co., Ltd.	China Airlines, Ltd. CAL Park	b c	Operating revenue Operating costs	135,687 114,281	The same as ordinary transactions The same as ordinary transactions	0.08 0.07
8	Tigerair Taiwan Co., Ltd.	China Airlines, Ltd. Taoyuan International Airport Services	b c	Operating expenses Airport service costs	373,811 197,179	The same as ordinary transactions The same as ordinary transactions	0.22 0.12
9	Kaohsiung Catering Services	China Airlines, Ltd.	b	Operating revenue	561,443	The same as ordinary transactions	0.18

Note 1: The three directional types for transactions by business relationship between China Airlines, Ltd. and its subsidiaries are as follows:

a. Parent to subsidiaries.
b. Subsidiaries to parent.
c. Subsidiaries to subsidiaries.

Note 2: Intercompany transactions were written off in the consolidated financial statements.

Note 3: The Company only discloses transaction amounts or balances of more than $100,000 thousand.

(Concluded)

97 -

AI assistant

CAL — Audit Report / Information 2019

52164_rns_2019-11-14_a5fe11c6-a5ea-4551-994c-a50dcab26a8b.pdf

China Airlines, Ltd. and Subsidiaries

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Key Audit Matters

Passenger Revenue Recognition

Other Matter Audit by Other Independent Auditors

Other Matter Parent Company Only Financial Statements

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Notice to Readers

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

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

IFRS 16 “Leases”

Definition of a lease

The Group as lessee

The Group as lessor

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

Basis of Preparation

Current and Non-current Assets and Liabilities

Basis of Consolidation

Foreign Currencies

Business Combinations

Inventories

Non-current Assets Held for Sale

Investments in Associates and Joint Ventures

Property, Plant and Equipment

Investment Properties

Intangible Assets

Impairment of Tangible and Intangible Assets Other Than Goodwill

Financial Instruments

b. Equity instruments

Hedge Accounting

Provisions

Aircraft lease contracts

Revenue Recognition

Shipping service revenue

Leasing

2019

The Group as lessee

2018

a. Financial leases

The Group as lessee

b. Sales and leasebacks

2) Operating leases

Employee Benefits

Borrowing Costs

Frequent Flyer Programs

Share-based Payment Arrangements

Taxation

b. Deferred tax

Maintenance and Overhaul Costs

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Key Sources of Estimation Uncertainty

Depreciation of Property, Plant and Equipment - Flight Equipment

Defined Benefit Obligations

6. CASH AND CASH EQUIVALENTS

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)

8. FINANCIAL ASSETS AT FVTOCI

CAL Audit Report / Information 2019