CAL - Audit Report / Information 2019

China Airlines, Ltd.

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

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Shareholders China Airlines, Ltd.

Opinion

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

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and other regulations.

Basis for Opinion

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

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2019. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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

Passenger Revenue Recognition

In accordance with IFRS 15 “Revenue from Contracts with Customers”, passenger sales 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$96,176,865 thousand. Refer to Notes 4 and 26 to the accompanying 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”, aircrafts leases initially classified as finance leases under IAS 17 should be recognized as Right-of-use assets and lease liabilities in the balance sheet. As of December 31, 2019, the carrying amount of right-of-use assets and lease liabilities (including financial liabilities for hedging) relating to aircrafts leases are NT$53,870,134 thousand and NT$52,153,682 thousand, respectively. Refer to Notes 4 and 20 to the accompanying financial statements for related detailed information.

China Airlines leased ten 777-300ER planes, fifteen A330-300 planes and fifteen 737-800 planes, for operation. Because the lease term of aircrafts is higher and the amount of rental is higher, the percentage of right-of-use assets and lease liabilities of the aircrafts in the balance sheet 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.
We selected one of the rental payments schedule of the aircrafts 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 contracted rental and rentals in the aircraft rental payment schedule. And we checked if the lease term used the rental payment schedule was consistent with the contract.

Other Matter - Audit by Other Independent Auditors

Some investments accounted for using the equity method and disclosure information in Note 13 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, the aforementioned investment accounted for using the equity method was NT$1,946,328 thousand, representing 0.72% of total assets. For the year ended December 31, 2019, comprehensive income (including share of profit or loss of subsidiaries, associates and joint ventures and share of other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using the equity method) was NT$691,115 thousand.

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

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

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

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

Auditors’ Responsibilities for the Audit of the Financial Statements

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

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 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 Company’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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 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 financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

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

CHINA AIRLINES, LTD.

BALANCE SHEETS DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4, 6 and 30) Financial assets at fair value through profit or loss - current (Notes 4, 7 and 30) Financial assets at amortized cost (Notes 9 and 30) Financial assets for hedging - current (Notes 4 and 30) Notes and accounts receivables, net (Notes 4, 10 and 30) Accounts receivables - related parties (Note 31) Other receivables Current tax assets (Notes 4 and 27) Inventories, net (Notes 4 and 11) Non-current assets held for sale (Notes 4 and 12) Other current assets (Note 17) Total current assets NON-CURRENT ASSETS Financial assets at fair value through other comprehensive income - non-current (Notes 4, 8 and 30) Investments accounted for using the equity method (Notes 4 and 13) Property, plant and equipment (Notes 4, 14 and 32) Right-of-use assets (Notes 4, 20 and 32) Investment properties (Notes 4 and 15) Other intangible assets (Notes 4 and 16) Deferred tax assets (Notes 4 and 27) Other non-current assets (Notes 17, 20 and 30) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Financial liabilities at fair value through profit or loss - current (Notes 4, 7 and 30) Financial liabilities for hedging - current (Notes 4, 20 and 30) Notes and accounts payable (Note 30) Contract liabilities current (Notes 4 and 22) Accounts payable - related parties (Note 31) Other payables (Notes 21 and 26) Provisions - current (Notes 4 and 23) Lease liabilities - current (Notes 4 and 20) Bonds payable and put option of convertible bonds - current portion (Notes 4, 19, 30 and 31) Loans and debts - current portion (Notes 18, 30 and 32) Capital lease obligations - current portion (Notes 4, 20, 30, 31 and 33) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Financial liabilities for hedging - non-current (Notes 4, 20 and 30) Bonds payable (Notes 4, 19, 30 and 31) Loans and debts (Notes 18, 30 and 32) Lease liabilities - non-current (Notes 4 and 20) Contract liabilities (Notes 4 and 22) Provisions (Notes 4 and 23) Deferred tax liabilities (Notes 4 and 27) Accrued pension costs (Notes 5 and 24) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY (Notes 19 and 25) Share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated retained earnings (accumulated deficits) Total retained earnings Other equity Treasury shares Total equity TOTAL		2019 Amount % $ 20,626,014 8 434 - 1,460,450 - 9,588 - 7,694,431 3 232,386 - 560,819 - 52,776 - 8,246,515 3 - - 2,106,199 1 40,989,612 15 107,856 - 13,482,877 5 131,029,886 49 64,262,830 24 2,047,448 1 971,298 - 4,757,142 2 11,227,556 4 227,886,893 85 $ 268,876,505 100 $ 11,749 - 8,610,015 3 1,222,410 - 18,584,287 7 1,469,434 1 10,892,203 4 - - 695,215 - 10,000,000 4 13,708,320 5 - - 2,806,540 1 68,000,173 25 42,420,205 16 22,352,625 8 48,618,168 18 10,909,262 4 2,236,311 1 9,431,736 4 399,253 - 7,588,745 3 366,255 - 144,322,560 54 212,322,733 79 54,209,846 20 2,488,907 1 466,416 - 12,967 - (1,777,225) - (1,297,842) - 1,196,233 - (43,372) - 56,553,772 21 $ 268,876,505 100		2018
				Amount % $ 18,688,022 9 - - 2,310,000 1 27,354 - 9,280,662 4 298,311 - 656,790 - 15,810 - 8,451,892 4 46,154 - 3,157,864 2 42,932,859 20 83,366 - 13,158,355 6 149,029,054 69 - - 2,047,448 1 979,708 1 4,561,346 2 2,122,085 1 171,981,362 80 $ 214,914,221 100 $ 221 - 239 - 1,198,647 1 17,065,481 8 1,583,684 1 11,739,301 5 268,901 - - - 4,445,900 2 15,335,005 7 596,000 - 2,946,455 1 55,179,834 25 - - 28,773,710 13 56,827,738 27 - - 1,903,665 1 7,730,114 4 21,195 - 6,932,783 3 463,610 - 102,652,815 48 157,832,649 73 54,209,846 25 1,241,214 1 351,923 - 118,810 - 1,144,928 1 1,615,661 1 58,223 - (43,372) - 57,081,572 27 $ 214,914,221 100

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

CHINA AIRLINES, LTD.

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, 26 and 32) COSTS (Notes 4, 11, 26 and 32) GROSS PROFIT OPERATING EXPENSES (Notes 4, 26 and 32) OPERATING PROFIT NON-OPERATING INCOME AND EXPENSES Other income (Note 26) Other gains and losses (Notes 12, 13, 14 and 26) Finance costs (Notes 26 and 32) Share of the profit of associates and joint ventures (Note 13) Total non-operating income and expenses PROFIT (LOSS) BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 27) NET INCOME (LOSS) OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Loss on hedging instruments subject to basis adjustments (Notes 4, 25 and 31) Unrealized (loss) gain on investments in equity instruments designated as at fair value through other comprehensive income (Notes 4 and 25) Remeasurement of defined benefit plans (Notes 4 and 24) Share of the other comprehensive loss of associates and joint ventures accounted for using the equity method (Notes 4 and 24) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 27)		2019 Amount % $ 146,372,401 100 135,008,166 92 11,364,235 8 11,284,000 8 80,235 - 524,233 - (569,582) - (3,034,172) (2) 1,811,960 1 (1,267,561) (1) (1,187,326) (1) 12,472 - (1,199,798) (1) (17,705) - 24,490 - (562,259) - (72,718) - 101,259 -		2018
				Amount % $ 150,264,792 100 137,614,956 92 12,649,836 8 10,802,269 7 1,847,567 1 420,416 - (559,230) - (1,312,044) (1) 1,918,922 1 468,064 - 2,315,631 1 525,270 - 1,790,361 1 23,884 - (23,830) - (674,905) - (105,569) - 127,120 - (Continued)

CHINA AIRLINES, LTD.

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 25) Share of the other comprehensive loss of associates and joint ventures accounted for using the equity method (Notes 4 and 25) Gain on hedging instruments not subject to basis adjustment (Notes 4, 25 and 31) Income tax relating to items that may be reclassified subsequently to profit or loss (Note 27) Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR EARNINGS PER SHARE (NEW TAIWAN DOLLARS; Note 27) Basic Diluted		2019 Amount % $ (59,174) - (13,259) - 1,425,306 1 (273,227) - 552,713 1 $ (647,085) - $ (0.22) $ (0.22)		2018
				Amount % $ 34,140 - 29,573 - 75,454 - (18,193) - (532,326) - $ 1,258,035 1 $ 0.33 $ 0.32

		$

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

(Concluded)

CHINA AIRLINES, LTD.

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

BALANCE AT JANUARY 1, 2018 Effect of retrospective application and retrospective restatement BALANCE AT JANUARY 1, 2018 AS RESTATED Issuance of convertible bonds Basis adjustments to gain on hedging instruments Appropriation of 2017 earnings Legal reserve Special reserve Cash dividends - $0.2181820086 per share Changes in capital surplus from dividends distributed to subsidiaries Net income for the year ended December 31, 2018 Other comprehensive income (loss) for the year ended December 31, 2018, net of income tax Total comprehensive income (loss) for the year ended December 31, 2018 Treasury shares acquired Treasury shares retired BALANCE AT DECEMBER 31, 2018 Basis adjustments to gain on hedging instruments Appropriation of 2018 earnings Legal reserve Special reserve Cash dividends - $0.20960737 per share Changes in capital surplus from investments in associates and joint ventures accounted for using the equity method Actual disposal or acquisition of interests in subsidiaries Net loss for the year ended December 31, 2019 Other comprehensive income (loss) for the year ended December 31, 2019, net of income tax Total comprehensive income (loss) for the year ended December 31, 2019 Changes in capital surplus from investments in associates and joint ventures accounted for using the equity method BALANCE AT DECEMBER 31, 2019	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		Other Equity	Cash Flow Hedges Gain (Loss) on Hedging Instruments Treasury Shares Held by Subsidiaries $ (74,429 ) $ - $ (43,372 ) 74,429 (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)	Total Equity $ 57,023,237 40,637 57,063,874 409,978 12,118 - - (1,193,670 ) 630 1,790,361 (532,326) 1,258,035 (469,393 ) - 57,081,572 (603 ) - - (1,136,278 ) 606 1,247,087 (1,199,798 ) 552,713 (647,085) 8,473 $ 56,553,772
					Unrealized Exchange Unrealized Gain Gain on Financial Assets at Fair Differences on Translating Foreign Operations (Loss) on Available-for- sale Financial Assets Value Through Other Comprehensive Income $ (34,986 ) $ 1,774 $ - - (1,774) 42,351 (34,986 ) - 42,351 - - - - - - - - - - - - - - - - - - - - - 25,322 - 268 25,322 - 268 - - - - - - (9,664 ) - 42,619 - - - - - - - - - - - - - - - - - - - - - (53,411) - 64,538 (53,411) - 64,538 8,368 - 105 $ (54,707) $ - $ 107,262
			Legal Reserve Special Reserve Unappropriated Earnings (Accumulated 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)

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

CHINA AIRLINES, LTD.

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

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Expected credit loss recognized on trade receivables Depreciation expenses Amortization expenses Net gain on fair value changes of financial assets and liabilities at fair value through profit or loss Interest income Dividend income Share of profit of associates and joint ventures Loss (gain) on disposal of property, plant and equipment Gain on disposal of investments accounted for using the equity method Loss on disposal of non-current assets held for sale Loss on inventories and property, plant and equipment Impairment loss recognized on property, plant and equipment Net gain on foreign currency exchange Finance costs Recognition of provisions Amortization of unrealized gain on sale-leasebacks Loss on sale-leasebacks Others Impairment loss recognized on non-current assets held for sale Changes in operating assets and liabilities Financial assets mandatorily classified as at fair value through profit 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 Cash generated from operations Interest received Dividends received Interest paid Income tax paid Net cash generated from operating activities	2019 $ (1,187,326) 24,000 29,398,635 165,981 (25,700) (314,944) (10,112) (1,811,960) (26,377) (7,656) 10,462 571,960 - 41,292 3,034,172 3,616,519 - 103,775 5 - 25,266 11,528 1,507,192 65,925 101,047 (128,037) 351,186 53,077 (114,250) (731,599) 1,851,452 (1,970,226) (120,655) 93,703 34,578,335 307,503 940,039 (3,038,729) (41,260) 32,745,888	2018 $ 2,315,631 50,000 18,192,291 165,050 (11,076) (274,189) (9,603) (1,918,922) 273,308 (450,195) 368,992 623,012 50,000 288,598 1,312,044 2,566,045 (13,888) - - 75,437 11,076 (9,359) (1,260,344) 212,277 (94,232) (225,553) 62,151 878,219 89,678 513,674 3,102,855 (2,539,210) 10,515 99,135 24,453,417 244,604 624,834 (1,242,278) (19,085) 24,061,492

(Continued)

CHINA AIRLINES, LTD.

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

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at amortized cost Disposal of financial assets at amortized cost Acquisition of investments accounted for by the equity method Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of non-current assets held for sale Proceeds from disposal of investments accounted for using the equity method Increase in refundable deposits Decrease in refundable deposits Increase in prepayments for equipment Increase in computer software costs Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repayments of the principal portion of lease liabilities Payments for buy-back of treasury shares Proceeds from issuance of bonds payable Repayments of bonds payable Proceeds from sale-leasebacks Proceeds from long-term borrowings Repayments of long-term borrowings and capital lease obligations Proceeds from guarantee deposits received Refunds of guarantee deposits received Dividends paid to owners of the Company Net cash used in financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES 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 $ (1,467,317) 2,310,000 (35,525) (2,397,742) 38,596 35,692 1,713,825 (387,244) 104,825 (13,699,043) (157,571) (13,941,504) (9,666,313) - 3,500,000 (4,445,900) 4,905,660 5,500,000 (15,336,255) 167,034 (133,938) (1,136,278) (16,645,990) (220,402) 1,937,992 18,688,022 $ 20,626,014	2018 $ (2,310,000) - (243,743) (2,561,987) 330,136 688,427 - (51,378) 103,593 (13,798,867) (155,431) (17,999,250) - (469,393) 10,512,000 (2,700,000) - 17,200,000 (27,339,868) 118,367 (67,905) (1,193,670) (3,940,469) 2,690 2,124,463 16,563,559 $ 18,688,022

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

(Concluded)

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

CHINA AIRLINES, LTD.

1. GENERAL INFORMATION

China Airlines, Ltd. (the “Company”) was founded in 1959 and its shares have been listed on the Taiwan Stock Exchange since February 26, 1993. The Company 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 held 44.03% of the Company’s shares. As of December 31, 2019 and 2018, the Company had 12,175 and 12,498 employees, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements 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 Company’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 Company 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.

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The Company as lessee

The Company 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 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 statements of comprehensive income, the Company 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 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 statements of cash flows. Leased assets and finance lease payables were recognized on the 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 Company 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 Company determines that a sale and leaseback transaction does not satisfy the requirements of IFRS 15 to be accounted for as a sale of an asset, it is accounted for as a financing transaction. If it satisfies the requirements to be accounted for as a sale of an asset, the Company 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 Company 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 assets accounted for as a sale and a finance lease under IAS 17, the Company 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 2.47%. 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

$ 68,174,292
$ 68,174,292
$ 58,286,964
596,000
6,419,285
4,557,770
(41,919,508)
$ 27,940,511

The Company as lessor

The Company 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:

Prepaid rent Refundable deposits Right-of-use assets Other financial assets Total effect on assets Lease liabilities - current Lease liabilities - non-current Capital lease obligations Financial liabilities for hedging - current Financial liabilities for hedging - non-current Total effect on liabilities	Carrying Amount as of December 31, 2019 $ 699,098 377,577 - - $ 1,076,675 $ - - 596,000 - - $ 596,000	Adjustments Arising from Initial Application Adjusted Carrying Amount as of January 1, 2019 $ (699,098) $ - (215,426) 162,151 69,988,735 69,988,735 189,808 189,808 $ 69,264,019 $ 70,340,694 $ 3,394,630 $ 3,394,630 24,545,881 24,545,881 (596,000) - 5,947,449 5,947,449 35,972,059 35,972,059 $ 69,264,019 $ 69,860,019

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

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 IAS1 “clarify the classification of liabilities as current January 1, 2022 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 Company’s accounting policies. As of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

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

Basis of Preparation

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

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

a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
c. Level 3 inputs are unobservable inputs for an asset or liability.

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

Current and Non-current Assets and Liabilities

Current assets include:

a. Assets held primarily for the purpose of trading;
b. Assets expected to be realized within 12 months after the reporting period; and
c. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

a. Liabilities held primarily for the purpose of trading;
b. Liabilities due to be settled within 12 months after the reporting period; and
c. Liabilities for which the Company does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

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

Foreign Currencies

In preparing the financial statements of the Company, 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.

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

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

Inventories

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

Non-current Assets Held for Sale

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

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

Investments Accounted for by the Equity Method

Investments in subsidiaries, associates and jointly controlled entities are accounted for by the equity method.

a. Investment in subsidiaries

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

Under the equity method, the investment is initially recognized at cost and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary after the date of acquisition. Besides, the Company also recognizes the Company’s share of the changes in other equity of the subsidiary.

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Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s loss of control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amounts of the investment and the fair value of the consideration paid or received is recognized directly in equity.

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

The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not amortized. The acquisition-date fair value of the net identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss.

When the Company ceases to have control over a subsidiary, any retained investment is measured at fair value at that date and the difference between the previous carrying amount of the subsidiary attributable to the retained interest and its fair value is included in the determination of the gain or loss. Furthermore, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits and losses from upstream with a subsidiary and side stream transactions between subsidiaries are recognized in the Company’s financial statements only to the extent of interests in the subsidiary that are not related to the Company.

b. Investments in associates and joint ventures

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

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

Under the equity method, an investment in an associate and jointly controlled entity is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate and jointly ventures. The Company also recognizes the changes in the Company’s share of equity of associates and jointly ventures attributable to the Company.

When the Company subscribes for additional new shares of an associate and joint ventures at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate and joint ventures. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the subscription of additional new shares of the associate and jointly controlled entity, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and joint ventures is reclassified to profit or loss on the same basis as would be required had the investee directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for using the equity method is insufficient, the shortage is debited to retained earnings.

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

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

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

The Company discontinues the use of the equity method from the date on which it ceases to have significant influence and joint control. 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 jointly controlled entity attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the jointly controlled entity. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate and the jointly controlled entity on the same basis as would be required if that associate had directly disposed of the related assets or liabilities.

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

Property, Plant and Equipment

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

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.

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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.

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 to be zero unless the Company expects to dispose of the intangible asset before the end of its economic life.

Impairment of Tangible and Intangible Assets Other Than Goodwill

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

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

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

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

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

Financial Instruments

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

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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 31.

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.

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.

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c) Investments in equity instruments at FVTOCI

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

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

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

2) Impairment of financial assets

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

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

Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime 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 Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

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

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b. Equity instruments

Debt and equity instruments issued by the Company 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 Company entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized in and deducted directly 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 issuance of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component.

e. Derivative financial instruments

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

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

Provisions

The Company recognizes provisions when the Company has a present obligation (legal or constructive) arising from past events (legal or constructive obligation), payment for the obligation is probable, and 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. When the aircraft lease contracts expire and will be returned to lessor, the Company will assess if there are existing obligations and if a provision is required when signing the lease contract.

Revenue Recognition

When applying IFRS 15 during 2018, the Company recognizes revenue by applying the following steps:

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

Shipping service revenue

Passenger and cargo revenue are recognized as revenue when the passengers and goods are actually carried. When the tickets are sold, due to the fact that the fulfillment obligations of the shipment have not been met, the relevant amount of revenue is first recorded as contract liabilities until passengers actually board. Before 2017, the relevant amounts were recorded as deferred revenue.

Leasing

2019

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

The Company as lessee

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

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

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

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 Company uses the lessee’s incremental borrowing rate.

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

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

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

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.

The Company 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.

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.

Operating lease payments are recognized as expenses on a straight-line basis over the lease term

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 Company’s defined benefit plans.

Borrowing Costs

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

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.

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

Frequent Flyer Programs

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

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

Share-based Payment Arrangements

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

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

Taxation

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

a. Current tax

The current tax liabilities are based on current taxable profit. Since part of the income and expenses are taxable or deductible in other periods, or in accordance with the relevant tax laws are taxable or deductible, current taxable profit differs from net profit reported in the statements of comprehensive income.

The Company’s current tax liabilities are calculated by the tax rate was legislated or substantially legislated at the balance sheet date.

According to the Income Tax Law, 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.

b. Deferred tax

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

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

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

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

c. Current and deferred taxes for the year

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

Maintenance and Overhaul Costs

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

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

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies as disclosed in Note 4, management is required to make judgments, estimations and assumptions 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.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods.

Key Sources of Estimation Uncertainty

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

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Depreciation of Property, Plant and Equipment - Flight Equipment

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

Defined Benefit Obligations

The present value of defined benefit obligations at the end of the reporting period are calculated using actuarial assumptions. Those assumptions, which are based on management’s judgment and estimates, comprise the discount rate and expected return on plan assets. Changes in actuarial assumptions may have 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 $ 58,661 4,867,015 12,662,162 3,038,176 $ 20,626,014	2018 $ 51,264 6,367,527 12,269,231 - $ 18,688,022

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 0.01%-1.90% 0%-1.90% 0.60%-2.55% 0.60%-3.55% 0.55%-0.70% -

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 Financial liabilities held for trading Derivative financial instruments (not under hedge accounting) foreign exchange forward contracts		December	31
		2019 $ 434 $ 11,749	2018 $ - $ 221

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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 FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments

Non-current Foreign investments Unlisted shares Domestic investments Unlisted shares		December 31	December 31
		2019 $ 80,991 26,865 $ 107,856	2018 $ 61,620 21,746 $ 83,366

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 Company’s strategy of holding these investments for long-term purposes.

9. FINANCIAL ASSETS AT AMORTIZED COST

Current Time deposits with original maturities of more than 3 months (e)		December 31	December 31
		2019 $ 1,460,450	2018 $ 2,310,000

The range of interest rates for time deposits with original maturities of more than 3 months were approximately 0.60%-2.44% and 0.40%-0.68% per annum as of December 31, 2019 and 2018, respectively.

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10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable Accounts receivable At amortized cost Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2019 $ 297,075 7,577,460 (180,104) 7,397,356 $ 7,694,431	2018 $ 596,739 8,875,002 (191,079) 8,683,923 $ 9,280,662

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

The Company applies the simplified approach to allowing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss allowance for all trade receivables. The expected credit losses on 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 Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the loss allowance based on the past due status is not further distinguished according to the different segments of the Company’s customer base.

The Company writes off 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 Company continues to engage in enforcement activity to attempt to recover the receivables which are due. Where recoveries are made, these are recognized in profit or loss.

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The following table details the loss allowance of trade receivables based on the Company’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
0.03%
0.15%
15.89%
22.14%
100%

Gross carrying amount
$ 6,070,753 $ 1,241,766 $ 37,891 $ 73,058 $ 153,992
Loss allowance (lifetime
ECLs)

(2,052)

(1,862)

(6,020)

(16,178)

(153,992)

Amortized cost
$ 6,068,701
$ 1,239,904
$ 31,871
$ 56,880
$ -

December 31, 2018
Not Past Due Up to 30 Days 31 to 60 Days 61 to 90 Days Over 90 Days

Expected credit loss rate
0.06%
0.06%
3.67%
21.78%
97.5%
Gross carrying amount
$ 7,291,910 $ 1,331,529 $ 36,819 $ 41,920 $ 172,824
Loss allowance (lifetime
ECLs)

(1,149)

(699)

(3,796)

(12,611)

(172,824)

Amortized cost
$ 7,290,761
$ 1,330,830
$ 33,023
$ 29,309
$ -

Total
-
$ 7,577,460

(180,104)
$ 7,397,356
Total
$ 8,875,002

(191,079)
$ 8,683,923

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

Balance at January 1 Add: Net remeasurement of loss allowance Less: Amounts written off Foreign exchange gains and losses Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2019 $ 191,079 24,000 (34,975) - $ 180,104	2018 $ 142,637 50,000 (2,555) 997 $ 191,079

11. INVENTORIES

Aircraft spare parts Items for in-flight sale Work in process - maintenance services		December 31	December 31
		2019 $ 7,390,981 571,601 283,933 $ 8,246,515	2018 $ 7,669,834 554,084 227,974 $ 8,451,892

The operating costs for the years ended December 31, 2019 and 2018 included losses from inventory write-downs of $317,629 thousand and $371,275 thousand, respectively.

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12. NON-CURRENT ASSETS HELD FOR SALE

Aircraft held for sale		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 $75,437 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. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries Investments in associates Investments in jointly controlled entities		December 31	December 31
		2019 $ 12,004,180 471,267 1,007,430 $ 13,482,877	2018 $ 11,686,577 497,362 974,416 $ 13,158,355

a. Investment in subsidiaries

Unlisted companies Tigerair Taiwan Co., Ltd. CAL Park Mandarin Airlines CAL-Dynasty International Taiwan Air Cargo Terminal Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) CAL Hotel Taiwan Airport Services Hwa Hsia Taiwan Aircraft Maintenance And Engineering Co., Ltd. Yestrip Dynasty Holidays Global Sky Express Kaohsiung Catering Services		December 31	December 31
		2019 $ 1,946,328 1,552,310 1,494,603 1,276,546 1,517,946 737,245 559,562 460,213 479,259 276,134 88,313 921,989 25,268 - 7,294 661,170	2018 $ 1,805,921 1,507,445 1,201,109 1,266,921 1,533,244 755,619 494,098 454,149 461,239 266,775 89,101 1,128,138 26,946 26,059 6,996 662,817

$ 12,004,180 $ 11,686,577

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

Tigerair Taiwan Co., Ltd. Taiwan Air Cargo Terminal CAL Park Mandarin Airlines CAL-Dynasty International Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) Taiwan Airport Services CAL Hotel Hwa Hsia Taiwan Aircraft Maintenance And Engineering Co., Ltd. Dynasty Holidays Yestrip Global Sky Express Kaohsiung Catering Services	December 31
	2019 2018 69% 90% 54% 54% 100% 100% 94% 94% 100% 100% 49% 49% 100% 100% 94% 94% 47% 47% 100% 100% 100% 100% 100% 100% 20% 51% 100% 100% 25% 25% 54% 54%

Each of the Company’s holdings of the issued share capital of Taoyuan International Airport Service, Taiwan Airport Service and Global Sky Express did not exceed 50%, but since the Company had control over these investees, they were listed as subsidiaries.

The Company paid $243,743 thousand on March 7, 2018 to acquire an additional 18% of Kaohsiung Catering, Ltd. (Kaohsiung Catering) of which the Company’s holding of the issued share capital exceeded 50%. Kaohsiung Catering is listed as a subsidiary because the Company has control over the investee. For the disclosure of the Company’s acquisition of Kaohsiung Catering, 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 Company’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. For the information about the disposal of the Dynasty Holidays, 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 was resolved in the shareholders’ meeting of the Company on June 25, 2019. The shares shall be subscribed by all shareholders of the Company 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 and December 2019, the stock price was fully paid and the shares were completely delivered and transferred. The proceeds from disposal were $1,679,789 thousand, and the related gain on disposal was $1,129,080 thousand and recognized in the capital surplus account.

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

		2019		2018
The share of profit or loss	$	1,529,721	$	1,628,453

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b. Investments in associates

Unlisted companies China Aircraft Services Dynasty Holidays		December 31	December 31
		2019 $ 461,263 10,004 $ 471,267	2018 $ 497,362 - $ 497,362

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

China Aircraft Services Dynasty Holidays (Note)	December 31
	2019 2018 20% 20% 20% 51%

Note:Dynasty Holidays was list as a associate on January 31, 2019.

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

China Aircraft Services Dynasty Holidays	2019 $ 10,365 15 $ 10,380	2018 $ 6,402 - $ 6,402

c. Investments in jointly controlled entities

The investments in jointly controlled entities were as follows:

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia		December 31	December 31
		2019 $ 801,070 168,547 37,813 $ 1,007,430	2018 $ 805,157 166,901 2,358 $ 974,416

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

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia	December 31
	2019 2018 51% 51% 55% 55% 49% 49%

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

To enhance the Company’s maintenance capabilities, the Company established a joint venture with the US NORDAM Aerospace 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, while their company operation was not impact. NORDAM Asia suspended its operation from October 5, 2018 to October 4, 2019 and resumed business on October 4, 2019. The company increased capital of $35,525 thousand to NORDAM Asia on November 2019.

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

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia		December 31	December 31
		2019 $ 256,899 15,030 (70) $ 271,859	2018 $ 267,413 16,695 (41) $ 284,067

The Company’s shares of other comprehensive income of subsidiaries, associates and jointly controlled entities were losses of $(85,977) thousand and $(75,996) thousand in 2019 and 2018, 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 China Aircraft Services. However, the management determined that there would have been no significant adjustments had this investee’s financial statements been independently audited.

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

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14. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2018 Additions Disposals Reclassification Balance at December 31, 2018 Accumulated depreciation and impairment Balance at January 1, 2018 Depreciation expense Disposals Impairment losses Reclassification Balance at December 31, 2018 Carrying amounts at December 31, 2018 Cost Balance at January 1, 2019 Additions Disposals Reclassification Balance at December 31, 2019 Accumulated depreciation and impairment Balance at January 1, 2019 Depreciation expense Disposals Reclassification Balance at December 31, 2019 Carrying amounts at December 31, 2019	Freehold Land $ 193,013 - - - $ 193,013 $ - - - - - $ - $ 193,013 $ 193,013 - - - $ 193,013 $ - - - - $ - $ 193,013	Buildings $ 7,304,328 41,016 (10,349 ) 542 $ 7,335,537 $ (3,717,055 ) (172,873 ) 9,326 - - $ (3,880,602) $ 3,454,935 $ 7,335,537 37,725 (162 ) 10,658 $ 7,383,758 $ (3,880,602 ) (175,943 ) 162 - $ (4,056,383) $ 3,327,375	Flight Equipment $ 261,114,631 2,308,683 (20,305,928 ) 12,462,241 $ 255,579,627 $ (135,671,634 ) (15,732,018 ) 19,813,183 (50,000 ) 9,283,041 $ (122,357,428) $ 133,222,199 $ 255,579,627 2,211,321 (20,698,042 ) 29,815,008 $ 266,907,914 $ (122,357,428 ) (18,186,434 ) 14,899,562 (14,692,000) $ (140,336,300) $ 126,571,614	Equipment under Finance Leases $ 25,594,436 - (1,811,222 ) 1,428,463 $ 25,211,677 $ (13,613,023 ) (1,993,631 ) 1,532,046 - - $ (14,074,608) $ 11,137,069 $ 25,211,677 - (79,866 ) (25,131,811) $ - $ (14,074,608 ) (741,780 ) 79,866 14,736,522 $ - $ -	Others $ 6,163,436 212,288 (108,752 ) 73,574 $ 6,340,546 $ (5,102,584 ) (293,769 ) 89,841 - (12,196) $ (5,318,708) $ 1,021,838 $ 6,340,546 148,696 (85,852 ) 106,257 $ 6,509,647 $ (5,318,708 ) (284,537 ) 76,586 (45,104) $ (5,571,763) $ 937,884	Total $ 300,369,844 2,561,987 (22,236,251 ) 13,964,820 $ 294,660,400 $ (158,104,296 ) (18,192,291 ) 21,444,396 (50,000 ) 9,270,845 $ (145,631,346) $ 149,029,054 $ 294,660,400 2,397,742 (20,863,922 ) 4,800,112 $ 280,994,332 $ (145,631,346 ) (19,388,694 ) 15,056,176 (582) $ (149,964,446) $ 131,029,886

Reclassification is mainly from prepaid equipment.

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The above items of 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 Flight equipment and equipment under finance leases Airframes 18-25 years Aircraft cabins 10-20 years Engines 12-20 years Heavy maintenance on aircraft 6-8 years Engine overhauls 3-10 years Landing gear overhauls 8-12 years Repairable spare parts 3-15 years Leased aircraft improvements 5-12 years

Regarding changes in fleet composition, current and forecasted market values, and other technical factors, the Company recognized impairment losses on a part of aircraft equipment of $50,000 thousand in 2018.

Refer to Note 32 for the carrying amounts of aircraft equipment and right-of-use assets pledged by the Company.

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

15. INVESTMENT PROPERTIES

Carrying amount Investment properties		December 31	December 31
		2019 $ 2,047,448	2018 $ 2,047,448

The investment properties (land) held Company, located in Nankan, were leased to others.

The fair value of the investment properties held by the Company were both $2,473,771 thousand as of December 31, 2019 and 2018. The fair value valuation was performed by independent qualified professional valuers, and the future income evaluated by management was based on market transactions. All of the Company’s investment properties were held under freehold interest.

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16. OTHER INTANGIBLE ASSETS

Computer Software Costs Accumulated Amortization Balance at January 1, 2018 $ 1,905,354 $ (916,027) Additions 155,431 - Amortization expense - (165,050) Balance at December 31, 2018 $ 2,060,785 $ (1,081,077) Balance at January 1, 2019 $ 2,060,785 $ (1,081,077) Additions 157,571 - Amortization expense - (165,981) Balance at December 31, 2019 $ 2,218,356 $ (1,247,058)	Net Value $ 989,327 155,431 (165,050) $ 979,708 $ 979,708 157,571 (165,981) $ 971,298

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

17. OTHER ASSETS

Current Temporary payments Prepayments Others Non-current Prepayments for aircraft Prepayments - long-term Refundable deposits Other financial assets		December 31	December 31
		2019 $ 94,682 1,551,113 460,404 $ 2,106,199 $ 8,322,518 2,264,220 621,715 19,103 $ 11,227,556	2018 $ 290,662 2,549,376 317,826 $ 3,157,864 $ 223,745 1,501,429 377,577 19,334 $ 2,122,085

The prepayments for aircraft comprised the prepaid deposits and capitalized interest from the purchase of A321neo and B777F aircraft. For details on the A321neo and B777F aircraft purchase contracts, refer to Note 33.

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18. BORROWINGS

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 $ 650,000 30,435,870 31,300,000 59,382 62,326,488 13,708,320 $ 48,618,168 1.08%-1.46%	2018 $ 7,749,000 34,171,875 30,300,000 58,132 72,162,743 15,335,005 $ 56,827,738 0.92%-1.46%

For information on secured bank loans which were secured by flight equipment, refer to Note 32.

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

Periods	December 31
	2019 2018 2008/2/26- 2030/4/25 2007/5/24- 2030/4/25

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs, with various maturities until August 2024, were used by the Company to guarantee commercial paper which it issued. The commercial paper was issued at discount rates of 1.1300%-1.1680% in 2019 and 1.0693%-1.2960% in 2018.

19. 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 issue Convertible bonds - sixth-time issue Less: Current portion and put option of convertible bonds		December 31	December 31
		2019 $ 2,750,000 5,000,000 5,000,000 2,350,000 3,500,000 4,500,000 3,500,000 - 5,752,625 32,352,625 10,000,000 $ 22,352,625	2018 $ 5,500,000 5,000,000 5,000,000 2,350,000 3,500,000 4,500,000 - 1,695,900 5,673,710 33,219,610 4,445,900 $ 28,773,710

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Related issuance conditions were as follows:

		Rate
Period	Conditions	(%)
2013.01.17-	Principal repayable in	1.6
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 of	1.19
2021.05.26	2020 and 2021; interest p.a.
	payable annually
2016.09.27-	Principal repayable in	1.08
2021.09.27	September of 2020 and
	2021; interest p.a. payable
	annually
2017.05.19-	Principal repayable on due	1.20
2020.05.19	date; indicator rate;
	payable annually
2017.05.19-	Principal repayable on due	1.75
2024.05.19	date; indicator rate;
	payable annually
2017.10.12-	Principal repayable on due	1.14
2020.10.12	date; indicator rate;
	payable annually
2017.10.12-	Principal repayable in	1.45
2022.10.12	October of 2021 and 2022;
	indicator rate; payable
	annually
2018.11.30-	Principal repayable in	1.32
2023.11.30	November of 2022 and
	2023; indicator rate;
	payable annually
2018.11.30-	Principal repayable in	1.45
2025.11.30	November of 2022 and
	2023; indicator rate;
	payable annually
2019.06.21-	Principal repayable in June of	1.10
2024.06.21	2023 and 2024; indicator
	rate; payable annually
2019.06.21-	Principal repayable in June of	1.32
2026.06.21	2025 and 2026; indicator
	rate; payable annually

			Rate
Category	Period	Conditions	(%)
Five-year convertible bonds - issued at	2013.12.26-	Except for converting to share	-
discount in December 2013; repayable in	2018.12.26	capital or buying back,
lump sum upon maturity; 1.8245% discount		principal repayable in
rate p.a.		December of 2018
Five-year convertible bonds - issued at	2018.01.30-	Except for converting to share	-
discount in January 2018; repayable in lump	2023.01.30	capital or buying back,
sum upon maturity; 1.3821% discount rate		principal repayable in
p.a.		December of 2023
		(Concluded)

20. LEASE AGREEMENTS

Year 2019

a. Right-of-use assets - 2019

Carrying amounts Land Buildings Flight equipment	December 31, 2019 $ 3,442,366 6,950,330 53,870,134 $ 64,262,830

42 -

Additions to right-of-use assets Depreciation for right-of-use assets Land Buildings Flight equipment b. Lease liabilities - 2019 Carrying amounts Current Non-current	For the Year Ended December 31, 2019 $ 5,043,409 $ 171,147 767,939 9,070,855 $ 10,009,941 December 31, 2019 $ 695,215 $ 10,909,262

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%-3.16%

c. Financial liabilities under hedge accounting

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

			Maturity Date	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)

43 -

d. Material leasing activities and terms

As lessee, China Airlines leased ten 777-300ER planes, fifteen A330-300 planes and fifteen 737-800 planes for operation, lease period are 8 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	$	463,115
Credit guarantees		1,406,702

e. Lease agreement

The Company signed a rental contract for six A321neo with Air Lease Corporation on September 2019, 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 on May 2019, which is expected to be introduced in 2022.

f. Sale-and-leaseback

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.

As lessee, the Company leased office buildings and equipment from CAL Park. Lease period is 2 years, and the fixed payment (tax included) is $20,238 thousand per month.

g. Other lease information

The Company uses operating lease agreement for investment properties, refer to Note 15.

Short-term and low price lease payment Total of lease cash outflow	For the Year Ended December 31, 2019 $ 18,144 $ (11,583,349)

The Company 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.

44 -

2018

a. Sale-and-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 Company 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 Company 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.

b. Operating lease arrangements (include sale-leaseback operating leases)

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

As of December 31, 2018, the refundable deposits paid by the Company under operating lease contracts were $215,425 thousand. Some of the guarantees were secured by credit guarantees, and outstanding credit guarantees as of December 31, 2018 were $1,437,707 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 $ 9,943,373 38,789,047 19,441,872 $ 68,174,292

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

Minimum lease payments	For the Year Ended December 31, 2018 $ 10,024,963

45 -

21. OTHER PAYABLES

Fuel costs Ground service expenses Repair expenses Interest expenses Short-term employee benefits Terminal surcharges Commission expenses Others CONTRACT LIABILITIES/DEFERRED REVENUE Frequent flyer programs Advance ticket sales Current Non-current PROVISIONS Operating leases - aircraft Current Non-current		December 31	December 31	December 31
		2019 2018 $ 3,419,803 $ 3,571,314 1,178,184 1,089,125 1,136,588 960,138 214,089 260,179 1,577,322 2,053,442 914,428 914,171 509,520 484,341 1,942,269 2,406,591 $ 10,892,203 $ 11,739,301 December 31
		2019 2018 Contract Liabilities Contract Liabilities $ 2,884,122 $ 2,489,950 17,936,476 16,479,196 $ 20,820,598 $ 18,969,146 $ 18,584,287 $ 17,065,481 2,236,311 1,903,665 $ 20,820,598 $ 18,969,146 December 31		2018

		2019 $ 9,431,736 $ - 9,431,736 $ 9,431,736		2018 $ 7,999,015 $ 268,901 7,730,114 $ 7,999,015

22. CONTRACT LIABILITIES/DEFERRED REVENUE

23. PROVISIONS

46 -

The Company rented flight equipment under operating lease agreements. Under the contracts (some of the leased flight equipment’s lease payments are calculated monthly), when the lease expires and the equipment is returned to the lessor, the flight equipment has to be repaired according to the expected years of use, number of flight hours, flight cycle and the number of engine revolutions. The Company had existing obligations to recognize provisions when signing a lease or during the lease term.

	Aircraft Lease
	Contract
Balance at January 1, 2018	$ 7,758,651
Additional provisions recognized	2,566,045
Usage	(2,539,210)
Effect of exchange rate changes	213,529
Balance at December 31, 2018	$ 7,999,015
Balance at January 1, 2019	$ 7,999,015
Additional provisions recognized	3,616,519
Usage	(1,970,226)
Effect of exchange rate changes	(213,572)
Balance at December 31, 2019	$ 9,431,736

24. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company 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.

b. Defined benefit plans

The Company adopted the defined benefit plan under the Labor Standards Law, under which pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contribute amounts equal to 15% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name.

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

47 -

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

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liabilities		December 31	December 31
		2019 $ 13,932,511 (6,343,766) $ 7,588,745	2018 $ 13,117,255 (6,184,472) $ 6,932,783

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 loss - changes in financial assumptions Actuarial loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Benefits paid Payment to employees direct from the employer Effect of exchange rate changes Balance at December 31, 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 loss - changes in financial assumptions Actuarial loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Benefits paid Payment to employees direct from the employer Effect of exchange rate changes Balance at December 31, 2019	Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets $ 11,956,223 $ (5,797,479) 1,263,193 - 116,231 (56,995) 1,379,424 (56,995) - (168,987) 283,774 - 560,118 - 843,892 (168,987) - (1,058,494) (897,483) 897,483 (174,390) - 9,589 - 13,117,255 (6,184,472) 1,187,281 - 118,517 (56,049) 1,305,798 (56,049) - (219,345) 290,044 - 491,560 - 781,604 (219,345) - (1,038,624) (1,154,724) 1,154,724 (117,492) - 70 - $ 13,932,511 $ (6,343,766)	Net Defined Benefit Liabilities (Assets) $ 6,158,744 1,263,193 59,236 1,322,429 (168,987) 283,774 560,118 674,905 (1,058,494) - (174,390) 9,589 6,932,783 1,187,281 62,468 1,249,749 (219,345) 290,044 491,560 562,259 (1,038,624) - (117,492) 70 $ 7,588,745

48 -

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

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. Based on relevant regulations, the return generated by plan assets should not be below the interest rate for a two-year time deposit with local banks.
2) Interest risk: A decrease in the government bond interest rate will increase the present value of 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. Thus, an increase in the salaries of the plan participants will increase the present value of the defined benefit obligations.

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

Discount rate Expected rate of salary increase	December 31
	2019 2018 0.71% 0.93% 1.00% 1.00%

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 0.5% increase 0.5% decrease Expected rate of salary increase 0.5% increase 0.5% decrease		December 31	December 31
		2019 $ (613,408) $ 653,413 $ 626,743 $ (600,073)	2018 $ (576,271) $ 626,381 $ 601,326 $ (563,743)

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 $ 736,056 9.6 years	2018 $ 722,820 9.8 years

49 -

25. EQUITY

a. Share capital

Ordinary shares

Number 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

Income of convertible bonds in excess of par value and conversion premium Dividends distributed to subsidiaries Retirement of treasury shares Difference in sale price of share of subsidiaries and book value Expired employee share options Long-term investments Bonds payable equity component Others		December 31	December 31
		2019 $ 315,114 3,909 33,513 1,129,080 11,747 118,962 409,978 466,604 $ 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 (additional paid-in capital from issuance of ordinary shares) may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital (limited to a certain percentage of the Company’s paid-in capital).

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

50 -
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.

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 profit surplus shall be approved in the annual shareholders’ meeting held in the following year and shall be accounted for in that year.

1) Appropriation of earnings and dividends per share 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.

51 -

3) Offsetting of 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 shareholders’ meeting to be held on June 23, 2020.

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
34,140
-
-
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
-
-
(23,830 )
Share of profit or
associates accounted
for using equity
method
(3,188 )
-
24,760
Effect of change in tax
rate
1,198
-
(1,209 )
Effects of income tax

(6,828)

-

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

Cash Flow
Hedges
Gain (Loss) on
Hedging
Instruments
Total
$ (74,429 ) $ - $ (107,641 )

74,429

(74,429)

40,577

-
(74,429 )
(67,064 )

-
-
34,140

-
84,984
84,984
$ - $ 14,354 $ 14,354

-
-
(23,830 )

-
8,001
29,573

-
2,530
2,519

-

(22,290)

(28,571)

-

87,579

113,169

-

12,118

12,118
$ -
$ 25,268
$ 58,223
(Continued)

52 -

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,
2019
$ (9,664 ) $ - $ 42,619
Exchange differences on
translating foreign
operations
(59,174 )
-
-
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
-
-
24,490
Share of profit or
associates accounted
for using equity
method
(6,072 )
-
54,902
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
Total
$ - $ 25,268 $ 58,223

-
-
(59,174 )

-
1,398,296
1,398,296

-
9,305
9,305

-
-
24,490

-
(7,187 )
41,643

-

(281,401)

(284,420)

-

1,119,013

1,130,140

-

-

8,473

-

(603)

(603)
$ -
$ 1,143,678
$ 1,196,233
(Concluded)

53 -

e. 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, 2019	-	2,889	2,889
Addition during the year	-	-	-
Number of shares, December 31, 2019	-	2,889	2,889
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
	Shares	Carrying
Subsidiary	(In Thousands)	Amount	Market Value
December 31, 2019
Mandarin Airlines	2,075	$ 18,796	$ 18,796
Hwa Hsia	814	7,376	7,376
		$ 26,172	$ 26,172
December 31, 2018
Mandarin Airlines	2,075	$ 22,821	$ 22,821
Hwa Hsia	814	8,956	8,956
		$ 31,777	$ 31,777

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.

54 -

26. NET INCOME

a. Revenue

For the Year Ended	For the Year Ended	For the Year Ended	For the Year Ended	December 31
2019 $ 96,176,865 $ 43,406,487 6,789,049 $ 146,372,401 $ For the Year Ended		$		2018 94,248,291 49,422,018 6,594,483 150,264,792 December 31
		$
2019 $ 314,944 38,621 10,112 160,556 $ 524,233 For the Year Ended				2018 $ 274,189 11,200 9,603 125,424 $ 420,416 December 31
2019 $ 26,377 (10,462) 25,700 7,656 (262,610) (103,775) - - (252,468) $ (569,582) For the Year Ended				2018 $ (273,308) (368,992) 11,076 450,195 10,812 - (75,437) (50,000) (263,576) $ (559,230) December 31
	2019 $ 431,599 703,681 - 1,898,892 $ 3,034,172		2018 $ 414,564 882,190 15,290 - $ 1,312,044

b. Other income
c. Other gains and losses
d. Finance costs
55 -

Information about capitalized interest was as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2019 2018 $ 36,404 $ 37,174 1.01%-1.28% 1.16%-1.31% For the Year Ended December 31
2019 2018 $ 19,388,694 $ 18,192,291 10,009,941 165,981 165,050 $ 29,564,616 $ 18,357,341 $ 28,373,597 $ 17,907,878 1,025,038 284,413 $ 29,398,635 $ 18,192,291 $ 165,981 $ 165,050 For the Year Ended December 31
	2019 $ 373,187 1,249,749 $ 1,622,936 $ 14,475,115 1,282,461 4,589,299 $ 20,346,875 $ 17,862,954 4,106,857 $ 21,969,811	2018 $ 365,707 1,322,429 $ 1,688,136 $ 15,010,513 1,242,585 3,610,480 $ 19,863,578 $ 17,751,051 3,800,663 $ 21,551,714

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,

56 -

2019, the employees’ compensation have not estimated since it was loss before income tax.

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

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

27. INCOME TAX

a. Income tax recognized in profit or loss

The major components of tax expense were as follows:

For the Year Ended December 31 2019 2018 Current tax Current year $ 8,836 $ 22,506 Prior year adjustment (6,658) 4,866 Deferred tax Current year (16,218) 1,366,740 Adjustments to deferred tax attributable to changes in tax rates and laws 26,512 - Effect of income tax - (868,842) Income tax expense recognized in profit or loss $ 12,472 $ 525,270 A reconciliation of accounting profit and income tax expense is as follows: For the Year Ended December 31 2019 2018 Profit before tax $ (1,187,326) $ 2,315,631 Income tax expense calculated at the statutory rate $ (237,465) $ 463,126 Add (deduct) tax effects of: Nondeductible expenses in determining taxable income 17,900 20,098 Tax-exempt income (347,338) (343,107) Overseas income tax expense 8,836 22,506 Additional income tax under the Alternative Minimum Tax Act - - Unrecognized loss carryforwards and investment tax credits 550,685 1,227,000 Effect of income tax - (868,842) Adjustments for prior years’ tax (6,658) 4,866 Adjustments to deferred tax attributable to changes in tax rates and laws 26,512 - Other - (377) Income tax expense recognized in profit or loss $ 12,472 $ 525,270	For the Year Ended	For the Year Ended	For the Year Ended	December 31
				2018 $ 22,506 4,866 1,366,740 - (868,842) $ 525,270 December 31
		2019 $ (1,187,326) $ (237,465) 17,900 (347,338) 8,836 - 550,685 - (6,658) 26,512 - $ 12,472	2018 $ 2,315,631 $ 463,126 20,098 (343,107) 22,506 - 1,227,000 (868,842) 4,866 - (377) $ 525,270

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

b. Income tax recognized in other comprehensive income

Deferred tax Recognized in other comprehensive income Translation of foreign operations Fair value revaluation of hedging instruments for cash flow hedges Actuarial gain or loss on defined benefit plan Fair value changes of financial assets at FVTOCI Effect of income tax Total income tax recognized in other comprehensive income	For the Year Ended	For the Year Ended	December 31
		2019 $ 11,835 (281,401) 112,452 (14,854) - $ (171,968)	2018 $ (6,828) (22,290) 134,979 547 2,519 $ 108,927

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 reserve 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 Compre- hensive Income $ 1,396,033 $ 18,726 $ 112,452 510,060 80,634 - 1,674,973 388,512 - 333,653 (38,854) - 646,627 (377,534) 11,860 $ 4,561,346 $ 71,484 $ 124,312 $ - $ 81,778 $ - 21,195 - 296,280 $ 21,195 $ 81,778 $ 296,280	Ending Balance $ 1,527,211 590,694 2,063,485 294,799 280,953 $ 4,757,142 $ 81,778 317,475 $ 399,253

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For the year ended December 31, 2018

Deferred tax assets Temporary differences Defined benefit plans Frequent flyer programs Maintenance reserve Allowance for reduction of inventory Others Loss carryforwards Deferred tax liabilities Temporary differences Depreciation difference from fixed assets Unrealized foreign exchange gains Others (Note)	Beginning Balance Recognized in Profit or Loss Recognized in Other Compre- hensive Income $ 1,055,972 $ 205,081 $ 134,980 426,106 83,954 - 1,395,805 279,168 - 237,366 96,287 - 1,079,923 (420,179) (13,117) 779,769 (779,769) - $ 4,974,941 $ (535,458) $ 121,863 $ 31,010 $ (31,010) $ - 915 (915) - 13,894 (5,635) 12,936 $ 45,819 $ (37,560) $ 12,936	Ending Balance $ 1,396,033 510,060 1,674,973 333,653 646,627 - $ 4,561,346 $ - - 21,195 $ 21,195

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

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

Loss carryforwards 2019 2021 2022 2026 2028 2029 Other		December 31	December 31
		2019 $ 2,899,496 619,799 202,699 1,519,941 760,157 $ 6,002,092 $ 1,097,908	2018 $ 11,790,770 2,899,496 619,799 202,699 1,326,528 - $ 16,839,292 $ 39,142

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d. Unused tax loss carryforwards as of December 31, 2018 were as follows:

Expiry Year 2021 2022 2026 2028 2029	Unused Amount $ 2,899,496 619,799 202,699 1,519,941 760,157 $ 6,002,092

e. Income tax returns

The income tax returns of the Company through 2017 have been examined by the tax authorities.

28. EARNINGS PER SHARE

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 Weighted average number of ordinary shares in computation of basic earnings per share (in thousands) Effect of potentially dilutive ordinary shares: Convertible bonds (in thousands) Employees’ compensation or bonuses issued to employees (in thousands) Weighted average number of ordinary shares used in the computation of diluted earnings per share (in thousands)	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2019 2018 $ (0.22) $ 0.33 $ (0.22) $ 0.32 For the Year Ended December 31
		2019 $ (1,199,798) - $ (1,199,798) 5,418,096 - - 5,418,096	2018 $ 1,790,361 81,463 $ 1,871,824 5,453,579 457,481 8,821 5,919,881

If the Company offers to settle compensation or bonuses paid to employees in cash or shares, the Company assumes the entire amount of the compensation or bonuses would be settled in shares, and the resulting potential shares were included in the weighted average number of shares outstanding used in 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.

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29. CAPITAL MANAGEMENT

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

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

30. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments

Financial liabilities Bonds payable Bank loans	December 31	December 31
	2019 Carrying Amount Fair Value $ 32,352,625 $ 32,363,301 62,326,488 62,326,488	2018
		Carrying Amount Fair Value $ 33,219,610 $ 31,651,865 72,162,743 70,171,333

Some long-term borrowings are floating-rate financial liabilities, so their carrying amounts are their fair values. The fair values of long-term borrowings and private bonds with fixed interest rates are estimated at the present value of expected cash flows discounted at rates of 0.67% in 2019 and 0.68% in 2018 prevailing in the market for long-term borrowings (Level 2). The fair values of bonds payable are based on those which are traded in the stock exchange and based on quoted market prices (Level 1).

b. Fair value measurements recognized in the balance sheets

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

1) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
2) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
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3) 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 Derivative instruments Financial assets at FVTOCI Investments in equity instruments Unlisted 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 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 $ - $ - - $ - $ - $ - $ 50,997,687 Level 1 $ - - $ - $ - $ - $ -	Level 2 $ 434 $ - - $ - $ 11,749 $ 109 $ 28,578 Level 2 $ - - $ - $ 221 $ 22,453 $ 239	Level 3 $ - $ 26,865 80,991 $ 107,856 $ - $ 9,479 $ 3,955 Level 3 $ 21,746 61,620 $ 83,366 $ - $ 4,901 $ -	Total $ 434
				$ 26,865 80,991
				$ 107,856
				$ 11,749
				$ 9,588
				$ 51,030,220
				Total $ 21,746 61,620
				$ 83,366
				$ 221
				$ 27,354
				$ 239

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

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

Financial Instruments Valuation Techniques and Inputs

Derivatives - foreign exchange The fair values of derivatives (except options) have been forward contracts and determined based on discounted cash flow analyses using interest rate swaps interest yield curves applicable for the duration of the derivatives. The estimates and assumptions that the Company used to determine the fair values are identical to those used in the pricing of financial instruments for market participants.

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

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

The movements of Level 3 financial instruments are as follows:

		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	$ 83,366
Recognized in other comprehensive income	623	24,490
Balance at December 31, 2019	$ 5,524	$ 107,856
	Derivative	Equity
	Instruments	Instruments
Balance at January 1, 2018	$ -	$ 64,177
Adjustments on initial application of IFRS 9	-	43,019
Other comprehensive income recognized during the period	4,901	(23,830)
Balance at December 31, 2018	$ 4,901	$ 83,366

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.

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c. Categories of financial instruments

Financial assets Financial assets at FVTPL Financial assets for hedging Financial assets at amortized cost (Note 1) Financial assets at FVTOCI - equity instrument investment Financial liabilities Financial liabilities at FVTPL Financial liabilities for hedging Financial liabilities at amortized cost (Note 2)	December 31
	2019 2018 $ 434 $ - 9,588 27,354 31,356,562 31,630,697 107,856 83,366 11,749 221 51,030,220 239 119,888,720 120,519,575

Note 1: The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivable, accounts receivable - related parties, other receivables, refundable deposits and other restricted financial assets.
Note 2: The balance of financial liabilities measured at amortized cost comprised short-term notes payable, notes and accounts payable, accounts payable - related parties, other payables, bonds payable and long-term loans, lease liabilities, provisions, parts of other current liabilities, parts of other noncurrent liabilities and guarantee deposits.

d. Financial risk management objectives and policies

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

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

1) Market risk

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

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

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a) Foreign currency risk

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

Sensitivity analysis

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

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

When New Taiwan dollars increase one dollar against U.S. dollars and all other variables were held constant, there would be a decrease in pre-tax profit of $40,775 thousand and increase in pre-tax other comprehensive income gain and losses of $1,629,223 thousand in year ended December 31, 2019. A decrease in pre-tax profit of $35,184 thousand and decrease in pre-tax other comprehensive income gain and losses of $54,250 thousand in year ended December 31, 2018.

For the year ended December 31, 2019

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

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

The following table summarizes the information relating to the hedges of foreign currency risk. For the information related to lease contract as a hedging instruments, please refer to note 20.

December 31, 2019

Notional
Line Item in
Hedging Instruments
Currency
Amount
Maturity
Forward Rate
Balance Sheet
Cash flow hedge
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 rentals -
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
$ 32
$ 10,193
77
18,385

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

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and aviation fuel) are $(18,308) thousand and $(10,161) thousand, respectively.

For the year ended December 31, 2019

		Amount
	Hedging Gain	Reclassified to
	Recognized in	Profit and Loss
	Other	and the
	Comprehensive	Adjusted Line
Comprehensive Income	Income	Item
Cash flow hedge
Aircraft rentals	$ (22,214)	$ 28,374	(Note)
Aviation fuel	(10,161)	(53)
Aircraft prepayments	(17,705)	-
	$ (50,080)	$ 28,321

Note: Decrease in operating costs or foreign exchange loss.

For the year ended December 31, 2019, the hedging instruments settlement reclassified to prepaid equipment was $(603) thousand.

December 31, 2018

Notional Forward Line Item in Hedging Instruments Currency Amount Maturity Rate Balance Sheet Cash flow hedge Aircraft rentals - forward exchange contracts NTD/USD NTD1,669,231/ USD54,250 2019.1.17- 2019.12.23 28.3-30.7 Financial assets for hedging - current/ liabilities for hedging - current	Carrying Amount
	Asset Liability $ 22,453 $ 239

The above hedging instruments are continuously applied to hedging accounting. The book value of other equity which belongs to each hedging items (aircraft rentals in U.S. dollar) are $22,214 thousand.

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

Note: Increase in operating costs or foreign exchange loss.

For the year ended December 31, 2018, the hedging instruments settlement reclassified to prepaid equipment was $12,118 thousand.

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b) Interest rate risk

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

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

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

Fair value interest rate risk Cash flow interest rate risk Sensitivity analysis	December 31
	2019 2018 $ 83,350,312 $ 33,523,710 73,930,965 70,758,743

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

Had interest rates increased one yard (25 basis) and had all other variables been held constant, the Company’s pre-tax profit for the year ended December 31, 2019 would have decreased by $184,827 thousand.

Had interest rates increased one yard (25 basis) and had all other variables been held constant, the Company’s pre-tax profit for the year ended December 31, 2018 would have decreased by $176,897 thousand.

c) Other price risk

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

December 31, 2019

Notional Line Item in Carrying Amount Hedging Instrument Currency Amount Maturity Forward Rate Balance Sheet Asset Liability Cash flow hedges - fuel USD NTD5,524 2020.3.31USD49.65Financial assets for $ 9,479 $ 3,955 options 2020.12.31 USD80.75 hedging - current/ liabilities for hedging - current

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The above mentioned hedging instruments continue to be applied to hedging accounting. The book value of other equity which belongs to each hedging item (fuel payments) is $5,524 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 hedges - fuel options	$ 623	$ (13,597)	(Note)
Note:	Increase in operating costs.
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 USD72-USD88 Financial assets for hedging	Carrying Amount
	Asset Liability $ 4,901 $ -

The above mentioned hedging instruments continue to be applied to hedging accounting. The book value of other equity which belongs to each hedging item (fuel payments) is $4,901 thousand.

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 Company. The Company’s credit risk, primarily comes from accounts receivable generated from operating activities, bank deposits generated from investing activities, fixed investment income and other financial instruments. Operation related credit risk and financial credit risk are managed separately.

Operation - related credit risk

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

To assess individual customers, the Company consider into the financial condition of the customers, the credit rating agency rating, the Company’s internal credit rating, transaction history and current economic conditions and many other factors that may affect the repayment. Sometimes, the Company 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 Company’s finance department. The Company’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.

Endorsements given by the Company on behalf of its subsidiaries can be found in Notes 31(g).

3) Liquidity risk

The objective of the Company’s management of liquidity is to maintain cash and cash equivalents sufficient for operating purposes, marketable securities with high liquidity and loan commitments that are sufficient to ensure that the Company 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 Company’s financial liabilities with agreed-upon repayment periods, which were based on the date the Company may be required to pay the first repayment and financial liabilities is evaluated based on undiscounted cash flows, including cash flows of interest and principal.

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

December 31, 2019

The Weighted Average Effective Interest Rate (%) Finance lease liabilities 0.1448 Floating interest rate liabilities 0.9576 Hedging instruments 3.1131 Bonds payable 2.5273 December 31, 2018 The Weighted Average Effective Interest Rate (%) Finance lease liabilities 1.0627 Floating interest rate liabilities 1.1084 Fixed interest rate liabilities 1.1800 Hedging instruments - Bonds payable 1.3905	Less than 1 Year $ 914,419 14,284,090 10,060,822 10,823,905 $ 36,083,236 Less than 1 Year $ 601,743 14,050,574 2,005,900 239 5,999,321 $ 22,657,777	1 to 5 Years $ 3,362,181 34,457,400 39,729,062 19,871,174 $ 97,419,817 1 to 5 Years $ - 39,852,965 - - 30,835,449 $ 70,688,414	Over 5 Years $ 10,451,021 14,787,869 6,373,333 3,383,401 $ 34,995,624 Over 5 Years $ - 18,293,128 - - 1,051,418 $ 19,344,546

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Loan commitments

Unused bank loan limit (unsecured)

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

31. RELATED-PARTY TRANSACTIONS

Except for the disclosures stated in other notes, transactions between the Company and its related parties are disclosed below:

a. Related parties’ names and relationships

Name Relationship with the Company Taiwan Aircargo Terminal Company Subsidiary Taoyuan International Airport Service Co., Ltd. Subsidiary Sabre Travel Network (Taiwan), Ltd. Subsidiary Taiwan Airport Service Co., Ltd. Subsidiary Taiwan Airport Service (Samoa) Subsidiary Hwa Hsia Subsidiary Yestrip Subsidiary Global Sky Express Subsidiary Mandarin Airlines Subsidiary CAL Park Subsidiary CAL Hotel Co., Ltd. Subsidiary CAL-Asia Investment Subsidiary Dynasty Holidays, Inc. Associate (become associate in January 2019) CAL-Dynasty International Inc. Subsidiary Tigerair Taiwan Co., Ltd. Subsidiary Taiwan Aircraft Maintenance and Engineering Co., Ltd. Subsidiary Kaohsiung Catering Services Subsidiary (become subsidiary in March 2018) Asian Compressor Technology Services Associate (disposal in January 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 Company, spouse and second-degree relative

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b. Operating income

Account Items Related Party Type Other income Subsidiary Major shareholder of the Company Associate Joint venture investment Purchases Related Party Type Subsidiary 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 $ 2,577,039 $ 2,651,423 $ 25,457 $ 28,670 $ 1,239 $ 523 $ 42,457 $ 41,410 For the Year Ended December 31
		2019 $ 3,915,258 $ 56,474 $ 414,106 $ 1,911,091	2018 $ 3,843,308 $ 64,188 $ 501,609 $ 1,912,995

c. Purchases

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

Related Party Type Subsidiary Joint venture investment Major shareholder of the Company		December 31	December 31
		2019 $ 222,038 7,760 2,588 $ 232,386	2018 $ 289,268 7,589 1,454 $ 298,311

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

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

Related Party Type Subsidiary Associate Joint venture investment Major shareholder of the Company		December 31	December 31
		2019 $ 927,419 51,333 484,700 5,982 $ 1,469,434	2018 $ 1,050,869 54,948 474,499 3,368 $ 1,583,684

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)

The Company rented out planes to Mandarin Airlines under an operating lease contract. The monthly rent received is based on flight hours. In 2019 and 2018, the rentals received amounted to $1,624,568 thousand and $1,685,494 thousand, respectively.

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Under an operating lease agreement, the Company rented flight training machines and flight simulators from China Aviation Development Foundation to train pilots. The Company paid the rental based on usage hours. In 2019 and 2018, the Company paid rentals of about $56,474 thousand and $64,188 thousand, respectively.

In March 2010, the Company signed with CAL Park a yearly renewable operating lease agreement to use the Operating and Aviation Headquarters building of the Taiwan Taoyuan International Airport. In 2019 and 2018, the Company paid rentals of both were $231,288 thousand per year.

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

h. Bonds payable - related parties

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

Related Party The first issue of unsecured bonds in 2016 Mandarin Airlines Sabre Travel Network (Taiwan)	December 31, 2019
	Units Aggregate Par/Dollars 250 $ 250,000 50 50,000

In 2019, interest expenses was $3,570 thousand. This bonds payable will be paid off in May 2021. As of December 31, 2019 the interest payable was $2,142 thousand.

i. 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.

73 -

32. PLEDGED ASSETS

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

Property, plant and equipment Right-of-use asset		December 31	December 31
		2019 $ 26,956,631 64,262,830 $ 91,219,461	2018 $ 37,468,142 - $ 37,468,142

33. COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2019, except for the disclosures stated in other notes, the Company had commitments and contingent liabilities which were as follows:
a. 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).
b. In October 2019, the Company signed a contract with Airbus S.A.S. to purchase eleven A321neo aircraft and an option to purchase five A321neo aircraft. The total list price of the eleven aircraft is US$1,676,413 thousand, and the list price of the option to purchase five aircraft is US$769,922 thousand. The expected delivery period of the eleven aircraft ranges from 2024 to 2026. As of October 31, 2019, the list price of the fourteen aircraft has been paid in the amount of US$17,014 thousand (recognized as prepayments for aircraft). In October 2019, the Company signed a contract with International Aero Engines Company to purchase four backup engines of A321neo. The total list price of the four engines is US$60,289 thousand.
c. In July and August 2019, the Company signed a contract with the Boeing Company to purchase three B777F aircraft and exercised the option to purchase three B777F aircraft. The total list price of the six aircraft is US$2,320,315 thousand, and the expected delivery period is from 2020 to 2023. As of September 30, 2019, the list price has been paid in the amount of US$241,650 thousand (recognized as prepayments for aircraft).

34. 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 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.

74 -

35. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company 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			Carrying
	(In	Thousands)	Exchange Rate	Amount
Financial assets
Monetary items
USD	$	502,608	30.0300	$ 15,093,328
EUR		18,401	33.6700	619,571
HKD		225,078	3.8595	868,689
JPY		5,531,849	0.2766	1,530,109
RMB		371,642	4.3048	1,599,846
Financial liabilities
Monetary items
USD		2,179,056	30.0300	65,437,049
EUR		7,639	33.6700	257,211
HKD		67,529	3.8595	260,630
JPY		5,706,141	0.2766	1,578,319
RMB		132,622	4.3048	570,913
December 31, 2018
		Foreign
	Currencies			Carrying
	(In	Thousands)	Exchange Rate	Amount
Financial assets
Monetary items
USD	$	439,652	30.7692	$ 13,527,732
EUR		20,511	35.2113	722,232
HKD		297,496	3.9231	1,167,107
JPY		5,521,288	0.2778	1,533,814
RMB		345,777	4.4803	1,549,187
Financial liabilities
Monetary items
USD		405,468	30.7692	12,475,919
EUR		7,801	35.2113	274,697
HKD		70,900	3.9231	278,149
JPY		4,866,894	0.2778	1,352,023
RMB		126,546	4.4803	566,964

For the years ended December 31, 2019 and 2018, the Company’s net foreign exchange (losses) gains were $(262,610) thousand and $10,812 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.

75 -

36. 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$100 million or 20% of the paid-in capital: None.
6) Disposals of individual real estates at costs or prices of at least NT$100 million or 20% of the paid-in capital: None.
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of 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 30.
b. Investment in mainland China: Table 7 (attached).

37. SEGMENT INFORMATION

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

76 -

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.

77 -

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 Hwa Hsia	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)

78 -

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 -	$ 85,885 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)

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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.

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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)	- - - - - - - - - - - - - - - - - -

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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.

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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 Hwa Hsia 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 Note 2 - - - - - - Note 5 Note 4 - Notes 1 and 4 Note 4 - - Note 4 Note 4 - - - - Note 3 -

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

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

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

Note 4: Difference caused by lease arrangement between consolidated entities.

Note 5: Difference cause by acquisition.

83 -

TABLE 7

CHINA AIRLINES, LTD. AND INVESTEES

INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars/Renminibi/U.S. Dollars in Thousands, Unless Stated Otherwise)

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)	$ 84,137 (US$ 2,802) (Note 2) 26,286 (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)

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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)

85 -

For the Year Ended	For the Year Ended	For the Year Ended	For the Year Ended	December 31
2019 $ 96,176,865 $ 43,406,487 6,789,049 $ 146,372,401 $ For the Year Ended		$		2018 94,248,291 49,422,018 6,594,483 150,264,792 December 31
		$
2019 $ 314,944 38,621 10,112 160,556 $ 524,233 For the Year Ended				2018 $ 274,189 11,200 9,603 125,424 $ 420,416 December 31
2019 $ 26,377 (10,462) 25,700 7,656 (262,610) (103,775) - - (252,468) $ (569,582) For the Year Ended				2018 $ (273,308) (368,992) 11,076 450,195 10,812 - (75,437) (50,000) (263,576) $ (559,230) December 31
	2019 $ 431,599 703,681 - 1,898,892 $ 3,034,172		2018 $ 414,564 882,190 15,290 - $ 1,312,044

AI assistant

CAL — Audit Report / Information 2019

52164_rns_2019-11-14_90c3273f-beb4-482f-870f-0762ec5840fc.pdf

China Airlines, Ltd.

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Key Audit Matters

Passenger Revenue Recognition

Other Matter - Audit by Other Independent Auditors

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

Auditors’ Responsibilities for the Audit of the Financial Statements

Notice to Readers

CHINA AIRLINES, LTD.

BALANCE SHEETS DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD.

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.

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.

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

CHINA AIRLINES, LTD.

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

CHINA AIRLINES, LTD.

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

CHINA AIRLINES, LTD.

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 Company as lessee

The Company as lessor

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

Basis of Preparation

Current and Non-current Assets and Liabilities

Foreign Currencies

Inventories

Non-current Assets Held for Sale

Investments Accounted for by the Equity Method

b. 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

d. Convertible bonds

e. Derivative financial instruments

Hedge Accounting

Provisions

Revenue Recognition

Shipping service revenue

Leasing

2019

The Company as lessee

2018

The Company as lessee

Employee Benefits

Borrowing Costs

Frequent Flyer Programs

Share-based Payment Arrangements

Taxation

a. Current tax

b. Deferred tax

Maintenance and Overhaul Costs

5. CRITICAL ACCOUNTING JUDGMENTS 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 FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments

9. FINANCIAL ASSETS AT AMORTIZED COST

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

December 31, 2019

11. INVENTORIES

12. NON-CURRENT ASSETS HELD FOR SALE

CAL Audit Report / Information 2019