CAL — Audit Report / Information 2020

Nov 16, 2020

China Airlines, Ltd.

Financial Statements for the Years Ended December 31, 2020 and 2019 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, 2020 and 2019, 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, 2020 and 2019, 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, 2020. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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

Recognition of Cargo Revenue

In accordance with IFRS 15 “Revenue from Contracts with Customers”, cargo sales are accounted for as cargo revenue after relevant transportation services have been provided. For the year ended December 31, 2020, cargo revenue amounted to NT$81,692,574 thousand. Refer to Notes 4 and 26 to the accompanying financial statements for detailed information.

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

Our main audit procedures performed included the following:

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

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

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

Other Matter - Audit by Other Independent Auditors

The financial statements of some investments accounted for using the equity method in Note 13 were audited by other independent auditors, and our audit opinion is based solely on the reports of other auditors. As of December 31, 2020, the aforementioned investments accounted for using the equity method amounted to NT$2,304,113 thousand, representing 0.88% of total assets. For the year ended December 31, 2020, comprehensive income (loss) (including share of profit or loss of subsidiaries, associates and joint ventures and share of other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using the equity method) amounted to NT$(952,289) 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.

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

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

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

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

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

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

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

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2020 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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

Deloitte & Touche Taipei, Taiwan Republic of China

March 18, 2021

Notice to Readers

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

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

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CHINA AIRLINES, LTD.

BALANCE SHEETS DECEMBER 31, 2020 AND 2019 (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 - current (Notes 9 and 30) Financial assets for hedging - current (Notes 4, 6 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 Short-term bills payable (Notes 18 and 30) 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) Accounts payable - related parties (Note 31) Other payables (Notes 21 and 26) Tax liabilities - current Lease liabilities - current (Notes 4 and 20) Contract liabilities current (Notes 4 and 22) 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) 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) Contract liabilities (Notes 4 and 22) Provisions (Notes 4 and 23) Deferred tax liabilities (Notes 4 and 27) Lease liabilities - non-current (Notes 4 and 20) 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 (accumulated deficit) Legal reserve Special reserve Unappropriated retained earnings (accumulated deficit) Total retained earnings Other equity Treasury shares Total equity TOTAL		2020 Amount % $ 19,959,820 8 - - 5,863,137 2 7,613,636 3 9,198,055 4 101,424 - 427,722 - 60,129 - 8,093,152 3 89,296 - 452,414 - 51,858,785 20 147,161 - 12,321,157 5 126,414,462 48 54,555,761 21 2,047,448 1 867,453 - 4,981,859 2 7,715,679 3 209,050,980 80 $ 260,909,765 100 $ 8,088,882 3 - - 8,126,239 3 1,128,517 1 588,234 - 7,128,080 3 2 - 842,592 - 3,218,846 1 12,132,859 5 14,798,442 6 687,317 - 56,740,010 22 32,455,333 13 10,300,000 4 68,815,395 26 1,761,104 1 13,741,244 5 875,388 - 10,055,776 4 8,217,395 3 388,637 - 146,610,272 56 203,350,282 78 54,209,846 21 1,187,327 - - - - - (350,581) - (350,581) - 2,543,766 1 (30,875) - 57,559,483 22 $ 260,909,765 100		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 - 1,469,434 1 10,892,203 4 - - 695,215 - 18,584,287 7 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 2,236,311 1 9,431,736 4 399,253 - 10,909,262 4 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

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

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CHINA AIRLINES, LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share)

REVENUE (Notes 4, 26 and 31) COSTS (Notes 4, 11, 26 and 31) GROSS PROFIT OPERATING EXPENSES (Notes 4, 26 and 31) 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 31) 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 30) 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 25)		2020 Amount % $ 106,327,123 100 95,190,179 89 11,136,944 11 6,252,089 6 4,884,855 5 440,761 - (523,827) - (2,780,363) (3) (1,850,331) (2) (4,713,760) (5) 171,095 - 31,095 - 140,000 - (474,202) - 39,305 - (494,218) (1) (9,095) -		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) - (Continued)

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CHINA AIRLINES, LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share)

Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 27) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of the financial statements of 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 30) 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 (LOSS) PER SHARE (NEW TAIWAN DOLLARS; Note 28) Basic Diluted		2020 Amount % $ 163,172 - (101,142) - 4,205 - 2,098,393 2 (399,450) - 826,968 1 $ 966,968 1 $ 0.03 $ 0.03		2019
				Amount % $ 101,259 - (59,174) - (13,259) - 1,425,306 1 (273,227) - 552,713 1 $ (647,085) - $ (0.22) $ (0.22)
		$		$

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

(Concluded)

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CHINA AIRLINES, LTD.

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

Share Capital Capital Surplus BALANCE AT JANUARY 1, 2019 $ 54,209,846 $ 1,241,214 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 - 606 Actual disposal or acquisition of interests in subsidiaries - 1,247,087 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 54,209,846 2,488,907 Issuance of employee share options by subsidiaries - 172 Changes in percentage of ownership interests in subsidiaries - - Basis adjustment to gain on hedging instruments - - Appropriation of 2019 earnings Legal reserve - - Special reserve - - Capital surplus used to cover accumulated deficit - (1,297,843) Net profit for the year ended December 31, 2020 - - Other comprehensive income (loss) for the year ended December 31, 2020, net of income tax - - Total comprehensive income (loss) for the year ended December 31, 2020 - - Disposal of treasury shares - (3,909) BALANCE AT DECEMBER 31, 2020 $ 54,209,846 $ 1,187,327	Retained Earnings Legal Reserve Special Reserve Unappropriated Earnings (Accumulated Deficit) $ 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) - - - - - (169,272) - - - (466,416) - 466,416 - (12,967) 12,967 - - 1,297,843 - - 140,000 - - (319,576) - - (179,576) - - (1,734) $ - $ - $ (350,581)	Other Equity Unrealized Exchange Differences on Gain (Loss) on Financial Assets at Translation of the Financial Statements of Foreign Operations Fair Value Through Other Comprehensive Income Gain (Loss) on Hedging Instruments Treasury Shares Held by Subsidiaries $ (9,664) $ 42,619 $ 25,268 $ (43,372) - - (603) - - - - - - - - - - - - - - - - - - - - - - - - - (53,411) 64,538 1,119,013 - (53,411) 64,538 1,119,013 - 8,368 105 - - (54,707) 107,262 1,143,678 (43,372) - - - - - - - - - - 200,989 - - - - - - - - - - - - - - - - - (79,545) (35,903) 1,261,992 - (79,545) (35,903) 1,261,992 - - - - 12,497 $ (134,252) $ 71,359 $ 2,606,659 $ (30,875)	Total Equity $ 57,081,572 (603) - - (1,136,278) 606 1,247,087 (1,199,798) 552,713 (647,085) 8,473 56,553,772 172 (169,272) 200,989 - - - 140,000 826,968 966,968 6,854 $ 57,559,483

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

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CHINA AIRLINES, LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax Adjustments for: Depreciation expense Amortization expense Expected credit loss recognized on trade receivables Net gain on fair value changes of financial assets and liabilities at fair value through profit or loss Interest income Dividend income Share of loss (profit) of associates and joint ventures 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) loss on foreign currency exchange Impairment loss recognized on investments accounted for using the equity method Finance costs Recognition of provisions Loss on sale-leasebacks Others Changes in operating assets and liabilities Financial assets mandatorily classified as at fair value through profit or loss Financial liabilities mandatorily classified as at fair value through profit or loss Notes and accounts receivable Accounts receivable - related parties Other receivables Inventories Other current assets Notes and accounts payable Accounts payable - related parties Other payables Contract liabilities Provisions Other current liabilities Accrued pension liabilities Cash generated from operations Interest received Dividends received	2020 $ 171,095 28,018,746 169,158 3,000 (3,596) (208,081) (8,720) 1,850,331 (8,005) - - 471,518 424,573 (1,048,369) 46,757 2,780,363 5,580,416 - 1,876 4,030 (11,749) (1,467,229) 130,962 107,524 (70,344) 1,701,803 (59,328) (881,200) (3,724,692) (15,840,648) (705,117) (1,915,678) 134,432 15,643,828 228,141 842,919	2019 $ (1,187,326) 29,398,635 165,981 24,000 (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 (Continued)

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CHINA AIRLINES, LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of financial assets at amortized cost Disposal of financial assets at amortized cost Payments to acquire financial assets for hedging Proceeds from disposal of financial assets for hedging Acquisition of investments accounted for using the equity method Payments for disposal of 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 Increase in short-term bill payable Proceeds from issuance of bonds payable Repayments of bonds payable Proceeds from sale-leasebacks Proceeds from long-term debts Repayments of long-term debts Repayments of the principal portion of lease liabilities Proceeds from guarantee deposits received Refunds of guarantee deposits received Dividends paid to owners of the Company Net cash generated from (used in) financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET (DECREASE) 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 The accompanying notes are an integral part of the financial statements.	2020 $ (2,966,777) (23,308) 13,724,803 (5,896,451) 1,460,450 (10,269,055) 2,363,897 (1,837,845) (859,654) 23,385 - - (18,214) 34,599 (9,966,342) (95,217) (25,060,447) 8,088,882 - (10,000,000) - 40,200,000 (18,912,651) (8,909,975) 166,697 (146,566) - 10,486,387 183,063 (666,194) 20,626,014 $ 19,959,820	2019 $ (3,038,729) (41,260) 32,745,888 (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) - 3,500,000 (4,445,900) 4,905,660 5,500,000 (15,336,255) (9,666,313) 167,034 (133,938) (1,136,278) (16,645,990) (220,402) 1,937,992 18,688,022 $ 20,626,014 (Concluded)

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

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NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (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 China Aviation Development Foundation (CADF) and National Development Fund (NDF), Executive Yuan. As of December 31, 2020 and 2019, CADF and NDF jointly held 44.03% of the Company’s shares. As of December 31, 2020 and 2019, the Company had 11,534 and 12,175 employees, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s board of directors on March 18, 2021.

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

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

Except for the following, the initial application of the IFRSs endorsed and issued into effect by the FSC did not have material impact on the Company’s accounting policies:

Amendment to IFRS 16 “Covid-19-Related Rent Concessions”

The Company elected to apply the practical expedient provided in the amendment to IFRS 16 with respect to rent concessions negotiated with the lessor as a direct consequence of the COVID-19. The related accounting policies are stated in Note 4. Prior to the application of the amendment, the Company shall determine whether or not the abovementioned rent concessions need to be accounted for as lease modifications.

The Company applied the amendment from January 1, 2020. Because the abovementioned rent concessions affect only in 2020, retrospective application of the amendment has no impact on the retained earnings as of January 1, 2020.

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• b. The IFRSs endorsed by the FSC for application starting from 2021

New IFRSs Amendments to IFRS 4 “Extension of the Temporary Exemption from Applying IFRS 9” Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 “Interest Rate Benchmark Reform - Phase 2”	Effective Date Announced by IASB
	Effective immediately upon promulgation by the IASB January 1, 2021

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

New IFRSs “Annual Improvements to IFRS Standards 2018-2020” Amendments to IFRS 3 “Reference to the Conceptual Framework” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IFRS 17 Amendments to IAS 1 “Classification of Liabilities as Current or Non-current” Amendments to IAS 1 “Disclosure of Accounting Policies” Amendments to IAS 8 “Definition of Accounting Estimates” Amendments to IAS 16 “Property, Plant and Equipment - Proceeds before Intended Use” Amendments to IAS 37 “Onerous Contracts - Cost of Fulfilling a Contract”

Effective Date Announced by IASB (Note 1)

January 1, 2022 (Note 2) January 1, 2022 (Note 3) To be determined by IASB January 1, 2023 January 1, 2023 January 1, 2023 January 1, 2023 (Note 6) January 1, 2023 (Note 7) January 1, 2022 (Note 4) January 1, 2022 (Note 5)

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

• Note 2: The amendments to IFRS 9 will be applied prospectively to modifications and exchanges of financial liabilities that occur on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IAS 41 “Agriculture” will be applied prospectively to the fair value measurements on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IFRS 1 “First-time Adoptions of IFRSs” will be applied retrospectively for annual reporting periods beginning on or after January 1, 2022.

• Note 3: The amendments are applicable to business combinations for which the acquisition date is on or after the beginning of the annual reporting period beginning on or after January 1, 2022.

• Note 4: The amendments are applicable to property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after January 1, 2021.

• Note 5: The amendments are applicable to contracts for which the entity has not yet fulfilled all its obligations on January 1, 2022.

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• Note 6: The amendments will be applied prospectively for annual reporting periods beginning on or after January 1, 2023.

• Note 7: The amendments are applicable to changes in accounting estimates and changes in accounting policies that occur on or after the beginning of the annual reporting period beginning on or after January 1, 2023.

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.

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

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• 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 (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined.

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

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

• b. Exchange differences on transactions entered into in order to hedge certain foreign currency risks.

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

For the 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.

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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.

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.

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• 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.

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.

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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.

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.

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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.

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.

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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.

• 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.

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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.

b. Equity instruments

Debt and equity instruments issued by the Company 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 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.

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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.

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.

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

Hedge Accounting

The Company 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.

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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

The Company recognizes revenue by applying the following steps:

• Identifying the contract with the customer;

• Identifying the performance obligations in the contract;

• Determine the transaction price;

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

• Recognize revenue when the Company satisfies a performance obligation.

Shipping service revenue

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

Leasing

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

The Company as lessee

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

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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.

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

Employee Benefits

a. Short-term employee benefits

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

b. Retirement benefits

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

Defined benefit costs (including service cost, net interest and remeasurement) under 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),

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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.

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

Government Grants

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

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

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

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

Frequent Flyer Programs

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

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

Share-based Payment Arrangements

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

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

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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.

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.

• 25 -

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.

Defined Benefit Obligations

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

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 **
		2020 $ 65,987 12,864,010 5,880,682 1,149,141 $ 19,959,820	2019 $ 58,661 4,867,015 12,662,162 3,038,176 $ 20,626,014

• 26 -

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
	2020 2019 0.00%-1.90% 0.01%-1.90% 0.30%-0.55% 0.60%-2.55% 0.41%-0.49% 0.55%-0.70%

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

			Carrying
	Maturity Date	Subject	Value
December 31, 2020	2021.1.4-2021.11.1	Financial assets for hedging - current	$ 7,613,636
Impact on comprehensive income (loss)
			Recognized in
			Other
			Comprehensive
			Income (Loss)
For the year ended December 31, 2020			$ (372,632)

The amount of hedging instrument settlements recognized as prepayments for equipment in 2020 was $81,111 thousand.

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-current Derivative financial instruments (not under hedge accounting) Foreign exchange forward contracts		**December **	**31 **
		2020 $ - $ -	2019 $ 434 $ 11,749

• 27 -

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

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
		2020 $ 117,457 29,704 $ 147,161	2019 $ 80,991 26,865 $ 107,856

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		December 31	December 31
		2020 $ 5,863,137	2019 $ 1,460,450

The range of interest rates for time deposits with original maturities of more than 3 months was approximately 0.40%-0.53% and 0.60%-2.44% per annum as of December 31, 2020 and 2019, respectively.

• 28 -

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
		2020 $ - 9,363,777 (165,722) 9,198,055 $ 9,198,055	2019 $ 297,075 7,577,460 (180,104) 7,397,356 $ 7,694,431

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.

• 29 -

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

December 31, 2020

Not Past Due Up to 30 Days 31 to 60 Days 61 to 90 Days Over 90 Days Expected credit loss rate - 1.04% 47.77% 100% 100% Gross carrying amount $ 9,167,202 $ 29,463 $ 3,366 $ 2,887 $ 160,859 Loss allowance (lifetime ECLs) (59) (309) (1,608) (2,887) (160,859) Amortized cost $ 9,167,143 $ 29,154 $ 1,758 $ - $ - 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 $ -

Total - $ 9,363,777 (165,722) $ 9,198,055 Total - $ 7,577,460 (180,104) $ 7,397,356

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
		2020 $ 180,104 3,000 (17,382) - $ 165,722	2019 $ 191,079 24,000 (34,975) - $ 180,104

11. INVENTORIES

Aircraft spare parts Items for in-flight sale Work in process - maintenance services		December 31	December 31
		2020 $ 7,251,353 627,437 214,362 $ 8,093,152	2019 $ 7,390,981 571,601 283,933 $ 8,246,515

The operating costs for the years ended December 31, 2020 and 2019 included losses from inventory write-downs of 190,548 thousand and $317,629 thousand, respectively.

• 30 -

12. NON-CURRENT ASSETS HELD FOR SALE

Aircraft held for sale		December	31
		2020 $ 89,296	2019 $ -

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, the Company completed the disposal procedures of some aircraft and recognized a loss on disposal of $10,462 thousand for the year ended December 31, 2019.

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
		2020 $ 11,155,607 282,471 883,079 $ 12,321,157	2019 $ 12,004,180 471,267 1,007,430 $ 13,482,877

a. Investment in subsidiaries

Unlisted companies Tigerair Taiwan Co., Ltd. CAL Park Mandarin Airlines CAL-Dynasty International Taiwan Air Cargo Terminal Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) CAL Hotel Taiwan Airport Services Dynasty Aerotech International Corp Taiwan Aircraft Maintenance And Engineering Co., Ltd. Yestrip Global Sky Express Kaohsiung Catering Services		**December 31 **	**December 31 **
		2020 $ 2,304,113 1,605,033 1,223,259 1,188,110 1,556,133 602,688 469,979 232,883 405,353 200,794 136,630 699,793 10,270 7,643 512,926 $ 11,155,607	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 $ 12,004,180

• 31 -

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

Tigerair Taiwan Co., Ltd. Taiwan Air Cargo Terminal CAL Park Mandarin Airlines CAL-Dynasty International Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) Taiwan Airport Services CAL Hotel Dynasty Aerotech International Corp Taiwan Aircraft Maintenance And Engineering Co., Ltd. Dynasty Holidays Yestrip Global Sky Express Kaohsiung Catering Services	December 31
	2020 2019 76% 69% 54% 54% 100% 100% 94% 94% 100% 100% 49% 49% 100% 100% 94% 94% 47% 47% 100% 100% 100% 100% 100% 100% 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.

In order to prepare for 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 waiver of subscribed shares by the original shareholders or the undersubscribed portion, the chairman was authorized to designate specific persons for subscription. The subscription price was set at $41 per share. In October and December 2019, the shares were fully paid and were completely delivered and transferred. The amount of proceeds from disposal was $1,679,789 thousand, and the related gain on disposal was $1,129,080 thousand and recognized as capital surplus.

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

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

	2020		2019
Share of profit (loss)	$ (1,590,853)	$	1,529,721

• 32 -

b. Investments in associates

Unlisted companies China Aircraft Services Dynasty Holidays		December 31	December 31
		2020 $ 277,234 5,237 $ 282,471	2019 $ 461,263 10,004 $ 471,267

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 **
	2020 2019 20% 20% 20% 20%

Note: Dynasty Holidays was listed as an associate on January 31, 2019.

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

China Aircraft Services Dynasty Holidays	2020 $ (102,758) (4,740) $ (107,498)	2019 $ 10,365 15 $ 10,380

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

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 **
		2020 $ 695,959 149,353 37,767 $ 883,079	2019 $ 801,070 168,547 37,813 $ 1,007,430

• 33 -

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
	2020 2019 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 of voting power in the board of directors to pass 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, 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 dispute with its cooperative partner, so its operation was not impacted. NORDAM Asia suspended its operation from October 5, 2018 to October 4, 2019 and resumed business on October 4, 2019. The Company increased the capital of NORDAM Asia by $35,525 thousand in November 2019.

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
		2020 $ (136,459) (15,475) (46) $ (151,980)	2019 $ 256,899 15,030 (70) $ 271,859

The Company’s shares of other comprehensive income of subsidiaries, associates and jointly controlled entities were losses of $4,890 thousand and $85,977 thousand in 2020 and 2019, 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, 2020 and 2019 were all independently audited, except for China Aircraft Services. However, the management determined that there would have been no significant adjustments had this investee’s financial statements been independently audited.

For 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 the financial statements.

• 34 -

14. PROPERTY, PLANT AND EQUIPMENT

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 Balance at December 31, 2019, net value Cost Balance at January 1, 2020 Additions Disposals Reclassification Balance at December 31, 2020 Accumulated depreciation and impairment Balance at January 1, 2020 Depreciation expense Disposals Impairment losses Reclassification Balance at December 31, 2020 Balance at December 31, 2020, net value	Freehold Land $ 193,013 - - - $ 193,013 $ - - - - $ - $ 193,013 $ 193,013 - (11,420 ) - $ 181,593 $ - - - - - $ - $ 181,593	Buildings $ 7,335,537 37,725 (162 ) 10,658 $ 7,383,758 $ (3,880,602 ) (175,943 ) 162 - $ (4,056,383) $ 3,327,375 $ 7,383,758 19,464 (369,651 ) - $ 7,033,571 $ (4,056,383 ) (180,609 ) 369,651 - - $ (3,867,341) $ 3,166,230	Flight Equipment $ 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 $ 266,907,914 621,587 (3,718,075 ) 11,792,738 $ 275,604,164 $ (140,336,300 ) (17,588,803 ) 3,446,678 (424,573 ) 1,489,158 $ (153,413,840) $ 122,190,324	Equipment under Finance Leases $ 25,211,677 - (79,866 ) (25,131,811) $ - $ (14,074,608 ) (741,780 ) 79,866 14,736,522 $ - $ - $ - - - - $ - $ - - - - - $ - $ -	Others $ 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 $ 6,509,647 218,603 (171,769 ) 8,269 $ 6,564,750 $ (5,571,763 ) (293,613 ) 171,378 - 5,563 $ (5,688,435) $ 867,315	Total $ 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 $ 280,994,332 859,654 (4,270,915 ) 11,801,007 $ 289,384,078 $ (149,964,446 ) (18,063,025 ) 3,987,707 (424,573 ) 1,494,721 $ (162,969,616) $ 126,414,462

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

• 35 -

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 $424,573 thousand in 2020.

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 **
		2020 $ 2,047,448	2019 $ 2,047,448

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

The fair value of the investment properties held by the Company was $2,456,472 thousand and $2,473,771 thousand as of December 31, 2020 and 2019, respectively. The fair value valuation was performed by independent qualified professional valuers, and the future income evaluated by management was based on market transactions. All of the Company’s investment properties were held under freehold interest.

• 36 -

16. OTHER INTANGIBLE ASSETS

Computer Software Costs Accumulated Amortization 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) Balance at January 1, 2020 $ 2,218,356 $ (1,247,058) Additions 95,217 - Amortization expense - (169,158) Reclassification (765,786) 735,882 Balance at December 31, 2020 $ 1,547,787 $ (680,334)

Net Value $ 979,708 157,571 (165,981) $ 971,298 $ 971,298 95,217 (169,158) (29,904) $ 867,453

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 **
		2020 $ 19,111 134,055 299,248 $ 452,414 $ 5,069,541 2,042,609 585,451 18,078 $ 7,715,679	2019 $ 94,682 1,551,113 460,404 $ 2,106,199 $ 8,322,518 2,264,220 621,715 19,103 $ 11,227,556

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.

• 37 -

18. BORROWINGS

a. Short-term bills payable

Commercial paper Less: Unamortized discount on bills payable Annual discount rate		**December 31 **	**December 31 **
		2020 $ 8,100,000 11,118 $ 8,088,882 0.99%-1.00%	2019 $ - - $ - -

b. Long-term borrowings

Unsecured bank loans Secured bank loans Commercial paper Proceeds from issue Less: Unamortized discount Less: Current portion Interest rates		December 31	December 31
		2020 $ 21,650,000 32,885,883 29,100,000 22,046 83,613,837 14,798,442 $ 68,815,395 0.81%-1.22%	2019 $ 650,000 30,435,870 31,300,000 59,382 62,326,488 13,708,320 $ 48,618,168 1.08%-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
	2020 2019 2016/6/27- 2032/6/30 2008/2/26- 2030/4/25

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs, with various maturities until March 2025, were used by the Company to guarantee commercial paper which it issued. The commercial paper was issued at discount rates of 1.0263%-1.1167% in 2020 and 1.1300%-1.1680% in 2019.

In accordance with the “Regulations on Relief and Revitalization Measures for Industries and Enterprises Affected by Severe Pneumonia with Novel Pathogens” endorsed by the Ministry of Transportation and Communications and the “Operational Guides on Relief Loan Guarantees for Ailing Aviation Industry Affected by Severe Pneumonia with Novel Pathogens”, the Company applied for project finance loans from financial institutions to maintain its operations; and special funds, credit guarantees along with subsidized interest rates were provided by the government. The total amount of the loans is $20,000,000 thousand, which shall be repaid within 2 years from the date of initial drawdown. As of December 31, 2020, the Company had made a drawdown in the amount of $20,000,000 thousand.

• 38 -

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 - sixth-time issue

Less: Current portion and put option of convertible bonds

	December 31	December 31
	2020 $ - 2,500,000 2,500,000 1,000,000 2,600,000 4,500,000 3,500,000 5,832,859 22,432,859 12,132,859	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

$ 10,300,000 $ 22,352,625

Related issuance conditions were as follows:

Category

Seven-year private unsecured bonds - issued at par in January 2013; repayable in January 2019 and 2020; 1.85% interest p.a., payable annually

• Five-year unsecured bonds - issued at par in May 2016; repayable in May 2020 and 2021; 1.19% interest p.a., payable annually

• Five-year unsecured bonds - issued at par in September 2016; repayable in September 2020 and 2021; 1.08% interest p.a., payable annually

• Three-year private unsecured bonds - issued at par in May 2017; repayable on due date; interest of 1.2% p.a., payable annually

• Seven-year private unsecured bonds - issued at par in May 2017; repayable on due date; interest of 1.75% p.a., payable annually

• Three-year private unsecured bonds - issued at par in October 2017; repayable on due date; interest of 1.14% p.a., payable annually

• Five-year private unsecured bonds - issued at par in October 2017; repayable in October 2021 and 2022; 1.45% interest p.a., payable annually

• Five-year private unsecured bonds - issued at par in November 2018; repayable in November 2022 and 2023; 1.32% interest p.a., payable annually

		Rate
Period	Conditions	(%)
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
	(Continued)

• 39 -

			Rate
Category	Period	Conditions	(%)
Seven-year private unsecured bonds - issued at	2018.11.30-	Principal repayable in	1.45
par in November 2018; repayable in	2025.11.30	November of 2022 and
November 2022 and 2023; 1.45% interest		2023; indicator rate;
p.a., payable annually		payable annually
Five-year private unsecured bonds - issued at	2019.06.21-	Principal repayable in June of	1.10
par in June 2019; repayable in June 2023	2024.06.21	2023 and 2024; indicator
and 2024; 1.10% interest p.a., payable		rate; payable annually
annually
Seven-year private unsecured bonds - issued at	2019.06.21-	Principal repayable in June of	1.32
par in June 2019; repayable in June 2025	2026.06.21	2025 and 2026; indicator
and 2026; 1.32% interest p.a., payable		rate; payable annually
annually
Five-year convertible bonds - issued at	2018.01.30-	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)

The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand, and the purchasers of the bonds included Mandarin Airlines Co., Ltd. and Sabre Travel Network (Taiwan) Co., Ltd., which had a face value of $150,000 thousand, and the amount was eliminated in the Company’s financial statements.

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

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

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

• c. The Company may redeem the bonds at face value between April 30, 2018 and December 20, 2022 under certain conditions.

• d. Between January 26, 2014 and December 16, 2018 (except for the period between the former dividend date and the date of the dividend declaration on record), holders may convert the bonds to the Company’s ordinary shares. The initial conversion price was set at NT$13.2, which is subject to adjustment if there is a capital injection by cash, share dividend distribution, and the proportion of cash dividends per share in market price exceeding 1.5%. Because the Company distributed cash dividends on July 29, 2019, the conversion price was adjusted to NT$12.6.

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

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

• 40 -

The seventh issue of the Company’s unsecured convertible bonds was resolved by the board of directors of the Company on August 7, 2019. The cumulative face value of the bonds shall not exceed $3,000,000 thousand. The bonds are issued at 100%-100.5% of the face value, and the issuance period is 5 years. During the period of public offerings, the stock market and the domestic capital market were volatile due to Coronavirus Pneumonia and the changes in the share price of the Company were unfavorable to the seventh issue of the Company’s unsecured convertible bonds. After comprehensive consideration, the issuance was suspended with the permission of the competent authority based on the best interest of the Company and the shareholders’ equity.

The seventh issue of the Company’s unsecured convertible bonds was resolved by the board of directors of the Company on August 6, 2020. The cumulative face value of the bonds shall not exceed $6,000,000 thousand. The bonds are issued at 100%-100.5% of the face value, and the issuance period is 5 years.

20. LEASE AGREEMENTS

• a. Right-of-use assets

Carrying amounts Land Buildings Flight equipment Additions to right-of-use assets Depreciation for right-of-use assets Land Buildings Flight equipment		**December 31 **	**December 31 **
	2020 2019 $ 3,367,875 $ 3,442,366 6,986,866 6,950,330 44,201,020 53,870,134 $ 54,555,761 $ 64,262,830 **For the Year Ended December 31 **
		2020 $ 2,084,799 $ 172,757 383,898 9,399,066 $ 9,955,721	2019 $ 5,043,409 $ 171,147 767,939 9,070,855 $ 10,009,941

b. Lease liabilities

Carrying amounts Current Non-current		**December 31 **	**December 31 **
		2020 $ 842,592 $ 10,055,776	2019 $ 695,215 $ 10,909,262

• 41 -

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

Land Buildings Flight equipment	December 31
	2020 2019 1.09%-1.65% 1.09%-1.65% 0%-3.56% 0%-3.56% 0.68%-3.16% 2.49%-3.16%

• c. Financial liabilities under hedge accounting

The Company specifies a part of US lease contract as hedging instruments to avoid exchange rate fluctuations is 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,	2020	2022.2.9-2028.5.15	Financial liabilities for hedging -	$	8,120,445
				current
				Financial liabilities for hedging -		32,455,333
				non-current
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,	2020	$ 2,099,550	$	352,674
For the year ended December	31,	2019	1,457,058		(24,029)

• 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 issuance of letter of credit due to rental of planes:

Refundable deposits Credit guarantees	December 31
	2020 2019 $ 438,117 $ 463,115 1,330,772 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.

• 42 -

The Company signed a rental letter of intent for eight A321neo with CALC Lease Corporation on October 2019, which is expected to be introduced in 2022.

The Company also signed related aircraft purchase agreement, please refer to note 33 for details.

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 through sale and leaseback arrangement 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 from 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 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2020 $ 16,450 $ (10,528,143)	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.

21. OTHER PAYABLES

Fuel costs Short-term employee benefits Ground service expenses Terminal surcharges Repair expenses Commission expenses Interest expenses Others		**December 31 **	**December 31 **
		2020 $ 1,718,503 1,592,141 956,831 346,952 285,146 184,363 116,168 1,927,976 $ 7,128,080	2019 $ 3,419,803 1,577,322 1,178,184 914,428 1,136,588 509,520 214,089 1,942,269 $ 10,892,203

• 43 -

22. CONTRACT LIABILITIES/DEFERRED REVENUE

Frequent flyer programs Advance ticket sales Current Non-current		December 31	December 31	December 31
		2020 Contract Liabilities $ 2,657,942 2,322,008 $ 4,979,950 $ 3,218,846 1,761,104 $ 4,979,950		2019
				Contract Liabilities $ 2,884,122 17,936,476 $ 20,820,598 $ 18,584,287 2,236,311 $ 20,820,598

23. PROVISIONS

Operating leases - aircraft Current Non-current		**December 31 **	**December 31 **
		2020 $ 13,741,244 $ - 13,741,244 $ 13,741,244	2019 $ 9,431,736 $ - 9,431,736 $ 9,431,736

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	Aircraft Lease
		Contract
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
Balance at January 1, 2020	$	9,431,736
Additional provisions recognized		5,580,416
Usage		(705,117)
Effect of exchange rate changes		(565,791)
Balance at December 31, 2020	$	13,741,244

• 44 -

24. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, 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.

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
		2020 $ 14,458,016 (6,240,621) $ 8,217,395	2019 $ 13,932,511 (6,343,766) $ 7,588,745

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

Balance at January 1, 2019 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	Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets $ 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	Net Defined Benefit Liabilities (Assets) $ 6,932,783 1,187,281 62,468 1,249,749 (219,345) 290,044 491,560 562,259 (1,038,624) - (Continued)

• 45 -

Direct payment to employees from the employer Effect of exchange rate changes Balance at December 31, 2019 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 Direct payment to employees Effect of exchange rate changes Balance at December 31, 2020	Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets $ (117,492) $ - 70 - 13,932,511 (6,343,766) 1,186,945 - 96,038 (43,803) 1,282,983 (43,803) - (213,741) 498,254 - 209,705 - 707,959 (213,741) - (933,458) (1,294,147) 1,294,147 (154,058) - (17,232) - $ 14,458,016 $ (6,240,621)	Net Defined Benefit Liabilities (Assets) $ (117,492) 70 7,588,745 1,186,945 52,235 1,239,180 (213,741) 498,254 209,705 494,218 (933,458) - (154,058) (17,232) $ 8,217,395 (Concluded)

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
	2020 2019 0.34% 0.71% 1.00% 1.00%

• 46 -

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 0.25%/0.5% increase 0.25%/0.5% decrease Expected rate of salary increase 0.5% increase 0.5% decrease		**December 31 **	**December 31 **
		2020 $ (318,904) $ 332,769 $ 651,673 $ (610,077)	2019 $ (613,408) $ 653,413 $ 626,743 $ (600,073)

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 **
		2020 $ 740,777 9.5 years	2019 $ 736,056 9.6 years

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 **
		2020 7,000,000 $ 70,000,000 $ 54,209,846	2019 7,000,000 $ 70,000,000 $ 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
		2020 $ 146,351 - 33,513 - 11,747 119,134 409,978 466,604 $ 1,187,327	2019 $ 315,114 3,909 33,513 1,129,080 11,747 118,962 409,978 466,604 $ 2,488,907

• 47 -

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.

• c. Appropriation of earnings and dividend policy

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

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

Under the dividend policy as set forth in the Company’s Articles of Incorporation (the “Articles”) based on the amended Company Act, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as a legal reserve 10% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan with due consideration of any future aircraft acquisition plans and fund demands, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders by cash or shares (cash dividends cannot be less than 30% of total dividends distributed). However, if the Company’s profit before tax in a fiscal year after deductions for the abovementioned items is not sufficient for earnings distribution, retained earnings can be used as a supplement for the deficiency.

The Company shall set aside profits as a legal reserve until the legal reserve amounts to the authorized capital. The legal reserve could be used for offsetting 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.

• 48 -

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

• 1) Offsetting of deficit in 2019

On June 23, 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 Company covered the deficit with legal reserve of $466,416 thousand, special reserve of $12,967 thousand and capital reserve of $1,297,843 thousand.

• 2) Offsetting of deficit in 2020

On March 18, 2021, the board proposed to offset the accumulated deficit in 2020. The deficit included a net income of $140,000 thousand and the beginning balance of undistributed retained earnings of $0, negative adjustment of other retained earnings of $490,581 thousand, the remaining amount of accumulated deficit was $350,581 thousand and was offset by capital reserve of $350,581 thousand.

d. Other equity items

The movement of other equity items is as follows:

Exchange Differences on Translation of the Financial Statements of Foreign Operations Unrealized Gain (Loss) on Financial Assets at FVTOCI Gain (Loss) on Hedging Instruments Balance at January 1, 2019 $ (9,664) $ 42,619 $ 25,268 Exchange differences on translation of the financial statements of foreign operations (59,174) - - Cumulative loss on changes in fair value of hedging instruments - - 1,398,296 Cumulative gain on changes in fair value of hedging instruments reclassified to profit or loss - - 9,305 Unrealized gain on financial assets at FVTOCI - 24,490 - Share of profit or associates accounted for using equity method (6,072) 54,902 (7,187) Effects of income tax 11,835 (14,854) (281,401) Other comprehensive income (loss) recognized in the period (53,411) 64,538 1,119,013 Disposal of subsidiaries 8,368 105 - Transfers of initial carrying amount of hedged items - - (603) Balance at December 31, 2019 $ (54,707) $ 107,262 $ 1,143,678

Total $ 58,223 (59,174) 1,398,296 9,305 24,490 41,643 (284,420) 1,130,140 8,473 (603) $ 1,196,233 (Continued)

• 49 -

Exchange Differences on Translation of the Financial Statements of Foreign Operations Unrealized Gain (Loss) on Financial Assets at FVTOCI Gain (Loss) on Hedging Instruments Balance at January 1, 2020 $ (54,707) $ 107,262 $ 1,143,678 Exchange differences on translation of the financial statements of foreign operations (101,142) - - Cumulative loss on changes in fair value of hedging instruments - - 1,907,401 Cumulative gain on changes in fair value of hedging instruments reclassified to profit or loss - - (283,210) Unrealized gain on financial assets at FVTOCI - 39,305 - Share of profit or associates accounted for using equity method 1,368 (84,893) 2,837 Effects of income tax 20,229 9,685 (365,036) Other comprehensive income (loss) recognized in the period (79,545) (35,903) 1,261,992 Transfers of initial carrying amount of hedged items - - 200,989 Balance at December 31, 2020 $ (134,252) $ 71,359 $ 2,606,659

Total $ 1,196,233 (101,142) 1,907,401 (283,210) 39,305 (80,688) (335,122) 1,146,544 200,989 $ 2,543,766 (Concluded)

e. Treasury shares

Treasury shares are the Company’s shares held by its subsidiaries, as of December 31, 2020 and 2019 were as follows:

(In Thousands of Shares)

	Number of
	Shares,	Reduction	Number of
	Beginning of	During the	Shares, End of
Period of Treasury Shares	Year	Year	Year
For the year ended December 31, 2020	2,889	(814)	2,075
For the year ended December 31, 2019	2,889	-	2,889
	Shares	Carrying
Subsidiary	(In Thousands)	Amount	Market Value
December 31, 2020
Mandarin Airlines	2,075	$ 24,999	$ 24,999
December 31, 2019
Mandarin Airlines	2,075	$ 18,796	$ 18,796
Dynasty Aerotech International Corp	814	7,376	7,376
		$ 26,172	$ 26,172

• 50 -

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

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

26. NET INCOME

• a. Revenue

Passenger Cargo Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 20,508,133 81,692,574 4,126,416 $ 106,327,123	2019 $ 96,176,865 43,406,487 6,789,049 $ 146,372,401

• b. Other income

Interest income Dividend income Subsidy income Others c. Other gains and losses Gain on disposal property, plant and equipment Net loss on financial assets as held for trading Gain (loss) on foreign exchange, net Impairment loss recognized on non-current assets held for sale Impairment loss recognized on flight equipment Gain on disposal of investment Loss on non-current assets held for sale Loss on sale and leaseback Others	**For the Year Ended **	**For the Year Ended **	**December 31 **
	2020 $ 208,081 8,720 29,309 194,651 $ 440,761 **For the Year Ended **		2019 $ 314,944 10,112 38,621 160,556 $ 524,233 **December 31 **
		2020 $ 8,005 3,596 259,796 (46,757) (424,573) - - - (323,894) $ (523,827)	2019 $ 26,377 25,700 (262,610) - - 7,656 (10,462) (103,775) (252,468) $ (569,582)

• 51 -

d. Finance costs

Interest expense Bonds payable Bank loans Interest on lease liabilities Information about capitalized interest was as follows: Capitalization interest Capitalization rate Depreciation and amortization expenses Property, plant and equipment Right-of-use assets Intangible assets An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating expenses Employee benefits expense Post-employment benefits Defined contribution plans Defined benefit plans	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2020 2019 $ 344,034 $ 431,599 834,611 703,681 1,601,718 1,898,892 $ 2,780,363 $ 3,034,172 For the Year Ended December 31
	2020 2019 $ 75,701 $ 36,404 0.71%-1.45% 1.01%-1.28% **For the Year Ended December 31 **
	2020 2019 $ 18,063,025 $ 19,388,694 9,955,721 10,009,941 169,158 165,981 $ 28,187,904 $ 29,564,616 $ 27,360,911 $ 28,373,597 657,835 1,025,038 $ 28,018,746 $ 29,398,635 $ 169,158 $ 165,981 **For the Year Ended December 31 **
		2020 $ 347,320 1,239,180 $ 1,586,500	2019 $ 373,187 1,249,749 $ 1,622,936 (Continued)

e. Depreciation and amortization expenses

• f. Employee benefits expense

• 52 -

Other employee benefits Salary expenses Labor and health insurance Personnel service expenses An analysis of employee benefits expense by function Operating costs Operating expenses	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2020 $ 12,892,488 1,149,065 3,303,051 $ 17,344,604 $ 14,918,454 4,012,650 $ 18,931,104	2019 $ 14,475,115 1,282,461 4,589,299 $ 20,346,875 $ 17,862,954 4,106,857 $ 21,969,811 (Concluded)

According to the Company’s articles, the Company accrues compensation of employees at rates of no less than 3% of the net profit before income tax and compensation of employees, and accrues profit bonus at a certain rate of profit before tax on the basis of the collective agreement signed with the China Airlines Employees Union. For the years ended December 31, 2020 and 2019, the compensation of employees was not estimated since it was a 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 compensation of employees and remuneration of directors and supervisors resolved by the Company’s board of directors is available at 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:

Current tax Current year Prior year adjustment Deferred tax Current year Adjustments to deferred tax attributable to changes in tax rates and laws Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 15,676 280 (67,746) 82,885 $ 31,095	2019 $ 8,836 (6,658) (16,218) 26,512 $ 12,472

• 53 -

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

Profit before tax Income tax expense calculated at the statutory rate Add (deduct) tax effects of: Nondeductible expenses in determining taxable income Tax-exempt income Overseas income tax expense Unrecognized loss carryforwards and investment tax credits Adjustments for prior years’ tax Adjustments to deferred tax attributable to changes in tax rates and laws Income tax expense recognized in profit or loss b. Income tax recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 171,095 $ 34,219 369,518 (334,324) 15,676 (137,159) 280 82,885 $ 31,095	2019 $ (1,187,326) $ (237,465) 17,900 (347,338) 8,836 550,685 (6,658) 26,512 $ 12,472

c.	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 Total income tax recognized in other comprehensive income Deferred tax assets and liabilities For the year ended December 31, 2020	For the Year Ended	For the Year Ended	December 31
			2020 $ 20,229 (365,036) 98,844 9,685 $ (236,278)	2019 $ 11,835 (281,401) 112,452 (14,854) $ (171,968)

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

• 54 -

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

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

December 31 2020 2019 Loss carryforwards 2021 $ - $ 2,899,496 2022 - 619,799 2026 - 202,699 2028 495,779 1,519,941 2029 1,439,287 760,157 $ 1,935,066 $ 6,002,092 Other $ 4,479,141 $ 1,097,908 Unused tax loss carryforwards as of December 31, 2020 were as follows: Expiry Year Unused Amount 2028 $ 495,779 2029 1,439,287 $ 1,935,066		December 31	December 31
			2019 $ 2,899,496 619,799 202,699 1,519,941 760,157 $ 6,002,092 $ 1,097,908 Unused Amount $ 495,779 1,439,287 $ 1,935,066

d. Unused tax loss carryforwards as of December 31, 2020 were as follows:

• e. Income tax returns

The income tax returns of the Company through 2018 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	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2020 2019 $ 0.03 $ (0.22) $ 0.03 $ (0.22) **For the Year Ended December 31 **
		2020 $ 140,000 - $ 140,000	2019 $ (1,199,798) - $ (1,199,798)

• 56 -

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) Weighted average number of ordinary shares used in the computation of diluted earnings per share (in thousands)	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2020 5,418,776 - 5,418,776	2019 5,418,096 - 5,418,096

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.

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 not measured at fair value

Financial liabilities Bonds payable	December 31	December 31
	2020 Carrying Amount Fair Value $ 22,432,859 $ 22,609,683	2019
		Carrying Amount Fair Value $ 32,352,625 $ 32,363,301

Some long-term borrowings are floating-rate financial liabilities, so their carrying amounts are their fair values. 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).

• 57 -

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

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

• 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, 2020

Financial assets at FVTOCI Investments in equity instruments Unlisted shares - domestic Unlisted shares - foreign Financial assets for hedging Financial liabilities for hedging 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	Level 1 $ - - $ - $ 7,613,636 $ 40,575,778 Level 1 $ - $ - - $ - $ - $ - $ 50,997,687	Level 2 $ - - $ - $ - $ 5,794 Level 2 $ 434 $ - - $ - $ 11,749 $ 109 $ 28,578	Level 3 $ 29,704 117,457 $ 147,161 $ - $ - Level 3 $ - $ 26,865 80,991 $ 107,856 $ - $ 9,479 $ 3,955	Total $ 29,704 117,457
				$ 147,161
				$ 7,613,636
				$ 40,581,572
				Total $ 434
				$ 26,865 80,991
				$ 107,856
				$ 11,749
				$ 9,588
				$ 51,030,220

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

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

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

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

The fair values of 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	Liquidity
	Multiplicator	Discount
December 31, 2020	0.79-16.32		80%
December 31, 2019	0.75-13.23		80%
	Derivative		Equity
	Instruments	Instruments
Balance at January 1, 2020	$ 5,524	$	107,856
Other comprehensive income recognized during the period	(5,524)		39,305
Balance at December 31, 2020	$ -	$	147,161
	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

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

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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
	2020 2019 $ - $ 434 7,613,636 9,588 36,153,687 31,214,918 147,161 107,856 - 11,749 40,581,572 51,030,220 148,012,657 129,800,759

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

• Note 2: The balance 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 Company’s sensitivity to a one dollar increase and decrease in the New Taiwan dollar (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 an increase in pre-tax profit of $126,947 thousand and other comprehensive income of $1,155,267 thousand for the year ended December 31, 2020. A decrease in pre-tax profit of $40,775 thousand and increase in pre-tax other comprehensive income of $1,629,223 thousand 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 hedging of foreign currency risk. For the information related to lease contract as hedging instruments, please refer to Note 20.

December 31, 2020

Notional Line Item in Hedging Instruments Currency Amount Maturity Forward Rate Balance Sheet Cash flow hedge Aviation fuel - forward exchange contracts NTD/USD NTD 142,045/ USD 5,000 2021.1.29- 2021.5.28 29.4-29.8 Financial assets for hedging - current/ liabilities for hedging - current	Carrying Amount
	Asset Liability $ - $ 5,794

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

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For the year ended December 31, 2020

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

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

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 abovementioned hedging instruments applied hedge accounting. The book value of other equity for each hedging item (aviation fuel and aircraft rentals in U.S. dollars) was $(10,161) thousand and $(18,308) 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 amount of hedging instruments reclassified to prepayments for equipment was $(603) 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
	2020 2019 $ 63,008,637 $ 83,350,312 102,601,087 73,930,965

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

Had interest rates increased by one yard (25 basis) and 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.

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, 2020

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

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

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For the year ended December 31, 2020

					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					$ (5,524)	$ (52,853)	(Note)
Note:	Increase in operating costs.
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	2020.3.31-	USD49.65- Financial assets for	$ 9,479	$ 3,955
options				2020.12.31	USD80.75 hedging - current/
					liabilities for hedging -
					current

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

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
	2020 Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ 1,479 $ - (1,479) -	2019
		Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ - $ 7,973 - -

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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.

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.

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December 31, 2020

The Weighted Average Effective Interest Rate (%) Finance lease liabilities 0.1355 Floating interest rate liabilities 0.9102 Hedging instruments 0.2541 Bonds payable 2.4622 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 Loan commitments Unused bank loan limit (unsecured)	Less than 1 Year $ 915,897 15,559,492 9,249,609 12,685,204 $ 38,410,202 Less than 1 Year $ 914,419 14,284,090 10,060,822 10,823,905 $ 36,083,236		1 to 5 Years Over 5 Years $ 2,778,984 $ 9,929,842 54,822,466 14,752,347 32,978,809 1,815,449 9,303,608 1,280,779 $ 99,883,867 $ 27,778,417 1 to 5 Years Over 5 Years $ 3,362,181 $ 10,451,021 34,457,400 14,787,869 39,729,062 6,373,333 19,871,174 3,383,401 $ 97,419,817 $ 34,995,624 December 31
			2020 2019 $ 21,559,000 $ 18,422,000

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

Relationship with the Company

Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Associate (become associate in January 2019) Subsidiary Subsidiary Subsidiary Subsidiary Associate Associate Associate Associate Joint venture investment Joint venture investment Joint venture investment Joint venture investment Director of the Company and major shareholder Director, key management personnel, chairman, general manager of the Company, spouse and second-degree relative

b. Operating income

Account Items Related Party Type Other income 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
		2020 $ 696,100 $ 5,097 $ 122 $ 22,445	2019 $ 2,577,039 $ 25,457 $ 1,239 $ 42,457

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c. 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
		2020 $ 2,611,679 $ 11,417 $ 457,005 $ 516,347	2019 $ 3,915,258 $ 56,474 $ 414,106 $ 1,911,091

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

Related Party Type Subsidiary Joint venture investment Major shareholder of the Company		December 31	December 31
		2020 $ 99,757 1,667 - $ 101,424	2019 $ 222,038 7,760 2,588 $ 232,386

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 **
		2020 $ 459,667 52,187 76,380 - $ 588,234	2019 $ 927,419 51,333 484,700 5,982 $ 1,469,434

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 2020 and 2019, the rentals received amounted to $384,080 thousand and $1,624,568 thousand, respectively.

Under an operating lease agreement, the Company rented flight training machines and flight simulators from China Aviation Development Foundation to train pilots. The Company paid the rental based on usage hours. In 2020 and 2019, the Company paid rentals of about $11,417 thousand and $56,474 thousand, respectively.

In March 2010, the Company signed a yearly renewable operating lease agreement to use the Operating and Aviation Headquarters building of the Taiwan Taoyuan International Airport with CAL Park. In 2020 and 2019, the Company paid rentals of $207,003 and $231,288 thousand, respectively.

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g. Endorsements and guarantees

The Company CAL Park Taiwan Air Cargo Terminal Tigerair Taiwan Taiwan Air Craft Maintenance	December 31	December 31
	2020	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
	Authorized Amount Actual Amount Used $ 3,850,000 $ 1,892,540 - - 2,656,591 265,062 2,000,000 1,336,000

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, 2020
	Units Aggregate Par/Dollars 125 $ 125,000 25 25,000

In 2020, interest expense was $2,499 thousand. This bonds payable will be paid off in May 2021. As of December 31, 2020 the interest payable was $1,071 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 **
		2020 $ 33,376 2,525 $ 35,901	2019 $ 39,693 2,362 $ 42,055

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

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 **
		2020 $ 30,113,171 54,555,761 $ 84,668,932	2019 $ 26,956,631 64,262,830 $ 91,219,461

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33. COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2020, except for the disclosures stated in other notes, the Company had commitments and contingent liabilities as follows:

• a. In October 2019, the Company signed a contract with Airbus S.A.S. to purchase eleven A321neo aircraft and an option to purchase five A321neo aircraft. The total list price of the eleven aircraft is US$1,676,413 thousand, and the list price of the option to purchase five aircraft is US$769,922 thousand. The expected delivery periods of the eleven aircraft are from 2024 to 2026. As of December 31, 2020, the list price of the fourteen aircraft had been paid in the amount of US$32,578 thousand (recognized as prepayments for aircraft). In October 2019, the Company signed a contract with International Aero Engines Company to purchase four backup engines of A321neo. The total list price of the four engines is US$60,289 thousand. The Company also signed related aircraft rental agreement, please refer to Note 20 for details.

• b. In July and August 2019, the Company signed a contract with the Boeing Company to purchase three 777F aircraft and exercised the option to purchase three 777F aircraft. The total list price of the six aircraft is US$2,320,315 thousand, and the expected delivery periods are from 2020 to 2023. As of December 31, 2020, two out of the six aircraft has been delivered, the list price had been paid in the amount of US$122,186 thousand (recognized as prepayments for aircraft), and the total list price of the remaining four aircraft is US$1,552,879.

34. IMPACT OF COVID-19

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

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

In 2020, because of the Covid-19, the Company received subsidy of $1,251,632 thousand for the airport landing fees and parking fees, etc. The subsidy for housing and land rental, and salary expenses was $745,820 thousand, recognized as deduction from other income and expenses.

The Company has obtained relief loan from the government. Refer to Note 18 for details on the amount of loan and its allocation.

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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, 2020

		Foreign
	Currencies			Carrying
	(In	Thousands)	Exchange Rate	Amount
Financial assets
Monetary items
USD	$	640,411	28.4091	$ 18,193,504
EUR		18,246	34.8432	635,752
HKD		338,880	3.6603	1,240,403
JPY		3,417,972	0.2750	939,942
RMB		546,452	4.3440	2,373,786
Financial liabilities
Monetary items
USD		1,927,625	28.4091	54,762,089
EUR		6,513	34.8432	226,949
HKD		72,397	3.6603	264,994
JPY		2,986,256	0.2750	821,220
RMB		136,957	4.3440	594,941
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

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For the years ended December 31, 2020 and 2019, the Company’s net foreign exchange (losses) gains were $259,796 thousand and $(262,610) 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.

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: Table 1 (attached).

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

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

• 4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: None.

• 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).

• c. Information of major shareholders: Table 8 (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.

• 72 -

TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Lender	Borrower	Financial Statement Account	Related Party	Highest Balance for the Period	Ending Balance	Actual Borrowing Amount	Interest Rate (%)	Nature of Financing	Business Transaction Amount	Reasons for Short-term Financing	Allowance for Impairment Loss	Collateral	Collateral	Financing Limit for Each Borrower	Aggregate Financing Limit	Note
													Item	Value
1	Cal-Dynasty International	Dynasty Hotel of Hawaii, Inc.	Notes receivable	Y	$ 103,244	$ 99,432	$ 28,409	2.25	Short-term financing facility is necessary	$ -	Operating cycle capital expenditure	$ -		$ -	$ 144,128	$ 288,256

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

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

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TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES

ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2020 (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 Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd.	100% subsidiary 75.86% subsidiary by direct and indirect holdings 100% subsidiary	$ 11,511,896 11,511,896 11,511,896	$ 3,850,000 3,038,197 2,000,000	$ 3,850,000 2,656,591 2,000,000	$ 1,892,540 265,062 1,336,000	$ - - -	6.69 4.62 3.47	$ 28,779,741 28,779,741 28,779,741	Y Y Y	N N N	N N N

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

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

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TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2020

(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, 2020	December 31, 2020		Note
				Number of Shares/Units	Carrying Amount	Percentage of Ownership (%)	Market Value or Net Asset Value
China Airlines (“Parent company”) Mandarin Airlines Cal-Asia Investment Sabre Travel Network (Taiwan) Taiwan Airport Services Dynasty Aerotech International Corp. Kaohsiung Catering Services	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 Shares TransAsia Airways Beneficiary certificates Taishin 1699 Money Market Fund Beneficiary certificates Prudential Financial Money Market Fund Prudential Financial Return Fund Taishin 1699 Money Market Fund	- - - - - 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	1,359,368 135,937 1,100,000 12,000,000 4,021 2,074,628 - - 4,051,153 308,094 2,277,786 349,523 5,407,832 4,493,628 1,106,807	$ 106,779 10,678 29,704 - - 24,999 - 16,585 42,247 55,411 - 4,771 86,281 70,949 15,103	13.59 - 11.00 15.00 0.02 - 2.59 5.45 - - 0.40 - - -	$ 117,457 29,704 - - 24,999 - 16,585 42,247 55,411 - 4,771 86,281 70,949 15,103	Note 1 - Note 2 Note 2 - - - -

Note 1: The subsidiary’s net asset value was $117,457 thousand, which included ordinary shares and preference shares as of and for the year ended December 31, 2020.

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

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

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TABLE 4

CHINA AIRLINES, LTD. AND SUBSIDIARIES

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, 2020

(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	Taiwan Air Cargo Terminal Taiwan Airport Services Mandarin Airlines Tigerair Taiwan Taoyuan International Airport Service Dynasty Aerotech International Corp. CAL Park Global Sky Express Eastern United International Logistics China Pacific Catering Services Taiwan Airport Services Tigerair Taiwan CAL Park	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee Equity-method investee Same parent company Same parent company Same parent company	Purchase Purchase Sale Sale Purchase Purchase Purchase Sale Purchase Purchase Purchase Purchase Purchase	$ 659,596 107,482 (221,527) (240,768) 1,043,264 352,214 209,701 (139,335) 388,451 473,460 152,475 149,048 102,220	0.69 0.11 (0.21) (0.23) 1.10 0.37 0.22 (0.13) 0.41 0.50 4.14 4.05 48.59	30 days 40 days 2 months 1 month 40 days 2 months 2 months 15 days 2 months 90 days 1 month 1 month 1 month	$ - - - - - - - - - - - -	- - - - - - - - - - - -	$ (67,465) (13,046) 69,179 12,008 (215,542) (49,108) - 8,180 (41,725) (71,674) (22,407) (11,711) (76)	(3.39) (0.76) 0.71 0.12 (12.56) (2.86) - 0.08 (2.43) (4.18) (5.58) (2.92) (0.25)	- - - - - - - - - - -

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TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2020

(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
Mandarin Airlines Taoyuan International Airport Service	China Airlines China Airlines	Parent company Parent company	$ 101,725 215,542	Note 3.71	$ - -	- -	$ 56,870 215,542	$ - -

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 SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE FOR THE YEAR ENDED DECEMBER 31, 2020

(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, 2020	s of December 31, 2020	Net Income (Loss) of the Investee	Investment Income (Loss)	Note
				December 31, 2020	December 31, 2019	Number of Shares/Units	Percentage of Ownership (%)	Carrying Amount
China Airlines, Ltd. Mandarin Airlines CAL-Asia Investment Taiwan Airport Services Kaohsiung Catering Services	CAL Park Mandarin Airlines Taiwan Air Cargo Terminal Cal-Dynasty International China Pacific Catering Services Taoyuan International Airport Services CAL-Asia Investment Sabre Travel Network (Taiwan) China Aircraft Service Taiwan Airport Services Kaohsiung Catering Services Cal Hotel Co., Ltd. China Pacific Laundry Services Dynasty Aerotech International Corp. Yestrip Dynasty Holidays Global Sky Express Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd. NORDAM Asia Ltd. Tigerair Taiwan Co., Ltd. Taiwan Airport Services Eastern United International Logistics Taiwan Airport Service (Samoa) Delica International Co., Ltd.	Taoyuan, Taiwan Taipei, Taiwan Taoyuan, Taiwan Los Angeles, USA Taoyuan, Taiwan Taoyuan, Taiwan Territory of the British Virgin Islands Taipei, Taiwan Hong Kong International Airport Taipei, Taiwan Kaohsiung, Taiwan Taoyuan, Taiwan Taoyuan, Taiwan Taoyuan, Taiwan Taipei, Taiwan Tokyo, Japan Taipei, Taiwan Taipei, Taiwan Taoyuan, Taiwan Taoyuan, Taiwan Taipei, Taiwan Taipei, Taiwan Hong Kong Samoa Kaohsiung, Taiwan	Real estate lease and international trade Air transportation and maintenance of aircraft Air cargo and storage A holding company, real estate and hotel services In-flight catering Airport services General investment Sale and maintenance of hardware and software Airport services Airport services In-flight catering Hotel business Cleaning and leasing of the towel of airlines, hotels, restaurants and health clubs Cleaning of aircraft and maintenance of machine and equipment Travel business Travel business Forwarding and storage of air cargo Air transportation and maintenance of aircraft Aircraft maintenance Aircraft maintenance Air transportation and maintenance of aircraft Airport services Forwarding and storage of air cargo Airport services and investment Catering business	$ 1,500,000 2,042,368 1,350,000 US$ 26,145 439,110 147,000 US$ 7,172 52,200 HK$ 58,000 12,289 383,846 465,000 137,500 77,270 26,265 JPY 8,000 2,500 3,109,907 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 1,272,063 1,350,000 2,450 154,330 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 1,600,000 160 250,000 212,420,046 135,000,000 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 75.86 100.00 49.00 5.51 1.08 35.00 100.00 51.00	$ 1,605,033 1,223,259 1,556,133 1,188,110 695,959 602,688 469,979 232,883 277,234 200,794 512,926 405,353 149,353 136,630 10,270 5,237 7,643 2,304,113 699,793 37,767 167,400 4,567 51,116 373,442 7,871	$ 9,350 (376,255) 318,494 (21,960) (267,566) (258,894) 45,068 (49,995) (513,790) (156,739) 9,129 (73,586) (28,137) 33,986 (15,067) (23,701) 7,796 (1,371,056) (222,223) (93) (1,371,056) (156,739) 39,829 22,355 4	$ 53,770 (353,642) 172,017 (20,542) (136,459) (126,858) 45,068 (46,951) (102,758) (74,214) (8,309) (73,906) (15,475) 33,967 (14,998) (4,740) 1,949 (956,008) (222,196) (46) (104,501) (1,688) 13,940 22,355 2	Note 4 Notes 1 and 4 - Note 2 - - - - - - Note 5 Note 4 - Note 4 Note 4 - - Note 4 - - - - - Note 3 -

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

Note 2: Represents the 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 caused by acquisition.

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TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIES

INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars/Renminbi/U.S. Dollars, 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, 2020	Investment Flow	Investment Flow	Accumulated Outflow of Investment from Taiwan as of December 31, 2020	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss)	Carrying Amount as of December 31, 2020	Accumulated Inward Remittance of Earnings as of December 31, 2020
							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		$ 1,105,474 (RMB 254,480) 60,817 (RMB 14,000) 2,360,511 (US$ 83,090) 331,335 (US$ 11,663)	Indirect (Note 1) Indirect (Note 1) Indirect (Note 1) Indirect (Note 1)		$ 118,920 (US$ 4,186) 55,325 (US$ 1,947) 61,114 (US$ 2,151) 18,068 (US$ 636)	$ - - - -	$ - - - -	$ 118,920 (US$ 4,186) 55,325 (US$ 1,947) 61,114 (US$ 2,151) 18,068 (US$ 636)	$ 91,311 (RMB 21,367) 68,272 (RMB 15,976) - -	14.00 14.00 2.589 5.45	$ 12,794 (RMB 2,991) 9,566 (RMB 2,237) - -	$ 238,717 (RMB 54,953) 134,918 (RMB 31,058) - 16,585 (RMB 3,818)	$ 100,470 (US$ 3,537) (Note 2) 44,333 (US$ 1,561) (Note 2) - 10,128 (US$ 357)
Accumulated Investment in Mainland China as of December 31, 2020		Investment Amount Authorized by Investment Commission, MOEA			Limit on Investment
$253,427 (US$8,920)		$618,216 (Note 3)			$34,535,690 (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, 2020	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2020	Remittance of Funds	Remittance of Funds	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2020	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Income (Loss)	Carrying Amount as of December 31, 2020	Accumulated Repatriation of Investment Income as of December 31, 2020
							Outward	Inward
Airport Air Cargo Terminal (Xiamen) Co., Ltd. Airport Air Cargo Service (Xiamen) Co., Ltd.	Forwarding and storage of air cargo Forwarding and storage of air cargo		$ 1,105,474 (RMB 254,480 ) 60,817 (RMB 14,000 )	Indirect (Note 5) Indirect (Note 5)	$ 114,158 (US$ 4,018) 54,737 (US$ 1,927)		$ - -	$ - -	$ 114,158 (US$ 4,018) 54,737 (US$ 1,927)	$ 91,311 (RMB 21,367) 68,272 (RMB 15,976)	14.00 14.00	$ 12,784 (RMB 2,991) 9,558 (RMB 2,237)	$ 237,502 (RMB 54,673) 135,128 (RMB 31,107)	$ 129,010 (US$ 4,541) 59,426 (US$ 2,092)
Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2020		Investment Amounts Authorized by Investment Commission, MOEA				Upper Limit on the Amount of Investment Stipulated by Investment Commission, MOEA
$168,895 (US$5,945)		$168,895 (US$5,945)				$254,438 (Note 6)

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 2020 amounted to US$3,536,561 and US$1,560,538.

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

Note 4: The limit stated in the Investment Commission’s regulation, “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 for the reporting period.

(Concluded)

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TABLE 8

CHINA AIRLINES, LTD.

INFORMATION OF MAJOR STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2020

Name of Major Shareholder	Shares	Shares
	Number of Shares	Percentage of Ownership (%)
China Aviation Development Foundation (CADF) National Development Fund (NDF)	1,867,341,935 519,750,519	34.44 9.59

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

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

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