CAL - Interim / Quarterly Report 2020

China Airlines, Ltd. and Subsidiaries

Consolidated Financial Statements for the Nine Months Ended September 30, 2020 and 2019 and Independent Auditors’ Review Report

INDEPENDENT AUDITORS’ REVIEW REPORT

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

Introduction

We have reviewed the accompanying consolidated balance sheets of China Airlines, Ltd. and its subsidiaries (the “Group”) as of September 30, 2020 and 2019, the related consolidated statements of comprehensive income for the three months ended September 30, 2020 and 2019 and for the nine months ended September 30, 2020 and 2019, the consolidated statements of changes in equity and cash flows for the nine month then ended, and the related notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”). Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews.

We did not review the financial statements of some subsidiaries included in the consolidated financial statements of the Group, but such statements were reviewed by other auditors. Our conclusion, insofar as it relates to the amounts included in the consolidated financial statements for these subsidiaries, is based solely on the report of other auditors. The total assets of these subsidiaries were NT$11,025,331 thousand and NT$13,644,652 thousand, which constituted 3.88% and 4.57% of the consolidated total assets as of September 30, 2020 and 2019, and the total revenue was NT$175,653 thousand, NT$2,501,275 thousand, NT$1,813,945 thousand and NT$7,406,331 thousand, which constituted 0.66%, 5.82%, 2.12% and 5.86% of the consolidated total revenues for the three months ended September 30, 2020 and 2019 and for the nine months ended September 30, 2020 and 2019.

Scope of Review

Except as explained in the following paragraph, we conducted our reviews in accordance with the Statement of Auditing Standard No. 65 “Review of Financial Information Performed by the Independent Auditor of the Entity”. A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Basis for Qualified Conclusion

As disclosed in Notes 13 and 14 to the consolidated financial statements, the financial statements of some non-significant subsidiaries included in the consolidated financial statements referred to in the first paragraph and some investments accounted for using the equity method were not reviewed. As of September 30, 2020 and 2019, the combined total assets of these non-significant subsidiaries were NT$21,447,628 thousand and NT$22,460,780 thousand, respectively, representing 7.55% and 7.53%, respectively, of the consolidated total assets, and combined total liabilities of these non-significant

subsidiaries were NT$11,453,273 thousand and NT$11,665,344 thousand, respectively, representing 5.07% and 4.89%, respectively, of the consolidated total liabilities; for the three months ended September 30, 2020 and 2019 and for the nine months ended September 30, 2020 and 2019, the amounts of the combined comprehensive income of these non-significant subsidiaries were NT$(126,107) thousand, NT$297,334 thousand, NT$(481,583) thousand and NT$855,151 thousand, respectively, representing 37.52%, 59.93%, 28.41% and (412.73%), respectively, of the consolidated total comprehensive income. As of September 30, 2020 and 2019, the aforementioned investments accounted for using the equity method were NT$2,009,318 thousand and NT$2,186,140 thousand, respectively; and for the three months ended and for the nine months ended September 30, 2020 and 2019, the amounts of the Group’s share of the profit of such investments accounted for using the equity method were NT$(57,013) thousand, NT$77,114 thousand, NT$(176,235) thousand and NT$234,913 thousand, respectively.

Qualified Conclusion

Based on our reviews, except for the adjustments, if any, as might have been determined to be necessary had the financial statements of the non-significant subsidiaries and investments accounted for by using the equity method as described in the preceding paragraph been reviewed, nothing has come to our attention that caused us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the consolidated financial position of the Group as of September 30, 2020 and 2019, its consolidated financial performance for the three months ended September 30, 2020 and 2019 and for the nine-month periods ended September 30, 2020 and 2019, and its consolidated cash flows for the nine months then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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

Deloitte & Touche Taipei, Taiwan Republic of China November 5, 2020

Notice to Readers

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

For the convenience of readers, the independent auditors’ review report and the accompanying consolidated financial statements have been translated into English from the original 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’ review report and consolidated financial statements shall prevail.

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4, 6 and 32) Financial assets at fair value through profit or loss - current (Notes 4, 7 and 32) Financial assets at amortized cost - current (Notes 4, 9 and 32) Financial assets for hedging - current (Notes 4, 6 and 32) Notes and accounts receivable, net (Notes 4, 5, 10 and 32) Notes and accounts receivable - related parties (Notes 32 and 33) Other receivables (Note 32) Current tax assets (Notes 4 and 28) Inventories, net (Notes 4 and 11) Non-current assets held for sale (Notes 4, 5 and 12) Other assets - current (Note 18) Total current assets NON-CURRENT ASSETS Financial assets at fair value through other comprehensive income - non-current (Notes 4, 8 and 32) Financial assets at amortized cost - non-current (Notes 4, 9 and 32) Investments accounted for using the equity method (Notes 4 and 14) Property, plant and equipment (Notes 4, 5, 15 and 34) Right-of-use assets (Notes 4, 21 and 34) Investment properties (Notes 4 and 16) Other intangible assets (Notes 4 and 17) Deferred income tax asset (Notes 4, 5 and 28) Other assets - non-current (Notes 18, 21, 32, 33 and 34) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loans (Notes 19 and 32) Short-term bills payable (Note 19) Financial liabilities at fair value through profit or loss - current (Notes 4, 7 and 32) Financial liabilities for hedging - current (Notes 4, 21 and 32) Notes and accounts payable (Note 32) Notes and accounts payable - related parties (Notes 32 and 33) Other payables (Notes 22 and 32) Current tax liabilities (Notes 4 and 28) Lease liabilities - current (Notes 4 and 21) Contract liabilities - current (Notes 4, 5 and 23) Provisions - current (Notes 4, 24 and 32) Bonds payable and put options of convertible bonds - current portion (Notes 4, 20 and 32) Loans and debts - current portion (Notes 19, 32 and 34) Other current liabilities (Note 32) Total current liabilities NON-CURRENT LIABILITIES Derivative financial liabilities for hedging - non-current (Notes 4, 21 and 32) Bonds payable - non-current (Notes 4, 20 and 32) Loans and debts - non-current (Notes 19, 32 and 34) Contract liabilities - non-current (Notes 4 and 23) Provisions - non-current (Notes 4, 24 and 32) Deferred tax liabilities (Notes 4 and 28) Lease liabilities - non-current (Notes 4 and 21) Accrued pension costs (Notes 4, 5 and 25) Other non-current liabilities (Note 32) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 20 and 26) Share capital Capital surplus Retained earnings (accumulated deficits) Legal reserve Special reserve Unappropriated retained earnings (accumulated deficits) Total retained earnings Other equity Treasury shares Total equity attributable to owners of the Company NON-CONTROLLING INTERESTS (Note 26) Total equity TOTAL		September 30, 2020 (Reviewed) Amount % $ 26,638,850 10 491,271 - 5,458,047 2 9,505,860 3 8,418,269 3 1,537 - 640,205 - 66,991 - 8,048,111 3 79,143 - 1,864,090 1 61,212,374 22 122,512 - 388,270 - 2,009,318 1 134,897,356 47 62,866,981 22 2,074,864 1 1,088,194 - 5,678,175 2 13,686,945 5 222,812,615 78 $ 284,024,989 100 $ 1,932,000 1 8,468,278 3 - - 8,516,507 3 2,072,167 1 109,953 - 8,480,982 3 178,279 - 2,499,005 1 4,394,318 1 221,320 - 11,562,586 4 16,468,455 6 1,197,423 - 66,101,273 23 35,774,370 13 11,600,000 4 72,681,739 26 1,998,350 1 13,565,971 5 823,805 - 13,530,522 5 9,308,126 3 572,000 - 159,854,883 57 225,956,156 80 54,209,846 19 1,187,327 - - - - - (2,023,555) (1) (2,023,555) (1) 1,876,805 1 (30,875) - 55,219,548 19 2,849,285 1 58,068,833 20 $ 284,024,989 100		December 31, 2019 (Audited) Amount % $ 28,459,528 10 512,192 - 2,355,095 1 9,626 - 8,520,834 3 10,348 - 774,206 - 54,689 - 8,470,113 3 - - 2,655,711 1 51,822,342 18 209,221 - 105,586 - 2,223,793 1 145,886,971 50 71,033,617 24 2,075,068 1 1,182,692 - 5,337,626 2 13,171,063 4 241,225,637 82 $ 293,047,979 100 $ 380,000 - - - 11,749 - 8,618,506 3 1,495,606 1 542,015 - 13,187,972 5 374,178 - 2,340,873 1 21,060,773 7 360,393 - 10,000,000 3 14,148,892 5 3,830,570 1 76,351,527 26 42,420,205 15 22,052,625 8 53,514,891 18 2,236,311 1 10,011,464 3 557,142 - 15,801,724 5 9,435,035 3 534,938 - 156,564,335 53 232,915,862 79 54,209,846 19 2,488,907 1 466,416 - 12,967 - (1,777,225) - (1,297,842) - 1,196,233 - (43,372) - 56,553,772 20 3,578,345 1 60,132,117 21 $ 293,047,979 100		September 30, 2019 (Reviewed)
						Amount % $ 28,831,065 10 374,123 - 1,079,048 - 12,360 - 9,255,225 3 10,569 - 1,366,847 - 59,664 - 8,762,322 3 - - 1,738,484 1 51,489,707 17 126,069 - - - 2,186,140 1 149,644,024 50 74,143,766 25 2,075,135 1 1,211,693 - 5,211,294 2 12,346,491 4 246,944,612 83 $ 298,434,319 100 $ - - 10,000 - 2,115 - 8,883,631 3 1,675,597 1 550,376 - 13,257,560 4 336,971 - 2,486,709 1 20,836,928 7 53,326 - 9,100,000 3 9,775,624 3 4,595,396 2 71,564,233 24 46,107,551 15 22,932,632 8 59,560,240 20 2,155,198 1 10,061,365 3 204,421 - 16,620,938 6 8,665,398 3 487,138 - 166,794,881 56 238,359,114 80 54,209,846 18 2,448,220 1 466,416 - 12,967 - (346,425) - 132,958 - (193,441) - (43,372) - 56,554,211 19 3,520,994 1 60,075,205 20 $ 298,434,319 100

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

(With Deloitte & Touche auditors’ review report dated November 5, 2020)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share) (Reviewed, Not Audited)

REVENUE (Notes 4, 27 and 34) COSTS (Notes 4, 11, 17, 21, 24, 25, 27, 34 and 36) GROSS PROFIT OPERATING EXPENSES (Notes 4, 25 and 27) OPERATING (LOSS) PROFIT NON-OPERATING EXPENSES Other income (Note 27) Other gains and losses (Notes 12, 15 and 27) Finance costs (Notes 27 and 33) Share of the profit (loss) of associates and joint ventures (Note 14) Total non-operating income and expenses (LOSS) PROFIT BEFORE INCOME TAX INCOME TAX (BENEFIT) EXPENSE (Notes 4 and 28) NET (LOSS) INCOME FOR THE PERIOD OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss`：` Gain (loss) on hedging instruments subject to basis adjustment Unrealized loss on investments in equity instruments designated as at fair value through other comprehensive income Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 28)		For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30		For the Nine Months	EndedSeptember 30	EndedSeptember 30
		2020		2019		2020		2019
		Amount % $ 26,611,698 100 25,408,645 95 1,203,053 5 1,560,622 6 (357,569) (1) 182,503 1 89,695 - (750,676 ) (3 ) (57,013) - (535,491) (2) (893,060 ) (3 ) (75,767) - (817,293) (3) (213,217 ) (1 ) (11,473 ) - 44,939 - (179,751) (1)		Amount % $ 43,004,648 100 37,878,124 88 5,126,524 12 3,664,622 9 1,461,902 3 190,245 1 (254,192 ) (1 ) (803,383 ) (2 ) 77,114 - (790,216) (2) 671,686 1 176,171 - 495,515 1 603 - (2,939 ) - 25 - (2,311) -		Amount % $ 85,484,350 100 79,395,609 93 6,088,741 7 6,669,400 8 (580,659) (1) 545,707 1 19,407 - (2,367,841 ) (3 ) (176,235) - (1,978,962) (2) (2,559,621 ) (3 ) (184,376) - (2,375,245) (3) (224,034 ) - (85,280 ) - 60,960 - (248,354) -		Amount % $ 126,302,308 100 112,665,810 89 13,636,498 11 10,840,603 9 2,795,895 2 516,124 - (491,067 ) - (2,523,631 ) (2 ) 234,913 - (2,263,661) (2) 532,234 - 474,485 - 57,749 - 603 - (5,004 ) - 876 - (3,525) - (Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share) (Reviewed, Not Audited)

For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30	For the Nine Months	EndedSeptember 30
2020	2019	2020	2019
Amount % $ (13,055 ) - 838,066 3 (164,068) - 660,943 3 481,192 2 $ (336,101) (1) $ (707,937 ) (3 ) (109,356) - $ (817,293) (3) $ (229,105 ) (1 ) (106,996) - $ (336,101) (1) $ (0.13) $ (0.13)	Amount % $ (32,457 ) - 39,897 - (4,510) - 2,930 - 619 - $ 496,134 1 $ 340,038 1 155,477 - $ 495,515 1 $ 347,814 1 148,320 - $ 496,134 1 $ 0.06 $ 0.06	Amount % $ (70,055 ) - 1,231,041 1 (232,713) - 928,273 1 679,919 1 $ (1,695,326) (2) $ (2,021,822 ) (2 ) (353,423) (1) $ (2,375,245) (3) $ (1,341,250 ) (2 ) (354,076) - $ (1,695,326) (2) $ (0.37) $ (0.37)	Amount % $ (6,411 ) - (318,338 ) - 63,332 - (261,417) - (264,942) - $ (207,193) - $ (346,425 ) - 404,174 - $ 57,749 - $ (605,959 ) - 398,766 - $ (207,193) - $ (0.06) $ (0.06)


$	$		$
$	$		$
$	$		$
$	$		$
$	$		$

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

(With Deloitte & Touche auditors’ review report dated November 5, 2020)

(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

	Equity Attributable toOwners of theCompany	Equity Attributable toOwners of theCompany
Share Capital Capital Surplus $ 54,209,846 $ 1,241,214 - - - - - - - - - 1,207,006 - - - - - - - - - - - - $ 54,209,846 $ 2,448,220 $ 54,209,846 $ 2,488,907 - 172 - - - - - (1,297,843 ) - - - - - - - (3,909 ) - - $ 54,209,846 $ 1,187,327	Retained Earnings Legal Reserve Special Reserve Unappropriated Earnings (Accumulated Deficits) $ 351,923 $ 118,810 $ 1,144,928 - - - 114,493 - (114,493 ) - (105,843 ) 105,843 - - (1,136,278 ) - - - - - (346,425 ) - - - - - (346,425) - - - - - - - - - $ 466,416 $ 12,967 $ (346,425) $ 466,416 $ 12,967 $ (1,777,225 ) - - - (466,416 ) - 466,416 - (12,967 ) 12,967 - - 1,297,843 - - (2,021,822 ) - - - - - (2,021,822) - - (1,734 ) - - - $ - $ - $ (2,023,555)	Other Equity Exchange Unrealized Gain (Loss) on Financial Assets Differences on Translating Foreign Operations at Fair Value Through Other Comprehensive Income Gain (Loss) on Hedging Instruments Treasury Shares $ (9,664 ) $ 42,619 $ 25,268 $ (43,372 ) - - (603 ) - - - - - - - - - - - - - - - - - - - - - (2,616) (4,128) (252,790) - (2,616) (4,128) (252,790) - - - - - - - - - 8,368 105 - - $ (3,912) $ 38,596 $ (228,125) $ (43,372) $ (54,707 ) $ 107,262 $ 1,143,678 $ (43,372 ) - - - - - - - - - - - - - - - - - - - - (55,231) (69,127) 804,930 - (55,231) (69,127) 804,930 - - - - 12,497 - - - - $ (109,938) $ 38,135 $ 1,948,608 $ (30,875)

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

(With Deloitte & Touche auditors’ review report dated November 5, 2020)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) income before income tax Adjustments for: Depreciation expenses Amortization expenses Expected credit loss recognized on trade receivables Net gain on fair value changes of financial assets and liabilities held for trading Interest income Dividend income Share of loss (profit) of associates and joint ventures Gain on disposal of property, plant and equipment Loss on disposal of non-current assets held for sale Gain on disposal of investments Loss on disposal of inventory and property, plant and equipment Compensation costs of employee share options Finance costs Net (gain) loss on foreign currency exchange Loss on sale-leasebacks Recognition of provisions Others Changes in operating assets and liabilities Financial assets mandatorily classified as at fair value through profit or loss Financial liabilities classified as at fair value through profit or loss Notes and accounts receivable Accounts receivable - related parties Other receivables Inventories Other current assets Notes and accounts payable Accounts payable - related parties Other payables Contract liabilities Provisions Other current liabilities Accrued pension liabilities Other liabilities Cash generated from operations Interest received Dividends received		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ (2,559,621) 23,898,705 152,758 5,791 (2,234) (242,761) (22,516) 176,235 (13,466) - - 388,460 224 2,367,841 (621,249) - 4,730,275 3,533 23,905 (11,749) (140,637) 867,396 110,725 663,251 1,528,637 61,595 (1,073,199) (4,520,964) (16,904,416) (962,948) (2,628,167) (126,909) (33,033) 5,115,462 232,156 63,817	2019 $ 532,234 24,582,494 149,150 20,434 (43,641) (287,238) (18,009) (234,913) (25,280) 10,462 (7,656) 502,317 - 2,523,631 516,116 103,775 3,293,355 (2,063) (124,447) 1,894 701,910 (140,527) (127,624) (294,431) 1,878,230 173,523 150,336 (822,899) 1,543,090 (2,051,888) 649,837 (137,886) 1,102 33,015,388 272,090 260,714 (Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

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 amortized cost Payments to acquire financial assets for hedging Proceeds from disposal of noncurrent assets held for sale Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in refundable deposits Decrease in refundable deposits Increase in prepayments for equipment Increase in computer software costs (Increase) decrease in restricted assets Proceeds from disposal of associates accounted for using the equity method Net cash outflow on disposal of subsidiaries (Note 31) Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term debts Increase in short-term bill payable Proceeds from issuance of bonds payable Repayments of bonds payable Proceeds of long-term debts Repayments of long-term debts Repayments of the principal portion of lease liabilities Proceeds of guarantee deposits received Refunds of guarantee deposits received Proceeds from sale-leasebacks Dividends paid to owners of the Company Cash dividends paid to non-controlling interests Proceeds from disposal of treasury shares Net cash generated from (used in) financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ (2,477,852) (191,653) 2,741,930 (5,398,640) 1,694,234 (9,667,026) - (858,411) 39,076 (63,471) 100,018 (3,983,167) (57,715) (52,410) - - (18,247,512) 1,552,000 8,068,279 - (8,950,000) 65,830,527 (43,944,169) (8,153,315) 92,983 (137,738) - - (375,036) 6,854 13,990,385 (305,481)	2019 $ (2,483,505) (356,524) 30,708,163 (1,389,615) 3,718,702 - 35,692 (4,075,360) 66,784 (347,289) 141,930 (12,864,504) (152,548) 453 1,505,664 (17,413) (13,377,504) - 10,000 3,500,000 (4,445,900) 7,532,213 (14,629,858) (8,624,846) 122,618 (104,852) 4,905,660 (1,136,278) (416,438) - (13,287,681) (149,450) (Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ (1,820,678) 28,459,528 $ 26,638,850	2019 $ 3,893,528 24,937,537 $ 28,831,065

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche auditors’ review report dated November 5, 2020) (Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited)

1. GENERAL INFORMATION

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

The major shareholders of the Company are the China Aviation Development Foundation (“CADF”) and the National Development Fund (“NDF”), Executive Yuan. As of September 30, 2020, December 31, 2019 and September 30, 2019, CADF and NDF held a combined 44.03% of the Company’s shares.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) were approved by the board of directors and authorized for issue on November 5, 2020.

APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

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

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

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

The Group 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. Before the application of the amendment, the Group was required to determine whether the abovementioned rent concessions are lease modifications and thus have to be accounted for as lease modifications.

The Group applied the amendment from January 1, 2020. Retrospective application of the amendment has no impact on the retained earnings as of January 1, 2020.

10 -
b. 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 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” 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 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) Effective immediately upon promulgation by the IASB January 1, 2021 To be determined by IASB January 1, 2023 January 1, 2023 January 1, 2023 January 1, 2022 (Note 4) January 1, 2022 (Note 5)

New IFRSs
“Annual Improvements to IFRS Standards 2018-2020”

Amendments to IFRS 3 “Reference to the Conceptual Framework”

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”

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 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)
Effective immediately upon
promulgation by the IASB
January 1, 2021
To be determined by IASB
January 1, 2023
January 1, 2023
January 1, 2023
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 first 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.

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

11 -

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the policies listed below, the accounting policies adopted for these consolidated financial statements are the same as those of for the consolidated financial statements for the year ended December 31, 2019.

Statement of Compliance

These interim consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial Reporting” as endorsed and issued into effect by the FSC. Disclosure information included in these interim consolidated financial statements is less than the disclosures required in a full set of annual consolidated financial statements.

Basis of Consolidation

The reporting principles of these consolidated financial statements are the same as those of the consolidated financial statements for the year ended December 31, 2019.

Employee Benefits

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant plan amendments, settlements, or other significant one-off events.

Income Tax

Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period income taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax income the tax rate that would be applicable to expected total annual earnings.

Business Combinations

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

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

Lease

The Group negotiates with the lessor for rent concessions as a direct consequence of the Covid-19 to change the lease payments originally due by June 30, 2021, that results in the revised consideration for the lease substantially the same as, or less than, the consideration for the lease immediately preceding the change. There is no substantive change to other terms and conditions. The Group elects to apply the practical expedient to rent concessions for the abovementioned lease contracts, and therefore, does not assess whether the rent concessions are lease modifications. Instead, the Group recognizes the reduction in lease payment in profit or loss in the period in which the events or conditions that trigger the concession occurs, and makes a corresponding adjustment to the lease liability.

12 -

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.

Government Grants

Government grants are not recognized until there is reasonable assurance that the Group 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 Group 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 Group 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.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The critical accounting judgments and key sources of estimation uncertainty for these interim consolidated financial statements are the same as those applied in the annual consolidated financial statements for the year ended December 31, 2019.

6. CASH AND CASH EQUIVALENTS

September 30, 2020 Cash on hand and revolving fund $ 102,243 Checking accounts and demand deposits 12,480,737 Cash equivalents Time deposits with original maturities of less than three months 7,147,612 Repurchase agreements collateralized by bonds 6,908,258 $ 26,638,850	December 31, 2019 September 30, 2019 $ 483,951 $ 152,002 7,206,938 10,061,172 16,565,821 15,998,451 4,202,818 2,619,440 $ 28,459,528 $ 28,831,065

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

	September 30,	December 31,	September 30,
	2020	2019	2019
Bank balance	0%-1.90%	0%-1.90%	0%-1.90%
Time deposits with original maturities of less than
three months	0.28%-2.20%	0.59%-3.55%	0.59%-3.50%
Repurchase agreements collateralized by bonds	0.28%-0.65%	0.47%-0.70%	0.51%-2.80%

13 -

The Group 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	Carrying
Maturity Date			Subject				Value
September 30, 2020 2020.10.8-2020.12.16	Financial assets		for	hedging	- current	$	9,505,814
Impact on comprehensive income (loss)
						Recognized in
							Other
						Comprehensive
						Income (Loss)
For the nine months ended September 30, 2020						$	(161,211)
For the three months ended September 30, 2020							(161,211)
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT					OR LOSS	(FVTPL)
	September		30,	December 31,		September 30,
		2020			2019		2019
Financial assets-current
Financial assets mandatorily classified as at
FVTPL
Derivative financial instruments (not under
hedge accounting)
Foreign exchange forward contracts	$		-	$	434	$	16,864
Non-derivative financial assets
Beneficial certificates		491,271			511,758		357,259
	$	491,271		$	512,192	$	374,123
Financial liabilities-current
Financial liabilities held for trading
Derivative financial instruments (not under
hedge accounting)
Foreign exchange forward contracts	$		-	$	11,749	$	2,115

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

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
September 30, 2019
Buy forward contracts	NTD/USD	2019.10.1-2020.7.31	NTD1,009,317/USD32,500

14 -

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments

	September 30,	December 31,	September 30,
	2020	2019	2019
Non-current
Foreign investments
Unlisted shares	$ 100,161	$ 182,356	$ 104,952
Domestic investments
Unlisted shares	22,351	26,865	21,117
	$ 122,512	$ 209,221	$ 126,069

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

9. FINANCIAL ASSETS AT AMORTIZED COST

	September	September	30,	December 31,	December 31,	September	September	30,
		2020			2019		2019
Current
Time deposits with original maturities of more
than 3 months	$	5,458,047		$	2,354,794	$	1,079,048
Government bonds			-		301			-
	$	5,458,047		$	2,355,095	$	1,079,048
Non-current
Time deposits with original maturities of more
than 1 year	$	388,270		$	105,586	$		-

The range of interest rates for time deposits with original maturities of more than 3 months was approximately 0.40%-2.75%, 0.60%-2.75% and 0.40%-2.80% per annum as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively.

15 -

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE, NET

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2020		2019		2019
Notes receivable	$	14,711	$	299,245	$	480,343
Accounts receivable
At amortized cost
Gross carrying amount		8,615,272		8,440,254		8,987,872
Less: Allowance for impairment loss		(211,714)		(218,665)		(212,990)
		8,403,558		8,221,589		8,774,882
	$	8,418,269	$	8,520,834	$	9,255,225

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

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

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

16 -

The following table details the loss allowance of accounts receivable based on the Group’s provision matrix:

September 30, 2020

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

Expected credit loss rate
0.04%
0.38%
8.26%
67.05%
95.51%
Gross carrying amount
$ 7,946,934 $ 314,390 $ 137,376 $ 38,874 $ 177,698
Loss allowance (lifetime
ECLs)

(3,401)

(1,195)

(11,342)

(26,063)

(169,713)

Amortized cost
$ 7,943,533
$ 313,195
$ 126,034
$ 12,811
$ 7,985

December 31, 2019
Not Past Due Up to 30 Days 31 to 60 Days 61 to 90 Days Over 90 Days

Expected credit loss rate
0.12%
0.15%
6.16%
15.25%
97.18%

Gross carrying amount
$ 6,705,662 $ 1,332,640 $ 97,700 $ 113,716 $ 190,536
Loss allowance (lifetime
ECLs)

(8,123)

(2,019)

(6,021)

(17,340)

(185,162)

Amortized cost
$ 6,697,539
$ 1,330,621
$ 91,679
$ 96,376
$ 5,374

September 30, 2019
Not Past Due Up to 30 Days 31 to 60 Days 61 to 90 Days Over 90 Days

Expected credit loss rate
0.02%
0.41%
1.02%
23.44%
98.95%

Gross carrying amount
$ 6,980,406 $ 1,401,461 $ 332,956 $ 89,657 $ 183,392
Loss allowance (lifetime
ECLs)

(1,368)

(5,728)

(3,404)

(21,015)

(181,475)

Amortized cost
$ 6,979,038
$ 1,395,733
$ 329,552
$ 68,642
$ 1,917

Total
$ 8,615,272

(211,714)
$ 8,403,558
Total
$ 8,440,254

(218,665)
$ 8,221,589
Total
-
$ 8,987,872

(212,990)
$ 8,774,882

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

Balance at January 1 Add: Net remeasurement of loss allowance Less: Amounts written off Foreign exchange gains and losses Loss of control of subsidiaries Balance at September 30		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 218,665 5,791 (12,735) (7) - $ 211,714	2019 $ 227,306 20,434 (34,734) 1 (17) $ 212,990

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11. INVENTORIES, NET

	September 30,	December 31,	September 30,
	2020	2019	2019
Aircraft spare parts	$ 7,263,449	$ 7,578,125	$ 7,569,585
Items for in-flight sale	624,082	571,601	570,877
Work in process - maintenance services	133,597	283,933	591,656
Others	26,983	36,454	30,204
	$ 8,048,111	$ 8,470,113	$ 8,762,322

The operating costs recognized for the nine months ended September 30, 2020 and 2019 included loss on inventory write-downs of $196,286 thousand and $302,420 thousand, respectively. And the operating costs for the three months ended September 30, 2020 and 2019 included (reversal of loss) loss on inventory write-downs of $(933) thousand and $36,368 thousand, respectively.

12. NON-CURRENT ASSETS HELD FOR SALE

	September 30,	December	December	31,	September	30,
	2020		2019		2019
Aircraft held for sale	$ 79,143	$		-	$	-

To enhance its competitiveness, the Company plans to introduce new type of aircraft and retire old aircraft according to a planned schedule. The old aircraft classified as non-current assets held for sale had original carrying amounts exceeded their expected sale prices which gave rise to an impairment loss. The Company will continuously assess for any indications of impairment in subsequent periods. However, the actual amount of loss shall be subject to the actual sales price.

The Company recognized an impairment loss of $0 for the nine months ended September 30, 2020 and 2019. Some aircraft had completed the planned disposal procedures, and the Company recognized a loss on disposal of $10,462 thousand for the three months ended March 31, 2019.

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

13. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements are as follows:

Investor Company Investee Company Main Businesses and Products China Airlines, Ltd. Cal-Dynasty International A holding company, real estate and hotel services Cal-Asia Investment General investment Dynasty Aerotech International Corp. Cleaning of aircraft and maintenance of machine and equipment Yestrip Travel business Cal Park Real estate lease and international trade Cal Hotel Co., Ltd. Hotel business Sabre Travel Network (Taiwan) Sale and maintenance of hardware and software Mandarin Airlines Air transportation and maintenance of aircraft	Proportion of Ownership (%)
	September 30, 2020 December 31, 2019 September 30, 2019 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 94 94 94 94 94 94

Investor Company
Investee Company
Main Businesses and Products
China Airlines, Ltd.
Cal-Dynasty International
A holding company, real estate and
hotel services
Cal-Asia Investment
General investment
Dynasty Aerotech International Corp. Cleaning of aircraft and maintenance of
machine and equipment
Yestrip
Travel business
Cal Park
Real estate lease and international trade
Cal Hotel Co., Ltd.
Hotel business
Sabre Travel Network (Taiwan)
Sale and maintenance of hardware and
software
Mandarin Airlines
Air transportation and maintenance of
aircraft

Proportion of Ownership (%)

September 30,
2020
December 31,
2019
September 30,
2019
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
94
94
94
94
94
94

(Continued)

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Investor Company Investee Company Main Businesses and Products Taiwan Air Cargo Terminal (Note) Air cargo and storage Taoyuan International Airport Services Airport services Taiwan Airport Services (Note) Airport services Global Sky Express Forwarding and storage of air cargo Tigerair Taiwan Co., Ltd. (Note) Air transportation Taiwan Aircraft Maintenance And Engineering Co., Ltd. Aircraft maintenance Kaohsiung Catering Services, Ltd. In-flight catering Cal-Dynasty International Dynasty Properties Co., Ltd. Real estate management Dynasty Hotel of Hawaii, Inc. Hotel business Taiwan Airport Services Taiwan Airport Service (Samoa) Airport supporting service and investment	Proportion of Ownership (%)
	September 30, 2020 December 31, 2019 September 30, 2019 59 59 59 49 49 49 48 48 48 25 25 25 77 77 78 100 100 100 54 54 54 100 100 100 100 100 100 100 100 100

Investor Company
Investee Company
Main Businesses and Products
Taiwan Air Cargo Terminal (Note)
Air cargo and storage
Taoyuan International Airport Services Airport services
Taiwan Airport Services (Note)
Airport services
Global Sky Express
Forwarding and storage of air cargo
Tigerair Taiwan Co., Ltd. (Note)
Air transportation
Taiwan Aircraft Maintenance And
Engineering Co., Ltd.
Aircraft maintenance
Kaohsiung Catering Services, Ltd.
In-flight catering
Cal-Dynasty International Dynasty Properties Co., Ltd.
Real estate management
Dynasty Hotel of Hawaii, Inc.
Hotel business
Taiwan Airport Services
Taiwan Airport Service (Samoa)
Airport supporting service and
investment

Proportion of Ownership (%)

September 30,
2020
December 31,
2019
September 30,
2019
59
59
59
49
49
49
48
48
48
25
25
25
77
77
78
100
100
100
54
54
54
100
100
100
100
100
100
100
100
100

(Concluded)

Note: Proportion of ownership is based on the Group’s shareholding.

The Company has substantial control over Taoyuan International Airport Service, Taiwan Airport Service and Global Sky Express, while the rest of investees have more than 50% of their voting shares owned by the Company. The above financial information for the nine months ended September 30, 2020 and 2019 of these subsidiaries was not reviewed by independent auditors, except for Mandarin Airlines and Tigerair Taiwan Co., Ltd.

In order to prepare for the listing of Tigerair Taiwan Co., Ltd. and to comply with the requirements relating to the review process of public listing criteria, the release of the shares of Tigerair Taiwan Co., Ltd. held by the Company and Mandarin Airlines was resolved in the shareholders’ meeting of the Company on June 25, 2019 and in the shareholders’ meeting of Mandarin Airlines on June 27, 2019. The shares shall be subscribed by all shareholders of the Company and Mandarin Airlines on the basis of the percentage of shareholdings. For those shares waived by the shareholders or the undersubscribed portion, the chairman was authorized to designate a specific person to subscribe for the shares. The subscription price was set at $41 per share. In October and December 2019, the issued shares were fully paid-up and were completely delivered and transferred. A total of 45,661,000 shares had been disposed of in which the proportion of ownership decreased to 77%. The proceeds from disposal amounted to $1,866,474 thousand. Since the Company did not lose control of the subsidiary, the related gain on disposal amounted to $1,254,633 thousand was recognized in the capital surplus account.

The board of directors of Tigerair Taiwan Co., Ltd. approved the plan to issue ordinary shares for cash on August 10, 2020. The Company plans to issue 80,000 thousand shares at $25 per share and the total amount of the transaction is $2,000,000 thousand. The contribution to employee stock options from cash capital increase recognized as compensation cost amounted to $224 thousand, of which $172 thousand was recognized as capital surplus and $52 thousand was attributed to non-controlling interests.

The board of directors of Tigerair Taiwan Co., Ltd. approved the abovementioned issuance of listed ordinary shares for cash on August 6, 2020. The total amount of the transaction is capped at $2,000,000 thousand.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

	September 30,	December 31,	September 30,
	2020	2019	2019
Investments in associates	$ 1,137,076	$ 1,208,495	$ 1,261,309
Investments in jointly controlled entities	872,242	1,015,298	924,831
	$ 2,009,318	$ 2,223,793	$ 2,186,140

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a. Investments in associates

The investments in associates were as follows:

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2020		2019		2019
Unlisted companies
China Aircraft Services	$	365,387	$	461,263	$	511,627
Dynasty Holidays		7,725		10,004		10,685
Airport Air Cargo Terminal (Xiamen)		461,308		446,161		445,444
Airport Air Cargo Service (Xiamen)		259,765		248,350		245,663
Eastern United International Logistics
(Holdings) Ltd.		42,891		42,717		47,890
	$	1,137,076	$	1,208,495	$	1,261,309

At the end of the reporting period, the proportion of ownership and voting rights of associates held by the Group was as follows:

Name of Associate China Aircraft Services Dynasty Holidays Airport Air Cargo Terminal (Xiamen) Airport Air Cargo Service (Xiamen) Eastern United International Logistics (Holdings) Ltd.	Proportion of Ownership and Voting Rights
	September 30, 2020 December 31, 2019 September 30, 2019 20% 20% 20% 20% 20% 20% 28% 28% 28% 28% 28% 28% 35% 35% 35%

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

China Aircraft Services Dynasty Holidays Airport Air Cargo Terminal (Xiamen) Airport Air Cargo Service (Xiamen) Eastern United International Logistics (Holdings) Ltd.	For the Three Months Ended September 30 2020 2019 $ (12,550) $ 3,350 (682) (307) 5,347 4,623 4,637 5,925 1,838 1,756 $ (1,410) $ 15,347	For the Three Months Ended September 30 2020 2019 $ (12,550) $ 3,350 (682) (307) 5,347 4,623 4,637 5,925 1,838 1,756 $ (1,410) $ 15,347	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ (12,550) (682) 5,347 4,637 1,838 $ (1,410)		2020 $ (73,782) (2,326) 19,247 13,751 3,288 $ (39,822)	2019 $ 10,259 297 15,131 19,323 5,090 $ 50,100

The investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments were based on the associates’ financial statements which have not been reviewed. However, the management determined that there would be no significant adjustments to the related information presented in these consolidated financial statements had these investee’s financial statements been independently reviewed.

20 -

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 Group’s shareholding of the issued share capital decreased from 51% to 20%. Dynasty Holidays was classified as an associate since the Group lost control of the subsidiary. Therefore, the relevant assets and liabilities were not consolidated in the current period and only the profit and loss from January 1, 2019 to January 31, 2019 were consolidated. For information on the disposal of the subsidiary, refer to Note 30.

b. Investments in jointly controlled entities

The investments in jointly controlled entities were as follows:

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2020		2019		2019
China Pacific Catering Services	$	680,527	$	801,071	$	748,584
China Pacific Laundry Services		146,027		168,547		166,019
NORDAM Asia Ltd.		37,820		37,813		2,358
Delica International Co., Ltd.		7,868		7,867		7,870
	$	872,242	$	1,015,298	$	924,831

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

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia Ltd. Delica International Co., Ltd.	Proportion of Ownership and Voting Rights
	September 30, 2020 December 31, 2019 September 30, 2019 51% 51% 51% 55% 55% 55% 49% 49% 49% 51% 51% 51%

The Group entered into a joint venture agreement with Taikoo Group to invest in China Pacific Catering Services and China Pacific Laundry Services. According to the agreement, both parties have the right to veto major proposals on the board of directors, and therefore, the Group does not have control.

To enhance the Group’s maintenance capabilities, the Company established a joint venture with the US NORDAM Aerospace Group in December 2017, with a plan 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 settle the disputes with its business partners, which would not have an impact on its operations. As a result, NORDAM Asia suspended its operations from October 5, 2018 to October 4, 2019 and resumed business on October 4, 2019. The Company increased the capital of NORDAM Asia by $35,525 thousand in November 2019.

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

21 -

The recognized investment income of jointly controlled entitles accounted for using the equity method are as follows:

China Pacific Catering Services China Pacific Laundry Services NORDAM Asia Ltd. Delica International Co., Ltd.	For the Three Months Ended September 30 2020 2019 $ (48,653) $ 56,609 (6,949) 5,158 (1) - - - $ (55,603) $ 61,767	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
			2020 $ (120,543) (15,877) 7 - $ (136,413)	2019 $ 172,579 12,234 - - $ 184,813

The investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments were based on the jointly controlled entities’ financial statements which have not been reviewed. However, the management determined that there would be no significant adjustments had this investee’s financial statements been independently reviewed.

For information on the major businesses and products and the locations of registration for the major business offices of the above entities, refer to Tables 6 and 7 (names, locations, and related information of investees on which the Company exercises significant influence and investment in mainland China) following the notes to the consolidated financial statements.

15. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2019 Additions Disposals Reclassification Net exchange differences Loss of control of subsidiaries Balance at September 30, 2019, net Accumulated depreciation and impairment Balance at January 1, 2019 Depreciation expenses Disposals Reclassification Net exchange differences Loss of control of subsidiaries Balance at September 30, 2019 Balance at September 30, 2019, net	Freehold Land $ 1,015,564 - - - 5,067 - $ 1,020,631 $ - - - - - - $ - $ 1,020,631	Buildings $ 13,993,585 166,759 (896 ) 1,903,479 8,987 - $ 16,071,914 $ (6,574,873 ) (343,162 ) 896 - (4,459 ) - $ (6,921,598) $ 9,150,316	Flight Equipment $ 259,695,130 3,291,168 (20,386,082 ) 28,797,237 - - $ 271,397,453 $ (123,507,657 ) (14,082,491 ) 14,639,276 (14,621,264 ) - - $ (137,572,136) $ 133,825,317	Equipment under Finance Leases $ 25,805,008 - (668,721 ) (25,131,813 ) - (4,474) $ - $ (14,634,822 ) (671,116 ) 638,039 14,665,787 - 2,112 $ - $ -	Others $ 17,917,780 617,433 (260,493 ) (1,592,848 ) 49,188 (2,158) $ 16,728,902 $ (10,601,997 ) (701,853 ) 252,190 (26,300 ) (4,909 ) 1,727 $ (11,081,142) $ 5,647,760	Total $ 318,427,067 4,075,360 (21,316,192 ) 3,976,055 63,242 (6,632) $ 305,218,900 $ (155,319,349 ) (15,798,622 ) 15,530,401 18,223 (9,368 ) 3,839 $ (155,574,876) $ 149,644,024 (Continued)

22 -

Cost Balance at January 1, 2020 Additions Disposals Reclassification Net exchange differences Balance at September 30, 2020, net Accumulated depreciation and impairment Balance at January 1, 2020 Depreciation expenses Disposals Reclassification Net exchange differences Balance at September 30, 2020 Balance at September 30, 2020, net	Freehold Land $ 1,002,499 - (15,205 ) - (16,972) $ 970,322 $ - - - - - $ - $ 970,322	Buildings $ 16,084,063 31,375 (372,712 ) 303 (30,991) $ 15,712,038 $ (7,028,540 ) (368,318 ) 370,829 - 16,330 $ (7,009,699) $ 8,702,339	Flight Equipment $ 272,077,692 448,356 (2,873,953 ) 1,485,746 - $ 271,137,841 $ (141,886,170 ) (13,546,525 ) 2,691,178 1,489,158 - $ (151,252,359) $ 119,885,482	Equipment under Finance Leases $ - - - - - $ - $ - - - - - $ - $ -	Others Total $ 16,846,835 $ 306,011,089 378,680 858,411 (195,126 ) (3,456,996 ) 22,295 1,508,344 (3,326) (51,289) $ 17,049,358 $ 304,869,559 $ (11,209,408 ) $ (160,124,118 ) (693,661 ) (14,608,504 ) 188,919 3,250,926 5,564 1,494,722 (1,559) 14,771 $ (11,710,145) $ (169,972,203) $ 5,339,213 $ 134,897,356 (Concluded)

The reclassification mostly resulted from the transfer of prepayments for equipment and leased aircraft buybacks.

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

Buildings Main buildings 45-55 years Others 10-25 years Machinery equipment Electro-mechanical equipment 25 years Others 3-13 years Office equipment 3-15 years Leasehold improvements Building improvements 5 years Others 3-5 years Assets leased to others 3-5 years Flight equipment and equipment under finance leases Airframes 15-25 years Aircraft cabins 7-20 years Engines 10-20 years Heavy maintenance on aircraft 6-8 years Engine overhauls 3-10 years Landing gear overhauls 7-12 years Repairable spare parts 3-15 years Leased aircraft improvements 5-12 years

Refer to Note 34 for the carrying amounts of property, plant and equipment pledged by the Group.

23 -

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

16. INVESTMENT PROPERTIES

	September 30,	December 31,	September 30,
	2020	2019	2019
Carrying amount
Investment properties	$ 2,074,864	$ 2,075,068	$ 2,075,135

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

The fair values of the investment properties held by the Group were $2,488,931 thousand, $2,506,230 thousand and $2,506,230 thousand as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively. The fair value valuations were performed by independent qualified professional valuers and management’s assessment based on similar market transactions.

All of the Group’s investment properties were held under freehold interests.

17. OTHER INTANGIBLE ASSETS

Computer Software Cost Balance at January 1, 2019 $ 2,237,382 Additions 152,548 Amortization expenses - Disposal of subsidiaries (3,858) Balance at September 30, 2019 $ 2,386,072 Balance at January 1, 2020 $ 2,406,163 Additions 57,717 Reclassification 549 Amortization expenses - Effects of exchange rate changes - Balance at September 30, 2020 $ 2,464,429	Relationship Between Clients Accumulated Amortization $ 186,197 $ (1,212,783) - - - (149,150) - 1,357 $ 186,197 $ (1,360,576) $ 186,197 $ (1,409,668) - - - (152,758) - (6) $ 186,197 $ (1,562,432)	Net Value $ 1,210,796 152,548 (149,150) (2,501) $ 1,211,693 $ 1,182,692 57,717 549 (152,758) (6) $ 1,088,194

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

24 -

18. OTHER ASSETS

September 30, 2020 Current Temporary payments $ 278,196 Prepayments 1,246,722 Restricted assets 11,710 Others 327,462 $ 1,864,090 Non-current Prepayments for aircraft $ 9,845,883 Prepayments - long-term 2,501,818 Refundable deposits 1,166,081 Restricted assets 130,540 Other financial assets 18,292 Others 24,331 $ 13,686,945	December 31, 2019 September 30, 2019 $ 296,759 $ 589,714 1,690,368 573,104 14,618 17,418 653,966 558,248 $ 2,655,711 $ 1,738,484 $ 8,863,861 $ 7,968,038 2,819,575 2,868,813 1,261,611 1,257,502 64,213 99,224 19,103 6,956 142,700 145,958 $ 13,171,063 $ 12,346,491

The prepayments for aircraft are comprised of prepaid deposits and capitalized interest from the purchase of ATR72-600, A321neo, A320neo and 777F aircraft. For details of the contract for the purchase of the aircraft, refer to Note 35.

19. BORROWINGS

a. Short-term loans

		September 30,	December	December	31,	September	September	30,
		2020		2019			2019
	Bank loans - unsecured	$ 1,932,000	$	380,000		$		-
	Interest rates	0.92%-1.28%	0.95%-1.07%				-
b.	Short-term bills payable
		September 30,	December		31,	September		30,
		2020		2019			2019
	Commercial paper	$ 8,500,000	$		-	$	10,000
	Less: Unamortized discount on bills payable	31,722			-			-
		$ 8,468,278	$		-	$	10,000
	Annual discount rate	0.99%-1.23%		-			0.53%

25 -

c. Long-term borrowings

September 30, 2020 Unsecured bank loans $ 14,114,500 Secured bank loans 40,862,328 Commercial papers Proceeds from issueance 34,200,000 Less: Unamortized discounts 26,634 89,150,194 Less: Current portion 16,468,455 $ 72,681,739 Interest rates 0.81%-1.63%	December 31, 2019 September 30, 2019 $ 1,929,827 $ 1,560,500 34,064,099 35,267,656 31,730,000 32,561,667 60,143 53,959 67,663,783 69,335,864 14,148,892 9,775,624 $ 53,514,891 $ 59,560,240 1.08%-1.79% 1.07%-1.46%

Bank loans are secured by flight equipment, buildings, and other equipment, refer to Note 34.

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

	September 30,	December 31,	September 30,
	2020	2019	2019
Periods	2009.2.4-	2008.2.26-	2008.2.26-
	2032.6.30	2030.4.25	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 Group to guarantee the commercial papers issued. As of September 30, 2020, December 31, 2019 and September 30, 2019, such commercial papers were issued at discount rates of 1.0310%-1.1310%, 1.1300%-1.3380% and 1.1273%-1.1680%, respectively.

In accordance with the “Regulations on Relief and Revitalization Measures for Industries and Enterprises Affected by Severe Pneumonia with Novel Pathogens” endorsed by the Ministry of Transportation and Communications and the “Operational Guides on Relief Loan Guarantees for Ailing Aviation Industry Affected by Severe Pneumonia with Novel Pathogens”, the Group 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 $24,390,000 thousand, which shall be repaid within 2 years from the date of initial drawdown. As of September 30, 2020, the Group had made a drawdown in the amount of $13,310,000 thousand.

20. BONDS PAYABLE

	September	30,	December 31,	December 31,	September 30,	September 30,
	2020			2019		2019
Unsecured corporate bonds first-time issued in
2013	$	-	$	2,750,000	$	2,750,000
Unsecured corporate bonds first-time issued in
2016	2,350,000			4,700,000		4,700,000
						(Continued)

26 -

September 30,
2020
Unsecured corporate bonds second-time issued in
2016
$ 2,500,000
Unsecured corporate bonds first-time issued in
2017
1,000,000
Unsecured corporate bonds second-time issued in
2017
3,500,000
Unsecured corporate bonds first-time issued in
2018
4,500,000
Unsecured corporate bonds first-time issued in
2019
3,500,000
Convertible bonds issued the sixth time

5,812,586

23,162,586
Less: Current portion and put option of
convertible bonds

11,562,586

$ 11,600,000

December 31,
2019
September 30,
2019
$ 5,000,000 $ 5,000,000

2,350,000
2,350,000

3,500,000
3,500,000

4,500,000
4,500,000

3,500,000
3,500,000

5,752,625

5,732,632

32,052,625
32,032,632

10,000,000

9,100,000
$ 22,052,625
$ 22,932,632
(Concluded)

Related issuance conditions are as follows:

Category	Period	Conditions	Rate (%)
Seven-year private unsecured bonds - issued at par in	2013.1.17-2020.1.17	Principal repayable in January 2019	1.85
January 2013; repayable in January 2019 and 2020;		and 2020; indicator rate; payable
1.85% interest p.a., payable annually		annually
Five-year unsecured bonds - issued at par in May 2016;	2016.5.26-2021.5.26	Principal repayable in May 2020 and	1.19
repayable in May 2020 and 2021; 1.19% interest p.a.,		2021; interest p.a. payable annually
payable annually
Five-year unsecured bonds - issued at par in September	2016.9.27-2021.9.27	Principal repayable in May 2020 and	1.08
2016; repayable in September 2020 and 2021; 1.08%		2021; interest p.a. payable annually
interest p.a., payable annually
Three-year private unsecured bonds - issued at par in May	2017.5.19-2020.5.19	Principal repayable on due date;	1.20
2017; repayable on due date; interest of 1.2% p.a.,		indicator rate; payable annually
payable annually
Seven-year private unsecured bonds - issued at par in May	2017.5.19-2024.5.19	Principal repayable on due date;	1.75
2017; repayable on due date; interest of 1.75% p.a.,		indicator rate; payable annually
payable annually
Three-year private unsecured bonds - issued at par in	2017.10.12-2020.10.12	Principal repayable on due date;	1.14
October 2017; repayable on due date; interest of 1.14%		indicator rate; payable annually
p.a., payable annually
Five-year private unsecured bonds - issued at par in October	2017.10.12-2022.10.12	Principal repayable in October 2021	1.45
2017; repayable in October 2021 and 2022; 1.45%		and 2022; indicator rate; payable
interest p.a., payable annually		annually
Five-year private unsecured bonds - issued at par in	2018.11.30-2023.11.30	Principal repayable in November 2022	1.32
November 2018; repayable in November 2022 and 2023;		and 2023; indicator rate; payable
1.32% interest p.a., payable annually		annually
Seven-year private unsecured bonds - issued at par in	2018.11.30-2025.11.30	Principal repayable in November 2024	1.45
November 2018; repayable in November 2024 and 2025;		and 2025; indicator rate; payable
1.45% interest p.a., payable annually		annually
Five-year private unsecured bonds - issued at par in June	2019.06.21-2024.06.21	Principal repayable in June 2023 and	1.10
2019; repayable in June 2023 and 2024; 1.10% interest		2024; indicator rate; payable
p.a., payable annually		annually
Seven-year private unsecured bonds - issued at par in June	2019.06.21-2026.06.21	Principal repayable in June 2025 and	1.32
2019; repayable in June 2025 and 2026; 1.32% interest		2026; indicator rate; payable
p.a., payable annually		annually
Five-year convertible bonds - issued at discount in January	2018.01.30-2023.01.30	Unless bonds are converted to share	-
2018; repayable in lump sum upon maturity; 1.3821%		capital or redeemed, principal
discount rate p.a.		repayable one time in January 2023;
		1.3821 discount rate p.a.

27 -

The Company issued its 2016 first unsecured corporate bonds with a face value of $5,000,000 thousand, and the purchasers of the bonds included Mandarin Airlines and Sabre Travel Network (Taiwan), who held a cumulative face value of $150,000 thousand which was eliminated on the consolidated financial statements.

The Company issued the sixth unsecured convertible bonds, and the issuance conditions are 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 as of 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

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.

28 -

21. LEASE AGREEMENTS

a. Right-of-use assets

September 30, 2020 Carrying amounts Land $ 7,950,003 Buildings 1,271,880 Flight equipment 53,643,107 Other equipment 1,991 $ 62,866,981 Additions to right-of-use assets Depreciation for right-of-use assets Land Buildings Flight equipment Other equipment Lease liabilities September 30, 2020 Carrying amounts Current $ 2,499,005 Non-current $ 13,530,522		December 31, 2019 September 30, 2019 $ 8,153,382 $ 7,877,463 824,955 965,033 62,052,701 65,300,533 2,579 737 $ 71,033,617 $ 74,143,766 For the Nine Months Ended September 30
		2020 2019 $ 2,113,026 $ 5,906,832 $ 363,649 $ 326,452 589,586 556,247 8,335,550 7,899,367 1,213 1,596 $ 9,289,998 $ 8,783,662 December 31, 2019 September 30, 2019 $ 2,340,873 $ 2,486,709 $ 15,801,724 $ 16,620,938

b. Lease liabilities

Range of discount rate for lease liabilities (included hedging instruments for leases denominated in U.S. dollars) is as follows:

	September 30,	December 31,	September 30,
	2020	2019	2019
Land	0%-1.8%	1.09%-1.65%	0%-2.87%
Buildings	0%-2.98%	0%-3.56%	0%-3.56%
Flight equipment	0.68%-3.34%	2.49%-3.34%	2.00%-3.34%
Other equipment	1.058%	1.06%-1.50%	1.06%-1.73%

29 -
c. Financial liabilities under hedge accounting

The Group designated some USD-denominated lease contracts as hedging instruments to avoid exchange rate fluctuations in passenger revenue by applying cash flow hedge accounting. The lease information is as follows:

			Maturity Date	Subject	Carrying Value	Carrying Value
September	30,	2020	2021.4.15-2028.5.15	Financial liabilities for hedging -
				current	$	8,390,296
				Financial liabilities for hedging -
				non-current		35,774,370
December	31,	2019	2021.4.15-2028.5.15	Financial liabilities for hedging -
				current		8,577,482
				Financial liabilities for hedging -
				non-current		42,420,205
September	30,	2019	2021.4.15-2028.5.15	Financial liabilities for hedging -		8,877,961
				current
				Financial liabilities for hedging -		46,107,551
				non-current

Impact on comprehensive income

	Recognized in
	Other
	Comprehensive	Reclassified to
	Income		Income
For the nine months ended September 30, 2020	$ 1,262,985	$	219,942
For the three months ended September 30, 2020	832,399		93,174
For the nine months ended September 30, 2019	(292,684)		(41,438)
For the three months ended September 30, 2019	68,517		(22,392)

d. China Airlines, Mandarin Airlines and Tigerair Taiwan leased ten 777-300ER planes, fifteen A330-300 planes, fifteen 737-800 planes, ten A320-200 planes, six ERJ190 planes and three ART72-600 planes for use in operations, lease period are 6 to 12 years from February 2006 to May 2028. The rental pricing method is partly a fixed amount of funds, and some of them are floating rents, floating rents are according to benchmark ratio, the rent is revised every half year. When the lease expires, the lease agreements have no purchase rights.

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

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2020		2019		2019
Refundable deposits	$	741,998	$	737,895	$	871,324
Credit guarantees		1,797,508		1,717,953		1,776,641

CAL Park, and Taoyuan International Airport Service signed a BOT contract with a land lease agreement, refer to Note 35. The lease includes an option to extend the lease, as it is not possible to extend the lease, the amount of the lease related to the period covered by the option is not included in the lease liability. If the amount of the extended lease period was included in the lease liability, the lease liability would have increased by $882,702 thousand, $873,293 thousand and $870,977 thousand on September 30, 2020, December 31, 2019 and September 30, 2019, respectively.

30 -

Taiwan Air Cargo Terminal Co. and CAA signed a BOT contract with a land lease agreement. For details, please refer to Note 35.

e. In September 2019, the Company signed a rental letter of intent for six A321neo with Air Lease Corporation, which is expected to be delivered between 2021 and 2022.

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

In September 2019, Tigerair Taiwan Co., Ltd. signed a rental letter of intent for eight A321neo with ICBC Lease Corporation, which is expected to be delivered between 2021 and 2024.

f. Other lease information

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

Payment for short-term and low price lease Total of lease cash outflow		For the Three Months Ended September 30	For the Three Months Ended September 30		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 6,994 $ (3,183,943)	2019 $ 9,312 $ (4,327,016)		2020 $ 19,117 $ (9,581,731)	2019 $ 30,287 $ (10,302,544)

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

22. OTHER PAYABLES

September 30, 2020 Fuel costs $ 1,341,930 Ground service expenses 857,837 Repair expenses 491,382 Interest expenses 173,278 Short-term employee benefits 2,197,375 Terminal surcharges 451,174 Commission expenses 317,156 Others 2,650,850 $ 8,480,982	December 31, 2019 September 30, 2019 $ 3,723,213 $ 3,510,835 1,262,878 1,241,298 1,208,875 1,370,331 219,660 238,784 2,040,718 1,961,213 1,122,532 888,168 509,520 417,058 3,100,576 3,629,873 $ 13,187,972 $ 13,257,560

31 -

23. CONTRACT LIABILITIES

September 30,
2020
Frequent flyer program
$ 2,789,328
Advance ticket sales

3,603,340

$ 6,392,668

Current
$ 4,394,318
Non-current

1,998,350

$ 6,392,668

PROVISIONS
September 30,
2020
Operating leases - aircraft
$ 13,787,291

Current
$ 221,320
Non-current

13,565,971

$ 13,787,291

Balance at January 1, 2019
Additional provisions recognized
Usage
Effects of exchange rate changes
Balance at September 30, 2019
Balance at January 1, 2020
Additional provisions recognized
Usage
Effects of exchange rate changes
Balance at September 30, 2020

December 31,
2019
September 30,
2019
$ 2,895,535 $ 2,794,251

20,401,549

20,197,875
$ 23,297,084
$ 22,992,126
$ 21,060,773 $ 20,836,928

2,236,311

2,155,198
$ 23,297,084
$ 22,992,126
December 31,
2019
September 30,
2019
$ 10,371,857
$ 10,114,691
$ 360,393 $ 53,326

10,011,464

10,061,365
$ 10,371,857
$ 10,114,691
Aircraft Lease
Contracts
$ 8,794,539
3,293,355
(2,051,888)

78,685
$ 10,114,691
$ 10,371,857
4,730,275
(962,948)

(351,893)
$ 13,787,291

24. PROVISIONS

The Company and Mandarin Airlines leased flight equipment under operating lease agreements. Under the contracts, when the leases expire and the equipment is returned to the lessor, the flight equipment has to be repaired according to the expected years of use, number of flight hours, flight cycles and the number of engine revolution. The Company and Mandarin Airlines had existing obligations to recognize provisions when signing a lease or during the lease term. Tigerair Taiwan Co., Ltd. also leased flight equipment under operating lease agreements. In accordance with the contract, Tigerair is required to pay the maintenance reserve on a monthly basis according to the actual number of flying hours.

32 -

25. RETIREMENT BENEFIT PLANS

Employee benefits expense in respect of the Group’s defined benefit retirement plan was calculated using the actuarially determined pension cost discount rate as of December 31, 2019 and 2018.

For the Three Months Ended September 30 2020 2019 Operating costs $ 222,901 $ 245,848 Operating expenses 91,616 98,085 $ 314,517 $ 343,933 EQUITY a. Share capital Ordinary shares September 30, 2020 Number of shares authorized (in thousands) 7,000,000 Amount of shares authorized $ 70,000,000 Amount of shares issued $ 54,209,846 b. Capital surplus September 30, 2020 Issuance of shares in excess of par value and conversion premium $ 146,351 Gain on sale of treasury shares held by subsidiaries - Retirement of treasury shares 33,513 Employee share options expired 11,747 Long-term investments 119,134 Bonds payable - equity component 409,978 Difference in sale price of shares of subsidiaries and book value - Others 466,604 $ 1,187,327		For the Three Months Ended September 30	For the Nine Months Ended September 30 2020 2019 $ 709,999 $ 737,617 304,134 322,926 $ 1,014,133 $ 1,060,543 December 31, 2019 September 30, 2019 7,000,000 7,000,000 $ 70,000,000 $ 70,000,000 $ 54,209,846 $ 54,209,846 December 31, 2019 September 30, 2019 $ 315,114 $ 315,114 3,909 3,303 33,513 33,513 11,747 11,747 118,962 115,149 409,978 409,978 1,129,080 1,092,812 466,604 466,604 $ 2,488,907 $ 2,448,220	For the Nine Months Ended September 30

26. EQUITY

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

The capital surplus arising from long-term investments, employee share options and the distribution of cash dividends to treasury share held by subsidiaries may not be used for other purposes but to offset deficits. The capital surplus arising from share options for employees and convertible bonds cannot be used.

33 -

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 Group has no loss, according to laws and regulations, the Group 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.

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

1) Appropriation of earnings in 2018

The appropriation of earnings for 2018 was resolved in the shareholders’ meeting on June 25, 2019.

34 -

The appropriations and dividends per share are as follows:

	Appropriation	Appropriation	Dividends Per
	of	Earnings	Share (NT$)
Legal reserve	$	114,493
Cash dividends		1,136,278	$0.20960737

The special surplus reserve amounted to $105,843 thousand.

2) Offsetting deficit in 2019

On June 23, 2020, the board proposed to offset the accumulated deficit of 2019. The deficit included a net loss of $1,199,978 thousand and negative adjustment to other retained earnings of $577,427 thousand, of which the remaining amount of accumulated deficit was $1,777,225 thousand. The deficit was offset by $466,416 thousand of legal reserve, $12,967 thousand of special reserve and $1,297,843 of capital reserve.

d. Other equity items

The movements of other equity items were as follows:

Exchange
Differences on
Translating
Foreign
Operations
Unrealized
Gain (Loss) on
Financial
Assets at Fair
Value Through
Other
Comprehensive
Income
Gain (Loss) on
Hedging
Instruments
Balance on January 1, 2019
$ (9,664 ) $ 42,619 $ 25,268
Exchange differences on translating foreign operations
(2,188 )
-
-
Cumulative loss on changes in fair value of hedging instruments
-
-
(322,550 )
Cumulative gain on changes in fair value of hedging instruments
reclassified to profit or loss
-
-
6,000
Unrealized loss on financial assets at fair value through other
comprehensive income
-
(5,004 )
-
Effects of change in tax rate
-
-
-
Effects of income tax

(428)

876

63,760

Other comprehensive income recognized in the period

(2,616)

(4,128)

(252,790)

Disposal of subsidiaries

8,368

105

-

Transfers of initial carrying amount of hedged items

-

-

(603)

Balance on September 30, 2019
$ (3,912)
$ 38,596
$ (228,125)

Balance on January 1, 2020
$ (54,707 ) $ 107,262 $ 1,143,678
Exchange differences on translating foreign operations
(68,728 )
-
-
Cumulative gain on changes in fair value of hedging instruments
-
-
1,185,753
Cumulative loss on changes in fair value of hedging instruments
reclassified to profit or loss
-
-
(179,589 )
Unrealized loss on financial assets at fair value through other
comprehensive income
-
(85,280 )
-
Effects of income tax

13,497

16,153

(201,234)

Other comprehensive income recognized in the period

(55,231)

(69,127)

804,930

Balance on September 30, 2020
$ (109,938)
$ 38,135
$ 1,948,608

Total
$ 58,223

(2,188 )

(322,550 )

6,000

(5,004 )

-

64,208
(259,534)

8,473

(603)
$ (193,441)
$ 1,196,233

(68,728 )

1,185,753

(179,589 )

(85,280 )

(171,584)

680,572
$ 1,876,805

35 -

e. Non-controlling interests

Beginning balance Net (loss) income attributable to non-controlling interests Exchange differences on translating the financial statements of foreign operations Loss on hedging instruments Cumulative gain (loss) on changes in fair value of hedging instruments reclassified to profit or loss Effects of change in tax rate Disposal of subsidiaries Disposal of equity portion of subsidiaries Non-controlling interests arising from acquisition of subsidiaries Dividends paid by subsidiaries Ending balance		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 3,578,345 (353,423) (1,327) (855) 1,698 (169) (653) - - 52 (375,036) $ 2,849,285	2019 $ 2,965,512 404,174 (4,223) (695) (490) - (5,408) (24,957) 598,111 - (416,438) $ 3,520,994

f. Treasury shares

		(In Thousands of Shares)	(In Thousands of Shares)
	Number of		Number of
	Shares,	Reduction	Shares,
	Beginning	During	End
Period of Treasury Shares	of Year	the Year	of Year
For the nine months ended September 30, 2020	2,889	(814)	2,075
For the nine months ended September 30, 2019	2,889	-	2,889

Treasury shares are the Company’s shares held by its subsidiaries as of September 30, 2020 and 2019 and were as follows:

Subsidiary Shares (In Thousands) September 30, 2020 Mandarin Airlines 2,075 December 31, 2019 Mandarin Airlines 2,075 Dynasty Aerotech International Corp. 814	Carrying Amount Market Value $ 17,178 $ 17,178 $ 18,796 $ 18,796 7,376 7,376 $ 26,172 $ 26,172 (Continued)

36 -

Subsidiary Shares (In Thousands) September 30, 2019 Mandarin Airlines 2,075 Dynasty Aerotech International Corp. 814	Carrying Amount Market Value $ 18,838 $ 18,838 7,393 7,393 $ 26,231 $ 26,231 (Concluded)

The above acquisitions of the Company’s shares by its subsidiaries in previous years were 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 between January 1, 2020 and September 30, 2020. The disposal price was $6,854 thousand.

27. NET INCOME

a. Revenue

Passenger Cargo Others		For the Three Months Ended September 30 2020 2019 $ 3,241,277 $ 29,095,844 21,508,899 10,681,772 1,861,522 3,227,032 $ 26,611,698 $ 43,004,648		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 3,241,277 21,508,899 1,861,522 $ 26,611,698		2020 $ 23,482,646 56,046,312 5,955,392 $ 85,484,350	2019 $ 84,552,133 31,799,790 9,950,385 $ 126,302,308

Refer to Note 23 for the balance of contract liabilities related to customer contracts.

b. Other income

Interest income Subsidy income Dividend income Others	For the Three Months Ended September 30 2020 2019 $ 62,650 $ 92,808 420 - 15,099 11,309 104,334 86,128 $ 182,503 $ 190,245	For the Three Months Ended September 30 2020 2019 $ 62,650 $ 92,808 420 - 15,099 11,309 104,334 86,128 $ 182,503 $ 190,245	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 62,650 420 15,099 104,334 $ 182,503		2020 $ 242,761 18,927 22,516 261,503 $ 545,707	2019 $ 287,238 16,728 18,009 194,149 $ 516,124

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c. Other gains and losses

Gain on disposal of property, plant and equipment Loss on disposal of non-current assets held for sale Net gain on financial assets classified as held for sale Gain on disposal of investments Gain or loss on foreign exchange, net Loss on sale and leaseback Others	For the Three Months Ended September 30 2020 2019 $ 6,586 $ 19,822 - - 304 20,599 - - 161,378 (108,675) - (103,775) (78,573) (82,163) $ 89,695 $ (254,192)	For the Three Months Ended September 30 2020 2019 $ 6,586 $ 19,822 - - 304 20,599 - - 161,378 (108,675) - (103,775) (78,573) (82,163) $ 89,695 $ (254,192)	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 6,586 - 304 - 161,378 - (78,573) $ 89,695		2020 $ 13,466 - 2,234 - 212,336 - (208,629) $ 19,407	2019 $ 25,280 (10,462) 43,641 7,656 (255,559) (103,775) (197,848) $ (491,067)

d. Finance costs

Interest expense Bonds payable Bank loans Interest on lease liabilities Capitalization rate Capitalization interest		For the Three Months Ended September 30 2020 2019 $ 99,399 $ 107,329 193,212 167,255 458,065 528,799 $ 750,676 $ 803,383 0.780%- 1.548% 1.258%- 1.622% $ 18,559 $ 14,836		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 99,399 193,212 458,065 $ 750,676 0.780%- 1.548% $ 18,559		2020 $ 242,546 715,996 1,409,299 $ 2,367,841 0.709%- 1.917% $ 64,708	2019 $ 308,320 594,339 1,620,972 $ 2,523,631 1.248%- 1.622% $ 17,217

e. Depreciation and amortization expenses

Property, plant, equipment Right-of-use assets Investment properties Intangible assets Depreciation and amortization expenses		For the Three Months Ended September 30 2020 2019 $ 4,835,632 $ 5,134,435 3,041,624 2,957,607 67 70 47,201 47,617 $ 7,924,524 $ 8,139,729		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 4,835,632 3,041,624 67 47,201 $ 7,924,524		2020 $ 14,608,504 9,289,998 203 152,758 $ 24,051,463	2019 $ 15,798,622 8,783,662 210 149,150 $ 24,731,644 (Continued)

38 -

An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses		For the Three Months Ended September 30 2020 2019 $ 7,649,024 $ 7,672,019 228,299 420,093 $ 7,877,323 $ 8,092,112 $ 3,561 $ 3,026 43,640 44,591 $ 47,201 $ 47,617		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 7,649,024 228,299 $ 7,877,323 $ 3,561 43,640 $ 47,201		2020 $ 22,858,093 1,040,612 $ 23,898,705 $ 10,467 142,111 $ 152,758	2019 $ 23,355,539 1,226,955 $ 24,582,494 $ 9,359 139,791 $ 149,150 (Concluded)

f. Employment benefits expense

Post-employment benefits Defined contribution plans Defined benefit plans Other employee benefits Salary expenses Personnel service expenses An analysis of employee benefits expense by function Operating costs Operating expenses		For the Three Months Ended September 30 2020 2019 $ 153,738 $ 144,664 314,517 343,933 $ 468,255 $ 488,597 $ 4,534,209 $ 5,174,355 852,518 1,658,510 $ 5,386,727 $ 6,832,865 $ 4,823,825 $ 6,079,205 1,031,157 1,242,257 $ 5,854,982 $ 7,321,462		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 153,738 314,517 $ 468,255 $ 4,534,209 852,518 $ 5,386,727 $ 4,823,825 1,031,157 $ 5,854,982		2020 $ 437,620 1,014,133 $ 1,451,753 $ 13,599,526 3,267,290 $ 16,866,816 $ 14,827,517 3,491,052 $ 18,318,569	2019 $ 426,917 1,060,543 $ 1,487,460 $ 15,620,713 5,071,061 $ 20,691,774 $ 18,217,140 3,962,094 $ 22,179,234

To be in compliance with the amended Company Act, the Articles stipulate the distribution of employees’ compensation at rates of no less than 3% of the net profit before income tax and employees’ compensation. For the three months ended September 30, 2020 and 2019 and the nine months ended September 30, 2020 and 2019, the Company has experienced a deficit, and therefore, no employees’ compensation is estimated.

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

39 -

Information on the employees’ compensation 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.

28. INCOME TAX

a. Income tax expense recognized in profit or loss

The major components of tax expense (benefit) were as follows:

Current tax Current year Adjustments for prior periods Deferred tax Current year Income tax expense recognized in profit or loss	For the Three Months Ended September 30 2020 2019 $ 120,086 $ 161,942 199 (36) (196,052) 14,265 $ (75,767) $ 176,171	For the Three Months Ended September 30 2020 2019 $ 120,086 $ 161,942 199 (36) (196,052) 14,265 $ (75,767) $ 176,171	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 120,086 199 (196,052) $ (75,767)		2020 $ 445,896 (22,123) (608,149) $ (184,376)	2019 $ 479,846 496 (5,857) $ 474,485

b. Income tax recognized in other comprehensive income

Deferred tax Recognized in other comprehensive income Translation of foreign operations Fair value changes of financial assets at FVTOCI Fair value revaluation of hedging instruments for cash flow hedging Total income tax recognized in other comprehensive income	For the Three Months Ended September 30 2020 2019 $ 3,548 $ 4,188 2,295 25 (124,971) (8,698) $ (119,128) $ (4,485)	For the Three Months Ended September 30 2020 2019 $ 3,548 $ 4,188 2,295 25 (124,971) (8,698) $ (119,128) $ (4,485)	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 3,548 2,295 (124,971) $ (119,128)		2020 $ 13,497 16,153 (201,403) $ (171,753)	2019 $ (428) 876 63,760 $ 64,208

c. Income tax assessment

Income tax returns for 2018 of the Company, Cal Hotel Co., Ltd. and Cal Park have been examined by the tax authorities. And the income tax returns for 2017 of the rest of the Company’s subsidiaries have been examined by the tax authorities.

40 -

29. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share Diluted earnings (loss) per share Earnings (loss) used in the computation of basic earnings per share Effects of potentially dilutive ordinary shares: Interest on convertible bonds (after tax) Earnings (loss) used in the computation of diluted earnings (loss) per share Weighted average number of ordinary shares in computation of basic earnings (loss) per share Effects of potentially dilutive ordinary shares: Convertible bonds Weighted average number of ordinary shares used in the computation of diluted earnings (loss) per share		For the Three Months Ended September 30 2020 2019 $ (0.13) $ 0.06 $ (0.13) $ 0.06 For the Three Months Ended September 30 2020 2019 $ (707,937) $ 340,038 - 19,924 $ (707,937) $ 359,962 5,418,910 5,418,096 - 476,190 5,418,910 5,894,286		For the Nine Months Ended September 30	For the Nine Months Ended September 30
				2020 2019 $ (0.37) $ (0.06) $ (0.37) $ (0.06) For the Nine Months Ended September 30
		2020 $ (707,937) - $ (707,937) 5,418,910 - 5,418,910		2020 $ (2,021,822) - $ (2,021,822) 5,418,640 - 5,418,640	2019 $ (346,425) - $ (346,425) 5,418,096 - 5,418,096

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

30. DISPOSAL OF SUBSIDIARIES

On January 21, 2019, the board of directors of the Company decided to sell a portion of Dynasty Holidays to H.I.S. Taiwan Co., Ltd. with proceeds from disposal of $34,036 thousand and a gain on disposal of $7,656 thousand. After the disposal, the Company’s proportion of ownership in Dynasty Holidays decreased from 51% to 20%, resulting in a loss of control of the subsidiary.

a. Consideration received from disposals

Consideration received in cash and cash equivalents $ 34,036

41 -

b. Analysis of assets and liabilities on the date control was lost

Current assets
Cash and cash equivalents

Other current assets
Non-current assets
Current liabilities

Non-current liabilities

Net assets disposed of

c. Gain on disposal of subsidiaries
Consideration received

Net assets disposed of

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

Gain on disposal

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

Less: Balance of cash and cash equivalents disposed of

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

31. CAPITAL MANAGEMENT

The goal, policies and procedures as well as the composition of the Group’s capital management are the same as those stated in Note 32 to the Group’s consolidated financial statements for the year ended December 31, 2019.

32. FINANCIAL INSTRUMENTS

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

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

Financial liabilities Bonds payable	September 30, 2020 Carrying Amount Fair Value $ 23,162,586 $ 23,145,514	December 31, 2019 Carrying Amount Fair Value $ 32,052,625 $ 32,062,874	September 30, 2019
			Carrying Amount Fair Value $ 32,032,632 $ 32,025,831

42 -

Some long-term debts and lease liabilities are floating-rate financial liabilities, so their carrying amounts are their fair values. As of September 30, 2020, December 31, 2019 and September 30, 2019, the fair values of private bonds with fixed interest rates were estimated at the present value of expected cash flows discounted at rates of 0.5100%, 0.6700% and 0.6500%, respectively, prevailing in the market for private bonds (Level 2). Fair values of bonds payable were the same as identical liabilities trading on the over-the-counter exchange and were based on quoted market prices (Level 1).

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).

September 30, 2020

Financial assets at FVTPL Domestic money market funds Financial assets at FVTOCI Investments in equity instruments Unlisted shares - domestic Unlisted shares - foreign Derivative financial assets for hedging Derivative financial liabilities for hedging December 31, 2019 Financial assets at FVTPL Domestic money market funds Foreign exchange agreement	Level 1 $ 491,271 $ - - $ - $ 9,505,814 $ 44,164,666 Level 1 $ 511,758 - $ 511,758	Level 2 $ - $ - - $ - $ 44 $ 92,968 Level 2 $ - 434 $ 434	Level 3 $ - $ 22,351 100,161 $ 122,512 $ 2 $ 33,243 Level 3 $ - - $ -	Total $ 491,271 $ 22,351 100,161 $ 122,512 $ 9,505,860 $ 44,290,877 Total $ 511,758 434 $ 512,192 (Continued)

43 -

Financial assets at FVTOCI Investments in equity instruments Unlisted shares - domestic Unlisted shares - foreign Financial liabilities at FVTPL Derivative instruments Derivative financial assets for hedging Derivative financial liabilities for hedging September 30, 2019 Financial assets at FVTPL Domestic money market funds Derivative instruments Financial assets at FVTOCI Investments in equity instruments Unlisted shares - domestic Unlisted shares - foreign Financial liabilities at FVTPL Derivative instruments Derivative financial assets for hedging Derivative financial liabilities for hedging	Level 1 $ - - $ - $ - $ - $ 50,997,687 Level 1 $ 357,259 - $ 357,259 $ - - $ - $ - $ - $ -	Level 2 $ - - $ - $ 11,749 $ 147 $ 37,069 Level 2 $ - 16,864 $ 16,864 $ - - $ - $ 2,115 $ 6,230 $ 54,986,873	Level 3 $ 26,865 182,356 $ 209,221 $ - $ 9,479 $ 3,955 Level 3 $ - - $ - $ 21,117 104,952 $ 126,069 $ - $ 6,130 $ 4,309	Total $ 26,865 182,356 $ 209,221 $ 11,749 $ 9,626 $ 51,038,711 (Concluded) Total $ 357,259 16,864 $ 374,123 $ 21,117 104,952 $ 126,069 $ 2,115 $ 12,360 $ 54,991,182

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

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

Financial Instrument Valuation Techniques and Inputs Derivative instruments 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 Group used to determine the fair values are identical to those used in the pricing of financial instruments for market participants.

44 -
5) Valuation techniques and inputs applied for Level 3 fair value measurement

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

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

The movements of Level 3 financial instruments were as follows:

		Liquidity
	Multiplicator	Discount
September 30, 2020	0.80-21.22	80%
December 31, 2019	0.75-13.23	80%
September 30, 2019	0.74-15.29	80%
	Derivative	Equity
	Instruments	Instruments
Balance at January 1, 2020	$ 5,524	$ 209,221
Recognized in other comprehensive income	(38,765)	(86,709)
Balance at September 30, 2020	$ (33,241)	$ 122,512
Balance at January 1, 2019	$ 4,901	$ 132,191
Recognized in other comprehensive income	(3,080)	(6,122)
Balance at September 30, 2019	$ 1,821	$ 126,069

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

c. Categories of financial instruments

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2020		2019		2019
Financial assets
Financial assets at FVTPL	$	491,971	$	512,192	$	374,123
Derivative financial assets for hedging		9,505,860		9,626		12,360
Financial assets at amortized cost (Note 1)		42,853,509		41,479,556		41,927,268
Financial assets at FVTOCI		122,512		209,221		126,069
Financial liabilities
Financial liabilities at FVTPL		-		11,749		2,115
Derivative financial liabilities for hedging		44,290,877		51,038,711		54,991,182
Financial liabilities at amortized cost (Note 2)		163,590,555		134,240,993		127,666,956

45 -
Note 1: The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivable, accounts receivable - related parties, other receivables, refundable deposits and other restricted financial assets.
Note 2: The balance of financial liabilities measured at amortized cost comprised short-term loans, short-term notes payable, notes and accounts payable, accounts payable - related parties, other payables, bonds payable and long-term loans, capital lease obligations, provisions, parts of other current liabilities, parts of other noncurrent liabilities and guarantee deposits.

d. Financial risk management objectives and policies

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

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

1) Market risk

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

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

a) Foreign currency risk

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

Sensitivity analysis

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

46 -

The Group was mainly exposed to the U.S. dollar. The following details the Group’s sensitivity to increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. An increase/decrease of US$1 against New Taiwan dollars is used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for an increase/decrease of US$1 against the New Taiwan dollars.

When New Taiwan dollars increased by one dollar against U.S. dollars and all other variables were held constant, there would be a decrease in pre-tax loss and an increase in pre-tax other comprehensive income for the nine months ended September 30, 2020 of $330,226 thousand and $1,069,139 thousand, and an increase in pre-tax profit and increase in pre-tax other comprehensive income for the nine months ended September 30, 2019 of $115,507 thousand and $1,748,005 thousand, respectively.

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

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

The following table summarizes the information relating to the hedges of foreign currency risk.

Please refer to Note 21 for information related to equipment contracts for hedging.

September 30, 2020

Notional
Line Item in
Hedging Instruments
Currency
Amount
Maturity
Forward Rate
Balance Sheet
Cash flow hedge
Aircraft rentals -
forward exchange
contracts
NTD/USD
NTD212,144/
USD7,126
2020.10.7-
2021.10.6
28.88-30.28
Financial assets for
hedging - current/
liabilities for hedging -
current

Aviation fuel - forward
exchange contracts
NTD/USD
NTD319,767/
USD11,000
2020.10.30-
2021.5.28
29.38-30.02
Financial assets for
hedging - current/
liabilities for hedging -
current
Aircraft prepayments -
forward exchange
contracts
NTD/USD
NTD3,052,326/
USD 105,000
2020.11.4-
2020.12.4
29.48-30.5
Financial assets for
hedging - current/
liabilities for hedging -
current

Carrying Amount

Asset
Liability
$ 44
$ 4,879
-
6,958
-
81,131

The above hedging instruments are continuously accounted for under hedge accounting. The book value in other equity recognized from each hedged item (aircraft rentals, aviation fuel and aircraft prepayments) amounted to $(4,835) thousand, $(6,958) thousand and $(81,131) thousand, respectively.

47 -

December 31, 2019

Notional
Forward
Line Item in
Hedging Instruments
Currency
Amount
Maturity
Rate
Balance Sheet
Cash flow hedge
Aircraft rentals -
forward exchange
contracts
NTD/USD
NTD509,507/
USD16,967
2020.1.21-
2020.12.24
29.5-30.8
Financial assets for
hedging - current/
liabilities for hedging -
current

Aviation fuel - forward
exchange contracts
NTD/USD
NTD660,661/
USD22,000
2020.2.27-
2020.11.30
29.7-30.7
Financial assets for
hedging - current/
liabilities for hedging -
current
Aircraft prepayments -
forward exchange
contracts
NTD/USD
NTD1,411,411/
USD47,000
2020.11.4
29.6-30.5
Financial assets for
hedging - current/
liabilities for hedging -
current

Carrying Amount

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

The above hedging instruments are continuously accounted for under hedge accounting. The book value in other equity recognized from each hedged item (aircraft rentals, aviation fuel and aircraft prepayments) amounted to $(8,453) thousand, $(10,161) thousand and $(18,308) thousand, respectively.

September 30, 2019

Notional
Line Item in
Hedging Instruments
Currency
Amount
Maturity
Forward Rate
Balance Sheet
Cash flow hedge
Aircraft rentals -
forward exchange
contracts
NTD/USD
NTD383,659/
USD12,354
2019.10.25-
2020.8.19
29.7-30.8
Financial assets for
hedging - current/
liabilities for hedging -
current

Aviation fuel - forward
exchange contracts
NTD/USD
NTD357,143/
USD11,500
2019.11.27-
2020.8.31
30.4-31.2
Financial assets for
hedging - current/
liabilities for hedging -
current

Carrying Amount

Asset
Liability
$ 5,892
$ 192
338
1,169

The abovementioned hedging instruments are continuously accounted for under hedge accounting. The book value in other equity recognized from each hedged item (aircraft rentals and aviation fuel) amounted to $5,700 thousand and $(831) thousand, respectively.

For the nine months ended September 30, 2020

	Hedging Gain	Hedging Gain	Amount
		(Loss)	Reclassified to
	Recognized in		Profit and Loss
		Other	and the
	Comprehensive		Adjusted Line
Comprehensive Income	Income		Item
Cash flow hedge
Aircraft rentals	$	3,618	$ (7,286)	(Note)
Aviation fuel		3,203	(8,050)
Aircraft prepayments		(62,823)	-
Maintenance cost		-	5
	$	(56,002)	$ (15,331)

Note: Increase in operating costs or foreign exchange loss.

48 -

For the three months ended September 30, 2020

	Hedging Gain	Hedging Gain	Amount
		(Loss)	Reclassified to
	Recognized in		Profit and Loss
		Other	and the
	Comprehensive		Adjusted Line
Comprehensive Income	Income		Item
Cash flow hedge
Aircraft rentals	$	(318)	$ (3,333)	(Note)
Aviation fuel		59	(5,950)
Aircraft prepayments		(52,006)	-
Long-term prepayments		(150)	-
Maintenance cost		-	5
	$	(52,415)	$ (9,278)

Note: Increase in operating costs or foreign exchange loss.

For the nine months ended September 30, 2019

	Hedging Gain	Amount	Amount
	(Loss)	Reclassified to
	Recognized in	Profit and Loss
	Other		and the
	Comprehensive	Adjusted Line
Comprehensive Income	Income		Item
Cash flow hedge
Aircraft rentals	$ (21,743)	$	45,414	(Note)
Aviation fuel	(831)		2,265
Aircraft prepayments	603		-
	$ (21,971)	$	47,679

Note: Decrease in operating costs or foreign exchange loss.

For the three months ended September 30, 2019

	Hedging Gain	Amount	Amount
	(Loss)	Reclassified to
	Recognized in	Profit and Loss
	Other		and the
	Comprehensive	Adjusted Line
Comprehensive Income	Income		Item
Cash flow hedge
Aircraft rentals	$ (23,830)	$	8,453	(Note)
Aviation fuel	(831)		2,265
Aircraft prepayments	(603)		-
	$ (24,058)	$	10,718

Note: Decrease in operating costs or foreign exchange loss.

49 -

b) Interest rate risk

The Group was exposed to interest rate risk because entities in the Group borrowed funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix of fixed and floating rate borrowings and using interest rate swap contracts and forward interest rate contracts.

The carrying amounts of the Group’s financial liabilities with exposure to interest rates at the end of the reporting period were as follows:

	September 30,	December 31,	September 30,
	2020	2019	2019
Fair value interest rate risk
Financial liabilities	$ 73,848,215	$ 91,414,806	$ 95,678,592
Cash flow interest rate risk
Financial liabilities	109,059,037	77,821,887	79,793,065

Sensitivity analysis

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

Had interest rates increased by one yard (25 basis points) and all other variables been held constant, the Group’s pretax profit for the nine months ended September 30, 2020 would have decreased by $204,486 thousand.

Had interest rates increased by one yard (25 basis points) and all other variables been held constant, the Group’s pretax profit for the nine months ended September 30, 2019 would have decreased by $149,612 thousand.

c) Other price risk

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

September 30, 2020

Notional
Forward
Line Item in
Hedging Instrument
Currency
Amount
Maturity
Rate
Balance Sheet
Cash flow hedges - fuel
options
US$ NT$10,714
2020.12.31
US$55-
US$68.05
Financial assets for
hedging - current/
liabilities for
hedging - current

Cash flow hedges - fuel
swap contract
US$ NT$22,527
2020.12.31
US$67.48
Financial assets for
hedging - current/
liabilities for
hedging - current

Carrying Amount

Asset
Liability
$ 2 $ 10,716
-
22,527

The above hedging instruments are continuously accounted for under hedge accounting. The book value in other equity recognized from each hedged item (fuel payments) amounted to $(33,241) thousand.

50 -

December 31, 2019

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

The above hedging instruments are continuously accounted for under hedge accounting. The book value in other equity recognized from each hedged item (fuel payments) amounted to $5,524 thousand.

September 30, 2019

Notional Forward Line Item in Hedging Instrument Currency Amount Maturity Rate Balance Sheet Cash flow hedges - fuel options US$ NT$1,821 2019.12.31- 2020.6.30 US$55- US$82.5 Financial assets for hedging - current/ liabilities for hedging - current	Carrying Amount
	Asset Liability $ 6,130 $ 4,309

The above hedging instruments are continuously accounted for under hedge accounting. The book value in other equity recognized from each hedged item (fuel payments) amounted to $1,821 thousand.

For the nine months ended September 30, 2020

		Amount
	Hedging Gain	Reclassified to
	(Loss)	P/L and the
	Recognized in	Adjusted Line
Comprehensive Income	OCI	Item
Cash flow hedges - fuel options	$ (16,238)	$ (26,720)	(Note)
Cash flow hedges - fuel swap contract	(22,527)	-
	$ (38,765)	$ (26,720)

Note: Increase in operating costs.

For the three months ended September 30, 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	$ 8,927	$ (5,525)	(Note)
Cash flow hedges - fuel swap contract	(2,852)	-
	$ 6,075	$ (5,525)

Note: Increase in operating costs.

51 -

For the nine months ended September 30, 2019

			Amount
		Hedging Gain	Reclassified to
		(Loss)	P/L and the
		Recognized in	Adjusted Line
Comprehensive Income		OCI	Item
Cash flow hedges - fuel options		$ (3,080)	$ (11,751)
			(Note)
Note:	Increase in operating costs.
For the three months ended September 30, 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		$ (3,958)	$ (4,659)
			(Note)
Note:	Increase in operating costs.
Sensitivity analysis

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

Fuel price increase 5% Fuel price decrease 5%	For the Nine Months	Ended September 30
	2020 Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ 622 $ 1,624 (622) (5,537)	2019
		Pre-tax Profit Increase (Decrease) Other Compre- hensive Income Increase (Decrease) $ - $ - - -

2) Credit risk

The goal, policies and procedure of credit risk management are the same as those stated in the consolidated financial statements for the year ended December 31, 2019. Related illustration can be referred to in Note 33.

3) Liquidity risk

The goal, policies and procedures of liquidity risk management are the same as those stated in the consolidated financial statements for the year ended December 31, 2019. Related illustration can be referred to in Note 33.

52 -

Except for the following, the objectives, policies and procedures of liquidity risk management are the same as those stated in the consolidated financial statements for the year ended December 31, 2019. Related illustration can be referred in Note 33.

The Group (China Airlines, Ltd., Mandarin Airlines and Tigerair Taiwan Co., Ltd.)

Unused Bank Loan Limit (Unsecured) $ 29,285,466

Liquidity and interest risk rate table

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

Bank loans with a repayment on demand clause are 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 are based on the agreed-upon repayment dates. The Group’s liquidity analysis for its derivative financial instruments is also shown in the following table. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross cash inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by yield curves at the end of the reporting period.

September 30, 2020

The Weighted Average Effective Interest Rate (%) Finance lease liabilities 2.3229 Floating interest rate liabilities 0.9430 Hedging instruments 3.0497 Bonds payable 0.9674	Less than 1 Year $ 3,347,633 27,816,081 10,039,917 11,938,111 $ 53,141,742	1 to 5 Years $ 10,262,311 41,208,946 36,035,514 8,412,218 $ 95,918,989	Over 5 Years $ 7,188,594 32,420,708 2,687,815 3,331,924 $ 45,629,041

53 -

December 31, 2019

The Weighted Average Effective Interest Rate (%) Finance lease liabilities 1.1613 Floating interest rate liabilities 1.9058 Hedging instruments 3.1131 Bonds payable 2.2573 September 30, 2019 The Weighted Average Effective Interest Rate (%) Finance lease liabilities 1.1513 Floating interest rate liabilities 1.2842 Hedging instruments - Bonds payable 1.1423	Less than 1 Year $ 3,357,996 15,254,687 10,060,822 10,823,905 $ 39,497,410 Less than 1 Year $ 3,496,714 8,464,150 10,385,182 6,857,878 $ 29,203,924	1 to 5 Years $ 10,622,204 36,274,033 39,729,062 19,871,174 $ 106,496,473 1 to 5 Years $ 11,579,171 45,970,241 42,351,815 19,201,333 $ 119,102,560	Over 5 Years $ 8,949,194 16,785,664 6,373,333 3,383,401 $ 35,491,592 Over 5 Years $ 8,426,515 16,213,392 7,913,453 4,551,404 $ 37,104,764

33. RELATED-PARTY TRANSACTIONS

The balances and transactions between the Company and its subsidiaries, which are related parties of the Company, including remaining account balance, revenue and expense have been eliminated upon consolidation and are not disclosed in this note. Unless otherwise stated, the transactions between the Group and other related parties are as follows:

a. Related party’ name and relationships

Related Party Name

Relationship with the Company

China Aircraft Service Associate Airport Air Cargo Terminal (Xiamen) Co., Ltd. Associate Airport Air Cargo Service (Xiamen) Co., Ltd. Associate Eastern United International Logistics (Hong Kong) Associate Dynasty Holidays Associate (become associate in January 2019) China Pacific Catering Services Joint venture investment China Pacific Laundry Services Joint venture investment (Continued)

54 -

Relationshipelationshiplationshipationshipionshiponshipnshipshiphipp with theith theth theh thethehee Companympanypanynyy

Related Party Name Relationshipelationshiplationshipationshipionshiponshipnshipshiphipp with theith theth theh thethehee Companympanypanynyy Nordam Asia Ltd. Joint venture investment Delica International Co., Ltd. Joint venture investment China Aviation Development Foundation Director of the Company and major shareholder Others Director, key management personnel, chairman, general manager of the Group, spouse and second-degree relative (Concluded)

b. Operating income

Account Items Related Party Type Other income Major shareholders of the Company Associate Joint venture investment	For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30	For the Nine Months Ended September 30 2020 2019 $ 5,097 $ 17,573 $ 122 $ 1,237 $ 17,604 $ 31,882	For the Nine Months Ended September 30 2020 2019 $ 5,097 $ 17,573 $ 122 $ 1,237 $ 17,604 $ 31,882	For the Nine Months Ended September 30 2020 2019 $ 5,097 $ 17,573 $ 122 $ 1,237 $ 17,604 $ 31,882
		2020 $ 1 $ 10 $ 4,415	2019 $ 6,605 $ 1,198 $ 10,636		2020 $ 5,097 $ 122 $ 17,604	2019 $ 17,573 $ 1,237 $ 31,882

c. Purchases of goods

For the Three Months Ended September 30 For the Nine Months Ended September 30 Related Party Type 2020 2019 2020 2019 Major shareholders of the Company $ - $ 14,823 $ 11,418 $ 38,605 Associate $ 105,438 $ 111,772 $ 328,418 $ 304,617 Joint venture investment $ 67,760 $ 492,895 $ 443,479 $ 1,433,102 Accounts receivable - related parties (generated by operations) Related Party Type September 30, 2020 December 31, 2019 September 30, 2019 Major shareholders of the Company $ - $ 2,588 $ 2,797 Joint venture investments 1,537 7,760 7,772 $ 1,537 $ 10,348 $ 10,569		For the Nine Months Ended September 30

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

The receivables from related parties 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.

55 -
e. Accounts payable - related parties (generated by operations)

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
Related Party Type		2020		2019		2019
Major shareholders of the Company	$	-	$	5,982	$	5,994
Associates		41,630		51,333		46,133
Joint venture investments		68,323		484,700		498,249
	$	109,953	$	542,015	$	550,376

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

f. Lease arrangements (operating leases)

Under an operating lease agreement, the Company rented flight training machines and flight simulators from China Aviation Development Foundation to train pilots, and the Company paid the rental based on usage hours. For the nine months ended September 30, 2020 and 2019, the rental paid amounted to $11,418 thousand and $38,605 thousand, respectively; for the three months ended September 30, 2020 and 2019, the rental paid by the Company amounted to $0 and $14,823 thousand, respectively.

g. Endorsements and assurances

The Company Cal Park Taiwan Air Cargo Terminal Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd.	September 30, 2020	December 31, 2019 Authorized Amount Amount Used $ 3,850,000 $ 2,129,400 1,080,000 - 3,012,668 685,444 2,000,000 1,279,827	September 30, 2019
	Authorized Amount Amount Used $ 3,850,000 $ 1,914,690 - - 2,718,372 464,095 2,000,000 1,301,327		Authorized Amount Amount Used $ 3,850,000 $ 2,151,550 1,080,000 - 1,089,966 422,390 2,000,000 1,095,827

h. Compensation of key management personnel

Short-term employee benefits Post-employment benefits		For the Three Months Ended September 30 2020 2019 $ 7,926 $ 7,721 657 533 $ 8,583 $ 8,254		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2020 $ 7,926 657 $ 8,583		2020 $ 23,977 1,822 $ 25,799	2019 $ 30,358 1,807 $ 32,165

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

56 -

34. PLEDGED ASSETS

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

Property, plant and equipment Right-of-use asset Restricted assets	September 30, 2020 $ 35,211,100 62,866,981 193,471 $ 98,271,552	December 31, 2019 $ 31,260,801 71,033,617 130,052 $ 102,424,470	September 30, 2019 $ 33,391,634 74,143,766 116,642 $ 107,652,042

35. COMMITMENTS AND CONTINGENT LIABILITIES

As of September 30, 2020, the Group had commitments and contingent liabilities (except for those mentioned in other notes) as follows:

a. For operation needs, the board of directors of Mandarin Airlines resolved to enter into a contract with AVIONS DE TRANSPORT REGIONAL G.I.E to purchase six ATR72-600 aircraft, and the total list price of the six aircraft was US$120,000 thousand. As of September 30, 2020, four of the aircraft had been handed over to the Company, and the amount paid was US$8,314 thousand (recognized as prepayments for aircraft).
b. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20 years from the date of transfer of the chartered operation rights from CAA to TACT. TACT filed an application for a 10-year extension of the COP for the cargo terminals in the Taiwan Taoyuan International Airport and Kaohsiung International Airport and received the approval from the Taoyuan Airport Corporation and CAA in July 2013 and July 2015, respectively.

However, TACT filed an arbitration for the total amount of $6,840,000 thousand based on the construction contract.

As of September 30, 2020, TACT had signed the following construction contracts with unrelated parties:

		Contract
		Amount (VAT
Client Name	Contract Title	Included)
CECI Engineering	Cargo Terminal Expansion Construction Consultant	$ 552,285
Consultant, Inc., Taiwan	Contract
Bin Li Construction Co.,	Cargo Terminal Expansion and Enhancement	275,000
Ltd., Taiwan	Construction

As of September 30, 2020, the accumulated consulting service expense and construction equipment amounted to $481,776 thousand and $5,301,244 thousand, respectively, of which upon completion of the projects, the amounts of $468,755 thousand and $5,270,661 thousand were reclassified to property, plant and equipment. The remaining cumulative payments were recognized under construction in progress.

57 -

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

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

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

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

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

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

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

d. 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 September 30, 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.
e. 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 September 30, 2020, the list price had been paid in the amount of US$241,650 thousand (recognized as prepayments for aircraft).
58 -
f. In September 2019, Tigerair Taiwan Co., Ltd. signed a contract with Airbus S.A.S. to purchase seven A320neo aircraft and an option to purchase two A320neo aircraft. The total list price of the seven aircraft is US$729,746 thousand, and the list price of the option to purchase two aircraft is US$208,499 thousand. The expected delivery periods of the seven aircraft are from 2025 to 2027. As of September 30, 2020, the list price of the seven aircraft had been paid in the amount of US$18,549 thousand (recognized as prepayments for aircraft). In addition, in December 2019, Tigerair Taiwan Co., Ltd. signed a contract with International Aero Engines Company to purchase two backup engines of A320neo aircraft. The total list price of the two engines is US$27,345 thousand. As of September 30, 2020, the list price had been paid in the amount of US$2,988 thousand (recognized as prepayments for aircraft).

36. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

Since the outbreak of 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 the restrictions on travel. 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 has 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 Group continues to adjust the response measures according to the situation. In addition, to ensure the adequate liquidity, the Group 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 Group’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.

The Group has obtained relief loan from the government. Refer to Note 19 for details on the amount of loan and its allocation.

37. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

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

(In Thousands of Foreign Currencies)

September 30, 2020

September 30, 2020
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	702,459	29.0698	$ 20,420,314
EUR		17,096	34.1297	583,488
HKD		307,321	3.7481	1,151,878
JPY		3,950,045	0.2750	1,086,281
RMB		460,200	4.2644	1,962,475
				(Continued)

59 -

		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial liabilities
Monetary items
USD	$	2,224,950	29.0698	$ 64,678,772
EUR		8,058	34.1297	275,018
HKD		84,584	3.7481	317,033
JPY		2,803,819	0.2750	771,064
RMB		135,520	4.2644	577,912
				(Concluded)
December 31, 2019
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	658,407	30.0300	$ 19,771,957
EUR		18,401	33.6700	619,571
HKD		228,234	3.8595	880,868
JPY		6,262,272	0.2766	1,732,130
RMB		425,343	4.3048	1,831,012
Financial liabilities
Monetary items
USD		2,480,896	30.0300	74,501,305
EUR		7,638	33.6700	257,155
HKD		74,651	3.8595	288,117
JPY		6,584,434	0.2766	1,821,237
RMB		153,196	4.3048	659,478
September 30, 2019
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	598,610	31.0559	$ 18,590,366
EUR		19,054	33.8983	645,899
HKD		199,139	3.9573	788,052
JPY		3,855,949	0.2875	1,108,574
RMB		402,001	4.3592	1,752,405
Financial liabilities
Monetary items
USD		2,518,476	31.0559	78,213,548
EUR		7,135	33.8983	241,861
HKD		86,773	3.9573	343,388
JPY		6,399,067	0.2875	1,839,703
RMB		172,552	4.3592	752,188

60 -

For the three months ended September 30, 2020 and 2019, the amounts of net foreign exchange profit (loss) were $161,378 thousand and $(108,675) thousand, respectively. For the nine months ended September 30, 2020 and 2019, the amounts of net foreign exchange profit (loss) were $212,336 thousand and $(255,559) thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the entities in the Group.

38. 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 estate at costs or price of at least NT$300 million or 20% of the paid-in capital: None
6) Disposals of individual real estate at cost or prices of at least NT$300 million or 20% of the paid-in capital: None
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 4 (attached)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 5 (attached)
9) Names, locations, and related information of investees over which the Company exercises significant influence: Table 6 (attached)
10) Trading in derivative instruments (Notes 7 and 33)
b. Investments in mainland China: Table 7 (attached)
c. Business relationships and important transactions between China Airlines, Ltd. and its subsidiaries: Table 8 (attached)
d. Information of major shareholders: Table 9 (attached)
61 -

39. SEGMENT INFORMATION

The Group mainly engages in air transportation services for passengers, cargo and others. Its main revenue-generating asset is its aircraft fleet, which is jointly used for passenger and cargo services. Thus, the Company’s sole reportable segment is its flight segment. For the purpose of reporting the operating segment in the consolidated financial statements, the reportable segment of the Company and its subsidiaries is divided into the flight and the non-flight business departments. The accounting policy applied for reportable segments are consistent with the policies mentioned in Note 4.

For the nine months ended September 30, 2020 and 2019, financial information of segments is listed as follows:

Operating revenue Operation profit and loss Interest revenue Investment income accounted for using the equity method Revenue Financial costs Expenses Gain before income tax Identifiable assets Investments accounted for using the equity method Assets Total assets	For the Nine Months Ended September 30, 2020	For the Nine Months Ended September 30, 2020	For the Nine Months Ended September 30, 2020	For the Nine Months Ended September 30, 2020
	Air Transportation $ 82,786,966 $ (18,730) $ 190,748,755	Others $ 5,377,233 $ (498,247) $ 15,288,594	Adjustments and Write-offs $ (2,679,849) $ (63,682) $ (6,198,148)	Total $ 85,484,350 $ (580,659) 242,761 (176,235) 492,920 (2,367,841) (170,567) $ (2,559,621) $ 199,839,201 2,009,318 82,176,470 $ 284,024,989

Operating revenue Operation profit and loss Interest revenue Investment income accounted for using the equity method Revenue Financial costs Expenses Gain before income tax Identifiable assets Investments accounted for using the equity method Assets Total assets	For the Nine Months Ended September 30, 2019	For the Nine Months Ended September 30, 2019	For the Nine Months Ended September 30, 2019	For the Nine Months Ended September 30, 2019
	Air Transportation $ 123,620,400 $ 1,734,433 $ 216,527,282	Others $ 8,238,960 $ 1,126,506 $ 15,730,110	Adjustments and Write-offs $ (5,557,052) $ (65,044) $ (6,394,470)	Total $ 126,302,308 $ 2,795,895 287,238 234,913 231,939 (2,523,631) (494,120) $ 532,234 $ 225,862,922 2,186,140 70,385,257 $ 298,434,319

62 -

TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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	$ 101,744	$ 29,070	2.25	Operating cycle capital expenditure	$ -		$ -		$ -	$ 146,432	$ 292,865

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

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

63 -

TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorsement/ Guarantee Provider	Counterparty	Counterparty	Limits on Each Counter party’s Endorsement/ Guarantee Amounts (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 Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd.	100% subsidiary 77.17% subsidiary by direct and indirect holdings 100% subsidiary	$ 11,043,909 11,043,909 11,043,909	$ 3,850,000 3,038,197 2,000,000	$ 3,850,000 2,718,372 2,000,000	$ 1,914,690 464,095 1,301,327	$ - - -	6.97 4.92 3.62	$ 27,609,774 27,609,774 27,609,774	Yes Yes Yes	No No No	No No No

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

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

64 -

TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD SEPTEMBER 30, 2020

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

Holding Company Name	Marketable Securities Type and Issuer/Name	Relationship with the Holding Company	Financial Statement Account		September 30, 2020	September 30, 2020		Note
				Shares/Units	Carrying Amount	Percentage of Ownership (%)	Market Value or Net Asset Value
China Airlines (the “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. - common shares Everest Investment Holdings Ltd. - preferred shares Chung Hua Express Co. Jardine Air Terminal Services The Grand Hi Lai Hotel Shares China Airlines Shares Taikoo (Xiamen) Landing Gear Services Taikoo Spirit Aerospace Systems (Jinjiang) Composite Beneficiary certificates Franklin Templeton SinoAm Money Market Fund FSITC Money Market Fund Capital Money Market Fund Allianz Global Investors Taiwan 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 fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current	1,359,368 135,937 1,100,000 12,000,000 4,021 2,074,628 - - 7,528,078.80 308,093.69 5,464,064.80 7,951,265.07 2,277,786 349,523 5,407,832 4,493,628 1,106,807	$ 73,046 7,305 22,351 - - 17,178 - 19,810 78,430 55,366 88,804 92,562 - 4,765 85,887 70,422 15,035	13.59 - 11.00 15.00 0.02 - 2.59 5.45 - - - - 0.40 - - - -	$ 80,351 - 22,351 - - 17,178 - 19,810 78,430 55,366 88,804 92,562 - 4,765 85,887 70,422 15,035	Note 1 - - - - - Note 2 Note 2 - - - - - - - -
							(Continued)

65 -

(Concluded)

Note 1: The subsidiary’s net equity value was $80,351 thousand for the nine months ended September 30, 2020, which included ordinary shares and preference shares.

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

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

66 -

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 NINE MONTHS ENDED SEPTEMBER 30, 2020

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

Company Name	Related Party	Nature of Relationship		Transaction Details	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. Mandarin Airlines	Taiwan Air Cargo Terminal Cal Park China Pacific Catering Services Taoyuan International Airport Service Dynasty Aerotech International Corp. Tigerair Taiwan Co., Ltd. Mandarin Airlines Eastern United International Logistics (Holdings) Ltd. Taiwan Airport Services	Subsidiary Subsidiary Equity-method investee Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee Same parent company	Purchase Purchase Purchase Purchase Purchase Sale Sale Purchase Purchase	$ 450,877 159,974 407,430 752,110 262,714 (197,809) (120,675) 275,674 113,570	0.63 0.22 0.57 1.05 0.37 (0.25) (0.15) 0.39 4.04	30 days 2 months 90 days 40 days 2 months 1 months 2 months 2 months 1 months	$ - - - - - - - - -	- - - - - - - - -	$ (53,602) - (64,018) (194,275) (56,161) 10,026 - (30,316) (37,628)	(2.59) - (3.09) (9.39) (2.71) 0.11 - (1.46) (6.95)	- - - - - - - - -

67 -

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 SEPTEMBER 30, 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
Taoyuan International Airport Service	China Airlines	Parent company	$ 194,275	3.70	$ -	-	$ 118,404	$ -

68 -

TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(In Thousands of New Taiwan Dollars/U.S. Dollars/Hong Kong Dollars/Japanese Yen in Thousands, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Businesses and Products	Investment Amount	Investment Amount	Balance as of September	Balance as of September	30, 2020	Net Income (Loss) of the Investee	Investment Income (Loss)	Note
				September 30, 2020	December 31, 2019	Number of Shares	Percentage of Ownership	Carrying Amount
China Airlines, Ltd. Mandarin Airlines Cal-Asia Investment Taiwan Airport Services Kaohsiung Catering Services	Cal Park Mandarin Airlines Taiwan Air Cargo Terminal Cal-Dynasty International China Pacific Catering Services Taoyuan International Airport Services Cal-Asia Investment Sabre Travel Network (Taiwan) China Aircraft Service Taiwan Airport Services Kaohsiung Catering Services Cal Hotel Co., Ltd China Pacific Laundry Services Dynasty Aerotech International Corp. Yestrip Dynasty Holidays Global Sky Express Tigerair Taiwan Co., Ltd. Taiwan Aircraft Maintenance and Engineering Co., Ltd. NORDAM Asia Ltd. Tigerair Taiwan Co., Ltd. Taiwan Airport Services Eastern United International Logistics Taiwan Airport Service (Samoa) Delica International Co., Ltd	Taoyuan, Taiwan Taipei, Taiwan Taoyuan, Taiwan Los Angeles, U.S.A. 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 Composite repair and manufacturing business Air transportation and maintenance of aircraft Airport services Forwarding and storage of air cargo Airport services and investment Catering business	$ 1,500,000 2,042,368 1,350,000 US$ 26,145 439,110 147,000 US$ 7,172 52,200 HK$ 58,000 12,289 383,846 465,000 137,500 77,270 26,265 JPY 8,000 2,500 1,272,063 1,350,000 37,975 154,330 11,658 HK$ 3,329 US$ 5,877 10,200	$ 1,500,000 2,042,368 1,350,000 US$ 26,145 439,110 147,000 US$ 7,172 52,200 HK$ 58,000 12,289 383,846 465,000 137,500 77,270 26,265 JPY 20,400 2,500 1,272,063 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 1,600,000 160 250,000 138,906,275 135,000,000 3,797,500 15,433,000 469,755 1,050,000 - 1,020,000	100.00 93.99 54.00 100.00 51.00 49.00 100.00 93.93 20.00 47.35 53.67 100.00 55.00 100.00 100.00 20.00 25.00 69.45 100.00 49.00 7.72 1.08 35.00 100.00 51.00	$ 1,590,148 1,230,356 1,497,049 1,214,371 680,527 606,191 455,610 230,414 365,387 168,929 522,593 397,592 146,027 117,996 10,270 7,725 7,004 1,010,080 745,091 37,820 112,222 3,842 42,891 360,324 7,868	$ 5,371 (281,357) 201,247 (22,959) (236,359) (267,457) 32,357 (50,436) (368,910) (131,493) 21,832 (81,574) (28,868) 22,848 (15,067) (11,630) 5,239 (951,144) (176,918) 15 (951,144) (131,493) 9,394 15,985 -	$ 38,886 (264,447) 108,704 (21,870) (120,543) (131,054) 32,357 (47,375) (73,782) (62,262) 1,709 (81,668) (15,877) 22,829 (14,999) (2,326) 1,310 (660,601) (176,898) 7 (73,395) (1,416) 3,288 15,985 -	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 share method in recognizing investment income or loss.

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

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

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

Note 5: The difference is due to acquisition.

69 -

TABLE 7

CHINA AIRLINES, LTD. AND SUBSIDIARIES

INVESTMENTS IN MAINLAND CHINA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 (In Thousands of New Taiwan Dollars/Renminbi/U.S. Dollars in Thousands, Unless Stated Otherwise)

China Airlines

Investee Company Name	Main Businesses and Products	Main Businesses and Products	Total Amount of Paid-in Capital	Investment Type	Accumulated Outflow of Investment from Taiwan as of January 1, 2020	Accumulated Outflow of Investment from Taiwan as of January 1, 2020	Investment Flows	Investment Flows	Accumulated Outflow of Investment from Taiwan as of September 30, 2020	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss)	Carrying Amount as of September 30, 2020	Accumulated Inward Remittance of Earnings as of September 30, 2020
							Outflow	Inflow
Airport Air Cargo Terminal (Xiamen) Co., Ltd. Airport Air Cargo Service (Xiamen) Co., Ltd. Taikoo (Xiamen) Landing Gear Services Taikoo Spirit Aerospace Systems (Jinjang)	Forwarding and storage of air cargo Forwarding and storage of air cargo Landing gear maintenance services Composite material		$ 1,085,203 (RMB 254,480) 59,701 (RMB 14,000) 2,415,407 (US$ 83,090) 339,041 (US$ 11,663)	Indirect (Note 1) Indirect (Note 1) Indirect (Note 1) Indirect (Note 1)	$ 121,685 (US$ 4,186) 56,612 (US$ 1,947) 62,535 (US$ 2,151) 18,488 (US$ 636)		$ - - - -	$ - - - -	$ 121,685 (US$ 4,186) 56,612 (US$ 1,947) 62,535 (US$ 2,151) 18,488 (US$ 636)	$ 71,197 (RMB 16,696) 50,359 (RMB 11,809) - -	14 14 2.589 5.45	$ 9,279 (RMB 2,337) 6,701 (RMB 1,653) - -	$ 231,585 (RMB 54,307) 129,955 (RMB 30,475) - 30,977 (RMB 7,264)	$ 102,807 (US$ 3,537) (Note 2) 45,364 (US$ 1,561) (Note 2) - 10,364 (US$ 357)

Accumulated Outward Remittance for Investment in Mainland China as of September 30, 2020		Investment Amounts Authorized by Investment Commission, MOEA				Upper Limit on the Amount of Investment Stipulated by Investment Commission, MOEA
$259,320 (US$8,920)		$630,982 (Note 3)				$34,841,300 (Note 4)

(Continued)

70 -

Taiwan Airport Services

Investee Company	Main Businesses and Products	Main Businesses and Products	Paid-in Capital	Method of Investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 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 September 30, 2020	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Income (Loss)	Carrying Amount as of September 30, 2020	Accumulated Repatriation of Investment Income as of September 30, 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		$ 1,085,203 (RMB 254,480) 59,701 (RMB 14,000)	Indirect (Note 5) Indirect (Note 5)	$ 116,813 (US$ 4,018) 56,010 (US$ 1,927)		$ - -	$ - -	$ 116,813 (US$ 4,018) 56,010 (US$ 1,927)	$ 71,197 (RMB 16,696) 50,359 (RMB 11,809)	14 14	$ 9,968 (RMB 2,337) 7,050 (RMB 1,653)	$ 229,723 (RMB 53,870) 129,810 (RMB 30,440)	$ 132,010 (US$ 4,541) 60,808 (US$ 2,092)

Accumulated Outward Remittance for Investment in Mainland China as of September 30, 2020		Investment Amounts Authorized by Investment Commission, MOEA				Upper Limit on the Amount of Investment Stipulated by Investment Commission, MOEA
$172,823 (US$5,945)		$172,823 (US$5,945)				$214,060 (Note 6)

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

Note 2: As of September 30, 2020, the inward remittance of earnings amounted to US$3,536,561 and US$1,560,538.

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

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

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

Note 6: The amounts of profit (loss) in RMB and U.S. dollars of assets are converted at the average exchange rates for the period.

(Concluded)

71 -

TABLE 8

CHINA AIRLINES, LTD. AND SUBSIDIARIES

BUSINESS RELATIONSHIPS AND IMPORTANT TRANSACTIONS BETWEEN CHINA AIRLINES, LTD. AND ITS SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(In Thousands of New Taiwan Dollars)

No.	Company Name	Related Party	Natural of Relationship (Note 1)	Intercompany Transactions	Intercompany Transactions	Intercompany Transactions
				Financial Statement Account	Amount (Note 2)	Transaction Criteria	% of Total Consolidated Total Revenue or Assets
0	China Airlines, Ltd.	Mandarin Airlines Tigerair Taiwan Ltd. Taoyuan International Airport Service Dynasty Aerotech International Corp. Taiwan Air Cargo Terminal Cal Park Taoyuan International Airport Service Mandarin Airlines	a a a a a a a a	Other operating income Other operating income Terminal and landing fees Terminal and landing fees Other operating cost Other operating cost Accounts payable - related parties Bonds payable - non-current	$ 108,868 197,809 752,110 262,714 450,877 159,974 194,275 125,000	The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions	0.16 0.24 0.88 0.31 0.53 0.19 0.06 0.04
1	Taiwan Air Cargo Terminal	China Airlines, Ltd.	b	Sales revenue	450,877	The same as ordinary transactions	0.53
2	Mandarin Airlines	Taiwan Airport Services China Airlines, Ltd. China Airlines, Ltd.	c b b	Terminal and landing fees Operating expense Financial assets at amortized cost	113,570 108,868 125,000	The same as ordinary transactions The same as ordinary transactions The same as ordinary transactions	0.13 0.16 0.04
3	Taoyuan International Airport Services	China Airlines, Ltd. China Airlines, Ltd.	b b	Airport service revenue Accounts receivable - related parties	752,110 194,275	The same as ordinary transactions The same as ordinary transactions	0.88 0.06
4	Taiwan Airport Services	Mandarin Airlines	c	Operating revenue	113,570	The same as ordinary transactions	0.13
5	Dynasty Aerotech International Corp.	China Airlines, Ltd.	b	Operating revenue	262,714	The same as ordinary transactions	0.31
6	Cal Park	China Airlines, Ltd.	b	Operating revenue	159,974	The same as ordinary transactions	0.19
7	Tigerair Taiwan Ltd.	China Airlines, Ltd.	b	Operating expense	197,809	The same as ordinary transactions	0.24

Note 1: Three categories of business relationships between China Airlines, Ltd. and its subsidiaries are as follows:

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

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

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

(Concluded)

72 -

TABLE 9

CHINA AIRLINES, LTD. AND SUBSIDIARIES

INFORMATION OF MAJOR STOCKHOLDERS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 consolidated financial statements may differ from the actual number of shares that have been issued without physical registration because of different preparation basis.
Note 2: If a shareholder delivers the shareholdings to the trust, the above information will be disclosed by the individual truster who opened the trust account. For shareholders who declare insider shareholdings with ownership greater than 10% in accordance with the Security and Exchange Act, the shareholdings include shares held by shareholders and those delivered to the trust over which shareholders have rights to determine the use of trust property. For information relating to insider shareholding declaration, please refer to Market Observation Post System.
73 -

AI assistant

CAL — Interim / Quarterly Report 2020

52164_rns_2020-11-16_8511745e-98e4-48ed-99c4-7ea5e1aeca40.pdf

China Airlines, Ltd. and Subsidiaries

INDEPENDENT AUDITORS’ REVIEW REPORT

Introduction

Scope of Review

Basis for Qualified Conclusion

Qualified Conclusion

Notice to Readers

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CHINA AIRLINES, LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

Basis of Consolidation

Employee Benefits

Income Tax

Business Combinations

Lease

Government Grants

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

6. CASH AND CASH EQUIVALENTS

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

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments

9. FINANCIAL ASSETS AT AMORTIZED COST

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE, NET

September 30, 2020

11. INVENTORIES, NET

12. NON-CURRENT ASSETS HELD FOR SALE

13. SUBSIDIARIES

Note: Proportion of ownership is based on the Group’s shareholding.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

a. Investments in associates

15. PROPERTY, PLANT AND EQUIPMENT

16. INVESTMENT PROPERTIES

17. OTHER INTANGIBLE ASSETS

18. OTHER ASSETS

19. BORROWINGS

a. Short-term loans

c. Long-term borrowings

20. BONDS PAYABLE

Related issuance conditions are as follows:

21. LEASE AGREEMENTS

a. Right-of-use assets

22. OTHER PAYABLES

23. CONTRACT LIABILITIES

24. PROVISIONS

25. RETIREMENT BENEFIT PLANS

26. EQUITY

c. Appropriation of earnings and dividend policy

2) Offsetting deficit in 2019

d. Other equity items

e. Non-controlling interests

f. Treasury shares

27. NET INCOME

a. Revenue

c. Other gains and losses

d. Finance costs

e. Depreciation and amortization expenses

28. INCOME TAX

b. Income tax recognized in other comprehensive income

29. EARNINGS (LOSS) PER SHARE

30. DISPOSAL OF SUBSIDIARIES

31. CAPITAL MANAGEMENT

32. FINANCIAL INSTRUMENTS

CAL Interim / Quarterly Report 2020