2019 - news.china-airlines.com · CHINA AIRLINES ANNUAL REPORT 2019 No.1 Hangzhan S.Rd., Dayuan...

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2019 ANNUAL REPORTNo.1 Hangzhan S.Rd., Dayuan Dist.,Taoyuan City 33758, Taiwan, R.O.C.

Tel: 886-3-3998888 www.china-airlines.com

This publication is printed with environmentally-friendly soy-based vegetable ink on

100% post-consumer waste (PCW) recycled and recyclable paper.

CHINA AIRLINES

2019 Annual ReportContents

02 Financial Highlights

04 Message from the Chairman and President

06 The Members of the Board

08 2019 Operational Highlights and 2020 Outlook

42 Strengthening Safety Awareness to Advance

Aircraft Engineering and Maintenance

48 Environmental Trends

54 China Airlines Awards

58 Financial Status Contents

59 Financial and Operational Analysis

63 2019 Financial Statements

Financial Statistics Unit 2019 2018 % Change

Operating Revenue (Million TWD) 146,372 150,265 -2.59%

Passenger Revenue (Million TWD) 96,177 94,248 2.05%

Cargo Revenue (Million TWD) 43,406 49,422 -12.17%

Other Revenue (Million TWD) 6,789 6,594 2.95%

Operating Expenses (Million TWD) 146,292 148,417 -1.43%

Operating Income (Million TWD) 80 1,848 -95.66%

Net Income (Million TWD) -1,200 1,790 -

Operating Margin (%) 0.05 1.23 -1.18ppt

Net Margin (%) -0.82 1.19 -2.01ppt

Balance Sheet

Total Assets (Million TWD) 269,023 214,914 25.18%

Total Liabilities (Million TWD) 212,469 157,833 34.62%

Equity (Million TWD) 56,554 57,082 -0.92%

Total Liabilities/ Total Assets (%) 78.97 73.44 5.54ppt

Return on Assets (ROA) (%) 0.51 1.33 -0.82ppt

Return on Equity (ROE) (%) -2.11 3.14 -5.25ppt

Book Value per Share (TWD) 10.44 10.54 -0.95%

Financial Highlights

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Operating Statistics Unit 2019 2018 % Change

Passengers Carried (1,000) 15,628 15,613 0.10%

Passenger Capacity (Million ASK) 52,671 52,489 0.35%

Passenger Traf�c (Million RPK) 42,533 41,748 1.88%

Passenger Load Factor (%) 80.75 79.54 1.21ppt

Passenger Yield (TWD/RPK) 2.26 2.26 0.00%

Cargo Carried (1,000 kg) 791,973 842,566 -6.00%

Cargo Capacity (Million FATK) 8,006 8,283 -3.35%

Cargo Traf�c (Million FRTK) 5,363 5,908 -9.22%

Cargo Load Factor (%) 66.99 71.32 -4.33ppt

Cargo Yield (TWD/FRTK) 8.09 8.37 -3.35%

Overall Capacity (Million ATK) 12,746 13,007 -2.01%

Overall Traf�c (Million RTK) 9,191 9,665 -4.91%

Overall Yield (TWD/RTK) 15.93 15.55 2.44%

Overall Unit Cost (TWD/ATK) 11.48 11.41 0.61%

Break Even Load Factor (%) 72.07 73.39 -1.32ppt

Employee Productivity Unit 2019 2018 % Change

Revenue per Employee (1,000TWD/Person) 12,031 12,032 -0.01%

Capacity per Employee (ATK/Person) 1,047,679 1,041,498 0.59%

Traf�c per Employee (RTK/Person) 755,462 773,886 -2.38%

NotesRPK

Revenue Passenger Kilometers

Number of revenue passengers carried multiplied by distance �own

ASKAvailable Seat Kilometers

Number of seats available for sale multiplied by distance �own

Passenger Load Factor

Revenue Passenger Kilometers divided by Available Seat Kilometers

FRTKFreight Revenue Tonne Kilometers

Number of revenue tonnes of freight carrier multiplied by distance �own

FATKFreight Available Tonne Kilometers

Number of tonnes of capacity available to carry freight multiplied by distance �own

Cargo Load FactorFreight Revenue Tonne Kilometers divided by Freight Available Tonne Kilometers

RTKRevenue Tonne Kilometers

Revenue load (passengers and freight) in tonnes multiplied by distance �own

ATKAvailable Tonne Kilometers

Number of tonnes of capacity available to carry revenue load (passengers and freight) multiplied by distance �own

03Financial Highlights

In 2019, global economic growth slowed. A number of factors put pressure on airlines’ bottom lines: the US-China trade war, geopolitical tensions, the Hong Kong anti-extradition bill protests, tension across the Taiwan Strait, an oversupply of airline passenger and cargo capacity, and labor-management disputes. The operational environment became much more difficult. After facing these internal and external challenges, China Airlines owes a debt of gratitude to our employees, passengers, partners, and shareholders for their support. Like the plum blossom shown in our logo, we boldly persevered. Brimming with confidence, we confronted adversity head on.

Chairman and President of China Airlines

Message from the

Chairman and President

The Never-ending Pursuit of New Opportunities Leads to Sustainable Corporate Benefits

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In 2019, China Airlines used a new generation of A350-900 and 777-300ER jetliners to fly to European, North American, and Oceanic destinations. As we developed new regional markets and increased our share of high-profit destinations, we used alliances to increase the density of our flight network. For cargo operations, despite a cyclical downturn in the overall market, the US-China trade war, and the rise of protectionism, our flexible flight network and customized sales and marketing enabled us to provide better services. We developed and promoted timely and temperature-controlled deliveries while strengthening our logistics and alliance partnerships. At the same time, we continued to optimize our flight network and preserved our flexible capacity. To maintain market competitiveness, in 2019 we confirmed the purchase of the Airbus A321neo new generation of narrow-body aircraft (deliveries expected to begin in 2021) and Boeing 777F cargo aircraft (deliveries expected to begin in 2020). Replacing ageing aircraft in our fleet will raise operational efficiency while lowering maintenance costs.

The aviation industry is heavily impacted by the economic environment. China Airlines therefore seeks to raise product competitiveness, improve product quality, and add new services that generate additional revenues while strengthening member marketing and digital marketing. We see great potential in the aerospace industry and continue to seek greater market share in the Asian flight maintenance industry. To support profitability and a clear market segment for our subsidiary Tigerair Taiwan, we are planning a separate public listing of the unit by as early as 2020.

At China Airlines, we use the diverse brands within our organization to improve operations in multifaceted ways. We expect these ventures to lead to new areas of profit and opportunity.

China Airlines follows six main strategies that support sustainable development: safety, governance, fleet and flight network, products and services, corporate cooperation, and brand perception. Our team’s energy and hard work create conditions for widespread domestic and international praise, including our status as Taiwan’s only transport stock to be included on the Dow Jones Sustainability Emerging Markets Index for four consecutive years. In the future, we will continue to use the IATA Operational Safety Audit (IOSA), the highest standard in the industry, as a basis for ensuring passenger flight safety.

Besides extensive praise for sustainable development, in 2019 China Airlines received major domestic and international awards for our image, service, and brand promotion. For three consecutive years, the Airline Passenger Experience Association and the travel app TripIt gave us their highest rating of five stars in the Global Airlines category of their joint Official Airline Ratings.

As the leading brand in the Taiwan aviation industry, China Airlines is obligated to serve as a benchmark for natural resource conservation and environmental protection. We launched Taiwan’s first trial of a sustainable alternative fuel for the aviation industry. Passengers and employees are encouraged to achieve zero net emissions. We promote Eco Travel and became Taiwan’s first international airlines to sign up to support the Task Force on Climate-Related Financial Disclosures.

Giving back to society and generating social values are key promises of China Airlines’ sustainable development program. We care for the disadvantaged and volunteer to discuss aviation topics at local schools. Initiatives underway include teaching about the environment and supporting national sports development. Sustainable strategies include promoting equal social opportunities for disadvantaged groups, internationalizing local education, and raising the global visibility of Taiwan’s local brands. Together with society, we create sustainable values. In the future, we will continue innovating to provide more diverse, higher quality services and products. Our employees are firm believers in progress. In conjunction with passengers, they use aviation as a starting point to create more beauty in the world while aiming to make China Airlines Taiwan’s most beloved aviation company.

05Message from the Chairman and President

The Members of the Board

Director

Ko, Sun-Ta

Chairman, K Hotels Group.

Chairman, Kodak Trading Co, Ltd.

Chairman, Kota Enterprise Co, Ltd.

Chairman

Hsieh Su-Chien

Chairman and President, China Airlines Ltd.

Chairman, Mandarin Airlines, Ltd.

Chairman, CAL Park Co., Ltd.

Chairman, CAL Hotel Co., Ltd.

Chairman, CAL-Asia Investment Inc.

Chairman, CAL-Dynasty International, Inc.

Director, Dynasty Properties Co., Ltd.

Director, Taoyuan International Airport Services Co., Ltd.

Director

Ting, Kwang-Hung

Group Chairman, Phu My Hung Holdings Group

Chairman, Phu Yung An Corp

Chairman, Hiep Phuoc Power Co., Ltd.

Chairman, Macro Technologies Inc. (Vietnam) Ltd.

Chairman, Phu My Hung Asia Holdings Corporation

Board Member, Phu My Hung Development Corporation

Vice Chairman, TVBS Media Inc.

Director

Chen, Han-Ming

Chairman, Prime Development Co., Ltd.

Supervisor, Chang-Jia M&E Engineering Corp.

Director, Chyn-Tay Bearing Co., Ltd.

Director

Charles C.Y. ,Chen

Chairman, Eyon Holding Group

Vice Chairman, Taiwan Air Cargo Terminal Ltd.

Vice Chairman, Taian Insurance Co., Ltd.

Director, Epistar Corp.

Board Director, Shihlin Paper Corporation

Chairman, Wan Hai International Pte. Ltd.

Vice Chairman, Wan Hai Lines (Singapore) Pte Ltd.

President, Chen-Yung Foundation

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Director

Wei, Yung-Yeh

Member of Council , China Airlines Employees Union

Foreman, Line Maintenance Department, Engineering & Maintenance Division, China Airlines

Independent Director

Chang, Hsieh Gen-Sen

Chairman, Audit Committee, China Airlines Ltd

Member, Foundation Management Committee, Environmental Protection Administration

Independent Director, K Laser Technology Inc.


Shen, Hui-Ya

Chairman, Remuneration Committee, China Airlines Ltd

Consultant of Public Service Pension Fund Management Board, Ministry of Civil Service, Examination Yuan

Lawyer of Lian Yung Law Office

Independent Director of Formosa Advanced Technologies Co., Ltd

Independent Director of Hua Nan Securities Co., Ltd.


Chung, Lo-Min

Chairman, Risk Committee, China Airlines Ltd.

Director

Wang, shih-szu

Deputy Mayor, Tainan City Government

Director

Lin, Su-Ming

Public Director, Taipei Exchange, R.O.C.

Independent Director, Nan Shan Life Insurance Co., Ltd.

Director, iPASS Corp.

Professor, Department & Graduate Institute of Accounting, National Taiwan University

07The Members of the Board

2019 Operational Highlights and 2020 Outlook

Pursuit of Excellence and Sustainable Profits

China Airlines’ sustainable development is built on the idea of safety as the highest commitment to our passengers and shareholders. In the pursuit of opportunity and excellence, we create advantages by expanding our presence around the globe. To optimize and concentrate our aviation network we expand alliance cooperation and raise capacity. These measures aim to bring China Airlines to new heights.

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Establishing a Leading Presence to Open New Opportunities Politics, the economy, society, technology, and the environment all impact the civil aviation transport industry. Looking ahead, the International Air Transport Association (IATA) predicts a stronger global economy in 2020, with annual growth of 3.4% compared to 2019. Taiwan faces a small impact from slower growth, however, in regions and countries it has especially high contact with, such as China, the United States, and Japan. In the Asia-Pacific region, warming trade relations are expected to boost income. There are a number of potential drags on growth, however. A rapid increase in tension between the United States and some Middle Eastern nations has caused short-term fluctuations in global oil prices. Relations across the Taiwan Strait and between Mainland China and Hong Kong remain unresolved. The trade war between China and the United States continues. The arrival of new airlines and rapid expansion among budget operators is leading to fiercer market competition, further eroding profits. Each of these factors poses a challenge to airline operators.

China Airlines’ NexGen long-range aircraft is fully equipped to serve medium- and long-range routes in Europe, North America, and Oceania with a new generation of passenger aircraft. These high-efficiency, high-quality aircraft improve quality and comfort for passengers. Based on seasonal demand, we adjust aircraft type deployment. Higher numbers of flights make bidirectional transfers more convenient and strengthen our aviation network competitiveness, which will lead to increased revenues. For regional routes, we continue to strengthen our network of alliances. As the overall environment in Asia changes, this strategy creates greater flexibility to develop destinations with high income potential, which will increase both our passenger and cargo operations earnings.

We also continue to replace ageing aircraft. Deliveries of the Boeing 777F cargo aircraft will begin in 2020 and be followed in 2021 by deliveries of the Airbus A321neo new generation of narrow-body aircraft. To improve in-flight service and provide a uniform experience for passengers, we will add portable wireless streaming devices to the fleet’s Boeing 737-800s, renovate the cabins of the Airbus A330-300s, and standardize the premium economy class services on the Boeing 777-300ERs and Airbus A350-900s. In-flight network signal receivers are being upgraded across the fleet. The Airbus A321neo new generation of narrow-body aircraft will contain the latest passenger cabin equipment, including all-new, automatic full flat seats in the business passenger section. The economy section’s streamlined design will include ergonomic seats, each equipped with individual multimedia entertainment systems featuring 4K high-definition screens. The fastest wireless internet service in the industry will provide an even more brilliant, comfortable experience for passengers.

Across the globe, airline cargo supply has exceeded demand for many years. A number of political and economic factors are widening the imbalance, including geopolitical conflict, trade wars, and Brexit. China Airlines pragmatically handles these issues by using our cargo aircraft advantages to optimize our aviation network and maintain capacity flexibility. In 2020, we will seek to increase unit benefits and loading rates. Belly freight capacity on the Boeing 777-300ER and the Airbus A350-900 combined with our regular cargo fleet capacity optimize close transport connections between Asia, Europe, and North America. Stronger cooperation with our alliances and major international cargo agents enables us to further improve our air cargo operations.

Besides the core air transport business, we are expanding other sources of income. We continue to seek greater market share in the Asian flight maintenance industry. To support sustainable operations for our subsidiary Tigerair Taiwan, we are planning a separate public listing of the unit by as early as 2020. The diverse group of brands within the China Airlines organization supports our multifaceted operational improvements strategy and is expected to generate all-new profit opportunities.


Replacing Ageing Aircraft to Create New AdvantagesIn response to stable demand growth and aviation network development strategies, China Airlines continues improving overall operations by acquiring new aircraft to replace ageing fleet members. At the end of 2019, we had 88 aircraft, consisting of 70 passenger aircraft and 18 cargo aircraft. Their average age was 9.6 years. Besides replacing ageing cargo and short-haul aircraft, we take additional steps to raise overall operational efficiency and market competitiveness.

Type777-300ER

Passenger Aircraft747-400

Passenger AircraftA350-900

Passenger AircraftA330-300



Cargo Aircraft

Type 10 4 14 23 19 18

Total 88

Optimizing Our Aviation Network to Achieve Market ConsolidationCapacity planning is based on the 2020 passenger market outlook. On long-haul lines, aircraft type and flight frequency adjustments accommodate seasonal demand variations. We also continue to utilize our sixth freedom of the air bidirectional transfers. On regional lines, we deepen alliances. As overall conditions in Asia change, we adjust capacity and develop destinations that show good potential.

In recent years, in order to optimize global aviation network capacity, China Airlines added new generation long-haul passenger aircraft. Besides increasing the number of flights and moving to an all-direct flight model for our European routes, we expanded service to North America and Oceania. At the end of October 2019, we increased flights to Los Angeles and adjusted aircraft type flying to Ontario International Airport. The purpose was to solidify our position in the Greater Los Angeles area, strengthen our alliances with partners in the United States and Canada, and make it more convenient for our customers to travel to and from major cities in the North American interior. For New Zealand and Australia, we increased the number of flights to Melbourne to four weekly. Passengers from these countries can pass through Taiwan to travel

Mumbai

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to and from Europe, the United States, and Asia, showing the value of Taoyuan International Airport as a major hub for the Asia-Pacific region. The additional flights further solidified our position as the leading carrier for travel between Taiwan and Europe or the Australia-New Zealand region. After the start of the government’s New Southbound Policy, China Airlines increased the southbound aviation network density to accommodate passengers from Europe, North America, New Zealand, and Australia who transfer in Taiwan. On October 1, 2020, we will open a new flight route between Taipei (Taoyuan) and Cebu that has six flights per week. On October 2, 2020, we will resume the route between Taipei (Taoyuan) and Chiang Mai, offering four flights per week. We also continue to expand the breadth and concentration of our network in Northeast Asia. For example, we optimize existing routes and add chartered flights during peak seasons as strategies for developing new destinations and gaining market share. Looking ahead to 2020, we will solidify primary markets. Besides strengthening our existing aviation network, we will open up new destinations that show good potential. Our purpose is to provide passengers with a dense aviation network that offers convenient flight options.

Building a Denser Aviation Network to Solidify Our Market Leading PositionAccording to data from the CAA, the China Airlines Group (CI/AE/IT) performed excellently in terms of the market for inbound and outbound passengers to and from Taiwan in 2019. Total passengers were 17.98 million. The total number of seats available and number of passengers carried both amounted to a market share of approximately 30%, which led the industry.

Airline Passenger Volumes

Company Seat Volume C/S Passenger Volume M/S

China Airlines 17,208,085 23% 13,900,100 23%

Mandarin Airlines 1,592,22273 2% 1,288,578 2%

Tigerair Taiwan 3,302,616 5% 2,783,726 5%

EVA Air 15,446,447 21% 12,861,068 22%

UNI Air 1,019,083 1% 848,003 1%

Cathay Paci�c 4,571,131 6% 3,578,433 6%

Cathay Dragon 1,705,114 2% 1,306,078 2%

OTHS 28,434,022 39% 22,711,767 38%

Total 733,278,771 100% 59,277,753 100%

Source: Terminals under CAA management and the Taoyuan International Airport Corp.Note: 1. Inbound and outbound passengers are those who cross Taiwan’s border. A Taiwan airport must be the first or last leg of the trip. 2. https://www.caa.gov.tw/StatisticsYearMonthFile.aspx?a=1091&lang=1

In line with the government’s New Southbound Policy, in the summer of 2019 we increased flights on our Phnom Pen – Taipei route from five weekly to one daily. From October 28, 2019, we added three CI006/CI005 flights to our Taipei – Los Angeles route, increasing the number of weekly flights to 17 and further expanding the aviation network between North America and Southeast Asia. In places where we have a regional advantage, such as Northeast Asia, New Zealand and Australia, we continue to increase capacity and code-sharing cooperation with partner airlines to expand both the breadth and density of our aviation network and consolidate our market share.

Looking ahead to 2020, the China Airlines Group will continue to cultivate primary markets. We will take advantage of opportunities that come from optimizing our aviation network and provide customers with flight services that are better planned and more convenient.


https://www.caa.gov.tw/StatisticsYearMonthFile.aspx?a=1091&lang=1

Excellent Performance Raises Our Global Cargo Operations RankingChina Airlines has 20 Boeing B747–400F aircraft, 18 of which were in service in 2019, representing the largest operational fleet of this type of aircraft in the world. We flew 90 regular cargo flights per week, comprising 33 long-haul flights, six European route flights, and 51 Asian route flights. According to IATA, we transported 1.512 million tons of goods by air in 2018, ranking sixth in the world and a 3.4% increase compared to the 1.462 million tons of goods transported in 2017. In 2018, our total freight tonne kilometers (FRTK) were 5,804 million tkm, which ranked 12th in the world. In 2019, our freight available tonne kilometers (FATK) and capacity (FRTK) decreased 7.95% and 12.70%, respectively, compared to 2018.

Decisive Action to Develop New Destinations In 2019, China Airlines continued making inroads into Indo-Pacific cargo markets. At the end of March we began serving Nagoya, Japan, as part of a multi-leg flight between Taiwan and the US west coast. Two flights operated weekly to connect the import and export demand of local manufacturers between Nagoya and Chubu region. The flights reduced the time and cost previously associated with land transit in Japan’s interior by providing customers with more direct service. To take advantage of business in the fast-growing emerging market in India, after opening a Delhi – Luxembourg route, in November we started two weekly flights on a Mumbai – Amsterdam route to take advantage of marine-terrestrial joint distribution centers located near Mumbai. Excellent financial results encouraged us to continue opening new cargo destinations to maintain competitiveness.

At the same time, we had success gaining rights to more cargo routes across the Taiwan Strait. At the end of October we received permission to fly a second weekly cargo flight to Chongqing to support delivery timetables of some of our primary customers. Loading performance was strong. To meet the needs of postal delivery customers, in the fourth quarter we planned a customized charter flight serving Zhengzhou that flew a total of 15 times. Additional regular charter flights served Taipei – Columbus (US), Hong Kong – Chicago, and other destinations connecting Asian airports to major cities in the United States. To respond to changing regional industrial trends, we continues to modify our Southeast Asian network. By changing multi-leg flights, adjusting cargo distribution between legs of long-haul journeys, and other measures, we stabilize our loading and achieve good operational results.

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Alliances Lead to Win-Win SituationsChina Airlines continues to cooperate with UPS, DHL, FedEx, SF Express, and other delivery services. After opening a cargo route between Taipei and Shenzhen in 2015, UPS began ordering shipping space on flights to many of our destinations, and we offered charter flights to the United States. We also strengthened partnerships with Asian regional airlines, including Nippon Cargo Airlines and All Nippon Airways, to provide a wider range of products for customers while achieving win-win situations.

Certified Cold Chain ServicesIn recent years, there has been a marked rise in demand for transport of special products, such as pharmaceutical goods, vaccines, and high-grade chemicals. Strict temperature controls during transport are often part of protocol. To provide better, more stable conditions, China Airlines applied for CEIV Pharma certification from IATA. Our Taipei Station passed inspection in April 2019 and was officially certified, making us the first airline in Taiwan to achieve this recognition and one of just 17 members in the world. The certification process significantly improved our cold chain transport capabilities. Promoting the delivery of temperature-controlled containers, developing full course active and passive temperature control cargo delivery SOPs, and upgrading our full range of cooling and freezing equipment has also enabled us to provide customers with even better cold chain transport services.

Professional Service Makes Us the First Choice for Challenging CasesAs a leading air cargo brand recognized for excellent planning and execution capabilities, customers make us their first choice for transporting special goods, such as precision instruments, valuable documents, machinery & equipment, and live animals. On numerous occasions, customers have chartered our flights to ship semiconductor machinery. We have abundant experience shipping expensive precision tools, aircraft engines, and related items, and received the honor of being chosen for a fifth time to transport a government satellite, the FORMOSAT-7, which we sent to the United States for launch. Using the highest handling standards, we again demonstrated to our customers the value of China Airlines’ professional cargo operations.


Putting Ideas Into Practice to Happily Fly High

China Airlines is dedicated to improving service quality, caring for passengers with disabilities, and putting customers first. We embody the idea of customer-oriented service. To find talented future staff who can put these ideas into practice, we pioneered cabin crew internships using the industry-academia cooperation model. Internally, we built talent cultivation mechanisms to boost morale. For branding, we raise Taiwan’s international visibility by tightly intertwining local elements with everything from our in-flight meal service to the cabin design and choice of duty-free products. Moreover, to strengthen member rights and interests, we continue to expand cross-industrial cooperation. Whenever flying with China Airlines, our attention to detail and considerate service are apparent.

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Lending a Hand to Increasing Numbers of Wheelchair UsersChina Airlines has always gone the extra mile to care for our disabled passengers. In order to make trips safer and more convenient for passengers who are disabled or have mobility problems, we set up special service facilities at Counter 9 in Terminal 1 and Counter 12 in Terminal 2 of Taoyuan International Airport. These offer dedicated check-in spaces for passengers with special needs. Besides arranging for ground staff to quickly complete check-in procedures and help passengers to select suitable flight seats, staff describe safe procedures for checking in electric wheelchairs. When travel groups with high numbers of wheelchair users notify us by fax in advance, ground staff also arrange extra wheelchairs and crew members to provide support and reduce waiting times. Since 2019, China Airlines has provided a special waiting area beside the transfer counters for customers with wheelchairs. Updated flight information, support staff, drinks, and snacks are available so these valued customers can comfortably wait for their flight. After collecting passenger feedback, we worked with Taoyuan International Airport Services Co., Ltd. to research additional ways to provide even better wheelchair service. For example, we designed explanatory cards in multiple languages to break down communication barriers, so that passengers who do not speak Chinese or English are still able to clearly understand wheelchair service procedures. The empathy we show puts customers’ minds at ease, letting them enjoy a more pleasant journey.

A Caring, Customer-oriented ApproachWhen the Ministry of Transportation and Communications filmed a Lunar New Year promotional video, China Airlines offered support by sending employees to take part. The professional, caring image they projected on screen was warmly received. By demonstrating our customer-oriented approach, they let travelers know our commitment to service. China Airlines also participates in the Taoyuan International Airport Aviation Safety Ambassador Contest, as part of our zero tolerance policy towards safety problems and our ongoing efforts to publicize aviation safety. While providing a comfortable journey for passengers, we make sure that everyone happily embarks on their journey and safely returns home.


Boosting Morale with Better Internal TrainingIn June 2019, China Airlines added “Officer in Charge” as a job description for cabin crew members in order to expand the reach of organizational management. The OIC is responsible for joint management of external counter staff assignments. Besides carrying out staff assignments for regular cabin operations, the OIC handles staff deployment (control center) when flight changes occur. At the same time, the OIC provides updated information to the cabin crew to strengthen their service and communication with passengers. OIC also serve as cabin operations trainers, conduct testing and reviews, and hold ground-based training classes.

The OIC position gives greater control over cabin operations training and opens channels for cabin crews to use their individual interests and skills towards internal career advancement. OIC training supports creation of a reserve talent pool that can be deployed to fill mid-to-long-term management, training, and standards formulation needs. The OIC role also acts as an incentive to boost employee morale.

Consolidation Around a Common Goal of Treating Customers with Care China Airlines has always placed high value on staff cultivation. We have a strong presence on school campuses, which supports both staff recruitment and staff retention. We cooperate with well-known colleges and universities to pioneer internships for cabin crews using the industry-academia cooperation model. High-level training follows the same standards used for regular cabin crew, and interns who pass review qualify to become in-flight interns. After the first group of interns graduated from the program, at the end of 2019 additional training was offered to prepare them to become full-time employees. Those who completed the training qualified to become official members of the flight crew.

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In 2019, cabin crews training was based on the theme “China Airlines’ 60th Anniversary – A Fresh Start.” By aiming to implement a service philosophy of treating customers with care, the training contributed to a record score on the cabin crew service score of our customer satisfaction index. Cabin crews joint training activities boosted team honor and spirit, thus raising service quality and consolidating staff around a common goal.

China Airlines continues to conduct virtual reality training for cabin crews, with virtual and augmented reality tools designed to incorporate lessons on each aircraft model. Other advanced training methods include AI-powered virtual tutors that conduct flight announcement and service training. Topics from cabin crews team training are integrated into these high-tech lessons, including the 2020 team training themes of communication, care and legacy. The team training sessions put China Airlines excellent service on display, showing customers the warmth and friendly nature of Taiwan’s service industry.

New Innovations That Integrate Local ElementsChina Airlines seeks to provide the highest quality food. Notably, for our 60th anniversary in 2019, we promoted locally inspired in-flight meals. Spring Festival, one of the three most important holidays for people of Chinese descent, also happens to be tangerine season in Taiwan. In Chinese culture, tangerines are a symbol of luck and fortune. During this period, we therefore provided a whole honey tangerine in place of our fruit bowl. Besides adding to the holiday spirit, the change reduced the use of disposable bowl covers, enabling us to lower our environmental impact. During Mid-Autumn Festival in September, all of our flights served Taiwanese moon cakes and mini-taro cakes from the popular Kaohsiung confectioner Jiu Zhen Nan. These handcrafted treats are low in oil and sugar, so they can be consumed guilt-free. Whether returning home or leaving on an exotic journey, the treats added to the spirit of Mid-Autumn Festival during this important festive season.

Recognizing that when traveling abroad, Taiwanese travelers miss local food and beverages, in September 2019 China Airlines introduced three special drinks containing ingredients grown by small-scale, Taiwanese farmers: kumquat lemon, Chingshin green tea, and plum juice. The drinks were available on all flights. The kumquat lemon juice used kumquats from Minxiong, Chiayi, together with lemons from Pingtung, combining two flavors that are only found in tropical island environments. The Chingshin green tea is a common, traditional drink grown using Taiwan-grown tea leaves. The plum juice, meanwhile, made using plums grown in Meishan, Chiayi, had a sweet and sour flavor that helped to relieve the summer heat and paired in a new, exciting way with in-flight meals.

Besides beverages, China Airlines improved food fare in August 2019 by offering an all-new snack mix. The bold gold packaging complements the new style of our NexGen cabin. With different color schemes for each cabin class, some passengers collected the complete set. The distinct, handwritten “Snack Mix” label adds extra value to the product and provides a novel snacking experience. 2019 was also China Airlines’ 60th anniversary. To mark the occasion, the head chef of the China Pacific Catering Services personally designed special packaging for our in-flight meal box. The meal box top showed a picture of a celebratory cake, and our 60th anniversary logo decorated the packages for our gelato, snack mix, Taiwan Beer, and Buckskin Beer. These extra touches provided a chance for passengers to join us in celebrating this important milestone.


Cross-industrial Cooperation to Expand International VisibilityChina Airlines is a long-time supporter of Taiwan and sponsor of sporting events. As part of our 60th anniversary celebration, we cooperated with the outdoor sporting brand The North Face for the first time in a cross-industrial partnership that satisfied our customers’ preference for professional, fashionable products. The jointly branded items, which are particularly popular among young travelers, add to our image as a healthy, youthful, and active brand. At the same time, in response to European Union directives on plastic use restrictions and international campaigns to reduce environmental impact, we continue to examine use of plastic packaging for in-flight products. Our objective is to make these items integrated, interchangeable, and simpler while reducing plastic volume at the source. In 2019, initial progress was made by using birch instead of plastic for drink stirrers. This effort will continue in the first quarter of 2020 when the change is expanded to include our business class. Looking ahead, we will limit plastic waste in cooperation with leading domestic suppliers, thus fulfilling our social responsibility while raising the international visibility of made in Taiwan products.

To increase revenue sources, in 2019 China Airlines continued to strengthen retail business. Improvements to duty-free items included expanding the diversity of our portfolio, promoting online pre-orders, and using our media channels and travel company partners to increase marketing. In July 2019 we began publishing a completely revised version of our Home Delivery magazine, offering a wider range of original items. A number of products featuring the China Airlines logo sparked both excitement and trends. These included a China Airlines lightweight bomber jacket suitable for early fall, a China Airlines business class wine and champagne glass set, and a China Airlines first class sake bottle and twin glass set. Other special items included 60th anniversary painted planes and China Airlines jetliner backpacks.

More Incentives to Support Member NeedsOn October 2, 2019, China Airlines began offering new seat selection and no show fee items to the Fare Family group of products. Seat selection, which is currently only available on our corporate website and at customer service centers, ticketing counters, and airports, already has achieved monthly average revenues of US$900,000.

In 2020, ongoing improvements to our corporate website are expected to include opening the sale of priority seats, prepaid baggage allowances, and collection of no show fees by travel agents, which will

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further increase revenues.

Active Dynasty Flyer members surpassed 3.8 million by the end of 2019. Cooperative partners included 23 airlines (18 SkyTeam members and China Southern Airlines, Hawaiian Airlines, Japan Airlines, WestJet, and Qantas Airways), 22 banks or credit card issuers, six global or regional chain hotels, two online hotel booking agencies, and three global car rental agencies.

To support our members by making their membership more beneficial, we consider revenues when crafting mileage accumulation policies, in line with industry trends. New weighted mileage accrual based on the purchased ticket class provides higher mileage percentages for members flying business or premium economy class on China Airlines or Mandarin

Airlines self-operated flights. Besides increasing corporate revenues, the change also provides a better flying experience for our higher-level members.

As part of the benefits of our cross-industrial cooperative ventures, members can exchange their miles for high-quality products, including magazines, accommodation and dining, travel goods, Wi-Fi hotspot devices, facial masks, and red wine, or they can exchange miles for other reward points. China Airlines continues to seek new partnership opportunities to expand mileage redemption scope in line with member needs.

To support member rights and interests, China Airlines offers a number of incentives, including an award ticket promotion of up to 3,000 miles for reservations made through the China Airlines website as well as limited time redemption offers to encourage customers to redeem their miles for short- or long-haul tickets. The HSBC China Airlines co-branded credit card offers travelers an easy channel to exchange their miles for award tickets on flights departing from Taiwan. In cooperation with CTBC, holders of the Greater China Connection Co-branded Card who link their card to Dynasty Flyer membership can receive reward tickets with discounts of up to 20,000 miles for round trip economy flights between Taiwan and Hong Kong or Mainland China. Additional discounts of up to 6,000 miles are available for upgrades on select routes to Japan or South Korea, and discounts of up to 40% are available for reward tickets on select flights to Los Angeles.


Digital Service Upgrades

With the age of digitalization upon us, China Airlines has begun to use digital channels to provide travelers with a more personalized experience and online marketing to increase interactions with customers. At the same time, we use our digital advantages to achieve new industrial benchmarks for cargo operations efficiency and status tracking.

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Raising Brand Awareness Through Social Media During the busy holiday season at the start of 2019, China Airlines used a spring-themed red envelope prize draw promotion that attracted close to 94,000 participants to boost to our brand. To mark the two-year anniversary of the opening of our Kaohsiung – Kumamoto route, China Airlines cooperated with famed Taiwanese go player Joanne Missingham to shoot a music video featuring the Buddy Bears. The popular bear characters joined fan events in Taiwan and Japan, further sparking social media discussion in the two markets.

To celebrate China Airlines’ 60th anniversary we produced an advertising campaign highlighting how every moment of a journey is important in its own way. Souvenir activities on social media sites and augmented reality games increased campaign exposure and raised participation among consumers. At the end of 2019, we invited Taiwanese aesthetician Chiang Hsun to speak about discovering beauty through travel. Chiang’s eloquent presentation to Dynasty Flyer members discussed how our travel experiences can become some of the best moments of our life.

Chiang Hsun speaks about discovering beauty through travel

The #WhatTravelBringsYou promotional campaign


https://youtu.be/-njlG6kPBy0

Taking the opportunity to ride the wave of a new social media trend, China Airlines posted a photo of a jetliner together with maintenance equipment and staff neatly arranged on a tarmac. In one day, the photo reached 138,000 people, was shared 1,129 times, received 608 comments, and was even the subject of news and media reports. The attention increased brand enthusiasm and brought us closer to consumers. To give the world the opportunity to learn more about Taiwan, China Airlines enlisted Kobayashi Kengo, a Japanese photographer, to introduce Taiwan’s natural, cultural, and culinary scenery through a series titled: Taiwan: The Wonderland of Asia. At the same time, we released eye-catching advertisements with striking visual effects targeted at specific groups. Using images and words, we build brand value and encourage more travelers to visit Taiwan.

To better manage visitor behavior on the China Airlines official website we utilize a marketing funnel. At the top of the funnel, digital advertising increases our customer base so we can reach more people. Data-driven screening of potential customers provides opportunities to increase exposure among target groups during periods of activity. At the center of the funnel we rely on digital direct messages and app notifications to communicate brand incentives to paying customers, encouraging them to use our website or app to make purchases. Besides digital newsletters, content advertising, and social media marketing, we hold non-virtual activities to further put our corporate branding principles into practice. This multi-faceted approach to marketing solidifies our position in the local market and contributes to our strong performances in the aviation sector.

Our official website seeks to provide global passengers with the best browsing experience possible. In consideration of our customer diversity, we provide 14 different websites in 11 different languages with added localization modifications. In 2019, we continued to optimize the reservation and ticket purchase systems as well as the visual interface. We moved ahead the latest ticket purchase time to 80 minutes before departure in Taiwan. In line with new ticket price products that debuted on October 2, 2019, we added payment options for passengers to select their seat and provided an option to pay or redeem rewards to purchase in-flight Wi-Fi. Each of these services optimizes the customer experience. Besides guaranteeing the rights and interests of our online customers, we want every passenger who purchases a ticket on our corporate website to enjoy friendly, personalized service.

With the digital age underway, the general public closely monitors the convenience and

#TetrisChallenge, 747-400 together with maintenance equipment and staff

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https://www.facebook.com/chinaairlines.travelchannel/videos/2283581408363268/

https://www.facebook.com/chinaairlines.travelchannel/posts/2845001428886145

https://www.facebook.com/watch/?v=2283581408363268

safety of e-commerce. Recognizing that expectations are high, we regularly improve our corporate website. To guarantee a secure experience for customers, we continue to add 3D Secure credit card payer authentication for more countries. We also added UnionPay in Taiwan to provide more options.

An Industrial Benchmark for e-FreightBased on IATA’s latest e-AWB market penetration data from 2019, we achieved our goal of being included among the world’s Top 10 airlines ranked by e-AWB volume ahead of schedule. Using electronic data interchange (EDI) and electronic transmission methods we exchange information with forwarders, which lowers costs for both parties and avoids delays caused by AWB entry errors or loss of documents.

In 2019, we expanded our paper-free cargo operations beyond Taipei, Kaohsiung, Hong Kong, Singapore, Frankfurt, and the Americas to include Amsterdam. By following IATA policy recommendations, we became a model company for protecting the environment, reducing carbon emissions, and advancing digital processes and operations in the Taiwan aviation market.

Digital Information ManagementWe adjusted cargo operations information entry to satisfy Chinese customs regulations. The change also provided forwarders with a more convenient channel for electronic data interchange for Chinese cargo. In line with implementation of the US Air Cargo Advance Screening (ACAS) program, we built an advanced air cargo information system that meets requirements of airlines flying into the United States.

Our cargo operations systems use 4G Wi-Fi to quickly send loading data to mobile devices, thus providing detailed information on cargo movements, from the release to apron to vessel-side loading. To support weight balance planning, the system verifies loading position accuracy, further enhancing flight safety. At the same time, we provide cargo movement information to cargo operations centers in the United States and China as well as Southeast Asian cargo transport hubs. Improved cargo flight timetables on our corporate website, tracking information, and cold chain cargo data provide additional updated information to customers to further support their tracking needs.


Group Consolidation for Increased Synergy

With air transport at the core, the China Airlines Group’s business extends to ground services, air transport assistance, aerospace technology, warehousing and logistics, tourism and leisure, and corporate holdings and leasing. In 2019, our subsidiaries all had excellent performances and continued to expand partnerships in their respective industries. Their contributions raise our overall competitiveness and enable us to offer a comprehensive set of aviation services.

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Mandarin Airlines Continues to Strengthen Software and Hardware ServicesChina Airlines holds a 93.99% stake in Mandarin Airlines. Established in 1991, Mandarin Airlines currently has six Embraer-190 104-seat single-aisle jetliners and seven ATR72-600 70-seater turbo-prop aircraft. It leased 737-800s, A330-300s, 777-300ERs, A350-900s and other aircraft from China Airlines to fly regional routes in Asia and cross-strait routes. In 2020, it will add two more ATR72-600s to its fleet.

Mandarin Airlines is actively expanding domestic routes and increasing the scale of operations. In August 2019 it made travel between Taipei and Taitung easier by adding one more daily flight, bringing its total number of flights servicing this route to three a day. For international routes, it promoted tourism between Taiwan and Japan by adding chartered flights between Taichung and Tottori in September 2019 and between Hualien and Shimoji Island in November 2019.

Besides transporting passengers and cargo, Mandarin Airlines obtained a license to operate its own airport ground handling services, which raises overall service quality. With its operational base in Taichung, Mandarin Airlines is the only airline to have an aircraft maintenance station and offer air cargo warehousing services in the city. These facilities support comprehensive passenger/cargo transport and logistics services in central Taiwan.

Mandarin Airlines’ devotion to serving customers includes supporting the growth and education of disadvantaged children. For example, as part of its 28th anniversary celebrations the airlines hosted a charity fair in June 2019 in Minquan Park. Proceeds went to Hannah’s Hope Home to help abandoned babies in Taitung find a caring home. In conjunction with the charter flights to Shimoji Island in November 2019, the airlines offered an additional flight from Taichung to Hualien. To support dream journeys, Mandarin Airlines also arranged flights between Taichung and Hualien to support cultural exchange visits between students of Hualien’s Tafalong Elementary School and Nantou’s Chin-ai Music School. Mandarin Airlines cooperated with the Taichung City Government to promote the Flora Expo. Besides designing Flora Expo themed passenger cabins, Mandarin Airlines designed a series of Flora Expo products for in-flight sale. After the expo ended, it donated 5% of the proceeds from the products to the Leopard Cat Association of Taiwan to support conservation.

Mandarin Airlines is a member of IATA, maintains certification from both the IATA Operational Safety Audit and ISO 9001, and is a strong proponent of environmental protection. It passed British Standards Institution (BSI) certification, was the first airline in the world to obtain ISO 14067 certification, and became the first domestic airline to receive a carbon footprint label from Taiwan’s Environmental Protection Administration after calculating the carbon footprint of its Taipei – Kinmen route. These achievements demonstrate Mandarin Airlines’ advocacy of environmental protection.

To support dream journeys, Mandarin Airlines arranges flights between Taichung and Hualien for students of Hualien’s Tafalong Elementary School and Nantou’s Chin-ai Music School.

As part of its 28th anniversary celebrations, Mandarin Airlines hosts a charity fair and donates the proceeds to Hannah’s Hope Home in Taitung.


Cooperative Partnerships Boost Tigerair Taiwan’s Award-Winning ServiceIn its sixth year of operation, Tigerair Taiwan, the China Airlines Group’s low-cost carrier, debuted its shares on Taipei’s Emerging Stock Board at NT$41 per share, making it the group’s first invested company to list on a local bourse. Tigerair Taiwan primarily targets young travelers, particularly independent travelers and students between the ages of 20 and 40. Its network focuses on providing diverse consumer choices within Asia. By December 2019, the airlines had accumulated passenger traffic of more than 9.5 million trips.

Calculated by average aircraft age, Tigerair Taiwan’s fleet of 11 A320s (all economy class with 180 seats) is one of the youngest in the Asia-Pacific region. Since its maiden flight in September 2014, Tigerair Taiwan has opened international routes to Macau, Tokyo Narita, Okinawa, Osaka, Nagoya, Busan, Incheon, and Palawan. It is the market leader with a 23% share of Taiwan’s low-cost carrier market.

In 2019, for the fourth time Tigerair Taiwan won a Reader’s Digest Trusted Brand Platinum Award. In the Asia’s Top Budget Airlines category of the Now Travel Asia Awards it was the only Asian international budget airline to receive a prize. It was also honored in the services category of a 2019 best places to work online poll conducted by 1111 Job Bank, and won a 2019 Chinese Public Welfare Golden Award Certificate. These honors show that Tigerair Taiwan’s social welfare contributions make it a model of corporate citizenship.

In the future, Tigerair Taiwan will continue to expand operations in its key routes as it follows a hybrid model of accommodating independent travelers and tour groups. Cooperation with travel agencies expands the products and packages Tigerair Taiwan offers, allowing passengers to benefit from a wider range of fast and convenient travel options.

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Dynasty Aerotech’s Advanced Technical Skills Expand Its International FootprintDynasty Aerotech International, a fully owned subsidiary of China Airlines, was established in 1989 to carry out tasks such as aircraft cabin and exterior cleaning, aircraft spare part and accessory cleaning, air cargo container maintenance and repairs (pallet and cargo net), and airline catering trolley maintenance. To raise technical capabilities and service quality, in 2016 Dynasty Aerotech procured a French Ecoshine aircraft cleaning system and exclusive agent rights for Taiwan. Dynasty Aerotech also operates Taiwan’s only air cargo container maintenance center that is certified by the US Federal Aviation Administration and Taiwan’s CAA. To help expand this business, in 2018 the company changed its name to Dynasty Aerotech International, from the original Hwa Hsia Company, thus emphasizing efforts to become more international and technologically advanced. The hard work of the company’s employees was recognized at the end of 2019 when Dynasty Aerotech won an “invisible champion” award in the 1st Excellent Enterprise Awards in Taoyuan City, held by the Taoyuan Department of Economic Development. In the future, Dynasty Aerotech will continue raising maintenance capabilities and service quality to expand international business. New opportunities will come from better aviation ground services and air cargo container maintenance.

Taoyuan International Airport Services Becomes a Model for Offering Comprehensive Airport Ground Services China Airlines holds a 49% stake in Taoyuan International Airport Services Co., Ltd. (TIAS), which was established in 1978 to provide comprehensive ground services to aircraft flying to and from Taoyuan International Airport. It is the largest ground services company in Taiwan, handling 65% of all flights at Taoyuan. In 2011, TIAS was accredited under the IATA Safety Audit for Ground Operations (ISAGO), which is considered the highest safety audit standard for ground operations. It completed reaccreditation in October 2019.

In 2016, in conjunction with a CAA initiative to promote safety management systems, TIAS completed a comprehensive overhaul of its ground services safety. As international efforts expand to build low carbon emitting, green airports, TIAS has acquired more electric-powered equipment, such as electric baggage tugs and shore power systems. Further advances are underway in information technology, including the introduction of digital management application systems to improve daily operations management. “Safety first” is the highest guiding principal of TIAS. By replacing old equipment, regularly training staff, and other measures, TIAS improves service quality and maintains its position as the Taiwan market leader. World-class standards ensure sustainable operations and make TIAS a trusted partner.

China Pacific Catering Services: A Leader in Flight CateringChina Airlines holds a 51% stake in China Pacific Catering Services (CPCS), which began operations in 1996 and is now Taiwan’s largest flight catering company. CPCS provides in-flight meals to 32 airlines as well as catering stores and delivery services. It is HACCP, ISO22000 and Halal certified. Bao Ding Catering Services, a subsidiary of CPCS, has also built an outstanding reputation for its catering, brick-and-mortar store operations, school cafeteria operations, employee canteens, bento box sales, souvenirs, moon cakes, Lunar New Year’s dinners, and food and beverage management.


Kaohsiung Airport Catering Services: A New Catering Services StarEstablished in 1999, Kaohsiung Airport Catering Services (KACS) became a China Airlines subsidiary in 2018. KACS provides in-flight meals for flights at Taipei Songshan Airport, Taichung International Airport, and Kaohsiung International Airport, making it the only airport catering company to serve northern, central, and southern Taiwan. It also provides food and beverage catering service to airport VIP lounges at Taipei Songshan Airport and Taoyuan International Airport.

In addition, KACS makes food products for President Chain Store Corporation (7-ELEVEn) and lunch boxes for the Taiwan High Speed Rail. In 2019, KACS sought to expand the sale of its wide range of refrigerated and frozen instant meals to more partner shops and businesses. As KACS continues to demonstrate superb food and beverage making capacity and high-quality products, it has achieved excellent business results that make it one of the star performers of the China Airlines Group.

Novotel Taipei Taoyuan International Airport Creates an Exquisite Space for Rest and RelaxationChina Airlines holds a 100% stake in Novotel Taipei Taoyuan International Airport, which officially began operations in November 2009. China Airlines commissioned Accor S.A., a French multinational hospitality company that manages and franchises hotels, to operate the hotel under its Novotel brand. It is Taiwan’s only five-star airport tourism hotel.

Novotel Taoyuan has 516 guest rooms and a wide selection of eastern and western restaurants. It is conveniently located beside the airport, next to the Taoyuan Airport MRT’s Airport Hotel Station (A14a), and close to the Taoyuan High Speed Rail Station. Novotel’s global network of hotels is certified for environmental protection practices and continues to be a regional leader in sustainable development. In 2019, the hotel began renovations of its guest rooms in order to provide more comfortable, newer accommodation spaces and better leisure environments.

Taiwan Airport Service Co., Ltd.: A Professional, Certified Ground Services CompanyChina Airlines holds a 47.35% stake in Taiwan Airport Service Co. (TASCO). Established in 1966 as Taiwan’s first professional ground services company, TASCO provides aviation companies with safe, efficient, high-quality support. In 2017, in order to grow its portfolio of services, TASCO expanded its operations agent business to include Mandarin Airlines’ domestic routes out of Hualien, Mandarin Airlines’ domestic routes out of Kaohsiung, and Tigerair Taiwan’s international routes.

To improve ground service competitiveness, in 2014 TASCO applied to IATA for ISAGO HS certification. It became the first ground services company at Taipei Songshan Airport to be officially certified in 2015. TASCO also obtained ISAGO HS certification at Kaohsiung International Airport at the end of 2017 and completed recertification at Taipei Songshan Airport in 2019. Re-certification at Kaohsiung International Airport was underway. TASCO formally registered as an ISAGO Provider at both airports, making it the first ground services company to be dually certified. In the future, TASCO will continue to operate in accordance with international standards and will strengthen the contents of its organizational standards handbook. Improved airport apron services will provide customers with safer, higher-quality ground services.

TACT Logistics again supports storage and workstation tasks for the transport of a FormoSat-7 satellite

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High Praise for Taiwan Air Cargo Terminal’s Outstanding ServiceTaiwan Air Cargo Terminal (TACT Logistics), which China Airlines holds a 54% stake in, began operations in 2000 as the only air cargo terminal company with distribution centers in both Taipei and Kaohsiung. TACT Logistics’ commitment to considerate, safe, efficient, and innovative service enables it to meet customers’ needs for professional import, export, transit, and express air cargo warehousing. This support is leveraged using TACT Logistics’ large operational area, diverse warehouse facilities, and quality workstation equipment systems. In 2019, TACT Logistics took advantage of its abundant experience to plan and manage a number of high-profile cases, including the export of high-tech aerospace satellite equipment (the FormoSat-7 satellite), a charter flight filled with smartphones, the import and export of precision equipment for a semiconductor manufacturer, and a charter flight to handle express package deliveries for the Singles' Day shopping spree.


Comprehensive Care in a Friendly Workplace

In 2019, China Airlines followed through on our commitment to sustainable governance that supports long-term benefits. We fulfilled a corporate social responsibility by hiring disabled staff. We provided physical care, mental care, and epidemic training. Measures to boost team solidarity and understanding led to the creation of a healthier, safer workplace environment that supports more fulfilling home lives and more comfortable work environments.

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Comprehensive Care in a Friendly Workplace

Building a Consensus to Raise Corporate AwarenessIn 2019, we developed training programs based on sustainable governance that supports long-term benefits. Planning and implementation followed the themes of “focus on training, consider empathy, grasp trends, and undertake responsibility.” For supervisors, primary objectives were strengthening leadership and communication capabilities. The supplementary goal was to explain operational status, so that the supervisors would be better equipped to share this information with staff. Expert internal employees also taught core classes for all staff, with a focus on sharing their work experiences and development goals. At the same time, we continued to conduct career development camps in order to broaden the industrial knowledge of employees of all levels while strengthening mutual cooperation. China Airlines continues to conduct internal lectures and training to support staff in all types of positions and provide space for them to fulfill their potential. These exercises have the added benefits of building team spirit, strengthening management, and challenging employees to show accountability and thus achieve corporate objectives.

A Lean Organization That Fulfills Social ResponsibilitiesIn response to operational expansion and entry into a more diverse range of businesses, China Airlines continues to recruit professional staff. In 2019, we added 159 Taiwanese members and 280 foreign members to our team, including front-line service staff (pilots, cabin crews, airport operations, cargo operations, customer service) and logistics support staff (IT, finance, operations, legal, including people with disabilities).

To build a lean organization that effectively controls labor costs and generates both revenues and profits, China Airlines follows strict operational planning. We recruit front-line staff in accordance with business needs and maintain industry-academia cooperation programs with universities and colleges. At the same time, we hire people with disabilities as part of our commitment to social responsibility.

Employee Care: Diverse Classes to Alleviate StressIn order to give employees the opportunity to take a break from their busy work life while also supporting family education and parent-child relationships, China Airlines holds employee care classes. These include a work-life balance series: “Let’s Get Physical: Aerobic Dancing,” “The Good Life: Living Retirement Life to Its Fullest,” “Craft Therapy: Floral Essential Oil Candles,” and “Let’s Get Physical: Body & Mind Techniques.” We also hold staff activities such as food truck fun fairs and summertime chilled treat events.

Cabin crew qualifying exam


Initiatives to Help Employees Achieve Work-Life BalanceIn 2019, China Airlines sent employees four care newsletters that covered topics such as “knowing yourself,” “understanding yourself,” “controlling your temper,” and “exploring the ideal life.” These helped relieve stress, cultivate the mind, and raise the quality of life by achieving body-mind balance. China Airlines believes that through care and self-understanding, we can help our employees to overcome their lows and relieve their stress. By letting them achieve happiness in their work and off-time, they can enjoy life to the fullest.

Strict Disease Prevention Protects the Health of Passengers and EmployeesAs international travel becomes more frequent, the risk of communicable diseases spreading across borders grows. Aviation disease prevention and control measures are therefore becoming more crucial in the battle against disease threats. In cooperation with the CAA and the Ministry of Labor’s Occupational Safety and Health Administration, China Airlines carried out the 2019 Aviation Company Communicable Disease Prevention Preparation and Response Management Incentives Plan. Comprehensive preparations focused on three key disease prevention indicators: preparedness, workplace safety and health, and emergency response, as well as 25 sub-indicators. Following both document review and on-site screenings, we received an excellence award for aviation disease prevention safety. As more people travel overseas, we implement stricter disease prevention measures to protect passengers’ health rights and interests while providing employees with a safer work environment.

In line with the government’s disease prevention and policy work, China Airlines prioritizes prevention over treatment. Strategies include disease prevention advocacy and education. Employee emails explain disease-prevention concepts in easy-to-understand terms. Themes such as “epidemic management information and business travel recommendations” offer insight

As part of our 60th anniversary celebrations, China Airlines encourages employees to lead healthier, richer lives

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into topics that specifically relate to our business. Content includes pathogen introductions and prevention, international travel warning levels, and internal control measures during peak disease seasons.

To care for the health of employees, China Airlines provides free annual flu shots to all staff. In 2019, after we applied to be certified as a flu prevention healthy workplace, the Taiwan Immunization Vision and Strategy recognized us for excellence in disease prevention. In order to reduce the risk of measles and German measles in the airline workspace, we arrange for all front-line workers (pilots, cabin crew, airport operations, aircraft maintenance engineers) to receive the MMR vaccine. This improves employee self-health defenses and prevents outbreaks. For the convenience of shift workers, the vaccinations are provided in the workplace and through various health institutions. With the coverage rate surpassing 80%, the immunization programs are an effective way of ensuring passenger health rights and providing staff with a healthier, safer workplace environment.

A primary objective of employee health initiatives is to achieve healthy workplace status. China Airlines holds annual health promotion activities, including disease prevention and stress relief classes. In 2019, we cooperated with health organizations and communities to hold health fairs at branch offices in Taipei and Kaohsiung as well as the China Airlines Park. Mobile food carts and trucks encourage employees to walk outside and get some sunshine. We also offer free cancer screenings, emergency training, eye exams, mammograms, and ovarian tests. These measures teach employees the importance of health promotion and advance our corporate social responsibility.

Workplace Safety Efforts Lead to International CertificationsAs globalization gives rise to new international labor development trends, China Airlines fosters a safe, healthy, and comfortable work environment that supports sustainable operations. To improve safety and health management, we build efficient, autonomous systems. Source management improves autonomous management functions and strengthens workplace risk control. To ensure safety meets international standards, in 2019 we achieved ISO 45001:2018 and CNS45001:2018 occupational safety and health management systems certifications, integrating both programs into our existing management system. We carry out autonomous management and preventive measures using a plan-do-check-act model. This controls occupational hazards, solidifies occupational disease prevention, and enhances occupational safety and health performance, providing staff with a safer, healthier, and more comfortable work environment that raises our industrial competitiveness.

Internal implementation takes place via hierarchal management and training mechanisms that effectively manage risk and give all employees an opportunity to participate. By creating a corporate culture of safety, we encourage staff to contribute towards building a safe and healthy workplace.

Contractors must obtain a Taiwan Occupational Safety and Health Card before taking part in any construction projects. This requirement ensures that they not only act responsibly but also are aware of the importance of maintaining a safe workplace culture and possess the requisite skills. Meanwhile, to lower supply chain risks and achieve corporate social responsibility, we use audits and guidance to raise the environmental protection, safety, and health standards of suppliers and contractors.


Social Harmony: Building a Beautiful Future Together

China Airlines views social responsibility as a corporate duty, which is why we seek to strengthen our local impact. Employees support education by volunteering to spend time with disadvantaged children from rural areas, and they are committed to caring for senior citizens. At the same time, to support environmental protection and sporting competitions, we promote both cultural exchanges and domestic tourism. These measures create win-win situations for us and society.

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Marketing Taiwan by Promoting Tourism China Airlines promotes Taiwan tourism to encourage global travelers to visit and see the island’s beauty. In 2019, we joined a variety of domestic and international travel activities and sponsored the 2019 Taiwan Lantern Festival in Pingtung, the 2019 Fulong International Sand Sculpture Art Festival, the New Southbound Policy Tourism Summit, a Tourism Bureau event to welcome the 2 millionth Japanese visitor of the year, and the Consumer Forum 2019: Freedom of New Travel. We also cooperated with the Grand Mayfull Taipei hotel on joint sponsorships and partnerships. As a long-standing supporter of Taiwan’s tourism supply chain, we continue to promote government tourism campaigns that raise Taiwan’s international visibility.

Education Takes Root: Cultivating Future SeedsChina Airlines provides good education to foster future seeds. Since 2010, we have supported reading programs for students with the help of teaching volunteers. Since 2013, we have used partnerships with major universities across Taiwan to provide more opportunities for students to learn professional knowledge and practical experiences. Since 2014, we have participated in the Knowledge-Sharing Platform project initiated by the Global Views Educational Foundation. The project offers subscriptions to Global Kids Junior Monthly to elementary school students in Taoyuan City, Taitung County, Nantou County, and Hualien County in the hope of cultivating students' independent reading habits. Around 39,240 students from 90 schools in Taiwan benefited in 2019.

Taipei International Travel Fair


China Airlines continues to strengthen social support by giving back to towns and villages, the disadvantaged, and other community members while contributing to education at the grassroots level through volunteer teaching programs. In December 2011, we consolidated volunteer resources by establishing the CAL Volunteer Club. To support disadvantaged community groups, each year the club visits local schools. It encourages students to develop international outlooks, teaches about the aviation industry, and provides English lessons. In 2019, the club held 16 such lessons totaling 32 hours at Taoyuan schools, including HsiHai Elementary School, Zhuwei Elementary School, Shan Fong Elementary School, and Guolin Elementary School. In total, 92 volunteers reached 1,106 students, showing how the club spreads love and gives back to communities.

In addition, China Airlines employees joined to carry out the public welfare program Love All Around, using their holiday and vacation time to visit rural schools and teach about the aviation industry. Programs such as these help to bridge the education gap between urban and rural areas. Since 2014, our volunteers have visited 53 junior high/elementary schools and social welfare organizations in 27 villages and townships in 15 cities and counties, reaching 3,207 students. In 2019, 264 volunteers reached 481 students at 11 elementary schools, including Miaoli’s Gong-guan Elementary School, Yunlin’s Huanan Elementary School, Taoyuan’s Lunping Elementary School and Shan Da Elementary School, Changhua’s Sigang Elementary School, and Taichung’s Tong-Lin Elementary School. Our employees also visited rural Taitung schools and gave 345 students a

Cabin crew gives the pre-flight safety demonstration

First look at the China Airlines’ pilot uniforms

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firsthand introduction to the aviation industry, thus cultivating future aviation seeds. In 2019, our flight attendants held 15 fundraising and charity fair activities, raising money that benefited 58,035 people through groups that support the disadvantaged.

Caring for the Disadvantaged: Spreading Love Through CharityChina Airlines’ corporate social responsibility initiatives include sponsorship of popular sporting figures who join social welfare activities at rural elementary schools. Since 2012, we have cooperated on charitable projects with the pro basketball player Jeremy Lin. In 2019, Lin served as ambassador for the special event “China Airlines 60 to Go Charity Meet & Greet with Jeremy Lin.” Following his first championship in the NBA, Lin shared his experiences and joy with indigenous students from Sanmin Community, Fuxing District, Taoyuan and members of China Airlines’ Facebook fan group. We also invited MLB players Chen Wei-yin and Wang Wei-chung to host a baseball training camp in Taitung, a rural county with limited educational resources. Through these events we hope to inspire Taiwan’s next generation of sports stars.

As part of our 60th anniversary celebrations, we hold the special event “China Airlines 60 to Go Charity Meet & Greet with Jeremy Lin”


China Airlines also cooperates with Huashan Social Welfare Foundation to host banquets and provide care gifts for senior citizens who lack support or are afflicted with dementia or physical disabilities. In 2019, a total of 400 senior citizens joined three joint charitable events held during Lantern Festival, Dragon Boat Festival, and Mid-Autumn Festival. We continue to support Make-A-Wish Taiwan by providing courtesy flights to children with serious diseases, and we held a year-end banquet for disadvantaged children and senior citizens in conjunction with the Fisher’s Association of Taoyuan.

In 2019, we sponsored students from Yayu Elementary School in Lanyu Township, Taitung by providing 40 round trip tickets between Taipei and Vienna, so members of the Little Flying Fish Cultural Exhibition Troupe could perform Lanyu traditional dance in Europe. The contribution was part of our commitment to support hardworking, passionate children who lack the financial resources needed to fulfill their dreams. It was a realization of our motto to “believe in yourself and you'll do it better” and a fulfillment of our corporate social responsibility.

China Airlines and the Down Syndrome Foundation cooperated to hold charitable fairs in which they sold secondhand goods and soap handcrafted by children with Down syndrome. There was an excellent response at the China Airlines headquarters, and the children who participated used the opportunity to experience virtual passenger cabins. Proceeds were donated to the Andrew Food Bank to support 1,000 families in need.

The CAL Volunteer Club and the Huashan Social Welfare Foundation jointly hold charitable activities that encourage senior citizens to be active

China Airlines sponsors an international performance by a Lanyu indigenous dance group

CHINA AIRLINES 38

An Excellent Team Provides Professional ServiceThe superb ground to air services China Airlines offers have led to a number of commissions from the Presidential Office to support the president’s diplomatic journeys. In 2019, we managed flights for the “Oceans of Democracy” and “Journey of Freedom, Democracy, and Sustainability” state visits. We will continue to leverage our professional services and excellent aviation crew to provide the president, vice president and members of their traveling team with safe, comfortable journeys.

Cherish the Earth by Practicing Environmental ProtectionChina Airlines holds beach cleaning activities as part of our care for the environment and love of the earth. Since 2011, each year we invited staff from various departments to join clean-ups at the Zhuwei Fishing Harbor. In 2019, when we moved the event to Shalun, Tamsui for the first time, more than 552 employees and family members participated. We further expanded our efforts by holding an additional clean-up at Cijin, Kaohsiung. Climate change, energy savings, and carbon reduction are other international areas of concern. We have received a number of awards and honors for our contributions in these areas, including holding a Diamond Green Building Label since 2017 from the Ministry of the Interior for the administrative building and training center of the China Airlines headquarters. In 2019, we received a Taipei Energy Conservation Leadership Award for the Songshan CAL Park, a rating of A-/ Leadership from the Carbon Disclosure Project, and inclusion for a fourth consecutive year on the Dow Jones Sustainability Index (the only domestic transport company to achieve this).

China Airlines holds beach cleaning activities at Shalun


Sponsorship Advances Sport in TaiwanTo support local sporting heroes who raise Taiwan’s visibility and advance local sport, China Airlines helps elite Taiwanese athletes participate in international sporting competitions. Besides being named as the designated airline of many sporting competitions, we offer sponsorships and other resources to major domestic and international sporting events.

In 2019, we helped raise Taiwan’s international visibility by sponsoring the Taiwan Legend Championship. We support elite Taiwanese athletes who seek to compete internationally, including tennis player Tseng Chun-hsin, baseball players Chen Wei-yin and Wang Wei-chung, basketball player Jeremy Lin, fencer Chen Yi-tong, volleyball player Huang Pei-hung, and ultramarathoner Tommy Chen. We support teams and associations that show great potential, including the Pauian Archiland

Chen Wei-yin hosts a charitable baseball training camp in Taitung

CHINA AIRLINES 40

basketball team, the Formosa Dreamers basketball team, and the Rising Star RG gymnastics association. These contributions help Taiwanese athletes continue to perform at a high level.

Using Corporate Resources to Engage in Cultural DiplomacyLeveraging corporate resources and aviation advantages, China Airlines cooperates with the government and private organizations to promote cultural diplomacy and raise Taiwan’s visibility. In 2019, we participated in or sponsored the Summer Stage at New York’s Central Park, Taiwan Plus 2019 at Tokyo’s Ueno Park, 2019 Future Commerce, the Interflora World Cup 2019 in Philadelphia, the 2019 Taipei Fashion Week SS20, the Taiwan-Asia Exchange Foundation, the Taiwan Forward National Day Celebration, the 2019 Fireball Fest, and the Asia Esports Awards. Joining these events not only showcased China Airlines’ cultural brand but also showed the diversity and excitement of Taiwanese culture to the world.

Extending Goodwill Through Corporate Social ResponsibilityChina Airlines is a responsible corporate citizen that views social responsibility as a duty. As a member of the aviation industry, we recognize that we have a mission to support economic exchanges. Using our core advantages and competencies, we continue to build social value. Acting to help disadvantaged members of society improve their quality of life, we promote social equality and shared glory, so more people can pursue opportunities for happiness and success.

In the pursuit of a positive cycle of social and corporate development, China Airlines puts its resources towards social welfare and support for social equality. In 2019, we sponsored numerous charities and charitable activities, including Ronald McDonald House Charities, the 2019 Dayuan United Games for Junior High and Elementary Special Education Students, the Children Charity Association annual charity concert, the Eden Foundation Barrier-free Life Experience and Festival, the Tanzania volunteer mission of the National Tsing Hua University International Volunteers Center, the Taiwan Indigenous Culture Promotion Association “I Protect My Body” activity, the Down Syndrome Foundation international talent exchange program, and a southern California performance by the Polar Light Percussion Group.

To support passengers’ health, China Airlines operates a voluntary doctor registration program that enables flight attendants to quickly locate any doctors on board if an emergency health incident happens while in-flight. The doctors can then provide immediate assistance in cooperation with China Airlines’ ground-based medical team. The program was launched in 2017 in conjunction with the Chang Gung Medical Foundation, the Taiwan Medical Association, and the Pau Jar Charity Foundation. In 2019, as China Airlines continued to promote a message of “mercy for society, goodwill for the nation,” the Tzu Chi Medical Foundation joined the ranks of the doctor registration program to contribute towards an even safer journey for passengers. In the future, we will continue to promote compassion and care programs to fulfill our corporate social responsibility.


Strengthening Safety Awareness to Advance Aircraft Engineering and Maintenance

Upholding Our Commitment to Strict Flight Safety Standards

Safety is a promise that China Airlines will not compromise. In 2019, as part of a commitment to advance aircraft engineering and maintenance, we continued to implement our safety management system (SMS) and maintain SMS certification. The goal is to advance the flight control safety and quality of our crew while upgrading equipment and maintenance, thus providing customers with the highest quality, most reliable service possible.

CHINA AIRLINES 42

Pursuing Growth While Implementing SMSSince 2007, China Airlines has implemented SMS in accordance with the “Civil Aviation Act.” Following years of operations, the system is becoming more mature. Continuous risk identification and risk management mechanisms enable systematic tracking and management of operations. Besides encouraging front-line staff to identify operational risk factors and enhancing the sharing of safety information and case advocacy, management by walking around boosts morale and encourages employees to report hazards and improve safety. When a safety incident occurs on another airline, we use the experience to evaluate our own systems, encouraging staff to actively and preemptively manage risk in order to prevent a similar incident from occurring. To further integrate risk management ideas into all operational departments and strengthen risk management SOPs among staff, we offer risk management classes that combine theory and practice. Furthermore, we use computer systems to support risk management operations in all departments. By making risk management a part of every employee’s daily operational thinking, we change people’s work attitude at the most fundamental level. Since 2016, the CAA has carried out SMS evaluations of all domestic airlines to ensure effective implementation. In June 2019, China Airlines hosted the International Safety Management System Seminar at the Novotel Taipei Taoyuan International Airport. Civil aeronautics supervisory agencies, domestic and international airlines, and experts gathered to discuss the implementation and outlook of SMS. Participants praised the informative nature of the seminar and promised to integrate what they learned into their work. In the future, we will continue to make safety management an integral part of operations by employees at all levels. Stronger implementation will build a safe culture and a better SMS.

The 2019 International Safety Management System Seminar

43Strengthening Safety Awareness to Advance Aircraft Engineering and Maintenance

Forging Ahead with Safety Certifications to Support Our Safe Flight GuaranteeThe IATA Operational Safety Audit (IOSA) is considered the highest safety audit standard for international aviation. According to IATA membership regulations, all 290 members must pass IOSA certification and undergo recertification every two years in order to continue to ensure the quality of their flight safety systems.

Between October 22 and 26, 2019, the French audit organization Quali-Audit evaluated China Airlines’ safety standards in accordance with IOSA requirements. We performed excellently to pass our 8th IOSA audit (the certification remains valid through February 25, 2021) and will undergo another IOSA renewal audit in 2020 to ensure that we continue to meet the highest of international standards.

The IOSA standards are based on eight areas that contribute to airline operational safety. These are: corporate organization and management systems, flight operations, aircraft engineering and maintenance, operational control and flight dispatch, cabin operations, ground handling, cargo operations, and operational security. IOSA audits can only be carried out by organizations accredited by IATA.

After obtaining IOSA certification for the first time in 2005, China Airlines has continued to raise safety quality. Measures include strict selection and evaluation of pilots as well as use of Flight Operational Quality Assurance (FOQA), Flight Operations Risk Assessment System (FORAS), and other operating systems to monitor flight safety records. Specific departments are tasked with safety audits, quality control, and SMS implementation. China Airlines remains firmly committed to flight safety with no room for oversight. We will continue to implement IOSA standards in accordance with international requirements to ensure flight safety and provide passengers with high-quality service they can trust.

CHINA AIRLINES 44

Improved Flight Training to Raise Safety and QualityTo achieve our flight safety objectives, since 2019 China Airlines has considered the flight safety methods of major airlines around the world in order to design an improved pilot career training plan that takes into account training on different aircraft models. Specific promotion and transfer training procedures are outlined. Flight crews on long-haul aircraft have the opportunity to accumulate landing control capabilities for short-haul aircraft, and flight crews on short-haul aircraft have the opportunity to accumulate long-haul flight management capabilities. This strengthens the learning motivation of aviation crew members, raises flight quality, and ensures a safer flight.

The ICAO also requests that flight crews undergo UPRT training. Since March 2019, China Airlines has implemented a training plan that meets “Civil Aviation Act” requirements and international regulations. The plan strengthens flight crew members’ proficiency in handling various flight situations and flight irregularities. Besides lowering risk, it makes flight crew members better equipped to carry out their jobs by improving flight control safety.

Equipment Upgrades to Strengthen Flight Crew TrainingChina Airlines’ flight operations training equipment has been certified by the civil aeronautics competent authorities of numerous nations. Besides providing simulated aviation training for flight crews of domestic and foreign airlines, the training program teaches land and water evacuation procedures. It also offers emergency response training for passenger cabin crew members. We continue to renew the training facilities in order to raise overall training quality.

In the fourth quarter of 2019, China Airlines completed upgrade of its Airbus A350 flight simulator to standard 1.2, significantly raising training quality and improving test results of flight crew members.

In the th i rd quar ter o f 2019, we fo l lowed the s t r ic tes t requirements when installing extended envelope training in all of our flight simulators. Besides meeting CAA requirements, the new standards fully meet requirements of all flight simulator regulations, further improving flight safety.

In line with new international practices, the regular re-training and testing of China Airlines’ flight crews follows an evidence-based training program. In 2019, we completed brief-debrief system upgrades on all flight simulators, significantly improving recording and replay quality, which improved the quality of training.

In 2019, China Airlines further upgraded equipment by purchasing all-new A330 door trainers that are more realistic and ensure compliance with regulations. To improve training quality for emergency evacuations on water, in August 2019 we purchased 738 life rafts.


In 2019, China Airlines continued to revise the simulation quality management system to meet all regulatory requirements and ensure flight simulator quality. Following the purchase of new Airbus A321neo jetliners, to fully meet the training needs of flight crews we plan to acquire a dedicated flight simulator and flight training device that are scheduled to begin service in August 2021. To support emergency evacuation training, we acquired door trainers and slide rafts suited for the A321neo as well as wing evacuation window training devices. Scheduled to be available for training in the first quarter of 2021, these devices will increase the breadth of our emergency and evacuation training.

System Upgrades Support Premium Maintenance ServicesAs part of our commitment to provide professional maintenance and repairs, China Airlines constantly seeks improvements and innovation in the areas of aircraft engineering, maintenance, repairs, quality control, planning, and industrial cooperation. Besides Taiwan’s CAA, we are certified by the US Federal Aviation Administration, the European Aviation Safety Agency, and the Civil Aviation Administration of China. We were the first airlines in Taiwan to be awarded AS9110 Certification by the French Standardization Association (AFNOR), showing that we meet the highest international aerospace standards. With our comprehensive maintenance capacity, we carry out mechanical work on the China Airlines fleet as well as aircraft from more than 40 additional airlines from around the world. Our hangars have sufficient floor space to accommodate up to five wide-body aircraft, we have an engine test cell with a thrust rating of up to 120,000 pounds, and our engine and component shops are stacked with a wide collection of advanced equipment. These facilities enable high-end testing and maintenance of aircraft bodies, engines, and components.

Furthermore, China Airlines and the US-based NORDAM Aerospace Group jointly established the maintenance company NORDAM Asia Limited. NORDAM holds a 51% share in the joint venture while China Airlines holds 49%. The maintenance facility, which is under construction at Taoyuan International Airport’s Zhongzheng section, will provide thrust

Ceremony for a new Taiwan Aircraft Maintenance and Engineering Co., Ltd. hangar

CHINA AIRLINES 46

reverser and composite material maintenance services to the Asia region. The groundbreaking ceremony was on November 8, 2019. Completion and acquisition of the building use permit are expected to take place by the end of December 2020.

To expand our cooperation with Airbus, after signing a general terms agreement and integrated material services contract in November 2017, we advanced our dual partnership by signing an Airbus MRO Alliance (AMA) agreement on June 11, 2018, in Toulouse, France. We continued the agreement in 2019 after receipt of Airbus’ maintenance quotation sheet.

China Airlines also continues to introduce new generation maintenance models. In 2018, we added the Skywise cloud and big data analysis system. Skywise quickly gives visual dashboards that enable deep analysis of aircraft and equipment reliability, providing better health monitoring and predictive maintenance for our fleet. For ground support equipment tracking, we carried out needs and design application testing with Airbus. In 2019, we advanced from first stage to second stage test equipment and will continue to make modifications in accordance with user needs. We are also in talks with Airbus about partnering on development of a smart hanger system.

In addition, our maintenance facilities seek to reduce repair costs and protect the environment. Besides saving water, oil, and electricity, we digitalize maintenance procedures and use eco paints for our aircrafts. These measures protect the environment while fulfilling our sustainability promise.


Environmental Trends

Implementing Green Energy and Corporate Sustainability

In response to global trends, China Airlines educates all staff on the benefits of green energy, environmental management, and efficient use of gas. We continue to work toward fulfilling our goal of carbon-neutral growth. As our carbon reduction goals show, we are working to become an international benchmark for the aviation industry to follow.

CHINA AIRLINES 48

Comprehensive Environmental Governance Puts Us at the Forefront of Industrial SustainabilityWith the aim of becoming a benchmark for the global aviation industry, since 2012 China Airlines has used systematic risk control as a basis for building environmental management mechanisms. We progressively integrated requirements for ISO 14001 environmental management systems and ISO 50001 energy management systems, becoming the second airline in the world to achieve both certifications. After years of implementing ISO 14064-1 greenhouse gas management systems, we gradually integrated environmental and energy management mechanisms into all of our operations, achieving our goals of full and effective coverage. In the future we will continue to improve these systems.

In 2018, we became the first and only international airline in Taiwan to commit to supporting the Task Force on Climate-related Financial Disclosures. Since then we have actively sought to identify and quantify climate risks and opportunities, in order to improve our adaptability towards climate-related operational challenges and our competitiveness in the areas of carbon reduction and sustainability.

Besides strengthening our internal environmental and sustainable management capabilities, we hope to use our influence to raise sustainable value along the entire industrial supply chain. In 2018, we initiated value chain environmental management operations. In 2019, we went a step further by launching environmental risk and opportunity surveys. Gradually, we are building our corporate environmental and energy risk management capacity.

Becoming an International Benchmark for Carbon-Neutral GrowthTo meet international calls for the voluntary reduction of greenhouse gases and to respond to Taiwan’s national policy of emissions reductions, China Airlines established voluntary aviation emissions reduction goals. At the same time, we support and implement IATA’s three sequential goals for air transport: (1) a 1.5% average annual improvement in fuel efficiency through 2020, using 2005 as the base year; (2) carbon-neutral growth from 2020; and (3) reduce total carbon emissions to 50% of 2005 levels by 2050. In addition, in 2015 we stated the goal of reducing 2020 carbon emissions from ground operations by 38% compared to 2009 levels. In 2018, we added the long-term goal of reducing 2050 carbon emissions from ground operations to 50% of 2009 levels. Reaching these targets would fulfill national greenhouse gas reduction strategic objectives for the aviation industry.

49Environmental Trends

In order to provide higher quality service and achieve better fuel efficiency, China Airlines has already started to add a new generation of higher efficiency, more environmentally friendly aircraft to our fleet, including the Boeing 777-300ER and the Airbus A350-900. By increasing seating capacity and reducing fuel use and carbon emissions by 20% or more, these aircraft not only make service more efficient but also protect the environment. In particular, the A350 uses a Rolls-Royce engine that reduces fuel use and carbon emissions by at least 25%. The cabin noise is just 57 decibels, and the external noise is 20% lower than conventional passenger aircraft. Known as a “green” passenger jet, the A350-900 provides customers with a more comfortable ride. In 2019, we confirmed the purchase of the Airbus A321neo new generation of narrow-body jetliners and long-range Boeing 777F cargo aircraft. Benefits of the new aircraft go beyond lower fuel costs and reduced noise during takeoff and landing. They are integral to the overhaul of our fleet, from long-range to regional aircraft. Their improved efficiency is a crucial part of our aim to achieve carbon-neutral growth by 2020.

After considering international benchmark practices, China Airlines led the Taiwan services industry by establishing an environmental department and a corporate environmental committee, which are instrumental for leading efforts to save energy and reduce carbon. We set annual goals and craft plans to improve energy efficiency and protect the environment. In 2019, we already implemented 72 environmental management objectives and programs that sought to reduce total carbon emissions by 132,828 tons. In 2020, we will continue to implement 67 environmental management objectives and programs.

In response to government green energy policy, after installing elevator systems that recycle energy at CAL Park in 2017, we added solar panels with a capacity of 99 kW to our Flight Training Center (Simulator Building). These investments show how we contribute to supporting renewable energy. Through December 31, 2019, the panels generated 90,000 kWh of electricity, which is equivalent to a reduction of 48 tons of carbon dioxide emissions. For our contributions, in 2019 we won a silver Energy-saving Leadership Award from the Bureau of Energy, Ministry of Economic Affairs as well as a Taipei Energy Conservation Leadership Award.

Eco Travel Carbon Offsetting program

Fly to ECO

CHINA AIRLINES 50

https://china-airlines.co2analytics.com/home

https://www.youtube.com/watch?v=lCBYhGieB30

https://www.youtube.com/watch?v=lCBYhGieB30

https://china-airlines.co2analytics.com/home

https://goo.gl/D1U5JV

China Airlines recognizes the obligation that companies have towards conserving natural resources and protecting the environment. We therefore invite passengers and employees to join our efforts in achieving net zero emissions through the Eco Travel Carbon Offsetting program.

Going Green: An Organizational Culture of Environmental ProtectionChina Airlines uses a variety of channels to provide environmental education to all employees. We regularly send environmental news and notices to employees’ email inboxes. Foreign and local employees undergo training that aims to develop a corporate consensus and culture built around environmental protection. At the same time, we adhere to a policy of environmental and energy conservation education to make employees aware of the importance of self-action. The ultimate goal is to for all employees to contribute.

China Airlines also integrates environmental protection into ground and air service procedures while engaging in cross-industrial cooperation to promote “eco-services.” Through digitalization, mobilization, and cultural innovations, we show customers that we treasure the earth. In 2018, we released a video titled Fly to ECO, which raised our brand value by sharing our environmental performance with stakeholders and inviting travelers to join us in protecting the environment. At the 2019 Taipei Golden Eagle Micro-movie Festival the video bagged four honors: Best Environmental Stewardship, Outstanding Cinematographic Creativity, Outstanding Social Inclusion, and Outstanding Operations and Governance. It was our second time winning at the festival.


International Praise Rolls In for Our Stewardship of the Earth China Airlines continues to follow global aviation sustainability trends. In response to the June 2018 passage of international standards and recommended practices for ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), we proposed monitoring standards to support the CAA’s operational planning. Our proactive attitude prepares us for carbon emissions market mechanisms.

For years, China Airlines has been a diligent advocate of corporate sustainable development and governance. After being named to the Dow Jones Sustainability Emerging Markets Index for the first time in 2016, we retained our position on the index and in 2019 became the only Taiwanese transport company to be included for four consecutive years. This showed how international investors affirm our hard work and diligence. Due to our longstanding attention to climate change, we seek to manage carbon emissions. Besides introducing measures to reduce carbon emitted by aviation and ground operations, over six years of participation in the Carbon Disclosure Project (CDP) we optimized our management and engagement procedures. These advances, which support better climate change risk management, continue to receive praise. In 2016 and 2018, we received a score of “A- /Leadership” based on our answers to the CDP climate change questionnaire. In 2019, for our supplier engagement ranking we received a rating of “A-/ Leadership,” making us a leader in the global air transport industry.

China Airlines also supports international environmental protection activities. For years we have joined the Pacific Greenhouse Gas Measurement Project, which is led by National Central University and joined by the EPA and the European Union as part of the In-service Aircraft for a Global Observing System program. The Taiwan and European Union governments, National Central University, and the European Economic and Trade Office in Taiwan all praise the system’s outstanding results. Data has already contributed to research by the World Meteorological Organization and become an important decision-making reference point for the United Nations Framework Convention on Climate Change. The project is a major undertaking and serves as a model for the government’s climate-related diplomacy.

CHINA AIRLINES 52

Pre-emptive Action Raises Aviation Security Network KnowledgeWith illegal interference in the civil aviation industry on the rise, to strengthen security management and awareness among domestic aviation enterprises and airport companies, China Airlines, the CAA, the China Aviation Development Foundation and the Flight Safety Foundation-Taiwan held the Aviation Network Security International Conference at the CAA’s international conference hall on May 15, 2019. Members of the aviation industry (airlines, airport companies, and aviation supervisory agencies) increased their knowledge of mechanisms to prevent attacks on aviation networks while improving their risk analysis and emergency responses. Also joining the conference to discuss current aviation network security issues and future risk analysis topics were network security professionals from the Singapore airport company and the director general of Taiwan’s Network Traffic Packets Analysis Association. Informal and formal discussions with the CAA’s Air Traffic Services Division, Flight Standards Division, and the airport company further improved Taiwan’s aviation safety.

Adopting International Mechanisms for Traveler Behavior DetectionResearch into past terrorist attacks, such as 9/11, shows that before launching an attack, the perpetrators often reveal their intent through verbal or physical acts, their mood, their clothing, or documentary evidence. Identifying these cues to prevent unlawful acts of interference is one of the greatest challenges that aviation security officials face. As industrial and academic experts research new ways to improve aviation security, among the most important methods they examine is traveler behavior detection.

China Airlines joined the CAA, the China Aviation Development Foundation, and the Flight Safety Foundation – Taiwan in jointly holding the Aviation Security: Behavior Detection Seminar on September 25, 2020. Experts from around the world discussed practical experiences and cases that can raise awareness among aviation operators and bring our practices in line with international standards.

The Aviation Network Security International Conference


China Airlines Awards

Repeated Excellent Performances Put China Airlines Back on Top

Since establishment 60 years ago, China Airlines has diligently worked to meet the expectations of employees and society. In 2019, the business performed excellently in many aspects, including service quality, corporate governance, sustainable results, aviation safety, international certifications, green energy, carbon reduction, and corporate marketing.

CHINA AIRLINES 54

Promoting Taiwan to the World: A Repeat International Award Winner at the US Rose ParadeThe 130th Rose Parade was held in Pasadena, California in 2019. Using “Rhythms of Taiwan” as a design theme, China Airlines wooed the crowd with a cartoonish representation of the Third Prince Nezha. The presentation won us another international award and showed the beauty of Taiwan to the world.

Carbon Reduction Performance: China Airlines Is Recognized as a Model CompanyIn 2016 and 2018, China Airlines received a score of “A- /Leadership” based on our answers to the Carbon Disclosure Project climate change questionnaire. In 2019, for our supplier engagement ranking we received a rating of “A-/ Leadership,” making us a leader in the global air transport industry. These results show that the world recognizes our efforts and performance.

Fly to Eco Wins at the Taipei Golden Eagle Micro-movie FestivalIn 2019, in the multimedia and sustainability categories at the Taipei Golden Eagle Micro-movie Festival, China Airlines' Fly to ECO video bagged four honors: Outstanding Cinematographic Creativity, Outstanding Social Inclusion, Outstanding Operations and Governance, and Best Environmental Stewardship. These honors affirmed our efforts to protect the environment and fulfill our social responsibility.

55China Airlines Awards

Dual Honors in the 2019 Sustainability YearbookIn the 2019 Sustainability Yearbook, China Airlines received the Bronze Class and Industry Mover awards. We finished among the top three airlines and were the only Asian airlines to win two awards.

Inclusion on the FTSE4Good TIP Taiwan ESG IndexIn 2019, when the Taiwan Stock Exchange, the Taiwan Index Plus, and FTSE Russell announced 69 members of the latest FTSE4Good TIP Taiwan ESG Index, China Airlines made the cut again and received a certificate of membership.

Taiwan’s First Internationally Certified Pharmaceutical Cold Chain Transport CompanyChina Airlines’ cargo operations were certified by the IATA Center of Excellence for Independent Validators in Pharmaceutical Logistics, CEIV Pharma, making us the first company in Taiwan to receive this honor. We are one of 17 certified airlines in the world. The certification affirms our strict quality control and strong cargo operations. It shows that we meet international standards in pharmaceutical logistics, a difficult cargo space where time and temperature control are vital.

Ranking in the Top 5% of the Corporate Governance EvaluationsChina Airlines again ranked in the top 5% of the corporate governance evaluations held by the Taiwan Stock Exchange. We performed well in a number of categories, including Protecting Shareholder Rights and Interests and Treating Shareholders Equitably, Enhancing Board Composition and Operation, Increasing Information Transparency, and Putting Corporate Social Responsibility Into Practice.

A Winner in Next Magazine’s 2019 Top Service AwardsChina Airlines placed first in the international airlines category of Next Magazine’s 2019 Top Service Awards after beating other airlines that operate in Taiwan in the magazine’s online poll.

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Annual Image Advertising Wins at the 4A Creative AwardsChina Airlines’ recent annual image advertising campaigns, including #TheTripYouPromised in 2018 and #WhatTravelBringsYou in 2019, subverted conventional advertising way of thinking. Critics at the influential 4A Creative Awards in Taiwan were impressed, awarding the ads with two gold, three silver, and one bronze award, in categories such as best viral advertising video, best long-format video, and best video advertisement. #TheTripYouPromised even won Best of Show, and #WhatTravelBringsYou won a 2019 Times Advertising Award in the travel video category and a best director award in the technical accomplishments category.

A Winner of the APEX Five Star Global Airline Award In a joint poll conducted by the Airline Passenger Experience Association (APEX) and popular travel website TripIt, China Airlines won a 2020 APEX Five Star Global Airline award, marking the third consecutive year we won the award.

A Winner at the Global Corporate Sustainability AwardsIn the Global Corporate Sustainability Awards, announced by the Taiwan Institute for Sustainable Energy, China Airlines won the Reporting (World) award for the first time along with five TCSA awards. It was the sixth consecutive year we were honored. The awards are an affirmation of our performance and help stakeholders to understand our commitment to corporate sustainable operations.

Passing the IOSA Renewal Audit for the 8th TimeSafety is a core value of China Airlines. Since first obtaining IATA’s IOSA certification in 2005, we passed eight renewal audits and continue to undergo re-audits every two years. These efforts show that we meet the highest of international standards and ensure there are no holes in our safety and protection measures.

57China Airlines Awards

Financial Status Contents

Financial and Operational Analysis

2019 Financial Statements

59

63

CHINA AIRLINES 58

Operating Income and Net Income(Loss)In 2019, China Airlines’ operating income was TWD 80 million (operating margin 0.05%), a decrease of TWD 1,768 million over 2018. Net loss was TWD 1,200 million (net margin -0.82%), a decrease of TWD 2,990 million over 2018.

2015 2016 2017 2018 2019

140,000

120,000

100,000

80,000

60,000

TWD million

Operating Revenue Operating Costs

Operating Revenue & Costs

10,000

7,500

5,000

2,500

02015 2016 2017 2018 2019

8.00

6.00

4.00

2.00

0.00

-2.00

%TWD million

Operating MarginOperating Income

Operating Income & Operating Margin

Passenger Revenue 65.71%

Cargo Revenue 29.65%

Other Revenue4.64%

Revenue Composition, 2019

7,500

5,000

2,500

0

-2,500

6.00

4.00

2.00

0.00

-2.00

%

2015 2016 2017 2018 2019

TWD million

Net MarginNet Income (Loss)

Net Income(Loss) & Net Margin

Operating RevenueIn 2019, total operating revenue was TWD 146,372 million, a decrease of 2.59% yoy. Total operating costs decreased by 1.43% to TWD 146,292 million. Passenger revenue increased by 2.05% to TWD 96,177 million and cargo revenue decreased by 12.17% to TWD 43,406 million, respectively. Other revenue increased by 2.95% to TWD 6,789 million.

59Financial and Operational Analysis

Passenger BusinessPassenger revenue was TWD 96,177 million in 2019, an increase by 2.05% over 2018. According to the breakdown of passenger revenue by routes, Northeast Asia represented the prime market contributing 29.54%, followed by Southeast Asia, North America, and Mainland China with the contribution of 18.06%, 15.25% and 14.38%, respectively.

Compared with those in 2018, passenger capacity (ASK) increased by 0.35%, passenger traffic (RPK) increased by 1.88%, and passenger yield remained unchanged as 2.26 (TWD/RPK). Passenger load factor increased by 1.21 ppt to 80.75%.

100,000

95,000

90,000

85,000

80,0002015 2016 2017 2018 2019

TWD million

Passenger Revenue

50,000

40,000

30,000

20,000

10,000

ASK RPK

2015 2016 2017 2018 2019

million

Passenger Capacity & Traffic

90.0

80.0

70.0

60.0

50.02015 2016 2017 2018 2019

2.70

2.50

2.30

2.10

1.90

1.70

1.50

% TWD/RPK

Passenger YieldPassenger Load Factor

Passenger Load Factor & Yield

N. E. Asia 29.54%

S. E. Asia 18.06%

N. America 15.28%

Mainland China 14.38%

Europe 10.28%

Hong Kong 6.18%

Oceania 6.08%

Passenger Revenue Breakdown by Routes, 2019

CHINA AIRLINES 60

Cargo BusinessCargo revenue was TWD 43,406 million in 2019, a decrease by 12.17% over 2018. According to the breakdown of cargo revenue by routes, North America represented the prime market contributing 54.64%, followed by Southeast Asia, Europe, and Mainland China with the contribution of 17.94%, 12.08% and 6.92%, respectively.

50,000

40,000

30,000

20,000

10,000

02015 2016 2017 2018 2019

TWD million

Cargo Revenue

2015 2016 2017 2018 2019

8,000

6,000

4,000

2,000

FATK FRTK

million

Cargo Capacity & Traffic

N. America 54.64%

S. E. Asia 17.94%

Europe 12.08%

Mainland China 6.92%

N. E. Asia 6.64%

Oceania 1.78%

Cargo Revenue Breakdown by Routes, 2019

80.00

70.00

60.00

50.002015 2016 2017 2018 2019

10.00

9.00

8.00

7.00

6.00

5.00

% TWD/FRTK

Cargo YieldCargo Load Factor

Cargo Load Factor & Yield

In 2019, cargo capacity (FATK) decreased by 3.35% yoy. Cargo Traffic (FRTK) decreased by 9.22% yoy, and cargo yield decreased by 3.35% to 8.09(TWD/FRTK). Cargo load factor decreased by 4.33 ppt to 66.99%.

61Financial and Operational Analysis

Operating Costs and Employee ProductivityOperating expenses were TWD146,292 million in 2019. The three largest cost items were fuel (30.75%), rental & depreciation & amortization (20.46%), and airport & ground handling charges (13.64%). In 2019, overall unit cost increased by 0.61% yoy to 11.48 (TWD/ATK), unit cost excluding fuel cost increased by 4.33% yoy.

Fuel costs 30.75%

Rental & Depreciation & Amortization 20.46%

Airport & Ground Handling Charges 13.64%

Labor 13.49%

Maintenance Costs 9.39%

Sale & General Administration 4.53%

Passenger Service 3.97%

Insurance 0.18%

Others 3.59%

13.00

11.00

9.00

7.00

5.00

TWD/ATK

2015 2016 2017 2018 2019

Unit Cost excluding Fuel CostsUnit Cost

Categorized Breakdown of Costs, 2019

1,350,000

1,100,000

850,000

600,000

350,0002015 2016 2017 2018 2019

ATK & RTK／Employee

RTK/EmployeeATK/Employee

2015 2016 2017 2018 2019

14,000

13,000

12,000

11,000

10,000

9,000

1,000 TWD／Employee

As of December 31st 2019, the number of average employees for 2019 was 12,166. Employee productivity, measured by ATK per employee increased by 0.59% yoy, RTK per employee decreased by 2.38% yoy, and revenue per employee slightly decreased by 0.01% yoy.

Revenue per EmployeeATK & RTK per Employee

Overall Unit CostINDEPENDENT AUDITORS’ REPORT

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

We have audited the accompanying financial statements of China Airlines, Ltd. (the “Company”), which comprise the balance sheets as of December 31, 2019 and 2018, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and other regulations. Basis for Opinion

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

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters in the audit of the financial statements of the Company are stated below: Passenger Revenue Recognition In accordance with IFRS 15 “Revenue from Contracts with Customers”, passenger sales are accounted for as contract liabilities before relevant transportation services are provided. After providing the related services, contract liabilities are reclassified to passenger revenue. As of December 31, 2019, passenger revenue was NT$96,176,865 thousand. Refer to Notes 4 and 26 in the accompanying financial statements for related detailed information.

CHINA AIRLINES 62

INDEPENDENT AUDITORS’ REPORT

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

We have audited the accompanying financial statements of China Airlines, Ltd. (the “Company”), which comprise the balance sheets as of December 31, 2019 and 2018, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and other regulations. Basis for Opinion

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

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters in the audit of the financial statements of the Company are stated below: Passenger Revenue Recognition In accordance with IFRS 15 “Revenue from Contracts with Customers”, passenger sales are accounted for as contract liabilities before relevant transportation services are provided. After providing the related services, contract liabilities are reclassified to passenger revenue. As of December 31, 2019, passenger revenue was NT$96,176,865 thousand. Refer to Notes 4 and 26 in the accompanying financial statements for related detailed information.

2019 Financial StatementsINDEPENDENT AUDITORS' REPORT


Since relevant sales can only be recognized as passenger revenue when passengers actually boarded, confirmation from each passenger holding the ticket who actually boarded involves a complicated process; therefore, we identified passenger revenue recognition as a key audit matter. The main audit procedures that we performed included the following: 1. We understood and tested the internal control related to the process of revenue from passenger,

including manual and automatic control. 2. We understood and tested the effectiveness of the information system related to the process of

passenger revenue. 3. We sampled several flight tickets, which were flown and recognized as revenue, to verify whether

the boarding date matched the date recorded on the tickets, from advanced sales tickets. Initial Application of IFRS16 (Leases) - Aircrafts In accordance with IFRS 16 “Leases”, aircrafts leases initially classified as finance leases under IAS 17 should be recognized as Right-of-use assets and lease liabilities in the consolidated balance sheet. As of December 31, 2019, the carrying amount of right-of-use assets and lease liabilities (including financial liabilities for hedging) relating to aircrafts leases are 53,870,134 thousand and 52,153,682 thousand, respectively. Refer to Notes 4 and 20 in the accompanying financial statements for related detailed information. China Airlines, Mandarin Airlines and Tigerair Taiwan leased ten 777-300ER planes, fifteen A330-300 planes and fifteen 737-800 planes for operation. Because of the long lease term and the high rent of each period, the percentage of Right-of –use assets and lease liabilities in the consolidated balance sheet is high. The assessment of each parameters and lease terms, and the calculation of liabilities by the management will affect the carrying amount and depreciation expense of the Right-of-use assets and lease liabilities (including financial liabilities for hedging) relating to aircrafts. Therefore, we identified initial application of IFRS16-Aircrafts as a key audit matter. The main audit procedures that we performed included the following: 1. We understood and tested the effectiveness of the information system related to the calculation of

lease liabilities. 2. We chose an aircraft rents amortization schedule from the lease calculation system, varified the

logical rationality of the lease liabilities balance, financial cost discount and Right-of-use amortization, and related carrying amount. Also, we chose a certain amount of aircraft lease contract from the carrying amounts of aircraft lease liability, and checked if there was any difference between rents in the aircraft rents amortization schedule and rents in in the contracts. And we checked if the term of the amortization schedule was consistent with the contract.

Other Matter - Audited by Other Independent Auditors

Some investments accounted for using the equity method and disclosure information in Note 13 were audited by other independent auditors, and our audit opinion is based solely on the audit report of other independent auditors. The financial statements and disclosed information were audited by other independent auditors, and our audit opinion is based solely on the audit report of other independent auditors. As of December 31, 2019, the aforementioned investment accounted for using the equity method was NT$1,946,328 thousand, representing 0.72% of total assets. For the year ended December 31, 2019, comprehensive income (including share of profit or loss of subsidiaries, associates and joint ventures and share of other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using the equity method) was NT$691,115 thousand.

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

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee and supervisors, are responsible for overseeing the Company’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to

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

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and,

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

5. Evaluate the overall presentation, structure and content of the financial statements, including the

disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

CHINA AIRLINES 64

Since relevant sales can only be recognized as passenger revenue when passengers actually boarded, confirmation from each passenger holding the ticket who actually boarded involves a complicated process; therefore, we identified passenger revenue recognition as a key audit matter. The main audit procedures that we performed included the following: 1. We understood and tested the internal control related to the process of revenue from passenger,

including manual and automatic control. 2. We understood and tested the effectiveness of the information system related to the process of

passenger revenue. 3. We sampled several flight tickets, which were flown and recognized as revenue, to verify whether

the boarding date matched the date recorded on the tickets, from advanced sales tickets. Initial Application of IFRS16 (Leases) - Aircrafts In accordance with IFRS 16 “Leases”, aircrafts leases initially classified as finance leases under IAS 17 should be recognized as Right-of-use assets and lease liabilities in the consolidated balance sheet. As of December 31, 2019, the carrying amount of right-of-use assets and lease liabilities (including financial liabilities for hedging) relating to aircrafts leases are 53,870,134 thousand and 52,153,682 thousand, respectively. Refer to Notes 4 and 20 in the accompanying financial statements for related detailed information. China Airlines, Mandarin Airlines and Tigerair Taiwan leased ten 777-300ER planes, fifteen A330-300 planes and fifteen 737-800 planes for operation. Because of the long lease term and the high rent of each period, the percentage of Right-of –use assets and lease liabilities in the consolidated balance sheet is high. The assessment of each parameters and lease terms, and the calculation of liabilities by the management will affect the carrying amount and depreciation expense of the Right-of-use assets and lease liabilities (including financial liabilities for hedging) relating to aircrafts. Therefore, we identified initial application of IFRS16-Aircrafts as a key audit matter. The main audit procedures that we performed included the following: 1. We understood and tested the effectiveness of the information system related to the calculation of

lease liabilities. 2. We chose an aircraft rents amortization schedule from the lease calculation system, varified the

logical rationality of the lease liabilities balance, financial cost discount and Right-of-use amortization, and related carrying amount. Also, we chose a certain amount of aircraft lease contract from the carrying amounts of aircraft lease liability, and checked if there was any difference between rents in the aircraft rents amortization schedule and rents in in the contracts. And we checked if the term of the amortization schedule was consistent with the contract.

Other Matter - Audited by Other Independent Auditors

Some investments accounted for using the equity method and disclosure information in Note 13 were audited by other independent auditors, and our audit opinion is based solely on the audit report of other independent auditors. The financial statements and disclosed information were audited by other independent auditors, and our audit opinion is based solely on the audit report of other independent auditors. As of December 31, 2019, the aforementioned investment accounted for using the equity method was NT$1,946,328 thousand, representing 0.72% of total assets. For the year ended December 31, 2019, comprehensive income (including share of profit or loss of subsidiaries, associates and joint ventures and share of other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using the equity method) was NT$691,115 thousand.

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

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee and supervisors, are responsible for overseeing the Company’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to

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

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and,

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

5. Evaluate the overall presentation, structure and content of the financial statements, including the

disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.


6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Chen-Hsiu Yang and Jui-Chan Huang. Deloitte & Touche Taipei, Taiwan Republic of China March 18, 2020

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial

performance and cash flows in accordance with accounting principles and practices generally accepted

in the Republic of China and not those of any other jurisdictions. The standards, procedures and

practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial

statements have been translated into English from the original Chinese version prepared and used in the

Republic of China. If there is any conflict between the English version and the original Chinese version

or any difference in the interpretation of the two versions, the Chinese-language independent auditors’

report and financial statements shall prevail.

CHINA AIRLINES, LTD.

BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

2019 2018

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents $ 20,626,014 8 $ 18,688,022 9 Financial assets at fair value through profit or loss - current 434 - - - Financial assets at amortized cost 1,460,450 - 2,310,000 1 Financial assets for hedging - current 9,588 - 27,354 - Notes and accounts receivables, net 7,694,431 3 9,280,662 4 Accounts receivables - related parties 232,386 - 298,311 - Other receivables 560,819 - 656,790 - Current tax assets 52,776 - 15,810 - Inventories, net 8,246,515 3 8,451,892 4 Non-current assets held for sale - - 46,154 - Other current assets 2,106,199 1 3,157,864 2

Total current assets 40,989,612 15 42,932,859 20

NON-CURRENT ASSETS

Financial assets at fair value through other comprehensive income - non-current 107,856 - 83,366 - Investments accounted for using the equity method 13,482,877 5 13,158,355 6 Property, plant and equipment 131,029,886 49 149,029,054 69 Right-of-use assets 64,262,830 24 - - Investment properties 2,047,448 1 2,047,448 1 Other intangible assets 971,298 - 979,708 1 Deferred tax assets 4,757,142 2 4,561,346 2 Other non-current assets 11,227,556 4 2,122,085 1

Total non-current assets 227,886,893 85 171,981,362 80

TOTAL $ 268,876,505 100 $ 214,914,221 100 LIABILITIES AND EQUITY

CURRENT LIABILITIES Financial liabilities at fair value through profit or loss - current $ 11,749 - $ 221 - Financial liabilities for hedging - current 8,610,015 3 239 - Notes and accounts payable 1,222,410 - 1,198,647 1 Contract liabilities current 18,584,287 7 17,065,481 8 Accounts payable - related parties 1,469,434 1 1,583,684 1 Other payables 10,892,203 4 11,739,301 5 Provisions - current - - 268,901 - Lease liabilities - current 695,215 - - - Bonds payable and put option of convertible bonds - current portion 10,000,000 4 4,445,900 2 Loans and debts - current portion 13,708,320 5 15,335,005 7 Capital lease obligations - current portion - - 596,000 - Other current liabilities 2,806,540 1 2,946,455 1

Total current liabilities 68,000,173 25 55,179,834 25

NON-CURRENT LIABILITIES

Financial liabilities for hedging - non-current 42,420,205 16 - - Bonds payable 22,352,625 8 28,773,710 13 Loans and debts 48,618,168 18 56,827,738 27 Lease liabilities - non-current 10,909,262 4 - - Contract liabilities 2,236,311 1 1,903,665 1 Provisions 9,431,736 4 7,730,114 4 Deferred tax liabilities 399,253 - 21,195 - Accrued pension costs 7,588,745 3 6,932,783 3 Other non-current liabilities 366,255 - 463,610 -

Total non-current liabilities 144,322,560 54 102,652,815 48

Total liabilities 212,322,733 79 157,832,649 73

EQUITY

Share capital 54,209,846 20 54,209,846 25 Capital surplus 2,488,907 1 1,241,214 1 Retained earnings

Legal reserve 466,416 - 351,923 - Special reserve 12,967 - 118,810 - Unappropriated retained earnings (accumulated deficits) (1,777,225) - 1,144,928 1

Total retained earnings (1,297,842) - 1,615,661 1 Other equity 1,196,233 - 58,223 - Treasury shares (43,372) - (43,372) -

Total equity 56,553,772 21 57,081,572 27

TOTAL $ 268,876,505 100 $ 214,914,221 100 Please refer to China Airlines websites for the complete financial report. https://www.china-airlines.com/tw/en/investor-relations/index

CHINA AIRLINES 66

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Chen-Hsiu Yang and Jui-Chan Huang. Deloitte & Touche Taipei, Taiwan Republic of China March 18, 2020

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial

performance and cash flows in accordance with accounting principles and practices generally accepted

in the Republic of China and not those of any other jurisdictions. The standards, procedures and

practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial

statements have been translated into English from the original Chinese version prepared and used in the

Republic of China. If there is any conflict between the English version and the original Chinese version

or any difference in the interpretation of the two versions, the Chinese-language independent auditors’

report and financial statements shall prevail.


BALANCE SHEETS

DECEMBER 31, 2019 AND 2018


2019 2018

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents $ 20,626,014 8 $ 18,688,022 9 Financial assets at fair value through profit or loss - current 434 - - - Financial assets at amortized cost 1,460,450 - 2,310,000 1 Financial assets for hedging - current 9,588 - 27,354 - Notes and accounts receivables, net 7,694,431 3 9,280,662 4 Accounts receivables - related parties 232,386 - 298,311 - Other receivables 560,819 - 656,790 - Current tax assets 52,776 - 15,810 - Inventories, net 8,246,515 3 8,451,892 4 Non-current assets held for sale - - 46,154 - Other current assets 2,106,199 1 3,157,864 2

Total current assets 40,989,612 15 42,932,859 20

NON-CURRENT ASSETS

Financial assets at fair value through other comprehensive income - non-current 107,856 - 83,366 - Investments accounted for using the equity method 13,482,877 5 13,158,355 6 Property, plant and equipment 131,029,886 49 149,029,054 69 Right-of-use assets 64,262,830 24 - - Investment properties 2,047,448 1 2,047,448 1 Other intangible assets 971,298 - 979,708 1 Deferred tax assets 4,757,142 2 4,561,346 2 Other non-current assets 11,227,556 4 2,122,085 1

Total non-current assets 227,886,893 85 171,981,362 80

TOTAL $ 268,876,505 100 $ 214,914,221 100 LIABILITIES AND EQUITY

CURRENT LIABILITIES Financial liabilities at fair value through profit or loss - current $ 11,749 - $ 221 - Financial liabilities for hedging - current 8,610,015 3 239 - Notes and accounts payable 1,222,410 - 1,198,647 1 Contract liabilities current 18,584,287 7 17,065,481 8 Accounts payable - related parties 1,469,434 1 1,583,684 1 Other payables 10,892,203 4 11,739,301 5 Provisions - current - - 268,901 - Lease liabilities - current 695,215 - - - Bonds payable and put option of convertible bonds - current portion 10,000,000 4 4,445,900 2 Loans and debts - current portion 13,708,320 5 15,335,005 7 Capital lease obligations - current portion - - 596,000 - Other current liabilities 2,806,540 1 2,946,455 1

Total current liabilities 68,000,173 25 55,179,834 25

NON-CURRENT LIABILITIES

Financial liabilities for hedging - non-current 42,420,205 16 - - Bonds payable 22,352,625 8 28,773,710 13 Loans and debts 48,618,168 18 56,827,738 27 Lease liabilities - non-current 10,909,262 4 - - Contract liabilities 2,236,311 1 1,903,665 1 Provisions 9,431,736 4 7,730,114 4 Deferred tax liabilities 399,253 - 21,195 - Accrued pension costs 7,588,745 3 6,932,783 3 Other non-current liabilities 366,255 - 463,610 -

Total non-current liabilities 144,322,560 54 102,652,815 48

Total liabilities 212,322,733 79 157,832,649 73

EQUITY

Share capital 54,209,846 20 54,209,846 25 Capital surplus 2,488,907 1 1,241,214 1 Retained earnings

Legal reserve 466,416 - 351,923 - Special reserve 12,967 - 118,810 - Unappropriated retained earnings (accumulated deficits) (1,777,225) - 1,144,928 1

Total retained earnings (1,297,842) - 1,615,661 1 Other equity 1,196,233 - 58,223 - Treasury shares (43,372) - (43,372) -

Total equity 56,553,772 21 57,081,572 27

TOTAL $ 268,876,505 100 $ 214,914,221 100 Please refer to China Airlines websites for the complete financial report. https://www.china-airlines.com/tw/en/investor-relations/index



STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2019 2018

Amount % Amount %

REVENUE $ 146,372,401 100 $ 150,264,792 100 COSTS 135,008,166 92 137,614,956 92 GROSS PROFIT 11,364,235 8 12,649,836 8 OPERATING EXPENSES 11,284,000 8 10,802,269 7 OPERATING PROFIT 80,235 - 1,847,567 1 NON-OPERATING INCOME AND EXPENSES

Other income 524,233 - 420,416 - Other gains and losses (569,582) - (559,230) - Finance costs (3,034,172) (2) (1,312,044) (1) Share of the profit of associates and joint ventures 1,811,960 1 1,918,922 1

Total non-operating income and expenses (1,267,561) (1) 468,064 -

PROFIT (LOSS) BEFORE INCOME TAX (1,187,326) (1) 2,315,631 1 INCOME TAX EXPENSE 12,472 - 525,270 - NET INCOME (LOSS) (1,199,798) (1) 1,790,361 1 OTHER COMPREHENSIVE INCOME (LOSS)

Items that will not be reclassified subsequently to profit or loss: Loss on hedging instruments subject to basis

adjustments (17,705) - 23,884 - Unrealized (loss) gain on investments in equity

instruments designated as at fair value through other comprehensive income 24,490 - (23,830) -

Remeasurement of defined benefit plans (562,259) - (674,905) - Share of the other comprehensive loss of

associates and joint ventures accounted for using the equity method (72,718) - (105,569) -

Income tax relating to items that will not be reclassified subsequently to profit or loss 101,259 - 127,120 -

(Continued)





2019 2018

Amount % Amount %

Items that may be reclassified subsequently to profit

or loss: Exchange differences on translating foreign

operations $ (59,174) - $ 34,140 - Share of the other comprehensive loss of

associates and joint ventures accounted for using the equity method (13,259) - 29,573 -

Gain on hedging instruments not subject to basis adjustment 1,425,306 1 75,454 -

Income tax relating to items that may be reclassified subsequently to profit or loss (273,227) - (18,193) -

Other comprehensive loss for the year, net of

income tax 552,713 1 (532,326) - TOTAL COMPREHENSIVE INCOME FOR THE

YEAR $ (647,085) - $ 1,258,035 1 EARNINGS PER SHARE (NEW TAIWAN

DOLLARS)

Basic $ (0.22) $ 0.33 Diluted $ (0.22) $ 0.32

The accompanying notes are an integral part of the financial statements. (Concluded) Please refer to China Airlines websites for the complete financial report. https://www.china-airlines.com/tw/en/investor-relations/index

CHINA AIRLINES 68





2019 2018

Amount % Amount %

REVENUE $ 146,372,401 100 $ 150,264,792 100 COSTS 135,008,166 92 137,614,956 92 GROSS PROFIT 11,364,235 8 12,649,836 8 OPERATING EXPENSES 11,284,000 8 10,802,269 7 OPERATING PROFIT 80,235 - 1,847,567 1 NON-OPERATING INCOME AND EXPENSES

Other income 524,233 - 420,416 - Other gains and losses (569,582) - (559,230) - Finance costs (3,034,172) (2) (1,312,044) (1) Share of the profit of associates and joint ventures 1,811,960 1 1,918,922 1

Total non-operating income and expenses (1,267,561) (1) 468,064 -

PROFIT (LOSS) BEFORE INCOME TAX (1,187,326) (1) 2,315,631 1 INCOME TAX EXPENSE 12,472 - 525,270 - NET INCOME (LOSS) (1,199,798) (1) 1,790,361 1 OTHER COMPREHENSIVE INCOME (LOSS)

Items that will not be reclassified subsequently to profit or loss: Loss on hedging instruments subject to basis

adjustments (17,705) - 23,884 - Unrealized (loss) gain on investments in equity

instruments designated as at fair value through other comprehensive income 24,490 - (23,830) -

Remeasurement of defined benefit plans (562,259) - (674,905) - Share of the other comprehensive loss of

associates and joint ventures accounted for using the equity method (72,718) - (105,569) -

Income tax relating to items that will not be reclassified subsequently to profit or loss 101,259 - 127,120 -

(Continued)





2019 2018

Amount % Amount %

Items that may be reclassified subsequently to profit

or loss: Exchange differences on translating foreign

operations $ (59,174) - $ 34,140 - Share of the other comprehensive loss of

associates and joint ventures accounted for using the equity method (13,259) - 29,573 -

Gain on hedging instruments not subject to basis adjustment 1,425,306 1 75,454 -

Income tax relating to items that may be reclassified subsequently to profit or loss (273,227) - (18,193) -

Other comprehensive loss for the year, net of

income tax 552,713 1 (532,326) - TOTAL COMPREHENSIVE INCOME FOR THE

YEAR $ (647,085) - $ 1,258,035 1 EARNINGS PER SHARE (NEW TAIWAN

DOLLARS)

Basic $ (0.22) $ 0.33 Diluted $ (0.22) $ 0.32

The accompanying notes are an integral part of the financial statements. (Concluded) Please refer to China Airlines websites for the complete financial report. https://www.china-airlines.com/tw/en/investor-relations/index


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ww

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a-ai

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tor-

rela

tion

s/in

dex


STATEMENTS OF CASH FLOWS



2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ (1,187,326) $ 2,315,631 Adjustments for:

Expected credit loss recognized on trade receivables 24,000 50,000 Depreciation expenses 29,398,635 18,192,291 Amortization expenses 165,981 165,050 Net gain on fair value changes of financial assets and liabilities at

fair value through profit or loss (25,700) (11,076) Interest income (314,944) (274,189) Dividend income (10,112) (9,603) Share of profit of associates and joint ventures (1,811,960) (1,918,922) Loss (gain) on disposal of property, plant and equipment (26,377) 273,308 Gain on disposal of investments accounted for using the equity

method (7,656) (450,195) Loss on disposal of non-current assets held for sale 10,462 368,992 Loss on inventories and property, plant and equipment 571,960 623,012 Impairment loss recognized on property, plant and equipment - 50,000 Net gain on foreign currency exchange 41,292 288,598 Finance costs 3,034,172 1,312,044 Recognition of provisions 3,616,519 2,566,045 Amortization of unrealized gain on sale-leasebacks - (13,888) Loss on sale-leasebacks 103,775 - Others 5 - Impairment loss recognized on non-current assets held for sale - 75,437

Changes in operating assets and liabilities Financial assets mandatorily classified as at fair value through profit 25,266 11,076 Financial liabilities mandatorily classified as at fair value through

profit or loss 11,528 (9,359) Notes and accounts receivable 1,507,192 (1,260,344) Accounts receivable - related parties 65,925 212,277 Other receivables 101,047 (94,232) Inventories (128,037) (225,553) Other current assets 351,186 62,151 Notes and accounts payable 53,077 878,219 Accounts payable - related parties (114,250) 89,678 Other payables (731,599) 513,674 Contract liabilities 1,851,452 3,102,855 Provisions (1,970,226) (2,539,210) Other current liabilities (120,655) 10,515 Accrued pension liabilities 93,703 99,135

Cash generated from operations 34,578,335 24,453,417 Interest received 307,503 244,604 Dividends received 940,039 624,834 Interest paid (3,038,729) (1,242,278) Income tax paid (41,260) (19,085)

Net cash generated from operating activities 32,745,888 24,061,492

(Continued)

CHINA AIRLINES 70

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2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ (1,187,326) $ 2,315,631 Adjustments for:

Expected credit loss recognized on trade receivables 24,000 50,000 Depreciation expenses 29,398,635 18,192,291 Amortization expenses 165,981 165,050 Net gain on fair value changes of financial assets and liabilities at

fair value through profit or loss (25,700) (11,076) Interest income (314,944) (274,189) Dividend income (10,112) (9,603) Share of profit of associates and joint ventures (1,811,960) (1,918,922) Loss (gain) on disposal of property, plant and equipment (26,377) 273,308 Gain on disposal of investments accounted for using the equity

method (7,656) (450,195) Loss on disposal of non-current assets held for sale 10,462 368,992 Loss on inventories and property, plant and equipment 571,960 623,012 Impairment loss recognized on property, plant and equipment - 50,000 Net gain on foreign currency exchange 41,292 288,598 Finance costs 3,034,172 1,312,044 Recognition of provisions 3,616,519 2,566,045 Amortization of unrealized gain on sale-leasebacks - (13,888) Loss on sale-leasebacks 103,775 - Others 5 - Impairment loss recognized on non-current assets held for sale - 75,437

Changes in operating assets and liabilities Financial assets mandatorily classified as at fair value through profit 25,266 11,076 Financial liabilities mandatorily classified as at fair value through

profit or loss 11,528 (9,359) Notes and accounts receivable 1,507,192 (1,260,344) Accounts receivable - related parties 65,925 212,277 Other receivables 101,047 (94,232) Inventories (128,037) (225,553) Other current assets 351,186 62,151 Notes and accounts payable 53,077 878,219 Accounts payable - related parties (114,250) 89,678 Other payables (731,599) 513,674 Contract liabilities 1,851,452 3,102,855 Provisions (1,970,226) (2,539,210) Other current liabilities (120,655) 10,515 Accrued pension liabilities 93,703 99,135

Cash generated from operations 34,578,335 24,453,417 Interest received 307,503 244,604 Dividends received 940,039 624,834 Interest paid (3,038,729) (1,242,278) Income tax paid (41,260) (19,085)

Net cash generated from operating activities 32,745,888 24,061,492

(Continued)






2019 2018

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of financial assets at amortized cost $ (1,467,317) $ (2,310,000) Disposal of financial assets at amortized cost 2,310,000 - Acquisition of investments accounted for by the equity method (35,525) (243,743) Payments for property, plant and equipment (2,397,742) (2,561,987) Proceeds from disposal of property, plant and equipment 38,596 330,136 Proceeds from disposal of non-current assets held for sale 35,692 688,427 Proceeds from disposal of investments accounted for using the equity

method 1,713,825 - Increase in refundable deposits (387,244) (51,378) Decrease in refundable deposits 104,825 103,593 Increase in prepayments for equipment (13,699,043) (13,798,867) Increase in computer software costs (157,571) (155,431)

Net cash used in investing activities (13,941,504) (17,999,250)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayments of the principal portion of lease liabilities (9,666,313) - Payments for buy-back of treasury shares - (469,393) Proceeds from issuance of bonds payable 3,500,000 10,512,000 Repayments of bonds payable (4,445,900) (2,700,000) Proceeds from sale-leasebacks 4,905,660 - Proceeds from long-term borrowings 5,500,000 17,200,000 Repayments of long-term borrowings and capital lease obligations (15,336,255) (27,339,868) Proceeds from guarantee deposits received 167,034 118,367 Refunds of guarantee deposits received (133,938) (67,905) Dividends paid to owners of the Company (1,136,278) (1,193,670)

Net cash used in financing activities (16,645,990) (3,940,469)

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE

OF CASH HELD IN FOREIGN CURRENCIES (220,402) 2,690 NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS 1,937,992 2,124,463 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

YEAR 18,688,022 16,563,559 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 20,626,014 $ 18,688,022 Please refer to China Airlines websites for the complete financial report. https://www.china-airlines.com/tw/en/investor-relations/index

CHINA AIRLINES 72





2019 2018

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of financial assets at amortized cost $ (1,467,317) $ (2,310,000) Disposal of financial assets at amortized cost 2,310,000 - Acquisition of investments accounted for by the equity method (35,525) (243,743) Payments for property, plant and equipment (2,397,742) (2,561,987) Proceeds from disposal of property, plant and equipment 38,596 330,136 Proceeds from disposal of non-current assets held for sale 35,692 688,427 Proceeds from disposal of investments accounted for using the equity

method 1,713,825 - Increase in refundable deposits (387,244) (51,378) Decrease in refundable deposits 104,825 103,593 Increase in prepayments for equipment (13,699,043) (13,798,867) Increase in computer software costs (157,571) (155,431)

Net cash used in investing activities (13,941,504) (17,999,250)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayments of the principal portion of lease liabilities (9,666,313) - Payments for buy-back of treasury shares - (469,393) Proceeds from issuance of bonds payable 3,500,000 10,512,000 Repayments of bonds payable (4,445,900) (2,700,000) Proceeds from sale-leasebacks 4,905,660 - Proceeds from long-term borrowings 5,500,000 17,200,000 Repayments of long-term borrowings and capital lease obligations (15,336,255) (27,339,868) Proceeds from guarantee deposits received 167,034 118,367 Refunds of guarantee deposits received (133,938) (67,905) Dividends paid to owners of the Company (1,136,278) (1,193,670)

Net cash used in financing activities (16,645,990) (3,940,469)

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE

OF CASH HELD IN FOREIGN CURRENCIES (220,402) 2,690 NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS 1,937,992 2,124,463 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

YEAR 18,688,022 16,563,559 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 20,626,014 $ 18,688,022 Please refer to China Airlines websites for the complete financial report. https://www.china-airlines.com/tw/en/investor-relations/index

CHIN

A A

IRLINES A

NN

UA

L REPORT

2019

2019 ANNUAL REPORTNo.1 Hangzhan S.Rd., Dayuan Dist.,Taoyuan City 33758, Taiwan, R.O.C.

Tel: 886-3-3998888 www.china-airlines.com

This publication is printed with environmentally-friendly soy-based vegetable ink on

100% post-consumer waste (PCW) recycled and recyclable paper.

2019 - news.china-airlines.com · CHINA AIRLINES ANNUAL REPORT 2019 No.1 Hangzhan S.Rd., Dayuan...

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