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CONTENTS
China Airlines | Annual Report 2012 |
1
Financial Highlights
3
Preface by Chairman and President
5
The Members of the Board
7
Business Operations of 2012 and Perspectives of 2013
25
Enhancement of Flight Operation and Maintenance
29
The Trend for Environmental Protection
35
Financial Status Contents
36
Financial and Operating Analysis
40
2012 Financial Report
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China Airlines | Annual Report 2012 |
| Financial Highlights |
Financial Statistics
Operating Revenue
Unit
2012
2011
%Change
Operating Statistics
Unit
2012
2011
%Change
Passengers Carried
(1,000)
12,106
11,421
6.0%
(Million TWD)
132,609
132,240
0.3%
Passenger Capacity
(Million ASK)
42,511
40,773
4.3%
Passenger Revenue
(Million TWD)
86,621
80,825
7.2%
Passenger Traffic
(Million RPK)
32,864
31,798
3.4%
Cargo Revenue
(Million TWD)
40,809
46,388
-12.0%
Passenger Load Factor
(%)
77.3
78.0
-0.7 ppt
Other Revenue
(Million TWD)
5,179
5,027
3.0%
Passenger Yield
(TWD/RPK)
2.64
2.54
3.9%
Operating Expenses
(Million TWD)
132,266
133,805
-1.2%
Operating Profit
(Million TWD)
343
-1,565
121.9%
Cargo Carried
(1,000 kg)
634,642
668,498
-5.1%
Income after Tax
(Million TWD)
59
-1,954
103.0%
Cargo Capacity
(Million FATK)
6,772
8,076
-16.1%
Operating Margin
(%)
0.3
-1.2
1.44 ppt
Cargo Traffic
(Million FRTK)
4,828
5,670
-14.9%
Net Margin
(%)
0.04
-1.5
1.52 ppt
Cargo Load Factor
(%)
71.3
70.2
1.1 ppt
Cargo Yield
(TWD/FRTK)
8.45
8.18
3.3%
Overall Capacity
(Million ATK)
10,599
11,746
-9.8%
Balance Sheet
Assets
(Million TWD)
190,325
202,690
-6.1%
Liabilities
(Million TWD)
138,184
155,631
-11.2%
Overall Traffic
(Million RTK)
7,785
8,532
-8.8%
Stockholders’ Equity
(Million TWD)
52,141
47,059
10.8%
Overall Yield
(TWD/RTK)
17.03
15.50
9.9%
Liabilities/ Assets
(%)
72.6
76.8
-4.2 ppt
Unit Cost
(TWD/ATK)
12.48
11.39
9.5%
Return on Assets (ROA)
(%)
0.94
-0.04
0.98 ppt
Break Even Load Factor
(%)
73.3
73.5
-0.2 ppt
Return on Equity (ROE)
(%)
0.12
-4.08
4.20 ppt
Book Value per Share
(TWD)
10.03
10.16
-1.3%
RPK
Revenue Passenger Kilometer
Number of revenue passengers carried multiplied by distance flown
ASK
Available Seat Kilometer
Number of seats available for sale multiplied by distance flown
Passenger Load Factor
Employee Productivity
Unit
Revenue per Employee
(1,000TWD/Person)
Capacity per Employee
Traffic per Employee
2012
2011
%Change
12,401
12,570
-1.3%
(ATK/Person)
991,206
1,116,510
-11.2%
(RTK/Person)
728,086
811,058
-10.2%
Revenue Passenger Kilometer divided by Available Seat Kilometer
FRTK
Freight Revenue Tonne Kilometer
Number of revenue tonnes of freight carrier multiplied by distance flown
FATK
Freight Available Tonne Kilometer
Number of tonnes of capacity available to carry freight multiplied by distance flown
Cargo Load Factor
Freight Revenue Tonne Kilometer divided by Freight Available Tonne Kilometer
RTK
Revenue Tonne Kilometer
Revenue load (passengers and freight) in tonnes multiplied by distance flown
ATK
Available Tonne Kilometer
Number of tonnes of capacity available to carry revenue load (passengers and freight) multiplied
by distance flown
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2
China Airlines | Annual Report 2012 |
| Preface by Chairman and President |
An enterprise of happiness that creates values and sails to the future
In 2012, the traditional carrier industry continued
to be impacted by the unstable economy worldwide, the
fluctuation of international fuel prices, and the expansion
of regional Low Cost Carriers (LCC). Against these
challenges inherent in the environment and from our
competitive rivals, China Airlines (CAL) excelled in creating
unique new values through a comprehensive, multi-faceted
planning and development effort.
frequency of traveling among Taiwan, New Zealand, and
Australia, we extended Auckland route for daily flights
through Sydney. As for the long-cultivated US market,
CAL will reinstate nonstop flights between Taipei and
Hawaii in June, 2013 in anticipation of the Taiwan-US
Visa Waiver Program. We will continue to code-share with
other SkyTeam airlines to provide passengers with ample
choices for transfer flights connecting to cities in U.S.
We continued to review and update our company’s
fleet modernization plan. Fourteen Airbus A350-900
purchased earlier will be delivered beginning in 2016
for use on our long-haul, medium-capacity routes. Also
from 2014, CAL will gradually introduce the new Boeing
777-300ER aircraft to replace the older ones
used on our long-haul routes to Europe
and the Americas. These will increase
the competitiveness of our flight products
and reduce the impact of high fuel prices.
Additionally, to accommodate the growing
demand in the Asia-Pacific region, CAL will add
three Boeing 737-800 and one Airbus A330-300
aircraft in 2013. We monitor closely the regional
market and business climate, and will dynamically
supplement the medium to short range route capacity as
needed. All new aircraft in our fleet will feature designer
cabins with modernized seats and entertainment systems
to offer the passengers a more comfortable flight. CAL’s
long-term goal is to have up to one hundred aircraft by
2020.
It is worth noted that CAL, in coordination with the
SkyTeam alliance, has successfully implemented the
“SkyPriority” services on all CAL routes and destinations.
SkyPriority provides exclusive, priority services to
premium cabin passengers and SkyTeam elite flyers,
and is consistently offered across all alliance
member airlines. CAL also officially joined
SkyTeam Cargo and became the first
Taiwan-based airline to join an international
freight alliance. This not only strengthens
the SkyTeam’s freight operations in Asia but
also promotes Taiwan’s position as the Asian
transshipment center.In the future, we can offer
customers and cargo owners better products and
services through the seamless operations facilitated by
the SkyTeam alliance.
With the recent development of government policies,
there exist new opportunities in the aviation industry.
Policies such as the establishment of Taoyuan Aerotropolis,
the designation of Taipei Songshan Airport as the “domestic
hub and capital business airport,” Taiwan-US Visa Waiver
Program, and Taiwan-Japan Open Skies Agreement, etc.,
are all favorable advances as are the growing popularity
of direct cross-strait links and free, independent travel for
mainland tourists. Taking advantage of the new TaiwanJapan air rights and the recovery of the Japanese markets,
we added new destinations in Kagoshima, Shizuoka, and
Toyama, and increased frequencies to Tokyo, Osaka,
Fukuoka, and Nagoya. Our new service to Gimpo, Korea
rounded out CAL’s complete flight network in Northeast
Asia. In terms of long haul routes, with the increasing
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One of CAL’s operating principles is to work with
business partners to create values together. In early
2013, we launched the “Greater China Connection”
program with three other SkyTeam members in the
region: China Eastern Airlines, China Southern Airlines,
and Xiamen Airlines. This partnership provides additional
benefits to our frequent flyer members, strengthens the
cooperation between partner airlines, and solidifies our
competitive advantages in cross-strait routes. Through a
Memorandum of Understanding (MOU), we also teamed
up with Chunghwa Telecom to research and to develop
communication techniques applicable to the tourism and
travel services market to further promote efficiency and
qualities of services. Our efforts have paid off in many
areas such as online ticket purchase, seat assignment,
online check-in and mobile boarding passes, as well
as airport kiosks. These services enable passengers to
manage itineraries with ease, promote the efficiency of
airport services, and reduce the amount of paper used.
In the future, we will continue to work with our partners to
create a green travel environment.
Environmental management is a critical focus
of CAL. On account of global sustainability, we
strive to be a safer and a more environment-friendly
new generation enterprise that provides the best
transportation services. Last year, we prepared
our in-flight meals using mostly local ingredients
to reduce the carbon dioxide generated through
the transportation process. We worked with noted
firms to produce vegetarian meals to provide
passengers with alternatives that are healthy and
environmentally worthy. Some meals are also
labeled with their corresponding carbon footprints
to promote passengers’ eco awareness. We are an
active participant of the Pacific Greenhouse Gases
Measurement (PGGM) project, which collects air
samples in the upper atmosphere for global academic
research. Lastly, CAL signed a five-year OnPoint
Fuel and Carbon Solution Agreement with General
Electric (GE), with the goal of reducing 2 to 3% fuel
consumption to minimize global warming.
In terms of management, we completed a
corporate reorganization in May, 2012, by adjusting
and rationalizing the positions within and amongst
the various departments without increasing personnel
counts and work load. We firmly believe that
human resource is the most important asset of the
company, and therefore we continuously invest in
the training and mentoring of all staff. We not only
task experienced managers and colleagues with
important assignments but also emphasize training of
the younger talents. Through inter-departmental job
rotation and dispatch, the younger personnel can gain
experiences for succession and advancement. CAL
has outstanding employees, and we intend to offer
them a stable and good working environment in our
pursuit of continuously growing the business.
We are grateful to our colleagues, passengers,
shareholders, and alliance partners for their support
and encouragement in this past year. Looking
ahead, there are still difficulties posed by economic
uncertainty and high fuel prices, as well as the ever
present competitors. Nevertheless, we are confident
that we are ready for all challenges. We will be steady
when faced with obstacles, grow and expand when
opportunities arise, and perform our best to meet
the expectations of our colleagues, passengers,
shareholders, and alliance partners. We hope to
create a wholesome enterprise of happiness for our employees
and spread that happiness to every passenger, shareholder,
alliance partner, as well as everyone in the society. We
believe we can outperform our rivals and achieve new highs in
operations in 2013!
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| The Members of the Board |
A
Chairman
C
Independent Director
G
Director
I
Director
K
Independent Director
Lai, Ching-Chyi
Luo, Hsiao-Hsien
Ting, Kwang-Hung
Ko, Tso-Liang
Chung, Lo-Min
•Chairman, China Airlines Ltd.
•President, China Airlines Ltd.
•Managing Director, Taoyuan International
Airport Services Co., Ltd.
•Director, Mandarin Airlines, Ltd.
•Director, CAL-Dynasty International, Inc.
•Chairman, CAL Park Co., Ltd.
•Chairman, CAL Hotel Co., Ltd.
•Chairman, CAL-Asia Investment Inc.
•Chairman, Dynasty Properties Co., Ltd.
•Standing Supervisor, Financial Risk Committee,
China Airlines Ltd.
•Chairman, Taiwan Insurance Institute
•Chairman, The Insurance Anti-Fraud Institute of
the ROC
•Director, Taiwan Financial Services Roundtable
•Standing Supervisor, Safety Committee, China Airlines Ltd.
•Member of the Audit Committee, China Airlines Ltd.
•Associate Professor and Director of General Affairs,
Tamkang University, Department of Transportation
Management and Institute of Transportation Science
•President, Taipei Society for Traffic Safety
•Managing Director, Taipei Rapid Transit Corporation
•Board Member, EasyCard Investment Holdings
Corporation and EasyCard Corporation
•Standing Supervisor, Corporate Governance Committee,
China Airlines Ltd.
•Chairman, Central Trading & Development Corp.
•Chairman, Phu My Hung Corp.
•Chairman, Hiep Phuoc Power Co., Ltd.
•Chairman, Macro Technologies Inc. (Vietnam) Ltd.
•Member of the Corporate Governance Committee,
China Airlines Ltd.
•Member of the Financial Risk Committee,
China Airlines Ltd.
•Secretary General, China Airlines Employee
Welfare Committee
•Standing Director, China Airlines Employee Union
•Standing Supervisor, Federation of Aviation
Employees, ROC
•Standing Supervisor, Audit Committee,
China Airlines Ltd.
•Member of the Financial Risk Committee,
China Airlines Ltd.
•Member of the Remuneration Committee,
China Airlines Ltd.
•Chairman, China Steel Chemical Corporation
•Chairman, Universal eXchange Inc.
Director
Charles C.Y.Chen
•Member of the Financial Risk Committee,
China Airlines Ltd.
•Chairman, Eyon Holding Group
•Vice Chairman, Taiwan Air Cargo Terminal Ltd.
•Vice Chairman, Taian Insurance Co., Ltd.
•Board Member, Epistar Corporation
•Board Director, Formosa International Hotels
Corporation
•Board Director, Ascendas Pte. Ltd.
•President, Chen-Yung Foundation
5
E
Sun, Huang-Hsiang
D
B
Director
China Airlines | Annual Report 2012 |
www.china-airlines.com
Independent Director
Liu, Shao-Liang
F
•Standing Supervisor, Remuneration Committee,
China Airlines Ltd.
•Member of the Audit Committee, China Airlines Ltd.
•Member of the Corporate Governance Committee,
China Airlines Ltd.
•Chairman, China Venture Management Inc.
•Director, Taiwan Stock Exchange Corporation
•Executive Vice President, China Development
Financial Holdings
•Chairman, CDIB CME Fund Ltd.
Director
Huang, Hsiu-Gu
•Member of the Safety Committee, China Airlines Ltd.
•President, Chunghwa Telecom Co., Ltd. Enterprise
Business Group
•Director, Intelligent Transportation Society of TAIWAN
•Executive Director, Taiwan Energy Service Association
•Director, Taipei Computer Association
FEDCBA
G H I J K L
H
Director
Lee, Cho-Ping
•Member of the Financial Risk Committee, China Airlines Ltd.
•Member of the Safety Committee, China Airlines Ltd.
•President, China Airlines Employee Union
J
•President, Federation of Aviation Employees, ROC
•Vice President, Chinese Federation of Labor
•Member of the Labor Standards Advisory Committee,
Council of Labor Affairs Executive Yuan
•Member of the Labor Pension Fund Supervisory Committee,
Council of Labor Affairs Executive Yuan
•President, Air Transport Workers Industrial Unions
•Municipal Advisory, Taipei City Government
L
Lin, Su-Ming
Director
Sung, Hong-Lei
•Member of the Safety Committee,
China Airlines Ltd.
•Corporate Supervisor, The Grand Hotel
•Chang, Chia-Juch / Former Chairman Resigned : February 18, 2013
•Wei, Hsing-Hsiung / Former director Resigned : June 15, 2012
•Lee, Shen-Yi / Former director Resigned : June 15, 2012
•Lo, Ta-Hsin / Former director Resigned : June 15, 2012
•Lin, Huan / Former Corporate Supervisor Resigned : June 15, 2012
•Lin, Su-Ming / Former Corporate Supervisor Resigned : June 15, 2012
Director
•Member of the Corporate Governance Committee,
China Airlines Ltd.
•Member of the Financial Risk Committee,
China Airlines Ltd.
•Director, Commerce Development Research Institute
•Public Director, GreTai Securities Market
•Professor, Department & Graduate Institute of
Accounting National Taiwan University
•Chung,Lo-Min / Independent Director On board : June 15, 2012
•Liu,Shao-Liang / Independent Director On board : June 15, 2012
•Luo,Hsiao-Hsien / Independent Director On board : June 15, 2012
•Lin,Su-Ming / Director On board : June 15, 2012
•Huang,Hsiu-Gu / Director On board : June 15, 2012
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
Pursuing Excellence and Maintaining Leadership of the Industry
Steadily Introducing Passenger Aircraft to
Strengthen Competitive Advantages
2012 was full of challenges, but CAL steadily faced all the difficulties and kept the leadership role in
As of the end of 2012, the fleet of China Airlines
consisted of 72 aircraft, including 51 passenger aircraft
and 21 freighters with an average age of 9.6 years fleetwide. Notable changes include the return of one B747
freighter to our fleet in August due to expiration of the
lease to Yangtzu River Express Airlines Co., Ltd. We
also took delivery of three new leased A330-300 planes
in January, October, and December, respectively, and
returned one leased A330-300 plane in October and another in November at the end of their respective lease
terms.
Taiwan’s aviation industry by strengthening its organizations. We further grew the Asian flight network by
adding new destinations and frequencies for the Japan, Korea, and Mainland China markets. As for the
long haul routes, CAL cooperated with Delta Airlines to boost the Taiwan-US traffic and increased the
flights to New Zealand. In 2013, CAL will follow the market trend closely to take advantage of opportunities
afforded by new measures such as the liberated amount of Mainland tourists to Taiwan and the TaiwanUS Visa Waiver Program.
Capturing New Business Opportunities and
Creating a Comprehensive Route Network
2012/03 CAL Launches Flights to Kagoshima and Shizuoka
Aircraft
Boeing B747-400 passenger and cargo
aircraft
Number
13 / 21
Airbus A340-300 passenger aircraft
6
Airbus A330-300 passenger aircraft
22
Boeing B737-800 passenger aircraft
10
Total
72
Pursuing Excellence by Assembling an
Optimal Fleet
CAL will introduce ten Boeing 777-300ER passenger
aircraft beginning in 2014. We have also purchased
14 Airbus A350-900 planes, which will enter services
beginning in 2016. These additions will strengthen
our fleet and increase our competitiveness. Further, in
response to direct cross-strait links and the expansion
of Taiwan-Japan routes, CAL will introduce three B737800 and one A330-300 planes in 2013 to supplement the
operations for short and medium range routes.
To pursue excellent passenger services, CAL
invested a hundred million US dollars to renovate the
cabin seats and entertainment systems on nine B747400 passenger aircraft in 2012. Among them, three have
a three-class cabin with first-class turndown services, a
first in Taiwan aviation industry.
Taking advantages of the opportunities created by
the Taiwan-Japan Open Skies Agreement, CAL added
new Taipei-Kagoshima, Taipei-Shizuoka, and TapeiToyama routes, increased flight frequencies to existing
destinations such as Tokyo, Osaka, Fukuoka, and
Nagoya, and formally offered the Kaohsiung-Osaka route
as a scheduled service. CAL also launched flights from
Songshan to Gimpo, Korea to round up the complete
flight network in Northeast Asia. For the cross-strait
routes, CAL worked with Mandarin Airlines to initiate the
Songshan-Wenzhou service. This is our second crossstrait route from the Taipei Songshan Airport after the
initial Songshan-Hongqiao service. As for the long haul
routes, in view of increasing travel among Taiwan, New
Zealand, and Australia, CAL extended the original TaipeiSydney flight to Auckland. This daily flight between Taipei
and New Zealand offers passengers convenient onestop service. As of the end of 2012, CAL served 112
destinations in 28 countries, including cargo freight and
other code-shared services.
In 2013, in connection with the introductions of
new aircraft, CAL will inaugurate Taipei-Takamatsu route
and increase service frequencies on Taipei-Shizuoka,
Tapei-Toyama, Kaohsiung-Osaka, and Kaohsiung-Seoul
routes. In addition, we will reinstate nonstop TaipeiHonolulu flight in anticipation of the potential Taiwanese
tourist boom brought on by the new Taiwan-US Visa
Waiver Program. We will continue to monitor closely the
market demand, and develop future cross-strait routes
accordingly to capture new business opportunities.
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
Shenyang
Dalian
Beijing
Qindao
Zhengzhou
Xian
Wuxi
Yancheng
Nanjing
Chengdu
Wuhan
Changsha
Hangzhou
Nanchang
Shanghai
(Pudong,Hongqiao)
Ningbo
Wenzhou
Chongqing
Fuzhou
Taipei
Xiamen
三亞
Sanya
Guangzhou
(Taoyuan,SongShan)
Taichung
Kaohsiung
Shenzhen
Haikou
Seoul
(Incheon,Gimpo)
Toyama
Shizuoka
Sacramento
Las Vegas
Las
Vegas
San Diego
Macau
Phoenix
New Orleans
Auckland
Effective date from 2012/10
Strengthened the Competitiveness of
International Freight Services
CAL has one of the world’s largest cargo fleets with
21 Boeing B747-400F cargo aircraft. We flew 84 cargo
flights every week, including 31 on transoceanic routes,
seven on European routes, 37 on Southeastern and
North Asian routes, and nine China routes. According to
data from International Air Transport Association (IATA),
CAL carried 5.4 billion ton-kilometers of freight in 2011
and ranked the eighth globally. In the future, CAL will
continue to build up our freight network and improve
the utilization of freighters, as well as cargo holds on
passenger flights. We will also step up cooperation with
alliance partners to strengthen the leadership role of our
cargo brand and to gain more international clients.
CAL joined SkyTeam Cargo on October 3, 2012
and significantly raised our international visibility. CAL
now works with alliance partners in terms of purchasing
and marketing, and jointly develops a complete offering
of four products: Equation, Cohesion, Variation, and
Dimension.
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In terms of the cargo market in Mainland China,
CAL served 24 cities including Chongqing, Shanghai,
Guangzhou, Nanjing, and Xiamen. To improve freight
cabin utilization and enhance the quality of our services,
CAL signed a “Commercial Cooperation Agreement” with
China Cargo Airlines. This enables the exchange of cabin
berths on the Taipei-Shanghai route and acting as the
agent for each other. Further, CAL signed a “Preferred
Pricing Agreements” with Air China, China Southern
Airlines, China Postal Airlines, and China Eastern Airlines
. With respect to the Japan cargo market, we continued
to offer freight services from Osaka to both east and
west coasts of US via transoceanic passenger and cargo
aircraft routes. CAL also signed a “Business Cooperation
Agreement” with Nippon Cargo Airlines to exchange
cabin berths on the Taipei-Tokyo route and to market
jointly in other global markets. Finally, since April of 2012,
CAL has served as the ground agent for Tonlesap Airlines
and Palau Airways’ freight services on their B737-300
and B757-200 aircraft.
CAL was responsible for transporting many
special cargoes in 2012, including penguins, ant bears
(myrmecophaga tridactyla), and various precision
instruments. We also flew chartered cargo flights for
silicon wafers, Beaujolais, etc. In addition, CAL assisted
Taiwan Tourism Bureau to deliver lanterns as a gift to the
Malaysian Tourism Bureau and sponsored the delivery
project of the Annual Exhibition of Shaanxi Cultural
Relics.
Leveraging Information Technologies to
Strengthen Cargo Services
CAL created a smartphone app “CAL CARGO”
to provide real-time freight information to cargo agents
and consignors. “CAL CARGO” has five main functions:
flight schedule, flight status, freight inquiry, my favorite,
and contact channels. Besides tracking flight schedules
and flight/freight updates, consignors can store specific
flights and booking numbers through the “my favorite”
menu to monitor the shipment’s real-time status including
U.S. customs declaration. The app also provides the
contact information of CAL’s global business stations and
customers can call or send messages to CAL worldwide
by a simply click.
CAL developed a new generation freight operating
system called CCNet. This system has been online since
July 3, 2012. Because it was developed in house, we
realized significant savings in software acquisition and
maintenance expenses. CCNet has an open architecture,
with the ability to connect immediately according to the
needs of the customers. The system is easy to operate
and has raised the efficiency of our internal work flow and
facilitated the training of new personnel.
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
Prioritized Customer-oriented Services for Passengers
CAL emphasizes every service detail to offer a prioritized, customer-oriented service.
From the convenience of web and mobile reservation and ticketing, to efficient boarding
with mobile boarding passes; from crew’s warm greetings to the enjoyment of Taiwanese
local cuisines on board, CAL provides prioritized services to every passenger.
2012/06 CAL Offers New Mobile Services
Touching Passengers’ Heart with Thoughtfulness
Initiating the Use of Mobile Boarding Passes
CAL offers the best services with thoughtful details. For
instance, during summer months, sunward window shutters
are kept closed on parked aircraft to offer a comfortable
cabin environment. In flight, cabin crew will share relevant
touring information on destinations, as well as information on
pre-ordering duty free items on the return flights. Similarly,
our ground-based staff offers heart-warming services to the
passengers. In 2012, approximately 18% of the accolades
received from customers were attributed to the ground
service group. This is a four-fold increase compared to the
previous years, showcasing CAL’s commitment to prioritized
customer services.
To provide passengers with more convenient checkin service, CAL was the first Taiwanese airline to offer
mobile boarding passes at Frankfurt and Hong Kong
airports on March 26, 2012. This service was expanded
to Taoyuan International Airport in June and later, to 12
airports globally as of the end of 2012. Using Internet,
passengers can now check in online, select seats,
enter passport information, print boarding passes, and
download mobile boarding passes from the web or from
the China Airlines App. Passengers with no checked
luggage can enter the passport and security check lines
with the mobile boarding pass and head directly to the
gates. Mobile boarding passes on mobile phones are
easily and quickly scanned at the gate, taking no more
than 2 to 3 seconds. Passengers qualified to use the VIP
lounge will enjoy even more convenient airport services
as their lounge invitation will be shown on the mobile
boarding pass as well.
24-hour E-services and M-services world-wide
To provide services to global passengers, CAL offers
website in seven different languages (Chinese, English,
Japanese, German, Italian, Dutch, and Korean). We also
have a mobile app for smartphones (on three different
platforms of iPhone, Andriod, and Windows Phone7.5) that
was first launched in December, 2010. Passengers can enjoy
24-hour services via the "Flight Schedule", "Flight Status",
"Manage Travel", "Dynasty Member Services", "Promotions",
and " FB Travel Channel" functions offered by the China
Airlines App. New features added in 2012 include " Flight
Reservation" and mobile boarding passes. Except for a few
restricted routes, system-wide, nearly all passengers can
check in on CAL’s website or through the smartphone app, to
reduce the waiting times at the airports and make paperless
eco-journey a reality.
SkyPriority Service for Top Customers
As a member of the SkyTeam alliance, CAL began
offering SkyPriority services on all routes starting March
15, 2012. SkyPriority of SkyTeam provides a series of
special services for international premium passengers.
All passengers of Elite Plus, first class, and business
class can enjoy the services of priority check-in, priority
baggage, and advanced boarding. SkyPriority has been
implemented at more than 800 airports, and will be
available at over 1000 airports worldwide by early 2013.
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
2012/12 CAL Press Conference showcase traditional culinary feast
Amazing Taste Experiences of Air Delicate
Cuisines
CAL actively works with well-known restaurants and
chefs to offer the best cuisines in air. Our selections include
such local favorites as the braised pork rice of Formosa
Chang, to dishes from the five-star Palais de Chine Hotel,
and from the modern cuisines of the famed Shanghai
Shanghai, to Taiwan’s own pride—Chef Wu, Pao-chun's
bread. Our flight attendants provide detailed information
of each served dish, enabling the passengers to feel the
Taiwanese culture while tasting the delicious foods. CAL
had recruited Michelin chefs to offer high-class dishes in
2012. We also began offering Asian vegetarian meals on all
flights departing from Taipei in September, 2012. This meal
is available in all cabin classes and was designed by the
celebrated vegetarian restaurant, Water Drop Teahouse. In
2013, CAL plan to unveil unique Chinese set meals created
exclusively by four of Taiwan’s most famous chefs, Jian-fa
Shih, Zhao-lin Chen, He-jin Chang, and Hong-che Kuo.
Using Local Food Ingredients to Cherish Our
Globe and Taiwan
The new menu being developed by Taiwan’s four
famous chefs will unite locally produced food ingredients
with expertise of China Pacific Catering Service. This
showcases CAL’s support to Taiwan’s agriculture and the
government’s environmental policy on energy conservation
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and carbon reduction. In addition, the VIP lounges at
Taoyuan Airport offer baked sweet potatoes, made by
specially grown yellow yams from Tainan’s Xinhua District.
The baked sweet potatoes have been certified by SGS and
the Environmental Protection Administration of their low
carbon content and bear the appropriate carbon footprint
labels.
Delicate Tour Products with Frequent Updates
CAL’s “Dynasty Package” welcomed more than 160,000
tourists in 2012, topping all rivals. To accommodate the
increased demand of free, independent travel for mainland
tourists, CAL added Nanjing, Hangzhou, Chongqing,
Chengdu, Guangzhou, Fuzhou, Shenzhen, and Xian to
our original three focus cities of Beijing, Shanghai, and
Xiamen. Tourists from these cities can purchase customized
packages to Taiwan including flights and lodgings.
Together with our current offerings from Southeastern and
Northeastern Asian destinations, Dynasty Package to Taiwan
is now available from 16 cities. It is worth mentioning that
our 2012 tour packages were numerous and varied than
ever to serve many niche markets. For example, we had
teamed with vendors to offer medical-themed packages for
comprehensive physical checkups or cosmetic surgeries, as
well as featured tours of Jiufen Bed & Breakfast and other
farm resorts. CAL was the exclusive sponsor of the rock
band Mayday’s new year’s eve concert held in Kaohsiung,
leading to a frenzy of ticket-buying across Mainland China
and Southeast Asia.
In terms of tour products for overseas destinations,
CAL introduced new packages to Shizuoka, Toyama, and
Kagoshima in connection with the Taiwan-Japan Open
Skies Agreement. We also initiated a partnership with JR
Group’s Kyushu Railway Company to provide complete
rail services in Kyushu, Japan. As for the Mainland China
market, CAL added new tour destinations such as Sanya
and Haikou. By the end of 2012, Dynasty Package offered
tour products to 58 cities in 17 countries.
To further serve our passengers, CAL launched
online hotel reservation and booking systems, in April
and November, 2012, for passengers going abroad and
those visiting Taiwan, respectively. These systems assist
passengers in pre-trip planning via online booking. CAL
also developed a companion operating system for the
lodging retailers to simplify the procedures and to raise
product competitiveness and sales.
Various Value-added Services for Dynasty
Flyers
There are more than 2.1 million Dynasty Flyer
members, who enjoy special member privileges to foster
their brand loyalty. The most important benefit is the accrual
of reward mileages on all CAL flights, as well as flights on
partner airlines through alliance and joint ventures. In 2012,
we added new partners of Saudi Arabian Airlines (SV),
Middle East Airlines (ME), Aerolineas Argentinas (AR), and
Xiamen Airlines (MF).
In addition, CAL introduced discounts for rentals
from Hertz and Avis, mileage gift vouchers for room, meal,
and spa treatment at the Taoyuan Novotel Hotel, bonus
miles for stays in Regal Hotels and InterContinental Hotels
Group, and bonus miles for hotel bookings made on Ctrip,
the prominent online travel agent in Mainland China.
Other Dynasty Flyer benefits include first-class
upgrade awards, special upgrade awards on the Hong
Kong route, bonus miles on Taichung-Macau flights,
accommodation in first-class cabins for Emerald and
Paragon members purchasing full-price business class
tickets, discounts for Gold, Emerald, and Paragon members
to upgrade/renew membership, prize drawings for new
members, ticket discounts and prize drawing for members
who update their cell phone information online, mileage
vouchers for Dynasty Packages, ticket discounts for Gold,
Emerald, and Paragon, as well as SkyTeam Elite Plus
members’online purchases, and discounts for onboard
duty-free purchases.
Our integrated marketing partners include 18 airlines,
18 banks or credit card issuers, ten global and regional
hotel chains, two online booking centers, three global car
rental chains, and one telecommunication provider. Among
them, CAL cooperated with HSBC Bank to offer the China
Airlines Visa Infinite Card, which comes with discounts on
CAL ticket purchases and bonus mileage accrual on CAL
flights. Customers of HSBC’s global financial planning
services also enjoy discounts from CAL’s online ticket
purchase.
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
Diversified Operations to Maximize Group Efficiency
To nurture and deepen the value chain of the aviation industry, CAL Group employs diversified
operations to strengthen its competitiveness and to maximize its efficiency. The CAL Group controls
36 subsidiaries covering aviation, ground services, logistics, air cargo stations, catering services, bulk
laundry services, information network, and tourism.
Mandarin Airlines
Mandarin Airlines is a subsidiary company of CAL with
a fleet of eight single-aisle, 104-seat ERJ 190-100 aircraft. It
is based in Taichung, and operates international flights from
Taichung, Songshan, and Kaohsiung, as well as other scheduled
cross-strait routes and Taiwan domestic routes. CAL owns a
93.99% share of Mandarin and the two airlines share resources
including fleet, business, and management. They cooperate with
each other closely to pursue mutual interests and growth.
China Pacific Catering Service Ltd.
China Pacific Catering Service is a joint venture of CAL
(51%) and John Swire & Sons (H.K.) Ltd. (49%). It was founded
in 1996 and remains the most established catering service firm
in Taiwan. Our goal is to grow the firm into the best catering
service provider in Asia. This company employs more than 200
chefs and uses high-tech equipment to produce meals under the
most scrupulous sanitation standards. It served 27 international
passenger and cargo airlines in 2012.
In order to offer delicious and diverse meals, China Pacific
Catering Service partners with the famous Taiwanese baker, Wu,
Pao-chun, the Shanghai Shanghai, the Water Drop Teahouse
vegetarian restaurant, the five-starred Palais de Chine Hotel,
and the Michelin-starred China Blue restaurant in Conrad Tokyo.
The company continues to update and create novel menus.
Abacus Distribution Systems Taiwan Ltd.
Abacus Distribution Systems Taiwan Ltd. is a subsidiary,
with 93.93% shares held by CAL, established in October 9,
1990. It is a Taiwan-based marketing company of Abacus
International Pte Ltd of Singapore. The firm’s main business is
the sale of Abacus computer reservation system to domestic
travel agencies, plus other services including computer
software design and development, data processing, secondtier communication services, and the sale, installation, and
maintenance of computer hardware.
In recent years, Abacus was also diligently involved in
the research and development of other ancillary products of
a reservation system. With CAL joining the SkyTeam, Abacus
cooperates with SkyTeam in marketing efforts, via various
social media networks. Moreover, Abacus is leveraging mobile
communication and cloud technology to provide customers with
multiple value-added services.
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
Hwa Hsia Company Ltd.
China Pacific Laundry Services Ltd.
Hwa Hsia Company Ltd. established in 1989, is a
wholly-owned subsidiary of CAL. It was founded for the
purposes of lowering the operating costs of CAL and
achieving overall profits for the entire enterprise group.
The work that Hwa Hsia took up in the early years only
included maintenance of air cargo containers, laundry,
headphone cleaning, and in-cabin cleaning. The firm has
since grown extensively, providing additional services
such as external aircraft cleaning, aircraft parts washing,
maintenance of air cargo containers and in-cabin service
carts, general cleaning of factories, office buildings,
and residences, disease control, and temporary labor
offerings. The number of employees increased to more
than 500 from the original count of 124. In the future,
Hwa Hsia will market aggressively to other partner
airlines to become a qualified service depot for cargo
containers, cargo pallet, cargo nets, and service carts.
China Pacific Laundry Services Ltd., a joint venture of
CAL (55%) and John Swire & Sons ( H.K.) Ltd. (45%), was
established in September, 1997. By introducing commercial
washing services and technologies from abroad, China Pacific
Laundry Services Ltd. meets all international standards in
operations and service qualities. Its main business is to provide
bulk laundry services to airlines, hotels, and other gyms and
clubs. In recent years, the firm devoted significant efforts in
improving the laundry processes and will unveil new equipment
in 2013. It aims to improve efficiency, conserve energy, enhance
service quality, and grow the company ultimately.
Novotel Taipei Taoyuan International Airport
Novotel, another CAL’s wholly-owned subsidiary,
is the first internationally-branded hotel in Taoyuan.
Opened in 2009, it is Accor Group’s flagship airport hotel
in Taiwan. The overall design of the hotel emphasizes
the concepts of environmental protection and natural
harmony. The hotel has 360 fashionable guest rooms,
plus other facilities such as heated swimming pool,
steam rooms, fitness center, and beauty salon. It boasts
a grand ballroom with lofty five-meter high ceilings and
five multifunctional conference halls to serve all business
meetings and wedding parties. Novotel has been LPGA’s
official hotel two years in a row. The “Wei Fang” Chinese
restaurant in Novotel received award as one of the best
restaurants in Taiwan due to its exemplary services and
distinctive design. Novotel is truly the best international
hotel in Taoyuan.
Dynasty Hotel of Hawaii, Inc.
Dynasty Hotel of Hawaii, Inc. is located in Honolulu,
Hawaii and was acquired by CAL in 1973. It is a 16-story
building with 199 guest rooms. The hotel joined the Wyndham
Worldwide group in 2009 and carries the Ramada Plaza brand.
It was awarded the 2012 Certificate of Excellence Award by
TripAdvisor. The hotel’s restaurant is under renovation to
become a more Hawaiian-themed establishment. The renovation
should improve the quality of service to customers.
Taoyuan International Airport Services Co., Ltd.
Taoyuan International Airport Services Co., Ltd. was jointly
founded by the Ministry of Transportation and Communication
and CAL on December 1, 1978. It started its business operation
on February 26, 1979 with the opening of the original Terminal
One at Taiwan Taoyuan International Airport. The firm provides
professional ground services to all flights under the goals of
“safety, efficiency, and services.”
Taoyuan International Airport Services Co., Ltd. passed
IATA’s audit and became a certified ISAGO provider on February
11, 2012. ISAGO, the acronym for IATA Safety Audit for Ground
Operation, is the highest-level audit standard for aviation
industry suppliers. Taoyuan International Airport Services Co.,
Ltd. is the first Taiwanese ground services company to receive
this certification.
2012/2 Taoyuan International Airport Services (TIAS) Receives International Air
Transport Association (IATA) ISAGO Certification
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
Human Resources as the Fuels for Growth
Motivated employees are what fuel the growth and expansion of an enterprise. Through
continuous modernization and innovations, CAL aims to stimulate the employees and raise our
competitiveness. As CAL joined SkyTeam, we have developed new products and introduced a new
fleet. CAL is stepping into a new era and we need the best talents to fuel our continued growth.
2012/12 Senior Employees were awarded in the 53rd Anniversary
Diverse Learning to Ingrain Brand Spirit into
Employees’ Heart
Electing Model Employees to Stimulate
Devotion
CAL adopts a diverse employee training regime to
ingrain superior moral spirit and corporate values into
employees’ heart. We expect these values to guide the
employees in their conducts at the workplace, as well
as in their daily lives. Our training and education regime
include online learning and assessments, case studies in
“CAL Employee Newsletter,” workshops and seminars,
and polls for poster design. These activities aim to raise
the employees’ consciousness to carry out CAL’s brand
spirit and sustain our corporate culture.
CAL held an election of model employees in
2012 to motivate employees in service devotion and to
strengthen work ethics. Six new awards were added
to the existing prizes, including “Award for Best Public
Welfare Affair,” “Award for Best CAL Employee,” “Award
for Best Environmental Protection Practitioner,” “Award
for Best Public Relation Practitioner,” “Award for Best
Safety Goalkeeper,” and “Award for Best Team Spirit.”
The election was open to all employees and the winners
inspired all to work harder in the future.
All New Trophies for Senior Employees
Trophies for Senior Employees mark the mutual
growth of the employees and the company and
symbolize the employees’ efforts and devotion. The
trophy had been designed on the basis of gold plum
blossoms, with a wooden pedestal, to symbolize the
stable and dependable management styles. In 2012, CAL
redesigned an all-new trophy for senior employees with
transparent crystal along with elegant red plum blossoms
to show the company’s updated, sustainable growth, as
well as our resolute spirits and beliefs.
2012/12 CAL Unveils Newly-designed Trophy for Senior Employee
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
2012/01 "Spirit of Prosperity and Harmony" Float Wins International Trophy at the U.S. Rose Parade
A Corporate Citizen for Taiwan’s Future
CAL is keenly aware of its responsibility as a corporate citizen and actively engages in public welfare
activities. We assist in promoting tourism, culture and art experiences, sporting events, environmental
protection awareness, and so on. Because we have dreams, we wish Taiwan to shine on the world
stage; because we have love, we pray for a better world tomorrow.
Being Outstanding Internationally
Repeat Winner at the U.S. Rose Parade
CAL has long been devoted to Taiwan tourism and
we vigorously market Taiwan internationally in support
of government policies. In 2012, CAL continued to
participate in domestic and international travel fairs and
sponsored many activities hosted by the Tourism Bureau
and the Taiwan Visitors Association (TVA). These include
the Taiwan Lantern Festival in Changhwa, Sand Sculpture
Art Festival in Fulong, and the Taiwan Culinary Exhibition
in Taipei. CAL also assisted the Tourism Bureau and the
Centers for Disease Control in disseminating important
news bulletins via onboard announcements or short films.
We participated in the printing and distribution of the
“Taiwan Tourism Hotel & Restaurant Guide” published by
TVA. For our effort, TVA awarded CAL the “2012 Special
Award for International Tourism Marketing” in the aviation
category.
Rose Parade of Los Angeles, California is a major
event that attracts global attentions every January. The
theme for the 2012 parade was “Just Imagine.” CAL, in
cooperation with the Ministry of Foreign Affairs and the
Tourism Bureau, won the international first prize with a float
entry named “Spirit of Prosperity and Harmony.” CAL’s floats
have appeared in Rose Parade in 26 consecutive years
and won the prestigious prize 21 times. This year’s theme
of “Spirit of Prosperity and Harmony” was inspired by the
Book of Changes. The float featured a vividly designed floral
dragon, spitting smokes with animated head movements.
Beautiful ambassadors, dressed in Taiwanese, Hakka, and
aboriginal costumes, greeted the parade audience and
attracted millions of global viewers. CAL’s float in Rose
Parade showcased Chinese culture to the world, brought in
the New Year of Dragon, and prayed for a prosperous world.
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China Airlines | Annual Report 2012 |
| Business Operations of 2012 and Perspectives of 2013 |
2012/06 CAL Flight Attendants Teach Course of Aviation and English at Zhuwei Elementary School
The Continual Growth of Love
As the leader of the aviation industry in Taiwan, CAL
has long been devoted to public welfare and humanitarian
aid to fulfill its social responsibility as a corporate citizen.
In particular, after the establish of the CAL Volunteer Club
in 2011, CAL has participated actively in caring for the
disadvantaged, watching out for our neighbors, protecting
the environment, and contributing to the society in
general. We truly believe in repaying the society for what
we have received.
To support local families, CAL’s Volunteer Club and
Taoyuan Fishermen's Association held a “Surrounding
the Stove” activity for nearly 200 orphans in Taoyuan
County on the Eve of Chinese New Year. In addition,
CAL volunteers taught English at Zhuwei Elementary
School and shared their aviation experiences with the
schoolchildren. Volunteers also periodically visited the
orphanages to donate goods and to arrange visiting
activities for children.
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Caring for the disadvantages, CAL was a sponsor
in numerous activities including the “Touching the
World with Love from Taiwan” held by Chou, Ta-kuan
Foundation, “Cross-Strait Bike Trips” held by Xin-yin
Orphanage in Yun-lin County, and “Dream-realizing
Project” of R.O.C. Make-a-wish Foundation. CAL also
assisted in transporting patients of rare diseases, such
as spinal muscular astropy, cerebral hypoxia, and
congenital lymphedema, for international rescues and
medical treatments. In addition, CAL sponsored the
delivery of humanitarian aids for various campaigns
conducted by international volunteer organizations.
Examples include Tzu Chi Foundation’s “Volunteer
Doctors for Beijing Flood,” Fu Jen Catholic University's
“Tanzania International Volunteers,” and Chihlee Institute
of Technology’s “Burkina Faso International Volunteers.”
Finally, CAL delivered guide dogs for the Taiwan Guide
Dog Association, donated salvaged aircraft parts and
materials, and participated in charity fund raisings, with
the hope to appeal others’ support and pass on the
humanitarian love.
2012/04 President Ma, Ying-jeou visits Africa on China Airlines Chartered Flight
2012 was China Airlines’ first year in our sustained
campaign for environmental protection. During the year,
CAL Volunteer Club members conducted two beachcleaning drives to tidy up the coastal areas of Taoyuan’s
Zhuwei Fishing Harbor. CAL also held a “Bike Festival”
that had thousands of participants from our employees,
their family members, and staff members of various
domestic and international tourism bureaus. All the
bikers experienced a fun ride and, at the same time,
demonstrated their resolves in energy saving, carbon
reduction, and earth loving.
C u l t i v a t i o n o f Ta i w a n ’ s C u l t u r e a n d
Development of Branding Diplomacy
CAL actively participates in domestic and
international art and sporting events to promote national
images of Taiwan and to develop international diplomacy
through culture exchanges. In 2012, we sponsored
activities such as “The Stunning Pop-up Books” and
“The Dawn of Dinosaurs” hosted by the United Daily
News Group, and the annual exhibit “Qing Dynasty and
Western Court Jewelry” and “The Cultural Granderur
of the Western Zhou Dynasty” held at the National Palace
Museum. CAL also sponsored other culture exchange
activities held by the government, universities, foundations,
and visiting international missions.
CAL is an energetic sponsor and supporter of various
international games. We are particularly proud of the
achievements of Taiwanese athletes. In 2012, CAL
sponsored the following events: 2012 OEC Taipei Ladies
Open, athletes of Chinese Taipei Sailing Association to
Asian Windsurfing Championship in Thailand, 2012 Chinese
Track and Field Game in the Bay Area of San Francisco,
and ESPN’s “Cheers for Jeremy Lin.” For its efforts, CAL
was awarded the “Best Sports Promoter” honor by the
Executive Yuan in 2012.
Charter Flights that Fulfill Every Mission
CAL has abundant experiences with air charters, and
the best example is our mission of charter flights in 2012
for the President and Vice President to visit friendly nations
in Africa and transit in U.S. With discreet and professional
services, CAL provided the safest and the most comfortable
trips for the President, Vice President, and other VIPs.
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China Airlines | Annual Report 2012 |
| Enhancement of Flight Operation and Maintenance |
Endless Efforts for Aviation Safety
Aviation safety is CAL’s utmost mission, and each and every employee is fully committed to it by
integrating safety consciousness into our operations, system design, and organization. CAL forms
its own safety culture by carefully managing and controlling the risks of aviation safety.
2012/12 CAL Maintenance Facility Receives ISO 14001 Certification
Implementation of Safety Management to Raise
the Overall Safety
CAL implements a safety management system and
strictly controls the risks of all operations. CAL follows
safety management policies mandated by the Civil
Aeronautics Administration and International Aviation
Transportation Association (IATA) to train seed instructors
and to carry out the required safety trainings. In addition,
CAL continues to implement aviation security projects to
prevent any security incidents both in the air and on the
ground.
CAL’s Safety Management System (SMS), as required
by IATA and the Civil Aeronautics Administration, began
operation in 2009. In 2012, we continued to develop and
maintain the SMS, installed the Safety Action Group, and
integrated SMS into the work of all departments. By the
end of June, CAL completed the setup and implementation
of SMS Phase III. In December, 2012, the Civil Aeronautics
Administration conducted reviews and audits of our SMS
with the goal of attaining the highest safety level.
Of note is CAL’s systematic management of aviation
risks in all operational areas such as flight operations, inflight services, and ground handling. We have a safety
report policy that encourages employees to quickly and
honestly report all identified incidents and hazards. This
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has resulted in a reduced frequency of safety incidents,
as evident in the 130% more positive reports in 2012
than 2011.
CAL is the first airline in Taiwan to receive the IOSA
(IATA Operational Safety Audit) certification. The IOSA
program is an internationally recognized and accepted
evaluation system designed to assess the operational
management and control systems of an airline. All
IATA members are IOSA registered and must remain
registered to maintain IATA membership. CAL gained
IOSA certificate for the first time in 2005. After that, CAL
successfully passed the recurring audits in a 24-month
cycle. In fact, audits in 2006, 2008, 2010, and 2012 had
identified zero defects at CAL. Our current IOSA registry
is valid until February 25, 2013 and will be extended to
February 25, 2015.
The IOSA certification shows that CAL’s setup
and implementation of SMS and its sub-systems are
recognized and approved by IATA. CAL will continue the
efforts and demand every employee of every department
to take up the responsibilities for safety. We will actively
identify and manage the risk of operations through SMS
and prevent accidents from occurring again.
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China Airlines | Annual Report 2012 |
| Enhancement of Flight Operation and Maintenance |
Expert Maintenance Capabilities for Flight
Safety
CAL’s advanced professional aircraft maintenance
center is the largest of its kind in Taiwan. CAL has aircraft
maintenance licenses certified by the United States, the
European Union, China, and Hong Kong. Our advanced
hangars allow simultaneous work on five large planes. In
addition, CAL built 120,000-pound Engine Test Cells to
satisfy the needs for engine testing. CAL provides highquality maintenance services for its passenger and cargo
fleet, as well as those from more than 40 global clients.
Our expert maintenance capability is evident from CAL’s
higher than average dispatch reliability rate in the aviation
industry.
CAL’s maintenance missions are “safety, reliability,
and trustworthiness,” and we continue to improve the
work flow and procedures in our daily business. In 2012,
CAL completed the implementation of the Maintenance
Performance Toolbox developed by the Boeing Company.
We successfully integrated the information on
aircraft structure management and maintenance
programs, resulting in optimum maintenance plans,
increased dispatch reliability, and lowered frequencies
of cancellation and delays. In 2013, CAL will introduce
additional advanced material management system and
facility maintenance system. These are aimed to further
raise maintenance efficiency, improve the utilization
of time and resources, increase service qualities and
operational efficiency, and lower maintenance costs.
Excellent Flight Training for Top Aviation
Safety
CAL’s flight operations department continues raising
the qualities of flight crew by implementing training in a
systematic and scientific manner. Our training for flight
crew and instructors is based on information gathered
from training, testing, initial performance, internal and
external audits, and various observation reports.
The corresponding training material is designed with
the requisite course syllabi and fully employs audio-visual
media to enrich the training contents. This has raised the
efficiency of flight crew training and lowered operational
risks.
CAL’ flight crew training system was approved
by 2012 IOSA. Aviation Quality Services (AQS), the
accredited audit organization that had conducted the
audit on CAL, was very positive about CAL’s continual
improvements of training system to reach the international
standard.
Using LOSA to Reform the Flight Operations
Line Operations Safety Audit (LOSA), developed by
the University of Texas, is a critical organizational strategy
aimed at developing countermeasures to operational
errors. LOSA uses highly trained observers to collect data
about flight crew behavior and crews’ strategies for
managing threats, errors and undesirable states. CAL
first deployed LOSA in 2004 and improved our flight
operations according to the audit report. A second LOSA
was conducted in 2011 and the results showed that CAL
performed significantly better than the first one, as well as
better than other competitors. CAL continued to improve
flight operations in 2012 based on the LOSA audit,
and had implemented many safety measures such as
minimizing the operational pressure during flight crew’s
pre-flight check, strengthening the prompts during takeoff and landing phases, and integrating LOSA data into
EBT database for future training. Most importantly, the
audio-visual training material for flight crews’ prompts and
other trainings on leadership, communications, crosschecking, management of work load, assertiveness,
inquiry and advocacy, etc. are all included in the CRM
training courses and will be continually implemented in
2013.
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28
China Airlines | Annual Report 2012 |
| The Trend for Environmental Protection |
The First Year of Environmental Protection CAL’s Initiation of Green Aviation
CAL designated 2012 as the first year of environmental protection to turn our love for the globe into
actions instead of slogans. We included environmental management as an important objective of
our operations and made every effort to conserve energy and reduce carbon emissions. Every flight
should be a green flight that is friendly to our earth.
Environmental Management as an Important
Focus for Operations
In response to the environmental risk brought by
global climate changes, CAL established a formal corporate
organizational structure to implement environmental
management programs based on ISO 14001. At the
highest level, there is an environmental committee headed
by the president. This committee oversees all strategic
planning, coordinates resource utilization, and sets up
environmental management committees and action
groups at various departmental levels. In addition, our
environment management systems are conducted via the
PDCA management cycle and are evaluated using annual
management performance indexes. They cover various
operational areas including aircraft maintenance, services,
flight operations, administration, etc.
CAL’s environmental protection objective is guided by
our six environmental policies. They are “complying with
laws and fulfilling the responsibilities for environmental
protection,” “establishing environmental management
systems and performance indices,” “carrying out eco
education and fostering employees’ consciousness for
environmental protection,”
“promoting eco flights and green supply chains,”
“constructing a low-carbon operational environment and
raising the general eco efficiency”, and “supporting green
research and activities for sustainable development.”
Continuous Monitoring and Verification of
Greenhouse Gas Emissions
In accordance with ISO/CNS 14064-1, CAL
examined and reported the greenhouse gas emissions
generated in 2011 from our flight operations, ground
services, and administrative services. As an independent
check, CAL retained bsi Taiwan Branch to conduct a
third-party validation and verification. We received a
certificate of “Reasonable Assurance” that attests to
the accuracy and credibility of CAL’s greenhouse gas
emissions data.
CAL’s greenhouse gas emission in 2011 (including
scopes 1 and 2) was 6,628,363 metric tons of CO2e. Of
these, scope 1 had 6,603,107 tons, mainly from aircraft
fuel. This is CAL’s fourth year in reporting and we will
continue the effort in the future.
Nonstop Efforts for Energy Conservation and Carbon Reduction
Despite CAL’s continuing effort in fuel saving and carbon reduction, the global economic depression in 2012 resulted in
reduced Revenue Tonne Kilometer (RTK) than 2011. As such, the fuel saving efficiency per RTK is lower by 0.0114 and the
carbon reduction efficiency per RTK is lower by 0.0359. The details are listed as follows.
The List of Aircraft Fuel Saving and Carbon Reduction
2012
2011
Comparison
Fuel Consumption (Kg)
1,973,248,428
2,065,257,969
Down 92,009,541
Production of CO2 (Kg)
6,215,732,548
6,505,562,602
Down 289,830,054
RTK
7,785,419,370
8,532,333,689
Down 746,914,319
Fuel/RTK
0.2535
0.2421
Down 0.0114
(CO2/RTK)
0.7984
0.7625
Down 0.0359
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China Airlines | Annual Report 2012 |
| The Trend for Environmental Protection |
2012/06華航全球首架跨太平洋氣候觀測機正式啟航
2012/06 CAL Launches the World's First Trans-Pacific Climate Observation Flight
Carrying out EU ETS Project
According to Monitoring Plans approved by EU
Emissions Trading Scheme (EU ETS) and Dutch
Emission Authority (NEA), CAL completed the 2011
annual report and invited BUREAU VERITAS to serve as
a third party assurance agent. The results showed that
CAL’s flights to the European area (including flying to and
from or in the EU area) emitted approximately 840,000
metric tons of carbon dioxide.
NEA notified CAL in December, 2012 that, because
ICAO will establish a global, consistent emission
exchange system in September, 2013, EU currently only
monitors the emission of intra-EU flights. Monitoring of
emission outside of European areas is postponed for one
year. CAL is closely watching the latest developments in
anticipation of future reporting requirements.
Carrying out Pacific Greenhouses Gases
Measurement (PGGM)
CAL participated in the Pacific Greenhouse
Gases Measurement (PGGM) research conducted
by the National Central University and Environmental
Protection Administration. CAL’s Airbus A340-300
aircraft numbered B18806 was installed with the IAGOS
(In-service Aircraft for a Global Observing System)
instrument and was officially launched on June 26,
2012. CAL is the first Asian airline participating in the
PGGM project and the first to operate an IAGOSequipped flight for taking atmospheric measurements
on trans-Pacific routes. In the second half of 2012, CAL
helped collect upper air samples on 428 flights (including
64 on the Taipei-Vancouver route).
CAL’s Maintenance certified by ISO 14001
Annual Carbon Reduction Worth 86 Daan
Forest Park
C A L’ s m a i n t e n a n c e r e c e i v e d I S O 1 4 0 0 1
Environment Management System certification in
December 2012. CAL is the first airline in Taiwan to
receive this certification and it is a significant milestone
for us. The occasion brought Taiwan’s airline industry
in line with international practices of sustainable
environmental management.
86
31
www.china-airlines.com
CAL actively implemented various environmentrelated projects across all operational areas including
ground services, maintenance, flights, and customer
services. We also set up key performance indicators (KPI)
to control and monitor the projects. In 2012, there were
64 KPIs for environmental management in total, and the
annual goal was to reduce carbon emission by 5%. When
compared to 2011, the results for some major categories
were: jet fuel decreased 20,978,870 pounds, gasoline
decreased 208,676 liters, electricity reduced 2,023,868
units, water reduced 3,672 units, and paper usage
decreased 1,915,014 sheets. The total amount of carbon
reduction was 31,719 metric tons of CO2e, equivalent to
86 Daan Forest Park.
Daan Forest Park
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China Airlines | Annual Report 2012 |
| The Trend for Environmental Protection |
2012/03 Business Next Presents CAL with Top Super Green Transportation Award
Realization of Eco Trips
CAL has successfully implemented E-services such
as online check in, mobile boarding passes, self-printed
boarding pass, airport kiosks, and self-printed baggage
tags. We are making paperless trips come true. CAL
uses mostly local ingredients to prepare snacks served
in the VIP lounges to reduce carbon emission. We also
purchase bottled drinks of larger volume to reduce the
amount of bottles or packaging, and we sort and recycle
waste categorized by food residuals, papers, and plastic
bottles.
Our service products and procedures also follow
the principles of environmental protection to promote
Eco services. For example, the headrest covers and
pillowcases used in premium cabins are made of 35%
coffee yarn and 65% recycled yarn made from plastic
bottles; amenity kits in business class are made of nonwoven fabric and contain decomposable toothbrush
made from corn starch; toilet bags in economy class
used innovative seals; and the elimination of the plastic
bags for onboard slippers. In addition, in terms of
reducing weight and fuel consumption, CAL now uses
all-aluminum meal carts that are three kilograms lighter
than the old one. On long haul routes, the 30 meal carts
onboard can save 31 kilograms of fuel every flight. Also,
utensil in the economy class is now 69 grams lighter than
before.
CAL worked with the Industrial Technology
Research Institute to calculate and highlight the carbon
footprint of the main dishes served on the Taipei-Frankfurt
route. The business-class menu on this flight was printed
with soy ink on recycled paper. Flights on this route also
served the light-weight Yes mineral water with reduced
plastic contents of 23% and 45%, for the bottle and the
cap, respectively.
Promoting Eco Education and Awareness
CAL promotes environmental education
through a variety of channels. The cultivation of
employee environmental awareness helps to form an
environmental consensus within the company. These
channels include: using the Weekly Letter and the "Let's
Eco Together" internal website to promote a different
environmental issue every week; using the internal
e-learning platform to support environmental education
classes such as the Importance of Environmental
Management, Dimensions of Environmental
Management and Energy-saving and Carbon Reduction
Measures. Our goal is to keep employees up to date on
international environmental trends, inform them about
environmental challenges for the aviation industry,
as well as teach them about CAL's environmental
governance and the ISO 14001 environmental
management system.
Investments in Environmental Protection
2012/12 CAL' 53 rd Anniversary Celebrations - The Carbon Footprint Menu
Experience
CAL invested NT 13.87 million dollars and
associated human resources to promote eco affairs
and education. Our environmental efforts are varied
and numerous, including purchasing eco hardware
(equipment for prevention and control), purchasing
green supplies, establishing ISO 14001 environmental
management system, assisting Pacific Greenhouse
Gases Measurement, carrying out EU ETS project,
conducting audits on greenhouse gas emission,
redesigning CSR eco web pages, and so on.
Devotion to Eco Public Welfare Activities
CAL has long been devoted to eco, non-profit
activities to show our love for Taiwan and the Earth. CAL
volunteers conducted beach cleanups at Taoyuan Zhuwei
Fishing Harbor. CAL joined “Earth Hour Taiwan” held by
the Society of Wilderness on March 31, 2012 and turned
off all nonessential lighting for one hour (20:30 to 21:30).
We also participated in the demonstration and promotion
of electric vehicles with the Industrial Technology
Research Institute. Our actions demonstrated our love
toward the earth and our resolve to save energy and
reduce carbon footprint.
CAL received an Outstanding Achievement Award
of 2012 “Energy Conservation and Carbon Reduction
Action Mark” from the Environmental Protection
Administration, Executive Yuan. In 2012, CAL also
received the “Super Green Judges’ Award” and the first
prize in the Transportation category of the “2012 Green
Brand Survey” conducted by Business Next Magazine.
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www.china-airlines.com
34
China Airlines | Annual Report 2012 |
Financial Status Contents
36 Financial and Operating Analysis
36 Operating Profit and Net Profit
36 Operating Revenues
39 Operating Costs and Employee Productivity
40 2012 Financial Report
| Financial and Operating Analysis |
Operating Profit and Net Profit
In 2012, China Airlines’ operating profit was NT$ 343 million (operating margin 0.3%), a increase of NT$1,907 million over
2011. Net profit reached NT$ 58 million (net margin 0.04%), an increase profit of NT$ 2,012 million over 2011.
Operating Revenues
In 2012, total operating revenue reached NT$132,608 million, an increase of 0.3% over 2011. Total operating cost decreased
by 1.2% to NT$132,265 million. Passenger revenue raise by 7.2% to NT$86,621 million and cargo revenue decay by 12.0% to
NT$ 40,809 million, respectively. Other revenue raise by 3.0% to NT$ 5,179 million.
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www.china-airlines.com
36
| Financial and Operating Analysis |
China Airlines | Annual Report 2012 |
Passenger Business
Cargo Business
Passenger revenue was NT$86,621 million in 2012, an increase of NT$5,796 million or 7.2% over 2011. According to the
breakdown of passenger revenue by routes, North America represented the prime market contributing 24.7%, followed by
Southeast Asia, Northeast Asia and China, with the contribution of 19.2%, 18.6% and 15.6%, respectively.
Cargo revenue was NT$40,809 million in 2012, an decrease of NT$ 5,579 million or 12.0% over 2011. North America, the
largest portion of cargo revenue, operated 56.4% of the cargo revenue, followed by Southeast Asia 15.5% and Europe 14.7%.
Compared with those in 2011, passenger capacity (ASK) increase by 4.3%, passenger traffic (RPK) increase by 3.4%, and
passenger yield increase by 3.7% to 2.64 (TWD/RPK). Passenger load factor goes down by 0.7ppt to 77.3%.
In 2012, cargo capacity (FATK) decrease by 16.1% yoy. Cargo Traffic (FRTK) decrease by 14.9% yoy, and cargo yield increase
by 3.3% to 8.45(TWD/FRTK). Cargo load factor goes up by 1.1 ppt to 71.3%.
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37
www.china-airlines.com
38
| Financial and Operating Analysis |
| 2012 Financial Report |
Operating Cost and Employee Productivity
Operating expense was NT$132,266 million in 2012. The three largest cost items were fuel (46.2%), airport & ground handling
charge (12.3%), and Labor cost (10.3%). In 2012, unit cost was up by 9.5% yoy to 12.48 (NT$/ATK), Without fuel cost, unit
cost was up by 12.4% yoy.
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and the Stockholders
China Airlines, Ltd.
We have audited the accompanying balance sheets of China Airlines, Ltd. as of December 31, 2012 and
2011 and the related statements of income, changes in stockholders’ equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by
Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those
rules and standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As of December 31st 2012, the number of average employees for 2012 was 10,693. Employee productivity, measured by ATK
per employee, RTK per employee, and revenue per employee, proved with a negative trend compared to 2011.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all
material respects, the financial position of China Airlines, Ltd. as of December 31, 2012 and 2011 and the
results of its operations and its cash flows for the years then ended, in conformity with the Guidelines
Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business
Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting
standards, and accounting principles generally accepted in the Republic of China.
We have also audited the consolidated financial statements of China Airlines, Ltd. and its subsidiaries as
of and for the years ended December 31, 2012 and 2011 on which we have issued an unqualified opinion
in our report dated March 29,2013.
March 29, 2013
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of
operations 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 accepted and applied in the Republic of China.
For the convenience of readers, the 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 auditors’ report and financial
statements shall prevail.
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39
www.china-airlines.com
40
41
www.china-airlines.com
The accompanying notes are an integral part of the financial statements.
TOTAL
Net other assets
OTHER ASSETS
Deposits (Note 27)
Deferred income tax assets - noncurrent (Notes 2 and 20)
Restricted assets - noncurrent (Notes 25 and 26)
Other assets (Note 2)
Net intangible assets
INTANGIBLE ASSETS
Computer software, net (Note 2)
Deferred pension cost (Note 2)
Net properties
Construction in progress and prepayments for equipment (Note 27)
PROPERTIES (Notes 2, 12 and 26)
Cost
Land
Buildings
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements
Revaluation increment
Total cost and revaluation increment
Accumulated depreciation
Total long-term investments
LONG-TERM INVESTMENTS
Financial assets at fair value through profit or loss - noncurrent (Notes 2, 5
and 23)
Derivative financial assets for hedging - noncurrent (Notes 2, 23 and 24)
Financial assets carried at cost - noncurrent (Notes 2, 10 and 23)
Investments accounted for by the equity method (Notes 2 and 11)
Other financial assets - noncurrent
Total current assets
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)
Financial assets at fair value through profit or loss - current (Note2, 5 and 23)
Available-for-sale financial assets - current (Notes 2, 6 and 23)
Derivative financial assets for hedging - current (Notes 2, 23 and 24)
Receivables:
Notes and accounts, net (Notes 2, 3 and 7)
Notes and accounts - related parties (Note 25)
Other receivables (Note 8)
Inventories, net (Notes 2 and 9)
Deferred income tax assets - current (Notes 2 and 20)
Other current assets
ASSETS
BALANCE SHEETS
DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)
CHINA AIRLINES, LTD.
18,288,053
10,196,933
6,834,273
545,460
711,387
467,358
408,222
59,136
133,555,450
1,678,783
7,245,117
4,103,114
198,224,033
708,947
14,056,268
1,044,553
41,298
227,102,113
102,287,521
124,814,592
8,740,858
9,696,649
759
371,367
9,310,864
13,659
28,317,304
7,058,818
385,058
391,992
8,521,792
212,169
1,366,991
9,011,364
1,253,615
62,738
52,767
$ 190,324,814
$
2012
Amount
4
4
1
5
1
-
100
10
5
4
1
-
-
70
1
4
2
104
7
1
119
54
65
5
5
5
-
15
%
5
5
1
4
2
98
7
112
45
67
3
70
-
5
3
1
374,085
371,367
9,255,182
12,980
10,013,614
1,688,283
7,260,091
4,159,896
198,271,143
693,434
14,291,735
996,380
41,298
227,402,260
92,020,668
135,381,592
5,150,783
140,532,375
385,726
118,271
503,997
10,521,794
6,695,423
660,980
838,910
9
16
32,922,503
100
5
4
1
9,723,620
282,809
510,901
8,587,292
152,994
1,233,952
18,717,107
4
2
-
8,947,397
3,278,739
96,131
108,668
%
$ 202,689,596
$
2011
Amount
TOTAL
Total stockholders' equity
STOCKHOLDERS' EQUITY
Capital stock, NT$10.00 par value; authorized - 5,200,000 thousand shares;
issued and outstanding - 5,200,000 thousand shares in 2012 and 4,631,622
thousand shares in 2011
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated earnings (accumulated deficit)
Total retained earnings
Other equity
Cumulative translation adjustments
Net loss not recognized as pension cost
Unrealized valuation loss on financial instruments
Unrealized revaluation increment
Company shares held by subsidiaries reclassified to treasury stock
Total other equity
Total liabilities
Total other liabilities
OTHER LIABILITIES
Accrued pension costs (Notes 2 and 17)
Deferred profits on sale-leaseback (Note 2)
Others
Total long-term liabilities, net of current portion
LONG-TERM LIABILITIES, NET OF CURRENT PORTION
Derivative financial liabilities for hedging - noncurrent (Notes 2, 23 and 24)
Bonds payable - noncurrent (Notes 2, 14, 23 and 25)
Loans and debts - noncurrent (Notes 15, 23 and 26)
Capital lease obligations - noncurrent (Notes 2 and 16)
Total current liabilities
CURRENT LIABILITIES
Short-term loans (Notes 13 and 27)
Derivative financial liabilities for hedging - current (Notes 2, 23 and 24)
Accounts payable
Accounts payable to related parties (Note 25)
Accrued expenses (Notes 2 and 25)
Advance ticket sales (Note 2)
Bonds payable - current portion (Notes 2, 14, 23 and 25)
Loans and debts - current portion (Notes 15, 23 and 26)
Capital lease obligations - current portion (Notes 2 and 16)
Other current liabilities
LIABILITIES AND STOCKHOLDERS’ EQUITY
52,141,231
(2,599,694 )
(2,917,215 )
(182 )
41,298
(36,554)
(5,512,347 )
316,010
3,873,370
58,804
4,248,184
52,000,000
1,405,394
138,183,583
12,385,494
6,900,732
4,735,675
749,087
80,214,485
11,429
16,205,000
63,749,392
248,664
45,583,604
1,600,000
23,703
337,538
1,185,343
9,597,896
7,168,399
6,130,000
16,671,452
840,208
2,029,065
$ 190,324,814
$
2012
Amount
1
1
5
4
3
9
1
100
27
(1 )
(2 )
(3 )
2
2
27
1
73
7
4
3
-
42
9
33
-
24
%
47,059,078
(1,598,197 )
(2,325,184 )
50,010
41,298
(36,554 )
(3,868,627 )
799,630
5,162,071
(1,772,321 )
4,189,380
46,316,224
422,101
155,630,518
12,752,584
6,378,717
5,312,853
1,061,014
87,096,002
25,325
16,550,000
69,385,610
1,135,067
55,781,932
47,076
536,479
965,595
12,253,634
8,771,281
12,200,000
18,047,762
1,185,639
1,774,466
$ 202,689,596
$
2011
Amount
1
6
4
6
9
1
1
100
23
(1 )
(1 )
(2 )
3
(1 )
2
23
-
77
6
3
3
-
43
8
34
1
28
%
CHINA AIRLINES, LTD.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Earnings [Loss] Per Share)
2012
Amount
REVENUES (Notes 2 and 25)
Passenger
Cargo
Others
Total revenues
86,621,265
40,808,925
5,178,641
65
31
4
Total operating expenses
OPERATING INCOME (LOSS)
NONOPERATING INCOME AND GAINS
Interest income
Investment income recognized under the equity method (Notes 2
and 11)
Dividend income (Note 2)
Gain on disposal of properties, net (Notes 2 and 25)
Valuation gain on financial instruments, net (Notes 2 and 5)
Foreign exchange gain, net
Others
Total nonoperating income and gains
PRETAX INCOME (LOSS)
INCOME TAX EXPENSE (BENEFIT) (Notes 2 and 20)
NET INCOME (LOSS)
80,825,429
46,388,470
5,026,570
61
35
4
132,608,831
100
132,240,469
100
COSTS (Notes 9, 21 and 25)
Flight operations
Terminal and landing fees
Passenger services
Aircraft maintenance
Others
81,912,308
19,379,015
8,286,577
11,001,675
2,846,879
62
15
6
8
2
83,461,996
18,894,391
7,904,359
11,882,485
2,872,199
63
14
6
9
2
Total costs
123,426,454
93
125,015,430
94
GROSS PROFIT
9,182,377
7
7,225,039
6
OPERATING EXPENSES (Notes 21 and 25)
Marketing and selling
General and administrative
6,251,334
2,587,953
5
2
6,178,062
2,611,841
5
2
8,839,287
7
8,789,903
7
343,090
(1,564,864)
(1)
180,921
159,157
-
652,849
186,901
7,388
472,167
3,556
612,480
1
1
662,566
97,529
41,505
6,057
189,217
541,251
1
-
2,116,262
2
1,697,282
1
NONOPERATING EXPENSES AND LOSSES
Interest expense (Note 25)
Others
2,163,563
160,446
2
2,244,708
235,944
2
-
Total nonoperating expenses and losses
2,324,009
2
2,480,652
2
135,343
(2,348,234)
(2)
76,539
(393,963)
(1)
58,804
(1,954,271)
(1)
EARNINGS (LOSS) PER SHARE (NEW TAIWAN DOLLARS;
Note 22)
Basic and diluted
$
$
Before Tax
$
0.03
%
$
0.01
2011
Amount
After Tax
$
$
2012
Before Tax
$
(0.51)
%
2011
After Tax
$
(0.42)
The accompanying notes are an integral part of the financial statements.
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42
$ 52,141,231
(36,554)
$
(4,105 )
(45,356 )
-
-
(18,371 )
(546,675 )
-
58,804
-
-
(938,688 )
-
(27,716 )
(62,809 )
-
6,667,069
-
-
-
47,059,078
(36,554 )
7,943
(51,677 )
-
-
(9,037 )
348,467
-
-
(17,583 )
124,072
-
(1,954,271 )
-
-
1,156
28,123
-
-
78,226
-
1,693,608
(1,852,649 )
-
-
$ 48,662,700
(36,554 )
41,298
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes
Depreciation and amortization
Provision for doubtful accounts
Compensation cost of employee stock options
Valuation gain on financial instruments, net
Investment income recognized under the equity method
Cash dividends received from equity-method investees
Loss on inventories, properties and idle properties
Gain on disposal of properties
Gain on disposal of idle properties, net
Amortization of deferred profit on sale-leaseback
Amortization of deferred credits
Net changes in operating assets and liabilities:
Financial assets and liabilities held for trading
Notes and accounts receivable
Notes and accounts receivable - related parties
Other receivables
Inventories
Other current assets
Accounts payable
Accounts payable - related parties
Accrued expenses
Advance ticket sales
Other current liabilities
Accrued pension cost
Other liabilities
$
-
-
-
-
-
-
-
-
-
-
41,298
-
-
-
(9,037 )
-
-
-
-
-
-
-
-
$
-
(182)
$ (2,917,215)
-
$ (2,599,694)
-
-
(62,809 )
-
-
-
-
-
(1,598,197 )
4,189,380
-
-
-
-
-
-
-
-
-
-
(938,688 )
-
-
(1,954,271 )
58,804
-
-
-
-
78,226
1,693,608
-
-
$
(4,105 )
-
(45,356 )
-
(27,716 )
-
(18,371 )
-
-
-
(546,675 )
-
-
-
50,010
(2,325,184 )
-
-
-
7,943
-
-
(51,677 )
-
-
-
124,072
-
348,467
-
(17,583 )
-
-
-
-
-
-
-
-
-
(1,852,649 )
$
-
-
-
-
-
3,873,370
-
-
-
-
316,010
(1,288,701 )
(483,620 )
-
-
5,162,071
799,630
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,162,071
799,630
-
$
58,804
-
-
-
-
-
-
58,804
-
-
483,620
1,288,701
(1,772,321 )
-
-
-
-
-
-
(1,954,271 )
-
-
-
-
(799,630 )
(5,162,071 )
(1,852,649)
7,996,300
$
$
$
-
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of investments accounted for by the equity method
Increase in other financial assets - noncurrent
Acquisition of properties
Proceeds of the disposal of properties
Increase in computer software
Proceeds of the disposal of idle properties
Decrease in refundable deposits
Increase in deferred charges
Decrease in restricted assets
-
1,156
28,123
-
-
-
-
-
-
-
422,101
-
983,293
-
-
-
-
-
-
-
-
1,405,394
-
-
-
-
-
-
-
-
-
46,316,224
-
5,683,776
-
-
-
-
-
-
-
-
$ 52,000,000
-
-
-
-
-
$
$
392,822
$
$
$ 46,316,224
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans
Decrease in short-term bills payable
Proceeds of long-term debts
Repayments of long-term debts and capital lease obligations
Issuance of bonds payable
Repayment of bonds payable
Increase (decrease) in guarantee deposits received
Decrease in deferred profits on sale-leaseback
Cash dividends
Issuance of common stock for cash
Net cash used in financing activities
58,804
$
(1,954,271 )
16,541
10,889,199
(472,167 )
(652,849 )
502,442
125,259
(7,388 )
(22,929 )
(577,178 )
(66,414 )
(458,618 )
10,403,689
72,017
28,123
(6,057 )
(662,566 )
436,190
298,396
(41,505 )
(75,159 )
(629,707 )
(66,414 )
2,871,376
2,664,802
(102,249 )
118,909
(5,030 )
(32,798 )
(198,941 )
219,748
(2,500,579 )
(1,602,882 )
254,599
34,474
(231,853 )
(2,972,745 )
1,640,821
215,403
109,726
(2,047,680 )
(874,121 )
228,393
(104,262 )
(7,949 )
121,461
(16,565 )
139,409
(177,667 )
11,282,896
3,598,342
5,200,000
-
-
-
-
-
-
-
-
568,378
-
4,631,622
-
-
-
-
-
-
-
-
-
-
-
-
The accompanying notes are an integral part of the financial statements.
BALANCE, DECEMBER 31, 2012
Unrealized loss on financial instruments of equity-method investees
Net loss not recognized as pension cost of equity-method investees
Change in net loss not recognized as pension cost
Change in unrealized gain on cash flow hedging financial instruments
Change in unrealized valuation loss on available-for-sale financial assets
Net income in 2012
Translation adjustments on aircraft required to be treated as foreign
operating entity
Issuance of common stock for cash - February 10, 2012
Translation adjustments on investments in shares of stocks
BALANCE, DECEMBER 31, 2011
Appropriation of the 2011 earnings
Legal reserve
Special reserve
Net loss not recognized as pension cost of equity-method investees
Unrealized gain on financial instruments of equity-method investees
Change in net loss not recognized as pension cost
Revaluation increment transferred to other income on disposal of
revalued assets
Change in unrealized gain on cash flow hedging financial instruments
Net loss in 2011
Change in unrealized valuation loss on available-for-sale financial assets
Compensation recognized for employee stock options
Cash dividends received by subsidiaries for holding the Company's
shares
Translation adjustments on a foreign operating entity
Translation adjustments on investments in shares of stocks
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid
Less: Capitalized interest
Interest paid (excluding capitalized interest)
Income tax paid
NONCASH FINANCING ACTIVITIES
Current portion of long-term loans and debts
Current portion of capital lease obligations
Current portion of bonds payable
(200,000 )
(5,762,965 )
218,310
(58,430 )
93,165
764,204
(23,430 )
344,964
(5,864,225 )
(4,624,182 )
1,600,000
12,668,866
(19,838,897 )
5,785,000
(12,200,000 )
(13,660 )
6,667,069
(1,100,000 )
(1,249,625 )
17,476,748
(16,518,938 )
6,000,000
(3,500,000 )
26,070
(186,997 )
(1,852,649 )
-
(5,331,622 )
(905,391 )
81,648
63,967
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
(30,409 )
(679 )
(6,437,786 )
206,590
(61,313 )
27,861
324,861
(8,870 )
115,520
(23,082 )
EFFECT OF EXCHANGE RATE CHANGES
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
4,631,622
2011
$
4,248,184
50,335
$
$ (3,370,031 )
$
7,996,300
(64,422 )
$
$ (2,621,974 )
2012
Net cash used in investing activities
BALANCE, JANUARY 1, 2011
Total
Capital Stock Issued and Outstanding
Shares
(In Thousands)
Amount (Note 18)
Capital Surplus
(Notes 2 and 18)
www.china-airlines.com
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)
Net cash provided by operating activities
Appropriation of the 2010 earnings
Legal reserve
Special reserve
Cash dividends - NT$0.4 per share
Total
Stockholders'
Equity
Company Shares
Held by
Subsidiaries
Reclassified into
Treasury Stock
(Notes 2, 18 and 19)
Unrealized
Revaluation
Increment
(Notes 2 and 12)
Unrealized
Valuation Gain
or Loss on
Financial
Instruments
(Note 2)
Net Loss Not
Recognized as
Pension Cost
(Note 2)
Cumulative
Translation
Adjustments
(Note 2)
Retained Earnings (Accumulated Deficit) (Notes 2 and 18)
Unappropriated
Earnings
(Accumulated
Special Reserve
Deficit)
Legal Reserve
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)
CHINA AIRLINES, LTD.
43
CHINA AIRLINES, LTD.
(1,849,583 )
10,796,980
8,947,397
$
9,011,364
$
8,947,397
$
$
$
$
2,157,303
90,300
2,067,003
65,345
$
$
2,267,516
75,309
2,192,207
67,179
$
$
$
16,671,452
840,208
6,130,000
$
$
$
18,047,762
1,185,639
12,200,000
The accompanying notes are an integral part of the financial statements.
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44
CHINA AIRLINES, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In New Taiwan Dollars, Unless Stated Otherwise)
1.
ORGANIZATION AND OPERATIONS
China Airlines, Ltd. (the “Company”) was founded in 1959 and its stocks are listed on the Taiwan Stock Exchange. The Company primarily
provides air transport services for passengers and cargo. Its other operations include (a) mail services; (b) ground services and routine aircraft
maintenance; (c) major maintenance of flight equipment; (d) communications and data processing services to other airlines; (e) sale of aircraft parts,
equipment and entire aircraft; and (f) lease of aircraft.
The major stockholders of the Company are the China Aviation Development Foundation (CADF) and the National Development Fund (NDF),
Executive Yuan. As of December 31, 2012 and 2011, CADF held 35.91% and 39.10% of the Company’s shares, respectively, and NDF held
9.99% and 11.22% of the Company’s shares, respectively. The Company had 10,866 and 10,578 employees as of December 31, 2012 and 2011,
respectively.
2.
SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by
Securities Issuers, the Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the
Republic of China. Significant accounting policies are summarized as follows:
Foreign Currencies and Foreign Operations
The Company maintains its accounts and expresses its financial statements in New Taiwan dollars. Nonderivative foreign-currency transactions
are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from the
settlement of foreign-currency monetary assets and liabilities are recognized in profit or loss in the settlement period.
At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences
are recognized in profit or loss.
At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities which are measured at fair value, are
revalued using prevailing exchange rate. For a nonmonetary financial asset with the changes in fair value recognized as an adjustment to
stockholders’ equity, exchange differences are recognized as an adjustment to stockholders’ equity. For a nonmonetary financial asset at fair value
through profit or loss, exchange differences are recognized in the income statement. Foreign-currency nonmonetary assets and liabilities that are
carried at cost are reported using the historical exchange rate on the date of transaction.
Equity-method investments in foreign subsidiaries/affiliates are recorded in New Taiwan dollars using the rates of exchange in effect on acquisition
dates. On the balance sheet date, the investments and the related equity in net income or net loss are restated at the prevailing exchange rates and
weighted-average rates, respectively, and resulting differences are recorded as translation adjustments under stockholders’ equity.
Under a regulation by the Securities and Futures Bureau, the carrying amount of an aircraft acquired and the related U.S. dollar-denominated
obligation incurred for the acquisition are accounted for as an investment in a foreign operating entity if the Company’s use of the aircraft results in
generating revenues and incurring expenses mainly in U.S. dollars. On the balance sheet date, the carrying amount of the aircraft and the related
liability are restated at balance sheet date rates. The difference is recognized in stockholders’ equity as translation adjustment.
Accounting Estimates
Under the above guidelines, law and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts,
allowance for loss on inventories, depreciation of properties, impairment of assets, accrued expenses - frequent flyer program, pension cost, income
tax, loss on pending litigations, bonuses of employees, etc. Actual results could differ from these estimates.
Current and Noncurrent Assets and Liabilities
Current assets include cash, cash equivalents and those assets held primarily for trading purposes or to be realized, sold or consumed within one
year from the balance sheet date. All other assets such as properties and intangible assets are classified as noncurrent. Current liabilities are
obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as
noncurrent.
Cash Equivalents
Cash equivalents, consisting of commercial paper, are highly liquid financial instruments with maturities of three months or less when acquired and
with carrying amounts that approximate their fair values.
Financial Instruments at Fair Value Through Profit or Loss
Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (FVTPL) include financial assets or
financial liabilities held for trading and those designated as at FVTPL on initial recognition. Financial instruments at FVTPL are initially
measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized
immediately in profit or loss. At each balance sheet date subsequent to initial recognition, financial assets or financial liabilities at FVTPL are
remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Cash dividends received
subsequently (including those received in the year of investment) are recognized as income for the year. All regular way purchases or sales of
financial assets are recognized and derecognized on a trade date basis.
Hybrid instruments are financial assets designated as at fair value through profit or loss, and these are measured at fair value on initial recognition.
Fair value of hybrid instruments is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing
market conditions.
Available-for-sale Financial Assets
Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition or
issuance. When fair value is remeasured, the changes in fair value are excluded from earnings and reported as a separate component of
stockholders’ equity. The accumulated gains or losses are recognized as earnings when the financial asset is derecognized from the balance sheet.
A regular way purchase or sale of financial assets is recognized and derecognized using transaction date accounting.
Cash dividends are recognized as investment income on ex-dividend dates but are accounted for as reductions of the original cost of investment if
these dividends are declared on the investees’ earnings attributable to periods before the purchase of the investments. Stock dividends are recorded
as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated on the basis of the new number
of shares.
Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rates, exchange rates, fuel prices, and other factors affecting gains
or losses on assets and liabilities. The hedging transactions are defined as cash flow hedge. When entering into hedging transactions, the
Company has prepared official documents that describe the hedging relationship between hedging instruments and items been hedged, objective of
risk management, hedging strategy, and the way to evaluate the effectiveness of the hedging instrument.
Under cash flow hedge accounting, the profit or loss on the hedging instrument is recognized as profit or loss in the same period when the profit or
loss on the hedged item is affected. The profit or loss on the hedging instrument is recognized as an adjustment to stockholders’ equity and
reclassified to current profit or loss when forecast transactions that are being hedged affect profit or loss. If a hedge of a forecast transaction
subsequently results in the recognition of a financial asset or a financial liabilities, the associated gains or losses that were recognized directly in
equity shall be reclassified to profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss.
If a hedge of a forecast transaction subsequently results in the recognition of a nonfinancial asset or a nonfinancial liability, it removes the
associated gains and losses that were recognized directly in equity and includes them in the initial cost or changed carrying amount of the asset or
liability. However, if an entity expects that all or a portion of a loss recognized directly in equity will not be recovered in one or more future
periods, it shall reclassify the amount that is not expected to be recovered into profit or loss.
If the hedging instrument expires, is sold or terminated or no longer meets the hedge accounting criteria, the cumulative profit or loss on the hedging
instrument that is effective and directly recognized as an adjustment to stockholders’ equity is still recognized as an adjustment to stockholders’
equity before forecast transactions occur and then reclassified to current profit or loss when forecast transactions occur.
Financial Assets Carried at Cost
Equity investments, such as non-publicly traded stocks, with fair value that cannot be reliably measured, are carried at original cost. Cash
dividends are recognized as investment income on ex-dividend dates but are accounted for as reductions of the original investment costs if these
dividends are declared on the investees’ earnings attributable to periods before the purchase of the investments. Stock dividends are recorded as an
increase in the number of shares held and do not affect investment income. The cost per share is recalculated on the basis of the new number of
shares. If there is objective evidence that a financial asset is impaired, a loss is recognized. However, the recording of a subsequent recovery of
fair value is not allowed.
Impairment of Accounts Receivable
On January 1, 2011, the Company adopted the third time revised of Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial
Instruments: Recognition and Measurement.” One of the main revisions is that the impairment of receivables originated by the Company is
subject to the provisions of SFAS No. 34. The Company should evaluate accounts receivable for individual and collective impairment at the end
of each reporting period. When there is objective evidence of a decrease in the estimated future cash flow of accounts receivable as a result of one
or more events that occurred after the initial recognition of the accounts receivable, the accounts receivable are deemed to be impaired.
The Company has a short average collection period; thus, the impairment loss recognized is the difference between the carrying amount of accounts
receivable and estimated future cash flows, without considering the discounting effect. Changes in the carrying amount of the allowance account
are recognized as bad - debt loss, which is recorded in operating expenses - general and administrative. When accounts receivable are considered
uncollectable, the amount is written off against the allowance account.
Impairment of Assets
Statement of Financial Accounting Standards No. 35 - “Impairment of Assets” requires the Company to determine on each balance sheet date if
properties, intangible assets and other assets (including a cash-generating unit) have been impaired. If there is impairment, then the Company must
calculate the recoverable amount of the asset or the cash-generating unit. An impairment loss should be recognized whenever the recoverable
amount of the asset or the cash-generating unit is below the carrying amount, and this impairment loss is either charged to accumulated impairment
or used to reduce the carrying amount of the asset directly. If the Company revalues properties as required by law, an impairment loss on revalued
properties should be charged to unrealized revaluation increment on properties, and if the capital surplus - revaluation increment on properties is not
enough, the portion that exceeds the balance will be recognized as loss in the statement of income. After the recognition of an impairment loss, the
depreciation (amortization) charged to the asset should be adjusted in future periods for the revised asset carrying amount (net of accumulated
impairment), less its salvage value, and calculated on a systematic basis over its remaining service life. If asset impairment loss (excluding
goodwill) is reversed, the increase in the carrying amount resulting from reversal is credited to current income. However, loss reversal should not
be more than the carrying amount (net of depreciation) had the impairment not been recognized.
Inventories
Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations and items for in-flight sale. These parts,
materials and supplies are valued at the weighted-average cost less allowance for obsolescence. Items for in-flight sale are stated at the lower of
cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The
costs of inventories sold or consumed are determined using the weighted-average method.
Derivative instruments that do not meet the criteria for hedge accounting are classified as financial assets or liabilities held for trading.
Fair values are determined as follows: (a) listed stocks - at closing prices as of the balance sheet date; (b) beneficial certificates (open-end funds) at net asset value as of the balance sheet date; and (c) convertible bonds - at values determined using valuation techniques.
45
www.china-airlines.com
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46
Investments Accounted for by the Equity Method
Income Tax
Investments in companies in which the Company exercises significant influence on the investees’ operating and financial policy decisions are
accounted for by the equity method. Under this method, investments are stated at cost on the acquisition date and subsequently adjusted for the
Company’s proportionate share or equity in the investees’ net income or net loss. Cash dividends received are accounted for as a reduction of the
carrying values of the investments. On investment acquisition, the investment premiums for the cost of investment in excess of the Company’s
share of the investee’s identified net assets, representing goodwill, are no longer amortized but tested annually for impairment or if there is objective
evidence that the goodwill is impaired.
The Company applies the intra-period allocation method to its income tax. Deferred tax assets are recognized for the tax effects of deductible
temporary differences, debit in equity, unused investment credits, and loss carryforwards, and deferred tax liabilities are recognized for the tax
effects of taxable temporary differences and credit in equity. Deferred tax liabilities and assets are classified as current or noncurrent on the basis
of the classification of the related asset or liability for financial reporting. A deferred tax asset or liability that cannot be related to an asset or
liability for financial reporting is classified in accordance with the expected reversal or realization date of the temporary difference. Valuation
allowance is recognized on deferred tax assets that are not expected to be realized.
When the Company subscribes for its investee’s newly issued shares at a percentage different from its percentage of ownership in the investee, the
Company records the change in its equity in the investee’s net assets as an adjustment to investments, with a corresponding amount credited or
charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term investments is
insufficient, the shortage is debited to retained earnings.
Income tax credits for certain acquisitions of research and development expenses are recognized in the period those acquisitions or expenses are
incurred.
Gain or loss from transactions involving depreciable assets between the Company and its equity-method investees is deferred and recognized over
the estimated useful lives of the assets.
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the stockholders
approve the retention of earnings.
For equity-method investments, stock dividends received are recorded only as an increase in the number of shares held and not as investment
income. The cost per share is recalculated on the basis of the new number of shares.
Revenue Recognition
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
Passenger fares and cargo revenues are recognized when transport service is provided. The value of unused passenger tickets is recognized as
“advance ticket sales.”
Receipt of stock dividends from investee would not be recognized as investment income. The Company only recomputes the book value per share
based on the shares with the additional shares.
Under Statement of Financial Accounting Standards No. 30 - “Accounting for Treasury Stocks,” the Company reclassified its shares held by its
subsidiaries to treasury stock at the carrying value as shown in the subsidiaries’ books on January 1, 2002. Furthermore, when the Company
recognized its investment income, the cash dividend income recognized by the subsidiaries from the Company’s earnings appropriation was
subtracted from investment income and credited to paid-in capital.
3.
Financial Instruments
On January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial Instruments:
Recognition and Measurement.” Among the main revisions is that loans and receivables originated by the Company are now covered by SFAS
No. 34. This accounting change did not have a significant effect on the Company’s financial statements as of and for the year ended December 31,
2011.
Properties
Properties are stated at cost plus revaluation increment (if any) less accumulated depreciation and accumulated impairment. Major betterments or
renewals are capitalized, while maintenance and repairs are expensed when incurred. Interests on funds used to acquire flight equipment or to
construct facilities before the date the equipment is used in operations are capitalized and included in the cost of the related assets.
Operating Segments
On January 1, 2011, the Company adopted the newly issued SFAS No. 41 - “Operating Segments.” The statement requires that segment
information disclosed should be based on the information on the components of the Company that management uses to make operating decisions.
SFAS No. 41 requires the identification of operating segments based on internal reports that are regularly reviewed by the Company's chief
operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20 “Segment Reporting.” This accounting change had no significant effect on the manner of the Company’s disclosure of segment information.
The amounts capitalized on flight and other equipment leased under agreements qualifying as capital leases are the lower of (a) the present value of
all payments required under the lease agreements plus the bargain purchase price or (b) the fair value of the leased assets on the starting dates of the
agreements. Interests implicit in lease payments are recorded as interest expense.
Amounts paid under operating lease agreements are charged to income over the term of the agreements. The imputed interest on rental deposits,
calculated at the interest rate for one-year time deposits, is recorded both as rental expense and interest income.
Depreciation is calculated using the straight-line method over service lives estimated as follows (plus one year to represent estimated salvage value):
buildings, 45 to 55 years; machinery and equipment, 5 to 6 years; flight equipment, 5 to 25 years; furniture, 5 years; leased assets, 6 to 25 years; and
leasehold improvements, 5 years. Properties that have reached their residual value but are still in use are further depreciated over their newly
estimated service lives.
4.
CASH AND CASH EQUIVALENTS
December 31
2012
Cash on hand
Revolving fund
Checking accounts and demand deposits
Time deposits
Cash equivalents
Upon property sale or other disposal, the cost, revaluation increment (if any) and the related accumulated depreciation are removed from the
accounts, and gain or loss is credited or charged to nonoperating gains or losses in the year of disposal.
Intangible Assets
Intangible assets acquired are initially recorded at cost and are amortized on a straight-line basis over their estimated useful lives.
software is amortized through its average economic useful life.
EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES
Computer
Deferred Charges
5.
Financial instruments held for trading are summarized as follows:
Accrued Expenses - Frequent-flyer Program
Financial assets held for trading
Passengers who are members of the Dynasty Club may accumulate mileage points to reach a certain award level, which entitles them to choose
from among various awards (including an upgrade to a higher class or free tickets). A liability is accrued and charged to operating expense. The
amount accrued is based on the estimated incremental cost that will be incurred upon the provision of transport services.
Current
Beneficial certificates
Listed stocks
874,093
111,735,746
4,713,159,193
3,985,688,251
199,906,451
$
716,536
122,679,984
4,256,564,478
3,767,681,541
799,754,590
$
9,011,363,734
$
8,947,397,129
December 31
2012
Pension Costs
Defined benefit and defined contribution.
$
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
Deferred charges mainly consist of (a) expenses for training pilots in operating new types of aircraft, (b) issue costs of corporate bonds and (c) costs
incurred for syndicated loans. They are all amortized using the straight-line method. The amortization periods are 10 years for training expenses
and the terms of the bonds or loans.
The Company has two types of pension plans:
2011
2011
$
600,404,225
653,211,167
$
3,004,222,113
274,516,500
$
1,253,615,392
$
3,278,738,613
Net gains on beneficial certificates were $472,167,000 in 2012 and $5,962,000 in 2011.
Pension costs under the defined benefit pension plan are recognized on the basis of actuarial calculations. Unrecognized net transition obligation is
amortized over 15 years, while pension gain or loss is amortized using the straight-line method based on the average remaining service years of
employees.
Financial instruments designated as at FVTPL were as follows:
If additional accrued pension cost based on actuarial calculations is not in excess of the sum of the unamortized balance of prior service costs and
unrecognized net transition obligation, “deferred pension cost” will be debited. Otherwise, the excess amount should be debited to “net loss not
recognized as pension cost” in stockholders’ equity.
Noncurrent
Convertible bonds
China Life Insurance Co., Ltd.
Based on the defined contribution pension plan, the Company’s required monthly contributions to the employees’ individual pension accounts are
recognized as expenses throughout the employees’ service periods.
Of the above convertible bonds, a portion with an aggregate face value of $250,000,000 was converted into 29,137,529 common shares of China
Life Insurance Co., Ltd. on April 19, 2012 at the conversion price of NT$8.58 per share and reclassified to financial assets at fair value through
profit or loss - current.
December 31, 2011
Financial assets designated as at FVTPL
$
374,085,000
Deferred Profits on Sale-leaseback
The transactions on financial assets designated as at FVTPL resulted in gains of $95,000 in 2011.
A gain on the sale by the Company of assets that it leases back is deferred and amortized over the term of the lease agreements.
47
www.china-airlines.com
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48
6.
AVAILABLE-FOR-SALE FINANCIAL ASSETS
11.
INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
December 31
December 31
2012
2012
2011
% of
Ownership
Carrying Value
% of
Ownership
Carrying Value
Carrying Value
2011
% of
Ownership
Carrying Value
% of
Ownership
Investees on which the Company
exercises significant influence
Current
Foreign marketable equity securities
France Telecom
7.
$
-
62,738,292
$
96,131,011
-
NOTES AND ACCOUNTS RECEIVABLE, NET
December 31
2012
Notes receivable
Accounts receivable
Less:
8.
2011
$
258,579,958
6,852,271,772
7,110,851,730
52,033,720
$
294,225,639
9,558,405,149
9,852,630,788
129,010,305
$
7,058,818,010
$
9,723,620,483
Allowance for doubtful accounts
OTHER RECEIVABLES
December 31
2012
Tax refunds
Accrued revenue
Others
$
$
9.
2011
116,337,850
272,351,871
3,302,314
$
391,992,035
$
293,143,806
214,741,615
3,015,606
December 31
Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
2011
$
8,010,553,545
357,010,106
154,228,363
$
7,955,786,647
349,466,926
282,038,792
$
8,521,792,014
$
8,587,292,365
As of December 31, 2012 and 2011, the allowances for inventory devaluation were $80,819,000 and $83,891,000, respectively. The costs of
inventories recognized as operating costs due to the reversal of write-downs of inventories was $3,072,000 in 2012 and write-downs of inventories
was $17,810,000 in 2011.
10.
$
1,513,701,724
1,469,920,155
1,226,818,604
1,016,755,000
688,008,930
652,809,376
430,945,000
421,450,514
381,819,505
312,007,212
242,279,047
233,647,293
193,633,640
190,874,553
157,875,614
101,352,011
36,126,244
33,776,973
6,960,097
35,088
34,602
32,895
$
9,310,864,077
54.00
100.00
93.99
100.00
51.00
49.00
100.00
93.93
20.00
47.35
35.78
24.50
100.00
28.48
55.00
100.00
51.00
100.00
25.00
100.00
100.00
100.00
FINANCIAL ASSETS CARRIED AT COST
$
1,613,091,139
1,466,188,021
1,150,278,944
1,050,253,970
641,880,959
649,302,758
383,610,273
410,229,241
381,186,876
332,630,056
238,320,783
230,665,809
203,061,718
177,403,739
150,802,938
104,075,059
38,268,728
26,609,460
7,218,765
35,088
34,602
32,895
$
9,255,181,821
54.00
100.00
93.99
100.00
51.00
49.00
100.00
93.93
20.00
47.35
35.78
24.50
100.00
28.48
55.00
100.00
51.00
100.00
25.00
100.00
100.00
100.00
Investment income (loss) recognized under the equity method was as follows:
Year Ended December 31
2012
2011
510,901,027
INVENTORIES, NET
2012
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
China Aircraft Services
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
China Aircraft Services
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
$
(99,389,415)
3,732,134
77,867,389
9,408,018
141,259,349
44,908,586
27,986,923
143,645,270
21,069,126
40,054,214
55,844,046
99,849,392
(9,428,078)
26,763,814
23,686,893
29,165,206
3,409,910
11,950,372
1,066,332
$
(36,207,137)
8,774,261
145,592,245
1,079,501
113,194,240
22,637,711
29,585,706
132,381,857
15,926,399
44,584,201
57,913,301
107,631,009
(45,243,343)
15,825,126
21,884,072
25,354,720
(5,128,274)
5,314,288
1,466,255
$
652,849,481
$
662,566,138
December 31
2012
Carrying Value
Unlisted common stocks
Abacus International Holdings Ltd.
Jardine Air Terminal Services
Chung Hwa Express Co.
Regal International Advertising
$
Unlisted preferred stocks
Abacus International Holdings Ltd.
297,946,451
56,022,929
11,000,000
5,925,000
370,894,380
472,522
$
371,366,902
2011
% of
Ownership
13.59
15.00
11.00
6.58
Carrying Value
$
-
297,946,451
56,022,929
11,000,000
5,925,000
370,894,380
472,522
$
371,366,902
% of
Ownership
13.59
15.00
11.00
6.58
-
The subsidiaries, Freighter Princess Ltd., Freighter Prince Ltd. and Freighter Queen Ltd., were established in March 2001, September 2001 and
January 2002, respectively, for leasing of the Company’s aircraft. In its balance sheets, the Company recognized the fixed assets and liabilities
related to the leased aircraft as a leasing transaction.
Shown below are the movements in 2012 and 2011 of (a) the difference between the investment cost and the investee’s net assets, or goodwill, and
(b) a sale of depreciable assets to the Company by its subsidiary.
Transaction between
Company and
Goodwill
Subsidiary
December 31, 2012
Balance, beginning of year
Reduction
$
52,423,365
-
$
(117,777,801)
32,868,224
Balance, end of year
$
52,423,365
$
(84,909,577)
Balance, beginning of year
Reduction
$
52,423,365
-
$
(150,646,025)
32,868,224
Balance, end of year
$
52,423,365
$
(117,777,801)
December 31, 2011
To meet its investees’ operating needs, the Company invested $30,409,000 in Cal-Asia Investment in May 2012 and $200,000,000 in Cal Hotel in
April 2011.
49
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50
12.
Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable quarterly, semiannually or in lump sum upon maturity in February
26, 2020. Related information is summarized as follows:
PROPERTIES
December 31
2012
Revaluation increase - cost
Buildings
Accumulated depreciation
Buildings
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements
2011
Currency
U.S. Dollars
New Taiwan Dollars
$
41,297,645
$
41,297,645
$
2,911,003,578
3,112,684,292
88,057,564,718
476,109,554
6,828,800,242
901,359,053
$
2,735,167,939
3,050,569,033
78,780,714,029
413,077,707
6,208,371,294
832,767,516
102,287,521,437
$
Japanese Yen
Amounts
Original currency
2012
2011
Translated in New Taiwan dollars
2012
2011
$
45,816,983,418
49,575,496,546
45,816,983,418
49,575,496,546
$
664,951,834
895,741,879
$
1,240,000,000
19,329,995,201
27,143,693,451
482,433,957
Interest rates
$
92,020,667,518
2012
2011
Interests capitalized amounted to $90,300,000 in 2012 and $75,309,000 in 2011, with interests calculated at rates ranging from 1.97% to 2.26% and
from 1.91% to 2.06%, respectively.
1.287%-2.638%
0.7%-2.6%
0.308%-4.39%
0.3911%-4.77%
0.6957%
2002/4/11-2020/2/26
2002/4/11-2020/2/26
2001/7/20-2017/9/21
2000/7/6-2017/9/21
2007/12/26-2012/12/26
Periods
In 1976 and 1982, the Company revalued its properties in accordance with government regulations. Revaluation increments were recorded as
increases in the carrying amounts of the assets and as credits to unrealized revaluation increments.
13.
2012
2011
The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs, with various maturities until March 2017,
were used by the Company to guarantee commercial paper it issued. The commercial paper was issued at discount rates of 1.375% to 2.125% in
2012 and 1.341% to 2.102% in 2011.
SHORT-TERM LOANS
December 31
2012
Bank loans. Interest - 1.15% to 1.23% in 2012
$
2011
$
1,600,000,000
16.
LONG-TERM CAPITAL LEASE OBLIGATIONS
December 31
14.
BONDS PAYABLE
2012
2011
December 31
2012
Five-year secured domestic bonds - issued at par in
November 2007; repayable in November 2010, November 2011 and November
2012; indicator rate plus 0.4% interest p.a., payable quarterly.
January 2010; repayable in January 2013, January 2014 and January 2015; indicator
rate plus 1.5% interest p.a., payable quarterly.
February 2010; repayable in February 2013, February 2014 and February 2015;
indicator rate plus 1.5% interest p.a., payable quarterly.
May 2011; repayable in May 2014, May 2015 and May 2016; 1.35% interest p.a.,
payable annually.
Three-year private unsecured bonds - issued at par in
April 2009; repayable in April 2012; 3.4% interest p.a., payable semiannually.
June 2009; repayable in June 2012; 3.4% interest p.a., payable semiannually.
May 2010; repayable in May 2013; 2.8% interest p.a., payable semiannually.
January 2012; repayable in January 2015; 2% interest p.a., payable semiannually.
Five-year private unsecured bonds - issued at par in
April 2009; repayable in April 2014; 3.6% interest p.a., payable semiannually.
June 2009; repayable in June 2014; 3.6% interest p.a., payable semiannually.
Less:
$
-
$
Current portion
248,663,641
$
1,135,066,505
2,300,000,000
Future minimum rental payments on flight equipment are summarized as follows:
6,000,000,000
6,000,000,000
Period
5,050,000,000
5,785,000,000
8,800,000,000
2,200,000,000
5,050,000,000
-
2013
January to February 2014
1,100,000,000
800,000,000
22,335,000,000
6,130,000,000
1,100,000,000
800,000,000
28,750,000,000
12,200,000,000
16,205,000,000
$
16,550,000,000
December 31
2012
65,146,978,619
2011
$
63,749,392,366
77,201,623,954
Amount
$
840,208,297
248,663,641
PENSION PLAN
Based on the defined contribution pension plan under the Labor Pension Act, the rate of the Company’s required monthly contributions to the
employees’ individual pension accounts under the custody of the Bureau of Labor Insurance is at 6% of salaries and wages. The Company
recognized defined contribution pension costs of $121,249,000 in 2012 and $113,599,000 in 2011.
The pension plan under the Labor Standards Law is a defined benefit pension plan. Benefits are based on the service years accumulated and the
average basic salaries and wages of the six months before retirement. The Company makes monthly contributions to a pension fund at 7% of
salaries and wages. The fund is administered by a pension fund committee and deposited in the committee’s name in the Bank of Taiwan. The
Company recognized pension cost of $630,585,000 in 2012 and $749,430,000 in 2011.
Other defined benefit pension plan is summarized as follows:
a.
Net pension cost
2012
Service cost
Interest cost
Projected return on plan assets
Loss on plan assets
Amortization of prior service cost
Amortization of pension gains or losses
2011
$
221,882,556
194,445,426
(25,978,704)
(20,905,498)
59,135,597
202,005,328
$
251,472,577
213,032,486
(30,270,669)
(12,740,573)
59,135,597
268,800,843
$
630,584,705
$
749,430,261
10,231,747,718
87,433,371,672
18,047,761,512
15,273,866,134
80,420,844,753
16,671,452,387
$
$
2,300,000,000
LONG-TERM DEBTS
Current portion
2,320,705,642
1,185,639,137
As of December 31, 2012, the Company was in contract with certain foreign companies under capital lease agreements of aircraft and related parts
expiring on various dates until February 2014.
In May 2010, the Company made a first issue of 2010 private unsecured bonds with aggregate face value of $5,050,000,000. The investors were
these affiliates: Taoyuan International Airport Services, Mandarin Airlines, Abacus Distribution Systems (Taiwan), China Pacific Catering
Services and Hwa Hsia.
Less:
$
1,300,000,000
In January 2012, the Company made a first issue of 2012 private unsecured bonds with aggregate face value of $5,785,000,000. The investors
included these affiliates: Taoyuan International Airport Services, Mandarin Airlines and Abacus Distribution Systems (Taiwan).
$
1,088,871,938
840,208,297
1,300,000,000
The indicator rate mentioned above is the 90 days’ commercial paper rates in Taiwan’s secondary market.
Bank loans
Commercial paper, net of unamortized discounts of $31,133,866 and $23,252,282 in
the years ended
December 31, 2012 and 2011, respectively
$
1,200,000,000
17.
$
15.
Capital lease obligations
Less: Current portion
2011
$
69,385,610,160
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51
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52
b.
Reconciliation of the fund status of the plan and accrued pension cost:
Capital Surplus
The capital surplus from shares issued in excess of par (additional paid-in capital from issuance of common shares and treasury stock transactions)
and donations may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash
dividends or transferred to capital (limited to a certain percentage of the Company’s paid-in capital and once a year).
December 31
2012
Benefit obligation:
Vested benefit obligation
Non-vested benefit obligation
Accumulated benefit obligation
Additional benefits based on future salaries
Projected benefit obligation
Fair value of plan assets
Funded status
Unrecognized prior service cost
Unrecognized net actuarial loss
Additional liability
$
2011
(6,275,326,221)
(3,325,203,393)
(9,600,529,614)
(1,237,895,932)
(10,838,425,546)
2,699,797,555
(8,138,627,991)
59,135,592
3,975,855,946
(2,797,095,606)
$
(5,641,281,091)
(3,448,394,448)
(9,089,675,539)
(1,268,607,961)
(10,358,283,500)
2,710,958,860
(7,647,324,640)
118,271,189
3,459,892,285
(2,309,555,513)
Accrued pension cost
$
(6,900,732,059)
$
(6,378,716,679)
Vested benefits
$
10,450,897,047
$
9,170,131,479
December 31
2012
c.
1.75%
1.50%
1.75%
December 31
2012
Arising from the issuance of common shares
Expired employee stock options
Arising from treasury stock transactions
Arising from long-term investments
2011
$
1,391,536,015
11,747,160
1,155,512
955,395
$
419,989,822
1,155,512
955,395
$
1,405,394,082
$
422,100,729
Appropriation of Earnings and Dividend Policy
2.00%
1.50%
2.00%
The Company's Articles of Incorporation provide that the following should be appropriated from annual net income (less any deficit): (a) 10% as
legal reserve, and (b) special reserve equivalent to a debit balance of any stockholders’ equity account. From the remainder, the Company should
also appropriate at least 3% as bonus to employees. Of the final remainder, at least 50% should be distributed to stockholders as both cash and
stock dividends (cash dividend should not be less than 30% of the total dividends) or stock dividends only. In determining the amount of cash
dividends to be distributed, the board of directors should take into account future cash requirements of the Company, primarily cash requirements
for future aircraft acquisitions. Distribution of earnings generated in prior years should also meet the foregoing guidelines.
2011
All earnings appropriations should be made and approved by the stockholders in, and given effect to in the financial statements of, the year
following the year of earnings generation.
December 31
2012
18.
Capital surplus is summarized as follows:
2011
Actuarial assumptions
Discount rate used in determining present values
Future salary increase rate
Expected rate of return on plan assets
The capital surplus from long-term investments, employee stock options and conversion options may not be used for any purpose.
d.
Contributions to the fund
$
520,714,735
$
553,644,102
There were no earnings to be appropriated in 2012 and 2011; thus; no bonus to employees was estimated.
e.
Payments from the fund
$
557,854,744
$
309,753,726
The bonus to employees was estimated on the basis of past experiences. However, there were net losses in 2012 and 2011; thus, no bonus to
employees was estimated. Material differences between such estimated amounts and the amounts proposed by the Board of Directors in the
following year are retroactively adjusted in the current year. If the actual amounts subsequently resolved by the stockholders differ from the
proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change in accounting estimate.
STOCKHOLDERS’ EQUITY
Common Stock
To meet the Company’s financial demand for its operation as well as repay its debt, the board resolved in June 2011 to publicly issue 568,378,000
common shares at NT$11.73 per share, with NT$10 par value and the record date of February 10, 2012. The Company completed the registration
of this capital increase on February 20, 2012.
Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balance of certain stockholders’ equity accounts
(including unrealized valuation gain or loss on financial instruments, cumulative translation adjustments against the unrealized gain of equity, and
net loss not recognized as pension cost) should be transferred from unappropriated earnings to a special reserve. Any special reserve appropriated
may be reversed to the extent of the decrease in the net debit balance.
Employee Stock Option Plans
Under the regulations of the Securities and Futures Bureau, a special reserve is appropriated from the balance of the retained earnings at an amount
equal to the carrying value of the treasury stock held by subsidiaries in excess of the market value on the balance sheet date. The special reserve
may be reversed when the market value recovers.
Under the Company Law, 10% of the publicly issued common shares should be reserved for subscription by the Company’s employees. In
December 2011, the board resolved the amount of shares and price for subscription by the employees. Under Statement of Financial Accounting
Standards No. 39 - “Share-based Payment,” the compensation cost of employee stock options was recognized on the grant date, using the fair value
method.
Legal reserve should be appropriated until the legal reserve equals the Company’s paid-in capital. Legal reserve may be used to offset deficit. If
the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or
distributed in cash.
Information on employee stock options is as follows:
Number of
Options
(In Thousands)
Weighted-average
Exercise
Price
Legal reserve
Special reserve
Cash dividends
Employee stock options on a capital increase in 2012
Options granted
Options exercised
Options expired
56,838
(33,097)
(23,741)
$
11.73
11.73
11.73
$
$
799,629,908
5,162,070,526
1,852,648,941
$0.4
7,814,349,375
The Company’s cash profit sharing in cash with its employees of $61,038,000 for 2010 was approved in the stockholders’ meeting held on June 24,
2011. The resolved amount of profit sharing to employees was consistent with that approved under a resolution passed at the Board of Directors’
meeting held on April 29, 2011, and the same amount was charged against the earnings of 2010.
Weighted-average fair value of options granted
$
0.4948
Options granted were priced using the Black-Scholes pricing model, and the inputs to the model were as follows:
Grant-date share price
Exercise price
Expected volatility
Expected life
Expected dividend yield
Risk-free interest rate
The appropriation of the 2010 earnings was approved in the stockholders’ meeting on June 24, 2011. The appropriations, including dividends per
share, were as follows:
Appropriation of
Dividends Per Share
Earnings
(NT$)
$12.15
$11.73
39.89%
5 days
0.7687%
The compensation cost of employee stock options issued for a capital increase in December 2011 was recognized at $28,123,000, which was
reclassified in February 2012 to capital surplus - issuance of common shares at fair value of $16,376,000 and capital surplus - expired employee
stock options of $11,747,000.
The stockholders resolved to offset the accumulated deficit of 2011 in the stockholders’ meeting held on June 15, 2012. The Company offset the
accumulated deficit (a net loss of $1,954,271,000) against the unappropriated earnings of $181,950,000, a special reserve of $1,288,701,000, and the
legal reserve of $483,620,000. No bonus to employees was appropriated for 2011 because of a net loss in that year.
The appropriation of earnings for 2012 had been proposed by the board of directors on March 29, 2013. The appropriations were as follows:
Appreciation of
Earnings
Legal reserve
Special reserve
There was no earnings to be appropriated after recognized above legal reserve and special reserve.
resolved by the stockholders in their meeting scheduled for June 2013.
$
5,880,445
52,924,004
$
58,804,449
The 2012 appropriations of earnings will be
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Information on bonus to employee is available on the Market Observation Post System website.
53
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54
c.
Deferred income tax assets (liabilities) as of December 31, 2012 and 2011 consisted of the following:
Except for non-ROC resident stockholders, all stockholders receiving the unappropriated earnings generated on and after January 1, 1998 are
allowed a tax credit equal to their proportionate share of the income tax paid by the Company.
December 31
2012
19.
2011
TREASURY STOCK
(Shares in Thousands)
Number of
Shares,
Beginning
of Year
Purpose of Treasury Stock
Reduction
During
the Year (Note)
Current
Allowance for loss on inventories
Loss on disposal of properties
Accrued expenses for frequent-flyer program
Unrealized lawsuit loss
Allowance for doubtful accounts
Investment income tax credits
Deferred tax assets
Less: Valuation allowance
Deferred income tax assets, net
Unrealized gain on financial instruments
Unrealized foreign exchange gain
Number of
Shares,
End
of Year
Year ended December 31, 2012
Company’s shares held by its subsidiaries reclassified from investment in shares of stock
to treasury stock
-
2,889
2,889
$
107,459,495
10,989,409
37,539,432
8,828,082
165,684,028
330,500,446
(59,440,943)
271,059,503
(1,118,201)
(57,772,644)
$
14,261,546
27,101,449
16,561,826
37,539,432
4,701,504
111,417,863
211,583,620
(44,577,863 )
167,005,757
(11,902,268)
(2,109,752 )
$
212,168,658
$
152,993,737
$
86,986,824
183,469,570
697,312,677
75,956,946
85,804,417
532,467,399
2,222,322
5,272,751,661
65,233,108
7,002,204,924
(23,403,085)
6,978,801,839
(144,529,091 )
$
96,230,011
175,924,406
691,451,878
81,584,659
123,343,849
327,341,382
3,566,915
5,209,915,370
230,917,136
6,940,275,606
(98,843,838 )
6,841,431,768
(146,008,753 )
$
6,834,272,748
$
6,695,423,015
Year ended December 31, 2011
Deferred income tax assets, net
Company’s shares held by its subsidiaries reclassified from investment in shares of stock
to treasury stock
-
2,889
2,889
Noncurrent
Equity in net loss of foreign equity-method investees
Allowance for loss on idle properties
Provision for pension cost
Difference between accounting and tax on interest
Unrealized lawsuit loss
Cumulative translation adjustments
Unrealized loss on financial instruments
Loss carryforwards
Investment income tax credits
Deferred income tax assets
Less: Valuation allowance
Deferred income tax assets, net
Depreciation difference between accounting and tax on properties
The Company’s shares held by its subsidiaries as of December 31, 2012 and 2011 were as follows:
Subsidiary
Shares
(In Thousands)
Carrying Amount
Market Value
December 31, 2012
Mandarin Airlines
Hwa Hsia
2,075
814
$
24,895,536
9,769,824
$
24,895,536
9,769,824
$
34,665,360
$
34,665,360
$
27,385,090
10,746,806
$
27,385,090
10,746,806
38,131,896
$
December 31, 2011
Deferred income tax assets, net
Mandarin Airlines
Hwa Hsia
2,075
814
$
d.
Information on the imputation credit account (ICA) and creditable tax ratio is summarized as follows:
38,131,896
December 31
2012
20.
2011
The shares of the Company held by its subsidiaries were treated as treasury stock. The subsidiaries can exercise stockholders’ right on these
treasury stocks, except the right to subscribe for the Company’s new shares and the right to vote.
Balance of ICA
INCOME TAX
The expected creditable tax ratio of 2012 was 20.48%. Since the Company had an accumulated deficit as of December 31, 2011, there was
no expected creditable tax ratio.
a.
The reconciliation of the income tax expense (benefit) based on income (loss) before income tax at the statutory rate of 17% and income tax
expense was as follows:
2012
2011
e.
b.
$
Income tax expense - current
$
23,008,317
$
(96,211,447)
(28,536,938)
101,740,068
59,964,074
59,964,074
Article 6 of the Statute
for Upgrading
Industries
64,346,625
f.
Income tax expense (benefit) consisted of the following:
Total Creditable
Amount
Tax Credit Source
Remaining Creditable
Amount
R&D expenses, personnel
training expenses and
purchases of eligible
equipment
$
165,684,028
40,542,154
24,690,954
$
165,684,028
40,542,154
24,690,954
$
230,917,136
$
230,917,136
Income tax expense - current
Net changes in deferred income tax expense (benefit):
Allowance for doubtful accounts
Allowance for loss on inventories
Equity in net gain or loss of foreign equity-method investees
Loss on disposal of properties
Depreciation difference between accounting and tax on properties
Allowance for loss on idle properties
Accrued expense for frequent-flyer program
Unrealized lawsuit loss
Provision for pension cost
Unrealized foreign exchange gain or loss
Difference between accounting and tax on interest
Loss carryforwards
Investment tax credits
Other valuation allowance
Adjustment of prior years’ tax
$
Income tax expense (benefit)
$
59,964,074
2013
2014
2015
Unused Amount
2011
$
(4,126,578)
(93,197,949)
9,243,187
27,101,449
(1,479,662)
(7,545,164)
5,572,417
37,539,432
(5,860,799)
55,662,892
5,627,713
(62,836,291)
111,417,863
(60,577,673)
33,680
76,538,591
Expiry
Year
Unused tax loss carryforwards as of December 31, 2012 were as follows:
Expiry Year
2012
24,942,084
(399,199,776)
(37,004,274)
(58,417,941)
494,621,991
64,346,625
$
$
111,570,165
Unused investment tax credits as of December 31, 2012 were as follows:
Laws and Statutes
Income tax expense (benefit) on income (loss) before income tax at statutory rate
Add (deduct) tax effects of:
Permanent differences
Temporary differences
Loss carryforwards
Overseas income tax expense
$
(4,701,504)
(3,027,711)
775,033
(27,101,449)
(1,479,662)
(13,164,385)
1,786,491
26,813,880
(23,699,407)
96,588,942
5,627,713
(548,773,588)
947,642,479
(915,993,563)
396,689
$
2018
2019
2021
2012
64,346,625
g.
$
8,172,477,310
19,338,075,471
2,907,162,474
598,470,986
$
31,016,186,241
The income tax returns of the Company through 2010 have been examined by the tax authorities. On the Company’s 2009 tax returns
assessed by the tax authorities, investment tax credits were reduced to $162,397,000, which affected the usage of investment tax credits in the
following years. The Company disagreed with the tax authorities’ assessment of its 2009 tax return and had applied for a reexamination.
(393,963,417)
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55
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56
21.
b.
PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
Personnel
Salaries
Labor and health insurance
Pension cost
Others
Depreciation
Amortization
$
9,263,590,803
587,798,687
537,119,691
1,752,715,430
10,355,412,608
2,418,506
$
$
The carrying amounts of the following short-term financial instruments approximate their fair values because of their short maturities:
Cash and cash equivalents, receivables, receivables - related parties, portion other receivables, other financial assets - noncurrent, deposit
accounts, restricted assets - noncurrent, short-term loans, commercial paper, accounts payable, accounts payable to related parties,
accrued expenses, portion of current other liabilities and portion of other liabilities - others.
2,174,834,922
407,111,901
214,714,372
214,952,991
357,433,511
173,934,193
2)
Fair values of financial instruments designated as at fair value through profit or loss, available-for-sale financial assets, and derivative
financial assets for hedging are based on their quoted prices in an active market. If quoted market prices are not available, fair values
are estimated using valuation techniques. For those instruments which are acquired in private and could not be traded in the open
market, the Company calculates their fair values by the Black-Scholes model. For those derivative financial assets for hedging and with
no quoted prices, the fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those
generally used by other market participants to price financial instruments. The valuation techniques are applied to the derivative
financial assets by financial institutions, which calculate fair values at the expiry date of each contract.
3)
Financial assets carried at cost are investments in unquoted shares, which have no quoted prices in an active market and entail an
unreasonably high cost to obtain verifiable fair values. Thus, no fair value is presented.
Total
4)
Fair values of bonds payable are based on their quoted market prices.
11,438,960,197
973,678,242
863,029,442
1,905,395,989
10,243,023,418
160,665,072
5)
Some long-term debts and capital lease obligations are floating-rate financial liabilities, so their carrying values are their fair values.
The fair values of long-term debts and private bonds with fixed interest rates are estimated at the present value of expected cash flows
discounted at rates of 0.868% to 0.9051% in 2012 and 1.1281 % to 1.25% in 2011 prevailing in the market for long-term debts.
Total
$
11,438,425,725
994,910,588
751,834,063
1,967,668,421
10,712,846,119
176,352,699
2011
Classified as
Operating
Expenses
Classified as
Operating Costs
Personnel
Salaries
Labor and health insurance
Pension cost
Others
Depreciation
Amortization
1)
2012
Classified as
Operating
Expenses
Classified as
Operating Costs
9,250,252,749
542,117,138
614,596,517
1,749,778,957
9,869,502,485
2,418,487
$
2,188,707,448
431,561,104
248,432,925
155,617,032
373,520,933
158,246,585
$
The total amount of fair value listed above is not equal to the total value of the Company because it is not necessary to disclose the fair value
of semifinancial and nonfinancial instruments.
c.
22.
Methods and assumptions used in estimating the fair values of financial instruments are as follows:
Fair values of financial assets and financial liabilities determined at quoted market prices or estimates are summarized as follows:
EARNINGS (LOSS) PER SHARE
Quoted Market Prices
December 31
2012
2011
The numerators and denominators used in calculating earnings per share (EPS) were as follows:
Amounts (Thousands)
(As Numerator)
Pretax
After Tax
Shares
(Thousands)
(As Denominator)
Earnings (Loss)
Per Share (NT$)
Pretax
After Tax
Financial assets
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Derivative financial assets for hedging
2012
Basic and diluted loss per share
Net income on common stock
$
135,343
$
58,804
5,134,993
$
0.03
$
Fair Value Based on Estimates
December 31
2012
2011
$
1,253,615,392
62,738,292
-
$
3,278,738,613
96,131,011
-
$
53,525,730
$
374,085,000
108,667,850
0.01
Financial liabilities
2011
Basic and diluted loss per share
Net loss on common stock
(2,384,234 )
$
$
(1,954,271 )
4,628,733
$
(0.51)
$
Derivative financial liabilities for hedging
Bonds issued
Loans and debts
(0.42)
The Accounting Research and Development Foundation issued Interpretation 2007-052, which requires companies to recognize bonuses paid to
employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as
appropriations from earnings. If the Company decides to settle the bonus to employees by cash or shares, the Company should presume that the
entire amount of the bonus will be settled in shares, and the resulting potential shares should be included in the weighted average number of shares
outstanding used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire
amount of the bonus by the closing price of the shares at the balance sheet date. This dilutive effect of the potential shares should be included in
the calculation of diluted EPS until the stockholders resolve the number of shares to be distributed to employees at their meeting in the following
year.
24.
23.
a.
Fair values of financial instruments
December 31
2012
2011
Estimated
Fair Value
Carrying Amount
Estimated
Fair Value
Carrying Amount
35,131,928
12,834,123,066
80,628,967,040
72,400,976
18,750,315,532
87,461,638,881
As of December 31, 2012 and 2011, loans, short-term bills payable, bonds payable, and capital lease obligations at fixed rate that were exposed
to fair value interest rate risk, amounted to $20,737,308,000 and $24,596,691,000, respectively, and those at floating rate, which were exposed
to cash flow interest rate risk, amounted to $84,707,408,000 and $93,907,387,000, respectively.
e.
The adjustments of stockholders’ equity credited directly from the available-for-sale financial assets amounted to $27,716,000 for 2012 and
$17,583,000 for 2011, respectively.
RISK MANAGEMENT AND HEDGING STRATEGIES
Risk management strategy
The Company has risk management and hedging strategies to respond to changes in the economic and financial environment and in the fuel
market. To reduce the financial risk from changes in interest and exchange rates and in fuel prices, the Company has its operating costs stay
within a specified range by using appropriate financial hedging instruments and hedging percentages in accordance with the “Processing
Program of Derivative Financial Instrument Transactions” approved by Company stockholders to reduce the impact of market price changes
on earnings.
In addition, the Company has a financial risk committee, which meets periodically to evaluate the performance of derivative instruments and
determine the appropriate hedging percentage. This committee informs the Company of global economic and financial conditions, controls
the entire financial risk resulting from changes in the financial environment and fuel prices, and develops the strategy and response to avoid
financial risk with the assistance of financial risk experts to effect risk management.
Financial assets
Financial assets - with fair values
approximating carrying amounts
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Derivative financial assets for hedging
Financial assets carried at cost
10,793,610,000
-
d.
a.
FINANCIAL INSTRUMENTS
9,599,586,000
-
$
27,486,946,128
1,253,615,392
62,738,292
53,525,730
371,366,902
$
27,486,946,128
1,253,615,392
62,738,292
53,525,730
-
$
30,367,338,125
3,652,823,613
96,131,011
108,667,850
371,366,902
$
30,367,338,125
3,652,823,613
96,131,011
108,667,850
-
The Company enters into forward contracts, currency option contracts, and foreign exchange swap contracts to hedge against the risks on
changes in foreign-currency assets, liabilities and commitments and in the related exchange rates; enters into interest swap contracts to hedge
against adverse risks on changes in net liability interest rates; enters into cross-currency swap contracts to hedge against adverse risks on
interest rate and exchange rate changes; and enters into fuel swap contracts to hedge against adverse risks on fuel price changes. The
Company uses derivative financial instruments with fair values that are highly negatively correlated to the fair values of hedged items and
evaluates the hedging effectiveness of these instruments periodically.
Financial liabilities
The Company uses derivative instruments to avoid major market risks.
Financial liabilities - with fair values
approximating carrying amounts
Derivative financial liabilities for hedging
Bonds issued
Loans and debts
Capital lease obligations
57
www.china-airlines.com
14,710,377,051
35,131,928
22,335,000,000
80,420,844,753
1,088,871,938
14,710,377,051
35,131,928
22,433,709,066
80,628,967,040
1,088,871,937
17,231,288,467
72,400,976
28,750,000,000
87,433,371,672
2,320,705,642
17,231,288,467
72,400,976
29,543,925,532
87,461,638,881
2,320,705,642
The following table summarizes the aggregate contractual (notional) amounts, credit risk and fair value of the derivative financial instruments
of the Company as of December 31, 2012 and 2011.
Go Top
58
The gain or loss on cash flow hedging instruments that was recognized as adjustments to stockholders’ equity is summarized as follows:
December 31
2012
Contractual
(Notional)
Amount
Hedge
Credit Risk
2011
December 31
Contractual
(Notional)
Amount
Fair Value
Adjustment Items
Credit Risk
Amount recognized in equity during the year
Amount removed from equity and included in profit or loss for the year
Note:
$6,080,000,000
$
758,888
$ (14,408,011)
$3,335,000,000
683,139,535
683,139,535
1,075,581,395
38,449,431
506,083
46,997
38,449,431
(223,528)
(15,723,915)
13,764,331
3,464,506
13,764,331
-
13,764,331
(3,464,506)
$
-
$ (26,577,900)
696,969,697
696,969,697
1,090,909,091
4,602,140
794,188
9,674,025
4,515,794
(2,659,461)
8,908,414
93,597,496
41,517,468
93,597,496
-
93,597,496
(41,517,468)
25.
$
a.
Credit risk refers to the loss the Company will incur on counter-parties’ default on contracts. However, the Company’s counter-parties are all
trustworthy international and domestic financial institutions. In addition, the Company trades with several financial institutions to disperse
risks. Thus, the Company does not expect to incur significant credit risks.
The fair value of each derivative contract is determined using quotes from financial institutions.
The amount of the Company’s maximum exposure to the risks on all financial instruments (excluding the fair value of collaterals) is equal to
the book value of these instruments.
Cash flow hedge
b.
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Equity-method investee
Equity-method investee
Subsidiary
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary’s equity-method investee
Major stockholder (35.91%)
Significant transactions with related parties:
2012
Amount
The Company
Lease cost in U.S. dollars
Lease cost in U.S. dollars
Fuel cost in U.S. dollars
Interest rate swaps
Currency options
Call
Put
Currency options
Call
Put
Forward exchange
Fuel swaps
Call
Put
$ 6,080,000,000
$
(14,408,011)
2008 to 2017
2008 to 2017
261,627,907
261,627,907
16,930,988
(104,016)
2012 to 2013
2012 to 2013
2012 to 2013
2012 to 2013
421,511,628
421,511,628
1,075,581,395
21,518,443
(119,512)
(15,723,915)
2012 to 2013
2012 to 2013
2012 to 2013
2012 to 2013
2012 to 2013
2012 to 2013
13,764,331
3,464,506
13,764,331
(3,464,506)
2012 to 2013
2012 to 2013
2012 to 2013
2012 to 2013
$
Hedged Items
Financial Instruments
Designated as Hedging
December 31, 2011
Instruments
Nominal Amount
Fair Value
Expected
Cash Flow
Period
Profit or Loss
Recognition
Period
(26,577,900)
2007 to 2016
2007 to 2016
242,424,243
242,424,243
1,335,266
(223,816)
2011 to 2012
2011 to 2012
2011 to 2012
2011 to 2012
454,545,454
454,545,454
1,090,909,091
3,180,528
(2,435,645)
8,908,414
2011 to 2012
2011 to 2012
2011 to 2012
2011 to 2012
2011 to 2012
2011 to 2012
93,597,496
41,517,468
93,597,496
(41,517,468)
2011 to 2012
2011 to 2012
2011 to 2012
2011 to 2012
The Company
Floating-interest long-term
debts
Fuel cost in U.S. dollars
Lease cost in U.S. dollars
Lease cost in U.S. dollars
Fuel cost in U.S. dollars
Interest rate swaps
Currency options
Call
Put
Currency options
Call
Put
Forward exchange
Fuel swaps
Call
Put
$ 3,335,000,000
$
$
36,266,875
1)
2011
%
Amount
%
Revenues
Mandarin Airlines
Yangtze River Express Airlines
Global Sky Express
China Aviation Development Foundation
Taiwan Air Cargo Terminal
Others
2)
18,393,802
118,908,800
5,162,519
Relationship with the Company
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
China Aircraft Service
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Yangtze River Express Airlines
China Aviation Development Foundation
Based on the Taiwan Stock Exchange’s regulation for the public companies’ monthly declaration on the trading of derivative
financial instruments, the contractual amounts are shown at the absolute values of fair values because fuel swap contracts only have
nominal amounts.
Floating-interest long-term
debts
Fuel cost in U.S. dollars
$
The Company’s related parties
Related Party
Floating-interest long-term debts, foreign-currency firm commitments and transactions and expected demand for aviation fuel may result in
future cash flow fluctuations and risks due to changes in market interest and exchange rates. To hedge against these risks, the Company uses
interest rate swaps, forward exchange contracts and option contracts. The cash flow hedge information is summarized as follows:
Financial Instruments
Expected
Profit or Loss
Designated as Hedging
December 31, 2012
Cash Flow
Recognition
Hedged Items
Instruments
Nominal Amount
Fair Value
Period
Period
47,941,472
(66,312,356)
RELATED-PARTY TRANSACTIONS
The contract amount is used to calculate the amounts to be settled by the counter-parties; thus, it is neither the actual delivery amount nor the
cash requirement of the Company. The derivative financial instruments held or issued by the Company are likely to be sold at reasonable
market prices. The Company does not expect significant cash flow requirements upon contract maturity.
b.
2011
Fair Value
The Company
Interest rate swaps
Currency options
Call
Put
Forward exchange
Fuel swaps (Note)
Call
Put
2012
$
1,976,879,342
242,126,617
137,128,997
38,485,679
18,374,554
64,184,072
1.49
0.18
0.10
0.03
0.02
0.05
$
1,992,992,303
413,227,934
173,667,300
43,945,387
16,577,041
56,740,885
1.51
0.31
0.13
0.03
0.01
0.05
$
2,477,179,261
2012
Amount
1.87
$
2,697,150,850
2011
Amount
2.04
%
%
Costs
China Pacific Catering Services
Taoyuan International Airport Services
Taiwan Airport Services
Mandarin Airlines
Hwa Hsia
Taiwan Air Cargo Terminal
Cal Park
China Aircraft Services
Kaohsiung Catering Services
Cal Hotel
China Pacific Laundry Services
Yangtze River Express Airlines Co., Ltd.
Dynasty Holidays
China Aviation Development Foundation
Asian Compressor Technology Services
Cal-Dynasty International
Science Park Logistics
Others
$
1,149,899,895
974,717,296
364,839,483
286,280,459
270,234,599
258,818,372
213,019,195
189,516,950
124,485,523
81,118,096
74,135,799
68,307,236
64,215,917
62,275,301
35,548,641
27,440,178
24,966,491
10,459,565
0.93
0.79
0.30
0.23
0.22
0.21
0.17
0.15
0.10
0.07
0.06
0.06
0.05
0.05
0.03
0.02
0.02
0.01
$
1,022,825,052
963,217,353
357,520,529
253,102,909
250,323,655
273,858,674
213,019,195
204,948,299
116,392,074
79,955,286
78,817,192
47,023,485
56,842,650
68,044,125
48,243,448
37,352,941
27,310,453
10,525,919
0.82
0.77
0.29
0.21
0.20
0.22
0.17
0.16
0.09
0.06
0.06
0.04
0.05
0.05
0.04
0.03
0.02
0.01
$
4,280,278,996
3.47
$
4,109,323,239
3.29
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December 31
59
www.china-airlines.com
60
2012
Amount
3)
$
$
Related parties that invested in the first issue of private unsecured bonds in 2012 and 2010 (Note 14) are summarized as follows:
%
338,512,733
18,056,192
16,250,325
4,363,693
3,339,547
1,910,073
2,625,004
87.91
4.69
4.22
1.13
0.87
0.50
0.68
$
385,057,567
100.00
$
224,039,272
14,972,813
29,123,374
7,121,113
3,697,160
1,014,467
2,840,858
79.22
5.29
10.30
2.52
1.31
0.36
1.00
December 31, 2012
Aggregate
Units
Par/Dollars
282,809,057
100.00
Related Parties
The first issue of private unsecured bonds in 2012
Taoyuan International Airport Services
Mandarin Airlines
Abacus Distribution Systems (Taiwan)
$
$
290,415,552
261,255,031
230,578,097
159,764,400
62,406,266
48,928,624
33,683,711
28,928,367
19,885,340
18,248,433
12,363,578
18,885,455
24.50
22.04
19.45
13.48
5.26
4.13
2.84
2.44
1.68
1.54
1.04
1.60
$
1,185,342,854
100.00
$
261,782,338
259,901,080
174,655,487
72,934,113
39,299,101
38,785,230
35,726,255
23,009,686
16,079,730
13,943,715
29,477,968
27.11
26.92
18.09
7.55
4.07
4.02
3.70
2.38
1.67
1.44
3.05
965,594,703
100.00
100
280
60
Taoyuan International Airport Services
Mandarin Airlines
Abacus Distribution Systems (Taiwan)
China Pacific Catering Services
Hwa Hsia
100,000,000
280,000,000
60,000,000
300
300
60
40
10
300,000,000
300,000,000
60,000,000
40,000,000
10,000,000
December 31, 2011
Aggregate
Units
Par/Dollars
Related Parties
Taoyuan International Airport Services
Mandarin Airlines
Abacus Distribution Systems (Taiwan)
China Pacific Catering Services
Hwa Hsia
300
300
60
40
10
$
As of December 31, 2012 and 2011, interest expenses were $28,463,000 and $19,826,000, respectively.
$6,649,000 in 2012 and $2,454,000 in 2011.
Lease of properties
In December 2008, the Company rented out planes to Mandarin Airlines under an operating leasing contract. The monthly rent received
is based on this contract. The rental rate was adjusted in August 2009. As of December 31, 2012 and 2011, the monthly rentals
received amounted to $1,183,607,000 and $1,073,312,000, respectively.
8)
300,000,000
300,000,000
60,000,000
40,000,000
10,000,000
The interests payable were
Property transactions
To enhance asset use and improve resource sharing within its network, the Company sold the land and building located in the Taichung
Port road to Mandarin Airlines for $29,320,000 in December 2012. The gain on disposal of properties was $126,000, which had been
collected in full.
The Company rented planes from Mandarin Airlines under an operating lease agreement. The Company paid the rental by flight hours.
The Company paid hourly flight rentals of about $237,688,000 in 2012 and $185,184,000 in 2011, respectively.
c.
Compensation of directors, supervisors and management personnel
Under an operating lease agreement, the Company rented flight training machines and flight simulators from China Aviation
Development Foundation to train pilots. The Company paid the rental based on usage hours. As of December 31, 2012 and 2011, the
Company had paid usage rentals of about $62,275,000 and $68,044,000, respectively.
December 31
2012
In March 2010, the Company signed with CAL Park a one-year renewable operating lease agreement to use the Operating and Aviation
Headquarters building of the Taiwan Taoyuan International Airport at a fixed rental of $17,752,000 monthly. In 2012 and 2011, the
Company paid rentals of $213,019,000 each.
Salaries
Incentive and special compensation
26.
6)
$
The first issue of private unsecured bonds in 2010
Accounts payable to related parties
China Pacific Catering Services
Taoyuan International Airport Services
Mandarin Airlines
Cal Park
Taiwan Airport Services
Hwa Hsia
Taiwan Air Cargo Terminal
China Aircraft Services
Kaohsiung Catering Services
Yangtze River Express Airlines
China Pacific Laundry Services
Others
5)
Amount
Notes and accounts receivable - related parties
Mandarin Airlines
Yestrip
Yangtze River Express Airlines
Global Sky Express
China Aviation Development Foundation
Taiwan Air Cargo Terminal
Others
4)
2011
%
2011
$
34,161,116
12,382,557
$
38,127,633
12,111,219
$
46,543,673
$
50,238,852
PLEDGED ASSETS
Endorsements and guarantees
The following assets had been pledged or mortgaged as collaterals for long-term and short-term bank loans and business transactions:
December 31
2012
Authorized
Amount
2011
Actual Amount
Used
Authorized
Amount
December 31
Actual Amount
Used
2012
Properties - flight equipment, net
Properties - buildings
Properties - machinery and equipment
Restricted assets - noncurrent (US treasury bill)
The Company
Cal Park
Taiwan Air Cargo Terminal
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Cal Hotel
$
3,400,000,000
1,080,000,000
300,477,541
244,982,212
180,000,000
$
3,237,000,000
300,477,541
244,982,212
118,497,000
$
3,400,000,000
29,519,987
334,243,354
297,216,378
180,000,000
$
3,320,000,000
29,519,987
334,243,354
297,216,378
146,379,000
Cal Asia
Taikoo Spirit Aerospace Systems
(Jinjiang) Composite
27.
2011
$
94,975,848,646
2,245,118,771
657,623,789
545,459,753
$
104,105,500,044
2,298,687,338
707,627,408
660,979,718
$
98,424,050,959
$
107,772,794,508
COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 2012, the Company had commitments and contingent liabilities, as follows:
15,851,744
15,328,634
16,524,242
a.
In 2009, the Securities and Futures Investors Protection Center (SFIPC) filed a civil lawsuit against Far East Air Transport Ltd. (FEAT) and its
executives, directors and supervisors (natural persons) because of allegedly false financial statements for a period starting from the second
quarter of 2005 to the third quarter of 2007; the filing was based on Article 20 and Article 20 - 1 of the Securities and Exchange Act; Article
23 of the Company Act; and Articles 28, 184 and 185 of the Civil Code. In this lawsuit, the SFIPC imposed joint and several liabilities on
FEAT’S executives, directors, and supervisors for them to give a total compensation of $297,061,000 to the investors of FEAT. Later, in
January 2010, SFIPC included in its lawsuit the directors and supervisors who are legal persons of FEAT (including the Company), as joint
defendants. As of March 29, 2013, the date of the accompanying auditors’ report, there were 36 joint defendants in this lawsuit. Although
the case is still under review by the Taipei District Court, the Company believes this case will have no material impact on its financial and
sales operations.
b.
The Company leased certain flight equipment, hangar, and a headquarters building under various operating lease agreements expiring on
13,004,576
As of December 31, 2012 and 2011, U.S. Treasury Bills amounting to $545,460,000 and $660,980,000, respectively, had been pledged as
collaterals for financing lease transactions of Freighter Princess Ltd., Freighter Prince Ltd. and Freighter Queen Ltd. and were included in
restricted assets - noncurrent.
The transactions between the Company and related parties refer to the air transportation industry. The transaction price is negotiated
under a regular transaction process, and the term of making collections and payments for receivables and payables is from 30 days to 2
months, which is consistent with the Company’s credit policy.
Go Top
7)
61
Bonds payable - related parties
www.china-airlines.com
62
Monetary items
USD
EUR
HKD
JPY
RMB
Foreign operating entity
USD
Investments accounted for
using the equity method
USD
HKD
JPY
Monetary items
USD
EUR
HKD
JPY
RMB
63
www.china-airlines.com
Financial assets
Financial liabilities
Exchange Rate
New Taiwan
Dollars
Foreign
Currencies
Exchange Rate
New Taiwan
Dollars
$
59,054,021
14,949,828
289,354,718
2,202,309,200
1,024,262,032
29.0698
38.4615
3.7453
0.3361
4.6577
$1,716,688,580
574,992,810
1,083,720,225
740,196,122
4,770,705,266
$ 123,586,016
13,462,095
360,575,843
1,517,912,341
873,956,113
30.3030
40.4858
3.8926
0.3891
4.7596
$3,745,027,050
545,023,672
1,403,577,527
590,619,692
4,159,681,517
1,424,477,867
29.0698
41,409,286,698
1,317,164,584
30.3030
39,914,038,382
49,800,880
101,945,808
107,479,189
29.0698
3.7453
0.3361
1,447,700,000
381,819,505
36,126,244
47,317,520
97,926,908
98,362,112
30.3030
3.8926
0.3891
1,433,864,243
381,186,876
38,268,728
883,538,220
7,015,864
63,060,777
3,423,949,732
308,515,409
29.0698
38.4615
3.7453
0.3361
4.6577
25,684,279,348
269,840,653
236,181,528
1,150,789,505
1,436,972,220
1,185,879,061
9,708,706
59,839,143
4,872,121,446
236,237,315
30.3030
40.4858
3.8926
0.3891
4.7596
35,935,693,185
393,064,717
232,929,849
1,895,742,455
1,124,395,124
Foreign
Currencies
Hwa Shin Building Safeguard
Xiamen International Airport Air Cargo
Xiamen International Airport
Terminal
Xiamen International Airport Air Cargo Storage Xiamen International Airport
Taiwan Airport Service (Samoa)
The Company did not recognize an income on this investment. Based on Statement of Financial Accounting Standards No. 5 - “Long-term Investments under the Equity Method,” the recognized book value of the investment was zero; thus, the Company let go of this investment.
The investee was established as a limited company.
-
14.00
14.00
100.00
100.00
14.00
35.00
25.00
14.00
100.00
51.00
100.00
25.00
100.00
100.00
100.00
Note 4:
1,926,750
-
1,000,000
-
1,050,000
-
-
50,000
408
1,600,000
250,000
1,000
1,000
1,000
Note 3:
US$
3,950,226
10,000,000
5,876,976
1,947,441
3,329,268
38,796,173
4,117,846
50,000,000
20,400,000
26,264,643
2,500,000
1,000
1,000
1,000
54.00
100.00
93.99
100.00
51.00
49.00
100.00
93.93
20.00
47.35
35.78
24.50
100.00
28.48
55.00
Adopted the treasury stock method in recognizing investment income or loss.
1,926,750
US$
US$
US$
HK$
US$
US$
US$
US$
US$
JPY
135,000,000
150,000,000
188,154,025
2,614,500
43,911,000
34,300,000
46,516,200
13,021,042
28,400,000
20,626,644
14,329,757
7,732,200
46,500,000
13,293,000
13,750,000
Represents the consolidated financial information of the foreign holding company disclosed in accordance with local regulations.
US$
Forwarding and storage of air cargo
3,950,226
10,000,000
5,876,976
1,947,441
3,329,268
38,796,173
4,117,846
50,000,000
20,400,000
26,264,643
2,500,000
1,000
1,000
1,000
1,350,000,000
1,500,000,000
2,042,368,252
US$ 26,145,000
439,110,000
147,000,000
US$ 45,476,200
52,200,000
HK$ 58,000,000
12,289,100
140,240,221
77,322,000
465,000,000
150,654,000
137,500,000
$
Note 2:
US$
US$
Forwarding and storage of air cargo
Building security and maintenance services
Airport services and investment
US$
HK$
US$
US$
US$
US$
US$
JPY
1,350,000,000
1,500,000,000
2,042,368,252
US$ 26,145,000
439,110,000
147,000,000
US$ 46,516,200
52,200,000
HK$ 58,000,000
12,289,100
140,240,221
77,322,000
465,000,000
150,654,000
137,500,000
Note 1:
Taoyuan, Taiwan
Samoa
Taiwan Airport Service (Samoa)
Hwa Hsia
Forwarding and storage of air cargo
Forwarding and storage of air cargo
Forwarding and storage of air cargo
Xiamen International Airport
Hong Kong
Shanghai, China
Taiwan Airport Services
Forwarding and storage of air cargo
Xiamen International Airport
Xiamen International Airport Air Cargo
Terminal
Xiamen International Airport Air Cargo Storage
Eastern United International Logistics
Yangtze River Express Airlines
Cal-Asia Investment
Taoyuan, Taiwan
Tokyo, Japan
Taipei, Taiwan
Taipei, Taiwan
Cayman Islands
Cayman Islands
Cayman Islands
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
2011
$
(Unit: Foreign Currencies/New Taiwan Dollars)
Air cargo and storage
Real estate lease and international trade
Air transportation and maintenance of aircraft
A holding company, real estate and hotel services
In-flight catering
Airport services
General investment
Sale and maintenance of hardware and software
Airport services
Airport services
In-flight catering
Research, manufacture and maintenance of engines
Hotel business
Storage and customs of services
Cleaning and leasing of the towel of airlines, hotels, restaurants, and
health clubs
Cleaning of aircraft and maintenance of machine and equipment
Travel business
Travel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Aircraft lease
The material financial assets and liabilities denominated in foreign currency were as follows:
Taoyuan, Taiwan
Taoyuan, Taiwan
Taipei, Taiwan
Los Angeles, U.S.A.
Taoyuan, Taiwan
Taoyuan, Taiwan
Territory of the British Virgin Islands
Taipei, Taiwan
Hong Kong International Airport
Taipei, Taiwan
Kaohsiung, Taiwan
Taoyuan, Taiwan
Taoyuan, Taiwan
Tainan, Taiwan
Taoyuan, Taiwan
In December 2012, the Company entered into a contract to buy six 777-300ER aircraft from the Boeing Company, with the option to buy six
more 700-300ER aircraft, at aggregate purchase prices of US$2,067,261,000 and US$2,213,015,000, respectively. As of December 31, 2012,
the Company had paid about US$20,673,000, which was included in the “prepayments for equipment” in the properties section of the balance
sheets.
$
91,520,698
227,282,093
18,630,712
318,803,124
91,874,709
27,013,721
-
227,803,837
101,352,011
36,126,244
33,776,973
6,960,097
35,088
34,602
32,895
1,513,701,724
1,469,920,155
1,226,818,604
1,016,755,000
688,008,930
652,809,376
430,945,000
421,450,514
381,819,505
312,007,212
242,279,047
233,647,293
193,633,640
190,874,553
157,875,614
Balance as of December 31, 2012
Percentage of
Carrying Value
Ownership
d.
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution System (Taiwan)
China Aircraft Service
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel Co., Ltd.
Science Park Logistics
China Pacific Laundry Services
FINANCIAL ASSETS AND LIABILITIES IN FOREIGN CURRENCY
Shares
In January 2008, the Company entered into a contract to buy from Airbus fourteen A350-900 aircraft, with the option to buy six more
A350-900 aircraft, with aggregate purchase prices of US$3,933,235,000 and US$1,802,645,000, respectively. As of December 31, 2012, the
Company had paid about US$237,194,000, which was included in the “prepayments for equipment” in the properties section of the balance
sheets.
December 31, 2011
c.
Investment Amount
$
72,574,738
118,068,833
7,260,451
26,690,148
72,574,738
14,615,118
(525,172,051 )
118,068,833
29,165,206
6,686,102
11,950,372
4,265,325
-
(184,054,471 )
3,732,134
47,875,909
9,408,018
276,979,115
91,650,176
27,986,923
152,920,052
105,345,626
84,587,758
156,077,577
407,548,538
(9,428,078 )
93,957,662
43,067,077
$
10,160,473
16,529,675
7,260,451
26,690,148
10,160,473
7,258,284
-
16,529,675
29,165,206
3,409,910
11,950,372
1,066,332
-
(99,389,415 )
3,732,134
77,867,389
9,408,018
141,259,349
44,908,586
27,986,923
143,645,270
21,069,126
40,054,214
55,844,046
99,849,392
(9,428,078 )
26,763,814
23,686,893
Net Income (Loss) of Investment Income
the Investee
(Loss)
Rentals from 2018 and on will aggregate $10,358,235,000. The present value of these rentals, discounted at the discount interest rate 1.37%
for one-year time deposits of Chunghwa Post Co., Ltd., is $9,676,950,000.
China Airlines, Ltd.
2012
5,709,957,197
4,809,665,216
3,888,058,877
3,207,577,549
3,109,079,957
December 31, 2012
$
Main Businesses and Products
2013
2014
2015
2016
2017
Location
Amount
Investee Company
Year
Investor Company
28.
Note 4
Note 4
-
Note 4
Note 4
Notes 3 and 4
Note 4
Note 1
-
Note 1
Note 2
-
Note
TABLE 1
Minimum rentals for future years are summarized as follows:
NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE
YEAR ENDED DECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)
CHINA AIRLINES, LTD. AND INVESTEES
various dates until December 2024. Lease deposits aggregated $9,955,713,000.
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www.china-airlines.com
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(US$
(US$
Landing gear maintenance
services
Composite material
Forwarding and storage of
air cargo
Aircraft line maintenance
Forwarding of air cargo and
ocean freight
Taikoo (Xiamen) Landing Gear
Services
Taikoo Spirit Aerospace Systems
(Jinjang)
Yangtze River Express Airlines
Shanghai Eastern Aircraft
Maintenance
Shanghai Eastern United
International
$
4,985,465
171,500)
7,209,302
248,000)
1,127,795,727
38,796,173)
18,488,372
636,000)
32,302,326
1,111,200) (US$
56,611,657
1,947,441)
119,704,826
4,117,846)
The amount comprised US$47,035,573 and NT$36,666,667.
The limit stated in the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjudgment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the month-end rates of IATA (International Air Transport Association) for the reporting period.
Note 6:
Note 7:
Note 8:
(US$
$
(US$
The inward remittance of earnings in 2012 amounted to US$1,887,816.
17.15%
8.00%
25.00%
5.45%
8.00%
14.00%
14.00%
Note 5:
4,985,465
171,500)
7,209,302
248,000)
1,127,795,727
38,796,173)
18,488,372
636,000)
62,534,884
2,151,200)
56,611,657
1,947,441)
119,704,826
4,117,846)
Cal-Asia Investment invested in Eastern United International Logistics (Holdings), which in turn, invested in a company located in Mainland China.
(US$
(US$
(US$
(US$
(US$
(US$
$
(US$
The investment gain (loss) was based on the financial statements audited by the Company’s CPAs in the ROC; accrual accounting was used in the preparation of these financial statements.
-
-
-
-
-
-
-
Note 4:
$
-
-
-
-
-
(US$
(US$
(US$
(US$
10,160,473
343,424) (US$
4,985,465
171,500)
7,209,302
248,000)
-
18,488,372
636,000)
62,534,884
2,151,200)
91,874,709
3,160,489)
TABLE 2
-
-
-
-
-
-
54,878,372
1,887,816)
(Note 5)
Accumulated Inward
Remittance of
Earnings as of
December 31, 2012
227,803,837 $
7,836,452) (US$
Carrying Value
as of
December 31, 2012
16,529,675
$
558,703) (US$
Accumulated Outflow of
% Ownership
Investment from Taiwan
Investment Gain (Loss)
of Direct or
as of
(Note 4)
Indirect
December 31, 2012
(Notes 4 and 8)
Investment
(Note 8)
Note 3:
China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in Mainland China.
-
-
-
-
30,232,558
1,040,000)
-
-
Inflow
Investment Flows
Outflow
The Company invested in China Aircraft Services, which in turn, invested in a company located in Mainland China.
$33,167,723,241 (Note 7)
Limit on Investment
(US$
(US$
(US$
(US$
(US$
(US$
$
(US$
Accumulated Outflow of
Investment from Taiwan
as of
January 1, 2012
(Note 8)
Note 2:
$1,403,979,836 (Note 6)
$1,379,330,232 (US$48,068,160)
Indirect
(Note 3)
Indirect
(Note 2)
Indirect
(Note 1)
Indirect
(Note 1)
Indirect
(Note 1)
Indirect
(Note 1)
Indirect
(Note 1)
Investment
Type
Note 1:
Investment Amounts Authorized by
Investment Commission, MOEA
29,069,767
1,000,000)
90,116,279
3,100,000)
2,328,830,927
500,000,000)
385,102,562
82,681,520)
403,779,070
13,890,000)
65,207,266
14,000,000)
1,045,551,933
224,480,000)
Accumulated Investment in Mainland
China as of
December 31, 2012
(Note 8)
(RMB
(RMB
(US$
(RMB
Forwarding and storage of
air cargo
Xiamen International Airport Air
Cargo Storage
$
(RMB
Total Amount of Paid-in
Capital
(Note 8)
Forwarding and storage of
air cargo
Main Businesses and
Products
Xiamen International Air Cargo
Terminal
Investee
Company Name
INVESTMENTS IN MAINLAND CHINA
YEAR ENDED DECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)
CHINA AIRLINES, LTD. AND INVESTEES