2016 ANNUAL REPORT - Globalia · Executive Letter of the Annual Report Introduction to the Management Report ... which is set out in more detail in the pages of this annual report,

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2 0 1 6 A N N U A L R E P O R T

GLOBALIA CORPORACIÓN EMPRESARIAL S.A.AND SUBSIDIARIESEntre ellas:AIR EUROPA LÍNEAS AÉREAS, S.A.U.GLOBALIA BUSINESS TRAVEL, S.A.U.GLOBALIA TRAVEL CLUB SPAIN, S.L.U.WELCOME INCOMING SERVICES, S.L.U.VIAJES HALCÓN, S.A.U.VIAJES ECUADOR, S.A.U.VIAJES TU BILLETE, S.L.BE LIVE HOTELS, S.L.U.GLOBALIA HANDLING, S.A.U.

Centro Empresarial Globalia07620 Llucmajor (Mallorca), Baleares. España / Spain.Tel. +34 971 178 103 · Fax +34 971 178 352www.globalia.com

Printing: Globalia Artes GráficasGraphic design: som2.com

1. Nature, Activities and Composition

of the Group

2. Basis of Presentation

3. Distribution of Profit / Application of

Losses of the Parent

4. Significant Accounting Policies

5. Joint Ventures

6. Non-Current Assets Held for Sale

7. Intangible Assets

8. Goodwill, Goodwill on Consolidation

and Impairment

9. Property, Plant and Equipment

10. Investment Property

11. Finance Leases - Lessee

12. Operating Leases - Lessee

13. Risk Management Policy

14. Equity-Accounted Investees

15. Financial Assets by Category

16. Investments and Trade Receivables

17. Derivative Financial Instruments

18. Inventories

19. Prepayments

20. Cash and Cash Equivalents

21. Equity

22. Non-Controlling Interests

23. Provisions

24. Financial Liabilities by Category

25. Payables and Trade Payables

26. Late Payments to Suppliers. “Reporting

Requirement”, Third Additional Provision of

Law 15/2010 of 5 July 2010

27. Accruals

28. Taxation

29. Environmental Information

30. Related Party Balances

and Transactions

31. Income and Expense

32. Employee Information

33. Audit Fees

34. Other Contingencies

Director’s Report

Appendix

Corporate Social

Responsibility Report

Executive Letter of the Annual Report

Introduction to the Management Report

and Main Magnitudes

Audit report on the Consolidated

Annual Accounts

Consolidated Annual Accounts

Notes to the Consolidated Annual Accounts

iND

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46

14

1622

22

2325

47

4849

50535455

56

57

59

6160

62

63

65

6869

71

72

738094

2016 has been a key year in the history of Globalia.

In addition to the excellent turnover this year,

3.545 Million Euros, several events and circum-

stances have also taken place that remind us why

we are the leading tourism group in Spain, and that

enable us to look to the future with enthusiasm.

The 30th anniversary of Air Europa, the incorpo-

ration of the fleet of modern Boeing 787 and the

inauguration of several brands in the wholesale

and retail divisions are some of the most notewor-

thy milestones of the year, and several additional

milestones will also take place in 2017, such as the

creation of the new Travel Trade Fair of Madrid.

Air Europa: 30 years crossing the skies

In 2016, the air division has celebrated the 30th

anniversary of Air Europa. Our aircraft have been

crossing the skies throughout the world for three

decades now, and are increasingly faster, more

efficient and provide ever increasing comfort.

In 2016 Air Europa, has received five Boeing 787-8 that make us the first Spanish airline to include in its fleet

the technological avant-garde of the American manufacturer. With this aircraft, the average annual fleet has

increased by 12.5%. In 2017 another three aircraft will be received, and thereafter, between 2018 and 2022,

another 16 aircraft of the model 787-9 will be received.

The significant efforts for the enhancement of the aircraft fleet has been a key strategy for increasing the flights

on routes that were already operated by the company and also for opening new routes, such as Bogotá, Guay-

aquil and Córdoba (Argentina). Said expansion of destinations will continue in 2017, when we will begin to fly to

Boston and Honduras, and we will increase the frequency of flights to La Habana, New York and Miami, among

other cities. With these new routes, we will now fly to a total of 20 destinations within the American continent,

and we will consolidate our position as a leading airline between the American continent and Europe.

During the previous year, we also extended our routes and the frequency of our flights with new shared codes

and the strengthening of other existing codes. In particular, in 2016 we established or strengthened agree-

ments with China Airlines, Aerolíneas Argentinas, Tame, Etihad Airways, Avianca Brasil, Turkish Airlines, Garuda

Indonesia and Air Serbia, among other companies.

All of our efforts to keep going further and further had a clear impact in our figures. In relation to the number

of passengers, Air Europa has managed to maintain the record of 2015 by exceeding the number of 10 million

persons transported, and moreover increased this number by 4.48%, and in total the company transported

10.68 million passengers.

In 2016 the definitive launch of Air Europa Express took place operating four Embraer 195 and one ATR-72 at

the end of the year. This has been an important milestone that enables us to optimise our air capacity by adapt-

ing our capacity to the demands of the short-range and medium-range market and designing a strategy that

enables the company to promote the long-distance market.

Wholesale division: commitment to new technologies

In 2016 the wholesale division, which is led by Travelplan the main national tour operator, has set itself the

challenge of improving the profitability margins of its product lines as well as continuing with its adaptation

Presentation of the ANNUAL REPORT 2016

process to the new technological realities. Together with other brands of the division, such as Latitudes,

Touring Club and Iberrail, excellent opportunities are presented for 2017.

Retail division: launch of Geomoon

The retail division, that is led by Halcón Viajes and Viajes Ecuador, which also encompasses Tubillete.com,

continues to recover and has increased its sales by over 1% in comparison to last year, and is now situated

at over 1.1 billion Euros. These improved results were obtained more efficiently, by reducing by 2% the

number of work centres and by increasing the average number of employees, up to 2,026.

In 2016 Geomoon was launched as the brand for the growth of managed travel agencies. At the close of

the year the company had over 30 offices that are managed directly.

In 2017 the division trusts that it will consolidate its position in the corporate travel sector and will contin-

ue to grow in relation to the number of associated stores. Moreover, it is interesting to note that currently

Halcón Viajes is the official agency of 27 clubs of the Spanish Football League “La Liga”, 12 first division

clubs and 15 second division clubs. We must not overlook the fact that through its air and retail division,

the Globalia Group is the official sponsor of the “La Liga” during the 2016/2017 season, which is another

key milestone towards its commitment to associate its brand with the sports world.

Hotel division: ready to become leaders

2016 has been a record year for Be Live Hotels, both from an occupation perspective as well as in rela-

tion to average revenue and results. It closed the year with 26 hotels, with a total of 8,140 rooms and

with excellent forecasts for 2017. The reconversion process of recent years has situated it in an excellent

position, especially in relation to four of the most demanded destinations throughout the world: Cuba,

Dominican Republic, Balearic Islands and the Canary Islands.

Incoming division: growth in the number of marketed rooms

The Incoming division, the assets of which include the hotel room online sale platform “WelcomeBeds”, mar-

keted in 2016 a total of 1.94 million nights, which represents an increase of 10.2% in respect of the previous

year. For yet another year, the bullish trend has been confirmed that was forecast in 2014, and that was also

registered in 2015, and in a short period of time Globalia has positioned itself as the leader in the sector.

Handling division: strong at airports thanks to Groundforce

2016 was the first complete year with all of the licences issued in 2015, and the result has been very posi-

tive. Sales have increased by 26% in comparison to the previous year, over 170 thousand passenger flights

have been managed and over 122,500 tonnes of cargo has also been managed. In total, the division has

16 bases (including the autohandling bases).

Also, “Groundforce Cargo”, the air cargo agent and transport operator of Globalia Handling, has celebrat-

ed its tenth anniversary and has reaffirmed its position, after a long period of constant growth, as the

leader in the air cargo handling sector in Spain.

Coach division: to conquer the road

The results of “Globalia Autocares”, the road transport division, have been very stable in 2016, during

a year that has been of key importance for the expansion of the brand. Globalia has included within its

fleet another eight state-of-the-art coaches and has been awarded the non-discretional travel route of

Alicante – Cartagena – Murcia as from 2017. Through this first contractual award a new line of business is

established with a significant possibility for growth. We have also been awarded the concession for the

transport of passengers between four terminals of the Barajas airport.

This summary information, which is set out in more detail in the pages of this annual report, represents for yet

another year, the excellent work carried out by the over 15,000 employees of the group. A group of divisions

that, in 2017, will continue to shine within the Spanish and international tourism and air transport sector.

5

INTRODUCTION TO THE 2016 MANAGEMENT REPORT AND MAIN MAGNITUDESGLOBALIA CORPORACIÓN EMPRESARIAL, S.A. AND SUBSIDIARIES

Globalia, the company founded and chaired by Juan

José Hidalgo, operates in the transport, hotel, trav-

el and tourism sectors, and essentially comprises

the following business units:

Globalia Corporación Empresarial S.A., the parent

company and leader of the Group.

Air Division captained by Air Europa, the first

wholly Spanish-owned private airline, specialising

in tourist and transatlantic travel. It is a member of

the Sky Team alliance.

Wholesale Division, headed by Travelplan, the

Spanish market leader.

In March 2003, this was added to by the company

Iberotours and its Touring Club brand.

In 2007, a partnership was established with tour

operator MK Tours, based in Miami and focusing on

the North American domestic market.

Incoming Division,

The Welcome Incoming Services brand was set up

in 2010 to provide us with our own infrastructure

in the most significant destinations where Globalia

currently operates. It operates two main business

lines: sale of accommodation online and incoming

services such as trips, transportation and vehicle

rentals.

Retail Division, including Viajes Halcón, Viajes

Ecuador, which became part of Globalia in 2003 and

Viajes Tu Billete.

The Division has the largest network of branches

operating in Spain and Portugal, giving it a leading

position on the Iberian market.

2 0 1 6 A N N UA L R E P O R T

Hotel Division, operating under the brand name

Be Live Hotels. Management of premium category

hotels in the Balearic and Canary Islands, mainland

Spain, Morocco, the Dominican Republic and Cuba.

Handling Division, operating under the brand

name Groundforce. Providing ground services to

the Group’s airline and third-party clients in airports

in Spain and Morocco.

1971 | Juan José Hidalgo opens the first branch

of Viajes Halcón.

1988 | Juan José Hidalgo sets up the tour oper-

ator Travelplan.

1991 | A majority stake in Air Europa is acquired

by Juan José Hidalgo.

1993 | Air Europa begins scheduled domestic

operations in Spain, competing with Iberia.

1999 | Viajes Halcón and Travelplan begin opera-

tions in Portugal.

In May, the central services move into their newly

built corporate offices of Llucmajor (Baleares).

Incorporation of the first Boeing 737-800 NG

aircraft.

2000-2005 | In May 2000, the first hotel oper-

ated by the Group’s Hotel Division opens its doors.

In October 2001, following the events of Septem-

ber 11, the Air Division is restructured.

In the year 2003, Globalia Handling is set up and

Viajes Ecuador is acquired.

During 2005, Strong international expansion at the

Group’s Handling Division.

Air Europa and Travelplan begin to operate in

France following the creation of Globalia France.

2006-2007 | Globalia fortalece su posición en

dos áreas Globalia strengthens its position in two

particularly key areas: the Handling Division, with

new contracts won at Spanish airports, and the

Hotel Division, which now boasts more than 10,000

rooms.

Acquisition of Iberrail and a stake in MK Tours.

A contract is signed to acquire 8 Boeing 787

“Dreamliner” aircraft.

2008 | A contract is signed to acquire 11 Em-

braer 195 aircraft with 120 seats and with the most

advanced technology. The Hotel Division operates

more than 11.400 rooms.

2009 | Viajes Halcón begins the process of

expansion through franchised branches operating

under the brand name.

Acquisition of 75% of Tubillete.com, an online trav-

el agency specialising in the sale of airline tickets.

The first four Embraer 195 aircraft begin opera-

tions.

2010 | International expansion of Travelplan,

via the opening of offices in Italy and France. New

“Latitudes” tour operator. Air Europa starts the

operation of new routes to Lima and Miami.

Set up of “Welcome Incoming Services” as a new

business unit focused on incoming travel agency

activity. Air Europa becomes a full member of

SkyTeam.

2011 | New in-house incoming services previous-

ly managed by third parties in Mexico, Dominican

Republic and London.

Inclusion of the Welcomebeds online platform.

2012 | Acquisition of the additional 50% of the

tour operator MK Tours in Miami. Sale of Globalia

Handling Mexico and Pepemobile. Major restruc-

turing of all Group Divisions.

2013 | Restructuring of a significant number of

travel agents in the Retail Division. The Aerial Division

continues to expand its long-distance routes and to

reinforce its short and medium-distance routes.

2014 | Air Europa signs a contract with Boeing

to purchase fourteen B787-9 planes with delivery

expected between February 2020 and October

2022.

2015 | The airline Aeronova is absorbed into

the Air Division. In this same year, agreements

are signed for the purchase of twenty 737 MAX 8

aeroplanes.

2016 | Launch of Air Europa Express, operating 4

Embraer 195 and 1 ATR-72 at the end of the year. The

Retail Division launches the Geomoon brand for its

managed travel agency business.

7

GLOBALIA IN FIGURES(thousands of euros)

CONSOLIDATED INCOME

2016 3,570,834

2012

2013

2014

2,972,821

3,102,892

3,414,805

3,337,423

2015

2016 110,942

2012

2013

2014

149,283

168,836

170,965

191,298

2015

CONSOLIDATED FIXED ASSETS

2016 551,011

2012

2013

2014

429,724

592,600

625,201

579,076

2015

CONSOLIDATED NORMALISED EBITDA

2016 136,617

2012

2013

2014

47,411

160,136

140,005

185,182

2015

CONSOLIDATED PROFIT BEFORE TAXES AND EXTRAORDINARY

2016

2012

2013

2014

-37,419

62,685

69,864

2015

54,417

46,779

2016 15,029

2012

2013

2014

11,738

12,202

12,931

12,232

2015

YEAR-ENDED TOTAL EMPLOYEES

DETAILS REVENUE PER DIVISION 2016

Other

Wholesale- Incoming Division

Air Division

Handling Division

Retail Division

Hotel Division35%

47%

9%4%

4% 1%

DETAILS REVENUE PER GEOGRAPHICAL MARKET 2016

America

Rest of Europe

Spain

Other63%

25%

11%

1%


CONSOLIDATED SHAREHOLDER’S EQUITY

AIR DIVISIONAs for Globalia’s traditional businesses (Wholesale, Retail and Air), these have continued to maintain their leading positions within their respective market segments.

Air Europa was the country’s first privately owned company to operate domestic scheduled flights in Spain. It broke into the tourist sector when demand was at its greatest, and its expansion and growth have made decisive contributions to the maturity of Spain’s commercial aviation market, which there can be no doubt would never have taken on the form it has today if Air Europa had not played its pioneering role.

In its ongoing drive to achieve progress, focusing at all times on customer satisfaction, Air Europa today has one of the most modern fleets in the sector.

In 2007, Air Europa became an associate member of the Sky Team alliance, alongside such airlines as Air France, KLM, Alitalia, Continental Airlines, Delta Airlines and Aeromexico, further consolidating its market position as a scheduled airline.

In 2008 a deal was signed to purchase 11 Embraer 195 with 120 seats and with the most advanced technology. The Embraer fleet allows the company to optimise routes with a low passenger density.

In 2010, Air Europa became a full member of the SkyTeam Alliance.

During 2014, the airline continued to expand and plan new routes to South America, with destinations such as Salvador de Bahía, Santiago de Chile and Sao Paulo, and continued to bolster its lines in Europe and its short-range flights in Spain. New routes to Moroc-co and Germany were also opened.

With an eye on adding 787-8s to its fleet from 2016, Air Europa has been operating an aircraft with these characteristics on its Madrid-Miami route, and using it to train its crews in 2015. During 2015, Air Europa launches its own loyalty program, “SUMA MILES”.

2016 has been a year of strong growth in the long-distance fleet with the inclusion of five 787-8 aircraft. New routes have been operated such as Asunción and Bogotá, and the frequency has been increased for the flights along its pre-existing routes. Launch of Air Europa Express, operating 4 Embraer 195 and 1 ATR-72 at the end of the year.

Air Fleet Flight Time

20162012 2013 2014 2015

40,4 40,9

44,5

51,3

151,251

156,509 171,959

175,490

194,027

45,6

AVERAGE FLEET AND FLIGHT TIME COMPLETED

9

2016

2012

2013

2014

8,114,059

8,690,044

10,221,104

9,586,044

2015

10,679,045

PASSENGERS CARRIED BY AIR EUROPA

11.00 18.73 9.730.92

11.00 19.87 11.61

11.00 18.65 10.50

2.00

0.78

2012

2013

2014

201611.00 20.93 12.00 4.56 1.661.13

201511.00 20.00 12.00 2.58

AVERAGE AIR FLEET COMPOSITION

Boeing 767

Airbus A330-200

Embraer E195

Airbus A330-300

Boeing 737-800 ATR

Boeing 787-8

WHOLESALE DIVISIONEver since it was set up as a wholesale travel agen-cy in 1986, Travelplan has been one of the leading tour operators on the Spanish market with regard to both its number of destinations and number of passengers. Its offer is based on Air Europa’s network of scheduled and charter flights, but also covers every type of product and destination.

As part of its expansion policy, in May 2007 Travel-plan acquired a 50% stake in the US tour operator MK Tours, based in Miami, specialising in the Domi-nican Republic as a destination.

Greats advances have taken place since 2009 with the introduction of new technologies allowing for the development of the Internet business, this channel now accounting for 80% of total sales.

The Division rolled out an international expansion process with the opening of offices and sale of tourism packages in France in 2010, along with the launch of a new top-end line: Latitudes.

During 2012 and 2013 the Wholesale Division underwent a substantial restructuring of its com-panies. The remaining 50% of MK Tours was also acquired, bringing the equity stake held to 100%.

In 2014, Touring Club consolidated its position as the second leading Disney operator in the market and Latitudes continued to grow as the Division’s Premium segment.

During 2015, Globalia’s Wholesale Division, whose brand portfolio includes Travelplan, Touring Club and Latitudes, saw an expansion of 8% in seats sold as compared to 2014, reinforcing its position as the leader in the Spanish issue market, especially in a year that was characterised by strong competition and plenty of offers for the destinations of the Caribbean, the Canaries and the Balearic Islands.

During the year 2016, the Wholesale Division of Globalia, that includes within its brand portfolio Travelplan, Touring Club and Latitudes, has main-

tained and strengthened its leadership position within the Spanish issue market, being a year that has been characterised by strong competition and supply in relation to the Caribbean, Canary Islands and Balearic Islands destinations.

INCOMING DIVISIONThe commercial brand Welcome Incoming Services was created in 2010 in order to provide a specific infrastructure for the most relevant destinations where Globalia operates.

Welcome Incoming Services has been offering com-prehensive incoming services through its network of offices in Spain: North, South and East Coasts; Balearic and Canary Islands; Madrid and Barcelona since 2010.

In 2011 it provided services in France, Mexico, Dominican Republic and London, which were pre-viously managed by third parties. Also, during 2011 some 393,000 passengers contracted our own incoming services, and saw the introduction of the online hotel accommodation sales platform “WEL-COMEBEDS” which will be providing services to all third parties, Travel Agencies and Tour Operators, with a focus on markets where our own incoming operations have a physical presence.

In 2012 WELCOMEBEDS increased its sales and established its position in the online market. The Division also began to market the Coasts product, covering the Northern, Central Eastern, Catalan and Andalusian coastlines of Spain.

2014 represents the year in which the new online accommodation sales business consolidated with 1.4 million “room nights”.

On the 5th anniversary after its creation, Welcome-beds has registered growth of 10% (1.93 million “room nights”).

2016 650

2012

2013

2014

600

588

689

591

2015

WHOSALE DIVISION REVENUES (Millions of Euros)


With the acquisition of Air Europa in 1991, Viajes Halcón experienced its great boom.

Today, Halcón Viajes is established as the undispu-ted leader on the Spanish holiday market in terms of number of points of sale, creation of exclusive products and the outstanding training of its staff.

Acquired by Globalia in 2003, Viajes Ecuador is one of Spain’s best-represented travel agencies thanks to its strong presence across the country, particu-larly in the North. It provides its customers with comprehensive advice, guaranteeing the utmost quality in travel and accommodation.

The Retail Division is today the undisputed Iberian market leader.In 2009 the group acquired a 75% stake in Tubille-te.com, an online travel agency specialising in the sale of airline tickets.

The Division started a franchise branch expansion programme process this year under the Viajes Halcón brand name, making progress in the field of the “e-commerce”, through the following brands: halcon-viajes.com, viajesecuador.com and tubillete.com.

With the objective of staying in the market and adapting to changing circumstances, 2013 has been a year that has seen the large-scale restruc-turing of Viajes Halcón and Viajes Ecuador, both in terms of number of offices and number of emplo-yees: approximately 160 sales points were closed and 450 employees were made redundant. Thanks to these tough and difficult measures, the Division returned to profit in 2014.

2015 has been a year of significant growth in the Retail Division. Apart from being a benchmark in the holiday sector, the Division has substantially increased the weight of its Corporate business, and has consolidated itself as a benchmark brand in the world of sport. All these factors have allowed the Division to substantially improve its results as compared to 2014.

2016 has been a year in which the Division has continued its positive trend of recovery due to the increase in sales. This year the Geomoon brand has been launched in order to encompass all of the managed travel agencies (30 offices at the end of the year). It is expected that in 2017 the Division will strengthen its position in the corporate travel sector and will create several associated stores.

RETAIL DIVISIONAlthough the company’s founder hailed from Salamanca, it was in Cáceres that the first Viajes Halcón agency opened for business in 1971. Not long afterwards, Juan José Hidalgo set up his company’s second branch on Paseo de Anaya, in the city of his birth.

OWN DESTINATION OFFICES

2012

1111

46

Dominican Republic

Cuba

United Kingdom

Mexico

France

Spain coast

Spain

2013

11111

46

2014

11111

466

2015

1111

46

2016

1111

46

11

(Majorca) and the refurbishment of the Hotel Oro-tava (Tenerife).

In 2010 the Division launched its new brand Be Live.

In 2011 Globalia’s portfolio of hotels included 22 establishments with almost 6.200 rooms, operating in Spain (on the mainland, and in the Balearic and Canary Islands), the Mexican Caribbean, the Domin-ican Republic, Cuba and Morocco, with the brand Be Live Hotels.

In 2012 the Division embarked on a new business model with two franchise hotels. It meanwhile gave up its Mexican Caribbean operations.

In 2013 the Division took on the Luabay Hotel Chain with a portfolio of 10 hotels under lease, 1 under management and a total of 2,262 rooms. During that year, the Group opened its first hotel in Portugal under a management contract and acquired ownership of the Canoa Hotel in the Do-minican Republic. Furthermore, the works for the extension and improvement of the hotels in the Dominican Republic continued and consolidated.

Be Live Hotels was reorganised in six different brands in 2015, Collection Resorts (5 star), Be Live Experience Hotels (establishments to suit all kinds of guests), Be Live Family Resorts (family hotels), Be Live Adults Only (absolute relax), Be Smart Hotels (more economical holidays), and Be Live City Center (city hotels, situated at strategic points). The objective of the brand makeover was to offer customers differentiated products and the seg-ment that best suits their needs.

2016 has been characterised by excellent results, both from an occupancy perspective as well as in relation to average revenue, thanks to the good positioning of the hotel complexes in zones with high worldwide demand.

HOTEL DIVISIONGlobalia started operating hotels in the year 2000, with the construction of the Hotel Palace de Muro

YEAR-ENDED SALES OFFICES

Halcon ViagensViajes Halcón

Viajes Ecuador

2015 921

2014 953

667

654

62

61

224

206

2016 903

645 62 196

Business Holiday

29%

32%

35%

71%

68%

65%

2015

2016

2014

EVOLUTION BY TYPE OF BUSINESS


HANDLING DIVISIONGroundforce provides ground support services for the Group’s airline and third parties.

In Spain, following the licences awarded at the end of 2006, Groundforce has succeeded in positioning itself as the second-biggest handling operator in terms of volume and licences awarded, and is the only operator with presence at the first two Span-ish airports, Madrid and Barcelona.

The Group also acquired a 100% stake in Ground-force Cargo during 2006, providing cargo services at Spanish airports.

In 2014 the Handling Division was operating in 7 airports in Spain and 1 in Morocco providing pas-senger ground support services, while also provid-ing cargo services at 14 airports in Spain.

In 2015, Globalia Handling was awarded the con-tracts for third party Handling services, increasing the number of airports in which it operates from 7 to 12: Las Palmas, Bilbao, Zaragoza, North Tenerife, Valencia, Fuerteventura, Barcelona, Malaga, Ma-drid, Alicante, Palma and Ibiza. It stopped operating in the bases of South Tenerife and Seville. It contin-ues to operate in Casablanca Airport (Morocco). 2016 has been a very positive year in light of the new licences issued in 2015. Sales have increased by 26% in relation to 2015 and approximately 170,000 passenger flights have been managed, and over 122,500 tonnes of cargo has also been managed.

13

2016 169,871

2012

2013

2014

123,186

108,999

120,114

115,197

2015

GROUNDFORCE WEIGHTED NUMBER OF SERVICES (% Group)

Mexico

Spain

Morocco

7

7

7

1

1

1

1

6

7

3

3

2012

2013

2014

201511

Autohandling

PASSENGERS GROUND HANDLING EVOLUTION AIRPORTS AND

SELF-HANDLING OPERATED 2012-2016

1 32016

11

HOTELS PORTFOLIO 31/12/2016

4 9

1

4

3

3

3Franchised

Owned

SPAIN-MEDITERRANEAN

DOMINICAN REP.

CUBA Leased

Management

HOTEL ROOM INVENTORY BY AREA 31/12/2016

Canary Islands

Dominican Rep.

Balearic Islands

Spain-Peninsula

Morocco

Cuba

Portugal

9.5%6.3% 6.4%

9.0%

26.1%37.0%

5.9%

Globalia Corporación Empresarial, S.A. and Subsidiaries

CONSOLIDATED BALANCE SHEETS 31 DECEMBER 2016 AND 2015 (Expressed in thousands of Euros)

The accompanying notes form an integral part of the consolidated annual accounts.

Intangible assets Note 7 56,645 59,240 · Goodwill of consolidated companies Note 8 3,694 6,556

· Concessions 2,418 2,460

· Patents, licences, trademarks and similar rights 75 170

· Goodwill Note 8 4,841 5,950

· Computer software 45,596 32,296

· Greenhouse gas emission allowances Notes 7 & 18 - 6,065

· Other intangible assets 21 5,743

Property, plant and equipment Note 9 491,190 546,555 · Land and buildings 227,853 227,122

· Technical installations, machinery, equipment,

furniture and other items 182,025 260,091

· Under construction and advances 81,312 59,342

Investment property Note 10 3,174 3,261 · Land 577 577

· Buildings 2,597 2,684

Non-current investments in Group companies and associates Note 14 847 571 · Equity instruments 100 -

· Equity-accounted investees 636 571

· Loans to companies 111 -

Non-current investments Note 16 85,980 92,182 · Equity instruments 3,132 3,135

· Loans to third parties 3,193 1,571

· Debt securities 8 -

· Other financial assets 79,647 87,476

Deferred tax assets Note 28 30,078 44,870

Total non-current assets 667,914 746,679

Non-current assets held for sale Note 6 2,401 39,170Inventories Note 18 28,767 22,125 · Raw materials and other supplies 21,883 19,749

· By-products, waste and recovered materials 2,179 -

· Advances to suppliers 4,705 2,376

Trade and other receivables Note 16 310,256 299,202 · Trade receivables – current 229,296 220,330

· Other receivables 23,942 22,794

· Personnel 1,086 961

· Current tax assets Note 28 15,092 5,307

· Public entities, other Note 28 40,840 49,810

Current investments Note 16 109,325 135,883 · Equity instruments 349 194

· Loans to companies 9,778 80,200

· Debt securities - 55

· Derivatives Note 17 25,021 2,999

· Other financial assets 74,177 52,435

Prepayments for current assets Note 19 22,321 15,527Cash and cash equivalents Note 20 70,028 49,933 · Cash 70,023 49,928

· Cash equivalents 5 5

Total current assets 543,098 561,840

Total assets 1,211,012 1,308,519

ASSETS 2016note 2015Restated


Restated


CONSOLIDATED BALANCE SHEETS 31 DECEMBER 2016 AND 2015 (Expressed in thousands of Euros)


EQUITY AND LIABILITIES 2016note 2015

Capital and reserves Note 21 110,942 138,526 · Capital 16,894 16,894

· Reserves 88,652 96,248

· Reserves in consolidated companies 23,093 40,234

· Reserves in equity-accounted investees 181 3

· Loss attributable to the Parent (17,878) (14,853)

Valuation adjustments 28,408 (23,001) · Hedging transactions Note 17 18,337 (31,860)

· Translation differences Note 21 10,071 8,859

Non-controlling interests Note 22 1,375 1,416

Total equity 140,725 116,941

Non-current provisions Note 23 91,913 99,070 · Long-term employee benefits 180 180

· Other provisions 91,733 98,890

Non-current payables Note 25 128,296 201,769 · Loans and borrowings 63,751 94,998

· Finance lease payables 60,717 99,232

· Derivatives Note 17 192 95

· Other financial liabilities 3,636 7,444

Deferred tax liabilities Note 28 16,932 16,815

Total non-current liabilities 237,141 317,654

Liabilities associated with non-current assets held for sale Note 6 - 32,476Current provisions 119,379 95,805 · Loyalty programmes 776 1,065

· Provision for greenhouse gas emission allowances 2,814 -

· Other provisions 115,789 94,740

Current payables Note 25 88,925 158,673 · Loans and borrowings 71,441 81,362

· Finance lease payables 8,687 17,693

· Derivatives Note 17 - 45,006

· Other financial liabilities 8,797 14,612

Trade and other payables Note 25 413,596 398,834 · Current payables to suppliers 281,339 272,643

· Other payables 12,966 14,881

· Personnel (salaries payable) 18,213 16,189

· Current tax liabilities Note 28 2,416 1,567

· Public entities, other Note 28 40,158 36,777

· Advances from customers 58,504 56,777

Current accruals Note 27 211,246 188,136

Total current liabilities 833,146 873,924

Total equity and liabilities 1,211,012 1,308,519

17


CONSOLIDATED INCOME STATEMENTS 31 DECEMBER 2016 AND 2015(Expressed in thousands of Euros)


Revenues Note 31 3,544,863 3,379,019 · Services rendered 3,544,863 3,379,019

Changes in inventories of finished goods and work in progress - (30)Self-constructed assets 10,041 9,344 Supplies Note 31 (1,687,016) (1,733,538) · Merchandise used (1,942) (1,927)

· Raw materials and consumables used (1,644,467) (1,678,803)

· Subcontracted work (40,607) (52,808)

Other operating income 25,971 35,786 · Non-trading and other operating income 25,971 35,786

Personnel expenses (526,201) (459,962) · Salaries and wages (405,366) (359,908)

· Employee benefits expense Note 31 (120,835) (100,054)

Other operating expenses (1,231,040) (1,089,385) · Losses, impairment and changes provisions

for commercial transactions Note 16 (452) (1,514)

· Other operating expenses (1,230,588) (1,087,871)

Amortisation and depreciation Notes 7, 9 and 10 (54,792) (52,790) · Impairment and gains/(losses) on disposal of fixed assets 7,449 (808)

Impairment and gains/(losses) Note 9 7,968 (234) · Losses on disposal and other Note 31 (519) (574)

Other income/(expenses) Note 31 218 (54,255)

Results from operating activities 89,493 33,381

Finance income 1,024 2,954 · Marketable securities and other financial instruments

· Group companies and associates 3 -

· Other 1,021 2,954

Finance costs (29,298) (30,214) · Other (29,298) (27,560)

· Provision adjustments - (2,654)

Change in fair value of financial instruments - (323) · Trading portfolio and other Note 16 - (323)

Exchange losses Note 16 (75,605) (17,274) · Other exchange losses (75,605) (17,274)

Impairment and gains on disposal of financial instruments 130 17 · Impairment and gains Note 16 133 17

· Gains/(losses) on disposal and other Note 2 (3) -

Net finance cost (103,749) (44,840)

· Share of profit of equity-accounted investees 130 178

Loss before income tax (14,126) (11,281)Income tax Note 28 (3,184) (3,985)

Loss for the year (17,310) (15,266)

· Loss attributable to the Parent (17,878) (14,853)

· Profit/(loss) attributable to non-controlling interests Note 22 568 (413)

2016note 2015Restated


Restated


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015

A) CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015

(Expressed in thousands of Euros)


2016 2015

Consolidated loss for the year (17,310) (15,266)Income and expense recognised directly in equity · Cash flow hedges 24,925 (42,103)

· Translation differences

· Differences on translation into presentation currency 1,212 2,325

· Tax effect (6,233) 10,526

Total income and expense recognised directly in consolidated equity 19,904 (29,252)

Amounts transferred to the consolidated income statement · Cash flow hedges 42,029 64,461

· Tax effect (10,524) (18,055)

Total amounts transferred to the consolidated incomestatement 31,505 46,406

Total consolidated recognised income and expense 34,099 1,888

Total recognised income and expense attributable to the Parent 33,531 2,301Total income and expense attributable to non-controlling interests 568 (413)

19


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015

B) STATEMENT OF TOTAL CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016


B) STATEMENT OF TOTAL CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016



Balance at 31 December 2015 16,894 136,486 (14,853) (23,001) 1,416 116,942

· Adjustments for changes in

criteria 2015 and prior years - (9,707) - - (408) (10,115)

Adjusted balance at 1 January 2016 16,894 126,779 (14,853) (23,001) 1,008 106,827

Recognised income and expense - - (17,878) 51,409 568 34,099Transactions with shareholders or owners · Application of loss for the period

· Reserves - (14,853) 14,853 - - -

Dividends - - - - (201) (201)

Balance at 31 December 2016 16,894 111,926 (17,878) 28,408 1,375 140,725

Reserves and prior years’ profit and

lossValuation

adjustmentsCapital Total

Non- controlling

interests

Loss for the year attributable to

the Parent

Balance at

31 December 2014 16,894 180,404 (13,997) (6,000) (40,155) 1,872 139,018

· Corrections of errors

2013 and prior years - (442) - - - - (442)

Adjusted balance at

1 January 2015 16,894 179,962 (13,997) (6,000) (40,155) 1,872 138,576

Recognised income and expense - - 4,106 - 17,154 (413) 20,847Transactions withshareholders or owners · Application of loss

for the period

· Reserves - (13,997) 13,997 - - - -

· Dividends - (16,000) - 6,000 - - (10,000)

Adjustments for changes

in criteria (note 2 b) - (29,772) (18,959) - - - (48,731)

Other movements - - - - - (43) (43)

Balance at

31 December 2015 16,894 136,485 (14,853) - (23,001) 1,416 116,941

Valuation adjustments Total

Non- controlling

interestsInterim

dividend

Reserves and prior years’ profit and

lossCapital

Loss for the year attributable to

the Parent



21

Restated


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED31 DECEMBER 2016 AND 2015 (Expressed in thousands of Euros)

2016 2015

Consolidated cash flows from operating activitiesConsolidated profit for the year before tax (14,126) (11,281)Consolidated adjustments for: · Amortisation and depreciation 54,792 52,790 · Impairment 452 1,514 · Change in provisions 12,693 38,167 · Proceeds from/(losses on) disposals and sale of fixed assets (7,449) 808 · Finance income (1,024) (2,954) · Finance costs 29,298 27,560 · Exchange gains 71,182 (10,320) · Change in fair value of financial instruments (130) (17) · Other income and expenses - 408 · Share in losses of equity-accounted investees (130) (178)Changes in consolidated operating assets and liabilities · Inventories (577) 1,077 · Trade and other receivables (1,721) (7,561) · Other current assets (6,794) (37,536) · Trade and other payables 5,611 49,203 · Other current liabilities 23,110 (20,309) · Other non-current assets and liabilities 14,157 -Other consolidated cash flows from operating activities · Interest paid (29,298) (27,281) · Interest received 1,024 2,954 · Income tax paid (5,371) (18,251)Consolidated cash flows from/(used in) operating activities 145,699 38,793

Consolidated cash flows from investing activitiesPayments for investments · Related entities (146) - · Intangible assets (23,645) (21,473) · Property, plant and equipment (181,367) (89,632) · Other financial assets (26,524) (14,270) · Non-current assets held for sale - (39,170)Proceeds from sale of investments · Intangible assets 5,536 3,034 · Property, plant and equipment 194,709 15,775 · Investment property - 1,316 · Other financial assets 55 33 · Non-current assets held for sale 36,769 -Consolidated cash flows from/(used in) investing activities 5,387 (144,387)

Consolidated cash flows from financing activitiesProceeds from and payments for financial liability instruments · Issue · Loans and borrowings 43,110 184,885 · Other 25,230 14,397 · Redemption and repayment of · Loans and borrowings (84,278) (84,424) · Other (114,852) (12,871)Dividends and interest on other equity instruments (201) (10,000)Consolidated cash flows from/(used in) financing activities (130,991) 91,987Net increase/(decrease) in cash and cash equivalents 20,095 (13,607)Cash and cash equivalents at beginning of year 49,933 63,540Cash and cash equivalents at year end 70,028 49,933

1. NATURE, ACTIVITIES AND COMPOSITION OF THE GROUP

Globalia Corporación Empresarial, S.A. (hereinafter the Parent) was incorporated in Palma de Mallorca on 14 May 1997. Its statutory activity consists of the rendering of management, advisory and other business services as well as the holding of fixed assets, investments, bonds, shares and interests in other companies. In 1998 the Parent changed its name from GAE Corporación Empresarial, S.A. to its current name. The Parent’s registered office is located in Polígono de Son Noguera, Llucmajor, Balearic Islands.

The Globalia Group (hereinafter the Group) oper-ates in the transportation, travel and tourism sec-tor and basically comprises: the Parent, as head of the Group; Air Europa Líneas Aéreas, S.A.U., which acts as an air carrier and has a fleet of 54 jet aircraft (48 aircraft at 31 December 2015); Globalia Business Travel, S.A.U. and Globalia Travel Club Spain, S.L.U., which are present in the tour

operator sector Viajes Halcón, S.A.U. and Viajes Ecuador S.A.U., with 1,012 points of

sale in Spain (1,024 points of sale at 31 December 2015) and Halcon Viagens e Turismo Lda, with 62 points of sale in Portugal (63 points of sale at 31 December 2015), which sell tourism-related prod-ucts to customers; Welcome Incoming Services, SLU, which provides incoming services; the Hotel division, headed by Be Live Hotels, S.L.U. and operating a total of 27 hotels in Spain and the Car-ibbean (27 hotels at 31 December 2015); Globalia Handling, S.A.U., as head of the Handling division, which provides ground handling services at the main Spanish airports; Globalia Autocares, S.L., which has a fleet of 52 coaches (43 at 31 October 2014) and Globalia Mantenimiento Aeronáutico, S.L.U., which owns and operates the maintenance hangar located at Palma de Mallorca airport. The Group also includes other entities that provide ancillary services for the core activities.

The Group also holds interests in associates (see appendix III) and jointly controlled entities (see ap-pendix IV) and participates in several joint ventures along with other venturers (see appendix V).

NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTSGLOBALIA CORPORACIÓN EMPRESARIAL, S.A.

AND SUBSIDIARIES


2. BASIS OF PRESENTATIONA) TRUE AND FAIR VIEWThe accompanying consolidated annual accounts have been prepared on the basis of the accounting records of Globalia Corporación Empresarial, S.A. and subsidiaries. The consolidated annual accounts for 2016 and 2015 have been prepared in accord-ance with prevailing legislation, the Spanish Gen-eral Chart of Accounts and the standards for the preparation of consolidated annual accounts, to give a true and fair view of the consolidated equity and consolidated financial position at 31 December 2016 and consolidated results of operations, con-solidated changes in equity, and consolidated cash flows for the year then ended.

The directors consider that the consolidated an-nual accounts for 2016, authorised for issue on 15 March 2017 will be approved with no changes by the shareholders at their annual general meeting.

B) COMPARATIVE INFORMATIONThe consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and the notes thereto for 2016 include comparative figures for 2015, which formed part of the consolidated annual accounts approved by shareholders at the annual general meeting held on 14 April 2016.

Royal Decree 602/2016 of 2 December 2016, amending the Spanish General Chart of Accounts approved by Royal Decree 1514/2007 of 16 November 2007; the Spanish General Chart of Accounts for small and medium-sized enterpris-es approved by Royal Decree 1515/2007 of 16 November 2007; the standards for the preparation of consolidated annual accounts approved by Royal Decree 1159/2010 of 17 September 2010; and the standards for the adaptation of the Spanish General Chart of Accounts for non-profit entities approved by Royal Decree 1491/2011 of 24 Oc-tober 2011, which is effective for annual periods beginning on or after 1 January 2016, amended the measurement criteria for intangible assets, the presentation criteria for emission allowances and certain disclosure requirements.

i) New disclosure requirementsPursuant to article 1 of the Royal Decree, the notes to the annual accounts for 2016 include the

additional information on related party transac-tions set out in note 30, and the average number of employees in the year with a disability rating equal to or higher than 33%, indicating their employment category, disclosed in note 32.

Pursuant to the sole transitional provision, this in-formation is not required for comparative purposes and therefore the annual accounts for 2016 are not directly comparable with those of the prior year.

ii) Emission allowancesIn accordance with additional provision one of the Royal Decree, from 1 January 2016 greenhouse gas emission allowances are classified as inventories under raw materials and other supplies, and pre-sented separately between long cycle (allowances which are expected to be consumed in a period of more than one year) and short cycle. Until 1 January 2016 emission allowances were classified as intangible assets, therefore the annual accounts for 2016 are not directly comparable with those of the prior year.

iii) Change in amortisation criteria for intangible assets

The Royal Decree stipulates that all intangible assets, including goodwill, are assets with finite useful lives and should therefore be systemati-cally amortised over the period in which they are expected to generate a return for the Company, as indicated in notes 7 and 8.

In accordance with the sole transitional provision of this Royal Decree, the Company has opted to amortise retrospectively goodwill and other intangible assets previously considered to have in-definite useful lives on a straight-line basis over a useful life of ten years beginning as of the earlier of the acquisition date or the start of the period in which the prevailing Spanish General Chart of Accounts was applied for the first time. The amortisation charges relating to periods prior to 1 January 2015 have been recognised with a charge to reserves.

This retrospective application consists of charging accumulated impairment losses recognised in pri-or years to reserves and recognising accumulated amortisation instead, when the latter exceeds the former. Otherwise, the amount of accumulated impairment losses exceeding accumulated amor-tisation is maintained as accumulated impairment losses.

23

(iv) Correction of errorsAs indicated in note 34, the Group is involved in le-gal proceedings for which the directors recognised a provision for the estimated potential contingency at 31 December 2015. However, this provision was corrected in 2016, recognising the effect of the difference under ‘other expenses’ in the consoli-

dated income statement and ‘current provisions’ in the accompanying consolidated balance sheet at 31 December 2015.

Consequently, the Company has restated the com-parative figures. Details are as follows:

v) Changes in the consolidated GroupChanges in the consolidated group for the year ended 31 December 2016 were as follows:

- Pipa Holding, B.V. merged with its sole share-holder Globalia Travel, B.V. as proposed by the shareholders at their general meeting. The merger became effective on 1 January 2016.

- During the year the Group company Be Live Hotels, S.L.U. sold the shares it held in Operadora Globalia de México S. de R.L. de C.V.

- Globalia Traveling, S.L.U., Globalia Autocares Levante, S.L. and Air Europa Suma Miles, S.L.U., incorporated on 21 April 2016, 2 August 2016 and 7 April 2016, respectively, became part of the con-solidated Group.

- Changes in the consolidated group for the year ended 31 December 2015 were as follows:

- Aeronova, S.L., Eurogestion Hoteliere, S.A.R.L. and Panamericana de Servicios Energéticos, S.A.S. were consolidated for the first time.

C) FUNCTIONAL AND PRESENTATION CURRENCY

The figures disclosed in the consolidated annual accounts are expressed in thousands of Euros, the functional and presentation currency of the Parent and most of the Group companies, rounded off to the nearest thousand.

D) CRITICAL ISSUES REGARDING THE VALUATION AND ESTIMATION OF RELEVANT UNCERTAINTIES AND JUDGEMENTS USED WHEN APPLYING ACCOUNTING PRINCIPLESRelevant accounting estimates and judgements and other estimates and assumptions have to be made when applying the Group’s accounting princi-ples to prepare the consolidated annual accounts. A summary of the items requiring a greater degree of judgement or which are more complex, or where the assumptions and estimates made are signifi-cant to the preparation of the consolidated annual accounts, is as follows:

Intangible assets 75,386 (16,146) 59,240Goodwill of consolidated companies 17,565 (11,009) 6,556Goodwill 11,087 (5,137) 5,950Equity 170,965 (16,146) 154,819Reserves 109,728 (13,480) 96,248Profit/(loss) for the year 3,693 (18,959) (15,266)Current provisions (79,512) (16,293) (95,805)

Amortisation and depreciation (50,124) (2,666) (52,790)Other expenses (37,962) (16,293) (54,255)Loss for the year (88,086) (18,959) (107,045)

Amortisation and depreciation 50,124 2,666 52,790Change in provisions 21,874 16,293 38,167Profit for the year 71,998 18,959 90,957

Balance sheet

Income statement

Statement of Cash Flows

2015Balance

thousands of euros

AdjustmentsRestated 2015

balance


i) Relevant accounting estimates and assumptions

The Group analyses whether goodwill is impaired. The calculation of the recoverable amount of a seg-ment to which goodwill has been allocated requi-res the use of estimates. The recoverable amount is the higher of fair value less costs to sell and value in use. The Group generally uses cash flow discoun-ting methods to calculate these values. Discounted cash flow calculations are based on five-year pro-jections in the budgets approved by the Group. The cash flows take into consideration past experience and represent the Group’s best estimate of future market performance. From the fifth year cash flows are extrapolated using individual growth rates.

The key assumptions employed when determining fair value less costs to sell and value in use include growth rates, the weighted average cost of capital and tax rates. The estimates, including the metho-dology used, could have a significant impact on values and impairment.

Group management estimates the useful life of as-sets and their residual value. Given the complexity and relevance of the residual value of the aircraft owned or held under finance leases by the Group, management uses reports prepared by indepen-dent third parties to estimate this value. Air Europa Líneas Aéreas, S.A.U. is subject to regu-latory processes and inspections by government bodies in charge of air traffic. The Parent recognises a provision if it is probable that an obligation will exist at year end which will give rise to an outflow of resources embodying economic benefits and the outflow can be reliably measured. Legal processes usually involve complex legal issues and are subject to substantial uncertainties. As a result, manage-ment uses significant judgement when determining whether it is probable that the process will result in an outflow of resources embodying economic benefits and estimating the amount. The calculation of provisions for major repairs is subject to a high de-gree of uncertainty given that it is based on an indi-vidual analysis of the different components subject to review for each aircraft. Air Europa Líneas Aéreas, S.A.U. recognises provisions for major repairs when the total cost can be reliably measured.

Following usual sector practice, Air Europa Líneas Aéreas, S.A.U. prepares an estimate of the reve-nues from tickets sold and not used and that will not be used in the future.

3. DISTRIBUTION OF PROFIT/APPLICATION OF LOSSES OF THE PARENT

Losses for the year ended 31 December 2015 were carried forward as prior years’ losses, as proposed by the board of directors and approved by the shareholders at the annual general meeting held on 14 April 2016.

The proposed distribution of the Parent’s profit for 2016 and other reserves to be submitted to the shareholders for approval at their annual general meeting is as follows:

25

Basis of allocation Profit for the year 23,483 Distribution Offset of prior years’ losses 21,076Reserves 2,407 23,483

Thousands of Euros

At 31 December the non-distributable reserves of the Parent are as follows:

Parent reserves: Legal reserve 3,379 3,379

Thousands of Euros

2016 2015

4. SIGNIFICANT ACCOUNTING POLICIES

A) SUBSIDIARIESSubsidiaries are entities, including special purpose entities (SPE), over which the Company, either direct-ly or indirectly through subsidiaries, exercises control as defined in article 42 of the Spanish Code of Com-merce. Control is the power to govern the financial and operating policies of an entity or business so as to obtain benefits from its activities. In assessing control, potential voting rights held by the Group or other entities that are exercisable or convertible at the end of each reporting period are considered.

For presentation and disclosure purposes only, Group companies are considered to be those con-trolled by one or more individuals or entities acting jointly or under the same management through statutory clauses or agreements.

Control may also be exercised without ownership by participating in the risks and rewards of the entity; such companies are known as Special Purpose Enti-ties (SPE). Llucmajor Limited, which was incorporat-ed on 15 October 2014 to provide guarantees to the aircraft manufacturer and the financial institution regarding compliance with the contract for the ac-quisition of two B737-800 aircraft until their delivery to Air Europa Líneas Aéreas, S.A.U. in 2016, was included in the consolidated Group. However, at 31 December 2016 the Group has not consolidated the special purpose entities called Palma Limited, El Prin-cipio Limited and Bellver LTD that assumed the con-tractual position for the acquisition of eight Boeing 787-8, of which three will be delivered in 2017, or the entities incorporated in 2016 called PDP Globalia 1, Limited and PDP Globalia 2, Limited that assumed the contractual position for the acquisition of three Boeing 737-800, which will be delivered in 2017, because they are controlled by the future lessors, which retain the risks and rewards of these transac-tions. After delivery, Air Europa Líneas Aéreas, S.A.U. will operate these aircraft under operating leases.

The consolidated annual accounts include the profit/loss of a subsidiary, See Europe Tours Lim-ited, registered in the United Kingdom, which has availed of the exemption from the audit of individ-ual annual accounts provided for in article 479a of the UK Companies Act of 2006.

Subsidiaries are fully consolidated.

Information on the subsidiaries included in the con-solidated Group is presented in Appendix I.

Information on companies that have not been consolidated because their impact on the fair presentation of the consolidated annual accounts is immaterial has been included in Appendix II.

Transactions and balances with subsidiaries and un-realised gains or losses have been eliminated upon consolidation. Nevertheless, unrealised losses have been considered as an indicator of impairment of the assets transferred.

The Parent and its subsidiaries form an integrated group engaged in transport, travel and tourism and therefore transactions between the airline, tour operators and travel agencies are very significant. All accounts and transactions between consoli-dated entities, particularly the aforementioned businesses, have been eliminated on consolidation, including investments between these entities, giving rise, where applicable, to the corresponding goodwill on consolidation. The subsidiaries’ accounting policies have been adapted to Group accounting policies, for like trans-actions and other events in similar circumstances.


27

The timing of the annual accounts or financial statements of subsidiaries has been harmonised and relevant adjustments have been made to reflect the effect of transactions and significant events occurred between the closing date of sub-sidiaries and the closing date of the Parent.

B) NON-CONTROLLING INTERESTS Non-controlling interests in subsidiaries acquired after the transition date are recognised at the acquisition date at the proportional part of the fair value of the identifiable net assets. Non-controlling interests in subsidiaries acquired prior to the tran-sition date were recognised at the proportional part of the equity of the subsidiaries at the date of first consolidation. Non-controlling interests are presented separately from equity attributable to the Parent in the consolidated balance sheet within equity. Non-controlling interests’ share in profit or loss for the year is also presented separately in the consolidated income statement.

The profit or loss and changes in equity of the subsidiaries attributable to the Group and non-con-trolling interests after consolidation adjustments and eliminations, is determined in accordance with the percentage ownership at year end.

The profit/loss and recognised income and expense of subsidiaries are allocated to equity attributable to the Parent and to non-controlling interests in proportion to their investments, even if this results in a balance receivable from non-controlling inter-ests. Agreements entered into between the Group and non-controlling interests are recognised as a separate transaction.

Increases and reductions in non-controlling inter-ests in subsidiaries in which control is retained are recognised as equity instrument transactions. Consequently, no new acquisition cost arises on in-creases nor is a gain recorded on reductions; rather, the difference between the consideration given or received and the carrying amount of the non-con-trolling interests is recognised in the reserves of the Parent, notwithstanding the reclassification of consolidation reserves and the reallocation of recognised income and expense between the Group and the non-controlling interests. When a Group’s interest in a subsidiary increases, non-con-trolling interests are recognised at their share of the consolidated net assets, including goodwill on consolidation.

C) ASSOCIATES Associates are companies over which the Parent, either directly, or indirectly through subsidiaries, exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The existence of potential voting rights that are exer-cisable or convertible at the end of each reporting period, including potential voting rights held by the Group or third parties, are considered when assess-ing whether an entity has significant influence.

Investments in associates are accounted for using the equity method from the date that significant influence commences until the date that significant influence ceases. However, associates that qualify for classification at the acquisition date as non-cur-rent assets or disposal groups held for sale are recognised at fair value less costs to sell. Details of equity-accounted investees are included in Appendix III.

The Group’s share of the profit or loss of an associ-ate from the date of acquisition is recognised as an increase or decrease in the value of the investment, with a credit or debit to share in profit/loss of equi-ty-accounted investees in the consolidated income statement. The Group’s share of the total recognised income and expense of associates from the date of acquisition is recognised as an increase or decrease in investments in associates with a balancing entry in consolidated equity accounts. The distribution of dividends is recognised as a decrease in the value of the investment. The Group’s share of profit or loss, including impairment losses recognised by the asso-ciates, is calculated based on income and expenses arising from application of the acquisition method.

The accounting policies of associates have been harmonised in terms of timing and measurement, applying the policies described for subsidiaries.

The timing of the annual accounts or financial statements of associates has been harmonised and the relevant adjustments have been made to reflect the effect of transactions and significant events occurred between the closing date of asso-ciates and the closing date of the Parent.

i) ImpairmentThe Group applies the impairment criteria set out in the section on financial instruments to deter-

mine whether additional impairment losses to those already recognised on the net investment in the associate, or on any other financial asset held as a result of applying the equity method, should be recognised.

Impairment is calculated by comparing the carry-ing amount of the investment with its recoverable amount. The recoverable amount is the higher of value in use and fair value less costs to sell.

Value in use is calculated based on the Group’s share of the present value of future cash flows expected to be derived from ordinary activities and from the disposal of the asset, or the estimat-ed cash flows expected to be received from the distribution of dividends and the final disposal of the investment.

Nonetheless, and in certain cases, unless better evidence of the recoverable amount of the invest-ment is available, when estimating impairment of these types of assets, the investee’s equity is taken into consideration, adjusted, where appropriate, to generally accepted accounting principles and standards in Spain, corrected for any net unrealised gains existing at the measurement date.

d) Joint ventures Joint ventures are those in which there is a statu-tory or contractual agreement to share the control over an economic activity, in such a way that stra-tegic financial and operating decisions relating to the activity require the unanimous consent of the Parent and the remaining venturers.

Group joint ventures adopt the form of investments in jointly controlled entities, operations and assets.

Details of jointly controlled entities are provided in Appendix IV. Jointly controlled operations and assets are those in which there is a statutory or contractual agreement to share the control over an economic activity, in such a way that strategic financial and operating decisions relating to the activity require the unanimous consent of the Group and the re-maining venturers.

Information relating to jointly controlled opera-tions, referred to as UTEs (Unión Temporal de Em-presas – a form of temporary business association), is presented in Appendix V.

Investments in jointly controlled entities are proportionately consolidated from the date joint control is obtained until the date joint control ceases. However, investments that are classified as non-current assets or disposal groups held for sale at the date joint control is obtained are recognised at fair value less costs to sell.

The Group recognises assets controlled and liabilities incurred in respect of jointly controlled operations, as well as the proportional part of jointly controlled assets and liabilities and of expenses incurred and income earned from the sale of goods or services by the joint venture. The statement of changes in equity and the state-ment of cash flows also include the proportional part corresponding to the Group by virtue of the agreements reached.

Reciprocal transactions, balances, income, expens-es and cash flows have been eliminated in pro-portion to the interest held by the Group in joint ventures. All dividends have been eliminated. Unrealised gains and losses from non-monetary contributions or downstream transactions in joint ventures are recognised based on the substance of the transaction. Where the assets are retained by the joint ventures and the Group has trans-ferred the significant risks and rewards of owner-ship, only the portion of the gain or loss that is at-tributable to the interests of the other venturers is recognised. Unrealised losses are not eliminated if they provide evidence of an impairment loss.

The Group only recognises the portion of gains and losses on transactions in joint ventures that is attributable to the interests of the other venturers. In the event of losses, the Group applies the same recognition criteria as those described in the previ-ous paragraph.

The Group has made the necessary measurement and timing harmonisation adjustments to incorpo-rate its joint ventures in the consolidated annual accounts.

The timing of the annual accounts or financial statements of joint ventures has been harmo-nised and the relevant adjustments have been made to reflect the effect of transactions and significant events occurred between the closing date of the joint ventures and the closing date of the Company.


29

E) FOREIGN CURRENCY TRANSACTIONS, BALANCES AND CASH FLOWS

i) Foreign currency transactions, balances and cash flows

Foreign currency transactions have been translated into Euros using the exchange rate prevailing at the transaction date. Some Spanish Group companies which operate in US Dollars recognise purchases and sales using a standard exchange rate, in ac-cordance with the Group policy of contracting the appropriate financial instruments to hedge against fluctuations in the US Dollar exchange rate. The dif-ferences between the standard exchange rate and the settlement or hedging rate are recognised as exchange gains or losses in the income statement. Monetary assets and liabilities denominated in foreign currencies have been translated into Euros at the closing rate, while non-monetary assets and liabilities measured at historical cost have been translated at the exchange rate prevailing at the transaction date.

Non-monetary assets measured at fair value have been translated into Euros at the exchange rate at the date that the fair value was determined. In the consolidated statement of cash flows, cash flows from foreign currency transactions have been translated into Euros at the exchange rates at the dates the cash flows occur.

ii) Translation of foreign operationsIn accordance with the exception relating to cumulative translation differences set out in the second transitional provision of Royal Decree 1514/2007 approving the Spanish General Chart of Accounts, translation differences recognised in the consolidated annual accounts generated prior to 1 January 2008 have been classified under investor reserves. Consequently, the historical exchange rate applicable to the translation of foreign opera-tions is the exchange rate prevailing at the transi-tion date.

As of that date, foreign operations whose function-al currency is not the currency of a hyperinflation-ary economy have been translated into Euros as follows:- Assets and liabilities, including goodwill and net

asset adjustments derived from the acquisition of the operations are translated at the closing rate at the reporting date;

- Income and expenses are translated at the aver-age exchange rate for the period; and

- All resulting exchange differences are recognised as translation differences in consolidated equity.

These criteria are also applicable to the translation of the financial statements of equity-accounted investees, with translation differences attributable to the Parent recognised in consolidated equity.

The translation into Euros described in the preced-ing paragraph using the closing exchange rate is performed on the functional currency. Given the economic and financial characteristics of certain companies’ activities, the functional currency is considered to be the US Dollar rather than the of-ficial currency of the country where the registered office is located.

The translation from local currency to functional currency implies the use of historical exchange rates for the non-monetary balance sheet and income statement items and the exchange rate prevailing at year end for monetary items. Cash and those items that are representative of accounts receivable and payable are considered to be monetary items.

When the date of the financial statements of foreign operations differs from that of the Parent, the assets and liabilities, including goodwill and net asset adjustments derived from the acquisition of the operations, are translated at the rate prevailing at the reporting date of the foreign operation and any necessary adjustments are made to balances and transactions with the Group in respect of ex-change rate fluctuations up to the reporting date.

F) CAPITALISATION OF BORROWING COSTS AND EXCHANGE DIFFERENCES

As permitted by the second transitional provision of Royal Decree 1514/2007 approving the Spanish General Chart of Accounts, the Group opted to apply this accounting policy to work in progress at 1 January 2008 that will not be available for use, capable of operating or available for sale for more than one year. Until that date, the Group opted to recognise borrowing costs as an expense as they were incurred.

Borrowing costs related to specific and general financing that are directly attributable to the ac-

quisition, construction or production of intangible assets (except capitalised research and develop-ment expenditure), property, plant and equipment, investment property, and inventories that will not be available for use, capable of operating or availa-ble for sale for more than one year are included in the cost of the asset, as well as exchange differenc-es to the extent that they comprise an adjustment to the interest rate of the transaction.

To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capi-talisation is determined as the actual borrowing costs incurred. Non-commercial general borrowing costs eligible for capitalisation are calculated as the weighted average of the borrowing costs applica-ble to outstanding borrowings during the period, other than those specifically for the purpose of obtaining a qualifying asset and the portion financed using consolidated equity. The borrowing costs capitalised cannot exceed the borrowing costs incurred during that period. When deter-mining borrowing costs eligible for capitalisation, adjustments to the finance costs corresponding to the effective portion of hedges entered into by the Group are considered. These calculations are based on the Group’s financial structure.

The Group begins capitalising borrowing costs as part of the cost of a qualifying asset when it incurs expenditures for the asset, interest is accrued, and it undertakes activities that are necessary to prepare the asset for its intended use or sale, and ceases capitalising borrowing costs when all or substantially all the activities necessary to prepare the qualify-ing asset for its intended use or sale are complete. Nevertheless, capitalisation of borrowing costs is suspended when active development is interrupted for extended periods, except where a temporary delay is a necessary part of the process of getting an asset ready for its intended use or sale.

The Group capitalises exchange differences on receivables in foreign currency that fall due in more than one year which specifically finance the con-struction or production of non-monetary assets in the same currency and which will not be available for use, capable of operating or available for sale for more than one year.

Capitalised exchange differences are recognised in the consolidated income statement under capital-ised exchange differences.

G) INTANGIBLE ASSETSIntangible assets are measured at cost of acquisi-tion or production, using the same criteria as for determining the cost of production of inventories. Capitalised production costs are recognised under self-constructed assets in the consolidated income statement. Intangible assets are carried at cost, less any accumulated amortisation and impairment.

Expenditure on activities that contribute to increas-ing the value of the Group’s business as a whole, such as goodwill, trademarks and other similar items generated internally, as well as establish-ment costs, are recognised as expenses when incurred. i) Industrial property, patents and

trademarksIndustrial property rights primarily consist of land rights over the plot on which the Be Live Smart Talavera Hotel was built, amounting to Euros 2,394 thousand. These land rights are valid for 75 years starting 16 November 2005 and are amortised over the remaining useful life of this concession from the date on which the Group acquired the compa-ny, that is, 70 years.

Administrative concessions include the costs in-curred in their procurement.

ii) Goodwill on consolidation and goodwill Goodwill on consolidation arises from the consoli-dation of subsidiaries and joint ventures. Goodwill arises from business combinations recognised in the individual annual accounts of consolidated companies.

Goodwill can only be recognised under assets when its value arises from an onerous acquisition within the context of a business combination. The amount of goodwill is determined in accordance with the standard on business combinations and it must be allocated from the acquisition date to each of the Company’s cash-generating units that are expect-ed to benefit from the synergies of the business combination.

After initial recognition, goodwill is measured at cost of acquisition, less accumulated amortisation and, where applicable, the accumulated amount of recognised impairment adjustments.

Goodwill is amortised over its useful life. Useful life is determined separately for each cash-generating


31

unit to which goodwill has been allocated. It will be presumed, unless there is evidence to the contrary, that the useful life of goodwill is ten years, to be amortised on a straight-line basis.

At least once a year, the cash-generating units to which goodwill has been allocated will be analysed for indications of impairment. If such indications exist, the potential impairment will be measured using the criteria provided for property, plant and equipment. Impairment losses on goodwill will not be reversed in subsequent years.

The Group has recognised goodwill amounting to Euros 8,535 thousand (Euros 28,652 thousand at 31 December 2015).

iii) Computer softwareComputer software acquired and produced by the Company, including website costs, is recognised when it meets the conditions for consideration as

development costs. Expenditure on developing a website to promote and advertise the Group’s own products or services is recognised as an ex-pense when incurred. Computer soft-ware maintenance costs are charged as expenses when incurred.

iv) Emission allowancesUnder Directive 2003/87/EC and subsequent amendments to the Directive of the European Parliament and of the Council, which established a trading scheme for greenhouse gas emission allowances in the Europe-an Community, measures aimed at reducing the impact of aviation on climate change came into effect in 2012, requiring airlines to assume certain costs for CO2 emissions from flights from or to any country in the European Union.

On 17 November 2014, the Compa-ny received a notification from the Spanish Ministry for Agriculture, Food and the Environment, stating that Regulation (EU) No 421/2014 in-troduced a number of amendments: the European emission allowances trading scheme for 2013 to 2016 is only applicable to emissions in the European Economic Area. It is not

applicable to emissions from flights operated from 2013 to 2016 between airports in the outermost regions, as defined in article 349 of the Treaty on the Functioning of the European Union (TFEU), and airports located in another region in the Europe-an Economic Area. From 1 January 2013 until 31 December 2020, the emission allowances trading scheme will exclude flights undertaken by opera-tors of non-commercial aircraft with emissions of less than 1000 tonnes per year.

In accordance with the above, the number of allow-ances granted free of charge to aircraft operators should be reduced in proportion to the reduced scope of application of the trading scheme for 2013 to 2016. To this end, member states should adapt the emission allowances granted to each aircraft operator for these annual cycles.

In accordance with the mandate established in Regulation (EU) No 421/2014, through the agree-

ment dated 7 November 2014, the Council of Ministers amended the free allocation of allowanc-es for 2013 to 2016 for aircraft operators, which had been approved by agreement of the Council of Ministers on 16 December 2011 and subsequently corrected on 13 July 2012. The definitive allocation of allowances exclusively for 2013 to 2016 totalled 252,224, with no amendment, as a result of this agreement, of the amounts foreseen for the trad-ing period, i.e. 2017 to 2020.

Upon allocation of these allowances the Company recognised them as inventories under “Greenhouse gas emission allowances” for an amount of approx-imately Euros 1,211 thousand in accordance with their fair market value. At the date of recognition the Company also recorded a non-refundable capi-tal grant for the same amount. After initial recogni-tion, emission allowances were carried at the value attributed to them upon their receipt or acquisition and were not amortised.

In 2015, upon allocation of these allowances the Company recognised them as intangible assets under “Greenhouse gas emission allowances” for an amount of approximately Euros 2,013 thou-sand in accordance with their fair market value. At the date of recognition the Company also recorded a non-refundable capital grant for the same amount. After initial recognition, emission allowances were carried at the value attributed to them upon their receipt or acquisition and were not amortised.

The non-current provisions recognised with a balancing entry under other operating expenses reflect the expenses associated with the Compa-ny’s greenhouse gas emissions for the year. Where allowances for such emissions are available these provisions are measured at the amount at which the allowances were granted or acquired. Where these allowances are not available the Company recognises the best possible estimate of the cost to be incurred to cover the shortfall a) Firstly, through allocated emission allowances, which are then used to cancel actual emissions in proportion to total forecast emissions for the entire period to which they have been allocated. The expense corresponding to this part of the obligation is deter-mined based on the carrying amount of the transferred emission allowances.

b) Secondly, through the remaining emission al-lowances recorded. Expenditure on this part of the obligation is measured as the weighted average cost of the emission allowances.

Emission allowances acquired for the purpose of being sold are classified and measured based on the standards applicable to inventories.

The non-refundable grants associated with emis-sion allowances received free of charge are taken to profit and loss in line with the recognition of the expenses derived from the gas emissions related to the subsidised allowances.

v) LeaseholdsLeaseholds are rights to lease premises which have been acquired through an onerous contract subro-gated by the Group.

vi) Subsequent costsSubsequent costs incurred on intangible assets are recognised in profit and loss, unless they increase the expected future economic benefits attributa-ble to the intangible asset.

vii) Useful life and amortisation ratesThe Group assesses whether the useful life of each intangible asset acquired is finite or indefinite. An intangible asset is regarded by the Group as having an indefinite useful life when there is no foresee-able limit to the period over which the asset will generate net cash inflows.

Intangible assets with indefinite useful lives are not amortised, but are instead tested for impairment on an annual basis or whenever there is an indica-tion that the intangible asset may be impaired.

Intangible assets with finite useful lives are amor-tised by allocating the depreciable amount of an asset on a systematic basis over its useful life, by applying the following criteria:

Goodwill Straight-line 10Industrial property, patents and trademarks Straight-line 5Concessions Straight-line 6Computer software Straight-line 6Leaseholds Straight-line 10

Amortisation method

Estimated years of useful life


33

The depreciable amount of intangible assets is measured as the cost of the asset, less any residual value.

The Group considers that the residual value of the assets is zero unless:- There is a commitment by a third party to purcha-se the asset at the end of its useful life.

- There is an active market for the intangible asset and:- Residual value can be determined by reference to that market; and

- It is probable that such a market will exist at the end of the asset’s useful life.

The Group reviews the residual value, useful life and amortisation method for intangible assets at each financial year end. Changes to initially esta-blished criteria are accounted for as a change in accounting estimates.

viii) Impairment lossesThe Group measures and determines impairment to be recognised or reversed based on the criteria in section (k) Impairment losses on non-financial assets subject to amortisation or depreciation.

H) PROPERTY, PLANT AND EQUIPMENT

i) Initial recognitionProperty, plant and equipment are measured at cost of acquisition or production, using the same criteria as for determining the cost of production of inventories. Capitalised production costs are recognised under self-constructed assets in the consolidated income statement. Property, plant and equipment are carried at cost less any accumu-lated depreciation and impairment.

Capitalised production costs are recognised under self-constructed assets in the consolidated income statement. Non-trading income obtained during the trial and start-up period is recogni-sed as a reduction in the costs incurred. Property, plant and equipment are carried at cost less any accumulated depreciation and impairment.

The cost of an item of property, plant and equipment includes the estimated costs of dismantling or removal and restoration of the site on which it is located, provided that the obligation is

incurred as a consequence of having used the item and for purposes other than to produce inventories. Spare parts used to replace similar parts in facili-ties, equipment and machinery are measured appl-ying the aforementioned criteria. Parts with a ware-house cycle of less than one year are recognised as inventories. Parts with a warehouse cycle of more than one year and which are related to certain specific assets are recognised and depreciated on a systematic basis consistent with the depreciation policy for the assets in question, and those not rela-ted to specific assets are recognised as other fixed assets and depreciated using the same process as for the part to be replaced, if this can be identified. In general, these latter spare parts are depreciated from the date they are incorporated into the asset, considering their technical obsolescence and the weighted technical or economic useful life of the assets in which they are to be incorporated.

Non-current investments in property held by the Group under operating leases are classified as property, plant and equipment. Investments are depreciated over their useful lives, provided these are not expected to exceed the duration of the lea-se contract or the contract is renewed indefinitely for a period greater than their useful lives.

ii) DepreciationProperty, plant and equipment are depreciated by allocating the depreciable amount of the asset on a systematic basis over its useful life. The deprecia-ble amount is the cost of an asset, less its residual value. The Group determines the depreciation char-ge separately for each component of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the asset and with a useful life that differs from the remain-der of the asset.

Property, plant and equipment are depreciated using the following criteria:

Buildings Straight-line 20-50Technical installations and machinery (aircraft, engines, aircraft spare parts, maintenance equipment and handling equipment) Straight-line 8-20Other installations, equipment and furniture Straight-line 8-12Other property, plant and equipment Straight-line 4-12

Depreciation method


The Group reviews residual values, useful lives and depreciation methods at each financial year end. Changes to initially established criteria are accoun-ted for as a change in accounting estimates. Mana-gement of the Air division determine the residual value of the aircraft on the basis of reports drawn up by independent experts.

For property, plant and equipment subject to major repairs, on acquiring aircraft through ownership or under a finance lease, the Group separated the cost of items subject to periodic review from that of the aircraft itself. This cost was depreciated on a straight-line basis over the period between the purchase of the aircraft and the first inspection. The cost of the first inspection was capitalised and depreciated over the period between the first ins-pection and the next maintenance event. However, as aircraft have been sold this year, this criterion is no longer considered to be applicable. iii) Subsequent costsSubsequent to initial recognition of the asset, only the costs incurred which increase capacity or produc-tivity or which lengthen the useful life of the asset are capitalised. The carrying amount of parts that are replaced is derecognised. Costs of day-to-day servi-cing are recognised in profit and loss as incurred.

Replacements of property, plant and equipment that qualify for capitalisation are recognised as a reduction in the carrying amount of the items repla-ced. Where the cost of the replaced items has not been depreciated independently and it is not pos-sible to determine the respective carrying amount, the replacement cost is used as indicative of the cost of items at the time of acquisition or construction.

iv) ImpairmentThe Group measures and determines impairment to be recognised or reversed based on the criteria in section (k) Impairment losses on non-financial assets subject to amortisation or depreciation.

I) INVESTMENT PROPERTY Investment property comprises property, including

that which is under construction or being develo-

ped, which is earmarked totally or partially to earn

rentals or for capital appreciation or both, rather

than for use in the production or supply of goods

or services, for administrative purposes or for sale

in the ordinary course of business. Buildings Straight-line 33

Depreciation method


The Group measures and recognises investment

property following the policy for property, plant

and equipment.

The Group reclassifies investment property to pro-

perty, plant and equipment when it begins to use

the property in the production or supply of goods

or services, or for administrative purposes.

The Group reclassifies investment property to inven-

tories when it commences construction work to subs-

tantially alter the property with a view to selling it.

The Group reclassifies property, plant and equipment

to investment property when it ceases to use the

building in the production or supply of goods or ser-

vices, for administrative purposes or when it is held

to earn rentals or for capital appreciation or both.

The Group reclassifies inventories to investment

property when the property is leased under an

operating lease.

Investment property is depreciated applying the

following policies:


35

J) NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

i) Non-current assets held for saleThe Group recognises non-current assets or dispos-al groups as held for sale if their carrying amounts will be recovered principally through a sales transaction rather than through continuing use. Non-current assets or disposal groups are classified as held for sale, provided that they are available for immediate sale in their present condition subject to terms that are usual and customary for sales of such assets and that the disposal is highly probable.

Non-current assets or disposal groups classified as held for sale are measured at the lower of the carrying amount and fair value less costs to sell and are not depreciated.

Impairment losses on initial classification and subsequent remeasurement of assets classified as held-for-sale are recognised under profit or loss from continuing operations in the consolidated in-come statement, except in the case of discontinued operations. Impairment losses on a cash-generating unit (CGU) are allocated first to reduce the carrying amount of goodwill and then to reduce pro rata the carrying amounts of other assets in the unit. Impair-ment of goodwill recognised may not be reversed.

Gains due to increases in the fair value less costs to sell are recognised in the income statement to the extent of the cumulative impairment previously recognised due to measurement at fair value less costs to sell or to impairment recognised before classification of the asset.

The Group measures a non-current asset that ceas-es to be classified as held-for-sale or to form part of a disposal group at the lower of the carrying amount before the asset was classified as held-for-sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset not been classified as held-for-sale, and its recoverable amount at the date of reclassi-fication. Any required adjustment to the carrying amount of a non-current asset that ceases to be classified as held-for-sale is included in profit or loss from continuing operations.

K) IMPAIRMENT OF NON-FINANCIAL ASSETS SUBJECT TO AMORTISA-TION OR DEPRECIATION

The Group evaluates whether there are indications of possible impairment losses on non-financial assets subject to amortisation or depreciation to verify whether the carrying amount of these assets exceeds the recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and the value in use.

The Group tests goodwill, intangible assets with indefinite useful lives and intangible assets that are not yet available for use for impairment at least annually, irrespective of whether there is any indi-cation that the assets may be impaired.

An asset’s value in use is measured based on the future cash flows the Company expects to derive from use of the asset, expectations about possible variations in the amount or timing of those future cash flows, the time value of money, the price for bearing the uncertainty inherent in the asset and other factors that market participants would reflect in pricing the future cash flows the Group expects to derive from the asset.

Impairment losses are recognised in the consolidat-ed income statement. Recoverable amount is determined for each indi-vidual asset, unless the asset does not generate

cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit to which the asset belongs. However, the Group determines the individual impairment of an asset included in a CGU when:a) It no longer contributes to the cash flows of

the CGU to which it belongs and its recovera-ble amount is similar to its fair value less costs to sell, or, where applicable, the asset must be derecognised.

b) The carrying amount of the CGU has increased by the value of the assets which generate in-dependent cash flows, provided that there are indications that the assets may be impaired.

This year the Group uses detailed calculations made in a preceding year of the recoverable amount of a CGU to which an intangible asset of indefinite life or goodwill has been included, pro-vided the following requirements are met:a) The assets making up that unit have not changed significantly since the most recent recoverable amount calculation;b) The most recent recoverable amount calculation resulted in an amount that exceeded the unit’s carrying amount by a substantial margin; andc) Based on an analysis of events that have oc-curred and circumstances that have changed since the most recent recoverable amount calculation, the likelihood that a current recoverable amount determination would be less than the unit’s carry-ing amount is remote.

The Group distributes goodwill and common assets between each of the CGUs to test for impairment. If part of the goodwill or common assets cannot be allocated to the CGUs, it is distributed in propor-tion to the carrying amount of each of the CGUs.

Impairment losses for cash-generating units are allocated first to reduce the carrying amount of goodwill allocated to the unit and then to the oth-er non-current assets of the unit pro rata with their carrying amounts. The carrying amount of each asset may not be reduced below the highest of its fair value less costs to sell, its value in use and zero.

At the end of each reporting period the Group assesses whether there is any indication that an impairment loss recognised in prior periods may no longer exist or may have decreased. Impairment losses on goodwill are not reversible. Impairment

losses on other assets are only reversed if there has been a change in the estimates used to calculate the recoverable amount of the asset.

A reversal of an impairment loss is recognised in the consolidated income statement. The increased carrying amount of an asset attributable to a rever-sal of an impairment loss may not exceed the carry-ing amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised.

A reversal of an impairment loss for a CGU is allocated to the non-current assets of each unit, ex-cept goodwill, pro rata with the carrying amounts of those assets. The carrying amount of an asset may not be increased above the lower of its recov-erable amount and the carrying amount that would have been disclosed, net of amortisation or depre-ciation, had no impairment loss been recognised.

After an impairment loss or reversal of an impair-ment loss is recognised, the depreciation (amor-tisation) charge for the asset is adjusted in future periods based on its new carrying amount. However, if the specific circumstances of the assets indicate an irreversible loss, this is recognised di-rectly in losses on the disposal of fixed assets in the consolidated income statement.

Valuations from independent appraisers or the cash flow discounting method have been used to determine the recoverable amount. Discounted cash flow calculations are based on five-year pro-jections in the budgets approved by management plus a residual value. The cash flows take into consideration past experience and represent man-agement’s best estimate of future market per-formance. The key assumptions employed when determining value in use include growth rates, the weighted average cost of capital and tax rates. The discount rate applied for the impairment test on the Group’s hotel assets and for goodwill has been 8%. In order to calculate the recovera-ble amount of certain hotel properties, external valuations by renowned appraisal companies have been obtained.

L) LEASES i) Lessee accountingLeases in which, upon inception, the Group as-sumes substantially all the risks and rewards inci-


37

dental to ownership are classified as finance leases, otherwise they are classified as operating leases.

The Group assesses the economic substance of contracts that confer the right to use certain as-sets, to identify any implicit leases. A contract is or contains a lease if compliance with the agreement depends on the use of a specific asset or assets. In these cases, at the inception of the lease the Group separates future lease payments and the consider-ation relating to the lease from those for the rest of the items included in the agreement, based on their fair values. Lease payments are recognised by applying the criteria set out in this section.

The Group has the right to use aircraft, hotels, han-dling equipment and travel agency offices through lease contracts.

Financial assets and financial liabilities under lease contracts are subject to the same derecognition criteria as financial instruments.

- Finance leasesAt the commencement of the lease term, the Group recognises finance leases as assets and liabilities at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Initial direct costs are added to the asset’s carrying amount. Minimum lease payments are apportioned between the finance charge and

the reduction of the outstanding liability. Interest is expensed using the effective interest method.

Contingent rents are recognised as an expense when it is probable that they will be incurred.

The accounting policies applied to the assets used by the Group by virtue of finance lease contracts are the same as those set out in sections (h) and (i) (Property, plant and equipment or Investment prop-erty). However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the assets are fully depreciated over the shorter of the lease term and their useful lives. - Operating leasesLease payments under an operating lease, net of incentives received, are recognised as an expense on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the lease’s benefit.

Contingent rents are recognised as an expense when it is probable that they will be incurred.

ii) Sale and leaseback transactionsAsset sale and leaseback transactions that meet the conditions for classification as a finance lease are considered as financing operations and, there-fore, the type of asset is not changed and no profit or loss is recognised.

M) FINANCIAL INSTRUMENTSi) Classification and separation of financial

instrumentsFinancial instruments are classified on initial recog-nition as a financial asset, a financial liability or an equity instrument in accordance with the economic substance of the contractual arrangement and the definitions of a financial asset, a financial liability and an equity instrument.

The Group classifies financial instruments into different categories based on the nature of the instruments and the Group’s intentions on initial recognition.

ii) Offsetting principlesA financial asset and a financial liability are offset only when the Group currently has the legally enforceable right to offset the recognised amounts and intends either to settle on a net basis or to real-ise the asset and settle the liability simultaneously.

iii) Financial assets and financial liabilities held for trading

Financial assets or financial liabilities held for trading are those which are classified as held for trading from initial recognition.

A financial asset or financial liability is classified as held for trading if it:- Originates or is acquired or incurred principally

for the purpose of selling or repurchasing it in the near term

- Forms part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking or

- Is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.

Financial assets and financial liabilities held for trad-ing are initially recognised at fair value. Transaction costs directly attributable to the acquisition or issue are recognised as an expense when incurred.

After initial recognition, they are recognised at fair value through profit or loss. Fair value is not reduced by transaction costs incurred on sale or disposal. Accrual interest and dividends are recog-nised separately.

The Group does not reclassify any financial asset or financial liability into or out of this category while

it is recognised in the consolidated balance sheet, except when there is a change in the classification of hedging financial instruments.

iv) Loans and receivablesLoans and receivables comprise trade and non-trade receivables with fixed or determinable payments that are not quoted in an active market other than those classified in other financial asset categories. These assets are initially recognised at fair value, including transaction costs, and are subsequently measured at amortised cost using the effective interest method.

Nevertheless, financial assets which have no estab-lished interest rate, which mature or are expected to be received in the short term, and for which the effect of discounting is immaterial, are measured at their nominal amount.

v) Held-to-maturity investmentsHeld-to-maturity investments are debt securities with fixed or determinable payments and fixed ma-turity traded on an active market and that the Group has the positive intention and ability to hold to ma-turity, other than those classified in other categories. The measurement criteria applicable to financial instruments classified in this category are the same as those applicable to loans and receivables.

The Group has not reclassified or sold any held-to-maturity investments during the year.

vi) Financial assets and financial liabilities carried at cost

Investments in equity instruments for which the fair value cannot be reliably measured and deriv-ative instruments that are linked to and must be settled by delivery of such unquoted equity instru-ments, are measured at cost less any accumulated impairment. Nonetheless, if the financial assets or liabilities can subsequently be reliably measured on an ongoing basis, they are accounted for at fair val-ue and any gain or loss is recognised in accordance with their classification.

vii) Investments in non-consolidated group companies, associates and joint-ly controlled entities

Investments in Group companies, associates and jointly controlled entities are initially recognised at cost, which is equivalent to the fair value of the consideration given, including transaction costs in the case of investments in associates and jointly


39

controlled entities, and are subsequently measured at cost net of any accumulated impairment. The cost of investments in Group companies acquired before 1 January 2010 includes any transaction costs incurred. The cost of acquisition of an investment in a Group company, associate or jointly controlled entity includes its carrying amount immediately before classification. Amounts previously recognised in equity are transferred to the income statement when the investment is derecognised or when an impairment loss is recognised or reversed.

If an investment no longer qualifies for classifica-tion under this category, it is reclassified as avail-able-for-sale and is measured as such from the reclassification date.

Investments in equity instruments for which the fair value cannot be reliably measured and deriv-ative instruments that are linked to and must be settled by delivery of such unquoted equity instru-ments, are measured at cost less any accumulated impairment. Nonetheless, if the financial assets or liabilities can subsequently be reliably measured on an ongoing basis, they are accounted for at fair val-ue and any gain or loss is recognised in accordance with their classification.

viii) Interest and dividendsInterest is recognised using the effective interest method.Dividends from investments in equity instruments are recognised when the Group is entitled to receive them. If the dividends are clearly derived from profits generated prior to the acquisition date because amounts higher than the profits generat-ed by the investment since acquisition have been distributed, the carrying amount of the investment is reduced.

ix) Derecognition of financial assetsFinancial assets are derecognised when the con-tractual rights to the cash flows from the financial asset expire or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

On derecognition of a financial asset in its entire-ty, the difference between the carrying amount and the sum of the consideration received, net of transaction costs, including any new asset obtained less any new liability assumed and any cumulative

gain or loss deferred in consolidated recognised income and expense, is recorded in consolidated profit or loss.

x) Impairment of financial assetsA financial asset or a group of financial assets is im-paired and impairment losses are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and the event or events have an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The Group recognises impairment of loans and receivables and debt instruments when estimated future cash flows are reduced or delayed due to debtor insolvency.

For equity instruments, objective evidence of impairment exists when the carrying amount of an asset is uncollectible due to a significant or pro-longed decline in its fair value. Nevertheless, in cases in which the fair value of these instruments declines and subsequently recovers to above their quoted price, the one and a half-year period is counted from the date on which, after this recovery, the quoted price starts to drop progressively again, except when the recovery of the fair value would have been an isolated and barely significant event, in which case, the one and a half-year period is counted from the date the value first starts to decrease. This same criterion is applicable to determine whether there has been a 40% decrease in the quoted price. For this purpose, the quoted price is understood to be the initial measurement of the asset, or the weighted aver-age price of homogeneous groups, if there have been various acquisitions.

Impairment of financial assets carried at amortised costThe amount of the impairment loss of financial assets carried at amortised cost is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. For variable income financial assets, the effective interest rate cor-responding to the measurement date under the contractual conditions is used. For held-to-maturity

debt instruments the Group uses the market value, providing this is sufficiently reliable to be consid-ered representative of the recoverable amount.

The impairment loss is recognised in profit and loss and may be reversed in subsequent periods if the decrease can be objectively related to an event oc-curring after the impairment has been recognised. The loss can only be reversed to the limit of the amortised cost of the assets had the impairment loss not been recognised.

The Group has made a collective or global valuation allowance for trade balances, equivalent to 3% of the total amount of trade receivables at year end, less the recoverable amount of guarantees obtained and without taking into account balances with public entities, or balances that have been individually tested for impairment.

Investments in non-consolidated Group companies, associates and jointly controlled entities and equity instruments carried at costAn asset is impaired when its carrying amount ex-ceeds its recoverable amount, the latter of which is understood as the higher of the asset’s value in use and fair value less costs to sell.

xi) Financial liabilitiesFinancial liabilities, including trade and other payables, that are not classified as held for trading or as financial liabilities at fair value through profit or loss are initially recognised at fair value less any transaction costs directly attributable to the issue of the financial liability. After initial recognition, liabilities classified under this category are meas-ured at amortised cost using the effective interest method.

Nevertheless, financial liabilities which have no established interest rate, which mature or are expected to be settled in the short term, and for which the effect of discounting is immaterial, are measured at their nominal amount.

The Group measures financial liabilities at amor-tised cost provided that reliable estimates of cash flows can be made based on the contractual terms. xii) Security depositsSecurity deposits paid in relation to operating lease contracts on aircraft, hotels and travel agencies are measured using the same criteria as for financial

assets. The difference between the amount paid and the fair value is classified as a prepayment and recognised in consolidated profit or loss over the lease term (over the period for which the service is rendered). Non-current advances are restated at the end of each reporting period based on the market interest rate on initial recognition.

xiii) Derecognition and modifications of financial liabilities

The Group derecognises all or part of a finan-cial liability when it either discharges the liabil-ity by paying the creditor, or is legally released from primary responsibility for the liability either by process of law or by the creditor.

N) HEDGE ACCOUNTING Derivative financial instruments which qualify for hedge accounting are initially measured at fair value, plus any transaction costs that are directly attributable to the acquisition, or less any transac-tion costs directly attributable to the issue of the fi-nancial instruments. Nonetheless, transaction costs are subsequently recognised in profit and loss, inasmuch as they do not form part of the changes in the effective value of the hedge.

The Group undertakes foreign currency (US Dollar) cash flow hedges, interest rate hedges and hedges on jet fuel prices.

At the inception of the hedge the Group formally designates and documents the hedging relation-ships and the objective and strategy for undertak-ing the hedges. Hedge accounting is only applicable when the hedge is expected to be highly effective at the inception of the hedge and in subsequent years in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, through-out the period for which the hedge was designated (prospective analysis), and the actual effectiveness is within a range of 80%-125% (retrospective analy-sis) and can be reliably measured.

For cash flow hedges of forecast transactions, the Group assesses whether these transactions are highly probable and if they present an exposure to variations in cash flows that could ultimately affect profit or loss.

The Group only designates as hedged items assets, liabilities, firm commitments and forecast trans-actions that involve a party external to the Group.


41

Nevertheless, the foreign currency risk of a monetary item receivable from or payable to consolidated foreign operations qualifies as a hedged item in the consolidated annual accounts if it results in an ex-posure to foreign exchange rate gains or losses that are not fully eliminated on consolidation. The foreign currency risk of highly probable forecast transactions with consolidated foreign operations qualifies as a hedged item in the consolidated annual accounts provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect the consolidated income statement. As a result, amounts from the hedg-ing operation deferred in recognised income and expense are taken to profit or loss when the transac-tion is carried out with parties external to the Group.

i) Cash flow hedgesThe Group recognises the portion of the gain or loss on the measurement at fair value of a hedging instrument that is determined to be an effective hedge in consolidated recognised income and expense. The ineffective portion and the specific component of the gain or loss or cash flows on the hedging instrument, excluding the measurement of the hedge effectiveness, are recognised under change in fair value of financial instruments.

The separate component of consolidated equity associated with the hedged item is adjusted to the lesser of the cumulative gain or loss on the hedging instrument from inception of the hedge and the cumulative change in fair value or present value of the expected future cash flows on the hedged item

from inception of the hedge. However, if the Group expects that all or a portion of a loss recognised in consolidated equity will not be recovered in one or more future periods, it reclassifies into change in fair value of financial instruments the amount that is not expected to be recovered.

If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised in consolidated equity are reclas-sified to profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss and under the same caption of the consolidated income statement.

If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the Group reclassifies the associated gains and losses that were recognised in consolidated equity and includes them in the initial cost or carrying amount of the non-financial asset or liability.

The Group prospectively discontinues hedge accounting if the foreseen circumstances affecting fair value hedges arise. In these cases, the cumu-lative gain or loss on the hedging instrument that has been recognised in consolidated equity is not recorded in profit or loss until the forecast transac-tion occurs. If the transaction is no longer expected to occur, the cumulative gain or loss that had been recognised in consolidated equity is reclassified from equity to consolidated profit or loss as change in fair value of financial instruments.

However, expiration or termination of the hedging instrument does not occur if as a result of new or prevailing laws or regulations, the Group agrees with the counterparty that a clearing house shall act as a counterparty for each part of the instru-ment and the changes to the instrument are limited to those required for the replacement of the counterparty. The effects of the replacement should be recognised in the measurement of the instrument and therefore in the calculation and measurement of its effectiveness.

O) INVENTORIESInventories are initially measured at cost of pur-

chase or production.

The consolidated companies measure their inven-

tories using the last invoice price, which does not

differ significantly from the cost calculated on a

FIFO basis. The valuation of slow-moving invento-

ries has been lowered to their estimated probable

realisable value.

Advances on account of inventories are initially

recognised at cost. In subsequent years, advances

accrue interest at the supplier’s incremental borrow-

ing rate when the period between payment and the

receipt of the inventories exceeds one year.

Inventories also include emission allowances, meas-

ured as indicated in note 4g (iv).

Trade discounts are recognised as a reduction in

the cost of inventories when it is probable that the

conditions for discounts to be received will be met.

Unallocated discounts are recognised as a decrease

on the purchase.

When the cost of inventories exceeds net realisable

value, materials are written down to net realisable

value.

P) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and demand deposits in financial institutions. They also include other short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an in-significant risk of changes in value. An investment normally qualifies as a cash equivalent when it has a maturity of less than three months from the date of acquisition.

Q) DEFINED BENEFIT PLANS In accordance with prevailing Spanish employment regulations applicable to travel agencies, tour oper-ators and ground transport companies, employees are entitled to retirement bonuses based on years of service and retirement age. Management of these retirement bonus commitments has been outsourced to non-Group companies. This outsourc-ing is based on an actuarial study of these commit-ments applying the Projected Unit Credit method using PERM00 mortality tables, a capitalisation rate of 2% and an annual salary increase of 0%.

Certain collective bargaining agreements appli-cable to Group companies with activities other than those mentioned in the preceding paragraph basically establish that permanent personnel retir-ing between the age of 60 and 65 are entitled to a long-service bonus equivalent to a certain number of monthly payments depending on the number of years worked. All length-of-service bonuses have been externalised to non-Group companies.

R) PROVISIONSi) General criteriaProvisions are recognised when the Group has a present obligation (legal, contractual, constructive or tacit) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting pe-riod, taking into account all risks and uncertainties surrounding the amount to be recognised as a pro-vision and, where the time value of money is ma-terial, the financial effect of discounting provided that the expenditure to be made each period can be reliably estimated. The discount rate is a pre-tax rate that reflects the time value of money and the specific risks for which future cash flows associated with the provision have not been adjusted at each reporting date. Single obligations are measured using the indi-vidual most likely outcome. When the provision involves a large population of identical items, the obligation is estimated by weighting all possible outcomes by their associated probabilities. Where there is a continuous range of possible outcomes,


43

and each point in that range is as likely as any other, the mid-point of the range is used.

The financial effect of provisions is recognised as a finance cost in the consolidated income statement.The tax effect and gains on the expected disposal of assets are not taken into account in measuring a provision.

Rights to reimbursement from third parties of the expenditure required to settle a provision are recog-nised as a separate asset provided that it is virtually certain that the reimbursement will be received. The reimbursement is recognised as income in the con-solidated income statement based on the nature of the expenditure up to the amount of the provision.

Where a risk is externalised to a third party by means of a legal or contractual agreement, provi-sion is only made for the part of the risk assumed by the Group.

If it is not probable that an outflow of resources will be required to settle an obligation, the provi-sion is reversed.

ii) Provisions for customer loyalty programmes

In 2015 Air Europa Líneas Aéreas, S.A.U. external-ised its main customer loyalty programme, “Flying Blue”, and recognised the cost of this programme on a monthly basis when the supplier informed it of the amount accrued over the period. In 2016 Air Europa Líneas Aéreas, S.A.U. recognises a provision for its customer loyalty programmes based on the fair value of the liabilities accrued at the reporting date. This balance, amounting to Euros 776 thou-sand (Euros 1,065 thousand for the year ended 31 December 2015), is recognised under current provi-sions (see note 23).

Air Europa Líneas Aéreas, S.A.U. recognises the transport revenue when points from any of its pro-grammes are redeemed on an Air Europa flight.

iii) Provisions for termination benefits and restructuring costs

Termination benefits are recognised as a liability when the Group has a detailed formal plan for the termination and there is a valid expectation among the affected employees that termination will arise either because the plan has already started to be implemented or because its main characteristics have been published.

Restructuring provisions are recognised when the Company has a detailed formal plan for the re-structuring and there is a valid expectation among the employees that termination will arise either because the plan has already started to be imple-mented or because its main characteristics have been published. On the matter of employee transfers, under the collective bargaining agreement governing airport ground handling services, on expiry of a conces-sion the new concession holder for the service must assume the position of employer of all personnel who exercise their rights and voluntar-ily choose to be transferred to the new operator. In the unlikely event that employees voluntarily decide not to be transferred to the new operator, the transferring operator, in this case entities forming part of the Handling division, is obliged to indemnify them with an amount equivalent to 21 days’ pay for each year of service up to a maximum of 12 months’ salary. The directors of the Parent do not expect any significant liabilities to arise in connection with these indemnity pay-ments given the favourable terms and conditions governing transfers set forth in the aforemen-tioned collective bargaining agreement. Conse-quently, no provision has been recognised in the consolidated annual accounts.

iv) Provisions for major repairs on aircraft under operating lease contracts

In accordance with the aircraft operating lease contracts, the Group recognises a provision for the total cost to be incurred for scheduled inspec-tions of aircraft (general inspections of aircraft, engines and components), expensing these costs on a straight-line basis over the period that elapses between two successive inspections. Air Europa Líneas Aéreas, S.A.U. also makes provision for the cost of returning the leased aircraft, according to the contractual terms agreed with the lessor, pro-vided that sufficient technical and financial infor-mation is available to reliably estimate the cost.

Under some of the contracts between Air Europa Líneas Aéreas, S.A.U. and the aircraft lessors, most of the inspection costs are paid to the lessor in regular instalments. Air Europa then settles the cost of these periodic inspections through the lessor’s reimbursement of the amounts that were previously advanced. The monthly amounts paid to the lessors as advances on account are recognised as other financial assets under either non-current

investments or current investments, depending on the period in which they are offset.

S) REVENUE FROM THE SALE OF GOODS AND RENDERING OF SERVICES

Revenue from the sale of goods or services is meas-ured at the fair value of the consideration received or receivable. Volume rebates, prompt payment and any other discounts, as well as the interest added to the nominal amount of the consideration, are recognised as a reduction in the consideration.

Revenues associated with the rendering of services are recognised in the income statement by refer-ence to the stage of completion at the reporting date when revenues, the stage of completion, the costs incurred and the costs to complete the transaction can be estimated reliably and it is prob-able that the economic benefits derived from the transaction will flow to the Group.

Air Europa Líneas Aéreas, S.A.U. recognises reve-nues from air transport services rendered when the passenger has actually flown. The amount received from tickets sold for future flights is recognised under current accruals in the accompanying consol-idated balance sheet. Current accruals reflect the estimated liability associated with tickets sold prior to the end of each reporting period and not yet used at that date. The revenues from these tickets, as well as the estimate of the tickets sold that will not be used, are recognised on the dates for which the flights are booked. Following usual sec-tor practice, Air Europa Líneas Aéreas, S.A.U. prepares an estimate of tickets sold and not used and that will not be used in the future. This estimate is drawn up on the basis of his-torical statistical information on this aspect.

Viajes Halcón, S.A.U., Viajes Ecuador, S.A.U., Viajes Tu Billete, S.L.U. and Halcón Viagens e Turismo, Lda. provide travel agency servic-es. Since these companies bill customers, transactions are presented at their sales amount and cost of supplies when the travel documents or documents for other services to be provided are delivered to the custom-er, which is when the accrual of income and cost of supplies is deemed to take place, irrespective of when the customer is to travel or when the contracted services are to be used.

Globalia Travel Club Spain, S.A.U., Globalia Busi-ness Travel, S.A.U. and Iberotours, S.A.U. recognise income and expenses on an accruals basis. As these companies contract tourism services as tour operators, sales and cost of supplies are recognised when services are rendered to end customers.

Be Live Hotels, S.L.U., Inversiones Costa Adeje, S.L.U., Explotadora Hotelera Luabay, S.L.U., Smart Inversiones S.A.S., Inversiones La Albufera, S.A.S. and Intertravel, S.A.R.L. operate hotel complexes. These companies recognise revenue from their ac-tivity in line with their customers’ overnight stays.

Transactions between consolidated companies have been eliminated from the consolidation pro-cess as explained in section a) of this note.

T) INCOME TAXThe income tax expense or tax income for the year comprises current tax and deferred tax.

Current tax assets or liabilities are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and tax laws that have been enacted or substantially enacted at the reporting date.

Current and deferred tax are recognised as income or an expense and included in profit or loss for the year, except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different year, directly in consolidated equity, or from a business combination.


45

Government assistance provided in the form of de-ductions and other tax relief applicable to income tax payable and considered as government grants is recognised in accordance with the prevailing regulations.

The Company files consolidated tax returns with other companies belonging to the Globalia busi-ness group. This tax group is headed by Globalia Corporación Empresarial, S.A., as Parent, and includes the following subsidiaries: Air Europa Líneas Aéreas, S.A.U.; Viajes Halcón, S.A.U.; Glo-balia Business Travel, S.A.U.; Globalia Formación, S.L.U.; Globalia Mantenimiento Aeronáutico, S.L.U.; Globalia Autocares, S.A.; Globalia Broker Services, S.A.U.; Globalia Activos Inmobiliarios, S.A.U.; Glo-balia Sistemas y Comunicaciones, S.L.U.; Globalia Hotel Orotava, S.L.U.; Iberhandling, S.A.; Globalia Call Center, S.A.U.; Be Live Hotels, S.L.U.; Globalia Handling, S.A.U.; Globalia Hotel Talavera, S.A.U.; Globalia Hotel Palace de Muro, S.L.U.; Media & Design, S.A.U.; Groundforce Cargo, S.L.U.; Globalia Servicios Corporativos, S.L.U.; Viajes Ecuador, S.A.U.; Globalia Gestión Seguros, S.L.U.; Welcome Incoming Services, S.L.U.; Globalia Travel Club Spain, S.L.U.; Globalia Hotel La Niña, S.L.; Viajes Tu Billete, S.L.; Globalia Trading Services, S.L.U.; Iber-otours, S.A.U.; León Activos Aeronáuticos, S.L.U.; Canoa Spain, S.L.U.; Explotadora Hotelera Luabay, S.L.U.; Globalia Artes Gráficas, S.L.; Iberrail Span-ish Railroad, S.L.; Inversiones Costa Adeje, S.A.U.; Luabay Hoteles y Apartamentos, S.L.U.; Pepetick-et, S.A.; Techite Inversiones 2012, S.L.U.; Sunion Proyecto y Construción, S.L.U.; Aeronova, S.L.U.;

Geomoon, S.L.; Autocares Levante, S.L.; Air Europa Suma Miles, S.L.U.; Globalia Traveling, S.L.U. and Globalia Corporate Travel, S.L.U.

i) Recognition of deferred tax liabilitiesThe Group recognises all deferred tax liabilities, except where:- they arise from the initial recognition of goodwill

or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable income.

- they relate to taxable temporary differences as-sociated with investments in subsidiaries, associ-ates and jointly controlled entities over which the Group is able to control the timing of the reversal of the taxable temporary difference and it is not probable that the taxable temporary difference will reverse in the foreseeable future.

ii) Recognition of deferred tax assetsThe Group recognises deferred tax assets provided that:- it is probable that sufficient taxable income will

be available against which they can be utilised or when tax legislation envisages the possibility of converting deferred tax assets into a receivable from public entities in the future. Nonetheless, as-sets arising from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable income, are not recognised.

- they relate to investments in subsidiaries, associ-ates and jointly controlled entities, to the extent that it is probable that the deductible temporary difference will reverse in the foreseeable future and sufficient taxable profit will be available against which the temporary difference can be utilised.

The Group recognises the conversion of a deferred tax asset into a receivable from public entities when it becomes enforceable in accordance with prevailing tax legislation. For this purpose, the deferred tax asset is derecognised with a charge to the deferred tax expense and the receivable is recognised with a credit to current tax. Likewise, the Group recognises the exchange of a deferred tax asset for government debt securities when it acquires ownership thereof.

The Group recognises the payment obligation deriv-ing from financial contributions as an operating ex-

pense at its present value with a credit to payables to public entities classified as current or non-current based on the period in which it will be settled.

In the absence of evidence to the contrary, it is not considered probable that the Group will have future taxable profit when the deferred tax assets are ex-pected to be recovered in a period of more than ten years from the end of the reporting period, irrespec-tive of the nature of the deferred tax asset; or, in the case of tax credits for deductions and other tax relief that are unused due to an insufficient amount of total tax, when there is reasonable doubt – after the activity or the income giving rise to entitlement to the deduction or tax credit has been rendered or received, respectively – as to whether the require-ments for their offset will be met.

The Group only recognises deferred tax assets arising from tax loss carryforwards when it is probable that future taxable profit will be generated against which they may be offset within the period stipulated in applicable tax legislation, up to a maximum period of ten years, unless there is evidence that their recovery in a longer period of time is probable and tax legisla-tion provides for their utilisation in a longer period or stipulates no time limit for their utilisation. Conversely, it is considered probable that the Group will generate sufficient taxable profit to re-cover deferred tax assets when there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity, which are expected to reverse in the same tax peri-od as the expected reversal of the deductible tem-porary differences or in periods into which a tax loss arising from a deductible temporary difference can be carried back or forward. If the only future taxable profit is derived from taxable temporary differences, the recognition of deferred tax assets arising from tax losses carried forward is limited to 70% of the deferred tax liabilities recognised.

The Group recognises deferred tax assets not previously recognised because they were not ex-pected to be utilised within the ten-year recovery period, inasmuch as the future reversal period does not exceed ten years from the end of the reporting period or when there are sufficient taxable tempo-rary differences.

In order to determine future taxable profit the Group takes into account tax planning opportuni-ties, provided it intends or is likely to adopt them.

iii) Measurement of deferred tax assets and liabilities

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the years when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted. The tax consequences that would follow from the manner in which the Group expects to recover or settle the carrying amount of its assets or liabilities are also reflected in the measurement of deferred tax assets and liabilities. For these purposes, the Group has considered the deduction for reversal of the temporary measures provided in transi-tional provision thirty-seven of Income Tax Law 27/2014 of 27 November 2014 as an adjustment to the tax rate applicable to the deductible tem-porary difference associated with the non-deduct-ibility of amortisation and depreciation charges in 2013 and 2014.

iv) Offset and classificationThe Group only offsets tax assets and liabilities if it has a legally enforceable right to offset the recognised amounts and intends either to settle on a net basis or to realise the assets and settle the liabilities simultaneously.

Deferred tax assets and liabilities are recognised in the consolidated balance sheet under non-current assets or liabilities, irrespective of the expected date of recovery or settlement.

U) CLASSIFICATION OF ASSETS AND LIABILITIES AS CURRENT AND NON-CURRENT

The Group classifies assets and liabilities in the consolidated balance sheet as current and non-cur-rent. Current assets and liabilities are determined as follows:

- Assets are classified as current when they are expected to be realised or are intended for sale or consumption in the Group’s normal operating cycle, they are held primarily for the purpose of trading, they are expected to be realised within 12 months after the reporting date or are cash or a cash equivalent, unless the assets may not be exchanged or used to settle a liability for at least 12 months after the reporting date.

- Liabilities are classified as current when they are expected to be settled in the Group’s normal operating cycle, they are held primarily for the


47

purpose of trading, they are due to be settled within 12 months after the reporting date or the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

- Financial liabilities are classified as current when they are due to be settled within 12 months after the reporting date, even if the original term was for a period longer than 12 months, and an agree-ment to refinance or to reschedule payments on a long-term basis is completed after the reporting date and before the annual accounts are author-ised for issue.

V) ENVIRONMENT The Group takes measures to prevent, reduce or repair the damage caused to the environment by its activities.

Expenses derived from environmental activities are recognised as other operating expenses in the period in which they are incurred.

See note 29 for further details on these activities.

W) TRANSACTIONS BETWEEN NON-CONSOLIDATED GROUP COMPANIES

Transactions between non-consolidated Group companies, except for those related to mergers, spin-offs and non-monetary contributions, are recognised for the fair value of the consideration given or received. The difference between this value and the amount agreed is recognised in line with the underlying economic substance of the transaction.

5. JOINT VENTURESInformation on joint ventures in the form of jointly controlled entities is presented in Appendix IV.Information on joint ventures in the form of tem-porary business associations (UTEs) is presented in Appendix V.

A) FOREIGN CURRENCYThe functional currency of foreign operations is the currency of the countries in which such operations are domiciled.

6. NON-CURRENT ASSETS HELD FOR SALE

A) ASSETS AND LIABILITIES HELD FOR SALE

At 31 December 2016 under this balance sheet heading the Group has classified three cargo aircraft and engines of Aeronova, S.L.U., acquired in 2015, which were sold in February 2017, and the premises allocated to Globalia Business Travel, S.L.U. for the execution of guarantees it held for advances to suppliers, which will be sold in 2017.

Details of assets and liabilities held for sale are as follows:

Thousands of Euros

2016 2015

Assets held for sale:Advances Boeing 737- 800 - 36,769Buildings 1,587 1,587Fairchild Metro III Heavyaircraft and engines 814 814

Total assets 2,401 39,170

Liabilities directly associated withnon-current assets held for sale:Bank debt to financeadvances B 737- 800 - (32,476)

Total liabilities - (32,476)

7. INTANGIBLE ASSETSDetails of and movement in intangible assets, excluding goodwill and goodwill on consolidation, are as follows:

Cost at 1 January 2016 2,899 3,271 93,640 6,065 7,293 113,168Additions - - 23,645 1,923 - 25,568Disposals - - (197) (5,809) (5,536) (11,542)Transfers - - 182 - (182) -Transfers to inventories - - - (2,179) - (2,179)Cost at 31 December 2016 2,899 3,271 117,270 - 1,575 125,015

Accumulated amortisationat 1 January 2016 (439) (3,100) (61,344) - (1,550) (66,433)Amortisation (42) (94) (10,527) - (4) (10,667)Disposals - - 197 - - 197Accumulated amortisation at31 December 2016 (481) (3,195) (71,674) - (1,554) (76,904)

Carrying amount at31 December 2016 2,418 75 45,596 - 21 48,110

2016

Thousands of Euros

Computer software TotalConcessions

Emission allowances

Other intangible

assets

Patents, licences, trademarks and

similar rights

Cost at 1 January 2015 2,899 3,272 83,400 2,925 4,143 96,639Additions - 13 10,103 5,547 5,221 20,884Disposals - (14) (87) (2,407) (2,071) (4,579)Business combinations - - 217 - - 217Translation differences - - 7 - - 7Cost at 31 December 2015 2,899 3,271 93,640 6,065 7,293 113,168

Accumulated amortisation at 1 January 2015 (397) (2,809) (51,739) - (1,537) (56,482)Amortisation (42) (295) (9,475) - (13) (9,825)Disposals - 4 77 - - 81Additions to the consolidated Group - - (214) - - (214)Transfers - - (1) - - (1)Translation differences - - 8 - - 8Accumulated amortisation at 31 December 2015 (439) (3,100) (61,344) - (1,550) (66,433)

Carrying amount at 31 December 2015 2,460 171 32,296 6,065 5,743 46,735

2015

The main additions for 2016 and 2015 comprise:- Computer software: Additions in 2016 amount to

Euros 23,645 thousand (Euros 10,103 thousand in 2015) and essentially reflect IT development for online business and business development for the various Group divisions, mainly the air, travel agency and tour operator divisions and the online bed bank business. In 2015 intangible assets inclu-ded the gas emission allowances allocated free of charge and acquired on the market.

A) FULLY AMORTISED ASSETSThe cost of fully amortised intangible assets in use at 31 December is as follows:

Concessions, patents andtrademarks 3,132 2,289Computer software 34,791 31,542 Administrative concessions 217 217 Other intangible assets 108 1,351 38,248 35,399

Thousands of Euros

2016 2015


49

8. GOODWILL, GOODWILL OF CONSOLIDATED COMPANIES AND IMPAIRMENT

Details of goodwill and movement are as follows:

Cost at beginning of year 15,400 15,400Cost at year end 15,400 15,400

Accumulated amortisation at 1 January 2016 (5,986) (4,877)Amortisation (1,109) (1,109)Accumulated amortisationat 1 January 2016 (7,095) (5,986)

Accumulated impairmentat 1 January 2016 (3,464) (3,464)Accumulated impairmentat 31 December 2016 (3,464) (3,464)

Carrying amount at31 December 2016 4,841 5,950

Thousands of Euros

2016 2015

Details of the goodwill of consolidated companies and movement are as follows:

Cost at start of year 17,565 15,527 Additions due to businesscombination - 2,385 Disposals - (347) Cost at year end 17,565 17,565

Accumulated amortisation at 1 January 2016 (11,009) (9,452)Amortisation (2,862) (1,557) Accumulated amortisationat 31 December 2016 (13,871) (11,009)

Accumulated impairmentat 31 December 2016 - -

Carrying amount at31 December 2016 3,694 6,556

Thousands of Euros

2016 2015

As mentioned in note 2 (b), in accordance with Roy-al Decree 602/2016 of 2 December 2016, goodwill is now considered an asset with a finite useful life to be amortised from 1 January 2016 onwards. The Group has opted to retrospectively amortise over a period of 10 years a cost value of Euros 17,565 thousand corresponding to goodwill (on consol-idation) acquired prior to that date, the carrying amount of which is Euros 3,694 thousand (Euros 6,556 thousand at 31 December 2015).

Details of residual useful life, the CGU to which it belongs, amortisation for the year, accumulated amortisation and the carrying amount of individ-ually significant goodwill at 31 December are as follows:

Groundforce Cargo, S.L.U.

Viajes Ecuador, S.A.

MK Tours

Aeronova, S.L.U.

Viajes Tu Billete, S.L.

Mundosocial

Otros

Groundforce

Viajes Ecuador

MK Tours

Aeronova

Tu Billete

Mundosocial

Other

1 year

1 year

8 - 9 years

2 years

3 - 7 years

1 - 5 years

(841)

(407)

(1,365)

(239)

(83)

(861)

(175)

(3,971)

(7,569)

(4,537)

(2,845)

(278)

(667)

(4,078)

(992)

(20,966)

841

407

-

2,107

166

4,537

477

8,535

Description of the asset

2016

Residual useful life

Thousands of Euros

Amortisation for the year

Accumulated amortisation

Carrying amountUGE


Viajes Ecuador, S.A.

MK Tours

Aeronova, S.L.U.


Mundosocial

Otros

Groundforce

Viajes Ecuador

MK Tours

Aeronova

Tu Billete

Mundosocial

Other

2 years

2 years

1 year

9 - 10 years

3 years

4 - 8 years

1 - 6 years

(841)

(407)

(185)

(39)

(83)

(861)

(150)

(2,566)

(6,728)

(4,130)

(1,480)

(39)

(584)

(3,217)

(817)

(16,995)

1,682

814

1,365

2,346

250

5,398

651

12,506

Description of the asset

2015

Residual useful life

Amortisation for the year

Accumulated amortisation

Carrying amountUGE

9. PROPERTY, PLANT AND EQUIPMENTDetails of property, plant and equipment and movement are as follows:

Cost at1 January 2016 61,912 253,883 477,887 62,158 59,342 40,690 955,872Additions 621 5,959 103,131 3,235 60,320 7,610 180,876 Disposals (888) (3,033) (226,722) (579) (38,420) (15,857) (285,499)Transfers - - (535) (123) - (31) (689)Translation differences 1 (160) (6,920) 270 70 (543) (7,282)Cost at31 December 2016 61,646 256,649 346,841 64,961 81,312 31,869 843,278

Accumulateddepreciation at1 January 2016 - (80,662) (246,438) (51,548) - (20,167) (398,815)Depreciation - (6,966) (26,744) (4,525) - (2,026) (40,261)Disposals - 2,393 86,277 522 - 1,599 90,791Transfers - - 495 108 - 19 622Translation differences - (5,207) 2,384 746 - 143 (1,934)Accumulateddepreciation at31 December 2016 - (90,442) (184,026) (54,697) - (20,432) (349,597)

Accumulatedimpairment at1 January 2016 (4,214) (3,798) (2,490) - - - (10,502)Impairment losses 4,214 3,798 (44) - - - 7,968Other movements - - 44 - - - 44Accumulatedimpairment at31 December 2016 - - (2,490) - - - (2,490)

Carrying amountat 31 December 2016 61,646 166,207 160,325 10,264 81,312 11,437 491,191

2016

Technical ins-tallations and

machinery

Other proper-ty, plant and equipment

Thousands of Euros

Other installa-tions, equipment

and furniture

Under cons-truction and

advances TotalLand Buildings


51

Cost at1 January 2015 59,840 250,263 441,673 59,190 22,508 36,564 870,038Additions 204 9,009 21,378 3,279 41,223 13,801 88,894Disposals - (1,045) (4,155) (24) (4,417) (10,335) (19,976)Additions to the consolidated Group - - 89 339 - 310 738Disposals due tochanges in UTE% interest - - (195) (47) - (353) (595)Translation differences 1,868 (4,344) 19,097 (579) 28 703 16,773Cost at31 December 2015 61,912 253,883 477,887 62,158 59,342 40,690 955,872

Accumulateddepreciation at1 January 2015 - (71,052) (221,852) (47,924) - (18,938) (359,766)Depreciation - (7,702) (27,115) (4,116) - (1,264) (40,197)Disposals - 188 3,177 23 - 283 3,671Additions to theconsolidated Group - - (39) (268) - (244) (551)Disposals due tochanges in UTE% interest - - 166 38 - 144 348Translation differences - (2,096) (775) 699 - (148) (2,320)Accumulateddepreciation at31 December 2015 - (80,662) (246,438) (51,548) - (20,167) (398,815)

Accumulatedimpairment at1 January 2015 (4,214) (3,798) (2,604) - - - (10,616)Impairment losses - - (234) - - - (234)Reversal ofimpairment losses - - 348 - - - 348Accumulatedimpairment at31 December 2015 (4,214) (3,798) (2,490) - - (10,502)

Carrying amountat 31 December 2015 57,698 169,423 228,959 10,610 59,342 20,523 546,555

2015

Technical ins-tallations and

machinery

Other proper-ty, plant and equipment

Other installa-tions, equipment

and furniture

Under cons-truction and

advances TotalLand Buildings

A) GENERALAdvances made by Air Europa Líneas Aéreas, S.A.U. for various aircraft orders to be received in the future are reflected in under construction and advances.

The main additions to under construction and advances comprise:

A payment in advance for six Boeing 737-800 amounting to US Dollars 40,765 thousand (equiva-lent to Euros 36,418 thousand), due to be delivered

between April 2018 and July 2018. On 1 September 2016 three of these aircraft were transferred to two special purpose entities unrelated to the Group.

A payment in advance for 14 Boeing 787-9 amount-ing to US Dollars 3,724 thousand (equivalent to Euros 3,368 thousand), due to be delivered from 2020 to 2022.

A payment in advance for 20 Boeing 737-8 MAX amounting to US Dollars 22,136 thousand (equiva-

Thousands of Euros

lent to Euros 20,411 thousand), due to be delivered in January 2021.

Additions in 2015 reflected the initial payment for six Boeing 737-800 amounting to US Dollars 25,815 thousand (equivalent to Euros 23,221 thousand), the initial payments for 14 Boeing 787-9 amount-ing to US Dollars 16,025 thousand (equivalent to Euros 14,600 thousand), and the initial payment for the commitment to acquire 20 Boeing 737-8 MAX amounting to US Dollars 3,200 thousand (equiva-lent to Euros 2,915 thousand).

Disposals for the period mainly reflect the transfer of purchase positions of three Boeing 737-8, due to be delivered between June and August 2017, to two special purpose entities unrelated to the Group, amounting to US Dollars 43,195 thousand

B) PROPERTY, PLANT AND EQUIPMENT LOCATED ABROAD

Details of property, plant and equipment located abroad at31 December are as follows:

C) FULLY DEPRECIATED ASSETSDetails of the cost of fully depreciated property, plant and equipment in use at 31 December are as follows:

D) IMPAIRMENTThe Group has reversed Euros 8,012 thousand of impairment on land and buildings with respect to one of the Group’s office buildings, based on the valuation derived from third party appraisals, which justify this reversal of impairment.

E) PROPERTY, PLANT AND EQUIP-MENT PLEDGED AS COLLATERAL

At 31 December 2016 the Group has property, plant and equipment with a carrying amount of Euros 89,587 thousand (Euros 92,897 thousand at 31 December 2015) which have been pledged as

(equivalent to Euros 38,669 thousand). After de-livery Air Europa Líneas Aéreas, S.A.U. will operate these aircraft under operating leases.

Disposals for 2015 mainly reflected the transfer of purchase positions of three Boeing 787-8, due to be delivered in 2017, to two special purpose entities unrelated to the Group, amounting to US Dollars 4,047 thousand (equivalent to Euros 4,464 thou-sand). After delivery Air Europa Líneas Aéreas, S.A.U. will operate these aircraft under operating leases.

The most significant additions in technical instal-lations and machinery for 2016 correspond mainly to engines, spare parts and handling equipment for the new concessions. Disposals for 2016 reflect aircraft that the Company had owned and sold to third parties for their subsequent lease.

Hotel Be Live Punta Cana Grand 109,530 (39,825) 69,705Aircraft and advances on aircraft 44,896 (3,781) 41,115 Hotel Canoa 83,604 (36,256) 47,348Premises and other 16,376 (9,680) 6,696 254,406 (89,542) 164,864

Hotel Be Live Punta Cana Grand 96,449 (28,494) 67,955Aircraft and advances on aircraft 191,093 (52,258) 138,835Hotel Canoa 84,019 (24,184) 59,835Premises and other 8,001 (2,492) 5,509 379,562 (107,428) 272,134

Description Accumulateddepreciation

Thousands of Euros

Cost Total

2016

2015

Buildings 873 873 Technical installationsand machinery 90,856 96,485 Other installations, equipmentand furniture 31,165 30,156 Other property, plant andequipment 11,960 12,486

134,854 140,000

Thousands of Euros

2016 2015


53

10. INVESTMENT PROPERTYDetails of investment property and movement during the year are as follows:

collateral for several mortgage-backed loans and credit facilities (see note 25 (b)).

F) COMMITMENTSUnder construction and advances include payments made to the aircraft manufacturer for the con-struction and assembly of aircraft.

The advances paid to date amount to US Dollars 29,359 thousand for the fleet of 737-800 (US Dol-lars 31,619 thousand in the year ended 31 Decem-ber 2015), US Dollars 35,774 thousand for the fleet of 787-9 (US Dollars 32,049 thousand in the year ended 31 December 2015) and US Dollars 25,336 thousand for the fleet of 737-8 MAX (US Dollars 3,200 thousand in the year ended 31 December 2015), totalling an equivalent of Euros 79,847 thou-sand at 31 December 2016 (Euros 58,319 thousand at 31 December 2015).

Details of these commitments at 31 December 2016 and 2015 are as follows:

- A contract with the aircraft manufacturer The Boeing Company, for the acquisition of three Boeing 737-800 with a total catalogue value of US Dollars 293.6 million, with estimated delivery dates between April 2018 and July 2018.

- A contract with the aircraft manufacturer The Boeing Company, for the acquisition of 14 Boeing 787-9 with a total catalogue value of US Dollars 4,273 million, with estimated delivery dates in 2020 and 2022.

- A contract with the aircraft manufacturer The Boeing Company, for the acquisition of 20 Boeing 737-8 MAX with a total catalogue value of US Do-llars 2,533 million, with estimated delivery dates in January 2021.

Air Europa Líneas Aéreas intends to finance its pur-chase commitments using funds generated by the Group and transactions that can be entered into with aircraft lessors.

G) INSURANCEThe Group has taken out insurance policies to cover the risk of damage to its property, plant and equip-ment. The coverage of these policies is considered

sufficient.

Boeing 737-800 3 8 Boeing 787-9 14 14 Boeing 737-8 MAX 20 20

37 42

Thousands of Euros

2016 2015

Cost at 1 January 2016 577 4,217 4,794Cost at 31 December 2016 577 4,217 4,794Accumulated depreciation at 1 January 2016 - (405) (405)Depreciation - (86) (86)Accumulated depreciation at 31 December 2016 - (491) (491)Accumulated impairment at 1 January 2016 - (1,129) (1,129)Accumulated impairment at 31 December 2016 - (1,129) (1,129)

Carrying amount at 31 December 2016 577 2,597 3,174

Description

Thousands of Euros

Land Buildings Total

2016

A) GENERALAssets mostly comprise commercial premises and parking spaces in several locations in Spain.

B) IMPAIRMENTAt 31 December 2016, impairment of Euros 1,129 thousand was recognised on investment proper-ty, specifically commercial premises and parking spaces in several locations in Spain (Euros 1,129 thousand at 31 December 2015).

C) INSURANCEThe Group has taken out insurance policies to cover the risk of damage to its investment property. The coverage of these policies is considered sufficient.

11. FINANCE LEASES - LESSEE The Group has leased the following types of assets

under finance leases:

The Group has leased assets under finance leases, basically aircraft, maintenance equipment and handling equipment. The assets acquired under finance leases are included under property, plant and equipment on the consolidated balance sheet.

Future minimum lease payments are reconciled with their present value as follows:

Initially recognised at:Fair value 86,715 86,715 Accumulated depreciationand impairment losses (5,565) (5,565) Carrying amount at31 December 2016 81,150 81,150

Initially recognised at:Fair value 223,453 223,453Accumulated depreciationand impairment losses (66,246) (66,246) Carrying amount at31 December 2015 157,207 157,207

Thousands of Euros

Other property, plant and

equipment Total

Future minimum payments 71,743 136,302Unaccrued finance costs (3,886) (12,545)Present value 67,857 123,757

Thousands of Euros

2016 2015

Cost at 1 January 2015 798 5,417 6,215Disposals (221) (1,200) (1,421)Cost at 31 December 2015 577 4,217 4,794Accumulated depreciation at 1 January 2015 - (405) (405)Depreciation - (104) (104)Disposals - 104 104Accumulated depreciation at 31 December 2015 - (405) (405)Accumulated impairment at 1 January 2015 - (1,537) (1,537)Reversal of impairment losses - 408 408 Accumulated impairment at 31 December 2015 - (1,129) (1,129)

Carrying amount at 31 December 2015 577 2,683 3,260

Description

Thousands of Euros

Land Buildings Total

2015


55

Finance lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

12. OPERATING LEASES - LESSEE

The Group has leased aircraft, hotels and travel agency sales offices from third parties under ope-rating leases.

Operating lease payments have been recognised as an expense for the year as follows:

Details of minimum payments and the present value of finance lease liabilities, by maturity date, are as follows:

Less than one year 9,185 8,687 20,374 17,693 One to five years 32,923 31,084 79,211 70,999Over five years 29,706 29,633 29,376 28,233 71,814 69,404 128,961 116,925

Less current portion (9,185) (8,687) (20,374) (17,693)

Total non-current 62,629 60,717 108,587 99,232

Thousands of Euros

Minimum payments Minimum paymentsPresent value Present value2016 2015

Minimum lease payments 249,756 196,418

Thousands of Euros

2016 2015

Future minimum payments under operating leases are as follows:

Less than one year 188,145 189,261 One to five years 485,897 391,850 Over five years 358,131 108,658

1,032,173 689,769

Thousands of Euros

2016 2015

These payments basically relate to lease commit-ments for aircraft, hotels and travel agency offices and other items, for Euros 950,990 thousand, Euros 33,367 thousand and Euros 40,160 thousand, re-spectively (Euros 607,492 thousand, Euros 45,307 thousand and Euros 36,970 thousand, respectively, at 31 December 2015).

On 25 November 2015 Globalia Mantenimiento Aeronáutico, S.L.U. signed a 35 year leasehold

right on land at Madrid Barajas airport for the construction of an aircraft maintenance hangar. This leasehold right stipulated the payment of an annual levy of Euros 678 thousand for the duration of the right, which would be accrued from the date the land certificate of delivery was issued.

13. RISK MANAGEMENT POLICYA) FINANCIAL RISK FACTORSThe Group’s activities are exposed to various financial risks: market risk (including currency risk, interest rate risk and jet fuel price risk), credit risk and liquidity risk. The Group’s global risk manage-ment programme focuses on uncertainty in the financial markets and aims to minimise potential adverse effects on the Group’s profits. The Group uses derivatives to mitigate certain risks.

Risks are managed by the Group’s Finance Depart-ment in accordance with policies approved by the board of directors. This department identifies, evaluates and mitigates financial risks in close col-laboration with the Group’s operational units. The board of directors issues global risk management policies, as well as policies for specific issues such as currency risk, interest rate risk, liquidity risk, the use of derivatives and non-derivative instruments, and investments of cash surpluses.

i) Market riskMarket risk is mainly derived from trends in the Spanish tourist market, although to minimise this risk the Group’s area of influence is also diversified into Europe and the USA/Canada.

ii) Currency riskThe Group operates internationally and is there-fore exposed to currency risk, especially with

regard to the US Dollar. Currency risk is associated with future commercial transactions, recognised assets and liabilities, and net investments in foreign operations.

In order to control currency risk associated with future commercial transactions, the Group uses for-ward currency contracts. Currency risk arises when future commercial transactions are presented in a foreign currency other than the Group’s function-al currency. The Group’s financial management is responsible for controlling the net position of each foreign currency by entering into external forward currency contracts. Details of the amounts of trans-actions in foreign currency are provided in note 31.

iii) Credit riskThe Group is not significantly exposed to credit risk. The Group has policies to ensure that whole-sale sales are only made to customers with ade-quate credit records. Retail customers pay in cash or by credit card. Derivative and cash transactions are only performed with financial institutions that have high credit ratings. The Group has policies to limit the amount of risk with any one financial institution. Valuation allowances for bad debts, and the review of individual balances based on customers’ credit ratings, market trends and historical analysis of bad debts at an aggregated level entail a significant use of estimates. The credit rating of the country, based on information provided by external agencies, is used to calculate the individual country-specific val-uation allowance for bad debts. Any decrease in the volume of outstanding balances entails a reduction in impairment resulting from an aggregate analysis of historical bad debts, and vice versa.

Trade and other receivables from third parties mainly comprise balances receivable from travel agents and private clients for passenger transport in the Air division, receivables from private clients in the Travel Agency division, receivables from airlines in the Handling division, receivables from travel agencies in the Tour Operator division and receivables from tour operators and travel agen-cies in the Hotel division. Transactions with travel agencies in the Air division are carried out using a settlement system managed by the Internation-al Air Transportation Association (lATA), which in each country also imposes credit conditions involving risk hedging on travel agencies using the scheme. The Group has a policy of arranging

credit insurance for most other trade and credit transactions in each division, which partially cov-ers these balances.

iv) Liquidity riskThe Group applies a prudent policy to cover its liquidity risks based on having sufficient cash and marketable securities, as well as sufficient financ-ing through credit facilities, to settle market posi-tions. The excess of current liabilities compared to current assets common among groups operating in the travel sector reflects the difference in average collection days from customers and average pay-ment days to suppliers. The amount received from tickets sold and not used at 31 December 2016 is recognised by Air Europa Líneas Aéreas, S.A.U. un-der current accruals (see note 27). Group manage-ment considers that this liability is not payable as it relates to future services not yet carried out for which returns are insignificant.

The Finance department manages this situation by controlling these average periods and by obtaining and drawing funds from credit facilities with finan-cial institutions (see note 25).

One-off cash requirements of the Group compa-nies are covered by Globalia Corporación Empre-sarial, S.A., as the entity that manages the Group’s cash, receives the cash surpluses and allocates them to offset the various seasonal requirements of the Group’s businesses.

v) Cash flow and fair value interest rate risks

Interest rate risk arises from non-current borrow-ings. Borrowings at variable interest rates expose the Group to cash flow interest rate risks. The Group has taken out interest rate swaps to partially hedge the interest rate risk derived from bank debt (see note 17).

The Group is sensitive to fluctuations in the price of jet fuel for the aircraft it operates. To minimise this risk, the Group contracted short-term jet fuel futures during the reporting period to hedge be-tween 20% and 50% of forecast consumption.

14. EQUITY-ACCOUNTED INVESTEES

Details of equity-accounted investees and move-

ment during the year are shown in Appendix VI.


57

15. FINANCIAL ASSETS BY CATEGORY

A) CLASSIFICATION OF FINANCIAL ASSETS BY CATEGORY

The classification of financial assets by category and class, as well as a comparison of the fair value and the carrying amount, are provided in Appendix VII.

16. INVESTMENTS AND TRADE RECEIVABLES

A) INVESTMENTSDetails of investments are as follows:

Unrelated partiesEquity instruments 3,132 349 3,135 194Loans 3,193 9,778 1,571 80,200Debt securities 8 - - 55Hedging derivatives (note 17) - 25,021 - 2,999Deposits and guarantees 79,647 74,177 87,476 52,435

Total 85,980 109,325 92,182 135,883

Thousands of Euros

Non-current Non-currentCurrent Current

2016 2015

At 31 December 2016 deposits and guarantees mainly reflect the Group’s deposits on aircraft under operating leases for an equivalent value of Euros 36,941 thousand at 31 December 2016 (Euros 31,783 thousand at 31 December 2015). At 31 December 2016 the Euro values of these non-current and current deposits are Euros 34,039 thousand and Euros 3,076 thousand, respectively.

This heading also includes the deposits paid to the lessors of the aircraft to secure the periodic fleet inspections. The Group settles the cost of these periodic inspections through the lessor’s repay-ment of amounts previously paid in advance by the Group. At 31 December 2016 the Euro values of these non-current and current deposits are Euros 40,402 thousand and Euros 54,403 thousand, respectively (Euros 45,457 thousand and Euros 35,656 thousand at 31 December 2015).

The Group’s fixed-term bank deposits with short-term maturities amount to Euros 10,000 thousand at 31 December 2016.

Current loans include a loan extended by the Group to the Venezuelan subsidiary of a multina-tional Spanish company amounting to Euros 2,222 thousand (Euros 72,899 thousand at 31 December 2015) (see note 16 (e)). The Parent has extended a current loan to a related party of the majority shareholder amounting to Euros 7,286 thousand at the reporting date (Euros 7,174 thousand at 31 De-cember 2015). This loan is secured by a mortgaged

property which has a market value higher than its nominal value.

B) TRADE AND OTHER RECEIVABLESDetails of trade and other receivables are as follows:

Unrelated partiesTrade receivables 279,924 270,819Other receivables 23,942 22,794Personnel 1,086 961Public entities, income tax 15,092 5,307Public entities, other 40,840 49,810Impairment (50,627) (50,489)

Total 310,257 299,203

Thousands of Euros

CurrentCurrent

2016 2015

Other receivables from unrelated parties include advances paid to suppliers by companies from the travel agency and tour operator divisions to guarantee operational capability to render services in the coming season, as is common practice in the sector. These advances are subsequently cancelled.

C) IMPAIRMENTAn analysis of the changes in allowance accounts related to impairment of financial assets measured at amortised cost due to credit risk is as follows:

D) CLASSIFICATION BY MATURITYThe classification of financial assets by maturity is shown in Appendix VIII.

E) AMOUNTS DENOMINATED IN FOREIGN CURRENCIES

Details of monetary financial assets denominated in foreign currencies are as follows:

CurrentBalance at 1 January 2016 (50,489) (50,489)Charges (452) (452)Eliminations againstthe accounting balance 314 314Balance at31 December 2016 (50,627) (50,627)

CurrentBalance at 1 January 2015 61,506 61,506Charges (1,514) (1,514)Eliminations against theaccounting balance 12,531 12,531Balance at31 December 2015 (50,489) (50,489)

Thousands of Euros

TotalTrade receivables

2016

2015

Non-current investmentsOther financial assets 74,633 6 23 - 37 74,699Total non-current financial assets 74,633 6 23 - 37 74,699

Trade and other receivables Trade receivables – current 29,119 261 1,949 - 3,458 34,787Other receivables 229 2,240 - - 109 2,578

Current investments Other financial assets 34,879 1 15 - 682 35,577

Cash and cash equivalentsCash 23,402 3 1,100 - 4,029 28,534Total current financial assets 87,629 2,505 3,064 - 8,278 101,476

Total financial assets 162,262 2,511 3,087 - 8,315 176,175

Thousands of Euros

US DollarDominican

pesoVenezuelan

BolivarMexican

Peso TotalOther cu-rrencies

2016

Non-current investmentsDebt securities 72,899 - - - - 72,899Other financial assets 88,937 8 36 - 25 89,006Total non-current financial assets 161,836 8 36 - 25 161,905

Trade and other receivables Trade receivables – current 27,965 138 1,288 804 2,368 32,563Trade receivables from Group companiesand associates – current - 2,582 - - - 2,582 Other receivables 224 - 1 - 96 321

Current investments Other financial assets 92 1 2 - - 95

Cash and cash equivalentsCash 8,053 118 146 1,456 - 9,773Total current financial assets 36,334 2,839 1,437 2,260 2,464 45,334

Total financial assets 198,170 2,847 1,473 2,260 2,489 207,239

US DollarDominican

pesoVenezuelan

BolivarMexican

Peso TotalOther cu-rrencies

2015


59

The Company has significant cash balances denominated in the Venezuelan Bolivar, which is subject to foreign currency exchange controls by the Venezuelan government. Consequently, there are different exchange rates that can be used to value the Venezuelan Bolivar, which have been modified in recent years due to the country’s eco-nomic crisis. The exchange rate has been devalued in recent years from 6.3 VEF/USD (CADIVI) to 13.5 VEF/USD (SICAD), and subsequently to 198.7 VEF/USD (SIMADI) and finally this year to 628.3 VEF/USD (DICOM).

Part of the withheld funds in Venezuela, derived mainly from ticket sales in prior years, is recognised as current investments.

As the loan extended to a multinational compa-ny in the prior year has not been repaid like the previous loans at the exchange rate agreed with the Venezuelan government (CADIVI), the directors have decided to value these loans at 628.3 VEF/USD (DICOM), which has given rise to a loss of Euros 68,542 thousand, recognised under other exchange differences in the accompanying consoli-dated income statement.

Cash flow hedgesForeign currency swaps 220,420 10,502 - -Interest rate swaps 10,187 - (192) -Fuel futures (in Tm) 399,416 14,519 - -Total derivatives at fair value through changes in equity 630,023 25,021 (192) -

Total hedging derivatives 630,023 25,021 (192) -

Hedging derivatives Cash flow hedgesForeign currency swaps 259,606 2,999 - (96)Interest rate swaps 18,442 - (95) (98)Fuel futures (in Tm) 330,352 - - (44,812)Total derivatives at fair value through changes in equity 608,400 2,999 (95) (45,006)

Total hedging derivatives 608,400 2,999 (95) (45,006)

Thousands of Euros

LiabilitiesNotional amount Non-currentCurrent Current

2016

2015

Fair values

Assets

17. DERIVATIVE FINANCIAL INSTRUMENTSDetails of derivative financial instruments

are as follows:

A) INTEREST RATE SWAPSTo manage its interest rate risks, Globalia Hotel La Niña, S.L. has arranged two variable-to-fixed interest rate swaps for a notional amount of Euros 10,187 thousand, which expire on 25 September 2023.

The fair value of the financial swaps is based on the market values of equivalent derivative financial instruments at the consolidated reporting date. All interest rate swaps are effective as cash flow hedges.

B) FORWARD EXCHANGE CONTRACTS

In order to manage its currency risks, Globalia Cor-poración Empresarial, S.A. and Air Europa Líneas

Aéreas, S.A.U. have mainly entered into US Dollar forward exchange contracts.

The fair values of these forward contracts are based on the market values of equivalent instru-ments. All forward exchange contracts are effec-tive as cash flow hedges.

C) JET FUEL HEDGESTo hedge the risk of fuel price fluctuations Air Eu-

ropa Líneas Aéreas, S.A.U. and Globalia Corporación

Empresarial, S.A. have entered into a number of

jet fuel futures contracts. These contracts expire

in the short term. The fair values of these for-

ward contracts are based on the market values

of equivalent instruments. On 1 December 2015

The total amount of cash flow hedges which has been transferred from recognised income and ex-pense to consolidated profit or loss is as follows:

Exchange rate insurance 2,903 7,042Interest rate swaps (193) (281)Fuel price hedge (44,812) (96,239)

(42,102) (89,478)

Thousands of Euros Profit/(Loss)

2016 2015

The foreign currency futures and the interest rate SWAP are transferred to the income statement un-der exchange differences and finance costs, respec-tively. Fuel price hedges are transferred to supplies.

18. INVENTORIESA) GENERALDetails of inventories are as follows:

The Group’s inventories mainly comprise mainte-nance consumables, aircraft catering materials and hotel consumables.

The Group has taken out insurance policies to cover the risk of damage to its inventories. The coverage of these policies is considered sufficient.

B) EMISSION ALLOWANCESEmission allowances recognised as raw materials and other supplies are as follows:

Production and distribution business Raw materials andother supplies 21,883 19,749 Gas emission allowances 2,179 - Advances to suppliers 4,705 2,376

28,767 22,125

Thousands of Euros

2016 2015

Movement in the number of allowances is as

follows:

Emission allowances - short cycle 2,179 -

2,179 -

Thousands of Euros

2016 2015

Balances at1 January 2015 (252,224) (241,751) (493,975)Additions 252,224 465,751 717,975Disposals (131,198) (278,014) (409,212)Balance at 31December 2015 (131,198) (54,014) (185,212)

Additions 252,224 386,000 638,224

Balance at 31December 2016 121,026 331,986 453,012

Description PurchasedFree of charge Total

Additions recognised by Air Europa Líneas Aé-reas, S.A.U. in 2016 comprise the allocation of free-of-charge allowances under the allocation plan explained in note 4g (iv), which amounted to 252,224 allowances (252,224 allowances in 2015) equivalent to Euros 1,211 thousand (Euros 2,013 thousand in 2015), and the acquisition of 386,000 allowances (536,602 allowances in 2015) equiva-lent to Euros 1,923 thousand (Euros 3,534 thou-sand in 2015).

Additions recognised by Air Europa Líneas Aéreas, S.A.U. in 2015 comprised the allocation of free-of-charge allowances under the allocation plan exp-lained in note 4g (iv), which amounted to 252,224 allowances equivalent to Euros 2,013 thousand, and the acquisition of 536,602 allowances equiva-lent to Euros 3,534 thousand.

The effect of this estimate of greenhouse gas ex-penses used at 31 December 2016 has been Euros 2,814 thousand (Euros 4,282 thousand in 2015), the balancing entry of which has been recognised under Provisions provision for emission allowances (see note 23).

Exchange rate insurance (7,876) (2,177)Interest rate swaps 144 145 Fuel price hedge (10,890) 33,609

(18,622) 31,577

Thousands of Euros Income/(Expense)

2016 2015

Air Europa Líneas Aéreas, S.A.U. transferred its

contractual position to the holding company, which

recognised these contracts using hedge accounting

and recorded their assigned value of Euros 19,281

thousand in consolidated equity.

The total amount of cash flow hedges recognised

in equity is as follows:


61

19. PREPAYMENTS Details of prepayments are as follows:

Prepayments for operatingleases and other 11,009 6,717Prepayments for unusedflight tickets 1,424 1,497Aircraft maintenance 4,765 4,131Others 5,123 3,182

Total 22,321 15,527

Thousands of Euros

CurrentCurrent

2016 2015

20. CASH AND CASH EQUIVALENTS

Details of cash and cash equivalents are as follows:

21. EQUITYDetails of consolidated equity and movement during the year are shown in the consolidated sta-tement of changes in equity.

A) CAPITALAt 31 December 2016 and 2015 the share capital of Globalia Corporación Empresarial, S.A., the Parent, is represented by 168,944,700 registered shares of Euros 0.1 par value each, fully subscribed and paid.

Mr. Juan José Hidalgo Acera owns 51.58% of the Parent’s share capital. No legal entity holds 10% or more of the Parent’s share capital.

B) RESERVESDetails of reserves and profit/loss for the period and movement are shown in Appendix IX. i) Legal reserveThe legal reserve has been appropriated in com-pliance with article 274 of the Spanish Companies Act, which requires that companies transfer 10% of profits for the year to a legal reserve until this reser-ve reaches an amount equal to 20% of share capital. The legal reserve is not distributable to sharehol-ders and if it is used to offset losses, in the event

Cash in hand and at banks 70,023 49,928

Current bank deposits 5 5

70,028 49,933

Thousands of Euros

2016 2015

that no other reserves are available, the reserve must be replenished with future profits.

This reserve is not distributable to shareholders and may only be used to offset losses if no other reserves are available. This reserve may be used to increase share capital.

At 31 December 2016 and 2015, the Company has appropriated to this reserve the minimum amount required by law.

ii) Voluntary reservesThese reserves are freely distributable.

C) TRANSLATION DIFFERENCESDetails of translation differences, by source, are as follows:

Bajuba de México Consultores S de RL de CV 232 199 Be Live Trading, Inc 11 11 CH Marketing, Corp. (1,265) (338) Globalia Incoming Services Mexico, S. de R.L.de C.V. (555) (311) Globalia Incoming ServicesDominicana, S.A. 23 25 Globalia Hotels & ResortsDominicana, S.A. - (848) Globalia Lease Finance, Limited 3,267 2,780 Globalia Lease Finance Two, Limited 232 185 Globalia Leae Finance Three, Limited 613 547Globalia Lease Finance Four, Limited 1,785 1,459 Globalia Lease Finance Five, Limited 1,764 1,456 Globalia Lease Finance Six, Limited 1,708 1,261 Globalia Servicios Corporativos Dominicana,S.A. (26) (18) Hotel Canoa, S.A. (2,749) (2,127) Intertravel, S.R.L. (1,445) (963) Inversiones Bávaro, S.A. 3,854 3,763 Inversiones Inmobiliarias, RCJ, S.A. (25) 106 Inversiones La Albufera, S.A.S. 175 126 MK Dominicana USA, INC (918) (792) MK Media Corp. (90) (91) MK Puerto Rico, S.A. (285) (264) MK Tours, INC (91) (359) MK Travel & Tours, INC 413 309 Morocco, G.H.S. 1,432 1,156 Operadora Globalia de México, S.A. de C.V. - 854 Panamericana de ServiciosEnergéticos 1 13 See Europe Tours, LTD (20) (9) Servicios D&A de R.L. de C.V. 358 302 Eurogestión Hoteliere S.A.R.L. (12) - Globalia Lease Finance Seven,Limited 1,265 - Smart Inversiones, S.A.S. 419 427

Total 10,071 8,859

Thousands of Euros

2016 2015

22. NON-CONTROLLING INTERESTSDetails of non-controlling interests by company and movement during the year are as follows:

The companies or individuals, both related to the Group and unrelated parties, with a direct or indirect interest of at least 10% in the share capital of a Group company are as follows:

- Transportes Chapín, S.L. (10% interest in Globalia Autocares, S.A.).- Mr. Francisco Manuel Rodríguez García (25% interest in Viajes Tu Billete, S.L.).- Saraitsa Comercializadora, S.A. (33.33% interest in Panamericana de Servicios Energéticos, S.A.S.)

23. PROVISIONSDetails of provisions are as follows:

The provision for major repairs includes the provi-sion for inspections to be made in the coming years considering the regulatory maintenance commit-ments for aircraft under operating leases.

An amount of Euros 2,814 thousand (Euros 6,798 thou-sand at 31 December 2015) is also recognised under provisions for emission allowances in relation to the provision for greenhouse gas emissions (see note 7).

In 2015 legal proceedings commenced involv-ing various Group companies in respect of the incorrect application of the tariff deductions for scheduled air transport services for residents in the autonomous regions of the Canary Islands, Balearic Islands, Ceuta and Melilla, as indicated in note 34.

Provisions for other employee benefits 180 - 180 -Provisions for liabilities - 27,840 - 35,514Provisions for major repairs 91,733 87,949 92,092 59,226Provisions for customer loyalty programmes - 776 - 1,065Provisions for emission allowances - 2,814 6,798 -

Total 91,913 119,379 99,070 95,805

Thousands of Euros


2016 2015

Viajes Tu Billete, S.L. - - 408 - (408) -Globalia Autocares, S.A. 1,441 - 177 (201) (56) 1,361Globalia Autocares Levante, S.L - 25 - - - 25Panamericana de Servicios Energéticos, S.A.S. (25) - (17) - 31 (11)

1,416 25 568 (201) (433) 1,375

Thousands of Euros

Changes in the consoli-dated group

Share in profits/(losses)

Balance at 1 January

Other movements

2016

CompanyBalance at 31

DecemberDividends

Viajes Tu Billete, S.L. 646 - (646) - - -Globalia Autocares, S.A. 1,199 - 242 - - 1,441Geomoon, S.L. 29 (29) - - - - City Transfers, S.A.S (2) 2 - - - -Panamericana de Servicios Energéticos, S.A.S. - (16) (9) - - (25)

1,872 (43) (413) - - 1,416

Changes in the consoli-dated group

Share in profits/(losses)

Balance at 1 January

Other movements

2015


DecemberDividends


63

24. FINANCIAL LIABILITIES BY CATEGORY

A) CLASSIFICATION OF FINANCIAL LIABILITIES BY CATEGORY

The classification of financial liabilities by category and class and a comparison of the fair value with the carrying amount are shown in Appendix X.

25. PAYABLES AND TRADE PAYABLES

A) PAYABLESDetails of payables are as follows:

B) OTHER INFORMATION ON PAYABLES

i) Main characteristics of payablesThe terms and conditions of loans and payables are provided in Appendix XII.

The Parent has extended guarantees to third par-ties on behalf of Group companies amounting to

Euros 61,050 thousand (Euros 58,064 thousand at 31 December 2015). The directors of the Parent do not consider that additional liabilities would arise as a result of these guarantees, other than those already recognised. The Group has the following credit and discount facilities at the reporting dates:

Unrelated partiesLoans and borrowings 63,751 71,441 94,998 81,362Finance lease payables 60,717 8,687 99,232 17,693Hedging derivatives 192 - 95 45,006Other financial liabilities 3,636 - 7,444 -Guarantees and deposits received - 8,797 - 14,612

Total 128,296 88,925 201,769 158,673

Thousands of Euros


2016 2015

Credit facilities:Globalia Corporación Empresarial, S.A. 14,729 97,500 67,672 93,000Globalia Mantenimiento Aeronáutico, S.L.U. 4,143 5,480 6,353 6,545Air Europa Líneas Aéreas, S.L.U. 11,573 17,543 3,676 11,022Halcon Monfobus Fisterra, UTE - 300 - 300Marhandling, S.A. - 141 - 324Grupo MK Tours 474 474 230 459Monforte, Castromil, Globalia UTE - 150 - 150Globalia Handling, S.A.U. - 2,500 - 2,500La Hispano, Monforte, Castromil, Globalia UTE - 150 - 150Aeronova, S.L.U. - - 300 341

Collection management facilitiesGlobalia Travel Club Spain, S.L.U. 12 - 12 -Groundforce Cargo, S.L.U. 3 - - -

30,934 124,238 78,243 114,791

Thousands of Euros

Drawn down Drawn downLimit Limit

2016 2015

The following payables are secured as shown below (see note 9):

C) TRADE AND OTHER PAYABLESDetails of trade and other payables are as follows:

D) CLASSIFICATION BY MATURITYThe classification of financial liabilities by maturi-

ty is shown in Appendix XI.

E) AMOUNTS DENOMINATED IN FOREIGN CURRENCIES

Details of financial liabilities denominated in

foreign currencies are as follows:

Spanish bank Hotel Be Live La Niña 20,379 21,894Spanish bank Maintenance hangar 4,143 5,287Spanish bank Pozuelo business centre and central offices in Llucmajor 9,667 10,863Spanish bank Hotel Be Live Orotava 8,444 10,125Spanish bank Hotel Be Live Palace de Muro 22,068 23,127

64,701 71,296

Thousands of Euros

Creditor 2016Guarantee 2015

Unrelated partiesSuppliers 281,339 272,643Payables 12,966 14,881Personnel 18,213 16,189Public entities, income tax 2,416 1,567Public entities, other 40,158 36,777Advances from customers 58,504 56,777

Total 413,596 398,834

Thousands of Euros

CurrentCurrent

2016 2015

Non-current payables Finance lease payables 26,874 - - - 26,874Other financial liabilities 1,466 - 1,558 - 3,024Total non-current liabilities 28,340 - 1,558 - 29,898

Current payables Loans and borrowings 12,758 - - - 12,758Finance lease payables 2,027 - - - 2,027Other financial liabilities 2 - - - 2

Trade and other payablesSuppliers 61,682 421 4,634 5,564 72,301Other payables (962) 1,467 1,267 (372) 1,400Total current liabilities 75,507 1,888 5,901 5,192 88,488

Total financial liabilities 103,847 1,888 7,459 5,192 118,386

Thousands of Euros

USDollar

Dominican Peso

MexicanPeso Total

Other currencies

2016


65

Non-current payables Loans and borrowings 7,887 - - - 7,887Finance lease payables 90,978 - - - 90,978Other financial liabilities 2,596 - 95 - 2,691Total non-current liabilities 101,461 - 95 - 101,556

Current payables Loans and borrowings 34 - - - 34Finance lease payables 15,292 - - - 15,292Other financial liabilities 510 - 95 - 605

Trade and other payablesSuppliers 68,382 (62) 6,155 6,131 80,606Other payables (248) 1,721 1,131 (194) 2,410Total current liabilities 83,970 1,659 7,381 5,937 98,947

Total financial liabilities 185,431 1,659 7,476 5,937 200,503

Thousands of Euros

USDollar

DominicanPeso

MexicanPeso Total

Other currencies

2015

26. LATE PAYMENTS TO SUPPLIERS. “REPORTING REQUIREMENT”. THIRD ADDITIONAL PROVISION OF LAW 15/2010 OF 5 JULY 2010Details of late payments to suppliers by Spanish consolidated companies are as follows:

Average supplier paymentperiod 27 28Transactions paid ratio 25 26Transactions payable ratio 59 54

Total payments outstanding 2,755,026 2,486,957Total payments made 128,601 115,574

Thousands of Euros

Days

2016 2015

Amount in Euros

27. ACCRUALS Details of accruals are as follows:

The calculation of the average supplier payment periods includes the average balance recognised by the Company under trade and other payables.

Income received in advance (211,246) (188,136)

Thousands of Euros

CurrentCurrent

2016 2015

Current accruals in the consolidated balance sheet at 31 December 2016 primarily include payments received in advance totalling Euros 201,042 thou-sand (Euros 178,592 thousand at 31 December 2015) derived from how Air Europa Líneas Aéreas, S.A.U. handles scheduled flight tickets sold and not used at that date.

28. TAXATIONDetails of balances with public entities are as follows:

Assets Deferred tax assets 30,078 - 44,870 - Current tax assets - 15,092 - 5,307 Other - 40,840 - 49,810 30,078 55,932 44,870 55,117

Liabilities Deferred tax liabilities 16,932 - 16,815 - Current tax liabilities - 2,416 - 1,567 Value added tax and similar taxes - 40,158 - 36,777 16,932 42,574 16,815 38,344

Thousands of Euros


2016 2015

The Group has the following main applicable taxes open to inspection by the Spanish taxation authorities:

In 2011 the tax inspection of León Activos Aeronáuti-cos, S.L.U. in connection with transport registration tax (Impuesto Especial sobre Determinados Medios de Transporte) was completed. The result was a dis-puted tax assessment which proposed a settlement of Euros 893 thousand and a penalty of Euros 592 thousand. Following the decision handed down by the Administrative and Economic Court, this com-pany filed a contentious administrative claim. The Spanish National High Court’s ruling received on 28 January 2016 partially upheld the company’s claim. The ruling eliminated the penalty imposed and re-quired the taxation authorities to modify the settle-ment on the understanding that the tax base was cal-culated incorrectly. As the company disagreed with the taxation authorities’ interpretation, it lodged an appeal on 11 February. These consolidated annual accounts do not include an accounting provision for this contingency as it is considered probable that the Court will rule in favour of the company.

Moreover, the tax prescription period for the Span-ish companies that file consolidated tax returns (which are detailed below) has been interrupted due to the tax authorities opening inspections in 2012 in connection with corporate income tax for the years 2008, 2009, 2010 and 2011. They also initiated inspections on VAT, withholdings and payments on account for personal income tax and withholdings and payments on account for capital gains tax from July 2008 until December 2011.

In the year ended 31 October 2014 the Company signed assessments amounting to Euros 8,440 thousand plus 1,943 thousand of late payment interest on an uncontested basis, while it signed assessments amounting to Euros 39,985 thousand plus Euros 6,836 thousand of late payment interest on a contested basis. As a result of the assessment signed on a contested basis, the Group companies filed an economic and administrative claim. The

Income tax 2012 - 2015 Value added tax 2013 - 2016 Personal income tax 2013 - 2016 Capital gains tax 2013 - 2016 Business activities tax 2013 - 2016 Social Security 2013 - 2016 Non-residents 2013 - 2016

TaxYears open

to inspection

ruling is still pending on this claim. During the year ended 31 December 2014 a VAT assessment was contested in an amount of Euros 1,224 thousand with regard to tax and Euros 208 thousand with re-gard to late payment interest. The only settlement agreement that has been received is for the 2010-2011 corporate income tax of Ibertours, S.A.U., on 10 February 2015. Like the other companies, an economic and administrative claim has been filed.

On 11 February 2016 Globalia Corporación Empre-sarial, S.A., as head of the tax group, was notified of the start of partial inspection and verification procedures for VAT from 2012 to 2015. The ver-ification is partial as it will focus on transactions declared as exempt by Air Europa Líneas Aéreas, S.A.U. On the same date Globalia Travel Club Spain, S.L.U. and Iberotours, S.A.U. were informed of the start of general inspection and verification proce-dures for VAT from 2012 to 2015.

In July 2016 the Group companies subject to inspection filed appeals for judicial review against the default dismissal by administrative silence of the Central Economic-Administrative Court.

A decision has yet to be handed down on these ap-peals. The Company’s directors and tax advisors con-sider that it is not likely that any significant liabilities would arise as a result of the above and therefore no provision has been recognised in this regard.

Due to the treatment permitted by fiscal legislation of certain transactions, additional tax contingencies could arise in the event of inspection. In any event, the directors of the Parent consider that any such contingencies that could arise would not have a sig-nificant effect on the consolidated annual accounts.

A) INCOME TAXThe Group files consolidated tax returns with the entities detailed in note 4 (t).

A reconciliation of net income and expenses for the year with the taxable income/tax loss is provided in Appendix XIII.

The relationship between the consolidated tax ex-pense/tax income and consolidated accounting prof-it/loss for the period is provided in Appendix XIV.

Details of the tax expense/(tax income) in the con-solidated income statement are as follows:


67

Details of deferred tax assets and liabilities by type of asset and liability are as follows:

Current income taxPresent year 3,737 3,936Foreign tax 1,782 1,858Taxes derived fromtax inspection 535 7,955 6,054 13,749

Deferred taxSource and reversal oftemporary differences (2,870) (9,764) 3,184 3,985

Thousands of Euros

2016 2015

Assets Liabilities

Accelerated depreciation and amortisation and leasing 610 525 (6,444) (10,887)Limit to deductibility of amortisation/depreciation 1,726 2,033 10 -Financial hedging instruments - 11,275 (6,255) (750)Tax loss carryforwards 10,729 10,939 - -Unused deductions 3,026 2,423 - -Allocation of results of temporary joint ventures - 533 - - Deferral of reinvestment - - - 9Grants - - - (9)Provisions and other 13,987 17,142 (4,243) (5,178)

Net assets and liabilities 30,078 44,870 (16,932) (16,815)

2016 20162015 2015

Thousands of Euros

Capitalised tax loss carryforwards amount to Euros 5,066 thousand (Euros 5,039 thousand at 31

The Group has unused tax loss carryforwards from individual companies before they joined the consolidated tax group, the amounts of which are as follows:

Thousands of Euros

2016 2015

2000 109 1092002 1,428 1,6542003 1,437 1,5732004 494 4942005 1,200 1,2452006 1,540 1,5402007 674 6402008 91 912009 522 5222010 309 3092011 2,696 2,6962012 2,771 2,8232013 4,930 5,0162014 628 6282015 1,456 1,456

20,285 20,796

Year

December 2015). The Group also capitalised the entire amount of tax loss carryforwards calculated for 2012 for the consolidated tax group in Spain. Tax loss carryforwards capitalised at 31 December 2015 amount to Euros 22,653thousand (Euros 27,566 thousand at 31 December 2015).

The deductions to be offset were mostly gen-erated between 2003, 2015 and 2016 and they amount to Euros 4,664 thousand, of which Euros 3,026 thousand has been capitalised (Euros 2,935 thousand at 31 December 2015) in the consolidat-ed balance sheet.

In 2003- 2004, the Parent (Globalia Corporación Empresarial, S.A.) and its subsidiaries Travelplán, S.A.U., Air Europa Líneas Aéreas, S.A.U. and Viajes Halcón, S.A.U. made outlays for advertising and marketing covering a period of several years as part of the activity plans and programmes approved by the Jacobean Council to celebrate the 2004 Jubilee Year, giving rise to and applying the following income tax deductions for that year.

Globalia Corporación Empresarial, S.A 150 thousand

Air Europa Líneas Aéreas, S.A.U.111 thousand

Viajes Halcón, S.A.U.1,522 thousand

Travelplán, S.A.U.577 thousand

In July 2005, the taxation authorities, through the central tax management department for large businesses (Unidad Central de Gestión de Grandes Empresas), notified the above companies that, among other things, they had been refused the right to apply the deduction set forth in section of Two 1 (c) of the second additional provision of Law 53/2002 to advertising and marketing expenses for the period from 1 November 2003 to 31 October 2004, on the grounds that the application for recognition of the tax benefit had been submitted after the deadline.

As they were not in agreement with the tenor of these rulings, the companies filed administrative appeals which were overruled, first by the National Inspection Office and subsequently by the TEAC, forcing the entities to file appeals for judicial re-view in order to have their rights recognised. These were heard and favourable rulings dated 15 July 2010, 7 October 2010 and 28 October 2010 were handed down by the Judicial Review Cham-ber (second section) of the Spanish High Court.

Specifically, in every case, the Spanish High Court overruled the contested TEAC decisions, allowing the parties to be reimbursed for excess amounts paid, to-gether with the corresponding late payment interest.

The amount pending collection on this account in-cluding late payment interest at 31 December 2016 is Euros 3,908 thousand (Euros 4,756 thousand at 31 December 2015) and is shown under current tax assets in the consolidated balance sheet.

B) VALUE ADDED TAXMost transactions by the travel agency and tour

operator divisions are subject to the special VAT

regime governing travel agencies. In accordance

with accounting regulations, the Parent applies the

following criteria with respect to the aforemen-

tioned special regime:

i) Input VAT on acquisitions of goods and servic-es as a part of transactions subject to the special regime increases the amount of goods and services acquired.

ii) Output VAT on transactions included in the special regime is recognised together with income from the transaction.

iii) The VAT amount settled in accordance with the special regime, that is, the VAT for which the taxable base is the Parent’s gross margin, is deduct-ed from recorded income.

The Company files consolidated value added tax returns with other companies belonging to the Glo-balia business group. This tax group is headed by Globalia Corporación Empresarial, S.A., as Parent, and includes the following subsidiaries: Air Europa Líneas Aéreas, S.A.U.; Viajes Halcón, S.A.U.; Globalia Business Travel, S.A.U.; Globalia Formación, S.L.U.; Globalia Autocares, S.A.; Globalia Broker Services, S.A.U.; Globalia Activos Inmobiliarios, S.A.U.; Glo-balia Sistemas y Comunicaciones, S.L.U.; Globalia Call Center, S.A.U.; Globalia Handling, S.A.U.; Glo-balia Hotel Talavera, S.A.U.; Globalia Hotel Palace de Muro, S.L.U.; Groundforce Cargo, S.L.U.; Glo-balia Servicios Corporativos, S.L.U.; Viajes Ecuador, S.A.U.; Globalia Gestión Seguros, S.L.U.; Welcome Incoming Services, S.L.U.; Globalia Trading Services, S.L.U.; León Activos Aeronáuticos, S.L.U.; Globalia Artes Gráficas, S.L.; Iberrail Spanish Railroad, S.L.; Pepeticket, S.A.; Techite Inversiones 2012, S.L.U.; Sunion Proyecto y Construción, S.L.U.; Aeronova, S.L.U.; Geomoon, S.L.; Autocares Levante, S.L.; Air Europa Suma Miles, S.L.U.; Globalia Traveling, S.L.U. and Globalia Corporate Travel, S.L.U.

29. ENVIRONMENTAL INFORMATION

Aware of the importance of the environment in sustainable development, in January 2006 Air Europa Líneas Aéreas, S.A.U. became the first Spanish airline to receive the ISO 14001 Environ-mental Management Systems certificate. In 2012 it reaffirmed its commitment to the environment by registering with EMAS (Eco-Management and Audit Scheme). The Environmental Declaration is pub-lished on the website www.aireuropa.com.

The main aim of this system is to minimise the environmental impact of all activities, focusing on a


69

decrease in the consumption of natural resources, correct waste management and the optimisation of procedures to reduce both noise and CO2 emissions.

Reducing air pollution as much as possible is a priori-ty for Air Europa Líneas Aéreas, S.A.U., as evidenced, among other actions, by the effort and major commitment the Company has demonstrated by purchasing the most modern aircraft, which unques-tionably results in a more efficient use of fuel.

The main aim of the Environmental Management System is to implement the Company’s Environ-mental Policy, ensuring its compliance with prevail-ing environmental legislation, managing environ-mental aspects, controlling indicators and fulfilling the objectives proposed through continuous improvement.

The Company has approved procedures in place to guarantee compliance with the require-ments established in Commission Decisions 2007/589/EC of 18 July 2007 and 2009/339/EC of 16 April 2009, which establish the directives for the monitoring and reporting of greenhouse gas emissions, and are in line with Law 1/2005 of 9 March 2005, which regulates the scheme for greenhouse gas emission allow-ance trading. Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003, establishing a scheme for greenhouse gas emission allow-ance trading, was transposed to the Spanish legal system in Law 1/2005. Law 13/2010 of 5 July 2010 amends Law 1/2005 of 9

March 2005, perfecting and expanding the green-house gas emission allowance trading scheme and including the aviation industry in this scheme as a result of the publication of Directive 2008/101/EC of 19 November 2008. It also complies with the re-quirements of EMAS Regulation (EC) No.1221/2009 and, therefore, its Environmental Declaration is audited on an annual basis.

30. RELATED PARTY BALANCES AND TRANSACTIONS

A) RELATED PARTY BALANCESDetails of balances by category are as follows:

Thousands of Euros

Other related parties Total

2016

2015

Trade and other receivables Trade receivables – current 261 261 Other receivables 3 3Current investments Loans to companies 7,323 7,323Total current assets 7,587 7,587


Trade and other payables Suppliers (210) (210)Total current liabilities (210) (210)

Total liabilities (210) (210)

Trade and other receivables Trade receivables – current 782 782Current investments Loans to companies 7,170 7,170Total current assets 7,952 7,952


Trade and other payables Suppliers (90) (90)Total current liabilities (90) (90)

Total liabilities (90) (90)

Current loans to companies are the loans explained in note 16 (a), extended by the Parent.

B) GROUP RELATED PARTY TRANSACTIONSThe Group’s transactions with related parties are as follows:

Operating lease expenses reflect hotel operating lease expenses and advisory fees for Caribbean hotel properties operated by the Group for compa-nies related to the Parent’s majority shareholder.

Transactions with related parties are carried out at arm’s length.

C) INFORMATION ON THE COMPA-NY’S DIRECTORS AND SENIOR MANAGEMENT PERSONNEL

Information on remuneration is provided in the

preceding section. No advances or loans have been extended to directors or senior management personnel.

In the years ended 31 December 2016 and 2015 the directors have not carried out any transactions other than ordinary business with the Parent or other Group companies or applying terms that differ from market conditions.

D) CONFLICTS OF INTEREST OF THE DIRECTORS OF THE PARENT AND

IncomeNet sales Sales - - 1,387 1,387Financial instruments

Total income - - 1,497 1,497

Expenses Net purchasesOperating lease expenses - - (11,640) (11,650)Other expenses - - (3,475) (3,475) Personnel expenses Salaries (5,444) (1,690) - (7,134) Allowances (219) - - (219)

Total expenses (5,663) (1,690) (15,115) (22,468)

Thousands of Euros

Directors

Seniormanagement

personnel Total

2016

Otherrelated parties

IncomeNet sales Sales - - 1,498 1,498Financial instruments Finance income - - 112 112

Total income - - 1,610 1,610

Expenses Operating lease expenses - - (5,090) (5,090) Other expenses - - (9,473) (9,473)Personnel expenses Salaries (4,801) (1,712) - (6,513) Allowances (311) - - (311)

Total expenses (5,112) (1,712) (14,563) (21,387)

2015


71

THEIR RELATED PARTIES IN OTHER COMPANIES

Las situaciones de conflictos de intereses de los The situations of conflict of interest of the Parent’s directors are detailed in Appendix XV, which forms an integral part of this note to the consolidated annual accounts.

31. INCOME AND EXPENSES A) REVENUEDetails of revenues by category of activity and geo-

graphical market are shown in Appendix XVI.

B) SUPPLIESDetails of merchandise, raw materials and other supplies used are as follows:

C) EMPLOYEE BENEFITS EXPENSE AND PROVISIONS

Details of employee benefits expense and provi-sions are as follows:

D) GAINS/LOSSES ON DISPOSAL OF FIXED ASSETS

Details of gains and losses on the disposal of fixed assets are as follows:

E) OTHER INCOME/EXPENSESDetails of other income and expenses are as follows:

F) FOREIGN CURRENCY TRANSACTIONS

El detalle de los ingresos y gastos denominados en moneda extranjera es como sigue:Thousands of Euros

2016 2015

Merchandise usedDomestic purchases 1,942 1,927

Raw materials and other supplies usedDomestic and other purchases 1,644,467 1,678,803

1,646,409 1,680,730

Thousands of Euros

2016 2015

Employee benefits expense Social Security and otherbenefits 120,835 100,054

120,835 100,054

Thousands of Euros

2016 2015

GainsIntangible assets 581LossesProperty, plant and equipment (1,100) -Intangible assets - (574)

(519) (574)

Thousands of Euros

2016 2015

ExpensesSpanish High Court grants paid(see note 34) - (35,533)DGAC grants paid (see note 34) - (17,733)Other (2,048) (2,713)

(2,048) (57,583)IncomeOther 2,267 1,724 218 (54,255)

Thousands of Euros

2016 2015

IncomeNet sales 586,155 484,483Other services rendered 3,274 4,874

ExpensesNet purchases (449,683) (370,362)Operating lease expenses (200,064) (159,640)Personnel expenses (19,866) (16,427)Other services received (199,038) (156,440)

(279,222) (213,512)

32. EMPLOYEE INFORMATIONThe average headcount of the Group in 2016 and 2015, distributed by category, is as follows.

Number

2016 2015

Consolidated companiesManagement 143 109Middle management 198 378Hotel personnel 2,543 2,438Ground handling personnel 3,594 2,357Travel agency personnel 1,828 1,650Pilots 624 554Flight attendants 1,682 1,467Mechanics 399 372Drivers 87 179Other 105 62IT programmers 126 124Administration 298 292Other office personnel 1,615 1,661Call centre operators 392 375

13,634 12,018

The distribution by gender of the Parent’s directors is five men and two women.

The average number of Group employees with a disability rating of 33% or higher (or equivalent local rating) in 2016 and 2015, distributed by cate-gory, is as follows:

33. AUDIT FEESThe auditors of the annual accounts of the Group have accrued the following fees and expenses for professional services during 2016 and 2015:

Other affiliates of KPMG International invoiced the Group the following fees for professional services during the 2016 and 2015:

Other auditors invoiced the Group the following fees and expenses for professional services during 2016 and 2015:

34. OTHER CONTINGENCIESIn 2015 the Group company Air Europa Líneas Aéreas, S.A.U. was notified of the resolution re-garding the repayment in relation to the settle-ment of tariff deductions applied to air transport for residents in non-mainland Spain from January 2009 to September 2014. Despite having paid the amount to the Directorate General of Civil Aviation (DGAC) (see note 31), the Group has filed an appeal as management considers that very restrictive assumptions have been used regarding the possibility of applying these deductions to calculate the amount repayable.

In 2015 legal proceedings commenced involving the Parent and various Globalia Group companies in respect of the possible incorrect application of the tariff deductions for scheduled air transport servic-es for residents in the autonomous regions of the Canary Islands, Balearic Islands, Ceuta and Melilla. On 14 February 2017 the Central Criminal Court of the Spanish High Court found Globalia Servicios Corporativos, S.L.U. guilty of incorrectly applying the tariff deductions and ordered the company to pay a fine of Euros 7,672 thousand.

Following this sentence and the rulings of the reg-ulators in 2015, the directors of the Parent con-sider all contingencies relating to grants received for tariff reductions for scheduled air transport services for residents in the autonomous regions of the Canary Islands, Balearic Islands, Ceuta and Melilla to be resolved and they estimate that no additional liabilities, or any other additional meas-ures which could affect operations, will arise for the Group.

The Spanish National Commission for Markets and Competition fined one of the Group companies for Euros 1,200 thousand in relation to the IMSERSO programmes (holiday schemes for pensioners). The Company filed a claim against this authority con-testing this fine. The Group directors and its legal advisors consider that the outcome of this claim will be in favour of the Company. For this reason, no related provision has been made.

Various legal proceedings are underway with em-ployee representatives for which, according to the Group directors and its legal advisors, it is impos-sible that any significant liabilities will arise that could significantly affect the consolidated annual accounts for the year, in addition to those already provisioned.

Thousands of Euros

2016 2015

Audit services 343 300Other tax and sundry services 20 20

363 320

Thousands of Euros

2016 2015

Audit services 82 82

Thousands of Euros

2016 2015

Audit services 81 73

At year end the distribution by gender of personnel is as follows:

Number

2016 2015

Consolidated companiesMale 8,024 6,531Female 7,005 6,400

15,029 12,931

Number

2016 2015

Consolidated companiesAdministrative staff 78 72

78 72


73

1. INTRODUCTION1.1. THE GLOBAL ECONOMY Expectations of 3.4% global growth for 2017 are increasing, consolidating the growth of around 3% witnessed in 2016. Macroeconomic data at the beginning of 2017 has been better than expected, not only in advanced economies but also in emerg-ing economies. These favourable forecasts are sus-tained by a monetary scenario which will continue to be accommodating, a slight recovery in oil prices and the consolidation of the emerging recovery which started to come to light last year.

However, despite reasonable and positive expec-tations, risks at global level continue to be high. Inflation is one of the elements of risk starting to increase, which can erode consumers’ purchase power and change the monetary policy applied to date. Another aspect to be considered is the po-

litical uncertainty in certain advanced economies, such as South American countries. In Europe, the elections to be held in countries of relevant impor-tance in the European Union during the year could be a source of instability.

1.2. EUROZONEThe Eurozone economy continues to show good progress. Its economic growth has resisted various spells of financial and political instability in 2016. Activity indicators are showing overall improve-ment and, consequently, growth forecasts for the area are rising, with growth for the Eurozone forecast at 1.7%. However, the political uncertainty caused by Brexit and the forthcoming elections in the Netherlands, France, Germany and Italy could diminish the confidence of the economic players and cause the European economy to decelerate.

It should be mentioned that the European eco-nomic recovery has extended to a larger number of countries in the zone and recovery is expected to continue at a similar rate to that experienced throughout 2017. Economic activity continues to be robust and private consumption is still driving forward recovery. Retail sales continued to grow at a year-on-year rate of more than 2%, following the positive trend experienced in 2016. In forthcoming

GLOBALIA CORPORACIÓN EMPRESARIAL, S.A.

AND SUBSDIARIES

DIRECTORS’REPORT

months it is expected that household consump-tion will keep growing, sustained by the improved labour market and low interest rates.

1.3. SPANISH ECONOMYIn 2016 the Spanish economy has reported GDP growth of 3.2%. The dynamic nature of the con-sumer indicators illustrates that internal demand continued to be the main driver behind growth, sustained by an improvement in the employment market. Economic activity remains strong at the beginning of 2017. The expansive fiscal policy, the low price of oil and favourable financial conditions continue to be factors sustaining our growth this year. The forecast GDP growth for 2017 remains at around 3%, significantly above the average for advanced economies.

The favourable progress of the Spanish economy is reflected not only in dynamic export data but also in private consumption figures. Private consump-tion remains robust and shows no signs of deplet-ing. This is due to the rise in consumer trust and retail sales. Job creation and easy access to credit, driven by the ECB’s accommodating monetary policy and the Spanish banks’ increased capacity to give credit will continue to boost internal consump-tion in 2017.

Likewise, business confidence continues to be raised and the high rate of economic growth is reflected in the creation of jobs, which is still the main concern of the Spanish economy. Employment figures in line with the growth in activity are expected for 2017. Recovery of the real estate sector continues, bolstered by the sharp rise in demand for credit to purchase housing. On the other hand, the excellent performance in the tourism sector contributed very positively to the good performance of the services balance. The record figure of tourists visiting Spain in 2016 reinforces this outlook.

2. INTERNATIONAL SCENARIO IN WHICH THE GROUP HAS CAR-RIED OUT ITS ACTIVITY

2.1. EURO-DOLLAR EXCHANGE RATESThe impact of fluctuations in the Euro-US Dollar exchange rate is highly significant for the Group, as almost all of its aircraft lease costs and engine and spare part expenses are denominated in US Dollars,

as well as the costs of insurance and jet fuel. The average Euro-Dollar exchange rates for the past six years were as follows.

The average monthly exchange rates during this period compared to the two previous periods were as follows:

On average, the US Dollar has grown by 0.6% against the Euro in 2016 in comparison to the prior year.

2.2. JET FUEL PRICESAverage basic jet fuel prices (CIF Northwest Europe Cargoes market) for the past six years have been as follows:

Variations in average monthly basic jet fuel prices during 2016 compared to the prior two years are as follows:

2012 1.2922013 1.3182014 1.3492014 (Nov-Dec) 1.2402015 1.1102016 1.103

US Dollar-EuroYear

2012 1,026.552013 992.132014 956.262014 (Nov-Dec) 710.652015 527.162016 425.00

US Dollar/tonneYear

US Dollar-Euro

2016 2014 (Nov-Dec)

January 1.092 1.162 -February 1.088 1.135 -March 1.138 1.084 -April 1.140 1.078 -May 1.115 1.115 -June 1.110 1.121 -July 1.111 1.100 -August 1.113 1.114 -September 1.116 1.122 -October 1.094 1.124 -November 1.063 1.074 1.247December 1.054 1.088 1.233

Average for the year 1.103 1.110 1.240

2015


75

Dólares USA/Tonelada

2016 2014 (Nov-Dec)

January 314.14 527.39 -February 331.94 601.05 -March 378.25 567.44 -April 398.25 583.75 -May 444.59 619.07 -June 467.14 605.93 -July 433.50 539.58 -August 433.72 477.13 -September 442.97 488.64 -October 486.35 475.15 -November 455.91 455.41 779.46December 513.31 385.35 641.83

Average for the year 425.00 527.16 710.65

2015

Average number of aircraft

2016 2014 (Nov-Dec)

Embraer 195 11.00 11.00 11.00Boeing 737 - 800 20.93 20.00 20.00Boeing 787- 8 1.66 - -Airbus 330 - 200 12.00 12.00 12.00Airbus 330 - 300 4.56 2.58 2.00ATR 1.13 - -

51.28 45.58 45.00

2015

Average basic prices of jet fuel in 2016 have dro-pped by 19% compared to the prior year.

The total number of passengers (charter and scheduled flights) carried by the Group’s Air Divi-sion over the past six years has been as follows:

The Group continues to invest in a modern and effi-cient fleet of aircraft, improving the service to our customers and the airline’s operating capacity.

The flight hours carried out by Air Europa Líneas Aéreas, S.A.U. in 2016 compared to the three previ-ous years were as follows:

3. GROUP BUSINESS PERFOR-MANCE DURING THE YEAR

3.1. AIR DIVISIONThe average number of aircraft in service during

the year compared to the two prior years is as

follows: 2012 8,114,0592013 8,690,0442014 9,586,0442014 (Nov-Dec) 1,463,0232015 10,221,1042016 10,679,092

Number of passengers carriedYear

Flight hours

20162014

(nov-dic)

Embraer 195 31,705 31,209 4,756 29,963Boeing 737-800 73,368 71,200 11,097 69,894Boeing 787-8 9,164 - - -Airbus330-200/300 77,758 73,081 11,990 72,102ATR 2,032 - - -

194,027 175,490 27,844 171,959

2015 2014

Year / Market

Balearic Islands 869,023 716,160 82.4%Canary Islands 3,967,076 3,342,756 84.3%Domestic 814,086 536,959 66.0%International 18,835,766 15,919,570 84.5%

TOTAL 2014 24,485,951 20,515,446 83.8%

Percentage variation 16.9% 15.9% -0.9% Balearic Islands 127,088 98,930 77.8%Canary Islands 616,799 495,414 80.3%Domestic 158,661 108,807 68.6%International 3,269,776 2,591,061 79.2%

TOTAL 2014 (Nov-Dec) 4,172,324 3,294,212 79.0%

Balearic Islands 1,039,063 811,248 78.1%Canary Islands 3,933,852 3,184,886 81.0%Domestic 906,533 660,726 72.9%International 20,799,259 17,761,927 85.4%

TOTAL 2015 26,678,707 22,418,788 84.0%

Percentage variation 9.0% 9.3% 0.3%Balearic Islands 1,041,805 798,956 76.7%Canary Islands 3,462,447 2,817,826 81.4%Domestic 1,026,433 801,358 78.1%International 22,767,605 19,315,282 84.8%

TOTAL 2016 28,298,290 23,733,422 83.9%

Percentage variation 6.1% 5.9% -0.2%

AKO’000 PKT000 % Load Factor

Below we list the number of seats for sale, the number of pas-sengers carried and the resulting load factor for scheduled flights during the year ended 31 December 2016 compared with the three prior years:

3.2. TOUR OPERATOR DIVISIONThe Tour Operator Division has felt the effects of the slump in Spain’s domestic consumer spending, as a result of the serious economic crisis suffered by families. During 2016, the Division has contin-ued with its drive to consolidate traditional areas of the tour operator market, concentrating particular-ly on the launch of new middle- and long-distance destinations in conjunction with the Group’s Air

Division, with a view to strengthening its position in those market segments.

The Division has made considerable advances in and consolidated its E-Commerce B2B business over recent years, via the incorporation of new technologies developed by the Group’s systems department. Particularly noteworthy is the new Online sales system linked to the Group operating

The number of employees of the Air Division over the past six years, not including personnel corresponding to the Group’s air-port handling concessions, was as follows:

Direct employees 2,322 1,914 2,194 2,043 1,822 1,797Indirect employees 851 800 784 749 672 687 3,173 2,714 2,978 2,791 2,494 2,484

Own ground handling division 196 266 271 277 252 271

Total 3,369 2,980 3,249 3,068 2,746 2,755

Average headcount

2016 20152014

(Nov-Dec) 2014 2013 2012


77

system, the implementation of which has facilitat-ed and increased the agility and effectiveness of its reservations management system, and permit-ted interconnection with the different Group and independent travel agents. As a result, approxi-mately 90% of travel agent reservations are made automatically via this channel, with no need for any telephone contact or other communication.

The number of passengers carried by the Division this year and the five prior years is as follows:

The average number of employees in this Division since 2012 has been as follows:

3.4. TRAVEL AGENCY DIVISIONIn a context of declining travel demand in the Spanish and Portuguese markets, the Travel Agen-cy Division has continued to adapt to the market, reducing the number of own offices open to the public by closing those that were not contribut-ing positively to the Group’s consolidated income statement.

On the other hand, the Division has continued with the franchising process, with a significant increase in the number of offices operated in this way.

The Division has continued to promote its E. Com-merce B2C business line, under the halconviajes.com, viajesecuador.com and tubillete.com brands, assigning new technical and human resources to this priority development area.

The high level of technological development and internal control in the Division, the strength of its brands and the maturity of its professionals are all cause for confidence in the future attainment of its business objectives.

The number of offices (both own offices and franchises) operating at the end of each of the last three years was as follows:

The preceding passenger figures do not include customers of the Division’s incoming area.

Aggregate revenues of the Tour Operator Division over the last six years are as follows:

3.3. INCOMING DIVISIONThe Globalia Group Incoming Division was set up in November 2010 under the “Welcome Incoming Ser-vices” brand, and its economic activity centres mainly on the provision of excursions and transfer services, hotel reservations and car hire. Its main supplier is the Globalia Group Tour Operator Division.

The second phase of its imple-mentation saw the introduction of an online hotel accommodation sales platform, “WELCOMEBEDS”, which provides services to third parties, travel agencies and tour operators with no geographic restrictions, but with a focus on markets where our incoming operations have a physical presence.

2012 903,0822013 585,8602014 531,4112014 (Nov-Dec) 39,8862015 570,8122016 505,767

Year Passengers

2012 6002013 5882014 5912014 (Nov-Dec) 512015 6892016 650

Millions of EurosYear

2012 2382013 2102014 2112014 (Nov-Dec) 2162015 2362016 226

Average HeadcountYear

2014 667 224 62 9532015 654 206 61 9212016 645 196 62 903

YearViajes

Halcón, S.A.Grupo Viajes

EcuadorHalcon Viagens e Turismo, Lda Total

The average number of employees of the main company in the Travel Agency Division, Viajes Hal-cón, S.A.U. over the last six years is as follows:

3.5. HOTEL DIVISIONThe number of rooms and hotels operated by the Division compared with the end of the previous year is as follows:

The hotels currently operated have had high occu-pancy rates and high average prices.

Group Management implemented specific measures in previous years to strengthen its hotel manage-ment system and support the Divisional sales team. In 2016 these measures are materialis-ing in an improved income statement for the Group’s hotel business.

3.6. HANDLING DIVISIONIn 2016, the Group continued with its policy of con-solidating the Handling division, having obtained almost full coverage of operations at Spanish air-ports since 1997. The Division’s handling operating hubs in Spain are as follows:

2012 2,139 -5%2013 1,834 -14%2014 1,507 -18%2014 (Nov-Dec) 1,554 3%2015 1,637 5%2016 1,691 3%

Number Average number of employees

%increaseYear

Rooms 4,308 4,958 3,051 3,055 781 416 8,140 8,429Hotels 17 19 6 6 3 2 26 27

Spain - Mediterranean

DominicanRepublic Cuba Total

2016 2015 2016 2016 20162015 2015 2015

Alicante (Groundforce)Barcelona (Groundforce)

Bilbao (Groundforce)Fuerteventura (Groundforce)

Ibiza (Groundforce)La Coruña (autohandling)Las Palmas (Groundforce)

Madrid (Groundforce)

Málaga (Groundforce)Mahón (autohandling)Melilla (autohandling)

Palma de Mallorca (Groundforce)Tenerife Norte (Groundforce)

Valencia (Groundforce)Zaragoza (Groundforce)

Revenue in the Travel Agency Division over the last six years has been as follows:

2012 930 169 35 59 1,1932013 859 148 34 48 1,0892014 917 142 34 49 1,1422014 (Nov-Dec) 115 14 3 7 1392015 977 136 35 50 1,1982016 995 131 36 42 1,204

YearViajes

Halcón, S.A.Grupo Viajes

EcuadorHalcon Viagens e Turismo, Lda

Viajes Tu Billete, S.L. Total

Millions of Euros


79

Over the last six years, the level of autonomy of the Air Division with respect to Handling services has developed as follows:

Apart from Air Europa, Groundforce clients include leading airlines.

4. PROFIT FOR THE YEAR AND CONCLUSIONS

The Group’s consolidated net revenue totalled Eu-ros 3,545 million for the year ended 31 December 2016, compared to Euros 3,379 million obtained in the prior year.

Consolidated losses after tax amounted to Euros 17.3 million for this period, due to the reporting of non-recurring events, such as the impairment of cash in Venezuela. Operating profits for the year amount to Euros 89.5 million, compared to Euros 33.4 million in the previous year.

5. RISK MANAGEMENTThe Company’s activities are exposed to various financial risks: market risk, credit risk, liquidity risk and interest rate risk in cash flows. The global risk management programme of the Globalia Group, which includes the Company, focuses on uncer-tainty in the financial markets and aims to mini-mise potential adverse effects on the Company’s profits.

The Company, which is the head of the Globalia Group’s Air Division, implements its risk manage-ment policy as a whole, which can be summarised as follows:

1- Market risk. The Company has diversified market risk by increasing its international presence, there-by reducing the impact of domestic demand on its business.

2- Risks arising from exchange rate fluctuations. Risks arising from exchange rate fluctuations are hedged through the hedging contracts the Compa-ny has with its subsidiaries.

3- Risks arising from variations in fuel prices. The Air Division has a hedging policy for fluctuations in fuel prices, to hedge the price of part of the fuel consumed by its aircraft, which is managed by Group Management.

4- Liquidity risks. Globalia is an integrated trans-port, travel and tourism group with a number of lines of business (air transport, tour operators and travel agents, passenger ground handling service, hospitality, etc). The Parent, as the head of the Group, manages all of the cash generated by Group companies to cover potential liquidity risks result-ing from the various business cycles of the entities forming part of the Group.

6. OTHERThe Group does not hold own shares or equity holdings or shares in the Parent. No research or de-velopment activity was conducted during the year ended 31 December 2016, although certain Group companies have undertaken technological innova-tion projects. No events have taken place after the end of the reporting period which have not been mentioned in the attached notes which could have a significant effect on the annual accounts for the year ended 31 December 2016.

2012 91.72% 41,8312013 92.07% 47,2542014 91.26% 55,2792014 (Nov-Dec) 91.53% 8,8502015 90.26% 59,6302016 93.31% 63,099

% Handling opera-tions carried out

in Spanish airports by the Group’s own Handling

Division

Total number of handling operations

carried out by the own Hand-

ling Division


APPENDIX 1

Air Europa Líneas

Aéreas, S.A.U.

Globalia Business

Travel, S.A.U.

Globalia Handling,

S.A.U.

Viajes Halcón,

S.A.U.

Be Live Hotels,

S.L.U.

Globalia Lease Finance,

Limited (1)

Globalia Lease Finance

Two, Limited (1)


Three, Limited (1)


Four, Limited (1)


Five, Limited (1)


Six, Limited (1)


Seven, Limited (1)

Globalia Servicios

Corporativos, S.L.U.

Globalia Hotel

La Niña, S.L.

Globalia Call Center,

S.A.U.

Welcome Incoming

Services, S.L.U.

Media & Design,

S.A.U.

Globalia Gestión

de Seguros, S.L.U.

Globalia Hotel

Talavera, S.A.U.

Company Activity AuditorGroup company

holding the interestCountry % ownership

% effective interest of the

GroupThousands

of Euros

Spain

Spain

Spain

Spain

Spain

Ireland

Ireland

Ireland

Ireland

Ireland

Ireland

Ireland

Spain

Spain

Spain

Spain

Spain

Spain

Spain

Airline

company

Tour

operator

Ground han-

dling services

Travel

agency

Hotel

management

Aircraft

owner

Aircraft

owner

Aircraft

owner

Aircraft

owner

Aircraft

owner

Aircraft

owner

Aircraft

owner

General

services

Real

state

Call Center

Incoming

services

Communication

and advertising

Insurance

brokerage

Hotel

owner

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

KPMG

-

-

-

Globalia Corporación

Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.

100

100

100

100

100

100

100

100

100

100

100

100

100

99.99

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

18,260

4,546

13,200

32,335

111,060

11,086

19,047

61

6,191

153

185

1,522

Investment

(1) The company’s reporting date is at 30 June.This appendix forms an integral part of note 4 to the consolidated financial statements,

in conjunction with which it should be read.

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF INVESTMENTS IN SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2016 (EXPRESSED IN THOUSANDS OF EUROS)

81

APPENDIX 1

Globalia Sistemas y

Comunicaciones, S.L.U.

Globalia Formación,

S.L.U.

Globalia Activos

Inmobiliarios, S.A.U.

Globalia Hotel

Palace de Muro, S.L.U.

Iberotours,

S.A.U.

Globalia Autocares,

S.A.

Globalia Hotel

Orotava, S.L.U.

Viajes Unalia,

S.A.U.

Globalia Broker

Services, S.A.U.

Globalia Mantenimiento

Aeronaútico, S.L.U.

Globalia France,

S.A.S.

Ulyseo B2C, S.A.U (for-

merly Pepeticket, S.A.)

Morocco GHS,

S.A.

Iberhandling,

S.A.U.

Halcon Viagens e

Turismo, Lda.

Geomoon,

S.L.U.

Intertravel,

S.A.R.L.

Viajes Ecuador,

S.A.U.

Globalia Artes

Gráficas, S.L.U.




GroupThousands

of Euros

Spain

Spain

Spain

Spain

Spain

Spain

Spain

Spain

Spain

Spain

France

Spain

Morocco

Spain

Portugal

Spain

Luxembourg

Spain

Spain

IT

services

Training

Real

state

Hotel

owner

Tour

operator

Passenger

transport

Hotel

owner

Tour

operator

Aircraft

broker

Maintenance

Travel

agency

Sales of

items

Ground han-

dling services

Ground han-

dling services

Travel

agency

Travel

agency

Hotel

management

Travel

agency

Printing

KPMG

-

KPMG

-

KPMG

KPMG

-

-

-

KPMG

Auditeurs &

Conseils Ass

-

KPMG

-

KPMG

-

-

KPMG

KPMG


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.


Empresarial, S.A.

Globalia Handling,

S.A.U.

Globalia Handling,

S.A.U.

Viajes Halcón,

S.A.U.

Viajes Halcón,

S.A.U.

Globalia Travel,

B.V.


Empresarial, S.A.

Viajes Halcón,

S.A.U.

100

100

100

100

100

90

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

90

100

100

100

100

100

100

100

100

100

100

100

100

100

3,004

670

14,774

26,697

649

1,661

13,434

63

1,205

3,000

569

3,247

571

4,747

359

12

13,700

1,730

Investment




Eurogestion Hoteliere, S.A.R.L.


CH Marketing, Corp

Bajuba de México Consultores, S de R.L. de C.V.

D & A Servicios Integrales, S. de E.L. de C.V.

Globalia Travel, B.V.

Globalia Trading Services, S.L.U.


Globalia Travel Club Spain, S.L.U.

Be Live Trading, INC

Smart Inversiones, S.A.S.

Inversiones La Albufera, S.A.S.

Globalia Servicios Corporativos Dominicana, S.A.

Inversiones Bávaro, S.A.

Inversiones Inmobiliarias RCJ, S.A.

Travelplan Italia, S.R.L.

Travelplán Portugal, Agencia de Viagens e Turismo, Sociedade Unipessoal Lda.

Globalia Incoming Services Mexico, S.R.L. de C.V.

Morocco

Spain

Panama

Mexico

Mexico

Holland

Spain

Spain

Spain

United States

Dominican Republic

Dominican Republic

Dominican Republic

Dominican Republic

Dominican Republic

Italy

Portugal

Mexico

Hotel management

Travel agency

Hotel management

Rendering of personnel

services

Rendering of personnel

services

Holding of assets

Tour operator

Ground han-dling services

Tour operator

Holding of shares

Hotel operation

Hotel operation

General services

Hotel owner

Real state

Tour operator

Tour operator

Incomingservices

-

KPMG

-

Baker Tilly Mexico

Baker Tilly Mexico

-

KPMG

KPMG

KPMG

-

Urrutia Liria-no & Asoc.





-

Pinto Leite & Machado Vaz- SROC,

Lda.

Be Live Hotels, S.L.

Globalia Corporación Empresarial, S.A.


Media & Design, S.A.

Media & Design, S.A.



Globalia Handling, S.A.U.





Globalia Servicios Corporativos,

S.L.U.




Globalia Corporación Empresarial,

S.A.

Welcome Incoming

Services, Slu

100

75

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

75

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

5

1,600

-

-

64,398

4

12,312

10,690

7

23,080

1,401

51


APPENDIX 1




GroupThousands

of Euros

Investment




83

Globalia Incoming Ser-vices Dominicana, S.A.

See Europe Tours Limited

MK Media Corp.

MK Puerto Rico, S.A.

MK Tours, S.A.

MK Tours Dominicana USA INC.

MK Travel & Tours, INC

Sunion Proyecto y Construcción, S.L.U.

Canoa Spain, S.L.U.

Hotel Canoa, S.A.

Explotadora Hotelera Luabay, S.L.U.

Luabay Hoteles y Apartamentos, S.L.U.

Inversiones Costa Adeje, S.A.U.

Techite Inversiones 2012,S.L.U.

Aeronova, S.L.U.

Panamericana de Servicios Energéticos, S.A.S.

Globalia Corporate Travel, S.L.U.

Globalia Traveling, S.L.U.

Air Europa Suma Miles, S.L.U.

Globalia Autocares Levante, S.L.

León Activos Aeronáuticos, S.L.U.

Dominican Republic

United Kingdom

United States

United States

United States

United States

United States

Spain

Spain

Dominican Republic

Spain

Spain

Spain

Spain

Spain

Dominican Republic

Spain

Spain

Spain

Spain

Spain

Incoming services

Incoming services

Tour operator

Tour operator

Tour operator

Tour operator

Tour operator

Corporate services

Hotelbusiness

Hotel business

Hotelbusiness

Hotelbusiness

Hotelbusiness

Hotelbusiness

Airline company

Energy services

Travel agency

Travel agency

Airline company

Passengers transport

Airline company

Urrutia Liriano & Asoc. (R.D.)

-

-

-

-

-

-

-

-

-

-

-

-

-

KPMG

-

-

-

-

-

-

Welcome Incoming Services, Slu

Welcome Incoming Services, Slu

MK Tours, S.A.

Globalia Business Travel, S.A.U.

Globalia Business Travel, S.A.U.

MK Tours, S.A.

MK Tours, S.A.



Canoa Spain, S.L.


Techite Inversiones 2012, Sl.U.




Be Live Hotels,

S.L.


Viajes Halcón, S.A.U.

Air Europa Líneas Aéreas, S.A.U.

Globalia Autocares, S.A.


100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

66.66

100

100

100

75

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

66.66

100

100

100

75

100

22

731

1

1

1

50

44,428

17,771

1.757

7,364

103

500

100

75

3,503


APPENDIX 1




GroupThousands

of Euros

Investment



Globalia Tunesie,

S.A.R.L.

Maintenance of

Equipment on Tar-

mac Service, S.A

Palacio de

Congresos de

Tenerife Sur

Mundo Social,

A.I.E

Ocio y Turismo

Novotours, A.I.E.

Company

Name

Activity

Activity Auditor

Reserves TotalGroup

companyRegistered

office

Group company

Registered office

% ownership

% ownership

Capital and share premium

Amount of interest

Company’s effective % ownership

Other equity

Tunisia

Madrid

(Spain)

Tenerife

(Spain)

Palma de

Mallorca

(Spain)

Palma de

Mallorca

(Spain)

In liquidation

Maintenance

and Handling

Dormant

Travel

agency

Travel

agency

Unaudited

Unaudited

KPMG

KPMG


Empresarial, S.A.

Globalia

Handling, S.A.U.

Viajes Halcón,

S.A.U.

Viajes Halcón,

S.A.U.

Viajes Halcón,

S.A.U.

100

49

49

50

50

(89)

245

72

1,762

427

49

49

50

50

(5,554)(89) (5,732)

Investment

Investment

Thousands of Euros

This appendix forms an integral part of note 4 to the annual accounts, in conjunction with which it should be read.



Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIESFOR THE YEAR ENDED 31 DECEMBER 2016

APPENDIX 2

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF INTERESTS IN ASSOCIATES FOR THE YEAR ENDED 31 DECEMBER 2016 (EXPRESSED IN THOUSANDS OF EUROS)

APPENDIX 3

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF INTERESTS IN JOINTLY CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2016 (EXPRESSED IN THOUSANDS OF EUROS)

APPENDIX 4

Name Activity AuditorGroup

companyRegistered

office%

ownershipAmount of

interest

Company’s effective % ownership

Investment


85

Groundforce

Barcelona UTE

Groundforce

Madrid UTE

Groundforce

Tenerife Sur UTE

Groundforce

Tenerife Norte UTE

Groundforce

Las Palmas UTE

Groundforce

Sevilla UTE

Groundforce

Bilbao UTE

Iberia Globalia

Cargo Bcn, UTE

Groundforce

AGP 2015, UTE

Groundforce

ALC 2015, UTE

Groundforce

BCN 2015, UTE

Groundforce

BIO 2015, UTE

Groundforce

FUE 2015, UTE

Groundforce

IBZ 2015, UTE

Groundforce

LPA 2015, UTE

Groundforce

MAD 2015, UTE

Groundforce

PMI 2015, UTE

Groundforce

TFN 2015, UTE

Groundforce

VLC 2015, UTE

Barcelona

(Spain)

Madrid

(Spain)

Tenerife

(Spain)

Tenerife

(Spain)

Las Palmas de Gran

Canaria (Spain)

Seville

(Spain)

Bilbao

(Spain)

Barcelona

(Spain)

Málaga

(Spain)

Alicante

(Spain)

Barcelona

(Spain)

Bilbao

(Spain)

Fuerteventura

(Spain)

Ibiza

(Spain)

Las Palmas de Gran

Canaria (Spain)

Madrid

(Spain)

Palma de

Mallorca (Spain)

Tenerife

(Spain)

Valencia

(Spain)

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Freight

services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

Ground han-

dling services

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

KPMG,

SL

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

Globalia

Handling, S.A.U.

68

95

80

80

80

95

95

50

80

80

80

80

80

80

80

80

80

80

80

68

100

80

80

80

100

100

50

100

100

100

100

100

100

100

100

100

100

100

1,632

8,645

923

207

706

1,140

1,140

250

488

200

800

160

140

180

488

1,600

540

140

280

Name Activity AuditorRegistered

office Thousands

of Euros

Investment

%ownership


Group

Group company holding the

interest

(1) The company’s reporting date is at 31 AugustThis appendix forms an integral part of note 5 to the consolidated financial statements,



APPENDIX 5

Maintenance of Equipment on Tarmac Service, S.A.

Palacio de Congresos Tenerife Sur


December 2016Balance at 1

January 2016Share of profits/

(losses)

65

-

65

601

(30)

571

666

(30)

636

Thousands of Euros


(1) The company’s reporting date is at 31 AugustThis appendix forms an integral part of note 5 to the consolidated financial statements,


Groundforce ZAZ

2015, UTE

Monforte Castromil

Globalia UTE

Globalia Monbús,

UTE

Globalia Chapin,

UTE

La Hispano,

Monforte, Castromil,

Globalia UTE

Mombus Globalia

Barcelona UTE

Ecuador GBT Air Eu-

ropa Autocares UTE

Mundosenior

PLUS

Halcón Monfobus

Fisterra UTE

Air Europa

Swiftair, UTE

Air Europa

Swiftair, UTE 2015

Zaragoza

(Spain)

Lugo

(Spain)

Madrid

(Spain)

Madrid

(Spain)

Madrid

(Spain)

Madrid

(Spain)

Mallorca

(Spain)

Balearic Is-

lands (Spain)

A Coruña

(Spain)

Balearic Is-

lands (Spain)

Balearic Is-

lands (Spain)

Ground handling

services

Airport passenger

transport services

Airport passenger

transport services

Airport passenger

transport services

Airport passenger

transport services

Airport passenger

transport services

Airport passenger

transport services

Travel

agency

Convention centre man-

agement and operation

Passenger air

transport

Passenger air

transport

KPMG,

SL

-

-

-

-

-

-

-

Globalia

Handling, S.A.U.

Globalia

Autocares, S.A.

Globalia

Autocares, S.A.

Globalia

Autocares, S.A.

Globalia

Autocares,

S.A.

Globalia

Autocares, S.A.

Globalia

Autocares, S.A.

Viajes Halcón,

S.A.U.

Viajes Halcón,

S.A.U.

Air Europa Líneas

Aéreas, S.A.U.

Air Europa Líneas

Aéreas, S.A.U.

80

50

40

80

45

45

100

50

40

51

51

100

50

40

80

45

45

100

50

40

51

51

40

100

4

2

36

5

3

150

32

5

5

Name Activity AuditorRegistered

office Thousands

of Euros

Investment

%ownership


Group

Group company holding the

interest


APPENDIX 5

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF EQUITY-ACCOUNTED INVESTEES BY COMPANY AND MOVEMENT FOR THE YEAR ENDED 31 DECEMBER 2016(EXPRESSED IN THOUSANDS OF EUROS)

APPENDIX 6


87

Assets held for trading

Equity instruments

Unquoted 3,010 3,010 3,010 349 349 349

Debt securities

Unquoted 8 8 8 - - -

Total 3,018 3,018 3,018 349 349 349

Loans and receivables

Loans, derivatives and other

Variable rate 3,193 3,193 3,193 9,778 9,778 9,778

Other financial assets 79,647 79,647 79,647 74,177 74,177 74,177

Trade receivables - - - 229,296 229,296 229,296

Trade and other receivables - - - 25,028 25,028 25,028

Total 82,840 82,840 82,840 338,279 338,279 338,279

Assets available for sale

Equity instruments

Unquoted 122 122 122 - - -

Total 122 122 122 - - -

Hedging derivatives

Traded on organised markets - - - 25,021 25,021 25,021

Total financial assets 85,980 85,980 85,980 363,649 363,649 363,649

2016

Non-current

At amortised cost or cost

Carrying amount

Carrying amount

Fair value

Fair value Total Total


Current

Thousands of Euros


Globalia Corporación Empresarial, S.A. and SubsidiariesCLASSIFICATION OF FINANCIAL ASSETS BY CATEGORYFOR THE YEAR ENDED 31 DECEMBER 2016

APPENDIX 7

Investments

Loans to third parties 9,778 - - - 3,193 (9,778) 3,193

Debt securities - - - - 8 - 8

Derivatives 25,021 - - - - (25,021) -

Other financial assets 74,177 29,331 31,353 6,341 12,622 (74,177) 79,647

Other investments 349 - - - 3,132 (349) 3,132

Trade and other receivables

Trade receivables 229,296 - - - - (229,296) -

Other receivables 23,942 - - - - (23,942) -

Personnel 1,086 - - - - (1,086) -

Total 363,649 29,331 31,353 6,341 18,955 (363,649) 85,980

Balance at 31 December 2015 3,379 (13,480) 106,349 40,234 3 136,485

Adjustments for errors and

changes in criteria 2015 and

prior years - (7,596) - (21,477) - (29,073)

Adjusted balance at 1 January 2015 3,379 (21,076) 106,349 18,757 3 107,412

Application of losses for the year

ended 31 December 2014

Reserves - - - 4,336 178 4,514

Balance at 31 December 2016 3,379 (21,076) 106,349 23,093 181 111,926

2016

2016

Less current portion

Reserves in equity-accounted

investees

Reserves in consolidated

companies

Total non- current

Total

Subsequent years

Legal and statutory reserve

Prior years’ losses

Voluntary reserves

20212017 2019 2020

Thousands of Euros



Globalia Corporación Empresarial, S.A. and SubsidiariesCLASSIFICATION OF FINANCIAL ASSETS BY MATURITYFOR THE YEAR ENDED 31 DECEMBER 2016

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF RESERVES AND PROFIT AND LOSS AND MOVEMENT FOR THE YEAR ENDED 31 DECEMBER 2016 (EXPRESSED IN THOUSANDS OF EUROS)

APPENDIX 8

APPENDIX 9


89

Payables

Loans and borrowings 71,441 13,185 11,666 9,973 9,140 19,787 (71,441) 63,751

Finance lease payables 8,687 8,853 9,192 9,459 6,869 26,344 (8,687) 60,717

Derivatives - - - - - 192 - 192

Other financial liabilities 8,797 67 - - - 3,569 (8,797) 3,636

Trade and other payables

Suppliers 281,339 - - - - - (281,339) -

Payables 12,966 - - - - - (12,966) -

Personnel 18,213 - - - - - (18,213) -

Advances from customers 58,504 - - - - - (58,504) -

Total financial liabilities 459,947 22,105 20,858 19,432 16,009 49,892 (459,947) 128,296

2016

Total non- current

Subsequent years

Less current portion2017 2018 2019 2020 2021


Debts and payables

Loans and borrowings

Variable rate 63,751 63,751 63,751 71,441 71,441 71,441

Finance lease payables 60,717 60,717 60,717 8,687 8,687 8,687

Other financial liabilities 3,636 3,636 3,636 8,797 8,797 8,797

Trade and other payables

Suppliers - - - 281,339 281,339 281,339

Other payables - - - 89,683 89,683 89,683

Hedging derivatives

Traded on organised markets 192 192 192 - -

Total financial liabilities 128,296 128,296 128,296 459,947 459,947 459,947

2016

Non-current


Carrying amount

Carrying amount

Fairy value

Fairy value Total Total


Current

Thousands of Euros


Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF FINANCIAL LIABILITIES BY CATEGORYFOR THE YEAR ENDED 31 DECEMBER 2016

Globalia Corporación Empresarial, S.A. and SubsidiariesCLASSIFICATION OF PAYABLES AND TRADE PAYABLES BY MA-TURITY FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015

APPENDIX 10

APPENDIX 11

Credit facilities 1 USD Market 2016 17,543 11,573

Credit facilities 2 Euros Market 2017 97,500 14,729

Credit facilities 3 Euros Market 2021 5,480 1,065 3,078

Credit facilities 6 USD Market 2017 474 474

Other credit facilities Euros Market 2017 3,241

Total credit facilities 124,238 27,842 3,078

Finance lease 1 Euros Market 2023 - 2,877 6,434

Finance lease 2 Euros Market 2024 - 161 1,190


Finance lease 4 Euros Market 2017 - 77





Finance lease 9 Euros Market 2028 - 2,031 34,165

Finance lease 10 Euros Market 2022 - 115 602




Total finance leases 8,687 60,717

Loan 1 Euros Market 2017 7,800 910

Loan 2 Euros Market 2021 13,500 1,810 6,633

Loan 3 Euros Market 2023 5,146 610 3,162

Loan 4 Euros Market 2019 5,000 6 5,000

Loan 5 Euros Market 2017 5,000 5,001


Loan 7 Euros Market 2022 882 143 669

Loan 8 Euros Market 2017 15,260 15,260



Loan 11 USD Market 2017 15,386 12,761

Total loans 123,357 43,103 60,673

Collection management facilities 320

Other 175

Total 247,595 80,128 124,468

Limit/nominal amountType of debt Currency Current Non-currentEffective rate Maturity

This appendix forms an integral part of note 25 to the consolidated financial statements, in conjunction with which it should be read.

Globalia Corporación Empresarial, S.A. and SubsidiariesMAIN CHARACTERISTICS OF PAYABLES FOR THE YEAR ENDED 31 DECEMBER 2016

APPENDIX 12


91

Income and expenses for the year 38,709 38,709

Income tax 5,750 5,750

Profit before income tax 44,459 44,459

Permanent differences:

Individual company 25,851 46,725 (20,874) (20,874)

Temporary differences:

Individual company

originating in current year and prior years 24,474 47,238 (22,764) (22,764)

Offset of tax loss carryforwards 205 (205) (205)

Taxable income/(Tax loss) 616 616

Consolidated income and expense before tax 44,459 44,459

Tax at 25% (11,115) (11,115)

Non-taxable income 11,682 11,682

Non-deductible expenses (6,463) (6,463)

Deductions and credits for the current year 146 146

Income tax expense/(income)

Continuing operations (5,750) (5,750)

2016

Total

Income statement

Increases Decreases Net Total

Consolidated profit or loss



Thousands of Euros

Thousands of Euros

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF FINANCIAL LIABILITIES BY CATEGORYFOR THE YEAR ENDED 31 DECEMBER 2016

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF THE INCOME TAX EXPENSE/(INCOME) RELATED TO PROFIT/(LOSS) OF THE SPANISH CONSOLIDATED TAX GROUP FOR THE YEAR ENDED 31 DECEMBER 2016

APPENDIX 13

APPENDIX 14

D. Juan José Hidalgo Acera





D. Juan Antonio Hidalgo Acera

Dª. María José Hidalgo Gutiérrez

Dª. María José Hidalgo Gutiérrez

D. Francisco Javier Hidalgo Gutiérrez




Dª. Cristina Hidalgo Gutiérrez



Sra. Avelina Gutiérrez Saiz

Sra. Avelina Gutiérrez Saiz

D. Abel Matutes Juan




JJH Capital &

Asset Management S.L.U.

Covilla, S.L. (1)

Beach Resorts, S.L. (1)

JJH Activos

Inmobiliarios S.L.U. (1)

JJH Capital Inversiones

Exteriores S.L.U. (1)

Fondo de

Alquileres

Covilla, S.L.

Beach Resorts, S.L.

Covilla, S.L.

Beach Resorts, S.L.

MCJ Inversiones S.L.

Pepeworld S.L. (1)

Covilla, S.L.

Beach Resorts, S.L.

MCJ Inversiones, S.L.

Covilla, S.L.

Beach Resorts, S.L.

Fiesta Holtels & Resort, S.L.

FST Hotels, S.L.

Balearia Eurolíneas

Marítimas, S.A.

Residencial Marina, S.L.

Management of investments

and real estate assets





















Holding of

investments











Hotel activity

Hotel activity

Sea

transport

Hotel activity

100.00%

80.00%

20.00%

100.00%

100.00%

-

5.00%

20.00%

5.00%

20.00%

33.33%

50.00%

5.00%

20.00%

33.33%

5.00%

20.00%

-

-

-

43.98%

Sole

director

Sole

director

Chairman of

the board

Sole

director

Sole

director

-

-

Vice-chairman

of the board

-

Member of

the board

Joint and

several director

Board

member

-

Member of

the board

Joint and sev-

eral director

-

Member of

the board

Chairman

Chairman

Member of

the board

Member of

the board

Position and duties

Percentage ownershipDirector Company Statutory activity

(1) Indirect ownershipThis appendix forms an integral part of note 31 to the consolidated financial statements,


Globalia Corporación Empresarial, S.A. and SubsidiariesSITUATIONS OF CONFLICTS OF INTEREST OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2016

APPENDIX 15


93

Air division 513,124 473,082 336,941 310,648 767,325 707,446 36,703 33,839 1,654,093 1,525,015

Travel agency division 1,189,243 1,181,793 36,202 34,889 - - - - 1,225,445 1,216,682

Tour operator division 306,588 325,615 17,188 19,975 9,309 14,823 - - 333,085 360,413

Hotel division 58,769 46,784 - - 94,257 81,892 - - 153,026 128,676

Handling division and other 172,173 148,233 - - 5,352 - 1,688 - 179,214 148,233

2,239,897 2,175,507 390,331 365,512 876,243 804,161 38,391 33,839 3,544,863 3,379,019

2016 2016 2016 20162015 2015 2015 2015 2016 2015


TotalRest of European

Union OtherAmericasDomestic

Globalia Corporación Empresarial, S.A. and SubsidiariesDETAILS OF REVENUES BY CATEGORY OF ACTIVITY AND GEOGRAPHICAL MARKET FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015 (EXPRESSED IN THOUSANDS OF EUROS)

APPENDIX 16

CORPORATESOCIALRESPONSIBILITY REPORTGLOBALIA CORPORACIÓN EMPRESARIAL, S.A.

AND SUBSIDIARIES

The Globalia Group has a culture that reaffirms its CSR values for the benefit of the society in which the Group operates. During this year, we have con-solidated the projects that we began in previous years, showing our utmost confidence in them and their results with concrete actions.

The Group’s Directors, fully conscious of the Group’s commitments to its customers and to the environment, continue with their general objec-tive of implementing and maintaining a Quality and Environment Management System based on sustainability, ongoing improvement, customer satisfaction and the participation of all the employ-ees. The objective is to obtain external recognition of Grupo Globalia’s efforts, not only in the sense of the Quality of the services it provides, but also of the ongoing improvement of its working methods, its customer service and its respect for the environ-ment; for us, no detail is too small. Accordingly, the constant training of our employees is one of our main objectives as they are in direct contact with our final customers.

All the actions carried out in this area during 2015 can be classified into two large groups: environ-mental measures and social measures.

ENVIRONMENTGlobalia, and each of its divisions in particular, is fully committed to sustainable economic prosperity for society as a whole. For this reason, at Globalia, we have adopted the following principles:

1.- We are responsible for our financial results and we guarantee transparency in the informa-tion we provide.

2.- We form associations with local, national and international bodies to help build and strengthen the communities that we serve through the creation of employment and eco-nomic growth.

3.- We act with integrity and put every effort into earning and deserving the trust of our customers.

4.- Globalia considers Operational Security and Quality top priorities and puts them at the centre of the company’s culture.

SOCIAL RESPONSIBILITYLikewise, Globalia is fully committed to promoting social responsibility:

1.- Globalia provides job security, motivational working conditions in accordance with applica-ble legislation in each one of the places where we carry out our corporate activities.

2.- At Globalia, we believe in internal promotion and ensuring equality of opportunity among all employees.

3.- We undertake to respect and fulfil all em-ployment laws in all the places in which we operate and to ensure that our suppliers and subcontractors likewise follow our principles.

On the other hand, in our daily work we are com-mitted to:

DECLARATION OF INTENT1.- To use all resources necessary to guarantee

that the service we offer is safe, reliable and strictly in fulfilment of all the specific Quality Management System requirements (Standards OPS 1.035, EASA Part M. A. 712 and UNE-EN-ISO 9001:2008), as well as the rest of the regulations applicable to the sector (OPS1, EASA, IATA, OACI, etc.), and in respect of the Environment (UNE-EN-ISO 14001:2004 and all applicable legal requirements).

2.- To develop ongoing improvement programmes for all processes and services and for our cus-tomer services, with the underlying objective being to ensure customer satisfaction, whilst taking into account the quality-to-cost ratio.

3.- To ensure that quality, ongoing improvement and pollution prevention are keystones in our corporate culture.

4.- To establish actions and programmes focused on the prevention and not just detection of problems. To prevent the pollution that may be caused by our activities, by identifying, ver-ifying and controlling all the derived environ-mental aspects.

5.- To continuously improve both our environ-mental behaviour and the efficiency of our processes, by regularly setting and meeting targets.

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6.- To establish permanent training programmes that allow us to have highly qualified person-nel prepared to carry out the activities that fall within the scope of the Quality and Environ-ment System.

7.- To keep in constant contact with our custom-ers, so that we can continuously improve the service provided and evaluate their degree of satisfaction with us.

8.- To optimise the global activities of the air divi-sion, Air Europa, by means of a strategy oriented toward maintaining leadership in the sector.

The Directors will establish, within Air Europa’s Quality and Environment System, the plans and re-sources necessary to achieve the objectives estab-lished by the Quality and Environment Committee.

The Quality Manual is the document that sets out the Quality System’s philosophy and guide-lines. All Air Europa personnel must comply with the contents of the Manual.

AIR EUROPA MAINTAINS ITS EMAS CERTIFICATIONAir Europa has its Environmental Declaration, issued in Palma de Mallorca, on 30 June 2014, validated by virtue of the provisions of article 4 of EC Regulation No. 1221/2009, through the Spanish Association for Standardisation and Certification (AENOR). To read the Environmental Declaration, please click on the following link to our website:

http://www.aireuropa.com/waeam/es/estaticos/informacion/calidad.html

Well aware of the growing environmental con-cerns in society, and ahead of the rest of the Spanish airlines, Air Europa obtained certification ISO 14001:2004 for Environmental Management Systems in January 2006, supported by its Quality Management System, already in place since 2001. The essential objective of this system is to mini-mise the environmental impact caused by all the company’s activities, with a focus on decreasing the natural resources consumed (paper, water, electricity, fuel, etc.), proper waste management (recovery, reuse and recycling), and optimisation of procedures to reduce both the noise and CO2 emissions from the aeroplanes.

We have made great investments in technologies that reduce CO2 emissions, with the installation of “winglets” in the aeroplanes in the B737-800 fleet when the configuration so permits. These aerody-namically efficient devices, placed at the end of the wings, have allowed us to reduce CO2 emissions by 2.5% as compared to the aeroplanes that do not have these devices.

Moreover, during last year we have started to renew our fleet of long-distance aircraft with the inclusion of the Boeing 787. The Dreamliner, leader in technology, combines an exceptional environ-mental performance with a more comfortable interior design and consumes 20% less fuel and produces 20% less gas emissions than any other aircraft of a similar size.

RETAIL DIVISIONOur commitment to service quality and respect for the environment has led us to implement an inte-grated management system in the corporate area of Viajes Halcón and Viajes Ecuador, under Stand-ards ISO 9001 and 14001, which was certified by Bureau Veritas in 2010, including the Companies, Public Tenders and Events departments.


Since its implementation, the integrated system contributes to the ongoing improvement of our processes, helping us to determine the expecta-tions of our customers and focus our efforts on satisfying them, whilst empowering the efforts of the entire human team to achieve the common objectives.

With regard to the preservation of our environ-ment, the implemented system promotes the improvement of our environmental performance, whilst we adopt the commitment of ensuring that the activities of our organisation are respectful of the environment and cause the minimum possible impact. Our Environmental Declaration is available on our website, at the following link:

http://www.halconviajes.com/upload/promo-ciones//fotoPromocionWeb84079.pdf

In 2013, we renewed the three-year certification, surpassing the objectives that had been set.

SOLIDARY EFFORTSOn the other hand, the Corporate Social Respon-sibility Report of Globalia for 2016 sets out the actions, achievements and results of our corporate activities in relation to CSR and Social Action.

International cooperation and a firm commitment to the needs detected in today’s society have given rise to new lines of cooperation with associations, foundations and NGOs, which translate our best intentions into tangible and positive results in the different areas of activity.

During 2016, we expanded our social responsi-bility initiatives, cooperating with different or-ganisations. Again this year, we can highlight the participation of our company’s employees in the “AEA Solidaria” association, created by a group of workers of the airline, with the support of the General Directors. “AEA Solidaria” has continued cooperating, for the sixth year in a row, with the projects that have already been implemented, without forgetting the new solidarity challenges, both national and international, that have been considered throughout the year.

To highlight a few examples of the activities that are carried out, in Bolivia said activities help the children’s homes “Niños de Santa Cruz” and “Virgen

de Fátima”, and in the Dominican Republic, the foster home “Pasitos de Jesús” and the “Los Cocos” Neighbourhood.

“AEA Solidaria” is heavily involved with each of the homes, delivering assorted humanitarian supplies, which could not happen without Air Europa’s gener-osity, as it fills the holds of its aircraft with boxes full of clothes, shoes, school materials, medicines, etc.

Also the different workers of “AEA Solidaria” collect and select the items that each home needs the most, and delivers them in person. Our co-workers do not just deliver the materials; they also visit each of the homes regularly, checking to see what they need and sharing with the children whilst they stay at each of the destinations (Santo Domingo and Bolivia).

“AEA Solidaria” has a key partner in Santo Domingo, “Be Live Hotels”. The Be Live Experience Hamaca Hotel continues to work with us delivering food every week to the “Pasitos de Jesús” Foster Home. The Be Live Experience Hamaca Hotel is committed to the cause and project of “AEA Solidaria”, coop-erating daily by helping our co-workers distribute humanitarian aid and having other activities in the hotel installations.

“AEA Solidaria” continues to collect funds through the Solidarity Breakfasts that they hold on the first Tuesday of each month, in the installations of the Globalia building in LLucmajor and in the offices of Firms in the Adolfo Suarez Madrid Barajas Airport.

Again this year, “AEA Solidaria” wanted to help all the children in their projects in Bolivia and Santo Domingo live the magic of Christmas. Therefore, Santa Claus visited the “Santa Cruz” Children’s Home, delivering a present to each of the children. The Be Live Experience Hamaca Hotel, as it did last year, has also prepared a party for the children.

“AEA Solidaria” collaborates extensively in the projects of other national foundations, associations and NGOs as well as those that carry out their activities in the different zones where the Globalia Group operates.

For the importance and the size of these projects, in this year, 2016, we want to highlight a very special new project, namely the construction of “La Matica”.

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“AEA Solidaria” defines it as its most important pro-ject to date. “La Matica” will be constructed during the year 2017 in Boca Chica (Santo Domingo).

The purpose of the project is to contribute to the protection and care of children and adolescents, covering part of the basic needs and promoting their emotional development.

The main activities of “La Matica” include:- Satisfying the nutritional and food needs of users.- Development of an educational program that includes classrooms for learning as well as music and play rooms.- Creation of an ecological vegetable garden to promote the self-sufficiency of the centre.- Creation of the Psychomotricity Room.- Creation of occupational workshops.“La Matica” will help140 children directly and 450 people indirectly.

ORGANISATIONS WE WORK WITH International cooperation and a firm commitment to the needs we detect in today’s society have given rise to our lines of cooperation with associ-ations and NGOs, which make our best intentions translate into positive and tangible results in the different areas in which each of them works.

During this year, we have cooperated with or start-ed or renewed cooperation agreements with the following organisations:

Fundación Cirujanos Plásticos Mundi (Mundi Plastic Surgeon Foundation)– Fundación Integra – Fun-dación Respiralia – Recupera Sonrisas – Fundación Irene Villa – Fundación Mensajeros de la Paz - Fundación Madrid Excelente – Fundación Palma 365 – Fundación Tony Catany -Scholas Ocurrentes – Fundación Sonrisa Médica – Fundación Lo Que De Verdad Importa – Fundación Deporte Joven (Young Sports Foundation) - Infancia Sin Fronteras – Fundación Promoción Social de la Cultura Medi-atrends – Fundación Incorpora Deportistas Solidari-os - Llevant en Marxa – Asociación de Familiares de Enfermos de Alzheimer (Alzheimer Sufferers Family Association) - Federación Española de Enfermos Neuromusculares (Spanish Federation of Neuro-muscular Diseases )– Asociación Española Contra el Cáncer (Spanish Association Against Cancer) - CODESPA - Fundación Deporte Joven - Fundación Integra - Infancias Sin Fronteras - Make a Wish Spain - Fundación Mensajeros de la Paz – Niños

contra el cáncer Universidad De Navarra – Fun-dación Filia – Fundación RANA – Fundación Clínica Menorca – Proyecto Hombre – Fundación Joves Navegants – Premios Solidarios a la Igualdad MDE 2016 – Es Refugi – Cáritas – Fundación Vega.


Documents

2016 ANNUAL REPORT - Globalia · Executive Letter of the Annual Report Introduction to the Management Report ... which is set out in more detail in the pages of this annual report,