SECURITIES AND EXCHANGE COMMISSION - Cebu Pacificcebupacificaircorporate.com/Corporate Disclosures... · CEBU AIR, INC. 3. Province, country or other jurisdiction of incorporation

CR03613-2015

SECURITIES AND EXCHANGE COMMISSIONSEC FORM 20-IS

INFORMATION STATEMENT PURSUANT TO SECTION 17.1(b)OF THE SECURITIES REGULATION CODE

1. Check the appropriate box:

Preliminary Information Statement

Definitive Information Statement

2. Name of Registrant as specified in its charter

CEBU AIR, INC.3. Province, country or other jurisdiction of incorporation or organization

Cebu City, Philippines4. SEC Identification Number

1546755. BIR Tax Identification Code

000-948-229-0006. Address of principal office

2nd Floor Doña Juanita M Lim Building, Osmeña Boulevard, Capitol Site, Cebu CityPostal Code6000

7. Registrant's telephone number, including area code

(632) 802-70008. Date, time and place of the meeting of security holders

June 26, 2015, 2:30 P.M., Argao Room, 4th Floor Summit Circle Hotel, Fuente Osmeña,Cebu City

9. Approximate date on which the Information Statement is first to be sent or given to security holders

May 29, 201510. In case of Proxy Solicitations:

Name of Person Filing the Statement/Solicitor

N/AAddress and Telephone No.

N/A

11. Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the RSA(information on number of shares and amount of debt is applicable only to corporate registrants):

No Yes

Title of Each Class Number of Shares of Common Stock Outstanding and Amount of Debt Outstanding

Common shares 605,953,330

13. Are any or all of registrant's securities listed on a Stock Exchange?

If yes, state the name of such stock exchange and the classes of securities listed therein:

Cebu Air Inc.’s common stock is listed on the Philippine Stock Exchange.

The Exchange does not warrant and holds no responsibility for the veracity of the facts and representations contained in all corporatedisclosures, including financial reports. All data contained herein are prepared and submitted by the disclosing party to the Exchange,and are disseminated solely for purposes of information. Any questions on the data contained herein should be addressed directly tothe Corporate Information Officer of the disclosing party.

Cebu Air, Inc.CEB

PSE Disclosure Form 17-5 - Information Statement for Annual or Special Stockholders' Meeting References: SRC Rule 20 and

Section 17.10 of the Revised Disclosure Rules

Date of Stockholders'Meeting Jun 26, 2015

Type (Annual orSpecial) Annual

Time 2:30 P.M.

Venue Argao Room, 4th Floor Summit Circle Hotel, Fuente Osmeña, Cebu City

Record Date May 22, 2015

Inclusive Dates of Closing of Stock Transfer Books

Start Date N/A

End date N/A

Other Relevant Information

Please see attached Definitive Information Statement of Cebu Air, Inc. in connection with its annual meeting ofstockholders to be held on June 26, 2015.

Filed on behalf by:

Name Rosalinda Rivera

Designation Corporate Secretary

COVER SHEET

1 5 4 6 7 5

SEC Registration Number

C E B U A I R , I N C .

(Company’s Full Name)

C e b u P a c i f i c B u i l d i n g , D o m e s t i c

R o a d , B a r a n g a y 1 9 1 , Z o n e 2 0 ,

P a s a y C i t y

(Business Address: No. Street City/Town/Province)

Atty. Rosalinda F. Rivera

Corporate Secretary

802-7000

(Contact Person) (Company Telephone Number)

1 2 3 1 2 0 - I S Fourth Thursday of June

Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

Definitive Information Statement

Issuer of securities under SEC-CFD

Order No. 237 Series of 2010

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

CEBU AIR, INC. (the “Corporation”)

ANNUAL MEETING OF STOCKHOLDERS

JUNE 26, 2015

EXPLANATION OF AGENDA ITEMS FOR STOCKHOLDERS’ APPROVAL Reading and approval of the Minutes of the Annual Meeting of the Stockholders held on August 18, 2014 Copies of the minutes will be distributed to the stockholders before the meeting and will be presented to the stockholders for approval. Presentation of annual report and approval of financial statements for the preceding year The annual report and the financial statements for the preceding fiscal year will be presented to the stockholders for approval. Election of Board of Directors The incumbent members of the Board of Directors of the Corporation are expected to be nominated for re-election this year. A brief description of the business experience of the incumbent directors is provided in the Information Statement sent to the stockholders. The members of the Board of Directors of the Corporation shall be elected by plurality vote. Election of External Auditor The Corporation’s external auditor is SyCip Gorres Velayo & Co. and will be nominated for reappointment for the current fiscal year. Ratification of all acts of the Board of Directors, Executive Committee and other committees of the Board of Directors, officers and management since the last annual meeting The acts of the Board of Directors, Executive Committee and other committees of the Board of Directors, officers and management of the Corporation since the last annual stockholders’ meeting up to the current stockholders’ meeting will be presented to the stockholders for ratification. Consideration of such other matters as may properly come during the meeting The Chairman will open the floor for comments and questions by the stockholders. The Chairman will decide whether matters raised by the stockholders may be properly taken up in the meeting or in another proper forum.

2

Date, Time and Place of Meeting of Security Holders

Date Time and Place of Meeting : June 26, 2015

2:30 P.M.

Argao Room

4th

Floor Summit Circle Hotel

Fuente Osmeña, Cebu City

Complete Mailing Address of Principal Office : 2nd Floor Doña Juanita M Lim

Building, Osmeña Boulevard,

Capitol Site, Cebu City

Approximate date on which the Information : May 29, 2015

Statement is first to be sent or given to

security holders

Dissenters’ Right of Appraisal

Any stockholder of the Corporation may exercise his appraisal right against the proposed actions which qualify as instances giving rise to the exercise of such right pursuant to and subject to the compliance with the requirements and procedure set forth under Title X of the Corporation Code of the Philippines. There are no matters to be acted upon by the stockholders at the Annual Meeting of the Stockholders to be held on June 26, 2015 which would require the exercise of the appraisal right.

Interest of Certain Persons in or Opposition to Matters to be acted upon

None of the following persons have any substantial interest, direct or indirect, in any matter

to be acted upon other than election to office:

1. Directors or officers of the Corporation at any time since the beginning of the last fiscal

year;

2. Nominees for election as directors of the Corporation;

3. Associate of any of the foregoing persons.

Voting Securities and Principal Holders Thereof

(a) The Corporation has 605,953,330 outstanding shares as of April 30, 2015. Every

stockholder shall be entitled to one vote for each share of stock held as of the established

record date.

(b) All stockholders of record as of May 22, 2015 are entitled to notice and to vote at the

Corporation‟s Annual Meeting of Stockholders.

(c) Section 8, Article VII of the By-Laws of the Corporation states that, for purposes of

determining the stockholders entitled to notice of, or to vote or be voted at any meeting

of stockholders or any adjournments thereof, or entitled to receive payment of any

dividends or other distribution or allotment of any rights, or for the purpose of any

other lawful action, or for making any other proper determination of stockholders, the

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Board of Directors may provide that the stock and transfer books be closed for a stated

period, which shall not be more than sixty (60) days nor less than thirty (30) days before

the date of such meeting. In lieu of closing the stock and transfer books, the Board of

Directors may fix in advance a date as the record date for any such determination of

stockholders. A determination of stockholders of record entitled to notice of or to vote

or be voted at a meeting of stockholders shall apply to any adjournment of the meeting;

provided, however, that the Board of Directors may fix a new record date for the

adjourned meeting.

Election of Directors

Section 1 (a), Article II of the By-Laws of the Corporation provides that the directors of the

Corporation shall be elected by plurality vote at the annual meeting of the stockholders for that

year at which a quorum is present. At each election for directors, every stockholder shall have the

right to vote, in person or by proxy, the number of shares owned by him for as many persons as

there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as

the number of such directors multiplied by the number of his shares shall equal, or by distributing

such votes on the same principle among any number of candidates.

The report attached to this SEC Form 20-IS is the management report to stockholders

required under SRC Rule 20 to accompany the SEC Form 20-IS and is hereinafter referred to as

the “Management Report”.

Security Ownership of Certain Record and Beneficial Owners and Management

Security Ownership of Certain Record and Beneficial Owners of more than 5% of the Corporation’s

voting securities as of April 30, 2015

Title of

Class

Names and addresses of record

owners and relationship with the

Corporation

Name of beneficial

owner and

relationship with

record owner

Citizenship

Number of

Shares Held

% to Total

Outstanding

Common CPAir Holdings, Inc.

43/F Robinsons Equitable Tower,

ADB Avenue corner Poveda

Street, Ortigas Center, Pasig City

(stockholder)

JG Summit

Holdings, Inc.

(See note 1)

Filipino 400,816,841 66.15%

Common PCD Nominee Corporation

(Filipino)

37/F Tower 1, The Enterprise

Center, Ayala Ave. corner Paseo

de Roxas, Makati City

(stockholder)

PDTC Participants

and their clients

(See note 2)

Filipino 112,207,115

18.52%


(Non-Filipino)

37/F Tower 1, The Enterprise

Center, Ayala Ave. corner Paseo

de Roxas, Makati City

(stockholder)

PDTC Participants

and their clients

(See note 2)

Non-Filipino 85,827,582

(See note 3)

14.16%

4

Notes:

1. CPAir Holdings, Inc. is a wholly-owned subsidiary of JG Summit Holdings, Inc. Under the By-Laws of CPAir Holdings,

Inc., the President is authorized to represent the corporation at all functions and proceedings. The incumbent President of

CPAir Holdings, Inc. is Mr. Lance Y. Gokongwei.

2. PCD Nominee Corporation is the registered owner of the shares in the books of the Corporation’s transfer agent. PCD

Nominee Corporation is a corporation wholly-owned by Philippine Depository and Trust Corporation, Inc. (formerly the

Philippine Central Depository) (“PDTC”), whose sole purpose is to act as nominee and legal title holder of all shares of

stock lodged in the PDTC. PDTC is a private corporation organized to establish a central depository in the Philippines and

introduce scripless or book-entry trading in the Philippines. Under the current PDTC system, only participants (brokers and

custodians) will be recognized by PDTC as the beneficial owners of the lodged shares. Each beneficial owner of shares

though his participant will be the beneficial owner to the extent of the number of shares held by such participant in the

records of the PCD Nominee.

3. Out of the PCD Nominee Corporation (Non-Filipino) account, “Citibank N.A” holds for various trust accounts the following

shares of the Corporation as of April 30, 2015:

No. of shares % to Outstanding

Citibank N.A 39,625,593 6.54%

Maybank ATR Kim Eng Securities, Inc. 34,571,049 5.71%

The securities are voted by the trustee’s designated officers who are not known to the Corporation.

Security Ownership of Management as of April 30, 2015

Title of

Class

Name of beneficial

Owner

Amount & nature of

beneficial ownership

Citizenship

% to Total

Outstanding

Named Executive Officers1

Common 1. Lance Y. Gokongwei 1 Direct Filipino *

Common 2. Jaime I. Cabangis 10,000 Under PCD account Filipino *

- 3. Jose Alejandro B. Reyes - Filipino -

- 4. Jim C. Sydiongco - Filipino -

- 5. Jeanette U. Yu - Filipino -

Sub-Total 10,001 *

Common 6. Ricardo J. Romulo 1 Direct Filipino *

Common 7. John L. Gokongwei, Jr. 1 Direct Filipino *

Common 8. James L. Go 1 Direct Filipino *

Common 9. Jose F. Buenaventura 1 Direct Filipino *

Common 10. Robina Y. Gokongwei-Pe 1 Direct Filipino *

Common 11. Frederick D. Go 1 Direct Filipino *

Common 12. Antonio L. Go 1 Direct Filipino *

Common 13. Wee Khoon Oh 1 Direct Singaporean *

- 14. Bach Johann M. Sebastian - Filipino -

- 15. Robin C. Dui - Filipino -

- 16. Rosita D. Menchaca - Filipino -

- 17. Junard J. Cruz - Filipino -

- 18. Joseph G. Macagga - Filipino -

- 19. Alexander G. Lao - Filipino -

- 20. Candice Jennifer A. Iyog - Filipino -

- 21. Rhea M.Villanueva - Filipino -

- 22. Rosalinda F. Rivera - Filipino -

- 23. William S. Pamintuan - Filipino -

8 *

All directors and executive officers as a group

unnamed

10,009

*

Notes:

1. As defined under Part IV (B) (1) (b) of SRC Rule 12, the “named executive officers” to be listed refer to the Chief Executive

Officer and those that are the four (4) most highly compensated executive officers as of April 30, 2015.

* less than 0.01%

5

Shares owned by foreigners

The total number of shares owned by foreigners as of April 30, 2015 is 85,831,533 common

shares.

Voting Trust Holders of 5% or more - as of April 30, 2015

There are no persons holding more than 5% of a class under a voting trust or similar

agreement.

Changes in Control

There has been no change in the control of the Corporation since the beginning of its last

fiscal year.

Directors and Executive Officers

Information required hereunder is incorporated by reference to the section entitled “Board

of Directors and Executive Officers of the Registrant” on Item 8, pages 35 to 42 of the Management

Report.

The incumbent directors of the Corporation are expected to be nominated for re-election

this year.

The incumbent members of the Nomination Committee of the Corporation are as follows:

1. John L. Gokongwei, Jr.

2. James L. Go (Chairman)

3. Lance Y. Gokongwei

4. Frederick D. Go

5. Wee Khoon Oh (independent director)

The incumbent members of the Audit Committee of the Corporation are as follows:


2. James L. Go


4. Frederick D. Go

5. Antonio L. Go (independent director) (Chairman)

6. Wee Khoon Oh (independent director)

The incumbent members of the Remuneration and Compensation Committee of the

Corporation are as follows:


2. James L. Go (Chairman)


4. Frederick D. Go

5. Antonio L. Go (independent director)

6

Information required by the SEC under SRC Rule 38 on the nomination and election of

Independent Directors.

The following criteria and guidelines shall be observed in the pre-screening, short listing, and nomination

of Independent Directors:

A. Definition

1. An independent director is a person who, apart from his fees and shareholdings, is

independent of management and free from any business or other relationship which could, or

could reasonably be perceived to, materially interfere with his exercise of independent

judgment in carrying out his responsibilities as a director in the corporation and includes,

among others, any person who:

1.1 Is not a director or officer or substantial stockholder of the corporation or of its

related companies or any of its substantial shareholders except when the same shall

be an independent director of any of the foregoing;

1.2 Does not own more than two percent (2%) of the shares of the corporation and/or its

related companies or any of its substantial shareholders;

1.3 Is not a relative of any director, officer or substantial shareholder of the corporation,

any of its related companies or any of its substantial shareholders. For this purpose,

relatives include spouse, parent, child, brother, sister, and the spouse of such child,

brother or sister;

1.4 Is not acting as a nominee or representative of any director or substantial shareholder

of the corporation, and/or any of its related companies and/or any of its substantial

shareholders, pursuant to a Deed of Trust or under any contract or arrangement;

1.5 Has not been employed in any executive capacity by the corporation, any of its

related companies and/or by any of its substantial shareholders within the last two (2)

years.

1.6 Is not retained, either personally or through his firm or any similar entity, as

professional adviser, by the corporation, any of its related companies and/or any of its

substantial shareholders, within the last two (2) years; or

1.7 Has not engaged and does not engage in any transaction with the corporation and/or

with any of its related companies and/or with any of its substantial shareholders,

whether by himself and/or with other persons and/or through a firm of which he is a

partner and/or a company of which he is a director or substantial shareholder, other

than transactions which are conducted at arms length and are immaterial.

2. No person convicted by final judgment of an offense punishable by imprisonment for a

period exceeding six (6) years, or a violation of this Code, committed within five (5) years

prior to the date of his election, shall qualify as an independent director. This is without

prejudice to other disqualifications which the corporation’s Manual on Corporate Governance

provides.

3. Any controversy or issue arising from the selection, nomination or election of independent

directors shall be resolved by the Commission by appointing independent directors from the

list of nominees submitted by the stockholders.

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4. When used in relation to a company subject to the requirements above:

4.1 Related company means another company which is: (a) its holding company, (b) its

subsidiary, or (c) a subsidiary of its holding company; and

4.2 Substantial shareholder means any person who is directly or indirectly the beneficial

owner of more than ten percent (10%) of any class of its equity security.

B. Qualifications and Disqualifications of Independent Directors

1. An independent director shall have the following qualifications:

1.1 He shall have at least one (1) share of stock of the corporation;

1.2 He shall be at least a college graduate or he has sufficient management experience to

substitute for such formal education or he shall have been engaged or exposed to the

business of the corporation for at least five (5) years;

1.3 He shall be twenty one (21) years old up to seventy (70) years old, however, due

consideration shall be given to qualified independent directors up to the age of eighty

(80);

1.4 He shall have been proven to possess integrity and probity; and

1.5 He shall be assiduous.

2. No person enumerated under Section II (5) of the Code of Corporate Governance shall

qualify as an independent director. He shall likewise be disqualified during his tenure under

the following instances or causes:

2.1 He becomes an officer or employee of the corporation where he is such member of

the board of directors/trustees, or becomes any of the persons enumerated under letter

A hereof;

2.2 His beneficial security ownership exceeds two percent (2%) of the outstanding

capital stock of the corporation where he is such director;

2.3 Fails, without any justifiable cause, to attend at least 50% of the total number of

Board meetings during his incumbency unless such absences are due to grave illness

or death of an immediate family.

2.4 Such other disqualifications that the Corporate Governance Manual provides.

C. Number of Independent Directors

All companies are encouraged to have independent directors. However, issuers of registered securities

and public companies are required to have at least two (2) independent directors or at least twenty

percent (20%) of its board size.

D. Nomination and Election of Independent Directors

1. The Nomination Committee (the “Committee”) shall have at least three (3) members, one of

whom is an independent director. It shall promulgate the guidelines or criteria to govern the

conduct of the nomination. The same shall be properly disclosed in the corporation’s

8

information or proxy statement or such other reports required to be submitted to the

Commission.

2. Nomination of independent director/s shall be conducted by the Committee prior to a

stockholders’ meeting. All recommendations shall be signed by the nominating stockholders

together with the acceptance and conformity by the would-be nominees.

3. The Committee shall pre-screen the qualifications and prepare a final list of all candidates

and put in place screening policies and parameters to enable it to effectively review the

qualifications of the nominees for independent director/s.

4. After the nomination, the Committee shall prepare a Final List of Candidates which shall

contain all the information about all the nominees for independent directors, as required

under Part IV (A) and (C) of Annex "C" of SRC Rule 12, which list, shall be made available

to the Commission and to all stockholders through the filing and distribution of the

Information Statement, in accordance with SRC Rule 20, or in such other reports the

Corporation is required to submit to the Commission. The name of the person or group of

persons who recommended the nomination of the independent director shall be identified in

such report including any relationship with the nominee.

5. Only nominees whose names appear on the Final List of Candidates shall be eligible for

election as independent director/s. No other nomination shall be entertained after the Final

List of Candidates shall have been prepared. No further nominations shall be entertained nor

allowed on the floor during the actual annual stockholders' meeting.

6. Election of Independent Director/s

6.1 Except as those required under this Rule and subject to pertinent existing laws, rules

and regulations of the Commission, the conduct of the election of independent

director/s shall be made in accordance with the standard election procedures of the

company or its by-laws.

6.2 It shall be the responsibility of the Chairman of the Meeting to inform all

stockholders in attendance of the mandatory requirement of electing independent

director/s. He shall ensure that an independent director/s are elected during the

stockholders’ meeting.

6.3 Specific slot/s for independent directors shall not be filled-up by unqualified

nominees.

6.4 In case of failure of election for independent director/s, the Chairman of the Meeting

shall call a separate election during the same meeting to fill up the vacancy.

E. Termination/Cessation of Independent Directorship

In case of resignation, disqualification or cessation of independent directorship and only after

notice has been made with the Commission within five (5) days from such resignation,

disqualification or cessation, the vacancy shall be filled by the vote of at least a majority of the

remaining directors, if still constituting a quorum, upon the nomination of the Committee

otherwise, said vacancies shall be filled by the stockholders in a regular or special meeting called

for that purpose. An independent director so elected to fill a vacancy shall serve only for the

unexpired term of his predecessor in office.

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The New By-Laws of the Corporation dated May 28, 2007 include the provisions of SRC Rule

38, as amended.

Presented below is the Final List of Candidates for Independent Directors:

1. Mr. Antonio L. Go was elected as an independent director of the Corporation on December 6,

2007. He also currently serves as Director and President of Equitable Computer Services, Inc. and

is the Chairman of Equicom Savings Bank and ALGO Leasing and Finance, Inc. He is also a

director of Medilink Network, Inc., Maxicare Healthcare Corporation, Equicom Manila Holdings,

Equicom Inc., Equitable Development Corporation, United Industrial Corporation Limited,

Oriental Petroleum and Minerals Corporation, Pin-An Holdings, Inc., Equicom Information

Technology and Robinsons Retail Holdings, Inc. He is also a Trustee of Go Kim Pah Foundation,

Equitable Foundation, Inc. and Gokongwei Brothers Foundation, Inc. He graduated from

Youngstown University, United States with a Bachelor of Science degree in Business

Administration. He attended the International Advanced Management program at the

International Management Institute, Geneva, Switzerland as well as the Financial Planning/

Control program at the ABA National School of Bankcard Management, Northwestern

University, United States.

2. Mr. Wee Khoon Oh was elected as an independent director of the Corporation effective

January 3, 2008. He is the founder and managing director of Sobono Energy Private Limited. He

served as the Vice Chairman of the Sustainable Energy Association of Singapore until 2014. He

graduated with honors from the University of Manchester Institute of Science and Technology

with a Bachelor of Science degree in Mechanical Engineering. He obtained his Masters degree in

Business Administration from the National University of Singapore.

The Certification of Independent Directors executed by Mr. Antonio L. Go and Mr. Wee

Khoon Oh are attached hereto as Annex “A” and Annex “B”, respectively.

The name of the person who recommended the nomination of the foregoing candidates for Independent

Directors is as follows:

CPAir Holdings, Inc. - controlling shareholder of the Corporation owning 66.15% of the

Corporation‟s total outstanding capital stock as of April 30, 2015.

CPAir Holdings, Inc. has no relationship with Mr. Antonio L. Go and Mr. Wee Khoon Oh,

the candidates for independent directors of the Corporation.

Significant Employees

There are no persons who are not executive officers of the Corporation who are expected by

the Corporation to make a significant contribution to the business.

Family Relationships

1. Mr. James L. Go is the brother of Mr. John L. Gokongwei, Jr.

2. Mr. Lance Y. Gokongwei is the son of Mr. John L. Gokongwei, Jr.

3. Ms. Robina Gokongwei-Pe is the daughter of Mr. John L. Gokongwei, Jr.

4. Mr. Frederick D. Go is the nephew of Mr. John L. Gokongwei, Jr.

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Involvement in Certain Legal Proceedings of Directors and Executive Officers

Except as otherwise disclosed, to the best of the Corporation‟s knowledge and belief and

after due inquiry, none of the Corporation‟s directors, nominees for election as director, or

executive officer have in the past five years: (i) had any petition filed by or against any business of

which such person was a general partner or executive officer either at the time of the bankruptcy or

within a two year period of that time; (ii) convicted by final judgment in a criminal proceeding,

domestic or foreign, or have been subjected to a pending judicial proceeding of a criminal nature,

domestic or foreign, excluding traffic violations and other minor offences; (iii) subjected to any

order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of

competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring,

suspending or otherwise limiting their involvement in any type of business, securities, commodities

or banking activities; or (iv) found by a domestic or foreign court of competent jurisdiction (in a

civil action), the Philippine Securities and Exchange Commission (SEC) or comparable foreign

body, or a domestic or foreign exchange or other organized trading market or self regulatory

organization, to have violated a securities or commodities law or regulation and the judgment has

not been reversed, suspended, or vacated.

Certain Relationships and Related Party Transactions

The Corporation, in its regular conduct of business, had engaged in transactions with its

ultimate parent company, its joint venture and affiliates. See Note 27 (Related Party Transactions)

of the Notes to the Consolidated Financial Statements as of December 31, 2014 on pages 61 to 66 of

the audited consolidated financial statements as of December 31, 2014.

Information on the parent of the Corporation, the basis of control, and the percentage of

voting securities owned as of April 30, 2015:

Parent Company Number of Shares Held % Held

CPAir Holdings, Inc. 400,816,841 66.15%

Compensation of directors and executive officers

Summary Compensation Table

The following are the Corporation’s Chief Executive Officer (“CEO”) and four most highly compensated

executive officers for the years ended 2013, 2014 and 2015 estimates:

Name Position

Lance Y. Gokongwei President and CEO

Jaime I. Cabangis Chief Financial Officer

Jose Alejandro B. Reyes General Manager

Jim C. Sydiongco Vice President

Jeanette U. Yu Vice President - Treasurer

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The following table identifies and summarizes the aggregate compensation of the Corporation’s CEO and

the four most highly compensated executive officers for the years ended 2013, 2014 and 2015 estimates:

Actual – Fiscal Year 2013

Salaries Bonuses Other

Income1

Total

CEO and four (4) most highly compensated executive

officers

1. Lance Y. Gokongwei – President and CEO

2. Jaime I. Cabangis – Chief Financial Officer

3. Victor Emmanuel B. Custodio/Jim C. Sydiongco –

Vice President

4. Michael Ivan S. Shau – Vice President

5. Jeanette U. Yu – Vice President-Treasurer P57,755,658 P5,306,994 P55,000 P63,117,652

Aggregate compensation paid to all officers and

directors as a group unnamed

P94,700,214

P10,435,619

P395,000

P105,530,833 1 Includes per diem of directors



Income1

Total


officers



3. Jose Alejandro B. Reyes – General Manager

4. Jim C. Sydiongco – Vice President




P99,109,723

P10,709,572

P320,000


Fiscal Year 2015 Estimates


Income1

Total


officers



3. Jose Alejandro B. Reyes – General Manager

4. Jim C. Sydiongco – Vice President




P104,031,203

P11,179,569

P395,000


Standard Arrangements

Other than payment of reasonable per diem, there are no standard arrangements pursuant

to which directors of the Corporation are compensated, or are to be compensated, directly or

indirectly, for any services provided as a director for the last completed fiscal year and the ensuing

year.

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Other Arrangements

There are no other arrangements pursuant to which any director of the Corporation was

compensated, or is to be compensated, directly or indirectly, during the Corporation‟s last

completed fiscal year, and the ensuing year, for any service provided as a director.

Employment Contracts and Termination of Employment and Change-in-Control Arrangement

There are no agreements between the Corporation and its directors and executive officers

providing for benefits upon termination of employment, except for such benefits to which they may

be entitled under the Corporation‟s pension plans.

Warrants and Options Outstanding

There are no outstanding warrants or options held by the Corporation‟s CEO, the named

executive officers, and all officers and directors as a group.

Independent Public Accountants

Sycip Gorres Velayo & Co. (SGV & Co.) has acted as the Corporation‟s independent public

accountant. The same accounting firm will be nominated for reappointment for the current fiscal

year at the annual meeting of stockholders. The representatives of the principal accountant have

always been present at prior year‟s meetings and are expected to be present at the current year‟s

annual meeting of stockholders. They may also make a statement and respond to appropriate

questions with respect to matters for which their services were engaged.

The current handling partner of SGV & Co. has been engaged by the Corporation in 2013

and is expected to be rotated every five years.

Action with respect to reports

The following are included in the agenda of the Annual Meeting of Stockholders for the

approval of the stockholders:

1. Reading and approval of the Minutes of the Annual Meeting of Stockholders held on

August 18, 2014.

2. Presentation of annual report and approval of financial statements for the preceding

year.

3. Election of Board of Directors.

4. Election of External Auditor.

5. Ratification of all acts of the Board of Directors, Executive Committee and other

committees of the Board of Directors, officers and management since the last annual

meeting.

A summary of the matters approved and recorded in the Minutes of the Annual Meeting of

the Stockholders last August 18, 2014 is as follows: (a) reading and approval of the Minutes

of the Annual Meeting of Stockholders held on June 27, 2013; (b) presentation of Annual

13

Report and approval of Financial Statements for the preceding year; (c) approval to amend

Article First and Article Third of the Articles of Incorporation of the Corporation in order

to include „Cebu Pacific‟ and „Cebu Pacific Air‟ as the business names of the Corporation

and to specify the Corporation‟s principal office address in accordance with SEC

Memorandum Circular No. 6, Series of 2014; (d) election of Board of Directors; (e) election

of External Auditor; and (f) ratification of all acts of the Board of Directors, Executive

Committee and Management since the last annual meeting.

Brief description of material matters approved by the Board of Directors, Executive Committee and

Management and disclosed to the SEC and PSE since the last annual meeting of stockholders held on

August 18, 2014 for ratification by the stockholders:

Date of Board/Executive

Committee Approval

Description

August 18, 2014 Results of the Organizational Meeting of the Board of

Directors.

May 6, 2015 Resetting of the annual meeting of the stockholders of the

Corporation from the fourth Thursday of June to June 26, 2015

and setting May 22, 2015 as the record date for the said

meeting.

Voting Procedures

The vote required for approval or election:

Pursuant to Article VII, Section 3 of the By-Laws of the Corporation, no stockholders‟

meeting shall be competent to decide any matter or transact any business, unless a majority of the

outstanding capital stock is present or represented thereat, except in those cases in which the

Corporation law requires the affirmative vote of a greater proportion.

The method by which votes will be counted:

Article VII, Section 4 of the By Laws provides that voting upon all questions at all meetings

of the stockholders shall be by shares of stock and not per capital.

Article VII, Section 2 of the By Laws also provides that stockholders may vote at all

meetings the number of shares registered in their respective names, either in person or by proxy

duly given in writing and duly presented to and received by the Corporate Secretary for inspection

and recording not later than five (5) working days before the time set for the meeting, except such

period shall be reduced to one (1) working day for meetings that are adjourned due to lack of the

necessary quorum. No proxy bearing a signature which is not legally acknowledged by the

Corporate Secretary shall be honored at the meetings. Proxies shall be valid and effective for five

(5) years, unless the proxy provides for a shorter period, and shall be suspended for any meeting

wherein the stockholder appears in person.

Article II, Section 1 (a) provides that the directors of the Corporation shall be elected by

plurality vote at the annual meeting of the stockholders for that year at which a quorum is present.

At each election of directors, every stockholder shall have the right to vote, in person or by proxy,

the number of shares owned by him for as many persons as there are directors to be elected, or to

14

cumulate his votes by giving one candidate as many votes as the number of such directors

multiplied by the number of his shares shall equal, or by distributing such votes on the same

principle among any number of candidates.

The Secretary shall record all the votes and proceedings of the stockholders and of the

directors in a book kept for that purpose.

Restriction that Limits the Payment of Dividends on Common Shares

None.

Recent Sales of Unregistered or Exempt Securities, Including Recent Issuance of Securities Constituting

an Exempt Transaction.

Not Applicable. All shares of the Corporation are listed in the Philippine Stock Exchange.

Discussion on compliance with leading practices on corporate governance The Corporation adheres to the principles and practices of good corporate governance, as embodied in its Corporate Governance Manual, Code of Business Conduct and related SEC Circulars. On September 24, 2010, the Board of Directors approved the adoption of a revised Corporate Governance Manual, in accordance with SEC Memorandum Circular No. 6 (Series of 2009) dated June 22, 2009. On July 4, 2014, the Executive Committee approved the revisions made to the Corporate Governance Manual of the Corporation in accordance with SEC Memorandum Circular No. 9, Series of 2014. Continuous improvement and monitoring of governance and management policies have been undertaken to ensure that the Corporation observes good governance and management practices. This is to assure the shareholders that the Corporation conducts its business with the highest level of integrity, transparency and accountability. SEC Memorandum Circular No. 5, Series of 2013 mandates all listed companies to submit an Annual Corporate Governance Report (ACGR). On July 30, 2013, the Corporation submitted its ACGR for the year 2012 to the SEC. On January 8, 2015, the Executive Committee approved the consolidated changes made to the ACGR of the Corporation for the year 2014 in compliance with SEC Memorandum Circular No. 12, Series of 2014. Beginning January 30, 2011 in accordance with PSE Memorandum No. 2010-0574, the Corporation submits every year a Corporate Governance Disclosure Report to the PSE. The Corporation likewise consistently strives to raise its financial reporting standards by adopting and implementing prescribed Philippine Financial Reporting Standards.

CEBU AIR, INC., AS REGISTRANT, WILL PROVIDE WITHOUT CHARGE, UPON

WRITTEN REQUEST, A COPY OF THE REGISTRANT‟S ANNUAL REPORT ON SEC FORM

17-A. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE OFFICE OF THE

CORPORATE SECRETARY, 40/F ROBINSONS EQUITABLE TOWER, ADB AVENUE

CORNER POVEDA ST., ORTIGAS CENTER, PASIG CITY, METRO MANILA, PHILIPPINES.

- 1 -

Information Required by the SEC Pursuant to SRC Rule 20

PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

Cebu Air, Inc. (the Parent Company) is an airline that operates under the trade name “Cebu Pacific Air”

and is the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value” strategy in

the local aviation industry by providing scheduled air travel services targeted to passengers who are

willing to forego extras for fares that are typically lower than those offered by traditional full-service

airlines while offering reliable services and providing passengers with a fun travel experience.

The Parent Company was incorporated on August 26, 1988 and was granted a 40-year legislative

franchise to operate international and domestic air transport services in 1991. It commenced its scheduled

passenger operations in 1996 with its first domestic flight from Manila to Cebu. In 1997, it was granted

the status as an official Philippine carrier to operate international services by the Office of the President of

the Philippines pursuant to Executive Order (EO) No. 219. International operations began in 2001 with

flights from Manila to Hong Kong.

In 2005, the Parent Company adopted the low-cost carrier (LCC) business model. The core element of

the LCC strategy is to offer affordable air services to passengers. This is achieved by having: high-load,

high-frequency flights; high aircraft utilization; a young and simple fleet composition; and low

distribution costs.

The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on October

26, 2010, the Group’s initial public offering (IPO).

The Parent Company has ten special purpose entities (SPE) that it controls, namely: Cebu Aircraft

Leasing Limited, IBON Leasing Limited, Boracay Leasing Limited, Surigao Leasing Limited, Sharp

Aircraft Leasing Limited, Vector Aircraft Leasing Limited, Panatag One Aircraft Leasing Limited,

Panatag Two Aircraft Leasing Limited, Panatag Three Aircraft Leasing Limited and Summit A Aircraft

Leasing Limited. On March 20, 2014, the Parent Company acquired 100% ownership of Tiger Airways

Philippines (TAP), including 40% stake in Roar Aviation II Pte. Ltd. (Roar II), a wholly owned

subsidiary of Tiger Airways Holdings Limited (TAH). The Parent Company, its ten SPEs and TAP

(collectively known as “the Group”) are consolidated for financial reporting purposes.

As of December 31, 2014, the Group operates an extensive route network serving 57 domestic routes and

37 international routes with a total of 2,652 scheduled weekly flights. It operates from seven hubs,

including the Ninoy Aquino International Airport (NAIA) Terminal 3 and Terminal 4 both located in

Pasay City, Metro Manila; Mactan-Cebu International Airport located in Lapu-Lapu City, part of

Metropolitan Cebu; Diosdado Macapagal International Airport (DMIA) located in Clark, Pampanga;

Davao International Airport located in Davao City, Davao del Sur; Ilo-ilo International Airport located in

Ilo-ilo City, regional center of the western Visayas region; and Kalibo International Airport in Kalibo,

Aklan.

- 2 -

As of December 31, 2014, the Group operates a fleet of 52 aircraft which comprises of ten Airbus A319,

29 Airbus A320, eight ATR 72-500 and five Airbus A330 aircraft. It operates its Airbus aircraft on both

domestic and international routes and operates the ATR 72-500 aircraft on domestic routes, including

destinations with runway limitations. The average aircraft age of the Group’s fleet is approximately 4.41

years as of December 31, 2014.

Aside from passenger service, the Group also provides airport-to-airport cargo services on its domestic

and international routes. In addition, it offers ancillary services such as cancellation and rebooking

options, in-flight merchandising such as sale of duty-free products on international flights, baggage and

travel-related products and services.

The percentage contributions to the Group’s revenues of its principal business activities are as follows:

For the Years Ended December 31

2014 2013 2012

Passenger Services 77.3% 77.2% 78.0%

Cargo Services 6.1% 6.4% 6.3%

Ancillary Services 16.6% 16.4% 15.7%

100.0% 100.0% 100.0%

Aside from the Parent Company’s acquisition of 100% ownership of TAP (see Note 7 of the Notes to

Consolidated Financial Statements) , there are no material reclassifications, merger, consolidation, or

purchase or sale of a significant amount of assets not in the ordinary course of business that was made in

the past three years. The Group has not been subjected to any bankruptcy, receivership or similar

proceeding in the said period.

Distribution Methods of Products or Services

The Group has three principal distribution channels: the internet; direct sales through booking sales

offices, call centers and government/corporate client accounts; and third-party sales outlets.

Internet

In January 2006, the Parent Company introduced its internet booking system. Through

www.cebupacificair.com, passengers can book flights and purchase services online. The system also

provides passengers with real time access to the Parent Company’s flight schedules and fare options.

TAP’s flights can be booked through the Cebu Pacific website and its other booking channels starting

March 2014.

As part of the strategic alliance between the Parent Company and TAH, the two carriers entered into an

interline agreement with the first interline flights made available for sale in TAH’s website starting July

2014. Interline services were made available in Cebu Pacific’s website in September 2014. With this,

guests of both airlines now have the ability to cross-book flights on a single itinerary and enjoy seamless

connections with an easy one-stop ticketing for connecting flights and baggage check-in.

http://www.cebupacificair.com/

- 3 -

Booking Offices and Call Centers

As of December 31, 2014, the Group has a network of eight booking offices located throughout the

Philippines and one booking office located in Hong Kong. It directly operates these booking offices

which also handle customer service issues, such as customer requests for change of itinerary. In addition,

the Group operates two in-house call centers, one in Manila and the other in Cebu. It also uses a third-

party call center outsourcing service to help accommodate heavy call traffic. Its employees who work as

reservation agents are also trained to handle customer service inquiries and to convert inbound calls into

sales. Purchases made through call centers can be settled through various modes, such as credit cards,

payment centers and authorized agents.

Government/Corporate Client Accounts

As of December 31, 2014, the Group has government and corporate accounts for passenger sales. It

provides these accounts with direct access to its reservation system and seat inventory as well as credit

lines and certain incentives. Further, clients may choose to settle their accounts by post-transaction

remittance or by using pre-enrolled credit cards.

Third Party Sales Outlets

As of December 31, 2014, the Group has a network of distributors in the Philippines selling its domestic

and international air services within an agreed territory or geographical coverage. Each distributor

maintains and grows its own client base and can impose on its clients a service or transaction fee.

Typically, a distributor’s client base would include agents, travel agents or end customers. The Group

also has a network of foreign general sales agents, wholesalers, and preferred sales agents who market,

sell and distribute the Group’s air services in other countries.

Publicly Announced New Product or Service

The Group continues to analyze its route network. It can opt to increase frequencies on existing routes or

add new routes/destinations. It can also opt to eliminate unprofitable routes and redeploy capacity.

The Group plans to expand its fleet over the course of the next three years to 56 aircraft by the end of

2017 (net of redelivery of three leased A320 Airbus aircraft and sale of six A319 Airbus aircraft). The

additional aircraft will support the Group’s plans to increase frequency on current routes and to add new

city pairs and destinations. The Group has increased frequencies on domestic routes such as Manila to

Busuanga, Caticlan and Cebu; Cebu to Puerto Princesa, Iloilo, Butuan, Davao, Siargao and Zamboanga;

Zamboanga to Tawi-Tawi and international routes such as Manila to Hanoi, Hong Kong and Taipei. New

domestic and international routes were also launched during the year. The Group launched direct flights

from Davao to Bacolod and also added direct flights from Cebu to Tandag, Surigao del Sur to its growing

inter-island network. It also commenced direct flights from Manila to Tokyo (Narita) and Nagoya,

boosting Philippine visitor arrivals to Japan by over 100% in 2014. After launching its long haul

operations in October 2013 with non-stop flights to Dubai, the Group further expanded its long haul

services in 2014 with direct flights to Sydney, Australia, Dammam and Riyadh, Saudi Arabia and Kuwait

which all utilize the Airbus A330-300 aircraft with a configuration of more than 400 all-economy class

seats. The Group will lease up to six Airbus A330-300 aircraft for its long-haul operations. The Group

currently has five Airbus A330-300, with the one more aircraft due to be delivered in 2015. The Airbus

A330-300 has a range of up to 11 hours which means the Group could serve markets such as Australia,

Middle East, parts of Europe and the US. On November 2014, the Group also introduced GETGO, its

- 4 -

newest lifestyle rewards program that gives points to loyal members which can then be used to pay for

airfare and other add-ons through the Group’s website or other booking channels.

Further, the Group has turned into firm orders its existing options for seven Airbus A320 aircraft for

delivery between 2015 and 2016. The Group has also placed a new firm order for 30 Airbus A321NEO

(New Engine Option) aircraft with options for a further ten Airbus A321neos. Airbus A321neos will be a

first of its type to operate in the Philippines, being a larger and longer-haul version of the familiar Airbus

A320. These 220-seater aircraft will have a much longer range which will enable the Group to serve

cities in Australia, India and Northern Japan, places the A320 cannot reach. This order for A321neo

aircraft will be delivered between 2017 and 2021.

The Group has also signed a joint venture agreement with CAE, world leader in aviation training, to

establish an aviation training center for airlines in the Asia Pacific region. The joint venture is known as

the Philippine Academy for Aviation Training, Inc. (PAAT) and is located in Clark Freeport Zone,

northwest of Manila. On January 24, 2012, the Group broke ground in Clark, Pampanga and the facility

was formally inaugurated on December 3, 2012. The new training center will be a world-class, one-stop

training center for the Group and a hub for training services for other airlines. The facility will initially

cater to Airbus A319/320/321 series pilot type-rating training requirements, among others. It will be

initially equipped with two Airbus A320 Full Flight Simulators with the capability to expand by two

additional simulators. Training is also expected to be added for other aviation personnel in the future,

such as cabin crew, dispatch, ground handling personnel and cadets. Each simulator can train/certify

approximately 300-700 pilots per simulator per year.

On March 20, 2014, the Parent Company acquired 100% ownership of TAP, including 40% stake in Roar

II, a wholly owned subsidiary of TAH. Please refer to Note 7 of the Notes to Consolidated Financial

Statements.

Competition

The Philippine aviation authorities deregulated the airline industry in 1995 eliminating certain restrictions

on domestic routes and frequencies which resulted in fewer regulatory barriers to entry into the Philippine

domestic aviation market. On the international market, although the Philippines currently operates under

a bilateral framework, whereby foreign carriers are granted landing rights in the Philippines on the basis

of reciprocity as set forth in the relevant bilateral agreements between the Philippine government and

foreign nations, in March 2011, the Philippine government issued EO 29 which authorizes the Civil

Aeronautics Board (CAB) and the Philippine Air Panels to pursue more aggressively the international

civil aviation liberalization policy to boost the country’s competitiveness as a tourism destination and

investment location.

Currently, the Group faces intense competition on both its domestic and international routes. The level

and intensity of competition varies from route to route based on a number of factors. Principally, it

competes with other airlines that service the routes it flies. However, on certain domestic routes, the

Group also considers alternative modes of transportation, particularly sea and land transport, to be

competitors for its services. Substitutes to its services also include video conferencing and other modes

of communication.

The Group’s competitors in the Philippines are Philippine Airlines (“PAL”), a full-service Philippine flag

carrier; PAL Express (formerly Airphil Express) a low-cost domestic operator that has the same major

shareholders as PAL (but separate management team) and which code shares with PAL on certain

- 5 -

domestic routes and leases certain aircraft from PAL; Air Asia Philippines and Air Asia Zest (formerly

Zest Air). Most of the Group’s domestic and international destinations are also serviced by these airlines.

According to CAB data, the Group is the leading domestic airline in the Philippines by passengers

carried, with a market share of 60.8% for the year ended December 31, 2014. The Group further builds

on its leading domestic market share with its acquisition of TAP.

The Group is the leading regional low-cost airline offering services to more destinations and serving more

routes with a higher frequency between the Philippines and other ASEAN countries than any other airline

in the Philippines. The Group currently competes with the following LCC’s and full-service airlines in its

international operations: AirAsia, Jetstar Airways, PAL, Cathay Pacific, Singapore Airlines, Thai

Airways, among others.

Raw Materials

Fuel is a major cost component for airlines. The Group’s fuel requirements are classified by location and

sourced from various suppliers.

The Group’s fuel suppliers at its international stations include PTT-Bangkok Aviation, Petronas-Kuala

Lumpur, Shell-Singapore, Shell-Hongkong, Shell-Dubai and SK Corp-Korea, among others. It also

purchases fuel from PTT Philippines and Phoenix Petroleum. The Group purchases fuel stocks on a per

parcel basis, in such quantities as are sufficient to meet its monthly operational requirements. Most of the

Group’s contracts with fuel suppliers are on a yearly basis and may be renewed for subsequent one-year

periods.

Dependence on One or a Few Major Customers and Identify any such Major Customers

The Group’s business is not dependent upon a single customer or a few customers that a loss of anyone of

which would have a material adverse effect on the Group.

Transactions with and/or Dependence on Related Parties

The Group’s significant transactions with related parties are described in detail in Note 27 of the Notes to

Consolidated Financial Statements.

Patents, Trademarks, Licenses, Franchises, Concessions and Royalty Agreements

Trademarks

The Group has registered the “Cebu Pacific” and the Cebu Pacific feather-like device trademarks with the

Philippine Intellectual Property Office (PIPO). In the Philippines, certificates of registration of a

trademark filed with the PIPO prior to the effective date of the Philippine Intellectual Property Code

(PIPC) in 1998 are generally effective for a period of 20 years from the date of the certificate, while those

filed after the PIPC became effective are generally effective for a shorter period of ten years, unless

terminated earlier. The Group has also filed trademark applications for the GETGO logo, its newest

lifestyle rewards program and a logo for the strategic alliance entered into by the Parent Company and

TAH. The approval of both registrations are still pending with the PIPO. The Group also has 26

trademarks registered with the Intellectual Property Office of China. The Group has also registered the

business name “Cebu Pacific Air” with the Department of Trade and Industry (DTI). Registering a

business name with the DTI precludes another entity engaged in the same or similar business from using

- 6 -

the same business name as one that has been registered. A registration of a business name shall be

effective for five years from the initial date of registration and must be renewed within the first three

months following the expiration of the five-year period from the date of original registration.

Licenses / Permits

The Group operates its business in a highly regulated environment. The Group’s business depends upon

the permits and licenses issued by the government authorities or agencies for its operations which include

the following:

Legislative Franchise to Operate a Public Utility

Certificate of Public Convenience and Necessity

Letter of Authority

Air Operator Certificate

Certificate of Registration

Certificate of Airworthiness

The Group also has to seek approval from the relevant airport authorities to secure airport slots for its

operations.

Franchise

In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise to operate

air transportation services, both domestic and international. In accordance with the Parent Company’s

franchise, this extends up to year 2031:

a) The Parent Company is subject to franchise tax of five percent of the gross revenue derived from air

transportation operations. For revenue earned from activities other than air transportation, the Parent

Company is subject to regular corporate income tax and to real property tax.

b) In the event that any competing individual, partnership or corporation received and enjoyed tax

privileges and other favorable terms which tended to place the Parent Company at any disadvantage,

then such privileges shall have been deemed by the fact itself of the Parent Company’s tax privileges

and shall operate equally in favor of the Parent Company.

In December 2008, pursuant to Republic Act No. 9517, TAP, the Parent Company’s wholly owned

subsidiary, was granted a franchise to establish, operate and maintain domestic and international air

transport services with Clark Field, Pampanga as its base. This franchise shall be for a term of twenty

five (25) years.

Kindly refer to Note 1 of the Notes to Consolidated Financial Statements.

Government Approval of Principal Products or Services

The Group operates its business in a highly regulated environment. The Group’s business depends upon

the permits and licenses issued by the government authorities or agencies for its operations which include

the following:

- 7 -

Legislative Franchise to Operate a Public Utility

Certificate of Public Convenience and Necessity

Letter of Authority

Air Operator Certificate

Certificate of Registration

Certificate of Airworthiness

The Group also has to seek approval from the relevant airport authorities to secure airport slots for its

operations.

Effects of Existing or Probable Government Regulations on the Business

Civil Aeronautics Administration and CAAP

Policy-making for the Philippine civil aviation industry started with RA 776, known as the Civil

Aeronautics Act of the Philippines (the “Act”), passed in 1952. The Act established the policies and laws

governing the economic and technical regulation of civil aeronautics in the country. It established the

guidelines for the operation of two regulatory organizations, CAB for the regulation of the economic

activities of airline industry participants and the Air Transportation Office, which was later transformed

into the CAAP, created pursuant to RA 9497, otherwise known as the Civil Aviation Authority Act of

2008.

The CAB is authorized to regulate the economic aspects of air transportation, to issue general rules and

regulations to carry out the provisions of RA 776, and to approve or disapprove the conditions of carriage

or tariff which an airline desires to adopt. It has general supervision and regulation over air carriers,

general sales agents, cargo sales agents, and airfreight forwarders, as well as their property, property

rights, equipment, facilities and franchises.

The CAAP, a government agency under the supervision of the Department of Transportation and

Communications for purposes of policy coordination, regulates the technical and operational aspects of

air transportation in the Philippines, ensuring safe, economic and efficient air travel. In particular, it

establishes the rules and regulations for the inspection and registration of all aircraft and facilities owned

and operated in the Philippines, determine the charges and/or rates pertinent to the operation of public air

utility facilities and services, and coordinates with the relevant government agencies in relation to airport

security. Moreover, CAAP is likewise tasked to operate and maintain domestic airports, air navigation

and other similar facilities in compliance with the International Civil Aviation Organization (ICAO), the

specialized agency of the United Nations whose mandate is to ensure the safe, efficient and orderly

evolution of international civil aviation.

The Group complies with and adheres to existing government regulations.

Aviation Safety Ranking and Regulations

In early January 2008, the Federal Aviation Administration (FAA) of the United States (U.S.)

downgraded the aviation safety ranking of the Philippines to Category 2 from the previous Category 1

rating. The FAA assesses the civil aviation authorities of all countries with air carriers that operate to the

U.S. to determine whether or not foreign civil aviation authorities are meeting the safety standards set by

the ICAO. The lower Category 2 rating means a country either lacks laws or regulations necessary to

- 8 -

oversee airlines in accordance with minimum international standards, or its civil aviation authority is

deficient in one or more areas, such as technical expertise, trained personnel, record-keeping or inspection

procedures. Further, it means Philippine carriers can continue flying to the U.S. but only under

heightened FAA surveillance or limitations. In addition, the Philippines has been included in the

“Significant Safety Concerns” posting by the ICAO as a result of an unaddressed safety concern

highlighted in the recent ICAO audit. As a result of this unaddressed safety concern, Air Safety

Committee (ASC) of the European Union banned all Philippine commercial air carriers from operating

flights to and from Europe. The ASC based its decision on the absence of sufficient oversight by the

CAAP.

On February 2013, the ICAO has lifted the significant safety concerns on the ability of CAAP to meet

global aviation standards. The ICAO SSC Validation Committee reviewed the corrective actions,

evidence and documents submitted by the Philippines to address the concerns and determined that the

corrective actions taken have successfully addressed and resolved the audit findings.

On April 10, 2014, the ASC of the European Union lifted its ban on Cebu Air, Inc. after its evaluation of

the airline’s capacity and commitment to comply with relevant aviation safety regulations. On the same

date, the US FAA also announced that the Philippines has complied with international safety standards set

by the ICAO and has been granted a Category 1 rating. The upgrade to Category 1 status is based on a

March 2014 FAA review of the CAAP. With this, Philippine air carriers can now add flights and services

to the U.S.

Although the Group does not currently operate flights to the U.S. and Europe, this development opens the

opportunity for the Group to establish new routes to other countries that base their decision on flight

access on the FAA and ASC’s evaluation.

EO 28 and 29

In March 2011, the Philippine government issued EO 28 which provides for the reconstitution and

reorganization of the existing Single Negotiating Panel into the Philippine Air Negotiating Panel (PANP)

and Philippine Air Consultation Panel (PACP) (collectively, the Philippine Air Panels). The PANP shall

be responsible for the initial negotiations leading to the conclusion of the relevant ASAs while the PACP

shall be responsible for the succeeding negotiations of such ASAs or similar arrangements.

Also in March 2011, the Philippine government issued EO 29 which authorizes the CAB and the

Philippine Air Panels to pursue more aggressively the international civil aviation liberalization policy to

boost the country’s competitiveness as a tourism destination and investment location. Among others, EO

29 provides the following:

In the negotiation of the ASAs, the Philippine Air Panels may offer and promote third, fourth and

fifth freedom rights to the country’s airports other than the NAIA without restriction as to frequency,

capacity and type of aircraft, and other arrangements that will serve the national interest as may be

determined by the CAB; and

Notwithstanding the provisions of the relevant ASAs, the CAB may grant any foreign air carriers

increases in frequencies and/or capacities in the country’s airports other than the NAIA, subject to

conditions required by existing laws, rules and regulations. All grants of frequencies and/or capacities

which shall be subject to the approval of the President shall operate as a waiver by the Philippines of

the restrictions on frequencies and capacities under the relevant ASAs.

- 9 -

The issuance of the foregoing EOs may significantly increase competition.

Air Passenger Bill of Rights

The Air Passenger Bill of Rights (the “Bill”), which was formed under a joint administrative order of the

Department of Transportation and Communications, the CAB and the Department of Trade and Industry,

was signed and published by the Government on 11 December 2012 and came into effect on 21

December 2012. The Bill sets the guidelines on several airline practices such as overbooking, rebooking,

ticket refunds, cancellations, delayed flights, lost luggage and misleading advertisement on fares.

Republic Act (RA) No. 10378 - Common Carriers Tax Act

RA No. 10378, otherwise known as the Common Carriers Tax Act, was signed into law on

March 7, 2013. This act recognizes the principle of reciprocity as basis for the grant of income tax

exceptions to international carriers and rationalizes other taxes imposed thereon by amending sections

28(A)(3)(a), 109, 108 and 236 of the National Internal Revenue Code, as amended.:

Among the relevant provisions of the act follows:

a.) An international carrier doing business in the Philippines shall pay a tax of two and one-half percent

(2 1/2 %) on its Gross Philippine Billings, provided, that international carriers doing business in the

Philippines may avail of a preferential rate or exemption from the tax herein imposed on their gross

revenue derived from the carriage of persons and their excess baggage on the basis of an applicable

tax treaty or international agreement to which the Philippines is a signatory or on the basis of

reciprocity such that an international carrier, whose home country grants income tax exemption to

Philippine carriers, shall likewise be exempt from the tax imposed under this provision;

b.) International air carriers doing business in the Philippines on their gross receipts derived from

transport of cargo from the Philippines to another country shall pay a tax of three percent (3%) of

their quarterly gross receipts;

c.) VAT exemption on the transport of passengers by international carriers.

While the removal of CCT takes away the primary constraint on foreign carrier’s capacity growth and

places the Philippines on an almost level playing field with that of other countries, this may still be a

positive news for the industry as a whole, as it may drive tourism into the Philippines. With Cebu

Pacific’s dominant network, the Group can benefit from the government’s utmost support for tourism.

Research and Development

The Group incurred minimal amounts for research and development activities, which do not amount to a

significant percentage of revenues.

Cost and Effects of Compliance with Environmental Laws

The operations of the Group are subject to various laws enacted for the protection of the environment.

The Group has complied with the following applicable environmental laws and regulations:

Presidential Decree No. 1586 (Establishing an Environmental Impact Assessment System) which

directs every person, partnership or corporation to obtain an Environmental Compliance Certificate

- 10 -

(ECC) before undertaking or operating a project declared as environmentally critical by the President

of the Philippines. Petro-chemical industries, including refineries and fuel depots, are considered

environmentally critical projects for which an ECC is required. The Group has obtained ECCs for the

fuel depots it operates and maintains for the storage and distribution of aviation fuel for its aircraft.

RA 8749 (The Implementing Rules and Regulations of the Philippine Clean Air Act of 1999) requires

operators of aviation fuel storage tanks, which are considered as a possible source of air pollution, to

obtain a Permit to Operate from the applicable regional office of the Environment Management

Bureau (EMB). The Group’s aviation fuel storage tanks are subject to and are compliant with this

requirement.

RA 9275 (Implementing Rules and Regulations of the Philippine Clean Water Act of 2004) requires

owners or operators of facilities that discharge regulated effluents to secure from the Laguna Lake

Development Authority (LLDA) (Luzon area) and/or the applicable regional office of the EMB

(Visayas and Mindanao areas) a Discharge Permit, which is the legal authorization granted by the

Department of Energy and Natural Resources for the discharge of waste water. The Group’s

operations generate waste water and effluents for the disposal of which a Discharge Permit was

obtained from the LLDA and the EMB of Region 7 which enables it to discharge and dispose of

liquid waste or water effluent generated in the course of its operations at specifically designated areas.

The Group also contracted the services of government-licensed and accredited third parties to

transport, handle and dispose its waste materials.

Compliance with the foregoing laws does not have a material effect to the Group’s capital expenditures,

earnings and competitive position.

On an annual basis, the Group spends approximately P180,000.00 in connection with its compliance with

applicable environmental laws.

Employees

As of December 31, 2014, the Group has 3,683 permanent full time employees, categorized as follows:

Division: Employees

Operations 2,980

Commercial 388

Support Departments(1)

315

3,683

Note: (1)

Support Departments include the Office of the General Manager, Corporate Finance and Legal Affairs

Department, People Department, Administrative Services Department, Procurement Department, Information

Systems Department, Comptroller Department, Internal Audit Department and Treasury Department.

The Group anticipates having approximately 4,123 employees by the end of 2015. The increase in

number of employees is related to the Group’s continuous expansion.

The Group’s employees are not unionized, and it has not experienced any labor strikes or work stoppages

in the past three years.

- 11 -

Risk

The major business risks facing the Group are as follows:

(1) Cost and Availability of Fuel

The cost and availability of fuel are subject to many economic and political factors and events occurring

throughout the world, the most important of which are not within the Group’s control. Fuel prices have

been subject to high volatility, fluctuating substantially over the past several years. Any increase in the

cost of fuel or any decline in the availability of adequate supplies of fuel could have a material adverse

effect on the Group’s operations and profitability.

The Group implements various fuel management strategies to manage the risk of rising fuel prices

including hedging.

(2) Competition

The Group faces intense competition on its domestic and international routes, both from other low-cost

carriers and from full-service carriers. Its existing competitors or new entrants into the market may

undercut its fares in the future, increase capacity on their routes or attempt to conduct low-fare or low-

cost airline operations of their own in an effort to increase market share, any of which could negatively

affect the Group’s business. The Group also faces competition from ground and sea transportation

alternatives, including buses, trains, ferries, boats and cars, which are the principal means of

transportation in the Philippines. Video teleconferencing and other methods of electronic communication,

and improvements therein, also add a new dimension of competition to the industry as they, to a certain

extent, provide lower-cost substitutes for air travel.

The Group focuses on areas of costs, on-time performance, service delivery and scheduling to remain

competitive.

(3) Economic Downturn

The deterioration in the financial markets has heralded a recession in many countries, which led to

significant declines in employment, household wealth, consumer demand and lending and, as a result, has

adversely affected economic growth in the Philippines and elsewhere. Since a substantial portion of

airline travel, for both business and leisure, is discretionary, the airline industry tends to experience

adverse financial results during general economic downturns. Any deterioration in the economy could

negatively affect consumer sentiment and lead to a reduction in demand for flying which could adversely

affect the Group’s business. The Group could also experience difficulty accessing the financial markets,

which could make it more difficult or expensive to obtain funding in the future.

(4) Availability of Debt Financing

The Group’s business is highly capital intensive. It has historically required debt financing to acquire

aircraft and expects to incur significant amounts of debt in the future to fund the acquisition of additional

aircraft, its operations, other anticipated capital expenditures, working capital requirements and expansion

overseas. Failure to obtain additional financing could adversely affect the Group’s ability to grow its

business and its future profitability.

- 12 -

(5) Foreign Exchange and Interest Rate Fluctuations

The Group’s exposure to foreign exchange rate fluctuations is principally in respect of its U.S. dollar-

denominated long-term debt as well as a majority of its operating costs, such as U.S. dollar-denominated

purchases of aviation fuel. On the other hand, the Group’s exposure to interest rate fluctuations is relative

to debts incurred which have floating interest rates. In such cases, any significant devaluation of the

Philippine peso and any significant increases in interest rates will result to increased obligations that

could adversely impact the Group’s result of operations.

The Group may enter into derivative contracts in the future to hedge foreign exchange exposure. In

addition, the Group may fix the interest rates for a portion of its loans.

(6) Airport and Air Traffic Control Infrastructure Constraints

The Group relies on operational efficiency to reduce unit costs and provide reliable service. Any delay to

the addition of capacity at airports or upgrade of facilities in the Philippines could affect the Group’s

operational efficiency.

(7) Reliance on Third Party Facilities and Service Providers

The Group’s inability to lease, acquire or access airport facilities and service providers on reasonable

terms to support its growth or to maintain its current operations would have a material adverse effect on

our business, prospects, financial condition and results of operations. Furthermore, the Group’s reliance

on third parties to provide essential services on its behalf gives the Group less control over the efficiency,

timeliness and quality of services.

(8) Safety and Security

The Group is exposed to potentially significant losses in the event that any of its aircraft is lost or subject

to an accident, terrorist incident or other disaster. In addition, any such event would give rise to

significant costs related to passenger claims, repairs or replacement of a damaged aircraft and its

temporary or permanent loss from service. Moreover, aircraft accidents or incidents, even if fully

insured, are likely to create a public perception that the airline is less safe than other airlines, which could

significantly reduce its passenger volumes and have a material adverse effect on its business, prospects,

financial condition and results of operations. Terrorist attacks could also result in decreased seat load

factors and yields and could result in increased costs, such as increased fuel expenses or insurance costs.

The Group is committed to operational safety and security. Its commitment to safety and security is

reflected in its rigorous aircraft maintenance program and flight operations manuals, intensive flight crew,

cabin crew and employee training programs and strict compliance with applicable regulations regarding

aircraft and operational safety and security.

(9) Maintenance Cost and Performance of Maintenance Repair Organizations

As the fleet ages, maintenance and overhaul expenses will increase. Any significant increase in

maintenance and overhaul expenses and the inability of maintenance repair organizations to provide

satisfactory service could adversely affect the business.

The Group enters into long term contracts to manage maintenance and overhaul expenses.

- 13 -

(10) Reliance on Automated Systems and the Internet

The Group depends on automated systems to operate its business, including, among others, its website, its

reservation and its departure control systems. Any disruption to its website or online reservation and

telecommunication services could result in losses, increased expenses and could harm its reputation.

(11) Dependence on the Efforts of Executive Officers and Other Key Management

The Group’s success depends to a significant extent upon the continued services of its executive officers

and other key management personnel. The unavailability of any of its executive officers and other key

management or failure to recruit suitable or comparable replacements could have a material adverse effect

on its business, prospects, financial condition and results of operations.

(12) Retaining and Attracting Qualified Personnel

The Group’s business model requires it to have highly skilled, dedicated and efficient pilots, engineers

and other personnel. Its growth plans will require the Group to hire, train and retain a significant number

of new employees in the future. However, from time to time, the airline industry has experienced a

shortage of skilled personnel, particularly pilots and engineers. The Group competes against full-service

airlines which offer wage and benefit packages that exceed those offered by the Group. The inability of

the Group to hire, train and retain qualified employees at a reasonable cost could result in inability to

execute its growth strategy, which would have a material adverse effect on its business, prospects,

financial condition and results of operations. In addition, the Group may find it increasingly challenging

to maintain its corporate culture as it replaces or hires additional personnel.

The Group may have to increase wages and benefits to attract and retain qualified personnel.

(13) Availability of Insurance

Insurance is fundamental to airline operations. Because of terrorist attacks or other world events, certain

aviation insurance could become unavailable or available only for reduced amounts of coverage that are

insufficient to comply with the levels of coverage required by the Group’s aircraft lenders and lessors or

applicable government regulations. Any inability to obtain insurance, on commercially acceptable terms

or at all, for the Group’s general operations or specific assets would have a material adverse effect on its

business, prospects, financial condition and results of operations.

(14) Regulations

The Group has no control over applicable regulations. Changes in the interpretation of current regulations

or the introduction of new laws or regulations could have a material adverse effect on its business,

prospects, financial condition and results of operations.

(15) Catastrophes and Other Factors Beyond the Group’s Control

Like other airlines, the Group is subject to delays caused by factors beyond its control, including weather

conditions, traffic congestion at airports, air traffic control problems and increased security measures. In

the event that the Group delays or cancels flights for any of these reasons, revenues and profits would be

reduced and the Group’s reputation would suffer which could result in a loss of customers.

- 14 -

(16) Unionization, Work Stoppages, Slowdowns and Increased Labor Costs

At present, the Group has a non-unionized workforce. However, in the event the employees unionize, it

could result to demands that may increase operating expenses and adversely affect the Group’s

profitability. Likewise, disagreements between the labor union and management could result to work

slowdowns or stoppages or disruptions which could be harmful to the business.

(17) Restrictions under the Philippine Constitution and other Laws

The Group is subject to nationality restrictions under the Philippine Constitution and other laws, limiting

ownership of public utility companies to citizens of the Philippines or corporations or associations

organized under the laws of the Philippines of which at least 60% of the capital stock outstanding is

owned and held by citizens of the Philippines. There is a risk that these ownership restrictions may be

breached which could result in the revocation of the Group’s franchise generally and its rights to fly on

certain international routes.

(18) Relationship with Third Party Sales Outlets

While part of the Group’s strategy is to increase bookings through the internet, sales through third party

sales outlets remain an important distribution channel. There is no assurance that the Group will be able

to maintain favorable relationships with them nor be able to suitably replace them. The Group’s revenues

could be adversely impacted if third parties who sell its air services elect to prioritize other airlines.

(19) Outbreaks

Any present or future outbreak of contagious diseases could have a material adverse effect on the Group’s

business, prospects, financial condition and results of operations.

(20) Domestic Concentration

Since the Group’s operations have focused and, at least in the near term, will continue to focus on air

travel in the Philippines, it would be materially and adversely affected by any circumstances causing a

reduction in demand for air transportation in the Philippines, including adverse changes in local economic

and political conditions, negative travel advisories issued by foreign governments, declining interest in

the Philippines as a tourist destination, or significant price increases linked to increases in airport access

costs and fees imposed on passengers.

(21) Investment Risk

The Group has investment securities, the values of which are dependent on fluctuating market prices.

Any negative movement in the market price of the Group’s investments could affect the Group’s results

of operations.

(22) Information technology (IT) Risk

The Group’s business processes are widely supported by IT. The use of IT involves risks for the stability

of business processes and for the availability, confidentiality and integrity of data and information. Such

risks may be in the form of cyberattacks, disruptions to the availability of applications, security breaches

- 15 -

and other similar incidents. The Group implements information security measures and regularly reviews

its data protection systems in order to minimize these risks.

The foregoing risks are not all inclusive. Other risks that may affect the Group’s business and operations

may not be included in the above disclosure.

Item 2. Properties

As of December 31, 2014, the Group does not own any land. It however owns an office building that

serves as its corporate headquarters and training center located at the Domestic Road, Barangay 191,

Zone 20, Pasay City. The land on which said office building stands is leased from the Manila

International Airport Authority (MIAA). The Group also leases its hangar, aircraft parking and other

operational space from MIAA. Kindly refer to Notes 13, 18 and 30 of the Notes to Consolidated

Financial Statements for the detailed discussions on Properties, Leases, Purchases and Capital

Expenditure Commitments.

Item 3. Legal Proceedings

The Group is subject to law suits and legal actions in the ordinary course of business. The Group is not a

party to, and its properties are not subject of, any material pending legal proceedings that could be

expected to have a material adverse effect on the Group’s financial position or result of operations.

PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 4. Market for Registrant’s Common Equity and Related Stockholder Matter

Market Information

The principal market for the Group’s common equity is the Philippine Stock Exchange (PSE). Sales

prices of the common stock follow:

High Low

Year 2014

October to December 2014 P91.50 P65.50

July to September 2014 71.00 56.45

April to June 2014 59.40 46.30

January to March 2014 51.80 46.05

High Low

Year 2013

October to December 2013 P55.95 P44.80

July to September 2013 70.00 49.70

April to June 2013 84.80 63.50

January to March 2013 68.40 61.00

As of March 23, 2015, the latest trading date prior to the completion of this annual report, sales price of

the common stock is at P86.85.

- 16 -

Holders

The number of shareholders of record as of December 31, 2014 was 99. Common shares outstanding as

of December 31, 2014 were 605,953,330.

List of Top 20 Stockholders of Record

As of December 31, 2014

Number of % to Total

Name of Stockholders Shares Held Outstanding

1. CPAir Holdings, Inc. 400,816,841 66.15%

2. PCD Nominee Corporation (Non-Filipino) 113,467,044 18.73%

3. PCD Nominee Corporation (Filipino) 84,555,153 13.95%

4. JG Summit Holdings, Inc. 6,595,190 1.09%

5. BNC Ingredients Corporation 180,000 0.03%

6. BNC Ingredients Corporation 60,000 0.01%

7. Pablo M. Pagtalunan &/or Francisca P. Pagtalunan 50,000 0.01%

8. Elizabeth Yu Gokongwei 40,000 0.01%

9. Amon Trading Corporation 38,200 0.01%

10. Raul Veloso Del Mar 16,000 0.00%

11. Alfonso S. Teh 12,500 0.00%

12. Elizabeth Reyes 10,900 0.00%

13. Luis Gantioqui Romero 10,300 0.00%

14. Antonio M. Suarez 8,000 0.00%

15. Roseller A. Mendoza 6,500 0.00%

16. Eric Macario Bernabe 5,000 0.00%

16. Estevez Villaruz (Esvill), Inc. 5,000 0.00%

16. John T. Lao 5,000 0.00%

16. Mario H. Liuag &/or Lydia P. Liuag 5,000 0.00%

17. Brigida T. Guingona 4,800 0.00%

18. Francisco Paulino V. Cayco 4,000 0.00%

18. Sally Chua Co 4,000 0.00%

18. Vicente Lim Co 4,000 0.00%

19. Frederic Francois Favre-Marinet 3,950 0.00%

20. Eric Macario Bernabe 3,000 0.00%

20. Virginia M. Lopez 3,000 0.00%

20. Juan G. Yu &/or John Peter C. Yu 3,000 0.00%

Other stockholders 36,952 0.01%

Total Outstanding 605,953,330 100.00%

Dividends

On June 26, 2014, the Group’s Board of Directors (BOD) approved the declaration of a cash dividend in

the amount of P=1.00 per share from the unrestricted retained earnings of the Group to all stockholders of

record as of July 16, 2014 and payable on August 11, 2014.

- 17 -

On June 27, 2013, the Group’s BOD approved the declaration of a regular cash dividend in the amount of

P=1.00 per share and a special cash dividend in the amount of P=1.00 per share from the unrestricted

retained earnings of the Group to all stockholders of record as of July 17, 2013 and payable on August 12,

2013.

On June 28, 2012, the Group’s BOD approved the declaration of a regular cash dividend in the amount of

P=1 per common share to all stockholders of record as of July 18, 2012 and payable on August 13, 2012.

Recent Sales of Unregistered Securities

Not Applicable. All shares of the Parent Company are listed in the PSE.

Item 5. Management's Discussion and Analysis or Plan of Operation

The following discussion should be read in conjunction with the accompanying consolidated financial

statements and notes thereto, which form part of this Report. The consolidated financial statements and

notes thereto have been prepared in accordance with the Philippine Financial Reporting Standards

(PFRS).

Results of Operations

Year Ended December 31, 2014 Compared with Year Ended December 31, 2013

Revenues

The Group generated revenues of P52.000 billion for the year ended December 31, 2014, 26.8% higher

than the P=41.004 billion revenues earned last year. Growth in revenues is accounted for as follows:

Passenger Revenues

Passenger revenues grew by P8.525 billion or 26.9% to P40.188 billion for the year ended December 31,

2014 from P31.663 billion registered in 2013. This increase was primarily due to the 17.5% growth in

passenger volume to 16.9 million from 14.4 million for the year ended December 31, 2013 driven by the

increased number of flights in 2014. Number of flights went up by 6.9% year on year as the Group added

more aircraft to its fleet, particularly, its acquisition of wide-body Airbus A330 aircraft with a

configuration of more than 400 all-economy class seats. The number of aircraft increased from 48 aircraft

as of December 31, 2013 to 52 aircraft as of December 31, 2014, which includes 3 brand new Airbus

A330 aircraft delivered this year. Increase in average fares by 8.0% to P2,382 in 2014 from P2,206 in

2013 also contributed to the improvement of revenues.

Cargo Revenues

Cargo revenues grew by P536.638 million or 20.6% to P3.146 billion for the year ended

December 31, 2014 from P2.609 billion for the year ended December 31, 2013 following the increase in

the volume of cargo transported in 2014.

Ancillary Revenues

Ancillary revenues went up by P1.934 billion or 28.7% to P8.665 billion for the year ended December 31,

2014 from P6.732 billion posted last year consequent to the 17.5% increase in passenger traffic and 9.5%

increase in ancillary revenue per passenger. The Group began unbundling ancillary products and services

in 2011 and significant improvements in ancillary revenues were noted since then. Improved online

- 18 -

bookings, together with a wider range of ancillary revenue products and services, also contributed to the

increase.

Expenses

The Group incurred operating expenses of P47.843 billion for the year ended December 31, 2014, 23.9%

higher than the P38.600 billion operating expenses recorded for the year ended

December 31, 2013 as a result of its expanded long haul operations and overall growth in seat capacity

from the acquisition of new aircraft. The weakening of the Philippine peso against the U.S. dollar as

referenced by the depreciation of the Philippine peso to an average of P44.40 per U.S. dollar for the year

ended December 31, 2014 from an average of P42.46 per U.S. dollar last year based on the Philippine

Dealing and Exchange Corporation (PDEx) weighted average rates contributed to said increase.

Operating expenses also went up as a result of the following:

Flying Operations

Flying operations expenses moved up by P4.432 billion or 20.4% to P26.152 billion for the year ended

December 31, 2014 from P21.721 billion charged in 2013. Aviation fuel expenses grew by 18.9% to

P23.210 billion from P19.523 billion for the year ended December 31, 2013 consequent to the higher

volume of fuel consumed as a result of the increased number of flights year on year and increased block

hours from the launch of long haul flights to Dubai in October 2013, to Kuwait and Sydney in September

2014 and to Riyadh and Dammam in October 2014. The weakening of the Philippine peso against the

U.S. dollar as referenced by the depreciation of the Philippine peso to an average of P44.40 per U.S.

dollar for the year ended December 31, 2014 from an average of P42.46 per U.S. dollar last year based on

the Philippine Dealing and Exchange Corporation (PDEx) weighted average rates also contributed to the

increase. Rise in aviation fuel expenses, however, was partially offset by the reduction in aviation fuel

prices as referenced by the decrease in the average published fuel MOPS price of U.S. $112.48 per barrel

in the twelve months ended December 31, 2014 from U.S. $122.97 average per barrel in the same period

last year.

Aircraft and Traffic Servicing

Aircraft and traffic servicing expenses increased by P1.202 billion or 33.4% to P4.805 billion for the year

ended December 31, 2014 from P3.603 billion registered in 2013 as a result of the overall increase in the

number of flights flown in 2014. Higher expenses were particularly attributable to more international

flights operated for which airport and ground handling charges were generally higher compared to

domestic flights. International flights increased by 7.6% year on year which is attributable to the

expansion of long haul operations to Kuwait, Sydney, Riyadh and Dammam in 2014 as well as new short

haul flights to Tokyo (Narita) and Nagoya which commenced on March 2014. The effect of the

depreciation of the Philippine peso against the U.S. dollar at P44.40 per U.S. dollar for the year ended

December 31, 2014 from an average of P42.46 per U.S. dollar last year also contributed to the increase

international airport charges.

Depreciation and Amortization

Depreciation and amortization expenses grew by P826.884 million or 23.9% to P4.282 billion for the year

ended December 31, 2014 from P3.455 billion for the year ended December 31, 2013. Depreciation and

amortization expenses increased consequent to the arrival of five Airbus A320 aircraft during the year.

Repairs and Maintenance

Repairs and maintenance expenses went up by P606.455 million or 15.9% to P4.432 billion for the year

ended December 31, 2014 from P3.826 billion posted last year. Increase was driven by the overall

increase in the number of flights coupled with the weakening of the Philippine peso against the U.S.

- 19 -

dollar as referenced by the depreciation of the Philippine peso to an average of P44.40 per U.S. dollar for

the year ended December 31, 2014 from an average of P42.46 per U.S. dollar in 2013. The acquisition of

five Airbus A320 aircraft and the delivery of three Airbus A330 aircraft in 2014 also contributed to the

increase in repairs and maintenance expenses.

Aircraft and Engine Lease

Aircraft and engine lease expenses moved up by P1.189 billion or 51.3% to P3.503 billion for the year

ended December 31, 2014 from P2.315 billion charged for the year ended December 31, 2013. Increase in

aircraft lease was due to the delivery of three Airbus A330 aircraft under operating lease in 2014 coupled

with the effect of the depreciation of the Philippine peso against the U.S. dollar during the current period.

Reservation and Sales

Reservation and sales expenses increased by P491.525 million or 29.6% to P2.154 billion for the year

ended December 31, 2014 from P1.662 billion registered last year. This was mainly due to the increase in

commission expenses and online bookings relative to the overall growth in passenger volume year on

year.

General and Administrative

General and administrative expenses grew by P184.872 million or 16.6% to P1.297 billion for the year

ended December 31, 2014 from P1.112 billion incurred in 2013. Growth in general and administrative

expenses was primarily attributable to the increased flight and passenger activity in 2014.

Passenger Service

Passenger service expenses went up by P310.683 million or 34.3% to P1.217 billion for the year ended

December 31, 2014 from P906.058 million posted for the year ended December 31, 2013. This was

primarily caused by additional cabin crew hired for the Airbus A320 and A330 aircraft delivered in 2014

and the increase in passenger food and supplies from pre-ordered meals being offered in international

flights. The weakening of the Philippine peso against the U.S. dollar in 2014 also contributed to the

increase.

Operating Income

As a result of the foregoing, the Group finished with an operating income of P4.157 billion for the year

ended December 31, 2014, a 72.9% improvement compared to the P2.404 billion operating income

earned last year.

Other Income (Expenses)

Interest Income

Interest income dropped by P139.692 million or 63.6% to P79.927 million for the year ended December

31, 2014 from P219.619 million recorded in 2013 due to the decrease in the balance of cash in bank and

short-term placements year on year and lower interest rates.

Hedging Gains (Losses)

The Group incurred a hedging loss of P2.314 billion for the year ended December 31, 2014 compared to a

hedging gain of P290.325 million in the same period last year mainly due to losses on fuel hedging

positions consequent to the decrease in fuel prices in 2014 partially offset by foreign exchange hedging

gains.

- 20 -

Foreign Exchange Losses

Net foreign exchange losses of P127.471 million for the year ended December 31, 2014 resulted from the

weakening of the Philippine peso against the U.S. dollar as referenced by the slight depreciation of the

Philippine peso to P44.72 per U.S. dollar for the twelve months ended December 31, 2014 from P44.40

per U.S. dollar for the twelve months ended December 31, 2013. The Group’s major exposure to foreign

exchange rate fluctuations is in respect of U.S. dollar denominated long-term debt incurred in connection

with aircraft acquisitions.

Equity in Net Income of Joint Venture

The Group had equity in net income of joint venture of P96.326 million for the year ended December 31,

2014, P23.034 million or 19.3% lower than the P119.360 million equity in net income of joint venture

earned last year. The decrease was primarily due to the net loss from current operations incurred by SIA

Engineering (Philippines) Corporation (SIAEP) in 2014.

Interest Expense

Interest expense increased by P147.740 million or 17.1% to P1.013 billion for the year ended December

31, 2014 from P865.501 million registered in 2013. Higher interest expense incurred during the year was

due to the additional loans availed to finance the acquisition of five Airbus A320 aircraft in 2014 and by

the effect of the weakening of the Philippine peso against the U.S. dollar during the current period.

Income before Income Tax

As a result of the foregoing, the Group recorded income before income tax of P878.636 million for the

year ended December 31, 2014, a growth of 735.1% or P773.428 million higher than the P105.208

million income before income tax posted for the year ended December 31, 2013.

Provision for Income Tax

Provision for income tax for the year ended December 31, 2014 amounted to P25.138 million, of which,

P61.320 million pertains to current income tax recognized as a result of the taxable income in 2014. This

was offset by the benefit from deferred income tax of P36.182 million resulting from the recognition of

deferred tax assets on future deductible amounts during the period.

Net Income

Net income for the year ended December 31, 2014 amounted to P853.498 million, an increase of 66.7%

from the P511.946 million net income earned in 2013.


Revenues


than the P=37.904 billion revenues earned last year. Growth in revenues is accounted for as follows:

Passenger Revenues

Passenger revenues increased by P2.083 billion or 7.0% to P31.663 billion for the year ended December

31, 2013 from P29.579 billion registered in 2012. This increase was primarily due to the 8.3% growth in

passenger volume to 14.4 million from 13.3 million for the year ended December 31, 2012 driven by the

increased number of flights in 2013. Number of flights went up by 6.0% year on year primarily as a

result of the increase in the number of aircraft operated to 48 aircraft as of December 31, 2013 from 41

aircraft as of end 2012. Increase in revenues, however, was partially offset by the reduction in average

fares by 1.1% to P2,206 from P2,232 in 2012.

- 21 -

Cargo Revenues



the volume and average freight charges of cargo transported in 2013.

Ancillary Revenues

Ancillary revenues went up by P787.672 million or 13.3% to P6.732 billion for the year ended December

31, 2013 from P5.944 billion posted last year. The Group began unbundling ancillary products and

services in 2011 and significant improvements in ancillary revenues were noted since then. Improved

online bookings also contributed to the increase. Online bookings accounted for 57.4% of the total tickets

sold during the year compared to 51.0% in 2012.

Expenses

The Group incurred operating expenses of P38.600 billion for the year ended December 31, 2013, 9.5%

higher than the P35.241 billion operating expenses recorded for the year ended

December 31, 2012. The slight weakening of the Philippine peso against the U.S. dollar as referenced by

the depreciation of the Philippine peso to an average of P42.46 per U.S. dollar for the year ended

December 31, 2013 from an average of P42.22 per U.S. dollar last year based on the Philippine Dealing

and Exchange Corporation (PDEx) weighted average rates contributed to said increase. Operating

expenses also increased as a result of the following:

Flying Operations



P19.523 billion from P17.562 billion for the year ended December 31, 2012 consequent to the increase in

the volume of fuel consumed as a result of the increased number of flights year on year. Rise in aviation

fuel expenses, however, was partially offset by the reduction in aviation fuel prices as referenced by the

decrease in the average published fuel MOPS price of U.S. $122.97 per barrel in the twelve months ended

December 31, 2013 from U.S. $126.83 average per barrel in the same period last year. Increase in flying

operations expenses was also offset by decreased flight deck expenses mainly from lower pilot training

costs with the establishment of PAAT last December 2012.


Aircraft and traffic servicing expenses increased by P169.795 million or 4.9% to P3.603 billion for the

year ended December 31, 2013 from P3.433 billion registered in 2012 as a result of the overall increase in

the number of flights flown in 2013. Higher expenses were particularly attributable to more international


domestic flights. International flights increased by 6.7% year on year.




amortization expenses increased consequent to the arrival of five Airbus A320 aircraft during the year.




increase in the number of flights coupled with the slight weakening of the Philippine peso against the U.S.

- 22 -

dollar as referenced by the depreciation of the Philippine peso to an average of P42.46 per U.S. dollar for

the year ended December 31, 2013 from an average of P42.22 per U.S. dollar in 2012. The acquisition of

five Airbus A320 aircraft and two Airbus A330 aircraft in 2013 also contributed to the increase in repairs

and maintenance expenses.


Aircraft and engine lease expenses moved up by P280.905 million or 13.8% to P2.315 billion for the year

ended December 31, 2013 from P2.034 billion charged for the year ended

December 31, 2012. Increase in aircraft and engine lease expenses was due to the lease of two Airbus

A330 aircraft in 2013 and by the effect of the slight depreciation of the Philippine peso against the U.S.

dollar during the current period.


Reservation and sales expenses increased by P36.147 million or 2.2% to P1.662 billion for the year ended

December 31, 2013 from P1.626 billion registered last year. This was mainly due to the increase in


year.



ended December 31, 2013 from P1.075 billion incurred in 2012. Growth in general and administrative


Passenger Service

Passenger service expenses went up by P80.577 million or 9.8% to P906.058 million for the year ended

December 31, 2013 from P825.480 million posted for the year ended December 31, 2012. Additional

cabin crew hired for the five Airbus A320 and two A330 aircraft acquired during 2013 mainly caused the

increase. Increase in expenses was partially offset by lower premiums for passenger liability insurance.

Operating Income


ended December 31, 2013, 9.7% lower than the P2.663 billion operating income earned last year.


Interest Income


31, 2013 from P415.771 million recorded in 2012 due to the decrease in the balance of cash in bank and

short-term placements year on year and lower interest rates.


Fuel hedging gains for the year ended December 31, 2013 increased to P290.325 million from

P258.544 million earned in the same period last year as a result of higher mark-to-market valuation on

fuel hedging positions consequent to the increase in fuel prices by end of 2013.

Foreign Exchange Losses

Net foreign exchange losses of P2.063 billion for the year ended December 31, 2013 resulted from the

weakening of the Philippine peso against the U.S. dollar as referenced by the depreciation of the



- 23 -





2013, P64.976 million or 119.5% higher than the P54.384 million equity in net income of joint venture

earned last year. Increase in this account was due to the increase in net income from the current

operations of Aviation Partnership (Philippines) Corporation (A-plus) and SIA Engineering (Philippines)

Corporation (SIAEP) in 2013. The Group also recognized its share in the net income from current

operations of PAAT in 2013.

Interest Expense

Interest expense increased by P132.910 million or 18.1% to P865.501 million for the year ended

December 31, 2013 from P732.592 million registered in 2012. Increase was due to higher interest

expense incurred brought by the additional loans availed to finance the acquisition of five Airbus A320

aircraft in 2013 and by the effect of the slight depreciation of the Philippine peso against the U.S. dollar

during the current period.


As a result of the foregoing, the Group recorded income before income tax of P105.208 million for the

year ended December 31, 2013, lower by 97.3% or P3.765 billion than the P3.870 billion income before

income tax posted for the year ended December 31, 2012.

Benefit from Income Tax

Benefit from income tax for the year ended December 31, 2013 amounted to P406.739 million, of which,

P45.519 million pertains to current income tax recognized as a result of the taxable income in 2013.

Benefit from deferred income tax amounted to P452.257 million resulting from the recognition of

deferred tax assets on future deductible amounts during the period.

Net Income

Net income for the year ended December 31, 2013 amounted to P511.946 million, a decline of 85.7%

from the P3.572 billion net income earned in 2012.


Revenues


than the P33.935 billion revenues earned last year. Growth in revenues is accounted for as follows:

Passenger Revenues

Passenger revenues increased by P2.371 billion or 8.7% to P29.579 billion for the year ended December

31, 2012 from P27.208 billion registered in 2011. This increase was primarily due to the 11.1% growth

in passenger volume to 13.3 million from 11.9 million for the year ended December 31, 2011 driven by

the increased number of flights and higher seat load factor of 82.7% in 2012. Number of flights went up

by 12.5% year on year primarily as a result of the increase in the number of aircraft operated to 41 aircraft

as of December 31, 2012 from 37 aircraft as of end 2011. The reinstatement of fuel surcharge also

contributed to improved passenger revenues in 2012. Increase in revenues, however, was partially offset

by the reduction in average fares by 2.1% to P2,232 from P2,280 in 2011, partly due to elimination of free

baggage allowance from the fare as part of the Group’s unbundling of fares strategy.

- 24 -

Cargo Revenues



the volume and average freight charges of cargo transported in 2012.

Ancillary Revenues

Ancillary revenues went up by P1.410 billion or 31.1% to P5.944 billion for the year ended December 31,

2012 from P4.534 billion posted last year. As part of its unbundling of fares strategy, the Group

commenced charging for every checked-in luggage with the elimination of free baggage allowance.

Improved online bookings also contributed to the increase. Online bookings accounted for 51.0% of the

total tickets sold during the year compared to 48.6% in 2011.

Expenses

The Group incurred operating expenses of P35.241 billion for the year ended

December 31, 2012, 15.2% higher than the P30.599 billion operating expenses recorded for the year

ended December 31, 2011. Increase in expenses due to seat growth was partially offset by the

strengthening of the Philippine peso against the U.S. dollar as referenced by the appreciation of the

Philippine peso to an average of P42.22 per U.S. dollar for the year ended

December 31, 2012 from an average of P43.31 per U.S. dollar last year based on the Philippine Dealing

and Exchange Corporation (PDEx) weighted average rates. Operating expenses increased as a result of

the following:

Flying Operations



P17.562 billion from P15.221 billion for the year ended December 31, 2011 consequent to the increase in

the volume of fuel consumed as a result of the increased number of flights year on year. Rise in aviation

fuel expenses was further influenced by the surge in aviation fuel prices as referenced by the increase in

the average published fuel MOPS price of U.S.$126.83 per barrel in the twelve months ended December

31, 2012 from U.S.$125.50 average per barrel in the same period last year. Higher flight deck expenses

owing to higher pilot costs, including training, also contributed to the increase in flying operations

expenses.


Aircraft and traffic servicing expenses increased by P441.734 million or 14.8% to P3.433 billion for the

year ended December 31, 2012 from P2.991 billion registered in 2011 as a result of the overall increase in

the number of flights flown in 2012. Higher expenses were particularly attributable to more international


domestic flights. International flights increased by 12.0% year on year.




amortization expenses increased consequent to the arrival of two Airbus A320 aircraft during the last

quarter of 2011 and four Airbus A320 aircraft in 2012.




- 25 -

increase in the number of flights which was offset in part by the appreciation of the Philippine peso

against the U.S. dollar as referenced by the strengthening of the Philippine peso to an average of P42.22

per U.S. dollar for the twelve month ended December 31, 2012 from an average of P43.31 per U.S. dollar

in 2011.


Aircraft and engine lease expenses moved up by P315.522 million or 18.4% to P2.034 billion in the year

ended December 31, 2012 from P1.718 billion charged for the year ended

December 31, 2011. Increase in aircraft and engine lease expenses was due to the lease of two Airbus

A320 aircraft and three ATR 72-550 engine during the last quarter of 2011 and four Airbus A320 aircraft

in 2012. Increase was partially reduced by the return of two leased Airbus A320 aircraft in June 2012 and

the effect of the appreciation of the Philippine peso against the U.S. dollar during the current period.


Reservation and sales expenses increased by P145.677 million or 9.8% to P1.626 billion for the year

ended December 31, 2012 from P1.481 billion registered last year. This was mainly due to the increase in


year.



ended December 31, 2012 from P959.293 million incurred in 2011. Growth in general and administrative


Passenger Service

Passenger service expenses went up by P68.695 million or 9.1% to P825.480 million for the year ended

December 31, 2012 from P756.786 million posted for the year ended December 31, 2011 consequent to

the additional cabin crew hired. Increased passenger liability insurance premiums relative to the increase

in the number of aircraft also contributed to the increase.

Operating Income


ended December 31, 2012, 20.2% lower than the P3.336 billion operating income earned last year.


Interest Income


31, 2012 from P647.398 million recorded in 2011 consequent to the sale of the Group’s quoted debt

investment securities in 2012.


Fuel hedging gains of P258.544 million for the year ended December 31, 2012 resulted from the higher

mark-to-market valuation on fuel hedging positions consequent to the significant increase in fuel prices

by end of 2012.

Foreign Exchange Gains

Net foreign exchange gains of P1.205 billion for the year ended December 31, 2012 resulted from the

appreciation of the Philippine peso against the U.S. dollar as referenced by the strengthening of the


- 26 -






2012, P12.066 million or 28.5% higher than the P42.318 million equity in net income of joint venture

earned last year. Increase in this account was due to the increase in net income from the current

operations of Aviation Partnership (Philippines) Corporation (A-plus) and SIA Engineering (Philippines)

Corporation (SIAEP) in 2012.

Fair Value Losses of Financial Assets designated at Fair Value through Profit or Loss (FVPL)

No fair value losses on FVPL was recognized for the year ended December 31, 2012 as a result of the sale

of the related quoted debt and equity investment securities in 2012.

Interest Expense

Interest expense increased by P69.795 million or 10.5% to P732.592 million for the year ended December

31, 2012 from P662.797 million registered in 2011. Increase was due to higher interest expense incurred

brought by the additional loans availed to finance the acquisition of two Airbus A320 aircraft in the last

quarter of 2011 and four Airbus A320 aircraft in 2012 partially reduced by the effect of the strengthening

of the Philippine peso against the U.S.dollar during the current period.


As a result of the foregoing, the Group recorded income before income tax of P3.870 billion for the year

ended December 31, 2012, slightly higher by 3.3% or P123.427 million than the

P3.747 billion income before income tax posted for the year ended December 31, 2011.

Provision for Income Tax

Provision for income tax for the year ended December 31, 2012 amounted to P298.416 million, of which,

P30.081 million pertains to current income tax recognized as a result of the taxable income in 2012.

Provision for deferred income tax amounted to P268.335 million resulting from the recognition of

deferred tax liabilities on future taxable amounts during the year.

Net Income

Net income for the year ended December 31, 2012 amounted to P3.572 billion, a decline of 1.4% from the

P3.624 billion net income earned in 2011.

Financial Position

December 31, 2014 versus December 31, 2013

As of December 31, 2014, the Group’s consolidated balance sheet remains solid, with net debt to equity

of 1.39 [total debt after deducting cash and cash equivalents (including financial assets held-for-trading at

fair value and available-for-sale assets) divided by total equity]. Consolidated assets grew to P76.062

billion from P67.527 billion as of December 31, 2013 as the Group added aircraft to its fleet. Equity grew

to P=21.539 billion from P=21.082 billion in the prior year while book value per share amounted to P=35.55

as of December 31, 2014 from P=34.79 as of December 31, 2013.

- 27 -

The Group’s cash requirements have been mainly sourced through cash flow from operations and from

borrowings. Net cash from operating activities amounted to P7.575 billion. As of December 31, 2014,

net cash used in investing activities amounted to P13.605 billion which included payments in connection

with the purchase of aircraft. Net cash from financing activities amounted to P3.695 billion. Net cash

from financing activities comprised of proceeds from long term debt net of repayments and the payment

of cash dividends to the Group’s stockholders.

As of December 31, 2014, except as otherwise disclosed in the financial statements and to the best of the

Group’s knowledge and belief, there are no events that will trigger direct or contingent financial

obligation that is material to the Group, including any default or acceleration of an obligation.

Material Changes in the 2014 Financial Statements

(Increase/Decrease of 5% or more versus 2013)

Material changes in the Statements of Consolidated Comprehensive Income were explained in detail in

the management’s discussion and analysis or plan of operations stated above.

Consolidated Statements of Financial Position - December 31, 2014 versus December 31, 2013

34.5% decrease in Cash and Cash Equivalents

Due to payments made in connection with the acquisition of Airbus A320 aircraft, repayment of certain

long-term debt and distribution of cash dividends to the Group’s stockholders.

100.0% decrease in Financial Assets at FVPL

Due to lower mark-to-market valuation of fuel derivative contracts which resulted to a net liability

position in 2014.

2.5% increase in Receivables

Due to increased trade receivables relative to the growth in revenues.

4.5% decrease in Expendable Parts, Fuel, Materials and Supplies

Due to lower cost of fuel inventory.

57.7% increase in Other Current Assets

Due mainly to collateral deposits provided to counterparties for fuel hedging transactions.

15.6% increase in Property and Equipment

Due to the acquisition of five Airbus A320 aircraft during the period.

2.2% increase in Investment in Joint Ventures

Due to the share in the net income of A-plus and PAAT during the period offset by the share in the net

loss of SIAEP and dividends received from A-plus.

100.0% decrease in Deferred Tax Assets-net

Net balance for the current year resulted to a deferred tax liability.

100.0% increase in Goodwill

Due to goodwill arising from the acquisition of TAP.

- 28 -

194.5% increase in Other Noncurrent Assets

Due mainly to other assets representing costs to establish brand and market opportunities under the

strategic alliance with TAH.

16.1% increase in Accounts Payable and Other Accrued Liabilities

Due to increase in trade payables and accruals of certain operating expenses as a result of the increased

flight and passenger activity in the twelve months ended December 31, 2014.

10.6% decrease in Due to Related Parties

Due to payments made during the period.

19.4% increase in Unearned Transportation Revenue

Due to the increase in sale of passenger travel services.

100.0% increase in Financial Liabilities at fair value through profit or loss

Due to decline in value of certain fuel derivative financial instruments consequent to the decrease in fuel

prices in 2014.

15.1% increase in Long-Term Debt (including Current Portion)

Due to additional loans availed to finance the purchase of the five Airbus A320 aircraft acquired during

the year partially offset by the repayment of certain outstanding long-term debt in accordance with the

repayment schedule.

44.9% decrease in Income Tax Payable

Due to income tax payments made from first to third quarters of 2014 and application of creditable

withholding tax on remaining tax due.

100.0% increase in Deferred Tax Liabilities-net

Due mainly to the recognition of future taxable amounts on double depreciation and actuarial gains on

pension liability.

51.3% decrease in Other Noncurrent Liabilities

Due to payments made for aircraft restorations during the year applied against asset retirement obligation

(ARO) liability and decrease in pension liability.

61.4% decrease in Other Comprehensive Income (Loss)

Due to recognition of actuarial gains during the year as other comprehensive income.

1.9% increase in Retained Earnings

Due to net income during the period net of dividends declared and paid to stockholders.

Fuel prices have significantly decreased during the last quarter of 2014 and this will have an impact on

the Group’s operating income.

For 2014, there are no significant element of income that did not arise from the Group’s continuing

operations.

The Group generally records higher domestic revenue in January, March, April, May and December as

festivals and school holidays in the Philippines increase the Group’s seat load factors in these periods.

- 29 -

Accordingly, the Group’s revenue is relatively lower in July to September due to decreased domestic

travel during these months. Any prolonged disruption in the Group’s operations during such peak periods

could materially affect its financial condition and/or results of operations.

In addition, the Group has capital expenditure commitments which principally relate to the acquisition of

aircraft. Kindly refer to Note 30 of the Notes to Consolidated Financial Statements for the detailed

discussion on Purchase and Capital Expenditure Commitments.





billion from P61.414 billion as of December 31, 2012 as the Group added aircraft to its fleet. Equity

declined to P=21.082 billion from P=22.037 billion in prior year while book value per share amounted to

P=34.79 as of December 31, 2013 from P=36.37 as of December 31, 2012.


borrowings. Net cash from operating activities amounted to P4.216 billion. As of

December 31, 2013, net cash used in investing activities amounted to P12.296 billion which included

payments in connection with the purchase of aircraft. Net cash from financing activities amounted to

P3.203 billion. Net cash from financing activities mainly comprised of proceeds from long term debt net

of repayments and the payment of cash dividends to the Group’s stockholders.









43.6% decrease in Cash and Cash Equivalents

Due to payments made in connection with the acquisition of Airbus A320 and A330 aircraft, repayment

of certain long-term debt and distribution of cash dividends to the Group’s stockholders.

62.1% increase in Financial Assets at FVPL

Due to higher mark-to-market valuation of fuel derivative contracts in 2013.


Due to increased trade receivables relative to the growth in revenues and due to receivable from PAAT

for an Airbus A320 simulator in 2013.

- 30 -

61.3% increase in Expendable Parts, Fuel, Materials and Supplies

Due to increased volume of materials and supplies inventory relative to the increased number of flights

and larger fleet size during the period.


Due to advances to suppliers for purchases of spare engines and engine parts to be used in the restoration

of certain leased aircraft to its original condition at the end of the contract period.


Due to the acquisition of five Airbus A320 aircraft and two spare engines, one each for A320 and A330

aircraft during the period.


Due mainly to the share in the net income of A-plus, SIAEP and PAAT during the period.

100.0% increase in Deferred Tax Assets-net

Due mainly to the increase in future deductible amounts on unused net operating loss carryover (NOLCO)

coupled with the decrease in future taxable amount on unrealized foreign exchange gain during the

period.

76.9% increase in Other Noncurrent Assets

Due to the payment of security deposit for two A330 aircraft partially offset by the application of

creditable withholding tax on income tax due for the period.




10.7% decrease in Unearned Transportation Revenue

Due to lesser forward bookings as of December 31, 2013 compared to December 31, 2012.


Due to additional loans availed to finance the purchase of the five Airbus A320 aircraft acquired during


repayment schedule.

100.0% increase in Income Tax Payable

Due to income tax due during the period in excess of available creditable withholding tax.

100.0% decrease in Deferred Tax Liabilities- net

Net balance for the current year resulted to a deferred tax asset.

11.3% increase in Other Noncurrent Liabilities

Due to additional accrual for ARO liability for two Airbus A330 under operating lease and increase in

pension liability for current year expense and actuarial losses.

297.1% increase in Other Comprehensive Income (Loss)

Due to recognition of actuarial losses on pension liability as other comprehensive income (loss).

- 31 -

5.1% decrease in Retained Earnings

Due to cash dividends distributed to stockholders partially offset by the net income during the year.

Fuel prices have significantly increased in 2013 and this will have an impact on the Group’s operating

income.


operations.













billion from P54.584 billion as of December 31, 2011 as the Group added aircraft to its fleet. Equity grew

to P=22.037 billion from P=19.114 billion in prior year while book value per share amounted to P=36.37 as of

December 31, 2012 from P=31.29 as of December 31, 2011.


borrowings. Net cash from operating activities amounted to P6.161 billion. As of December 31, 2012,

net cash used in investing activities amounted to P6.929 billion which included payments in connection

with the purchase of aircraft and proceeds from the sale of investment securities. Net cash from financing

activities amounted to P2.801 billion. Net cash from financing activities is mainly comprised of proceeds

from long-term debt net of repayments and the payment of cash dividends to the Group’s stockholders.









- 32 -

19.8% increase in Cash and Cash Equivalents

Due to collections as a result of the improvement in the Group’s operations and from the proceeds of

investment securities sold during the period.

96.9% decrease in Financial Assets at FVPL

Due to sale of investments in quoted debt and equity securities.


Due to increased trade receivables relative to the growth in revenues.


Due to increased volume of materials and supplies inventory relative to the increased number of flights

and larger fleet size during the period.


Due to advanced payments made to suppliers.


Due mainly to the acquisition of four Airbus A320 aircraft.

100.0% decrease in Available-for-Sale Investment

Due to sale of investments in quoted equity security.


Due to investments in PAAT and share in the net income of A-plus and SIAEP during the period.

43.6% decrease in Other Noncurrent Assets

Due to reduction of security deposits on leased aircraft.





Due to increase in sale of passenger travel services.

25.6% increase in Due to Related Parties

Due to additional advances from various related parties.


Due to additional loans availed to finance the purchase of the four Airbus A320 aircraft acquired during


repayment schedule.

100% decrease in Financial Liabilities at FVPL

Due to increase in value of certain derivative financial instruments.

125.2 % increase in Deferred Tax Liabilities- net

Due to future taxable amount recognized during the year.

- 33 -

5.5% decrease in Other Noncurrent Liabilities

Due to lesser accruals for maintenance based on new general terms agreement on rates.

99.2% increase in Other Comprehensive Income (Loss)

Due to recognition of actuarial losses on pension liability as other comprehensive income (loss).


Due to net income during the year partially offset by the cash dividends distributed to stockholders.

Fuel prices have significantly increased in 2012 and this will have an impact on the Group’s operating

income.


operations.









Key Performance Indicators

The Group sets certain performance measures to gauge its operating performance periodically and to

assess its overall state of corporate health. Listed below are major performance measures, which the

Group has identified as reliable performance indicators. Analyses are employed by comparisons and

measurements based on the financial data as of December 31, 2014 and 2013 and for the years ended

December 31, 2014 and 2013:

Key Financial Indicators 2014 2013

Total Revenue P52.000 billion P41.004 billion

Pre-tax Core Net Income P3.320 billion P1.878 billion

EBITDAR Margin 23.9% 21.4%

Cost per Available Seat Kilometer (ASK) (Php) 2.33 2.38

Cost per ASK (U.S. cents) 5.26 5.61

Seat Load Factor 84% 82%

The manner by which the Group calculates the above key performance indicators for both year-end 2014

and 2013 is as follows:

- 34 -

Total Revenue The sum of revenue obtained from the sale of air

transportation services for passengers and cargo and

ancillary revenue.

Pre-tax Core Net Income Operating income after deducting net interest

expense and adding equity income/loss of joint

venture

EBITDAR Margin Operating income after adding depreciation and

amortization, provision for ARO and aircraft and

engine lease expenses divided by total revenue

Cost per ASK Operating expenses, including depreciation and

amortization expenses and the costs of operating

leases, but excluding fuel hedging effects, foreign

exchange effects, net financing charges and taxation,

divided by ASK

Seat Load Factor Total number of passengers divided by the total

number of actual seats on actual flights flown


Group’s knowledge and belief, there are no known trends, demands, commitments, events or uncertainties

that may have a material impact on the Group’s liquidity.


Group’s knowledge and belief, there are no events that would have a material adverse impact on the

Group’s net sales, revenues and income from operations and future operations.

Item 6. Financial Statements

The financial statements are filed as part of this report.

Item 7. Independent Public Accountants and Audit Related Fees

Independent Public Accountants

Sycip Gorres Velayo & Co. (SGV & Co.) has acted as the Group’s independent public accountant. The

same accounting firm is tabled for reappointment for the current year at the annual meeting of

stockholders. The representatives of the principal accountant have always been present at prior year’s

meetings and are expected to be present at the current year’s annual meeting of stockholders. They may

also make a statement and respond to appropriate questions with respect to matters for which their

services were engaged. The current handling partner of SGV & Co. has been engaged by the Group in

2013 and is expected to be rotated every five years.

- 35 -

Audit Fees

The following table sets out the aggregate fees billed for each of the last three years for professional

services rendered by SGV & Co.

2014 2013 2012

Audit and audit-related fees P2,674,140 P2,546,800 P2,425,500

The audit committee’s approval policies and procedures for the services rendered by the external auditors:

The Corporate Governance Manual of the Company provides that the audit committee shall, among

others:

1. Evaluate all significant issues reported by the external auditors relating to the adequacy,

efficiency, and effectiveness of policies, controls, processes and activities of the Company.

2. Ensure that other non-audit work provided by the external auditors is not in conflict with their

functions as external auditors.

3. Ensure the compliance of the Company with acceptable auditing and accounting standards and

regulations.

PART III - CONTROL AND COMPENSATION INFORMATION

Item 8. Board of Directors and Executive Officers of the Registrant

Currently, the Board consists of nine members, of which two are independent directors. The table below

sets forth certain information regarding the members of our Board.

Name Age Position Citizenship

Ricardo J. Romulo 81 Chairman Filipino

John L. Gokongwei, Jr. 88 Director Filipino

James L. Go 75 Director Filipino

Lance Y. Gokongwei

48

Director, President and Chief

Executive Officer (CEO)

Filipino

Jose F. Buenaventura 80 Director Filipino

Robina Y. Gokongwei-Pe 53 Director Filipino

Frederick D. Go 45 Director Filipino

Antonio L. Go* 74 Independent Director Filipino

Wee Khoon Oh 56 Independent Director Singaporean *He is not related to any of the other directors

All of the above directors have served their respective offices since August 18, 2014. There are no other

directors who resigned or declined to stand for re-election to the board of directors since the date of the

last annual meeting of the stockholders for any reason whatsoever.

Messrs. Antonio L. Go and Wee Khoon Oh are the independent directors of the Group.

- 36 -

The table below sets forth certain information regarding our executive officers.

Name Age Position Citizenship

Bach Johann M. Sebastian……. 53 Senior Vice President -

Chief Strategist…….......…. Filipino

Jaime I. Cabangis…................... 62 Chief Financial Officer….... Filipino

Michael Ivan S. Shau…………. 51 President and CEO -

Tiger Philippines .……….. Filipino

Jim C. Sydiongco………........... 64 Vice President .…………… Filipino

Rosita D. Menchaca…………... 52 Vice President .…………… Filipino

Candice Jennifer A. Iyog……... 42 Vice President .…………… Filipino

Joseph G. Macagga…………… 49 Vice President .…………… Filipino

Junard J. Cruz…........................ 45 Vice President .…………… Filipino

Robin C. Dui………………….. 68 Vice President…………..… Filipino

Jeanette U. Yu………………… 61 Vice President - Treasurer... Filipino

Alexander G. Lao……………... 39 Vice President…………….. Filipino

Rhea M. Villanueva…………... 36 Vice President .…………… Filipino

Juan Lorenzo T. Tañada……… 45 Vice President .…………… Filipino

Jose Alejandro B. Reyes……… 47 General Manager .………… Filipino

Rosalinda F. Rivera………….... 44 Corporate Secretary……….. Filipino

William S. Pamintuan……….... 52 Assistant Corporate

Secretary…………………... Filipino

The table below sets forth certain information regarding our senior consultants.

Name Age Citizenship

Garry R. Kingshott…………….

61

Australian

Rick Howell…………….

50

Australian

The business experience for the past five years of each of our directors, executive officers and senior

consultants is set forth below:

Ricardo J. Romulo has been the Chairman of the Board since December 1995. He is also a director of JG

Summit Holdings, Inc. and a Senior Partner in Romulo, Mabanta, Buenaventura, Sayoc & De Los

Angeles. Mr. Romulo is also Chairman of Federal Phoenix Assurance Company, Inc. and InterPhil

Laboratories, Inc. He is a director of Philippine American Life and General Insurance Company, and

Zuellig Pharma Corporation. He received his Bachelor of Laws degree from Georgetown University and

Doctor of Laws degree from Harvard Law School.

John L. Gokongwei, Jr. has been a director of the Group since December 1995. He is the Chairman

Emeritus and a member of the Board of Directors of JG Summit Holdings, Inc. and certain of its

subsidiaries. He also continues to be a member of the Executive Committee of JG Summit Holdings, Inc.

He is currently the Chairman of the Gokongwei Brothers Foundation, Inc., Chairman and Chief Executive

Officer of Robinsons Retail Holdings, Inc., Deputy Chairman and Director of United Industrial

Corporation Limited, and a director of Oriental Petroleum and Minerals Corporation. On March 31, 2014,

- 37 -

he was elected as a director of Manila Electric Company. He is also a non-executive director of A.

Soriano Corporation. Mr. John L. Gokongwei, Jr. received a Masters degree in Business Administration

from the De La Salle University and attended the Advanced Management Program at Harvard Business

School.

James L. Go has been a director of the Group since May 2002. He is the Chairman and Chief Executive

Officer of JG Summit Holdings, Inc. and Oriental Petroleum and Minerals Corporation. He is the

Chairman of Universal Robina Corporation, Robinsons Land Corporation, JG Summit Petrochemical

Corporation and JG Summit Olefins Corporation. He is the Vice Chairman and Deputy Chief Executive

Officer of Robinsons Retail Holdings, Inc. and a director of Marina Center Holdings Private Limited,

United Industrial Corporation Limited and Hotel Marina City Private Limited. He is also the President

and Trustee of the Gokongwei Brothers Foundation, Inc. He has been a director of the Philippine Long

Distance Telephone Group (PLDT) since November 3, 2011. He is a member of the Technology Strategy

Committee and Advisor of the Audit Committee of the Board of Directors of PLDT. He was elected a

director of Manila Electric Company on December 16, 2013. Mr. James L. Go received his Bachelor of

Science Degree and Master of Science Degree in Chemical Engineering from Massachusetts Institute of

Technology, USA.

Lance Y. Gokongwei has been the President and Chief Executive Officer of the Group since 1997. He is

the President and Chief Operating Officer of JG Summit Holdings, Inc. He is the President and Chief

Executive Officer of Universal Robina Corporation, JG Summit Petrochemical Corporation, and JG

Summit Olefins Corporation. He is the Vice Chairman and Chief Executive Officer of Robinsons Land

Corporation. He is also the Chairman of Robinsons Bank Corporation, Vice Chairman of Robinsons

Retail Holdings, Inc., and a director of Oriental Petroleum and Minerals Corporation and United

Industrial Corporation Limited. He is a director and Vice Chairman of Manila Electric Company. He is

also a trustee and secretary of the Gokongwei Brothers Foundation, Inc. Mr. Lance Y. Gokongwei

received his Bachelor of Science degree in Finance and a Bachelor of Science degree in Applied Science

from the University of Pennsylvania.

Jose F. Buenaventura has been a director of the Group since December 1995. He is a Senior Partner in

Romulo Mabanta Sayoc & de los Angeles. He is President and Director of Consolidated Coconut

Corporation. He is likewise Director and Corporate Secretary of 2B3C Foundation, Inc. and Peter Paul

Philippines Corporation. He is also a member of the Board of BDO Unibank, BDO Securities

Corporation, Capital Managers & Advisors, Inc., GROW, Inc., Grow Holdings, Inc., Himap Properties

Corporation, Himap Properties Corporation, La Concha Land Investment Corp., Melco Crown

(Philippines) Resorts Corp., Philippine First Insurance Co., Inc., Philplans First, Inc., Techzone

Philippines, Inc., The Country Club, Inc., Total Consolidated Asset Management, Inc., and Turner

Entertainment Manila, Inc. Mr. Buenaventura received his Bachelor of Laws degree from the Ateneo de

Manila University and his Master of Laws degree from Georgetown University Law Center, Washington

D.C. He was admitted to the Philippine Bar in 1960.

Robina Y. Gokongwei-Pe was elected as a director of the Group effective August 1, 2007. She is the

President and Chief Operating Officer of Robinsons Retail Holdings, Inc. She is also a director of JG

Summit Holdings, Inc., Robinsons Land Corporation and Robinsons Bank Corporation. She is a Trustee

for the Gokongwei Brothers Foundation, Inc., Immaculate Conception Academy Scholarship Fund and

the Ramon Magsaysay Awards Foundation. She was also a member of the University of the Philippines

Centennial Commission. She attended the University of the Philippines-Diliman from 1978 to 1981 and

obtained a Bachelor of Arts degree (Journalism) from New York University in 1984.

- 38 -

Frederick D. Go was elected a director of the Group effective August 1, 2007. He is currently the

President and Chief Operating Officer of Robinsons Land Corporation and Robinsons Recreation

Corporation. He is the Group General Manager of Shanghai Ding Feng Real Estate Development Group

Limited, Xiamen Pacific Estate Investment Group Limited, Chengdu Ding Feng Real Estate Development

Group Limited, and Taicang Ding Feng Real Estate Development Group Limited. He also serves as a

director of Universal Robina Corporation, JG Summit Petrochemical Corporation, Robinsons Bank

Corporation and Cebu Light Industrial Park. He is also the Chairman of the Philippine Retailers

Association. He received a Bachelor of Science degree in Management Engineering from the Ateneo de

Manila University.

Antonio L. Go was elected as an independent director of the Group on December 6, 2007. He also

currently serves as Director and President of Equitable Computer Services, Inc. and is the Chairman of

Equicom Savings Bank and ALGO Leasing and Finance, Inc. He is also a director of Medilink Network,

Inc., Maxicare Healthcare Corporation, Equicom Manila Holdings, Equicom Inc., Equitable Development

Corporation, United Industrial Corporation Limited, Oriental Petroleum and Minerals Corporation, Pin-

An Holdings, Inc., Equicom Information Technology and Robinsons Retail Holdings, Inc. He is also a

Trustee of Go Kim Pah Foundation, Equitable Foundation, Inc. and Gokongwei Brothers Foundation, Inc.

He graduated from Youngstown University, United States with a Bachelor of Science degree in Business

Administration. He attended the International Advanced Management program at the International

Management Institute, Geneva, Switzerland as well as the Financial Planning/Control program at the

ABA National School of Bankcard Management, Northwestern University, United States.

Wee Khoon Oh was elected as an independent director of the Group effective January 3, 2008. He is the

founder and managing director of Sobono Energy Private Limited. He served as the Vice Chairman of the

Sustainable Energy Association of Singapore until 2014. He graduated with honors from the University of

Manchester Institute of Science and Technology with a Bachelor of Science degree in Mechanical

Engineering. He obtained his Masters degree in Business Administration from the National University of

Singapore.

Bach Johann M. Sebastian has been the Senior Vice President - Chief Strategist of the Group and Head

of Corporate Strategy since May 5, 2007. He is also the Senior Vice President and Director of Corporate

Planning of JG Summit, URC and RLC. Prior to joining the Group in 2002, he was Senior Vice President

and Chief Corporate Strategist at PSI Technologies and RFM Corporation. He was also Chief Economist

and Director of the Policy and Planning Group at the Department of Trade and Industry. He received a

Bachelor of Arts degree in Economics from the University of the Philippines and a Masters degree in

Business Management from the Asian Institute of Management. He has eleven years of experience in the

airline industry, all of which have been with the Group.

Jaime I. Cabangis has been the Chief Financial Officer of the Group since January 1, 2012. Prior to his

appointment, he was the former Chief Financial Officer and Corporate Center Unit Head of Digitel

Telecommunications, Inc, and Digitel Mobile Philippines, Inc. He was also the Chief Financial Officer of

URC International Co. Ltd., URC Asean Brands Co. Ltd, and Hong Kong China Foods, Co. Ltd from

July 2001 to December 2002. He is a certified public accountant and was a partner of SGV and Co. where

he worked for 21 years. He has three years of experience in the airline industry, all of which have been

with the Group.

Michael Ivan S. Shau was appointed as the President and Chief Executive Officer of Tiger Philippines in

October 2014. He joined the Group in May 2007 as Vice President for Airport and Administration

Services and was appointed Vice President for People and Administration Services effective March 2010.

- 39 -

On July 2013, he was appointed as Vice President for Ground Operations, overseeing the following

departments: Airport Services, Cargo Operations, Catering and Facilities Management. He has been with

the JG Summit Group since January 1999 and has held various senior management positions with his last

assignment as Business Unit General Manager of Universal Robina Corporation - Packaging Division.

He received a degree in Industrial Management Engineering, Minor in Mechanical Engineering and

completed all academic requirements for a Master’s degree in Business Management, both from De La

Salle University. He has six years of experience in the airline industry, all of which have been with the

Group.

Jim C. Sydiongco has been the Vice President for Flight Operations of the Group since June 1, 2013.

Prior to his appointment as Vice President, he was hired as a Consultant for Flight Safety. He brings with

him an outstanding background in Safety both in the local and international sector. Prior to joining the

Group, he headed the Flight Standards Inspectorate Services Department of CAAP. A graduate of the

Institute of Safety and Systems management at the University of Southern California, he is well-versed in

aviation safety and safety program management. He is a seasoned B-747 Captain with more than 20,000

flying hours from Philippine Airlines and Eva Air. Prior to his flying career, he graduated AB Philosophy

at the University of Sto. Tomas. He has 43 years of experience in the airline industry, 4 of which have

been with the Group.

Rosita D. Menchaca has been the Vice President for Inflight Services of the Group since May 2009 and

was previously Vice President for Passenger Service from February 2007 to May 2009. She joined the

Group in 1996 as a Cabin Crew Supervisor and has since been promoted twice, first to Director, Cabin

Services, on November 1999 and on May 2006 to Head of Passenger Services. She previously worked

with Philippine Airlines as a flight attendant for two years and joined Saudi Arabian Airlines in 1985 as a

Senior Flight Attendant for eight years. She received her Bachelor of Science degree in Psychology from

Silliman University. She has 30 years of experience in the airline industry, the last 16 of which have been

with the Group.

Candice Jennifer A. Iyog has been with the Group since September 2003 and was appointed Vice

President for Marketing and Distribution on September 2008. Prior to this position, she was Vice

President for Marketing and Product from February 2007 to September 2008. She was formerly the

General Manager of Jobstreet.com and was also the marketing manager of NABISCO. She also worked at

URC as Product Manager and, as such, handled major snack food brands of URC such as Chippy, Piattos

and Nova. She received her Bachelor of Science degree in Management from the Ateneo de Manila

University. She has eleven years of experience in the airline industry, all of which have been with the

Group.

Joseph G. Macagga has been the Vice President for Fuel and Cargo Operations of the Group since

September 2004. He started as Manager for Purchasing and handled Internal Audit for more than two

years. He served as Audit Manager for JG Summit Holdings, Inc. for five years and worked for the Audit

Division of SGV & Co. for three years. A Certified Public Accountant, he received his Bachelor of

Science degree in Commerce, Major in Accounting from the University of Sto. Tomas. He has 18 years of

experience in the airline industry, all of which have been with the Group.

Junard J. Cruz has been with the Group as the Vice President for Airport Services since August 2013.

Prior to this position, he held many roles beginning as a Management Trainee for Philippine Airlines from

1989-1991. He then became a Project Officer, Manager for Cargo Planning and the Assistant Vice

President for Ground handling from 1992-1998 before he transferred to Asia-con Builders Inc. as a

Senior Management Consultant for Corporate Development where he worked for 3 years. He then served

- 40 -

as the Vice-President for Business Development at GALCO, Project Consultant for Cargo Operations

under TCGI Engineers and the General Manager for Dnata, Inc. He also became the Regional Head of

CHAMP Cargosystems, managing the service delivery function for Asia Pacific regional operations. He

received his Bachelor of Science in Business Administration from the University of the Philippines where

he graduated as Cum Laude and got his MBA from Ateneo de Manila University. He has 26 years of

experience in the airline industry, over 1 year of which have been with the Group.

Robin C. Dui has been the Vice President - Comptroller of our Group since 1998. He was formerly with

the Audit Division of SGV & Co. for four years. He previously worked with Philippine Airlines for 18

years as Manager - General Accounting, Director - Operations Accounting, Director - Revenue

Accounting and Vice President - Comptroller. He also previously held the position of Director - Finance

of GrandAir for one year. A Certified Public Accountant, he obtained a Bachelor of Science degree in

Business Administration. He has 34 years of experience in the airline industry, 14 of which have been

with the Group.

Jeanette U. Yu has been the Vice President - Treasurer of the Group since 1995. She is also the Chief

Financial Officer of Oriental Petroleum and Minerals Corporation and the Senior Vice President and

Treasurer of JG Summit Capital Markets Corporation and Vice President of URC. Prior to joining URC

in 1980, she worked for AEA Development Corporation and Equitable Banking Corporation. She

received her Bachelor of Science degree in Business Administration from St. Theresa’s College in

Quezon City. She has 18 years of experience in the airline industry, all of which have been with the

Group.

Alexander G. Lao has been the Vice President for Commercial Planning since February 2012. He served

as the Director of Revenue Management from October 8, 2007 to February 2012. Before joining the

Group, he worked as Assistant Vice President of Philamlife from August 2001 to September 2007 and as

Business Development Assistant of Ayala Life from 1998 to 1999. He graduated from Ateneo De

Manila University with a Bachelor of Science degree in Legal Management. He also received his Masters

degree in Business Administration from the Asian Institute of Management. He has seven years of

experience in the airline industry, all of which have been with the Group.

Rhea M. Villanueva was appointed as Vice President for Human Resources on June 2014. She started

with the Group as a Training Clerk on 2002, then became an HR Assistant the year after before she was

promoted as a Supervisor in 2004 and a Manager in 2007 where she handled Learning & Development

and Training & Organizational Development. On July 2013, she took on a higher role becoming the

Director for Human Resources. Aside from these, she also worked as a Project Manager of Double

Graphics & Printers and the Marketing Officer of KMC Precision & Trading. A graduate of Dela Salle

University- College of St. Benilde, with a Bachelor of Science degree in Business Administration, Major

in Human Resources Management, Ms. Villanueva has 13 years of experience in the airline industry, all

of which have been with the Group.

Juan Lorenzo T. Tañada was appointed as Vice President for Corporate Affairs in 2014. Before entering

the corporate world, he attained various degrees in the field of Law after graduating from a Bachelor of

Arts course in Ateneo De Manila University in 1991. He took his postgraduate studies with various

universities, including Texas Lutheran College, UP College of Law, Manuel Luis Quezon University,

Kellogg Graduate School of Management and Northwestern University School of Law. He was appointed

as the Staff-in-charge for Bills and Investigations in Aid of Legislation in Philippine Senate from 1995 to

1998. He also became a Senior Associate for SyCip, Gorres & Velayo until 2001 and the Legal Director

for Dot Entertainment, Inc. and Capital Mediaworks, Inc. until 2004. For seven years, he also served as

- 41 -

the Chief of Corporate Services Group for Multimedia Telephony, Inc. (Broadband Philippines). Prior to

joining the Group, he worked with the Bureau of Customs under the Department of Finance as the

Deputy Commissioner of Internal Administration Group from 2011 to 2013.

Jose Alejandro B. Reyes was appointed as the General Manager for long-haul operations on February

2012. He was the former Vice President for Commercial Planning of the Group from January 2008 to

January 2012. He previously worked as Senior Vice President of PhilWeb. Prior to this, he held various

positions with The Inquirer Group, the latest of which was Senior Vice President and Chief Operating

Officer of the Inquirer Publications, Inc. He graduated Summa Cum Laude from Georgetown University

with a Bachelor of Science degree in International Economics. He received his Masters degree in

Business Administration from the University of Virginia. He has seven years of experience in the airline

industry, all of which have been with the Group.

Rosalinda F. Rivera was appointed Corporate Secretary of the Group effective October 31, 2006. She is

also the Corporate Secretary of JG Summit, URC, RLC, Robinsons Retail Holdings, Inc., JG Summit

Petrochemical Corporation, JG Summit Olefins Corporation and CPAir Holdings, Inc. Prior to joining

the JG Group, she was a Senior Associate at Puno and Puno Law Offices. She received a Juris Doctor

degree from the Ateneo de Manila University School of Law and a Masters of Law degree in

International Banking from the Boston University School of Law. She was admitted to the Philippine Bar

in 1995. She has eight years of experience in the airline industry, all of which have been with the Group.

William S. Pamintuan has been the Assistant Corporate Secretary of the Group since December

1995. He is currently the First Vice President and Deputy General Counsel, Assistant Corporate

Secretary, Compliance Officer, and Head, Legal and Corporate Governance of Manila Electric

Company. He is also the Corporate Secretary of Meralco PowerGen Corporation, Atimonan Land

Ventures, Inc., Calamba Aero Power Corporation, Luzon Natural Gas Energy Corporation, Kalilayan

Power, Inc., MPG Holdings Phils., Inc., MPG Mauban LP Corporation, Redondo Peninsula Energy, Inc.,

Miescorrail, Inc., Meralco Industrial Engineering Services Corporation and First Pacific Leadership

Academy, Inc. He was a former Director of Miescorrail, Inc. He was the former Corporate Secretary and

Senior Vice President of Digital Telecommunications Phils., Inc. and Digitel Mobile Phils., Inc. and,

General Manager of Digitel Crossing, Inc. He holds a Bachelor of Arts degree in Political Science and

Bachelor of Laws degree from the University of the Philippines. He has 18 years of experience in the

airline industry, all of which have been with the Group.

Garry R. Kingshott is the Group’s senior consultant. He provides advice to the President with respect to

fare structuring, cost management, route development and market entry strategies. Prior to joining the

Group in 2008, he was with Jet Lite (India) and Ansett International Limited (Australia) as their Chief

Executive Officer. He has 23 years combined experience in the aviation consultancy and the airline

industry.

Rick Howell joined the Group as a contractual Operations Adviser for Long Haul from August 2012 to

May 2013. Almost a year after, he returned to the Group and is currently the Executive Adviser under the

Office of the General Manager. He received a Bachelor’s degree in Pure Mathematics & Aerodynamics at

the University of Melbourne. He also graduated with credit from Royal Australian Airforce Academy in

1985, where he served as a Flying Instructor, Maritime Patrol Commander and a Low-level aerobic

display pilot until 1992. Then, he became a Boeing 737 First Officer at QANTAS Airways and an Airbus

330 & 340 Captain for Emirates Airline. Moreover, he was also appointed as the Chief Operating Officer

for SkyAirWorld and the General Manager for Flight Operations and Commercial Planning for Virgin

- 42 -

Australia. Before returning to the Group, he was the Chief Operating Officer of Air North. Combining his

experience, he has 33 years of expertise in the airline industry.

The Group’s executive officers can be reached at its business office at the Cebu Pacific Building,

Domestic Road, Barangay 191, Zone 20, Pasay City.

Involvement in Certain Legal Proceedings of Directors and Executive Officers

Except as otherwise disclosed, to the best of the Group’s knowledge and belief and after due inquiry,

none of the Group’s directors, nominees for election as director, or executive officer have in the past five

years: (i) had any petition filed by or against any business of which such person was a general partner or

executive officer either at the time of the bankruptcy or within a two year period of that time; (ii)

convicted by final judgment in a criminal proceeding, domestic or foreign, or have been subjected to a

pending judicial proceeding of a criminal nature, domestic or foreign, excluding traffic violations and

other minor offences; (iii) subjected to any order, judgment, or decree, not subsequently reversed,

suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or

temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of

business, securities, commodities or banking activities; or (iv) found by a domestic or foreign court of

competent jurisdiction (in a civil action), the Philippine Securities and Exchange Commission (SEC) or

comparable foreign body, or a domestic or foreign exchange or other organized trading market or self

regulatory organization, to have violated a securities or commodities law or regulation and the judgment

has not been reversed, suspended, or vacated.

Family Relationship

Mr. James L. Go is the brother of Mr. John L. Gokongwei, Jr.

Mr. Lance Y. Gokongwei is the son of Mr. John L. Gokongwei, Jr.

Mr. Frederick D. Go is the nephew of Mr. John L. Gokongwei, Jr.

Ms. Robina Y. Gokongwei-Pe is the daughter of Mr. John L. Gokongwei, Jr.

Item 9. Executive Compensation

The following are the Group’s Chief Executive Officer (“CEO”) and four most highly compensated

executive officers for the years ended 2013, 2014 and 2015 estimates:

Name Position

Lance Y. Gokongwei . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . President and CEO

Jaime I. Cabangis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer

Jose Alejandro B. Reyes. . . . . . . . . . . . . . . . . . . . . . . . . . .. General Manager

Jim C. Sydiongco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President

Jeanette U. Yu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President - Treasurer

The following table identifies and summarizes the aggregate compensation of the Group’s CEO and the

four most highly compensated executive officers for the years ended 2013, 2014 and 2015 estimates:

- 43 -


Salaries Bonuses

Other

Income1 Total

CEO and four (4) most highly compensated

executive officers

1. Lance Y. Gokongwei - President and CEO

2. Jaime I. Cabangis - Chief Financial Officer

3. Victor Emmanuel B. Custodio/Jim C. Sydiongco

- Vice President

4. Michael Ivan S. Shau - Vice President

5. Jeanette U. Yu - Vice President - Treasurer

P=57,755,658 P=5,306,994 P=55,000 P=63,117,652


directors as a group unnamed 94,700,214 10,435,619 395,000 105,530,833 1Includes per diem of directors


Salaries Bonuses

Other

Income1 Total


executive officers



3. Jose Alejandro B. Reyes - General Manager

4. Jim C. Sydiongco - Vice President


P=62,166,372 P=5,507,813 P=40,000 P=67,714,185



Fiscal Year 2015 Estimates

Salaries Bonuses

Other

Income1 Total


executive officers



3. Jose Alejandro B. Reyes - General Manager

4. Jim C. Sydiongco - Vice President


P=63,437,620 P=5,614,719 P=55,000 P=69,107,339



Standard Arrangements

Other than payment of reasonable per diem as may be determined by the Board for every meeting, there

are no standard arrangements pursuant to which directors of the Group are compensated, or are to be

compensated, directly or indirectly, for any services provided as a director for the last completed year and

the ensuing year.

- 44 -

Other Arrangements

There are no other arrangements pursuant to which directors of the Group are compensated, or are to be

compensated, directly or indirectly, for any services provided as a director for the last completed year and

the ensuing year.

Employment Contracts and Termination of Employment and Change-in-Control Arrangement

There are no agreements between the Group and its directors and executive officers providing for benefits

upon termination of employment, except for such benefits to which they may be entitled under the

Group’s pension plans.

Warrants and Options Outstanding

There are no outstanding warrants or options held by the Group’s CEO, the named executive officers, and

all officers and directors as a group.

Item 10. Security Ownership of Certain Record and Beneficial Owners and Management

(1) Security Ownership of Certain Record and Beneficial Owners

As of December 31, 2014, the Group knows no one who beneficially owns in excess of 5% of the

Group’s common stock except as set forth in the table below.

Title of

Class

Names and addresses of

record owners and

relationship with the

Corporation

Name of beneficial

owner and

relationship with

record owner

Citizenship No. of

shares held

% to Total

Outstanding

Common CPAir Holdings, Inc.

43/F Robinsons Equitable

Tower, ADB Avenue

corner Poveda Street

Ortigas Center, Pasig City

(stockholder)

Same as record

owner

(See note 1)

Filipino 400,816,841 66.15%


(Non-Filipino)

37/F Tower 1, The

Enterprise Center, Ayala

Ave. cor. Paseo de Roxas,

Makati City

(stockholder)

PDTC Participants

and their clients

(See note 2)

Non-Filipino 113,467,044

(See note 3)

18.73%


(Filipino)

37/F Tower 1, The

Enterprise Center, Ayala

Ave. cor. Paseo de Roxas,

Makati City

(stockholder)

PDTC Participants

and their clients

(See note 2)

Filipino 84,555,153 13.95%

- 45 -

Notes:

1. CPAir Holdings, Inc. is a wholly-owned subsidiary of JG Summit Holdings, Inc. Under the By-Laws of CPAir Holdings,

Inc., the President is authorized to represent the corporation at all functions and proceedings. The incumbent President of

CPAir Holdings, Inc. is Mr. Lance Y. Gokongwei.

2. PCD Nominee Corporation is the registered owner of the shares in the books of the Corporation’s transfer agent. PCD

Nominee Corporation is a corporation wholly-owned by Philippine Depository and Trust Corporation, Inc. (formerly the

Philippine Central Depository) (“PDTC”), whose sole purpose is to act as nominee and legal title holder of all shares of

stock lodged in the PDTC. PDTC is a private corporation organized to establish a central depository in the Philippines and

introduce scripless or book-entry trading in the Philippines. Under the current PDTC system, only participants (brokers and

custodians) will be recognized by PDTC as the beneficial owners of the lodged shares. Each beneficial owner of shares

though his participant will be the beneficial owner to the extent of the number of shares held by such participant in the

records of the PCD Nominee.

3. Out of the PCD Nominee Corporation (Non-Filipino) account, “The Hongkong and Shanghai Banking Corp. Ltd. -Clients’

Acct.” holds for various trust accounts the following shares of the Corporation as of December 31, 2014:

No. of shares % to Outstanding

The Hongkong and Shanghai Banking Corp. Ltd. -Clients’ Acct. 38,319,818 6.32%

The securities are voted by the trustee’s designated officers who are not known to the Corporation.

(2) Security Ownership of Management as of December 31, 2014

Title of

Class

Name of beneficial

Owner Position

Amount &

nature of

beneficial

ownership

(Direct) Citizenship

% to Total

Outstanding

Named Executive Officers1

Common 1. Lance Y. Gokongwei Director,

President and

Chief Executive

Officer

1 Filipino *

Common 2. Jaime I. Cabangis Chief Financial

Officer

10,000 Filipino *

- 3. Jose Alejandro B. Reyes General Manager - Filipino -

- 4. Jim C. Sydiongco Vice President - Filipino -

- 5. Jeanette U. Yu Vice President -

Treasurer

- Filipino -

Subtotal 10,001 *

Other Directors and Executive Officers

Common 6. Ricardo J. Romulo Chairman 1 Filipino *

Common 7. John L. Gokongwei, Jr. Director 1 Filipino *

Common 8. James L. Go Director 1 Filipino *

Common 9. Jose F. Buenaventura Director 1 Filipino *

Common 10. Robina Y. Gokongwei-Pe Director 1 Filipino *

Common 11. Frederick D. Go Director 1 Filipino *

Common 12. Antonio L. Go Director

(Independent)

1 Filipino *

Common 13. Wee Khoon Oh Director

(Independent)

1 Singaporean *

Subtotal 8 *

All directors and executive officers as a group unnamed 10,009 *

- 46 -

Notes:

1. As defined under Part IV (B) (1) (b) of SRC Rule 12, the “named executive officers” to be listed refer to the

Chief Executive Officer and those that are the four (4) most highly compensated executive officers as of December 31,

2014.

* less than 0.01%

(3) Voting Trust Holders of 5% or More

As of December 31, 2014, there are no persons holding more than 5% of a class under a voting trust or

similar agreement.

(4) Change in Control

As of December 31, 2014, there has been no change in the control of the Group since the beginning of its

last fiscal year.

*SGVFS011188*

INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of DirectorsCebu Air, Inc.2nd Floor, Doña Juanita Marquez Lim BuildingOsmeña Boulevard, Cebu City

We have audited the accompanying consolidated financial statements of Cebu Air, Inc. and itsSubsidiaries, which comprise the consolidated statements of financial position as at December 31,2014 and 2013, and the consolidated statements of comprehensive income, statements of changes inequity and statements of cash flows for each of the three years in the period ended December 31, 2014,and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with Philippine Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015

A member firm of Ernst & Young Global Limited

*SGVFS011188*

- 2 -

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of Cebu Air, Inc. and its Subsidiaries as at December 31, 2014 and 2013, and theirfinancial performance and their cash flows for each of the three years in the period endedDecember 31, 2014 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Michael C. SabadoPartnerCPA Certificate No. 89336SEC Accreditation No. 0664-AR-2 (Group A), March 26, 2014, valid until March 25, 2017Tax Identification No. 160-302-865BIR Accreditation No. 08-001998-73-2012, April 11, 2012, valid until April 10, 2015PTR No. 4751320, January 5, 2015, Makati City

March 24, 2015


*SGVFS011188*

CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 312014 2013

ASSETS

Current AssetsCash and cash equivalents (Note 8) P=3,963,912,683 P=6,056,111,803Financial assets at fair value through profit or loss (Note 9) – 166,456,897Receivables (Notes 7 and 10) 1,862,718,419 1,817,816,603Expendable parts, fuel, materials and supplies (Note 11) 679,315,070 711,175,860Other current assets (Note 12) 2,020,471,923 1,281,546,400

Total Current Assets 8,526,418,095 10,033,107,563

Noncurrent AssetsProperty and equipment (Notes 13, 17, 29 and 30) 65,227,125,368 56,412,466,284Investments in joint ventures (Notes 14) 591,339,486 578,824,453Goodwill (Notes 7 and 15) 566,781,533 –Deferred tax assets - net (Note 25) – 112,156,602Other noncurrent assets (Notes 7 and 16) 1,150,594,326 390,636,394

Total Noncurrent Assets 67,535,840,713 57,494,083,733P=76,062,258,808 P=67,527,191,296

LIABILITIES AND EQUITY

Current LiabilitiesAccounts payable and other accrued liabilities (Notes 7 and 17) P=10,668,437,651 P=9,188,899,505Unearned transportation revenue (Notes 4 and 5) 6,373,744,740 5,338,917,236Current portion of long-term debt (Notes 13 and 18) 4,712,465,291 3,755,141,710Financial liabilities at fair value through profit or loss (Note 9) 2,260,559,896 –Due to related parties (Note 27) 39,909,503 44,653,215Income tax payable 5,831,638 10,587,869

Total Current Liabilities 24,060,948,719 18,338,199,535

Noncurrent LiabilitiesLong-term debt - net of current portion (Notes 13 and 18) 29,137,197,374 25,651,323,962Deferred tax liabilities - net (Notes 7 and 25) 129,160,379 –Other noncurrent liabilities (Notes 19 and 24) 1,196,148,149 2,456,090,484

Total Noncurrent Liabilities 30,462,505,902 28,107,414,446Total Liabilities 54,523,454,621 46,445,613,981

Equity (Note 20)Common stock 613,236,550 613,236,550Capital paid in excess of par value 8,405,568,120 8,405,568,120Treasury stock (529,319,321) (529,319,321)Other comprehensive loss (Notes 9 and 24) (131,968,292) (341,650,278)Retained earnings 13,181,287,130 12,933,742,244

Total Equity 21,538,804,187 21,081,577,315P=76,062,258,808 P=67,527,191,296

See accompanying Notes to Consolidated Financial Statements.

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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 312014 2013 2012

REVENUESale of air transportation services (Note 4) Passenger P=40,188,445,623 P=31,662,949,847 P=29,579,485,272 Cargo 3,146,083,310 2,609,444,919 2,380,938,624Ancillary revenues (Note 21) 8,665,489,377 6,731,701,515 5,944,029,727

52,000,018,310 41,004,096,281 37,904,453,623

EXPENSESFlying operations (Note 22) 26,152,476,007 21,720,929,565 20,017,352,847Aircraft and traffic servicing (Note 22) 4,805,212,489 3,602,807,012 3,433,012,286Repairs and maintenance (Notes 19 and 22) 4,432,437,982 3,825,982,774 3,461,697,220Depreciation and amortization (Note 13) 4,281,525,018 3,454,641,115 2,767,863,860Aircraft and engine lease (Note 30) 3,503,484,521 2,314,859,021 2,033,953,783Reservation and sales 2,153,987,158 1,662,461,815 1,626,314,775General and administrative (Note 23) 1,296,817,694 1,111,945,434 1,075,369,382Passenger service 1,216,740,451 906,057,635 825,480,234

47,842,681,320 38,599,684,371 35,241,044,387

4,157,336,990 2,404,411,910 2,663,409,236

OTHER INCOME (EXPENSE)Equity in net income of joint ventures (Note 14) 96,326,091 119,360,469 54,384,007Interest income (Note 8) 79,927,272 219,619,475 415,770,873Gain on sale on financial assets designated at fair value

through profit or loss and available for salefinancial assets – – 5,764,090

Foreign exchange gains (losses) (127,471,032) (2,063,007,996) 1,205,149,590Interest expense (Note 18) (1,013,241,353) (865,501,445) (732,591,508)Hedging gains (losses) (Note 9) (2,314,241,984) 290,325,093 258,543,810

(3,278,701,006) (2,299,204,404) 1,207,020,862

INCOME BEFORE INCOME TAX 878,635,984 105,207,506 3,870,430,098

PROVISION FOR (BENEFIT FROM)INCOME TAX (Note 25) 25,137,768 (406,738,723) 298,415,835

NET INCOME 853,498,216 511,946,229 3,572,014,263Other comprehensive income (loss) to be reclassified to

profit or loss in subsequent periods:Actuarial gains (losses) on pension liability (Note 24) 301,535,342 (365,149,270) (69,258,478)Provision for (benefit from income tax)

(Notes 24 and 25) 91,853,356 (109,544,781) (20,777,544)

OTHER COMPREHENSIVE INCOME (LOSS),NET OF TAX 209,681,986 (255,604,489) (48,480,934)

TOTAL COMPREHENSIVE INCOME P=1,063,180,202 P=256,341,740 P=3,523,533,329

Basic/Diluted Earnings Per Share (Note 26) P=1.41 P=0.84 P=5.89


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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Year Ended December 31, 2014

Common Stock(Note 20)

Capital Paid inExcess of Par

Value(Note 20)

Treasury Stock(Note 20)

OtherComprehensive

Loss(Note 24)

AppropriatedRetainedEarnings(Note 20)

UnappropriatedRetainedEarnings(Note 20)

TotalEquity

Balance at January 1, 2014 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=341,650,278) P=3,916,762,000 P=9,016,980,244 P=21,081,577,315Net income – – – – – 853,498,216 853,498,216Other comprehensive income – – – 209,681,986 – – 209,681,986Total comprehensive income – – – 209,681,986 – 853,498,216 1,063,180,202Appropriation of retained earnings – – – – 3,000,000,000 (3,000,000,000) –Dividend declaration – – – – – (605,953,330) (605,953,330)Balance at December 31, 2014 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=131,968,292) P=6,916,762,000 P=6,264,525,130 P=21,538,804,187




Value(Note 20)


OtherComprehensive

Loss(Notes 3 and 24)

AppropriatedRetainedEarnings

(Note 20)

UnappropriatedRetainedEarnings

(Note 20)Total

EquityBalance at January 1, 2013 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=86,045,789) P=1,416,762,000 P=12,216,940,675 P=22,037,142,235Net income – – – – – 511,946,229 511,946,229Other comprehensive loss – – – (255,604,489) – – (255,604,489)Total comprehensive income – – – (255,604,489) – 511,946,229 256,341,740Appropriation of retained earnings – – – – 2,500,000,000 (2,500,000,000) –Dividend declaration – – – – – (1,211,906,660) (1,211,906,660)Balance at December 31, 2013 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=341,650,278) P=3,916,762,000 P=9,016,980,244 P=21,081,577,315

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Value(Note 20)


OtherComprehensive

Loss(Notes 3 and 24)

AppropriatedRetainedEarnings

(Note 20)

UnappropriatedRetainedEarnings

(Note 20)Total

EquityBalance at January 1, 2012 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=43,195,116) P=933,500,000 P=9,734,141,742 P=19,113,931,975Net income – – – – – 3,572,014,263 3,572,014,263Other comprehensive loss – – – (48,480,934) – – (48,480,934)Total comprehensive income – – – (48,480,934) – 3,572,014,263 3,523,533,329Appropriation of retained earnings – – – – 483,262,000 (483,262,000) –Dividend declaration – – – – – (605,953,330) (605,953,330)Reversal – – – 5,630,261 – – 5,630,261Balance at December 31, 2012 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=86,045,789) P=1,416,762,000 P=12,216,940,675 P=22,037,142,235

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CEBU AIR, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=878,635,984 P=105,207,506 P=3,870,430,098Adjustments for: Depreciation and amortization (Note 13) 4,281,525,018 3,454,641,115 2,767,863,860 Hedging losses (gains) (Note 9) 2,314,241,984 (290,325,093) (258,543,810) Interest expense (Note 18) 1,013,241,353 865,501,445 732,591,508 Provision for return cost (Note 19) 476,017,529 590,638,099 577,510,459 Unrealized foreign exchange losses (gains) 164,383,293 1,899,060,619 (1,150,415,449) Loss (gain) on disposal of property and equipment

(Note 13) 27,734,209 3,347,242 (413,540) Gain on sale of available for sale financial assets – – (5,764,090) Equity in net income of joint ventures (Note 14) (96,326,091) (119,360,469) (54,384,007) Interest income (Note 8) (79,927,272) (219,619,475) (415,770,873)Operating income before working capital changes 8,979,526,007 6,289,090,989 6,063,104,156 Decrease (increase) in: Receivables 405,357,069 (444,359,508) (301,781,692) Financial assets at fair value through profit or

loss (derivatives) (Note 9) 112,774,809 226,550,958 111,883,670 Expendable parts, fuel, materials and supplies 31,860,790 (270,324,909) (24,648,166) Other current assets (729,957,322) (422,305,919) (599,172,793) Increase (decrease) in: Unearned transportation revenue 873,405,279 (642,278,678) 727,762,570 Accounts payable and other accrued liabilities 325,208,227 737,857,551 1,548,968,993 Amounts of due to related parties (4,743,714) (949,100) 9,300,141 Noncurrent liabilities (1,452,075,289) (676,902,820) (1,195,414,782)Net cash generated from operations 8,541,355,856 4,796,378,564 6,340,002,097Interest paid (1,004,857,514) (771,690,630) (729,842,736)Income tax paid (45,043,718) (34,600,186) –Interest received 83,919,430 226,352,282 550,377,733Net cash provided by operating activities 7,575,374,054 4,216,440,030 6,160,537,094

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of property and equipment

(Notes 13 and 31) (13,316,719,856) (12,179,883,734) (10,421,612,444)Proceeds from sale (disposals) of: Other noncurrent assets 115,781,781 1,778,103 1,521,751 Property and equipment 338,060 – – Financial assets at FVPL (Note 9) – – 3,258,002,595 Available-for sale investments (Note 9) – – 110,369,718Dividends received from a joint venture (Note 14) 83,811,058 52,292,889 53,229,016Decrease (increase) in other noncurrent assets – (170,123,133) 170,556,445Acquisition of investments: Investments in joint ventures (Note 14) – – (101,123,645) Payment to acquire a subsidiary (Notes 7 and 31) (488,559,147) – –Net cash used in investing activities (13,605,348,104) (12,295,935,875) (6,929,056,564)

(Forward)

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CASH FLOWS FROM FINANCING ACTIVITIESLong-term debt: Availments (Notes 18 and 31) P=8,478,040,015 P=7,425,565,000 P=5,915,510,812 Payments of long-term debt (Note 18) (4,176,677,721) (3,011,148,694) (2,508,469,536)Dividends paid (605,953,330) (1,211,906,660) (605,953,330)Net cash provided by financing activities 3,695,408,964 3,202,509,646 2,801,087,946

EFFECTS OF EXCHANGE RATE CHANGESIN CASH AND CASH EQUIVALENTS (14,356,033) 204,771,677 (262,026,137)

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS (2,348,921,119) (4,672,214,522) 1,770,542,339

CASH AND CASH EQUIVALENTS ATTRIBUTABLE TOBUSINESS COMBINATION (Notes 7 and 31) 256,721,999 – –

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 6,056,111,803 10,728,326,325 8,957,783,986

CASH AND CASH EQUIVALENTSAT END OF YEAR (Note 8) P=3,963,912,683 P=6,056,111,803 P=10,728,326,325


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CEBU AIR, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines onAugust 26, 1988 to carry on, by means of aircraft of every kind and description, the generalbusiness of a private carrier or charter engaged in the transportation of passengers, mail,merchandise and freight, and to acquire, purchase, lease, construct, own, maintain, operate anddispose of airplanes and other aircraft of every kind and description, and also to own, purchase,construct, lease, operate and dispose of hangars, transportation depots, aircraft service stations andagencies, and other objects and service of a similar nature which may be necessary, convenient oruseful as an auxiliary to aircraft transportation. The principal place of business of the ParentCompany is at 2nd Floor, Doña Juanita Marquez Lim Building, Osmeña Boulevard, Cebu City.

The Parent Company has ten special purpose entities (SPE) that it controls, namely: Cebu AircraftLeasing Limited (CALL), IBON Leasing Limited (ILL), Boracay Leasing Limited (BLL), SurigaoLeasing Limited (SLL), Sharp Aircraft Leasing Limited (SALL), Vector Aircraft Leasing Limited(VALL) Panatag One Aircraft Leasing Limited (POALL), Panatag Two Aircraft Leasing Limited(PTALL), Panatag Three Aircraft Leasing Limited (PTHALL) and Summit A Aircraft LeasingLimited (SAALL). CALL, ILL, BLL, SLL, SALL, VALL, POALL, PTALL and PTHALL areSPEs in which the Parent Company does not have equity interest. CALL, ILL, BLL, SLL, SALL,VALL POALL, PTALL, PTHALL and SAALL acquired the passenger aircraft for lease to theParent Company under finance lease arrangements (Note 13) and funded the acquisitions throughlong-term debt (Note 18).

On March 20, 2014, the Parent Company acquired 100% ownership of Tiger Airways Philippines(TAP) (Note 7). The Parent Company, its ten SPEs and TAP (collectively known as “the Group”)are consolidated for financial reporting purposes (Note 2).

The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) onOctober 26, 2010, the Parent Company’s initial public offering (IPO).

The Parent Company’s ultimate parent is JG Summit Holdings, Inc. (JGSHI). The ParentCompany is 66.15%-owned by CP Air Holdings, Inc. (CPAHI).

In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise tooperate air transportation services, both domestic and international. In August 1997, the Office ofthe President of the Philippines gave the Parent Company the status of official Philippine carrier tooperate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB)issued the permit to operate scheduled international services and a certificate of authority tooperate international charters.

The Parent Company is registered with the Board of Investments (BOI) as a new operator of airtransport on a pioneer and non-pioneer status. Under the terms of the registration and subject tocertain requirements, the Parent Company is entitled to certain fiscal and non-fiscal incentives,including among others, an income tax holiday (ITH) for a period of four (4) to six (6) years(Notes 25 and 32).

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Prior to the grant of the ITH and in accordance with the Parent Company’s franchise, whichextends up to year 2031:

a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenuederived from air transportation operations. For revenue earned from activities other than airtransportation, the Parent Company is subject to corporate income tax and to real property tax.

b. In the event that any competing individual, partnership or corporation received and enjoyedtax privileges and other favorable terms which tended to place the Parent Company at anydisadvantage, then such privileges shall have been deemed by the fact itself of the ParentCompany’s tax privileges and shall operate equally in favor of the Parent Company.

On May 24, 2005, the Reformed-Value Added Tax (R-VAT) law was signed as RA No. 9337 orthe R-VAT Act of 2005. The R-VAT law took effect on November 1, 2005 following theapproval on October 19, 2005 of Revenue Regulation (RR) No. 16-2005 which provides for theimplementation of the rules of the R-VAT law. Among the relevant provisions of RA No. 9337are the following:

a. The franchise tax of the Parent Company is abolished;b. The Parent Company shall be subject to corporate income tax;c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration

license, and other fees and charges;d. Change in corporate income tax rate from 32.00% to 35.00% for the next three years effective

on November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter;e. 70.00% cap on the input VAT that can be claimed against output VAT; andf. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective

on February 1, 2006.

On November 21, 2006, the President signed into law RA No. 9361, which amendsSection 110 (B) of the Tax Code. This law, which became effective on December 13, 2006,provides that if the input tax, inclusive of the input tax carried over from the previous quarterexceeds the output tax, the excess input tax shall be carried over to the succeeding quarter orquarters. The Department of Finance through the Bureau of Internal Revenue issuedRR No. 2-2007 to implement the provisions of the said law. Based on the regulation, theamendment shall apply to the quarterly VAT returns to be filed after the effectivity ofRA No. 9361.

On December 16, 2008, the Parent Company was registered as a Clark Freeport Zone (CFZ)enterprise and committed to provide air transportation services both domestic and international forpassengers and cargoes at the Diosdado Macapagal International Airport.

2. Basis of Preparation

The accompanying consolidated financial statements of the Group have been prepared on ahistorical cost basis, except for financial assets and liabilities at fair value through profit or loss(FVPL) and available-for-sale (AFS) investment that have been measured at fair value.

The financial statements of the Group are presented in Philippine Peso (P=), the Parent Company’sfunctional and presentation currency. All amounts are rounded to the nearest peso unlessotherwise indicated.

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Statement of ComplianceThe consolidated financial statements of the Group have been prepared in compliance withPhilippine Financial Reporting Standards (PFRS). The Group has adopted the new and revisedaccounting standards, which became effective beginning January 1, 2014, in the accompanyingfinancial statements.

On March 20, 2014, the Group finalized its acquisition of TAP. The acquisition was accountedfor as a business combination (Note 7). Accordingly, the Group finalized the purchase priceallocation.

Basis of ConsolidationThe consolidated financial statements as of December 31, 2014 and 2013 represent theconsolidated financial statements of the Parent Company, the SPEs that it controls and its whollyowned subsidiary TAP. Consolidation of TAP started on March 20, 2014 when the Group gainedcontrol (Note 7).

Control is achieved when the Parent Company is exposed, or has rights, to variable returns fromits involvement with the investee and has the ability to affect those returns through its power overthe investee. Specifically, the Parent Company controls an investee if, and only if, the ParentCompany has:

· power over the investee (that is, existing rights that give it the current ability to direct therelevant activities of the investee);

· exposure, or rights, to variable returns from its involvement with the investee; and· the ability to use its power over the investee to affect the amount of the investor's returns

When the Parent Company has less than a majority of the voting or similar rights of an investee,the Parent Company considers all relevant facts and circumstances in assessing whether it haspower over an investee, including:

· the contractual arrangement with the other vote holders of the investee;· rights arising from other contractual arrangements; and· the Parent Company’s voting rights and potential voting rights.

The Parent Company reassesses whether or not it controls an investee if facts and circumstancesindicate that there are changes to one or more of the three elements of control. Consolidation of asubsidiary begins when the Parent Company obtains control over the subsidiary and ceases whenthe Parent Company loses control of the subsidiary. Assets, liabilities, income and expenses of thea subsidiary acquired or disposed of during the year are included in the consolidated statement ofcomprehensive income from the date the Parent Company gains control until the date the ParentCompany ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to theequity holders of the Parent Company of the Group and to the non-controlling interests, even ifthis results in the non-controlling interests having a deficit balance. The financial statements ofthe subsidiaries are prepared for the same balance sheet date as the Parent Company, usingconsistent accounting policies. All intragroup assets, liabilities, equity, income and expenses andcash flows relating to transactions between members of the Group are eliminated on consolidation.

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A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as anequity transaction. If the Parent Company loses control over a subsidiary, it:

· Derecognizes the assets (including goodwill) and liabilities of the subsidiary;· Derecognizes the carrying amount of any non-controlling interests;· Derecognizes the cumulative translation adjustments recorded in equity;· Recognizes the fair value of the consideration received;· Recognizes the fair value of any investment retained;· Recognizes any surplus or deficit in profit or loss; and· Reclassifies the Parent Company’s share of components previously recognized in OCI to

profit or loss or retained earnings, as appropriate, as would be required if the Parent Companyhad directly disposed of the related assets and liabilities.

The consolidated financial statements are prepared using uniform accounting policies for liketransactions and other events in similar circumstances. All significant intercompany transactionsand balances, including intercompany profits and unrealized profits and losses, are eliminated inthe consolidation.

3. Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year, except forthe adoption of new and amended PFRS and Philippine Interpretations from InternationalFinancial Reporting Interpretations Committee (IFRIC) that are discussed below. Except asotherwise indicated, the adoption of the new and amended PFRS and Philippine Interpretations didnot have any effect on the consolidated financial statements of the Group.

· Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12,Disclosure of Interests in Other Entities, and PAS 27, Separate Financial Statements)These amendments provide an exception to the consolidation requirement for entities thatmeet the definition of an investment entity under PFRS 10. The exception to consolidationrequires investment entities to account for subsidiaries at fair value through profit or loss. Theamendments must be applied retrospectively, subject to certain transition relief. Theamendments have no impact on the Group’s financial position or performance.

· PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilitiesThese amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify foroffsetting and are applied retrospectively. The amendments affect disclosure only and have noimpact on the Group’s financial position or performance.

· PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets(Amendments)These amendments remove the unintended consequences of PFRS 13 on the disclosuresrequired under PAS 36. In addition, these amendments require disclosure of the recoverableamounts for the assets or cash-generating units (CGUs) for which impairment loss has beenrecognized or reversed during the period. The amendments affect disclosures only and had noimpact on the Group’s financial position or performance.

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· PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives andContinuation of Hedge Accounting (Amendments)These amendments provide relief from discontinuing hedge accounting when novation of aderivative designated as a hedging instrument meets certain criteria. The amendments have nofinancial impact on the Group’s financial position or performance.

· Philippine Interpretation IFRIC 21, LeviesIFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggerspayment, as identified by the relevant legislation, occurs. For a levy that is triggered uponreaching a minimum threshold, the interpretation clarifies that no liability should beanticipated before the specified minimum threshold is reached. This interpretation has noimpact on the Group’s financial position or performance.

Annual Improvements to PFRSs (2010-2012 cycle)In the 2010 - 2012 annual improvements cycle, seven amendments to six standards were issued,which included an amendment to PFRS 13, Fair Value Measurement. The amendment toPFRS 13 is effective immediately and it clarifies that short-term receivables and payables with nostated interest rates can be measured at invoice amounts when the effect of discounting isimmaterial. This amendment has no impact on the Group.

Annual Improvements to PFRSs (2011-2013 cycle)In the 2011 - 2013 annual improvements cycle, four amendments to four standards were issued,which included an amendment to PFRS 1, First-time Adoption of Philippine Financial ReportingStandards-First-time Adoption of PFRS. The amendment to PFRS 1 is effective immediately. Itclarifies that an entity may choose to apply either a current standard or a new standard that is notyet mandatory, but permits early application, provided either standard is applied consistentlythroughout the periods presented in the entity’s first PFRS financial statements. This amendmenthas no impact on the Group as it is not a first-time PFRS adopter.

Standards Issued but not yet EffectiveThe Group has not applied the following PFRS and Philippine Interpretations which are not yeteffective as of December 31, 2014. This list consists of standards and interpretations issued,which the Group reasonably expects to be applicable at a future date. The Group intends to adoptthose standards when they become effective. The Group does not expect the adoption of thesestandards to have a significant impact in the consolidated financial statements, unless otherwisestated.

· PFRS 9, Financial Instruments - Classification and Measurement (2010 version)PFRS 9 (2010 version) reflects the first phase on the replacement of PAS 39 and applies to theclassification and measurement of financial assets and liabilities as defined in PAS 39,Financial Instruments: Recognition and Measurement. PFRS 9 requires all financial assets tobe measured at fair value at initial recognition. A debt financial asset may, if the fair valueoption (FVO) is not invoked, be subsequently measured at amortized cost if it is held within abusiness model that has the objective to hold the assets to collect the contractual cash flowsand its contractual terms give rise, on specified dates, to cash flows that are solely payments ofprincipal and interest on the principal outstanding. All other debt instruments aresubsequently measured at fair value through profit or loss. All equity financial assets aremeasured at fair value either through other comprehensive income (OCI) or profit or loss.Equity financial assets held for trading must be measured at fair value through profit or loss.For FVO liabilities, the amount of change in the fair value of a liability that is attributable tochanges in credit risk must be presented in OCI. The remainder of the change in fair value is

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presented in profit or loss, unless presentation of the fair value change in respect of theliability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.All other PAS 39 classification and measurement requirements for financial liabilities havebeen carried forward into PFRS 9, including the embedded derivative separation rules and thecriteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect onthe classification and measurement of the Group’s financial assets, but will potentially have noimpact on the classification and measurement of financial liabilities.

PFRS 9 (2010 version) is effective for annual periods beginning on or after January 1, 2015.This mandatory adoption date was moved to January 1, 2018 when the final version ofPFRS 9 was adopted by the Philippine Financial Reporting Standards Council (FRSC). Suchadoption, however, is still for approval by the Board of Accountancy (BOA).

· Philippine Interpretation IFRIC 15, Agreement for Construction of Real EstateThis Philippine Interpretation, which may be early applied, covers accounting for revenue andassociated expenses by entities that undertake the construction of real estate directly orthrough subcontractors. This Philippine Interpretation requires that revenue on construction ofreal estate be recognized only upon completion, except when such contract qualifies asconstruction contract to be accounted for under PAS 11, Construction Contracts, or involvesrendering of services in which case revenue is recognized based on stage of completion.Contracts involving provision of services with the construction materials and where the risksand reward of ownership are transferred to the buyer on a continuous basis will also beaccounted for based on stage of completion. The SEC and the FRSC have deferred theeffectivity of this interpretation until the final Revenue standard is issued by the InternationalAccounting Standards Board (IASB) and an evaluation of the requirements of the finalRevenue standard against the practices of the Philippine real estate industry is completed. Theadoption of the interpretation will have no impact on the Group’s financial position orperformance as the Group is not engaged in real estate businesses.

Effective January 1, 2015

· PAS 19, Employee Benefits - Defined Benefit Plans: Employee ContributionsPAS 19 requires an entity to consider contributions from employees or third parties whenaccounting for defined benefit plans. Where the contributions are linked to service, theyshould be attributed to periods of service as a negative benefit. These amendments clarifythat, if the amount of the contributions is independent of the number of years of service, anentity is permitted to recognize such contributions as a reduction in the service cost in theperiod in which the service is rendered, instead of allocating the contributions to the periods ofservice. The amendments will have no impact on the Group’s financial statements.

Annual Improvements to PFRSs (2010-2012 cycle)The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginningon or after January 1, 2015 and are not expected to have a material impact on the Group.

· PFRS 2, Share-based Payment - Definition of Vesting ConditionThis improvement is applied prospectively and clarifies various issues relating to thedefinitions of performance and service conditions which are vesting conditions, including:

· A performance condition must contain a service condition· A performance target must be met while the counterparty is rendering service

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· A performance target may relate to the operations or activities of an entity, or to those ofanother entity in the same group

· A performance condition may be a market or non-market condition· If the counterparty, regardless of the reason, ceases to provide service during the vesting

period, the service condition is not satisfied.

This amendment does not apply to the Group as it has no share-based payments.

· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombinationThe amendment is applied prospectively for business combinations for which the acquisitiondate is on or after July 1, 2014. It clarifies that a contingent consideration that is not classifiedas equity is subsequently measured at fair value through profit or loss whether or not it fallswithin the scope of PAS 39, Financial Instruments: Recognition and Measurement(or PFRS 9, Financial Instruments, if early adopted). The Group shall consider thisamendment for future business combinations.

· PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of theTotal of the Reportable Segments’ Assets to the Entity’s AssetsThe amendments are applied retrospectively and clarify that:

· An entity must disclose the judgments made by management in applying the aggregationcriteria in the standard, including a brief description of operating segments that have beenaggregated and the economic characteristics (e.g., sales and gross margins) used to assesswhether the segments are ‘similar’.

· The reconciliation of segment assets to total assets is only required to be disclosed if thereconciliation is reported to the chief operating decision maker, similar to the requireddisclosure for segment liabilities.

The amendments affect disclosures only and have no impact on the Group’s financial positionor performance.

· PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement ofAccumulated DepreciationThe amendment is applied retrospectively and clarifies in PAS 16 and PAS 38 that the assetmay be revalued by reference to the observable data on either the gross or the net carryingamount. In addition, the accumulated depreciation or amortization is the difference betweenthe gross and carrying amounts of the asset. The amendment will have no impact on theGroup’s financial position or performance.

· PAS 24, Related Party Disclosures - Key Management PersonnelThe amendment is applied retrospectively and clarifies that a management entity, which is anentity that provides key management personnel services, is a related party subject to therelated party disclosures. In addition, an entity that uses a management entity is required todisclose the expenses incurred for management services. The amendments affect disclosuresonly and will have no impact on the Group’s financial position or performance.

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· PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements

The amendment is applied prospectively and clarifies the following regarding the scopeexceptions within PFRS 3:

· Joint arrangements, not just joint ventures, are outside the scope of PFRS 3.· This scope exception applies only to the accounting in the financial statements of the joint

arrangement itself.

The amendment will have no impact on the Group’s financial position or performance.

· PFRS 13, Fair Value Measurement - Portfolio ExceptionThe amendment is applied prospectively and clarifies that the portfolio exception in PFRS 13can be applied not only to financial assets and financial liabilities, but also to other contractswithin the scope of PAS 39. The amendment will have no significant impact on the Group’sfinancial position or performance.

· PAS 40, Investment PropertyThe amendment is applied prospectively and clarifies that PFRS 3, and not the description ofancillary services in PAS 40, is used to determine if the transaction is the purchase of an assetor business combination. The description of ancillary services in PAS 40 only differentiatesbetween investment property and owner-occupied property (i.e., property, plant andequipment). The amendment will have no significant impact on the Group’s financial positionor performance.


· PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification ofAcceptable Methods of Depreciation and Amortization (Amendments)The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern ofeconomic benefits that are generated from operating a business (of which the asset is part)rather than the economic benefits that are consumed through use of the asset. As a result, arevenue-based method cannot be used to depreciate property, plant and equipment and mayonly be used in very limited circumstances to amortize intangible assets. The amendments areeffective prospectively for annual periods beginning on or after January 1, 2016, with earlyadoption permitted. The amendment will have no significant impact on the Group’s financialposition or performance.

· PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants(Amendments)The amendments change the accounting requirements for biological assets that meet thedefinition of bearer plants. Under the amendments, biological assets that meet the definitionof bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply.After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost(before maturity) and using either the cost model or revaluation model (after maturity). Theamendments also require that produce that grows on bearer plants will remain in the scope ofPAS 41 measured at fair value less costs to sell. For government grants related to bearer

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plants, PAS 20, Accounting for Government Grants and Disclosure of GovernmentAssistance, will apply. The amendments are retrospectively effective for annual periodsbeginning on or after January 1, 2016, with early adoption permitted. The amendment willhave no significant impact on the Group’s financial position or performance.

· PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements(Amendments)The amendments will allow entities to use the equity method to account for investments insubsidiaries, joint ventures and associates in their separate financial statements. Entitiesalready applying PFRS and electing to change to the equity method in its separate financialstatements will have to apply that change retrospectively. For first-time adopters of PFRSelecting to use the equity method in its separate financial statements, they will be required toapply this method from the date of transition to PFRS. These amendments are not expected tohave any impact to the Group.

· PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and JointVentures - Sale or Contribution of Assets between an Investor and its Associate or JointVentureThese amendments address an acknowledged inconsistency between the requirements inPFRS 10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets betweenan investor and its associate or joint venture. The amendments require that a full gain or lossis recognized when a transaction involves a business (whether it is housed in a subsidiary ornot). A partial gain or loss is recognized when a transaction involves assets that do notconstitute a business, even if these assets are housed in a subsidiary. These amendments areeffective from annual periods beginning on or after 1 January 2016. The amendment willhave no significant impact on the Group’s financial position or performance.

· PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations(Amendments)The amendments to PFRS 11 require that a joint operator accounting for the acquisition of aninterest in a joint operation, in which the activity of the joint operation constitutes a businessmust apply the relevant PFRS 3 principles for business combinations accounting. Theamendments also clarify that a previously held interest in a joint operation is not remeasuredon the acquisition of an additional interest in the same joint operation while joint control isretained. In addition, a scope exclusion has been added to PFRS 11 to specify that theamendments do not apply when the parties sharing joint control, including the reporting entity,are under common control of the same ultimate controlling party.

The amendments apply to both the acquisition of the initial interest in a joint operation and theacquisition of any additional interests in the same joint operation and are prospectivelyeffective for annual periods beginning on or after January 1, 2016, with early adoptionpermitted. These amendments are not expected to have any impact to the Group.

· PFRS 14, Regulatory Deferral AccountsPFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferralaccount balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 mustpresent the regulatory deferral accounts as separate line items on the statement of financialposition and present movements in these account balances as separate line items in thestatement of profit or loss and other comprehensive income. The standard requires disclosureson the nature of, and risks associated with, the entity’s rate-regulation and the effects of that

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rate-regulation on its financial statements. PFRS 14 is effective for annual periods beginningon or after January 1, 2016. Since the Group is an existing PFRS preparer, this standardwould not apply.


· PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes inMethods of DisposalThe amendment is applied prospectively and clarifies that changing from a disposal throughsale to a disposal through distribution to owners and vice-versa should not be considered to bea new plan of disposal, rather it is a continuation of the original plan. There is, therefore, nointerruption of the application of the requirements in PFRS 5. The amendment also clarifiesthat changing the disposal method does not change the date of classification. The amendmentwill have no significant impact on the Group’s financial position or performance.

· PFRS 7, Financial Instruments: Disclosures - Servicing ContractsPFRS 7 requires an entity to provide disclosures for any continuing involvement in atransferred asset that is derecognized in its entirety. The amendment clarifies that a servicingcontract that includes a fee can constitute continuing involvement in a financial asset. Anentity must assess the nature of the fee and arrangement against the guidance in PFRS 7 inorder to assess whether the disclosures are required. The amendment is to be applied such thatthe assessment of which servicing contracts constitute continuing involvement will need to bedone retrospectively. However, comparative disclosures are not required to be provided forany period beginning before the annual period in which the entity first applies theamendments. The amendment will have no significant impact on the Group’s financialposition or performance.

· PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim FinancialStatementsThis amendment is applied retrospectively and clarifies that the disclosures on offsetting offinancial assets and financial liabilities are not required in the condensed interim financialreport unless they provide a significant update to the information reported in the most recentannual report. The amendment will have no significant impact on the Group’s financialposition or performance.

· PAS 19, Employee Benefits - regional market issue regarding discount rateThis amendment is applied prospectively and clarifies that market depth of high qualitycorporate bonds is assessed based on the currency in which the obligation is denominated,rather than the country where the obligation is located. When there is no deep market for highquality corporate bonds in that currency, government bond rates must be used. Theamendment will have no significant impact on the Group’s financial position or performance.


· PFRS 9, Financial Instrument - Hedge Accounting and amendments to PFRS 9, PFRS 7 andPAS 39 (2013 version)PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39 whichpertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedgeaccounting model of PAS 39 with a more principles-based approach. Changes include

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replacing the rules-based hedge effectiveness test with an objectives-based test that focuses onthe economic relationship between the hedged item and the hedging instrument, and the effectof credit risk on that economic relationship; allowing risk components to be designated as thehedged item, not only for financial items but also for non-financial items, provided that therisk component is separately identifiable and reliably measurable; and allowing the time valueof an option, the forward element of a forward contract and any foreign currency basis spreadto be excluded from the designation of a derivative instrument as the hedging instrument andaccounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedgeaccounting.

PFRS 9 (2013 version) has no mandatory effective date. The mandatory effective date ofJanuary 1, 2018 was eventually set when the final version of PFRS 9 was adopted by theFRSC. The adoption of the final version of PFRS 9, however, is still for approval by BOA.

The adoption of PFRS 9 will have an effect on the classification and measurement of theGroup’s financial assets but will have no impact on the classification and measurement of theGroup’s financial liabilities. The adoption will also have an effect on the Group’s applicationof hedge accounting. The Group is currently assessing the impact of adopting this standard.

· PFRS 9, Financial Instruments (2014 or final version)In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflectsall phases of the financial instruments project and replaces PAS 39, Financial Instruments:Recognition and Measurement, and all previous versions of PFRS 9. The standard introducesnew requirements for classification and measurement, impairment, and hedge accounting.PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlyapplication permitted. Retrospective application is required, but comparative information isnot compulsory. Early application of previous versions of PFRS 9 is permitted if the date ofinitial application is before February 1, 2015.

The adoption of PFRS 9 will have an effect on the classification and measurement of theGroup’s financial assets and impairment methodology for financial assets, but will have noimpact on the classification and measurement of the Group’s financial liabilities.

The following new standard issued by the IASB has not yet been adopted by the FRSC

IFRS 15, Revenue from Contracts with CustomersIFRS 15 was issued in May 2014 and establishes a new five-step model that will apply torevenue arising from contracts with customers. Under IFRS 15 revenue is recognized at anamount that reflects the consideration to which an entity expects to be entitled in exchange fortransferring goods or services to a customer. The principles in IFRS 15 provide a morestructured approach to measuring and recognizing revenue. The new revenue standard isapplicable to all entities and will supersede all current revenue recognition requirements underIFRS. Either a full or modified retrospective application is required for annual periodsbeginning on or after January 1, 2017 with early adoption permitted. The Group is currentlyassessing the impact of IFRS 15 and plans to adopt the new standard on the required effectivedate once adopted locally.

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4. Summary of Significant Accounting Policies

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to theGroup and the revenue can be reliably measured. Revenue is measured at the fair value of theconsideration received, excluding discounts, rebates and other sales taxes or duty. The followingspecific recognition criteria must also be met before revenue is recognized:

Sale of air transportation servicesPassenger ticket and cargo waybill sales are initially recorded under ‘Unearned transportationrevenue’ account in the consolidated statement of financial position until recognized underRevenue account in the consolidated statement of comprehensive income when carriage isprovided or when the flight is uplifted.

Ancillary revenueRevenue from services incidental to the transportation of passengers, cargo, mail and merchandiseare recognized when transactions are carried out.

Interest incomeInterest on cash, cash equivalents, short-term cash investments and debt securities classified asfinancial assets at FVPL is recognized as the interest accrues using the effective interest method.

Expense RecognitionExpenses are recognized when it is probable that decrease in future economic benefits related todecrease in an asset or an increase in liability has occurred and the decrease in economic benefitscan be measured reliably. Expenses that arise in the course of ordinary regular activities of theGroup include, among others, the operating expenses on the Group’s operation.

The commission related to the sale of air transportation services is recognized as outright expenseupon the receipt of payment from customers, and is included under ‘Reservation and sales’account.

General and Administrative ExpensesGeneral and administrative expenses constitute cost of administering the business. These arerecognized as expenses when it is probable that a decrease in future economic benefit related to adecrease in an asset or an increase in a liability has occurred and the decrease in economic benefitscan be measured reliably.

Cash and Cash EquivalentsCash represents cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities ofthree months or less from dates of placement and that are subject to an insignificant risk ofchanges in value. Cash equivalents include short-term investment that can be pre-terminated andreadily convertible to known amount of cash and that are subject to an insignificant risk ofchanges in value. Cash and cash equivalents, excluding cash on hand, are classified andaccounted for as loans and receivables.

Financial InstrumentsDate of recognitionPurchases or sales of financial assets that require delivery of assets within the time frameestablished by regulation or convention in the marketplace are recognized using the settlementdate accounting. Derivatives are recognized on a trade date basis.

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Initial recognition of financial instrumentsFinancial instruments are recognized initially at the fair value of the consideration given. Exceptfor financial instruments at FVPL, the initial measurement of financial assets includes transactioncosts. The Group classifies its financial assets into the following categories: financial assets atFVPL, held-to-maturity (HTM) investments, AFS investments and loans and receivables.Financial liabilities are classified into financial liabilities at FVPL and other financial liabilitiescarried at cost or amortized cost. The Group has no HTM and AFS investments as ofDecember 31, 2014 and 2013.

The classification depends on the purpose for which the investments were acquired and whetherthey are quoted in an active market. Management determines the classification of its investmentsat initial recognition and, where allowed and appropriate, re-evaluates such designation at everyreporting date.

Determination of fair valueThe fair value of financial instruments traded in active markets at the statement of financialposition date is based on their quoted market price or dealer price quotations (bid price for longpositions and ask price for short positions), without any deduction for transaction costs. Whencurrent bid and ask prices are not available, the price of the most recent transaction providesevidence of the current fair value as long as there has not been a significant change in economiccircumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined byusing appropriate valuation techniques. Valuation techniques include net present valuetechniques, comparison to similar instruments for which market observable prices exist, optionspricing models and other relevant valuation models. Any difference noted between the fair valueand the transaction price is treated as expense or income, unless it qualifies for recognition assome type of asset or liability.

The Group uses the following hierarchy for determining and disclosing the fair value of financialinstruments by valuation technique:

· Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities· Level 2: other techniques for which all inputs which have a significant effect on the recorded

fair value are observable, either directly or indirectly· Level 3: techniques which use inputs which have a significant effect on the recorded fair value

that are not based on observable market data.

‘Day 1’ profit or lossWhere the transaction price in a non-active market is different from the fair value based on otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from an observable market, the Group recognizes the differencebetween the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless itqualifies for recognition as some other type of asset or liability. In cases where the transactionprice used is made of data which is not observable, the difference between the transaction pricemodel value is only recognized in profit or loss, when the inputs become observable or when theinstrument is derecognized. For each transaction, the Group determines the appropriate method ofrecognizing the ‘Day 1’ profit or loss amount.

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Financial assets and financial liabilities at FVPLFinancial assets and financial liabilities at FVPL include financial assets and financial liabilitiesheld for trading purposes, derivative instruments or those designated upon initial recognition as atFVPL. Financial assets and financial liabilities are designated by management on initialrecognition when any of the following criteria are met:

· The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the assets or liabilities or recognizing gains or losses on themon a different basis; or

· The assets or liabilities are part of a group of financial assets, financial liabilities or bothwhich are managed and their performance are evaluated on a fair value basis, in accordancewith a documented risk management or investment strategy; or

· The financial instrument contains an embedded derivative, unless the embedded derivativedoes not significantly modify the cash flows or it is clear, with little or no analysis, that itwould not be separately recorded.

The Group’s financial assets and liabilities at FVPL consist of derivative liabilities and derivativeassets as of December 31, 2014 and 2013, respectively (Note 9).

Financial assets and financial liabilities at FVPL are presented in the consolidated statement offinancial position at fair value. Changes in fair value are reflected in profit or loss. Interest earnedor incurred is recorded in interest income or expense, respectively, while dividend income isrecorded in other revenue according to the terms of the contract, or when the right of the paymenthas been established.

Derivatives recorded at FVPLThe Group is counterparty to certain derivative contracts such as commodity options. Suchderivative financial instruments are initially recorded at fair value on the date at which thederivative contract is entered into and are subsequently re-measured at fair value. Any gains orlosses arising from changes in fair values of derivatives (except those accounted for as accountinghedges) are taken directly to profit or loss. Derivatives are carried as assets when the fair value ispositive and as liabilities when the fair value is negative.

For the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of thefair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of theexposure to variability in cash flows attributable to an asset or liability or a forecasted transaction(cash flow hedge). The Group did not apply hedge accounting on its derivative transactions forthe years ended December 31, 2014 and 2013.

The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuelderivatives are not designated as accounting hedges. These derivatives are entered into for riskmanagement purposes. The gains or losses on these instruments are accounted for directly ascharges to or credits against current operations under ‘Fuel hedging gains (losses)’ account inprofit or loss.

As of December 31, 2014 and 2013, the Group has no embedded derivatives.

AFS investmentsAFS investments are those non-derivative investments which are designated as such or do notqualify to be classified or designated as financial assets at FVPL, HTM investments or loans and

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receivables. They are purchased and held indefinitely, and may be sold in response to liquidityrequirements or changes in market conditions.

After initial measurement, AFS investments are subsequently measured at fair value.

The unrealized gains and losses are recognized directly in equity [other comprehensive income(loss)] under ‘Net unrealized gain (loss) on AFS investments’ account in the statement of financialposition. When the investment is disposed of, the cumulative gain or loss previously recognizedin the statement of comprehensive income is recognized in the statement of income. Where theGroup holds more than one investment in the same security they are deemed to be disposed of ona first-in first-out basis. Dividends earned while holding AFS investments are recognized in thestatement of income when the right of the payment has been established. The losses arising fromimpairment of such investments are recognized in the statement of income and removed from the‘Net unrealized gain (loss) on AFS investments’ account.

As of December 31, 2014 and 2013, the Group has no AFS investments.

ReceivablesReceivables are non-derivative financial assets with fixed or determinable payments and fixedmaturities that are not quoted in an active market. After initial measurement, receivables aresubsequently carried at amortized cost using the effective interest method less any allowance forimpairment loss. Amortized cost is calculated by taking into account any discount or premium onacquisition, and includes fees that are an integral part of the effective interest rate (EIR) andtransaction costs. Gains and losses are recognized in profit or loss, when the receivables arederecognized or impaired, as well as through the amortization process.

This accounting policy applies primarily to the Group’s trade and other receivables (Note 10) andcertain refundable deposits (Note 16).

Financial liabilitiesIssued financial instruments or their components, which are not designated at FVPL are classifiedas other financial liabilities where the substance of the contractual arrangement results in theGroup having an obligation either to deliver cash or another financial asset to the holder, or tosatisfy the obligation other than by the exchange of a fixed amount of cash or another financialasset for a fixed number of own equity shares. The components of issued financial instrumentsthat contain both liability and equity elements are accounted for separately, with the equitycomponent being assigned the residual amount after deducting from the instrument as a whole theamount separately determined as the fair value of the liability component on the date of issue.

After initial measurement, other financial liabilities are subsequently measured at cost oramortized cost using the effective interest method. Amortized cost is calculated by taking intoaccount any discount or premium on the issue and fees that are an integral part of the EIR. Anyeffects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.

This accounting policy applies primarily to the Group’s accounts payable and other accruedliabilities, long-term debt, and other obligations that meet the above definition(Notes 17, 18 and 19).

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Impairment of Financial AssetsThe Group assesses at each reporting date whether there is objective evidence that a financial assetor group of financial assets is impaired. A financial asset or a group of financial assets is deemedto be impaired if, and only if, there is objective evidence of impairment as a result of one or moreevents that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and thatloss event (or events) has an impact on the estimated future cash flows of the financial asset or thegroup of financial assets that can be reliably estimated. Evidence of impairment may includeindications that the borrower or a group of borrowers is experiencing significant financialdifficulty, default or delinquency in interest or principal payments, the probability that they willenter bankruptcy or other financial reorganization and where observable data indicate that there isa measurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlate with defaults.

Assets carried at amortized costIf there is objective evidence that an impairment loss on financial assets carried at amortized cost(i.e., receivables) has been incurred, the amount of the loss is measured as the difference betweenthe assets’ carrying amount and the present value of estimated future cash flows discounted at theasset’s original EIR. Time value is generally not considered when the effect of discounting is notmaterial. The carrying amount of the asset is reduced through the use of an allowance account.The amount of the loss shall be recognized in profit or loss. The asset, together with theassociated allowance accounts, is written-off when there is no realistic prospect of future recovery.The Group first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, and collectively for financial assets that are notindividually significant. If it is determined that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group of financial assets iscollectively assessed for impairment. Assets that are individually assessed for impairment and forwhich an impairment loss is or continues to be recognized are not included in the collectiveassessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, the previouslyrecognized impairment loss is reversed. Any subsequent reversal of an impairment loss isrecognized in profit or loss to the extent that the carrying value of the asset does not exceed itsamortized cost at the reversal date.

The Group performs a regular review of the age and status of these accounts, designed to identifyaccounts with objective evidence of impairment and provide the appropriate allowance forimpairment loss. The review is accomplished using a combination of specific and collectiveassessment approaches, with the impairment loss being determined for each risk groupingidentified by the Group.

AFS investmentsThe Group assesses at each reporting date whether there is objective evidence that a financial assetor group of financial assets is impaired. In the case of debt instruments classified as AFSinvestments, impairment is assessed based on the same criteria as financial assets carried atamortized cost. Interest continues to be accrued at the original EIR on the reduced carryingamount of the asset and is recorded under interest income in profit or loss. If, in a subsequentyear, the fair value of a debt instrument increases, and the increase can be objectively related to anevent occurring after the impairment loss was recognized in profit or loss, the impairment loss isalso reversed through profit or loss.

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For equity investments classified as AFS investments, objective evidence would include asignificant or prolonged decline in the fair value of the investments below its cost. Thedetermination of what is significant and prolonged is subject to judgment. Where there isevidence of impairment, the cumulative loss measured as the difference between the acquisitioncost and the current fair value, less any impairment loss on that investment previously recognizedis removed from other comprehensive income and recognized in profit or loss. Impairment losseson equity investments are not reversed through the statement of comprehensive income. Increasesin fair value after impairment are recognized directly in other comprehensive income.

Derecognition of Financial InstrumentsFinancial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of financialassets) is derecognized where:

· the rights to receive cash flows from the asset have expired;· the Group retains the right to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a “pass-through” arrangement;or

· the Group has transferred its rights to receive cash flows from the asset and either: (a) hastransferred substantially all the risks and rewards of ownership and retained control over theasset; or (b) has neither transferred nor retained the risks and rewards of the asset but hastransferred the control over the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control over the asset, the asset is recognized to the extent ofthe Group’s continuing involvement in the asset. Continuing involvement that takes the form of aguarantee over the transferred asset is measured at the lower of original carrying amount of theasset and the maximum amount of consideration that the Group could be required to repay.

Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged,cancelled or has expired. When an existing financial liability is replaced by another from the samelender on substantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as a derecognition of the original liabilityand the recognition of a new liability, and the difference in the respective carrying amounts isrecognized in profit or loss.

Offsetting Financial InstrumentsFinancial assets and liabilities are offset and the net amount reported in the consolidated statementof financial position if, and only if, there is a currently enforceable legal right to offset therecognized amounts and there is an intention to settle on a net basis, or to realize the asset andsettle the liability simultaneously. This is not generally the case with master netting agreements;thus, the related assets and liabilities are presented gross in the consolidated statement of financialposition.

Expendable Parts, Fuel, Materials and SuppliesExpendable parts, fuel, materials and supplies are stated at lower of cost and net realizable value(NRV). Cost of flight equipment expendable parts, materials and supplies are stated at acquisitioncost determined on a moving average cost method. Fuel is stated at cost on a weighted averagecost method. NRV is the estimated selling price in the ordinary course of business less estimatedcosts to sell.

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Business Combinations and GoodwillPFRS 3 provides that if the initial accounting for a business combination can be determined onlyprovisionally by the end of the period in which the combination is effected because either the fairvalues to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or thecost of the combination can be determined only provisionally, the acquirer shall account for thecombination using those provisional values. The acquirer shall recognize any adjustments to thoseprovisional values as a result of completing the initial accounting within twelve months of theacquisition date as follows: (i) the carrying amount of the identifiable asset, liability or contingentliability that is recognized or adjusted as a result of completing the initial accounting shall becalculated as if its fair value at the acquisition date had been recognized from that date;(ii) goodwill or any gain recognized shall be adjusted by an amount equal to the adjustment to thefair value at the acquisition date of the identifiable asset, liability or contingent liability beingrecognized or adjusted; and (iii) comparative information presented for the periods before theinitial accounting for the combination is complete shall be presented as if the initial accounting hasbeen completed from the acquisition date.

Business combinations are accounted for using the acquisition method. The cost of an acquisitionis measured as the aggregate of the consideration transferred measured at acquisition date fairvalue and the amount of any non-controlling interests in the acquiree. For each businesscombination, the Group elects whether to measure the non-controlling interests in the acquiree atfair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-relatedcosts are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed forappropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as at the acquisition date. This includes the separation ofembedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is remeasuredat its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value atthe acquisition date. Contingent consideration classified as an asset or liability that is a financialinstrument and within the scope of PAS 39, Financial Instruments: Recognition andMeasurement, is measured at fair value with changes in fair value recognized either in profit orloss or as a change to OCI. If the contingent consideration is not within the scope of PAS 39, it ismeasured in accordance with the appropriate IFRS. Contingent consideration that is classified asequity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the considerationtransferred and the amount recognized for non-controlling interests, and any previous interestheld, over the net identifiable assets acquired and liabilities assumed. If the fair value of the netassets acquired is in excess of the aggregate consideration transferred, the Group re-assesseswhether it has correctly identified all of the assets acquired and all of the liabilities assumed andreviews the procedures used to measure the amounts to be recognized at the acquisition date. Ifthe reassessment still results in an excess of the fair value of net assets acquired over the aggregateconsideration transferred, then the gain is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Group’s CGU that are expected to benefit from the

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combination, irrespective of whether other assets or liabilities of the acquiree are assigned to thoseunits.

On March 20, 2014, the Parent Company acquired 100% shares of TAP in which totalconsideration amounted to P=265.1 million and goodwill recognized as a result of the acquisitionamounted to P=566.8 million (Notes 7 and 15).

Property and EquipmentProperty and equipment are carried at cost less accumulated depreciation, amortization andimpairment loss, if any. The initial cost of property and equipment comprises its purchase price,any related capitalizable borrowing costs attributed to progress payments incurred on account ofaircraft acquisition under construction and other directly attributable costs of bringing the asset toits working condition and location for its intended use.

Subsequent costs are capitalized as part of ‘Property and equipment’ account only when it isprobable that future economic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. Subsequent costs such as actual costs of heavy maintenancevisits for passenger aircraft are capitalized and depreciated based on the estimated number of yearsor flying hours, whichever is applicable, until the next major overhaul or inspection. Generally,heavy maintenance visits are required every five to six years for airframe and ten years or 20,000flight cycles, whichever comes first, for landing gear. All other repairs and maintenance arecharged against current operations as incurred.

Pre-delivery payments for the construction of aircraft are initially recorded as Constructionin-progress when paid to the counterparty. Construction in-progress are transferred to the related‘Property and equipment’ account when the construction or installation and related activitiesnecessary to prepare the property and equipment for their intended use are completed, and theproperty and equipment are ready for service. Construction in-progress is not depreciated untilsuch time when the relevant assets are completed and available for use.

Depreciation and amortization of property and equipment commence once the property andequipment are available for use and are computed using the straight-line method over theestimated useful lives (EULs) of the assets, regardless of utilization.

The EULs of property and equipment of the Group follows:

Passenger aircraft* 15 yearsEngines 15 yearsRotables 15 yearsGround support equipment 5 yearsEDP Equipment, mainframe and peripherals 3 yearsTransportation equipment 5 yearsFurniture, fixtures and office equipment 5 yearsCommunication equipment 5 yearsSpecial tools 5 yearsMaintenance and test equipment 5 yearsOther equipment 5 years*With residual value of 15.00%

Leasehold improvements are amortized over the shorter of their EULs or the corresponding leaseterms.

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An item of property and equipment is derecognized upon disposal or when no future economicbenefits are expected to arise from the continued use of the asset. Any gain or loss arising onderecognition of the asset (calculated as the difference between the net disposal proceeds and thecarrying amount of the item) is included in profit or loss, in the year the item is derecognized.

The assets’ residual values, useful lives and methods of depreciation and amortization arereviewed and adjusted, if appropriate, at each financial year-end.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. The cost ofintangible assets acquired in a business combination is their fair value at the date of acquisition(Notes 7 and 16).

Intangible assets with indefinite useful lives are not amortized, but are tested for impairmentannually, either individually or at the CGU level. The assessment of indefinite life is reviewedannually to determine whether the indefinite life continues to be supportable. If not, the change inuseful life from indefinite to finite is made on a prospective basis. Gains or losses arising fromderecognition of an intangible asset are measured as the difference between the net disposalproceeds and the carrying amount of the asset and are recognized in the statement of profit or losswhen the asset is derecognized.

The intangible asset of the Group has indefinite useful lives.

Aircraft Maintenance and Overhaul CostThe Group recognizes aircraft maintenance and overhaul expenses in accordance with thecontractual terms.

The maintenance contracts are classified into two: (a) those based on time and material basis(TMB); and (b) power-by-the-hour (PBH) contract. For maintenance contract under TMB, theGroup recognizes expenses based on expense as incurred method. For maintenance contract underPBH, the Group recognizes expense on an accrual basis.

AROThe Group is contractually required under various lease contracts to restore certain leased aircraftto its original condition and to bear the cost of restoration at the end of the contract period. Thecontractual obligation includes regular aircraft maintenance, overhaul and restoration of the leasedaircraft to its original condition. The event that gives rise to the obligation is the actual flyinghours of the asset as used, as the usage determines the timing and nature of the entity completesthe overhaul and restoration. Regular aircraft maintenance is accounted for as expense whenincurred, while overhaul and restoration are accounted on an accrual basis.

If there is a commitment related to maintenance of aircraft held under operating leasearrangements, a provision is made during the lease term for the lease return obligations specifiedwithin those lease agreements. The provision is made based on historical experience,manufacturers’ advice and if relevant, contractual obligations, to determine the present value ofthe estimated future major airframe inspections cost and engine overhauls.

Advance payment for materials for the restoration of the aircraft is initially recorded as Advancesto Supplier. This is recouped when the expenses for restoration of aircraft have been incurred.

The Group regularly assesses the provision for ARO and adjusts the related liability (Note 5).

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Investments in Joint VenturesA joint venture (JV) is a contractual arrangement whereby two or more parties undertake aneconomic activity that is subject to joint control. A jointly controlled entity is a JV that involvesthe establishment of a separate entity in which each venturer has an interest.

The Group’s 50.00%, 49.00% and 35.00% investments in Philippine Academy for AviationTraning, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIAEngineering (Philippines) Corporation (SIAEP), respectively, are accounted for under the equitymethod (Note 14). Under the equity method, the investments in JV are carried in the consolidatedstatement of financial position at cost plus post-acquisition changes in the Group’s share of netassets of the JV, less any allowance for impairment in value. The consolidated statement ofcomprehensive income reflects the Group’s share in the results of operations of the JV. Dividendsreceived are treated as a revaluation of the carrying value of the investment.

The financial statements of the investee companies used in the preparation of the consolidatedfinancial statements are prepared as of the same date with the Group. The investee companies’accounting policies conform to those by the Group for like transactions and events in similarcircumstances.

Impairment of Nonfinancial AssetsThis accounting policy applies primarily to the Group’s property and equipment.

At each reporting date, the Group assesses whether there is any indication that its nonfinancialassets may be impaired. When an indicator of impairment exists or when an annual impairmenttesting for an asset is required, the Group makes a formal estimate of recoverable amount.Recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its valuein use and is determined for an individual asset, unless the asset does not generate cash inflowsthat are largely independent of those from other assets or groups of assets, in which case therecoverable amount is assessed as part of the CGU to which it belongs. Where the carryingamount of an asset or CGU exceeds its recoverable amount, the asset or CGU is consideredimpaired and is written down to its recoverable amount. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific to the asset or CGU.

An assessment is made at each statement of financial position date as to whether there is anyindication that a previously recognized impairment loss may no longer exist or may havedecreased. If such indication exists, the recoverable amount is estimated. A previouslyrecognized impairment loss is reversed only if there has been a change in the estimates used todetermine the asset’s recoverable amount since the last impairment loss was recognized. If that isthe case, the carrying amount of the asset is increased to its recoverable amount. That increasedamount cannot exceed the carrying amount that would have been determined, net of depreciationand amortization, had no impairment loss been recognized for the asset in prior years. Suchreversal is recognized in profit or loss. After such a reversal, the depreciation and amortizationexpense is adjusted in future years to allocate the asset’s revised carrying amount, less anyresidual value, on a systematic basis over its remaining life.

Impairment of IntangiblesIntangible assets with indefinite lives are assessed for impairment annually irrespective of whetherthere is any indication that it may be impaired. An intangible asset is impaired when its carryingamount exceeds recoverable amount. An impairment is recognized immediately in the profit orloss. The Group estimates the recoverable amount of the intangible asset. This impairment test

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may be performed at any time during an annual period, provided it is performed at the same timeevery year.

Recoverable amount is the higher of an asset’s or CGU’s fair value less cost to sell and its value inuse. A CGU is the smallest identifiable group of assets that generates cash inflows that are largelyindependent of the cash inflows from either assets or group of assets. Value in use is the presentvalue of the future cash flows expected to be derived from an asset or each CGU.

An impairment loss recognized in prior periods shall be reversed if, and only if, there has been achange in the estimates used to determine the asset’s recoverable amount since the last impairmentloss was recognized. A reversal of an impairment loss shall be recognized immediately in profitor loss.

Intangible assets with indefinite useful lives are tested for impairment annually, either individuallyor at the CGU level.

Impairment of Investments in JVThe Group’s investment in JV is tested for impairment in accordance with PAS 36 as a singleasset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell)with its carrying amount, whenever application of the requirements in PAS 39 indicates that theinvestment may be impaired. An impairment loss recognized in those circumstances is notallocated to any asset that forms part of the carrying amount of the investment in a JV.Accordingly, any reversal of that impairment loss is recognized in accordance with PAS 36 to theextent that the recoverable amount of the investment subsequently increases. In determining thevalue in use of the investment, an entity estimates: (a) its share of the present value of theestimated future cash flows expected to be generated by the JV, including the cash flows from theoperations of the JV and the proceeds on the ultimate disposal of the investment; or (b) the presentvalue of the estimated future cash flows expected to arise from dividends to be received from theinvestment and from its ultimate disposal.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount shall bereduced to its recoverable amount. The reduction is an impairment loss and shall be recognizedimmediately in profit or loss. An impairment loss recognized in prior periods shall be reversed if,and only if, there has been a change in the estimates used to determine the asset’s recoverableamount since the last impairment loss was recognized. A reversal of an impairment loss shall berecognized immediately in profit or loss.

Impairment of GoodwillThe Group determines whether goodwill is impaired at least on an annual basis. The impairmenttesting may be performed at any time in the annual reporting period, but it must be performed atthe same time every year and when circumstances indicate that the carrying amount is impaired.The impairment testing also requires an estimation of the recoverable amount, which is the netselling price or value-in-use of the CGU to which the goodwill is allocated. The most recentdetailed calculation made in a preceding period of the recoverable amount of the CGU may beused for the impairment testing for the current period provided that:

· The assets and liabilities making up the CGU have not changed significantly from the mostrecent calculation;

· The most recent recoverable amount calculation resulted in an amount that exceeded thecarrying amount of the CGU by a significant margin; and

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· The likelihood that a current recoverable amount calculation would be less than the carryingamount of the CGU is remote based on an analysis of events that have occurred andcircumstances that have changed since the most recent recoverable amount calculation.

When value-in-use calculations are undertaken, management must estimate the expected futurecash flows from the asset of CGU and choose a suitable discount rate in order to calculate thepresent value of those cash flows.

An impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Common StockCommon stocks are classified as equity and recorded at par. Proceeds in excess of par value arerecorded as ‘Capital paid in excess of par value’ in the consolidated statement of financialposition. Incremental costs directly attributable to the issue of new shares or options are shown inequity as a deduction from the proceeds.

Treasury StockOwn equity instruments which are acquired (treasury shares) are recognized at cost and deductedfrom equity. No gain or loss is recognized in the profit and loss on the purchase, sale, issue orcancellation of the Parent Company’s own equity instruments.

Retained EarningsRetained earnings represent accumulated earnings of the Group less dividends declared.

Dividends on Common SharesDividends on common shares are recognized as a liability and deducted from equity whenapproved and declared by the BOD, in the case of cash dividends; or by the BOD andshareholders, in the case of stock dividends.

Provisions and ContingenciesProvisions are recognized when: (a) the Group has a present obligation (legal or constructive) as aresult of a past event; (b) it is probable (i.e., more likely than not) that an outflow of assetsembodying economic benefits will be required to settle the obligation; and (c) a reliable estimatecan be made of the amount of the obligation. Provisions are reviewed at each reporting date andadjusted to reflect the current best estimate. Where the Group expects a provision to bereimbursed, for example under an insurance contract, the reimbursement is recognized as aseparate asset but only when the reimbursement is virtually certain. If the effect of the time valueof money is material, provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessments of the time value of money and, whereappropriate, the risks specific to the liability. Where discounting is used, the increase in theprovision due to the passage of time is recognized as an interest expense in profit or loss.

Contingent liabilities are not recognized in the consolidated statement of financial position but aredisclosed unless the possibility of an outflow of resources embodying economic benefits isremote. Contingent assets are not recognized but disclosed in the consolidated financialstatements when an inflow of economic benefits is probable. If it is virtually certain that an inflowof economic benefits will arise, the asset and the related income are recognized in the consolidatedfinancial statements.

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Pension CostsDefined benefit planThe net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets, adjusted forany effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is thepresent value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

Defined benefit costs comprise the following:(a) service cost;(b) net interest on the net defined benefit liability or asset; and(c) remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on high quality corporate bonds to the net defined benefit liabilityor asset. Net interest on the net defined benefit liability or asset is recognized as expense orincome in profit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in OCI in the period in which they arise. Remeasurements are not reclassified toprofit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Group, nor can they be paid directlyto the Group. Fair value of plan assets is based on market price information. When no marketprice is available, the fair value of plan assets is estimated by discounting expected future cashflows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expectedperiod until the settlement of the related obligations).

The Group’s right to be reimbursed of some or all of the expenditure required to settle a definedbenefit obligation is recognized as a separate asset at fair value when and only whenreimbursement is virtually certain.

Income TaxesCurrent taxCurrent tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rates and tax laws usedto compute the amount are those that are enacted or substantially enacted as of the reporting date.

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Deferred taxDeferred tax is provided using the liability method on all temporary differences, with certainexceptions, at the reporting date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certainexceptions. Deferred tax assets are recognized for all deductible temporary differences withcertain exceptions, and carryforward benefits of unused tax credits from excess minimumcorporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), tothe extent that it is probable that sufficient taxable income will be available against which thedeductible temporary differences and carryforward benefits of unused tax credits from excessMCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognizedwhen it arises from the initial recognition of an asset or liability in a transaction that is not abusiness combination and, at the time of transaction, affects neither the accounting income nortaxable profit or loss. Deferred tax liabilities are not provided on non-taxable temporarydifferences associated with interests in JV. With respect to interests in JV, deferred tax liabilitiesare recognized except where the timing of the reversal of the temporary difference can becontrolled and it is probable that the temporary difference will not reverse in the foreseeablefuture.

The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to theextent that it is no longer probable that sufficient taxable income will be available to allow all orpart of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed ateach reporting date, and are recognized to the extent that it has become probable that futuretaxable income will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the periodwhen the asset is realized or the liability is settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted as of the statement of financial position date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.Deferred tax items are recognized in correlation to the underlying transaction either in profit orloss or other comprehensive income.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to setoff current tax assets against current tax liabilities and the deferred taxes relate to the same taxableentity and the same taxation authority.

LeasesThe determination of whether an arrangement is, or contains a lease, is based on the substance ofthe arrangement at inception date, and requires an assessment of whether the fulfillment of thearrangement is dependent on the use of a specific asset or assets and the arrangement conveys aright to use the asset. A reassessment is made after inception of the lease only if one of thefollowing applies:

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;b. a renewal option is exercised or an extension granted, unless that term of the renewal or

extension was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specified asset;

ord. there is a substantial change to the asset.

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Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for (a), (c) and (d) scenarios above, and atthe date of renewal or extension period for scenario (b).

Group as lesseeFinance leases, which transfer to the Group substantially all the risks and benefits incidental toownership of the leased item, are capitalized at the inception of the lease at the fair value of theleased property or, if lower, at the present value of the minimum lease payments and includedunder ‘Property and equipment’ account with the corresponding liability to the lessor includedunder ‘Long-term debt’ account in the consolidated statement of financial position. Leasepayments are apportioned between the finance charges and reduction of the lease liability so as toachieve a constant rate of interest on the remaining balance of the liability. Finance charges arecharged directly to profit or loss.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonablecertainty that the Group will obtain ownership by the end of the lease term, the asset is depreciatedover the shorter of the EUL of the asset and the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as an expense in profit orloss on a straight-line basis over the lease term.

Group as lessorLeases where the Group does not transfer substantially all the risks and benefits of ownership ofthe assets are classified as operating leases. Initial direct costs incurred in negotiating operatingleases are added to the carrying amount of the leased asset and recognized over the lease term onthe same basis as the rental income. Contingent rents are recognized as revenue in the period inwhich they are earned.

Borrowing CostsBorrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they aredirectly attributable to the acquisition or construction of a qualifying asset. Capitalization ofborrowing costs commences when the activities to prepare the asset are in progress, andexpenditures and borrowing costs are being incurred. Borrowing costs are capitalized until theassets are substantially ready for their intended use.

The Group had not capitalized any borrowing costs for the years ended December 31, 2014 and2013 as all borrowing costs from outstanding long-term debt relate to assets that are at state readyfor intended use (Note 18).

Foreign Currency TransactionsTransactions in foreign currencies are initially recorded in the Group’s functional currency usingthe exchange rates prevailing at the dates of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated at the functional currency using the PhilippineDealing and Exchange Corp. (PDEX) closing rate prevailing at the reporting date. All differencesare taken to the consolidated statement of comprehensive income. Non-monetary items that aremeasured in terms of historical cost in a foreign currency are translated using the prevailingclosing exchange rate as of the date of initial transaction.

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Earnings (Loss) Per Share (EPS)Basic EPS is computed by dividing net income applicable to common stock by the weightedaverage number of common shares issued and outstanding during the year, adjusted for anysubsequent stock dividends declared.

Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equityholders of the Group by the weighted average number of ordinary shares outstanding during theyear plus the weighted average number of ordinary shares that would be issued on the conversionof all the dilutive potential ordinary shares into ordinary shares.

For the years ended December 31, 2014 and 2013, the Parent Company does not have any dilutivepotential ordinary shares.

Segment ReportingOperating segments are reported in a manner consistent with the internal reporting provided to theChief Operating Decision Maker (CODM). The CODM, who is responsible for resourceallocation and assessing performance of the operating segment, has been identified as thePresident. The nature of the operating segment is set out in Note 6.

Events After the Reporting DatePost-year-end events that provide additional information about the Group’s position at thereporting date (adjusting event) are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the consolidated financial statements,when material.

5. Significant Accounting Judgments and Estimates

In the process of applying the Group’s accounting policies, management has exercised judgmentsand estimates in determining the amounts recognized in the consolidated financial statements.The most significant uses of judgments and estimates follow.

Judgments

a. Going concernThe management of the Group has made an assessment of the Group’s ability to continue as agoing concern and is satisfied that the Group has the resources to continue in business for theforeseeable future. Furthermore, the Group is not aware of any material uncertainties that maycast significant doubts upon the Group’s ability to continue as a going concern. Therefore, theconsolidated financial statements continue to be prepared on a going concern basis.

b. Classification of financial instrumentsThe Group exercises judgment in classifying a financial instrument, or its component, oninitial recognition as either a financial asset, a financial liability or an equity instrument inaccordance with the substance of the contractual arrangement and the definitions of a financialasset, financial liability or equity instrument. The substance of a financial instrument, ratherthan its legal form, governs its classification in the consolidated statement of financialposition.

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In addition, the Group classifies financial assets by evaluating, among others, whether theasset is quoted or not in an active market. Included in the evaluation on whether a financialasset is quoted in an active market is the determination of whether quoted prices are readilyand regularly available, and whether those prices represent actual and regularly occurringmarket transactions on an arm’s length basis.

c. Fair values of financial instrumentsWhere the fair values of certain financial assets and liabilities recorded in the consolidatedstatement of financial position cannot be derived from active markets, they are determinedusing valuation techniques, including the discounted cash flow model. The inputs to thesemodels are taken from observable market data where possible, but where this is not feasible,estimates are used in establishing fair values. The judgments include considerations ofliquidity risk, credit risk and volatility. Changes in assumptions about these factors couldaffect the reported fair value of financial instruments. For derivatives, the Group generallyrelies on calculation agent’s valuation.

The fair values of the Group’s financial instruments are presented in Note 29.

d. Impairment of financial assetsIn determining whether an impairment loss should be recorded in profit or loss, the Groupmakes judgments as to whether there is any objective evidence of impairment as a result ofone or more events that has occurred after initial recognition of the asset and that loss event orevents has an impact on the estimated future cash flows of the financial assets or the group offinancial assets that can be reliably estimated. This observable data may include adversechanges in payment status of borrowings in a group, or national or local economic conditionsthat correlate with defaults on assets in the portfolio.

e. Classification of leasesManagement exercises judgment in determining whether substantially all the significant risksand rewards of ownership of the leased assets are transferred to the Group. Lease contracts,which transfer to the Group substantially all the risks and rewards incidental to ownership ofthe leased items, are capitalized. Otherwise, they are considered as operating leases.

The Group also has lease agreements where it has determined that the risks and rewardsrelated to the leased assets are retained with the lessors. Such leases are accounted for asoperating leases (Note 30).

f. Consolidation of SPEsThe Group periodically undertakes transactions that may involve obtaining the rights tovariable returns from its involvement with the SPE. These transactions include the purchaseof aircraft and assumption of certain liabilities. Also, included are transactions involvingSPEs and similar vehicles. In all such cases, management makes an assessment as to whetherthe Group has the right over the returns of its SPEs, and based on this assessment, the SPE isconsolidated as a subsidiary or associated company. In making this assessment, managementconsiders the underlying economic substance of the transaction and not only the contractualterms.

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g. Determination of functional currencyPAS 21 requires management to use its judgment to determine the entity’s functional currencysuch that it most faithfully represents the economic effects of the underlying transactions,events and conditions that are relevant to the entity. In making this judgment, each entity inthe Group considers the following:

a) the currency that mainly influences sales prices for financial instruments and services (thiswill often be the currency in which sales prices for its financial instruments and servicesare denominated and settled);

b) the currency in which funds from financing activities are generated; andc) the currency in which receipts from operating activities are usually retained.

The Group’s consolidated financial statements are presented in Philippine peso, which is alsothe Parent Company’s functional currency.

h. ContingenciesThe Group is currently involved in certain legal proceedings. The estimate of the probablecosts for the resolution of these claims has been developed in consultation with outsidecounsel handling the defense in these matters and is based upon an analysis of potentialresults. The Group currently does not believe that these proceedings will have a materialadverse effect on the Group’s financial position and results of operations. It is possible,however, that future results of operations could be materially affected by changes in theestimates or in the effectiveness of the strategies relating to these proceedings (Note 30).

i. Allocation of revenue, costs and expensesRevenue, costs and expenses are classified as exclusive and common. Exclusive revenue, costand expenses such as passenger revenue, cargo revenue, excess baggage revenue, fuel andinsurance surcharge, fuel and oil expense, hull/war/risk insurance, maintenance expense,depreciation (for aircraft under finance lease), lease expense (for aircraft under operatinglease) and interest expense based on the related long-term debt are specifically identified peraircraft based on an actual basis. For revenue, cost and expense accounts that are notidentifiable per aircraft, the Group provides allocation based on activity factors that closelyrelate to the earning process of the revenue.

j. Application of hedge accountingThe Group applies hedge accounting treatment for certain qualifying derivatives aftercomplying with hedge accounting requirements, specifically on hedge documentationdesignation and effectiveness testing. Judgment is involved in these areas, which includemanagement determining the appropriate data points for evaluating hedge effectiveness,establishing that the hedged forecasted transaction in cash flow hedges are probable ofoccurring, and assessing the credit standing of hedging counterparties (Note 9).

k. Classification of joint arrangementsThe Group’s investments in joint ventures (Note 14) are structured in separate incorporatedentities. Even though the Group holds various percentage of ownership interest on thesearrangements, their respective joint arrangement agreements requires unanimous consent fromall parties to the agreement for the relevant activities identified. The Group and the parties tothe agreement only have rights to the net assets of the joint venture through the terms of thecontractual arrangements.

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l. IntangiblesThe Group assesses intangible as having an indefinite useful life when based on the analysisof relevant factors; the Group has no foreseeable limit to the period of which the intangibleasset is expected to generate cash inflow for the Group.

m. Impairment of goodwill and intangible assetsThe Group performs its annual impairment test on its goodwill and other intangible assets withindefinite useful lives as of reporting date irrespective of whether there is any indication ofimpairment. The recoverable amounts of the intangible assets were determined based onvalue in use calculations using cash flow projections from financial budgets approved bymanagement covering a five-year period.

l) Impairment of PPE and investments in JVThe Company assesses at the end of each reporting period whether there is any indication thatan asset may be impaired. If any such indication exists, the entity shall estimate therecoverable amount of the asset.

Estimates and Assumptions

The key assumptions concerning the future and other sources of estimation uncertainty at thestatement of financial position date that have significant risk of causing a material adjustment tothe carrying amounts of assets and liabilities within the next year are discussed below:

a. Estimation of allowance for credit losses on receivablesThe Group maintains allowance for impairment losses at a level considered adequate toprovide for potential uncollectible receivables. The level of this allowance is evaluated bymanagement on the basis of factors that affect the collectibility of the accounts. These factorsinclude, but are not limited to, the length of the Group’s relationship with the agents,customers and other counterparties, the payment behavior of agents and customers, othercounterparties and other known market factors. The Group reviews the age and status ofreceivables, and identifies accounts that are to be provided with allowances on a continuousbasis.

The related balances follow (Note 10):

2014 2013Receivables P=2,169,549,982 P=2,053,254,622Allowance for credit losses 306,831,563 235,438,019

b. Determination of NRV of expendable parts, fuel, materials and suppliesThe Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are basedon the most reliable evidence available at the time the estimates are made, of the amount thatthe expendable parts, fuel, materials and supplies are expected to be realized. In determiningthe NRV, the Group considers any adjustment necessary for obsolescence, which is generallyproviding 100.00% for nonmoving items for more than one year. A new assessment is madeof NRV in each subsequent period. When the circumstances that previously causedexpendable parts, fuel, materials and supplies to be written-down below cost no longer exist orwhen there is a clear evidence of an increase in NRV because of a change in economiccircumstances, the amount of the write-down is reversed so that the new carrying amount isthe lower of the cost and the revised NRV.

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2014 2013Expendable Parts, Fuel, Materials and Supplies

At NRV P=504,714,331 P=407,985,226At cost 174,600,739 303,190,634

As of December 31, 2014 and 2013, allowance for inventory write-down for expendable partsamounted to P=20.5 million. No additional provision for inventory write-down was recognizedby the Group in 2014 and 2013.

c. Estimation of AROThe Group is contractually required under certain lease contracts to restore certain leasedpassenger aircraft to stipulated return condition and to bear the costs of restoration at the endof the contract period. Since the first operating lease entered by the Group in 2001, thesecosts are accrued based on an internal estimate which includes estimates of certain redeliverycosts at the end of the operating aircraft lease. The contractual obligation includes regularaircraft maintenance, overhaul and restoration of the leased aircraft to its original condition.Regular aircraft maintenance is accounted for as expense when incurred, while overhaul andrestoration are accounted on an accrual basis.

Assumptions used to compute ARO are reviewed and updated annually by the Group. As ofDecember 31, 2014 and 2013, the cost of restoration is computed based on the Group’saverage borrowing cost.

The amount and timing of recorded expenses for any period would differ if differentjudgments were made or different estimates were utilized. The recognition of ARO wouldincrease other noncurrent liabilities and repairs and maintenance expense.

As of December 31, 2014 and 2013, the Group’s ARO liability (included under ‘Othernoncurrent liabilities’ account in the statements of financial position) has a carrying value ofP=586.1 million and P=1,637.3 million, respectively (Note 19). The related repairs andmaintenance expense for the years ended December 31, 2014, 2013 and 2012 amounted toP=476.0 million, P=590.6 million and P=577.5 million, respectively (Notes 19 and 22).

d. Estimation of useful lives and residual values of property and equipmentThe Group estimates the useful lives of its property and equipment based on the period overwhich the assets are expected to be available for use. The Group estimates the residual valueof its property and equipment based on the expected amount recoverable at the end of itsuseful life. The Group reviews annually the EULs and residual values of property andequipment based on factors that include physical wear and tear, technical and commercialobsolescence and other limits on the use of the assets. It is possible that future results ofoperations could be materially affected by changes in these estimates brought about bychanges in the factors mentioned. A reduction in the EUL or residual value of property andequipment would increase recorded depreciation and amortization expense and decreasenoncurrent assets.

As of December 31, 2014 and 2013, the carrying values of the Group’s property andequipment amounted to P=65,227.1 million and P=56,412.5 million, respectively (Note 13).The Group’s depreciation and amortization expense amounted to P=4,281.5 million,P=3,454.6 million and P=2,767.9 million for the years ended December 31, 2014, 2013 and2012, respectively (Note 13).

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e. Impairment of property and equipment and investment in JVThe Group assesses the impairment of nonfinancial assets, particularly property andequipment and investment in JV, whenever events or changes in circumstances indicate thatthe carrying amount of the nonfinancial asset may not be recoverable. The factors that theGroup considers important which could trigger an impairment review include the following:

· significant underperformance relative to expected historical or projected future operatingresults;

· significant changes in the manner of use of the acquired assets or the strategy for overallbusiness; and

· significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset or investmentexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair valueless cost to sell and value in use. The fair value less cost to sell is the amount obtainable fromthe sale of an asset in an arm’s length transaction while value in use is the present value ofestimated future cash flows expected to arise from the continuing use of an asset and from itsdisposal at the end of its useful life.

Recoverable amounts are estimated for individual assets or investments or, if it is not possible,for the CGU to which the asset belongs.

In determining the present value of estimated future cash flows expected to be generated fromthe continued use of the assets, the Group is required to make estimates and assumptions thatcan materially affect the consolidated financial statements.

As of December 31, 2014 and 2013, the carrying values of the Group’s property andequipment amounted to P=65,227.1 million and P=56,412.5 million, respectively (Note 13).Investments in JV amounted to P=591.3 million and P=578.8 million as of December 31, 2014and 2013, respectively (Note 14). There were no provision for impairment losses on theGroup’s property and equipment and investments in JV for the years endedDecember 31, 2014 and 2013.

f. Impairment of goodwill and intangiblesThe Group determines whether goodwill and intangibles are impaired at least on an annualbasis. The impairment testing may be performed at any time in the annual reporting period,but it must be performed at the same time every year and when circumstances indicate that thecarrying amount is impaired. The impairment testing also requires an estimation of therecoverable amount, which is the net selling price or value-in-use of the CGU to which thegoodwill and intangibles are allocated. The most recent detailed calculation made in apreceding period of the recoverable amount of the CGU may be used for the impairmenttesting for the current period provided that:

· The assets and liabilities making up the CGU have not changes significantly from themost recent calculation;

· The most recent recoverable amount calculation resulted in an amount that exceeded thecarrying amount of the CGU by a significant margin; and

· The likelihood that a current recoverable amount calculation would be less than thecarrying amount of the CGU is remote based on an analysis of events that have occurredand circumstances that have changed since the most recent recoverable amountcalculation.

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When value in use calculations are undertaken, management must estimate the expected futurecash flows from the asset or CGUs and choose a suitable discount rate in order to calculate thepresent value of those cash flows.

As of December 31, 2014 and 2013, the Group has determined that goodwill and intangiblesare recoverable as there were no indications that it is impaired. Goodwill amounted to P=566.8million and nil as of December 31, 2014 and 2013, respectively (Notes 7 and 15).

g. Estimation of pension and other employee benefit costsThe determination of the obligation and cost of pension and other employee benefits isdependent on the selection of certain assumptions used in calculating such amounts. Thoseassumptions include, among others, discount rates and salary increase rates (Note 24).

While the Group believes that the assumptions are reasonable and appropriate, significantdifferences between actual experiences and assumptions may materially affect the cost ofemployee benefits and related obligations.

The Group’s pension liability (included in ‘Other noncurrent liabilities’ account in theconsolidated statements of financial position) amounted to P=385.7 million and P=538.2 millionas of December 31, 2014 and 2013, respectively (Notes 19 and 24).

The Group also estimates other employee benefit obligations and expense, including the costof paid leaves based on historical leave availments of employees, subject to the Group’spolicy. These estimates may vary depending on the future changes in salaries and actualexperiences during the year.

h. Recognition of deferred tax assetsThe Group assesses the carrying amounts of deferred income taxes at each reporting date andreduces deferred tax assets to the extent that it is no longer probable that sufficient taxableincome will be available to allow all or part of the deferred tax assets to be utilized.Significant management judgment is required to determine the amount of deferred tax assetsthat can be recognized, based upon the likely timing and level of future taxable profitstogether with future tax planning strategies.

As of December 31, 2014 and 2013, the Group had certain gross deductible and taxabletemporary differences which are expected to expire or reverse within the ITH period, and forwhich deferred tax assets and deferred tax liabilities were not set up on account of the ParentCompany’s ITH.

As of December 31, 2014 and 2013, the Group has deferred tax assets amountingP=1,967.4 million and P=1,611.7, respectively. Unrecognized deferred tax assets as ofDecember 31, 2014 amounted to P=347.5 million. There are no unrecognized deferred taxassets as of December 31, 2013 (Note 25).

i. Passenger revenue recognitionPassenger sales are recognized as revenue when the obligation of the Group to providetransportation service ceases, either: (a) when transportation services are already rendered;(b) carriage is provided or (c) when the flight is uplifted.

As of December 31, 2014 and 2013, the balances of the Group’s unearned transportationrevenue amounted to P=6,373.7 million and P=5,338.9 million, respectively.

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6. Segment Information

The Group has one reportable operating segment, which is the airline business (system-wide).This is consistent with how the Group’s management internally monitors and analyzes thefinancial information for reporting to the CODM, who is responsible for allocating resources,assessing performance and making operating decisions.

The revenue of the operating segment was mainly derived from rendering transportation services.

Transfer prices between operating segments are on an arm’s length basis in a manner similar totransactions with third parties.

The amount of segment assets and liabilities are based on the measurement principles that aresimilar with those used in measuring the assets and liabilities in the consolidated statements offinancial position which is in accordance with PFRS.

Segment information for the reportable segment is shown in the following table:

2014 2013 2012Revenue P=52,176,271,673 P=41,633,401,318 P=39,844,065,993Net income 853,498,216 511,946,229 3,572,014,263Depreciation and amortization 4,281,525,018 3,454,641,115 2,767,863,860Interest expense 1,013,241,353 865,501,445 732,591,508Interest income 79,927,272 219,619,475 415,770,873

The reconciliation of total revenue reported by reportable operating segment to revenue in theconsolidated statements of comprehensive income is presented in the following table:

2014 2013 2012Total segment revenue of reportable

operating segment P=52,000,018,310 P=41,004,096,281 P=37,904,453,623Nontransport revenue and

other income 176,253,363 629,305,037 1,939,612,370Total revenue P=52,176,271,673 P=41,633,401,318 P=39,844,065,993

Nontransport revenue and other income includes foreign exchange gains, interest income, fuelhedging gains, equity in net income of JV and gain on sale on financial assets designated at FVPLand AFS financial assets.

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The reconciliation of total income reported by reportable operating segment to totalcomprehensive income in the consolidated statements of comprehensive income is presented inthe following table:

2014 2013 2012Total segment income of

reportable segment P=4,157,336,990 P=2,404,411,910 P=2,663,409,236Add (deduct) unallocated items:

Nontransport revenue andother income 176,253,363 629,305,037 1,939,612,370

Nontransport expenses andother charges (3,454,954,369) (2,928,509,441) (732,591,508)

Benefit from (provision for)income tax (25,137,768) 406,738,723 (298,415,835)

Net income 853,498,216 511,946,229 3,572,014,263Other comprehensive gain (loss), net

of tax 209,681,986 (255,604,489) (48,480,934)Total comprehensive income P=1,063,180,202 P=256,341,740 P=3,523,533,329

The Group’s major revenue-producing asset is the fleet of aircraft owned by the Group, which isemployed across its route network (Note 13).

The Group has no significant customer which contributes 10.00% or more to the revenues of theGroup.

7. Business Combination

As part of the strategic alliance between the Parent Company and Tiger Airways Holding Limited(TAH), on February 10, 2014, the Parent Company signed a Sale and Purchase Agreement (SPA)to acquire 100% of TAP. Under the terms of the SPA, closing of the transaction is subject to thesatisfaction or waiver of each of the conditions contained in the SPA. On March 20, 2014, all theconditions precedent has been satisfactorily completed. The Parent Company has paid thepurchase price covering the transfer of shares from TAH. Consequently, the Parent Companygained control of TAP on the same date. The total consideration for the transaction amounted toP=265.1 million.

The fair values of the identifiable assets and liabilities of TAP at the date of acquisition follow:

Fair Valuerecognized in

the acquisitionTotal cash, receivables and other assets P=1,234,084,305Total accounts payable, accrued expenses

and unearned income 1,535,756,691Net liabilities (301,672,386)Goodwill 566,781,533Acquisition cost at post-closing settlement date P=265,109,147

In the December 31, 2013 consolidated financial statements, a note relating to Events after theStatement of Financial Position Date disclosed that there could be a goodwill amountingP=665.9 million. The Parent Company also identified other assets representing costs to establish

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brand and market opportunities under the strategic alliance with TAH (Note 16). The relateddeferred tax liability on this business combination amounted to P=185.6 million (Note 25).

From the date of acquisition, the Parent Company’s share in TAP’s revenue and net loss amountedto P=2,830.0 million and P=159.8 million, respectively. If the combination had taken place at thebeginning of the year in 2014, the Parent Company’s share in TAP’s total revenue and net losswould have been P=3,773.6 million and P=1,379.6 million, respectively.

In February 2015, the Parent Company reached an agreement with ROAR II on the settlement ofpost-closing adjustments amounting P=223.5 million pursuant to the SPA. Such amount is bookedunder ‘other receivables’ and is accounted for as an adjustment in the purchase price (Note 10).

8. Cash and Cash Equivalents

This account consists of:

2014 2013Cash on hand P=27,571,469 P=24,115,537Cash in banks (Note 28) 1,011,286,363 476,372,461Short-term placements (Note 28) 2,925,054,851 5,555,623,805

P=3,963,912,683 P=6,056,111,803

Cash in banks earns interest at the respective bank deposit rates. Short-term placements, whichrepresent money market placements, are made for varying periods depending on the immediatecash requirements of the Group. Short-term placements denominated in Philippine peso earn anaverage interest of 2.98%, 0.84% and 3.6% in 2014, 2013 and 2012, respectively. Moreover,short-term placements in US dollar earn interest on an average rate of 0.92%, 1.89% and 1.45% in2014, 2013 and 2012, respectively.

Interest income on cash and cash equivalents, presented in the consolidated statements ofcomprehensive income amounted to P=79.9 million, P=219.6 million and P=415.8 million in 2014,2013 and 2012, respectively.

9. Investment and Trading Securities

This account consists of derivative financial liabilities in 2014 and derivative financial assets in2013 that are not designated as accounting hedges. This account amounted to P=2,260.6 millionand P=166.5 million in 2014 and 2013, respectively.

As of December 31, 2014 and 2013, this account consists of commodity swaps.

Commodity SwapsThe Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuelderivatives are not designated as accounting hedges. The gains or losses on these instruments areaccounted for directly as a charge against or credit to profit or loss. As of December 31, 2014 and2013, the Group has outstanding fuel hedging transactions. The notional quantity is the amount ofthe derivatives’ underlying asset or liability, reference rate or index and is the basis upon whichchanges in the value of derivatives are measured. The swaps can be exercised at various

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calculation dates with specified quantities on each calculation date. The swaps have variousmaturity dates through December 31, 2016 (Note 5).

As of December 31, 2014 and 2013, the Group recognized net changes in fair value of derivativesamounting P=2,424.0 million loss and P=290.3 million gain, respectively. These are recognized in“Hedging gains (losses)” under the consolidated statements of comprehensive income.

Foreign Currency ForwardsIn 2014, the Group entered into foreign currency hedging arrangements with variouscounterparties to manage its exposure to foreign currency fluctuations. Such derivatives are notdesignated as accounting hedges. The gains or losses on these instruments are accounted fordirectly as a charge against or credit to profit or loss. During the year, the Group pre-terminatedall foreign currency derivative contracts, where the Group recognized realized gain ofP=109.8 million from the transaction. For the year ended December 31, 2014, such realized gain isrecognized in “Hedging gains (losses)” under the consolidated statement of comprehensiveincome.

Fair value changes on derivativesThe changes in fair value of all derivative financial instruments not designated as accountinghedges follow:

2014 2013Balance at beginning of year

Derivative assets P=166,456,897 P=102,682,762Net changes in fair value of derivatives (2,314,241,984) 290,325,093

(2,147,785,087) 393,007,855Fair value of settled instruments (112,774,809) (226,550,958)Balance at end of year (P=2,260,559,896) P=166,456,897Attributable to:

Derivative assets P=– P=166,456,897Derivative liabilities P=2,260,559,896 P=–

10. Receivables


2014 2013Trade receivables (Note 28) P=1,302,342,302 P=944,473,732Due from related parties (Notes 27 and 28) 134,424,754 556,591,334Interest receivable 1,008,445 4,904,684Others (Note 7) 731,774,481 547,284,872

2,169,549,982 2,053,254,622Less allowance for credit losses (Note 28) 306,831,563 235,438,019

P=1,862,718,419 P=1,817,816,603

Trade receivables are noninterest-bearing and generally have 30 to 90 days terms. The receivablesare carried at cost.

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Interest receivable pertains to accrual of interest income from short-term placements amountingP=1.0 million and P=4.9 million in 2014 and 2013, respectively.

Others include receivable from insurance, employees and counterparties. In 2014, it includes thesettlement receivable from ROAR (Note 7).

The changes in the allowance for credit losses on receivables follow:

2014Trade

Receivables Others TotalBalance at beginning of year P=6,330,875 P=229,107,144 P=235,438,019Unrealized foreign exchange gain on

allowance for credit losses – 1,671,190 1,671,190Allowance for credit losses 69,722,354 – 69,722,354Balance at end of year P=76,053,229 P=230,778,334 P=306,831,563

2013Trade

Receivables Others TotalBalance at beginning of year P=6,330,875 P=211,906,744 P=218,237,619Unrealized foreign exchange gain on

allowance for credit losses – 17,200,400 17,200,400Balance at end of year P=6,330,875 P=229,107,144 P=235,438,019

As of December 31, 2014 and 2013, the specific allowance for credit losses on trade receivablesand other receivables amounted to P=306.8 million and P=235.4 million, respectively.

11. Expendable Parts, Fuel, Materials and Supplies


2014 2013At NRV:

Expendable parts P=504,714,331 P=407,985,226At cost:

Fuel 129,110,368 273,197,071Materials and supplies 45,490,371 29,993,563

174,600,739 303,190,634P=679,315,070 P=711,175,860

The cost of expendable and consumable parts, and materials and supplies recognized as expense(included under ‘Repairs and maintenance’ account in the consolidated statements ofcomprehensive income) for the years ended December 31, 2014, 2013 and 2012 amounted toP=365.2 million, P=279.8 million and P=290.9 million, respectively. The cost of fuel reported asexpense under ‘Flying operations’ amounted to P=23,210.3 million, P=19,522.7 million andP=17,561.9 million in 2014, 2013 and 2012, respectively (Note 22).

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The cost of expendable parts amounted to P=481.4 million and P=389.5 million as ofDecember 31, 2014 and 2013, respectively. There are no additional provisions for inventorywrite down in 2014 and 2013. No expendable parts, fuel, material and supplies are pledged assecurity for liabilities.

12. Other Current Assets


2014 2013Advances to suppliers P=851,716,307 P=997,783,656Deposit to counterparties (Note 9) 841,439,022 –Prepaid rent 318,023,507 231,535,642Prepaid insurance 5,180,027 48,897,285Others 4,113,060 3,329,817

P=2,020,471,923 P=1,281,546,400

Advances to suppliers include advances made for the purchase of various aircraft parts, servicemaintenance for regular maintenance and restoration costs of the aircraft. Advances for regularmaintenance are recouped from progress billings which occurs within one year from the date theadvances arose, whereas, advance payment for restoration costs is recouped when the expenses forrestoration of aircraft have been incurred. The advances are unsecured and noninterest-bearing(Note 30).

Deposit to counterparties pertains to collateral deposits provided to counterparties for fuel hedgingtransactions.

Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces inairports (Note 30).

Prepaid insurance consist of aviation insurance which represents insurance of hull, war, and risk,passenger and cargo insurance for the aircraft during flights and non-aviation insurance representsinsurance payments for all employees’ health and medical benefits, commission, casualty andmarine insurance as well as car/motor insurance.

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13. Property and Equipment

The composition and movements in this account follow:

2014

PassengerAircraft

(Notes 18 and 32) Engines Rotables

GroundSupport

Equipment

EDPEquipment,

Mainframe andPeripherals

LeaseholdImprovements

TransportationEquipment Sub-total

CostBalance at January 1, 2014 P=55,467,053,217 P=4,766,121,255 P=1,925,128,767 P=439,233,908 P=675,411,191 P=474,091,618 P=187,315,198 P=63,934,355,154Additions through business

combination (Note 7) – – – – 102,400 13,500 – 115,900Additions 7,575,750,090 1,389,833,886 978,819,967 54,482,887 107,933,586 876,522 22,594,748 10,130,291,686Reclassification 2,612,552,125 – (1,988,214) (16,516,103) – 628,748,003 – 3,222,795,811Disposals/others (24,455,634) – (239,771,253) (1,991,398) (16,745,162) (140,614,589) – (423,578,036)Balance at December 31, 2014 65,630,899,798 6,155,955,141 2,662,189,267 475,209,294 766,702,015 963,115,054 209,909,946 76,863,980,515Accumulated Depreciation

and AmortizationBalance at January 1, 2014 13,551,101,649 1,109,029,422 374,366,431 305,646,442 566,371,255 167,895,720 129,225,704 16,203,636,623Depreciation and amortization 3,435,623,376 451,070,072 169,390,376 50,986,591 69,194,140 62,836,060 21,074,474 4,260,175,089Reclassification 343,794 – (39,098) (11,146,793) 104,172 6,277 – (10,731,648)Disposals/others (2,547,271) – (69,803,584) (1,991,398) (16,743,513) – – (91,085,766)Balance at December 31, 2014 16,984,521,548 1,560,099,494 473,914,125 343,494,842 618,926,054 230,738,057 150,300,178 20,361,994,298Net Book Value at

December 31, 2014 P=48,646,378,250 P=4,595,855,647 P=2,188,275,142 P=131,714,452 P=147,775,961 P=732,376,997 P=59,609,768 P=56,501,986,217

2014Furniture,

Fixtures andOffice

EquipmentCommunication

EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther

EquipmentConstruction

In-progress TotalCostBalance at January 1, 2014 P=98,788,650 P=11,166,616 P=12,930,393 P=6,681,631 P=81,210,161 P=8,630,598,676 P=72,775,731,281Additions through business combination (Note 7) 350,215 3,037,878 3,503,993Additions 53,913,030 1,569,885 1,217,339 6,258,504 3,123,469,412 13,316,719,856Reclassification (237,053) (42,411) 241,071 (3,241,300,128) (18,542,710)Disposals/others (198,293) (222,785) 116,240,979 (307,758,135)Balance at December 31, 2014 152,616,549 12,736,501 14,105,321 6,681,631 90,524,829 8,629,008,939 85,769,654,285

(Forward)

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2014Furniture,

Fixtures andOffice


EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther


In-progress TotalAccumulated Depreciation and AmortizationBalance at January 1, 2014 P=69,503,656 P=7,980,577 P=11,782,318 P=6,290,564 P=64,071,259 P=– P=16,363,264,997Depreciation and amortization 11,999,988 1,276,855 438,466 207,649 7,423,319 3,652 4,281,525,018Reclassification (319,042) – (1,414) – 278,546 (3,652) (10,777,210)Disposals/others (175,337) – – – (222,785) – (91,483,888)Balance at December 31, 2014 81,009,265 9,257,432 12,219,370 6,498,213 71,550,339 – 20,542,528,917Net Book Value at

December 31, 2014 P=71,607,284 P=3,479,069 P=1,885,951 P=183,418 P=18,974,490 P=8,629,008,939 P=65,227,125,368

2013

PassengerAircraft

(Notes 18 and 32) Engines Rotables

GroundSupport

Equipment

EDPEquipment,

Mainframe andPeripherals

LeaseholdImprovements

TransportationEquipment Sub-total

CostBalance at January 1, 2013 P=46,594,710,885 P=2,439,973,358 P=1,523,539,854 P=385,024,150 P=622,729,162 P=333,877,736 P=169,595,189 P=52,069,450,334Additions 6,837,840,163 2,326,147,897 444,031,600 49,025,367 52,683,993 – 23,529,482 9,733,258,502Reclassification 2,581,222,537 – 1,332,016 5,871,125 – 140,213,882 (5,809,473) 2,722,830,087Disposals/others (546,720,368) – (43,774,703) (686,734) (1,964) – – (591,183,769)Balance at December 31, 2013 55,467,053,217 4,766,121,255 1,925,128,767 439,233,908 675,411,191 474,091,618 187,315,198 63,934,355,154Accumulated Depreciation

and AmortizationBalance at January 1, 2013 10,882,594,198 843,946,165 251,455,000 253,344,771 495,179,367 138,761,903 107,416,389 12,972,697,793Depreciation and amortization 2,862,935,958 265,083,257 130,186,430 50,374,142 71,193,798 29,133,817 24,423,578 3,433,330,980Reclassification – – (49,638) 2,614,263 – – (2,614,263) (49,638)Disposals/others (194,428,507) – (7,225,361) (686,734) (1,910) – – (202,342,512)Balance at December 31, 2013 13,551,101,649 1,109,029,422 374,366,431 305,646,442 566,371,255 167,895,720 129,225,704 16,203,636,623Net Book Value at

December 31, 2013 P=41,915,951,568 P=3,657,091,833 P=1,550,762,336 P=133,587,466 P=109,039,936 P=306,195,898 P=58,089,494 P=47,730,718,531

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2013Furniture,

Fixtures andOffice


EquipmentSpecial

Tools

Maintenanceand Test

EquipmentOther


In-progress TotalCostBalance at January 1, 2013 P=81,250,593 P=9,399,253 P=12,507,408 P=6,681,631 P=75,458,076 P=8,420,267,153 P=60,675,014,448Additions 17,538,057 1,767,363 580,753 – 9,354,692 2,931,767,943 12,694,267,310Reclassification – – – – (362,108) (2,721,436,420) 1,031,559Disposals/others – – (157,768) – (3,240,499) – (594,582,036)Balance at December 31, 2013 98,788,650 11,166,616 12,930,393 6,681,631 81,210,161 8,630,598,676 72,775,731,281Accumulated Depreciation and AmortizationBalance at January 1, 2013 58,974,745 6,628,648 11,512,759 6,074,073 57,727,806 – 13,113,615,824Depreciation and amortization 10,528,911 1,351,929 371,228 216,491 8,841,576 – 3,454,641,115Reclassification – – – – 39,977 – (9,661)Disposals/others – – (101,669) – (2,538,100) – (204,982,281)Balance at December 31, 2013 69,503,656 7,980,577 11,782,318 6,290,564 64,071,259 – 16,363,264,997Net Book Value at December 31, 2013 P=29,284,994 P=3,186,039 P=1,148,075 P=391,067 P=17,138,902 P=8,630,598,676 P=56,412,466,284

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Passenger Aircraft Held as Securing Assets Under Various LoansThe Group entered into various ECA and commercial loan facilities to finance the purchase of itsaircraft and engines. As of December 31, 2014, the Group has ten (10) Airbus A319 aircraft,seven (7) Avion de Transport Regional (ATR) 72-500 turboprop aircraft, and ten (10) AirbusA320 aircraft under ECA loans, and twelve (12) Airbus A320 aircraft, five (5) ATR aircraft andsix (6) engine under commercial loans.

Under the terms of the ECA loan and commercial loan facilities (Note 18), upon the event ofdefault, the outstanding amount of loan (including accrued interest) will be payable by CALL orILL or BLL or SLL or SALL or VALL or POALL or PTALL or PTHALL, or SAALL or by theguarantors which are CPAHI and JGSHI. CPAHI and JGSHI are guarantors to loans entered intoby CALL, ILL, BLI, SLL and SALL. Failure to pay the obligation will allow the respectivelenders to foreclose the securing assets.

As of December 31, 2014 and 2013, the carrying amounts of the securing assets (included underthe ‘Property and equipment’ account) amounted to P=49.7 billion and P=43.1 billion, respectively.

Operating FleetAs of December 31, 2014 and 2013, the Group’s operating fleet follows (Note 32):

2014 2013Owned (Note 16):

Airbus A319 10 10Airbus A320 22 17ATR 72-500 8 8

Under operating lease (Note 30):Airbus A320 7 11Airbus A330 5 2

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Construction in-progress represents the cost of aircraft and engine construction in progress andbuildings and improvements and other ground property under construction. Constructionin-progress is not depreciated until such time when the relevant assets are completed and availablefor use. As of December 31, 2014 and 2013, the Group’s capitalized pre-delivery payments asconstruction in-progress amounted to P=8.6 billion and P=8.4 billion, respectively (Note 30).

As of December 31, 2014 and 2013, the gross amount of fully depreciated property and equipmentwhich are still in use by the Group amounted to P=1,023.9 million and P=851.01 million,respectively.

As of December 31, 2014 and 2013, there are no temporary idle property and equipment.

14. Investments in Joint Ventures

The investments in joint ventures represent the Parent Company’s 50.00%, 49.00% and 35.00%interests in PAAT, A-plus and SIAEP, respectively. The joint ventures are accounted for asjointly controlled entities.

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Investment in PAAT pertains to the Parent Company's 60.00% investment in shares of the jointventure. However, the joint venture agreement between the Parent Company and CAEInternational Holdings Limited (CAE) states that the Parent Company is entitled to 50% share onthe net income/loss of PAAT. As such, the Parent Company recognizes equivalent 50% share innet income and net assets of the joint venture.

PAAT was created to address the Group’s training requirements and to pursue businessopportunities for training third parties in the commercial fixed wing aviation industry, includingother local and international airline companies. PAAT was formally incorporated onJanuary 27, 2012 and started commercial operations in December 2012.

A-plus and SIAEP were established for the purpose of providing line, light and heavy maintenanceservices to foreign and local airlines, utilizing the facilities and services at airports in the country,as well as aircraft maintenance and repair organizations.

A-plus was incorporated on May 24, 2005 and started commercial operations on July 1, 2005while SIAEP was incorporated on July 27, 2008 and started commercial operations onAugust 17, 2009.

The movements in the carrying values of the Group’s investments in joint ventures in A-plus,SIAEP and PAAT follow:

2014A-plus SIAEP PAAT Total

CostBalance at beginning of the year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117Accumulated Equity in

Net Income (Loss)Balance at beginning of the year 80,072,599 (24,307,482) (3,590,781) 52,174,336Equity in net income (loss)

during the year 108,579,261 (34,745,590) 22,492,420 96,326,091Dividends received (83,811,058) – – (83,811,058)Balance at end of the year 104,840,802 (59,053,072) 18,901,639 64,689,369Net Carrying Value P=191,853,374 P=245,710,828 P=153,775,284 P=591,339,486

2013A-plus SIAEP PAAT Total

CostBalance at beginning of the year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117Accumulated Equity in

Net Income (Loss)Balance at beginning of the year 42,046,763 (46,273,497) (10,666,510) (14,893,244)Equity in net income during

the year 90,318,725 21,966,015 7,075,729 119,360,469Dividends received (52,292,889) – – (52,292,889)Balance at end of the year 80,072,599 (24,307,482) (3,590,781) 52,174,336Net Carrying Value P=167,085,171 P=280,456,418 P=131,282,864 P=578,824,453

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Selected financial information of A-plus, SIAEP and PAAT as of December 31 follow:

2014

Aplus SIAEP PAATTotal current assets P=628,879,988 P=653,378,218 P=253,137,483Noncurrent assets 124,389,267 1,328,695,779 779,873,393Current liabilities (361,731,757) (626,863,000) (39,454,946)Noncurrent liabilities – (653,180,060) (686,005,363)Equity 391,537,498 702,030,937 307,550,567Proportion of the Group’s ownership 49% 35% 50%Carrying amount of the investments P=191,853,374 P=245,710,828 P=153,775,284

2013

Aplus SIAEP PAATTotal current assets P=542,350,932 P=772,860,471 P=176,354,588Noncurrent assets 106,362,888 1,079,620,021 821,101,107Current liabilities (307,723,675) (671,766,913) (734,889,967)Noncurrent liabilities – (379,409,528) –Equity 340,990,145 801,304,051 262,565,728Proportion of the Group’s ownership 49% 35% 50%Carrying amount of the investments P=167,085,171 P=280,456,418 P=131,282,864

Summary of statements of profit and loss of A-plus, SIAEP and PAAT for the twelve monthperiod ended December 31 follow:

2014

Aplus SIAEP PAATRevenue P=831,652,059 P=749,982,173 P=227,958,105Expenses (537,954,937) (847,033,722) (164,004,339)Other income (expenses) 22,550,458 (79,043) (16,239,773)Income before tax 316,247,580 (97,130,592) 47,713,993Income tax expense 94,657,252 2,142,521 2,729,153Net income 221,590,328 (99,273,113) 44,984,840Group’s share of profit for the year P=108,579,261 (P=34,745,590) P=22,492,420

2013

Aplus SIAEP PAATRevenue P=709,880,406 P=717,485,690 P=186,914,210Expenses (463,510,962) (643,887,307) (169,924,076)Other income (expenses) 16,635,747 (2,841,053) 319,542Income before tax 263,005,191 70,757,330 17,309,676Income tax expense 78,681,263 7,997,288 3,158,219Net income 184,323,928 62,760,042 14,151,457Group’s share of profit for the year P=90,318,725 P=21,966,015 P=7,075,729

The fiscal year-end of A-plus and SIAEP is every March 31 while the year-end of PAAT is everyDecember 31.

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The undistributed earnings of A-plus included in the consolidated retained earnings amounted toP=104.8 million and P=80.1 million as of December 31, 2014 and 2013, respectively, which is notcurrently available for dividend distribution unless declared by A-plus.

The Group has no share of any contingent liabilities or capital commitments as ofDecember 31, 2014 and 2013.

15. Goodwill

This account represents the goodwill arising from the acquisition of TAP (Note 7). Goodwill isattributed to the following:

Achievement of Economies of ScaleUsing the Parent Company’s network of suppliers and other partners to improve cost andefficiency of TAP, thus, improving TAP’s overall profit, given its existing market share.

Defensive StrategyAcquiring a competitor enables the Parent Company to manage overcapacity in certaingeographical areas/markets.

As of December 31, 2014, the Goodwill amounted to P=566.8 million (Note 7).

16. Other Noncurrent Assets

In 2013, this account includes security deposits provided to lessors and maintenance providers andother refundable deposits to be applied against payments for future aircraft deliveries. In 2014, italso includes other assets representing costs to establish brand and market opportunities under thestrategic alliance with TAP amounting P=852.2 million (Note 7).

17. Accounts Payable and Other Accrued Liabilities


2014 2013Accrued expenses P=4,565,129,147 P=3,539,882,921Accounts payable (Notes 27 and 30) 3,984,009,931 4,313,509,756Airport and other related fees payable 1,211,266,625 742,614,823Advances from agents and others 554,620,109 291,742,288Interest payable (Note 18) 207,120,947 198,819,429Other payables 146,290,892 102,330,288

P=10,668,437,651 P=9,188,899,505

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Accrued ExpensesThe Group’s accrued expenses include accruals for:

2014 2013Maintenance (Note 30) P=1,292,335,450 P=984,129,468Compensation and benefits 744,630,855 552,453,509Advertising and promotion 511,768,214 314,061,391Navigational charges 380,565,611 243,688,767Landing and take-off fees 283,580,997 184,906,577Training costs 245,866,751 324,616,954Fuel 240,095,874 180,699,973Repairs and services 159,497,011 169,242,006Aircraft insurance 150,597,236 50,684,009Professional fees 114,167,659 113,526,044Rent (Note 30) 92,742,956 120,079,923Ground handling charges 78,983,174 163,483,339Catering supplies 32,519,227 23,193,648Reservation costs 8,131,518 8,081,587Others 229,646,614 107,035,726

P=4,565,129,147 P=3,539,882,921

Others represent accrual of professional fees, security, utilities and other expenses.

Accounts PayableAccounts payable consists mostly of payables related to the purchase of inventories, arenoninterest-bearing and are normally settled on a 60-day term. These inventories are necessary forthe daily operations and maintenance of the aircraft, which include aviation fuel, expendablesparts, equipment and in-flight supplies. It also includes other nontrade payables.

Airport and Other Related Fees PayableAirport and other related fees payable are amounts payable to the Philippine Tourism Authorityand Air Transportation Office on aviation security, terminal fees and travel taxes.

Advances from Agents and OthersAdvances from agents and others represent cash bonds required from major sales and ticketoffices or agents. This also includes commitment fees received for the sale and purchaseagreement of six (6) A319 aircraft.

Accrued Interest PayableInterest payable is related to long-term debt and normally settled quarterly throughout the year.

Other PayablesOther payables are noninterest-bearing and have an average term of two months. This accountincludes commissions payable, refunds payable and other tax liabilities such as withholding taxesand output VAT.

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18. Long-term Debt


2014Interest Rates Range

(Note 28) Maturities US DollarPhilippine Peso

EquivalentECA loans 2.00% to 6.00% Various dates

through 2023US$244,437,529 P=10,931,246,279

1.00% to 2.00%(US Dollar LIBOR) 149,721,785 6,695,558,231

394,159,314 17,626,804,510

Commercial loans 4.00% to 6.00% Various datesthrough 2017

170,274,962 7,614,696,300


362,765,164 16,222,858,155756,924,478 33,849,662,665

Less current portion 105,377,131 4,712,465,291US$651,547,347 P=29,137,197,374

2013Interest Rates Range

(Note 28) Maturities US DollarPhilippine Peso

EquivalentECA loans 2.00% to 6.00% Various dates

through 2023US$289,926,581 P=12,871,290,579


455,271,689 20,211,786,630

Commercial loans 4.00% to 6.00% Various datesthrough 2017

170,748,885 7,580,396,757


207,110,689 9,194,679,042662,382,378 29,406,465,672

Less current portion 84,584,789 3,755,141,710US$577,797,589 P=25,651,323,962

ECA LoansIn 2005 and 2006, the Group entered into ECA-backed loan facilities to partially finance thepurchase of ten Airbus A319 aircraft. The security trustee of the ECA loans established CALL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rentalpayments made by the Parent Company to CALL correspond to the principal and interestpayments made by CALL to the ECA-backed lenders. The quarterly lease rentals to CALL areguaranteed by CPAHI and JGSHI. The Parent Company has the option to purchase the aircraft fora nominal amount at the end of such leases.

In 2008, the Group entered into ECA-backed loan facilities to partially finance the purchase of sixATR 72-500 turboprop aircraft. The security trustee of the ECA loans established BLL, a specialpurpose company, which purchased the aircraft from the supplier and leases such aircraft to theParent Company pursuant to ten-year finance lease agreements. The semi-annual rental paymentsmade by the Parent Company to BLL corresponds to the principal and interest payments made byBLL to the ECA-backed lenders. The semi-annual lease rentals to BLL are guaranteed by JGSHI.The Parent Company has the option to purchase the aircraft for a nominal amount at the end ofsuch leases. On November 30, 2010, the Parent Company pre-terminated the lease agreementwith BLL related to the disposal of one ATR 72-500 turboprop aircraft. The outstanding balance

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of the related loans and accrued interests were also pre-terminated. The proceeds from theinsurance claim on the related aircraft were used to settle the loan and accrued interest. JGSHIwas released as guarantor on the related loans.

In 2009, the Group entered into ECA-backed loan facilities to partially finance the purchase oftwo ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established SLL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rentalpayments made by the Parent Company to SLL corresponds to the principal and interest paymentsmade by SLL to the ECA-backed lenders. The semi-annual lease rentals to SLL are guaranteed byJGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at theend of such leases.

In 2010, the Group entered into ECA-backed loan facilities to partially finance the purchase offour Airbus A320 aircraft, delivered between 2010 to January 2011. The security trustee of theECA loans established SALL, a special purpose company, which purchased the aircraft from thesupplier and leases such aircraft to the Parent Company pursuant to twelve-year finance leaseagreements. The quarterly rental payments made by the Parent Company to SALL corresponds tothe principal and interest payments made by SALL to the ECA-backed lenders. The quarterlylease rentals to SALL are guaranteed by JGSHI. The Parent Company has the option to purchasethe aircraft for a nominal amount at the end of such leases.

In 2011, the Group entered into ECA-backed loan facilities to fully finance the purchase of threeAirbus A320 aircraft, delivered between 2011 to January 2012. The security trustee of the ECAloans established VALL, special purpose company, which purchased the aircraft from the supplierand leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements.The quarterly rental payments made by the Parent Company to VALL corresponds to the principaland interest payments made by VALL to the ECA-backed lenders. The Parent Company has theoption to purchase the aircraft for a nominal amount at the end of such leases.

In 2012, the Group entered into ECA-backed loan facilities to partially finance the purchase ofthree Airbus A320 aircraft. The security trustee of the ECA loans established POALL, a specialpurpose company, which purchased the aircraft from the supplier and leases such aircraft to theParent Company pursuant to twelve-year finance lease agreements. The quarterly rental paymentsmade by the Parent Company to POALL corresponds to the principal and interest payments madeby POALL to the ECA-backed lenders. The Parent Company has the option to purchase theaircraft for a nominal amount at the end of such leases.

The terms of the ECA-backed facilities, which are the same for each of the ten Airbus A319aircraft, seven ATR 72-500 turboprop aircraft and ten Airbus A320 aircraft, follow:

· Term of 12 years starting from the delivery date of each Airbus A319 aircraft and AirbusA320, and ten years for each ATR 72-500 turboprop aircraft.

· Annuity style principal repayments for the first four Airbus A319 aircraft, eight ATR 72-500turboprop aircraft and seven Airbus A320 aircraft, and equal principal repayments for the lastsix Airbus A319 aircraft and last three Airbus A320 aircraft. Principal repayments shall bemade on a semi-annual basis for ATR 72-500 turboprop aircraft. Principal repayments shallbe made on a quarterly basis for Airbus A319 and A320 aircraft.

· Interest on loans from the ECA lenders are a mix of fixed and variable rates. Fixed interestrates ranges from 2.00% to 6.00% and variable rates are based on US dollar LIBOR plusmargin.

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· As provided under the ECA-backed facility, CALL, BLL, SLL, SALL, VALL and POALLcannot create or allow to exist any security interest, other than what is permitted by thetransaction documents or the ECA administrative parties. CALL, BLL, SLL, SALL, VALLand POALL must not allow impairment of first priority nature of the lenders’ securityinterests.

· The ECA-backed facilities also provide for the following events of default: (a) nonpayment ofthe loan principal or interest or any other amount payable on the due date, (b) breach ofnegative pledge, covenant on preservation of transaction documents, (c) misrepresentation,(d) commencement of insolvency proceedings against CALL or BLL or SLL or SALL orVALL or POALL becomes insolvent, (e) failure to discharge any attachment or sequestrationorder against CALL’s, BLL’s, SLL’s, SALL’s VALL’s and POALL’s assets, (f) entering intoan undervalued transaction, obtaining preference or giving preference to any person, contraryto the laws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior todischarge date, (h) cessation of business, (i) revocation or repudiation by CALL or BLL orSLL or SALL or VALL or POALL, the Group, JGSHI or CPAHI of any transaction documentor security interest, and (j) occurrence of an event of default under the lease agreement withthe Parent Company.

· Upon default, the outstanding amount of loan will be payable, including interest accrued.Also, the ECA lenders will foreclose on secured assets, namely the aircraft (Note 13).

· An event of default under any ECA loan agreement will occur if an event of default asenumerated above occurs under any other ECA loan agreement.

As of December 31, 2014 and 2013, the total outstanding balance of the ECA loans amounted toP=17,626.8 million (US$394.2 million) and P=20,211.8 million (US$455.3 million), respectively.Interest expense amounted to P=551.5 million, P=625.2 million and P=632.6 million in 2014, 2013and 2012, respectively.

Commercial LoansIn 2007, the Group entered into a commercial loan facility to partially finance the purchase oftwo Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one QECKit. The security trustee of the commercial loan facility established ILL, a special purposecompany, which purchased the aircraft from the supplier and leases such aircraft to the ParentCompany pursuant to (a) ten-year finance lease arrangement for the aircraft, (b) six-year financelease arrangement for the engines and (c) five-year finance lease arrangement for the QEC Kit.The quarterly rental payments of the Parent Company correspond to the principal and interestpayments made by ILL to the commercial lenders and are guaranteed by JGSHI. The ParentCompany has the option to purchase the aircraft, the engines and the QEC Kit for a nominalamount at the end of such leases.

In 2008, the Group also entered into a commercial loan facility, in addition to ECA-backed loanfacility, to partially finance the purchase of six ATR 72-500 turboprop aircraft. The securitytrustee of the commercial loan facility established BLL, a special purpose company, whichpurchased the aircraft from the supplier and leases such aircraft to the Parent Company. Thecommercial loan facility is payable in 12 equal, consecutive, semi-annual installments starting sixmonths after the utilization date.

In 2012, the Group entered into a commercial loan facility to partially finance the purchase of fourAirbus A320 aircraft. The security trustee of the commercial loan facility established PTALL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. Thesemiannual rental payments of the Parent Company correspond to the principal and interest

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payments made by PTALL to the commercial lenders. The Parent Company has the option topurchase the aircraft for a nominal amount at the end of such leases.

In 2013, the Group entered into a commercial loan facility to partially finance the purchase of twoAirbus A320 aircraft. The security trustee of the commercial loan facility established PTHALL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. Thequarterly rental payments of the Parent Company correspond to the principal and interestpayments made by PTHALL to the commercial lenders. The Parent Company has the option topurchase the aircraft for a nominal amount at the end of such leases.

In 2014, the Group entered into a commercial loan facility to partially finance the purchase of fiveAirbus A320 aircraft. The security trustee of the commercial loan facility established SAALL, aspecial purpose company, which purchased the aircraft from the supplier and leases such aircraftto the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. Thequarterly rental payments of the Parent Company correspond to the principal and interestpayments made by SAALL to the commercial lenders. The Parent Company has the option topurchase the aircraft for a nominal amount at the end of such leases.

The terms of the commercial loans follow:

· Term of ten years starting from the delivery date of each Airbus A320 aircraft.· Terms of six and five years for the engines and QEC Kit, respectively.· Term of six years starting from the delivery date of each ATR 72-500 turboprop aircraft.· Annuity style principal repayments for the two Airbus A320 aircraft and six ATR 72-500

turboprop aircraft, and equal principal repayments for the engines and the QEC Kit. Principalrepayments shall be made on a quarterly and semi-annual basis for the two Airbus A320aircraft, engines and the QEC Kit and six ATR 72-500 turboprop aircraft, respectively.

· Interests on loans are a mix of fixed and variable rates. Interest rates ranges from 1.00% to6.00%.

· The commercial loan facility provides for material breach as an event of default.· Upon default, the outstanding amount of loan will be payable, including interest accrued.

The lenders will foreclose on secured assets, namely the aircraft.

As of December 31, 2014 and 2013, the total outstanding balance of the commercial loansamounted to P=16,222.9 million (US$362.8 million) and P=9,194.7 million (US$207.1 million),respectively. Interest expense amounted to P=461.7 million, P=240.3 million and P=100.0 million in2014, 2013 and 2012, respectively.

The Group is not in breach of any loan covenants as of December 31, 2014 and 2013.

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19. Other Noncurrent Liabilities


December 312014 2013

ARO P=586,069,196 P=1,637,345,608Accrued maintenance 224,413,504 280,516,880Pension liability (Note 24) 385,665,449 538,227,996

P=1,196,148,149 P=2,456,090,484

AROThe Group is legally required under certain lease contracts to restore certain leased passengeraircraft to stipulated return conditions and to bear the costs of restoration at the end of the contractperiod. These costs are accrued based on estimates made by the Group’s engineers which includeestimates of certain redelivery costs at the end of the operating aircraft lease (Note 5).

The rollforward analysis of the Group’s ARO follows:

2014 2013Balance at beginning of year P=1,637,345,608 P=1,429,223,524Provision for return cost 476,017,529 590,638,099Payment of restorations during the year (1,527,293,941) (382,516,015)Balance at end of year P=586,069,196 P=1,637,345,608

In 2014, 2013 and 2012 ARO expenses included as part of repairs and maintenance amounted toP=476.0 million, P=590.6 million and P=577.5 million, respectively. In 2014, the Group returned four(4) aircraft under its operating lease agreements. The Company started to restore these aircraft in2013.

Accrued MaintenanceThis account pertains to accrual of maintenance costs of aircraft based on the number of flyinghours or cycles but will be settled beyond one year based on management’s assessment.

20. Equity

The details of the number of common shares and the movements thereon follow:

2014 2013Authorized - at P=1 par value 1,340,000,000 1,340,000,000Beginning of year 605,953,330 605,953,330Treasury shares – –Issuance of shares during the year – –Issued and outstanding 605,953,330 605,953,330

Issuance of Common Shares of StockOn October 26, 2010, the Parent Company listed with the PSE its common stock, by way ofprimary and secondary share offerings, wherein it offered 212,419,700 shares to the public atP=125.00 per share. Of the total shares sold, 30,661,800 shares are newly issued shares with total

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proceeds amounting P=3,800.0 million. The Parent Company’s share in the total transaction costsincurred incidental to the IPO amounting P=100.4 million, which is charged against ‘Capital paid inexcess of par value’ in the parent statement of financial position. The registration statement wasapproved on October 11, 2010. The Group has 99 and 96 existing certified shareholders as ofDecember 31, 2014 and 2013, respectively.

Treasury SharesOn February 28, 2011, the BOD of the Parent Company approved the creation and implementationof a share buyback program (SBP) up to P=2,000.0 million worth of the Parent Company’scommon share. The SBP shall commence upon approval and shall end upon utilization of the saidamount, or as may be otherwise determined by the BOD.

The Parent Company has outstanding treasury shares of 7,283,220 shares amounting toP=529.3 million as of December 31, 2014 and 2013, restricting the Parent Company from declaringan equivalent amount from unappropriated retained earnings as dividends.

Appropriation of Retained EarningsOn November 27, 2014, March 8, 2013 and April 19, 2012, the Parent Company’s BODappropriated P=3.0 billion, P=2.5 billion and P=483.3 million, respectively, from its unrestrictedretained earnings as of December 31, 2014 for purposes of the Group’s re-fleeting program. Theappropriated amount was used for the settlement of pre delivery payments and aircraft leasecommitments in 2013 and 2014 (Notes 18, 30 and 31). Planned re-fleeting program amount to anestimated P=70.07 billion which will be spent over the next five years.

Unappropriated Retained EarningsThe income of the subsidiaries and JV that are recognized in the statements of comprehensiveincome are not available for dividend declaration unless these are declared by the subsidiaries andJV. Likewise, retained earnings are restricted for the payment of dividends to the extent of thecost of common shares held in treasury.

On June 26, 2014, the Parent Company’s BOD approved the declaration of a regular cash dividendin the amount of P=606.0 million or P=1.00 per share in the amount of P=606.0 million from theunrestricted retained earnings of the Parent Company to all stockholders of record as ofJuly 16, 2014 and payable on August 11, 2014. Total dividends declared and paid amounted toP=606.0 million as of December 31, 2014.

On June 27, 2013, the Parent Company’s BOD approved the declaration of a regular cash dividendin the amount of P=606.0 million or P=1.00 per share and a special cash dividend in the amount ofP=606.0 million of P=1.00 per share from the unrestricted retained earnings of the Parent Companyto all stockholders of record as of July 17, 2013 and payable on August 12, 2013. Total dividendsdeclared and paid amounted to P=1,211.9 million as of December 31, 2013.

On June 28, 2012, the Parent Company’s BOD approved the declaration of a regular cash dividendin the amount of P=606.0 million or P=1.00 per common share to all stockholders of record as ofJuly 18, 2012 and was paid on August 13, 2012.

On March 17, 2011, the BOD of the Parent Company approved the declaration of a regular cashdividend in the amount of P=1,222.4 million or P=2.00 per share and a special cash dividend in theamount of P=611.2 million or P=1.00 per share from the unrestricted retained earnings of the ParentCompany to all stockholders of record as of April 14, 2011 and was paid on May 12, 2011.

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After reconciling items which include fair value adjustments on financial instruments, foreignexchange gain and cost of common stocks held in treasury, the amount of retained earnings that isavailable for dividend declaration as of December 31, 2014 amounted to P=2,309.2 million.

Capital ManagementThe primary objective of the Group’s capital management is to ensure that it maintains healthycapital ratios in order to support its business and maximize shareholder value. The Groupmanages its capital structure, which composed of paid up capital and retained earnings, and makesadjustments to these ratios in light of changes in economic conditions and the risk characteristicsof its activities. In order to maintain or adjust the capital structure, the Group may adjust theamount of dividend payment to shareholders, return capital structure or issue capital securities.No changes have been made in the objective, policies and processes as they have been applied inprevious years.

The Group’s ultimate parent monitors the use of capital structure using a debt-to-equity capitalratio which is gross debt divided by total capital. The ultimate parent includes within gross debtall interest-bearing loans and borrowings, while capital represent total equity.

The Group’s debt-to-capital ratios follow:

2014 2013(a) Long term debt (Notes 18 and 25) P=33,849,662,665 P=29,406,465,672(b) Capital 21,538,804,187 21,081,577,315(c) Debt-to-capital ratio (a/b) 1.6:1 1.4:1

The JGSHI Group’s policy is to keep the debt to capital ratio at the 2:1 level as ofDecember 31, 2014 and 2013. Such ratio is currently being managed on a group level by theGroup’s ultimate parent.

21. Ancillary Revenues

Ancillary revenues consist of:

2014 2013 2012Excess baggage fee P=4,116,640,154 P=3,106,766,079 P=2,837,630,241Rebooking, refunds, cancellation

fees, etc. 2,920,343,253 2,391,871,202 2,006,490,604Others 1,628,505,970 1,233,064,234 1,099,908,882

P=8,665,489,377 P=6,731,701,515 P=5,944,029,727

Others pertain to revenues from in-flight sales, advanced seat selection fee, reservation bookingfees and others (Note 27).

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22. Operating Expenses

Flying OperationsThis account consists of:

2014 2013 2012Aviation fuel expense P=23,210,305,406 P=19,522,716,332 P=17,561,860,875Flight deck 2,406,983,028 1,833,211,612 2,157,759,822Aviation insurance 292,982,743 187,703,304 182,842,911Others 242,204,830 177,298,317 114,889,239

P=26,152,476,007 P=21,720,929,565 P=20,017,352,847

Aircraft and Traffic ServicingThis account consists of:

2014 2013 2012Airport charges P=2,843,602,317 P=2,034,012,474 P=1,982,460,047Ground handling 1,518,884,645 1,163,621,461 1,079,658,319Others 442,725,527 405,173,077 370,893,920

P=4,805,212,489 P=3,602,807,012 P=3,433,012,286

Others pertain to staff expenses incurred by the Group such as basic pay, employee training costand allowances.

Repairs and maintenanceRepairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling ofall aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spareparts and other related equipment. The account includes related costs of other contractualobligations under aircraft operating lease agreements (Note 30). These amounted toP=476.0 million, P=590.6 million and P=577.5 million in 2014, 2013 and 2012, respectively(Note 19).

23. General and Administrative Expenses


2014 2013 2012Staff cost P=458,971,856 P=339,686,203 P=332,892,946Security and professional fees 318,235,374 285,542,944 275,883,453Utilities 124,694,997 125,873,045 111,896,091Rent expenses 54,056,070 60,559,860 49,785,925Travel and transportation 30,807,870 29,467,377 29,291,108Others (Note 10) 310,051,527 270,816,005 275,619,859

P=1,296,817,694 P=1,111,945,434 P=1,075,369,382

Others include membership dues, annual listing maintenance fees, supplies, rent, bank charges andothers.

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24. Employee Benefits

Employee Benefit CostTotal personnel expenses, consisting of salaries, expense related to defined benefit plans and otheremployee benefits, are included in flying operations, aircraft and traffic servicing, repairs andmaintenance, reservation and sales, general and administrative, and passenger service.

Defined Benefit PlanThe Parent Company has a funded, noncontributory, defined benefit plan covering substantially allof its regular employees. The benefits are based on years of service and compensation on the lastyear of employment.

As of January 1, 2014, 2013, and 2012 the assumptions used to determine pension benefits of theGroup follow:

2014 2013 2012Average remaining working life 12 years 12 years 12 yearsDiscount rate 4.59% 5.26% 5.79%Salary rate increase 5.50% 5.50% 5.50%

As of December 31, 2014 and 2013, the discount rate used in determining the pension liability is4.59% and 5.26%, which is determined by reference to market yields at the reporting date onPhilippine government bonds.

The amounts recognized as pension liability (included under ‘Other noncurrent liabilities’ accountin the Group’s statements of financial position) follow (Note 19):

2014 2013Present value of defined benefit obligation (PVO) P=725,420,912 P=867,428,676Fair value of plan assets (339,755,463) (329,200,680)Pension liability at end of year P=385,665,449 P=538,227,996

Remeasurement effects recognized in other comprehensive income

2014 2013Actuarial (gain) loss (P=308,302,812) P=367,091,262Return assets excluding amount included in OCI 6,767,470 (1,941,992)Amount to be recognized in OCI (P=301,535,342) P=365,149,270

Movements in the fair value of plan asset follow:

2014 2013Balance at beginning of year P=329,200,680 P=80,842,325Actual contribution during the year – 241,735,592Interest income included in net interest cost 17,322,253 4,680,771Actual return excluding amount included in net

interest cost (6,767,470) 1,941,992Balance at end of year P=339,755,463 P=329,200,680

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The plan assets consist of:

2014 % 2013 %Cash P=212,180,441 63% P=209,674,389 64%Investment in debt securities 126,406,963 37% 118,155,336 36%Receivables 1,197,318 – 1,399,305 –

339,784,722 329,229,030Liabilities (29,260) – (28,350) –

P=339,755,462 100% P=329,200,680 100%

The Group expects to contribute about P=100.0 million into the pension fund for the year ending2015. The actual returns on plan assets amounted to P=10.6 million in 2014 and P=6.6 million in2013.

Movements in the defined benefit liability follow:

2014 2013Balance at beginning of year P=538,227,996 P=353,628,798Pension liability through business combination 17,650,767 –OCI in business combination (1,599,267) –Pension expense during year 158,604,392 79,621,617Recognized in OCI (301,535,342) 365,149,270Actual contributions – (241,735,592)Benefits paid during year (25,683,097) (18,436,097)Balance at end of year P=385,665,449 P=538,227,996

Components of pension expense included in the Parent Company’s statements of comprehensiveincome follow:

2014 2013 2012Current service cost P=129,329,209 P=59,146,510 P=46,014,700Interest cost 29,275,183 20,475,107 21,274,400Total pension expense P=158,604,392 P=79,621,617 P=67,289,100

Changes in the present value of the defined benefit obligation follow:

2014 2013Balance at beginning of year P=882,383,136 P=434,471,123Current service cost 129,329,209 59,146,510Interest cost 46,597,436 25,155,878Benefits paid (25,683,097) (18,436,097)Actuarial loss/gain due to:

Experience adjustments (370,771,827) 311,976,733Changes in financial assumption 63,566,055 55,114,529

Balance at end of year P=725,420,912 P=867,428,676

Amounts for the current and previous periods follow:

2014 2013 2012 2011 2010Present value of retirement obligation P=725,420,912 P=867,428,676 P=434,471,123 P=325,295,900 P=230,193,900Experience adjustments - loss (gain) (370,771,827) 311,976,733 35,247,288 (18,609,222) (1,435,700)

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The sensitivity analyses that follow has been determined based on reasonably possible changes ofthe assumption occurring as of the end of the reporting period, assuming if all other assumptionswere held constant.

PVODiscount rates 5.63% (+1.00%) (P=636,565,188)

3.59% (-1.00%) 833,003,746

Salary increase 6.25% (+1.00%) 827,032,1284.25% (-1.00%) (568,368,766)

Each year, an Asset-Liability Matching Study (ALM) is performed with the result being analyzedin terms of risk-and-return profiles. The Parent Company’s investment consists of 37% of debtinstruments and 63% for cash and receivables. The principal technique of the Parent Company’sALM is to ensure the expected return on assets to be sufficient to support the desired level offunding arising from the defined benefit plans.

25. Income Taxes

Provision for (benefit from) income tax consists of:

2014 2013 2012Current:

MCIT P=61,319,704 P=45,518,668 P=30,081,311Deferred (36,181,936) (452,257,391) 268,334,524

P=25,137,768 (P=406,738,723) P=298,415,835

Provision for income tax pertains to MCIT and deferred income tax.

Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate of20.00% and 7.50% on peso-denominated and foreign currency-denominated short-termplacements and cash in banks, respectively, which are final withholding taxes on gross interestincome.

The NIRC of 1997 also provides for rules on the imposition of a 2.00% MCIT on the gross incomeas of the end of the taxable year beginning on the fourth taxable year immediately following thetaxable year in which the Parent Company commenced its business operations. Any excess MCITover the RCIT can be carried forward on an annual basis and credited against the RCIT for thethree immediately succeeding taxable years.

In addition, under Section 11 of R. A. No. 7151 (Parent Company’s Congressional Franchise) andunder Section 15 of R. A. No. 9517 (TAP’s Congressional Franchise) known as the “ipso factoclause” and the “equality clause”, respectively, the Group is allowed to benefit from the taxprivileges being enjoyed by competing airlines. The Group’s major competitor, by virtue of PDNo. 1590, is enjoying tax exemptions which are likewise being claimed by the Group, ifapplicable, including but not limited to the following:

a.) To depreciate its assets to the extent of not more than twice as fast the normal rate ofdepreciation; and

b.) To carry over as a deduction from taxable income any net loss (NOLCO) incurred in any yearup to five years following the year of such loss.

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Details of the Parent Company’s NOLCO and MCIT are as follows:

NOLCO

Year Incurred Amount Expired/Applied Balance Expiry Year2012 P=1,301,721,876 P=– P=1,301,721,876 20172013 956,965,884 – 956,965,884 20182014 1,361,594,609 – 1,361,594,609 2019

P=3,620,282,369 P=– P=3,620,282,369

MCIT

Year Incurred Amount Expired/Applied Balance Expiry Year2012 P=30,081,311 P=– P=30,081,311 20152013 45,518,668 – 45,518,668 20162014 61,319,704 – 61,319,704 2017

P=136,919,683 P=– P=136,919,683

Details of TAP’s NOLCO are as follows:

Year Incurred Amount Expired/Applied Balance Expiry Year2014 P=159,636,593 P=– P=159,636,593 2019

The Parent Company has outstanding registrations with the BOI as a new operator of air transporton a pioneer and non-pioneer status under the Omnibus Investments Code of 1987 (ExecutiveOrder 226) (Note 32).

On the above registrations, the Parent Company can avail of bonus years in certain specified casesbut the aggregate ITH availment (basic and bonus years) shall not exceed eight (8) years.

As of December 31, 2014 and 2013, the Parent Company has complied with externally imposedcapital requirements set by the BOI in order to avail the ITH incentives for aircraft of registeredactivity (Note 32).

The components of the Group’s deferred tax assets and liabilities follow:

2014 2013Deferred tax assets on:

NOLCO P=1,086,084,710 P=677,606,328Unrealized loss on net derivative liability 330,710,768 –ARO - liability 225,926,038 573,713,530MCIT 136,919,683 128,279,309Accrued retirement costs 108,968,551 161,468,411Allowance for credit losses 71,132,763 70,631,406Unrealized foreign exchange loss - net 7,647,215 –

1,967,389,728 1,611,698,984Deferred tax liabilities on:

Double depreciation 1,910,904,546 1,385,403,735Business combination (Note 7) 185,645,561 –Unrealized foreign exchange gain - net – 90,424,174Unrealized gain on derivative asset – 23,714,473

2,096,550,107 1,499,542,382Net deferred tax assets (liabilities) (P=129,160,379) P=112,156,602

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Movement in accrued retirement cost amounting P=91.9 million and P=109.5 million in 2014 and2013, respectively, is presented under other comprehensive income. Movement includesadjustments due to restatements.

The Group’s recognized deferred tax assets and deferred tax liabilities are expected to be reversedmore than twelve months after the reporting date.

The Parent Company has the following gross deductible and taxable temporary differences whichare expected to reverse within the ITH period, and for which deferred tax assets and deferred taxliabilities were not set up on account of the Parent Company’s ITH. Also, TAP has temporarydifferences and carry-forward benefits of NOLCO for which no deferred tax asset was recognized.

2014 2013Deductible temporary difference:

Unrealized loss on derivative asset P=1,158,190,670 P=–NOLCO 47,890,978 –Retirement benefit obligation 2,244,759 –

1,208,326,407 P=–

Taxable temporary differences:ARO P=167,017,598 P=275,032,811Unrealized foreign exchange gain 1,780,030 –Unrealized gain on derivative asset – 87,408,654

P=168,797,628 P=362,441,465

The related deferred tax asset on the deductible temporary differences is P=362.5 million. Therelated deferred tax liability on the taxable temporary differences is P=50.6 million andP=108.7 million in 2014 and 2013, respectively.

A reconciliation of the statutory income tax rate to the effective income tax rate follows:

2014 2013 2012Statutory income tax rate 30.00% 30.00% 30.00%Adjustments resulting from:

Nondeductible items 0.73 17.3 (0.06)Gain on sale of financial assets – – (0.04)Equity in net income loss of JV (2.82) (34.0) (0.42)Interest income subjected to final tax (2.21) (58.3) (3.17)Income subject to ITH (23.25) (341.6) (18.62)

Effective income tax rate 2.45% (386.6%) 7.69%

Entertainment, Amusement and Recreation (EAR) ExpensesCurrent tax regulations define expenses to be classified as EAR expenses and set a limit for theamount that is deductible for tax purposes. EAR expenses are limited to 0.50% of net sales forsellers of goods or properties or 1.00% of net revenue for sellers of services. For sellers of bothgoods or properties and services, an apportionment formula is used in determining the ceiling onsuch expenses. The Group recognized EAR expenses (allocated under different expense accountsin the consolidated statements of comprehensive income) amounting P=21.3 million,P=19.0 million and P=10.9 million in 2014, 2013 and 2012, respectively.

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26. Earnings Per Share

The following reflects the income and share data used in the basic/dilutive EPS computations:

2014 2013 2012(a) Net income attributable to

common shareholders P=853,498,216 P=511,946,229 P=3,572,014,263(b) Weighted average number of

common shares for basic EPS 605,953,330 605,953,330 605,953,330(c) Basic/diluted earnings per share P=1.41 P=0.84 P=5.89

The Group has no dilutive potential common shares in 2014, 2013 and 2012.

27. Related Party Transaction

Transactions between related parties are based on terms similar to those offered to nonrelatedparties. Parties are considered to be related if one party has the ability, directly or indirectly, tocontrol the other party or exercise significant influence over the other party in making financialand operating decisions or the parties are subject to common control or common significantinfluence. Related parties may be individuals or corporate entities.

The Group has entered into transactions with its ultimate parent, its JV and affiliates principallyconsisting of advances, sale of passenger tickets, reimbursement of expenses, regular bankingtransactions, maintenance and administrative service agreements. In addition to the relatedinformation disclosed elsewhere in the financial statements, the following are the year-endbalances in respect of transactions with related parties, which were carried out in the normalcourse of business on terms agreed with related parties during the year.

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The significant transactions and outstanding balances of the Group with the related parties follow:

Consolidated Statement of Financial PositionCash and

Cash Equivalents(Note 8)

Due from Related Parties(Note 10)

Due to Related Parties(Note 17) Trade Receivables (Note 10) Trade Payables (Note 17)

AmountOutstanding

Balance AmountOutstanding




BalanceUltimate parent companyJGSHI 31-Dec-14 P=– P=– P=– P=– P=20,961,413 P=2,538,405 P=– P=– P=– P=–

31-Dec-13 – – – – 785,714 (2,308,155) – – – –

Parent companyCPAHI 31-Dec-14 – – 4,798 65,800 – – – – – –

31-Dec-13 – – 4,798 61,003 – – – – – –JV in which the Company is a venturerA-plus 31-Dec-14 – – 158,598,304 36,552,884 1,158,074,373 24,674,471

31-Dec-13 – – 42,294,063 27,553,218 – – – – 547,853,458 24,726,389

SIAEP 31-Dec-14 – – 6,270,366 4,584,554 – – – – – –31-Dec-13 – – 6,780,061 6,591,372 – – – – 27,783,983 109,447

PAAT, Inc. 31-Dec-14 – – 38,543,451 93,221,516 – – – – 142,083,732 4,248,40031-Dec-13 – – 439,082,690 522,385,741 – – – – 121,615,903 654,027

Wholly owned subsidiaryTiger Airways, Phils. 31-Dec-14 – – 637,144,913 – – – – – 2,513,432,247 –

31-Dec-13 – – – – – – – – – –

Entities under common controlRobinsons Bank 31-Dec-14 78,214,354,341 1,077,863,751 – – 44,899,786 370,324 2,620,575 47,254 9,169,304,482 6,374,402

Corporation (RBC) 31-Dec-13 93,818,316,436 1,828,350,172 – – 45,222,197 1,190,040 2,031,512 25,130 17,751,906,598 1,504,402Universal Robina 31-Dec-14 – – – – 1,604,489 36,511,250 41,337,092 2,640,691 40,643,899 4,073,947

Corporation (URC) 31-Dec-13 – – – – 29,712,209 45,535,483 32,038,742 4,213,743 34,561,703 2,669,525Robinsons Land 31-Dec-14 – – – – – – 13,928,598 664,453 37,200,749 1,428,767

Corporation (RLC) 31-Dec-13 – – – – – – 10,347,628 705,775 42,692,833 3,042,022

(Forward)

Robinsons Handyman, Inc. 31-Dec-14 P=– P=– P=– P=– P=– P=– P=– P=– P=2,810,926 P=244,96631-Dec-13 – – – – – – – – 1,952,227 118,023

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Consolidated Statement of Financial PositionCash and

Cash Equivalents(Note 8)

Due from Related Parties(Note 10)

Due to Related Parties(Note 17) Trade Receivables (Note 10) Trade Payables (Note 17)

AmountOutstanding





Balance

Summit Publishing, 31-Dec-14 – – – – – – 5,183,283 1,860,403 2,275,234 1,425,868Inc. (SPI) 31-Dec-13 – – – – – – 2,185,451 681,949 660,618 94,374

JG Petrochemical 31-Dec-14 – – – – – – 958,570 161,635 – –Corporation (JGPC) 31-Dec-13 – – – – – – 936,659 2,734 – –

Robinsons Inc. 31-Dec-14 – – – – 9,239,878 489,524 26,198,139 505,127 24,258,006 –31-Dec-13 – – – – 235,847 235,847 21,862,505 471,325 3,776,576 –

Jobstreet.com Phils., Inc. 31-Dec-14 – – – – – – 624,615 139,987 326,594 –31-Dec-13 – – – – – – 686,710 96,854 306,584 –

Unicon Insurance Brokers 31-Dec-14 – – – – – – – – – –31-Dec-13 – – – – – – – – 17,136,743 68,849

Total 31-Dec-14 P=78,214,354,341 P=1,077,863,751 P=840,561,832 P=134,424,754 P=76,705,566 P=39,909,503 P=90,850,872 P=6,019,550 P=13,090,410,242 P=42,470,82131-Dec-13 P=93,818,316,436 P=1,828,350,172 P=488,161,612 P=556,591,334 P=75,955,967 P=44,653,215 P=70,089,207 P=6,197,510 P=18,550,247,226 P=32,987,058

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Consolidated Statement of Comprehensive IncomeSale of Air Transportation

ServiceInterestIncome

AncillaryRevenues

Repairs andMaintenance

YearAmount/

Outstanding Balance

Amount/Outstanding

Balance

Amount/Outstanding

BalanceAmount/

Outstanding BalanceJV in which the Company is a ventureA-plus 2014 P=– P=– P=– P=605,056,538

2013 – – – 453,571,0382012 – – – 290,371,627

SIAEP 2014 – – – 116,413,1932013 – – – –2012 233,666 – – –

PAAT 2014 – – 26,104,946 –2013 – – 24,868,852 –2012 – – 2,018,408 –

Wholly owned subsidiaryTAP 2014 – – – 242,941,382

2013 – – – –2012 – – – –

Entities under common controlRSB 2014 2,620,575 – – –

2013 2,031,512 – – –2012 1,615,318 359,337,295 – –

URC 2014 41,337,092 – – –2013 32,038,742 – – –2012 25,619,354 – – –

RLC 2014 13,928,598 – – –2013 10,347,628 – – –2012 11,186,607 – – –

SPI 2014 5,183,283 – – –2013 2,185,451 – – –2012 2,207,662 – – –

JGPC 2014 958,570 – – –2013 936,659 – – –2012 3,137,969 – – –

Robinsons Inc. 2014 26,231,941 – – –2013 21,862,505 – – –2012 18,060,662 – – –

Jobstreet.com Phils., Inc. 2014 624,615 – – –2013 686,710 – – –2012 451,232 – – –

Total 2014 P=90,884,674 P=– P=26,104,946 P=964,411,1132013 P=70,089,207 P=– P=24,868,852 P=453,571,0382012 P=62,512,470 P=359,337,295 P=2,018,408 P=290,371,627

Terms and conditions of transactions with related partiesOutstanding balances at year-end are unsecured, interest-free and settlement occurs in cash. Also,these transactions are short-term in nature. There have been no guarantees provided or receivedfor any related party receivables or payables. The Group has not recognized any impairmentlosses on amounts due from related parties for the years ended December 31, 2014 and 2013. Thisassessment is undertaken each financial year through a review of the financial position of therelated party and the market in which the related party operates.

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The Group’s significant transactions with related parties follow:

1. Expenses advanced by the Group on behalf of CPAHI. The said expenses are subject toreimbursement and are recorded under ‘Receivables’ in the consolidated statement of financialposition.

2. The Group entered into a Shared Services Agreement with A-plus. Under the aforementionedagreement, the Group will render certain administrative services to A-plus which includepayroll processing and certain information technology-related functions. The Group alsoentered into a Ground Support Equipment (GSE) Maintenance Services Agreement withA-plus. Under the GSE Maintenance Services Agreement, the Group shall render routinepreventive maintenance services on certain ground support equipment used by A-plus inproviding technical GSE to airline operators in major airports in the Philippines. The Groupalso performs repair or rectification of deficiencies noted and supply replacement components.

3. For the aircraft maintenance program, the Group engaged SIAEC to render line maintenance,light aircraft checks and technical ramp handling services at various domestic andinternational airports which were performed by A-plus, and to maintain and provide aircraftheavy maintenance services which was performed by SIAEP. Cost of services are recorded as‘Repairs and maintenance’ in the consolidated statements of comprehensive income and anyunpaid amount as of statement of financial position date as trade payable under ‘Accountspayable and other accrued liabilities’.

4. The Group maintains deposit accounts and short-term investments with RSB which is reportedas ‘Cash and cash equivalents’. The Group also incurs liabilities to RSB for loan payments ofits employees and to URC primarily for the rendering of payroll service to the Group whichare recorded as ‘Due to related parties’.

5. The Group provides air transportation services to certain related parties, for which unpaidamounts are recorded as trade receivables under ‘Receivables’ in the consolidated statement offinancial position.

The Group also purchases goods from URC for in-flight sales and recorded as trade payable, ifunpaid, in the consolidated statement of financial position. Total amount of purchases in2014, 2013 and 2012 amounted to P=9.5 million, P=8.3 million and P=5.2 million, respectively.

6. In 2012, the Group entered into a sub-lease agreement with PAAT for its office space.The lease agreement is for a period of fifteen (15) years from November 29, 2012 untilNovember 19, 2027 (Note 21).

7. In 2013, the Group sold its 2WRU simulator to PAAT on an “AS IS WHERE IS” basis andshall include the spare parts and accessories.

8. In 2013 and 2012, under the shareholder loan agreement the Group provided a loan to PAATto finance the purchase of its Full Flight Simulator, other equipment and other working capitalrequirements. Aggregate loans provided by the Group amounted to P=155.4 million (US$3.5million). The loans are subject two percent (2%) interest per annum. In 2014, the Groupcollected P=41.7 million (US$0.9 million) from PAAT as partial payment of the loan. As ofDecember 31, 2014, loan to PAAT amounted to P=91.0 million (US$2.3 million).

9. In 2014, the Parent Company entered into sublease agreements with TAP for the lease of itsfive (5) A320 Airbus aircraft. The sublease period for each aircraft is for two years.

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The compensation of the Group’s key management personnel by benefit type follows:

2014 2013 2012Short-term employee benefits P=150,010,391 P=135,839,296 P=131,590,618Post-employment benefits 10,011,731 1,290,721 1,565,035

P=160,022,122 P=137,130,017 P=133,155,653

There are no agreements between the Group and any of its directors and key officers providing forbenefits upon termination of employment, except for such benefits to which they may be entitledunder the Group’s pension plans.

28. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments, other than derivatives, comprise cash and cashequivalents, financial assets at FVPL, AFS investments, receivables, payables and interest-bearingborrowings. The main purpose of these financial instruments is to finance the Group’s operationsand capital expenditures. The Group has various other financial assets and liabilities, such as tradereceivables and trade payables which arise directly from its operations. The Group also enters intofuel derivatives to manage its exposure to fuel price fluctuations.

The Group’s BOD reviews and approves policies for managing each of these risks and they aresummarized in the succeeding paragraphs, together with the related risk management structure.

Risk Management StructureThe Group’s risk management structure is closely aligned with that of its ultimate parent. TheGroup has its own BOD which is ultimately responsible for the oversight of the Group’s riskmanagement process which involves identifying, measuring, analyzing, monitoring andcontrolling risks.

The risk management framework encompasses environmental scanning, the identification andassessment of business risks, development of risk management strategies, design andimplementation of risk management capabilities and appropriate responses, monitoring risks andrisk management performance, and identification of areas and opportunities for improvement inthe risk management process.

The Group and the ultimate parent with its other subsidiaries (JGSHI Group) created the followingseparate board-level independent committees with explicit authority and responsibility formanaging and monitoring risks.

Each BOD has created the board-level Audit Committee to spearhead the managing andmonitoring of risks.

Audit CommitteeThe Group’s Audit Committee assists the Group’s BOD in its fiduciary responsibility for the over-all effectiveness of risk management systems, and both the internal and external audit functions ofthe Group. Furthermore, it is also the Audit Committee’s purpose to lead in the general evaluationand to provide assistance in the continuous improvements of risk management, control andgovernance processes.

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The Audit Committee also aims to ensure that:a. financial reports comply with established internal policies and procedures, pertinent

accounting and auditing standards and other regulatory requirements;b. risks are properly identified, evaluated and managed, specifically in the areas of managing

credit, market, liquidity, operational, legal and other risks, and crisis management:c. audit activities of internal and external auditors are done based on plan, and deviations are

explained through the performance of direct interface functions with the internal and externalauditors; and

d. the Group’s BOD is properly assisted in the development of policies that would enhance therisk management and control systems.

Enterprise Risk Management Group (ERMG)The fulfillment of the risk management functions of the Group’s BOD is delegated to the ERMG.The ERMG is primarily responsible for the execution of the Enterprise Risk Management (ERM)framework. The ERMG’s main concerns include:

· formulation of risk policies, strategies, principles, framework and limits;· management of the fundamental risk issues and monitoring of relevant risk decisions;· support to management in implementing the risk policies and strategies; and· development of a risk awareness program.

Corporate Governance Compliance OfficerCompliance with the principles of good corporate governance is one of the objectives of theGroup’s BOD. To assist the Group’s BOD in achieving this purpose, the Group’s BOD hasdesignated a Compliance Officer who shall be responsible for monitoring the actual compliance ofthe Group with the provisions and requirements of good corporate governance, identifying andmonitoring control compliance risks, determining violations, and recommending penalties for suchinfringements for further review and approval of the Group’s BOD, among others.

Day-to-day risk management functionsAt the business unit or company level, the day-to-day risk management functions are handled byfour different groups, namely:

1. Risk-taking personnel - this group includes line personnel who initiate and are directlyaccountable for all risks taken.

2. Risk control and compliance - this group includes middle management personnel who performthe day-to-day compliance check to approved risk policies and risks mitigation decisions.

3. Support - this group includes back office personnel who support the line personnel.4. Risk management - this group pertains to the Group’s Management Committee which makes

risk mitigating decisions within the enterprise-wide risk management framework.

ERM frameworkThe Group’s BOD is also responsible for establishing and maintaining a sound risk managementframework and is accountable for risks taken by the Group. The Group’s BOD also shares theresponsibility with the ERMG in promoting the risk awareness program enterprise-wide.

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The ERM framework revolves around the following seven interrelated risk managementapproaches:

1. Internal Environmental Scanning - it involves the review of the overall prevailing risk profileof the business unit to determine how risks are viewed and addressed by management. This ispresented during the strategic planning, annual budgeting and mid-year performance reviewsof the business unit.

2. Objective Setting - the Group’s BOD mandates the Group’s management to set the overallannual targets through strategic planning activities, in order to ensure that management has aprocess in place to set objectives which are aligned with the Group’s goals.

3. Risk Assessment - the identified risks are analyzed relative to the probability and severity ofpotential loss which serves as a basis for determining how the risks should be managed. Therisks are further assessed as to which risks are controllable and uncontrollable, risks thatrequire management’s attention, and risks which may materially weaken the Group’s earningsand capital.

4. Risk Response - the Group’s BOD, through the oversight role of the ERMG, approves theGroup’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.

5. Control Activities - policies and procedures are established and approved by the Group’s BODand implemented to ensure that the risk responses are effectively carried out enterprise-wide.

6. Information and Communication - relevant risk management information are identified,captured and communicated in form and substance that enable all personnel to perform theirrisk management roles.

7. Monitoring - the ERMG, Internal Audit Group, Compliance Office and Business AssessmentTeam constantly monitor the management of risks through risk limits, audit reviews,compliance checks, revalidation of risk strategies and performance reviews.

Risk management support groupsThe Group’s BOD created the following departments within the Group to support the riskmanagement activities of the Group and the other business units:

1. Corporate Security and Safety Board (CSSB) - under the supervision of ERMG, the CSSBadministers enterprise-wide policies affecting physical security of assets exposed to variousforms of risks.

2. Corporate Supplier Accreditation Team (CORPSAT) - under the supervision of ERMG, theCORPSAT administers enterprise-wide procurement policies to ensure availability of suppliesand services of high quality and standards to all business units.

3. Corporate Management Services (CMS) - the CMS is responsible for the formulation ofenterprise-wide policies and procedures.

4. Corporate Planning and Legal Affairs (CORPLAN) - the CORPLAN is responsible for theadministration of strategic planning, budgeting and performance review processes of thebusiness units.

5. Corporate Insurance Department (CID) - the CID is responsible for the administration of theinsurance program of business units concerning property, public liability, businessinterruption, money and fidelity, and employer compensation insurances, as well as in theprocurement of performance bonds.

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Risk Management PoliciesThe main risks arising from the use of financial instruments are credit risk, liquidity risk andmarket risk, namely foreign currency risk, commodity price risk and interest rate risk. TheGroup’s policies for managing the aforementioned risks are summarized below.

Credit riskCredit risk is defined as the risk of loss due to uncertainty in a third party’s ability to meet itsobligation to the Group. The Group trades only with recognized, creditworthy third parties. It isthe Group’s policy that all customers who wish to trade on credit terms are being subjected tocredit verification procedures. In addition, receivable balances are monitored on a continuousbasis resulting in an insignificant exposure in bad debts.

With respect to credit risk arising from the other financial assets of the Group, which comprisecash in bank and cash equivalents and certain derivative instruments, the Group’s exposure tocredit risk arises from default of the counterparty with a maximum exposure equal to the carryingamount of these instruments.

Maximum exposure to credit risk without taking account of any credit enhancementThe table below shows the gross to credit risk (including derivative assets) of the Group as ofDecember 31, 2014 and 2013, without considering the effects of collaterals and other credit riskmitigation techniques.

2014 2013Financial assets at FVPL

Derivative financial instrumentsnot designated as accounting hedges P=– P=166,456,897

Loans and receivablesCash and cash equivalents* 3,936,341,214 6,031,996,266Receivables

Trade receivables 1,302,342,302 944,473,732Interest receivable 1,008,445 4,904,684Due from related parties 134,424,754 556,591,334Others** 731,774,481 547,284,872

2,169,549,982 2,053,254,622Refundable deposits*** 123,486,187 228,857,751

P=6,229,377,383 P=8,480,565,536***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position.

Risk concentrations of the maximum exposure to credit riskConcentrations arise when a number of counterparties are engaged in similar business activities, oractivities in the same geographic region or have similar economic features that would cause theirability to meet contractual obligations to be similarly affected by changes in economic, political orother conditions. Concentrations indicate the relative sensitivity of the Group’s performance todevelopments affecting a particular industry or geographical location. Such credit riskconcentrations, if not properly managed, may cause significant losses that could threaten theGroup’s financial strength and undermine public confidence. In order to avoid excessiveconcentrations of risk identified concentrations of credit risks are controlled and managedaccordingly.

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The Group’s credit risk exposures, before taking into account any collateral held or other creditenhancements are categorized by geographic location as follows:

2014

Philippines

Asia(excluding

Philippines) Europe Others TotalLoans and receivables Cash and cash equivalents* P=3,476,501,003 P=447,656,601 P=12,183,610 P=– P=3,936,341,214 Receivables Trade receivables 946,188,709 345,891,943 10,261,650 – 1,302,342,302 Interest receivable 1,008,445 – – – 1,008,445 Due from related parties 134,424,754 – – – 134,424,754 Others** 63,998,817 433,133,826 234,641,838 – 731,774,481 Refundable deposits*** – – 123,486,187 – 123,486,187

P=4,622,121,728 P=1,226,682,370 P=380,573,285 P=– P=6,229,377,383***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

2013

Philippines

Asia(excluding

Philippines) Europe Others TotalFinancial assets at FVPL Derivative financial instruments not designated as accounting hedges P=– P=– P=166,456,897 P=– P=166,456,897Loans and receivables Cash and cash equivalents* 5,687,633,019 344,363,247 – – 6,031,996,266 Receivables Trade receivables 697,072,860 240,484,830 6,916,042 – 944,473,732 Interest receivable 4,904,684 – – – 4,904,684 Due from related parties 556,591,334 – – – 556,591,334 Others** 345,504,161 12,602,088 189,178,623 – 547,284,872 Refundable deposits*** – – 228,857,751 – 228,857,751

P=7,291,706,058 P=597,450,165 P=591,409,313 P=– P=8,480,565,536***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

The Group has no concentration of risk with regard to various industry sectors. The majorindustry relevant to the Group is the transportation sector and financial intermediaries.

Credit quality per class of financial assetsThe Group rates its financial assets based on an internal and external credit rating system.

The table below shows the credit quality by class of financial assets based on internal credit ratingof the Group (gross of allowance for impairment losses) as of December 31, 2014 and 2013.

2014Neither Past Due Nor Specifically Impaired Past Due

HighGrade

StandardGrade

SubstandardGrade

or IndividuallyImpaired Total

Cash and cash equivalents* P=3,908,568,317 P=27,772,897 P=– P=– P=3,936,341,214 Receivables

Trade receivables 1,034,026,029 268,316,273 – – 1,302,342,302Interest receivable 1,008,445 – – – 1,008,445Due from related parties 134,424,754 – – – 134,424,754Others** 321,787,171 409,987,310 – – 731,774,481

Refundable deposits*** 123,486,187 – – – 123,486,187P=5,523,300,903 P=706,076,480 P=– P=– P=6,229,377,383

***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

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2013Neither Past Due Nor Specifically Impaired Past Due

HighGrade

StandardGrade

SubstandardGrade

or IndividuallyImpaired Total

Financial assets at FVPLDerivative financial instruments

not designated as accountinghedges P=166,456,897 P=– P=– P=– P=166,456,897

Loans and receivables: Cash and cash equivalents* 6,031,996,266 – – – 6,031,996,266 Receivables

Trade receivables 665,456,882 273,151,798 – 5,865,052 944,473,732Interest receivable 4,904,684 – – – 4,904,684Due from related parties 556,591,334 – – – 556,591,334Others** 312,992,504 234,292,368 – – 547,284,872

Refundable deposits*** 228,857,751 – – – 228,857,751P=7,967,256,318 P=507,444,166 P=– P=5,865,052 P=8,480,565,536

***Excluding cash on hand***Include nontrade receivables from insurance, employees and counterparties***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

High grade cash and cash equivalents are short-term placements and working cash fund placed,invested, or deposited in foreign and local banks belonging to the top ten banks in terms ofresources and profitability.

High grade accounts are accounts considered to be of high value. The counterparties have a veryremote likelihood of default and have consistently exhibited good paying habits.

Standard grade accounts are active accounts with propensity of deteriorating to mid-range agebuckets. These accounts are typically not impaired as the counterparties generally respond tocredit actions and update their payments accordingly.

Substandard grade accounts are accounts which have probability of impairment based on historicaltrend. These accounts show propensity to default in payment despite regular follow-up actionsand extended payment terms.

Past due or individually impaired accounts consist of past due but not impaired receivablesamounting to P=261.7 million and P=127.9 million as December 31, 2014 and 2013, respectively,and past due and impaired receivables amounting P=306.8 million and P=235.4 million as ofDecember 31, 2014 and 2013, respectively. Past due but not impaired receivables are secured bycash bonds from major sales and ticket offices recorded under ‘Accounts payable and otheraccrued liabilities’ account in the consolidated statement of financial position. For the past dueand impaired receivables, specific allowance for impairment losses amounted to P=306.8 millionand P=235.4 million as of December 31, 2014 and 2013, respectively (Note 10).

The following tables show the aging analysis of the Group’s receivables:

2014Neither Past Past Due But Not Impaired Past

Due NorImpaired 31-60 days 61-90 days 91-180 days

Over180 days

Due andImpaired Total

Trade receivables P=1,032,225,034 P=150,601,997 P=58,720 P=98,594,460 P=12,489,390 P=8,372,701 P=1,302,342,302Interest receivable 1,008,445 – – – – – 1,008,445Due from related parties 134,424,754 – – – – – 134,424,754Others* 433,315,619 – – – – 298,458,862 731,774,481

P=1,600,973,852 P=150,601,997 P=58,720 P=98,594,460 P=12,489,390 P=306,831,563 P=2,169,549,982*Include nontrade receivables from insurance, employees and counterparties.

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2013Neither Past Past Due But Not Impaired Past

Due NorImpaired 31-60 days 61-90 days 91-180 days

Over180 days

Due andImpaired Total

Trade receivables P=846,850,505 P=51,227,598 P=39,972,229 P=– P=92,525 P=6,330,875 P=944,473,732Interest receivable 4,904,684 – – – – – 4,904,684Due from related parties 556,591,334 – – – – – 556,591,334Others* 281,542,897 3,387,531 8,692,153 10,550,405 14,004,719 229,107,167 547,284,872

P=1,689,889,420 P=54,615,129 P=48,664,382 P=10,550,405 P=14,097,244 P=235,438,042 P=2,053,254,622*Include nontrade receivables from insurance, employees and counterparties.

Collateral or credit enhancementsAs collateral against trade receivables from sales ticket offices or agents, the Group requires cashbonds from major sales ticket offices or agents ranging from P=50,000 to P=2.1 million dependingon the Group’s assessment of sales ticket offices and agents’ credit standing and volume oftransactions. As of December 31, 2014 and 2013, outstanding cash bonds (included under‘Accounts payable and other accrued liabilities’ account in the consolidated statement of financialposition) amounted to P=293.9 million and P=196.5 million, respectively (Note 17). There are nocollaterals for impaired receivables.

Impairment assessmentThe Group recognizes impairment losses based on the results of its specific/individual andcollective assessment of its credit exposures. Impairment has taken place when there is a presenceof known difficulties in the servicing of cash flows by counterparties, infringement of the originalterms of the contract has happened, or when there is an inability to pay principal overdue beyond acertain threshold. These and the other factors, either singly or in tandem, constitute observableevents and/or data that meet the definition of an objective evidence of impairment.

The two methodologies applied by the Group in assessing and measuring impairment include:(1) specific/individual assessment; and (2) collective assessment.

Under specific/individual assessment, the Group assesses each individually significant creditexposure for any objective evidence of impairment, and where such evidence exists, accordinglycalculates the required impairment. Among the items and factors considered by the Group whenassessing and measuring specific impairment allowances are: (a) the timing of the expected cashflows; (b) the projected receipts or expected cash flows; (c) the going concern of thecounterparty’s business; (d) the ability of the counterparty to repay its obligations during financialcrises; (e) the availability of other sources of financial support; and (f) the existing realizable valueof collateral. The impairment allowances, if any, are evaluated as the need arises, in view offavorable or unfavorable developments.

With regard to the collective assessment of impairment, allowances are assessed collectively forlosses on receivables that are not individually significant and for individually significantreceivables when there is no apparent nor objective evidence of individual impairment yet.A particular portfolio is reviewed on a periodic basis in order to determine its correspondingappropriate allowances. The collective assessment evaluates and estimates the impairment of theportfolio in its entirety even though there is no objective evidence of impairment yet on anindividual assessment. Impairment losses are estimated by taking into consideration the followingdeterministic information: (a) historical losses/write-offs; (b) losses which are likely to occur buthave not yet occurred; and (c) the expected receipts and recoveries once impaired.

Liquidity riskLiquidity is generally defined as the current and prospective risk to earnings or capital arisingfrom the Group’s inability to meet its obligations when they become due without recurringunacceptable losses or costs.

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The Group’s liquidity management involves maintaining funding capacity to finance capitalexpenditures and service maturing debts, and to accommodate any fluctuations in asset andliability levels due to changes in the Group’s business operations or unanticipated events createdby customer behavior or capital market conditions. The Group maintains a level of cash and cashequivalents deemed sufficient to finance operations. As part of its liquidity risk management, theGroup regularly evaluates its projected and actual cash flows. It also continuously assessesconditions in the financial markets for opportunities to pursue fund raising activities. Fund raisingactivities may include obtaining bank loans and availing of export credit agency facilities.

Financial assetsThe analysis of financial assets held for liquidity purposes into relevant maturity grouping is basedon the remaining period at the statement of financial position date to the contractual maturity dateor if earlier the expected date the assets will be realized.

Financial liabilitiesThe relevant maturity grouping is based on the remaining period at the statement of financialposition date to the contractual maturity date. When counterparty has a choice of when the amountis paid, the liability is allocated to the earliest period in which the Group can be required to pay.When an entity is committed to make amounts available in installments, each installment isallocated to the earliest period in which the entity can be required to pay.

The tables below summarize the maturity profile of financial instruments based on remainingcontractual undiscounted cash flows as of December 31, 2014 and 2013:

2014Less than one

month1 to 3

months3 to 12

months1 to 5years

More than5 years Total

Financial AssetsLoans and receivables Cash and cash equivalents P=3,908,568,317 P=27,772,897 P=– P=– P= P=3,936,341,214 Receivables: Trade receivables 1,034,732,682 150,660,717 98,905,506 12,178,345 5,865,052 1,302,342,302 Interest receivable 1,008,445 – – – – 1,008,445 Due from related parties* 134,424,754 – – – – 134,424,754 Others ** 51,467,965 1,217,263 110,677,108 338,456,426 229,955,719 731,774,481 Refundable deposits – – – 123,486,187 – 123,486,187

P=5,130,202,163 P=179,650,877 P=209,582,614 P=474,120,958 P=235,820,771 P=6,229,377,383

Financial LiabilitiesOn-balance sheet

Derivative financialinstruments notdesignated as accountinghedges P=– P=– P=1,752,345,943 P=508,194,094 P=– P=2,260,540,037

Accounts payable and otheraccrued liabilities*** 2,856,393,747 1,694,895,508 2,792,557,873 1,864,583,261 175,573,639 9,384,004,028

Due to related parties* 44,653,215 – – – – 44,653,215Long-term debt 655,766,281 725,769,177 3,330,929,833 20,055,408,320 9,081,789,054 33,849,662,665

P=3,556,813,243 P=2,420,664,685 P=7,875,833,649 P=22,428,185,675 P=9,257,362,693 P=44,538,879,804***Receivable and payable on demand***Include nontrade receivables from insurance, employees and counterparties***Excluding government-related payables

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2013Less than one

month1 to 3

months3 to 12months

1 to 5years

More than5 years Total

Financial AssetsFinancial assets at FVPL

Derivative financialinstruments notdesignated as accountinghedges P=– P=– P=166,456,897 P=– P=– P=166,456,897

Loans and receivables Cash and cash equivalents 6,029,897,773 2,098,493 – – – 6,031,996,266 Receivables: Trade receivables 807,707,368 130,808,786 – – 5,957,578 944,473,732 Interest receivable 4,904,684 – – – – 4,904,684 Due from related parties* 556,591,334 – – – – 556,591,334 Others ** 320,686,034 12,079,684 24,205,963 190,313,191 – 547,284,872 Refundable deposits – – 195,419,209 33,438,542 – 228,857,751

P=7,719,787,193 P=144,986,963 P=386,082,069 P=223,751,733 P=5,957,578 P=8,480,565,536

Financial LiabilitiesOn-balance sheet

Accounts payable and otheraccrued liabilities*** P=2,689,827,346 P=3,680,189,707 P=1,458,279,550 P=664,033,684 P=133,255,935 P=8,625,586,222

Due to related parties* 44,653,215 – – – – 44,653,215Long-term debt 487,593,326 667,975,544 2,599,572,827 17,206,108,217 8,445,215,758 29,406,465,672

P=3,222,073,887 P=4,348,165,251 P=4,057,852,377 P=17,870,141,901 P=8,578,471,693 P=38,076,705,109***Receivable and payable on demand***Include nontrade receivables from insurance, employees and counterparties***Excluding government-related payables

Market riskMarket risk is the risk of loss to future earnings, to fair values or to future cash flows that mayresult from changes in the price of a financial instrument. The value of a financial instrument maychange as a result of changes in foreign currency exchange rates, interest rates, commodity pricesor other market changes. The Group’s market risk originates from its holding of foreign exchangeinstruments, interest-bearing instruments and derivatives.

Foreign currency riskForeign currency risk arises on financial instruments that are denominated in a foreign currencyother than the functional currency in which they are measured. It is the risk that the value of afinancial instrument will fluctuate due to changes in foreign exchange rates.

The Group has transactional currency exposures. Such exposures arise from sales and purchasesin currencies other than the Parent Company’s functional currency. During the years endedDecember 31, 2014, 2013 and 2012, approximately 29.0%, 27.2% and 25.0%, respectively, of theGroup’s total sales are denominated in currencies other than the functional currency. Furthermore,the Group’s capital expenditures are substantially denominated in US Dollar. As ofDecember 31, 2014, 2013 and 2012, 67.2%, 66.1% and 71.9%, respectively, of the Group’sfinancial liabilities were denominated in US Dollar.

The Group does not have any foreign currency hedging arrangements as of December 31, 2014.

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The tables below summarize the Group’s exposure to foreign currency risk. Included in the tablesare the Group’s financial assets and liabilities at carrying amounts, categorized by currency.

2014

US DollarHong Kong

DollarSingaporean

DollarOther

Currencies* TotalFinancial AssetsCash and cash equivalents P=1,228,287,151 P=19,301,198 P=22,565,841 P=115,858,859 P=1,386,013,049Receivables 1,068,922,069 27,994,197 15,263,811 243,160,131 1,355,340,208Refundable deposits** 123,486,187 – – – 123,486,187

P=2,420,695,407 P=47,295,395 P=37,829,652 P=359,018,990 P=2,864,839,444

Financial LiabilitiesFinancial Liabilities at FVPL

Derivative financialinstruments not designatedas accounting hedges P=2,260,559,896 P=– P=– P=– P=2,260,559,896

Accounts payable and other accrued liabilities*** 4,245,034,312 39,691,447 47,236,945 227,073,939 4,559,036,643Long-term debt 33,849,662,665 – – – 33,849,662,665Others**** 224,413,504 – – – 224,413,504

P=40,579,670,377 P=39,691,447 P=47,236,945 P=227,073,939 P=40,893,672,708****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro****Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position****Excluding government-related payables****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position

2013

US DollarHong Kong

DollarSingaporean

DollarOther

Currencies* TotalFinancial AssetsFinancial Assets at FVPL

Derivative financialinstruments not designatedas accounting hedges P=166,456,897 P=– P=– P=– P=166,456,897

Cash and cash equivalents 3,491,794,170 71,186,277 21,359,942 231,190,616 3,815,531,005Receivables 490,561,624 24,576,978 22,917,253 171,437,995 709,493,850Refundable deposits** 228,857,751 – – – 228,857,751

P=4,377,670,442 P=95,763,255 P=44,277,195 P=402,628,611 P=4,920,339,503

Financial LiabilitiesAccounts payable and other accrued liabilities*** P=5,437,471,317 P=51,217,555 P=60,528,788 P=200,087,910 P=5,749,305,570Long-term debt 29,406,465,672 – – – 29,406,465,672Others**** 280,516,880 – – – 280,516,880

P=35,124,453,869 P=51,217,555 P=60,528,788 P=200,087,910 P=35,436,288,122****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro****Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position****Excluding government-related payables****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilitiesas of December 31, 2014 and 2013 follow:

2014 2013US dollar P=44.720 to US$1.00 P=44.395 to US$1.00Singapore dollar P=33.696 to SGD1.00 P=35.000 to SGD1.00Hong Kong dollar P=5.749 to HKD1.00 P=5.727 to HKD1.00

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The following table sets forth the impact of the range of reasonably possible changes in theUS dollar - Philippine peso exchange value on the Group’s pre-tax income for the years endedDecember 31, 2014, 2013 and 2012 (in thousands).

2014 2013 2012Changes in foreign exchange value P=2 (P=2) P=2 (P=2) P=2 (P=2)Change in pre-tax income (P=1,687,711) P=1,687,711 (P=1,371,102) P=1,371,102 (P=1,086,164) P=1,086,164

Other than the potential impact on the Group’s pre-tax income, there is no other effect on equity.

The Group does not expect the impact of the volatility on other currencies to be material.

Commodity price riskThe Group enters into commodity derivatives to manage its price risks on fuel purchases.Commodity hedging allows stability in prices, thus offsetting the risk of volatile marketfluctuations. Depending on the economic hedge cover, the price changes on the commodityderivative positions are offset by higher or lower purchase costs on fuel. A change in price byUS$10.00 per barrel of jet fuel affects the Group’s fuel costs in pre-tax income byP=1,778.5 million, P=1,414.3 million and P=1,258.9 million as of December 31, 2014, 2013 and 2012,respectively, in each of the covered periods, assuming no change in volume of fuel is consumed.

Interest rate riskInterest rate risk arises on interest-bearing financial instruments recognized in the consolidatedstatement of financial position and on some financial instruments not recognized in theconsolidated statement of financial position (i.e., some loan commitments, if any). The Group’spolicy is to manage its interest cost using a mix of fixed and variable rate debt (Note 18).

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The following tables show information about the Group’s long-term debt that are exposed to interest rate risk and are presented by maturity profile (Note 18):

December 31, 2014

<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 yearsTotal

(In US Dollar)

Total(in Philippine

Peso) Fair ValueECA-backed loans from banks

(Note 18) Floating rateUS Dollar London Interbank Offering

Rate (LIBOR) US$15,686,883 US$15,795,544 US$16,013,071 US$16,231,494 US$16,360,413 US$69,634,380 US$149,721,785 P=6,695,558,231 P=6,663,889,880Commercial loans from banks

(Note 18) Floating rate 19,512,191 19,684,945 19,871,456 20,058,749 20,251,300 93,111,562 192,490,203 8,608,161,855 8,950,548,249US$35,199,074 US$35,480,489 US$35,884,527 US$36,290,243 US$36,611,713 US$162,745,942 US$342,211,988 P=15,303,720,086 P=15,614,438,129

December 31, 2013

<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 yearsTotal

(In US Dollar)

Total(in Philippine

Peso) Fair ValueECA-backed loans from banks

(Note 18) Floating rateUS Dollar LIBOR US$15,480,117 US$15,569,043 US$15,770,998 US$15,987,187 US$16,204,179 US$86,333,584 US$165,345,108 P=7,340,496,051 P=7,819,322,263Commercial loans from banks

(Note 18) Floating rate 4,441,696 3,166,512 3,253,328 3,347,064 3,441,197 18,712,007 36,361,804 1,614,282,285 1,928,062,139US$19,921,813 US$18,735,555 US$19,024,326 US$19,334,251 US$19,645,376 US$105,045,591 US$201,706,912 P=8,954,778,336 P=9,747,384,402

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The following table sets forth the impact of the range of reasonably possible changes in interestrates on the Group’s pre-tax income for the years ended December 31, 2014, 2013 and 2012.

2014 2013 2012Changes in interest rates 1.50% (1.50%) 1.50% (1.50%) 1.50% (1.50%)Changes in pre-tax income (P=183,855,223) P=183,855,223 (P=113,939,099) P=113,939,099 (P=91,088,144) P=91,088,144

Fair value interest rate riskFair value interest rate risk is the risk that the value/future cash flows of a financial instrumentwill fluctuate because of changes in market interest rates. The Group’s exposure to interest raterisk relates primarily to the Group’s financial assets designated at FVPL.

29. Fair Value Measurement

The carrying amounts approximate fair values for the Group’s financial assets and liabilities dueto its short-term maturities except for the following financial asset and other financial liabilities asof December 31, 2014 and 2013:

2014 2013Carrying Value Fair Value Carrying Value Fair Value

Financial AssetsLoans and receivables Refundable deposits* (Note 16) P=123,486,187 P=121,309,197 P=228,857,751 P=224,791,228Financial LiabilitiesOther financial liability Long-term debt** (Note 18) P=33,849,662,665 P=35,500,074,733 P=29,406,465,672 P=31,059,100,382**Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position.**Includes current portion.

The methods and assumptions used by the Group in estimating the fair value of financial asset andother financial liabilities are:

Noninterest - bearing refundable depositsThe fair values are determined based on the present value of estimated future cash flows usingprevailing market rates. The Group used discount rates of 3% to 4% in 2014 and 2013.

Long-term debtThe fair value of long-term debt is determined using the discounted cash flow methodology, withreference to the Group’s current incremental lending rates for similar types of loans. The discountcurve used range from 2% to 6% as of December 31, 2014 and 2013.

The Group uses the following hierarchy for determining and disclosing the fair value of financialassets designated at FVPL, derivative financial instruments and AFS investments by valuationtechniques:

(a) Level 1: quoted (unadjusted) prices in an active market for identical assets or liabilities;(b) Level 2: other techniques for which all inputs which have a significant effect on the recorded

fair value are observable, either directly or indirectly; and(c) Level 3: techniques which use inputs which have a significant effect on the recorded fair value


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The table below shows the Group’s financial instruments carried at fair value hierarchyclassification:

2014 2013Level 1 Level 2 Level 1 Level 2

Financial AssetsFinancial assets at FVPL (Note 9)

Derivative financial instruments not designated as accounting hedges P=– P=– P=– P=166,456,897

Financial LiabilitiesFinancial liabilities at FVPL (Note 9)

Derivative financial instruments not designated as accounting hedges P=– P=2,260,559,896 P=– P=–

There are no financial instruments measured at Level 3. There were no transfers within anyhierarchy level of fair value measurements for the years ended December 31, 2014 and 2013,respectively.

30. Commitments and Contingencies

Operating Aircraft Lease CommitmentsThe Group entered into operating lease agreements with certain leasing companies which coverthe following aircraft:

A320 aircraftThe following table summarizes the specific lease agreements on the Group’s Airbus A320aircraft:

Date of Lease Agreement Lessors No. of Units Lease ExpiryApril 2007 Inishcrean Leasing Limited

(Inishcrean)1 October 2016

March 2008 GY Aviation Lease 0905 Co. Limited 2 January 2017March 2008 APTREE Aviation Trading 2 Co. Ltd 1 October 2019

Wells Fargo Bank NorthwestNational Assoc.

1 October 2019

July 2011 SMBC Aviation Capital Limited 2 February 2018Note: The lease agreements were amended, when applicable, to effect the novation of lease rights by the original lessorsto new lessors as allowed under the lease agreements.

In 2007, the Group entered into operating lease agreement with Inishcrean for the lease of oneAirbus A320, which was delivered in 2007, and with CIT Aerospace International for the lease offour Airbus A320 aircraft, which were delivered in 2008.

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In March 2008, the Group entered into operating lease agreements for the lease of two AirbusA320 aircraft, which were delivered in 2009, and two Airbus A320 aircraft which were received in2012. In November 2010, the Group signed an amendment to the operating lease agreements,advancing the delivery of the two Airbus A320 aircraft to 2011 from 2012.

In July 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd.(RBS) for the lease of two Airbus A320 aircraft, which were delivered in March 2012. The leaseagreement with RBS was amended to effect the novation of lease rights by the original lessors tonew lessors as allowed under the existing lease agreements.

A330 aircraftThe following table summarizes the specific lease agreements on the Group’s Airbus A330aircraft:

Date of Lease Agreement Lessors No. of Units Lease TermFebruary 2012 CIT Aerospace International 4 12 years with pre-termination

optionJuly 2013 Intrepid Aviation 2 12 years with pre-termination

option

On February 21, 2012, the Group entered into a lease agreement with CIT Aerospace Internationalfor four Airbus A330-300 aircraft. The lease term of the aircraft is 12 years with an early pre-termination option.

On July 19, 2013, the Group entered into an aircraft operating lease agreements with IntrepidAviation for the lease of two Airbus A330-300 aircraft, which are scheduled to be delivered from2014 to 2015. In 2014, the Group received

As of December 31, 2014, the Group has five (5) Airbus A330 aircraft under operating lease(Note 13), wherein three Airbus were delivered in 2014.

The first two A330 aircraft were delivered in June 2013 and September 2013. Three A330 aircraftwere delivered in February 2014, May 2014 and September 2014.

Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in theconsolidated statements of comprehensive income) amounted to P=3,503.5 million,P=2,314.9 million and P=2,034.0 million in 2014, 2013 and 2012, respectively.

Future minimum lease payments under the above-indicated operating aircraft leases follow:

2014 2013 2012

US dollarPhilippine peso

equivalent US dollarPhilippine peso

equivalent US dollarPhilippine peso

equivalentWithin one year US$88,551,265 P=3,960,012,577 US$73,094,439 P=3,245,027,618 US$54,171,098 P=2,223,723,588After one year but not more

than five years 314,017,649 14,042,869,274 307,184,942 13,637,475,503 258,475,371 10,610,413,991Over five years 395,380,828 17,681,430,645 463,829,248 20,591,699,480 333,453,833 13,688,279,865

US$797,949,742 P=35,684,312,496 US$844,108,629 P=37,474,202,601 US$646,100,302 P=26,522,417,444

Operating Non-Aircraft Lease CommitmentsThe Group has entered into various lease agreements for its hangar, office spaces, ticketingstations and certain equipment. These leases have remaining lease terms ranging from one to tenyears. Certain leases include a clause to enable upward revision of the annual rental chargeranging from 5.00% to 10.00%.

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Future minimum lease payments under these noncancellable operating leases follow:

2014 2013 2012Within one year P=127,970,825 P=114,110,716 P=108,795,795After one year but not more than

five years 539,700,300 665,809,830 487,021,206Over five years 2,065,948,495 799,242,568 266,875,198

P=2,733,619,620 P=1,579,163,114 P=862,692,199

Lease expenses relating to both cancellable and non-cancellable non-aircraft leases (allocatedunder different expense accounts in the consolidated statements of comprehensive income)amounted to P=337.1 million, P=304.8 million and P=263.7 million in 2014, 2013 and 2012,respectively.

Service Maintenance CommitmentsOn June 21, 2012, the Company has entered into an agreement with Messier-Bugatti-Dowty(Safran group) to purchase wheels and brakes for its fleet of Airbus A319 and A320 aircraft. Thecontract covers the current fleet, as well as future aircraft to be acquired.

On June 22, 2012, the Group has entered into service contract with Rolls-Royce Total CareServices Limited (Rolls-Royce) for service support for the engines of the A330 aircraft. Rolls-Royce will provide long-term Total Care service support for the Trent 700 engines on up to eightA330 aircraft.

On July 12, 2012, the Company has entered into a maintenance service contract with SIAEngineering Co. Ltd. for the maintenance, repair and overhaul services of its A319 and A320aircraft.

These agreements remained in effect as of December 31, 2014.

Aircraft and Spare Engine Purchase CommitmentsIn 2007, the Group entered into a purchase agreement with Airbus S.A.S covering the purchase often A320 aircraft and the right to purchase five option aircraft.

In 2009, the Group exercised its option to purchase the five additional aircraft. Further, anamendment to the purchase agreement was executed, which provided the Group the right topurchase up to five additional option aircraft.

In 2010, the Group exercised its option to purchase five additional option Airbus A320 aircraftand entered into a new commitment to purchase two Airbus A320 aircraft to be delivered between2011 and 2014. Six of these aircraft were delivered between September 2011 andDecember 2013.

On May 2011, the Group turned into firm orders its existing options for the seven Airbus A320aircraft which are scheduled to be delivered in 2015 to 2016.

On August 2011, the Group entered in a new commitment to purchase firm orders of thirty newA321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to be deliveredfrom 2017 to 2021.

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On June 28, 2012, the Group has entered into an agreement with United TechnologiesInternational Corporation Pratt & Whitney Division to purchase new PurePower® PW1100G-JMengines for its 30 firm and ten options A321 NEO aircraft to be delivered beginning 2017. Theagreement also includes an engine maintenance services program for a period of ten years fromthe date of entry into service of each engine.

As of December 31, 2014, the Group will take delivery of 9 more Airbus A320, 1 Airbus A330and 30 Airbus A321 NEO aircraft.

The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.These agreements remained in effect as of December 31, 2014.

Capital Expenditure CommitmentsThe Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,aggregating to P=70.07 billion and P=68.23 billion as of December 31, 2014 and 2013, respectively.

2014


equivalentWithin one year US$260,795,946 P=11,662,794,707After one year but not more than

five years 1,458,101,728 65,206,309,259US$1,718,897,674 P=76,869,103,966

2013


equivalentWithin one year US$247,380,188 P=10,982,443,447After one year but not more than

five years 1,400,472,358 62,173,970,322US$1,647,852,546 P=73,156,413,769

ContingenciesThe Group has pending suits, claims and contingencies which are either pending decisions by thecourts or being contested or under evaluation, the outcome of which are not presentlydeterminable. The information required by PAS 37, Provisions, Contingent Liabilities andContingent Assets, is not disclosed until final settlement, on the ground that it might prejudice theGroup’s position (Notes 7 and 17).

The CAB assessed the Group with the amount of P=52.1 million recognized mainly in the operatingand general and administrative expenses. The amount was settled in January 29, 2015 (Notes 22and 23).

31. Supplemental Disclosures to the Consolidated Statements of Cash Flows

The principal noncash investing activities of the Group were as follows:

a. On December 31, 2013 and 2012, the Group recognized a liability based on the schedule ofpre-delivery payments amounting P=514.4 million and P=34.1 million. These incurred costs are

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recognized under the ‘Construction-in progress’ account. The liability was paid the followingyear.

b. The Parent Company paid P=488.6 million for the acquisition of TAP (Note 7). Cash flowsused to acquire TAP after the cash attributable to the business combination of P=256.7 million,amounted to P=231.8 million.

32. Registration with the BOI

The Parent Company is registered with the BOI as a new operator of air transport on a pioneerstatus on one (1) ATR72-500 and sixteen (16) A320 and non-pioneer status for six (6) AirbusA320 aircraft and two (2) Airbus A330 aircraft. Under the terms of the registration and subject tocertain requirements, the Parent Company is entitled to the following fiscal and non-fiscalincentives (Notes 1, 13 and 25):

Date of Registration Registration Number ITH PeriodNovember 3, 2010 2010-180 Jan 2011 - Dec 2016November 16, 2011 2011-240 Nov 2011 - Nov 2015November 16, 2011 2011-241 Nov 2011 - Nov 2017November 16, 2011 2011-242 Nov 2011 - Nov 2015November 16, 2011 2011-243 Dec 2011 - Jun 2014January 17, 2012 2012-012 Jan 2012 - Nov 2014January 17, 2012 2012-013 Mar 2012 - Feb 2016January 17, 2012 2012-014 Mar 2012 - Feb 2016October 4, 2012 2012-208 Oct 2012 - Jul 2014December 6, 2012 2012-261 Dec 2012 - Mar 2014December 6, 2012 2012-262 Dec 2012 - Dec 2018February 11,2013 2013-045 Feb 2013 - Feb 2019April 11, 2013 2013-089 Apr 2013 - Apr 2019July 29, 2013 2013-166 July 2013 - July 2017September 13, 2013 2013-185 Sept 2013 - Sept 2019September 13, 2013 2013-186 Sept 2013 - Sept 2019October 3, 2013 2013-201 Oct 2013 - Oct 2017January 17, 2014 2014-012 Jan 2014 - Jan 2020February 19, 2014 2014-037 Feb 2014 - Feb 2020May 21, 2014 2014-080 May 2014 - May 2018May 21, 2014 2014-081 May 2014 - May 2018

a. An ITH for a period of four (4) years for non-pioneer status and six (6) years for pioneerstatus.

b. Employment of foreign nationals. This may be allowed in supervisory, technical or advisorypositions for five (5) years from date of registration. The president, general manager andtreasurer of foreign-owned registered firms or their equivalent shall be subject to the foregoinglimitations.

c. Importation of capital equipment, spare parts and accessories at zero (0%) duty from date ofeffectivity of Executive Order (E.O.) No. 70 and its Implementing Rules and Regulations for aperiod of five (5) years reckoned from the date of its registration or until the expiration ofE.O. 70, whichever is earlier.

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d. Avail of a bonus year in each of the following cases but the aggregated ITH availment (regularand bonus years) shall not exceed eight (8) years.· The ratio of total of imported and domestic capital equipment to the number of workers

for the project does not exceed the ratio set by the BOI; or· The net foreign exchange savings or earnings amount to at least US$500,000 annually

during the first three (3) years of operation.· The indigenous raw materials used in the manufacture of the registered product must at

least be fifty percent (50%) of the total cost of raw materials for the preceding years priorto the extension unless the BOI prescribes a higher percentage.

e. Additional deduction from taxable income of fifty percent (50%) of the wages correspondingto the increment in number of direct labor for skilled and unskilled workers in the year ofavailment as against the previous year, if the project meets the prescribed ration of capitalequipment to the number of workers set by the BOI. This may be availed of for the firstfive (5) years from date of registration but not simultaneously with ITH.

f. Tax credit equivalent to the national internal revenue taxes and duties paid on raw materialsand supplies and semi-manufactured products used in producing its export product andforming part thereof for a ten (10) years from start of commercial operations. Request foramendment of the date of start of commercial operation for purposes of determining thereckoning date of the 10-year period, shall be filed within one (1) year from date of committedstart of commercial operation.

g. Simplification of customs procedures for the importation of equipment, spare parts, rawmaterials and suppliers.

h. Access to Customs Bonded Manufacturing Warehouse (CBMW) subject to the customs rulesand regulations provided the Parent Company exports at least 70% of production output.

i. Exemption from wharfage dues, any export tax, duties, imports and fees for a ten (10) yearperiod.

j. Importation of consigned equipment for a period of ten (10) years from date of registrationsubject to posting of re-export bond.

k. Exemption from taxes and duties on imported spare parts and consumable supplies for exportproducers with CBMW exporting at least 100% of production.

The Parent Company shall submit to the BOI a quarterly report on the actual investments,employment and sales pertaining to the registered project. The report shall be due 15 days afterthe end of each quarter.

As of December 31, 2014 and 2013, the Parent Company has complied with externally imposedcapital requirements set by the BOI in order to avail the ITH incentives for aircraft of registeredactivity.

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33. Events After the Statement of Financial Position Date

On February 23, 2015, the Group signed a forward sale agreement with a subsidiary of AllegiantTravel Company (collectively known as “Allegiant”), covering the Group’s sale of six (6) AirbusA319 aircraft. The delivery of the aircraft to Allegiant is scheduled to start on various dates in2015 until 2016.

34. Approval of the Consolidated Financial Statements

The accompanying consolidated financial statements were approved and authorized for issue bythe BOD on March 24, 2015.

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INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsCebu Air, Inc.2nd Floor, Doña Juanita Marquez Lim BuildingOsmeña Boulevard, Cebu City

We have audited in accordance with Philippine Standards on Auditing the consolidated financialstatements of Cebu Air, Inc. and its Subsidiaries (the Group) as at December 31, 2014 and 2013 foreach of the three years in the period ended December 31, 2014, included in this Form 17-A and haveissued our report thereon dated March 24, 2015. Our audits were made for the purpose of forming anopinion on the basic consolidated financial statements taken as a whole. The schedules listed in theIndex to Consolidated Financial Statements and Supplementary Schedules are the responsibility of theGroup’s management. Thus, schedules are presented for purposes of complying with SecuritiesRegulation Code Rule 68, as amended (2011) and are not part of the basic consolidated financialstatements. These schedules have been subjected to the auditing procedures applied in the audit of thebasic consolidated financial statements and, in our opinion, fairly state in all material respects theinformation required to be set forth therein in relation to the basic consolidated financial statementstaken as a whole.

SYCIP GORRES VELAYO & CO.

Michael C. SabadoPartnerCPA Certificate No. 89336SEC Accreditation No. 0664-AR-2 (Group A), March 26, 2014, valid until March 25, 2017Tax Identification No. 160-302-865BIR Accreditation No. 08-001998-73-2012, April 11, 2012, valid until April 10, 2015PTR No. 4751320, January 5, 2015, Makati City

March 24, 2015

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015


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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS

List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs, PhilippineAccounting Standards (PASs) and Philippine Interpretations] and Philippine InterpretationsCommittee (PIC) Q&As effective as of December 31, 2014

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2014

Adopted NotAdopted

NotApplicable

Framework for the Preparation and Presentation of FinancialStatementsConceptual Framework Phase A: Objectives and qualitativecharacteristics

P

PFRSs Practice Statement Management Commentary P

Philippine Financial Reporting Standards P

PFRS 1(Revised)

First-time Adoption of Philippine Financial ReportingStandards P

Amendments to PFRS 1 and PAS 27: Cost of anInvestment in a Subsidiary, Jointly Controlled Entity orAssociate

P

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

P

Amendment to PFRS 1: Limited Exemption fromComparative PFRS 7 Disclosures for First-time Adopters

P

Amendments to PFRS 1: Severe Hyperinflation andRemoval of Fixed Date for First-time Adopters

P

Amendments to PFRS 1: Government Loans P

PFRS 2 Share-based Payment P

Amendments to PFRS 2: Vesting Conditions andCancellations

P

Amendments to PFRS 2: Group Cash-settled Share-basedPayment Transactions

P

PFRS 3(Revised)

Business CombinationsP

PFRS 4 Insurance Contracts P

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts P

PFRS 5 Non-current Assets Held for Sale and DiscontinuedOperations P

PFRS 6 Exploration for and Evaluation of Mineral Resources P

PFRS 7 Financial Instruments: Disclosures P

Amendments to PFRS 7: Transition P

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets

P

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Adopted NotAdopted

NotApplicable

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets - Effective Date and Transition P

Amendments to PFRS 7: Improving Disclosures aboutFinancial Instruments

P

Amendments to PFRS 7: Disclosures - Transfers ofFinancial Assets

P

Amendments to PFRS 7: Disclosures – Offsetting FinancialAssets and Financial Liabilities

P

Amendments to PFRS 7: Mandatory Effective Date ofPFRS 9 and Transition Disclosures

P

PFRS 8 Operating Segments P

PFRS 9 Financial Instruments P

Amendments to PFRS 9: Mandatory Effective Date ofPFRS 9 and Transition Disclosures

P

PFRS 10 Consolidated Financial Statements P

PFRS 11 Joint Arrangements P

PFRS 12 Disclosure of Interests in Other Entities P

PFRS 13 Fair Value Measurement P

Philippine Accounting Standards

PAS 1(Revised)

Presentation of Financial Statements P

Amendment to PAS 1: Capital Disclosures P

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on LiquidationAmendments to PAS 1: Presentation of Items of OtherComprehensive Income

P

P

PAS 2 Inventories P

PAS 7 Statement of Cash Flows P

PAS 8 Accounting Policies, Changes in Accounting Estimates andErrors

P

PAS 10 Events after the Balance Sheet Date P

PAS 11 Construction Contracts P

PAS 12 Income Taxes P

Amendment to PAS 12 - Deferred Tax: Recovery ofUnderlying Assets

P

PAS 16 Property, Plant and Equipment P

PAS 17 Leases P

PAS 18 Revenue P

PAS 19 Employee Benefits P

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Adopted NotAdopted

NotApplicable

Amendments to PAS 19: Actuarial Gains and Losses,Group Plans and Disclosures

P

PAS 19(Amended)

Employee Benefits P

PAS 20 Accounting for Government Grants and Disclosure ofGovernment Assistance P

PAS 21 The Effects of Changes in Foreign Exchange Rates P

Amendment: Net Investment in a Foreign Operation P

PAS 23(Revised)

Borrowing CostsP

PAS 24(Revised)

Related Party DisclosuresP

PAS 26 Accounting and Reporting by Retirement Benefit Plans P

PAS 27(Amended)

Separate Financial StatementsP

PAS 28(Amended)

Investments in Associates and Joint Ventures P

PAS 29 Financial Reporting in Hyperinflationary Economies P

PAS 31 Interests in Joint Ventures P

PAS 32 Financial Instruments: Disclosure and Presentation P

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on Liquidation

P

Amendment to PAS 32: Classification of Rights Issues P

Amendments to PAS 32: Offsetting Financial Assets andFinancial Liabilities

P

PAS 33 Earnings per Share P

PAS 34 Interim Financial Reporting P

PAS 36 Impairment of Assets P

PAS 37 Provisions, Contingent Liabilities and Contingent Assets P

PAS 38 Intangible Assets P

PAS 39 Financial Instruments: Recognition and Measurement P

Amendments to PAS 39: Transition and Initial Recognitionof Financial Assets and Financial Liabilities P

Amendments to PAS 39: Cash Flow Hedge Accounting ofForecast Intragroup Transactions P

Amendments to PAS 39: The Fair Value Option P

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts P

Amendments to PAS 39 and PFRS 7: Reclassification of P

- 4 -

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Adopted NotAdopted

NotApplicable

Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets – Effective Date and Transition

P

Amendments to Philippine Interpretation IFRIC–9 and PAS39: Embedded Derivatives

P

Amendment to PAS 39: Eligible Hedged Items P

PAS 40 Investment Property P

PAS 41 Agriculture P

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration andSimilar Liabilities P

IFRIC 2 Members' Share in Co-operative Entities and SimilarInstruments

P

IFRIC 4 Determining Whether an Arrangement Contains a Lease P

IFRIC 5 Rights to Interests arising from Decommissioning,Restoration and Environmental Rehabilitation Funds

P

IFRIC 6 Liabilities arising from Participating in a Specific Market -Waste Electrical and Electronic Equipment

P

IFRIC 7 Applying the Restatement Approach under PAS 29Financial Reporting in Hyperinflationary Economies

P

IFRIC 8 Scope of PFRS 2 P

IFRIC 9 Reassessment of Embedded Derivatives P

Amendments to Philippine Interpretation IFRIC–9 and PAS39: Embedded Derivatives P

IFRIC 10 Interim Financial Reporting and Impairment P

IFRIC 11 PFRS 2- Group and Treasury Share Transactions P

IFRIC 12 Service Concession Arrangements P

IFRIC 13 Customer Loyalty Programmes P

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction

P

Amendments to Philippine Interpretations IFRIC- 14,Prepayments of a Minimum Funding Requirement

P

IFRIC 16 Hedges of a Net Investment in a Foreign Operation P

IFRIC 17 Distributions of Non-cash Assets to Owners P

IFRIC 18 Transfers of Assets from Customers P

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments P

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine P

SIC-7 Introduction of the Euro P

- 5 -

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Adopted NotAdopted

NotApplicable

SIC-10 Government Assistance - No Specific Relation toOperating Activities P

SIC-12 Consolidation - Special Purpose Entities P

Amendment to SIC - 12: Scope of SIC 12 P

SIC-13 Jointly Controlled Entities - Non-Monetary Contributionsby Venturers

P

SIC-15 Operating Leases - Incentives P

SIC-21 Income Taxes - Recovery of Revalued Non-DepreciableAssets

P

SIC-25 Income Taxes - Changes in the Tax Status of an Entity orits Shareholders

P

SIC-27 Evaluating the Substance of Transactions Involving theLegal Form of a Lease

P

SIC-29 Service Concession Arrangements: Disclosures. P

SIC-31 Revenue - Barter Transactions Involving AdvertisingServices

P

SIC-32 Intangible Assets - Web Site Costs P

Not applicable standards have been adopted but the Group has no significant covered transactions as of and for the yearsended December 31, 2014, 2013 and 2012.

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CEBU AIR, INC. AND SUBSIDIARIESSUPPLEMENTARY SCHEDULE OF RETAINED EARNINGSAVAILABLE FOR DIVIDEND DECLARATIONFOR THE YEAR ENDED DECEMBER 31, 2014

The table below presents the retained earnings available for dividend declaration as ofDecember 31, 2014:

Unappropriated Retained Earnings, beginning P=8,964,805,908Adjustments:

Fair value adjustment arising from fuel hedging gains (P=393,007,855)Unrealized foreign exchange gain (1,157,619,451)Recognized deferred tax assets (1,522,931,759)Treasury stock (529,319,321) (3,602,878,386)

Unappropriated Retained Earnings, as adjusted to available for dividend distribution, beginning 5,361,927,522

Add: Net income actually earned/realized during the year:Net income during the period closed to Retained Earnings 1,000,790,091

Less: Non-actual/unrealized income net of tax:Recognized deferred tax asset 447,544,102 553,245,989

Less:Dividend declaration during the year 605,953,330Appropriations of Retained Earnings during the year 3,000,000,000 (3,605,953,330)

Total Retained Earnings available for dividend declaration as of December 31, 2014 P=2,309,220,181

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CEBU AIR, INC. AND SUBSIDIARIESMAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP

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CEBU AIR, INC. AND SUBSIDIARIESSCHEDULE OF FINANCIAL RATIOSFOR THE YEARS ENDED December 31, 2014 and 2013

The following are the financial ratios that the Group monitors in measuring and analyzing its financialsoundness:

Financial Ratios 2014 2013Liquidity RatiosCurrent Ratio 35% 55%Quick Ratio 24% 44%

Capital Structure RatiosDebt-to-Equity Ratio (x) 1.57 1.39Net Debt-to Equity Ratio (x) 1.39 1.11Adjusted Net Debt-to Equity Ratio (x) 2.58 1.99Asset to Equity Ratio (x) 3.53 3.20Interest Coverage Ratio (x) 4.10 2.78

Profitability RatiosEBITDAR Margin 24% 21%EBIT Margin 8% 6%Pre-tax core net income margin 6% 5%Return on asset 1% 1%Return on equity 4% 2%

COVER SHEET

SEC Registration Number

1 5 4 6 7 5

Company Name

C e b u A i r , I n c . a n d S u b s i d i a r i e

s

Principal Office (No./Street/Barangay/City/Town/Province)

2 n d F l o o r , D o ñ a J u a n i t a M a r q u e

z L i m B u i l d i n g , O s m e ñ a B o u l e v a

r d , C e b u C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

1 7 - Q

COMPANY INFORMATION

Company’s Email Address Company’s Telephone Number/s Mobile Number

N/A (632) 852-2461 N/A

No. of Stockholders

Annual Meeting Month/Day

Fiscal Year Month/Day

97 06/26 12/31

CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

Robin C. Dui [email protected] (632) 852-2461 N/A

Contact Person’s Address

Cebu Pacific Building, Domestic Road, Barangay 191, Zone 20, Pasay City 1301, Philippines

Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

- 2 -

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES

REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER

1. For the quarterly period ended March 31, 2015

2. SEC Identification No.154675

3. BIR Tax Identification No.000-948-229-000

Cebu Air, Inc.

4. Exact name of issuer as specified in its charter

Cebu City, Philippines

5. Province, country or other jurisdiction of incorporation or organization

6. Industry Classification Code: (SEC Use Only)

2nd

Floor, Dona Juanita Marquez Lim Building, Osmena Blvd., Cebu City 6000

7. Address of issuer's principal office Postal Code

(632) 852-2461

8. Issuer's telephone number, including area code

Not Applicable

9. Former name, former address and former fiscal year, if changed since last report

10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA

Number of Shares of Common

Stock Outstanding and Amount

Title of Each Class of Debt Outstanding

Common Stock, P1.00 Par Value 605,953,330 shares

11. Are any or all of the securities listed on the Philippine Stock Exchange?

Yes [x] No [ ]

12. Indicate by check mark whether the registrant:

(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17

thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26

and 141 of the Corporation Code of the Philippines, during the preceding twelve (12)

months (or for such shorter period the registrant was required to file such reports)

Yes [x] No [ ]

(b) has been subject to such filing requirements for the past 90 days.

Yes [x] No [ ]

- 3 -

PART I–FINANCIAL INFORMATION

Item 1. Financial Statements

The unaudited consolidated financial statements are filed as part of this Form 17-Q.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Cebu Air, Inc. (the Parent Company) is an airline that operates under the trade name “Cebu

Pacific Air” and is the leading low-cost carrier in the Philippines. It pioneered the “low fare,

great value” strategy in the local aviation industry by providing scheduled air travel services

targeted to passengers who are willing to forego extras for fares that are typically lower than those

offered by traditional full-service airlines while offering reliable services and providing

passengers with a fun travel experience.

The Parent Company was incorporated on August 26, 1988 and was granted a 40-year legislative

franchise to operate international and domestic air transport services in 1991. It commenced its

scheduled passenger operations in 1996 with its first domestic flight from Manila to Cebu. In

1997, it was granted the status as an official Philippine carrier to operate international services by

the Office of the President of the Philippines pursuant to Executive Order (EO) No. 219.

International operations began in 2001 with flights from Manila to Hong Kong.

In 2005, the Parent Company adopted the low-cost carrier (LCC) business model. The core

element of the LCC strategy is to offer affordable air services to passengers. This is achieved by

having: high-load, high-frequency flights; high aircraft utilization; a young and simple fleet

composition; and low distribution costs.

The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on

October 26, 2010, the Company’s initial public offering (IPO).


Leasing Limited, IBON Leasing Limited, Boracay Leasing Limited, Surigao Leasing Limited,

Sharp Aircraft Leasing Limited, Vector Aircraft Leasing Limited, Panatag One Aircraft Leasing

Limited, Panatag Two Aircraft Leasing Limited, Panatag Three Aircraft Leasing Limited and

Summit A Aircraft Leasing Limited. On March 20, 2014, the Parent Company acquired 100%

ownership of Tiger Airways Philippines (TAP), including 40% stake in Roar Aviation II Pte. Ltd.

(Roar II), a wholly owned subsidiary of Tiger Airways Holdings Limited (TAH). The Parent

Company, its ten SPEs and Tiger Airways Philippines (collectively known as “the Group”) are

consolidated for financial reporting purposes.

As of March 31, 2015, the Group operates an extensive route network serving 55 domestic routes

and 36 international routes with a total of 2,597 scheduled weekly flights. It operates from seven

hubs, including the Ninoy Aquino International Airport (NAIA) Terminal 3 and Terminal 4 both

located in Pasay City, Metro Manila; Mactan-Cebu International Airport located in Lapu-Lapu

City, part of Metropolitan Cebu; Diosdado Macapagal International Airport (DMIA) located in

Clark, Pampanga; Davao International Airport located in Davao City, Davao del Sur; Ilo-ilo

International Airport located in Ilo-ilo City, regional center of the western Visayas region; and

Kalibo International Airport in Kalibo, Aklan.

As of March 31, 2015, the Group operates a fleet of 55 aircraft which comprises of 10 Airbus

A319, 31 Airbus A320, 6 Airbus A330 and 8 ATR 72-500 aircraft. It operates its Airbus aircraft

on both domestic and international routes and operates the ATR 72-500 aircraft on domestic

routes, including destinations with runway limitations. The average aircraft age of the Group’s

fleet is approximately 4.41 years as of March 31, 2015.

- 4 -

The Group has three principal distribution channels: the internet; direct sales through booking

sales offices, call centers and government/corporate client accounts; and third-party sales outlets.

Aside from passenger service, it also provides airport-to-airport cargo services on its domestic and

international routes. In addition, the Group offers ancillary services such as cancellation and

rebooking options, in-flight merchandising such as sale of duty-free products on international

flights, baggage and travel-related products and services.

Results of Operations

Three Months Ended March 31, 2015 Versus March 31, 2014

Revenues

The Group generated revenues of P=14.198 billion for the three months ended March 31, 2015,

20.7% higher than the P=11.764 billion revenues earned in the same period last year. Growth in

revenues is accounted for as follows:

Passenger

Passenger revenues grew by P=1.960 billion or 22.2% to P=10.808 billion in the three months ended

March 31, 2015 from P=8.848 billion posted in the three months ended March 31, 2014. This

increase was mainly attributable to the 13.0% increase in passenger volume to 4.3 million from

3.8 million in 2014 driven by the increased number of flights in 2015. Number of flights went up

by 14.3% year on year as the Group added more aircraft to its fleet, particularly, its acquisition of

wide-body Airbus A330 aircraft with a configuration of more than 400 all-economy class seats.

The number of aircraft increased from 51 aircraft as of March 31, 2014 to 55 aircraft as of March

31, 2015, which includes 3 brand new Airbus A330 aircraft delivered in 2014 and in 2015.

Increase in average fares by 8.1% to P=2,525 for the three months ended March 31, 2015 from

P=2,336 for the same period last year also contributed to the growth in revenues.

Cargo

Cargo revenues grew by P92.728 million or 13.6% to P772.545 million for the three months

ended March 31, 2015 from P679.818 million for the three months ended March 31, 2014

following the increase in the volume of cargo transported in 2015.

Ancillary

Ancillary revenues went up by P=381.125 million or 17.0 % to P=2.618 billion in the three months

ended March 31, 2015 from P=2.236 billion registered in the same period last year consequent to

the 13.0% increase in passenger traffic and 3.6% increase in average ancillary revenue per

passenger. Improved online bookings, together with a wider range of ancillary revenue products

and services, also contributed to the increase.

Expenses

The Group incurred operating expenses of P11.368 billion for the three months ended

March 31, 2015, slightly higher by 1.0% than the P11.252 billion operating expenses recorded for

the three months ended March 31, 2014. Expenses generally increased driven by the Group’s

expanded long haul operations and growth in seat capacity from the acquisition of new aircraft.

However, this was offset by the substantial reduction in fuel costs incurred for the three months

ended March 31, 2015 compared to the same period last year due to the sharp decline in global jet

fuel prices. The strengthening of the Philippine peso against the U.S. dollar as referenced by the

appreciation of the Philippine peso to an average of P44.42 per U.S. dollar for the three months

ended March 31, 2015 from an average of P44.88 per U.S. dollar last year based on the Philippine

Dealing and Exchange Corporation (PDEx) weighted average rates also partially mitigated the

increase in expenses.

- 5 -

Flying Operations

Flying operations expenses decreased by P1.056 billion or 17.0% to P5.144 billion for the three

months ended March 31, 2015 from P6.200 billion incurred in the same period last year. This is

primarily attributable to the 22.1% decline in aviation fuel expenses to P4.325 billion for the three

months ended March 31, 2015 from P5.551 billion for the same period last year consequent to the

significant drop in jet fuel prices as referenced by the reduction in the average published fuel

MOPS price of U.S. $68.98 per barrel in the three months ended March 31, 2015 from U.S.

$121.47 per barrel in 2014. The slight strengthening of the Philippine peso against the U.S. dollar

as referenced by the appreciation of the Philippine peso to an average of P44.42 per U.S. dollar

for the three months ended March 31, 2015 from an average of P44.88 per U.S. dollar last year

based on the Philippine Dealing and Exchange Corporation (PDEx) weighted average rates also

contributed to the decrease.


Aircraft and traffic servicing expenses increased by P216.803 million or 20.0% to P1.303 billion

for the three months ended March 31, 2015 from P1.086 billion registered in the same period in

2014 as a result of the overall increase in the number of flights flown in 2015. Higher expenses

were particularly attributable to more international flights operated for which airport and ground

handling charges were generally higher compared to domestic flights. International flights

increased by 10.5% year on year with the launch of long haul operations to Kuwait, Sydney and

Riyadh in the latter part of 2014.


Depreciation and amortization expenses grew by P220.976 million or 22.2% to P1.215 billion for

the three months ended March 31, 2015 from P993.726 million for the three months ended

March 31, 2014. Depreciation and amortization expenses increased consequent to the arrival of

three Airbus A320 aircraft during the second and last quarters of 2014 and two Airbus A320

aircraft in 2015.


Repairs and maintenance expenses went up by 21.2% to P1.333 billion for the three months ended

March 31, 2015 from P1.100 billion posted in the three months ended March 31, 2014. Increase

was driven by the overall increase in the number of flights and the delivery of three Airbus A320

and two Airbus A330 aircraft in the last three quarters of 2014 and two Airbus A320 and one

Airbus A330 aircraft in 2015 partially offset by the return of four leased Airbus A320 aircraft in

2014.


Aircraft and engine lease expenses moved up by P123.366 million or 15.3% to P929.669 million

in the three months ended March 31, 2015 from P806.302 million charged for the three months

ended March 31, 2014. Increase in aircraft lease was due to the delivery of three Airbus A330

aircraft under operating lease, two in the latter part of 2014 and one in 2015. This was partially

offset by the return of four leased Airbus A320 aircraft in 2014.


Reservation and sales expenses increased by P178.979 million or 33.9% to P706.236 million for

the three months ended March 31, 2015 from P527.257 million for the three months ended

March 31, 2014. This was primarily attributable to the increase in commission expenses and

online bookings relative to the overall growth in passenger volume year on year.


General and administrative expenses grew by P88.712 million or 32.5% to P361.777 million for

the three months ended March 31, 2015 from P273.065 million incurred in the three months

ended March 31, 2014. Growth in general and administrative expenses was primarily attributable

to the increased flight and passenger activity in 2015.

- 6 -

Passenger Service

Passenger service expenses went up by P110.077 million or 41.5% to P375.474 million for the

three months ended March 31, 2015 from P265.397 million posted for the three months ended

March 31, 2014. This was primarily caused by additional cabin crew hired for the Airbus A320

and A330 aircraft acquired during the last three quarters of 2014 and in 2015 and the increase in

passenger food and supplies from pre-ordered meals being offered in international flights.

Operating Income

As a result of the foregoing, the Group finished with an operating income of P2.831 billion for the

three months ended March 31, 2015, 452.5% higher than the P512.381 million operating income

earned in the same period last year.


Interest Income

Interest income dropped by P11.220 million or 45.2% to P13.587 million for the three months

ended March 31, 2015 from P24.807 million earned in the same period last year due to decrease

in the balance of cash in bank and short-term placements year on year and lower interest rates.


The Group incurred a hedging loss of P360.566 million for the three months ended

March 31, 2015, an increase of 699.7% from hedging loss of P45.089 million in the same period

last year as a result of lower mark-to-market valuation on fuel hedging positions consequent to the

material decline in fuel prices in 2015.

Foreign Exchange Gains (Losses)

The Group registered a net foreign exchange loss of P9.232 million for the three months ended

March 31, 2015, a decrease of 95.2% from net foreign exchange loss of P193.655 million

incurred in the same period last year as a result of the appreciation of the Philippine peso against

the U.S. dollar. The Group’s major exposure to foreign exchange rate fluctuations is in respect to

U.S. dollar denominated long-term debt incurred in connection with aircraft acquisitions.

Equity in Net Income (Loss) of Joint Venture

The Group had equity in net loss of joint venture of P17.018 million for the three months ended

March 31, 2015, P53.258 million or 147.0% lower than the P36.240 million equity in net income

of joint venture earned in the same period last year. The decrease was primarily due to the net loss

from current operations incurred by SIA Engineering (Philippines) Corporation (SIAEP) in the

first quarter of 2015.

Interest Expense

Interest expense increased by P4.619 million or 1.8% to P262.649 million for the three months

ended March 31, 2015 from P258.030 million in the three months ended March 31, 2014.

Increase was due to higher interest expense incurred brought by the additional loans availed to

finance the acquisition of three Airbus A320 aircraft during the second and last quarters of 2014

and two Airbus A320 aircraft in 2015. This was partially offset by the slight strengthening of the

Philippine peso against the U.S. dollar as referenced by the appreciation of the Philippine peso to

an average of P44.42 per U.S. dollar for the three months ended March 31, 2015 from an average

of P44.88 per U.S. dollar last year based on the Philippine Dealing and Exchange Corporation

(PDEx) weighted average rates.

- 7 -


As a result of the foregoing, the Group recorded income before income tax of P2.195 billion for

the three months ended March 31, 2015, higher by 2,763.5% or P2.118 billion than the

P76.654 million income before income tax posted for the three months ended March 31, 2014.

Benefit from Income Tax

Benefit from income tax for the three months ended March 31, 2015 amounted to

P29.954 million, of which, P36.055 million pertains to current income tax recognized as a result

of the taxable income for the first quarter of 2015. Benefit from deferred income tax amounted to

P66.009 million resulting from the recognition of deferred tax assets on future deductible amounts

during the period.

Net Income

Net income for the three months ended March 31, 2015 amounted to P2.225 billion, an increase

of 1,255.3% from the P164.164 million net income earned in the same period last year.

As of March 31, 2015, except as otherwise disclosed in the financial statements and to the best of

the Group’s knowledge and belief, there are no material off-balance sheet transactions,

arrangements, obligations (including contingent obligations) and other relationships of the Group

with unconsolidated entities or other persons created during the reporting period that would have

a significant impact on the Group’s operations and/or financial condition.

Financial Position

March 31, 2015 versus December 31, 2014

As of March 31, 2015 the Group’s consolidated balance sheet remains solid, with net debt to

equity of 1.24 [total debt after deducting cash and cash equivalents (including financial assets

held-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidated

assets grew to P80.779 billion from P76.062 billion as of December 31, 2014 as the Group added

aircraft to its fleet. Equity grew to P=23.764 billion from P=21.539 billion in 2014, while book

value per share amounted to P=39.22 as of March 31, 2015 from P=35.55 as of December 31, 2014.

The Group’s cash requirements have been mainly sourced through cash flow from operations and

from borrowings. Net cash from operating activities amounted to P4.137 billion. As of

March 31, 2015, net cash used in investing activities amounted to P3.798 billion which included

payments in connection with the purchase of aircraft. Net cash provided by financing activities

amounted to P1.725 billion which comprised of proceeds from long-term debt of P3.099 billion

net of repayments of long-term debt amounting to P1.374 billion.

As of March 31, 2015, except as otherwise disclosed in the financial statements and to the best of

the Group’s knowledge and belief, there are no events that will trigger direct or contingent

financial obligation that is material to the Group, including any default or acceleration of an

obligation.

- 8 -

Financial Ratios

The following are the major financial ratios that the Group monitors in measuring and analyzing

its financial performance:

Liquidity and Capital Structure Ratios

March 31, 2015 December 31, 2014

Current Ratio 0.43:1 0.35:1

Debt-to-Equity Ratio 1.50:1 1.57:1

Asset-to-Equity Ratio 3.40:1 3.53:1

Interest Coverage Ratio 10.78:1 4.10:1

Profitability Ratios

March 31, 2015 March 31, 2014

Return on Asset 2.8% 0.2%

Return on Equity 9.8% 0.8%

Return on Sales 15.7% 1.4%



Material changes in the Statements of Consolidated Comprehensive Income were explained in

detail in the management’s discussion and analysis of financial condition and results of operations

stated above.

Consolidated Statements of Financial Position –March 31, 2015 versus December 31, 2014

52.1% increase in Cash and Cash Equivalents

Due to collections as a result of the expansion of the Group’s operations as evidenced by 20.7%

growth in revenues.

19.5% decrease in Receivables

Due to collection of various trade receivables and settlement receivable from Roar II.


Due to increased volume of materials and supplies inventory relative to the increased number of

flights and larger fleet size during the period.


Due mainly to collateral deposits provided to counterparties for fuel hedging transactions and

prepayment of aviation and passenger liability insurance premiums.


Due to the acquisition of two Airbus A320 aircraft during the period.

2.9% decrease in Investment in Joint Ventures

Due to the share in net loss of SIAEP incurred during the period.

7.3% decrease in Other Noncurrent Assets

Due to the return of deposits made on two leased Airbus A330 aircraft.

- 9 -

0.4% decrease in Accounts Payable and Other Accrued Liabilities

Due to payments made during the period.

29.4% increase in Due to Related Parties

Due to increase in payables on purchases made from related parties.


Due to the increase in sale of passenger travel services.

5.5% decrease in Financial Liabilities at fair value through profit or loss

Due to the settlement of certain fuel derivative contracts with counterparties.


Due to additional loans availed to finance the purchase of two Airbus A320 aircraft acquired

during the period partially offset by the repayment of certain outstanding long-term debt in

accordance with the repayment schedule.

316.8% increase in Income Tax Payable

Due to higher income tax due for the first quarter of 2015 in excess of available creditable

withholding tax.

51.1% decrease in Deferred Tax Liabilities-net

Due mainly to the deferred tax benefits recognized for future deductible amounts on asset

retirement obligation and Minimum Corporate Income Tax (MCIT).

13.6% increase in Other Noncurrent Liabilities

Due to the accretion of asset retirement obligation and accrual for pension liability made during

the period.


Due to net income during the period.

As of March 31, 2015, there are no significant elements of income that did not arise from the

Group’s continuing operations.

The Group generally records higher domestic revenue in January, March, April, May and

December as festivals and school holidays in the Philippines increase the Group’s seat load

factors in these periods. Accordingly, the Group’s revenue is relatively lower in July to September

due to decreased domestic travel during these months. Any prolonged disruption in the Group’s

operations during such peak periods could materially affect its financial condition and/or results

of operations.

- 10 -

KEY PERFORMANCE INDICATORS

The Group sets certain performance measures to gauge its operating performance periodically and

to assess its overall state of corporate health. Listed below are major performance measures,

which the Group has identified as reliable performance indicators. Analyses are employed by

comparisons and measurements based on the financial data as of March 31, 2015 and

December 31, 2014 and for three months ended March 31, 2015 and 2014:

Key Financial Indicators 2015 2014

Total Revenue P14.198 billion P11.764 billion

Pre-tax Core Net Income P2. 565 billion P0.315 billion

EBITDAR Margin 36.4% 20.7%

Cost per Available Seat Kilometre (ASK) (Php) 1.89 2.47

Cost per ASK (U.S. cents) 4.25 5.50

Seat Load Factor 78.9% 82.5%

The manner by which the Group calculates the above key performance indicators for both 2015

and 2014 is as follows:

Total Revenue The sum of revenue obtained from the sale of air

transportation services for passengers and cargo and

ancillary revenue

Pre-tax Core Net Income Operating income after deducting net interest

expense and adding equity income/loss of joint

venture

EBITDAR Margin Operating income after adding depreciation and

amortization, provision for ARO and aircraft and

engine lease expenses divided by total revenue

Cost per ASK Operating expenses, including depreciation and

amortization expenses and the costs of operating

leases, but excluding fuel hedging effects, foreign

exchange effects, net financing charges and taxation,

divided by ASK

Seat Load Factor Total number of passengers divided by the total

number of actual seats on actual flights flown

As of March 31, 2015, except as otherwise disclosed in the financial statements and to the best of the

Group’s knowledge and belief, there are no known trends, demands, commitments, events or

uncertainties that may have a material impact on the Group’s liquidity.

As of March 31, 2015 except as otherwise disclosed in the financial statements and to the best of the

Group’s knowledge and belief, there are no events that would have a material adverse impact on the

Group’s net sales, revenues and income from operations and future operations.

- 12 -

CEBU AIR, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF MARCH 31, 2015

(With Comparative Audited Figures as of December 31, 2014)

March 31,

2015

(Unaudited)

December 31,

2014

(Audited)

ASSETS

Current Assets

Cash and cash equivalents (Note 8) P=6,029,880,366 P=3,963,912,683

Receivables (Note 10) 1,499,231,110 1,862,718,419

Expendable parts, fuel, materials and supplies (Note 11) 798,965,820 679,315,070

Other current assets (Note 12) 2,282,505,356 2,020,471,923

Total Current Assets 10,610,582,652 8,526,418,095

Noncurrent Assets

Property and equipment (Notes 13, 17, 28 and 29) 67,894,478,820 65,227,125,368

Investment in joint ventures (Note 14) 574,321,028 591,339,486

Goodwill (Notes 7 and 15) 566,781,533 566,781,533

Other noncurrent assets (Notes 7 and 16) 1,066,534,738 1,150,594,326

Total Noncurrent Assets 70,102,116,119 67,535,840,713

P=80,712,698,771 P=76,062,258,808

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable and other accrued liabilities (Note 17) P=10,630,693,343 P=10,668,437,651

Unearned transportation revenue (Note 4 and 5) 7,088,312,532 6,373,744,740

Current portion of long-term debt (Notes 13 and 18) 5,014,071,584 4,712,465,291

Financial liabilities at fair value through profit or loss (Note 9) 2,136,452,717 2,260,559,896

Due to related parties (Note 26) 51,633,846 39,909,503

Income tax payable 24,307,604 5,831,638

Total Current Liabilities 24,945,471,626 24,060,948,719

Noncurrent Liabilities

Long-term debt - net of current portion (Notes 13 and 18) 30,581,157,710 29,137,197,374

Deferred tax liabilities-net 63,151,596 129,160,379

Other noncurrent liabilities (Notes 19 and 24) 1,359,188,733 1,196,148,149

Total Noncurrent Liabilities 32,003,498,039 30,462,505,902

Total Liabilities 56,948,969,665 54,523,454,621

Equity (Note 20)

Common stock 613,236,550 613,236,550

Capital paid in excess of par value 8,405,568,120 8,405,568,120

Treasury stock (529,319,321) (529,319,321)

Other comprehensive loss (Note 24) (131,968,292) (131,968,292)

Retained earnings 15,406,212,049 13,181,287,130

Total Equity 23,763,729,106 21,538,804,187

P=80,712,698,771 P=76,062,258,808

See accompanying Notes to Unaudited Consolidated Financial Statements.

- 13 -


UNAUDITED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

Quarters Ended

2015 2014

REVENUE

Sale of air transportation services (Note 4)

Passenger P=10,808,245,633 P=8,848,159,127

Cargo 772,545,246 679,817,501

Ancillary revenues (Note 21) 2,617,564,657 2,236,439,661

14,198,355,536 11,764,416,289

EXPENSES

Flying operations (Note 22) 5,143,827,757 6,200,077,665

Aircraft and traffic servicing (Note 22) 1,302,667,132 1,085,863,644

Repairs and maintenance (Notes 19 and 22) 1,333,151,670 1,100,346,531

Depreciation and amortization (Note 13) 1,214,702,485 993,726,146

Aircraft and engine lease (Note 29) 929,668,595 806,302,453

Reservation and sales 706,236,286 527,256,859

General and administrative (Note 23) 361,777,734 273,065,480

Passenger service 375,474,141 265,396,744

11,367,505,800 11,252,035,522

OPERATING INCOME 2,830,849,736 512,380,767

OTHER INCOME (EXPENSE)

Interest income (Note 8) 13,587,026 24,807,360

Foreign exchange gains (losses) (9,232,352) (193,654,697)

Fuel hedging gains (losses) (Note 9) (360,566,098) (45,089,037)

Equity in net income of joint venture (Note 14) (17,018,457) 36,239,834

Interest expense (Note 18) (262,649,108) (258,030,346)

(635,878,989) (435,726,886)

INCOME BEFORE INCOME TAX 2,194,970,747 76,653,881

PROVISION FOR (BENEFIT FROM)

INCOME TAX (29,954,172) (87,510,225)

NET INCOME 2,224,924,919 164,164,106

OTHER COMPREHENSIVE INCOME,

NET OF TAX – –

TOTAL COMPREHENSIVE INCOME P=2,224,924,919 P=164,164,106

Basic/Diluted Earnings Per Share (Note 25) P=3.67 P=0.27


- 14 -

CEBU AIR, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(With Comparative Unaudited Figures as of March 31, 2014)

For the Three Months Ended March 31, 2015

Common Stock

(Note 20)

Capital Paid in

Excess of Par

Value

(Note 20) Treasury Stock

(Note 20)

Other

Comprehensive

Loss

(Note 24)

Appropriated

Retained

Earnings

(Note 20)

Unappropriated

Retained

Earnings

(Note 20) Total

Equity

Balance at January 1, 2015 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=131,968,292) P=6,916,762,000 P=6,264,525,130 P=21,538,804,187

Net income – – – – – 2,224,924,919 2,224,924,919

Other comprehensive income – – – – – – –

Total comprehensive income – – – – – 2,224,924,919 2,224,924,919

Balance at March 31, 2015 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=131,968,292) P=6,916,762,000 P=8,489,450,049 P=23,763,729,106

For the Three Months Ended March 31, 2014

Common Stock

(Note 20)

Capital Paid in

Excess of Par

Value

(Note 20)

Treasury Stock

(Note 20)

Other

Comprehensive

Loss

(Note 20)

Appropriated

Retained

Earnings

(Note 20)

Unappropriated

Retained

Earnings

(Note 20)

Total

Equity

Balance at January 1, 2014 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=341,650,278) P=3,916,762,000 P=9,016,980,244 P=21,081,577,315

Net income – – – – – 164,164,106 164,164,106

Other comprehensive income – – – – – – –

Total comprehensive income – – – – – 164,164,106 164,164,106

Balance at March 31, 2014 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=341,650,278) P=3,916,762,000 P= 9,181,144,350 P=21,245,741,421


- 15 -


UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

2015 2014

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=2,194,970,747 P=76,653,881

Adjustments for:

Depreciation and amortization (Note 13) 1,214,702,485 993,726,146

Interest expense (Note 18) 262,649,108 258,030,346

Unrealized foreign exchange (gains) losses 17,826,658 218,714,187

Provision for return cost (Note 19) 186,308,466 119,004,382

Fuel hedging (gains) losses (Note 9) 360,566,098 45,089,037

Equity in net income of joint ventures (Note 14) 17,018,457 (36,239,834)

Interest income (Note 8) (13,587,026) (24,807,360)

Operating income before working capital changes 4,240,454,993 1,650,170,785

Decrease (increase) in:

Receivables 364,008,098 696,780,664

Other current assets (273,780,441) (365,777,974)

Expendable parts, fuel, materials and supplies (119,650,750) (37,748,178)

Financial assets at fair value through profit or loss

(derivatives) (Note 9) (484,673,273) 35,637,085

Increase (decrease) in:

Accounts payable and other accrued liabilities 16,799,317 (12,555,108)

Unearned transportation revenue 714,567,794 1,428,902,259

Due to related parties 11,724,346 (10,200,317)

Noncurrent liabilities (23,267,925) (552,506,352)

Net cash generated from operations 4,446,182,159 2,832,702,864

Interest paid (316,088,196) (313,174,962)

Interest received 13,028,653 24,321,452

Income taxes paid (5,831,638) –

Net cash provided by operating activities 4,137,290,978 2,543,849,354

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in subsidiary (Note 7) – (488,559,147)

Decrease in other noncurrent assets 84,059,589 (2,441,613)

Acquisition of property and equipment

(Notes 13 and 29) (3,882,055,937) (4,358,278,906)

Net cash used in investing activities (3,797,996,348) (4,849,279,666)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long-term debt 3,098,735,200 4,043,830,015

Repayments of long-term debt (1,373,886,339) (1,152,414,398)

Net cash provided by financing activities 1,724,848,861 2,891,415,617

EFFECTS OF EXCHANGE RATE CHANGES IN CASH

AND CASH EQUIVALENTS 1,824,192 46,036,016

NET INCREASE IN CASH

AND CASH EQUIVALENTS 2,065,967,683 632,021,321

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 3,963,912,683 6,315,947,866

CASH AND CASH EQUIVALENTS

AT END OF YEAR (Note 8) P=6,029,880,366 P=6,947,969,187


- 16 -


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines on

August 26, 1988 to carry on, by means of aircraft of every kind and description, the general

business of a private carrier or charter engaged in the transportation of passengers, mail,

merchandise and freight, and to acquire, purchase, lease, construct, own, maintain, operate and

dispose of airplanes and other aircraft of every kind and description, and also to own, purchase,

construct, lease, operate and dispose of hangars, transportation depots, aircraft service stations and

agencies, and other objects and service of a similar nature which may be necessary, convenient or

useful as an auxiliary to aircraft transportation. The principal place of business of the Parent

Company is at 2nd Floor, Doña Juanita Marquez Lim Building, Osmeña Boulevard, Cebu City.


Leasing Limited (CALL), IBON Leasing Limited (ILL), Boracay Leasing Limited (BLL), Surigao

Leasing Limited (SLL), Sharp Aircraft Leasing Limited (SALL), Vector Aircraft Leasing Limited

(VALL) Panatag One Aircraft Leasing Limited (POALL), Panatag Two Aircraft Leasing Limited

(PTALL), Panatag Three Aircraft Leasing Limited (PTHALL) and Summit A Aircraft Leasing

Limited (SAALL). CALL, ILL, BLL, SLL, SALL, VALL, POALL, PTALL and PTHALL are

SPEs in which the Parent Company does not have equity interest. CALL, ILL, BLL, SLL, SALL,

VALL POALL, PTALL, PTHALL and SAALL acquired the passenger aircraft for lease to the

Parent Company under finance lease arrangements (Note 13) and funded the acquisitions through

long-term debt (Note 18).

On March 20, 2014, the Parent Company acquired 100% ownership of Tiger Airways Philippines

(TAP) (Note 7). The Parent Company, its ten SPEs and TAP (collectively known as “the Group”)

are consolidated for financial reporting purposes (Note 2).

The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on

October 26, 2010, the Parent Company’s initial public offering (IPO).

The Parent Company’s ultimate parent is JG Summit Holdings, Inc. (JGSHI). The Parent

Company is 66.15%-owned by CP Air Holdings, Inc. (CPAHI).

In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise to

operate air transportation services, both domestic and international. In August 1997, the Office of

the President of the Philippines gave the Parent Company the status of official Philippine carrier to

operate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB)

issued the permit to operate scheduled international services and a certificate of authority to

operate international charters.

The Parent Company is registered with the Board of Investments (BOI) as a new operator of air

transport on a pioneer and non-pioneer status. Under the terms of the registration and subject to

certain requirements, the Parent Company is entitled to certain fiscal and non-fiscal incentives,

including among others, an income tax holiday (ITH) for a period of four (4) to six (6) years.

- 17 -

Prior to the grant of the ITH and in accordance with the Parent Company’s franchise, which

extends up to year 2031:

a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue

derived from air transportation operations. For revenue earned from activities other than air

transportation, the Parent Company is subject to corporate income tax and to real property tax.

b. In the event that any competing individual, partnership or corporation received and enjoyed

tax privileges and other favorable terms which tended to place the Parent Company at any

disadvantage, then such privileges shall have been deemed by the fact itself of the Parent

Company’s tax privileges and shall operate equally in favor of the Parent Company.

On May 24, 2005, the Reformed-Value Added Tax (R-VAT) law was signed as RA No. 9337 or

the R-VAT Act of 2005. The R-VAT law took effect on November 1, 2005 following the

approval on October 19, 2005 of Revenue Regulation (RR) No. 16-2005 which provides for the

implementation of the rules of the R-VAT law. Among the relevant provisions of RA No. 9337

are the following:

a. The franchise tax of the Parent Company is abolished;

b. The Parent Company shall be subject to corporate income tax;

c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration

license, and other fees and charges;

d. Change in corporate income tax rate from 32.00% to 35.00% for the next three years effective

on November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter;

e. 70.00% cap on the input VAT that can be claimed against output VAT; and

f. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective

on February 1, 2006.

On November 21, 2006, the President signed into law RA No. 9361, which amends

Section 110 (B) of the Tax Code. This law, which became effective on December 13, 2006,

provides that if the input tax, inclusive of the input tax carried over from the previous quarter

exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or

quarters. The Department of Finance through the Bureau of Internal Revenue issued

RR No. 2-2007 to implement the provisions of the said law. Based on the regulation, the

amendment shall apply to the quarterly VAT returns to be filed after the effectivity of

RA No. 9361.

On December 16, 2008, the Parent Company was registered as a Clark Freeport Zone (CFZ)

enterprise and committed to provide air transportation services both domestic and international for

passengers and cargoes at the Diosdado Macapagal International Airport.

2. Basis of Preparation

The accompanying consolidated financial statements of the Group have been prepared on a

historical cost basis, except for financial assets and liabilities at fair value through profit or loss

(FVPL) and available-for-sale (AFS) investment that have been measured at fair value.

The financial statements of the Group are presented in Philippine Peso (P=), the Parent Company’s

functional and presentation currency. All amounts are rounded to the nearest peso unless

otherwise indicated.

- 18 -

Statement of Compliance

The consolidated financial statements of the Group have been prepared in compliance with

Philippine Financial Reporting Standards (PFRS). The Group has adopted the new and revised

accounting standards, which became effective beginning January 1, 2014, in the accompanying

financial statements.

On March 20, 2014, the Group finalized its acquisition of TAP. The acquisition was accounted

for as a business combination (Note 7). Accordingly, the Group finalized the purchase price

allocation.

Basis of Consolidation

The consolidated financial statements as of December 31, 2014 and 2013 represent the

consolidated financial statements of the Parent Company, the SPEs that it controls and its wholly

owned subsidiary TAP. Consolidation of TAP started on March 20, 2014 when the Group gained

control (Note 7).

Control is achieved when the Parent Company is exposed, or has rights, to variable returns from

its involvement with the investee and has the ability to affect those returns through its power over

the investee. Specifically, the Parent Company controls an investee if, and only if, the Parent

Company has:

power over the investee (that is, existing rights that give it the current ability to direct the

relevant activities of the investee);

exposure, or rights, to variable returns from its involvement with the investee; and

the ability to use its power over the investee to affect the amount of the investor's returns

When the Parent Company has less than a majority of the voting or similar rights of an investee,

the Parent Company considers all relevant facts and circumstances in assessing whether it has

power over an investee, including:

the contractual arrangement with the other vote holders of the investee;

rights arising from other contractual arrangements; and

the Parent Company’s voting rights and potential voting rights.

The Parent Company reassesses whether or not it controls an investee if facts and circumstances

indicate that there are changes to one or more of the three elements of control. Consolidation of a

subsidiary begins when the Parent Company obtains control over the subsidiary and ceases when

the Parent Company loses control of the subsidiary. Assets, liabilities, income and expenses of the

a subsidiary acquired or disposed of during the year are included in the consolidated statement of

comprehensive income from the date the Parent Company gains control until the date the Parent

Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the

equity holders of the Parent Company of the Group and to the non-controlling interests, even if

this results in the non-controlling interests having a deficit balance. The financial statements of

the subsidiaries are prepared for the same balance sheet date as the Parent Company, using

consistent accounting policies. All intragroup assets, liabilities, equity, income and expenses and

cash flows relating to transactions between members of the Group are eliminated on consolidation.

- 19 -

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an

equity transaction. If the Parent Company loses control over a subsidiary, it:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary;

Derecognizes the carrying amount of any non-controlling interests;

Derecognizes the cumulative translation adjustments recorded in equity;

Recognizes the fair value of the consideration received;

Recognizes the fair value of any investment retained;

Recognizes any surplus or deficit in profit or loss; and

Reclassifies the Parent Company’s share of components previously recognized in OCI to

profit or loss or retained earnings, as appropriate, as would be required if the Parent Company

had directly disposed of the related assets and liabilities.

The consolidated financial statements are prepared using uniform accounting policies for like

transactions and other events in similar circumstances. All significant intercompany transactions

and balances, including intercompany profits and unrealized profits and losses, are eliminated in

the consolidation.

3. Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year, except for

the adoption of new and amended PFRS and Philippine Interpretations from International

Financial Reporting Interpretations Committee (IFRIC) that are discussed below. Except as

otherwise indicated, the adoption of the new and amended PFRS and Philippine Interpretations did

not have any effect on the consolidated financial statements of the Group.

Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12,

Disclosure of Interests in Other Entities, and PAS 27, Separate Financial Statements)

These amendments provide an exception to the consolidation requirement for entities that

meet the definition of an investment entity under PFRS 10. The exception to consolidation

requires investment entities to account for subsidiaries at fair value through profit or loss. The

amendments must be applied retrospectively, subject to certain transition relief. The

amendments have no impact on the Group’s financial position or performance.

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial

Liabilities

These amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’

and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for

offsetting and are applied retrospectively. The amendments affect disclosure only and have no

impact on the Group’s financial position or performance.

PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets

(Amendments)

These amendments remove the unintended consequences of PFRS 13 on the disclosures

required under PAS 36. In addition, these amendments require disclosure of the recoverable

amounts for the assets or cash-generating units (CGUs) for which impairment loss has been

recognized or reversed during the period. The amendments affect disclosures only and had no


- 20 -

PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and

Continuation of Hedge Accounting (Amendments)

These amendments provide relief from discontinuing hedge accounting when novation of a

derivative designated as a hedging instrument meets certain criteria. The amendments have no

financial impact on the Group’s financial position or performance.

Philippine Interpretation IFRIC 21, Levies

IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers

payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon

reaching a minimum threshold, the interpretation clarifies that no liability should be

anticipated before the specified minimum threshold is reached. This interpretation has no


Annual Improvements to PFRSs (2010-2012 cycle)

In the 2010 - 2012 annual improvements cycle, seven amendments to six standards were issued,

which included an amendment to PFRS 13, Fair Value Measurement. The amendment to

PFRS 13 is effective immediately and it clarifies that short-term receivables and payables with no

stated interest rates can be measured at invoice amounts when the effect of discounting is

immaterial. This amendment has no impact on the Group.


In the 2011 - 2013 annual improvements cycle, four amendments to four standards were issued,

which included an amendment to PFRS 1, First-time Adoption of Philippine Financial Reporting

Standards-First-time Adoption of PFRS. The amendment to PFRS 1 is effective immediately. It

clarifies that an entity may choose to apply either a current standard or a new standard that is not

yet mandatory, but permits early application, provided either standard is applied consistently

throughout the periods presented in the entity’s first PFRS financial statements. This amendment

has no impact on the Group as it is not a first-time PFRS adopter.

Standards Issued but not yet Effective

The Group has not applied the following PFRS and Philippine Interpretations which are not yet

effective as of December 31, 2014. This list consists of standards and interpretations issued,

which the Group reasonably expects to be applicable at a future date. The Group intends to adopt

those standards when they become effective. The Group does not expect the adoption of these

standards to have a significant impact in the consolidated financial statements, unless otherwise

stated.

PFRS 9, Financial Instruments - Classification and Measurement (2010 version)

PFRS 9 (2010 version) reflects the first phase on the replacement of PAS 39 and applies to the

classification and measurement of financial assets and liabilities as defined in PAS 39,

Financial Instruments: Recognition and Measurement. PFRS 9 requires all financial assets to

be measured at fair value at initial recognition. A debt financial asset may, if the fair value

option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a

business model that has the objective to hold the assets to collect the contractual cash flows

and its contractual terms give rise, on specified dates, to cash flows that are solely payments of

principal and interest on the principal outstanding. All other debt instruments are

subsequently measured at fair value through profit or loss. All equity financial assets are

measured at fair value either through other comprehensive income (OCI) or profit or loss.

Equity financial assets held for trading must be measured at fair value through profit or loss.

For FVO liabilities, the amount of change in the fair value of a liability that is attributable to

changes in credit risk must be presented in OCI. The remainder of the change in fair value is

presented in profit or loss, unless presentation of the fair value change in respect of the

liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.

All other PAS 39 classification and measurement requirements for financial liabilities have

- 21 -

been carried forward into PFRS 9, including the embedded derivative separation rules and the

criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on

the classification and measurement of the Group’s financial assets, but will potentially have no

impact on the classification and measurement of financial liabilities.

PFRS 9 (2010 version) is effective for annual periods beginning on or after January 1, 2015.

This mandatory adoption date was moved to January 1, 2018 when the final version of

PFRS 9 was adopted by the Philippine Financial Reporting Standards Council (FRSC). Such

adoption, however, is still for approval by the Board of Accountancy (BOA).

Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate

This Philippine Interpretation, which may be early applied, covers accounting for revenue and

associated expenses by entities that undertake the construction of real estate directly or

through subcontractors. This Philippine Interpretation requires that revenue on construction of

real estate be recognized only upon completion, except when such contract qualifies as

construction contract to be accounted for under PAS 11, Construction Contracts, or involves

rendering of services in which case revenue is recognized based on stage of completion.

Contracts involving provision of services with the construction materials and where the risks

and reward of ownership are transferred to the buyer on a continuous basis will also be

accounted for based on stage of completion. The SEC and the FRSC have deferred the

effectivity of this interpretation until the final Revenue standard is issued by the International

Accounting Standards Board (IASB) and an evaluation of the requirements of the final

Revenue standard against the practices of the Philippine real estate industry is completed. The

adoption of the interpretation will have no impact on the Group’s financial position or

performance as the Group is not engaged in real estate businesses.


PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions

PAS 19 requires an entity to consider contributions from employees or third parties when

accounting for defined benefit plans. Where the contributions are linked to service, they

should be attributed to periods of service as a negative benefit. These amendments clarify

that, if the amount of the contributions is independent of the number of years of service, an

entity is permitted to recognize such contributions as a reduction in the service cost in the

period in which the service is rendered, instead of allocating the contributions to the periods of

service. The amendments will have no impact on the Group’s financial statements.


The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginning

on or after January 1, 2015 and are not expected to have a material impact on the Group.

PFRS 2, Share-based Payment - Definition of Vesting Condition

This improvement is applied prospectively and clarifies various issues relating to the

definitions of performance and service conditions which are vesting conditions, including:

A performance condition must contain a service condition

A performance target must be met while the counterparty is rendering service

A performance target may relate to the operations or activities of an entity, or to those of

another entity in the same group

A performance condition may be a market or non-market condition

If the counterparty, regardless of the reason, ceases to provide service during the vesting

period, the service condition is not satisfied.

This amendment does not apply to the Group as it has no share-based payments.

- 22 -

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business

Combination

The amendment is applied prospectively for business combinations for which the acquisition

date is on or after July 1, 2014. It clarifies that a contingent consideration that is not classified

as equity is subsequently measured at fair value through profit or loss whether or not it falls

within the scope of PAS 39, Financial Instruments: Recognition and Measurement

(or PFRS 9, Financial Instruments, if early adopted). The Group shall consider this

amendment for future business combinations.

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the

Total of the Reportable Segments’ Assets to the Entity’s Assets

The amendments are applied retrospectively and clarify that:

An entity must disclose the judgments made by management in applying the aggregation

criteria in the standard, including a brief description of operating segments that have been

aggregated and the economic characteristics (e.g., sales and gross margins) used to assess

whether the segments are ‘similar’.

The reconciliation of segment assets to total assets is only required to be disclosed if the

reconciliation is reported to the chief operating decision maker, similar to the required

disclosure for segment liabilities.

The amendments affect disclosures only and have no impact on the Group’s financial position

or performance.

PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of

Accumulated Depreciation

The amendment is applied retrospectively and clarifies in PAS 16 and PAS 38 that the asset

may be revalued by reference to the observable data on either the gross or the net carrying

amount. In addition, the accumulated depreciation or amortization is the difference between

the gross and carrying amounts of the asset. The amendment will have no impact on the

Group’s financial position or performance.

PAS 24, Related Party Disclosures - Key Management Personnel

The amendment is applied retrospectively and clarifies that a management entity, which is an

entity that provides key management personnel services, is a related party subject to the

related party disclosures. In addition, an entity that uses a management entity is required to

disclose the expenses incurred for management services. The amendments affect disclosures

only and will have no impact on the Group’s financial position or performance.




PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements

The amendment is applied prospectively and clarifies the following regarding the scope

exceptions within PFRS 3:

Joint arrangements, not just joint ventures, are outside the scope of PFRS 3.

This scope exception applies only to the accounting in the financial statements of the joint

arrangement itself.

The amendment will have no impact on the Group’s financial position or performance.

- 23 -

PFRS 13, Fair Value Measurement - Portfolio Exception

The amendment is applied prospectively and clarifies that the portfolio exception in PFRS 13

can be applied not only to financial assets and financial liabilities, but also to other contracts

within the scope of PAS 39. The amendment will have no significant impact on the Group’s

financial position or performance.

PAS 40, Investment Property

The amendment is applied prospectively and clarifies that PFRS 3, and not the description of

ancillary services in PAS 40, is used to determine if the transaction is the purchase of an asset

or business combination. The description of ancillary services in PAS 40 only differentiates

between investment property and owner-occupied property (i.e., property, plant and

equipment). The amendment will have no significant impact on the Group’s financial position

or performance.


PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of

Acceptable Methods of Depreciation and Amortization (Amendments)

The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of

economic benefits that are generated from operating a business (of which the asset is part)

rather than the economic benefits that are consumed through use of the asset. As a result, a

revenue-based method cannot be used to depreciate property, plant and equipment and may

only be used in very limited circumstances to amortize intangible assets. The amendments are

effective prospectively for annual periods beginning on or after January 1, 2016, with early

adoption permitted. The amendment will have no significant impact on the Group’s financial

position or performance.

PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants

(Amendments)

The amendments change the accounting requirements for biological assets that meet the

definition of bearer plants. Under the amendments, biological assets that meet the definition

of bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply.

After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost

(before maturity) and using either the cost model or revaluation model (after maturity). The

amendments also require that produce that grows on bearer plants will remain in the scope of

PAS 41 measured at fair value less costs to sell. For government grants related to bearer

plants, PAS 20, Accounting for Government Grants and Disclosure of Government

Assistance, will apply. The amendments are retrospectively effective for annual periods

beginning on or after January 1, 2016, with early adoption permitted. The amendment will

have no significant impact on the Group’s financial position or performance.

PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements

(Amendments)

The amendments will allow entities to use the equity method to account for investments in

subsidiaries, joint ventures and associates in their separate financial statements. Entities

already applying PFRS and electing to change to the equity method in its separate financial

statements will have to apply that change retrospectively. For first-time adopters of PFRS

electing to use the equity method in its separate financial statements, they will be required to

apply this method from the date of transition to PFRS. These amendments are not expected to

have any impact to the Group.

- 24 -

PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint

Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint

Venture

These amendments address an acknowledged inconsistency between the requirements in

PFRS 10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets between

an investor and its associate or joint venture. The amendments require that a full gain or loss

is recognized when a transaction involves a business (whether it is housed in a subsidiary or

not). A partial gain or loss is recognized when a transaction involves assets that do not

constitute a business, even if these assets are housed in a subsidiary. These amendments are

effective from annual periods beginning on or after 1 January 2016. The amendment will

have no significant impact on the Group’s financial position or performance.

PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations

(Amendments)

The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an

interest in a joint operation, in which the activity of the joint operation constitutes a business

must apply the relevant PFRS 3 principles for business combinations accounting. The

amendments also clarify that a previously held interest in a joint operation is not remeasured

on the acquisition of an additional interest in the same joint operation while joint control is

retained. In addition, a scope exclusion has been added to PFRS 11 to specify that the

amendments do not apply when the parties sharing joint control, including the reporting entity,

are under common control of the same ultimate controlling party.

The amendments apply to both the acquisition of the initial interest in a joint operation and the

acquisition of any additional interests in the same joint operation and are prospectively

effective for annual periods beginning on or after January 1, 2016, with early adoption

permitted. These amendments are not expected to have any impact to the Group.

PFRS 14, Regulatory Deferral Accounts

PFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-

regulation, to continue applying most of its existing accounting policies for regulatory deferral

account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 must

present the regulatory deferral accounts as separate line items on the statement of financial

position and present movements in these account balances as separate line items in the

statement of profit or loss and other comprehensive income. The standard requires disclosures

on the nature of, and risks associated with, the entity’s rate-regulation and the effects of that

rate-regulation on its financial statements. PFRS 14 is effective for annual periods beginning

on or after January 1, 2016. Since the Group is an existing PFRS preparer, this standard

would not apply.




PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in

Methods of Disposal

The amendment is applied prospectively and clarifies that changing from a disposal through

sale to a disposal through distribution to owners and vice-versa should not be considered to be

a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no

interruption of the application of the requirements in PFRS 5. The amendment also clarifies

that changing the disposal method does not change the date of classification. The amendment

will have no significant impact on the Group’s financial position or performance.

- 25 -

PFRS 7, Financial Instruments: Disclosures - Servicing Contracts

PFRS 7 requires an entity to provide disclosures for any continuing involvement in a

transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing

contract that includes a fee can constitute continuing involvement in a financial asset. An

entity must assess the nature of the fee and arrangement against the guidance in PFRS 7 in

order to assess whether the disclosures are required. The amendment is to be applied such that

the assessment of which servicing contracts constitute continuing involvement will need to be

done retrospectively. However, comparative disclosures are not required to be provided for

any period beginning before the annual period in which the entity first applies the

amendments. The amendment will have no significant impact on the Group’s financial


PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial

Statements

This amendment is applied retrospectively and clarifies that the disclosures on offsetting of

financial assets and financial liabilities are not required in the condensed interim financial

report unless they provide a significant update to the information reported in the most recent

annual report. The amendment will have no significant impact on the Group’s financial


PAS 19, Employee Benefits - regional market issue regarding discount rate

This amendment is applied prospectively and clarifies that market depth of high quality

corporate bonds is assessed based on the currency in which the obligation is denominated,

rather than the country where the obligation is located. When there is no deep market for high

quality corporate bonds in that currency, government bond rates must be used. The

amendment will have no significant impact on the Group’s financial position or performance.


PFRS 9, Financial Instrument - Hedge Accounting and amendments to PFRS 9, PFRS 7 and

PAS 39 (2013 version)

PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39 which

pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedge

accounting model of PAS 39 with a more principles-based approach. Changes include

replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on

the economic relationship between the hedged item and the hedging instrument, and the effect

of credit risk on that economic relationship; allowing risk components to be designated as the

hedged item, not only for financial items but also for non-financial items, provided that the

risk component is separately identifiable and reliably measurable; and allowing the time value

of an option, the forward element of a forward contract and any foreign currency basis spread

to be excluded from the designation of a derivative instrument as the hedging instrument and

accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge

accounting.

PFRS 9 (2013 version) has no mandatory effective date. The mandatory effective date of

January 1, 2018 was eventually set when the final version of PFRS 9 was adopted by the

FRSC. The adoption of the final version of PFRS 9, however, is still for approval by BOA.

The adoption of PFRS 9 will have an effect on the classification and measurement of the

Group’s financial assets but will have no impact on the classification and measurement of the

Group’s financial liabilities. The adoption will also have an effect on the Group’s application

of hedge accounting. The Group is currently assessing the impact of adopting this standard.

- 26 -

PFRS 9, Financial Instruments (2014 or final version)

In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflects

all phases of the financial instruments project and replaces PAS 39, Financial Instruments:

Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces

new requirements for classification and measurement, impairment, and hedge accounting.

PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early

application permitted. Retrospective application is required, but comparative information is

not compulsory. Early application of previous versions of PFRS 9 is permitted if the date of

initial application is before February 1, 2015.

The adoption of PFRS 9 will have an effect on the classification and measurement of the

Group’s financial assets and impairment methodology for financial assets, but will have no

impact on the classification and measurement of the Group’s financial liabilities.

The following new standard issued by the IASB has not yet been adopted by the FRSC

IFRS 15, Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to

revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an

amount that reflects the consideration to which an entity expects to be entitled in exchange for

transferring goods or services to a customer. The principles in IFRS 15 provide a more

structured approach to measuring and recognizing revenue. The new revenue standard is

applicable to all entities and will supersede all current revenue recognition requirements under

IFRS. Either a full or modified retrospective application is required for annual periods

beginning on or after January 1, 2017 with early adoption permitted. The Group is currently

assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective

date once adopted locally.

4. Summary of Significant Accounting Policies

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the

Group and the revenue can be reliably measured. Revenue is measured at the fair value of the

consideration received, excluding discounts, rebates and other sales taxes or duty. The following

specific recognition criteria must also be met before revenue is recognized:

Sale of air transportation services

Passenger ticket and cargo waybill sales are initially recorded under ‘Unearned transportation

revenue’ account in the consolidated statement of financial position until recognized under

Revenue account in the consolidated statement of comprehensive income when carriage is

provided or when the flight is uplifted.

Ancillary revenue

Revenue from services incidental to the transportation of passengers, cargo, mail and merchandise

are recognized when transactions are carried out.

Interest income

Interest on cash, cash equivalents, short-term cash investments and debt securities classified as

financial assets at FVPL is recognized as the interest accrues using the effective interest method.

Expense Recognition

Expenses are recognized when it is probable that decrease in future economic benefits related to

decrease in an asset or an increase in liability has occurred and the decrease in economic benefits

- 27 -

can be measured reliably. Expenses that arise in the course of ordinary regular activities of the

Group include, among others, the operating expenses on the Group’s operation.

The commission related to the sale of air transportation services is recognized as outright expense

upon the receipt of payment from customers, and is included under ‘Reservation and sales’

account.

General and Administrative Expenses

General and administrative expenses constitute cost of administering the business. These are

recognized as expenses when it is probable that a decrease in future economic benefit related to a

decrease in an asset or an increase in a liability has occurred and the decrease in economic benefits

can be measured reliably.

Cash and Cash Equivalents

Cash represents cash on hand and in banks. Cash equivalents are short-term, highly liquid

investments that are readily convertible to known amounts of cash with original maturities of

three months or less from dates of placement and that are subject to an insignificant risk of

changes in value. Cash equivalents include short-term investment that can be pre-terminated and

readily convertible to known amount of cash and that are subject to an insignificant risk of

changes in value. Cash and cash equivalents, excluding cash on hand, are classified and

accounted for as loans and receivables.

Financial Instruments

Date of recognition

Purchases or sales of financial assets that require delivery of assets within the time frame

established by regulation or convention in the marketplace are recognized using the settlement

date accounting. Derivatives are recognized on a trade date basis.

Initial recognition of financial instruments

Financial instruments are recognized initially at the fair value of the consideration given. Except

for financial instruments at FVPL, the initial measurement of financial assets includes transaction

costs. The Group classifies its financial assets into the following categories: financial assets at

FVPL, held-to-maturity (HTM) investments, AFS investments and loans and receivables.

Financial liabilities are classified into financial liabilities at FVPL and other financial liabilities

carried at cost or amortized cost. The Group has no HTM and AFS investments as of

March 31, 2015 and December 31, 2014.

The classification depends on the purpose for which the investments were acquired and whether

they are quoted in an active market. Management determines the classification of its investments

at initial recognition and, where allowed and appropriate, re-evaluates such designation at every

reporting date.

Determination of fair value

The fair value of financial instruments traded in active markets at the statement of financial

position date is based on their quoted market price or dealer price quotations (bid price for long

positions and ask price for short positions), without any deduction for transaction costs. When

current bid and ask prices are not available, the price of the most recent transaction provides

evidence of the current fair value as long as there has not been a significant change in economic

circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by

using appropriate valuation techniques. Valuation techniques include net present value

techniques, comparison to similar instruments for which market observable prices exist, options

pricing models and other relevant valuation models. Any difference noted between the fair value

- 28 -

and the transaction price is treated as expense or income, unless it qualifies for recognition as

some type of asset or liability.

The Group uses the following hierarchy for determining and disclosing the fair value of financial

instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded

fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value


‘Day 1’ profit or loss

Where the transaction price in a non-active market is different from the fair value based on other

observable current market transactions in the same instrument or based on a valuation technique

whose variables include only data from an observable market, the Group recognizes the difference

between the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it

qualifies for recognition as some other type of asset or liability. In cases where the transaction

price used is made of data which is not observable, the difference between the transaction price

model value is only recognized in profit or loss, when the inputs become observable or when the

instrument is derecognized. For each transaction, the Group determines the appropriate method of

recognizing the ‘Day 1’ profit or loss amount.

Financial assets and financial liabilities at FVPL

Financial assets and financial liabilities at FVPL include financial assets and financial liabilities

held for trading purposes, derivative instruments or those designated upon initial recognition as at

FVPL. Financial assets and financial liabilities are designated by management on initial

recognition when any of the following criteria are met:

The designation eliminates or significantly reduces the inconsistent treatment that would

otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them

on a different basis; or

The assets or liabilities are part of a group of financial assets, financial liabilities or both

which are managed and their performance are evaluated on a fair value basis, in accordance

with a documented risk management or investment strategy; or

The financial instrument contains an embedded derivative, unless the embedded derivative

does not significantly modify the cash flows or it is clear, with little or no analysis, that it

would not be separately recorded.

As of March 31, 2015 and December 31, 2014, the Group’s financial assets at FVPL consist of

derivative liabilities (Note 9).

Financial assets and financial liabilities at FVPL are presented in the consolidated statement of

financial position at fair value. Changes in fair value are reflected in profit or loss. Interest earned

or incurred is recorded in interest income or expense, respectively, while dividend income is

recorded in other revenue according to the terms of the contract, or when the right of the payment

has been established.

Derivatives recorded at FVPL

The Group is counterparty to certain derivative contracts such as commodity options. Such

derivative financial instruments are initially recorded at fair value on the date at which the

derivative contract is entered into and are subsequently re-measured at fair value. Any gains or

losses arising from changes in fair values of derivatives (except those accounted for as accounting

- 29 -

hedges) are taken directly to profit or loss. Derivatives are carried as assets when the fair value is

positive and as liabilities when the fair value is negative.

For the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of the

fair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of the

exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction

(cash flow hedge). The Group did not apply hedge accounting on its derivative transactions for

the three months ended March 31, 2015 and year ended December 31, 2014.

The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel

derivatives are not designated as accounting hedges. These derivatives are entered into for risk

management purposes. The gains or losses on these instruments are accounted for directly as

charges to or credits against current operations under ‘Fuel hedging gains (losses)’ account in

profit or loss.

As of March 31, 2015 and December 31, 2014, the Group has no embedded derivatives.

AFS investments

AFS investments are those non-derivative investments which are designated as such or do not

qualify to be classified or designated as financial assets at FVPL, HTM investments or loans and

receivables. They are purchased and held indefinitely, and may be sold in response to liquidity

requirements or changes in market conditions.

After initial measurement, AFS investments are subsequently measured at fair value.

The unrealized gains and losses are recognized directly in equity [other comprehensive income

(loss)] under ‘Net unrealized gain (loss) on AFS investments’ account in the statement of financial

position. When the investment is disposed of, the cumulative gain or loss previously recognized

in the statement of comprehensive income is recognized in the statement of income. Where the

Group holds more than one investment in the same security they are deemed to be disposed of on

a first-in first-out basis. Dividends earned while holding AFS investments are recognized in the

statement of income when the right of the payment has been established. The losses arising from

impairment of such investments are recognized in the statement of income and removed from the

‘Net unrealized gain (loss) on AFS investments’ account.

As of March 31, 2015 and December 31, 2014, the Group has no AFS investments.

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments and fixed

maturities that are not quoted in an active market. After initial measurement, receivables are

subsequently carried at amortized cost using the effective interest method less any allowance for

impairment loss. Amortized cost is calculated by taking into account any discount or premium on

acquisition, and includes fees that are an integral part of the effective interest rate (EIR) and

transaction costs. Gains and losses are recognized in profit or loss, when the receivables are

derecognized or impaired, as well as through the amortization process.

This accounting policy applies primarily to the Group’s trade and other receivables (Note 10) and

certain refundable deposits (Note 16).

Financial liabilities

Issued financial instruments or their components, which are not designated at FVPL are classified

as other financial liabilities where the substance of the contractual arrangement results in the

Group having an obligation either to deliver cash or another financial asset to the holder, or to

satisfy the obligation other than by the exchange of a fixed amount of cash or another financial

asset for a fixed number of own equity shares. The components of issued financial instruments

- 30 -

that contain both liability and equity elements are accounted for separately, with the equity

component being assigned the residual amount after deducting from the instrument as a whole the

amount separately determined as the fair value of the liability component on the date of issue.

After initial measurement, other financial liabilities are subsequently measured at cost or

amortized cost using the effective interest method. Amortized cost is calculated by taking into

account any discount or premium on the issue and fees that are an integral part of the EIR. Any

effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.

This accounting policy applies primarily to the Group’s accounts payable and other accrued

liabilities, long-term debt, and other obligations that meet the above definition

(Notes 17, 18 and 19).

Impairment of Financial Assets

The Group assesses at each reporting date whether there is objective evidence that a financial asset

or group of financial assets is impaired. A financial asset or a group of financial assets is deemed

to be impaired if, and only if, there is objective evidence of impairment as a result of one or more

events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that

loss event (or events) has an impact on the estimated future cash flows of the financial asset or the

group of financial assets that can be reliably estimated. Evidence of impairment may include

indications that the borrower or a group of borrowers is experiencing significant financial

difficulty, default or delinquency in interest or principal payments, the probability that they will

enter bankruptcy or other financial reorganization and where observable data indicate that there is

a measurable decrease in the estimated future cash flows, such as changes in arrears or economic

conditions that correlate with defaults.

Assets carried at amortized cost

If there is objective evidence that an impairment loss on financial assets carried at amortized cost

(i.e., receivables) has been incurred, the amount of the loss is measured as the difference between

the assets’ carrying amount and the present value of estimated future cash flows discounted at the

asset’s original EIR. Time value is generally not considered when the effect of discounting is not

material. The carrying amount of the asset is reduced through the use of an allowance account.

The amount of the loss shall be recognized in profit or loss. The asset, together with the

associated allowance accounts, is written-off when there is no realistic prospect of future recovery.

The Group first assesses whether objective evidence of impairment exists individually for

financial assets that are individually significant, and collectively for financial assets that are not

individually significant. If it is determined that no objective evidence of impairment exists for an

individually assessed financial asset, whether significant or not, the asset is included in a group of

financial assets with similar credit risk characteristics and that group of financial assets is

collectively assessed for impairment. Assets that are individually assessed for impairment and for

which an impairment loss is or continues to be recognized are not included in the collective

assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be

related objectively to an event occurring after the impairment was recognized, the previously

recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is

recognized in profit or loss to the extent that the carrying value of the asset does not exceed its

amortized cost at the reversal date.

The Group performs a regular review of the age and status of these accounts, designed to identify

accounts with objective evidence of impairment and provide the appropriate allowance for

impairment loss. The review is accomplished using a combination of specific and collective

assessment approaches, with the impairment loss being determined for each risk grouping

identified by the Group.

- 31 -

AFS investments

The Group assesses at each reporting date whether there is objective evidence that a financial asset

or group of financial assets is impaired. In the case of debt instruments classified as AFS

investments, impairment is assessed based on the same criteria as financial assets carried at

amortized cost. Interest continues to be accrued at the original EIR on the reduced carrying

amount of the asset and is recorded under interest income in profit or loss. If, in a subsequent

year, the fair value of a debt instrument increases, and the increase can be objectively related to an

event occurring after the impairment loss was recognized in profit or loss, the impairment loss is

also reversed through profit or loss.

For equity investments classified as AFS investments, objective evidence would include a

significant or prolonged decline in the fair value of the investments below its cost. The

determination of what is significant and prolonged is subject to judgment. Where there is

evidence of impairment, the cumulative loss measured as the difference between the acquisition

cost and the current fair value, less any impairment loss on that investment previously recognized

is removed from other comprehensive income and recognized in profit or loss. Impairment losses

on equity investments are not reversed through the statement of comprehensive income. Increases

in fair value after impairment are recognized directly in other comprehensive income.

Derecognition of Financial Instruments

Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of financial

assets) is derecognized where:

the rights to receive cash flows from the asset have expired;

the Group retains the right to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a “pass-through” arrangement;

or

the Group has transferred its rights to receive cash flows from the asset and either: (a) has

transferred substantially all the risks and rewards of ownership and retained control over the

asset; or (b) has neither transferred nor retained the risks and rewards of the asset but has

transferred the control over the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a

pass-through arrangement, and has neither transferred nor retained substantially all the risks and

rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of

the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a

guarantee over the transferred asset is measured at the lower of original carrying amount of the

asset and the maximum amount of consideration that the Group could be required to repay.


A financial liability is derecognized when the obligation under the liability is discharged,

cancelled or has expired. When an existing financial liability is replaced by another from the same

lender on substantially different terms, or the terms of an existing liability are substantially

modified, such an exchange or modification is treated as a derecognition of the original liability

and the recognition of a new liability, and the difference in the respective carrying amounts is

recognized in profit or loss.

Offsetting Financial Instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement

of financial position if, and only if, there is a currently enforceable legal right to offset the

recognized amounts and there is an intention to settle on a net basis, or to realize the asset and

settle the liability simultaneously. This is not generally the case with master netting agreements;

thus, the related assets and liabilities are presented gross in the consolidated statement of financial

position.

- 32 -

Expendable Parts, Fuel, Materials and Supplies

Expendable parts, fuel, materials and supplies are stated at lower of cost and net realizable value

(NRV). Cost of flight equipment expendable parts, materials and supplies are stated at acquisition

cost determined on a moving average cost method. Fuel is stated at cost on a weighted average

cost method. NRV is the estimated selling price in the ordinary course of business less estimated

costs to sell.

Business Combinations and Goodwill

PFRS 3 provides that if the initial accounting for a business combination can be determined only

provisionally by the end of the period in which the combination is effected because either the fair

values to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or the

cost of the combination can be determined only provisionally, the acquirer shall account for the

combination using those provisional values. The acquirer shall recognize any adjustments to those

provisional values as a result of completing the initial accounting within twelve months of the

acquisition date as follows: (i) the carrying amount of the identifiable asset, liability or contingent

liability that is recognized or adjusted as a result of completing the initial accounting shall be

calculated as if its fair value at the acquisition date had been recognized from that date;

(ii) goodwill or any gain recognized shall be adjusted by an amount equal to the adjustment to the

fair value at the acquisition date of the identifiable asset, liability or contingent liability being

recognized or adjusted; and (iii) comparative information presented for the periods before the

initial accounting for the combination is complete shall be presented as if the initial accounting has

been completed from the acquisition date.

Business combinations are accounted for using the acquisition method. The cost of an acquisition

is measured as the aggregate of the consideration transferred measured at acquisition date fair

value and the amount of any non-controlling interests in the acquiree. For each business

combination, the Group elects whether to measure the non-controlling interests in the acquiree at

fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related

costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for

appropriate classification and designation in accordance with the contractual terms, economic

circumstances and pertinent conditions as at the acquisition date. This includes the separation of

embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is remeasured

at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at

the acquisition date. Contingent consideration classified as an asset or liability that is a financial

instrument and within the scope of PAS 39, Financial Instruments: Recognition and

Measurement, is measured at fair value with changes in fair value recognized either in profit or

loss or as a change to OCI. If the contingent consideration is not within the scope of PAS 39, it is

measured in accordance with the appropriate IFRS. Contingent consideration that is classified as

equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration

transferred and the amount recognized for non-controlling interests, and any previous interest

held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net

assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses

whether it has correctly identified all of the assets acquired and all of the liabilities assumed and

reviews the procedures used to measure the amounts to be recognized at the acquisition date. If

the reassessment still results in an excess of the fair value of net assets acquired over the aggregate

consideration transferred, then the gain is recognized in profit or loss.

- 33 -

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the

acquisition date, allocated to each of the Group’s CGU that are expected to benefit from the

combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those

units.

On March 20, 2014, the Parent Company acquired 100% shares of TAP in which total

consideration amounted to P=265.1 million and goodwill recognized as a result of the acquisition

amounted to P=566.8 million (Notes 7 and 15).

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation, amortization and

impairment loss, if any. The initial cost of property and equipment comprises its purchase price,

any related capitalizable borrowing costs attributed to progress payments incurred on account of

aircraft acquisition under construction and other directly attributable costs of bringing the asset to

its working condition and location for its intended use.

Subsequent costs are capitalized as part of ‘Property and equipment’ account only when it is

probable that future economic benefits associated with the item will flow to the Group and the cost

of the item can be measured reliably. Subsequent costs such as actual costs of heavy maintenance

visits for passenger aircraft are capitalized and depreciated based on the estimated number of years

or flying hours, whichever is applicable, until the next major overhaul or inspection. Generally,

heavy maintenance visits are required every five to six years for airframe and ten years or 20,000

flight cycles, whichever comes first, for landing gear. All other repairs and maintenance are

charged against current operations as incurred.

Pre-delivery payments for the construction of aircraft are initially recorded as Construction

in-progress when paid to the counterparty. Construction in-progress are transferred to the related

‘Property and equipment’ account when the construction or installation and related activities

necessary to prepare the property and equipment for their intended use are completed, and the

property and equipment are ready for service. Construction in-progress is not depreciated until

such time when the relevant assets are completed and available for use.

Depreciation and amortization of property and equipment commence once the property and

equipment are available for use and are computed using the straight-line method over the

estimated useful lives (EULs) of the assets, regardless of utilization.

The EULs of property and equipment of the Group follows:

Passenger aircraft* 15 years

Engines 15 years

Rotables 15 years

Ground support equipment 5 years

EDP Equipment, mainframe and peripherals 3 years

Transportation equipment 5 years

Furniture, fixtures and office equipment 5 years

Communication equipment 5 years

Special tools 5 years

Maintenance and test equipment 5 years

Other equipment 5 years

*With residual value of 15.00%

Leasehold improvements are amortized over the shorter of their EULs or the corresponding lease

terms.

- 34 -

An item of property and equipment is derecognized upon disposal or when no future economic

benefits are expected to arise from the continued use of the asset. Any gain or loss arising on

derecognition of the asset (calculated as the difference between the net disposal proceeds and the

carrying amount of the item) is included in profit or loss, in the year the item is derecognized.

The assets’ residual values, useful lives and methods of depreciation and amortization are

reviewed and adjusted, if appropriate, at each financial year-end.

Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of

intangible assets acquired in a business combination is their fair value at the date of acquisition

(Notes 7 and 16).

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment

annually, either individually or at the CGU level. The assessment of indefinite life is reviewed

annually to determine whether the indefinite life continues to be supportable. If not, the change in

useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from

derecognition of an intangible asset are measured as the difference between the net disposal

proceeds and the carrying amount of the asset and are recognized in the statement of profit or loss

when the asset is derecognized.

The intangible asset of the Group has indefinite useful lives.

Aircraft Maintenance and Overhaul Cost

The Group recognizes aircraft maintenance and overhaul expenses in accordance with the

contractual terms.

The maintenance contracts are classified into two: (a) those based on time and material basis

(TMB); and (b) power-by-the-hour (PBH) contract. For maintenance contract under TMB, the

Group recognizes expenses based on expense as incurred method. For maintenance contract under

PBH, the Group recognizes expense on an accrual basis.

ARO

The Group is contractually required under various lease contracts to restore certain leased aircraft

to its original condition and to bear the cost of restoration at the end of the contract period. The

contractual obligation includes regular aircraft maintenance, overhaul and restoration of the leased

aircraft to its original condition. The event that gives rise to the obligation is the actual flying

hours of the asset as used, as the usage determines the timing and nature of the entity completes

the overhaul and restoration. Regular aircraft maintenance is accounted for as expense when

incurred, while overhaul and restoration are accounted on an accrual basis.

If there is a commitment related to maintenance of aircraft held under operating lease

arrangements, a provision is made during the lease term for the lease return obligations specified

within those lease agreements. The provision is made based on historical experience,

manufacturers’ advice and if relevant, contractual obligations, to determine the present value of

the estimated future major airframe inspections cost and engine overhauls.

Advance payment for materials for the restoration of the aircraft is initially recorded as Advances

to Supplier. This is recouped when the expenses for restoration of aircraft have been incurred.

The Group regularly assesses the provision for ARO and adjusts the related liability (Note 5).

- 35 -

Investments in Joint Ventures

A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an

economic activity that is subject to joint control. A jointly controlled entity is a JV that involves

the establishment of a separate entity in which each venturer has an interest.

The Group’s 50.00%, 49.00% and 35.00% investments in Philippine Academy for Aviation

Traning, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIA

Engineering (Philippines) Corporation (SIAEP), respectively, are accounted for under the equity

method (Note 14). Under the equity method, the investments in JV are carried in the consolidated

statement of financial position at cost plus post-acquisition changes in the Group’s share of net

assets of the JV, less any allowance for impairment in value. The consolidated statement of

comprehensive income reflects the Group’s share in the results of operations of the JV. Dividends

received are treated as a revaluation of the carrying value of the investment.

The financial statements of the investee companies used in the preparation of the consolidated

financial statements are prepared as of the same date with the Group. The investee companies’

accounting policies conform to those by the Group for like transactions and events in similar

circumstances.

Impairment of Nonfinancial Assets

This accounting policy applies primarily to the Group’s property and equipment.

At each reporting date, the Group assesses whether there is any indication that its nonfinancial

assets may be impaired. When an indicator of impairment exists or when an annual impairment

testing for an asset is required, the Group makes a formal estimate of recoverable amount.

Recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value

in use and is determined for an individual asset, unless the asset does not generate cash inflows

that are largely independent of those from other assets or groups of assets, in which case the

recoverable amount is assessed as part of the CGU to which it belongs. Where the carrying

amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered

impaired and is written down to its recoverable amount. In assessing value in use, the estimated

future cash flows are discounted to their present value using a pre-tax discount rate that reflects

current market assessments of the time value of money and the risks specific to the asset or CGU.

An assessment is made at each statement of financial position date as to whether there is any

indication that a previously recognized impairment loss may no longer exist or may have

decreased. If such indication exists, the recoverable amount is estimated. A previously

recognized impairment loss is reversed only if there has been a change in the estimates used to

determine the asset’s recoverable amount since the last impairment loss was recognized. If that is

the case, the carrying amount of the asset is increased to its recoverable amount. That increased

amount cannot exceed the carrying amount that would have been determined, net of depreciation

and amortization, had no impairment loss been recognized for the asset in prior years. Such

reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization

expense is adjusted in future years to allocate the asset’s revised carrying amount, less any

residual value, on a systematic basis over its remaining life.

Impairment of Intangibles

Intangible assets with indefinite lives are assessed for impairment annually irrespective of whether

there is any indication that it may be impaired. An intangible asset is impaired when its carrying

amount exceeds recoverable amount. An impairment is recognized immediately in the profit or

loss. The Group estimates the recoverable amount of the intangible asset. This impairment test

may be performed at any time during an annual period, provided it is performed at the same time

every year.

- 36 -

Recoverable amount is the higher of an asset’s or CGU’s fair value less cost to sell and its value in

use. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely

independent of the cash inflows from either assets or group of assets. Value in use is the present

value of the future cash flows expected to be derived from an asset or each CGU.

An impairment loss recognized in prior periods shall be reversed if, and only if, there has been a

change in the estimates used to determine the asset’s recoverable amount since the last impairment

loss was recognized. A reversal of an impairment loss shall be recognized immediately in profit

or loss.

Intangible assets with indefinite useful lives are tested for impairment annually, either individually

or at the CGU level.

Impairment of Investments in JV

The Group’s investment in JV is tested for impairment in accordance with PAS 36 as a single

asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell)

with its carrying amount, whenever application of the requirements in PAS 39 indicates that the

investment may be impaired. An impairment loss recognized in those circumstances is not

allocated to any asset that forms part of the carrying amount of the investment in a JV.

Accordingly, any reversal of that impairment loss is recognized in accordance with PAS 36 to the

extent that the recoverable amount of the investment subsequently increases. In determining the

value in use of the investment, an entity estimates: (a) its share of the present value of the

estimated future cash flows expected to be generated by the JV, including the cash flows from the

operations of the JV and the proceeds on the ultimate disposal of the investment; or (b) the present

value of the estimated future cash flows expected to arise from dividends to be received from the

investment and from its ultimate disposal.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount shall be

reduced to its recoverable amount. The reduction is an impairment loss and shall be recognized

immediately in profit or loss. An impairment loss recognized in prior periods shall be reversed if,

and only if, there has been a change in the estimates used to determine the asset’s recoverable

amount since the last impairment loss was recognized. A reversal of an impairment loss shall be

recognized immediately in profit or loss.

Impairment of Goodwill

The Group determines whether goodwill is impaired at least on an annual basis. The impairment

testing may be performed at any time in the annual reporting period, but it must be performed at

the same time every year and when circumstances indicate that the carrying amount is impaired.

The impairment testing also requires an estimation of the recoverable amount, which is the net

selling price or value-in-use of the CGU to which the goodwill is allocated. The most recent

detailed calculation made in a preceding period of the recoverable amount of the CGU may be

used for the impairment testing for the current period provided that:

The assets and liabilities making up the CGU have not changed significantly from the

most recent calculation;

The most recent recoverable amount calculation resulted in an amount that exceeded the

carrying amount of the CGU by a significant margin; and

The likelihood that a current recoverable amount calculation would be less than the

carrying amount of the CGU is remote based on an analysis of events that have occurred

and circumstances that have changed since the most recent recoverable amount

calculation.

- 37 -

When value-in-use calculations are undertaken, management must estimate the expected future

cash flows from the asset of CGU and choose a suitable discount rate in order to calculate the

present value of those cash flows.

An impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Common Stock

Common stocks are classified as equity and recorded at par. Proceeds in excess of par value are

recorded as ‘Capital paid in excess of par value’ in the consolidated statement of financial

position. Incremental costs directly attributable to the issue of new shares or options are shown in

equity as a deduction from the proceeds.

Treasury Stock

Own equity instruments which are acquired (treasury shares) are recognized at cost and deducted

from equity. No gain or loss is recognized in the profit and loss on the purchase, sale, issue or

cancellation of the Parent Company’s own equity instruments.

Retained Earnings

Retained earnings represent accumulated earnings of the Group less dividends declared.

Dividends on Common Shares

Dividends on common shares are recognized as a liability and deducted from equity when

approved and declared by the BOD, in the case of cash dividends; or by the BOD and

shareholders, in the case of stock dividends.

Provisions and Contingencies

Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a

result of a past event; (b) it is probable (i.e., more likely than not) that an outflow of assets

embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate

can be made of the amount of the obligation. Provisions are reviewed at each reporting date and

adjusted to reflect the current best estimate. Where the Group expects a provision to be

reimbursed, for example under an insurance contract, the reimbursement is recognized as a

separate asset but only when the reimbursement is virtually certain. If the effect of the time value

of money is material, provisions are determined by discounting the expected future cash flows at a

pre-tax rate that reflects current market assessments of the time value of money and, where

appropriate, the risks specific to the liability. Where discounting is used, the increase in the

provision due to the passage of time is recognized as an interest expense in profit or loss.

Contingent liabilities are not recognized in the consolidated statement of financial position but are

disclosed unless the possibility of an outflow of resources embodying economic benefits is

remote. Contingent assets are not recognized but disclosed in the consolidated financial

statements when an inflow of economic benefits is probable. If it is virtually certain that an inflow

of economic benefits will arise, the asset and the related income are recognized in the consolidated

financial statements.

Pension Costs

Defined benefit plan

The net defined benefit liability or asset is the aggregate of the present value of the defined benefit

obligation at the end of the reporting period reduced by the fair value of plan assets, adjusted for

any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the

present value of any economic benefits available in the form of refunds from the plan or

reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using the

projected unit credit method.

- 38 -

Defined benefit costs comprise the following:

(a) service cost;

(b) net interest on the net defined benefit liability or asset; and

(c) remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on non-

routine settlements are recognized as expense in profit or loss. Past service costs are recognized

when plan amendment or curtailment occurs.

Net interest on the net defined benefit liability or asset is the change during the period in the net

defined benefit liability or asset that arises from the passage of time which is determined by

applying the discount rate based on high quality corporate bonds to the net defined benefit liability

or asset. Net interest on the net defined benefit liability or asset is recognized as expense or

income in profit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in

the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized

immediately in OCI in the period in which they arise. Remeasurements are not reclassified to

profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance

policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly

to the Group. Fair value of plan assets is based on market price information. When no market

price is available, the fair value of plan assets is estimated by discounting expected future cash

flows using a discount rate that reflects both the risk associated with the plan assets and the

maturity or expected disposal date of those assets (or, if they have no maturity, the expected

period until the settlement of the related obligations).

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined

benefit obligation is recognized as a separate asset at fair value when and only when

reimbursement is virtually certain.

Income Taxes

Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount

expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used

to compute the amount are those that are enacted or substantially enacted as of the reporting date.

Deferred tax

Deferred tax is provided using the liability method on all temporary differences, with certain

exceptions, at the reporting date between the tax bases of assets and liabilities and their carrying

amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certain

exceptions. Deferred tax assets are recognized for all deductible temporary differences with

certain exceptions, and carryforward benefits of unused tax credits from excess minimum

corporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), to

the extent that it is probable that sufficient taxable income will be available against which the

deductible temporary differences and carryforward benefits of unused tax credits from excess

MCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognized

when it arises from the initial recognition of an asset or liability in a transaction that is not a

business combination and, at the time of transaction, affects neither the accounting income nor

taxable profit or loss. Deferred tax liabilities are not provided on non-taxable temporary

differences associated with interests in JV. With respect to interests in JV, deferred tax liabilities

are recognized except where the timing of the reversal of the temporary difference can be

- 39 -

controlled and it is probable that the temporary difference will not reverse in the foreseeable

future.

The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the

extent that it is no longer probable that sufficient taxable income will be available to allow all or

part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at

each reporting date, and are recognized to the extent that it has become probable that future

taxable income will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period

when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been

enacted or substantively enacted as of the statement of financial position date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.

Deferred tax items are recognized in correlation to the underlying transaction either in profit or

loss or other comprehensive income.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set

off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable

entity and the same taxation authority.

Leases

The determination of whether an arrangement is, or contains a lease, is based on the substance of

the arrangement at inception date, and requires an assessment of whether the fulfillment of the

arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a

right to use the asset. A reassessment is made after inception of the lease only if one of the

following applies:

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;

b. a renewal option is exercised or an extension granted, unless that term of the renewal or

extension was initially included in the lease term;

c. there is a change in the determination of whether fulfillment is dependent on a specified asset;

or

d. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the

change in circumstances gave rise to the reassessment for (a), (c) and (d) scenarios above, and at

the date of renewal or extension period for scenario (b).

Group as lessee

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to

ownership of the leased item, are capitalized at the inception of the lease at the fair value of the

leased property or, if lower, at the present value of the minimum lease payments and included

under ‘Property and equipment’ account with the corresponding liability to the lessor included

under ‘Long-term debt’ account in the consolidated statement of financial position. Lease

payments are apportioned between the finance charges and reduction of the lease liability so as to

achieve a constant rate of interest on the remaining balance of the liability. Finance charges are

charged directly to profit or loss.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable

certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated

over the shorter of the EUL of the asset and the lease term.

- 40 -

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are

classified as operating leases. Operating lease payments are recognized as an expense in profit or

loss on a straight-line basis over the lease term.

Group as lessor

Leases where the Group does not transfer substantially all the risks and benefits of ownership of

the assets are classified as operating leases. Initial direct costs incurred in negotiating operating

leases are added to the carrying amount of the leased asset and recognized over the lease term on

the same basis as the rental income. Contingent rents are recognized as revenue in the period in

which they are earned.

Borrowing Costs

Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are

directly attributable to the acquisition or construction of a qualifying asset. Capitalization of

borrowing costs commences when the activities to prepare the asset are in progress, and

expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the

assets are substantially ready for their intended use.

The Group had not capitalized any borrowing costs for the three months ended March 31, 2015

and 2014 as all borrowing costs from outstanding long-term debt relate to assets that are at state

ready for intended use (Note 18).

Foreign Currency Transactions

Transactions in foreign currencies are initially recorded in the Group’s functional currency using

the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities

denominated in foreign currencies are translated at the functional currency using the Philippine

Dealing and Exchange Corp. (PDEX) closing rate prevailing at the reporting date. All differences

are taken to the consolidated statement of comprehensive income. Non-monetary items that are

measured in terms of historical cost in a foreign currency are translated using the prevailing

closing exchange rate as of the date of initial transaction.

Earnings (Loss) Per Share (EPS)

Basic EPS is computed by dividing net income applicable to common stock by the weighted

average number of common shares issued and outstanding during the year, adjusted for any

subsequent stock dividends declared.

Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity

holders of the Group by the weighted average number of ordinary shares outstanding during the

year plus the weighted average number of ordinary shares that would be issued on the conversion

of all the dilutive potential ordinary shares into ordinary shares.

For the three months ended March 31, 2015 and 2014, the Parent Company does not have any

dilutive potential ordinary shares.

Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the

Chief Operating Decision Maker (CODM). The CODM, who is responsible for resource

allocation and assessing performance of the operating segment, has been identified as the

President. The nature of the operating segment is set out in Note 6.

Events After the Reporting Date

Post-year-end events that provide additional information about the Group’s position at the

reporting date (adjusting event) are reflected in the consolidated financial statements. Post-year-

end events that are not adjusting events are disclosed in the consolidated financial statements,

when material.

- 41 -

5. Significant Accounting Judgments and Estimates

In the process of applying the Group’s accounting policies, management has exercised judgments

and estimates in determining the amounts recognized in the consolidated financial statements.

The most significant uses of judgments and estimates follow.

Judgments

a. Going concern

The management of the Group has made an assessment of the Group’s ability to continue as a

going concern and is satisfied that the Group has the resources to continue in business for the

foreseeable future. Furthermore, the Group is not aware of any material uncertainties that may

cast significant doubts upon the Group’s ability to continue as a going concern. Therefore, the

consolidated financial statements continue to be prepared on a going concern basis.

b. Classification of financial instruments

The Group exercises judgment in classifying a financial instrument, or its component, on

initial recognition as either a financial asset, a financial liability or an equity instrument in

accordance with the substance of the contractual arrangement and the definitions of a financial

asset, financial liability or equity instrument. The substance of a financial instrument, rather

than its legal form, governs its classification in the consolidated statement of financial

position.

In addition, the Group classifies financial assets by evaluating, among others, whether the

asset is quoted or not in an active market. Included in the evaluation on whether a financial

asset is quoted in an active market is the determination of whether quoted prices are readily

and regularly available, and whether those prices represent actual and regularly occurring

market transactions on an arm’s length basis.

c. Fair values of financial instruments

Where the fair values of certain financial assets and liabilities recorded in the consolidated

statement of financial position cannot be derived from active markets, they are determined

using valuation techniques, including the discounted cash flow model. The inputs to these

models are taken from observable market data where possible, but where this is not feasible,

estimates are used in establishing fair values. The judgments include considerations of

liquidity risk, credit risk and volatility. Changes in assumptions about these factors could

affect the reported fair value of financial instruments. For derivatives, the Group generally

relies on calculation agent’s valuation.

The fair values of the Group’s financial instruments are presented in Note 28.

d. Impairment of financial assets

In determining whether an impairment loss should be recorded in profit or loss, the Group

makes judgments as to whether there is any objective evidence of impairment as a result of

one or more events that has occurred after initial recognition of the asset and that loss event or

events has an impact on the estimated future cash flows of the financial assets or the group of

financial assets that can be reliably estimated. This observable data may include adverse

changes in payment status of borrowings in a group, or national or local economic conditions

that correlate with defaults on assets in the portfolio.

e. Classification of leases

Management exercises judgment in determining whether substantially all the significant risks

and rewards of ownership of the leased assets are transferred to the Group. Lease contracts,

which transfer to the Group substantially all the risks and rewards incidental to ownership of

the leased items, are capitalized. Otherwise, they are considered as operating leases.

- 42 -

The Group also has lease agreements where it has determined that the risks and rewards

related to the leased assets are retained with the lessors. Such leases are accounted for as

operating leases (Note 29).

f. Consolidation of SPEs

The Group periodically undertakes transactions that may involve obtaining the rights to

variable returns from its involvement with the SPE. These transactions include the purchase

of aircraft and assumption of certain liabilities. Also, included are transactions involving

SPEs and similar vehicles. In all such cases, management makes an assessment as to whether

the Group has the right over the returns of its SPEs, and based on this assessment, the SPE is

consolidated as a subsidiary or associated company. In making this assessment, management

considers the underlying economic substance of the transaction and not only the contractual

terms.

g. Determination of functional currency

PAS 21 requires management to use its judgment to determine the entity’s functional currency

such that it most faithfully represents the economic effects of the underlying transactions,

events and conditions that are relevant to the entity. In making this judgment, each entity in

the Group considers the following:

a) the currency that mainly influences sales prices for financial instruments and services (this

will often be the currency in which sales prices for its financial instruments and services

are denominated and settled);

b) the currency in which funds from financing activities are generated; and

c) the currency in which receipts from operating activities are usually retained.

The Group’s consolidated financial statements are presented in Philippine peso, which is also

the Parent Company’s functional currency.

h. Contingencies

The Group is currently involved in certain legal proceedings. The estimate of the probable

costs for the resolution of these claims has been developed in consultation with outside

counsel handling the defense in these matters and is based upon an analysis of potential

results. The Group currently does not believe that these proceedings will have a material

adverse effect on the Group’s financial position and results of operations. It is possible,

however, that future results of operations could be materially affected by changes in the

estimates or in the effectiveness of the strategies relating to these proceedings (Note 30).

i. Allocation of revenue, costs and expenses

Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost

and expenses such as passenger revenue, cargo revenue, excess baggage revenue, fuel and

insurance surcharge, fuel and oil expense, hull/war/risk insurance, maintenance expense,

depreciation (for aircraft under finance lease), lease expense (for aircraft under operating

lease) and interest expense based on the related long-term debt are specifically identified per

aircraft based on an actual basis. For revenue, cost and expense accounts that are not

identifiable per aircraft, the Group provides allocation based on activity factors that closely

relate to the earning process of the revenue.

j. Application of hedge accounting

The Group applies hedge accounting treatment for certain qualifying derivatives after

complying with hedge accounting requirements, specifically on hedge documentation

designation and effectiveness testing. Judgment is involved in these areas, which include

management determining the appropriate data points for evaluating hedge effectiveness,

- 43 -

establishing that the hedged forecasted transaction in cash flow hedges are probable of

occurring, and assessing the credit standing of hedging counterparties (Note 9).

k. Classification of joint arrangements

The Group’s investments in joint ventures (Note 14) are structured in separate incorporated

entities. Even though the Group holds various percentage of ownership interest on these

arrangements, their respective joint arrangement agreements requires unanimous consent from

all parties to the agreement for the relevant activities identified. The Group and the parties to

the agreement only have rights to the net assets of the joint venture through the terms of the

contractual arrangements.

l. Intangibles

The Group assesses intangible as having an indefinite useful life when based on the analysis

of relevant factors; the Group has no foreseeable limit to the period of which the intangible

asset is expected to generate cash inflow for the Group.

m. Impairment of goodwill and intangible assets

The Group performs its annual impairment test on its goodwill and other intangible assets with

indefinite useful lives as of reporting date irrespective of whether there is any indication of

impairment. The recoverable amounts of the intangible assets were determined based on

value in use calculations using cash flow projections from financial budgets approved by

management covering a five-year period.

l) Impairment of PPE and investments in JV

The Company assesses at the end of each reporting period whether there is any indication that

an asset may be impaired. If any such indication exists, the entity shall estimate the

recoverable amount of the asset.

Estimates and Assumptions

The key assumptions concerning the future and other sources of estimation uncertainty at the

statement of financial position date that have significant risk of causing a material adjustment to

the carrying amounts of assets and liabilities within the next year are discussed below:

a. Estimation of allowance for credit losses on receivables

The Group maintains allowance for impairment losses at a level considered adequate to

provide for potential uncollectible receivables. The level of this allowance is evaluated by

management on the basis of factors that affect the collectibility of the accounts. These factors

include, but are not limited to, the length of the Group’s relationship with the agents,

customers and other counterparties, the payment behavior of agents and customers, other

counterparties and other known market factors. The Group reviews the age and status of

receivables, and identifies accounts that are to be provided with allowances on a continuous

basis.


2015 2014

Receivables P=1,805,959,831 P=2,169,549,982

Allowance for credit losses 306,728,721 306,831,563

b. Determination of NRV of expendable parts, fuel, materials and supplies

The Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are based

on the most reliable evidence available at the time the estimates are made, of the amount that

the expendable parts, fuel, materials and supplies are expected to be realized. In determining

the NRV, the Group considers any adjustment necessary for obsolescence, which is generally

- 44 -

providing 100.00% for nonmoving items for more than one year. A new assessment is made

of NRV in each subsequent period. When the circumstances that previously caused

expendable parts, fuel, materials and supplies to be written-down below cost no longer exist or

when there is a clear evidence of an increase in NRV because of a change in economic

circumstances, the amount of the write-down is reversed so that the new carrying amount is

the lower of the cost and the revised NRV.


2015 2014

Expendable Parts, Fuel, Materials and Supplies

At NRV P=520,492,823 P=504,714,331

At cost 278,472,997 174,600,739

As of March 31, 2015 and December 31, 2014, allowance for inventory write-down for

expendable parts amounted to P=20.5 million. No additional provision for inventory write-

down was recognized by the Group in 2015 and 2014.

c. Estimation of ARO

The Group is contractually required under certain lease contracts to restore certain leased

passenger aircraft to stipulated return condition and to bear the costs of restoration at the end

of the contract period. Since the first operating lease entered by the Group in 2001, these

costs are accrued based on an internal estimate which includes estimates of certain redelivery

costs at the end of the operating aircraft lease. The contractual obligation includes regular

aircraft maintenance, overhaul and restoration of the leased aircraft to its original condition.

Regular aircraft maintenance is accounted for as expense when incurred, while overhaul and

restoration are accounted on an accrual basis.

Assumptions used to compute ARO are reviewed and updated annually by the Group. As of

March 31, 2015 and December 31, 2014, the cost of restoration is computed based on the

Group’s average borrowing cost.

The amount and timing of recorded expenses for any period would differ if different

judgments were made or different estimates were utilized. The recognition of ARO would

increase other noncurrent liabilities and repairs and maintenance expense.

As of March 31, 2015 and December 31, 2014, the Group’s ARO liability (included under

‘Other noncurrent liabilities’ account in the statements of financial position) has a carrying

value of P=720.8 million and P=586.1 million, respectively (Note 19). The related repairs and

maintenance expense for three months ended March 31, 2015 and 2014 amounted to

P=186.3 and P=119.0 million, respectively (Notes 19 and 22).

d. Estimation of useful lives and residual values of property and equipment

The Group estimates the useful lives of its property and equipment based on the period over

which the assets are expected to be available for use. The Group estimates the residual value

of its property and equipment based on the expected amount recoverable at the end of its

useful life. The Group reviews annually the EULs and residual values of property and

equipment based on factors that include physical wear and tear, technical and commercial

obsolescence and other limits on the use of the assets. It is possible that future results of

operations could be materially affected by changes in these estimates brought about by

changes in the factors mentioned. A reduction in the EUL or residual value of property and

equipment would increase recorded depreciation and amortization expense and decrease

noncurrent assets.

- 45 -

As of March 31, 2015 and December 31, 2014, the carrying values of the Group’s property

and equipment amounted to P=67,894.5 million and P=65,227.1 million, respectively (Note 13).

The Group’s depreciation and amortization expense amounted to P=1,214.7 million and

P=993.7 million for the three months ended March 31, 2015 and 2014, respectively (Note 13).

e. Impairment of property and equipment and investment in JV

The Group assesses the impairment of nonfinancial assets, particularly property and

equipment and investment in JV, whenever events or changes in circumstances indicate that

the carrying amount of the nonfinancial asset may not be recoverable. The factors that the

Group considers important which could trigger an impairment review include the following:

significant underperformance relative to expected historical or projected future operating

results;

significant changes in the manner of use of the acquired assets or the strategy for overall

business; and

significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset or investment

exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value

less cost to sell and value in use. The fair value less cost to sell is the amount obtainable from

the sale of an asset in an arm’s length transaction while value in use is the present value of

estimated future cash flows expected to arise from the continuing use of an asset and from its

disposal at the end of its useful life.

Recoverable amounts are estimated for individual assets or investments or, if it is not possible,

for the CGU to which the asset belongs.

In determining the present value of estimated future cash flows expected to be generated from

the continued use of the assets, the Group is required to make estimates and assumptions that

can materially affect the consolidated financial statements.

As of March 31, 2015 and December 31, 2014, the carrying values of the Group’s property

and equipment amounted to P=67,894.5 million and P=65,227.1 million, respectively (Note 13).

Investments in JV amounted to P=574.3 million and P=591.3 million as of March 31, 2015 and

December 31, 2014, respectively (Note 14). There were no provision for impairment losses

on the Group’s property and equipment and investments in JV for the three months ended

March 31, 2015 and 2014.

f. Impairment of goodwill and intangibles

The Group determines whether goodwill and intangibles are impaired at least on an annual basis. The impairment testing may be performed at any time in the annual reporting period, but it must be performed at the same time every year and when circumstances indicate that the carrying amount is impaired. The impairment testing also requires an estimation of the recoverable amount, which is the net selling price or value-in-use of the CGU to which the goodwill and intangibles are allocated. The most recent detailed calculation made in a preceding period of the recoverable amount of the CGU may be used for the impairment testing for the current period provided that:

The assets and liabilities making up the CGU have not changes significantly from the

most recent calculation; The most recent recoverable amount calculation resulted in an amount that exceeded the

carrying amount of the CGU by a significant margin; and The likelihood that a current recoverable amount calculation would be less than the

carrying amount of the CGU is remote based on an analysis of events that have occurred

- 46 -

and circumstances that have changed since the most recent recoverable amount calculation.

When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or CGUs and choose a suitable discount rate in order to calculate the present value of those cash flows.

As of March 31, 2015 and December 31, 2014, the Group has determined that goodwill and

intangibles are recoverable as there were no indications that it is impaired. Goodwill

amounted to P=566.8 million as of March 31, 2015 and December 31, 2014, respectively

(Notes 7 and 15).

g. Estimation of pension and other employee benefit costs

The determination of the obligation and cost of pension and other employee benefits is

dependent on the selection of certain assumptions used in calculating such amounts. Those

assumptions include, among others, discount rates and salary increase rates (Note 24).

While the Group believes that the assumptions are reasonable and appropriate, significant

differences between actual experiences and assumptions may materially affect the cost of

employee benefits and related obligations.

The Group’s pension liability (included in ‘Other noncurrent liabilities’ account in the

consolidated statements of financial position) amounted to P=413.9 million and P=385.7 million

as of March 31, 2015 and December 31, 2014, respectively (Notes 19 and 24).

The Group also estimates other employee benefit obligations and expense, including the cost

of paid leaves based on historical leave availments of employees, subject to the Group’s

policy. These estimates may vary depending on the future changes in salaries and actual

experiences during the year.

h. Recognition of deferred tax assets

The Group assesses the carrying amounts of deferred income taxes at each reporting date and

reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable

income will be available to allow all or part of the deferred tax assets to be utilized.

Significant management judgment is required to determine the amount of deferred tax assets

that can be recognized, based upon the likely timing and level of future taxable profits

together with future tax planning strategies.

As of March 31, 2015 and December 31, 2014, the Group had certain gross deductible and

taxable temporary differences which are expected to expire or reverse within the ITH period,

and for which deferred tax assets and deferred tax liabilities were not set up on account of the

Parent Company’s ITH.

i. Passenger revenue recognition

Passenger sales are recognized as revenue when the obligation of the Group to provide

transportation service ceases, either: (a) when transportation services are already rendered;

(b) carriage is provided or (c) when the flight is uplifted.

As of March 31, 2015 and December 31, 2014, the balances of the Group’s unearned

transportation revenue amounted to P=7,088.3 million and P=6,373.7 million, respectively.

- 47 -

6. Segment Information

The Group has one reportable operating segment, which is the airline business (system-wide).

This is consistent with how the Group’s management internally monitors and analyzes the

financial information for reporting to the CODM, who is responsible for allocating resources,

assessing performance and making operating decisions.

The revenue of the operating segment was mainly derived from rendering transportation services.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to

transactions with third parties.

The amount of segment assets and liabilities are based on the measurement principles that are

similar with those used in measuring the assets and liabilities in the consolidated statements of

financial position which is in accordance with PFRS.

Segment information for the reportable segment is shown in the following table:

2015 2014

Revenue P=14,211,942,562 P=11,825,463,483

Net income 2,224,924,919 164,164,106

Depreciation and amortization 1,214,702,485 993,726,146

Interest expense 262,649,108 258,030,346

Interest income 13,587,026 24,807,360

The reconciliation of total revenue reported by reportable operating segment to revenue in the

consolidated statements of comprehensive income is presented in the following table:

2015 2014

Total segment revenue of reportable

operating segment P=14,198,355,536 P=11,764,416,289

Nontransport revenue and

other income 13,587,026 61,047,194

Total revenue P=14,211,942,562 P=11,825,463,483

Nontransport revenue and other income includes foreign exchange gains, interest income, fuel

hedging gains, equity in net income of JV and gain on sale on financial assets designated at FVPL

and AFS financial assets.

The reconciliation of total income reported by reportable operating segment to total

comprehensive income in the consolidated statements of comprehensive income is presented in

the following table:

2015 2014

Total segment income of

reportable segment P=2,830,849,736 P=512,380,767

Add (deduct) unallocated items:

Nontransport revenue and other income 13,587,026 61,047,194

Nontransport expenses and other charges (649,466,015) (496,774,080)

Benefit from (provision for) income tax 29,954,172 87,510,225

Net income 2,224,924,919 164,164,106

Other comprehensive gain (loss), net of tax – –

Total comprehensive income P=2,224,924,919 P=164,164,106

The Group’s major revenue-producing asset is the fleet of aircraft owned by the Group, which is

employed across its route network (Note 13).

- 48 -

The Group has no significant customer which contributes 10.00% or more to the revenues of the

Group.

7. Business Combination

As part of the strategic alliance between the Parent Company and Tiger Airways Holding Limited

(TAH), on February 10, 2014, the Parent Company signed a Sale and Purchase Agreement (SPA)

to acquire 100% of TAP. Under the terms of the SPA, closing of the transaction is subject to the

satisfaction or waiver of each of the conditions contained in the SPA. On March 20, 2014, all the

conditions precedent has been satisfactorily completed. The Parent Company has paid the

purchase price covering the transfer of shares from TAH. Consequently, the Parent Company

gained control of TAP on the same date. The total consideration for the transaction amounted to

P=265.1 million.

The fair values of the identifiable assets and liabilities of TAP at the date of acquisition follow:

Fair Value

recognized in

the acquisition

Total cash, receivables and other assets P=1,234,084,305

Total accounts payable, accrued expenses

and unearned income 1,535,756,691

Net liabilities (301,672,386)

Goodwill 566,781,533

Acquisition cost at post-closing settlement date P=265,109,147

8. Cash and Cash Equivalents


2015 2014

Cash on hand P=27,574,493 P=27,571,469

Cash in banks (Note 27) 1,038,219,103 1,011,286,363

Short-term placements (Note 27) 4,964,086,770 2,925,054,851

P=6,029,880,366 P=3,963,912,683

Cash in banks earns interest at the respective bank deposit rates. Short-term placements, which

represent money market placements, are made for varying periods depending on the immediate

cash requirements of the Group. Short-term placements denominated in Philippine peso earn an

average interest of 1.95% and 1.19% for the three months ended March 31, 2015 and 2014,

respectively. Moreover, short-term placements in US dollar earn interest on an average rate of

0.64% and 2.04% for the three months ended March 31, 2015 and 2014, respectively.

Interest income on cash and cash equivalents, presented in the consolidated statements of

comprehensive income amounted to P=13.6 million and P=24.8 million for the three months ended

March 31, 2015 and 2014, respectively.

- 49 -

9. Investment and Trading Securities

This account consists of derivative financial liabilities that are not designated as accounting

hedges. This account amounted to P=2,136.5 million and P=2,260.6 million in 2015 and 2014,

respectively.

As of March 31, 2015 and December 31, 2014, this account consists of commodity swaps.

Commodity Swaps

The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel

derivatives are not designated as accounting hedges. The gains or losses on these instruments are

accounted for directly as a charge against or credit to profit or loss. As of March 31, 2015 and

December 31, 2014, the Group has outstanding fuel hedging transactions. The notional quantity is

the amount of the derivatives’ underlying asset or liability, reference rate or index and is the basis

upon which changes in the value of derivatives are measured. The swaps can be exercised at

various calculation dates with specified quantities on each calculation date. The swaps have

various maturity dates through December 31, 2016 (Note 5).

As of March 31, 2015 and December 31, 2014, the Group recognized net changes in fair value of

derivatives amounting P=360.6 million loss and P=2,424.0 million gain, respectively. These are

recognized in “Hedging gains (losses)” under the consolidated statements of comprehensive

income.

Foreign Currency Forwards

In 2015 and 2014, the Group entered into foreign currency hedging arrangements with various

counterparties to manage its exposure to foreign currency fluctuations. Such derivatives are not

designated as accounting hedges. The gains or losses on these instruments are accounted for

directly as a charge against or credit to profit or loss. In 2014, the Group pre-terminated all

foreign currency derivative contracts, where the Group recognized realized gain of

P=109.8 million from the transaction. For the year ended December 31, 2014, such realized gain is

recognized in “Hedging gains (losses)” under the consolidated statement of comprehensive

income.

Fair value changes on derivatives

The changes in fair value of all derivative financial instruments not designated as accounting

hedges follow:

2015 2014

Balance at beginning of year

Derivative assets P=– P=166,456,897

Derivative liabilities (2,260,559,896)

(2,260,559,896) 166,456,897

Net changes in fair value of derivatives (360,566,098) (2,314,241,984)

(2,621,125,994) (2,147,785,087)

Fair value of settled instruments 484,673,277 (112,774,809)

Balance at end of year (P=2,136,452,717) (P=2,260,559,896)

Attributable to:

Derivative assets P=– P=–

Derivative liabilities P=2,136,452,717 P=2,260,559,896

- 50 -

10. Receivables


2015 2014

Trade receivables (Note 27) P=1,200,726,209 P=1,302,342,302

Due from related parties (Notes 26 and 27) 130,097,804 134,424,754

Interest receivable 1,479,053 1,008,445

Others (Note 7) 473,656,765 731,774,481

1,805,959,831 2,169,549,982

Less allowance for credit losses (Note 27) 306,728,721 306,831,563

P=1,499,231,110 P=1,862,718,419

Trade receivables are noninterest-bearing and generally have 30 to 90 days terms. The receivables

are carried at cost.

Interest receivable pertains to accrual of interest income from short-term placements amounting

P=1.5 million and P=1.0 million as of March 31, 2015 and December 31, 2014, respectively.

Others include receivable from insurance, employees and counterparties. In 2014, it includes the

settlement receivable from ROAR (Note 7).

The following tables show the aging analysis of the Group’s receivables:

2015

Neither Past Past Due But Not Impaired Past

Due Nor

Impaired 31-60 days 61-90 days 91-180 days

Over

180 days

Due and

Impaired Total

Trade receivables P=1,183,405,103 P=632,057 P=5,932,342 P=2,384,006 P=– P=8,372,701 P=1,200,726,209

Interest receivable 1,479,053 – – – – – 1,479,053

Due from related parties 130,097,804 – – – – – 130,097,804

Others* 159,390,975 540,815 487,615 11,128,513 3,752,827 298,356,020 473,656,765

P=1,474,372,935 P=1,172,872 P=6,419,957 P=13,512,519 P=3,752,827 P=306,728,721 P=1,805,959,831

*Include nontrade receivables from insurance, employees and counterparties.

2014

Neither Past Past Due But Not Impaired Past

Due Nor

Impaired 31-60 days 61-90 days 91-180 days

Over

180 days

Due and

Impaired Total

Trade receivables P=1,032,225,034 P=150,601,997 P=58,720 P=98,594,460 P=12,489,390 P=8,372,701 P=1,302,342,302

Interest receivable 1,008,445 – – – – – 1,008,445

Due from related parties 134,424,754 – – – – – 134,424,754

Others* 433,315,619 – – – – 298,458,862 731,774,481

P=1,600,973,852 P=150,601,997 P=58,720 P=98,594,460 P=12,489,390 P=306,831,563 P=2,169,549,982

*Include nontrade receivables from insurance, employees and counterparties.

The changes in the allowance for credit losses on receivables follow:

2015

Trade

Receivables Others Total

Balance at beginning of year P=76,053,229 P=230,778,334 P=306,831,563

Unrealized foreign exchange gain on

allowance for credit losses – (102,842) (102,842)

Balance at end of year P=76,053,229 P=230,675,492 P=306,728,721

- 51 -

2014

Trade

Receivables Others Total

Balance at beginning of year P=6,330,875 P=229,107,144 P=235,438,019

Unrealized foreign exchange gain on

allowance for credit losses – 1,671,190 1,671,190

Allowance for credit losses 69,722,354 – 69,722,354

Balance at end of year P=76,053,229 P=230,778,334 P=306,831,563

As of March 31, 2015 and 2014, the specific allowance for credit losses on trade receivables and

other receivables amounted to P=306.7 million and P=306.8 million, respectively.

11. Expendable Parts, Fuel, Materials and Supplies


2015 2014

At NRV:

Expendable parts P=520,492,823 P=504,714,331

At cost:

Fuel 226,796,369 129,110,368

Materials and supplies 51,676,628 45,490,371

278,472,997 174,600,739

P=798,965,820 P=679,315,070

The cost of expendable and consumable parts, and materials and supplies recognized as expense

(included under ‘Repairs and maintenance’ account in the consolidated statements of

comprehensive income) for the three months ended March 31, 2015 and 2014, amounted to

P=99.2 million and P=112.6 million, respectively. The cost of fuel reported as expense under

‘Flying operations’ amounted to P=4,324.7 million and P=5,551.5 million for the three months ended

March 31, 2015 and 2014, respectively (Note 22).

The cost of expendable parts amounted to P=509.8 million and P=481.4 million as of

March 31, 2015 and December 31, 2014, respectively. There are no additional provisions for

inventory write down in 2015 and 2014. No expendable parts, fuel, material and supplies are

pledged as security for liabilities.

12. Other Current Assets


2015 2014

Deposit to counterparties (Note 9) P=996,452,330 P=841,439,022

Advances to suppliers 875,040,555 851,716,307

Prepaid rent 317,409,419 318,023,507

Prepaid insurance 88,170,171 5,180,027

Others 5,432,881 4,113,060

P=2,282,505,356 P=2,020,471,923

Advances to suppliers include advances made for the purchase of various aircraft parts, service

maintenance for regular maintenance and restoration costs of the aircraft. Advances for regular

maintenance are recouped from progress billings which occurs within one year from the date the

- 52 -

advances arose, whereas, advance payment for restoration costs is recouped when the expenses for

restoration of aircraft have been incurred. The advances are unsecured and noninterest-bearing

(Note 29).

Deposit to counterparties pertains to collateral deposits provided to counterparties for fuel hedging

transactions.

Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces in

airports (Note 29).

Prepaid insurance consist of aviation insurance which represents insurance of hull, war, and risk,

passenger and cargo insurance for the aircraft during flights and non-aviation insurance represents

insurance payments for all employees’ health and medical benefits, commission, casualty and

marine insurance as well as car/motor insurance.

13. Property and Equipment


March 31,

2015

(Unaudited)

December 31,

2014

(Audited)

Acquisition Costs

Passenger aircraft P=69,675,155,682 P=65,630,899,797

Pre-delivery payments 8,140,669,085 8,592,837,219

Engines 6,443,156,758 6,155,955,141

Rotables 2,601,086,544 2,662,189,266

Leasehold improvements 976,859,910 963,136,928

EDP equipment, mainframe and peripherals 784,941,777 771,199,478

Ground support equipment 479,223,324 475,209,295

Transportation equipment 212,087,802 209,909,945

Furniture, fixtures and office equipment 154,807,699 152,702,453

Construction in-progress 42,149,087 36,171,720

Special tools 14,136,328 14,105,321

Communication equipment 12,810,697 12,736,500

Maintenance and test equipment 6,681,631 6,681,631

Other equipment 93,977,355 87,531,951

Total 89,637,743,679 85,771,266,645

Accumulated depreciation (21,743,264,859) (20,544,141,277)

Net book value P=67,894,478,820 P=65,227,125,368

The Group’s depreciation and amortization expense amounted to P=1,214.7 million and

P=993.7 million for the three months ended March 31, 2015 and 2014, respectively.

Passenger Aircraft Held as Securing Assets Under Various Loans

The Group entered into various ECA and commercial loan facilities to finance the purchase of its

aircraft and engines. As of March 31, 2015, the Group has ten (10) Airbus A319 aircraft,

seven (7) Avion de Transport Regional (ATR) 72-500 turboprop aircraft, and ten (10) Airbus

A320 aircraft under ECA loans, and fourteen (14) Airbus A320 aircraft, five (5) ATR aircraft and

six (6) engine under commercial loans.

Under the terms of the ECA loan and commercial loan facilities (Note 18), upon the event of

default, the outstanding amount of loan (including accrued interest) will be payable by CALL or

ILL or BLL or SLL or SALL or VALL or POALL or PTALL or PTHALL, or SAALL or by the

- 53 -

guarantors which are CPAHI and JGSHI. CPAHI and JGSHI are guarantors to loans entered into

by CALL, ILL, BLI, SLL and SALL. Failure to pay the obligation will allow the respective

lenders to foreclose the securing assets.

As of March 31, 2015 and December 31, 2014, the carrying amounts of the securing assets

(included under the ‘Property and equipment’ account) amounted to P=53.3 billion and P=50.4

billion, respectively.

Operating Fleet

As of March 31, 2015 and December 31, 2014, the Group’s operating fleet follows (Note 29):

2015 2014

Owned (Note 16):

Airbus A319 10 10

Airbus A320 24 22

ATR 72-500 8 8

Under operating lease (Note 29):

Airbus A320 7 7

Airbus A330 6 5

55 52

Construction in-progress represents the cost of aircraft and engine construction in progress and

buildings and improvements and other ground property under construction. Construction

in-progress is not depreciated until such time when the relevant assets are completed and available

for use. As of March 31, 2015 and December 31, 2014, the Group’s capitalized pre-delivery

payments as construction in-progress amounted to P=8.2 billion and P=8.6 billion, respectively (Note

29).

As of March 31, 2015 and December 31, 2014, the gross amount of fully depreciated property and

equipment which are still in use by the Group amounted to P=1,051.8 million and P=1,023.9 million,

respectively.

As of March 31, 2015 and December 31, 2014, there are no temporary idle property and

equipment.

14. Investments in Joint Ventures

The investments in joint ventures represent the Parent Company’s 50.00%, 49.00% and 35.00%

interests in PAAT, A-plus and SIAEP, respectively. The joint ventures are accounted for as

jointly controlled entities.

Investment in PAAT pertains to the Parent Company's 60.00% investment in shares of the joint

venture. However, the joint venture agreement between the Parent Company and CAE

International Holdings Limited (CAE) states that the Parent Company is entitled to 50% share on

the net income/loss of PAAT. As such, the Parent Company recognizes equivalent 50% share in

net income and net assets of the joint venture.

PAAT was created to address the Group’s training requirements and to pursue business

opportunities for training third parties in the commercial fixed wing aviation industry, including

other local and international airline companies. PAAT was formally incorporated on

January 27, 2012 and started commercial operations in December 2012.

- 54 -

A-plus and SIAEP were established for the purpose of providing line, light and heavy maintenance

services to foreign and local airlines, utilizing the facilities and services at airports in the country,

as well as aircraft maintenance and repair organizations.

A-plus was incorporated on May 24, 2005 and started commercial operations on July 1, 2005

while SIAEP was incorporated on July 27, 2008 and started commercial operations on

August 17, 2009.

The movements in the carrying values of the Group’s investments in joint ventures in A-plus,

SIAEP and PAAT follow: 2015

A-plus SIAEP PAAT Total

Cost

Balance at beginning of the year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117

Accumulated Equity in

Net Income (Loss)

Balance at beginning of the year 104,840,802 (59,053,072) 18,901,639 64,689,369

Equity in net income (loss)

during the year 20,947,932 (42,200,600) 4,234,211 (17,018,457)

Dividends received – – – –

Balance at end of the year 125,788,734 (101,253,672) 23,135,850 47,670,912

Net Carrying Value P=212,801,306 P=203,510,228 P=158,009,495 P=574,321,028

2014

A-plus SIAEP PAAT Total

Cost

Balance at beginning of the year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117

Accumulated Equity in

Net Income (Loss)

Balance at beginning of the year 80,072,599 (24,307,482) (3,590,781) 52,174,336

Equity in net income during

the year 108,579,261 (34,745,590) 22,492,420 96,326,091

Dividends received (83,811,058) – – (83,811,058)

Balance at end of the year 104,840,802 (59,053,072) 18,901,639 64,689,369

Net Carrying Value P=191,853,374 P=245,710,828 P=153,775,284 P=591,339,486

Selected financial information of A-plus, SIAEP and PAAT as of March 31, 2015 and December

31, 2014 follow: 2015

Aplus SIAEP PAAT

Total current assets P=651,763,706 P=591,467,063 P=259,655,228

Noncurrent assets 148,621,400 782,747,971 770,568,360

Current liabilities (370,937,101) (587,305,832) (29,864,382)

Noncurrent liabilities 4,840,375 (205,451,408) (684,340,217)

Equity 434,288,380 581,457,794 316,018,989

Proportion of the Group’s ownership 49% 35% 50%

Carrying amount of the investments P=212,801,306 P=203,510,228 P=158,009,495

2014

Aplus SIAEP PAAT

Total current assets P=628,879,988 P=653,378,218 P=253,137,481

Noncurrent assets 124,389,267 1,328,695,779 779,873,393

Current liabilities (361,731,756) (626,863,000) (39,454,946)

Noncurrent liabilities - (653,180,060) (686,005,363)

Equity 391,537,499 702,030,937 307,550,565

Proportion of the Group’s ownership 49% 35% 50%

Carrying amount of the investments P=191,853,374 P=245,710,828 P=153,775,284

- 55 -

Summary of statements of profit and loss of A-plus, SIAEP and PAAT for the three month period

ended March 31 follow:

2015

Aplus SIAEP PAAT

Revenue P=220,903,157 P=58,032,601 P=47,399,650

Expenses (159,935,119) (176,385,743) (35,089,588)

Other income (expenses) 96,497 (2,220,004) (2,943,165)

Income before tax 61,064,535 (120,573,146) 9,366,897

Income tax expense 18,313,653 - 898,4745

Net income 42,750,882 (120,573,146) 8,468,422

Group’s share of profit for the year P=20,947,932 (P=42,200,600) P=4,234,211

2014

Aplus SIAEP PAAT

Revenue P=831,652,059 P=749,982,173 P=227,958,105

Expenses (537,954,937) (847,033,722) (164,004,339)

Other income (expenses) 22,550,458 (79,043) (16,239,773)

Income before tax 316,247,580 (97,130,592) 47,713,993

Income tax expense 94,657,252 2,142,521 2,729,153

Net income 221,590,328 (99,273,113) 44,984,840

Group’s share of profit for the year P=108,579,261 (P=34,745,590) P=22,492,420

The fiscal year-end of A-plus and SIAEP is every March 31 while the year-end of PAAT is every

December 31.

The undistributed earnings of A-plus included in the consolidated retained earnings amounted to

P=125.8 million and P=104.8 million as of March 31, 2015 and December 31, 2014, respectively,

which is not currently available for dividend distribution unless declared by A-plus.

The Group has no share of any contingent liabilities or capital commitments as of

March 31, 2015 and December 31, 2014.

15. Goodwill

This account represents the goodwill arising from the acquisition of TAP (Note 7). Goodwill is

attributed to the following:

Achievement of Economies of Scale

Using the Parent Company’s network of suppliers and other partners to improve cost and

efficiency of TAP, thus, improving TAP’s overall profit, given its existing market share.

Defensive Strategy

Acquiring a competitor enables the Parent Company to manage overcapacity in certain

geographical areas/markets.

As of March 31, 2015 and December 31, 2014, the Goodwill amounted to P=566.8 million

(Note 7).

- 56 -

16. Other Noncurrent Assets

As of March 31, 2015 and December 31, 2014, this account includes security deposits provided to

lessors and maintenance providers and other refundable deposits to be applied against payments

for future aircraft deliveries. It also includes other assets representing costs to establish brand and

market opportunities under the strategic alliance with TAP amounting P=852.2 million (Note 7).

17. Accounts Payable and Other Accrued Liabilities


2015 2014

Accrued expenses P=4,666,069,932 P=4,565,129,147

Accounts payable (Notes 27 and 29) 3,465,446,664 3,984,009,931

Airport and other related fees payable 1,585,780,182 1,211,266,625

Advances from agents and others 606,889,474 554,620,109

Interest payable (Note 18) 153,671,803 207,120,947

Other payables 152,835,288 146,290,892

P=10,630,693,343 P=10,668,437,651

Accrued Expenses

The Group’s accrued expenses include accruals for:

2015 2014

Maintenance (Note 29) P=1,281,484,670 P=1,292,335,450

Compensation and benefits 737,334,394 744,630,855

Advertising and promotion 612,728,850 511,768,214

Navigational charges 417,364,256 380,565,611

Landing and take-off fees 222,883,961 283,580,997

Training costs 248,621,617 245,866,751

Fuel 255,668,568 240,095,874

Repairs and services 263,657,485 159,497,011

Aircraft insurance 66,321,559 150,597,236

Professional fees 113,053,627 114,167,659

Rent (Note 29) 107,810,655 92,742,956

Ground handling charges 149,068,575 78,983,174

Catering supplies 34,456,486 32,519,227

Reservation costs 1,206,463 8,131,518

Others 154,408,766 229,646,614

P=4,666,069,932 P=4,565,129,147

Others represent accrual of professional fees, security, utilities and other expenses.

Accounts Payable

Accounts payable consists mostly of payables related to the purchase of inventories, are

noninterest-bearing and are normally settled on a 60-day term. These inventories are necessary for

the daily operations and maintenance of the aircraft, which include aviation fuel, expendables

parts, equipment and in-flight supplies. It also includes other nontrade payables.

- 57 -

Airport and Other Related Fees Payable

Airport and other related fees payable are amounts payable to the Philippine Tourism Authority

and Air Transportation Office on aviation security, terminal fees and travel taxes.

Advances from Agents and Others

Advances from agents and others represent cash bonds required from major sales and ticket

offices or agents. This also includes commitment fees received for the sale and purchase

agreement of six (6) A319 aircraft.

Accrued Interest Payable

Interest payable is related to long-term debt and normally settled quarterly throughout the year.

Other Payables

Other payables are noninterest-bearing and have an average term of two months. This account

includes commissions payable, refunds payable and other tax liabilities such as withholding taxes

and output VAT.

18. Long-term Debt


2015

Interest Rates Range

(Note 27) Maturities US Dollar

Philippine Peso

Equivalent

ECA loans 2.00% to 6.00%

Various dates

through 2023

US$232,099,426 P=10,374,844,329

1.00% to 2.00%

(US Dollar LIBOR)

145,394,105 6,499,116,508

377,493,531 16,873,960,837

Commercial loans 4.00% to 6.00%

Various dates

through 2017

160,902,964 7,192,362,477

1.00% to 2.00%

(US Dollar LIBOR) 257,917,360 11,528,905,980

418,820,324 18,721,268,457

796,313,855 35,595,229,294

Less current portion 112,171,624 5,014,071,584

US$684,142,231 P=30,581,157,710

2014

Interest Rates Range

(Note 27) Maturities US Dollar

Philippine Peso

Equivalent

ECA loans 2.00% to 6.00%

Various dates through 2023

US$244,437,529 P=10,931,246,279

1.00% to 2.00% (US Dollar LIBOR)

149,721,785 6,695,558,231

394,159,314 17,626,804,510

Commercial loans 4.00% to 6.00%

Various dates

through 2017

170,274,962 7,614,696,300

1.00% to 2.00%

(US Dollar LIBOR) 192,490,202 8,608,161,855

362,765,164 16,222,858,155

756,924,478 33,849,662,665

Less current portion 105,377,131 4,712,465,291

US$651,547,347 P=29,137,197,374

- 58 -

ECA Loans

In 2005 and 2006, the Group entered into ECA-backed loan facilities to partially finance the

purchase of ten Airbus A319 aircraft. The security trustee of the ECA loans established CALL, a

special purpose company, which purchased the aircraft from the supplier and leases such aircraft

to the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental

payments made by the Parent Company to CALL correspond to the principal and interest

payments made by CALL to the ECA-backed lenders. The quarterly lease rentals to CALL are

guaranteed by CPAHI and JGSHI. The Parent Company has the option to purchase the aircraft for

a nominal amount at the end of such leases.

In 2008, the Group entered into ECA-backed loan facilities to partially finance the purchase of six

ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established BLL, a special

purpose company, which purchased the aircraft from the supplier and leases such aircraft to the

Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental payments

made by the Parent Company to BLL corresponds to the principal and interest payments made by

BLL to the ECA-backed lenders. The semi-annual lease rentals to BLL are guaranteed by JGSHI.

The Parent Company has the option to purchase the aircraft for a nominal amount at the end of

such leases. On November 30, 2010, the Parent Company pre-terminated the lease agreement

with BLL related to the disposal of one ATR 72-500 turboprop aircraft. The outstanding balance

of the related loans and accrued interests were also pre-terminated. The proceeds from the

insurance claim on the related aircraft were used to settle the loan and accrued interest. JGSHI

was released as guarantor on the related loans.

In 2009, the Group entered into ECA-backed loan facilities to partially finance the purchase of

two ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established SLL, a


to the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental

payments made by the Parent Company to SLL corresponds to the principal and interest payments

made by SLL to the ECA-backed lenders. The semi-annual lease rentals to SLL are guaranteed by

JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the

end of such leases.


four Airbus A320 aircraft, delivered between 2010 to January 2011. The security trustee of the

ECA loans established SALL, a special purpose company, which purchased the aircraft from the

supplier and leases such aircraft to the Parent Company pursuant to twelve-year finance lease

agreements. The quarterly rental payments made by the Parent Company to SALL corresponds to

the principal and interest payments made by SALL to the ECA-backed lenders. The quarterly

lease rentals to SALL are guaranteed by JGSHI. The Parent Company has the option to purchase

the aircraft for a nominal amount at the end of such leases.

In 2011, the Group entered into ECA-backed loan facilities to fully finance the purchase of three

Airbus A320 aircraft, delivered between 2011 to January 2012. The security trustee of the ECA

loans established VALL, special purpose company, which purchased the aircraft from the supplier

and leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements.

The quarterly rental payments made by the Parent Company to VALL corresponds to the principal

and interest payments made by VALL to the ECA-backed lenders. The Parent Company has the

option to purchase the aircraft for a nominal amount at the end of such leases.


three Airbus A320 aircraft. The security trustee of the ECA loans established POALL, a special

purpose company, which purchased the aircraft from the supplier and leases such aircraft to the

Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental payments

made by the Parent Company to POALL corresponds to the principal and interest payments made

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by POALL to the ECA-backed lenders. The Parent Company has the option to purchase the

aircraft for a nominal amount at the end of such leases.

The terms of the ECA-backed facilities, which are the same for each of the ten Airbus A319

aircraft, seven ATR 72-500 turboprop aircraft and ten Airbus A320 aircraft, follow:

Term of 12 years starting from the delivery date of each Airbus A319 aircraft and Airbus

A320, and ten years for each ATR 72-500 turboprop aircraft.

Annuity style principal repayments for the first four Airbus A319 aircraft, eight ATR 72-500

turboprop aircraft and seven Airbus A320 aircraft, and equal principal repayments for the last

six Airbus A319 aircraft and last three Airbus A320 aircraft. Principal repayments shall be

made on a semi-annual basis for ATR 72-500 turboprop aircraft. Principal repayments shall

be made on a quarterly basis for Airbus A319 and A320 aircraft.

Interest on loans from the ECA lenders are a mix of fixed and variable rates. Fixed interest

rates ranges from 2.00% to 6.00% and variable rates are based on US dollar LIBOR plus

margin.

As provided under the ECA-backed facility, CALL, BLL, SLL, SALL, VALL and POALL

cannot create or allow to exist any security interest, other than what is permitted by the

transaction documents or the ECA administrative parties. CALL, BLL, SLL, SALL, VALL

and POALL must not allow impairment of first priority nature of the lenders’ security

interests.

The ECA-backed facilities also provide for the following events of default: (a) nonpayment of

the loan principal or interest or any other amount payable on the due date, (b) breach of

negative pledge, covenant on preservation of transaction documents, (c) misrepresentation,

(d) commencement of insolvency proceedings against CALL or BLL or SLL or SALL or

VALL or POALL becomes insolvent, (e) failure to discharge any attachment or sequestration

order against CALL’s, BLL’s, SLL’s, SALL’s VALL’s and POALL’s assets, (f) entering into

an undervalued transaction, obtaining preference or giving preference to any person, contrary

to the laws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior to

discharge date, (h) cessation of business, (i) revocation or repudiation by CALL or BLL or

SLL or SALL or VALL or POALL, the Group, JGSHI or CPAHI of any transaction document

or security interest, and (j) occurrence of an event of default under the lease agreement with

the Parent Company.

Upon default, the outstanding amount of loan will be payable, including interest accrued.

Also, the ECA lenders will foreclose on secured assets, namely the aircraft (Note 13).

An event of default under any ECA loan agreement will occur if an event of default as

enumerated above occurs under any other ECA loan agreement.

As of March 31, 2015 and December 31, 2014, the total outstanding balance of the ECA loans

amounted to P=16,874.0 million (US$377.5 million) and P=17,626.8 million (US$394.2 million),

respectively. Interest expense amounted to P=123.9 million and P=151.0 million in 2015 and 2014,

respectively.

Commercial Loans

In 2007, the Group entered into a commercial loan facility to partially finance the purchase of

two Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one QEC

Kit. The security trustee of the commercial loan facility established ILL, a special purpose

company, which purchased the aircraft from the supplier and leases such aircraft to the Parent

Company pursuant to (a) ten-year finance lease arrangement for the aircraft, (b) six-year finance

lease arrangement for the engines and (c) five-year finance lease arrangement for the QEC Kit.

The quarterly rental payments of the Parent Company correspond to the principal and interest

payments made by ILL to the commercial lenders and are guaranteed by JGSHI. The Parent

Company has the option to purchase the aircraft, the engines and the QEC Kit for a nominal

amount at the end of such leases.

- 60 -

In 2008, the Group also entered into a commercial loan facility, in addition to ECA-backed loan

facility, to partially finance the purchase of six ATR 72-500 turboprop aircraft. The security

trustee of the commercial loan facility established BLL, a special purpose company, which

purchased the aircraft from the supplier and leases such aircraft to the Parent Company. The

commercial loan facility is payable in 12 equal, consecutive, semi-annual installments starting six

months after the utilization date.

In 2012, the Group entered into a commercial loan facility to partially finance the purchase of four

Airbus A320 aircraft. The security trustee of the commercial loan facility established PTALL, a


to the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. The

semiannual rental payments of the Parent Company correspond to the principal and interest

payments made by PTALL to the commercial lenders. The Parent Company has the option to

purchase the aircraft for a nominal amount at the end of such leases.

In 2013, the Group entered into a commercial loan facility to partially finance the purchase of two

Airbus A320 aircraft. The security trustee of the commercial loan facility established PTHALL, a



quarterly rental payments of the Parent Company correspond to the principal and interest

payments made by PTHALL to the commercial lenders. The Parent Company has the option to


In 2014, the Group entered into a commercial loan facility to partially finance the purchase of five

Airbus A320 aircraft. The security trustee of the commercial loan facility established SAALL, a



quarterly rental payments of the Parent Company correspond to the principal and interest

payments made by SAALL to the commercial lenders. The Parent Company has the option to


The terms of the commercial loans follow:

Term of ten years starting from the delivery date of each Airbus A320 aircraft.

Terms of six and five years for the engines and QEC Kit, respectively.

Term of six years starting from the delivery date of each ATR 72-500 turboprop aircraft.

Annuity style principal repayments for the two Airbus A320 aircraft and six ATR 72-500

turboprop aircraft, and equal principal repayments for the engines and the QEC Kit. Principal

repayments shall be made on a quarterly and semi-annual basis for the two Airbus A320

aircraft, engines and the QEC Kit and six ATR 72-500 turboprop aircraft, respectively.

Interests on loans are a mix of fixed and variable rates. Interest rates ranges from 1.00% to

6.00%.

The commercial loan facility provides for material breach as an event of default.

Upon default, the outstanding amount of loan will be payable, including interest accrued.

The lenders will foreclose on secured assets, namely the aircraft.

As of March 31, 2015 and December 31, 2014, the total outstanding balance of the commercial

loans amounted to P=18,721.3 million (US$418.8 million) and P=16,222.9 million

(US$362.8million), respectively. Interest expense amounted to P=138.7 million and P=107.0 million

in 2015 and 2014, respectively.

The Group is not in breach of any loan covenants as of March 31, 2015 and December 31, 2014.

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19. Other Noncurrent Liabilities


March 31, December 31,

2015

(Unaudited)

2014

(Audited)

ARO P=720,828,095 P=586,069,196

Accrued maintenance 224,413,504 224,413,504

Pension liability (Note 24) 413,947,134 385,665,449

P=1,359,188,733 P=1,196,148,149

ARO

The Group is legally required under certain lease contracts to restore certain leased passenger

aircraft to stipulated return conditions and to bear the costs of restoration at the end of the contract

period. These costs are accrued based on estimates made by the Group’s engineers which include

estimates of certain redelivery costs at the end of the operating aircraft lease (Note 5).

The rollforward analysis of the Group’s ARO follows:

2015 2014

Balance at beginning of year P=586,069,196 P=1,637,345,608

Provision for return cost 186,308,466 476,017,529

Payment of restorations during the year (51,549,567) (1,527,293,941)

Balance at end of year P=720,828,095 P=586,069,196

In 2015 and 2014, ARO expenses included as part of repairs and maintenance amounted to

P=186.3 million and P=119.0 million, respectively. In 2014, the Group returned four (4) aircraft

under its operating lease agreements. The Company started to restore these aircraft in 2013.

Accrued Maintenance

This account pertains to accrual of maintenance costs of aircraft based on the number of flying

hours or cycles but will be settled beyond one year based on management’s assessment.

20. Equity

The details of the number of common shares and the movements thereon follow:

2014 2013

Authorized - at P=1 par value 1,340,000,000 1,340,000,000

Beginning of year 605,953,330 605,953,330

Treasury shares – –

Issuance of shares during the year – –

Issued and outstanding 605,953,330 605,953,330

Issuance of Common Shares of Stock

On October 26, 2010, the Parent Company listed with the PSE its common stock, by way of

primary and secondary share offerings, wherein it offered 212,419,700 shares to the public at

P=125.00 per share. Of the total shares sold, 30,661,800 shares are newly issued shares with total

proceeds amounting P=3,800.0 million. The Parent Company’s share in the total transaction costs

incurred incidental to the IPO amounting P=100.4 million, which is charged against ‘Capital paid in

excess of par value’ in the parent statement of financial position. The registration statement was

- 62 -

approved on October 11, 2010. The Group has 97 and 99 existing certified shareholders as of

March 31, 2015 and December 31, 2014, respectively.

Treasury Shares

On February 28, 2011, the BOD of the Parent Company approved the creation and implementation

of a share buyback program (SBP) up to P=2,000.0 million worth of the Parent Company’s

common share. The SBP shall commence upon approval and shall end upon utilization of the said

amount, or as may be otherwise determined by the BOD.

The Parent Company has outstanding treasury shares of 7,283,220 shares amounting to

P=529.3 million as of December 31, 2014 and 2013, restricting the Parent Company from declaring

an equivalent amount from unappropriated retained earnings as dividends.

Appropriation of Retained Earnings

On November 27, 2014, March 8, 2013 and April 19, 2012, the Parent Company’s BOD

appropriated P=3.0 billion, P=2.5 billion and P=483.3 million, respectively, from its unrestricted

retained earnings as of December 31, 2014 for purposes of the Group’s re-fleeting program. The

appropriated amount was used for the settlement of pre delivery payments and aircraft lease

commitments in 2013 and 2014 (Notes 18, 29 and 30). Planned re-fleeting program amount to an

estimated P=75.99 billion which will be spent over the next five years.

Unappropriated Retained Earnings

The income of the subsidiaries and JV that are recognized in the statements of comprehensive

income are not available for dividend declaration unless these are declared by the subsidiaries and

JV. Likewise, retained earnings are restricted for the payment of dividends to the extent of the

cost of common shares held in treasury.

On June 26, 2014, the Parent Company’s BOD approved the declaration of a regular cash dividend

in the amount of P=606.0 million or P=1.00 per share in the amount of P=606.0 million from the

unrestricted retained earnings of the Parent Company to all stockholders of record as of

July 16, 2014 and payable on August 11, 2014. Total dividends declared and paid amounted to

P=606.0 million as of December 31, 2014.


in the amount of P=606.0 million or P=1.00 per share and a special cash dividend in the amount of

P=606.0 million of P=1.00 per share from the unrestricted retained earnings of the Parent Company

to all stockholders of record as of July 17, 2013 and payable on August 12, 2013. Total dividends

declared and paid amounted to P=1,211.9 million as of December 31, 2013.


in the amount of P=606.0 million or P=1.00 per common share to all stockholders of record as of

July 18, 2012 and was paid on August 13, 2012.

On March 17, 2011, the BOD of the Parent Company approved the declaration of a regular cash

dividend in the amount of P=1,222.4 million or P=2.00 per share and a special cash dividend in the

amount of P=611.2 million or P=1.00 per share from the unrestricted retained earnings of the Parent

Company to all stockholders of record as of April 14, 2011 and was paid on May 12, 2011.

After reconciling items which include fair value adjustments on financial instruments, foreign

exchange gain and cost of common stocks held in treasury, the amount of retained earnings that is

available for dividend declaration as of March 31, 2015 amounted to P=4,331.4 million.

Capital Management

The primary objective of the Group’s capital management is to ensure that it maintains healthy

capital ratios in order to support its business and maximize shareholder value. The Group

- 63 -

manages its capital structure, which composed of paid up capital and retained earnings, and makes

adjustments to these ratios in light of changes in economic conditions and the risk characteristics

of its activities. In order to maintain or adjust the capital structure, the Group may adjust the

amount of dividend payment to shareholders, return capital structure or issue capital securities.

No changes have been made in the objective, policies and processes as they have been applied in

previous years.

The Group’s ultimate parent monitors the use of capital structure using a debt-to-equity capital

ratio which is gross debt divided by total capital. The ultimate parent includes within gross debt

all interest-bearing loans and borrowings, while capital represent total equity.

The Group’s debt-to-capital ratios follow:

2015 2014

(a) Long term debt (Note 18) P=35,595,229,294 P=33,849,662,665

(b) Capital 23,763,729,106 21,538,804,187

(c) Debt-to-capital ratio (a/b) 1.5:1 1.6:1

The JGSHI Group’s policy is to keep the debt to capital ratio at the 2:1 level as of March 31, 2015

and December 31, 2014. Such ratio is currently being managed on a group level by the Group’s

ultimate parent.

21. Ancillary Revenues

Ancillary revenues consist of:

2015 2014

Excess baggage fee P=1,248,479,833 P=1,017,956,976

Rebooking, refunds, cancellation

fees, etc. 871,557,801 790,446,282

Others 497,527,023 428,036,403

P=2,617,564,657 P=2,236,439,661

Others pertain to revenues from in-flight sales, advanced seat selection fee, reservation booking

fees and others (Note 26).

22. Operating Expenses

Flying Operations


2015 2014

Aviation fuel expense P=4,324,654,533 P=5,551,450,410

Flight deck 695,629,659 528,970,488

Aviation insurance 67,122,161 71,408,844

Others 56,421,404 48,247,923

P=5,143,827,757 P=6,200,077,665

- 64 -



2015 2014

Airport charges P=792,361,991 P=639,174,535

Ground handling 390,271,878 344,349,677

Others 120,033,263 102,339,432

P=1,302,667,132 P=1,085,863,644

Others pertain to staff expenses incurred by the Group such as basic pay, employee training cost

and allowances.

Repairs and maintenance

Repairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling of

all aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spare

parts and other related equipment. The account includes related costs of other contractual

obligations under aircraft operating lease agreements (Note 29). These amounted to

P=186.3 million and P=119.0 million in 2015 and 2014, respectively (Note 19).

23. General and Administrative Expenses


2015 2014

Staff cost P=132,041,648 P=96,402,395

Security and professional fees 100,456,552 70,339,160

Utilities 34,699,371 31,742,268

Rent expenses 21,486,134 17,883,082

Travel and transportation 6,011,175 4,955,732

Others (Note 10) 67,082,854 51,742,843

P=361,777,734 P=273,065,480

Others include membership dues, annual listing maintenance fees, supplies, rent, bank charges and

others.

24. Employee Benefits

Employee Benefit Cost

Total personnel expenses, consisting of salaries, expense related to defined benefit plans and other

employee benefits, are included in flying operations, aircraft and traffic servicing, repairs and

maintenance, reservation and sales, general and administrative, and passenger service.

Defined Benefit Plan

The Parent Company has a funded, noncontributory, defined benefit plan covering substantially all

of its regular employees. The benefits are based on years of service and compensation on the last

year of employment.

- 65 -

25. Earnings Per Share

The following reflects the income and share data used in the basic/dilutive EPS computations:

2015 2014

(a) Net income attributable to

common shareholders P=2,224,924,919 P=164,164,107

(b) Weighted average number of

common shares for basic EPS 605,953,330 605,953,330

(c) Basic/diluted earnings per share P=3.67 P=.27

The Group has no dilutive potential common shares in 2015 and 2014.

26. Related Party Transaction

Transactions between related parties are based on terms similar to those offered to nonrelated

parties. Parties are considered to be related if one party has the ability, directly or indirectly, to

control the other party or exercise significant influence over the other party in making financial

and operating decisions or the parties are subject to common control or common significant

influence. Related parties may be individuals or corporate entities.

The Group has entered into transactions with its ultimate parent, its JV and affiliates principally

consisting of advances, sale of passenger tickets, reimbursement of expenses, regular banking

transactions, maintenance and administrative service agreements. In addition to the related

information disclosed elsewhere in the financial statements, the following are the year-end

balances in respect of transactions with related parties, which were carried out in the normal

course of business on terms agreed with related parties during the year.

There are no agreements between the Group and any of its directors and key officers providing for

benefits upon termination of employment, except for such benefits to which they may be entitled

under the Group’s pension plans.

27. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments, other than derivatives, comprise cash and cash

equivalents, financial assets at FVPL, AFS investments, receivables, payables and interest-bearing

borrowings. The main purpose of these financial instruments is to finance the Group’s operations

and capital expenditures. The Group has various other financial assets and liabilities, such as trade

receivables and trade payables which arise directly from its operations. The Group also enters into

fuel derivatives to manage its exposure to fuel price fluctuations.

The Group’s BOD reviews and approves policies for managing each of these risks and they are

summarized in the succeeding paragraphs, together with the related risk management structure.

Risk Management Structure

The Group’s risk management structure is closely aligned with that of its ultimate parent. The

Group has its own BOD which is ultimately responsible for the oversight of the Group’s risk

management process which involves identifying, measuring, analyzing, monitoring and

controlling risks.

The risk management framework encompasses environmental scanning, the identification and

assessment of business risks, development of risk management strategies, design and

implementation of risk management capabilities and appropriate responses, monitoring risks and

- 66 -

risk management performance, and identification of areas and opportunities for improvement in

the risk management process.

The Group and the ultimate parent with its other subsidiaries (JGSHI Group) created the following

separate board-level independent committees with explicit authority and responsibility for

managing and monitoring risks.

Each BOD has created the board-level Audit Committee to spearhead the managing and

monitoring of risks.

Audit Committee

The Group’s Audit Committee assists the Group’s BOD in its fiduciary responsibility for the over-

all effectiveness of risk management systems, and both the internal and external audit functions of

the Group. Furthermore, it is also the Audit Committee’s purpose to lead in the general evaluation

and to provide assistance in the continuous improvements of risk management, control and

governance processes.

The Audit Committee also aims to ensure that:

a. financial reports comply with established internal policies and procedures, pertinent

accounting and auditing standards and other regulatory requirements;

b. risks are properly identified, evaluated and managed, specifically in the areas of managing

credit, market, liquidity, operational, legal and other risks, and crisis management:

c. audit activities of internal and external auditors are done based on plan, and deviations are

explained through the performance of direct interface functions with the internal and external

auditors; and

d. the Group’s BOD is properly assisted in the development of policies that would enhance the

risk management and control systems.

Enterprise Risk Management Group (ERMG)

The fulfillment of the risk management functions of the Group’s BOD is delegated to the ERMG.

The ERMG is primarily responsible for the execution of the Enterprise Risk Management (ERM)

framework. The ERMG’s main concerns include:

formulation of risk policies, strategies, principles, framework and limits;

management of the fundamental risk issues and monitoring of relevant risk decisions;

support to management in implementing the risk policies and strategies; and

development of a risk awareness program.

Corporate Governance Compliance Officer

Compliance with the principles of good corporate governance is one of the objectives of the

Group’s BOD. To assist the Group’s BOD in achieving this purpose, the Group’s BOD has

designated a Compliance Officer who shall be responsible for monitoring the actual compliance of

the Group with the provisions and requirements of good corporate governance, identifying and

monitoring control compliance risks, determining violations, and recommending penalties for such

infringements for further review and approval of the Group’s BOD, among others.

Day-to-day risk management functions

At the business unit or company level, the day-to-day risk management functions are handled by

four different groups, namely:

1. Risk-taking personnel - this group includes line personnel who initiate and are directly

accountable for all risks taken.

2. Risk control and compliance - this group includes middle management personnel who perform

the day-to-day compliance check to approved risk policies and risks mitigation decisions.

3. Support - this group includes back office personnel who support the line personnel.

- 67 -

4. Risk management - this group pertains to the Group’s Management Committee which makes

risk mitigating decisions within the enterprise-wide risk management framework.

ERM framework

The Group’s BOD is also responsible for establishing and maintaining a sound risk management

framework and is accountable for risks taken by the Group. The Group’s BOD also shares the

responsibility with the ERMG in promoting the risk awareness program enterprise-wide.

The ERM framework revolves around the following seven interrelated risk management

approaches:

1. Internal Environmental Scanning - it involves the review of the overall prevailing risk profile

of the business unit to determine how risks are viewed and addressed by management. This is

presented during the strategic planning, annual budgeting and mid-year performance reviews

of the business unit.

2. Objective Setting - the Group’s BOD mandates the Group’s management to set the overall

annual targets through strategic planning activities, in order to ensure that management has a

process in place to set objectives which are aligned with the Group’s goals.

3. Risk Assessment - the identified risks are analyzed relative to the probability and severity of

potential loss which serves as a basis for determining how the risks should be managed. The

risks are further assessed as to which risks are controllable and uncontrollable, risks that

require management’s attention, and risks which may materially weaken the Group’s earnings

and capital.

4. Risk Response - the Group’s BOD, through the oversight role of the ERMG, approves the

Group’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.

5. Control Activities - policies and procedures are established and approved by the Group’s BOD

and implemented to ensure that the risk responses are effectively carried out enterprise-wide.

6. Information and Communication - relevant risk management information are identified,

captured and communicated in form and substance that enable all personnel to perform their

risk management roles.

7. Monitoring - the ERMG, Internal Audit Group, Compliance Office and Business Assessment

Team constantly monitor the management of risks through risk limits, audit reviews,

compliance checks, revalidation of risk strategies and performance reviews.

Risk management support groups

The Group’s BOD created the following departments within the Group to support the risk

management activities of the Group and the other business units:

1. Corporate Security and Safety Board (CSSB) - under the supervision of ERMG, the CSSB

administers enterprise-wide policies affecting physical security of assets exposed to various

forms of risks.

2. Corporate Supplier Accreditation Team (CORPSAT) - under the supervision of ERMG, the

CORPSAT administers enterprise-wide procurement policies to ensure availability of supplies

and services of high quality and standards to all business units.

3. Corporate Management Services (CMS) - the CMS is responsible for the formulation of

enterprise-wide policies and procedures.

4. Corporate Planning and Legal Affairs (CORPLAN) - the CORPLAN is responsible for the

administration of strategic planning, budgeting and performance review processes of the

business units.

5. Corporate Insurance Department (CID) - the CID is responsible for the administration of the

insurance program of business units concerning property, public liability, business

interruption, money and fidelity, and employer compensation insurances, as well as in the

procurement of performance bonds.

- 68 -

Risk Management Policies

The main risks arising from the use of financial instruments are credit risk, liquidity risk and

market risk, namely foreign currency risk, commodity price risk and interest rate risk. The

Group’s policies for managing the aforementioned risks are summarized below.

Credit risk

Credit risk is defined as the risk of loss due to uncertainty in a third party’s ability to meet its

obligation to the Group. The Group trades only with recognized, creditworthy third parties. It is

the Group’s policy that all customers who wish to trade on credit terms are being subjected to

credit verification procedures. In addition, receivable balances are monitored on a continuous

basis resulting in an insignificant exposure in bad debts.

With respect to credit risk arising from the other financial assets of the Group, which comprise

cash in bank and cash equivalents and certain derivative instruments, the Group’s exposure to

credit risk arises from default of the counterparty with a maximum exposure equal to the carrying

amount of these instruments.

Collateral or credit enhancements

As collateral against trade receivables from sales ticket offices or agents, the Group requires cash

bonds from major sales ticket offices or agents ranging from P=50,000 to P=2.1 million depending

on the Group’s assessment of sales ticket offices and agents’ credit standing and volume of

transactions. As of March 31, 2015 and December 31, 2014, outstanding cash bonds (included

under ‘Accounts payable and other accrued liabilities’ account in the consolidated statement of

financial position) amounted to P=212.6 million and P=293.9 million, respectively (Note 17). There

are no collaterals for impaired receivables.

Impairment assessment

The Group recognizes impairment losses based on the results of its specific/individual and

collective assessment of its credit exposures. Impairment has taken place when there is a presence

of known difficulties in the servicing of cash flows by counterparties, infringement of the original

terms of the contract has happened, or when there is an inability to pay principal overdue beyond a

certain threshold. These and the other factors, either singly or in tandem, constitute observable

events and/or data that meet the definition of an objective evidence of impairment.

The two methodologies applied by the Group in assessing and measuring impairment include:

(1) specific/individual assessment; and (2) collective assessment.

Under specific/individual assessment, the Group assesses each individually significant credit

exposure for any objective evidence of impairment, and where such evidence exists, accordingly

calculates the required impairment. Among the items and factors considered by the Group when

assessing and measuring specific impairment allowances are: (a) the timing of the expected cash

flows; (b) the projected receipts or expected cash flows; (c) the going concern of the

counterparty’s business; (d) the ability of the counterparty to repay its obligations during financial

crises; (e) the availability of other sources of financial support; and (f) the existing realizable value

of collateral. The impairment allowances, if any, are evaluated as the need arises, in view of

favorable or unfavorable developments.

With regard to the collective assessment of impairment, allowances are assessed collectively for

losses on receivables that are not individually significant and for individually significant

receivables when there is no apparent nor objective evidence of individual impairment yet.

A particular portfolio is reviewed on a periodic basis in order to determine its corresponding

appropriate allowances. The collective assessment evaluates and estimates the impairment of the

portfolio in its entirety even though there is no objective evidence of impairment yet on an

individual assessment. Impairment losses are estimated by taking into consideration the following

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deterministic information: (a) historical losses/write-offs; (b) losses which are likely to occur but

have not yet occurred; and (c) the expected receipts and recoveries once impaired.

Liquidity risk

Liquidity is generally defined as the current and prospective risk to earnings or capital arising

from the Group’s inability to meet its obligations when they become due without recurring

unacceptable losses or costs.

The Group’s liquidity management involves maintaining funding capacity to finance capital

expenditures and service maturing debts, and to accommodate any fluctuations in asset and

liability levels due to changes in the Group’s business operations or unanticipated events created

by customer behavior or capital market conditions. The Group maintains a level of cash and cash

equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the

Group regularly evaluates its projected and actual cash flows. It also continuously assesses

conditions in the financial markets for opportunities to pursue fund raising activities. Fund raising

activities may include obtaining bank loans and availing of export credit agency facilities.

Financial assets

The analysis of financial assets held for liquidity purposes into relevant maturity grouping is based

on the remaining period at the statement of financial position date to the contractual maturity date

or if earlier the expected date the assets will be realized.


The relevant maturity grouping is based on the remaining period at the statement of financial

position date to the contractual maturity date. When counterparty has a choice of when the amount

is paid, the liability is allocated to the earliest period in which the Group can be required to pay.

When an entity is committed to make amounts available in installments, each installment is

allocated to the earliest period in which the entity can be required to pay.

Market risk

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may

result from changes in the price of a financial instrument. The value of a financial instrument may

change as a result of changes in foreign currency exchange rates, interest rates, commodity prices

or other market changes. The Group’s market risk originates from its holding of foreign exchange

instruments, interest-bearing instruments and derivatives.

Foreign currency risk

Foreign currency risk arises on financial instruments that are denominated in a foreign currency

other than the functional currency in which they are measured. It is the risk that the value of a

financial instrument will fluctuate due to changes in foreign exchange rates.

The Group does not have any foreign currency hedging arrangements as of December 31, 2014.

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities

as of March 31, 2015 and December 31, 2014 follow:

2015 2014

US dollar P=44.700 to US$1.00 P=44.720 to US$1.00

Singapore dollar P=32.6055 to SGD1.00 P=33.696 to SGD1.00

Hong Kong dollar P=5.7687to HKD1.00 P=5.749 to HKD1.00

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The following table sets forth the impact of the range of reasonably possible changes in the

US dollar - Philippine peso exchange value on the Group’s pre-tax income for the three months

ended March 31, 2015 and December 31, 2014 (in thousands).

2015 2014

Changes in foreign exchange value P=2 (P=2) P=2 (P=2)

Change in pre-tax income (P=1,767,444) P=1,767,444 (P=1,687,711) P=1,687,711

Other than the potential impact on the Group’s pre-tax income, there is no other effect on equity.

The Group does not expect the impact of the volatility on other currencies to be material.

Commodity price risk

The Group enters into commodity derivatives to manage its price risks on fuel purchases.

Commodity hedging allows stability in prices, thus offsetting the risk of volatile market

fluctuations. Depending on the economic hedge cover, the price changes on the commodity

derivative positions are offset by higher or lower purchase costs on fuel. A change in price by

US$10.00 per barrel of jet fuel affects the Group’s fuel costs in pre-tax income by P=492.8 million

and P=1,778.5 million as of March 31, 2015 and December 31, 2014, respectively, in each of the

covered periods, assuming no change in volume of fuel is consumed.

Interest rate risk

Interest rate risk arises on interest-bearing financial instruments recognized in the consolidated

statement of financial position and on some financial instruments not recognized in the

consolidated statement of financial position (i.e., some loan commitments, if any). The Group’s

policy is to manage its interest cost using a mix of fixed and variable rate debt (Note 18).

The following table sets forth the impact of the range of reasonably possible changes in interest

rates on the Group’s pre-tax income for the three months ended March 31, 2015 and 2014.

2015 2014

Changes in interest rates 1.50% (1.50%) 1.50% (1.50%)

Changes in pre-tax income (P=64,395,200) P=64,395,200 (P=38,834,804) P=38,834,804

Fair value interest rate risk

Fair value interest rate risk is the risk that the value/future cash flows of a financial instrument

will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate

risk relates primarily to the Group’s financial assets designated at FVPL.

28. Fair Value Measurement

The methods and assumptions used by the Group in estimating the fair value of financial asset and

other financial liabilities are:

Cash and cash equivalents (excluding cash on hand), Receivables and Accounts payable and other

accrued liabilities

Carrying amounts approximate their fair values due to the relatively short-term maturity of these

instruments.

Amounts due from and due to related parties

Carrying amounts of due from/to related parties, which are receivable/payable and due on demand,

approximate their fair values.

- 71 -

Noninterest - bearing refundable deposits

The fair values are determined based on the present value of estimated future cash flows using

prevailing market rates. The Group used discount rates of 3% to 4% in 2015 and 2014.

Long-term debt

The fair value of long-term debt is determined using the discounted cash flow methodology, with

reference to the Group’s current incremental lending rates for similar types of loans. The discount

curve used range from 2% to 6% as of March 31, 2015 and December 31, 2014.

29. Commitments and Contingencies

Operating Aircraft Lease Commitments

The Group entered into operating lease agreements with certain leasing companies which cover

the following aircraft:

A320 aircraft

The following table summarizes the specific lease agreements on the Group’s Airbus A320

aircraft:

Date of Lease Agreement Lessors No. of Units Lease Expiry

April 2007 Inishcrean Leasing Limited

(Inishcrean)

1 October 2016

March 2008 GY Aviation Lease 0905 Co. Limited 2 January 2017

March 2008 APTREE Aviation Trading 2 Co. Ltd 1 October 2019

Wells Fargo Bank Northwest

National Assoc.

1 October 2019

July 2011 SMBC Aviation Capital Limited 2 February 2018

Note: The lease agreements were amended, when applicable, to effect the novation of lease rights by the original lessors

to new lessors as allowed under the lease agreements.

In 2007, the Group entered into operating lease agreement with Inishcrean for the lease of one

Airbus A320, which was delivered in 2007, and with CIT Aerospace International for the lease of

four Airbus A320 aircraft, which were delivered in 2008.

In March 2008, the Group entered into operating lease agreements for the lease of two Airbus

A320 aircraft, which were delivered in 2009, and two Airbus A320 aircraft which were received in

2012. In November 2010, the Group signed an amendment to the operating lease agreements,

advancing the delivery of the two Airbus A320 aircraft to 2011 from 2012.

In July 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd.

(RBS) for the lease of two Airbus A320 aircraft, which were delivered in March 2012. The lease

agreement with RBS was amended to effect the novation of lease rights by the original lessors to

new lessors as allowed under the existing lease agreements.

A330 aircraft

The following table summarizes the specific lease agreements on the Group’s Airbus A330

aircraft:

Date of Lease Agreement Lessors No. of Units Lease Term

February 2012 CIT Aerospace International 4 12 years with pre-termination

option

July 2013 Intrepid Aviation 2 12 years with pre-termination

option

- 72 -

On February 21, 2012, the Group entered into a lease agreement with CIT Aerospace International

for four Airbus A330-300 aircraft. The lease term of the aircraft is 12 years with an early pre-

termination option.

On July 19, 2013, the Group entered into an aircraft operating lease agreements with Intrepid

Aviation for the lease of two Airbus A330-300 aircraft, which are scheduled to be delivered from

2014 to 2015.

As of March 31, 2015, the Group has six (6) Airbus A330 aircraft under operating lease

(Note 13).

The first two A330 aircraft were delivered in June 2013 and September 2013. Three A330 aircraft

were delivered in February 2014, May 2014 and September 2014. One A330 aircraft was

delivered in March 2015.

Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in the

consolidated statements of comprehensive income) amounted to P=929.7 million and

P=806.3 million in 2015 and 2014, respectively.

Future minimum lease payments under the above-indicated operating aircraft leases follow:

2015 2014

In USD In Php In USD In Php

Within one year $91,336,709 P=4,082,750,871 $76,883,051 P=3,445,513,913

After one year but not more than

five years 303,161,498 13,551,318,975 324,893,840 14,560,117,425

Over five years 380,268,975 16,998,023,176 446,108,961 19,992,373,083

$774,767,182 P=34,632,093,022 $847,885,852 P=37,998,004,421

Operating Non-Aircraft Lease Commitments

The Group has entered into various lease agreements for its hangar, office spaces, ticketing

stations and certain equipment. These leases have remaining lease terms ranging from one to ten

years. Certain leases include a clause to enable upward revision of the annual rental charge

ranging from 5.00% to 10.00%.

Future minimum lease payments under these noncancellable operating leases follow:

2015 2014

Within one year P=129,727,551 P=123,491,315


five years 558,350,565 531,320,763

Over five years 2,016,327,767 2,002,313,858

P=2,704,405,883 P=2,657,125,936

Lease expenses relating to both cancellable and non-cancellable non-aircraft leases (allocated

under different expense accounts in the consolidated statements of comprehensive income)

amounted to P=104.7 million and P=78.5 million in 2015 and 2014, respectively.

Service Maintenance Commitments

On June 21, 2012, the Company has entered into an agreement with Messier-Bugatti-Dowty

(Safran group) to purchase wheels and brakes for its fleet of Airbus A319 and A320 aircraft. The

contract covers the current fleet, as well as future aircraft to be acquired.

On June 22, 2012, the Group has entered into service contract with Rolls-Royce Total Care

Services Limited (Rolls-Royce) for service support for the engines of the A330 aircraft. Rolls-

- 73 -

Royce will provide long-term Total Care service support for the Trent 700 engines on up to eight

A330 aircraft.

On July 12, 2012, the Company has entered into a maintenance service contract with SIA

Engineering Co. Ltd. for the maintenance, repair and overhaul services of its A319 and A320

aircraft.

These agreements remained in effect as of March 31, 2015.

Aircraft and Spare Engine Purchase Commitments

In 2007, the Group entered into a purchase agreement with Airbus S.A.S covering the purchase of

ten A320 aircraft and the right to purchase five option aircraft.

In 2009, the Group exercised its option to purchase the five additional aircraft. Further, an

amendment to the purchase agreement was executed, which provided the Group the right to

purchase up to five additional option aircraft.

In 2010, the Group exercised its option to purchase five additional option Airbus A320 aircraft

and entered into a new commitment to purchase two Airbus A320 aircraft to be delivered between

2011 and 2014. Six of these aircraft were delivered between September 2011 and

December 2013.

On May 2011, the Group turned into firm orders its existing options for the seven Airbus A320

aircraft which are scheduled to be delivered in 2015 to 2016.

On August 2011, the Group entered in a new commitment to purchase firm orders of thirty new

A321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to be delivered

from 2017 to 2021.

On June 28, 2012, the Group has entered into an agreement with United Technologies

International Corporation Pratt & Whitney Division to purchase new PurePower® PW1100G-JM

engines for its 30 firm and ten options A321 NEO aircraft to be delivered beginning 2017. The

agreement also includes an engine maintenance services program for a period of ten years from

the date of entry into service of each engine.

As of March 31, 2015, the Group will take delivery of 7 more Airbus A320 and 30 Airbus A321

NEO aircraft.

The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.

These agreements remained in effect as of March 31, 2015.

Capital Expenditure Commitments

The Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,

aggregating to P=75.99 billion and P=70.07 billion as of March 31, 2015 and December 31, 2014,

respectively.

2015

US dollar

Philippine peso

equivalent

Within one year US$292,808,339 P=13,088,532,752


five years 1,504,082,984 67,232,509,364

US$1,796,891,323 P=80,321,042,116

- 74 -

2014

US dollar

Philippine peso

equivalent

Within one year US$260,795,946 P=11,662,794,707


five years 1,458,101,728 65,206,309,259

US$1,718,897,674 P=76,869,103,966

Contingencies

The Group has pending suits, claims and contingencies which are either pending decisions by the

courts or being contested or under evaluation, the outcome of which are not presently

determinable. The information required by PAS 37, Provisions, Contingent Liabilities and

Contingent Assets, is not disclosed until final settlement, on the ground that it might prejudice the

Group’s position (Notes 7 and 17).

30. Supplemental Disclosures to the Consolidated Statements of Cash Flows

The principal noncash investing activities of the Group were as follows:

a. On March 31, 2014, the Group recognized a liability based on the schedule of pre-delivery

payments amounting to P=259.4 million with a corresponding debit to “Construction-in

progress” account. The liability was paid on April 2014.

31. Events After the Statement of Financial Position Date

No material subsequent events to the end of the interim period have occurred that would require

recognition disclosure in the consolidated financial statements for the interim period.

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