CEBU AIR INC.cebupacificaircorporate.com/Corporate Disclosures/CAI...PART I - BUSINESS AND GENERAL...
Transcript of CEBU AIR INC.cebupacificaircorporate.com/Corporate Disclosures/CAI...PART I - BUSINESS AND GENERAL...
*SGVFS022041*
C O V E R S H E E T
for
AUDITED FINANCIAL STATEMENTS
SEC Registration Number
1 5 4 6 7 5
C O M P A N Y N A M E
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 - A S E C N / A
C O M P A N Y I N F O R M A T I O N
Company’s Email Address Company’s Telephone Number Mobile Number
N/A (632) 802-7060 N/A
No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)
95 5/19 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) 802-7060 N/A
CONTACT PERSON’s ADDRESS
Cebu Pacific Building, Domestic Road, Barangay 191, Zone 20, Pasay City 1301, Philippines
NOTE 1 : 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 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2016
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, Doña Juanita Marquez Lim Building, Osmeña Blvd., Cebu City 6000
7. Address of issuer's principal office Postal Code
(632) 802-7060
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 [ ]
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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 [ ]
13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. If a determination as to whether a particular person or entity is an affiliate cannot be
made without involving unreasonable effort and expense, the aggregate market value of the
common stock held by non-affiliates may be calculated on the basis of assumptions reasonable
under the circumstances, provided the assumptions are set forth in this Form.
The aggregate market value of stocks held by non-affiliates is P18,577,509,347.
TABLE OF CONTENTS
Page No.
PART I – BUSINESS AND GENERAL INFORMATION
Item 1 Business...................................................................................................... 1
Item 2 Properties…………………………………………………………………. 15
Item 3 Legal Proceedings………………………………………………………… 16
Item 4 Submission of Matters to a Vote of Security Holders……………………. 16
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5 Market for Registrant’s Common Equity and
Related Stockholder Matters………………………………………………. 16
Item 6 Management’s Discussion and Analysis or
Plan of Operation…………………………………………………………. 18
Item 7 Financial Statements……………………………………………………… 35
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure…………………………………….. 36
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9 Board of Directors and Executive Officers of the Registrant…………….. 36
Item 10 Executive Compensation…………………………………………………. 43
Item 11 Security Ownership of Certain Beneficial Owners and
Management……………………………………………………………… 45
Item 12 Certain Relationships and Related Transactions…………………………. 47
PART IV – CORPORATE GOVERNANCE
Item 13 Corporate Governance……………………….…………………………… 47
PART V – EXHIBITS AND SCHEDULES
Item 14 Exhibits and Reports on SEC Form 17-C………………………………… 48
SIGNATURES................................................................................................................. 49
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES………………………………………………….. 51
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 twelve 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,
Summit A Aircraft Leasing Limited, Summit B Aircraft Leasing Limited and Summit C 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). On April 27, 2015, with the
approval of the Securities and Exchange Commission, TAP was rebranded and now operates as
CEBGO, Inc. The Parent Company, its twelve SPEs and CEBGO, Inc. (collectively known as
“the Group”) are consolidated for financial reporting purposes.
As of December 31, 2016, the Group operates an extensive route network serving 59 domestic
routes and 43 international routes with a total of 2,820 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 December 31, 2016, the Group operates a fleet of 57 aircraft which comprises of four (4)
Airbus A319, thirty six (36) Airbus A320, eight (8) ATR 72-500, two (2) ATR 72-600 and seven
(7) Airbus A330 aircraft. It operates its Airbus aircraft on both domestic and international routes
and operates the ATR 72-500 and ATR 72-600 aircraft on domestic routes, including destinations
with runway limitations. The average aircraft age of the Group’s fleet is approximately 4.91 years
as of December 31, 2016.
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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
2016 2015 2014
Passenger Services 75.3% 75.5% 77.3%
Cargo Services 5.8% 6.2% 6.1%
Ancillary Services 18.9% 18.3% 16.6%
100.0% 100.0% 100.0%
On May 16, 2016, the Group and seven other market champions in Asia Pacific, announced the
formation of the world’s first, pan-regional low cost carrier alliance, the Value Alliance. The
Group, together with Jeju Air (Korea), Nok Air (Thailand), NokScoot (Thailand), Scoot
(Singapore), Tigerair Singapore, Tigerair Australia and Vanilla Air (Japan) will deliver greater
value, connectivity and choice for travel throughout Southeast Asia, North Asia and Australia, as
the airlines bring their extensive networks together. The Value Alliance airlines collectively fly to
more than 160 destinations from 17 hubs in the region.
On February 23, 2015 and May 12, 2016, the Group signed a forward sale agreement with a
subsidiary of Allegiant Travel Company (collectively known as “Allegiant”), covering the
Group’s sale of ten (10) Airbus A319 aircraft. The delivery of the aircraft to Allegiant is
scheduled to start on various dates in 2015 until 2018.
Aside from this, 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. CEBGO, Inc.’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
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and baggage check-in. In December 2014, the Group also launched its official mobile application
which allows guests to book flights on-the-go through their mobile devices.
The Group’s participation in the Value Alliance with other low-cost carriers in the region will
increase its distribution reach by enabling its customers to view, select and book the best-available
airfares on flights from any of the airlines in a single transaction, directly from each partner’s
website. This is made possible through the groundbreaking technology developed by Air Black
Box (ABB). ABB allows guests to enjoy the full suite of ancillary choices they have come to
appreciate from low cost carriers across all partner airline sectors in a single itinerary.
Booking Offices and Call Centers
As of December 31, 2016, the Group has a network of nine booking offices located throughout the
Philippines and two regional booking offices, one in Hong Kong and another in Seoul, South
Korea. 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, 2016, 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, 2016, 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 by additional 35 aircraft
(before any returns and sale of aircraft) by the end of 2019. 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 further boosts its domestic network with the introduction of new routes
in the Eastern and Western Visayas namely Cebu to Ormoc, Roxas and Calbayog in November
2016 and through increasing frequencies on existing routes such as Manila to Zamboanga, Roxas,
Busuanga, Butuan and Cauayan, Cebu to Kalibo, Camiguin and Ozamiz. On December 12, 2016,
the Group announced to further build its presence in Mindoro, Marinduque, Romblon, Palawan
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(MIMAROPA) and Bicol regions by launching daily flights between Manila and Masbate and four
times weekly flights between Manila and Tablas using the newly-acquired ATR 72-600 starting
February 15, 2017. Cargo services will also be made available in these areas, contributing to
growth of more than 2,000 accounts currently held by the Group. New international routes were
also launched like direct flights between Kalibo and Incheon in October 2016 and Manila to
Guam, the airline’s first US destination, last March 2016. Aside from adding frequencies on some
international routes such as Manila to Hong kong and Doha, the Group also upgraded selected
flights between Manila and Taipei, Narita and Hong Kong from Airbus A320 to the larger A330
aircraft to accommodate additional passenger traffic. On November 7, 2016, the Group opened its
regional office in Seoul, Korea as part of its regional promotion and expansion. Ticket sales,
reservations, cargo services and customer support can now be availed through the Korea Organic
Office.
Further, the Group has entered into a purchase agreement with Airbus S.A.S covering the purchase
of 2 A330-300 aircraft. The first one was delivered last December 2016 while the second is due to
arrive in 2017. The Group also has a firm order for 16 ATR 72-600 with options to acquire an
additional ten ATR 72-600. The new ATR 72-600 will be equipped with the high density
Armonia cabin, the widest cabin in the turboprop market. It will be fitted with 78 slim-line seats
and wider overhead bins with 30% more stowage space for greater comfort for passengers. Two
out of the 16 ATR 72-600 aircraft were received in 2016 while the rest are scheduled for delivery
in 2017 to 2020. The Group also has an existing order for 30 Airbus A321 NEO (New Engine
Option) aircraft with options for a further ten Airbus A321 NEO. Airbus A321 NEO will be the
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 A321 NEO aircraft will be delivered between 2017 and 2021.
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 and
which code shares with PAL on certain domestic routes and leases certain aircraft from PAL; and
Philippines Air Asia (a merger between former Air Asia Philippines and Zest Air). Most of the
Group’s domestic and international destinations are also serviced by these airlines. According to
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latest CAB data as of the second quarter of 2016, the Group is the leading domestic airline in the
Philippines by passengers carried, with a market share of 58.5%.
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 Shell-Singapore, Shell-Hong Kong,
Shell-Dubai, Shell-Narita, SK Corp-Korea, Chevron-Sydney, Kuwait Aviation and World Fuel-
Riyadh among others. It also purchases fuel from local suppliers like Petron, Chevron Manila and
Shell Manila. 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
Trademark registrations with the Intellectual Property Office of the Philippines (IPOPhil) prior to
the effective date of Republic Act No. 8293, or the current Intellectual Property Code of the
Philippines, are valid for 20 years from the date of issue of the certificate of registration.
Meanwhile, trademark registrations covered by Republic Act No. 8293 are valid for ten years
from the date of the certificate of registration. Regardless of whether the trademark registration is
for 20 years or ten years, the same may be renewed for subsequent ten-year terms.
The Group holds the following valid and subsisting trademark registrations:
CEBU PACIFIC, the Cebu Pacific feather-like device, CEBU PACIFIC AIR, CEBU
PACIFIC AIR.COM;
The CEB Mascot;
Various trademarks for the Parent Company’s branding campaigns such as WHY
EVERYONE FLIES, WHY EVERYJUAN FLIES, and the logos used for such purposes;
CEBGO and the Cebgo logo;
A trademark for the strategic alliance entered into by the Parent Company and TAH; and
GETGO and the GetGo logo for its lifestyle rewards program
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On June 1, 2015, the Parent Company rolled out its new logo which features shades of the
Philippines’ land, sea, sky and sun. This new branding also symbolizes the airline's growth and
evolution from a low-cost pioneer to its larger operations today. The new logo and new branding
have been registered as trademarks of the Group.
Meanwhile, the Group has 26 trademarks registered with the Intellectual Property Office of China
and three (3) trademarks with the Intellectual Property Office of Singapore.
The Parent Company has also incorporated the business names “Cebu Pacific” and “Cebu Pacific
Air” with its Articles of Incorporation, as required by Memorandum Circular No. 21-2013 issued
by the Securities and Exchange Commission (SEC). Registering a business name with the SEC
precludes another entity engaged in the same or similar business from using the same business
name as one that has been registered.
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 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, CEBGO, Inc. (formerly 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.
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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:
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.
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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 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 was 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.
In 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.
In September and December 2014, the Group received CAAP’s approval for extended range
operations in the form of a certification for Extended Diversion Time Operations (EDTO) of up to
90 and 120 minutes, respectively. EDTO refers to a set of rules introduced by the ICAO for
airlines operating twin-engine aircraft on routes beyond 60 minutes flying time from the nearest
airport. This certification allows the Group to serve new long haul markets and operate more
direct routes between airports resulting to more fuel savings and reduced flight times.
Although the Group does not currently operate flights to the U.S. and Europe, these developments
open the opportunity for the Group to establish new routes to other countries in these continents.
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.
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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.
The issuance of the foregoing EOs may significantly increase competition.
ASEAN Open Skies Agreement
In February 2016, the Philippine government ratified the ASEAN Open Skies agreement which
allows designated carriers of ASEAN countries to operate unlimited flights between capitals,
leading to better connectivity and more competitive fares and services. Subject to regulatory
approvals, this liberalized and equitable air services agreement further allows carriers to upgrade
its ASEAN flights to wide-bodied aircraft and increase capacity without the need for air talks thus
allowing airlines to focus on expanding its operations, stimulating passenger traffic, and
improving customer experience rather than spending valuable resources on negotiating for
additional air rights.
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 December 11, 2012 and came into
effect on December 21, 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
- 10 -
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 (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.
- 11 -
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 P55,000.00 in connection with its
compliance with applicable environmental laws.
Employees
As of December 31, 2016, the Group has 4,123 permanent full time employees, categorized as
follows:
Division: Employees
Operations 3,008
Commercial 651
Support Departments(1) 464
4,123
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 4,660 employees by the end of 2017. 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.
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
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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.
(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
- 13 -
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.
(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
- 14 -
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.
(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.
- 15 -
(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 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, 2016, the Group does not own any land. However, it owns an office building
which 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.
- 16 -
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.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the year
covered by this report.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. 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 2016
October to December 2016 P113.50 P89.70
July to September 2016 125.50 97.70
April to June 2016 102.10 85.50
January to March 2016 92.50 74.00
High Low
Year 2015
October to December 2015 P91.00 P79.35
July to September 2015 99.50 81.50
April to June 2015 94.45 79.80
January to March 2015 99.10 79.10
As of March 20, 2017, the latest trading date prior to the completion of this annual report, sales
price of the common stock is at P93.00.
Holders
The number of shareholders of record as of December 31, 2016 was 95. Common shares
outstanding as of December 31, 2016 were 605,953,330.
- 17 -
List of Top 20 Stockholders of Record
As of December 31, 2016
Number of % to Total
Name of Stockholders Shares Held Outstanding
1. CPAir Holdings, Inc. 400,816,841 66.15%
2. PCD Nominee Corporation (Filipino) 101,405,818 16.74%
3. PCD Nominee Corporation (Non-Filipino) 96,795,629 15.97%
4. JG Summit Holdings, Inc. 6,595,190 1.09%
5. Pablo M. Pagtalunan &/or Francisca P. Pagtalunan 50,000 0.08%
6. Elizabeth Yu Gokongwei 40,000 0.07%
7. Amon Trading Corporation 38,200 0.06%
8. Clifford James L. Uy 36,000 0.06%
8. Stephen Earl L. Uy 36,000 0.06%
9. Raul Veloso Del Mar 16,000 0.03%
10. Elizabeth Reyes 13,900 0.02%
11. Acris Corporation 12,500 0.02%
12. Luis Gantioqui Romero 10,300 0.02%
13. Roseller A. Mendoza 6,500 0.01%
14. Eric Macario Bernabe 5,000 0.01%
14. Estevez Villaruz (Esvill), Inc. 5,000 0.01%
14. John T. Lao 5,000 0.01%
15. Brigida T. Guingona 4,800 0.01%
16. Francisco Paulino V. Cayco 4,000 0.01%
16. Sally Chua Co 4,000 0.01%
16. Vicente Lim Co 4,000 0.01%
17. Frederic Francois Favre-Marinet 3,950 0.01%
18. Eric Macario Bernabe 3,000 0.00%
19. Leodigario S.P. Aquino &/or Danah R. Antonio 2,800 0.00%
20. Ofelia R. Blanco 2,000 0.00%
20. Antonio F. Lagarejos 2,000 0.00%
20. Ramon T. Locsin 2,000 0.00%
20. Marita Ann Ong 2,000 0.00%
20. Anthony V. Rosete 2,000 0.00%
20. Mario F. Sales 2,000 0.00%
Other stockholders 26,902 0.00%
Total Outstanding 605,953,330 100.00%
Dividends
On May 20, 2016, the Group’s Board of Directors (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 P1.00
per share from the unrestricted retained earnings of the Group to all stockholders of record as of
June 9, 2016 and payable on July 5, 2016.
On June 24, 2015, 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=0.50 per share from the
unrestricted retained earnings of the Group to all stockholders of record as of July 16, 2015 and
payable on August 11, 2015.
- 18 -
On June 26, 2014, the Group’s 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.
Recent Sales of Unregistered Securities
Not Applicable. All shares of the Parent Company are listed in the PSE.
Item 6. 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 (PFRSs).
Results of Operations
Year Ended December 31, 2016 Compared with Year Ended December 31, 2015
Revenues
The Group generated revenues of P61.899 billion for the year ended December 31, 2016, 9.6%
higher than the P56.502 billion revenues earned last year. Growth in revenues is accounted for as
follows:
Passenger Revenues
Passenger revenues grew by P3.911 billion or 9.2% to P46.593 billion for the year ended
December 31, 2016 from P42.681billion registered in 2015. This increase was primarily due to
the 4.1% growth in passenger volume to 19.1 million from 18.4 million for the year ended
December 31, 2015. Such steady growth resulted from the increase in the Group’s fleet from 55
aircraft as of December 31, 2015 to 57 aircraft as of December 31, 2016, and the overall
improvement in seat load factor from 82.6% to 86.0%. The increase in average fares by 4.9% to
P=2,436 for the year ended December 31, 2016 from P=2,323 for the same period last year also
contributed to the increase in revenues.
Cargo Revenues
Cargo revenues grew by P102.616 million or 3.0% to P3.564 billion for the year ended
December 31, 2016 from P3.461 billion for the year ended December 31, 2015 following the
increase in the cargo prices in 2016.
Ancillary Revenues
Ancillary revenues went up by P1.384 billion or 13.4% to P11.743 billion for the year ended
December 31, 2016 from P10.359 billion posted last year consequent to the 4.1% increase in
passenger traffic and 8.9% increase in 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 P49.648 billion for the year ended December 31, 2016,
higher by 6.1% than the P46.801 billion operating expenses recorded for the year ended
December 31, 2015. The increase is attributable to higher aircraft maintenance and advertising
and promotions costs, coupled with the weakening of the Philippine peso against the U.S. dollar as
referenced by the depreciation of the Philippine peso to an average of P47.50 per U.S. dollar for
- 19 -
the year ended December 31, 2016 from an average of P45.51 per U.S. dollar last year based on
the Philippine Dealing and Exchange Corporation (PDEx) weighted average rates. The increase
was however partially offset by the drop in fuel costs compared to the same period last year due to
the decline in global jet fuel prices.
Flying Operations
Flying operations expenses decreased by P1.222 billion or 5.8% to P19.694 billion for the year
ended December 31, 2016 from P20.916 billion incurred in the same period last year. This is
primarily attributable to the 10.4% decline in aviation fuel expenses to P15.821 billion for the year
ended December 31, 2016 from P17.659 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. $52.83 per barrel in the twelve months ended December 31, 2016 from
U.S. $64.79 per barrel in the same period last year. The drop in fuel prices, however, was partially
offset by the weakening of the Philippine peso against the U.S. dollar as referenced by the
depreciation of the Philippine peso to an average of P47.50 per U.S. dollar for the year ended
December 31, 2016 from an average of P45.51 per U.S. dollar last year based on PDEx weighted
average rates.
Aircraft and Traffic Servicing
Aircraft and traffic servicing expenses increased by P730.885 million or 12.5% to P6.578 billion
for the year ended December 31, 2016 from P5.847 billion registered in 2015. This was driven by
the increase in the number of international flights by 6.1% in 2016 for which airport and ground
handling charges were generally higher compared to domestic flights. International flights
increased due to added frequencies on existing routes and the launch of new services to Fukuoka,
Japan in December 2015 and Guam, the airline’s first US destination, last March 2016. The
weakening of the Philippine peso against the U.S. dollar as referenced by the depreciation of the
Philippine peso to an average of P47.50 per U.S. dollar for the year ended December 31, 2016
from an average of P45.51 per U.S. dollar last year also contributed to the increase international
airport charges.
Depreciation and Amortization
Depreciation and amortization expenses grew by P887.152 million or 17.4% to P5.999 billion for
the year ended December 31, 2016 from P5.112 billion for the year ended December 31, 2015.
Depreciation and amortization expenses increased consequent to the arrival of three Airbus A320
aircraft and two ATR 72-600 aircraft during the year.
Repairs and Maintenance
Repairs and maintenance expenses went up by P1.290 billion or 24.6% to P6.531 billion for the
year ended December 31, 2016 from P5.240 billion posted last year. This was driven by the
increase in provisions for return cost by P257.139 million to P1.121 billion for the year ended
December 31, 2016 from P863.961 million for the same period last 2015. Additional repairs and
maintenance were also attributable to the increase in the Group’s fleet from 55 to 57 aircraft as
well as direct costs from repairs incurred for older aircraft, in particular, the remaining A319 fleet,
the ATR fleet, and the early deliveries of A320 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
P47.50 per U.S. dollar for the year ended December 31, 2016 from an average of P45.51 per U.S.
dollar in 2015 also contributed to the increase in repairs and maintenance.
Aircraft and Engine Lease
Aircraft and engine lease expenses moved up by P229.125 million or 5.7% to P4.254 billion for
the year ended December 31, 2016 from P4.025 billion charged for the year ended
- 20 -
December 31, 2015. Increase in aircraft lease was due to 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 P586.240 million or 22.3 % to P3.212 billion for the
year ended December 31, 2016 from P2.625 billion registered last year. This was primarily
attributable to the higher commission expenses for international passengers as well as the overall
growth in passenger volume year on year. Additional expenses were also due to higher
advertising and promotional expenses incurred for the Group’s brand refresh campaign and loyalty
program, among others.
General and Administrative
General and administrative expenses grew by P260.895 million or 16.8% to P1.813 billion for the
year ended December 31, 2016 from P1.552 billion incurred in 2015. Growth in general and
administrative expenses was primarily attributable to the increased passenger activity in 2016.
The Group also incurred additional costs for various information technology projects to improve
efficiency which likewise contributed to the increase in general and administrative expenses.
Passenger Service
Passenger service expenses went up by P83.984 million or 5.7% to P1.568 billion for the year
ended December 31, 2016 from P1.484 billion posted for the year ended December 31, 2015.
This was primarily caused by additional cabin crew hired for the three Airbus A320, two ATR
72-600 and one Airbus A330 aircraft acquired in 2016 and the annual increase in cabin crew salary.
Operating Income
As a result of the foregoing, the Group finished with an operating income of P12.251 billion for
the year ended December 31, 2016, a 26.3% improvement compared to the P9.700 billion
operating income earned last year.
Other Income (Expenses)
Interest Income
Interest income increased by P30.665 million or 36.9% to P113.672 million for the year ended
December 31, 2016 from P83.007 million recorded in 2015 due to the increase in the balance of
cash in bank and short-term placements year on year and to higher interest rates in short term
placements.
Hedging Gains (Losses)
The Group incurred a hedging gain of P1.588 billion for the year ended December 31, 2016, a
154.2% improvement from the hedging loss of P2.931billion incurred in the same period last year
due to the improvement of forward prices of fuel for 2016 and 2017, as compared to forward fuel
prices as of the end of 2015.
Foreign Exchange Losses
Net foreign exchange losses of P2.282 billion for the year ended December 31, 2016 resulted from
the weakening of the Philippine peso against the U.S. dollar as referenced by the depreciation of
the Philippine peso to P49.72 per U.S. dollar for the year ended December 31, 2016 from P47.06
per U.S. dollar for the twelve months ended December 31, 2015 based on PDEx closing rates.
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.
- 21 -
Equity in Net Income of Joint Venture
The Group had equity in net income of joint ventures of P178.309 million for the twelve months
ended December 31, 2016, P142.890 million or 403.4% higher than the P35.418 million equity in
net income of joint venture earned in the same period last year. The increase was attributable to
the net income from current operations earned by the joint ventures in 2016.
Interest Expense
Interest expense increased by P97.071 million or 9.0% to P1.170 billion for the year ended
December 31, 2016 from P1.073 billion registered in 2015. Higher interest expense incurred
during the year was due to the additional loans availed to finance the acquisition of the additional
aircraft delivered in 2016 and by the effect of the weakening of the Philippine peso against the
U.S. dollar during the current period.
Loss on sale of aircraft
In 2016, the Group sold and delivered four Airbus A319 aircraft to a subsidiary of Allegiant
Travel Company (Allegiant) which resulted to a loss of P962.609 million. In 2015, the Group sold
and delivered two Airbus A319 aircraft to Allegiant and incurred a loss of P80.267 million.
Income before Income Tax
As a result of the foregoing, the Group recorded income before income tax of P9.716 billion for
the year ended December 31, 2016, a growth of 175.3% or P6.187 billion higher than the P3.529
billion income before income tax posted for the year ended December 31, 2015.
Benefit from Income Tax
Benefit from income tax for the year ended December 31, 2016 amounted to P37.971 million, of
which, P162.595 million pertains to current income tax recognized as a result of the taxable
income in 2016. This was offset by the benefit from deferred income tax of P200.566 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, 2016 amounted to P9.754 billion, an increase of
122.3% from the P4.387 billion net income earned in 2015.
Year Ended December 31, 2015 Compared with Year Ended December 31, 2014
Revenues
The Group generated revenues of P56.502 billion for the year ended December 31, 2015, 8.7%
higher than the P52.000 billion revenues earned last year. Growth in revenues is accounted for as
follows:
Passenger Revenues
Passenger revenues grew by P2.493 billion or 6.2% to P42.681 billion for the year ended
December 31, 2015 from P40.188 billion registered in 2014. This increase was primarily due to
the 8.9% growth in passenger volume to 18.4 million from 16.9 million for the year ended
December 31, 2014 driven by the increased number of flights in 2015. Number of flights went up
by 7.6% 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 52 aircraft as of December 31, 2014 to 55 aircraft as of
December 31, 2015. The decrease in average fares by 2.5% to P2,323 for the year ended
December 31, 2015 from P2,382 for the same period last year partially offset the increase in
revenues.
- 22 -
Cargo Revenues
Cargo revenues grew by P315.053 million or 10.0% to P3.461 billion for the year ended
December 31, 2015 from P3.146 billion for the year ended December 31, 2014 following the
increase in the volume of cargo transported in 2015.
Ancillary Revenues
Ancillary revenues went up by P1.694 billion or 19.6% to P10.359 billion for the year ended
December 31, 2015 from P8.665 billion posted last year consequent to the 8.9% increase in
passenger traffic and 9.8% increase in 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 P46.801 billion for the year ended December 31, 2015,
slightly lower by 2.2% than the P47.843 billion operating expenses recorded for the year ended
December 31, 2014. The decrease is attributable to the substantial reduction in fuel costs incurred
for the year ended December 31, 2015 compared to the same period last year due to the sharp
decline in global jet fuel prices. The drop in fuel costs, however, was offset by the increase in
majority of the Group’s operating expenses driven by its expanded long haul operations, growth in
seat capacity from the acquisition of new aircraft and the weakening of the Philippine peso against
the U.S. dollar as referenced by the depreciation of the Philippine peso to an average of P45.51 per
U.S. dollar for the year ended December 31, 2015 from an average of P44.40 per U.S. dollar last
year based on the PDEx weighted average rates.
Flying Operations
Flying operations expenses decreased by P5.236 billion or 20.0% to P20.916 billion for the year
ended December 31, 2015 from P26.152 billion incurred in the same period last year. This is
primarily attributable to the 23.9% decline in aviation fuel expenses to P17.659 billion for the year
ended December 31, 2015 from P23.210 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. $64.79 per barrel in the twelve months ended December 31, 2015 from
U.S. $112.48 per barrel in the same period last year. The drop in fuel prices, however, was
partially offset by the weakening of the Philippine peso against the U.S. dollar as referenced by
the depreciation of the Philippine peso to an average of P45.51 per U.S. dollar for the year ended
December 31, 2015 from an average of P44.40 per U.S. dollar last year based on the PDEx
weighted average rates.
Aircraft and Traffic Servicing
Aircraft and traffic servicing expenses increased by P1.042 billion or 21.7% to P5.847 billion for
the year ended December 31, 2015 from P4.805 billion registered 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 6.0% year on year with the
launch of new destinations namely Doha, Qatar and Fukuoka, Japan, introduction of new routes
like Cebu to Taipei and Davao to Singapore and increased frequencies of existing routes. The
weakening of the Philippine peso against the U.S. dollar as referenced by the depreciation of the
Philippine peso to an average of P45.51 per U.S. dollar for the year ended December 31, 2015
from an average of P44.40 per U.S. dollar last year also contributed to the increase international
airport charges.
- 23 -
Depreciation and Amortization
Depreciation and amortization expenses grew by P830.019 million or 19.4% to P5.112 billion for
the year ended December 31, 2015 from P4.282 billion for the year ended December 31, 2014.
Depreciation and amortization expenses increased consequent to the arrival of four Airbus A320
aircraft during the year.
Repairs and Maintenance
Repairs and maintenance expenses went up by P808.041 million or 18.2% to P5.240 billion for the
year ended December 31, 2015 from P4.432 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. dollar as referenced by the depreciation of the Philippine peso to an average of P45.51 per
U.S. dollar for the year ended December 31, 2015 from an average of P44.40 per U.S. dollar in
2014. The acquisition of four Airbus A320 aircraft and the delivery of one Airbus A330 aircraft
in 2015 also contributed to the increase in repairs and maintenance expenses.
Aircraft and Engine Lease
Aircraft and engine lease expenses moved up by P521.115 million or 14.9% to P4.025 billion for
the year ended December 31, 2015 from P3.503 billion charged for the year ended
December 31, 2014. Increase in aircraft lease was due to the delivery of one Airbus A330 aircraft
under operating lease in 2015 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 P471.469 million or 21.9% to P2.625 billion for the
year ended December 31, 2015 from P2.154 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 P255.331 million or 19.7% to P1.552 billion for the
year ended December 31, 2015 from P1.297 billion incurred in 2014. Growth in general and
administrative expenses was primarily attributable to the increased flight and passenger activity in
2015.
Passenger Service
Passenger service expenses went up by P267.006 million or 21.9% to P1.484 billion for the year
ended December 31, 2015 from P1.217 billion posted for the year ended December 31, 2014.
This was primarily caused by additional cabin crew hired for the Airbus A320 and A330 aircraft
delivered 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 P9.700 billion for the
year ended December 31, 2015, a 133.3% improvement compared to the P4.157 billion operating
income earned last year.
Other Income (Expenses)
Interest Income
Interest income increased by P3.080 million or 3.9% to P83.007 million for the year ended
December 31, 2015 from P79.927 million recorded in 2014 due to the increase in the balance of
cash in bank and short-term placements year on year and higher interest rates.
- 24 -
Hedging Gains (Losses)
The Group incurred a hedging loss of P2.931 billion for the year ended December 31, 2015, an
increase of 26.7 % from hedging loss of P2.314 billion 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 Losses
Net foreign exchange losses of P2.205 billion for the year ended December 31, 2015 resulted from
the weakening of the Philippine peso against the U.S. dollar as referenced by the depreciation of
the Philippine peso to P47.06 per U.S. dollar for the year ended December 31, 2015 from P44.72
per U.S. dollar for the twelve months ended December 31, 2014 based on PDEx closing rates. 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 of Joint Venture
The Group had equity in net income of joint ventures of P35.418 million for the twelve months
ended December 31, 2015, P60.908 million or 63.2% lower than the P96.326 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 Philippine Academy for Aviation Training, Inc.
(PAAT) and SIA Engineering (Philippines) Corporation (SIAEP) in 2015.
Interest Expense
Interest expense increased by P59.868 million or 5.9% to P1.073 billion for the year ended
December 31, 2015 from P1.013 billion registered in 2014. Higher interest expense incurred
during the year was due to the additional loans availed to finance the acquisition of four Airbus
A320 aircraft in 2015 and by the effect of the weakening of the Philippine peso against the U.S.
dollar during the current period.
Loss on sale of aircraft
In 2015, the Group sold and delivered two Airbus A319 aircraft to Allegiant and incurred a loss of
P80.267 million.
Income before Income Tax
As a result of the foregoing, the Group recorded income before income tax of P3.529 billion for
the year ended December 31, 2015, a growth of 301.6% or P2.650 billion higher than the
P878.636 million income before income tax posted for the year ended December 31, 2014.
Benefit from Income Tax
Benefit from income tax for the year ended December 31, 2015 amounted to P858.431 million, of
which, P125.929 million pertains to current income tax recognized as a result of the taxable
income in 2015. This was offset by the benefit from deferred income tax of P984.360 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, 2015 amounted to P4.387 billion, an increase of
414.0% from the P853.498 million net income earned in 2014.
- 25 -
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 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
- 26 -
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 in 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. 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.
- 27 -
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.
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.
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 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.
- 28 -
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.
Financial Position
December 31, 2016 versus December 31, 2015
As of December 31, 2016, the Group’s consolidated balance sheet remains solid, with net debt to
equity of 0.97 [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 P100.514 billion from P84.829 billion as of December 31, 2015 as the Group added
aircraft to its fleet. Equity grew to P33.505 billion from P24.955 billion in the prior year while
book value per share amounted to P55.29 as of December 31, 2016 from P41.18 as of
December 31, 2015.
The Group’s cash requirements have been mainly sourced through cash flow from operations and
from borrowings. Net cash from operating activities amounted to P19.322 billion. As of
December 31, 2016, net cash used in investing activities amounted to P17.060 billion which
mainly pertains to payments in connection with the purchase of aircraft. Net cash from financing
activities amounted to P3.066 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, 2016, 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 2016 Financial Statements
(Increase/Decrease of 5% or more versus 2015)
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, 2016 versus December 31, 2015
118.8% increase in Cash and Cash Equivalents
Due to collections as a result of the expansion of the Group’s operations as evidenced by 9.6%
growth in revenues and receipt of proceeds from long term debt.
22.4% increase in Receivables
Due to increased trade receivables relative to the growth in revenues.
- 29 -
100.0% increase in Financial Assets at fair value through profit or loss (FVPL)
Due to improved mark-to-market valuation of fuel derivative contracts.
29.5% increase in Expendable Parts, Fuel, Materials and Supplies
Due to a higher level of fuel inventory and increased volume of materials and supplies relative to
the larger fleet size during the period.
54.3% decrease in Other Current Assets
Due to return of collateral deposits from counterparties for fuel hedging transactions and
liquidation of advances to suppliers.
13.6% increase in Property and Equipment
Due to the acquisition of three Airbus A320 aircraft, two ATR72-600 aircraft and one A330
aircraft, net of four Airbus A319 aircraft sold during the period.
53.3% increase in Investment in Joint Ventures
Due to the share in higher net income of joint ventures during the period, additional capital
contribution to SIAEP and investment in Air Black Box.
22.5% increase in Deferred Tax Assets-net
Due mainly to the increase in future deductible amounts on unused net operating loss carryover
(NOLCO), excess minimum corporate income tax (MCIT) over regular corporate income tax
(RCIT) and on unrealized foreign exchange losses.
8.5% 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 passenger activity in the twelve months ended December 31, 2016.
1.1% decrease in Due to Related Parties
Due to payments made during the period.
16.8% increase in Unearned Transportation Revenue
Due to the increase in sale of passenger travel services.
17.0% increase in Long-Term Debt (including Current Portion)
Due to additional loans availed to finance the purchase of the three Airbus A320 aircraft, two ATR
72-600 aircraft and one A330 aircraft acquired during the year partially offset by the repayment of
certain outstanding long-term debt in accordance with the repayment schedule.
100.0% decrease in Financial Liabilities at FVPL
Due to improved mark-to-market valuation of fuel derivative contracts resulting to a net derivative
asset position as of December 31, 2016
20.5% increase in Income Tax Payable
Due to higher taxable income in 2016
4.1% increase in Pension liability
Due to the accrual of pension liability during the period.
71.1% increase in Other Noncurrent Liabilities
Due to the provision for asset retirement obligation and recognition of deferred revenues from
unredeemed customer loyalty points.
- 30 -
4.0% decrease in Other Comprehensive Loss
Due to the recognition of actuarial gain on pension liability during the year.
51.3% 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 in 2016 and this will have an impact on the
Group’s operating income.
For 2016, 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. 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.
December 31, 2015 versus December 31, 2014
As of December 31, 2015, the Group’s consolidated balance sheet remains solid, with net debt to
equity of 1.28 [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 P84.829 billion from P76.062 billion as of December 31, 2014 as the Group added
aircraft to its fleet. Equity grew to P24.955 billion from P 21.539 billion in the prior year while
book value per share amounted to P41.18 as of December 31, 2015 from P35.55 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 P12.395 billion. As of
December 31, 2015, net cash used in investing activities amounted to P11.805 billion which
mainly pertains to payments in connection with the purchase of aircraft. Net cash from financing
activities amounted to P39.672 million. 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, 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.
- 31 -
Material Changes in the 2015 Financial Statements
(Increase/Decrease of 5% or more versus 2014)
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, 2015 versus December 31, 2014
18.7% increase in Cash and Cash Equivalents
Due to collections as a result of the expansion of the Group’s operations as evidenced by 8.7%
growth in revenues.
6.7% decrease in Receivables
Due to collection of various trade receivables and settlement receivable from Roar II.
35.3% increase in Expendable Parts, Fuel, Materials and Supplies
Due to a higher level of fuel inventory with the opening of a new depot and increased volume of
materials and supplies relative to the larger fleet size during the period.
18.8% increase in Other Current Assets
Due mainly to collateral deposits provided to counterparties for fuel hedging transactions.
10.5% increase in Property and Equipment
Due to the acquisition of four Airbus A320 aircraft during the period.
11.1% decrease in Investment in Joint Ventures
Due to the share in net loss of PAAT and SIAEP incurred 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) and on unrealized foreign exchange and hedging losses.
11.2% decrease in Other Noncurrent Assets
Due to return of refundable deposits.
8.8% 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, 2015.
4.5% decrease in Due to Related Parties
Due to payments made during the period.
9.4% increase in Unearned Transportation Revenue
Due to the increase in sale of passenger travel services.
8.1% increase in Long-Term Debt (including Current Portion)
Due to additional loans availed to finance the purchase of the four Airbus A320 aircraft acquired
during the year partially offset by the repayment of certain outstanding long-term debt in
accordance with the repayment schedule.
8.1% increase in Financial Liabilities at FVPL
Due to lower mark-to-market valuation of fuel derivative contracts.
- 32 -
243.6% increase in Income Tax Payable
Due to higher taxable income in 2015
100% decrease in Deferred Tax Liabilities-net
Net balance for the current year resulted to a deferred tax asset.
84.6% increase in Other Noncurrent Liabilities
Due to the accretion of asset retirement obligation, accrual for pension liability made during the
period and recognition of deferred revenues from unredeemed customer loyalty points.
46.9% increase in Other Comprehensive Income (Loss)
Due to the recognition of actuarial loss on pension liability during the year.
26.4% 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 in 2015 and this will have an impact on the
Group’s operating income.
For 2015, 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. 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.
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 P21.539 billion from P21.082 billion in the prior year while
book value per share amounted to P35.55 as of December 31, 2014 from P34.79 as of
December 31, 2013.
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
- 33 -
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.
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.
- 34 -
19.4% increase in Unearned Transportation Revenue
Due to the increase in sale of passenger travel services.
100.0% increase in Financial Liabilities at FVPL
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. 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.
- 35 -
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, 2016 and 2015 and
for the years ended December 31, 2016 and 2015:
Key Financial Indicators 2016 2015
Total Revenue P61.899 billion P56.502 billion
Pre-tax Core Net Income P11.373 billion P8.746 billion
EBITDAR Margin 38.2% 34.9%
Cost per Available Seat Kilometer (ASK) (Php) 1.91 1.88
Cost per ASK (U.S. cents) 4.02 4.13
Seat Load Factor 86% 83%
The manner by which the Group calculates the above key performance indicators for both
year-end 2016 and 2015 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 December 31, 2016, 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 December 31, 2016, 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.
Item 7. Financial Statements
The financial statements and schedules listed in the accompanying Index to Financial Statements
and Supplementary Schedules (page 51) are filed as part of this Form 17-A.
- 36 -
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Independent Public Accountants and Audit Related Fees
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 2016 and is expected to be rotated every five years.
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.
2016 2015 2014
Audit and audit-related fees P3,775,000 P3,627,847 P3,449,740
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Board of Directors and Executive Officers of the Registrant
The tables below set forth certain information regarding the members of the Board of Directors,
member of the advisory board and executive officers of the Group.
A. Board of Directors
Currently, the Board consists of nine members, of which two are independent directors.
Name Age Position Citizenship
Ricardo J. Romulo 83 Chairman Filipino
John L. Gokongwei, Jr. 90 Director Filipino
James L. Go 77 Director Filipino
Lance Y. Gokongwei
50
Director, President and Chief
Executive Officer (CEO)
Filipino
Jose F. Buenaventura 82 Director Filipino
Robina Y. Gokongwei-Pe 55 Director Filipino
Frederick D. Go 47 Director Filipino
Antonio L. Go* 76 Independent Director Filipino
Wee Khoon Oh 58 Independent Director Singaporean *He is not related to any of the other directors
Messrs. Antonio L. Go and Wee Khoon Oh are the independent directors of the Group.
- 37 -
B. Member of the Advisory Board
Name Age Position Citizenship
Garry R. Kingshott 63 Member of the Advisory Board Australian
C. Executive Officers
Name Age Position Citizenship
Bach Johann M. Sebastian……. 55 Senior Vice President - Chief
Strategist & Compliance Officer.. Filipino
Andrew L. Huang…................... 60 Chief Finance Officer…................ Filipino/
Canadian
Robin C. Dui………………….. 70 Vice President…………..………. Filipino
Rosita D. Menchaca…………... 54 Vice President .…………………. Filipino
Antonio Jose L. Rodriguez….... 63 Vice President .…………………. Filipino
Joseph G. Macagga…………… 51 Vice President .…………………. Filipino
Jose Alejandro B. Reyes……… 49 Vice President…. .……………… Filipino
Alexander G. Lao……………... 41 Vice President ….............………. Filipino
Candice Jennifer A. Iyog……... 44 Vice President .…………………. Filipino
Rhea M. Villanueva…………... 38 Vice President .…………………. Filipino
Paterno S. Mantaring, Jr………. 46 Vice President…. .……………… Filipino
Ma. Elynore J. Villanueva..…… 54 Treasurer………………………... Filipino
Rosalinda F. Rivera………….... 46 Corporate Secretary…………….. Filipino
William S. Pamintuan……….... 54 Assistant Corporate
Secretary…………………........... Filipino
The table below sets forth certain information regarding our senior consultants.
Name Age Citizenship
Michael B. Szucs………….
51
British
Rick S. Howell…………….
52
Australian
All of the above directors, advisory board member and executive officers have served their
respective offices since May 20, 2016. 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.
A brief description of the business experience and other directorships held in other reporting
companies of our directors, executive officers and senior consultants are provided as follows:
Ricardo J. Romulo has been the Chairman of the Board of the Group since December 1995. He is
also director of JG Summit Holdings, Inc. and a Senior Partner in Romulo Mabanta Buenaventura
Sayoc & De Los Angeles. Mr. Romulo is also Chairman of FPG Insurance Co., Inc., InterPhil
Laboratories, Inc., Sime Darby Pilipinas, Inc. and Towers Watson Philippines, Inc. He is a
director of BASF Philippines, Inc., Honda Philippines, Inc., Johnson & Johnson (Phils.), Inc.,
Maersk-Filipinas, Inc., MCC Transport Philippines, Inc., Mercantile Ocean Maritime Co.
(Filipinas), Inc., Damco Philippines, Inc., and Zuellig Pharma Corporation. He received his
- 38 -
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.,
Deputy Chairman and Director of United Industrial Corporation Limited and a director of
Robinsons Retail Holdings, Inc. and Oriental Petroleum and Minerals Corporation. He was
elected a director of Manila Electric Company on March 31, 2014. 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 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 Company (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 Chairman
and Chief Executive Officer of Robinsons Retail Holdings, Inc. and the President and Chief
Executive Officer of Universal Robina Corporation. He is the Vice Chairman and Chief
Executive Officer of Robinsons Land Corporation and is a Director and Vice Chairman of Manila
Electric Company. He is the Chief Executive Officer of JG Summit Petrochemical Corporation
and JG Summit Olefins Corporation and is the Chairman of Robinsons Bank Corporation. He is a
Director of Oriental Petroleum and Minerals Corporation, and United Industrial Corporation
Limited. He is also a trustee and secretary of the Gokongwei Brothers Foundation, Inc.
Mr. Lance Y. Gokongwei received a 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.
- 39 -
Robina Y. Gokongwei-Pe has been a director of the Group since 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 of the Gokongwei Brothers Foundation, Inc. and the Immaculate Conception
Academy Scholarship Fund. She was also a member of the University of the Philippines
Centennial Commission and was a former Trustee of the Ramon Magsaysay Awards
Foundation. 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.
Frederick D. Go has been a director of the Company since 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
Company Limited, Xiamen Pacific Estate Investment Company Limited, Chengdu Ding Feng
Real Estate Development Company 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 Vice 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 has been an independent director of the Company since 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, T32 Dental
Centre Singapore, Dental Implant and Maxillofacial Centre Hong Kong, Oriental Petroleum and
Minerals Corporation, Pin-An Holdings, Inc., Equicom Information Technology, Robinsons
Retail Holdings, Inc., and Steel Asia Manufacturing Corporation. 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 Science Degree in
Business Administration. He attended the International Advance 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 has been an independent director of the Company since 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 is a director of
Sobono Resources Pte. Ltd., ATC Asia Pacific Pte. Ltd., and Transcend Infrastructure Holdings
Pte. Ltd. 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.
Garry R. Kingshott now serves as a member of the advisory board of the Group after serving as its
senior consultant since 2008. Before this, he was with Jet Lite (India) and Ansett International
Limited (Australia) as Chief Executive Officer. He has 25 years combined experience in the
aviation consultancy and the airline industry.
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
- 40 -
Trade and Industry. He received a Bachelor of Arts degree in Economics from the University of
the Philippines and a Master’s degree in Business Management from the Asian Institute of
Management. He has 13 years of experience in the airline industry, all of which have been with
the Group.
Andrew L. Huang was appointed as the Chief Finance Officer of the Group on October 1, 2015.
He has over 31 years of extensive experience in Finance and Management with organizations such
as Chase Manhattan Bank, BA Finance Corp., Philippine Airlines, San Miguel Corporation and
Filinvest Development Corporation. He has previously served as Board Member and Chief
Operating Officer of Wi-Tribe Telecoms Holding, Inc. and Easter Telecommunications
Philippines, Inc. Since 2013, he has also been an Adjunct Professor of Finance at the Asian
Institute of Management where he also finished his Master’s degree in Business Management after
graduating from De La Salle University with a degree in Business Administration.
Robin C. Dui has been the Vice President - Comptroller of the 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 36 years of
experience in the airline industry, 19 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 32 years of
experience in the airline industry, the last 21 of which have been with the Group.
Antonio Jose L. Rodriguez was appointed as the Vice President for Safety and Quality last
August 2016 after serving as the Group’s Vice President for Airport Services from February 2015.
He was also previously the Vice President for Human Resources of the Group from 2004 to 2010
and Vice President for Airport Services from 2010 to 2013. He was also a consultant for the
Group’s Long Haul project from January 2014 to February 2015. Prior to joining the Group, he
was AVP-Human Resources of Allied Thread Co. Inc. from 1990 to 1992. Before this, he was
employed with Triumph International (Phils.) Inc. from 1985 to1990. He is a graduate of De La
Salle University where he completed Lia-Com a double degree course, majoring in Business
Administration and Behavioural Sciences. He has 20 years of experience in the airline industry,
all of which have been with the Group.
Joseph G. Macagga was appointed as Vice President for Fuel, Procurement and Facilities
Management last May 2016. Before this, he held the position of 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 20 years of experience in the airline
industry, all of which have been with the Group.
- 41 -
Jose Alejandro B. Reyes was appointed as the Vice President for Cargo last May 2016. Prior to
that, he served as the General Manager for long-haul operations starting February 2012. He was
also 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 Master’s degree in Business Administration from the University of Virginia. He has
9 years of experience in the airline industry, all of which have been with the Group.
Alexander G. Lao was appointed as the Vice President for Commercial Planning in February
2012. Prior to this, 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 Master’s degree in Business Administration
from the Asian Institute of Management. He has 10 years of experience in the airline industry, all
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 13 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 in June 2014. She
started with the Group as a Training Clerk on 2002, and 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. In 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, she has 15 years of
experience in the airline industry, all of which have been with the Group.
Paterno S. Mantaring, Jr. was appointed as Vice President for Corporate Affairs on
December 7, 2015. He joined the Group in May 2008 as Legal Counsel and was appointed as
Director - Legal Affairs in 2011. He also concurrently assumed the role of OIC - Corporate
Affairs since January 2014. Prior to joining the Group, he held various positions with different
companies, the latest of which was a Senior Associate with Quasha Ancheta Peña & Nolasco Law
Office. He also served in some government offices such as the Department of Finance as Legal
Consultant and the Senate of the Philippines as Legislative Staff Officer. He graduated from the
University of the Philippines with a Bachelor of Arts degree in Political Science and Bachelor of
Laws.
Ma. Elynore J. Villanueva was appointed as the Treasurer of the Group on November 2, 2015.
She started her career in the JG Summit Group in 1996 as Senior Treasury Manager for Manila
Galleria Suites. In 2003, she transferred to Big R Stores as Assistant Treasurer and was later on
moved to Universal Robina Corporation and handled Cebu Pacific. In 2010, her group was
- 42 -
formally transferred from URC to Cebu Pacific with her being appointed as Director - Treasury
for Cebu Pacific. Since March 2014, she also assumed a concurrent role as Director - Treasury for
CEBGo.
Rosalinda F. Rivera was appointed Corporate Secretary of the Group effective October 31, 2006.
She is also the Corporate Secretary of JG Summit Holdings, Inc., Universal Robina Corporation.
Robinsons Land Corporation, 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 and Compliance
Office of Manila Electric Company. He is also the Corporate Secretary of Meralco PowerGen
Corporation, Atimonan Land Ventures, Inc., Calamba Aero Power Corporation, Atimonan One
Energy, Inc., Kalilayan Power, Inc., MPG Holdings Phils., Inc., MPG Mauban LP Corporation,
MPG Asia Ltd., Redondo Peninsula Energy, Inc., MRAIL, Inc., Meralco Industrial Engineering
Services Corporation (MIESCOR), St. Raphael Power Generation Corporation and First Pacific
Leadership Academy, Inc. He is a one of the trustees of Meralco Power Foundation, Inc. He also
serves as Director of Radius Telecoms, Inc., MSpecrum, Inc., Pure Meridian Hydropower
Corporation, Comstech Integration Alliance, Inc., Meridian Atlantic Light Company Ltd. 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 22 years of experience in
the airline industry, all of which have been with the Group.
Michael B. Szucs is the Group’s Chief Executive Adviser. He provides advice to the President
with respect to fare structuring, cost management, route development and market entry strategies.
He has previously worked with British Airways and EasyJet in the UK and has also been the Chief
Executive Officer of Viva Aerobus in Mexico, Spanair in Spain, VivaColumbia in Columbia and
Al Maha in Saudi Arabia. He holds a first class honors degree in Aeronautical Engineering from
Manchester University, UK.
Rick S. Howell is the Group’s Chief Operations Adviser. Prior to that, he was the Operations
Adviser for Long Haul Operations from August 2012 to May 2013. He received a Bachelor’s
degree in Pure Mathematics & Aerodynamics at the University of Melbourne. He also graduated
with credit from Royal Australian Air force 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
Australia. Before returning to the Group, he was the Chief Operating Officer of Air North.
Combining his experience, he has 35 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.
- 43 -
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 10. Executive Compensation
The following are the Group’s Chief Executive Officer (“CEO”) and four most highly
compensated executive officers for the year ended 2016:
Name Position
Lance Y. Gokongwei . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . President and CEO
Andrew L. Huang. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Finance Officer
Alexander G. Lao. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President
Candice Jennifer A. Iyog . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President
Jose Alejandro B. Reyes. . . . . . . . . . . . . . . . . . . . . . . . . . .. Vice President
- 44 -
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 2015, 2016 and 2017
estimates:
Actual - Fiscal Year 2015
Salaries Bonuses
Other
Income1 Total
CEO and four (4) most highly compensated
executive officers
1. Lance Y. Gokongwei - President and CEO
2. Jim C. Sydiongco - Vice President
3. Jeanette U. Yu - Vice President - Treasurer
(up to November 2015)
4. Jaime I. Cabangis - Chief Finance Officer
(up to June 2015)
5. Jose Alejandro B. Reyes - General Manager
P62,236,655 P5,522,520 P135,000 P67,894,175
Aggregate compensation paid to all officers and
directors as a group unnamed P110,939,616 P13,212,725 P637,500 P124,789,841 1Includes per diem of directors
Actual - Fiscal Year 2016
Salaries Bonuses
Other
Income1 Total
CEO and four (4) most highly compensated
executive officers
1. Lance Y. Gokongwei - President and CEO
2. Andrew L. Huang - Chief Finance Officer
3. Alexander G. Lao- Vice President
4. Candice Jennifer A. Iyog - Vice President
5. Jose Alejandro B. Reyes - Vice President
P75,657,884 P7,100,490 P105,000 P82,863,374
Aggregate compensation paid to all officers and
directors as a group unnamed P114,611,162 P13,438,060 P675,000 P128,724,222 1Includes per diem of directors
Fiscal Year 2017 Estimates
Salaries Bonuses
Other
Income1 Total
CEO and four (4) most highly compensated
executive officers
1. Lance Y. Gokongwei - President and CEO
2. Andrew L. Huang - Chief Finance Officer
3. Alexander G. Lao - Vice President
4. Jose Alejandro B. Reyes - Vice President
5. Michael Ivan S. Shau - Vice President
P86,856,649 P7,852,727 P105,000 P94,814,376
Aggregate compensation paid to all officers and
directors as a group unnamed P134,254,482 P15,183,509 P705,000 P150,142,991 1Includes per diem of directors
- 45 -
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.
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 11. Security Ownership of Certain Record and Beneficial Owners and Management
(1) Security Ownership of Certain Record and Beneficial Owners
As of December 31, 2016, 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%
Common PCD Nominee Corporation
(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 101,405,818
(See note 3)
16.74%
- 46 -
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 PCD Nominee Corporation
(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 96,795,629
15.97%
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 (Filipino) account, “Citibank N.A.” holds for various trust accounts the
following shares of the Corporation as of December 31, 2016:
No. of shares % to Outstanding
Citibank N.A. 42,246,477 6.97%
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, 2016
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 CEO
1 Filipino *
- 2. Andrew L. Huang Chief Finance
Officer
- Filipino/
Canadian
-
- 3. Alexander G. Lao Vice President - Filipino -
- 4. Candice Jennifer A. Iyog Vice President - Filipino -
- 5. Jose Alejandro B. Reyes Vice President - Filipino -
Subtotal 1 *
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 *
- 47 -
Title of
Class
Name of beneficial
Owner Position
Amount &
nature of
beneficial
ownership
(Direct)
Citizenship % to Total
Outstanding
Common 12. Antonio L. Go Director
(Independent)
1 Filipino *
Common 13. Wee Khoon Oh Director
(Independent)
1 Singaporean *
14. Ma. Elynore J. Villanueva Treasurer 500 Filipino *
Subtotal 508 *
All directors and executive officers as a group unnamed 509 *
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, 2016.
* less than 0.01%
(3) Voting Trust Holders of 5% or More
As of December 31, 2016, 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, 2016, there has been no change in the control of the Group since the
beginning of its last fiscal year.
Item 12. Certain Relationships and Related Transactions
The Group, 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 in the accompanying Audited Financial Statements filed as
part of this Form 17-A.
PART IV - CORPORATE GOVERNANCE
Item 13. Corporate Governance
The Group adheres to the principles and practices of good corporate governance, as embodied in
its Corporate Governance Manual, Code of Ethics and related SEC Circulars. Continuous
improvement and monitoring of governance and management policies have been undertaken to
ensure that the Group observes good governance and management practices. This is to assure the
shareholders that the Group conducts its business with the highest level of integrity, transparency
and accountability.
The Group likewise consistently strives to raise its financial reporting standards by adopting and
implementing prescribed Philippine Financial Reporting Standards (PFRSs).
- 48 -
PART V - EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
Exhibits
See accompanying Index to Exhibits (page 51)
Reports on SEC Form 17-C
List of Corporate Disclosures/Replies to SEC Letters
Under SEC Form 17-C
July 1, 2016 to December 31, 2016
Date of Disclosure Description
July 28, 2016 Press release entitled “CEB breaks 10M mark in passenger volume for 1H
2016”
July 29, 2016 Material information/transaction regarding “Cebu Air Inc. signed a Purchase
Agreement with Airbus SAS for the order of two (2) A330-300 aircraft.
November 22, 2016 Press release entitled “Cebu Pacific and ANA Holdings Invest in Air Black
Box Asia Pacific Pte Ltd”
December 1, 2016 Clarification of a news report entitled “ Gokongwei expects record passenger
volume for Cebu Pacific this year”
December 9, 2016 Clarification of a news report entitled “CebuPac to acquire planes for US
flights”
CEBU AIR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED COMPANY FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES
SEC FORM 17-A
CONSOLIDATED COMPANY FINANCIAL STATEMENTS
Statement of Management’s Responsibility for Financial Statements
Report of Independent Auditors
Consolidated Company Statements of Financial Position as of December 31, 2016 and 2015
Consolidated Company Statements of Comprehensive Income for the Years Ended
December 31, 2016, 2015 and 2014
Consolidated Company Statements of Changes in Equity for the Years Ended December 31, 2016,
2015 and 2014
Consolidated Company Statements of Cash flows for the Years Ended December 31, 2016, 2015 and
2014
SUPPLEMENTARY SCHEDULES
Report of Independent Auditors on Supplementary Schedules
I. Supplementary schedules required by Annex 68-E
A. Financial Assets (Current Marketable Equity and Debt Securities and Other Short-Term Cash
Investments)
B. Amounts Receivable from Directors, Officers, Employees,
Related Parties and Principal Stockholders (Other than Related Parties)
C. Noncurrent Marketable Equity Securities, Other Long-Term
Investments in Stocks and Other Investments*
D. Indebtedness of Unconsolidated Subsidiaries and Affiliates*
E. Property, Plant and Equipment
F. Accumulated Depreciation
G. Intangible Assets and Other Assets*
H. Long-Term Debt
I. Indebtedness to Affiliates and Related Parties*
J. Guarantees of Securities of Other Issuers*
K. Capital Stock
*These schedules, which are required by SRC Rule 68, have been omitted because they are either not required, not
applicable or the information required to be presented is included/shown in the related parent company financial
statements or in the notes thereto.
- 2 -
II. Schedule of all of the effective standards and interpretations (Part 1, 4J)
III. Reconciliation of Retained Earnings Available for Dividend Declaration
(Part 1, 4C; Annex 68-C)
IV. Map of the relationships of the companies within the group (Part 1, 4H)
V. Schedule of Financial Ratios
*SGVFS022041*
INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors
Cebu Air, Inc.
2nd Floor, Doña Juanita Marquez Lim Building
Osmeña Boulevard, Cebu City
Opinion
We have audited the consolidated financial statements of Cebu Air, Inc. and its Subsidiaries
(the Group), which comprise the consolidated statements of financial position as at December 31, 2016
and 2015, and the consolidated statements of comprehensive income, consolidated statements of changes
in equity and consolidated statements of cash flows for each of the three years in the period ended
December 31, 2016, and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of the Group as at December 31, 2016 and 2015, and their financial performance
and their cash flows for each of the three years in the period ended December 31, 2016 in accordance with
Philippine Financial Reporting Standards (PFRSs).
Basis for Opinion
We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of the Group in
accordance with the Code of Ethics for Professional Accountants in the Philippines (the Code of Ethics)
together with the ethical requirements that are relevant to our audit of the consolidated financial
statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our assessment of
the risks of material misstatement of the consolidated financial statements. The results of our audit
procedures, including the procedures performed to address the matters below, provide the basis for our
audit opinion on the accompanying consolidated financial statements.
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines
Tel: (632) 891 0307 Fax: (632) 819 0872 ey.com/ph
BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018 SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018
A member firm of Ernst & Young Global Limited
*SGVFS022041*
- 2 -
Recognition of Passenger Service Revenue, Baggage Fees and Other Ancillary Fees
Passenger service revenue is earned when the service has been rendered to the passengers according to
flight schedule. The amount of passenger tickets for which the related transportation service has not yet
been rendered at the end of the reporting period, is recorded as unearned passenger service revenue in the
consolidated statement of financial position. Baggage fees are non-refundable fees which are recognized
upon receipt. Other ancillary fees are recognized when transactions are carried out. Refer to Notes 5 and
21 of the consolidated financial statements.
We considered the recognition of passenger service revenue, baggage fees and other ancillary fees as a
key audit matter because of the materiality of these accounts to the consolidated financial statements and
the high volume of transactions being processed and captured from various distribution channels and
locations. In addition, the determination of the earned and unearned passenger service revenue is highly
dependent on the Group’s information technology (IT) systems.
Audit response
We included internal specialist in our team to assist us in understanding and testing the controls over the
Group’s IT systems and passenger revenue recognition process. This includes testing the controls over
the capture and recording of revenue transactions, authorization of rate changes and the input of these
information to the revenue system, and mapping of bookings from unearned to earned passenger service
revenue when passengers are lifted. We assessed the information produced by the Group’s IT systems
and tested the reports generated by these systems that are used to defer or recognize passenger service
revenue. On a sample basis, we tested the timing of the recording of the transactions near the statement
of financial position date. Also, on a sample basis, we tested journal entries related to these accounts
through inspection of underlying source documentation.
Estimation of Asset Retirement Obligation
As of December 31, 2016, the Group operated thirteen (13) aircraft under operating leases. Under the
terms of the operating lease arrangements, the Group is contractually required to restore leased aircraft to
its original condition and to bear the cost of restoration at the end of the contract period. Refer to Notes
19 and 30 of the consolidated financial statements.
Management estimates the overhaul, restoration and redelivery costs and accrues such costs over the lease
term. The calculation of such costs includes management assumptions and estimates in respect of the
anticipated rate of aircraft utilization. This affects the extent of the restoration work that will be required
and the expected costs of such overhaul, restoration and redelivery at the end of the lease term. Given the
significant amounts of these provisions and the level of management judgment and estimates required, we
considered this area as a key audit matter.
Audit response
We obtained an understanding of the management’s process over estimating asset retirement obligation
for aircraft held under operating leases and tested the relevant controls. We recalculated the asset
retirement obligation and evaluated the key assumptions adopted by the management in estimating the
asset retirement obligation for each aircraft by discussing with the Group’s relevant fleet maintenance
engineers the aircraft utilization statistics. In addition, we obtained an understanding of the redelivery
terms of operating leases comparing the estimated costs and comparable actual costs incurred by the
Group from previous similar restorations.
A member firm of Ernst & Young Global Limited
*SGVFS022041*
- 3 -
Recoverability of Goodwill and Intangible Assets
Under PFRSs, the Group is required to annually test the amount of goodwill and intangible assets with
indefinite useful lives for impairment. The recoverability of goodwill and intangible assets, which arose
from the acquisition of a subsidiary in 2014, is considered as a key audit matter as the balances of these
assets are considered material to the consolidated financial statements. In addition, the management’s
assessment process requires significant judgment and is based on assumptions, specifically future
revenues, profit margins, revenue growth and discount rates. The Group’s disclosures about goodwill and
intangible assets are included in Notes 15 and 16 of the consolidated financial statements, respectively.
Audit response
We obtained an understanding of the Group’s impairment assessment process and the related controls.
We involved our internal specialist in evaluating the methodologies and the assumptions used and
performed recalculation of the value-in-use provided. These assumptions include future revenue, profit
margins, revenue growth and discount rates. We compared the key assumptions used against the
historical performance of the subsidiary, industry or market outlook and other relevant external data. We
tested the parameters used in determining the discount rate against market data. We also reviewed the
Group’s disclosures about the assumptions that have the most significant effect in determining the
recoverable amounts of goodwill and intangible assets.
Reasonableness of Estimated Useful Lives of Aircraft
The Group annually estimates the useful lives of its aircraft based on the period over which the assets are
expected to be available for use. The Group considers external changes to economic conditions, demand,
competition and technology advancement when reassessing the estimate useful lives of its aircraft. We
considered this area as a key audit matter given the material balances of these assets and the significant
judgment required in estimating these assets’ useful lives. This impacts the carrying values as at
statement of financial position date and the depreciation charges for the year. The Group’s disclosures
about estimated useful lives are included in Note 5 of the consolidated financial statements.
Audit response
We obtained an understanding of the Group’s process and controls over estimation of the useful lives of
aircraft. Also, we considered the developments in the airline industry and compared the estimated useful
lives used by the Group with other comparable airline companies.
Other Information
Management is responsible for the other information. The other information comprises the
SEC Form 17-A for the year ended December 31, 2016 but does not include the consolidated financial
statements and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report,
and the SEC Form 20-IS (Definitive Information Statement) and Annual Report for the year ended
December 31, 2016, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express any form of assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
A member firm of Ernst & Young Global Limited
*SGVFS022041*
- 4 -
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with PFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with PSAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these consolidated financial statements.
As part of an audit in accordance with PSAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
A member firm of Ernst & Young Global Limited
*SGVFS022041*
- 5 -
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
A member firm of Ernst & Young Global Limited
*SGVFS022041*
- 6 -
The engagement partner on the audit resulting in this independent auditor’s report is Narciso T. Torres, Jr.
SYCIP GORRES VELAYO & CO.
Narciso T. Torres, Jr.
Partner
CPA Certificate No. 84208
SEC Accreditation No. 1511-A (Group A),
October 1, 2015, valid until September 30, 2018
Tax Identification No. 102-099-147
BIR Accreditation No. 08-001998-111-2015,
March 4, 2015, valid until March 3, 2018
PTR No. 5908769, January 3, 2017, Makati City
March 21, 2017
A member firm of Ernst & Young Global Limited
*SGVFS022041*
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31
2016 2015
ASSETS
Current Assets
Cash and cash equivalents (Note 8) P=10,296,242,304 P=4,706,090,063
Receivables (Note 10) 2,126,793,862 1,737,444,884
Financial assets at fair value through profit or loss (Note 9) 441,773,905 –
Expendable parts, fuel, materials and supplies (Note 11) 1,190,056,987 919,118,043
Other current assets (Note 12) 1,096,270,685 2,400,119,148
Total Current Assets 15,151,137,743 9,762,772,138
Noncurrent Assets
Property and equipment (Notes 13, 18, 30 and 32) 81,890,303,497 72,075,821,013
Investments in joint ventures and in an associate (Notes 14) 805,801,372 525,623,987
Goodwill (Notes 7 and 15) 566,781,533 566,781,533
Deferred tax assets - net (Note 25) 1,073,499,679 876,296,996
Other noncurrent assets (Notes 7 and 16) 1,026,818,459 1,021,286,522
Total Noncurrent Assets 85,363,204,540 75,065,810,051
P=100,514,342,283 P=84,828,582,189
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and other accrued liabilities (Note 17) P=12,583,636,942 P=11,602,989,706
Unearned transportation revenue 8,141,752,728 6,971,754,698
Current portion of long-term debt (Notes 13 and 18) 7,040,253,460 5,423,699,184
Financial liabilities at fair value through profit or loss (Note 9) – 2,443,495,138
Due to related parties (Note 27) 37,689,554 38,115,803
Income tax payable 24,152,004 20,038,200
Total Current Liabilities 27,827,484,688 26,500,092,729
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 13 and 18) 35,770,184,170 31,165,286,307
Pension liability (Note 24) 568,769,315 546,480,714
Other noncurrent liabilities (Note 19) 2,842,631,591 1,661,527,283
Total Noncurrent Liabilities 39,181,585,076 33,373,294,304
Total Liabilities 67,009,069,764 59,873,387,033
Equity
Common stock (Note 20) 613,236,550 613,236,550
Capital paid in excess of par value (Note 20) 8,405,568,120 8,405,568,120
Treasury stock (Note 20) (529,319,321) (529,319,321)
Remeasurement loss on pension liability (Note 24) (186,025,376) (193,873,203)
Retained earnings (Note 20) 25,201,812,546 16,659,583,010
Total Equity 33,505,272,519 24,955,195,156
P=100,514,342,283 P=84,828,582,189
See accompanying Notes to Consolidated Financial Statements.
*SGVFS022041*
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
2016 2015 2014
REVENUE
Sale of air transportation services
Passenger P=46,592,511,272 P=42,681,069,939 P=40,188,445,623
Cargo 3,563,752,865 3,461,136,749 3,146,083,310
Ancillary revenues (Note 21) 11,743,014,755 10,359,447,828 8,665,489,377
61,899,278,892 56,501,654,516 52,000,018,310
EXPENSES
Flying operations (Notes 11 and 22) 19,694,348,716 20,916,360,534 26,152,476,007
Aircraft and traffic servicing (Note 22) 6,577,984,803 5,847,099,305 4,805,212,489
Repairs and maintenance (Notes 11 and 22) 6,530,857,486 5,240,478,648 4,432,437,982
Depreciation and amortization (Notes 6 and 13) 5,998,695,417 5,111,543,724 4,281,525,018
Aircraft and engine lease (Note 30) 4,253,724,294 4,024,599,732 3,503,484,521
Reservation and sales (Note 22) 3,211,696,086 2,625,456,497 2,153,987,158
General and administrative (Note 23) 1,813,043,477 1,552,148,933 1,296,817,694
Passenger service 1,567,730,427 1,483,746,337 1,216,740,451
49,648,080,706 46,801,433,710 47,842,681,320
12,251,198,186 9,700,220,806 4,157,336,990
OTHER INCOME (EXPENSES)
Hedging gains (losses) - net (Note 9) 1,587,708,081 (2,931,215,906) (2,314,241,984)
Equity in net income of joint ventures (Note 14) 178,308,842 35,418,498 96,326,091
Interest income (Note 8) 113,672,171 83,006,926 79,927,272
Loss on sale of aircraft (Note 13) (962,608,741) (80,267,191) –
Interest expense (Note 18) (1,170,181,141) (1,073,109,693) (1,013,241,353)
Foreign exchange losses - net (2,281,932,689) (2,205,258,151) (127,471,032)
(2,535,033,477) (6,171,425,517) (3,278,701,006)
INCOME BEFORE INCOME TAX 9,716,164,709 3,528,795,289 878,635,984
PROVISION FOR (BENEFIT FROM)
INCOME TAX (Note 25) (37,971,487) (858,430,586) 25,137,768
NET INCOME 9,754,136,196 4,387,225,875 853,498,216
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX
Other comprehensive income (loss) not to be reclassified
to profit or loss in subsequent periods:
Actuarial gains (losses) on pension liability (Note 24) 11,211,184 (83,002,333) 301,535,342
Provision for (benefit from) income tax (Note 25) 3,363,357 (21,097,422) 91,853,356
7,847,827 (61,904,911) 209,681,986
TOTAL COMPREHENSIVE INCOME P=9,761,984,023 P=4,325,320,964 P=1,063,180,202
Basic/Diluted Earnings Per Share (Note 26) P=16.10 P=7.24 P=1.41
See accompanying Notes to Consolidated Financial Statements.
*SGVFS022041*
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Year Ended December 31, 2016
Common Stock
(Note 20)
Capital Paid in
Excess of Par
Value (Note 20)
Treasury Stock (Note 20)
Remeasurement
Gain (Loss) on
Pension Liability (Note 24)
Retained Earnings
Total
Equity
Appropriated
(Note 20) Unappropriated
(Note 20)
Balance at January 1, 2016 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=193,873,203) P=7,916,762,000 P=8,742,821,010 P=24,955,195,156
Net income – – – – – 9,754,136,196 9,754,136,196
Other comprehensive income – – – 7,847,827 – – 7,847,827
Total comprehensive income – – – 7,847,827 – 9,754,136,196 9,761,984,023
Appropriation of retained earnings (Note 20) – – – – 6,600,000,000 (6,600,000,000) –
Dividend declaration (Note 20) – – – – – (1,211,906,660) (1,211,906,660)
Balance at December 31, 2016 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=186,025,376) P=14,516,762,000 P=10,685,050,546 P=33,505,272,519
For the Year Ended December 31, 2015
Common Stock
(Note 20)
Capital Paid in
Excess of Par
Value
(Note 20)
Treasury Stock
(Note 20)
Remeasurement
Loss on Pension
Liability
(Note 24)
Retained Earnings
Total
Equity
Appropriated
(Note 20)
Unappropriated
(Note 20)
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 – – – – – 4,387,225,875 4,387,225,875
Other comprehensive income – – – (61,904,911) – – (61,904,911)
Total comprehensive income – – – (61,904,911) – 4,387,225,875 4,325,320,964
Appropriation of retained earnings (Note 20) – – – – 1,000,000,000 (1,000,000,000) –
Dividend declaration (Note 20) – – – – – (908,929,995) (908,929,995)
Balance at December 31, 2015 P=613,236,550 P=8,405,568,120 (P=529,319,321) (P=193,873,203) P=7,916,762,000 P=8,742,821,010 P=24,955,195,156
*SGVFS022041*
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For the Year Ended December 31, 2014
Common Stock
(Note 20)
Capital Paid in
Excess of Par
Value
(Note 20)
Treasury Stock
(Note 20)
Remeasurement
Gain (Loss) on
Pension Liability
(Note 24)
Retained Earnings
Total
Equity
Appropriated
(Note 20)
Unappropriated
(Note 20)
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 – – – – – 853,498,216 853,498,216
Other comprehensive loss – – – 209,681,986 – – 209,681,986
Total comprehensive income – – – 209,681,986 – 853,498,216 1,063,180,202
Appropriation of retained earnings (Note 20) – – – – 3,000,000,000 (3,000,000,000) –
Dividend declaration (Note 20) – – – – – (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
*SGVFS022041*
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2016 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P=9,716,164,709 P=3,528,795,289 P=878,635,984
Adjustments for:
Depreciation and amortization (Note 13) 5,998,695,417 5,111,543,724 4,281,525,018
Unrealized foreign exchange losses - net 1,672,077,988 1,709,750,714 164,383,293
Hedging losses (gains) - net (Note 9) (1,587,708,081) 2,931,215,906 2,314,241,984
Interest expense (Note 18) 1,170,181,141 1,073,109,693 1,013,241,353
Provision for asset retirement obligation (Note 19) 1,121,100,139 863,960,835 476,017,529
Loss on sale of aircraft (Note 13) 962,608,741 80,267,191 –
Equity in net income of joint ventures (Note 14) (178,308,842) (35,418,498) (96,326,091)
Interest income (Note 8) (113,672,171) (83,006,926) (79,927,272)
Loss on disposal of property and equipment (Note 13) 54,239,864 9,122,533 27,734,209
Operating income before working capital changes 18,815,378,905 15,189,340,461 8,979,526,007
Decrease (increase) in:
Receivables (342,022,523) 143,435,357 405,357,069
Financial assets at fair value through profit or
loss (derivatives) – – 112,774,809
Expendable parts, fuel, materials and supplies (270,938,944) (239,802,973) 31,860,790
Other current assets 1,257,913,940 (430,603,370) (729,957,322)
Increase (decrease) in:
Accounts payable and other accrued liabilities 1,163,682,731 932,068,099 325,208,227
Unearned transportation revenue 1,169,998,030 598,009,959 873,405,279
Pension liability 22,288,601 116,841,632 157,005,125
Amounts of due to related parties (426,249) (1,793,699) (4,743,714)
Other noncurrent liabilities (10,320,610) (108,048,329) (1,609,080,414)
Financial liabilities at fair value through profit or
loss (derivatives) (1,297,560,962) (2,748,280,664) –
Net cash generated from operations 20,507,992,919 13,451,166,473 8,541,355,856
Interest paid (1,184,693,893) (1,078,011,092) (1,004,857,514)
Income tax paid (Note 31) (112,546,224) (60,766,659) (45,043,718)
Interest received 111,505,087 82,638,335 83,919,430
Net cash provided by operating activities 19,322,257,889 12,395,027,057 7,575,374,054
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property and equipment (Notes 13 and 31) (19,126,054,236) (13,047,934,091) (13,316,719,856)
Subsidiary (Notes 7 and 31) – – (488,559,147)
Proceeds from sale of property and equipment 2,235,195,623 1,012,448,386 338,060
Investment in shares of stocks in joint ventures and an associate (225,118,923) – –
Dividends received from a joint venture (Note 14) 61,625,190 101,133,997 83,811,058
Decrease (increase) in other noncurrent assets (5,531,937) 129,307,803 115,781,781
Net cash used in investing activities (17,059,884,283) (11,805,043,905) (13,605,348,104)
(Forward)
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*SGVFS022041*
Years Ended December 31
2016 2015 2014
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt:
Availments (Notes 18 and 31) P=9,534,981,637 P=6,466,895,200 P=8,478,040,015
Payments of long-term debt (Note 18) (5,256,889,910) (5,518,293,249) (4,176,677,721)
Dividends paid (1,211,906,660) (908,929,995) (605,953,330)
Net cash provided by financing activities 3,066,185,067 39,671,956 3,695,408,964
EFFECTS OF EXCHANGE RATE CHANGES
IN CASH AND CASH EQUIVALENTS 261,593,568 112,522,272 (14,356,033)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,590,152,241 742,177,380 (2,348,921,119)
CASH AND CASH EQUIVALENTS ATTRIBUTABLE TO
BUSINESS COMBINATION (Notes 7 and 31) – – 256,721,999
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,706,090,063 3,963,912,683 6,056,111,803
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 8) P=10,296,242,304 P=4,706,090,063 P=3,963,912,683
See accompanying Notes to Consolidated Financial Statements.
*SGVFS022041*
CEBU AIR, INC. AND SUBSIDIARIES
NOTES TO 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.
The Parent Company has twelve special purpose entities (SPE) that it controls, namely: Cebu
Aircraft 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), Summit A Aircraft
Leasing Limited (SAALL), Summit B Aircraft Leasing Limited (SBALL) and Summit C Aircraft
Leasing Limited (SCALL). 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, SAALL, SBALL and SCALL acquired the
passenger aircraft for lease to the Parent Company under finance lease arrangements (Notes 13
and 30) and funded the acquisitions through long-term debt (Note 18).
On March 20, 2014, the Parent Company acquired 100% ownership of CEBGO, Inc. (CEBGO)
(Note 7). The Parent Company, its twelve (12) SPEs and CEBGO (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) which extends for a period of four (4) to
six (6) years for each batch of aircraft registered to BOI (Notes 25 and 32).
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*SGVFS022041*
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 Regulations (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 (BIR) 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 domestic and international air transportation services for
passengers and cargos at the Diosdado Macapagal International Airport.
2. Basis of Preparation
The consolidated financial statements of the Group have been prepared on a historical cost basis,
except for financial assets and financial liabilities at fair value through profit or loss (FVPL) that
have been measured at fair value.
The consolidated financial statements of the Group are presented in Philippine Peso (P= or Peso),
the Parent Company’s functional and presentation currency. All amounts are rounded to the
nearest Peso, unless otherwise indicated.
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*SGVFS022041*
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRSs).
Basis of Consolidation
The consolidated financial statements as of December 31, 2016 and 2015 represent the
consolidated financial statements of the Parent Company, the SPEs that it controls and its wholly
owned subsidiary CEBGO. Consolidation of CEBGO started on March 20, 2014 when the Group
gained control (Note 7).
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
subsidiary acquired or disposed of during the year are included in the consolidated financial
statements 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 reporting 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.
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
related assets (including goodwill), liabilities, non-controlling interest and other components of
equity, while any resulting gain or loss is recognized in profit or loss. Any investment retained is
recognized at fair value.
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*SGVFS022041*
3. Changes in Accounting Policies and Disclosures
The Group applied for the first time certain pronouncements which are effective beginning on or
after January 1, 2016. Except as otherwise indicated, the adoption of these pronouncements did
not have any significant impact on the Group’s financial position or performance.
Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12, Disclosure of
Interests in Other Entities, and Philippine Accounting Standard (PAS) 28, Investments in
Associates and Joint Ventures, Investment Entities: Applying the Consolidation Exception
These amendments clarify that the exemption in PFRS 10 from presenting consolidated
financial statements applies to a parent entity that is a subsidiary of an investment entity that
measures all of its subsidiaries at fair value. These amendments also clarify that only a
subsidiary of an investment entity that is not an investment entity itself and that provides
support services to the investment entity parent is consolidated. These amendments also allow
an investor (that is not an investment entity and has an investment entity associate or joint
venture) to retain the fair value measurement applied by the investment entity associate or
joint venture to its interests in subsidiaries when applying the equity method.
Amendments to PFRS 11, Joint Arrangements, Accounting for Acquisitions of Interests in
Joint Operations
The amendments to PFRS 11 require a joint operator that is accounting for the acquisition of
an interest in a joint operation, in which the activity of the joint operation constitutes a
business (as defined by PFRS 3), to apply the relevant PFRS 3 principles for business
combinations accounting. These 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 these amendments do not apply when the parties sharing joint control,
including the reporting entity, are under common control of the same ultimate controlling
party.
These 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.
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 PFRSs. 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 profit
or loss and OCI. 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.
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*SGVFS022041*
Amendments to PAS 1, Presentation of Financial Statements, Disclosure Initiative
The amendments are intended to assist entities in applying judgment when meeting the
presentation and disclosure requirements in PFRSs. These amendments clarify the following:
That entities shall not reduce the understandability of their financial statements by either
obscuring material information with immaterial information; or aggregating material items
that have different natures or functions;
That specific line items in the profit or loss and OCI and the statement of financial
position may be disaggregated;
That entities have flexibility as to the order in which they present the notes to financial
statements; and
That the share of OCI of associates and joint ventures accounted for using the equity
method must be presented in aggregate as a single line item, and classified between those
items that will or will not be subsequently reclassified to profit or loss.
Amendments to PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets,
Clarification of Acceptable Methods of Depreciation and Amortization
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.
Amendments to PAS 16 and PAS 41, Agriculture: Bearer Plants
The amendments change the accounting requirements for biological assets that meet the
definition of bearer plants. Under these 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). These
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.
Amendments to PAS 27, Separate Financial Statements, Equity Method in Separate Financial
Statements
The amendments allow entities to use the equity method to account for investments in
subsidiaries, joint ventures and associates in their separate financial statements. An entity
already applying PFRSs and electing to change to the equity method in its separate financial
statements will have to apply that change retrospectively.
Annual Improvements to PFRSs 2012 - 2014 Cycle
Amendment to PFRS 5, Noncurrent 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. This
amendment also clarifies that changing the disposal method does not change the date of
classification.
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*SGVFS022041*
Amendment to 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
for continuing involvement in PFRS 7 to determine whether the disclosures are required.
This 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 this amendment.
Amendment to 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.
Amendment to PAS 19, Employee Benefits, Discount Rate: Regional Market Issue
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. .
Amendment to PAS 34, Interim Financial Reporting, Disclosure of Information
‘Elsewhere in the Interim Financial Report’
The amendment is applied retrospectively and clarifies that the required interim
disclosures must either be in the interim financial statements or incorporated by cross-
reference between the interim financial statements and wherever they are included within
the greater interim financial report (e.g., in the management commentary or risk report).
4. Summary of Significant Accounting Policies
Current versus Noncurrent Classification
The Group presents assets and liabilities in the consolidated statement of financial position based
on current or noncurrent classification.
An asset is current when it is:
a. Expected to be realized or intended to be sold or consumed in normal operating cycle;
b. Held primarily for the purpose of trading;
c. Expected to be realized within twelve months after the reporting period; or
d. Cash or cash equivalent, unless restricted from being exchanged or used to settle a liability for
at least twelve months after the reporting period.
All other assets are classified as noncurrent.
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A liability is current when:
a. It is expected to be settled in normal operating cycle;
b. It is held primarily for the purpose of trading;
c. It is due to be settled within twelve months after the reporting period; or
d. There is no unconditional right to defer the settlement of the liability for at least twelve
months after the reporting period.
The Group classifies all other liabilities as noncurrent.
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 investments 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.
Financial Instruments - Initial Recognition and Subsequent Measurement
Classification of financial instruments
Financial instruments within the scope of PAS 39 are classified as:
a. Financial assets and financial liabilities at FVPL;
b. Loans and receivables;
c. Held-to-maturity investments;
d. Available-for-sale financial assets; and
e. Other financial liabilities.
The classification depends on the purpose for which the investments were acquired and whether
they are quoted in an active market. The Group determines the classification of its financial
instruments at initial recognition and, where allowed and appropriate, re-evaluates at every
reporting period. The financial instruments of the Group as of December 31, 2016 and 2015
consists of loans and receivables, financial assets and liabilities at FVPL and other financial
liabilities.
Date of recognition of financial instruments
Financial instruments are recognized in the consolidated statement of financial position when the
Group becomes a party to the contractual provision of the instrument. 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 the trade date basis.
In case where fair value is determined using data which is not observable, the difference between
the transaction price and 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 difference amount.
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Fair Value Measurement
The Group measures derivatives at fair value at each reporting period. Also, for assets and
liabilities which are not measured at fair value in the consolidated statement of financial position
but for which the fair value is disclosed, are included in Note 29.
The fair value is the price that would be received to sell an asset in an ordinary transaction
between market participants at the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Group. The fair value of
an asset or liability is measured using the assumptions that market participants would use when
pricing the asset or liability assuming that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the
measurement is directly or indirectly observable.
Level 3: Valuation techniques for the lowest level input that is significant to the fair value
measurement is unobservable.
For assets and liabilities that are recognized in the consolidated financial statements at fair value
on a recurring basis, the Group determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
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.
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Financial assets and financial liabilities at FVPL are subsequently measured at fair value.
Changes in fair value of such assets or liabilities are accounted for in profit or loss. The Group
uses commodity swaps and foreign currency forwards to hedge its exposure to fuel price
fluctuations and foreign currency fluctuations, respectively. Such are accounted for as non-hedge
derivatives.
An embedded derivative is separated from the host contract and accounted for as a derivative if all
of the following conditions are met:
The economic characteristics and risks of the embedded derivative are not closely related to
the economic characteristics of the host contract;
A separate instrument with the same terms as the embedded derivative would meet the
definition of a derivative; and
The hybrid or combined instrument is not recognized at FVPL.
The Group assess whether an embedded derivative is required to be separated from the host
contract when the Group first becomes a party to the contract. Reassessment of embedded
derivatives is only done when there are changes in the contract that significantly modifies the
contractual cash flows.
The Group’s financial assets and liabilities at FVPL consist of derivative assets and derivative
liabilities as of December 31, 2016 and 2015, respectively.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments and
fixed maturities that are not quoted in an active market. Loans and receivables are recognized
initially at fair value, plus transaction costs that are attributable to the acquisition of loans and
receivables.
After initial measurement, loans and receivables are subsequently carried at amortized cost using
the effective interest rate (EIR) method, less allowance for impairment credit losses. Amortized
cost is calculated by taking into account any discount or premium on the acquisition, and fees or
costs that are an integral part of the EIR and transaction costs. Gains and losses are recognized in
profit or loss, when loans and receivables are derecognized or impaired, as well as through the
amortization process.
This accounting policy applies primarily to the Group’s cash and cash equivalents (excluding cash
on hand), receivables and certain refundable deposits.
Other financial liabilities
This category pertains to financial liabilities that are not held for trading or not designated as at
FVPL upon the inception of the liability. These include liabilities arising from operations and
borrowings.
Other financial liabilities are initially recognized at the fair value of the consideration received,
less directly attributable transaction costs.
After initial measurement, other financial liabilities are measured at amortized cost using the EIR
method. Amortized cost is calculated by taking into account any discount or premium on the
acquisition and fees or costs that are an integral part of the EIR.
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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.
Offsetting of Financial Instruments
Financial assets and liabilities are offset and the net amount is reported in the consolidated
statement of financial position 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. The Group assesses that it has a currently enforceable right to
offset if the right is not contingent on a future event, and is legally enforceable in the normal
course of business, event of default, and event of insolvency or bankruptcy of the Group and all of
the counterparties.
Derecognition of Financial Instruments
Financial assets
A financial asset (or, when applicable, a part of a financial asset or part of a group of financial
assets) is derecognized (that is, removed from the Group’s consolidated statement of financial
position) when:
The rights to receive cash flows from the asset have expired;
The Group has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through’ arrangements; and either:
The Group has transferred substantially all the risks and rewards of the asset; or
The Group has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards
of ownership. When it has neither transferred nor retained substantially all of the risks and
rewards of the asset, nor transferred control of the asset, the Group continues to recognize the
transferred asset to the extent of its continuing involvement. In that case, the Group also
recognizes an associated liability. The transferred asset and the associated liability are measured
on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured
at the lowest level of the original carrying amount of the asset and the maximum amount of
consideration the Group could be required pay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or expires. 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.
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. An impairment exists if one or more events that has
occurred since the initial recognition of the asset (an incurred ‘loss event’), has an impact on the
estimated future cash flows of the financial asset or the group of financial assets that can be
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reliably estimated. Evidence of impairment may include indications that the debtors or a group of
debtors 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 observable data indicating that there is a measurable decrease in the estimated
future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
For financial assets carried at amortized cost, the Group first assesses whether impairment exists
individually for financial assets that are individually significant, or collectively for financial assets
that are not individually significant. If the Group determines that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, it
includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them 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 a collective
assessment of impairment.
The amount of any impairment loss identified is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows that is discounted at the
asset’s original EIR.
The carrying amount of the asset is reduced through the use of an allowance account and the loss
is recognized in the profit or loss. Receivables, together with the associated allowance are written
off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of
the estimated impairment loss increases or decreases because of an event occurring after the
impairment is recognized, the previously recognized impairment loss is increased or reduced by
adjusting the allowance account. If a write-off is later recovered, the recovery is credited in profit
or loss.
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.
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.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization and
accumulated 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.
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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 airframe and engine 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
expenses are charged to profit or loss 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 follow:
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.
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 asset) is recognized in profit or loss, when the asset is derecognized.
The methods of depreciation and amortization, EUL and residual values of property and
equipment are reviewed annually and adjusted prospectively.
Fully depreciated property and equipment are returned in the account until they are no longer in
use and no further depreciation or amortization is charged to profit or loss in the consolidated
statement of comprehensive income.
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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 years ended December 31, 2016 and
2015 as all borrowing costs from outstanding long-term debt relate to assets that are ready for
intended use.
Business Combination and Goodwill
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 under ‘General and administrative’ account in the
consolidated statement of comprehensive income.
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.
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 PFRS. 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 reassesses
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.
After initial recognition, goodwill is measured at cost, less any accumulated impairment losses.
Investments in Joint Ventures and an Associate
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. An associate is an
entity in which the Parent Company has significant influence and which is neither a subsidiary nor
a joint venture.
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The Parent Company’s 60.00%, 49.00% and 35.00% investments in Philippine Academy for
Aviation Training, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIA
Engineering (Philippines) Corporation (SIAEP), respectively, are classified as investments in joint
ventures. The Parent Company’s 15.00% investment in Air Block Box Asia Pacific Pte. Ltd.
(ABB) is classified as an investment in associate. These investments in JV and an associate are
accounted for under the equity method. Under the equity method, the investments in JV and an
associate 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 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 ht same date with the Group. The investee companies’
accounting policies conform to those by the Group for like transactions and events in similar
circumstances.
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.
Following initial recognition, intangible assets are carried at cost, less any accumulated
impairment loss.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually, either individually or at the cash-generating unit (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
profit or loss when the asset is derecognized.
The intangible asset of the Group has indefinite useful lives.
Impairment of Nonfinancial Assets
The Group assess, at each reporting date, whether there is an indication that an asset may be
impaired. If any indication exists, or when annual impairment testing for an asset is required, the
Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of
the asset’s or CGU’s fair value less costs of disposal (FVLCD) and its value-in-use (VIU). The
recoverable amount 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. When the
carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
In determining FVLCD, recent market transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used. These calculations are corroborated by
valuation multiples, quoted share prices for publicly traded companies or other available fair value
indicates. In assuming VIU, 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.
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The Group bases its impairment calculation on detailed budgets and forecast calculations, which
are prepared separately for each of the Group’s CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally cover a period of five years. A long-term
growth rate is calculated and applied to project future cash flows after the fifth year.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether
there is an indication that previously recognized impairment losses no longer exist or have
decreased. If such indication exist, the Group estimate the asset’s or CGU’s recoverable amount.
A previously recognized impairment loss is reversed only if there has been a change in the
assumptions used to determine that asset’s recoverable amount since the last impairment loss was
recognized. The reversal is limited so that the carrying amount of the asset that does not exceed
its recoverable amount, nor 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.
Goodwill is tested for impairment annually as at December 31 and when circumstances indicate
that the carrying value is impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or
group of CGU) to which the goodwill relates. When the recoverable amount of the CGU is less
than its carrying amount, an impairment loss is recognized. Impairment loss relating to goodwill
cannot be reversed in future periods.
Intangible assets with indefinite useful lives are tested for impairment annually as at December 31
at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be
impaired.
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 contracts under TMB and
PBH, the Group recognizes expenses on an accrual basis.
Asset Retirement Obligation (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.
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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 under
‘Advances to supplier’ account in the consolidated statement of financial position. 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.
Liability Under Lifestyle Rewards Program
The Group operates a lifestyle rewards program called ‘Getgo.’ A portion of passenger revenue
attributable to the award of Getgo points, which is estimated based on expected utilization of these
benefits, is deferred until utilized. The fair value of the consideration received in respect of the
initial sale is allocated to the award credits based on its fair value. The fair value of the points
expected to be redeemed is estimated using the applicable fare based on the estimated redemption.
The deferred revenue is included under ‘Other noncurrent liabilities’ in the consolidated statement
of financial position. Any remaining unutilized benefits are recognized as revenue upon
redemption or expiry.
Common Stock
Common stocks are classified as equity and recorded at par. Proceeds in excess of par value are
recorded under ‘Capital paid in excess of par value’ account in the consolidated statement of
financial position. Incremental costs directly attributable to the issuance of new shares are shown
in equity as a deduction from the proceeds.
Treasury Stock
Own equity instruments which are acquired (treasury stocks) are recognized at cost and deducted
from equity. No gain or loss is recognized in profit and loss on the purchase, sale, issuance or
cancellation of the Parent Company’s own equity instruments.
Retained Earnings
Retained earnings represent accumulated earnings of the Group, less dividends declared.
Appropriated retained earnings are set aside for purposes of the Parent Company’s re-fleeting
program. Dividends on common shares are recognized as a liability and deducted from equity
when approved and declared by the Parent Company’s Board of Directors (BOD), in the case of
cash dividends; or by the Parent Company’s BOD and shareholders, in the case of stock dividends.
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, excluding portion relating to awards under Lifestyle
Rewards Program, are initially recorded under ‘Unearned transportation revenue’ account in the
consolidated statement of financial position until earned and recognized under ‘Revenue’ account
in the consolidated statement of comprehensive income when carriage is provided or when the
passenger is lifted.
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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 in banks, short-term cash placements and debt securities classified as financial
assets at FVPL is recognized as the interest accrues using the EIR method.
Expense Recognition
Expenses are recognized when it is probable that decrease in future economic benefits 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.
The commission related to the sale of air transportation services is recognized as outright expense
upon receipt of the payment from customers, and is included under ‘Reservation and sales’
account in the consolidated statement of comprehensive income.
Foreign Currency Transactions
Transactions in foreign currencies are initially recorded in the Parent Company and subsidiaries’
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. closing rate prevailing at the reporting date. All
differences are taken to the profit or loss. 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.
Pension Costs
The Group maintains defined benefit plans covering substantially all of its employees. The cost of
providing benefits under the defined benefit plans is actuarially determined using the projected
unit credit method. The method reflects services rendered by employees up to the date of
valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial
valuations are conducted with sufficient regularity with the option to accelerate when significant
changes to underlying assumptions occur.
Pension expense comprises the following:
a. Service cost; and
b. Net interest on pension liability.
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 pension liability is the change during the period in the pension liability that arises
from the passage of time, which is determined by applying the discount rate based on high quality
corporate bonds to the pension liability. Net interest on pension liability is recognized as expense
or income in profit or loss.
Remeasurements comprising actuarial gains and losses, excess of actual return on plan assets over
interest income and any change in the effect of the asset ceiling (excluding net interest on pension
liability) are recognized immediately in OCI in the period in which they arise. Remeasurements
are not reclassified to profit or loss in subsequent periods.
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The pension liability is the aggregate of the present value of 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.
Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not
available to the creditors of the Group, nor can they be paid directly to the Group. The 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 tax authority. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted as of the reporting date.
Management periodically evaluates positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretations and establishes provisions, when
appropriate.
Deferred tax
Deferred tax is provided using the liability method on all temporary differences, with certain
exceptions, between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes at the reporting date.
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 over
RCIT 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.
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 future 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.
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*SGVFS022041*
Deferred tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred tax liabilities associated with investments in subsidiaries, branches and
associates, and interests in joint arrangements are not recognized if the Group is able to control the
timing of the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
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 reporting 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 OCI.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to
offset current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same tax 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.
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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.
Provisions and Contingencies
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable (i.e., more likely than not) that an outflow of resources
embodying economic benefits will be required to settle the obligation and a reliable estimate can
be made of the amount of the obligation. 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, when
appropriate, the risks specific to the liability. When 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 in the notes to consolidated financial statements, unless the possibility of an outflow of
resources embodying economic benefits is remote. Contingent assets are not recognized but
disclosed in the notes to 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.
Earnings (Loss) Per Share (EPS)
Basic EPS is computed by dividing net income applicable to common equity holders 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 common equity
holders of the Group by the weighted average number of common shares outstanding during the
year plus the weighted average number of common shares that would be issued on the conversion
of all the dilutive potential common shares into common shares.
For the years ended December 31, 2016 and 2015, the Group 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 and Chief Executive Officer (CEO). The nature of the operating segment is set out in
Note 6.
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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.
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. Passenger revenue recognition
Passenger sales are recognized as revenue when the obligation of the Parent Company to
provide transportation service ceases when the service has been provided to the passengers
according to flight schedule. The amount of passenger ticket for which the related
transportation service has not yet been rendered at the end of the reporting period, is recorded
under ‘Unearned transportation revenue’ account in the consolidated statement of financial
position.
As of December 31, 2016 and 2015, the balances of the Group’s unearned transportation
revenue amounted to P=8,141.8 million and P=6,971.8 million, respectively.
b. 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 the agent’s valuation.
The fair values of the Group’s financial instruments are presented in Note 29.
c. 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.
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 (e.g., no bargain purchase option and
transfer of ownership at the end of the lease term). The Group determined that it has no risks
relating to changing economic conditions since the Group does not own the leased aircraft.
Where the lease agreement does not transfer substantially all the risks and rewards incidental
to ownership, such leases are accounted for as operating leases (Note 30).
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d. Consolidation of SPEs
The Group periodically undertakes transactions that may involve obtaining the rights to
variable returns from its involvement with the SPEs. These transactions include the purchase
of aircraft and assumption of certain liabilities. In all such cases, management makes an
assessment as to whether the Group has: (a) power over the SPEs; (b) the right over the
returns of its SPEs; and (c) the ability to use power over the SPEs to affect the amount of the
Parent Company’s return, and based on these assessments, the SPEs are consolidated as a
subsidiary or associated company. In making these assessments, management considers the
underlying economic substance of the transaction and not only the contractual terms. The
Group has assessed that it will benefit from the economic benefits of the SPEs’ activities and
it will affect the returns for the Group. The Group is directly exposed to the risks and returns
from its involvement with the SPEs. Such rights and risks associated with the benefits and
returns are indicators of control. Accordingly, the SPEs are consolidated.
e. Determination of functional currency
PAS 21 requires management to use its judgment in determining 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:
1. 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);
2. The currency in which funds from financing activities are generated; and
3. The currency in which receipts from operating activities are usually retained.
Management determined that Philippine peso (P=) is the functional currency for each entity in
the Group, after considering the criteria stated in PAS 21.
f. 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 will have a material adverse effect on
the Group’s financial position and financial performance. It is possible, however, that future
financial performance could be materially affected by changes in the estimates or in the
effectiveness of the strategies relating to these proceedings (Note 30).
g. Allocation of revenue, costs and expenses for registered and non-registered activities
Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost
and expenses such as passenger revenue, cargo revenue, baggage revenue, 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.
h. Classification of joint arrangements
The Group’s investments in JVs (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
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the agreement for the relevant activities identified. The Group and the parties to the
agreement only have rights to the net assets of the JV through the terms of the contractual
arrangements.
i. Assessment of intangible assets with indefinite useful lives
The Group has intangible assets representing costs to establish brand and market opportunities
under the strategic alliance with CEBGO (Note 7). Management assessed that these assets
have indefinite useful lives because there is no foreseeable limit to the period over which these
assets are expected to generate net cash inflows to the Group.
Estimates and Assumptions
The key assumptions concerning the future and other sources of estimation uncertainty at the
reporting 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 Asset Retirement Obligation (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
December 31, 2016 and 2015, the cost of restoration is computed based on the Group’s
assessment on expected future aircraft utilization.
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 December 31, 2016 and 2015, the Group’s ARO liability (included under ‘Other
noncurrent liabilities’ account in the consolidated statement of financial position) has a
carrying value of P=2,465.7 million and P=1,344.6 million, respectively (Note 19). The related
repairs and maintenance expense for the years ended December 31, 2016, 2015 and 2014
amounted to P=1,121.1 million, P=864.0 million and P=476.0 million, respectively (Notes 19
and 22).
b. Impairment of goodwill and intangible assets
The Group determines whether goodwill and intangibles with indefinite useful lives are
impaired at least on an annual basis. The impairment testing is performed annually as at
December 31 and when circumstances indicate that the carrying amount is impaired. The
impairment testing also requires an estimation of the recoverable amounts, which is the
FVLCD or VIU of the CGU whichever is higher, to which the goodwill and intangibles with
indefinite useful lives are located.
In determining the recoverable amount of these assets, the management estimates the VIU of
the CGU to which goodwill and intangible assets are allocated. Estimating the VIU requires
management to make an estimate of 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.
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As of December 31, 2016 and 2015, the Group has determined that goodwill and intangibles with
indefinite useful lives are recoverable based on VIU. Goodwill amounted to
P=566.8 million as of December 31, 2016 and 2015 (Notes 7 and 15). Brand and market opportunities,
which are recorded under ‘Other noncurrent assets’ account amounted to
P=852.2 million as of December 31, 2016 and 2015 (Note 7 and 16).
c. Estimation of useful lives 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 reviews annually the EULs
and 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 of property and
equipment would increase the recorded depreciation and amortization expense and decrease
noncurrent assets.
As of December 31, 2016 and 2015, the carrying values of the Group’s property and
equipment amounted to P=81,890.3 million and P=72,075.8 million, respectively (Note 13).
The Group’s depreciation and amortization expense amounted to P=5,998.7 million,
P=5,111.5 million and P=4,281.5 million for the years ended December 31, 2016, 2015 and
2014, respectively (Note 13).
d. Estimation of allowance for credit losses on receivables
The Group maintains allowance for credit 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 collectability 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.
The balances of receivables and allowance for credit losses as of December 31, 2016 and 2015
are disclosed in Note 10.
e. 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
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.
The related balances as of December 31, 2016 and 2015 are discussed in Note 11.
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f. Estimation of liability under the Lifestyle Rewards Program
A portion of passenger revenue attributable to the award of lifestyle reward program points,
estimated based on expected utilization on these benefits, is deferred until utilized. The points
expected to be redeemed are measured at fair value which is estimated using the Peso value of
the points. Deferred revenue included as part of ‘Other noncurrent liabilities’ account
amounted to P=377.0 million and P=92.5 million as of December 31, 2016 and 2015,
respectively (Note 19). The rewards program started in 2015. Any remaining unredeemed
points are recognized as revenue upon expiration.
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 amounted to P=568.8 million and P=546.5 million as of
December 31, 2016 and 2015, respectively (Note 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 period
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 December 31, 2016 and 2015, the Group had certain gross deductible and taxable
temporary differences which are expected to expire or reverse within the Income Tax Holiday
(ITH) period, and for which deferred tax assets and deferred tax liabilities were not set up on
account of the Group’s ITH.
As of December 31, 2016 and 2015, the Group has deferred tax assets amounting to
P=4,015.7 million and P=3,574.4 million, respectively. Unrecognized deferred tax assets as of
December 31, 2016 and 2015 amounted to nil and P=1,033.8 million, respectively
(Note 25).
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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 the
financial information for reporting to the CODM, who is responsible for allocating resources,
assessing performance and making operating decisions. The CODM is the President and CEO of
the Parent Company.
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 PFRSs.
Segment information for the reportable segment is shown in the following table:
2016 2015 2014
Revenue P=63,778,967,986 P=56,620,079,940 P=52,176,271,673
Earnings before interest, taxes,
depreciation, amortization, and
rent (EBITDAR) 23,624,718,036 19,700,325,097 12,418,364,058
Depreciation and amortization 5,998,695,417 5,111,543,724 4,281,525,018
Interest expense 1,170,181,141 1,073,109,693 1,013,241,353
Interest income 113,672,171 83,006,926 79,927,272
Earnings before interest and taxes
(EBIT) 12,251,198,186 9,700,220,806 4,157,336,990
Pre-tax core net income 11,372,998,058 8,745,536,537 3,320,349,000
Net income 9,754,136,196 4,387,225,875 853,498,216
Capital expenditures 19,126,054,236 13,047,934,091 13,316,719,856
Hedging gains (losses) – net 1,587,708,081 (2,931,215,906) (2,314,241,984)
Share in net income of JV 178,308,842 35,418,498 96,326,091
Income tax expense (benefit) (37,971,487) (858,430,586) 25,137,768
Pre-tax core net income and EBITDAR are considered as non-PFRS measures.
Pre-tax core net income is the operating income after deducting net interest expense and adding
equity income/loss of joint venture.
EBITDAR is the operating income after adding depreciation and amortization, provision for ARO
and aircraft and engine lease expenses.
Capital expenditure is the total paid acquisition of property and equipment for the period.
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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:
2016 2015 2014
Total segment revenue of reportable
operating segment P=61,899,278,892 P=56,501,654,516 P=52,000,018,310
Nontransport revenue and
other income 1,879,689,094 118,425,424 176,253,363
Total revenue P=63,778,967,986 P=56,620,079,940 P=52,176,271,673
Nontransport revenue and other income include interest income, share in net income of JV and
fuel hedging gains.
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:
2016 2015 2014
Total segment income of
reportable segment P=12,251,198,186 P=9,700,220,806 P=4,157,336,990
Add (deduct) unallocated items:
Nontransport revenue and
other income 1,879,689,094 118,425,424 176,253,363
Nontransport expenses and
other charges (4,414,722,571) (6,289,850,941) (3,454,954,369)
Benefit from (provision for)
income tax 37,971,487 858,430,586 (25,137,768)
Net income 9,754,136,196 4,387,225,875 853,498,216
Other comprehensive gain (loss), net
of tax 7,847,827 (61,904,911) 209,681,986
Total comprehensive income P=9,761,984,023 P=4,325,320,964 P=1,063,180,202
The Group’s major revenue-producing assets are the aircraft owned by the Group, which are
employed across its route network (Note 13).
The Group has no significant customer which contributes 10.00% or more to the revenues of the
Group.
7. Business Combination
On February 10, 2014, the Parent Company signed a Sale and Purchase Agreement (SPA) to
acquire 100% shares of CEBGO, as part of the strategic alliance between the Parent Company and
Tiger Airways Holding Limited (TAH). Under the terms of the SPA, the 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 have 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 CEBGO on the same date. The total consideration for the
transaction, at post-closing settlement date, amounted to P=265.1 million.
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The fair values of the identifiable assets and liabilities of CEBGO at the date of acquisition follow:
Amount
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
The goodwill arising from this business combination amounted to P=566.8 million (Note 15). The
Parent Company also identified intangible assets representing costs to establish brand and market
opportunities under the strategic alliance with TAH (Note 16). The related deferred tax liability
on this business combination amounted to P=185.6 million (Note 25). The total purchase price after
closing settlement date amounted to P=488.6 million.
8. Cash and Cash Equivalents
This account consists of:
2016 2015
Cash on hand P=32,366,174 P=30,790,719
Cash in banks 2,582,114,836 1,078,023,124
Short-term placements 7,681,761,294 3,597,276,220
P=10,296,242,304 P=4,706,090,063
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 Peso earn an average
annual interest of 2.35%, 2.35% and 3.07% in 2016, 2015 and 2014, respectively. Moreover,
short-term placements in US dollar (USD) earn interest on an average annual interest rate of
1.31%, 0.77% and 0.92% in 2016, 2015 and 2014, respectively.
Interest income earned on cash in banks and short-term placements, presented in the consolidated
statements of comprehensive income, amounted to P=113.7 million, P=83.0 million and
P=79.9 million in 2016, 2015 and 2014, respectively.
9. Investment and Trading Securities
This account consists of derivative financial assets and liabilities in 2016 and 2015 that are not
designated as accounting hedges. Derivative assets amounted to P=441.8 million as of
December 31, 2016 and derivative liabilities amounted to P=2,443.5 million as of December 31,
2015.
As of December 31, 2016 and 2015, this account consists of commodity swaps.
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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 December 31, 2016 and
2015, 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, 2018.
As of December 31, 2016 and 2015, the Group recognized net changes in fair value of derivatives
amounting to P=1,581.0 million gain and P=2,945.8 million loss, respectively. These are recognized
in ‘Hedging gains (losses) - net’ account under the consolidated statements of comprehensive
income.
Foreign Currency Forwards
In 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 2015, the Group pre-terminated all
foreign currency derivative contracts, where the Group recognized realized gain of P=14.6 million.
For the year ended December 31, 2015, such realized gain is recognized in ‘Hedging gains (losses)
- net’ account under the consolidated statements of comprehensive income. In 2016, the Parent
Company entered into foreign currency forward contracts which were pre-terminated in the same
year, where the Parent Company recognized realized gain of P=6.7 million.
Fair value changes on derivatives
The changes in fair value of all derivative financial instruments not designated as accounting
hedges follow:
2016 2015
Balance at beginning of year
Derivative assets P=– P=–
Derivative liabilities 2,443,495,138 2,260,559,896
(2,443,495,138) (2,260,559,896)
Net changes in fair value of derivatives 1,587,708,081 (2,931,215,906)
(855,787,057) (5,191,775,802)
Fair value of settled instruments 1,297,560,962 2,748,280,664
Balance at end of year P=441,773,905 (P=2,443,495,138)
Attributable to:
Derivative assets P=758,876,862 P=–
Derivative liabilities P=317,102,957 P=2,443,495,138
The net changes in fair value of derivatives is inclusive of the realized gains on foreign currency
forwards amounting to P=6.7 million, P=14.6 million and P=109.8 million in 2016, 2015 and 2014,
respectively.
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10. Receivables
This account consists of:
2016 2015
Trade receivables P=1,667,078,389 P=1,398,342,106
Due from related parties 124,270,740 125,623,460
Interest receivable 3,544,120 1,377,036
Others 663,230,536 528,512,366
2,458,123,785 2,053,854,968
Less allowance for credit losses 331,329,923 316,410,084
P=2,126,793,862 P=1,737,444,884
Trade receivables are noninterest-bearing and generally have 30 to 90 days terms.
Interest receivable pertains to accrual of interest income from short-term placements.
Others include receivable from insurance, employees, fuel hedge counterparties.
The changes in the allowance for credit losses on receivables follow:
2016
Trade
Receivables Others Total
Balance at beginning of year P=8,438,558 P=307,971,526 P=316,410,084
Unrealized foreign exchange gain on
allowance for credit losses 72,636 14,847,203 14,919,839
Balance at end of year P=8,511,194 P=322,818,729 P=331,329,923
2015
Trade
Receivables Others Total
Balance at beginning of year P=8,372,701 P=298,458,862 P=306,831,563
Unrealized foreign exchange gain on
allowance for credit losses 65,857 9,512,664 9,578,521
Balance at end of year P=8,438,558 P=307,971,526 P=316,410,084
11. Expendable Parts, Fuel, Materials and Supplies
This account consists of:
2016 2015
At NRV:
Expendable parts P=823,992,795 P=670,424,438
At cost:
Fuel 299,341,207 171,346,803
Materials and supplies 66,722,985 77,346,802
366,064,192 248,693,605
P=1,190,056,987 P=919,118,043
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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 years ended December 31, 2016, 2015 and 2014 amounted to
P=419.9 million, P=374.4 million and P=365.2 million, respectively. The cost of fuel reported as
expense under ‘Flying operations’ account amounted to P=15,821.3 million, P=17,659.1 million and
P=23,210.3 million in 2016, 2015 and 2014, respectively (Note 22).
The cost of expendable parts amounted to P=844.5 million and P=690.9 million as of December 31,
2016 and 2015, respectively. The allowance for inventory write down amounted to P=20.5 million
as of December 31, 2016 and 2015. There are no additional provisions for inventory write down
in 2016 and 2015. No expendable parts, fuel, material and supplies are pledged as security for
liabilities.
12. Other Current Assets
This account consists of:
2016 2015
Advances to suppliers P=651,602,385 P=829,605,886
Prepaid rent 343,971,042 324,260,018
Prepaid insurance 7,092,843 45,784,015
Deposit to counterparties 5,516,247 1,124,551,325
Others 88,088,168 75,917,904
P=1,096,270,685 P=2,400,119,148
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
advances arose, whereas, advance payment for restoration costs is recouped when the expenses for
restoration of aircraft have been incurred. These advances are unsecured and noninterest-bearing
(Note 30).
Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces in
airports (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 represents
insurance payments for all employees’ health and medical benefits, commission, casualty and
marine insurance, as well as car/motor insurance.
Deposit to counterparties pertains to collateral deposits provided to counterparties for fuel hedging
transactions.
Others include housing allowance and prepayments to other suppliers.
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13. Property and Equipment
The composition and movements in this account follow:
2016
Passenger
Aircraft
(Notes 18 and 32) Engines Rotables
Ground
Support
Equipment
EDP
Equipment,
Mainframe and
Peripherals
Leasehold
Improvements
Transportation
Equipment Sub-total
Cost
Balance at beginning of year P=70,180,391,031 P=8,800,954,427 P=3,224,302,949 P=515,338,948 P=865,940,227 P=1,030,008,118 P=231,795,064 P=84,848,730,764
Additions 8,093,523,876 1,574,616,146 553,091,249 137,361,635 52,875,536 – 39,686,360 10,451,154,802
Reclassification 4,351,607,461 – – – (1,240,000) 295,997,691 – 4,646,365,152
Disposals/others (6,731,514,648) (905,884,607) (126,834,671) (3,435,189) (43,800,751) – – (7,811,469,866)
Balance at end of year 75,894,007,720 9,469,685,966 3,650,559,527 649,265,394 873,775,012 1,326,005,809 271,481,424 92,134,780,852
Accumulated Depreciation
and Amortization
Balance at beginning of year 18,918,279,072 2,271,191,035 668,272,255 391,633,417 688,136,458 327,657,757 168,712,193 23,433,882,187
Depreciation and amortization 4,197,295,780 1,108,933,677 284,567,783 60,885,023 94,619,501 196,797,075 23,812,004 5,966,910,843
Reclassification – – – – (1,240,000) – – (1,240,000)
Disposals/others (3,919,771,057) (440,884,843) (90,855,604) (3,384,416) (43,768,739) – – (4,498,664,659)
Balance at end of year 19,195,803,795 2,939,239,869 861,984,434 449,134,024 737,747,220 524,454,832 192,524,197 24,900,888,371
Net Book Value P=56,698,203,925 P=6,530,446,097 P=2,788,575,093 P=200,131,370 P=136,027,792 P=801,550,977 P=78,957,227 P=67,233,892,481
2016
Furniture,
Fixtures and
Office
Equipment
Communication
Equipment
Special
Tools
Maintenance
and Test
Equipment
Other
Equipment
Construction
In-progress Total
Cost
Balance at beginning of year P=158,892,556 P=15,023,503 P=14,213,796 P=6,681,631 P=99,147,611 P=10,576,116,375 P=95,718,806,236
Additions 34,976,928 11,303,157 594,216 32,589 6,966,369 8,621,026,175 19,126,054,236
Reclassification – – – – 1,240,000 (4,647,605,152) –
Disposals/others (1,126,698) – – (176,103) (2,467,460) – (7,815,240,127)
Balance at end of year 192,742,786 26,326,660 14,808,012 6,538,117 104,886,520 14,549,537,398 107,029,620,345
(Forward)
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*SGVFS022041*
Furniture,
Fixtures and
Office
Equipment
Communication
Equipment
Special
Tools
Maintenance
and Test
Equipment
Other
Equipment
Construction
In-progress Total
Accumulated Depreciation and Amortization
Balance at beginning of year P=100,290,381 P=10,686,314 P=12,645,419 P=6,590,325 P=78,890,597 P=– P=23,642,985,223
Depreciation and amortization 21,635,398 2,674,955 429,938 57,720 6,986,563 – 5,998,695,417
Reclassification – – – – 1,240,000 – –
Disposals/others (1,151,040) 79,224 – (176,103) (2,451,214) – (4,502,363,792)
Balance at end of year 120,774,739 13,440,493 13,075,357 6,471,942 84,665,946 – 25,139,316,848
Net Book Value P=71,968,047 P=12,886,167 P=1,732,655 P=66,175 P=20,220,574 P=14,549,537,398 P=81,890,303,497
2015
Passenger
Aircraft
(Notes 18 and 32) Engines Rotables
Ground
Support
Equipment
EDP
Equipment,
Mainframe and
Peripherals
Leasehold
Improvements
Transportation
Equipment Sub-total
Cost
Balance at beginning of year P=65,630,899,798 P=6,155,955,141 P=2,662,189,267 P=475,209,294 P=766,702,015 P=963,115,054 P=209,909,946 P=76,863,980,515
Additions 5,981,525,274 2,644,999,286 574,778,528 40,689,115 113,054,208 104,300 23,385,118 9,378,535,829
Reclassification 2,118,681,561 – – – – 66,788,764 – 2,185,470,325
Disposals/others (3,550,715,602) – (12,664,846) (559,461) (13,815,996) – (1,500,000) (3,579,255,905)
Balance at end of year 70,180,391,031 8,800,954,427 3,224,302,949 515,338,948 865,940,227 1,030,008,118 231,795,064 84,848,730,764
Accumulated Depreciation
and Amortization
Balance at beginning of year 16,984,521,548 1,560,099,494 473,914,125 343,494,842 618,926,054 230,738,057 150,300,178 20,361,994,298
Depreciation and amortization 3,916,430,206 711,091,541 205,371,623 48,698,036 83,020,533 96,919,700 19,912,015 5,081,443,654
Reclassification – – (28,506) – – – – (28,506)
Disposals/others (1,982,672,682) – (10,984,987) (559,461) (13,810,129) – (1,500,000) (2,009,527,259)
Balance at end of year 18,918,279,072 2,271,191,035 668,272,255 391,633,417 688,136,458 327,657,757 168,712,193 23,433,882,187
Net Book Value P=51,262,111,959 P=6,529,763,392 P=2,556,030,694 P=123,705,531 P=177,803,769 P=702,350,361 P=63,082,871 P=61,414,848,577
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2015
Furniture,
Fixtures and
Office
Equipment
Communication
Equipment
Special
Tools
Maintenance
and Test
Equipment
Other
Equipment
Construction
In-progress Total
Cost
Balance at beginning of year P=152,616,549 P=12,736,501 P=14,105,321 P=6,681,631 P=90,524,829 P=8,629,008,939 P=85,769,654,285
Additions 7,645,062 2,297,716 108,475 – 8,803,172 4,132,577,761 13,529,968,015
Reclassification – – – – – (2,185,470,325) – Disposals/others (1,369,055) (10,714) – – (180,390) – (3,580,816,064)
Balance at end of year 158,892,556 15,023,503 14,213,796 6,681,631 99,147,611 10,576,116,375 95,718,806,236
Accumulated Depreciation and Amortization
Balance at beginning of year 81,009,265 9,257,432 12,219,370 6,498,213 71,550,339 – 20,542,528,917
Depreciation and amortization 20,650,716 1,411,090 426,049 92,112 7,520,103 – 5,111,543,724
Reclassification (545) 28,506 – – 545 – –
Disposals/others (1,369,055) (10,714) – – (180,390) – (2,011,087,418)
Balance at end of year 100,290,381 10,686,314 12,645,419 6,590,325 78,890,597 – 23,642,985,223
Net Book Value P=58,602,175 P=4,337,189 P=1,568,377 P=91,306 P=20,257,014 P=10,576,116,375 P=72,075,821,013
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*SGVFS022041*
Passenger Aircraft and Engines Held as Securing Assets Under Various Loans
The Group entered into various Export Credit Agency (ECA) and commercial loan facilities to
finance the purchase of its aircraft and engines. As of December 31, 2016, the Group’s passenger
aircraft and engines held as securing assets under various loans are as follows:
ECA Loans Commercial Loans
Airbus A320 10 19 ATR 72-500 7 – Airbus A319 4 – ATR 72-600 ‒ 2 Airbus A330 ‒ 1 Engines ‒ 5
21 27
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 SBALL
or SCALL or by the guarantors, which are CPAHI and JGSHI. CPAHI and JGSHI are guarantors
to loans entered into by CALL, ILL, BLL, SLL and SALL. Failure to pay the obligation will
allow the respective lenders to foreclose the securing assets.
As of December 31, 2016 and 2015, the carrying amounts of the securing assets (included under
the ‘Property and equipment’ account) amounted to P=56.9 billion and P=53.0 billion, respectively.
Forward Sale Agreement
On February 23, 2015, the Group signed a forward sale agreement with Sunrise Asset
Management, a subsidiary of Allegiant Travel Company (collectively known as “Allegiant”),
covering the Group’s sale of six Airbus A319 aircraft. The aircraft are scheduled for delivery on
various dates in 2015 until 2016.
In 2015, the Parent Company delivered the first two out of six Airbus A319 aircraft to Allegiant
and recognized P=80.3 million loss on sale in the 2015 consolidated statements of comprehensive
income.
In 2016, the Parent Company delivered the remaining four out of six airbus A319 aircraft to
Allegiant and recognized P=962.6 million loss on sale in the 2016 consolidated statements of
comprehensive income.
In 2016, the Parent Company signed another forward sale agreement with Allegiant covering the
last remaining four A319 aircraft. The aircraft are scheduled for delivery on various dates in 2017
and 2018.
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*SGVFS022041*
Operating Fleet
As of December 31, 2016 and 2015, the Group’s operating fleet follows:
2016 2015
Owned (Note 18):
Airbus A320 29 26
Airbus A319 4 8
Airbus A330 1 –
ATR 72-500 8 8
ATR 72-600 2 –
Under operating lease (Note 30):
Airbus A320 7 7
Airbus A330 6 6
57 55
Construction in-progress represents the cost of airframe 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 December 31, 2016 and 2015, the Group’s capitalized pre-delivery payments as
construction in-progress amounted to P=14,466.6 million and P=10,418.8 million, respectively
(Note 30).
As of December 31, 2016 and 2015, the gross amount of fully depreciated property and equipment
which are still in use by the Group amounted to P=1,394.3 million and P=1,194.4 million,
respectively.
As of December 31, 2016 and 2015, there are no temporarily idle property and equipment.
14. Investments in Joint Ventures and in an Associate
Investments in Joint Ventures
The Parent Company has numerous investments in joint arrangements that are accounted for as
joint ventures. These represent the 60.00%, 49.00% and 35.00% interests in PAAT, A-plus and
SIAEP, respectively.
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 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 in the
Philippines on January 27, 2012 and started commercial operations in December 2012.
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.
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*SGVFS022041*
A-plus was incorporated in the Philippines 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.
Investment in an Associate
In May 2016, the Parent Company entered into Value Alliance Agreement with other low cost
carriers (LCCs), namely, Scoot Pte. Ltd, Nok Airlines Public Company Limited, CEBGO, and
Vanilla Air Inc. The alliance aims to increase passenger traffic by creating interline partnerships
and parties involved have agreed to create joint sales and support operations to expand services
and products available to passengers. This is achieved through LCCs’ investment in ABB.
In November 2016, the Parent Company acquired shares of stock in ABB amounting to
P=43.7 million. ABB is an entity incorporated in Singapore in 2016 to manage the ABB settlement
system, which facilitates the settlement of sales proceeds between the issuing and carrying
airlines, and of the transaction fee due to ABB. The investment in ABB is accounted under equity
method.
The investment gave the Parent Company a 15% shareholding proportion to ABB which is
classified as an investment in an associate and is accounted for at equity method. However, since
ABB is still non-operational as of December 31 2016, the investment is recognized at cost and is
subject to any remeasurement within the measurement period.
The movements in the carrying values of the Group’s investments in joint ventures in A-plus,
SIAEP, PAAT and ABB follow:
2016
A-plus SIAEP PAAT Total
Cost
Balance at beginning of year P=87,012,572 P=304,763,900 P=134,873,645 P=526,650,117
Investment made during the year ‒ 181,405,000 ‒ 181,405,000
Balance at end of year 87,012,572 486,168,900 134,873,645 708,055,117
Accumulated Equity in
Net Income (Loss)
Balance at beginning of year 120,336,602 (123,621,797) 2,259,065 (1,026,130)
Equity in net income during the year 146,530,942 2,769,782 29,008,118 178,308,842
Dividends declared (123,250,380) ‒ ‒ (123,250,380)
Balance at end of year 143,617,164 (120,852,015) 31,267,183 54,032,332
Net Carrying Value P=230,629,736 P=365,316,885 P=166,140,828 P=762,087,449
2015
A-plus SIAEP PAAT Total
Cost
Balance at beginning of 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 year 104,840,802 (59,053,072) 18,901,639 64,689,369
Equity in net income (loss) during
the year 116,629,797 (64,568,725) (16,642,574) 35,418,498
Dividends declared (101,133,997) – – (101,133,997)
Balance at end of year 120,336,602 (123,621,797) 2,259,065 (1,026,130)
Net Carrying Value P=207,349,174 P=181,142,103 P=137,132,710 P=525,623,987
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*SGVFS022041*
Selected financial information of A-plus, SIAEP and PAAT as of December 31 follow:
2016
A-plus SIAEP PAAT
Total current assets P=795,460,819 P=698,461,242 P=286,174,849
Noncurrent assets 155,159,767 1,664,971,439 804,157,578
Current liabilities (479,947,656) (384,081,485) (78,688,833)
Noncurrent liabilities ‒ (935,588,667) (679,361,939)
Equity 470,672,930 1,043,762,529 332,281,655
Proportion of the Group’s ownership 49% 35% 50%
Carrying amount of the investments P=230,629,736 P=365,316,885 P=166,140,828
2015
A-plus SIAEP PAAT
Total current assets P=650,452,860 P=483,125,816 P=266,000,656
Noncurrent assets 261,601,217 1,569,590,695 757,860,538
Current liabilities (388,851,643) (604,693,999) (30,994,557)
Noncurrent liabilities (100,040,854) (930,473,645) (718,601,218)
Equity 423,161,580 517,548,867 274,265,419
Proportion of the Group’s ownership 49% 35% 50%
Carrying amount of the investments P=207,349,174 P=181,142,103 P=137,132,710
Summary of statements of comprehensive income of A-plus, SIAEP and PAAT for the twelve
month period ended December 31 follow:
2016
A-plus SIAEP PAAT
Revenue P=987,094,549 P=969,132,649 P=305,467,453
Expenses (653,807,786) (937,444,460) (193,942,399)
Other income (expenses) 62,291,042 (18,573,663) (46,126,617)
Income before tax 395,577,805 13,114,526 65,398,437
Income tax expense 96,535,066 5,200,863 7,382,199
Net income P=299,042,739 P=7,913,663 P=58,016,238
Group’s share of profit for the year P=146,530,942 P=2,769,782 P=29,008,119
2015
A-plus SIAEP PAAT
Revenue P=905,813,968 P=387,432,455 P=157,878,689
Expenses (603,475,105) (562,632,105) (149,404,852)
Other income (expenses) 8,283,751 (9,236,769) (40,522,812)
Income (loss) before tax 310,622,614 (184,436,419) (32,048,975)
Income tax expense 72,602,620 45,652 1,236,173
Net income (loss) P=238,019,994 (P=184,482,071) (P=33,285,148)
Group’s share of profit for the year P=116,629,797 (P=64,568,725) (P=16,642,574)
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*SGVFS022041*
2014
A-plus 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 (loss) P=221,590,328 (P=99,273,113) P=44,984,840
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 share of the Parent Company in the net income of A-plus included in the consolidated
retained earnings amounted to P=143.6 million and P=120.3 million as of December 31, 2016 and
2015, respectively, which is not currently available for dividend distribution unless declared by
A-plus.
The share of the Parent Company in the net income of PAAT included in the consolidated retained
earnings amounted to P=31.3 million and P=2.3 million as of December 31, 2016 and 2015,
respectively, which is not currently available for dividend distribution unless declared by PAAT.
As of December 31, 2016 and 2015, SIAEP’s accumulated losses amounted to P=120.9 million and
P=123.6 million, respectively.
15. Goodwill
This account, which has a balance of P=566.8 million as of December 31, 2016 and 2015,
represents the goodwill arising from the acquisition of CEBGO (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 CEBGO, thus, improving CEBGO’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.
Impairment testing of Goodwill and Intangible Assets with Indefinite Useful Lives
For purposes of impairment testing of these assets, CEBGO was considered as the CGU.
In 2016, 2015 and 2014, management assessed that no impairment losses should be recognized for
these intangible assets with indefinite useful lives. These intangible assets pertain to to establish
brand and market opportunities under the strategic alliance with CEBGO (Note 16).
Key assumptions used in the VIU calculation
As of December 31, 2016 and 2015, the recoverable amount of the CGU has been determined
based on a VIU calculation using five-year cash flow projections. Key assumptions in the VIU
calculation of the CGU are most sensitive to the following:
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*SGVFS022041*
Future revenues, profit margins and revenue growth rates: These assumptions are based on the
past performance of CEBGO, market developments and expectations in the industry.
Discount rates: The discount rate used for the computation of the net present value is the
weighted average cost of equity and was determined by reference to comparable entities.
Sensitivity to changes in assumptions
Management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying values of goodwill and intangible assets arising from the acquisition of
CEBGO to materially exceed their recoverable amounts.
16. Other Noncurrent Assets
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
intangible assets representing costs to establish brand and market opportunities under the strategic
alliance with CEBGO amounting to P=852.2 million as of December 31, 2016 and 2015 (Note 7).
Refer to Note 15 for the impairment test of these intangible assets with indefinite useful lives.
17. Accounts Payable and Other Accrued Liabilities
This account consists of:
2016 2015
Accrued expenses P=5,104,775,244 P=5,157,226,549
Accounts payable (Notes 27 and 30) 3,980,459,969 3,773,396,965
Airport and other related fees payable 2,434,975,393 1,709,712,692
Advances from agents and others 676,600,363 594,568,902
Accrued interest payable (Note 18) 187,706,795 202,219,547
Other payables 199,119,178 165,865,051
P=12,583,636,942 P=11,602,989,706
Accrued Expenses
The Group’s accrued expenses include accruals for:
2016 2015
Compensation and benefits P=1,265,980,747 P=1,087,156,297
Maintenance (Note 30) 1,154,037,951 1,244,725,569
Advertising and promotion 674,203,129 617,181,652
Navigational charges 530,636,176 571,133,449
Repairs and services 322,682,258 370,928,260
Landing and take-off fees 282,123,740 332,074,021
Training costs 219,131,480 232,894,451
Ground handling charges 195,330,532 90,081,351
Fuel 176,846,265 191,519,501
Aircraft insurance 59,144,684 65,216,676
(Forward)
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*SGVFS022041*
2016 2015
Rent (Note 30) P=45,019,497 P=67,155,690
Catering supplies 30,789,342 44,222,872
Reservation costs 28,232,840 –
Professional fees 4,679,765 102,348,155
Others 115,936,838 140,588,605
P=5,104,775,244 P=5,157,226,549
Others represent accrual of security, utilities, insurance 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.
Airport and Other Related Fees Payable
Airport and other related fees payable are amounts payable to the Philippine Tourism Authority,
Air Transportation Office, Mactan-Cebu International Airport and Manila International Airport
Authority arising from 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. These also include commitment fees received for the sale and purchase
agreement of four A319 aircraft amounting P=198.9 million (US$4.0 million) and P=188.2 million
(US$4.0 million) as of December 31, 2016 and 2015, respectively. Commitment fees applied for
the delivery of four aircraft in 2016 and two aircraft in 2015 amounted to P=194.0 million
(US$4.0 million) and P=93.8 million (US$2.0 million), respectively.
Accrued Interest Payable
Accrued interest payable pertains to accrual of interest expense, which 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.
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*SGVFS022041*
18. Long-term Debt
This account consists of:
2016
Annual Interest Rates Range
(Note 28) Maturities US Dollar
Philippine Peso
Equivalent
ECA loans 2.00% to 6.00%
Various dates
through 2024 US$131,595,704 P=6,542,938,380
1.00% to 2.00%
(US Dollar LIBOR)
117,841,373 5,859,073,088
249,437,077 12,402,011,468
US Dollar
commercial loans
3.00% to 6.00%
Various dates
through 2025 122,813,513 6,106,287,889
1.00% to 2.00%
(US Dollar LIBOR) 376,581,824 18,723,648,273
Philippine Peso
commercial loans
2.00% to 3.00%
(PDST-R2)
2016 through
2026 ‒ 5,578,490,000
499,395,337 30,408,426,162
US$748,832,414 P=42,810,437,630
2015
Annual Interest Rates Range
(Note 28) Maturities US Dollar
Philippine Peso
Equivalent
ECA loans 2.00% to 6.00%
Various dates
through 2024
US$188,082,868 P=8,851,179,775
1.00% to 2.00%
(US Dollar LIBOR)
133,887,484 6,300,745,013
321,970,352 15,151,924,788
US Dollar
commercial loans
3.00% to 6.00%
Various dates
through 2024
146,684,784 6,902,985,959
1.00% to 2.00%
(US Dollar LIBOR) 308,841,368 14,534,074,744
455,526,152 21,437,060,703
US$777,496,504 P=36,588,985,491
The following current and noncurrent portion of long-term debt follow:
2016
US Dollar
Philippine Peso
Equivalent
Current
US Dollar loans US$130,378,207 P=6,482,404,460
Philippine Peso loans ‒ 557,849,000
130,378,207 7,040,253,460
Noncurrent
US Dollar loans 618,454,207 30,749,543,170
Philippine Peso loans ‒ 5,020,641,000
618,454,207 35,770,184,170
US$748,832,414 P=42,810,437,630
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*SGVFS022041*
2015
US Dollar
Philippine Peso
Equivalent
Current US Dollar loans US$115,250,726 P=5,423,699,184
Noncurrent US Dollar loans 662,245,778 31,165,286,307
US$777,496,504 P=36,588,985,491
ECA Loans
On various dates from 2005 to 2012, the Parent Company entered into ECA-backed loan facilities
to partially finance the purchases of ten (10) Airbus A319 aircraft, seven (7) ATR 72-500
turboprop aircraft and ten (10) Airbus A320 aircraft. The security trustee of these ECA loans
established SPEs, namely CALL, BLL, SLL, SALL, VALL and POALL, 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 ATR 72-500 turboprop aircraft and (b) twelve-year finance lease
arrangement for the Airbus A319 and A320 aircraft. The quarterly and semi-annual payments
made by the Parent Company to these SPEs correspond to the principal and interest payments
made by the SPEs to the ECA-backed lenders. The quarterly and semi-annual lease rentals to the
SPEs 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 2016 and 2015, the Parent Company exercised the option to purchase four and two of the ten
Airbus A319 aircraft, respectively, which were subsequently sold to a third party as part of a
forward sale arrangement (Note 13). The purchase required the prepayment of the balance of the
loan facility attributed to the sold Airbus A319 aircraft. The total amount of loans paid amounted
to P=870.5 million and P=534.5 million in 2016 and 2015, respectively. The breakage cost for the
related loan prepayments amounted to P=45.6 million and P=26.7 million in 2016 and 2015,
respectively.
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 annual
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
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*SGVFS022041*
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 December 31, 2016 and 2015, the total outstanding balance of the ECA loans amounted to
P=12,402.0 million (US$249.4 million) and P=15,151.9 million (US$322.0 million), respectively.
Interest expense amounted to P=401.0 million, P=487.7 million and P=551.5 million in 2016, 2015
and 2014, respectively.
US Dollar Commercial Loans
On various dates from 2007 to 2016, the Group entered into a commercial loan facility to partially
finance the purchase of 19 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 SPEs,
namely ILL, PTALL, PTHALL, SAALL, SBALL and SCALL, which purchased the aircraft from
the Parent Company pursuant to (a) ten-year finance lease arrangement for the Airbus
A320 aircraft, (b) six-year finance lease arrangement for the engines and (c) five-year finance
lease arrangement for the QEC Kit. The quarterly and semi-annual payments made by the Parent
Company to these SPEs correspond to the principal and interest payments made by the SPEs to the
ECA-backed lenders. 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.
The terms of the commercial loans follow:
Term of ten years starting from the delivery date of each aircraft.
Combination of annuity style and equal principal repayments made on a quarterly and semi-
annual basis for the two aircraft, engines and the QEC Kit.
Interests on loans are a mix of fixed and variable rates. Interest rates ranges from 1.00% to
6.00%.
The facilities provide for material breach as an event of default, upon which, 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, 2016 and 2015, the total outstanding balance of the US dollar commercial
loans amounted to P=24,829.9 million (US$499.4 million) and P=21,437.1 million
(US$455.5 million), respectively. Interest expense amounted to P=751.9 million, P=585.4 million
and P=461.7 million in 2016, 2015 and 2014, respectively.
Philippine Peso Commercial Loans
In 2016, the Group entered into a Philippine peso commercial loan facility to partially finance the
acquisition of two ATR 72-600 aircraft and one Airbus A330 aircraft.
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*SGVFS022041*
The terms of the commercial loans follow:
Term of ten years starting from the delivery date of each aircraft.
Forty equal consecutive principal repayments made on a quarterly basis.
Interests on loans are variable rates. Interest rates ranges from 2.00% to 3.00%.
The facilities provide that, upon event of default, the outstanding amount of loan will be
payable, including interest accrued. The lenders will foreclose mortgaged assets, namely the
aircraft.
As of December 31, 2016, the total outstanding balance of Peso commercial loans amounted to
P=5,578.5 million with current and noncurrent obligations amounting to P=557.8 million and
P=5,020.6 million, respectively. Interest expense amounted to P=17.3 million.
The Group is not in breach of any terms on the ECA and commercial loans.
19. Other Noncurrent Liabilities
This account consists of:
2016 2015
Asset Retirement Obligation (ARO) P=2,465,671,139 P=1,344,571,000
Deferred revenue on rewards program 376,960,452 92,542,820
Accrued maintenance – 224,413,463
P=2,842,631,591 P=1,661,527,283
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.
The rollforward analysis of the Group’s ARO follow:
2016 2015
Balance at beginning of year P=1,344,571,000 P=586,069,196
Provision for ARO 1,121,100,139 863,960,835
Payment of ARO during the year ‒ (105,459,031)
Balance at end of year P=2,465,671,139 P=1,344,571,000
In 2016, 2015 and 2014, ARO expenses included as part of repairs and maintenance amounted to
P=1,121.1 million, P=864.0 million and P=476.0 million, respectively (Note 22). In 2014, the Group
returned four aircraft under its operating lease agreements.
Deferred Revenue on Rewards Program
This account pertains to estimated liability under the Getgo lifestyle rewards program.
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*SGVFS022041*
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:
2016 2015
Authorized - at P=1 par value 1,340,000,000 1,340,000,000
Beginning of year 605,953,330 605,953,330
Issued and outstanding 605,953,330 605,953,330
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 consolidated statements of financial position. The registration
statement was approved on October 11, 2010. After its listing with the PSE, there have been no
subsequent offerings of common stock. The Group has 95 and 96 existing certified shareholders
as of December 31, 2016 and 2015, respectively.
Treasury Stock
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 shares. 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 7,283,220 shares held on treasury costing P=529.3 million as of
December 31, 2016 and 2015, restricting the Parent Company from declaring an equivalent
amount from unappropriated retained earnings as dividends.
Appropriation of Retained Earnings
On November 10, 2016, December 3, 2015 and November 27, 2014, the Parent Company’s BOD
appropriated P=6.6 billion, P=1.0 billion and P=3.0 billion, respectively, from its unrestricted retained
earnings as of December 31, 2016 for purposes of the Group’s re-fleeting program. The
appropriated amount will be used for the settlement of pre-delivery payments and aircraft lease
commitments (Notes 18, 30 and 31). As of December 31, 2016 and 2015, the Group has
appropriated retained earnings totaling P=14,516.8 million and P=7,916.8 million, respectively.
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*SGVFS022041*
Project name BOD approval
Expected Receipt
Date
Re-fleeting program
2016 November 10, 2016 2017-2021
2015 December 3, 2015 2016-2021
2014 November 27, 2014 2016-2021
Unappropriated Retained Earnings
The income of the subsidiaries and JVs that are recognized in the consolidated statements of
comprehensive income are not available for dividend declaration unless these are declared by the
subsidiaries and JV (Note 14). Likewise, retained earnings are restricted for the payment of
dividends to the extent of the cost of common shares held in treasury amounting to P=529.3 million.
On May 20, 2016, 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 and a special cash dividend in the amount of
P=605.9 million or P=1.00 per share from the unrestricted retained earnings of the Parent Company
to all stockholders of record as of June 9, 2016 and payable on July 5, 2016. Total dividends
declared amounted to P=1,211.9 million as of December 31, 2016.
On June 24, 2015, 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 and a special cash dividend in the amount of
P=302.9 million or P=0.50 per share from the unrestricted retained earnings of the Parent Company
to all stockholders of record as of July 16, 2015 and payable on August 11, 2015. Total dividends
declared amounted to P=908.9 million as of December 31, 2015.
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 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.
After reconciling items which include fair value adjustments on financial instruments, unrealized
foreign exchange loss, recognized deferred tax assets and others, and cost of common stocks held
in treasury, the amount of retained earnings that is available for dividend declaration as of
December 31, 2016 amounted to P=1,673.7 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
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 ratio,
which is gross debt divided by total capital. JGSHI includes within gross debt all interest-bearing
loans and borrowings, while capital represents total equity.
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*SGVFS022041*
The Group’s debt-to-capital ratios follow:
2016 2015
(a) Long-term debt (Note 18) P=42,810,437,630 P=36,588,985,491
(b) Equity 33,505,272,519 24,955,195,156
(c) Debt-to-equity ratio (a/b) 1.3:1 1.5:1
The JGSHI Group’s policy is to keep the debt-to-equity ratio at the 2:1 level as of
December 31, 2016 and 2015. Such ratio is currently being managed on a group level by the
Group’s ultimate parent.
21. Ancillary Revenues
Ancillary revenues consist of:
2016 2015 2014
Baggage fees P=5,496,894,601 P=4,955,384,497 P=4,116,640,154
Rebooking, refunds, cancellation
fees, etc. 3,961,855,541 3,338,921,090 2,920,343,253
Others 2,284,264,613 2,065,142,241 1,628,505,970
P=11,743,014,755 P=10,359,447,828 P=8,665,489,377
Others pertain to revenues from in-flight sales, advanced seat selection fees, reservation booking
fees and others (Note 27).
22. Operating Expenses
Flying Operations
This account consists of:
2016 2015 2014
Aviation fuel expense (Note 11) P=15,821,328,265 P=17,659,066,443 P=23,210,305,406
Flight deck 3,310,321,766 2,797,680,638 2,406,983,028
Aviation insurance 196,129,796 255,071,777 292,982,743
Others 366,568,889 204,541,676 242,204,830
P=19,694,348,716 P=20,916,360,534 P=26,152,476,007
Aircraft and Traffic Servicing
This account consists of:
2016 2015 2014
Airport charges P=3,931,733,367 P=3,508,816,000 P=2,843,602,317
Ground handling 2,105,087,686 1,887,062,871 1,518,884,645
Others 541,163,750 451,220,434 442,725,527
P=6,577,984,803 P=5,847,099,305 P=4,805,212,489
Others pertain to staff expenses incurred by the Group such as basic pay, employee training cost
and allowances.
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*SGVFS022041*
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 30). These amounted to
P=1,121.1 million, P=864.0 million and P=476.0 million in 2016, 2015 and 2014, respectively
(Note 19).
Reservation and Sales
Reservation and sales relate to the cost to sell or distribute airline tickets and other ancillaries
provided to passengers such as costs to maintain the Group’s web-based booking channel,
reservation ticketing office costs and advertising expenses. These amounted to P=3,211.7 million,
P=2,625.5 million and P=2,154.0 million in 2016, 2015 and 2014, respectively.
23. General and Administrative Expenses
This account consists of:
2016 2015 2014
Staff cost P=642,010,384 P=512,655,998 P=458,971,856
Security and professional fees 498,893,458 487,854,049 318,235,374
Utilities 133,315,208 145,433,281 124,694,997
Rent expenses 85,337,118 89,687,818 54,056,070
Travel and transportation 32,378,068 24,674,634 30,807,870
Others 421,109,241 291,843,153 310,051,527
P=1,813,043,477 P=1,552,148,933 P=1,296,817,694
Others include membership dues, annual listing maintenance fees, supplies, 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 Plans
The Group has funded, noncontributory, defined benefit plans covering substantially all of its
regular employees. The benefits are based on years of service and compensation on the last year
of employment.
The range of assumptions used to determine pension benefits of the Group in 2016, 2015 and 2014
are as follows:
2016 2015 2014
Average remaining working life 11 - 18 years 8 - 12 years 12 years
Discount rate 5.44% - 5.60% 5.00% - 5.13% 4.59%
Salary rate increase 5.50% - 5.50% 5.00% - 5.70% 5.50%
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*SGVFS022041*
As of December 31, 2016 and 2015, the discount rate used in determining the pension liability is
determined by reference to market yields at the reporting date on Philippine government bonds.
The amounts recognized as pension liability follow:
2016 2015
Present value of defined benefit obligation P=1,011,183,379 P=897,284,330
Fair value of plan assets (442,414,064) (350,803,616)
P=568,769,315 P=546,480,714
Remeasurement gains (losses) recognized in OCI follow:
2016 2015
Actuarial gains (losses) from benefit obligation P=26,153,078 (P=78,455,711)
Return on plan assets, excluding amount included in
net interest cost (14,941,894) (4,546,622)
Amount to be recognized in OCI P=11,211,184 (P=83,002,333)
Movements in the fair value of plan assets follow:
2016 2015
Balance at beginning of year P=350,803,616 P=339,755,463
Actual contribution during the year 90,523,372 ‒
Interest income included in net interest cost 16,028,970 15,594,775
Return on plan assets, excluding amount included in
net interest cost (14,941,894) (4,546,622)
Balance at end of year P=442,414,064 P=350,803,616
The plan assets consist of:
2016 % 2015 %
Cash P=308,307,900 70% P=220,210,013 63%
Investment in debt securities 132,884,688 30% 129,658,904 37%
Receivables 1,259,576 – 964,910 –
442,452,164 350,833,827
Liabilities (38,100) – (30,211) –
P=442,414,064 100% P=350,803,616 100%
The Group expects to contribute about P=100.0 million into the pension fund for the year ending
2017. The actual returns on plan assets amounted to P=1.1 million in 2016 and P=11.0 million in
2015.
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*SGVFS022041*
Changes in present value of the defined benefit obligation follow:
2016 2015
Balance at beginning of year P=897,284,330 P=725,420,912
Current service cost 111,059,054 99,123,882
Interest cost 43,351,629 33,312,525
Benefits paid (14,358,556) (39,028,700)
Actuarial loss/gain due to:
Experience adjustments 14,942,532 130,890,864
Changes in financial assumption (50,652,461) (43,207,906)
Changes in demographical assumption 9,556,851 (9,227,247)
Balance at end of year P=1,011,183,379 P=897,284,330
Movements in pension liability follow:
2016 2015
Balance at beginning of year P=546,480,714 P=385,665,449
Pension expense during year 138,381,713 116,841,632
Recognized in OCI (11,211,184) 83,002,333
Benefits paid during year (14,358,556) (39,028,700)
Actual contribution during the year (90,523,372) ‒
Balance at end of year P=568,769,315 P=546,480,714
The benefits paid during 2016 and 2015 were paid out of Parent Company’s operating funds.
Components of pension expense included in the Group’s consolidated statements of
comprehensive income follow:
2016 2015 2014
Current service cost P=111,059,054 P=99,123,882 P=129,329,209
Interest cost 27,322,659 17,717,750 29,275,183
Total pension expense P=138,381,713 P=116,841,632 P=158,604,392
Shown below are the sensitivity analyses that has been determined based on reasonably possible
changes of the assumption occurring as of the end of the reporting period, assuming if all other
assumptions were held constant.
2016
PVO
Discount rates 6.44% (+1.00%) P=876,336,520
4.44% (-1.00%) 1,084,771,639
Salary increase rates 6.50% (+1.00%) 1,089,891,204
4.50% (-1.00%) 870,361,689
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*SGVFS022041*
2015
PVO
Discount rates 6.07% (+1.00%) P=805,004,689
4.07% (-1.00%) 1,007,319,468
Salary increase 6.25% (+1.00%) 1,011,435,017
4.25% (-1.00%) 799,914,451
Each year, an Asset-Liability Matching Study (ALM) is performed with the result being analyzed
in terms of risk-and-return profiles. As of December 31, 2016, the Parent Company’s investment
consists of 30% of debt instruments and 70% for cash and receivables. The principal technique of
the Parent Company’s ALM is to ensure the expected return on assets to be sufficient to support
the desired level of funding arising from the defined benefit plans.
Shown below is the maturity profile of the undiscounted benefit payments of the Parent Company
as of December 31, 2016 and 2015:
2016
Plan Year
Normal
Retirement
Other Normal
Retirement Total
Less than one year P=76,544,468 P=18,337,349 P=94,881,817
One to less than five years 104,783,952 117,513,603 222,297,555
Five to less than 10 years 377,296,385 250,693,933 627,990,318
10 to less than 15 years 524,841,500 310,748,389 835,589,889
15 to less than 20 years 642,911,988 339,351,862 982,263,850
20 years and above 3,062,076,773 791,217,401 3,853,294,174
2015
Plan Year
Normal
Retirement
Other Normal
Retirement Total
Less than one year P=44,962,186 P=15,486,233 P=60,448,419
One to less than five years 96,657,822 94,977,649 191,635,471
Five to less than 10 years 286,609,848 218,291,737 504,901,585
10 to less than 15 years 488,480,751 275,917,808 764,398,559
15 to less than 20 years 624,511,163 293,682,801 918,193,964
20 years and above 2,598,202,480 668,230,299 3,266,432,779
The average duration of the expected benefit payments as of December 31, 2016 and 2015 is
20.73 years and 20.72 years, respectively.
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25. Income Taxes
Provision for (benefit from) income tax consists of:
2016 2015 2014
Current:
MCIT P=162,594,552 P=125,929,367 P=61,319,704
Deferred (200,566,039) (984,359,953) (36,181,936)
(P=37,971,487) (P=858,430,586) P=25,137,768
Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate of
20.00% and 7.50% on peso-denominated and foreign currency-denominated short-term
placements and cash in banks, respectively, which are final withholding taxes on gross interest
income.
The NIRC of 1997 also provides for rules on the imposition of a 2.00% MCIT on the gross income
as of the end of the taxable year beginning on the fourth taxable year immediately following the
taxable year in which the Parent Company commenced its business operations. Any excess MCIT
over the RCIT can be carried forward on an annual basis and credited against the RCIT for the
three immediately succeeding taxable years.
In addition, under Section 11 of RA No. 7151 (Parent Company’s Congressional Franchise) and
under Section 15 of RA No. 9517 (CEBGO’s Congressional Franchise) known as the “ipso facto
clause” and the “equality clause”, respectively, the Group is allowed to benefit from the tax
privileges being enjoyed by competing airlines. The Group’s major competitor, by virtue of
PD No. 1590, is enjoying tax exemptions which are likewise being claimed by the Group, if
applicable, 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 of
depreciation; and
b. To carry over as a deduction from taxable income any NOLCO incurred in any year up to five
years following the year of such loss.
The components of the Group’s deferred tax assets and liabilities follow:
2016 2015
Deferred tax assets on:
NOLCO P=1,388,753,996 P=1,372,727,074
Unrealized foreign exchange losses - net 1,154,300,719 597,768,972
ARO - liability 739,701,342 420,073,060
MCIT 349,843,622 224,135,377
Pension liability 170,630,795 151,876,449
Deferred revenue - Customer Loyalty Program 113,088,136 – Allowance for credit losses 99,398,977 74,742,533
Unrealized loss on net derivative liabilities – 733,048,541
4,015,717,587 3,574,372,006
(Forward)
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2016 2015
Deferred tax liabilities on:
Double declining depreciation P=2,624,040,175 P=2,512,429,449
Business combination (Note 7) 185,645,561 185,645,561
Unrealized gain on net derivative assets 132,532,172 –
2,942,217,908 2,698,075,010
Net deferred tax assets P=1,073,499,679 P=876,296,996
The Group’s recognized deferred tax assets and deferred tax liabilities are expected to be reversed
more than twelve months after the reporting date.
Movement in accrued retirement cost amounted to P=3.4 million and P=21.1 million in 2016 and
2015, respectively, is presented under other comprehensive income.
Parent Company
Details of the NOLCO and MCIT are as follows:
NOLCO
Year Incurred Amount Expired/Applied Balance Expiry Year
2012 P=1,301,721,876 (P=1,301,721,876) P=– 2017
2013 956,965,884 (956,965,884) – 2018
2014 1,361,594,609 (333,410,350) 1,028,184,259 2019
2015 955,474,545 – 955,474,545 2020
P=4,575,756,914 (P=2,592,098,110) P=1,983,658,804
MCIT
Year Incurred Amount Expired/Applied Balance Expiry Year
2013 P=45,518,668 (P=45,518,668) P=– 2016
2014 61,319,704 – 61,319,704 2017
2015 117,297,005 – 117,297,005 2018
2016 148,442,253 – 148,442,253 2019
P=372,577,630 (P=45,518,668) P=327,058,962
The Parent Company has outstanding registrations with the BOI as a new operator of air transport
on a pioneer and non-pioneer status under the Omnibus Investments Code of 1987 (Executive
Order 226) (Note 32).
On 20 out of 24 registrations, the Parent Company can avail of bonus years in certain specified
cases but the aggregate ITH availments (basic and bonus years) shall not exceed eight years.
As of December 31, 2016 and 2015, the Parent Company has complied with externally imposed
capital requirements set by the BOI in order to avail the ITH incentives for aircraft of registered
activity (Note 32).
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CEBGO
Details of NOLCO and MCIT are as follows:
NOLCO
Year Incurred Amount Expired/Applied Balance Expiry Year
2011 P=461,346,433 (P=461,346,433) P=– 2016
2012 1,305,854,856 (199,411,786) 1,106,443,070 2017
2013 853,571,166 – 853,571,166 2018
2014 685,506,938 – 685,506,938 2019
P=3,306,279,393 (P=660,758,219) P=2,645,521,174
MCIT
Year Incurred Amount Expired/Applied Balance Expiry Year
2015 P=8,632,361 P=– P=8,632,361 2018
2016 14,152,299 – 14,152,299 2019
P=22,784,660 P=– P=22,784,660
As of December 31, 2016, CEBGO has recognized its previously unrecognized deferred tax assets
arising from deductible temporary differences, NOLCO and MCIT. Details follow:
Amount
NOLCO P=3,306,279,393
Allowance for credit losses 67,268,308
Pension liability 40,225,883
MCIT 8,632,361
Customer loyalty program 3,554,623
P=3,425,960,568
A reconciliation of the statutory income tax rate to the effective income tax rate follows:
2016 2015 2014
Statutory income tax rate 30.00% 30.00% 30.00%
Adjustments resulting from:
Nondeductible items 0.09 0.19 0.87
Interest income subjected to
final tax (0.33) (0.63) (2.69)
Others (0.55) (1.29) (2.94)
Income subject to ITH (29.60) (52.60) (22.38)
Effective income tax rate (0.39%) (24.33%) 2.86%
Entertainment, Amusement and Recreation (EAR) Expenses
Current tax regulations define expenses to be classified as EAR expenses and set a limit for the
amount that is deductible for tax purposes. EAR expenses are limited to 0.50% of net sales for
sellers of goods or properties or 1.00% of net revenue for sellers of services. For sellers of both
goods or properties and services, an apportionment formula is used in determining the ceiling on
such expenses. The Group recognized EAR expenses (allocated under different expense accounts
in the consolidated statements of comprehensive income) amounting P=4.0 million, P=3.3 million
and P=6.5 million in 2016, 2015 and 2014, respectively.
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26. Earnings Per Share
The following reflects the income and share data used in the basic/diluted EPS computations:
2016 2015 2014
(a) Net income attributable to
common shareholders P=9,754,136,196 P=4,387,225,875 P=853,498,216
(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=16.10 P=7.24 P=1.41
The Group has no dilutive potential common shares in 2016, 2015 and 2014.
27. 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 consolidated 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.
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The significant transactions and outstanding balances of the Group with the related parties follow:
2016
Related Party
Amount/
Volume
Outstanding
Balance
Terms
Conditions
Ultimate parent company
(1) JGSHI
Due from related parties P=‒ P=‒ Non-interest bearing
Unsecured,
No impairment
Parent company
(2) CPAHI
Due from related parties ‒ 65,800 Non-interest bearing
Unsecured,
No impairment
JV in which the Company is a venture
(3) A-plus
Due from related parties 36,759,598 25,361,011 Non-interest bearing
Unsecured,
No impairment
Trade receivables 61,625,182 61,625,182 Non-interest bearing
Unsecured,
No impairment
Trade payables 1,008,951,483 (37,183,124) Non-interest bearing
Unsecured,
No impairment
(4) SIAEP
Due from related parties 5,305,518 2,723,623 Non-interest bearing
Unsecured,
No impairment
Trade payables 67,351,578 (2,894,088) Non-interest bearing
Unsecured,
No impairment
(5) PAAT, Inc.
Due from related parties
Loans 5,960,066 90,977,300 2% interest per annum
Unsecured,
No impairment
Sublease agreement 32,530,938 5,012,599 Payable monthly
Unsecured,
No impairment
Others 70,246 130,407 Non-interest bearing
Unsecured,
No impairment
Trade payables 141,115,807 ‒ Non-interest bearing
Unsecured,
No impairment
Entities under common control
(6) Robinsons Bank Corporation (RBC)
Cash and cash equivalents 112,512,140,676 20,612,039,521 Non-interest bearing
Unsecured,
No impairment
Due to related parties 67,165,661 (1,183,359) Non-interest bearing
Unsecured,
No impairment
Trade receivables 3,745,476 258,643 Non-interest bearing
Unsecured,
No impairment
Trade payables 2,090,056,896 (10,608,542) Non-interest bearing
Unsecured,
No impairment
(7) Universal Robina Corporation (URC)
Trade receivables 41,868,371 4,255,851 Non-interest bearing
Unsecured,
No impairment
Due to related parties 73,047 (36,121,604) Non-interest bearing
Unsecured,
No impairment
Trade payables 56,338,675 (1,905,670) Non-interest bearing
Unsecured,
No impairment
(8) Robinsons Land Corporation (RLC)
Trade receivables 29,396,331 3,015,177 Interest bearing
Unsecured,
No impairment
Trade payables 40,871,141 (1,226,856) Non-interest bearing
Unsecured,
No impairment
(Forward)
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2016
Related Party
Amount/
Volume
Outstanding
Balance
Terms
Conditions
(9) Robinsons Handyman, Inc.
Trade payables P=3,332,363 (P=253,778) Non-interest bearing
Unsecured,
No impairment
(10) Summit Publishing Inc. (SPI)
Trade receivables 2,390,852 82,676 Non-interest bearing
Unsecured,
No impairment
Trade payables 18,618,073 (516,610) Non-interest bearing
Unsecured,
No impairment
(11) JG Petrochemical Corporation
(JGPC)
Trade receivables 845,291 172,357 Non-interest bearing
Unsecured,
No impairment
(12) Robinsons Inc.
Due to related parties 8,074,862 (384,591) Non-interest bearing
Unsecured,
No impairment
Trade receivables 299,847 172,876 Non-interest bearing
Unsecured,
No impairment
Trade payables 31,731,414 – Non-interest bearing
Unsecured,
No impairment
(13) Jobstreet.com Phils., Inc.
Trade receivables 582,450 15,675 Non-interest bearing
Unsecured,
No impairment
Trade payables 1,205,600 ‒ Non-interest bearing
Unsecured,
No impairment
2015
Related Party
Amount/
Volume
Outstanding
Balance
Terms
Conditions
Ultimate parent company
(14) JGSHI
Due from related parties P=4,405,758 P=194,920 Non-interest bearing
Unsecured,
No impairment
Parent company
(15) CPAHI
Due from related parties – 65,800 Non-interest bearing
Unsecured,
No impairment
JV in which the Company is a venture
(16) A-plus
Due from related parties 47,849,905 19,994,824 Non-interest bearing
Unsecured,
No impairment
Trade payables 836,365,207 (14,218,865) Non-interest bearing
Unsecured,
No impairment
(17) SIAEP
Due from related parties 7,460,141 5,539,093 Non-interest bearing
Unsecured,
No impairment
Trade payables 80,039,381 (2,010,764) Non-interest bearing
Unsecured,
No impairment
(18) PAAT, Inc.
Due from related parties
Loans 5,960,066 90,977,300 2% interest per annum
Unsecured,
No impairment
Sublease agreement 31,880,370 8,925,181 Payable monthly
Unsecured,
No impairment
Others 82,732 121,262 Non-interest bearing
Unsecured,
No impairment
Trade payables 126,376,767 (4,108,150) Non-interest bearing
Unsecured,
No impairment
(Forward)
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2015
Related Party
Amount/
Volume
Outstanding
Balance
Terms
Conditions
Entities under common control
(19) Robinsons Bank Corporation (RBC)
Cash and cash equivalents P=103,480,442,308 P=298,083,980 Non-interest bearing
Unsecured,
No impairment
Due to related parties 57,996,306 (1,490,580) Non-interest bearing
Unsecured,
No impairment
Trade receivables 2,472,792 142,888 Non-interest bearing
Unsecured,
No impairment
Trade payables 7,657,899,965 (10,259,002) Non-interest bearing
Unsecured,
No impairment
(20) Universal Robina Corporation
(URC)
Trade receivables 40,768,879 3,976,809 Non-interest bearing
Unsecured,
No impairment
Due to related parties 36,160,364 (36,584,296) Non-interest bearing
Unsecured,
No impairment
Trade payables 53,869,676 (7,097,063) Non-interest bearing
Unsecured,
No impairment
(21) Robinsons Land Corporation (RLC)
Trade receivables 19,174,493 3,087,041 Interest bearing
Unsecured,
No impairment
Trade payables 113,010,460 (656,986) Non-interest bearing
Unsecured,
No impairment
(22) Robinsons Handyman, Inc.
Trade payables 2,282,613 (81,289) Non-interest bearing
Unsecured,
No impairment
(23) Summit Publishing Inc. (SPI)
Trade receivables 3,498,402 1,532,977 Non-interest bearing
Unsecured,
No impairment
Trade payables 13,210,264 (4,171,074) Non-interest bearing
Unsecured,
No impairment
(24) JG Petrochemical Corporation
(JGPC)
Trade receivables 921,695 130,486 Non-interest bearing
Unsecured,
No impairment
(25) Robinsons, Inc.
Due to related parties 329,962 (819,486) Non-interest bearing
Unsecured,
No impairment
Trade receivables 29,549,943 534,461 Non-interest bearing
Unsecured,
No impairment
Trade payables 31,272,028 – Non-interest bearing
Unsecured,
No impairment
(26) Jobstreet.com Phils., Inc.
Trade receivables 682,300 2,837 Non-interest bearing
Unsecured,
No impairment
Trade payables 404,800 (404,800) Non-interest bearing
Unsecured,
No impairment
Consolidated Statement of Comprehensive Income
Year
Sale of Air
Transportation Service
Interest
Income
Ancillary
Revenues
Repairs and
Maintenance
JV in which the Parent
Company is a venturer 2016 P=– P=– P=– P=701,792,101
A-plus 2015 P=– P=– P=– P=84,698,669
2014 P=– P=– P=– P=605,056,538
SIAEP 2016 677,614 – – 196,800,152
2015 439,483 – – –
2014 – – – 116,413,193
PAAT 2016 – – 32,530,938 –
2015 – – 37,663,884 –
2014 – – 26,104,946 –
(Forward)
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Consolidated Statement of Comprehensive Income
Year
Sale of Air
Transportation Service
Interest
Income
Ancillary
Revenues
Repairs and
Maintenance
Entities under common control
RSB 2016 P=3,369,060 P=– P=– P=–
2015 P=2,472,792 P=– P=– P=–
2014 P=2,620,575 P=– P=– P=–
URC 2016 44,137,335 – – –
2015 40,768,879 – – –
2014 41,337,092 – – –
RLC 2016 29,396,331 – – –
2015 19,174,493 – – –
2014 13,928,598 – – –
SPI 2016 2,721,457 – – –
2015 3,498,402 – – –
2014 5,183,283 – – –
JGPC 2016 845,291 – – –
2015 921,695 – – –
2014 958,570 – – –
Robinsons Inc. 2016 33,749,652 – – –
2015 29,549,943 – – –
2014 26,231,941 – – –
Jobstreet.com Phils, Inc. 2016 582,450 – – –
2015 682,300 – – –
2014 624,615 – – –
Total 2016 P=115,479,190 – P=32,530,938 P=898,592,253
2015 P=97,507,987 – P=37,663,884 P=84,698,669
2014 P=90,884,674 – P=26,104,946 P=721,469,731
Terms and conditions of transactions with related parties
Outstanding 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 received
for any related party receivables or payables. The Group has not recognized any impairment
losses on amounts due from related parties for the years ended December 31, 2016, 2015 and
2014. This assessment is undertaken each financial year through a review of the financial position
of the related party and the market in which the related party operates.
The Group’s significant transactions with related parties follow:
1. Expenses advanced by the Group on behalf of CPAHI. The said expenses are subject to
reimbursement and are recorded under ‘Receivables’ account in the consolidated statements of
financial position.
2. The Group entered into a Shared Services Agreement with A-plus. Under the aforementioned
agreement, the Group will render certain administrative services to A-plus, which include
payroll processing and certain information technology-related functions. The Group also
entered into a Ground Support Equipment (GSE) Maintenance Services Agreement with
A-plus. Under the GSE Maintenance Services Agreement, the Group shall render routine
preventive maintenance services on certain ground support equipment used by A-plus in
providing technical GSE to airline operators in major airports in the Philippines. The Group
also 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 and
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international airports which were performed by A-plus, and to maintain and provide aircraft
heavy maintenance services which was performed by SIAEP. Cost of services are recorded as
‘Repairs and maintenance’ account in the consolidated statements of comprehensive income
and any unpaid amount as of reporting date as trade payable under ‘Accounts payable and
other accrued liabilities’ account.
4. The Group maintains deposit accounts and short-term investments with RSB which is reported
under ‘Cash and cash equivalents’ account. The Group also incurs liabilities to RSB for loan
payments of its employees and to URC primarily for the rendering of payroll service to the
Group which are recorded under ‘Due to related parties’ account.
5. The Group provides air transportation services to certain related parties, for which unpaid
amounts are recorded as trade receivables under ‘Receivables’ account in the consolidated
statements of financial position.
The Group also purchases goods from URC for in-flight sales and recorded as trade payable, if
unpaid, in the consolidated statements of financial position. Total amount of purchases in
2016, 2015 and 2014 amounted to P=37.2 million, P=44.8 million and P=34.1 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 15 years from November 29, 2012 until
November 19, 2027.
7. In 2013 and 2012, under the shareholder loan agreement, the Group provided a loan to PAAT
to finance the purchase of its Full Flight Simulator, other equipment and other working capital
requirements. Aggregate loans provided by the Group amounted to P=155.4 million
(US$3.5 million). The loans are subject two percent (2%) interest per annum. In 2014, the
Group collected P=41.7 million (US$0.9 million) from PAAT as partial payment of the loan.
As of December 31, 2016 and 2015, loan to PAAT amounted to P=91.0 million
(US$2.3 million).
8. In 2014, the Parent Company entered into sublease agreements with CEBGO for the lease of
its five (5) A320 Airbus aircraft. The sublease period for each aircraft is for two years, but
was pre-terminated in 2015.
9. In 2015, the Parent Company entered into sublease arrangements with CEBGO for the lease of
its eight (8) ATR 72-500 aircraft. The sublease period for each aircraft is for two years.
10. In 2016, the Parent Company entered into sublease arrangements with CEBGO for the lease of
its two (2) ATR 72-600 aircraft. The sublease period for each aircraft is for six years.
The compensation of the Group’s key management personnel by benefit type follows:
2016 2015 2014
Short-term employee benefits P=137,740,617 P=135,392,431 P=150,010,391
Post-employment benefits 2,690,640 3,560,866 10,011,731
P=140,431,257 P=138,953,297 P=160,022,122
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.
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28. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents, financial assets at FVPL, 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 these 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 JGSHI. The Group has its
own BOD, which is ultimately responsible for the oversight of the Group’s risk management
process, and is involved in 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
risk management performance, and identification of areas and opportunities for improvement in
the risk management process.
The Group and the ultimate parent together 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 the internal 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.
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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.
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.
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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.
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 banks 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.
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Maximum exposure to credit risk without taking account of any credit enhancement
The table below shows the gross maximum exposure to credit risk (including derivative assets) of
the Group as of December 31, 2016 and 2015, without considering the effects of collaterals and
other credit risk mitigation techniques.
2016 2015
Loans and receivables
Cash and cash equivalents* P=10,263,876,130 P=4,675,299,344
Receivables
Trade receivables 1,667,078,389 1,398,342,106
Due from related parties 124,270,740 125,623,460
Interest receivable 3,544,120 1,377,036
Others** 663,230,536 528,512,366
2,458,123,785 2,053,854,968
Refundable deposits*** 29,182,000 27,135,401
P=12,751,181,915 P=6,756,289,713 * 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 risk
Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region or have similar economic features that would cause their
ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to
developments affecting a particular industry or geographical location. Such credit risk
concentrations, if not properly managed, may cause significant losses that could threaten the
Group’s financial strength and undermine public confidence. In order to avoid excessive
concentrations of risk, identified concentrations of credit risks are controlled and managed
accordingly.
The Group’s credit risk exposures, before taking into account any collateral held or other credit
enhancements are categorized by geographic location as follows:
2016
Philippines
Asia
(excluding
Philippines) Europe Others Total
Loans and receivables
Cash and cash equivalents* P=8,639,055,061 P=1,050,673,161 P=574,147,908 P=– P=10,263,876,130
Receivables
Trade receivables 1,184,733,983 462,199,939 ‒ 20,144,467 1,667,078,389
Due from related parties 124,270,740 ‒ ‒ ‒ 124,270,740
Interest receivable 3,544,120 ‒ ‒ ‒ 3,544,120
Others** 332,399,980 234,255,648 ‒ 96,574,908 663,230,536
Refundable deposits*** ‒ 29,182,000 ‒ ‒ 29,182,000
P=10,284,003,884 P=1,776,310,748 P=574,147,908 P=116,719,375 P=12,751,181,915
***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
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2015
Philippines
Asia
(excluding
Philippines) Europe Others Total
Loans and receivables
Cash and cash equivalents* P=3,928,723,397 P=726,099,935 P=20,476,012 P=– P=4,675,299,344
Receivables
Trade receivables 1,141,591,909 237,602,342 19,147,855 – 1,398,342,106
Due from related parties 125,623,460 – – – 125,623,460
Interest receivable 1,377,036 – – – 1,377,036
Others** 228,982,224 57,032,291 242,497,851 – 528,512,366
Refundable deposits*** – – 27,135,401 – 27,135,401
P=5,426,298,026 P=1,020,734,568 P=309,257,119 P=– P=6,756,289,713
***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
The Group has no concentration of risk with regard to various industry sectors. The major
industry relevant to the Group is the transportation sector and financial intermediaries.
Credit quality per class of financial assets
The 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 rating
of the Group (gross of allowance for impairment losses) as of December 31, 2016 and 2015:
2016
Neither Past Due Nor Specifically Impaired Past Due
High
Grade
Standard
Grade
Substandard
Grade
or Individually
Impaired Total
Cash and cash equivalents* P=10,263,876,130 P=– P=– P=– P=10,263,876,130
Receivables
Trade receivables 1,658,567,195 ‒ ‒ 8,511,194 1,667,078,389
Due from related parties 124,270,740 ‒ ‒ ‒ 124,270,740
Interest receivable 3,544,120 ‒ ‒ ‒ 3,544,120
Others** 335,395,724 5,016,083 ‒ 322,818,729 663,230,536
Refundable deposits*** 29,182,000 ‒ ‒ ‒ 29,182,000
P=12,414,835,909 P=5,016,083 P=‒ P=331,329,923 P=12,751,181,915
***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
2015
Neither Past Due Nor Specifically Impaired Past Due
High
Grade
Standard
Grade
Substandard
Grade
or Individually
Impaired Total
Cash and cash equivalents* P=4,675,299,344 P=– P=– P=– P=4,675,299,344
Receivables
Trade receivables 1,375,625,887 14,277,661 – 8,438,558 1,398,342,106
Due from related parties 125,623,460 – – – 125,623,460
Interest receivable 1,377,036 – – – 1,377,036
Others** 190,565,126 29,975,692 – 307,971,548 528,512,366
Refundable deposits*** 27,135,401 – – – 27,135,401
P=6,395,626,254 P=44,253,353 P=– P=316,410,106 P=6,756,289,713
***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
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 of
resources and profitability.
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High grade accounts are accounts considered to be of high value. The counterparties have a very
remote likelihood of default and have consistently exhibited good paying habits.
Standard grade accounts are active accounts with propensity of deteriorating to mid-range age
buckets. These accounts are typically not impaired as the counterparties generally respond to
credit actions and update their payments accordingly.
Substandard grade accounts are accounts which have probability of impairment based on historical
trend. These accounts show propensity to default in payment despite regular follow-up actions
and extended payment terms.
The following tables show the aging analysis of the Group’s receivables:
2016
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=1,658,567,195 P=– P=– P=– P=– P=8,511,194 P=1,667,078,389
Due from related parties 124,270,740 ‒ ‒ ‒ ‒ ‒ 124,270,740
Interest receivable 3,544,120 ‒ ‒ ‒ ‒ ‒ 3,544,120
Others* 340,411,807 ‒ ‒ ‒ ‒ 322,818,729 663,230,536
P=2,126,793,862 P=– P=– P=– P=– P=331,329,923 P=2,458,123,785
*Include nontrade receivables from insurance, employees and counterparties
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=1,389,903,548 P=– P=– P=– P=– P=8,438,558 P=1,398,342,106
Due from related parties 125,623,460 – – – – – 125,623,460
Interest receivable 1,377,036 – – – – – 1,377,036
Others* 199,754,607 – – – 20,786,211 307,971,548 528,512,366
P=1,716,658,651 P=– P=– P=– P=20,786,211 P=316,410,106 P=2,053,854,968
*Include nontrade receivables from insurance, employees and counterparties
Past due or individually impaired accounts consist of past due but not impaired receivables
amounted to nil and P=20.8 million as of December 31, 2016 and 2015, respectively, and past due
and impaired receivables amounting to P=331.3 million and P=316.4 million as of December 31,
2016 and 2015, respectively. Past due but not impaired receivables are secured by cash bonds
from major sales and ticket offices recorded under ‘Accounts payable and other accrued liabilities’
account in the consolidated statements of financial position. For the past due and impaired
receivables, specific allowance for impairment losses amounted to P=331.3 million and
P=316.4 million as of December 31, 2016 and 2015, respectively (Note 10).
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 December 31, 2016 and 2015, outstanding cash bonds (included under
‘Accounts payable and other accrued liabilities’ account in the consolidated statements of
financial position) amounted to P=329.5 million and P=214.7 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
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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
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 reporting date to the contractual maturity date or, if earlier, the
expected date the assets will be realized.
Financial liabilities
The relevant maturity grouping is based on the remaining period at the reporting 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.
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The tables below summarize the maturity profile of financial instruments based on remaining
contractual undiscounted cash flows as of December 31, 2016 and 2015:
2016
Less than one
month
1 to 3
months
3 to 12
months
1 to 5
years
More than
5 years Total
Financial Assets
Loans and receivables
Cash and cash equivalents P=10,183,729,447 P=112,512,857 P=– P=– P=– P=10,296,242,304
Receivables:
Trade receivables 1,659,477,487 ‒ ‒ 1,357,704 6,243,198 1,667,078,389
Due from related
parties* 22,093,143 3,464,762 98,712,835 ‒ ‒ 124,270,740
Interest receivable 3,544,120 – – – – 3,544,120
Others ** 260,701,554 69,269,857 10,440,396 67,152,373 255,666,356 663,230,536
Derivative financial
instruments not
designated as accounting
hedges ‒ ‒ ‒ 441,773,905 ‒ 441,773,905
Refundable deposits ‒ ‒ ‒ 29,182,000 ‒ 29,182,000
P=12,129,545,751 P=185,247,476 P=109,153,231 P=539,465,982 P=261,909,554 P=13,225,321,994
Financial Liabilities
On-balance sheet
Accounts payable and other
accrued liabilities*** P=5,943,237,435 P=1,555,438,691 P=5,009,729,087 P=5,064,849 P=‒ P=12,513,470,062
Due to related parties* 38,618,547 ‒ ‒ ‒ ‒ 38,618,547
Long-term debt ‒ ‒ ‒ 7,123,567,004 35,686,870,626 42,810,437,630
P=5,981,855,982 P=1,555,438,691 P=5,009,729,087 P=7,128,631,853 P=35,686,870,626 P=55,362,526,239
***Receivable and payable on demand
***Include nontrade receivables from insurance, employees and counterparties
***Excluding government-related payables 2015
Less than one
month
1 to 3
months
3 to 12
months
1 to 5
years
More than
5 years Total
Financial Assets
Loans and receivables
Cash and cash equivalents P=4,628,358,567 P=77,731,496 P=– P=– P=– P=4,706,090,063
Receivables:
Trade receivables 1,389,696,872 – 2,780,182 – 5,865,052 1,398,342,106
Interest receivable 125,623,460 – – – – 125,623,460
Due from related
parties* 1,377,036 – – – – 1,377,036
Others ** 207,781,957 2,157,740 75,372,740 1,211,644 241,988,285 528,512,366
Refundable deposits – – – 27,135,401 – 27,135,401
P=6,352,837,892 P=79,889,236 P=78,152,922 P=28,347,045 P=247,853,337 P=6,787,080,432
Financial Liabilities
On-balance sheet
Derivative financial
instruments not
designated as accounting
hedges P=– P=– P=– P=1,671,213,914 P=772,281,224 P=2,443,495,138
Accounts payable and other
accrued liabilities*** 5,833,676,569 1,051,834,620 1,862,805,953 1,066,516,117 250,776 9,815,084,035
Due to related parties* 38,115,803 – – – – 38,115,803
Long-term debt – – 5,419,595,530 22,249,673,135 8,919,716,826 36,588,985,491
P=5,871,792,372 P=1,051,834,620 P=7,282,401,483 P=24,987,403,166 P=9,692,248,826 P=48,885,680,467
***Receivable and payable on demand
***Include nontrade receivables from insurance, employees and counterparties
***Excluding government-related payables
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.
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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 has transactional currency exposures. Such exposures arise from sales and purchases
in currencies other than the Parent Company’s functional currency. During the years ended
December 31, 2016, 2015 and 2014, approximately 32.0%, 31.0% and 29.0%, respectively, of the
Group’s total sales are denominated in currencies other than the functional currency. Furthermore,
the Group’s capital expenditures are substantially denominated in USD. As of
December 31, 2016, 2015 and 2014, 67.0 %, 67.4% and 67.2%, respectively, of the Group’s
financial liabilities were denominated in USD.
The Group does not have any foreign currency hedging arrangements as of December 31, 2016
and 2015.
The tables below summarize the Group’s exposure to foreign currency risk. Included in the tables
are the Group’s financial assets and liabilities at carrying amounts, categorized by currency.
2016
US Dollar
Hong Kong
Dollar
Singaporean
Dollar
Other
Currencies* Total
Financial Assets
Cash and cash equivalents P=4,912,681,176 P=54,676,207 P=55,960,921 P=723,197,429 P=5,746,515,733
Receivables 781,078,986 36,162,127 15,390,372 468,403,780 1,301,035,265
Financial assets at FVPL 441,773,905 ‒ ‒ ‒ 441,773,905
Refundable deposits** 29,182,000 ‒ ‒ ‒ 29,182,000
P=6,164,716,067 P=90,838,334 P=71,351,293 P=1,191,601,209 P=7,518,506,903
Financial Liabilities
Financial Liabilities at FVPL
Accounts payable and other
accrued liabilities*** P=570,793,915 P=29,556,483 P=42,767,198 P=3,329,850,478 P=3,972,968,074
Long-term debt 37,231,947,630 ‒ ‒ ‒ 37,231,947,630
Others**** 224,413,504 ‒ ‒ ‒ 224,413,504
P=38,027,155,049 P=29,556,483 P=42,767,198 P=3,329,850,478 P=41,429,329,208
****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 statements of financial position
****Excluding government-related payables
****Included under ‘Other noncurrent liabilities’ in the consolidated statements of financial position
2015
US Dollar
Hong Kong
Dollar
Singaporean
Dollar
Other
Currencies* Total
Financial Assets
Cash and cash equivalents P=2,157,992,877 P=28,618,072 P=23,598,454 P=550,734,832 P=2,760,944,235
Receivables 319,932,610 27,987,568 23,597,364 268,906,696 640,424,238
Refundable deposits** 27,135,401 – – – 27,135,401
P=2,505,060,888 P=56,605,640 P=47,195,818 P=819,641,528 P=3,428,503,874
Financial Liabilities
Financial Liabilities at FVPL
Derivative financial
instruments not designated
as accounting hedges P=2,443,495,138 P=– P=– P=– P=2,443,495,138
Accounts payable and other
accrued liabilities*** 4,136,229,873 43,755,668 54,483,493 248,494,675 4,482,963,709
Long-term debt 36,588,985,491 – – – 36,588,985,491
Others**** 224,413,504 – – – 224,413,504
P=43,393,124,006 P=43,755,668 P=54,483,493 P=248,494,675 P=43,739,857,842
****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 statements of financial position
****Excluding government-related payables
****Included under ‘Other noncurrent liabilities’ in the consolidated statements of financial position
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The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities
as of December 31, 2016 and 2015 follow:
2016 2015
US dollar P=49.720 to US$1.00 P=47.060 to US$1.00
Singapore dollar P=34.354 to SGD1.00 P=33.517 to SGD1.00
Hong Kong dollar P=6.421 to HKD1.00 P=6.086 to HKD1.00
The following table sets forth the impact of the range of reasonably possible changes in the
USD - Peso exchange value on the Group’s pre-tax income for the years ended December 31,
2016, 2015 and 2014 (in thousands).
2016 2015 2014
Changes in foreign exchange value P=2 (P=2) P=2 (P=2) P=2 (P=2)
Change in pre-tax income (P=1,315,342) P=1,315,342 (P=1,737,699) P=1,737,699 (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=2,326.5 million, P=2,132.7 million and P=1,778.5 million for the years December 31, 2016, 2015
and 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
statements of financial position and on some financial instruments not recognized in the
consolidated statements 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).
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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, 2016
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years
Total
(In US Dollar)
Total
(in Philippine
Peso) Fair Value
ECA-backed loans from banks(Note 18)
Floating rate
US Dollar London Interbank Offering
Rate (LIBOR) US$16,295,558 US$16,531,413 US$16,002,466 US$15,151,894 US$15,330,362 US$38,529,680 US$117,841,373 P=5,859,073,080 P=5,860,658,097
Commercial loans from banks (Note 18)
Floating rate 44,763,630 43,819,261 44,531,884 45,249,977 46,007,719 152,209,353 376,581,824 18,723,648,282 18,969,392,037
US$61,059,188 US$60,350,674 US$60,534,350 US$60,401,871 US$61,338,081 US$190,739,033 US$494,423,197 P=24,582,721,362 P=24,830,050,134
December 31, 2015
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years
Total
(In US Dollar)
Total
(in Philippine
Peso) Fair Value
ECA-backed loans from banks (Note 18)
Floating rate
US Dollar LIBOR US$15,982,346 US$16,140,463 US$16,362,447 US$16,130,052 US$15,030,481 US$54,241,695 US$133,887,484 P=6,300,745,013 P=6,280,226,991
Commercial loans from banks (Note 18)
Floating rate 32,797,061 33,258,070 33,734,931 34,223,316 34,716,386 140,111,604 308,841,368 14,534,074,745 14,869,925,168
US$48,779,407 US$49,398,533 US$50,097,378 US$50,353,368 US$49,746,867 US$194,353,299 US$442,728,852 P=20,834,819,758 P=21,150,152,159
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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 years ended December 31, 2016, 2015 and 2014.
2016 2015 2014
Changes in interest rates 1.50% (1.50%) 1.50% (1.50%) 1.50% (1.50%)
Changes in pre-tax income (P=392,086,223) P=392,086,223 (P=274,842,903) P=274,842,903 (P=183,855,223) P=183,855,223
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 at fair value through profit or loss.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates,
with all other variables held constant, of the Group’s income before tax and the relative impact on
the Group’s net assets as of December 31, 2016 and 2015:
Change in Basis
Points
Effect on Profit
Before Tax
2016 +100% P=5,915,843
-100% (5,915,843)
2015 +100% P=10,278,994
-100% (10,278,994)
29. Fair Value Measurement
The carrying amounts approximate fair values for the Group’s financial assets and liabilities due
to its short-term maturities, except for the following financial assets and other financial liabilities
as of December 31, 2016 and 2015:
2016 2015
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Loans and receivables
Refundable deposits*
(Note 16) P=29,182,000 P=34,248,959 P=27,135,401 P=30,107,952
Financial Liabilities
Other financial liability
Long-term debt**
(Note 18) P=42,810,437,630 P=42,744,359,043 P=36,588,985,491 P=37,501,137,327
**Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position.
**Including current portion.
The methods and assumptions used by the Group in estimating the fair value of financial assets
and other financial liabilities are:
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 2016 and 2015.
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
rates used range from 2% to 6% as of December 31, 2016 and 2015.
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The Group uses the following hierarchy for determining and disclosing the fair value of financial
assets and liabilities designated at FVPL and derivative financial instruments by valuation
techniques:
(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
that are not based on observable market data.
The table below shows the Group’s financial instruments carried at fair value hierarchy
classification:
2016
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Financial assets (liabilities) at
FVPL (Note 9) P=441,773,905 P=− P=– P=441,773,905
Assets and liabilities for which
fair values are disclosed:
Refundable deposits P=− P=− P=34,248,959 P=34,248,959
Long-term debt − (42,744,359,043) − (P=42,744,359,043)
2015
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at
fair value:
Financial assets (liabilities) at
FVPL (Note 9) (P=2,443,495,138) P=− P=– (P=2,443,495,129)
Assets and liabilities for which
fair values are disclosed:
Refundable deposits P=− P=− P=30,107,952 P=30,107,952
Long-term debt − (37,501,137,327) − (37,501,137,327)
There were no transfers within any hierarchy level of fair value measurements for the years ended
December 31, 2016 and 2015, respectively.
30. Commitments and Contingencies
Operating Aircraft Lease Commitments
The Group entered into operating lease agreements with certain leasing companies, which cover
the following aircraft:
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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 2019
March 2008 GY Aviation Lease 0905 Co. Limited 2 January 2019
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 (1) Airbus A320, which was delivered in 2007, and with CIT Aerospace International for the
lease of four (4) Airbus A320 aircraft, which were delivered in 2008. In 2015, the Group
extended the lease agreement with Inishcrean for another three years.
In March 2008, the Parent Company entered into operating lease agreements with GY Aviation
Lease 0905 Co. Limited (GY Aviation) for the lease of two (2) Airbus A320 aircraft, which were
delivered in 2009, and two Airbus A320 aircraft with two other lessors, which were received in
2012. In November 2010, the Parent Company signed an amendment to the operating lease
agreements, advancing the delivery of the two (2) Airbus A320 aircraft to 2011 from 2012.
In 2016, the Group extended the lease agreement with GY Aviation Lease 0905 Co. Limited for
another two years pursuant to a letter of intent (LOI) signed in the first quarter of the same year.
In July 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd.
(RBS) for the lease of two (2) 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 A330 MSN 1552 Limited and A330
MSN 1602 Limited*
2 12 years with pre-termination
option
*New lessors per Deed of Novation and Amendment signed on August 2014 and March 2015
On February 21, 2012, the Group entered into a lease agreement with CIT Aerospace International
for four (4) 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 (2) Airbus A330-300 aircraft, which were delivered in
September 2014 and March 2015.
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As of December 31, 2016, the Group has six (6) Airbus A330 aircraft under operating lease
(Note 13), wherein one (1) Airbus was delivered in 2015.
The first two (2) A330 aircraft were delivered in June 2013 and September 2013. Three (3) A330
aircraft were delivered in February 2014, May 2014 and September 2014. One (1) 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=4,253.7 million,
P=4,024.6 million and P=3,503.5 million in 2016, 2015 and 2014, respectively.
Future minimum lease payments under the above-indicated operating aircraft leases follow:
2016 2015 2014
US Dollar
Philippine peso
Equivalent US Dollar
Philippine Peso
Equivalent US Dollar
Philippine Peso
Equivalent
Within one year US$88,821,146 P=4,416,187,364 US$90,260,208 P=4,247,645,406 US$88,551,265 P=3,960,012,577
After one year but not more
than five years 345,847,247 17,195,525,129 309,193,470 14,550,644,708 314,017,649 14,042,869,274
Over five years 206,018,543 10,243,241,938 332,977,141 15,669,904,258 395,380,828 17,681,430,645
US$640,686,936 P=31,854,954,431 US$732,430,819 P=34,468,194,372 US$797,949,742 P=35,684,312,496
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:
2016 2015 2014
Within one year P=167,226,528 P=135,299,739 P=127,970,825
After one year but not more than
five years 710,187,772 564,977,120 539,700,300
Over five years 3,477,917,440 2,433,712,858 2,065,948,495
P=4,355,331,740 P=3,133,989,717 P=2,733,619,620
Lease expenses relating to both cancellable and noncancellable non-aircraft leases (allocated under
different expense accounts in the consolidated statements of comprehensive income) amounted to
P=625.8 million, P=488.6 million and P=337.1 million in 2016, 2015 and 2014, respectively.
Service Maintenance Commitments
On June 21, 2012, the Parent Company has entered into a 10-year charge per aircraft landing
(CPAL) 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 Parent Company 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-Royce will provide long-term Total Care service support for the Trent 700 engines on up to
eight A330 aircraft. Contract term shall be from delivery of the first A330 until the redelivery of
the last A330.
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On July 12, 2012, the Parent Company has entered into a maintenance service contract with
SIAEC for the maintenance, repair and overhaul services of its A319 and A320 aircraft.
Specific services from SIAEC are Base Maintenance, Fleet Technical Management (FTM),
Inventory Technical Management (ITM) and C&E for Line Maintenance Services for the A319
and A320. These agreements remained in effect as of December 31, 2016.
Aircraft and Spare Engine Purchase Commitments
In August 2011, the Group entered in a commitment with Airbus S.A.S 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.
On October 20, 2015, the Group entered into a Sale and Purchase Contract with Avions Transport
Regional G.I.E. to purchase 16 firm ATR 72-600 aircraft and up to 10 additional option ATR
72-600 aircraft. These aircraft are scheduled to be delivered from 2016 to 2020. Two ATR72-600
were received during 2016.
As of December 31, 2016, the Group will take delivery of 30 Airbus A321 NEO aircraft and
14 ATR 72-600.
The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.
These agreements remained in effect as of December 31, 2016.
Capital Expenditure Commitments
The Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,
aggregating to P=114,323.7 million and P=93,797.6 million as of December 31, 2016 and 2015,
respectively.
2016
US Dollar
Philippine Peso
Equivalent
Within one year
US$483,178,223 P=24,023,621,236
After one year but not more than
five years 1,886,172,565 93,780,499,949
US$2,369,350,788 P=117,804,121,185
2015
US Dollar
Philippine Peso
Equivalent
Within one year US$294,434,836 P=13,856,103,384
After one year but not more than
five years 1,698,714,532 79,941,505,899
US$1,993,149,368 P=93,797,609,283
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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 (Note 17).
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, 2015 the Group recognized a liability based on the schedule of pre-delivery
payments amounting P=482.0 million. These incurred costs are recognized under the
‘Construction in progress’ account. The liability was paid in the following year.
b. The Parent Company paid P=488.6 million for the acquisition of CEBGO (Note 7).
Cash flows used to acquire CEBGO, after the cash attributable to the business combination of
P=256.7 million, amounted to P=231.8 million.
c. The Group applied creditable withholding taxes against income tax payable and these
amounted to P=45.9 million, P=51.0 million and P=21.0 million in 2016, 2015 and 2014,
respectively.
32. Registration with the BOI
The Parent Company is registered with the BOI as a new operator of air transport on a pioneer
status on eleven (11) A320 and non-pioneer status for eleven (11) Airbus A320 aircraft and
two (2) Airbus A330 aircraft. Under the terms of the registration and subject to certain
requirements, the Parent Company is entitled to the following fiscal and non-fiscal incentives
(Notes 1, 13 and 25):
Date of Registration Registration Number ITH Period
November 3, 2010 2010-180 Jan 2011 - Dec 2016
November 16, 2011 2011-241 Nov 2011 - Nov 2017
January 17, 2012 2012-013 Mar 2012 - Feb 2016
January 17, 2012 2012-014 Mar 2012 - Feb 2016
December 6, 2012 2012-262 Dec 2012 - Dec 2018
February 11,2013 2013-045 Feb 2013 - Feb 2019
April 11, 2013 2013-089 Apr 2013 - Apr 2019
July 29, 2013 2013-166 July 2013 - July 2017
September 13, 2013 2013-185 Sept 2013 - Sept 2019
September 13, 2013 2013-186 Sept 2013 - Sept 2019
October 3, 2013 2013-201 Oct 2013 - Oct 2017
January 17, 2014 2014-012 Jan 2014 - Jan 2020
February 19, 2014 2014-037 Feb 2014 - Feb 2020
May 21, 2014 2014-080 May 2014 - May 2018
May 21, 2014 2014-081 May 2014 - May 2018
January 22, 2015 2015-011 Jan 2015 - Jan 2019
January 22,2015 2015-012 Jan 2015 - Jan 2019
February 17, 2015 2015-039 Feb 2015 - Feb 2019
March 9, 2015 2015-061 Mar 2015 - Mar 2019
October 22, 2015 2015-225 Oct 2015 - Oct 2019
November 4, 2015 2015-238 Nov 2015 - Nov 2019
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Date of Registration Registration Number ITH Period
February 23, 2016 2016-040 Feb 2016 - Feb 2020
March 2, 2016 2016-045 Mar 2016 - Mar 2020
May 26, 2016 2016-100 May 2016 - May 2020
a. An ITH for a period of four (4) years for non-pioneer status and six (6) years for pioneer
status.
b. Employment of foreign nationals. This may be allowed in supervisory, technical or advisory
positions for five (5) years from date of registration.
c. Importation of capital equipment, spare parts and accessories at zero (0%) duty from date of
effectivity of Executive Order (E.O.) No. 70 and its Implementing Rules and Regulations for a
period of five (5) years reckoned from the date of its registration or until the expiration of
E.O. 70, whichever is earlier.
d. Avail of a bonus year in each of the following cases but the aggregated ITH availments
(regular and 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.
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 prior
to the extension unless the BOI prescribes a higher percentage.
e. Additional deduction from taxable income of fifty percent (50%) of the wages corresponding
to the increment in number of direct labor for skilled and unskilled workers in the year of
availments as against the previous year, if the project meets the prescribed ratio of capital
equipment to the number of workers set by the BOI. This may be availed of for the first
five (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 materials
and supplies and semi-manufactured products used in producing its export product and
forming part thereof for a ten (10) years from start of commercial operations. Request for
amendment of the date of start of commercial operation for purposes of determining the
reckoning date of the ten-year period, shall be filed within one (1) year from date of
committed start of commercial operation.
g. Simplification of customs procedures for the importation of equipment, spare parts, raw
materials and suppliers.
h. Access to Customs Bonded Manufacturing Warehouse (CBMW) subject to the customs rules
and 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-year period.
j. Importation of consigned equipment for a period of ten (10) years from date of registration
subject to posting of re-export bond.
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k. Exemption from taxes and duties on imported spare parts and consumable supplies for export
producers with CBMW exporting at least 100% of production.
The Parent Company shall submit to the BOI a semestral report on the actual investments,
employment and sales pertaining to the registered project. The report shall be due 15 days after
the end of each semester.
As of December 31, 2016 and 2015, the Parent Company has complied with externally imposed
capital requirements set by the BOI in order to avail the ITH incentives for aircraft of registered
activity.
33. Approval of the Consolidated Financial Statements
The consolidated financial statements were approved and authorized for issue by the BOD on
March 21, 2017.
34. Standards issued but not yet Effective
Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the
Group does not expect that the future adoption of the said pronouncements to have a significant
impact on its consolidated financial statements. The Group intends to adopt the following
pronouncements when these becomes effective.
Effective beginning on or after January 1, 2017
Amendments to PFRS 12, Clarification of the Scope of the Standard (Part of Annual
Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that the disclosure requirements in PFRS 12, other than those relating
to summarized financial information, apply to an entity’s interest in a subsidiary, a joint
venture or an associate (or a portion of its interest in a joint venture or an associate) that is
classified (or included in a disposal group that is classified) as held for sale.
Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative
The amendments to PAS 7 require an entity to provide disclosures that enable users of
financial statements to evaluate changes in liabilities arising from financing activities,
including both changes arising from cash flows and non-cash changes (such as foreign
exchange gains or losses). On initial application of the amendments, entities are not required
to provide comparative information for preceding periods. Early application of the
amendments is permitted.
Application of amendments will result in additional disclosures in the 2017 consolidated
financial statements of the Group.
Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized
Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources
of taxable profits against which it may make deductions on the reversal of that deductible
temporary difference. Furthermore, these amendments provide guidance on how an entity
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should determine future taxable profits and explain the circumstances in which taxable profit
may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application
of the amendments, the change in the opening equity of the earliest comparative period may
be recognized in opening retained earnings (or in another component of equity, as
appropriate), without allocating the change between opening retained earnings and other
components of equity. Entities applying this relief must disclose that fact. Early application
of the amendments is permitted.
Effective beginning on or after January 1, 2018
Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-
based Payment Transactions
The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the classification of a
share-based payment transaction with net settlement features for withholding tax obligations;
and the accounting where a modification to the terms and conditions of a share-based payment
transaction changes its classification from cash settled to equity settled.
On adoption, entities are required to apply these amendments without restating prior periods,
but retrospective application is permitted if elected for all three amendments and if other
criteria are met. Early application of the amendments is permitted.
Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with
PFRS 4
The amendments address concerns arising from implementing PFRS 9, the new financial
instruments standard, before implementing the forthcoming insurance contracts standard.
These amendments allow entities to choose between the overlay approach and the deferral
approach to deal with the transitional challenges. The overlay approach gives all entities that
issue insurance contracts the option to recognize in OCI, rather than profit or loss, the
volatility that could arise when PFRS 9 is applied before the new insurance contracts standard
is issued. On the other hand, the deferral approach gives entities whose activities are
predominantly connected with insurance an optional temporary exemption from applying
PFRS 9 until the earlier of application of the forthcoming insurance contracts standard or
January 1, 2021.
The overlay approach and the deferral approach will only be available to an entity if it has not
previously applied PFRS 9.
PFRS 15, Revenue from Contracts with Customers
PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts
with customers. Under PFRS 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 PFRS 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 PFRSs. Either a full or modified retrospective application is
required for annual periods beginning on or after January 1, 2018.
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During 2016, the Group performed a preliminary assessment of PFRS 15, which is subject to
changes arising from a more detailed ongoing analysis. Furthermore, the Group is considering
the clarifications issued by International Accounting Standards Board (IASB) in April 2016
and will monitor any further developments.
PFRS 9, Financial Instruments
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. This new standard should be applied retrospectively, but providing
comparative information is not compulsory. For hedge accounting, the requirements are
generally applied prospectively, with some limited exceptions.
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 Group
is currently assessing the impact of adopting this standard.
Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value
(Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that an entity that is a venture capital organization, or other
qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to
measure its investments in associates and joint ventures at FVPL. These amendments also
clarify that if an entity that is not itself an investment entity has an interest in an associate or
joint venture that is an investment entity, the entity may, when applying the equity method,
elect to retain the fair value measurement applied by that investment entity associate or joint
venture to the investment entity associate’s or joint venture’s interests in subsidiaries.
This election is made separately for each investment entity associate or joint venture, at the
later of the date on which (a) the investment entity associate or joint venture is initially
recognized; (b) the associate or joint venture becomes an investment entity; and (c) the
investment entity associate or joint venture first becomes a parent. These amendments should
be applied retrospectively, with earlier application permitted.
Amendments to PAS 40, Investment Property, Transfers of Investment Property
The amendments clarify when an entity should transfer property, including property under
construction or development into, or out of investment property. These amendments state that
a change in use occurs when the property meets, or ceases to meet, the definition of
investment property and there is evidence of the change in use. A mere change in
management’s intentions for the use of a property does not provide evidence of a change in
use. These amendments should be applied prospectively to changes in use that occur on or
after the beginning of the annual reporting period in which the entity first applies the
amendments. Retrospective application is only permitted if this is possible without the use of
hindsight.
Philippine Interpretation International Financial Reporting Interpretation’s Committee
(IFRIC)-22, Foreign Currency Transactions and Advance Consideration
The interpretation clarifies that in determining the spot exchange rate to use on initial
recognition of the related asset, expense or income (or part of it) on the derecognition of a
non-monetary asset or nonmonetary liability relating to advance consideration, the date of the
transaction is the date on which an entity initially recognizes the nonmonetary asset or
nonmonetary liability arising from the advance consideration. If there are multiple payments
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*SGVFS022041*
or receipts in advance, then the entity must determine a date of the transaction for each
payment or receipt of advance consideration. The interpretation may be applied on a fully
retrospective basis. Entities may apply the interpretation prospectively to all assets, expenses
and income in its scope that are initially recognized on or after the beginning of the reporting
period in which the entity first applies the interpretation or the beginning of a prior reporting
period presented as comparative information in the financial statements of the reporting period
in which the entity first applies the interpretation.
Effective beginning on or after January 1, 2019
PFRS 16, Leases
Under the new standard, lessees will no longer classify their leases as either operating or
finance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset
model. Under this model, lessees will recognize the assets and related liabilities for most
leases on their statements of financial position, and subsequently, will depreciate the lease
assets and recognize interest on the lease liabilities in their profit or loss. Leases with a term
of 12 months or less or for which the underlying asset is of low value are exempted from these
requirements. The accounting by lessors is substantially unchanged as the new standard
carries forward the principles of lessor accounting under PAS 17. Lessors, however, will be
required to disclose more information in their financial statements, particularly on the risk
exposure to residual value.
Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. When
adopting PFRS 16, an entity is permitted to use either a full retrospective or a modified
retrospective approach, with options to use certain transition reliefs.
The new standard is expected to have significant impact in the Group.
Deferred effectivity
Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture
The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. These
amendments clarify that a full gain or loss is recognized when a transfer to an associate or
joint venture involves a business as defined in PFRS 3, Business Combinations. Any gain or
loss resulting from the sale or contribution of assets that does not constitute a business,
however, is recognized only to the extent of unrelated investors’ interests in the associate or
joint venture.
On January 13, 2016, the Financial Reporting Standards Council postponed the original
effective date of January 1, 2016 of the said amendments until the IASB has completed its
broader review of the research project on equity accounting that may result in the
simplification of accounting for such transactions and of other aspects of accounting for
associates and joint ventures.
*SGVFS022041*
INDEPENDENT AUDITORS’ REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
Cebu Air, Inc.
2nd Floor, Doña Juanita Marquez Lim Building
Osmeña Boulevard, Cebu City
We have audited, in accordance with Philippine Standards on Auditing, the consolidated financial
statements of Cebu Air, Inc. and its Subsidiaries (the Group) as at December 31, 2016 and 2015 and for
each of the three years in the period ended December 31, 2016, included in this Form 17-A and have
issued our report thereon dated March 21, 2017. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The schedules listed in the Index
to Consolidated Financial Statements and Supplementary Schedules are the responsibility of the Group’s
management. Thus, schedules are presented for the purpose of complying with Securities Regulation
Code Rule 68, As Amended (2011), and are not part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly state, in all material respects, the information required to
be set forth therein in relation to the basic consolidated financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Narciso T. Torres, Jr.
Partner
CPA Certificate No. 84208
SEC Accreditation No. 1511-A (Group A),
October 1, 2015, valid until September 30, 2018
Tax Identification No. 102-099-147
BIR Accreditation No. 08-001998-111-2015,
March 4, 2015, valid until March 3, 2018
PTR No. 5908769, January 3, 2017, Makati City
March 21, 2017
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines
Tel: (632) 891 0307 Fax: (632) 819 0872 ey.com/ph
BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018 SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018
A member firm of Ernst & Young Global Limited
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE A - FINANCIAL ASSETS
(CURRENT MARKETABLE EQUITYAND DEBT SECURITIES AND OTHER SHORT-TERM CASH INVESTMENTS)
DECEMBER 31, 2016
Amount Shown in Value Based on
Name of Issuing Entity and the Balance Sheet/ Market Quotations Income Received and
Description of Each Issue Notes at Balance Sheet Date Accrued
Various / USD Short-term cash investments P=3,381,611,183 P=3,381,611,183 P=34,731,373
Various / PHP Short-term cash investments 4,300,150,111 4,300,150,111 70,515,921
P=7,681,761,294 P=7,681,761,294 P=105,247,294
Various / Private Bonds – – –
Various / Government Bonds – – –
Various / Equity Securities – – –
Derivative Assets (Fuel Hedge) P=441,773,905 P=441,773,905 P=–
See Notes 8 and 9 of the Consolidated Financial Statements.
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CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE B
AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS
(OTHER THAN RELATED PARTIES)
DECEMBER 31, 2016
Balance Balance at End of Period
Name and Designation at Beginning
of Debtor of Period Additions Collections Write Offs Current Noncurrent Total
Various employees P=40,333,450 P=310,989,715 P=304,009,947 P=– P=41,892,143 P=5,421,075 P=47,313,218
- 3 -
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE E - PROPERTY AND EQUIPMENT
DECEMBER 31, 2016
Balance Additions Balance
at Beginning Additions through Disposals and at End
Classification of Period at Cost Business Combination Reclassification Others of Period
Passenger Aircraft P=70,180,391,031 P=8,093,523,876 P=− P=4,351,607,461 (P=6,731,514,648) P=75,894,007,720
Engines 8,800,954,427 1,574,616,146 – – (905,884,607) 9,469,685,966
Rotables 3,224,302,949 553,091,249 – − (126,834,671) 3,650,559,527
EDP Equipment, Mainframe and
Peripherals 865,940,227 52,875,536 – (1,240,000) (43,800,751) 873,775,012
Ground Support Equipment 515,338,948 137,361,635 – − (3,435,189) 649,265,394
Leasehold Improvements 1,030,008,118 − – 295,997,691 − 1,326,005,809
Transportation Equipment 231,795,064 39,686,360 – − − 271,481,424
Furniture, Fixtures and Office
Equipment 158,892,556 34,976,928 –
−
(1,126,698) 192,742,786
Special Tools 14,213,796 594,216 – − − 14,808,012
Communication Equipment 15,023,503 11,303,157 – − − 26,326,660
Maintenance and Test Equipment 6,681,631 32,589 – − (176,103) 6,538,117
Other Equipment 99,147,611 6,966,369 – 1,240,000 (2,467,460) 104,886,520
Construction In-progress 10,576,116,375 8,621,026,175 – (4,647,605,152) − 14,549,537,398
P=95,718,806,236 P=19,126,054,236 P=− P=− (P=7,815,240,127) P=107,029,620,345
See Note 13 of the Consolidated Financial Statements.
- 4 -
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE F - ACCUMULATED DEPRECIATION
DECEMBER 31, 2016
Balance
Additions
Charged
Additions Charged
Balance
at Beginning to Costs and through Disposals and at End
Description of Period Expenses Business Combination Reclassification Others of Period
Passenger Aircraft P=18,918,279,072 P=4,197,295,780 P=– P=– (P=3,919,771,057) P=19,195,803,795
Engines 2,271,191,035 1,108,933,677 – – (440,884,843) 2,939,239,869
Rotables 668,272,255 284,567,783 – − (90,855,604) 861,984,434
EDP Equipment, Mainframe and
Peripherals 688,136,458 94,619,501
−
(1,240,000) (43,768,739) 737,747,220
Ground Support Equipment 391,633,417 60,885,023 – − (3,384,416) 449,134,024
Leasehold Improvements 327,657,757 196,797,075 – – − 524,454,832
Transportation Equipment 168,712,193 23,812,004 – – − 192,524,197
Furniture, Fixtures and Office
Equipment 100,290,381 21,635,398
– −
(1,151,040) 120,774,739
Special Tools 12,645,419 429,938 – – − 13,075,357
Communication Equipment 10,686,314 2,674,955 – – 79,224 13,440,493
Maintenance and Test Equipment 6,590,325 57,720 – – (176,103) 6,471,942
Other Equipment 78,890,597 6,986,563 – 1,240,000 (2,451,214) 84,665,946
Construction in-progress – – – – – –
P=23,642,985,223 P=5,998,695,417 P=− P=− (4,502,363,792) P=25,139,316,848
- 5 -
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE H - LONG-TERM DEBT
DECEMBER 31, 2016
Amount Shown under
Caption "Current Portion of
Finance Lease Obligation" in
Related Balance Sheet
Amount Shown under
Caption " Finance Lease
Obligation" in Related
Balance Sheet
Title of Issue and
Type of Obligation Interest Rates Maturity Dates
Export Credit Agency-Backed Loans
2.00% to 6.00% Various dates
through 2023
P=1,699,487,313
P=4,843,451,067
1.00% to 2.00%
(US Dollar LIBOR) 810,215,121 5,048,857,967
Commercial Loans from banks
3.00% to 6.00%
Various dates
through 2017 1,830,367,889 4,275,920,000
Commercial Loans from banks
1.00% to 2.00%
(US Dollar LIBOR)
2.00% to 3.00%
(Phil.Pesos LIBOR)
Various dates
Through 2026
2,142,334,137
557,849,000
16,581,314,136
5,020,641,000
Total P=7,040,253,460 P=35,770,184,170
See Note 18 of the Consolidated Financial Statements.
- 6 -
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE K
CAPITAL STOCK
DECEMBER 31, 2016
Number of Shares
Authorized
Number of Shares Reserved
for Options, Warrants,
Conversion and Other
Rights
Number of Shares Issued Number of Shares Held by
and Outstanding as Directors,
Officers and
Employees
Shown under Related
Title of Issue Balance Sheet Caption Affiliates Others
Common Stock 1,340,000,000 605,953,330 – 407,412,031 509 198,540,790
See Note 20 of the Consolidated Financial Statements.
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS
List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs, Philippine
Accounting Standards (PASs) and Philippine Interpretations] and Philippine Interpretations
Committee (PIC) Q&As effective as of December 31, 2016
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2016
Adopted Not
Adopted
Not
Applicable
Framework for the Preparation and Presentation of Financial
Statements
Conceptual Framework Phase A: Objectives and qualitative
characteristics
PFRSs Practice Statement Management Commentary
Philippine Financial Reporting Standards
PFRS 1
(Revised)
First-time Adoption of Philippine Financial Reporting
Standards
Amendments to PFRS 1 and PAS 27: Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or
Associate
Amendments to PFRS 1: Additional Exemptions for First-
time Adopters
Amendment to PFRS 1: Limited Exemption from
Comparative PFRS 7 Disclosures for First-time Adopters
Amendments to PFRS 1: Severe Hyperinflation and
Removal of Fixed Date for First-time Adopters
Amendments to PFRS 1: Government Loans
PFRS 2 Share-based Payment
Amendments to PFRS 2: Vesting Conditions and
Cancellations
Amendments to PFRS 2: Group Cash-settled Share-based
Payment Transactions
PFRS 3
(Revised)
Business Combinations
PFRS 4 Insurance Contracts
Amendments to PAS 39 and PFRS 4: Financial Guarantee
Contracts
PFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
Amendment to PFRS 5: Changes in Methods of Disposal
PFRS 6 Exploration for and Evaluation of Mineral Resources
PFRS 7 Financial Instruments: Disclosures
Amendments to PFRS 7: Transition
- 2 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2016
Adopted Not
Adopted
Not
Applicable
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets - Effective Date and Transition
Amendments to PFRS 7: Improving Disclosures about
Financial Instruments
Amendments to PFRS 7: Disclosures - Transfers of
Financial Assets
Amendments to PFRS 7: Disclosures – Offsetting Financial
Assets and Financial Liabilities
Amendments to PFRS 7: Mandatory Effective Date of
PFRS 9 and Transition Disclosures
Amendment to PFRS 7, Applicability of the Amendments
to PFRS 7 to Condensed Interim Financial Statements
Amendment to PFRS 7, Servicing Contracts
PFRS 8 Operating Segments
PFRS 9 Financial Instruments
Amendments to PFRS 9: Mandatory Effective Date of
PFRS 9 and Transition Disclosures
PFRS 10 Consolidated Financial Statements
Amendments to PFRS 10, PFRS 12 and PAS 28,
Investment Entities: Applying the Consolidation Exception
PFRS 11 Joint Arrangements
Amendments to PFRS 11: Accounting for Acquisitions of
Interests in Joint Operations
PFRS 12 Disclosure of Interests in Other Entities
Amendments to PFRS 10, PFRS 12 and PAS 28,
Investment Entities: Applying the Consolidation Exception
PFRS 13 Fair Value Measurement
PFRS 14 Regulatory Deferral Accounts
Philippine Accounting Standards
PAS 1
(Revised)
Presentation of Financial Statements
Amendment to PAS 1: Capital Disclosures
Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation
Amendments to PAS 1: Presentation of Items of Other
Comprehensive Income
Amendments to PAS 1, Disclosure Initiative
PAS 2 Inventories
- 3 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2016
Adopted Not
Adopted
Not
Applicable
PAS 7 Statement of Cash Flows
PAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors
PAS 10 Events after the Balance Sheet Date
PAS 11 Construction Contracts
PAS 12 Income Taxes
Amendment to PAS 12 - Deferred Tax: Recovery of
Underlying Assets
PAS 16 Property, Plant and Equipment
Amendments to PAS 16 and PAS 38, Clarification of
Acceptable Methods of Depreciation and Amortization
Amendments to PAS 16 and PAS 41, Agriculture: Bearer
Plants
PAS 17 Leases
PAS 18 Revenue
PAS 19 Employee Benefits
Amendments to PAS 19: Actuarial Gains and Losses,
Group Plans and Disclosures
PAS 19
(Amended)
Employee Benefits
Amendment to PAS 19, Discount Rate: Regional Market
Issue
PAS 20 Accounting for Government Grants and Disclosure of
Government Assistance
PAS 21 The Effects of Changes in Foreign Exchange Rates
Amendment: Net Investment in a Foreign Operation
PAS 23
(Revised)
Borrowing Costs
PAS 24
(Revised)
Related Party Disclosures
PAS 26 Accounting and Reporting by Retirement Benefit Plans
PAS 27
(Amended)
Separate Financial Statements
Amendments to PAS 27: Equity Method in Separate
Financial Statements
PAS 28
(Amended)
Investments in Associates and Joint Ventures
Amendments to PFRS 10, PFRS 12 and PAS 28,
Investment Entities: Applying the Consolidation Exception
PAS 29 Financial Reporting in Hyperinflationary Economies
PAS 31 Interests in Joint Ventures
- 4 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2016
Adopted Not
Adopted
Not
Applicable
PAS 32 Financial Instruments: Disclosure and Presentation
Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation
Amendment to PAS 32: Classification of Rights Issues
Amendments to PAS 32: Offsetting Financial Assets and
Financial Liabilities
PAS 33 Earnings per Share
PAS 34 Interim Financial Reporting
Amendment to PAS 34, Disclosure of Information
‘Elsewhere in the Interim Financial Report’
PAS 36 Impairment of Assets
PAS 37 Provisions, Contingent Liabilities and Contingent Assets
PAS 38 Intangible Assets
Amendments to PAS 16 and PAS 38, Clarification of
Acceptable Methods of Depreciation and Amortization
PAS 39 Financial Instruments: Recognition and Measurement
Amendments to PAS 39: Transition and Initial Recognition
of Financial Assets and Financial Liabilities
Amendments to PAS 39: Cash Flow Hedge Accounting of
Forecast Intragroup Transactions
Amendments to PAS 39: The Fair Value Option
Amendments to PAS 39 and PFRS 4: Financial Guarantee
Contracts
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets – Effective Date and Transition
Amendments to Philippine Interpretation IFRIC–9 and PAS
39: Embedded Derivatives
Amendment to PAS 39: Eligible Hedged Items
PAS 40 Investment Property
PAS 41 Amendments to PAS 16 and PAS 41, Agriculture: Bearer
Plants
Philippine Interpretations
IFRIC 1 Changes in Existing Decommissioning, Restoration and
Similar Liabilities
IFRIC 2 Members' Share in Co-operative Entities and Similar
Instruments
IFRIC 4 Determining Whether an Arrangement Contains a Lease
- 5 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2016
Adopted Not
Adopted
Not
Applicable
IFRIC 5 Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds
IFRIC 6 Liabilities arising from Participating in a Specific Market -
Waste Electrical and Electronic Equipment
IFRIC 7 Applying the Restatement Approach under PAS 29
Financial Reporting in Hyperinflationary Economies
IFRIC 8 Scope of PFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
Amendments to Philippine Interpretation IFRIC–9 and PAS
39: Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment
IFRIC 11 PFRS 2- Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
Amendments to Philippine Interpretations IFRIC- 14,
Prepayments of a Minimum Funding Requirement
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 17 Distributions of Non-cash Assets to Owners
IFRIC 18 Transfers of Assets from Customers
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
SIC-7 Introduction of the Euro
SIC-10 Government Assistance - No Specific Relation to
Operating Activities
SIC-12 Consolidation - Special Purpose Entities
Amendment to SIC - 12: Scope of SIC 12
SIC-13 Jointly Controlled Entities - Non-Monetary Contributions
by Venturers
SIC-15 Operating Leases - Incentives
SIC-21 Income Taxes - Recovery of Revalued Non-Depreciable
Assets
SIC-25 Income Taxes - Changes in the Tax Status of an Entity or
its Shareholders
SIC-27 Evaluating the Substance of Transactions Involving the
Legal Form of a Lease
SIC-29 Service Concession Arrangements: Disclosures.
- 6 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2016
Adopted Not
Adopted
Not
Applicable
SIC-31 Revenue - Barter Transactions Involving Advertising
Services
SIC-32 Intangible Assets - Web Site Costs
Not applicable standards have been adopted but the Group has no significant covered transactions as of and for the years ended December
31, 2016, 2015 and 2014.
*SGVFS022041*
CEBU AIR, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION
DECEMBER 31, 2016
The table below presents the retained earnings available for dividend declaration as of December 31,
2016:
Unappropriated retained earnings, beginning P=8,554,739,181
Adjustments:
Fair value adjustment arising from fuel hedging gains (P=393,007,855)
Unrealized foreign exchange gains (1,172,267,183)
Recognized deferred tax assets (3,556,360,717)
Treasury stock (529,319,321) (5,650,955,076)
Unappropriated retained earnings, as adjusted to available for
dividend distribution, beginning 2,903,784,105
Add: Net income actually earned/realized during the year:
Net income during the period closed to retained earnings 8,197,475,530
Less: Non-actual/unrealized income net of tax:
Unrealized foreign exchange gains 27,917,587
Fair value adjustment arising from fuel hedging gains 1,587,708,081 6,581,849,862
9,485,633,967
Less: Dividend declaration during the year 1,211,906,660
Appropriations of retained earnings during the year 6,600,000,000
Total Retained earnings available for dividend declaration
as of December 31, 2016 P=1,673,727,307
CEBU AIR, INC. AND SUBSIDIARIES
MAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE OF FINANCIAL RATIOS
FOR THE YEARS ENDED December 31, 2016 and 2015
The following are the financial ratios that the Group monitors in measuring and analyzing its financial
soundness:
Financial Ratios 2016 2015
Liquidity Ratios
Current Ratio 54% 37%
Quick Ratio 46% 24%
Capital Structure Ratios
Debt-to-Equity Ratio (x) 1.28 1.47
Net Debt-to Equity Ratio (x) 0.97 1.28
Adjusted Net Debt-to Equity Ratio (x) 1.94 2.48
Asset to Equity Ratio (x) 3.00 3.40
Interest Coverage Ratio (x) 10.47 9.04
Profitability Ratios
EBITDAR Margin 38% 35%
EBIT Margin 20% 17%
Pre-tax core net income margin 18% 15%
Return on asset 11% 5%
Return on equity 33% 19%