2014

ANNUAL REPORT

Who We Are 2
Message to Shareholders 4
Board of Directors 8
Senior Management and Consultants 10
Operating Statistics and Financial Highlights 12
Route Map 14
Our Fleet 16
Our Products 18
2014 Highlights 24
Corporate Social Responsibility 35
Financial Statements 37
OUR VALUES
ACCOUNTABILITY We take responsibility for what we say, the decisions we
make, and the actions we take.

RESPECT We uphold the dignity and individuality of each person.

EXCELLENCE We strive to be the best in everything we do.

FUN We enjoy our work and provide quality service in a

fun-filled manner.

INTEGRITY We are honorable. We do what is right, not what is

expedient.

TEAMWORK We value and harness the strengths of each team

member. We collaborate and cooperate with each
other to achieve our goals.

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OUR VISION
Cebu Pacific: The most successful low-cost carrier in the world.

OUR MISSION
“Why everyone flies.”

Cebu Pacific brings people together

through safe, affordable, reliable
and fun-filled air travel.

We are committed to innovation

and excellence in everything we do.

We are an employer of choice

providing opportunities for professional
and personal growth.

We have a deep sense of family values

throughout our airline.

We enhance the quality of life of the communities we

serve and are an active partner in our nation’s progress.

We offer our shareholders a

fair return on their investments.

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MESSAGE TO
SHAREHOLDERS

Dear Shareholders,
The year 2014 was another notable year for all of us, filled
with challenges to learn from, and triumphs to celebrate.
While the Philippine economy achieved a 6.1% GDP
growth, statistics from the Civil Aeronautics Board (CAB)
show that the number of Philippine domestic passengers
remained flattish at 20.35 million in 2014 from 20.33
million in 2013. The same data showed that international
Ricardo J. Romulo passenger traffic for 2014 grew only 3.4% to 17.9 million
CHAIRMAN
from 17.3 million in 2013.

Amidst this backdrop Cebu Pacific stood strong, as we

performed well ahead of industry statistics. Your company
flew a total of 16.9 million passengers in 2014, an increase
of 17.5% over 14.4 million passengers flown in 2013. This
allowed us to post P52.0 billion in consolidated total
revenues for 2014, 26.8% higher than the P41.0 billion
posted in 2013. Our seat capacity grew by 14.8% to 20.1
million, resulting in a healthy 83.9% seat load factor, as
we added five Airbus A320 aircraft and three Airbus A330
aircraft in 2014. This brought our total fleet to 52 aircraft at
the end of the year.

Lance Y. Gokongwei
PRESIDENT & CEO

4
CEB maintains dominance in the
domestic market.
Domestically, we flew 13.0 million passengers
in 2014, up 18.1% from 11.0 million in 2013. We
bolstered our domestic network, particularly in
Visayas and Mindanao, with more seats during
the year resulting to notable passenger growth in
areas such as Camiguin, Virac, Tawi-tawi, Siargao
and Zamboanga. New domestic routes were also
introduced in 2014 such as direct flights from Davao
to Bacolod and Cebu to Tandag.
Last March 2014, Cebu Pacific completed the
acquisition of 100% of Tiger Airways Philippines
(Tigerair Philippines). With Tigerair Philippines, we
were able to provide more flight frequencies from
Manila to Cagayan de Oro, Davao, General Santos,
Butuan, Roxas and Tagbilaran, and from Cebu
to Cagayan De Oro and Davao. The acquisition
likewise solidified Cebu Pacific’s dominance in the
domestic market. By the end of 2014, Cebu Pacific
and Tigerair Philippines had the largest combined
domestic market share at 60.8%.
We remained the leader on all important metrics, as
we continued to fly to the most destinations through
the most number of routes, and the most number
of flights. At the end of 2014, we flew to 34 domestic
destinations through 57 routes and more than 2,100
weekly flights, including 322 domestic weekly flights
of Tigerair Philippines.
CEB broadens international reach
Cebu Pacific’s international traffic grew 15.7% to 3.8
million passengers in 2014, as we launched several
new international destinations. With the lifting of
significant safety concerns by the International
Civil Aviation Organization, on the country’s ability
to meet global aviation standards, Cebu Pacific
started flying four times weekly to Nagoya and daily
to Narita in Japan. We also launched new long
haul destinations in 2014, including Kuwait, Riyadh,
and Sydney. Aside from these new destinations
in Japan, Middle East and Australia, we also saw
notable passenger growth in Taiwan and Indonesia,
while Singapore, Hongkong and South Korea
continued to be our largest international markets.
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Our international market share posted at 18.7% in
2014 from 17.8% in 2013. It is worthy to note that
on international routes we operate, Cebu Pacific
garnered a market share of about 23%.
Alongside the acquisition of Tigerair Philippines,
Cebu Pacific also formed a strategic alliance with
Tiger Airways Singapore. Through an interline
agreement, both Cebu Pacific and Tiger Airways
Singapore are able to provide guests more
connections on both networks. Cebu Pacific’s
passengers will be able to enjoy seamless
connections onto Tigerair’s network in South East
Asia and India. Tigerair’s customers, on the other
hand, will be able to select from Cebu Pacific’s
extensive network in the Philippines and North Asia.
In 2014, the US Federation Aviation Administration
upgraded the Philippines to Category 1, a rating
which allows more Philippine carriers to start
flying to the US. In addition, the European Union
also welcomed Cebu Pacific to fly European skies,
earning the distinction of being the only LCC in
the Philippines to receive the EU certification, a
testament to the airline’s commitment to safety and
full compliance with international aviation safety
standards. These are welcome developments for
many of us, especially for the millions of Filipinos
living and working abroad. These were made
possible with the full cooperation of the Philippine
government and the Civil Aviation Authority of the
Philippines.
CEB recognized by CAPA as Best
LCC in Asia-Pacific
We are happy to report that Cebu Pacific was
named Asia Pacific Low Cost Carrier of the Year by
Center for Aviation (CAPA) at their Aviation Awards
for Excellence held last October 2014. The CAPA
Awards are independently researched by CAPA’s
leading team of analysts, and then selected by
an independent international panel of advisors.
Receiving this prestigious award is proof of our
commitment to efficiently manage our costs to
provide the most affordable fares to the public,
work even smarter to get our planes off and on the
ground on time, and deliver our unique fun service
with a warm, caring smile.
Our innovative marketing and distribution strategies
were likewise recognized, as Cebu Pacific received
the award Highly Commended as Most Creative
Campaign by Airline in the Simplifying Awards for
Excellence in Social Media 2014. Our President and
CEO Lance Gokongwei received the Airline
Personality of the Year award from SKAL
International, a worldwide association of travel and
tourism professionals promoting global tourism
and friendship.
CEB Net Income surged 66.7% to
P853 million
We continued to deliver industry leading operating
performance, with average daily aircraft utilization of
12.1 block hours/day for our Airbus fleet, and turned
our aircraft an average of 6.6 times per day. With
this sustained operational efficiency and increase in
passenger traffic, consolidated revenues grew 26.8%
to P52.0 billion. Consolidated passenger revenues
grew 26.9% to P40.2 billion, while consolidated
cargo revenues increased 20.6% to 3.15 billion.
Ancillary revenue grew the fastest at 28.7% to P8.7
billion. Our average cost per available seat-kilometer
(ASK) declined 2.0% to P2.33 driven by various cost
initiatives and assisted by a recent decline in fuel
prices.
On the back of this notable improvement in
revenues and operating expenses, Cebu Pacific
posted a consolidated EBITDAR of P12.4 billion, up
41.7% than previous year, and our consolidated
pre-tax core net income surged 76.8% to P3.3 billion,
from P1.9 billion in 2013. With the recent decline in
fuel prices, Cebu Pacific posted fuel hedging losses
of P2.4 billion, which brings us to a consolidated net
income of P853 million, up 66.7% from P512 million
in 2013.
Margins also improved. Cebu Pacific posted
EBITDAR margin of 23.9% and EBIT margin of 8.0%,
up 2.5 and 2.1 percentage points than previous year,
respectively.
Our balance sheet remained healthy. Total assets
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as of December 31, 2014 increased to P76.1 billion
from P67.5 billion in 2013, as we added five new
Airbus A320 aircraft into our fleet. We ended the
year with a cash balance of P3.96 billion, while
calculated gearing kept our net debt-to-equity level
manageable at 1.4x. This robust financial condition
will allow us to support further growth.
CEB learns from challenges and
shortcomings
In the last part of 2014, we faced an enormous
challenge in providing a smooth travel experience to
our guests, particularly during the Christmas peak
season. Humbled by the trust placed by so many
of our countrymen and tourists in our airline, we
expressed our commitment to further improve our
service standards, including closer coordination
with our ground staff and airport personnel. There
are lessons to learn as a continuously growing
airline, and we have full faith that our team will work
even harder to ensure that we provide an improved,
comfortable and reliable travel experience to our
guests.
Outlook
We enter 2015 with much optimism as we continue
to expand our network. Last March 26, 2015, Cebu
Pacific started a four times weekly Cebu-Narita
service. This is the airline’s fourth route between
Japan and the Philippines, and Cebu Pacific is the
only low-cost carrier operating this route. Also, last
June 4, 2015, Cebu Pacific launched twice weekly
direct flights between Manila and Doha, Qatar.
Qatar has the third-largest Filipino community in the
Middle East and Cebu Pacific is the only Philippine
carrier flying between these two cities, serving more
Global Filipinos in the Middle East. Finally, with the
upgrade of the Philippines’ aviation rating by the
US FAA to Category 1, we aim to fly to Guam and
Honolulu, Hawaii within the second half of 2015.
We will maintain our disciplined approach in
expanding our fleet to reinforce our growth
strategies. We ended the year 2014 with 52 aircraft
consisting of five Airbus A330, 29 Airbus A320, ten
Airbus A319 and eight ATR 72-500 turboprop planes.
Within the first quarter of 2015, we took delivery
of two additional, sharklet-equipped Airbus A320
aircraft, as well as our 6th Airbus A330 aircraft,
bringing our total fleet to 55 aircraft, with two more
Airbus A320 aircraft for delivery in the 2nd half of
2015. We are scheduled to take delivery of 5 more
Airbus A320 aircraft between 2016 to 2017.
Earlier this year, Cebu Pacific also signed a forward
sale agreement covering the sale of six Airbus A319
aircraft which will be scheduled for delivery between
2015 and 2016. This is in line with Cebu Pacific’s
strategy of replacing and upgrading our fleet with
the larger, more fuel efficient, and longer range A321
NEO. Our orders for 30 Airbus A321 NEO aircraft are
slated to arrive from 2017 to 2021. We take pride in
owning one of the youngest fleets in the world with
an average age of 4.4 years as of end 2014.
and has, in many ways, created a unique and more
robust travel culture among the Filipinos.
We would like to thank you, our shareholders, and
the members of our Board of Directors for your
continued trust and confidence in our Company. Our
heartfelt thanks also go to all our loyal passengers,
and to our management team, our dedicated
employees, suppliers, and business partners. With
your support, we are confident that we can sustain
our successes, and weather the challenges that arise
along the way. It has been an amazing journey so
far, but there is still so much more we hope to learn
and achieve. We are very excited and hopeful about
what lies ahead.
Once again, maraming, maraming
salamat po.

We will likewise continue to implement measures to

control our costs, such as building frequencies on
Ricardo J. Romulo
existing routes, and maximizing aircraft utilization CHAIRMAN
to spread out fixed expenses. The recent fuel cost
decline will help improve overall profitability,
allowing us to offer even more affordable fares. Last
January 2015, in compliance with a Civil Aeronautics
Board Resolution No. 79, mandating all domestic Lance Y. Gokongwei
PRESIDENT AND CEO
and international airlines operating to and from the
Philippines to lift the imposition of fuel surcharges
on international and domestic flights, CEB removed
its fuel surcharges on all domestic and international
flights.

Acknowledgements
Last January 2015, we flew our 100 millionth
passenger. We cannot help but feel nostalgic as
we remember our first year of operations in1996,
where we had flown just 360 thousand passengers.
For nearly 20 years, we have made it our mission
to bring people together through safe, affordable,
reliable and fun-filled air travel. We feel fortunate
to have inspired this low fare revolution that has
altered the aviation landscape in the Philippines,

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 Ricardo J. Romulo
CHAIRMAN

BOARD OF
DIRECTORS

John L. Gokongwei, Jr.

DIRECTOR

James L. Go
DIRECTOR

8
 Lance Y. Gokongwei Frederick D. Go
PRESIDENT AND CEO DIRECTOR

Jose F. Buenaventura Robina Y. Gokongwei-Pe

DIRECTOR DIRECTOR

Antonio L. Go Wee Khoon Oh

DIRECTOR DIRECTOR

9
10
 *Appointed after
11 December 31, 2014
KEY OPERATING
STATISTICS
YEARS ENDED DECEMBER 31 2014 VS 2013
2014 2013 2012 INC (DEC) % CHANGE

Passengers carried (‘000) 16,870 14,352 13,255 2,518 17.5%

Available seats (‘000) 20,110 17,523 16,041 2,587 14.8%

Seat load factor 83.9% 81.9% 82.6% 2 ppts.

RPK (million) 16,213 12,927 11,533 3,287 25.4%
ASK (million) 20,496 16,207 14,173 4,290 26.5%

Number of sectors flown 122,994 115,005 108,534 7,989 6.9%

Fleet size at period end 52 48 41 4 8.3%

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 FINANCIAL
HIGHLIGHTS
YEARS ENDED DECEMBER 31 2014 VS 2013
(Php million) 2014 2013 2012 INC (DEC) % CHANGE

Total revenues 52,000 41,004 37,904 10,996 26.8%

Total operating expenses 47,843 38,600 35,241 9,243 23.9%
Operating income (loss) 4,157 2,404 2,663 1,753 72.9%
Net income (loss) 853 512 3,572 342 66.7%

Pre-tax core net income 3,320 1,878 2,401 1,442 76.8%

EBITDAR 12,418 8,765 8,043 3,654 41.7%

Total assets 76,062 67,527 61,414 8,535 12.6%

Total liabilities 54,523 46,446 39,376 8,078 17.4%
Equity 21,539 21,082 22,038 457 2.2%

Basic/diluted earnings
per share (Php) 1.41 0.84 5.89 0.56 66.7%

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 Doha
QATAR

Bali

INTERNATIONAL DESTINATIONS Australia (Sydney), Brunei (Bandar Seri Begawan), Cambodia (Siem Reap), China (Beijing,
Guangzhou, Shanghai, Xiamen), Hong Kong, Indonesia (Bali, Jakarta), Japan (Nagoya, Narita, Osaka), Kingdom of Saudi
Arabia (Riyadh), Korea (Busan, Incheon), Kuwait, Macau, Malaysia (Kota Kinabalu, Kuala Lumpur), Qatar (Doha), Singapore,
Taiwan (Taipei), Thailand (Bangkok, Phuket), United Arab Emirates (Dubai), Vietnam (Hanoi, Ho Chi Minh)

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 ROUTE MAP AND DESTINATIONS

DOMESTIC DESTINATIONS Bacolod, Boracay (Caticlan), Busuanga (Coron), Butuan, Cagayan de Oro, Camiguin,
Cauayan (Isabela), Cebu, Clark, Cotabato, Davao, Dipolog, Dumaguete, General Santos, Iloilo, Kalibo, Legazpi, Laoag,
Manila, Naga, Ozamiz, Pagadian, Puerto Princesa, Roxas, San Jose (Mindoro), Siargao, Surigao, Tacloban, Tagbilaran,
Tandag, Tawi-Tawi, Tuguegarao, Virac, Zamboanga

15
OUR CEB ended 2014 with 52 aircraft comprised of 5
Airbus A330, 29 Airbus A320, 10 Airbus A319, and

FLEET 8 ATR 72-500 turboprop planes.

Airbus
Cebu Pacific ended 2014 with 5 Airbus A330, 29 Airbus A320, and 10 Airbus A319 aircraft.

The Airbus A330 has 436 seats, the A320 has 180 seats, and the A319 has 156 seats. Cebu
Pacific’s brand-new Airbus A320 is equipped with Sharklets, newly designed wing-tip devices
made from light-weight composites which are 2.4 meters tall. Sharklets allow airlines to
reduce fuel burn by up to 4% on longer sectors. CEB’s Airbus A320 aircraft are also equipped
with the latest avionics from Honeywell, Thales and Rockwell Collins, all global leaders in
aviation electronics.

Between 2015 and 2021, Cebu Pacific will take delivery of 9 more brand-new Airbus A320,
30 Airbus A321neo, and 1 Airbus A330 aircraft.

16
Cebu Pacific operates one of the youngest fleets in the world
with an average age of 4.41 years as of end 2014.

ATR
Cebu Pacific has a fleet of 8 ATR 72-500 aircraft manufactured by Avions de Transport
Regional (ATR) based in Toulouse, France.

The ATR’s reliability, ease of maintenance, and ability to land on short runways makes it the
top choice in the turboprop class. CEB’s ATR aircraft has 72 seats.

Cebu Pacific took delivery of its first ATR aircraft in 2008, to service its Boracay and Laoag
flights. CEB has since then expanded its ATR operations to destinations such as Siargao,
Busuanga (Coron), and San Jose (Mindoro), among others.

Several ATR aircraft are also based in Cebu to further expand CEB’s inter-island operations.

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OUR
PRODUCTS

Lite Fares and Prepaid Baggage

Cebu Pacific was the first to introduce Lite Fares, encouraging passengers to carry less baggage by
offering fare discounts. At the time of booking, passengers can now pre-purchase baggage allowance to
save on time and money at check-in.

Prepaid baggage options range from 15 kilos to 40 kilos. Guests may avail of prepaid baggage at the time
of booking until four hours before flight departure.

Aside from lower fares and lighter planes, the Lite Fare product and prepaid baggage options also make
the check-in process faster and easier to manage.

CEB Fare Bundles

CEB Fare Bundles offer a simple solution for guests looking to book their travel essentials in one
easy step. Different fare options are now available to guests with different travel preferences and
requirements: “Fly” is for airfare, “Fly+Bag” is for airfare and baggage allowance, and “Fly+Bag+Meal” is
for airfare, baggage allowance, and meal.

CEB Fare Bundles are available for all flights to domestic and international destinations.

CEB Mobile App

Cebu Pacific’s official Mobile App

is now available for download
on iOS and Android devices to
make it even more convenient for
guests to book and check-in for
their flights while on the go.
Fast Check-in Options

Web Check-In Kiosk Check-In Mobile Check-In

Cebu Pacific was the first airline
in the Philippines to provide
guests the option to check-in
for their flights online. This is
available from 72 hours up to
four hours before international
flight departure, and up to two
hours before domestic flight
departure.
CEB Kiosks are conveniently
located near Cebu Pacific’s
check-in counters in select
Philippine airports. Guests may
check-in at the kiosk for their
flights from four hours up to an
hour before departure.
Guests can check-in via the
official Cebu Pacific Mobile
App from 72 hours up to four
hours before international
flight departure, and up to two
hours before domestic flight
departure.

Agent Xpress

Cebu Pacific was the first airline in Southeast Asia to deploy roving airport agents, equipped with
tablets and mobile boarding pass printers, to check-in passengers and print boarding passes on the
spot. Now available in select Philippine airports, Agent Xpress can help passengers check-in for their
flights from 4 hours up to 45 minutes before departure.

TravelSure

Cebu Pacific partnered with the Malayan Insurance Co., Inc. to offer TravelSure
travel insurance to passengers. TravelSure allows guests from one to 65 years
old to travel with peace of mind.

TravelSure covers:
• Emergency medical treatment in case of accident or sickness during travel
• Unexpected travel circumstances like cancellations or delays due to weather,
loss of travel documents or luggage, and other unforeseen events
• Personal accidents
• Recovery of travel expenses or reimbursement of the unused
portion of travel and accommodation expenses
• Baggage Protect – an insurance add-on that covers any unforeseen
physical loss or damage to checked baggage

19
Seat Selector

Every time guests book a flight online, seats can be selected for
a minimum fee. Guests can select Preferred seats for additional leg
room and easy access to the aisle. Seats closer to exits are available
through the Standard Plus seat option. Standard seats are all other
available seats.

Sports Equipment

Guests can avail of Cebu Pacific’s sports equipment handling service

for a minimum fee upon booking. This service lets guests bring their
own sports equipment to their destination, to avoid spending for
equipment rental fees.

Equipment covered by this service include:

• Bicycles
• Fishing Equipment
• Golf Clubs
• Scuba/Diving Equipment
• Surfboards/Wakeboards
• Bowling balls

CEB Transfers

Cebu Pacific and Tigerair Philippines guests can now avail of CEB
Transfers, a safe and seamless transfer service from the Caticlan
or Kalibo airports to the guests’ hotel or resort in the island of
Boracay. The CEB Transfers product is in partnership with Southwest
Tours (Boracay), Inc. and is inclusive of government terminal and
environmental fees.

CEB Connect

Cebu Pacific guests with connecting flights through Singapore

Changi Airport may avail of CEB Connect and simply collect their
boarding pass for their onward flight at Transfer Lounge E within the
airport’s transit area. With CEB Connect, guests do not need to clear
immigration, collect checked-in luggage, and check-in again for their
onward flight connections via Singapore.

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Payment Centers Paypal

Cebu Pacific guests who are not credit cardholders can book flights Cebu Pacific is the first airline in
through the website and pay via the airline’s payment centers: the Philippines to offer the global
payment platform as a payment
• Over-the-counter at Robinsons Bank, Bank of the Philippine option.
Islands, Metrobank, Banco de Oro, and Banco de Oro Remittance
Centers in Hong Kong and Macau
• Bancnet Online
• ATM transactions using Bancnet and Megalink member banks
• Robinsons Department Stores
• LBC branches
• Bayad Centers
• SM Department Stores
• Cebuana Lhuillier

Hotels Car Rentals

Guests can now immediately
view and book options for hotel
accommodations through our
partner Agoda.com on the Cebu
Pacific website, while booking
for flights. Another hotel partner,
TravelBook, provides options
for accommodations in local
destinations.
Beginning June 1, 2015, Cebu Pacific’s official car rental partner is
rentalcars.com, offering the best prices and up to 15% savings on
guests’ car rental needs in worldwide locations. Rentalcars.com is
a booking service working with all major car hire companies all over
the world.
CEB passengers can avail of car rental services through touch points
within the Cebu Pacific website.

Cruise CEB Online Shopping

Through Cebu Pacific’s cruise Cebu Pacific forged a partnership with Lazada to offer guests the
partner, Star Cruises, guests are option to shop in the comfort of their homes or offices.
able to add more fun experiences
on trips.

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Fun Café
Cebu Pacific presents a wide
array of food items – sweet and
savory snacks, hot meals, and
drinks fit for everyone’s tastes.
The airline’s buy-in-board menu
has new offerings every quarter.
Cebu Pacific branded souvenirs
like bags, toys, and travel
accessories are also available.
CEB Air WiFi
CEB now offers WiFi on its Airbus
A330 flights, for as low as USD5.
Guests may use their WiFi-
enabled devices after take-off,
and log on to CEB Air WiFi.
FunShop Inflight Duty Free
The Duty Free service is available on Cebu Pacific’s international flights
to and from Manila and Cebu.
A wide range of world-class Duty Free cosmetics, skin care products,
fragrances for men and women, jewelry, children’s gifts and chocolates
are available in-flight. Brands carried by Cebu Pacific include Estee
Lauder, Revlon, Lancome, Calvin Klein, Clinique, Johnnie Walker, and
Lego, among others.
magazine for CeBU PaCifiC • APRIL 2014 MAGAZINE FOR CEBU PACIFIC • JUNE 2014 MAGAZINE FOR CEBU PACIFIC • AUGUST 2014 M AG A Z I N E F O R C E B U PAC I F I C • DECEMBER 2014
OUR
OUR
OUR
Brad with the good Making merry meals
PITT ON FAMILY BLISS, AMY BESA'S GUIDE TO
IS COMPLIMENTARY • DECEMBER 2014
HOLIDAY HOME-COOKING
IS COMPLIMENTARY • AUGUST 2014
FILM AWARDS AND FAME
IS COMPLIMENTARY • JUNE 2014
Water way to live What you sew
5 floating villages from TURNING LAKES
siem reap to Zamboanga OF LOTUS INTO
Branch dressing
Relax in Roxas
the beauty of Raising the skates 5 WAYS TO
downtown tokyo’s parks HOW MICHAEL MARTINEZ CHILL OUT IN THE
REALIZED A DREAM IN SOCHI
CAPIZ CAPITAL
Lake and see
A TOUR OF LAGUNA DE BAY'S
ARTISAN ENCLAVES
Smile Inflight Magazine
CEB’s Smile Magazine has a readership of over a million per issue.
It features destination guides and news across the Cebu Pacific
network. Smile also ranked 7th in CNN Travel’s World’s 12 Best Airline
Magazines.
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CEB BIZ
CEB BIZ, the airline’s corporate
and government sales program,
lets companies max out their
travel budgets. Book Cebu Pacific
Air flights using Sky Partner,
and get corporate fares using
pre-approved credit lines and
transferrable bookings, among
other perks.
GetGo
GetGo is CEB’s newest lifestyle
rewards program that allows
guests to accumulate points with
their Cebu Pacific and Tigerair
Philippines flights, as well as
with their everyday expenses and
transactions with GetGo partners.  The Cebu Pacific Air group is the largest domestic cargo carrier with
With enough accumulated points,
members may redeem free
flights. For more information,
guests can visit the GetGo
website www.GetGo.com.ph.
Bright Skies for EveryJuan
Cebu Pacific Air and Worldwide Fund for Nature – Philippines (WWF)
have been joining forces since 2008 for Bright Skies for Every Juan.
This lets travelers contribute to climate change adaptation programs
for the Great Philippine Reefs (Tubbataha and Apo Reefs) while
booking flights online.
Cargo Services
Cebu Pacific is the preferred air cargo carrier in the Philippines, linking
islands together through exchange of goods. It provides competitive,
fast, flexible and straightforward air cargo service to an extensive
network including individual shippers and cargo agents within the
country and overseas.
close to 155 million kilos delivered to domestic and international
destinations in 2014. It services more than two thousand accounts,
tailor-fitting cargo products to the clients’ domestic and international
cargo needs. This includes express cargo service, seamless
transshipment, and 21 interline partnerships for worldwide reach.
23
 2014
HIGHLIGHTS

24
CEB flies 16.9M passengers in 2014
Cebu Pacific flew 16.9 million passengers in 2014,
an increase of 17.5% from 14.4 million passengers
flown in 2013. On average, CEB flights were 84% full
during the year. CEB achieved notable passenger
growth in both domestic and several international
markets, with increased presence in the Middle
East and Japan, and entry into Australia.
The Cebu Pacific Air group increased flights to
domestic markets, as its newly acquired subsidiary
Cebgo, formerly Tigerair Philippines, launched
eight domestic routes from its hubs in Manila and
Cebu to Butuan, Clark, Cagayan de Oro, Davao,
General Santos, Roxas, and Tagbilaran.
In 2014, the airline launched direct non-stop
flights from Manila to Kuwait, and Riyadh. CEB also
Cebu Pacific and Tigerair make progress
with Interline Agreement
Cebu Pacific and Tigerair, the two largest low-
cost carriers in the Philippines and Singapore
respectively, made further progress on an interline
agreement with the first interline flights available
for sale on the Tigerair website from July 23, 2014.
Tigerair flights were available on Cebu Pacific’s
website from September 2014.  With the interline
agreement facilitating both domestic and
international collaboration between both airlines,
Cebu Pacific and Tigerair have created the biggest
network of flights from the Philippines to the
region.
“Together with Tigerair, we are proud to offer
the largest, most extensive low cost network
to and from the Philippines. Tigerair’s network
25
CEB achieved notable
passenger growth in both
domestic and several
international markets
launched a five times weekly service from Manila to
Sydney. These are additional routes to its existing
long haul service from Manila to Dubai.
CEB expanded its operations in Japan with the
launch of daily services from Manila to Tokyo and
a four times weekly service to Nagoya. The airline
also increased its flights to Osaka, from thrice
weekly to a daily service.
reinforces Cebu Pacific’s strong presence in Asia,
and expands our network with new destinations
in Bangladesh, Cambodia, China, India, Indonesia,
Malaysia, Myanmar, Maldives and Thailand. We
look forward to offering our trademark low fares
and fun flights to both Cebu Pacific and Tigerair
customers,” remarked CEB President and CEO
Lance Gokongwei.
“The interline arrangement harnesses the
strengths and networks of Tigerair and Cebu
Pacific.  We look forward to offering greater
convenience to customers with the increased flight
frequencies, enlarged network and more seamless
options for both business and leisure travel,” said
Tigerair Chief Operating Officer Ho Yuen Sang.
Filipino tourist arrivals into Japan up by 129%
after CEB launches new Japan routes
The only Philippine low-cost carrier operating
between the Philippines and Japan, Cebu Pacific
is encouraged by recent Japan National Tourism
Organization (JNTO) figures indicating that the
Philippines is one of its fastest growing source of
foreign visitor arrivals.
Philippine visitor arrivals to Japan grew by
129.5% in April 2014, compared to March 2014. For
the month of April, visitors from the Philippines
grew the most, topping even China.
This was a month after CEB launched direct daily
services to Tokyo (Narita) and four weekly services
to Nagoya. CEB also operated daily services to
Osaka earlier this year.
In May, Philippine visitor arrivals grew by 71.5%,
second ranked when it comes to the fastest growth.
Japan seeks to achieve its goal of increasing the
number of foreign visitors to 20 million, in the run-
up to the 2020 Tokyo Olympics.
“With CEB’s new Japan destinations and
trademark low fares, those who have always
European Commission Lifts Ban on Cebu Pacific
Cebu Pacific has been removed from the list of
airlines banned from operating in European Union
(EU) member countries, as formally announced by
the European Commission on April 11, 2014.
“We welcome this development, a testament
to Cebu Pacific’s commitment to safety and full
compliance with international aviation safety
standards. This would not have been possible
without the full support of the Philippine
government, and especially the Civil Aviation
Authority of the Philippines,” said Lance
Gokongwei, Cebu Pacific President and CEO.
“This enables Cebu Pacific to continue flying
to where the Filipinos are. With nearly a million
26
“With CEB’s new Japan
destinations and trademark low
fares, those who have always
been interested in traveling
to Japan now find themselves
able to do so.”
been interested in traveling to Japan now find
themselves able to do so. This amazing growth in
Filipino tourist arrivals to Japan is what we call
the Cebu Pacific effect. We hope we can continue
stimulating traffic not just to Japan, but to the
Philippines as well,” said CEB VP for Marketing and
Distribution Candice Iyog.
CEB flew over 45,800 passengers to and from
Japan for the months of April and May 2014,
considered the Philippines’ summer and Japan’s
spring months. This translated to a growth of over
480%, compared to the same period last year.
Filipinos working in the EU, we look forward to
offering CEB’s trademark lowest fares, and the
most extensive route network in the Philippines,”
added Gokongwei.
“The decision of the European Commission to
lift the ban on Cebu Pacific shows the ability of
Philippine authorities and business to work with
the EU to raise standards and create economic
opportunity,” said Julian Vassallo, Chargé
d’affaires at the Delegation of the European
Union to the Philippines. “Having demonstrated
their commitment and capacity to adhere to
international standards, we heartily welcome Cebu
Pacific to European skies.”
Cebu Pacific Air to launch flights to KidZania Manila
Cebu Pacific announced it will launch its newest to enable kids to fly, even if it’s just with their
flights to the nation where kids rule—KidZania imaginations, and give children their Cebu Pacific
Manila. It is the official airline partner of the first boarding pass to a fun learning experience,”
Philippine facility of KidZania, the global leader Gokongwei added.
in children’s educational entertainment. Kidzania
Manila is set to open at the Bonifacio Global City
in 2015.
Like many adult adventures, the journey to
KidZania Manila begins at an airport, the KidZania
International Airport. There, kids will check in
at Cebu Pacific counters, get their Cebu Pacific
boarding passes, and enter KidZania Manila, a
child-sized, interactive play city built just for them.
Inside KidZania Manila, children can role-
play over 100 exciting careers – from pilots and
doctors, engineers and bank tellers, to actors and
artists. Establishments that are universal favorites
among children who have visited Kidzania in 16
cities all over the world will also be at KidZania
Manila –an aviation academy, bank, fire station,
hospital, television station, and a variety of other
establishments that form the inner-working core of
a real city.
Inside the aviation academy, children can train
to be a Cebu Pacific pilot or flight attendant. With
the help of Zupervisors, the pilots of KidZania Maricel Pangilinan-Arenas, KidZania Philippines Governor and
can experience taking off and landing an aircraft Play Innovations, Inc. President and CEO, and Lance Gokongwei,
CEB President and CEO, pose with little CEB pilots and flight
using state-of-the-art flight simulators. Meanwhile, attendants.
KidZania flight attendants can learn how to ensure
the safety and comfort of their passengers through “A lot of kids dream about becoming pilots
a safety demonstration and Fun Game, among and flight attendants. Cebu Pacific is the perfect
others. partner to introduce these kids to a Juan-of-a-Kind
When they work at different establishments, kids learning experience and the joys of ‘traveling’ to a
will earn KidZos, the official KidZania currency. new city,” said Maricel Pangilinan-Arenas, Governor
They can choose to save or spend these KidZos of KidZania in the Philippines and President and
during their visit. CEO of Play Innovations, Inc. “Like Cebu Pacific, we
“Cebu Pacific has always been a staunch value fun and put a premium on the power of play.
advocate of education through travel. Launching We are very thrilled and proud for KidZania Manila
our new destination, KidZania Manila, affirms this to join their list of fantastic destinations.”
commitment. A flight is the best way to welcome KidZania Manila is operated by its exclusive local
kids to this exciting, interactive city. Similar to real franchise owner, Play Innovations, Inc. It aims to
life, flights can lead to life-changing discoveries combine inspiration, fun and learning through
and boundless opportunities,” said Cebu Pacific role-play for children, empowering them to explore
President and CEO Lance Gokongwei. myriad roles, so they can discover their talents and
“We are very excited to partner with KidZania help create a better world.

27
UP Physics majors bag first-place win
in Cebu Pacific Juan for Fun challenge
One for all, all for Juan. The university teams and adventure
coaches Bogart the Explorer, Paolo Abrera, Luke Landrigan,
Gretchen Ho and Jude Bacalso enjoyed an awesome adventure
in the Cebu Pacific Juan for Fun Backpacker Challenge.
Floyd Patricio, Esme Escoto and Gab Saplagio of
Team Tuklas were named the big winners of the
Cebu Pacific Juan for Fun Backpacker Challenge
Year 3. The UP Diliman Physics majors clinched
the top scores in a series of thrilling tasks and
adventurous dares, besting four other university
teams from across the Philippines.
This year, for the first time ever, Cebu Pacific
brought the Juan for Fun teams to an international
adventure, as the challenge kicked off in Kuala
Lumpur, Malaysia. The nine-day, six-city adventure
continued in Bacolod, Cebu, Camiguin and
Cagayan de Oro, and culminated in Manila.
During the course of the challenge, the teams
were tasked to accomplish the most number of
fun and exciting activities in each destination,
maximizing their travel allowance of 800 Malaysian
Ringgit and PHP35,000. To fully experience the
fun of budget travel, they were given the freedom
to plan their activities. Special fun challenges
prepared by the Department of Tourism and
Tourism Malaysia also gave teams the chance to
earn extra points and additional prizes.
Making this year’s challenge even more
remarkable were the Adventure Coaches, noted
personalities known for their love for travelling,
who were assigned to mentor each team before
they headed to their destination. During the course
of the challenge, sportsman and TV host Paolo
28
Abrera, champion surfer Luke Landrigan, Internet
funnyman Bogart the Explorer, renowned travel
writer Jude Bacalso, and volleyball star Gretchen
Ho offered tips and cheered for their respective
teams through social media.
For their win, Team Tuklas received 12 Cebu
Pacific roundtrip tickets to any international
or domestic destination. Each team member
also brought home a Vaude Sapporo carry-on
trolley, Vaude Hogan Ultra-Light Tent, and Canon
Powershot SX510HS camera.
Discover Adventure
Floyd of Team Tuklas shared that they discovered a
stronger passion for adventure during the Juan for
Fun Backpacker Challenge. “To be honest, before
we joined the challenge, we hadn’t traveled that
much. It was actually our first time in Malaysia,
Camiguin and the other challenge destinations,”
he shared. “Our Juan for Fun experience showed us
that there are a lot of beautiful places that are just
waiting to be explored, and that’s exactly what we
plan to do in the future.”
Team Tuklas adventure coach Paolo Abrera
confessed that he was also worried for his team in
the beginning. “At first, I wondered if they were up
to the challenge, but I realized quickly that I didn’t
have to be worried,” Paolo shared. “As it turned
out, their ‘lack of experience’ was actually an
advantage because they had this great eagerness.
They were very open, very enthusiastic to try and
discover new things. And since they started out on
almost a clean slate, they were not afraid to think
out of the box. I’m very proud of them,” he added.
The Cebu Pacific Juan for Fun Backpacker
Challenge 2014 is co-presented by Jack ‘n Jill
Magic Crackers, with the support of Vaude, Merrell,
Canon and the Department of Tourism, and
the endorsement of the Commission on Higher
Education.
 NEW PRODUCTS
CEB launches Agent Xpress check-in service
at busy Kalibo airport
Cebu Pacific became the first airline in Southeast
Asia to deploy special roaming airport agents,
who can check in passengers using a tablet while
they are still queuing up. CEB launched the Agent
Xpress service at Kalibo Airport on August 25, 2014,
just in time for the influx of tourists returning from
a long weekend in Boracay. Kalibo is a gateway to
the world-renowned island.
Busy Kalibo Airport was prioritized for CEB’s
innovative service, due to the high volume
of passengers and limited counter space.
“Agent Xpress can make the check-in process
faster and more convenient for our guests,
given space limitations in certain airports. We
CEB launches mobile check-in option
Cebu Pacific rolled out its mobile check-in option,
an addition to CEB’s fast check-in options: web
check-in, self check-in kiosks at the airport, and
Agent Xpress (roving airport agents equipped with
tablets).
“CEB introduces more check-in options so guests
will be empowered to manage their trips. With
check-in counter space limitations in airports such
as Manila or Kalibo, we encourage more guests to
check-in online to avoid the line,” said CEB VP for
Marketing and Distribution Candice Iyog.
Its official Cebu Pacific mobile app is now
available on the App Store, so guests can check-in
using their mobile devices and book their flights on
the go. Mobile check-in is available from 72 hours
up to four hours for international flights, and up to
two hours for domestic flights.
29
are studying the launch of Agent Xpress in other
airports as well,” said CEB VP for Marketing and
Distribution Candice Iyog.
The Agent Xpress service can check in guests
with confirmed flight itineraries, from four hours
to 45 minutes before the flight departure. Roaming
agents approach guests queuing up for a security
screening or at the check-in counter, verify their
booking confirmation numbers or name and flight
details, and print their boarding passes. Those with
no bags for check-in can immediately proceed to
the boarding gate. Those with bags for check-in
should proceed to the bag drop counters.
Seats will automatically be assigned for those with
no pre-purchased seat assignments. Boarding
passes can be emailed, saved as an image, sent as
an MMS or printed straight from the iPhone.
Guests can do mobile check-in for up to 14
passengers. It will be initially available for those
with web or mobile bookings only. The mobile
check-in service is not available for guests with
infants, interline or check-through flights, or those
requiring special handling, as they have to go
through the usual check-in process.
Those who also wish to book flights can do
so using the Cebu Pacific mobile app. CEB and
Tigerair Philippines flights, prepaid baggage
allowance and seat selection may be booked for
up to 14 guests. Only credit cards are accepted for
mobile app flight bookings.
 NEW
ROUTES

CEB Chief Executive Adviser Garry Kingshott and Sydney Airport Managing Director and CEO Kerrie Mather, flanked by CEB and Sydney
Airport staff, lead the water cannon salute for CEB’s Airbus A330 aircraft before the Sydney-Manila inaugural flight on September 9, 2014.

Cebu Pacific sends off first flight to Australia

Cebu Pacific launched its first Manila-Sydney non-
stop flight on September 9, 2014, marking the start
of its long-haul service in Australia. The airline is
the only low-cost carrier operating the route.
CEB operates four weekly flights between
Manila and Sydney, every Tuesday, Thursday,
Saturday and Sunday. An additional Wednesday
frequency commenced on December 10, 2014, to
accommodate travel demand from the growing
Filipino community in Australia. As per the
Commission on Filipinos Overseas, there are over
300,000 Filipinos based in Australia.
​During the send-off program, CEB President and
CEO Lance Gokongwei said, “This maiden flight
to Australia allows us to share our brand of fun,
and provide connections and low fares, to another
part of the globe. In our short history, we have
stimulated travel in Asia and in the Middle East.
Eighteen years after the airline’s inception, Cebu
Pacific, a proud Philippine carrier, will land in the
Australia-Oceania region, and work towards doing
the same.”
The maiden flight to Sydney was sent off by CEB
President and CEO Lance Gokongwei, Australian
Ambassador Bill Tweddell and Department of
Tourism Secretary Ramon Jimenez Jr., among
other esteemed guests.
CEB’s flights to Sydney utilize the airline’s brand-
new Airbus A330-300 fleet with a configuration of
436 all-economy class seats. Its 5th A330 aircraft
was delivered brand-new from the Airbus factory in
Toulouse, France on September 2, 2014.

30
Cebu Pacific launches new flights to Tokyo, Nagoya
(L-R) MIAA General Manager Jose Angel Honrado, Philippine
Ambassador to Japan Manuel Lopez, DOTC Secretary Joseph
Emilio Abaya, Japanese Ambassador to the Philippines Toshinao
Urabe, CEB President and CEO Lance Gokongwei, DOT Assistant
Secretary Benito Bengzon, Jr., and Japan National Tourism
Organization Executive Director Kazuhiro Ito during the launch of
CEB’s flights to Nagoya and Tokyo on March 30, 2014.
Cebu Pacific became the first Philippine low-cost
carrier to operate direct daily flights from Manila to
Tokyo (Narita), and four times weekly flights from
Manila to Nagoya, when it launched the two new
Cebu Pacific now flies direct, non-stop flights to Kuwait
Cebu Pacific now flies thrice weekly, non-stop
flights from Manila to Kuwait. The maiden flight for
Cebu Pacific’s Manila-Kuwait service departed at
9:30PM on September 2, 2014. The airline’ thrice
weekly flights from Manila to Kuwait depart every
Tuesday, Thursday and Sunday, while flights from
Kuwait to Manila depart every Monday, Wednesday
and Friday.
Cebu Pacific is the only airline offering non-
stop flights to Kuwait, utilizing brand-new Airbus
A330-300 aircraft with a configuration of 436 all-
economy class seats. It offers fast and convenient
same-terminal connecting flights for guests
taking advantage of CEB’s extensive Philippine
network. Passengers may also opt to purchase
baggage allowance, seat selection, CEB Air Wi-Fi
connectivity inflight and Hot Meals.
The maiden flight passengers were sent off
by CEB VP for Corporate Affairs, Jorenz Tanada,
Ambassador Waleed Ahmad Al-Kandari of the
Embassy of the State of Kuwait, Department of
Foreign Affairs Executive Director Ricardo Endaya,
and Department of Tourism Assistant Secretary
31
international destinations on March 30, 2014.
“We are very excited to finally be able to offer
Cebu Pacific’s trademark lowest fares to these two
new destinations in Japan. With our seat sales,
seamless Manila airport terminal connection and
extensive network, we hope to stimulate travel and
bring Japanese tourists to various destinations
in fun Philippines,” said Candice Iyog, CEB VP for
marketing and distribution.
“Similarly, we hope these two new destinations
will enable many Filipinos to explore Japan for
leisure or business travel. Japan is now more
accessible and more affordable with Cebu Pacific
flights,” she added.
On March 30, 2014, CEB launched daily services
to Tokyo (Narita), utilizing the airline’s brand-
new Airbus A320 fleet. On the same day, CEB also
launched its Manila-Nagoya-Manila service with a
Tuesday, Thursday, Saturday and Sunday frequency.
Benito Bengzon Jr, among other esteemed guests.
 “We are proud to offer our kababayans, the
fastest, most affordable way to come home. Through
Cebu Pacific’s trademark low fares, and direct,
non-stop service, we hope that they get to enjoy
being around their loved ones more often,” said
Alex Reyes, General Manager, Long Haul Division.
Ambassador Waleed Ahmad Al-Kandari of the Embassy of
the State of Kuwait, CEB VP for Corporate Affairs Atty. Jorenz
Tañada, DFA Executive Director for Migrant Workers Affairs
Ricardo Endaya, and DOT Assistant Secretary Benito Bengzon, Jr.
are assisted by CEB cabin crew as they cut the ceremonial ribbon
during the launch of CEB’s flights to Kuwait on September 2, 2014.
Cebu Pacific now flies direct, non-stop
flights to Riyadh
Cebu Pacific now flies thrice weekly, non-stop
flights between Manila and Riyadh. The maiden
flight for Cebu Pacific’s Manila-Riyadh service
departed at 5:05pm on October 1, 2014.
(L-R) Civil Aviation Authority of the Philippines Deputy Director
General II Beda Badiola, Royal Embassy of Saudi Arabia 2nd
Secretary Fahad Eid AlRashidy, CEB General Manager, Long Haul
Division, Alex Reyes and Department of Foreign Affairs Executive
Director for Migrant Workers Affairs Ricardo Endaya, with CEB
cabin crew, officially launch Cebu Pacific’s Manila-Riyadh route
with a cake-cutting ceremony.
Cebu Pacific to boost
PHL-JP traffic with new
Cebu-Tokyo route
CEB announced its direct flights between Cebu
and Tokyo beginning March 26, 2015. CEB’s four
weekly flights (every Tuesday, Thursday, Saturday
and Sunday) between Cebu and Tokyo, utilizes its
brand-new Airbus A320 fleet.
“We hope to keep contributing to the national
tourism agenda, by providing direct access for
Japanese leisure travelers to the island of Cebu.
Its strategic location in central Philippines makes
it the ideal gateway to beach and eco-adventure
destinations in other parts of the country,”
said CEB VP for Marketing and Distribution
Candice Iyog.
32
Cebu Pacific is the only low-cost carrier flying
between the Philippines and the Kingdom of Saudi
Arabia.
CEB’s flights from Manila to Riyadh depart every
Wednesday, Friday, and Sunday, while flights from
Riyadh to Manila depart every Monday, Thursday
and Saturday.
The maiden flight passengers were sent off by
CEB General Manager for Long Haul Alex Reyes,
Department of Foreign Affairs Executive Director
for Migrant Workers Affairs Ricardo Endaya;
2nd Secretary Fahad Eid M. AlRashidy of the Royal
Embassy of Saudi Arabia; Civil Aviation Authority
of the Philippines Deputy Director General II Beda
Badiola; and, Ninoy Aquino International Airport
Terminal 3 Manager Octavio Lina, among other
esteemed guests.
“Cebu Pacific will keep flying to where the Filipinos
are. As we expand our operations in the Middle East,
we are proud to offer even more Filipinos in the
Kingdom of Saudi Arabia – the fastest, most
affordable way to come home,” said Reyes.
Japan Tourism Agency Industry Relations Officer for the Philippines
Yosuke Togezaki (left) and Cebu Pacific Air Vice President for
Marketing and Distribution Candice Iyog (right) share a common
goal of promoting travel between the Philippines and Japan.
CEB offers 27 domestic and international
destinations from its Cebu hub, and operates
approximately 700 weekly flights. Passengers from
the airline’s Cebu hub grew by 9.4% from January
to September 2014, compared to the same period
last year.
AWARDS

Cebu Pacific Air Chief Executive Adviser Garry Kingshott (left) receives the Low-Cost Carrier of the Year award from CAPA Executive
Chairman Peter Harbison (right). CAPA – Centre for Aviation is the leading provider of independent aviation market intelligence, analysis
and data services, covering worldwide developments.

CAPA names Cebu Pacific Air best low-cost

carrier in Asia-Pacific
Leading aviation think tank, Centre for Aviation
(CAPA) recognized Cebu Pacific as the Asia-Pacific
Low-Cost Carrier (LCC) of the Year, during the CAPA
Aviation Awards for Excellence held on October 14,
2014 in Singapore.  destinations, making our low fares available to
“Our LCC of the Year has endured a tumultuous
period in its home market, but maintained its
focus and had the highest operating profit margin
in the Asian airline industry,” said CAPA Executive
Chairman Peter Harbison. “The carrier has
launched a long-haul operation which strategically
improves its long-term position by opening up
new markets, while quickly responding to the
challenges in this segment,” he added.
“The Cebu Pacific team is honored to be
recognized by CAPA. We will continue to approach
growth conservatively and responsibly in order to
build a sustainable airline business. Ultimately,
this sustainability will allow us to expand to more
more people,” said CEB President and CEO Lance
Gokongwei.
Established in 1990, CAPA – Centre for Aviation
is the leading provider of independent aviation
market intelligence, analysis and data services,
covering worldwide developments. CAPA’s Aviation
Awards for Excellence are intended to reward
airlines and airports that are not only successful,
but have also provided industry leadership in
adjusting to a new environment.

33
Skal International Makati President Robert Lim Joseph (left) and New World Makati Hotel General Manager Farid Schoucair (right)
present CEB President and CEO Lance Gokongwei (center) with the Airline Personality of the Year Award.
Lance Gokongwei named Airline Tourism
Personality of the Year
Skal International Makati President Robert Lim
Joseph and New World Makati Hotel General
Manager Farid Schoucair presented Cebu Pacific
Air (CEB) President and CEO Lance Gokongwei
with the Airline Personality of the Year award. This
was held during the 24th Skal Tourism Personality
Awards held on September 5, 2014, in time for the
Makati chapter’s 33rd anniversary.
SKAL International is a worldwide association of
travel and tourism professionals promoting global
tourism and friendship. It is the only international
group uniting all branches of the travel and tourism
industry. The awards night is an annual event
that celebrates the achievements of exemplary
individuals in Philippine tourism.
“I have long admired Skal’s efforts to promote
camaraderie within the tourism industry, all
34
over the world. This recognition validates Cebu
Pacific’s growth, and shows the interdependent
relationship we have, as tourism stakeholders,”
said Gokongwei, after he accepted the award.
He noted CEB’s long-haul expansion and
growth, with the launch of Kuwait and Sydney in
September, and the launch of Riyadh in October.
An interline agreement with Tigerair Singapore also
provides more destination options for passengers,
including Myanmar, India and Maldives through the
CEB website.
“Such milestones were achieved because of the
patronage of our passengers, now numbering over
90 million; the determination of our team; and
the support of all industries interlocked with ours,
especially that of the travel and trade,” he added.
CORPORATE
SOCIAL
RESPONSIBILITY

CEB Vice President for Marketing and Distribution Candice Iyog (left) and Tourism Promotions Board (TPB) Chief Operating Officer
Domingo Ramon Enerio III (right) shake hands after signing the Memorandum of Understanding (MOU) in support of Bangon Tours, a
project of the TPB--the marketing arm of the Philippine Department of Tourism (PDOT). The signing was held on January 6, 2014 at the
Cebu Pacific Airline Operations Center in Pasay City.

RELIEF

CEB partners with PDOT for Bangon Tours

The first airline partner of Bangon Tours, Cebu
Pacific (CEB), mounted humanitarian flights for
stranded passengers in Tacloban and transported
cargo to aid victims of Typhoon Yolanda
(Haiyan).  It remains committed to assist in
rehabilitation and tourism efforts with the launch
of a special Bangon Tour seat sale in the coming
weeks, promoting travel within the Philippines in
its marketing materials.
 The Bangon Tours Project is an initiative of
the Department of Tourism and the Tourism
Promotions Board. This project is in line with the
government’s recovery and rebuilding efforts for
the victims and survivors of calamities through
the promotion of domestic tourism. It is an
invitation to the Filipino market to travel within the
Philippines during the holiday period (December to
February), visit fun destinations, and participate in
rebuilding efforts.
Some of the areas featured for Bangon Tours
include Ilocos, Manila-Tagaytay, Puerto Princesa,
Bicol, Cebu, Davao, Bohol, Iloilo, Boracay, Siargao,
and Cagayan de Oro-Camiguin.

35
ENVIRONMENT

Cebu Pacific bans Shark Fin carriage

Cebu Pacific announced that the airline no longer
accepts carriage of shark fin, beginning July 8,
2014. The airline has formalized a freight policy for
immediate implementation and strict compliance
across Cebu Pacific stations.
The ban also extends to meals inflight or during
corporate events. Cebu Pacific does not serve
shark’s fin soup inflight or at corporate events or
meals organized and hosted by the airline.
“Cebu Pacific values biodiversity and marine
life sustainability. We are banning shark fin
carriage effective immediately as we learned that
unsustainable shark fishing and our carriage of
shark fin is not aligned with CEB’s position on
sustainable development. We have been working
closely with the World Wide Fund for Nature (WWF)
in our efforts to address some of the most pressing
environmental concerns including climate change
and marine life preservation,” said Atty. Jorenz
Tanada, CEB Vice President for Corporate Affairs.
“WWF welcomes this development,” said WWF-
Philippines Vice-chair and CEO Jose Ma. Lorenzo
Tan. “For several years now, Cebu Pacific
passengers have helped fund WWF’s conservation
efforts in our two great Philippine reefs -
Tubbataha in Palawan and Apo in Mindoro. Cebu
Pacific’s decision to make this new counterpart
gesture in support of the conservation of Philippine
sharks will most certainly help disrupt the
transport chains that fuel this highly destructive
trade. WWF lauds this decision as a manifestation
of Cebu Pacific’s continuing commitment
to conserve marine biodiversity and promote
sustainable fisheries, here in the Philippines.  As we
face a climate-defined future, it is the right thing to
do.”
WWF estimates 73 million sharks are killed yearly
for their fins and flesh. Sharks are apex or top-
level predators that keep the stocks of other fish in
check. Halting the trade in shark fins can boost the
productivity of oceans.
 Since 2008, Cebu Pacific had been
implementing the Bright Skies for Every
Juan program in partnership with the World Wide
Fund for Nature (WWF-Philippines). The program
allows Cebu Pacific passengers to make donations
while booking their flights online.  CEB’s website
estimates carbon emissions based on air travel
duration and guests can opt to donate a small
amount based on that estimate, to effectively
offset carbon emissions.
Proceeds support community-based
climate adaptation projects for Apo Reef and
the municipalities of Sablayan, in Occidental
Mindoro and Cagayancillo in Palawan. Two of the
biggest coral reefs in the country – Apo Reef and
Tubbataha Reefs – have now received stronger
conservation and rehabilitation efforts, as the
program has generated over P25 million since the
program started.
“We have been working
closely with the World
Wide Fund for Nature
(WWF) in our efforts to
address some of the most
pressing environmental
concerns.”

36
 FINANCIAL
STATEMENTS

37
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 December 28, 2012, valid until December 31, 2015
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-3 (Group A),
Philippines November 15, 2012, valid until November 16, 2015

INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of Directors

Cebu Air, Inc.
2nd Floor, Doña Juanita Marquez Lim Building
Osmeña Boulevard, Cebu City

We have audited the accompanying consolidated financial statements of Cebu Air, Inc. and its
Subsidiaries, which comprise the consolidated statements of financial position as at December 31,
2014 and 2013, and the consolidated statements of comprehensive income, statements of changes in
equity and statements of cash flows for each of the three years in the period ended December 31, 2014,
and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, 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.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

39
Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Cebu Air, Inc. and its Subsidiaries as at December 31, 2014 and 2013, and their
financial performance and their cash flows for each of the three years in the period ended
December 31, 2014 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Michael C. Sabado
Partner
CPA Certificate No. 89336
SEC Accreditation No. 0664-AR-2 (Group A),
March 26, 2014, valid until March 25, 2017
Tax Identification No. 160-302-865
BIR Accreditation No. 08-001998-73-2012,
April 11, 2012, valid until April 10, 2015
PTR No. 4751320, January 5, 2015, Makati City

March 24, 2015

40
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 31
2014 2013

ASSETS

Current Assets
Cash and cash equivalents (Note 8) P
=3,963,912,683 =6,056,111,803
P
Financial assets at fair value through profit or loss (Note 9) – 166,456,897
Receivables (Notes 7 and 10) 1,862,718,419 1,817,816,603
Expendable parts, fuel, materials and supplies (Note 11) 679,315,070 711,175,860
Other current assets (Note 12) 2,020,471,923 1,281,546,400
Total Current Assets 8,526,418,095 10,033,107,563

Noncurrent Assets
Property and equipment (Notes 13, 17, 29 and 30) 65,227,125,368 56,412,466,284
Investments in joint ventures (Notes 14) 591,339,486 578,824,453
Goodwill (Notes 7 and 15) 566,781,533 –
Deferred tax assets - net (Note 25) – 112,156,602
Other noncurrent assets (Notes 7 and 16) 1,150,594,326 390,636,394
Total Noncurrent Assets 67,535,840,713 57,494,083,733
P
=76,062,258,808 =67,527,191,296
P

LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and other accrued liabilities (Notes 7 and 17) P
=10,668,437,651 P9,188,899,505
=
Unearned transportation revenue (Notes 4 and 5) 6,373,744,740 5,338,917,236
Current portion of long-term debt (Notes 13 and 18) 4,712,465,291 3,755,141,710
Financial liabilities at fair value through profit or loss (Note 9) 2,260,559,896 –
Due to related parties (Note 27) 39,909,503 44,653,215
Income tax payable 5,831,638 10,587,869
Total Current Liabilities 24,060,948,719 18,338,199,535

Noncurrent Liabilities
Long-term debt - net of current portion (Notes 13 and 18) 29,137,197,374 25,651,323,962
Deferred tax liabilities - net (Notes 7 and 25) 129,160,379 –
Other noncurrent liabilities (Notes 19 and 24) 1,196,148,149 2,456,090,484
Total Noncurrent Liabilities 30,462,505,902 28,107,414,446
Total Liabilities 54,523,454,621 46,445,613,981

Equity (Note 20)

Common stock 613,236,550 613,236,550
Capital paid in excess of par value 8,405,568,120 8,405,568,120
Treasury stock (529,319,321) (529,319,321)
Other comprehensive loss (Notes 9 and 24) (131,968,292) (341,650,278)
Retained earnings 13,181,287,130 12,933,742,244
Total Equity 21,538,804,187 21,081,577,315
P
=76,062,258,808 =67,527,191,296
P

See accompanying Notes to Consolidated Financial Statements.

41
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31

2014 2013 2012

REVENUE
Sale of air transportation services (Note 4)
Passenger P
=40,188,445,623 P
=31,662,949,847 P
=29,579,485,272
Cargo 3,146,083,310 2,609,444,919 2,380,938,624
Ancillary revenues (Note 21) 8,665,489,377 6,731,701,515 5,944,029,727
52,000,018,310 41,004,096,281 37,904,453,623

EXPENSES
Flying operations (Note 22) 26,152,476,007 21,720,929,565 20,017,352,847
Aircraft and traffic servicing (Note 22) 4,805,212,489 3,602,807,012 3,433,012,286
Repairs and maintenance (Notes 19 and 22) 4,432,437,982 3,825,982,774 3,461,697,220
Depreciation and amortization (Note 13) 4,281,525,018 3,454,641,115 2,767,863,860
Aircraft and engine lease (Note 30) 3,503,484,521 2,314,859,021 2,033,953,783
Reservation and sales 2,153,987,158 1,662,461,815 1,626,314,775
General and administrative (Note 23) 1,296,817,694 1,111,945,434 1,075,369,382
Passenger service 1,216,740,451 906,057,635 825,480,234
47,842,681,320 38,599,684,371 35,241,044,387

4,157,336,990 2,404,411,910 2,663,409,236

OTHER INCOME (EXPENSE)

Equity in net income of joint ventures (Note 14) 96,326,091 119,360,469 54,384,007
Interest income (Note 8) 79,927,272 219,619,475 415,770,873
Gain on sale on financial assets designated at fair value
through profit or loss and available for sale
financial assets – – 5,764,090
Foreign exchange gains (losses) (127,471,032) (2,063,007,996) 1,205,149,590
Interest expense (Note 18) (1,013,241,353) (865,501,445) (732,591,508)
Hedging gains (losses) (Note 9) (2,314,241,984) 290,325,093 258,543,810
(3,278,701,006) (2,299,204,404) 1,207,020,862

INCOME BEFORE INCOME TAX 878,635,984 105,207,506 3,870,430,098

PROVISION FOR (BENEFIT FROM)

INCOME TAX (Note 25) 25,137,768 (406,738,723) 298,415,835

NET INCOME 853,498,216 511,946,229 3,572,014,263

Other comprehensive income (loss) to be reclassified to
profit or loss in subsequent periods:
Actuarial gains (losses) on pension liability (Note 24) 301,535,342 (365,149,270) (69,258,478)
Provision for (benefit from income tax)
(Notes 24 and 25) 91,853,356 (109,544,781) (20,777,544)

OTHER COMPREHENSIVE INCOME (LOSS),

NET OF TAX 209,681,986 (255,604,489) (48,480,934)

TOTAL COMPREHENSIVE INCOME P

=1,063,180,202 P
=256,341,740 P
=3,523,533,329

Basic/Diluted Earnings Per Share (Note 26) P

=1.41 P
=0.84 P
=5.89

See accompanying Notes to Consolidated Financial Statements.

42
 CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Year Ended December 31, 2014

Capital Paid in Other Appropriated Unappropriated
Excess of Par Comprehensive Retained Retained
Common Stock Value Treasury Stock Loss Earnings Earnings Total
(Note 20) (Note 20) (Note 20) (Note 24) (Note 20) (Note 20) Equity
Balance at January 1, 2014 P
=613,236,550 P
=8,405,568,120 (P
= 529,319,321) (P
= 341,650,278) P
=3,916,762,000 P
=9,016,980,244 P=21,081,577,315
Net income – – – – – 853,498,216 853,498,216
Other comprehensive income – – – 209,681,986 – – 209,681,986
Total comprehensive income – – – 209,681,986 – 853,498,216 1,063,180,202
Appropriation of retained earnings – – – – 3,000,000,000 (3,000,000,000) –
Dividend declaration – – – – – (605,953,330) (605,953,330)
Balance at December 31, 2014 P
=613,236,550 P
=8,405,568,120 (P
= 529,319,321) (P
= 131,968,292) P
=6,916,762,000 P
=6,264,525,130 P=21,538,804,187

43
For the Year Ended December 31, 2013
Capital Paid in Other Appropriated Unappropriated
Excess of Par Comprehensive Retained Retained
Common Stock Value Treasury Stock Loss Earnings Earnings Total
(Note 20) (Note 20) (Note 20) (Notes 3 and 24) (Note 20) (Note 20) Equity
Balance at January 1, 2013 =
P613,236,550 =
P8,405,568,120 (P
=529,319,321) (P
=86,045,789) = P1,416,762,000 =P12,216,940,675 =P22,037,142,235
Net income – – – – – 511,946,229 511,946,229
Other comprehensive loss – – – (255,604,489) – – (255,604,489)
Total comprehensive income – – – (255,604,489) – 511,946,229 256,341,740
Appropriation of retained earnings – – – – 2,500,000,000 (2,500,000,000) –
Dividend declaration – – – – – (1,211,906,660) (1,211,906,660)
Balance at December 31, 2013 =
P613,236,550 =
P8,405,568,120 (P
=529,319,321) (P
=341,650,278) = P3,916,762,000 =
P9,016,980,244 =P21,081,577,315
 For the Year Ended December 31, 2012
Capital Paid in Other Appropriated Unappropriated
Excess of Par Comprehensive Retained Retained
Common Stock Value Treasury Stock Loss Earnings Earnings Total
(Note 20) (Note 20) (Note 20) (Notes 3 and 24) (Note 20) (Note 20) Equity
Balance at January 1, 2012 =
P613,236,550 =
P8,405,568,120 (P
=529,319,321) (P
=43,195,116) =
P933,500,000 =
P9,734,141,742 =P19,113,931,975
Net income – – – – – 3,572,014,263 3,572,014,263
Other comprehensive loss – – – (48,480,934) – – (48,480,934)
Total comprehensive income – – – (48,480,934) – 3,572,014,263 3,523,533,329
Appropriation of retained earnings – – – – 483,262,000 (483,262,000) –
Dividend declaration – – – – – (605,953,330) (605,953,330)
Reversal – – – 5,630,261 – – 5,630,261
Balance at December 31, 2012 =
P613,236,550 =
P8,405,568,120 (P
=529,319,321) (P
=86,045,789) = P1,416,762,000 =P12,216,940,675 =P22,037,142,235

44
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31

2014 2013 2012

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P
=878,635,984 P
=105,207,506 P
=3,870,430,098
Adjustments for:
Depreciation and amortization (Note 13) 4,281,525,018 3,454,641,115 2,767,863,860
Hedging losses (gains) (Note 9) 2,314,241,984 (290,325,093) (258,543,810)
Interest expense (Note 18) 1,013,241,353 865,501,445 732,591,508
Provision for return cost (Note 19) 476,017,529 590,638,099 577,510,459
Unrealized foreign exchange losses (gains) 164,383,293 1,899,060,619 (1,150,415,449)
Loss (gain) on disposal of property and equipment
(Note 13) 27,734,209 3,347,242 (413,540)
Gain on sale of available for sale financial assets – – (5,764,090)
Equity in net income of joint ventures (Note 14) (96,326,091) (119,360,469) (54,384,007)
Interest income (Note 8) (79,927,272) (219,619,475) (415,770,873)
Operating income before working capital changes 8,979,526,007 6,289,090,989 6,063,104,156
Decrease (increase) in:
Receivables 405,357,069 (444,359,508) (301,781,692)
Financial assets at fair value through profit or
loss (derivatives) (Note 9) 112,774,809 226,550,958 111,883,670
Expendable parts, fuel, materials and supplies 31,860,790 (270,324,909) (24,648,166)
Other current assets (729,957,322) (422,305,919) (599,172,793)
Increase (decrease) in:
Unearned transportation revenue 873,405,279 (642,278,678) 727,762,570
Accounts payable and other accrued liabilities 325,208,227 737,857,551 1,548,968,993
Amounts of due to related parties (4,743,714) (949,100) 9,300,141
Noncurrent liabilities (1,452,075,289) (676,902,820) (1,195,414,782)
Net cash generated from operations 8,541,355,856 4,796,378,564 6,340,002,097
Interest paid (1,004,857,514) (771,690,630) (729,842,736)
Income tax paid (45,043,718) (34,600,186) –
Interest received 83,919,430 226,352,282 550,377,733
Net cash provided by operating activities 7,575,374,054 4,216,440,030 6,160,537,094

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment
(Notes 13 and 31) (13,316,719,856) (12,179,883,734) (10,421,612,444)
Proceeds from sale (disposals) of:
Other noncurrent assets 115,781,781 1,778,103 1,521,751
Property and equipment 338,060 – –
Financial assets at FVPL (Note 9) – – 3,258,002,595
Available-for sale investments (Note 9) – – 110,369,718
Dividends received from a joint venture (Note 14) 83,811,058 52,292,889 53,229,016
Decrease (increase) in other noncurrent assets – (170,123,133) 170,556,445
Acquisition of investments:
Investments in joint ventures (Note 14) – – (101,123,645)
Payment to acquire a subsidiary (Notes 7 and 31) (488,559,147) – –
Net cash used in investing activities (13,605,348,104) (12,295,935,875) (6,929,056,564)

(Forward)

45
 Years Ended December 31
2014 2013 2012

CASH FLOWS FROM FINANCING ACTIVITIES

Long-term debt:
Availments (Notes 18 and 31) P
=8,478,040,015 P
=7,425,565,000 =
P5,915,510,812
Payments of long-term debt (Note 18) (4,176,677,721) (3,011,148,694) (2,508,469,536)
Dividends paid (605,953,330) (1,211,906,660) (605,953,330)
Net cash provided by financing activities 3,695,408,964 3,202,509,646 2,801,087,946

EFFECTS OF EXCHANGE RATE CHANGES

IN CASH AND CASH EQUIVALENTS (14,356,033) 204,771,677 (262,026,137)

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS (2,348,921,119) (4,672,214,522) 1,770,542,339

CASH AND CASH EQUIVALENTS ATTRIBUTABLE TO

BUSINESS COMBINATION (Notes 7 and 31) 256,721,999 – –

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 6,056,111,803 10,728,326,325 8,957,783,986

CASH AND CASH EQUIVALENTS

AT END OF YEAR (Note 8) P
=3,963,912,683 P
=6,056,111,803 =
P10,728,326,325

See accompanying Notes to Consolidated Financial Statements.

46
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 ten 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) and Summit A Aircraft Leasing
Limited (SAALL). CALL, ILL, BLL, SLL, SALL, VALL, POALL, PTALL and PTHALL are
SPEs in which the Parent Company does not have equity interest. CALL, ILL, BLL, SLL, SALL,
VALL POALL, PTALL, PTHALL and SAALL acquired the passenger aircraft for lease to the
Parent Company under finance lease arrangements (Note 13) and funded the acquisitions through
long-term debt (Note 18).

On March 20, 2014, the Parent Company acquired 100% ownership of Tiger Airways Philippines
(TAP) (Note 7). The Parent Company, its ten SPEs and TAP (collectively known as “the Group”)
are consolidated for financial reporting purposes (Note 2).

The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on
October 26, 2010, the Parent Company’s initial public offering (IPO).

The Parent Company’s ultimate parent is JG Summit Holdings, Inc. (JGSHI). The Parent
Company is 66.15%-owned by CP Air Holdings, Inc. (CPAHI).

In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise to
operate air transportation services, both domestic and international. In August 1997, the Office of
the President of the Philippines gave the Parent Company the status of official Philippine carrier to
operate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB)
issued the permit to operate scheduled international services and a certificate of authority to
operate international charters.

The Parent Company is registered with the Board of Investments (BOI) as a new operator of air
transport on a pioneer and non-pioneer status. Under the terms of the registration and subject to
certain requirements, the Parent Company is entitled to certain fiscal and non-fiscal incentives,
including among others, an income tax holiday (ITH) for a period of four (4) to six (6) years
(Notes 25 and 32).

47
 Prior to the grant of the ITH and in accordance with the Parent Company’s franchise, which
extends up to year 2031:

a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue
derived from air transportation operations. For revenue earned from activities other than air
transportation, the Parent Company is subject to corporate income tax and to real property tax.
b. In the event that any competing individual, partnership or corporation received and enjoyed
tax privileges and other favorable terms which tended to place the Parent Company at any
disadvantage, then such privileges shall have been deemed by the fact itself of the Parent
Company’s tax privileges and shall operate equally in favor of the Parent Company.

On May 24, 2005, the Reformed-Value Added Tax (R-VAT) law was signed as RA No. 9337 or
the R-VAT Act of 2005. The R-VAT law took effect on November 1, 2005 following the
approval on October 19, 2005 of Revenue Regulation (RR) No. 16-2005 which provides for the
implementation of the rules of the R-VAT law. Among the relevant provisions of RA No. 9337
are the following:

a. The franchise tax of the Parent Company is abolished;

b. The Parent Company shall be subject to corporate income tax;
c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration
license, and other fees and charges;
d. Change in corporate income tax rate from 32.00% to 35.00% for the next three years effective
on November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter;
e. 70.00% cap on the input VAT that can be claimed against output VAT; and
f. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective
on February 1, 2006.

On November 21, 2006, the President signed into law RA No. 9361, which amends
Section 110 (B) of the Tax Code. This law, which became effective on December 13, 2006,
provides that if the input tax, inclusive of the input tax carried over from the previous quarter
exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or
quarters. The Department of Finance through the Bureau of Internal Revenue issued
RR No. 2-2007 to implement the provisions of the said law. Based on the regulation, the
amendment shall apply to the quarterly VAT returns to be filed after the effectivity of
RA No. 9361.

On December 16, 2008, the Parent Company was registered as a Clark Freeport Zone (CFZ)
enterprise and committed to provide air transportation services both domestic and international for
passengers and cargoes at the Diosdado Macapagal International Airport.

2. Basis of Preparation

The accompanying consolidated financial statements of the Group have been prepared on a
historical cost basis, except for financial assets and liabilities at fair value through profit or loss
(FVPL) and available-for-sale (AFS) investment that have been measured at fair value.

The financial statements of the Group are presented in Philippine Peso (P

=), the Parent Company’s
functional and presentation currency. All amounts are rounded to the nearest peso unless
otherwise indicated.

48
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS). The Group has adopted the new and revised
accounting standards, which became effective beginning January 1, 2014, in the accompanying
financial statements.

On March 20, 2014, the Group finalized its acquisition of TAP. The acquisition was accounted
for as a business combination (Note 7). Accordingly, the Group finalized the purchase price
allocation.

Basis of Consolidation
The consolidated financial statements as of December 31, 2014 and 2013 represent the
consolidated financial statements of the Parent Company, the SPEs that it controls and its wholly
owned subsidiary TAP. Consolidation of TAP started on March 20, 2014 when the Group gained
control (Note 7).

Control is achieved when the Parent Company is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over
the investee. Specifically, the Parent Company controls an investee if, and only if, the Parent
Company has:

· power over the investee (that is, existing rights that give it the current ability to direct the
relevant activities of the investee);
· exposure, or rights, to variable returns from its involvement with the investee; and
· the ability to use its power over the investee to affect the amount of the investor's returns

When the Parent Company has less than a majority of the voting or similar rights of an investee,
the Parent Company considers all relevant facts and circumstances in assessing whether it has
power over an investee, including:

· the contractual arrangement with the other vote holders of the investee;
· rights arising from other contractual arrangements; and
· the Parent Company’s voting rights and potential voting rights.

The Parent Company reassesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control. Consolidation of a
subsidiary begins when the Parent Company obtains control over the subsidiary and ceases when
the Parent Company loses control of the subsidiary. Assets, liabilities, income and expenses of the
a subsidiary acquired or disposed of during the year are included in the consolidated statement of
comprehensive income from the date the Parent Company gains control until the date the Parent
Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the
equity holders of the Parent Company of the Group and to the non-controlling interests, even if
this results in the non-controlling interests having a deficit balance. The financial statements of
the subsidiaries are prepared for the same balance sheet date as the Parent Company, using
consistent accounting policies. All intragroup assets, liabilities, equity, income and expenses and
cash flows relating to transactions between members of the Group are eliminated on consolidation.

49
 A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Parent Company loses control over a subsidiary, it:

· Derecognizes the assets (including goodwill) and liabilities of the subsidiary;

· Derecognizes the carrying amount of any non-controlling interests;
· Derecognizes the cumulative translation adjustments recorded in equity;
· Recognizes the fair value of the consideration received;
· Recognizes the fair value of any investment retained;
· Recognizes any surplus or deficit in profit or loss; and
· Reclassifies the Parent Company’s share of components previously recognized in OCI to
profit or loss or retained earnings, as appropriate, as would be required if the Parent Company
had directly disposed of the related assets and liabilities.

The consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. All significant intercompany transactions
and balances, including intercompany profits and unrealized profits and losses, are eliminated in
the consolidation.

3. Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year, except for
the adoption of new and amended PFRS and Philippine Interpretations from International
Financial Reporting Interpretations Committee (IFRIC) that are discussed below. Except as
otherwise indicated, the adoption of the new and amended PFRS and Philippine Interpretations did
not have any effect on the consolidated financial statements of the Group.

· Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12,
Disclosure of Interests in Other Entities, and PAS 27, Separate Financial Statements)
These amendments provide an exception to the consolidation requirement for entities that
meet the definition of an investment entity under PFRS 10. The exception to consolidation
requires investment entities to account for subsidiaries at fair value through profit or loss. The
amendments must be applied retrospectively, subject to certain transition relief. The
amendments have no impact on the Group’s financial position or performance.

· PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
Liabilities
These amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’
and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for
offsetting and are applied retrospectively. The amendments affect disclosure only and have no
impact on the Group’s financial position or performance.

· PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets
(Amendments)
These amendments remove the unintended consequences of PFRS 13 on the disclosures
required under PAS 36. In addition, these amendments require disclosure of the recoverable
amounts for the assets or cash-generating units (CGUs) for which impairment loss has been
recognized or reversed during the period. The amendments affect disclosures only and had no
impact on the Group’s financial position or performance.

50
· PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and
Continuation of Hedge Accounting (Amendments)
These amendments provide relief from discontinuing hedge accounting when novation of a
derivative designated as a hedging instrument meets certain criteria. The amendments have no
financial impact on the Group’s financial position or performance.

· Philippine Interpretation IFRIC 21, Levies

IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon
reaching a minimum threshold, the interpretation clarifies that no liability should be
anticipated before the specified minimum threshold is reached. This interpretation has no
impact on the Group’s financial position or performance.

Annual Improvements to PFRSs (2010-2012 cycle)

In the 2010 - 2012 annual improvements cycle, seven amendments to six standards were issued,
which included an amendment to PFRS 13, Fair Value Measurement. The amendment to
PFRS 13 is effective immediately and it clarifies that short-term receivables and payables with no
stated interest rates can be measured at invoice amounts when the effect of discounting is
immaterial. This amendment has no impact on the Group.

Annual Improvements to PFRSs (2011-2013 cycle)

In the 2011 - 2013 annual improvements cycle, four amendments to four standards were issued,
which included an amendment to PFRS 1, First-time Adoption of Philippine Financial Reporting
Standards-First-time Adoption of PFRS. The amendment to PFRS 1 is effective immediately. It
clarifies that an entity may choose to apply either a current standard or a new standard that is not
yet mandatory, but permits early application, provided either standard is applied consistently
throughout the periods presented in the entity’s first PFRS financial statements. This amendment
has no impact on the Group as it is not a first-time PFRS adopter.

Standards Issued but not yet Effective

The Group has not applied the following PFRS and Philippine Interpretations which are not yet
effective as of December 31, 2014. This list consists of standards and interpretations issued,
which the Group reasonably expects to be applicable at a future date. The Group intends to adopt
those standards when they become effective. The Group does not expect the adoption of these
standards to have a significant impact in the consolidated financial statements, unless otherwise
stated.

· PFRS 9, Financial Instruments - Classification and Measurement (2010 version)

PFRS 9 (2010 version) reflects the first phase on the replacement of PAS 39 and applies to the
classification and measurement of financial assets and liabilities as defined in PAS 39,
Financial Instruments: Recognition and Measurement. PFRS 9 requires all financial assets to
be measured at fair value at initial recognition. A debt financial asset may, if the fair value
option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a
business model that has the objective to hold the assets to collect the contractual cash flows
and its contractual terms give rise, on specified dates, to cash flows that are solely payments of
principal and interest on the principal outstanding. All other debt instruments are
subsequently measured at fair value through profit or loss. All equity financial assets are
measured at fair value either through other comprehensive income (OCI) or profit or loss.
Equity financial assets held for trading must be measured at fair value through profit or loss.
For FVO liabilities, the amount of change in the fair value of a liability that is attributable to
changes in credit risk must be presented in OCI. The remainder of the change in fair value is

51
 presented in profit or loss, unless presentation of the fair value change in respect of the
liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.
All other PAS 39 classification and measurement requirements for financial liabilities have
been carried forward into PFRS 9, including the embedded derivative separation rules and the
criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on
the classification and measurement of the Group’s financial assets, but will potentially have no
impact on the classification and measurement of financial liabilities.

PFRS 9 (2010 version) is effective for annual periods beginning on or after January 1, 2015.
This mandatory adoption date was moved to January 1, 2018 when the final version of
PFRS 9 was adopted by the Philippine Financial Reporting Standards Council (FRSC). Such
adoption, however, is still for approval by the Board of Accountancy (BOA).

· Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate

This Philippine Interpretation, which may be early applied, covers accounting for revenue and
associated expenses by entities that undertake the construction of real estate directly or
through subcontractors. This Philippine Interpretation requires that revenue on construction of
real estate be recognized only upon completion, except when such contract qualifies as
construction contract to be accounted for under PAS 11, Construction Contracts, or involves
rendering of services in which case revenue is recognized based on stage of completion.
Contracts involving provision of services with the construction materials and where the risks
and reward of ownership are transferred to the buyer on a continuous basis will also be
accounted for based on stage of completion. The SEC and the FRSC have deferred the
effectivity of this interpretation until the final Revenue standard is issued by the International
Accounting Standards Board (IASB) and an evaluation of the requirements of the final
Revenue standard against the practices of the Philippine real estate industry is completed. The
adoption of the interpretation will have no impact on the Group’s financial position or
performance as the Group is not engaged in real estate businesses.

Effective January 1, 2015

· PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions

PAS 19 requires an entity to consider contributions from employees or third parties when
accounting for defined benefit plans. Where the contributions are linked to service, they
should be attributed to periods of service as a negative benefit. These amendments clarify
that, if the amount of the contributions is independent of the number of years of service, an
entity is permitted to recognize such contributions as a reduction in the service cost in the
period in which the service is rendered, instead of allocating the contributions to the periods of
service. The amendments will have no impact on the Group’s financial statements.

Annual Improvements to PFRSs (2010-2012 cycle)

The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginning
on or after January 1, 2015 and are not expected to have a material impact on the Group.

· PFRS 2, Share-based Payment - Definition of Vesting Condition

This improvement is applied prospectively and clarifies various issues relating to the
definitions of performance and service conditions which are vesting conditions, including:

· A performance condition must contain a service condition

· A performance target must be met while the counterparty is rendering service

52
 · A performance target may relate to the operations or activities of an entity, or to those of
another entity in the same group
· A performance condition may be a market or non-market condition
· If the counterparty, regardless of the reason, ceases to provide service during the vesting
period, the service condition is not satisfied.

This amendment does not apply to the Group as it has no share-based payments.

· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business

Combination
The amendment is applied prospectively for business combinations for which the acquisition
date is on or after July 1, 2014. It clarifies that a contingent consideration that is not classified
as equity is subsequently measured at fair value through profit or loss whether or not it falls
within the scope of PAS 39, Financial Instruments: Recognition and Measurement
(or PFRS 9, Financial Instruments, if early adopted). The Group shall consider this
amendment for future business combinations.

· PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the

Total of the Reportable Segments’ Assets to the Entity’s Assets
The amendments are applied retrospectively and clarify that:

· An entity must disclose the judgments made by management in applying the aggregation
criteria in the standard, including a brief description of operating segments that have been
aggregated and the economic characteristics (e.g., sales and gross margins) used to assess
whether the segments are ‘similar’.
· The reconciliation of segment assets to total assets is only required to be disclosed if the
reconciliation is reported to the chief operating decision maker, similar to the required
disclosure for segment liabilities.

The amendments affect disclosures only and have no impact on the Group’s financial position
or performance.

· PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of
Accumulated Depreciation
The amendment is applied retrospectively and clarifies in PAS 16 and PAS 38 that the asset
may be revalued by reference to the observable data on either the gross or the net carrying
amount. In addition, the accumulated depreciation or amortization is the difference between
the gross and carrying amounts of the asset. The amendment will have no impact on the
Group’s financial position or performance.

· PAS 24, Related Party Disclosures - Key Management Personnel

The amendment is applied retrospectively and clarifies that a management entity, which is an
entity that provides key management personnel services, is a related party subject to the
related party disclosures. In addition, an entity that uses a management entity is required to
disclose the expenses incurred for management services. The amendments affect disclosures
only and will have no impact on the Group’s financial position or performance.

53
Annual Improvements to PFRSs (2011-2013 cycle)
The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginning
on or after January 1, 2015 and are not expected to have a material impact on the Group.

· PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements

The amendment is applied prospectively and clarifies the following regarding the scope
exceptions within PFRS 3:

· Joint arrangements, not just joint ventures, are outside the scope of PFRS 3.
· This scope exception applies only to the accounting in the financial statements of the joint
arrangement itself.

The amendment will have no impact on the Group’s financial position or performance.

· PFRS 13, Fair Value Measurement - Portfolio Exception

The amendment is applied prospectively and clarifies that the portfolio exception in PFRS 13
can be applied not only to financial assets and financial liabilities, but also to other contracts
within the scope of PAS 39. The amendment will have no significant impact on the Group’s
financial position or performance.

· PAS 40, Investment Property

The amendment is applied prospectively and clarifies that PFRS 3, and not the description of
ancillary services in PAS 40, is used to determine if the transaction is the purchase of an asset
or business combination. The description of ancillary services in PAS 40 only differentiates
between investment property and owner-occupied property (i.e., property, plant and
equipment). The amendment will have no significant impact on the Group’s financial position
or performance.

Effective January 1, 2016

· PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of
Acceptable Methods of Depreciation and Amortization (Amendments)
The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of
economic benefits that are generated from operating a business (of which the asset is part)
rather than the economic benefits that are consumed through use of the asset. As a result, a
revenue-based method cannot be used to depreciate property, plant and equipment and may
only be used in very limited circumstances to amortize intangible assets. The amendments are
effective prospectively for annual periods beginning on or after January 1, 2016, with early
adoption permitted. The amendment will have no significant impact on the Group’s financial
position or performance.

· PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants
(Amendments)
The amendments change the accounting requirements for biological assets that meet the
definition of bearer plants. Under the amendments, biological assets that meet the definition
of bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply.
After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost
(before maturity) and using either the cost model or revaluation model (after maturity). The
amendments also require that produce that grows on bearer plants will remain in the scope of
PAS 41 measured at fair value less costs to sell. For government grants related to bearer

54
 plants, PAS 20, Accounting for Government Grants and Disclosure of Government
Assistance, will apply. The amendments are retrospectively effective for annual periods
beginning on or after January 1, 2016, with early adoption permitted. The amendment will
have no significant impact on the Group’s financial position or performance.

· PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements
(Amendments)
The amendments will allow entities to use the equity method to account for investments in
subsidiaries, joint ventures and associates in their separate financial statements. Entities
already applying PFRS and electing to change to the equity method in its separate financial
statements will have to apply that change retrospectively. For first-time adopters of PFRS
electing to use the equity method in its separate financial statements, they will be required to
apply this method from the date of transition to PFRS. These amendments are not expected to
have any impact to the Group.

· PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint
Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture
These amendments address an acknowledged inconsistency between the requirements in
PFRS 10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets between
an investor and its associate or joint venture. The amendments require that a full gain or loss
is recognized when a transaction involves a business (whether it is housed in a subsidiary or
not). A partial gain or loss is recognized when a transaction involves assets that do not
constitute a business, even if these assets are housed in a subsidiary. These amendments are
effective from annual periods beginning on or after 1 January 2016. The amendment will
have no significant impact on the Group’s financial position or performance.

· PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations
(Amendments)
The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an
interest in a joint operation, in which the activity of the joint operation constitutes a business
must apply the relevant PFRS 3 principles for business combinations accounting. The
amendments also clarify that a previously held interest in a joint operation is not remeasured
on the acquisition of an additional interest in the same joint operation while joint control is
retained. In addition, a scope exclusion has been added to PFRS 11 to specify that the
amendments do not apply when the parties sharing joint control, including the reporting entity,
are under common control of the same ultimate controlling party.

The amendments apply to both the acquisition of the initial interest in a joint operation and the
acquisition of any additional interests in the same joint operation and are prospectively
effective for annual periods beginning on or after January 1, 2016, with early adoption
permitted. These amendments are not expected to have any impact to the Group.

· PFRS 14, Regulatory Deferral Accounts

PFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-
regulation, to continue applying most of its existing accounting policies for regulatory deferral
account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 must
present the regulatory deferral accounts as separate line items on the statement of financial
position and present movements in these account balances as separate line items in the
statement of profit or loss and other comprehensive income. The standard requires disclosures
on the nature of, and risks associated with, the entity’s rate-regulation and the effects of that

55
 rate-regulation on its financial statements. PFRS 14 is effective for annual periods beginning
on or after January 1, 2016. Since the Group is an existing PFRS preparer, this standard
would not apply.

Annual Improvements to PFRSs (2012-2014 cycle)

The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginning
on or after January 1, 2016 and are not expected to have a material impact on the Group.

· PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in
Methods of Disposal
The amendment is applied prospectively and clarifies that changing from a disposal through
sale to a disposal through distribution to owners and vice-versa should not be considered to be
a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no
interruption of the application of the requirements in PFRS 5. The amendment also clarifies
that changing the disposal method does not change the date of classification. The amendment
will have no significant impact on the Group’s financial position or performance.

· PFRS 7, Financial Instruments: Disclosures - Servicing Contracts

PFRS 7 requires an entity to provide disclosures for any continuing involvement in a
transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing
contract that includes a fee can constitute continuing involvement in a financial asset. An
entity must assess the nature of the fee and arrangement against the guidance in PFRS 7 in
order to assess whether the disclosures are required. The amendment is to be applied such that
the assessment of which servicing contracts constitute continuing involvement will need to be
done retrospectively. However, comparative disclosures are not required to be provided for
any period beginning before the annual period in which the entity first applies the
amendments. The amendment will have no significant impact on the Group’s financial
position or performance.

· PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial

Statements
This amendment is applied retrospectively and clarifies that the disclosures on offsetting of
financial assets and financial liabilities are not required in the condensed interim financial
report unless they provide a significant update to the information reported in the most recent
annual report. The amendment will have no significant impact on the Group’s financial
position or performance.

· PAS 19, Employee Benefits - regional market issue regarding discount rate
This amendment is applied prospectively and clarifies that market depth of high quality
corporate bonds is assessed based on the currency in which the obligation is denominated,
rather than the country where the obligation is located. When there is no deep market for high
quality corporate bonds in that currency, government bond rates must be used. The
amendment will have no significant impact on the Group’s financial position or performance.

Effective January 1, 2018

· PFRS 9, Financial Instrument - Hedge Accounting and amendments to PFRS 9, PFRS 7 and
PAS 39 (2013 version)
PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39 which
pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedge
accounting model of PAS 39 with a more principles-based approach. Changes include

56
 replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on
the economic relationship between the hedged item and the hedging instrument, and the effect
of credit risk on that economic relationship; allowing risk components to be designated as the
hedged item, not only for financial items but also for non-financial items, provided that the
risk component is separately identifiable and reliably measurable; and allowing the time value
of an option, the forward element of a forward contract and any foreign currency basis spread
to be excluded from the designation of a derivative instrument as the hedging instrument and
accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge
accounting.

PFRS 9 (2013 version) has no mandatory effective date. The mandatory effective date of
January 1, 2018 was eventually set when the final version of PFRS 9 was adopted by the
FRSC. The adoption of the final version of PFRS 9, however, is still for approval by BOA.

The adoption of PFRS 9 will have an effect on the classification and measurement of the
Group’s financial assets but will have no impact on the classification and measurement of the
Group’s financial liabilities. The adoption will also have an effect on the Group’s application
of hedge accounting. The Group is currently assessing the impact of adopting this standard.

· PFRS 9, Financial Instruments (2014 or final version)

In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflects
all phases of the financial instruments project and replaces PAS 39, Financial Instruments:
Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces
new requirements for classification and measurement, impairment, and hedge accounting.
PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early
application permitted. Retrospective application is required, but comparative information is
not compulsory. Early application of previous versions of PFRS 9 is permitted if the date of
initial application is before February 1, 2015.

The adoption of PFRS 9 will have an effect on the classification and measurement of the
Group’s financial assets and impairment methodology for financial assets, but will have no
impact on the classification and measurement of the Group’s financial liabilities.

The following new standard issued by the IASB has not yet been adopted by the FRSC

IFRS 15, Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to
revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an
amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer. The principles in IFRS 15 provide a more
structured approach to measuring and recognizing revenue. The new revenue standard is
applicable to all entities and will supersede all current revenue recognition requirements under
IFRS. Either a full or modified retrospective application is required for annual periods
beginning on or after January 1, 2017 with early adoption permitted. The Group is currently
assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective
date once adopted locally.

57
4. Summary of Significant Accounting Policies

Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts, rebates and other sales taxes or duty. The following
specific recognition criteria must also be met before revenue is recognized:

Sale of air transportation services

Passenger ticket and cargo waybill sales are initially recorded under ‘Unearned transportation
revenue’ account in the consolidated statement of financial position until recognized under
Revenue account in the consolidated statement of comprehensive income when carriage is
provided or when the flight is uplifted.

Ancillary revenue
Revenue from services incidental to the transportation of passengers, cargo, mail and merchandise
are recognized when transactions are carried out.

Interest income
Interest on cash, cash equivalents, short-term cash investments and debt securities classified as
financial assets at FVPL is recognized as the interest accrues using the effective interest method.

Expense Recognition
Expenses are recognized when it is probable that decrease in future economic benefits related to
decrease in an asset or an increase in liability has occurred and the decrease in economic benefits
can be measured reliably. Expenses that arise in the course of ordinary regular activities of the
Group include, among others, the operating expenses on the Group’s operation.

The commission related to the sale of air transportation services is recognized as outright expense
upon the receipt of payment from customers, and is included under ‘Reservation and sales’
account.

General and Administrative Expenses

General and administrative expenses constitute cost of administering the business. These are
recognized as expenses when it is probable that a decrease in future economic benefit related to a
decrease in an asset or an increase in a liability has occurred and the decrease in economic benefits
can be measured reliably.

Cash and Cash Equivalents

Cash represents cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of
three months or less from dates of placement and that are subject to an insignificant risk of
changes in value. Cash equivalents include short-term investment that can be pre-terminated and
readily convertible to known amount of cash and that are subject to an insignificant risk of
changes in value. Cash and cash equivalents, excluding cash on hand, are classified and
accounted for as loans and receivables.

Financial Instruments
Date of recognition
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized using the settlement
date accounting. Derivatives are recognized on a trade date basis.

58
Initial recognition of financial instruments
Financial instruments are recognized initially at the fair value of the consideration given. Except
for financial instruments at FVPL, the initial measurement of financial assets includes transaction
costs. The Group classifies its financial assets into the following categories: financial assets at
FVPL, held-to-maturity (HTM) investments, AFS investments and loans and receivables.
Financial liabilities are classified into financial liabilities at FVPL and other financial liabilities
carried at cost or amortized cost. The Group has no HTM and AFS investments as of
December 31, 2014 and 2013.

The classification depends on the purpose for which the investments were acquired and whether
they are quoted in an active market. Management determines the classification of its investments
at initial recognition and, where allowed and appropriate, re-evaluates such designation at every
reporting date.

Determination of fair value

The fair value of financial instruments traded in active markets at the statement of financial
position date is based on their quoted market price or dealer price quotations (bid price for long
positions and ask price for short positions), without any deduction for transaction costs. When
current bid and ask prices are not available, the price of the most recent transaction provides
evidence of the current fair value as long as there has not been a significant change in economic
circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, options
pricing models and other relevant valuation models. Any difference noted between the fair value
and the transaction price is treated as expense or income, unless it qualifies for recognition as
some type of asset or liability.

The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:

· Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
· Level 2: other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly
· Level 3: techniques which use inputs which have a significant effect on the recorded fair value
that are not based on observable market data.

‘Day 1’ profit or loss

Where the transaction price in a non-active market is different from the fair value based on other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from an observable market, the Group recognizes the difference
between the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it
qualifies for recognition as some other type of asset or liability. In cases where the transaction
price used is made of data which is not observable, the difference between the transaction price
model value is only recognized in profit or loss, when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ profit or loss amount.

59
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.

The Group’s financial assets and liabilities at FVPL consist of derivative liabilities and derivative
assets as of December 31, 2014 and 2013, respectively (Note 9).

Financial assets and financial liabilities at FVPL are presented in the consolidated statement of
financial position at fair value. Changes in fair value are reflected in profit or loss. Interest earned
or incurred is recorded in interest income or expense, respectively, while dividend income is
recorded in other revenue according to the terms of the contract, or when the right of the payment
has been established.

Derivatives recorded at FVPL

The Group is counterparty to certain derivative contracts such as commodity options. Such
derivative financial instruments are initially recorded at fair value on the date at which the
derivative contract is entered into and are subsequently re-measured at fair value. Any gains or
losses arising from changes in fair values of derivatives (except those accounted for as accounting
hedges) are taken directly to profit or loss. Derivatives are carried as assets when the fair value is
positive and as liabilities when the fair value is negative.

For the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of the
fair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of the
exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction
(cash flow hedge). The Group did not apply hedge accounting on its derivative transactions for
the years ended December 31, 2014 and 2013.

The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel
derivatives are not designated as accounting hedges. These derivatives are entered into for risk
management purposes. The gains or losses on these instruments are accounted for directly as
charges to or credits against current operations under ‘Fuel hedging gains (losses)’ account in
profit or loss.

As of December 31, 2014 and 2013, the Group has no embedded derivatives.

AFS investments
AFS investments are those non-derivative investments which are designated as such or do not
qualify to be classified or designated as financial assets at FVPL, HTM investments or loans and

60
receivables. They are purchased and held indefinitely, and may be sold in response to liquidity
requirements or changes in market conditions.

After initial measurement, AFS investments are subsequently measured at fair value.

The unrealized gains and losses are recognized directly in equity [other comprehensive income
(loss)] under ‘Net unrealized gain (loss) on AFS investments’ account in the statement of financial
position. When the investment is disposed of, the cumulative gain or loss previously recognized
in the statement of comprehensive income is recognized in the statement of income. Where the
Group holds more than one investment in the same security they are deemed to be disposed of on
a first-in first-out basis. Dividends earned while holding AFS investments are recognized in the
statement of income when the right of the payment has been established. The losses arising from
impairment of such investments are recognized in the statement of income and removed from the
‘Net unrealized gain (loss) on AFS investments’ account.

As of December 31, 2014 and 2013, the Group has no AFS investments.

Receivables
Receivables are non-derivative financial assets with fixed or determinable payments and fixed
maturities that are not quoted in an active market. After initial measurement, receivables are
subsequently carried at amortized cost using the effective interest method less any allowance for
impairment loss. Amortized cost is calculated by taking into account any discount or premium on
acquisition, and includes fees that are an integral part of the effective interest rate (EIR) and
transaction costs. Gains and losses are recognized in profit or loss, when the receivables are
derecognized or impaired, as well as through the amortization process.

This accounting policy applies primarily to the Group’s trade and other receivables (Note 10) and
certain refundable deposits (Note 16).

Financial liabilities
Issued financial instruments or their components, which are not designated at FVPL are classified
as other financial liabilities where the substance of the contractual arrangement results in the
Group having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares. The components of issued financial instruments
that contain both liability and equity elements are accounted for separately, with the equity
component being assigned the residual amount after deducting from the instrument as a whole the
amount separately determined as the fair value of the liability component on the date of issue.

After initial measurement, other financial liabilities are subsequently measured at cost or
amortized cost using the effective interest method. Amortized cost is calculated by taking into
account any discount or premium on the issue and fees that are an integral part of the EIR. Any
effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.

This accounting policy applies primarily to the Group’s accounts payable and other accrued
liabilities, long-term debt, and other obligations that meet the above definition
(Notes 17, 18 and 19).

61
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset
or group of financial assets is impaired. A financial asset or a group of financial assets is deemed
to be impaired if, and only if, there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that
loss event (or events) has an impact on the estimated future cash flows of the financial asset or the
group of financial assets that can be reliably estimated. Evidence of impairment may include
indications that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will
enter bankruptcy or other financial reorganization and where observable data indicate that there is
a measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.

Assets carried at amortized cost

If there is objective evidence that an impairment loss on financial assets carried at amortized cost
(i.e., receivables) has been incurred, the amount of the loss is measured as the difference between
the assets’ carrying amount and the present value of estimated future cash flows discounted at the
asset’s original EIR. Time value is generally not considered when the effect of discounting is not
material. The carrying amount of the asset is reduced through the use of an allowance account.
The amount of the loss shall be recognized in profit or loss. The asset, together with the
associated allowance accounts, is written-off when there is no realistic prospect of future recovery.
The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and collectively for financial assets that are not
individually significant. If it is determined that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, the asset is included in a group of
financial assets with similar credit risk characteristics and that group of financial assets is
collectively assessed for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is or continues to be recognized are not included in the collective
assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in profit or loss to the extent that the carrying value of the asset does not exceed its
amortized cost at the reversal date.

The Group performs a regular review of the age and status of these accounts, designed to identify
accounts with objective evidence of impairment and provide the appropriate allowance for
impairment loss. The review is accomplished using a combination of specific and collective
assessment approaches, with the impairment loss being determined for each risk grouping
identified by the Group.

AFS investments
The Group assesses at each reporting date whether there is objective evidence that a financial asset
or group of financial assets is impaired. In the case of debt instruments classified as AFS
investments, impairment is assessed based on the same criteria as financial assets carried at
amortized cost. Interest continues to be accrued at the original EIR on the reduced carrying
amount of the asset and is recorded under interest income in profit or loss. If, in a subsequent
year, the fair value of a debt instrument increases, and the increase can be objectively related to an
event occurring after the impairment loss was recognized in profit or loss, the impairment loss is
also reversed through profit or loss.

62
For equity investments classified as AFS investments, objective evidence would include a
significant or prolonged decline in the fair value of the investments below its cost. The
determination of what is significant and prolonged is subject to judgment. Where there is
evidence of impairment, the cumulative loss measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that investment previously recognized
is removed from other comprehensive income and recognized in profit or loss. Impairment losses
on equity investments are not reversed through the statement of comprehensive income. Increases
in fair value after impairment are recognized directly in other comprehensive income.

Derecognition of Financial Instruments

Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of financial
assets) is derecognized where:

· the rights to receive cash flows from the asset have expired;
· the Group retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a “pass-through” arrangement;
or
· the Group has transferred its rights to receive cash flows from the asset and either: (a) has
transferred substantially all the risks and rewards of ownership and retained control over the
asset; or (b) has neither transferred nor retained the risks and rewards of the asset but has
transferred the control over the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of
the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.

Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or has expired. When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in profit or loss.

Offsetting Financial Instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement
of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously. This is not generally the case with master netting agreements;
thus, the related assets and liabilities are presented gross in the consolidated statement of financial
position.

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.

63
Business Combinations and Goodwill
PFRS 3 provides that if the initial accounting for a business combination can be determined only
provisionally by the end of the period in which the combination is effected because either the fair
values to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or the
cost of the combination can be determined only provisionally, the acquirer shall account for the
combination using those provisional values. The acquirer shall recognize any adjustments to those
provisional values as a result of completing the initial accounting within twelve months of the
acquisition date as follows: (i) the carrying amount of the identifiable asset, liability or contingent
liability that is recognized or adjusted as a result of completing the initial accounting shall be
calculated as if its fair value at the acquisition date had been recognized from that date;
(ii) goodwill or any gain recognized shall be adjusted by an amount equal to the adjustment to the
fair value at the acquisition date of the identifiable asset, liability or contingent liability being
recognized or adjusted; and (iii) comparative information presented for the periods before the
initial accounting for the combination is complete shall be presented as if the initial accounting has
been completed from the acquisition date.

Business combinations are accounted for using the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration transferred measured at acquisition date fair
value and the amount of any non-controlling interests in the acquiree. For each business
combination, the Group elects whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related
costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is remeasured
at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Contingent consideration classified as an asset or liability that is a financial
instrument and within the scope of PAS 39, Financial Instruments: Recognition and
Measurement, is measured at fair value with changes in fair value recognized either in profit or
loss or as a change to OCI. If the contingent consideration is not within the scope of PAS 39, it is
measured in accordance with the appropriate IFRS. Contingent consideration that is classified as
equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interests, and any previous interest
held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net
assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts to be recognized at the acquisition date. If
the reassessment still results in an excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s CGU that are expected to benefit from the

64
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those
units.

On March 20, 2014, the Parent Company acquired 100% shares of TAP in which total
consideration amounted to P
=265.1 million and goodwill recognized as a result of the acquisition
amounted to =P566.8 million (Notes 7 and 15).

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation, amortization and
impairment loss, if any. The initial cost of property and equipment comprises its purchase price,
any related capitalizable borrowing costs attributed to progress payments incurred on account of
aircraft acquisition under construction and other directly attributable costs of bringing the asset to
its working condition and location for its intended use.

Subsequent costs are capitalized as part of ‘Property and equipment’ account only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. Subsequent costs such as actual costs of heavy maintenance
visits for passenger aircraft are capitalized and depreciated based on the estimated number of years
or flying hours, whichever is applicable, until the next major overhaul or inspection. Generally,
heavy maintenance visits are required every five to six years for airframe and ten years or 20,000
flight cycles, whichever comes first, for landing gear. All other repairs and maintenance are
charged against current operations as incurred.

Pre-delivery payments for the construction of aircraft are initially recorded as Construction
in-progress when paid to the counterparty. Construction in-progress are transferred to the related
‘Property and equipment’ account when the construction or installation and related activities
necessary to prepare the property and equipment for their intended use are completed, and the
property and equipment are ready for service. Construction in-progress is not depreciated until
such time when the relevant assets are completed and available for use.

Depreciation and amortization of property and equipment commence once the property and
equipment are available for use and are computed using the straight-line method over the
estimated useful lives (EULs) of the assets, regardless of utilization.

The EULs of property and equipment of the Group follows:

Passenger aircraft* 15 years

Engines 15 years
Rotables 15 years
Ground support equipment 5 years
EDP Equipment, mainframe and peripherals 3 years
Transportation equipment 5 years
Furniture, fixtures and office equipment 5 years
Communication equipment 5 years
Special tools 5 years
Maintenance and test equipment 5 years
Other equipment 5 years
*With residual value of 15.00%

Leasehold improvements are amortized over the shorter of their EULs or the corresponding lease
terms.

65
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in profit or loss, in the year the item is derecognized.

The assets’ residual values, useful lives and methods of depreciation and amortization are
reviewed and adjusted, if appropriate, at each financial year-end.

Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is their fair value at the date of acquisition
(Notes 7 and 16).

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually, either individually or at the CGU level. The assessment of indefinite life is reviewed
annually to determine whether the indefinite life continues to be supportable. If not, the change in
useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from
derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognized in the statement of profit or loss
when the asset is derecognized.

The intangible asset of the Group has indefinite useful lives.

Aircraft Maintenance and Overhaul Cost

The Group recognizes aircraft maintenance and overhaul expenses in accordance with the
contractual terms.

The maintenance contracts are classified into two: (a) those based on time and material basis
(TMB); and (b) power-by-the-hour (PBH) contract. For maintenance contract under TMB, the
Group recognizes expenses based on expense as incurred method. For maintenance contract under
PBH, the Group recognizes expense on an accrual basis.

ARO
The Group is contractually required under various lease contracts to restore certain leased aircraft
to its original condition and to bear the cost of restoration at the end of the contract period. The
contractual obligation includes regular aircraft maintenance, overhaul and restoration of the leased
aircraft to its original condition. The event that gives rise to the obligation is the actual flying
hours of the asset as used, as the usage determines the timing and nature of the entity completes
the overhaul and restoration. Regular aircraft maintenance is accounted for as expense when
incurred, while overhaul and restoration are accounted on an accrual basis.

If there is a commitment related to maintenance of aircraft held under operating lease

arrangements, a provision is made during the lease term for the lease return obligations specified
within those lease agreements. The provision is made based on historical experience,
manufacturers’ advice and if relevant, contractual obligations, to determine the present value of
the estimated future major airframe inspections cost and engine overhauls.

Advance payment for materials for the restoration of the aircraft is initially recorded as Advances
to Supplier. This is recouped when the expenses for restoration of aircraft have been incurred.

The Group regularly assesses the provision for ARO and adjusts the related liability (Note 5).

66
Investments in Joint Ventures
A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control. A jointly controlled entity is a JV that involves
the establishment of a separate entity in which each venturer has an interest.

The Group’s 50.00%, 49.00% and 35.00% investments in Philippine Academy for Aviation
Traning, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIA
Engineering (Philippines) Corporation (SIAEP), respectively, are accounted for under the equity
method (Note 14). Under the equity method, the investments in JV are carried in the consolidated
statement of financial position at cost plus post-acquisition changes in the Group’s share of net
assets of the JV, less any allowance for impairment in value. The consolidated statement of
comprehensive income reflects the Group’s share in the results of operations of the JV. Dividends
received are treated as a revaluation of the carrying value of the investment.

The financial statements of the investee companies used in the preparation of the consolidated
financial statements are prepared as of the same date with the Group. The investee companies’
accounting policies conform to those by the Group for like transactions and events in similar
circumstances.

Impairment of Nonfinancial Assets

This accounting policy applies primarily to the Group’s property and equipment.

At each reporting date, the Group assesses whether there is any indication that its nonfinancial
assets may be impaired. When an indicator of impairment exists or when an annual impairment
testing for an asset is required, the Group makes a formal estimate of recoverable amount.
Recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value
in use and is determined for an individual asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or groups of assets, in which case the
recoverable amount is assessed as part of the CGU to which it belongs. Where the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered
impaired and is written down to its recoverable amount. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset or CGU.

An assessment is made at each statement of financial position date as to whether there is any
indication that a previously recognized impairment loss may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. If that is
the case, the carrying amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, net of depreciation
and amortization, had no impairment loss been recognized for the asset in prior years. Such
reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization
expense is adjusted in future years to allocate the asset’s revised carrying amount, less any
residual value, on a systematic basis over its remaining life.

Impairment of Intangibles
Intangible assets with indefinite lives are assessed for impairment annually irrespective of whether
there is any indication that it may be impaired. An intangible asset is impaired when its carrying
amount exceeds recoverable amount. An impairment is recognized immediately in the profit or
loss. The Group estimates the recoverable amount of the intangible asset. This impairment test

67
may be performed at any time during an annual period, provided it is performed at the same time
every year.

Recoverable amount is the higher of an asset’s or CGU’s fair value less cost to sell and its value in
use. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from either assets or group of assets. Value in use is the present
value of the future cash flows expected to be derived from an asset or each CGU.

An impairment loss recognized in prior periods shall be reversed if, and only if, there has been a
change in the estimates used to determine the asset’s recoverable amount since the last impairment
loss was recognized. A reversal of an impairment loss shall be recognized immediately in profit
or loss.

Intangible assets with indefinite useful lives are tested for impairment annually, either individually
or at the CGU level.

Impairment of Investments in JV
The Group’s investment in JV is tested for impairment in accordance with PAS 36 as a single
asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell)
with its carrying amount, whenever application of the requirements in PAS 39 indicates that the
investment may be impaired. An impairment loss recognized in those circumstances is not
allocated to any asset that forms part of the carrying amount of the investment in a JV.
Accordingly, any reversal of that impairment loss is recognized in accordance with PAS 36 to the
extent that the recoverable amount of the investment subsequently increases. In determining the
value in use of the investment, an entity estimates: (a) its share of the present value of the
estimated future cash flows expected to be generated by the JV, including the cash flows from the
operations of the JV and the proceeds on the ultimate disposal of the investment; or (b) the present
value of the estimated future cash flows expected to arise from dividends to be received from the
investment and from its ultimate disposal.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount shall be
reduced to its recoverable amount. The reduction is an impairment loss and shall be recognized
immediately in profit or loss. An impairment loss recognized in prior periods shall be reversed if,
and only if, there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. A reversal of an impairment loss shall be
recognized immediately in profit or loss.

Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. The impairment
testing may be performed at any time in the annual reporting period, but it must be performed at
the same time every year and when circumstances indicate that the carrying amount is impaired.
The impairment testing also requires an estimation of the recoverable amount, which is the net
selling price or value-in-use of the CGU to which the goodwill is allocated. The most recent
detailed calculation made in a preceding period of the recoverable amount of the CGU may be
used for the impairment testing for the current period provided that:

· The assets and liabilities making up the CGU have not changed significantly from the most
recent calculation;
· The most recent recoverable amount calculation resulted in an amount that exceeded the
carrying amount of the CGU by a significant margin; and

68
· The likelihood that a current recoverable amount calculation would be less than the carrying
amount of the CGU is remote based on an analysis of events that have occurred and
circumstances that have changed since the most recent recoverable amount calculation.

When value-in-use calculations are undertaken, management must estimate the expected future
cash flows from the asset of CGU and choose a suitable discount rate in order to calculate the
present value of those cash flows.

An impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Common Stock
Common stocks are classified as equity and recorded at par. Proceeds in excess of par value are
recorded as ‘Capital paid in excess of par value’ in the consolidated statement of financial
position. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds.

Treasury Stock
Own equity instruments which are acquired (treasury shares) are recognized at cost and deducted
from equity. No gain or loss is recognized in the profit and loss on the purchase, sale, issue or
cancellation of the Parent Company’s own equity instruments.

Retained Earnings
Retained earnings represent accumulated earnings of the Group less dividends declared.

Dividends on Common Shares

Dividends on common shares are recognized as a liability and deducted from equity when
approved and declared by the BOD, in the case of cash dividends; or by the BOD and
shareholders, in the case of stock dividends.

Provisions and Contingencies

Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a
result of a past event; (b) it is probable (i.e., more likely than not) that an outflow of assets
embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate
can be made of the amount of the obligation. Provisions are reviewed at each reporting date and
adjusted to reflect the current best estimate. Where the Group expects a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as an interest expense in profit or loss.

Contingent liabilities are not recognized in the consolidated statement of financial position but are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized but disclosed in the consolidated financial
statements when an inflow of economic benefits is probable. If it is virtually certain that an inflow
of economic benefits will arise, the asset and the related income are recognized in the consolidated
financial statements.

69
Pension Costs
Defined benefit plan
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit
obligation at the end of the reporting period reduced by the fair value of plan assets, adjusted for
any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the
present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method.

Defined benefit costs comprise the following:

(a) service cost;
(b) net interest on the net defined benefit liability or asset; and
(c) remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on non-
routine settlements are recognized as expense in profit or loss. Past service costs are recognized
when plan amendment or curtailment occurs.

Net interest on the net defined benefit liability or asset is the change during the period in the net
defined benefit liability or asset that arises from the passage of time which is determined by
applying the discount rate based on high quality corporate bonds to the net defined benefit liability
or asset. Net interest on the net defined benefit liability or asset is recognized as expense or
income in profit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in
the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized
immediately in OCI in the period in which they arise. Remeasurements are not reclassified to
profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance
policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly
to the Group. Fair value of plan assets is based on market price information. When no market
price is available, the fair value of plan assets is estimated by discounting expected future cash
flows using a discount rate that reflects both the risk associated with the plan assets and the
maturity or expected disposal date of those assets (or, if they have no maturity, the expected
period until the settlement of the related obligations).

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined
benefit obligation is recognized as a separate asset at fair value when and only when
reimbursement is virtually certain.

Income Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantially enacted as of the reporting date.

70
Deferred tax
Deferred tax is provided using the liability method on all temporary differences, with certain
exceptions, at the reporting date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred tax assets are recognized for all deductible temporary differences with
certain exceptions, and carryforward benefits of unused tax credits from excess minimum
corporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), to
the extent that it is probable that sufficient taxable income will be available against which the
deductible temporary differences and carryforward benefits of unused tax credits from excess
MCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognized
when it arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of transaction, affects neither the accounting income nor
taxable profit or loss. Deferred tax liabilities are not provided on non-taxable temporary
differences associated with interests in JV. With respect to interests in JV, deferred tax liabilities
are recognized except where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable
future.

The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or
part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at
each reporting date, and are recognized to the extent that it has become probable that future
taxable income will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted as of the statement of financial position date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transaction either in profit or
loss or other comprehensive income.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.

Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of
the arrangement at inception date, and requires an assessment of whether the fulfillment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a
right to use the asset. A reassessment is made after inception of the lease only if one of the
following applies:

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;
b. a renewal option is exercised or an extension granted, unless that term of the renewal or
extension was initially included in the lease term;
c. there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
d. there is a substantial change to the asset.

71
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.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in profit or
loss on a straight-line basis over the lease term.

Group as lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of
the assets are classified as operating leases. Initial direct costs incurred in negotiating operating
leases are added to the carrying amount of the leased asset and recognized over the lease term on
the same basis as the rental income. Contingent rents are recognized as revenue in the period in
which they are earned.

Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are
directly attributable to the acquisition or construction of a qualifying asset. Capitalization of
borrowing costs commences when the activities to prepare the asset are in progress, and
expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the
assets are substantially ready for their intended use.

The Group had not capitalized any borrowing costs for the years ended December 31, 2014 and
2013 as all borrowing costs from outstanding long-term debt relate to assets that are at state ready
for intended use (Note 18).

Foreign Currency Transactions

Transactions in foreign currencies are initially recorded in the Group’s functional currency using
the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency using the Philippine
Dealing and Exchange Corp. (PDEX) closing rate prevailing at the reporting date. All differences
are taken to the consolidated statement of comprehensive income. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the prevailing
closing exchange rate as of the date of initial transaction.

72
 Earnings (Loss) Per Share (EPS)
Basic EPS is computed by dividing net income applicable to common stock by the weighted
average number of common shares issued and outstanding during the year, adjusted for any
subsequent stock dividends declared.

Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity
holders of the Group by the weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would be issued on the conversion
of all the dilutive potential ordinary shares into ordinary shares.

For the years ended December 31, 2014 and 2013, the Parent Company does not have any dilutive
potential ordinary shares.

Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
Chief Operating Decision Maker (CODM). The CODM, who is responsible for resource
allocation and assessing performance of the operating segment, has been identified as the
President. The nature of the operating segment is set out in Note 6.

Events After the Reporting Date

Post-year-end events that provide additional information about the Group’s position at the
reporting date (adjusting event) are reflected in the consolidated financial statements. Post-year-
end events that are not adjusting events are disclosed in the consolidated financial statements,
when material.

5. Significant Accounting Judgments and Estimates

In the process of applying the Group’s accounting policies, management has exercised judgments
and estimates in determining the amounts recognized in the consolidated financial statements.
The most significant uses of judgments and estimates follow.

Judgments

a. Going concern
The management of the Group has made an assessment of the Group’s ability to continue as a
going concern and is satisfied that the Group has the resources to continue in business for the
foreseeable future. Furthermore, the Group is not aware of any material uncertainties that may
cast significant doubts upon the Group’s ability to continue as a going concern. Therefore, the
consolidated financial statements continue to be prepared on a going concern basis.

b. Classification of financial instruments

The Group exercises judgment in classifying a financial instrument, or its component, on
initial recognition as either a financial asset, a financial liability or an equity instrument in
accordance with the substance of the contractual arrangement and the definitions of a financial
asset, financial liability or equity instrument. The substance of a financial instrument, rather
than its legal form, governs its classification in the consolidated statement of financial
position.

73
 In addition, the Group classifies financial assets by evaluating, among others, whether the
asset is quoted or not in an active market. Included in the evaluation on whether a financial
asset is quoted in an active market is the determination of whether quoted prices are readily
and regularly available, and whether those prices represent actual and regularly occurring
market transactions on an arm’s length basis.

c. Fair values of financial instruments

Where the fair values of certain financial assets and liabilities recorded in the consolidated
statement of financial position cannot be derived from active markets, they are determined
using valuation techniques, including the discounted cash flow model. The inputs to these
models are taken from observable market data where possible, but where this is not feasible,
estimates are used in establishing fair values. The judgments include considerations of
liquidity risk, credit risk and volatility. Changes in assumptions about these factors could
affect the reported fair value of financial instruments. For derivatives, the Group generally
relies on calculation agent’s valuation.

The fair values of the Group’s financial instruments are presented in Note 29.

d. Impairment of financial assets

In determining whether an impairment loss should be recorded in profit or loss, the Group
makes judgments as to whether there is any objective evidence of impairment as a result of
one or more events that has occurred after initial recognition of the asset and that loss event or
events has an impact on the estimated future cash flows of the financial assets or the group of
financial assets that can be reliably estimated. This observable data may include adverse
changes in payment status of borrowings in a group, or national or local economic conditions
that correlate with defaults on assets in the portfolio.

e. Classification of leases
Management exercises judgment in determining whether substantially all the significant risks
and rewards of ownership of the leased assets are transferred to the Group. Lease contracts,
which transfer to the Group substantially all the risks and rewards incidental to ownership of
the leased items, are capitalized. Otherwise, they are considered as operating leases.

The Group also has lease agreements where it has determined that the risks and rewards
related to the leased assets are retained with the lessors. Such leases are accounted for as
operating leases (Note 30).

f. Consolidation of SPEs
The Group periodically undertakes transactions that may involve obtaining the rights to
variable returns from its involvement with the SPE. These transactions include the purchase
of aircraft and assumption of certain liabilities. Also, included are transactions involving
SPEs and similar vehicles. In all such cases, management makes an assessment as to whether
the Group has the right over the returns of its SPEs, and based on this assessment, the SPE is
consolidated as a subsidiary or associated company. In making this assessment, management
considers the underlying economic substance of the transaction and not only the contractual
terms.

74
g. Determination of functional currency
PAS 21 requires management to use its judgment to determine the entity’s functional currency
such that it most faithfully represents the economic effects of the underlying transactions,
events and conditions that are relevant to the entity. In making this judgment, each entity in
the Group considers the following:

a) the currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services
are denominated and settled);
b) the currency in which funds from financing activities are generated; and
c) the currency in which receipts from operating activities are usually retained.

The Group’s consolidated financial statements are presented in Philippine peso, which is also
the Parent Company’s functional currency.

h. Contingencies
The Group is currently involved in certain legal proceedings. The estimate of the probable
costs for the resolution of these claims has been developed in consultation with outside
counsel handling the defense in these matters and is based upon an analysis of potential
results. The Group currently does not believe that these proceedings will have a material
adverse effect on the Group’s financial position and results of operations. It is possible,
however, that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of the strategies relating to these proceedings (Note 30).

i. Allocation of revenue, costs and expenses

Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost
and expenses such as passenger revenue, cargo revenue, excess baggage revenue, fuel and
insurance surcharge, fuel and oil expense, hull/war/risk insurance, maintenance expense,
depreciation (for aircraft under finance lease), lease expense (for aircraft under operating
lease) and interest expense based on the related long-term debt are specifically identified per
aircraft based on an actual basis. For revenue, cost and expense accounts that are not
identifiable per aircraft, the Group provides allocation based on activity factors that closely
relate to the earning process of the revenue.

j. Application of hedge accounting

The Group applies hedge accounting treatment for certain qualifying derivatives after
complying with hedge accounting requirements, specifically on hedge documentation
designation and effectiveness testing. Judgment is involved in these areas, which include
management determining the appropriate data points for evaluating hedge effectiveness,
establishing that the hedged forecasted transaction in cash flow hedges are probable of
occurring, and assessing the credit standing of hedging counterparties (Note 9).

k. Classification of joint arrangements

The Group’s investments in joint ventures (Note 14) are structured in separate incorporated
entities. Even though the Group holds various percentage of ownership interest on these
arrangements, their respective joint arrangement agreements requires unanimous consent from
all parties to the agreement for the relevant activities identified. The Group and the parties to
the agreement only have rights to the net assets of the joint venture through the terms of the
contractual arrangements.

75
l. Intangibles
The Group assesses intangible as having an indefinite useful life when based on the analysis
of relevant factors; the Group has no foreseeable limit to the period of which the intangible
asset is expected to generate cash inflow for the Group.

m. Impairment of goodwill and intangible assets

The Group performs its annual impairment test on its goodwill and other intangible assets with
indefinite useful lives as of reporting date irrespective of whether there is any indication of
impairment. The recoverable amounts of the intangible assets were determined based on
value in use calculations using cash flow projections from financial budgets approved by
management covering a five-year period.

l) Impairment of PPE and investments in JV

The Company assesses at the end of each reporting period whether there is any indication that
an asset may be impaired. If any such indication exists, the entity shall estimate the
recoverable amount of the asset.

Estimates and Assumptions

The key assumptions concerning the future and other sources of estimation uncertainty at the
statement of financial position date that have significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next year are discussed below:

a. Estimation of allowance for credit losses on receivables

The Group maintains allowance for impairment losses at a level considered adequate to
provide for potential uncollectible receivables. The level of this allowance is evaluated by
management on the basis of factors that affect the collectibility of the accounts. These factors
include, but are not limited to, the length of the Group’s relationship with the agents,
customers and other counterparties, the payment behavior of agents and customers, other
counterparties and other known market factors. The Group reviews the age and status of
receivables, and identifies accounts that are to be provided with allowances on a continuous
basis.

The related balances follow (Note 10):

2014 2013
Receivables P
=2,169,549,982 =2,053,254,622
P
Allowance for credit losses 306,831,563 235,438,019

b. Determination of NRV of expendable parts, fuel, materials and supplies

The Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are based
on the most reliable evidence available at the time the estimates are made, of the amount that
the expendable parts, fuel, materials and supplies are expected to be realized. In determining
the NRV, the Group considers any adjustment necessary for obsolescence, which is generally
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.

76
 The related balances follow (Note 11):

2014 2013
Expendable Parts, Fuel, Materials and Supplies
At NRV P
=504,714,331 =407,985,226
P
At cost 174,600,739 303,190,634

As of December 31, 2014 and 2013, allowance for inventory write-down for expendable parts
amounted to =
P20.5 million. No additional provision for inventory write-down was recognized
by the Group in 2014 and 2013.

c. Estimation of ARO
The Group is contractually required under certain lease contracts to restore certain leased
passenger aircraft to stipulated return condition and to bear the costs of restoration at the end
of the contract period. Since the first operating lease entered by the Group in 2001, these
costs are accrued based on an internal estimate which includes estimates of certain redelivery
costs at the end of the operating aircraft lease. The contractual obligation includes regular
aircraft maintenance, overhaul and restoration of the leased aircraft to its original condition.
Regular aircraft maintenance is accounted for as expense when incurred, while overhaul and
restoration are accounted on an accrual basis.

Assumptions used to compute ARO are reviewed and updated annually by the Group. As of
December 31, 2014 and 2013, the cost of restoration is computed based on the Group’s
average borrowing cost.

The amount and timing of recorded expenses for any period would differ if different
judgments were made or different estimates were utilized. The recognition of ARO would
increase other noncurrent liabilities and repairs and maintenance expense.

As of December 31, 2014 and 2013, the Group’s ARO liability (included under ‘Other
noncurrent liabilities’ account in the statements of financial position) has a carrying value of
=
P586.1 million and = P1,637.3 million, respectively (Note 19). The related repairs and
maintenance expense for the years ended December 31, 2014, 2013 and 2012 amounted to
P
=476.0 million, P
=590.6 million and = P577.5 million, respectively (Notes 19 and 22).

d. Estimation of useful lives and residual values of property and equipment

The Group estimates the useful lives of its property and equipment based on the period over
which the assets are expected to be available for use. The Group estimates the residual value
of its property and equipment based on the expected amount recoverable at the end of its
useful life. The Group reviews annually the EULs and residual values of property and
equipment based on factors that include physical wear and tear, technical and commercial
obsolescence and other limits on the use of the assets. It is possible that future results of
operations could be materially affected by changes in these estimates brought about by
changes in the factors mentioned. A reduction in the EUL or residual value of property and
equipment would increase recorded depreciation and amortization expense and decrease
noncurrent assets.

As of December 31, 2014 and 2013, the carrying values of the Group’s property and
equipment amounted to = P65,227.1 million and =P56,412.5 million, respectively (Note 13).
The Group’s depreciation and amortization expense amounted to P = 4,281.5 million,
P
=3,454.6 million and =
P2,767.9 million for the years ended December 31, 2014, 2013 and
2012, respectively (Note 13).

77
e. Impairment of property and equipment and investment in JV
The Group assesses the impairment of nonfinancial assets, particularly property and
equipment and investment in JV, whenever events or changes in circumstances indicate that
the carrying amount of the nonfinancial asset may not be recoverable. The factors that the
Group considers important which could trigger an impairment review include the following:

· significant underperformance relative to expected historical or projected future operating

results;
· significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
· significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset or investment

exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value
less cost to sell and value in use. The fair value less cost to sell is the amount obtainable from
the sale of an asset in an arm’s length transaction while value in use is the present value of
estimated future cash flows expected to arise from the continuing use of an asset and from its
disposal at the end of its useful life.

Recoverable amounts are estimated for individual assets or investments or, if it is not possible,
for the CGU to which the asset belongs.

In determining the present value of estimated future cash flows expected to be generated from
the continued use of the assets, the Group is required to make estimates and assumptions that
can materially affect the consolidated financial statements.

As of December 31, 2014 and 2013, the carrying values of the Group’s property and
equipment amounted to = P65,227.1 million and =
P56,412.5 million, respectively (Note 13).
Investments in JV amounted to P=591.3 million and =
P578.8 million as of December 31, 2014
and 2013, respectively (Note 14). There were no provision for impairment losses on the
Group’s property and equipment and investments in JV for the years ended
December 31, 2014 and 2013.

f. Impairment of goodwill and intangibles

The Group determines whether goodwill and intangibles are impaired at least on an annual
basis. The impairment testing may be performed at any time in the annual reporting period,
but it must be performed at the same time every year and when circumstances indicate that the
carrying amount is impaired. The impairment testing also requires an estimation of the
recoverable amount, which is the net selling price or value-in-use of the CGU to which the
goodwill and intangibles are allocated. The most recent detailed calculation made in a
preceding period of the recoverable amount of the CGU may be used for the impairment
testing for the current period provided that:

· The assets and liabilities making up the CGU have not changes significantly from the
most recent calculation;
· The most recent recoverable amount calculation resulted in an amount that exceeded the
carrying amount of the CGU by a significant margin; and
· The likelihood that a current recoverable amount calculation would be less than the
carrying amount of the CGU is remote based on an analysis of events that have occurred
and circumstances that have changed since the most recent recoverable amount
calculation.

78
 When value in use calculations are undertaken, management must estimate the expected future
cash flows from the asset or CGUs and choose a suitable discount rate in order to calculate the
present value of those cash flows.

As of December 31, 2014 and 2013, the Group has determined that goodwill and intangibles
are recoverable as there were no indications that it is impaired. Goodwill amounted to =
P566.8
million and nil as of December 31, 2014 and 2013, respectively (Notes 7 and 15).

g. Estimation of pension and other employee benefit costs

The determination of the obligation and cost of pension and other employee benefits is
dependent on the selection of certain assumptions used in calculating such amounts. Those
assumptions include, among others, discount rates and salary increase rates (Note 24).

While the Group believes that the assumptions are reasonable and appropriate, significant
differences between actual experiences and assumptions may materially affect the cost of
employee benefits and related obligations.

The Group’s pension liability (included in ‘Other noncurrent liabilities’ account in the
consolidated statements of financial position) amounted to P
= 385.7 million and =P538.2 million
as of December 31, 2014 and 2013, respectively (Notes 19 and 24).

The Group also estimates other employee benefit obligations and expense, including the cost
of paid leaves based on historical leave availments of employees, subject to the Group’s
policy. These estimates may vary depending on the future changes in salaries and actual
experiences during the year.

h. Recognition of deferred tax assets

The Group assesses the carrying amounts of deferred income taxes at each reporting date and
reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred tax assets to be utilized.
Significant management judgment is required to determine the amount of deferred tax assets
that can be recognized, based upon the likely timing and level of future taxable profits
together with future tax planning strategies.

As of December 31, 2014 and 2013, the Group had certain gross deductible and taxable
temporary differences which are expected to expire or reverse within the ITH period, and for
which deferred tax assets and deferred tax liabilities were not set up on account of the Parent
Company’s ITH.

As of December 31, 2014 and 2013, the Group has deferred tax assets amounting
P
=1,967.4 million and =
P1,611.7, respectively. Unrecognized deferred tax assets as of
December 31, 2014 amounted to P =347.5 million. There are no unrecognized deferred tax
assets as of December 31, 2013 (Note 25).

i. Passenger revenue recognition

Passenger sales are recognized as revenue when the obligation of the Group to provide
transportation service ceases, either: (a) when transportation services are already rendered;
(b) carriage is provided or (c) when the flight is uplifted.

As of December 31, 2014 and 2013, the balances of the Group’s unearned transportation
revenue amounted to P
=6,373.7 million and P
= 5,338.9 million, respectively.

79
6. Segment Information

The Group has one reportable operating segment, which is the airline business (system-wide).
This is consistent with how the Group’s management internally monitors and analyzes the
financial information for reporting to the CODM, who is responsible for allocating resources,
assessing performance and making operating decisions.

The revenue of the operating segment was mainly derived from rendering transportation services.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to
transactions with third parties.

The amount of segment assets and liabilities are based on the measurement principles that are
similar with those used in measuring the assets and liabilities in the consolidated statements of
financial position which is in accordance with PFRS.

Segment information for the reportable segment is shown in the following table:

2014 2013 2012

Revenue =52,176,271,673
P =41,633,401,318
P =39,844,065,993
P
Net income 853,498,216 511,946,229 3,572,014,263
Depreciation and amortization 4,281,525,018 3,454,641,115 2,767,863,860
Interest expense 1,013,241,353 865,501,445 732,591,508
Interest income 79,927,272 219,619,475 415,770,873

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:

2014 2013 2012

Total segment revenue of reportable
operating segment P
=52,000,018,310 P
=41,004,096,281 P
=37,904,453,623
Nontransport revenue and
other income 176,253,363 629,305,037 1,939,612,370
Total revenue =52,176,271,673
P =41,633,401,318
P =39,844,065,993
P

Nontransport revenue and other income includes foreign exchange gains, interest income, fuel
hedging gains, equity in net income of JV and gain on sale on financial assets designated at FVPL
and AFS financial assets.

80
 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:

2014 2013 2012

Total segment income of
reportable segment P
=4,157,336,990 P
=2,404,411,910 =
P2,663,409,236
Add (deduct) unallocated items:
Nontransport revenue and
other income 176,253,363 629,305,037 1,939,612,370
Nontransport expenses and
other charges (3,454,954,369) (2,928,509,441) (732,591,508)
Benefit from (provision for)
income tax (25,137,768) 406,738,723 (298,415,835)
Net income 853,498,216 511,946,229 3,572,014,263
Other comprehensive gain (loss), net
of tax 209,681,986 (255,604,489) (48,480,934)
Total comprehensive income =1,063,180,202
P P256,341,740
= =3,523,533,329
P

The Group’s major revenue-producing asset is the fleet of aircraft owned by the Group, which is
employed across its route network (Note 13).

The Group has no significant customer which contributes 10.00% or more to the revenues of the
Group.

7. Business Combination

As part of the strategic alliance between the Parent Company and Tiger Airways Holding Limited
(TAH), on February 10, 2014, the Parent Company signed a Sale and Purchase Agreement (SPA)
to acquire 100% of TAP. Under the terms of the SPA, closing of the transaction is subject to the
satisfaction or waiver of each of the conditions contained in the SPA. On March 20, 2014, all the
conditions precedent has been satisfactorily completed. The Parent Company has paid the
purchase price covering the transfer of shares from TAH. Consequently, the Parent Company
gained control of TAP on the same date. The total consideration for the transaction amounted to
=
P265.1 million.

The fair values of the identifiable assets and liabilities of TAP at the date of acquisition follow:

Fair Value
recognized in
the acquisition
Total cash, receivables and other assets =1,234,084,305
P
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 =265,109,147
P

In the December 31, 2013 consolidated financial statements, a note relating to Events after the
Statement of Financial Position Date disclosed that there could be a goodwill amounting
P
=665.9 million. The Parent Company also identified other assets representing costs to establish

81
 brand and market opportunities under the strategic alliance with TAH (Note 16). The related
deferred tax liability on this business combination amounted to =
P185.6 million (Note 25).

From the date of acquisition, the Parent Company’s share in TAP’s revenue and net loss amounted
to =
P2,830.0 million and =P159.8 million, respectively. If the combination had taken place at the
beginning of the year in 2014, the Parent Company’s share in TAP’s total revenue and net loss
would have been = P3,773.6 million and =P1,379.6 million, respectively.

In February 2015, the Parent Company reached an agreement with ROAR II on the settlement of
post-closing adjustments amounting P = 223.5 million pursuant to the SPA. Such amount is booked
under ‘other receivables’ and is accounted for as an adjustment in the purchase price (Note 10).

8. Cash and Cash Equivalents

This account consists of:

2014 2013
Cash on hand P
=27,571,469 P24,115,537
=
Cash in banks (Note 28) 1,011,286,363 476,372,461
Short-term placements (Note 28) 2,925,054,851 5,555,623,805
P
=3,963,912,683 =6,056,111,803
P

Cash in banks earns interest at the respective bank deposit rates. Short-term placements, which
represent money market placements, are made for varying periods depending on the immediate
cash requirements of the Group. Short-term placements denominated in Philippine peso earn an
average interest of 2.98%, 0.84% and 3.6% in 2014, 2013 and 2012, respectively. Moreover,
short-term placements in US dollar earn interest on an average rate of 0.92%, 1.89% and 1.45% in
2014, 2013 and 2012, respectively.

Interest income on cash and cash equivalents, presented in the consolidated statements of
comprehensive income amounted to P =79.9 million, =
P219.6 million and =P415.8 million in 2014,
2013 and 2012, respectively.

9. Investment and Trading Securities

This account consists of derivative financial liabilities in 2014 and derivative financial assets in
2013 that are not designated as accounting hedges. This account amounted to P = 2,260.6 million
and =
P166.5 million in 2014 and 2013, respectively.

As of December 31, 2014 and 2013, this account consists of commodity swaps.

Commodity Swaps
The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel
derivatives are not designated as accounting hedges. The gains or losses on these instruments are
accounted for directly as a charge against or credit to profit or loss. As of December 31, 2014 and
2013, 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

82
 calculation dates with specified quantities on each calculation date. The swaps have various
maturity dates through December 31, 2016 (Note 5).

As of December 31, 2014 and 2013, the Group recognized net changes in fair value of derivatives
amounting =
P2,424.0 million loss and =P290.3 million gain, respectively. These are recognized in
“Hedging gains (losses)” 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. During the year, the Group pre-terminated
all foreign currency derivative contracts, where the Group recognized realized gain of
P
=109.8 million from the transaction. For the year ended December 31, 2014, such realized gain is
recognized in “Hedging gains (losses)” under the consolidated statement of comprehensive
income.

Fair value changes on derivatives

The changes in fair value of all derivative financial instruments not designated as accounting
hedges follow:

2014 2013
Balance at beginning of year
Derivative assets P
=166,456,897 =102,682,762
P
Net changes in fair value of derivatives (2,314,241,984) 290,325,093
(2,147,785,087) 393,007,855
Fair value of settled instruments (112,774,809) (226,550,958)
Balance at end of year (P
=2,260,559,896) =166,456,897
P
Attributable to:
Derivative assets P
=– =166,456,897
P
Derivative liabilities P
=2,260,559,896 =–
P

10. Receivables

This account consists of:

2014 2013
Trade receivables (Note 28) P
=1,302,342,302 =944,473,732
P
Due from related parties (Notes 27 and 28) 134,424,754 556,591,334
Interest receivable 1,008,445 4,904,684
Others (Note 7) 731,774,481 547,284,872
2,169,549,982 2,053,254,622
Less allowance for credit losses (Note 28) 306,831,563 235,438,019
P
=1,862,718,419 =1,817,816,603
P

Trade receivables are noninterest-bearing and generally have 30 to 90 days terms. The receivables
are carried at cost.

83
 Interest receivable pertains to accrual of interest income from short-term placements amounting
=
P1.0 million and =P4.9 million in 2014 and 2013, respectively.

Others include receivable from insurance, employees and counterparties. In 2014, it includes the
settlement receivable from ROAR (Note 7).

The changes in the allowance for credit losses on receivables follow:

2014
Trade
Receivables Others Total
Balance at beginning of year =6,330,875
P =229,107,144
P =235,438,019
P
Unrealized foreign exchange gain on
allowance for credit losses – 1,671,190 1,671,190
Allowance for credit losses 69,722,354 – 69,722,354
Balance at end of year =76,053,229
P =230,778,334
P =306,831,563
P

2013
Trade
Receivables Others Total
Balance at beginning of year =6,330,875
P =211,906,744
P =218,237,619
P
Unrealized foreign exchange gain on
allowance for credit losses – 17,200,400 17,200,400
Balance at end of year P
=6,330,875 P
=229,107,144 P
=235,438,019

As of December 31, 2014 and 2013, the specific allowance for credit losses on trade receivables
and other receivables amounted to =
P306.8 million and =
P235.4 million, respectively.

11. Expendable Parts, Fuel, Materials and Supplies

This account consists of:

2014 2013
At NRV:
Expendable parts P
=504,714,331 =407,985,226
P
At cost:
Fuel 129,110,368 273,197,071
Materials and supplies 45,490,371 29,993,563
174,600,739 303,190,634
P
=679,315,070 =711,175,860
P

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, 2014, 2013 and 2012 amounted to
=
P365.2 million, =
P279.8 million and =
P290.9 million, respectively. The cost of fuel reported as
expense under ‘Flying operations’ amounted to P
= 23,210.3 million, =
P19,522.7 million and
P
=17,561.9 million in 2014, 2013 and 2012, respectively (Note 22).

84
 The cost of expendable parts amounted to P
=481.4 million and =
P389.5 million as of
December 31, 2014 and 2013, respectively. There are no additional provisions for inventory
write down in 2014 and 2013. No expendable parts, fuel, material and supplies are pledged as
security for liabilities.

12. Other Current Assets

This account consists of:

2014 2013
Advances to suppliers P
=851,716,307 =997,783,656
P
Deposit to counterparties (Note 9) 841,439,022 –
Prepaid rent 318,023,507 231,535,642
Prepaid insurance 5,180,027 48,897,285
Others 4,113,060 3,329,817
P
=2,020,471,923 =1,281,546,400
P

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. The advances are unsecured and noninterest-bearing
(Note 30).

Deposit to counterparties pertains to collateral deposits provided to counterparties for fuel hedging
transactions.

Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces in
airports (Note 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.

85
 13. Property and Equipment

The composition and movements in this account follow:

2014
EDP
Passenger Ground Equipment,
Aircraft Support Mainframe and Leasehold Transportation
(Notes 18 and 32) Engines Rotables Equipment Peripherals Improvements Equipment Sub-total
Cost
Balance at January 1, 2014 = 55,467,053,217
P = 4,766,121,255
P P
= 1,925,128,767 = 439,233,908
P P
= 675,411,191 = 474,091,618
P = 187,315,198
P = 63,934,355,154
P
Additions through business
combination (Note 7) – – – – 102,400 13,500 – 115,900
Additions 7,575,750,090 1,389,833,886 978,819,967 54,482,887 107,933,586 876,522 22,594,748 10,130,291,686
Reclassification 2,612,552,125 – (1,988,214) (16,516,103) – 628,748,003 – 3,222,795,811
Disposals/others (24,455,634) – (239,771,253) (1,991,398) (16,745,162) (140,614,589) – (423,578,036)
Balance at December 31, 2014 65,630,899,798 6,155,955,141 2,662,189,267 475,209,294 766,702,015 963,115,054 209,909,946 76,863,980,515
Accumulated Depreciation
and Amortization

86
Balance at January 1, 2014 13,551,101,649 1,109,029,422 374,366,431 305,646,442 566,371,255 167,895,720 129,225,704 16,203,636,623
Depreciation and amortization 3,435,623,376 451,070,072 169,390,376 50,986,591 69,194,140 62,836,060 21,074,474 4,260,175,089
Reclassification 343,794 – (39,098) (11,146,793) 104,172 6,277 – (10,731,648)
Disposals/others (2,547,271) – (69,803,584) (1,991,398) (16,743,513) – – (91,085,766)
Balance at December 31, 2014 16,984,521,548 1,560,099,494 473,914,125 343,494,842 618,926,054 230,738,057 150,300,178 20,361,994,298
Net Book Value at
December 31, 2014 = 48,646,378,250
P = 4,595,855,647
P P
= 2,188,275,142 = 131,714,452
P P
= 147,775,961 = 732,376,997
P = 59,609,768
P = 56,501,986,217
P

2014
Furniture,
Fixtures and Maintenance
Office Communication Special and Test Other Construction
Equipment Equipment Tools Equipment Equipment In-progress Total
Cost
Balance at January 1, 2014 = 98,788,650
P = 11,166,616
P P
= 12,930,393 P
= 6,681,631 = 81,210,161
P = 8,630,598,676
P = 72,775,731,281
P
Additions through business combination (Note 7) 350,215 3,037,878 – 3,503,993
Additions 53,913,030 1,569,885 1,217,339 6,258,504 3,123,469,412 13,316,719,856
Reclassification (237,053) (42,411) 241,071 (3,241,300,128) (18,542,710)
Disposals/others (198,293) (222,785) 116,240,979 (307,758,135)
Balance at December 31, 2014 152,616,549 12,736,501 14,105,321 6,681,631 90,524,829 8,629,008,939 85,769,654,285

(Forward)
 2014
Furniture,
Fixtures and Maintenance
Office Communication Special and Test Other Construction
Equipment Equipment Tools Equipment Equipment In-progress Total
Accumulated Depreciation and Amortization
Balance at January 1, 2014 P69,503,656
= P7,980,577
= = 11,782,318
P = 6,290,564
P = 64,071,259
P =–
P P
= 16,363,264,997
Depreciation and amortization 11,999,988 1,276,855 438,466 207,649 7,423,319 3,652 4,281,525,018
Reclassification (319,042) – (1,414) – 278,546 (3,652) (10,777,210)
Disposals/others (175,337) – – – (222,785) – (91,483,888)
Balance at December 31, 2014 81,009,265 9,257,432 12,219,370 6,498,213 71,550,339 – 20,542,528,917
Net Book Value at
December 31, 2014 = 71,607,284
P = 3,479,069
P = 1,885,951
P = 183,418
P = 18,974,490
P = 8,629,008,939
P = 65,227,125,368
P

2013
EDP
Passenger Ground Equipment,
Aircraft Support Mainframe and Leasehold Transportation
(Notes 18 and 32) Engines Rotables Equipment Peripherals Improvements Equipment Sub-total
Cost

87
Balance at January 1, 2013 =46,594,710,885
P =2,439,973,358
P =1,523,539,854
P =385,024,150
P =622,729,162
P =333,877,736
P =169,595,189
P P
=52,069,450,334
Additions 6,837,840,163 2,326,147,897 444,031,600 49,025,367 52,683,993 – 23,529,482 9,733,258,502
Reclassification 2,581,222,537 – 1,332,016 5,871,125 – 140,213,882 (5,809,473) 2,722,830,087
Disposals/others (546,720,368) – (43,774,703) (686,734) (1,964) – – (591,183,769)
Balance at December 31, 2013 55,467,053,217 4,766,121,255 1,925,128,767 439,233,908 675,411,191 474,091,618 187,315,198 63,934,355,154
Accumulated Depreciation
and Amortization
Balance at January 1, 2013 10,882,594,198 843,946,165 251,455,000 253,344,771 495,179,367 138,761,903 107,416,389 12,972,697,793
Depreciation and amortization 2,862,935,958 265,083,257 130,186,430 50,374,142 71,193,798 29,133,817 24,423,578 3,433,330,980
Reclassification – – (49,638) 2,614,263 – – (2,614,263) (49,638)
Disposals/others (194,428,507) – (7,225,361) (686,734) (1,910) – – (202,342,512)
Balance at December 31, 2013 13,551,101,649 1,109,029,422 374,366,431 305,646,442 566,371,255 167,895,720 129,225,704 16,203,636,623
Net Book Value at
December 31, 2013 =41,915,951,568
P =3,657,091,833
P =1,550,762,336
P =133,587,466
P =109,039,936
P =306,195,898
P =58,089,494
P P
=47,730,718,531
 2013
Furniture,
Fixtures and Maintenance
Office Communication Special and Test Other Construction
Equipment Equipment Tools Equipment Equipment In-progress Total
Cost
Balance at January 1, 2013 =81,250,593
P =9,399,253
P P
=12,507,408 P
=6,681,631 =75,458,076
P =8,420,267,153
P P
=60,675,014,448
Additions 17,538,057 1,767,363 580,753 – 9,354,692 2,931,767,943 12,694,267,310
Reclassification – – – – (362,108) (2,721,436,420) 1,031,559
Disposals/others – – (157,768) – (3,240,499) – (594,582,036)
Balance at December 31, 2013 98,788,650 11,166,616 12,930,393 6,681,631 81,210,161 8,630,598,676 72,775,731,281
Accumulated Depreciation and Amortization
Balance at January 1, 2013 58,974,745 6,628,648 11,512,759 6,074,073 57,727,806 – 13,113,615,824
Depreciation and amortization 10,528,911 1,351,929 371,228 216,491 8,841,576 – 3,454,641,115
Reclassification – – – – 39,977 – (9,661)
Disposals/others – – (101,669) – (2,538,100) – (204,982,281)
Balance at December 31, 2013 69,503,656 7,980,577 11,782,318 6,290,564 64,071,259 – 16,363,264,997
Net Book Value at December 31, 2013 =29,284,994
P =3,186,039
P =1,148,075
P =391,067
P =17,138,902
P =8,630,598,676
P P
=56,412,466,284

88
 Passenger Aircraft Held as Securing Assets Under Various Loans
The Group entered into various ECA and commercial loan facilities to finance the purchase of its
aircraft and engines. As of December 31, 2014, the Group has ten (10) Airbus A319 aircraft,
seven (7) Avion de Transport Regional (ATR) 72-500 turboprop aircraft, and ten (10) Airbus
A320 aircraft under ECA loans, and twelve (12) Airbus A320 aircraft, five (5) ATR aircraft and
six (6) engine under commercial loans.

Under the terms of the ECA loan and commercial loan facilities (Note 18), upon the event of
default, the outstanding amount of loan (including accrued interest) will be payable by CALL or
ILL or BLL or SLL or SALL or VALL or POALL or PTALL or PTHALL, or SAALL or by the
guarantors which are CPAHI and JGSHI. CPAHI and JGSHI are guarantors to loans entered into
by CALL, ILL, BLI, SLL and SALL. Failure to pay the obligation will allow the respective
lenders to foreclose the securing assets.

As of December 31, 2014 and 2013, the carrying amounts of the securing assets (included under
the ‘Property and equipment’ account) amounted to P
=49.7 billion and P
=43.1 billion, respectively.

Operating Fleet
As of December 31, 2014 and 2013, the Group’s operating fleet follows (Note 32):

2014 2013
Owned (Note 16):
Airbus A319 10 10
Airbus A320 22 17
ATR 72-500 8 8
Under operating lease (Note 30):
Airbus A320 7 11
Airbus A330 5 2
52 48

Construction in-progress represents the cost of aircraft and engine construction in progress and
buildings and improvements and other ground property under construction. Construction
in-progress is not depreciated until such time when the relevant assets are completed and available
for use. As of December 31, 2014 and 2013, the Group’s capitalized pre-delivery payments as
construction in-progress amounted to P =8.6 billion and =
P8.4 billion, respectively (Note 30).

As of December 31, 2014 and 2013, the gross amount of fully depreciated property and equipment
which are still in use by the Group amounted to =
P1,023.9 million and =
P851.01 million,
respectively.

As of December 31, 2014 and 2013, there are no temporary idle property and equipment.

14. Investments in Joint Ventures

The investments in joint ventures represent the Parent Company’s 50.00%, 49.00% and 35.00%
interests in PAAT, A-plus and SIAEP, respectively. The joint ventures are accounted for as
jointly controlled entities.

89
Investment in PAAT pertains to the Parent Company's 60.00% investment in shares of the joint
venture. However, the joint venture agreement between the Parent Company and CAE
International Holdings Limited (CAE) states that the Parent Company is entitled to 50% share on
the net income/loss of PAAT. As such, the Parent Company recognizes equivalent 50% share in
net income and net assets of the joint venture.

PAAT was created to address the Group’s training requirements and to pursue business
opportunities for training third parties in the commercial fixed wing aviation industry, including
other local and international airline companies. PAAT was formally incorporated on
January 27, 2012 and started commercial operations in December 2012.

A-plus and SIAEP were established for the purpose of providing line, light and heavy maintenance
services to foreign and local airlines, utilizing the facilities and services at airports in the country,
as well as aircraft maintenance and repair organizations.

A-plus was incorporated on May 24, 2005 and started commercial operations on July 1, 2005
while SIAEP was incorporated on July 27, 2008 and started commercial operations on
August 17, 2009.

The movements in the carrying values of the Group’s investments in joint ventures in A-plus,
SIAEP and PAAT follow:

2014
A-plus SIAEP PAAT Total
Cost
Balance at beginning of the year =87,012,572
P =304,763,900
P =134,873,645
P =526,650,117
P
Accumulated Equity in
Net Income (Loss)
Balance at beginning of the year 80,072,599 (24,307,482) (3,590,781) 52,174,336
Equity in net income (loss)
during the year 108,579,261 (34,745,590) 22,492,420 96,326,091
Dividends received (83,811,058) – – (83,811,058)
Balance at end of the year 104,840,802 (59,053,072) 18,901,639 64,689,369
Net Carrying Value =191,853,374
P =245,710,828
P =153,775,284
P =591,339,486
P

2013
A-plus SIAEP PAAT Total
Cost
Balance at beginning of the year =87,012,572
P =304,763,900
P =134,873,645
P =526,650,117
P
Accumulated Equity in
Net Income (Loss)
Balance at beginning of the year 42,046,763 (46,273,497) (10,666,510) (14,893,244)
Equity in net income during
the year 90,318,725 21,966,015 7,075,729 119,360,469
Dividends received (52,292,889) – – (52,292,889)
Balance at end of the year 80,072,599 (24,307,482) (3,590,781) 52,174,336
Net Carrying Value =167,085,171
P =280,456,418
P =131,282,864
P =578,824,453
P

90
Selected financial information of A-plus, SIAEP and PAAT as of December 31 follow:

2014

Aplus SIAEP PAAT

Total current assets P628,879,988
= P653,378,218
= P253,137,483
=
Noncurrent assets 124,389,267 1,328,695,779 779,873,393
Current liabilities (361,731,757) (626,863,000) (39,454,946)
Noncurrent liabilities – (653,180,060) (686,005,363)
Equity 391,537,498 702,030,937 307,550,567
Proportion of the Group’s ownership 49% 35% 50%
Carrying amount of the investments =191,853,374
P =245,710,828
P =153,775,284
P

2013

Aplus SIAEP PAAT

Total current assets =542,350,932
P =772,860,471
P =176,354,588
P
Noncurrent assets 106,362,888 1,079,620,021 821,101,107
Current liabilities (307,723,675) (671,766,913) (734,889,967)
Noncurrent liabilities – (379,409,528) –
Equity 340,990,145 801,304,051 262,565,728
Proportion of the Group’s ownership 49% 35% 50%
Carrying amount of the investments =167,085,171
P =280,456,418
P =131,282,864
P

Summary of statements of profit and loss of A-plus, SIAEP and PAAT for the twelve month
period ended December 31 follow:

2014

Aplus SIAEP PAAT

Revenue P831,652,059
= P749,982,173
= P227,958,105
=
Expenses (537,954,937) (847,033,722) (164,004,339)
Other income (expenses) 22,550,458 (79,043) (16,239,773)
Income before tax 316,247,580 (97,130,592) 47,713,993
Income tax expense 94,657,252 2,142,521 2,729,153
Net income 221,590,328 (99,273,113) 44,984,840
Group’s share of profit for the year =108,579,261
P (P
=34,745,590) =22,492,420
P

2013

Aplus SIAEP PAAT

Revenue P709,880,406
= P717,485,690
= P186,914,210
=
Expenses (463,510,962) (643,887,307) (169,924,076)
Other income (expenses) 16,635,747 (2,841,053) 319,542
Income before tax 263,005,191 70,757,330 17,309,676
Income tax expense 78,681,263 7,997,288 3,158,219
Net income 184,323,928 62,760,042 14,151,457
Group’s share of profit for the year =90,318,725
P =21,966,015
P =7,075,729
P

The fiscal year-end of A-plus and SIAEP is every March 31 while the year-end of PAAT is every
December 31.

91
 The undistributed earnings of A-plus included in the consolidated retained earnings amounted to
P
=104.8 million and = P80.1 million as of December 31, 2014 and 2013, respectively, which is not
currently available for dividend distribution unless declared by A-plus.

The Group has no share of any contingent liabilities or capital commitments as of

December 31, 2014 and 2013.

15. Goodwill

This account represents the goodwill arising from the acquisition of TAP (Note 7). Goodwill is
attributed to the following:

Achievement of Economies of Scale

Using the Parent Company’s network of suppliers and other partners to improve cost and
efficiency of TAP, thus, improving TAP’s overall profit, given its existing market share.

Defensive Strategy
Acquiring a competitor enables the Parent Company to manage overcapacity in certain
geographical areas/markets.

As of December 31, 2014, the Goodwill amounted to =

P566.8 million (Note 7).

16. Other Noncurrent Assets

In 2013, this account includes security deposits provided to lessors and maintenance providers and
other refundable deposits to be applied against payments for future aircraft deliveries. In 2014, it
also includes other assets representing costs to establish brand and market opportunities under the
strategic alliance with TAP amounting = P852.2 million (Note 7).

17. Accounts Payable and Other Accrued Liabilities

This account consists of:

2014 2013
Accrued expenses P
=4,565,129,147 =3,539,882,921
P
Accounts payable (Notes 27 and 30) 3,984,009,931 4,313,509,756
Airport and other related fees payable 1,211,266,625 742,614,823
Advances from agents and others 554,620,109 291,742,288
Interest payable (Note 18) 207,120,947 198,819,429
Other payables 146,290,892 102,330,288
P
=10,668,437,651 =9,188,899,505
P

92
Accrued Expenses
The Group’s accrued expenses include accruals for:

2014 2013
Maintenance (Note 30) P
=1,292,335,450 =984,129,468
P
Compensation and benefits 744,630,855 552,453,509
Advertising and promotion 511,768,214 314,061,391
Navigational charges 380,565,611 243,688,767
Landing and take-off fees 283,580,997 184,906,577
Training costs 245,866,751 324,616,954
Fuel 240,095,874 180,699,973
Repairs and services 159,497,011 169,242,006
Aircraft insurance 150,597,236 50,684,009
Professional fees 114,167,659 113,526,044
Rent (Note 30) 92,742,956 120,079,923
Ground handling charges 78,983,174 163,483,339
Catering supplies 32,519,227 23,193,648
Reservation costs 8,131,518 8,081,587
Others 229,646,614 107,035,726
P
=4,565,129,147 =3,539,882,921
P

Others represent accrual of professional fees, security, utilities and other expenses.

Accounts Payable
Accounts payable consists mostly of payables related to the purchase of inventories, are
noninterest-bearing and are normally settled on a 60-day term. These inventories are necessary for
the daily operations and maintenance of the aircraft, which include aviation fuel, expendables
parts, equipment and in-flight supplies. It also includes other nontrade payables.

Airport and Other Related Fees Payable

Airport and other related fees payable are amounts payable to the Philippine Tourism Authority
and Air Transportation Office on aviation security, terminal fees and travel taxes.

Advances from Agents and Others

Advances from agents and others represent cash bonds required from major sales and ticket
offices or agents. This also includes commitment fees received for the sale and purchase
agreement of six (6) A319 aircraft.

Accrued Interest Payable

Interest payable is related to long-term debt and normally settled quarterly throughout the year.

Other Payables
Other payables are noninterest-bearing and have an average term of two months. This account
includes commissions payable, refunds payable and other tax liabilities such as withholding taxes
and output VAT.

93
18. Long-term Debt

This account consists of:

2014
Interest Rates Range Philippine Peso
(Note 28) Maturities US Dollar Equivalent
ECA loans 2.00% to 6.00% Various dates US$244,437,529 P
= 10,931,246,279
through 2023
1.00% to 2.00%
(US Dollar LIBOR) 149,721,785 6,695,558,231
394,159,314 17,626,804,510

Commercial loans 4.00% to 6.00% Various dates 170,274,962 7,614,696,300

through 2017
1.00% to 2.00%
(US Dollar LIBOR) 192,490,202 8,608,161,855
362,765,164 16,222,858,155
756,924,478 33,849,662,665
Less current portion 105,377,131 4,712,465,291
US$651,547,347 P
= 29,137,197,374

2013
Interest Rates Range Philippine Peso
(Note 28) Maturities US Dollar Equivalent
ECA loans 2.00% to 6.00% Various dates US$289,926,581 P
=12,871,290,579
through 2023
1.00% to 2.00%
(US Dollar LIBOR) 165,345,108 7,340,496,051
455,271,689 20,211,786,630

Commercial loans 4.00% to 6.00% Various dates 170,748,885 7,580,396,757

through 2017
1.00% to 2.00%
(US Dollar LIBOR) 36,361,804 1,614,282,285
207,110,689 9,194,679,042
662,382,378 29,406,465,672
Less current portion 84,584,789 3,755,141,710
US$577,797,589 P
=25,651,323,962

ECA Loans
In 2005 and 2006, the Group entered into ECA-backed loan facilities to partially finance the
purchase of ten Airbus A319 aircraft. The security trustee of the ECA loans established CALL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental
payments made by the Parent Company to CALL correspond to the principal and interest
payments made by CALL to the ECA-backed lenders. The quarterly lease rentals to CALL are
guaranteed by CPAHI and JGSHI. The Parent Company has the option to purchase the aircraft for
a nominal amount at the end of such leases.

In 2008, the Group entered into ECA-backed loan facilities to partially finance the purchase of six
ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established BLL, a special
purpose company, which purchased the aircraft from the supplier and leases such aircraft to the
Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental payments
made by the Parent Company to BLL corresponds to the principal and interest payments made by
BLL to the ECA-backed lenders. The semi-annual lease rentals to BLL are guaranteed by JGSHI.
The Parent Company has the option to purchase the aircraft for a nominal amount at the end of
such leases. On November 30, 2010, the Parent Company pre-terminated the lease agreement
with BLL related to the disposal of one ATR 72-500 turboprop aircraft. The outstanding balance

94
of the related loans and accrued interests were also pre-terminated. The proceeds from the
insurance claim on the related aircraft were used to settle the loan and accrued interest. JGSHI
was released as guarantor on the related loans.

In 2009, the Group entered into ECA-backed loan facilities to partially finance the purchase of
two ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established SLL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental
payments made by the Parent Company to SLL corresponds to the principal and interest payments
made by SLL to the ECA-backed lenders. The semi-annual lease rentals to SLL are guaranteed by
JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the
end of such leases.

In 2010, the Group entered into ECA-backed loan facilities to partially finance the purchase of
four Airbus A320 aircraft, delivered between 2010 to January 2011. The security trustee of the
ECA loans established SALL, a special purpose company, which purchased the aircraft from the
supplier and leases such aircraft to the Parent Company pursuant to twelve-year finance lease
agreements. The quarterly rental payments made by the Parent Company to SALL corresponds to
the principal and interest payments made by SALL to the ECA-backed lenders. The quarterly
lease rentals to SALL are guaranteed by JGSHI. The Parent Company has the option to purchase
the aircraft for a nominal amount at the end of such leases.

In 2011, the Group entered into ECA-backed loan facilities to fully finance the purchase of three
Airbus A320 aircraft, delivered between 2011 to January 2012. The security trustee of the ECA
loans established VALL, special purpose company, which purchased the aircraft from the supplier
and leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements.
The quarterly rental payments made by the Parent Company to VALL corresponds to the principal
and interest payments made by VALL to the ECA-backed lenders. The Parent Company has the
option to purchase the aircraft for a nominal amount at the end of such leases.

In 2012, the Group entered into ECA-backed loan facilities to partially finance the purchase of
three Airbus A320 aircraft. The security trustee of the ECA loans established POALL, a special
purpose company, which purchased the aircraft from the supplier and leases such aircraft to the
Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental payments
made by the Parent Company to POALL corresponds to the principal and interest payments made
by POALL to the ECA-backed lenders. The Parent Company has the option to purchase the
aircraft for a nominal amount at the end of such leases.

The terms of the ECA-backed facilities, which are the same for each of the ten Airbus A319
aircraft, seven ATR 72-500 turboprop aircraft and ten Airbus A320 aircraft, follow:

· Term of 12 years starting from the delivery date of each Airbus A319 aircraft and Airbus
A320, and ten years for each ATR 72-500 turboprop aircraft.
· Annuity style principal repayments for the first four Airbus A319 aircraft, eight ATR 72-500
turboprop aircraft and seven Airbus A320 aircraft, and equal principal repayments for the last
six Airbus A319 aircraft and last three Airbus A320 aircraft. Principal repayments shall be
made on a semi-annual basis for ATR 72-500 turboprop aircraft. Principal repayments shall
be made on a quarterly basis for Airbus A319 and A320 aircraft.
· Interest on loans from the ECA lenders are a mix of fixed and variable rates. Fixed interest
rates ranges from 2.00% to 6.00% and variable rates are based on US dollar LIBOR plus
margin.

95
· As provided under the ECA-backed facility, CALL, BLL, SLL, SALL, VALL and POALL
cannot create or allow to exist any security interest, other than what is permitted by the
transaction documents or the ECA administrative parties. CALL, BLL, SLL, SALL, VALL
and POALL must not allow impairment of first priority nature of the lenders’ security
interests.
· The ECA-backed facilities also provide for the following events of default: (a) nonpayment of
the loan principal or interest or any other amount payable on the due date, (b) breach of
negative pledge, covenant on preservation of transaction documents, (c) misrepresentation,
(d) commencement of insolvency proceedings against CALL or BLL or SLL or SALL or
VALL or POALL becomes insolvent, (e) failure to discharge any attachment or sequestration
order against CALL’s, BLL’s, SLL’s, SALL’s VALL’s and POALL’s assets, (f) entering into
an undervalued transaction, obtaining preference or giving preference to any person, contrary
to the laws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior to
discharge date, (h) cessation of business, (i) revocation or repudiation by CALL or BLL or
SLL or SALL or VALL or POALL, the Group, JGSHI or CPAHI of any transaction document
or security interest, and (j) occurrence of an event of default under the lease agreement with
the Parent Company.
· Upon default, the outstanding amount of loan will be payable, including interest accrued.
Also, the ECA lenders will foreclose on secured assets, namely the aircraft (Note 13).
· An event of default under any ECA loan agreement will occur if an event of default as
enumerated above occurs under any other ECA loan agreement.

As of December 31, 2014 and 2013, the total outstanding balance of the ECA loans amounted to
=
P17,626.8 million (US$394.2 million) and =P20,211.8 million (US$455.3 million), respectively.
Interest expense amounted to =
P551.5 million, =
P625.2 million and =
P632.6 million in 2014, 2013
and 2012, respectively.

Commercial Loans
In 2007, the Group entered into a commercial loan facility to partially finance the purchase of
two Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one QEC
Kit. The security trustee of the commercial loan facility established ILL, a special purpose
company, which purchased the aircraft from the supplier and leases such aircraft to the Parent
Company pursuant to (a) ten-year finance lease arrangement for the aircraft, (b) six-year finance
lease arrangement for the engines and (c) five-year finance lease arrangement for the QEC Kit.
The quarterly rental payments of the Parent Company correspond to the principal and interest
payments made by ILL to the commercial lenders and are guaranteed by JGSHI. The Parent
Company has the option to purchase the aircraft, the engines and the QEC Kit for a nominal
amount at the end of such leases.

In 2008, the Group also entered into a commercial loan facility, in addition to ECA-backed loan
facility, to partially finance the purchase of six ATR 72-500 turboprop aircraft. The security
trustee of the commercial loan facility established BLL, a special purpose company, which
purchased the aircraft from the supplier and leases such aircraft to the Parent Company. The
commercial loan facility is payable in 12 equal, consecutive, semi-annual installments starting six
months after the utilization date.

In 2012, the Group entered into a commercial loan facility to partially finance the purchase of four
Airbus A320 aircraft. The security trustee of the commercial loan facility established PTALL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. The
semiannual rental payments of the Parent Company correspond to the principal and interest

96
payments made by PTALL to the commercial lenders. The Parent Company has the option to
purchase the aircraft for a nominal amount at the end of such leases.

In 2013, the Group entered into a commercial loan facility to partially finance the purchase of two
Airbus A320 aircraft. The security trustee of the commercial loan facility established PTHALL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. The
quarterly rental payments of the Parent Company correspond to the principal and interest
payments made by PTHALL to the commercial lenders. The Parent Company has the option to
purchase the aircraft for a nominal amount at the end of such leases.

In 2014, the Group entered into a commercial loan facility to partially finance the purchase of five
Airbus A320 aircraft. The security trustee of the commercial loan facility established SAALL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to ten-year finance lease arrangement for the aircraft. The
quarterly rental payments of the Parent Company correspond to the principal and interest
payments made by SAALL to the commercial lenders. The Parent Company has the option to
purchase the aircraft for a nominal amount at the end of such leases.

The terms of the commercial loans follow:

· Term of ten years starting from the delivery date of each Airbus A320 aircraft.
· Terms of six and five years for the engines and QEC Kit, respectively.
· Term of six years starting from the delivery date of each ATR 72-500 turboprop aircraft.
· Annuity style principal repayments for the two Airbus A320 aircraft and six ATR 72-500
turboprop aircraft, and equal principal repayments for the engines and the QEC Kit. Principal
repayments shall be made on a quarterly and semi-annual basis for the two Airbus A320
aircraft, engines and the QEC Kit and six ATR 72-500 turboprop aircraft, respectively.
· Interests on loans are a mix of fixed and variable rates. Interest rates ranges from 1.00% to
6.00%.
· The commercial loan facility provides for material breach as an event of default.
· Upon default, the outstanding amount of loan will be payable, including interest accrued.
The lenders will foreclose on secured assets, namely the aircraft.

As of December 31, 2014 and 2013, the total outstanding balance of the commercial loans
amounted to =P16,222.9 million (US$362.8 million) and =P9,194.7 million (US$207.1 million),
respectively. Interest expense amounted to P
=461.7 million, P
=240.3 million and P
=100.0 million in
2014, 2013 and 2012, respectively.

The Group is not in breach of any loan covenants as of December 31, 2014 and 2013.

97
19. Other Noncurrent Liabilities

This account consists of:

December 31
2014 2013
ARO P
=586,069,196 =1,637,345,608
P
Accrued maintenance 224,413,504 280,516,880
Pension liability (Note 24) 385,665,449 538,227,996
P
=1,196,148,149 =2,456,090,484
P

ARO
The Group is legally required under certain lease contracts to restore certain leased passenger
aircraft to stipulated return conditions and to bear the costs of restoration at the end of the contract
period. These costs are accrued based on estimates made by the Group’s engineers which include
estimates of certain redelivery costs at the end of the operating aircraft lease (Note 5).

The rollforward analysis of the Group’s ARO follows:

2014 2013
Balance at beginning of year =1,637,345,608 =
P P1,429,223,524
Provision for return cost 476,017,529 590,638,099
Payment of restorations during the year (1,527,293,941) (382,516,015)
Balance at end of year =586,069,196 P
P =1,637,345,608

In 2014, 2013 and 2012 ARO expenses included as part of repairs and maintenance amounted to
P
=476.0 million, P=590.6 million and = P577.5 million, respectively. In 2014, the Group returned four
(4) aircraft under its operating lease agreements. The Company started to restore these aircraft in
2013.

Accrued Maintenance
This account pertains to accrual of maintenance costs of aircraft based on the number of flying
hours or cycles but will be settled beyond one year based on management’s assessment.

20. Equity

The details of the number of common shares and the movements thereon follow:

2014 2013
Authorized - at P
=1 par value 1,340,000,000 1,340,000,000
Beginning of year 605,953,330 605,953,330
Treasury shares – –
Issuance of shares during the year – –
Issued and outstanding 605,953,330 605,953,330

Issuance of Common Shares of Stock

On October 26, 2010, the Parent Company listed with the PSE its common stock, by way of
primary and secondary share offerings, wherein it offered 212,419,700 shares to the public at
=
P125.00 per share. Of the total shares sold, 30,661,800 shares are newly issued shares with total

98
proceeds amounting P =3,800.0 million. The Parent Company’s share in the total transaction costs
incurred incidental to the IPO amounting P=100.4 million, which is charged against ‘Capital paid in
excess of par value’ in the parent statement of financial position. The registration statement was
approved on October 11, 2010. The Group has 99 and 96 existing certified shareholders as of
December 31, 2014 and 2013, respectively.

Treasury Shares
On February 28, 2011, the BOD of the Parent Company approved the creation and implementation
of a share buyback program (SBP) up to P
=2,000.0 million worth of the Parent Company’s
common share. The SBP shall commence upon approval and shall end upon utilization of the said
amount, or as may be otherwise determined by the BOD.

The Parent Company has outstanding treasury shares of 7,283,220 shares amounting to
P
=529.3 million as of December 31, 2014 and 2013, restricting the Parent Company from declaring
an equivalent amount from unappropriated retained earnings as dividends.

Appropriation of Retained Earnings

On November 27, 2014, March 8, 2013 and April 19, 2012, the Parent Company’s BOD
appropriated =
P3.0 billion, =
P2.5 billion and =
P483.3 million, respectively, from its unrestricted
retained earnings as of December 31, 2014 for purposes of the Group’s re-fleeting program. The
appropriated amount was used for the settlement of pre delivery payments and aircraft lease
commitments in 2013 and 2014 (Notes 18, 30 and 31). Planned re-fleeting program amount to an
estimated =
P70.07 billion which will be spent over the next five years.

Unappropriated Retained Earnings

The income of the subsidiaries and JV that are recognized in the statements of comprehensive
income are not available for dividend declaration unless these are declared by the subsidiaries and
JV. Likewise, retained earnings are restricted for the payment of dividends to the extent of the
cost of common shares held in treasury.

On June 26, 2014, the Parent Company’s BOD approved the declaration of a regular cash dividend
in the amount of =P606.0 million or =
P1.00 per share in the amount of P
=606.0 million from the
unrestricted retained earnings of the Parent Company to all stockholders of record as of
July 16, 2014 and payable on August 11, 2014. Total dividends declared and paid amounted to
P
=606.0 million as of December 31, 2014.

On June 27, 2013, the Parent Company’s BOD approved the declaration of a regular cash dividend
in the amount of =P606.0 million or =P1.00 per share and a special cash dividend in the amount of
P
=606.0 million of =P1.00 per share from the unrestricted retained earnings of the Parent Company
to all stockholders of record as of July 17, 2013 and payable on August 12, 2013. Total dividends
declared and paid amounted to P =1,211.9 million as of December 31, 2013.

On June 28, 2012, the Parent Company’s BOD approved the declaration of a regular cash dividend
in the amount of =
P606.0 million or =
P1.00 per common share to all stockholders of record as of
July 18, 2012 and was paid on August 13, 2012.

On March 17, 2011, the BOD of the Parent Company approved the declaration of a regular cash
dividend in the amount of P
=1,222.4 million or P= 2.00 per share and a special cash dividend in the
amount of P=611.2 million or P
=1.00 per share from the unrestricted retained earnings of the Parent
Company to all stockholders of record as of April 14, 2011 and was paid on May 12, 2011.

99
 After reconciling items which include fair value adjustments on financial instruments, foreign
exchange gain and cost of common stocks held in treasury, the amount of retained earnings that is
available for dividend declaration as of December 31, 2014 amounted to P =2,309.2 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 capital
ratio which is gross debt divided by total capital. The ultimate parent includes within gross debt
all interest-bearing loans and borrowings, while capital represent total equity.

The Group’s debt-to-capital ratios follow:

2014 2013
(a) Long term debt (Notes 18 and 25) =33,849,662,665 =
P P29,406,465,672
(b) Capital 21,538,804,187 21,081,577,315
(c) Debt-to-capital ratio (a/b) 1.6:1 1.4:1

The JGSHI Group’s policy is to keep the debt to capital ratio at the 2:1 level as of
December 31, 2014 and 2013. Such ratio is currently being managed on a group level by the
Group’s ultimate parent.

21. Ancillary Revenues

Ancillary revenues consist of:

2014 2013 2012

Excess baggage fee P
=4,116,640,154 =3,106,766,079
P =2,837,630,241
P
Rebooking, refunds, cancellation
fees, etc. 2,920,343,253 2,391,871,202 2,006,490,604
Others 1,628,505,970 1,233,064,234 1,099,908,882
P
=8,665,489,377 =6,731,701,515
P =5,944,029,727
P

Others pertain to revenues from in-flight sales, advanced seat selection fee, reservation booking
fees and others (Note 27).

100
22. Operating Expenses

Flying Operations
This account consists of:

2014 2013 2012

Aviation fuel expense =23,210,305,406 =
P P19,522,716,332 P
=17,561,860,875
Flight deck 2,406,983,028 1,833,211,612 2,157,759,822
Aviation insurance 292,982,743 187,703,304 182,842,911
Others 242,204,830 177,298,317 114,889,239
=26,152,476,007 P
P =21,720,929,565 =
P20,017,352,847

Aircraft and Traffic Servicing

This account consists of:

2014 2013 2012

Airport charges P
=2,843,602,317 =2,034,012,474
P =1,982,460,047
P
Ground handling 1,518,884,645 1,163,621,461 1,079,658,319
Others 442,725,527 405,173,077 370,893,920
P
=4,805,212,489 =3,602,807,012
P =3,433,012,286
P

Others pertain to staff expenses incurred by the Group such as basic pay, employee training cost
and allowances.

Repairs and maintenance

Repairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling of
all aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spare
parts and other related equipment. The account includes related costs of other contractual
obligations under aircraft operating lease agreements (Note 30). These amounted to
P
=476.0 million, P =590.6 million and =P577.5 million in 2014, 2013 and 2012, respectively
(Note 19).

23. General and Administrative Expenses

This account consists of:

2014 2013 2012

Staff cost P
=458,971,856 =339,686,203
P =332,892,946
P
Security and professional fees 318,235,374 285,542,944 275,883,453
Utilities 124,694,997 125,873,045 111,896,091
Rent expenses 54,056,070 60,559,860 49,785,925
Travel and transportation 30,807,870 29,467,377 29,291,108
Others (Note 10) 310,051,527 270,816,005 275,619,859
P
=1,296,817,694 =1,111,945,434
P =1,075,369,382
P

Others include membership dues, annual listing maintenance fees, supplies, rent, bank charges and
others.

101
24. Employee Benefits

Employee Benefit Cost

Total personnel expenses, consisting of salaries, expense related to defined benefit plans and other
employee benefits, are included in flying operations, aircraft and traffic servicing, repairs and
maintenance, reservation and sales, general and administrative, and passenger service.

Defined Benefit Plan

The Parent Company has a funded, noncontributory, defined benefit plan covering substantially all
of its regular employees. The benefits are based on years of service and compensation on the last
year of employment.

As of January 1, 2014, 2013, and 2012 the assumptions used to determine pension benefits of the
Group follow:

2014 2013 2012

Average remaining working life 12 years 12 years 12 years
Discount rate 4.59% 5.26% 5.79%
Salary rate increase 5.50% 5.50% 5.50%

As of December 31, 2014 and 2013, the discount rate used in determining the pension liability is
4.59% and 5.26%, which is determined by reference to market yields at the reporting date on
Philippine government bonds.

The amounts recognized as pension liability (included under ‘Other noncurrent liabilities’ account
in the Group’s statements of financial position) follow (Note 19):

2014 2013
Present value of defined benefit obligation (PVO) P
=725,420,912 =867,428,676
P
Fair value of plan assets (339,755,463) (329,200,680)
Pension liability at end of year P
=385,665,449 =538,227,996
P

Remeasurement effects recognized in other comprehensive income

2014 2013
Actuarial (gain) loss (P
=308,302,812) =367,091,262
P
Return assets excluding amount included in OCI 6,767,470 (1,941,992)
Amount to be recognized in OCI (P
=301,535,342) =365,149,270
P

Movements in the fair value of plan asset follow:

2014 2013
Balance at beginning of year P
=329,200,680 P80,842,325
=
Actual contribution during the year – 241,735,592
Interest income included in net interest cost 17,322,253 4,680,771
Actual return excluding amount included in net
interest cost (6,767,470) 1,941,992
Balance at end of year P
=339,755,463 =329,200,680
P

102
The plan assets consist of:

2014 % 2013 %
Cash P
=212,180,441 63% =P209,674,389 64%
Investment in debt securities 126,406,963 37% 118,155,336 36%
Receivables 1,197,318 – 1,399,305 –
339,784,722 329,229,030
Liabilities (29,260) – (28,350) –
=339,755,462 100% P
P =329,200,680 100%

The Group expects to contribute about =P100.0 million into the pension fund for the year ending
2015. The actual returns on plan assets amounted to P
= 10.6 million in 2014 and =P6.6 million in
2013.

Movements in the defined benefit liability follow:

2014 2013
Balance at beginning of year P
=538,227,996 =353,628,798
P
Pension liability through business combination 17,650,767 –
OCI in business combination (1,599,267) –
Pension expense during year 158,604,392 79,621,617
Recognized in OCI (301,535,342) 365,149,270
Actual contributions – (241,735,592)
Benefits paid during year (25,683,097) (18,436,097)
Balance at end of year P
=385,665,449 =538,227,996
P

Components of pension expense included in the Parent Company’s statements of comprehensive

income follow:

2014 2013 2012

Current service cost P
=129,329,209 =59,146,510
P =46,014,700
P
Interest cost 29,275,183 20,475,107 21,274,400
Total pension expense P
=158,604,392 =79,621,617
P =67,289,100
P

Changes in the present value of the defined benefit obligation follow:

2014 2013
Balance at beginning of year P
=882,383,136 =434,471,123
P
Current service cost 129,329,209 59,146,510
Interest cost 46,597,436 25,155,878
Benefits paid (25,683,097) (18,436,097)
Actuarial loss/gain due to:
Experience adjustments (370,771,827) 311,976,733
Changes in financial assumption 63,566,055 55,114,529
Balance at end of year P
=725,420,912 =867,428,676
P

Amounts for the current and previous periods follow:

2014 2013 2012 2011 2010

Present value of retirement obligation =725,420,912 P
P =867,428,676 P
=434,471,123 P
=325,295,900 P
=230,193,900
Experience adjustments - loss (gain) (370,771,827) 311,976,733 35,247,288 (18,609,222) (1,435,700)

103
 The sensitivity analyses that follow 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.

PVO
Discount rates 5.63% (+1.00%) (P
=636,565,188)
3.59% (-1.00%) 833,003,746

Salary increase 6.25% (+1.00%) 827,032,128

4.25% (-1.00%) (568,368,766)

Each year, an Asset-Liability Matching Study (ALM) is performed with the result being analyzed
in terms of risk-and-return profiles. The Parent Company’s investment consists of 37% of debt
instruments and 63% 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.

25. Income Taxes

Provision for (benefit from) income tax consists of:

2014 2013 2012

Current:
MCIT P
=61,319,704 P45,518,668
= P30,081,311
=
Deferred (36,181,936) (452,257,391) 268,334,524
P
=25,137,768 (P
=406,738,723) =298,415,835
P

Provision for income tax pertains to MCIT and deferred income tax.

Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate 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 R. A. No. 7151 (Parent Company’s Congressional Franchise) and
under Section 15 of R. A. No. 9517 (TAP’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 net loss (NOLCO) incurred in any year
up to five years following the year of such loss.

104
Details of the Parent Company’s NOLCO and MCIT are as follows:

NOLCO

Year Incurred Amount Expired/Applied Balance Expiry Year

2012 P
=1,301,721,876 P
=– P
=1,301,721,876 2017
2013 956,965,884 – 956,965,884 2018
2014 1,361,594,609 – 1,361,594,609 2019
P
=3,620,282,369 P
=– P
=3,620,282,369

MCIT

Year Incurred Amount Expired/Applied Balance Expiry Year

2012 P
=30,081,311 = –
P P
=30,081,311 2015
2013 45,518,668 – 45,518,668 2016
2014 61,319,704 – 61,319,704 2017
P
=136,919,683 = –
P P
=136,919,683

Details of TAP’s NOLCO are as follows:

Year Incurred Amount Expired/Applied Balance Expiry Year

2014 P
=159,636,593 = –
P P
=159,636,593 2019

The Parent Company has outstanding registrations with the BOI as a new operator of air transport
on a pioneer and non-pioneer status under the Omnibus Investments Code of 1987 (Executive
Order 226) (Note 32).

On the above registrations, the Parent Company can avail of bonus years in certain specified cases
but the aggregate ITH availment (basic and bonus years) shall not exceed eight (8) years.

As of December 31, 2014 and 2013, the Parent Company has complied with externally imposed
capital requirements set by the BOI in order to avail the ITH incentives for aircraft of registered
activity (Note 32).

The components of the Group’s deferred tax assets and liabilities follow:

2014 2013
Deferred tax assets on:
NOLCO =1,086,084,710
P =677,606,328
P
Unrealized loss on net derivative liability 330,710,768 –
ARO - liability 225,926,038 573,713,530
MCIT 136,919,683 128,279,309
Accrued retirement costs 108,968,551 161,468,411
Allowance for credit losses 71,132,763 70,631,406
Unrealized foreign exchange loss - net 7,647,215 –
1,967,389,728 1,611,698,984
Deferred tax liabilities on:
Double depreciation 1,910,904,546 1,385,403,735
Business combination (Note 7) 185,645,561 –
Unrealized foreign exchange gain - net – 90,424,174
Unrealized gain on derivative asset – 23,714,473
2,096,550,107 1,499,542,382
Net deferred tax assets (liabilities) (P
=129,160,379) =112,156,602
P

105
Movement in accrued retirement cost amounting P =91.9 million and P
=109.5 million in 2014 and
2013, respectively, is presented under other comprehensive income. Movement includes
adjustments due to restatements.

The Group’s recognized deferred tax assets and deferred tax liabilities are expected to be reversed
more than twelve months after the reporting date.

The Parent Company has the following gross deductible and taxable temporary differences which
are expected to reverse within the ITH period, and for which deferred tax assets and deferred tax
liabilities were not set up on account of the Parent Company’s ITH. Also, TAP has temporary
differences and carry-forward benefits of NOLCO for which no deferred tax asset was recognized.

2014 2013
Deductible temporary difference:
Unrealized loss on derivative asset P
=1,158,190,670 =–
P
NOLCO 47,890,978 –
Retirement benefit obligation 2,244,759 –
1,208,326,407 =–
P

Taxable temporary differences:

ARO P
=167,017,598 =275,032,811
P
Unrealized foreign exchange gain 1,780,030 –
Unrealized gain on derivative asset – 87,408,654
P
=168,797,628 =362,441,465
P

The related deferred tax asset on the deductible temporary differences is =P362.5 million. The
related deferred tax liability on the taxable temporary differences is =
P50.6 million and
=
P108.7 million in 2014 and 2013, respectively.

A reconciliation of the statutory income tax rate to the effective income tax rate follows:

2014 2013 2012

Statutory income tax rate 30.00% 30.00% 30.00%
Adjustments resulting from:
Nondeductible items 0.73 17.3 (0.06)
Gain on sale of financial assets – – (0.04)
Equity in net income loss of JV (2.82) (34.0) (0.42)
Interest income subjected to
final tax (2.21) (58.3) (3.17)
Income subject to ITH (23.25) (341.6) (18.62)
Effective income tax rate 2.45% (386.6%) 7.69%

Entertainment, Amusement and Recreation (EAR) 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 = P21.3 million,
P
=19.0 million and =P10.9 million in 2014, 2013 and 2012, respectively.

106
26. Earnings Per Share

The following reflects the income and share data used in the basic/dilutive EPS computations:

2014 2013 2012

(a) Net income attributable to
common shareholders P
=853,498,216 P
=511,946,229 =
P3,572,014,263
(b) Weighted average number of
common shares for basic EPS 605,953,330 605,953,330 605,953,330
(c) Basic/diluted earnings per share =1.41
P =0.84
P =5.89
P

The Group has no dilutive potential common shares in 2014, 2013 and 2012.

27. Related Party Transaction

Transactions between related parties are based on terms similar to those offered to nonrelated
parties. Parties are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making financial
and operating decisions or the parties are subject to common control or common significant
influence. Related parties may be individuals or corporate entities.

The Group has entered into transactions with its ultimate parent, its JV and affiliates principally
consisting of advances, sale of passenger tickets, reimbursement of expenses, regular banking
transactions, maintenance and administrative service agreements. In addition to the related
information disclosed elsewhere in the financial statements, the following are the year-end
balances in respect of transactions with related parties, which were carried out in the normal
course of business on terms agreed with related parties during the year.

107
 The significant transactions and outstanding balances of the Group with the related parties follow:

Consolidated Statement of Financial Position

Cash and
Cash Equivalents Due from Related Parties Due to Related Parties
(Note 8) (Note 10) (Note 17) Trade Receivables (Note 10) Trade Payables (Note 17)
Outstanding Outstanding Outstanding Outstanding Outstanding
Amount Balance Amount Balance Amount Balance Amount Balance Amount Balance
Ultimate parent company
JGSHI 31-Dec-14 P–
= P–
= P–
= P–
= = 20,961,413
P P2,538,405
= P–
= P–
= P–
= P–
=
31-Dec-13 – – – – 785,714 (2,308,155) – – – –

Parent company
CPAHI 31-Dec-14 – – 4,798 65,800 – – – – – –
31-Dec-13 – – 4,798 61,003 – – – – – –
JV in which the Company is
a venturer
A-plus 31-Dec-14 – – 158,598,304 36,552,884 1,158,074,373 24,674,471
31-Dec-13 – – 42,294,063 27,553,218 – – – – 547,853,458 24,726,389

108
SIAEP 31-Dec-14 – – 6,270,366 4,584,554 – – – – – –
31-Dec-13 – – 6,780,061 6,591,372 – – – – 27,783,983 109,447

PAAT, Inc. 31-Dec-14 – – 38,543,451 93,221,516 – – – – 142,083,732 4,248,400

31-Dec-13 – – 439,082,690 522,385,741 – – – – 121,615,903 654,027

Wholly owned subsidiary

Tiger Airways, Phils. 31-Dec-14 – – 637,144,913 – – – – – 2,513,432,247 –
31-Dec-13 – – – – – – – – – –

Entities under common control

Robinsons Bank 31-Dec-14 78,214,354,341 1,077,863,751 – – 44,899,786 370,324 2,620,575 47,254 9,169,304,482 6,374,402
Corporation (RBC) 31-Dec-13 93,818,316,436 1,828,350,172 – – 45,222,197 1,190,040 2,031,512 25,130 17,751,906,598 1,504,402
Universal Robina 31-Dec-14 – – – – 1,604,489 36,511,250 41,337,092 2,640,691 40,643,899 4,073,947
Corporation (URC) 31-Dec-13 – – – – 29,712,209 45,535,483 32,038,742 4,213,743 34,561,703 2,669,525
Robinsons Land 31-Dec-14 – – – – – – 13,928,598 664,453 37,200,749 1,428,767
Corporation (RLC) 31-Dec-13 – – – – – – 10,347,628 705,775 42,692,833 3,042,022
Robinsons Handyman, Inc. 31-Dec-14 – – – – – – – – 2,810,926 244,966
31-Dec-13 – – – – – – – – 1,952,227 118,023
 Consolidated Statement of Financial Position
Cash and
Cash Equivalents Due from Related Parties Due to Related Parties
(Note 8) (Note 10) (Note 17) Trade Receivables (Note 10) Trade Payables (Note 17)
Outstanding Outstanding Outstanding Outstanding Outstanding
Amount Balance Amount Balance Amount Balance Amount Balance Amount Balance

Summit Publishing, 31-Dec-14 =

P– =
P– =
P– =
P– =
P– =
P– =
P 5,183,283 1,860,403 2,275,234 1,425,868
Inc. (SPI) 31-Dec-13 – – – – – – 2,185,451 681,949 660,618 94,374

JG Petrochemical 31-Dec-14 – – – – – – 958,570 161,635 – –

Corporation (JGPC) 31-Dec-13 – – – – – – 936,659 2,734 – –

Robinsons Inc. 31-Dec-14 – – – – 9,239,878 489,524 26,198,139 505,127 24,258,006 –

31-Dec-13 – – – – 235,847 235,847 21,862,505 471,325 3,776,576 –

Jobstreet.com Phils., Inc. 31-Dec-14 – – – – – – 624,615 139,987 326,594 –

31-Dec-13 – – – – – – 686,710 96,854 306,584 –

Unicon Insurance Brokers 31-Dec-14 – – – – – – – – – –

31-Dec-13 – – – – – – – – 17,136,743 68,849

109
Total 31-Dec-14 = 78,214,354,341
P = 1,077,863,751
P =
P840,561,832 = 134,424,754
P = 76,705,566
P P
= 39,909,503 = 90,850,872
P = 6,019,550
P = 13,090,410,242
P = 42,470,821
P
31-Dec-13 =93,818,316,436
P =1,828,350,172
P P
=488,161,612 =556,591,334
P =75,955,967
P =44,653,215
P =
P70,089,207 =6,197,510
P =18,550,247,226
P P
=32,987,058
 Consolidated Statement of Comprehensive Income
Sale of Air Transportation Interest Ancillary Repairs and
Service Income Revenues Maintenance
Amount/ Amount/
Amount/ Outstanding Outstanding Amount/
Year Outstanding Balance Balance Balance Outstanding Balance
JV in which the Company is
a venture
A-plus 2014 P–
= P–
= P–
= P
= 605,056,538
2013 – – – 453,571,038
2012 – – – 290,371,627

SIAEP 2014 – – – 116,413,193

2013 – – – –
2012 233,666 – – –

PAAT 2014 – – 26,104,946 –

2013 – – 24,868,852 –
2012 – – 2,018,408 –

Wholly owned subsidiary

TAP 2014 – – – 242,941,382
2013 – – – –
2012 – – – –

Entities under common control

RSB 2014 2,620,575 – – –
2013 2,031,512 – – –
2012 1,615,318 359,337,295 – –

URC 2014 41,337,092 – – –

2013 32,038,742 – – –
2012 25,619,354 – – –

RLC 2014 13,928,598 – – –

2013 10,347,628 – – –
2012 11,186,607 – – –

SPI 2014 5,183,283 – – –

2013 2,185,451 – – –
2012 2,207,662 – – –

JGPC 2014 958,570 – – –

2013 936,659 – – –
2012 3,137,969 – – –

Robinsons Inc. 2014 26,231,941 – – –

2013 21,862,505 – – –
2012 18,060,662 – – –
Jobstreet.com Phils., Inc. 2014 624,615 – – –
2013 686,710 – – –
2012 451,232 – – –
Total 2014 P
= 90,884,674 =–
P P
= 26,104,946 P
= 964,411,113
2013 P
=70,089,207 =P– P
=24,868,852 P
=453,571,038
2012 P
=62,512,470 P
=359,337,295 P
=2,018,408 P
=290,371,627

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, 2014 and 2013. 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.

110
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’ in the consolidated statement 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
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’ in the consolidated statements of comprehensive income and any
unpaid amount as of statement of financial position date as trade payable under ‘Accounts
payable and other accrued liabilities’.

4. The Group maintains deposit accounts and short-term investments with RSB which is reported
as ‘Cash and cash equivalents’. 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 as ‘Due to related parties’.

5. The Group provides air transportation services to certain related parties, for which unpaid
amounts are recorded as trade receivables under ‘Receivables’ in the consolidated statement of
financial position.

The Group also purchases goods from URC for in-flight sales and recorded as trade payable, if
unpaid, in the consolidated statement of financial position. Total amount of purchases in
2014, 2013 and 2012 amounted to P =9.5 million, P
=8.3 million and =P5.2 million, respectively.

6. In 2012, the Group entered into a sub-lease agreement with PAAT for its office space.
The lease agreement is for a period of fifteen (15) years from November 29, 2012 until
November 19, 2027 (Note 21).

7. In 2013, the Group sold its 2WRU simulator to PAAT on an “AS IS WHERE IS” basis and
shall include the spare parts and accessories.

8. 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 =
P41.7 million (US$0.9 million) from PAAT as partial payment of the loan. As of
December 31, 2014, loan to PAAT amounted to P = 91.0 million (US$2.3 million).

9. In 2014, the Parent Company entered into sublease agreements with TAP for the lease of its
five (5) A320 Airbus aircraft. The sublease period for each aircraft is for two years.

111
 The compensation of the Group’s key management personnel by benefit type follows:

2014 2013 2012

Short-term employee benefits P
=150,010,391 =135,839,296
P =131,590,618
P
Post-employment benefits 10,011,731 1,290,721 1,565,035
P
=160,022,122 =137,130,017
P =133,155,653
P

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.

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, AFS investments, receivables, payables and interest-bearing
borrowings. The main purpose of these financial instruments is to finance the Group’s operations
and capital expenditures. The Group has various other financial assets and liabilities, such as trade
receivables and trade payables which arise directly from its operations. The Group also enters into
fuel derivatives to manage its exposure to fuel price fluctuations.

The Group’s BOD reviews and approves policies for managing each of these risks and they are
summarized in the succeeding paragraphs, together with the related risk management structure.

Risk Management Structure

The Group’s risk management structure is closely aligned with that of its ultimate parent. The
Group has its own BOD which is ultimately responsible for the oversight of the Group’s risk
management process which involves identifying, measuring, analyzing, monitoring and
controlling risks.

The risk management framework encompasses environmental scanning, the identification and
assessment of business risks, development of risk management strategies, design and
implementation of risk management capabilities and appropriate responses, monitoring risks and
risk management performance, and identification of areas and opportunities for improvement in
the risk management process.

The Group and the ultimate parent with its other subsidiaries (JGSHI Group) created the following
separate board-level independent committees with explicit authority and responsibility for
managing and monitoring risks.

Each BOD has created the board-level Audit Committee to spearhead the managing and
monitoring of risks.

Audit Committee
The Group’s Audit Committee assists the Group’s BOD in its fiduciary responsibility for the over-
all effectiveness of risk management systems, and both the internal and external audit functions of
the Group. Furthermore, it is also the Audit Committee’s purpose to lead in the general evaluation
and to provide assistance in the continuous improvements of risk management, control and
governance processes.

112
The Audit Committee also aims to ensure that:
a. financial reports comply with established internal policies and procedures, pertinent
accounting and auditing standards and other regulatory requirements;
b. risks are properly identified, evaluated and managed, specifically in the areas of managing
credit, market, liquidity, operational, legal and other risks, and crisis management:
c. audit activities of internal and external auditors are done based on plan, and deviations are
explained through the performance of direct interface functions with the internal and external
auditors; and
d. the Group’s BOD is properly assisted in the development of policies that would enhance the
risk management and control systems.

Enterprise Risk Management Group (ERMG)

The fulfillment of the risk management functions of the Group’s BOD is delegated to the ERMG.
The ERMG is primarily responsible for the execution of the Enterprise Risk Management (ERM)
framework. The ERMG’s main concerns include:

· formulation of risk policies, strategies, principles, framework and limits;

· management of the fundamental risk issues and monitoring of relevant risk decisions;
· support to management in implementing the risk policies and strategies; and
· development of a risk awareness program.

Corporate Governance Compliance Officer

Compliance with the principles of good corporate governance is one of the objectives of the
Group’s BOD. To assist the Group’s BOD in achieving this purpose, the Group’s BOD has
designated a Compliance Officer who shall be responsible for monitoring the actual compliance of
the Group with the provisions and requirements of good corporate governance, identifying and
monitoring control compliance risks, determining violations, and recommending penalties for such
infringements for further review and approval of the Group’s BOD, among others.

Day-to-day risk management functions

At the business unit or company level, the day-to-day risk management functions are handled by
four different groups, namely:

1. Risk-taking personnel - this group includes line personnel who initiate and are directly
accountable for all risks taken.
2. Risk control and compliance - this group includes middle management personnel who perform
the day-to-day compliance check to approved risk policies and risks mitigation decisions.
3. Support - this group includes back office personnel who support the line personnel.
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.

113
The ERM framework revolves around the following seven interrelated risk management
approaches:

1. Internal Environmental Scanning - it involves the review of the overall prevailing risk profile
of the business unit to determine how risks are viewed and addressed by management. This is
presented during the strategic planning, annual budgeting and mid-year performance reviews
of the business unit.
2. Objective Setting - the Group’s BOD mandates the Group’s management to set the overall
annual targets through strategic planning activities, in order to ensure that management has a
process in place to set objectives which are aligned with the Group’s goals.
3. Risk Assessment - the identified risks are analyzed relative to the probability and severity of
potential loss which serves as a basis for determining how the risks should be managed. The
risks are further assessed as to which risks are controllable and uncontrollable, risks that
require management’s attention, and risks which may materially weaken the Group’s earnings
and capital.
4. Risk Response - the Group’s BOD, through the oversight role of the ERMG, approves the
Group’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.
5. Control Activities - policies and procedures are established and approved by the Group’s BOD
and implemented to ensure that the risk responses are effectively carried out enterprise-wide.
6. Information and Communication - relevant risk management information are identified,
captured and communicated in form and substance that enable all personnel to perform their
risk management roles.
7. Monitoring - the ERMG, Internal Audit Group, Compliance Office and Business Assessment
Team constantly monitor the management of risks through risk limits, audit reviews,
compliance checks, revalidation of risk strategies and performance reviews.

Risk management support groups

The Group’s BOD created the following departments within the Group to support the risk
management activities of the Group and the other business units:

1. Corporate Security and Safety Board (CSSB) - under the supervision of ERMG, the CSSB
administers enterprise-wide policies affecting physical security of assets exposed to various
forms of risks.
2. Corporate Supplier Accreditation Team (CORPSAT) - under the supervision of ERMG, the
CORPSAT administers enterprise-wide procurement policies to ensure availability of supplies
and services of high quality and standards to all business units.
3. Corporate Management Services (CMS) - the CMS is responsible for the formulation of
enterprise-wide policies and procedures.
4. Corporate Planning and Legal Affairs (CORPLAN) - the CORPLAN is responsible for the
administration of strategic planning, budgeting and performance review processes of the
business units.
5. Corporate Insurance Department (CID) - the CID is responsible for the administration of the
insurance program of business units concerning property, public liability, business
interruption, money and fidelity, and employer compensation insurances, as well as in the
procurement of performance bonds.

114
Risk Management Policies
The main risks arising from the use of financial instruments are credit risk, liquidity risk and
market risk, namely foreign currency risk, commodity price risk and interest rate risk. The
Group’s policies for managing the aforementioned risks are summarized below.

Credit risk
Credit risk is defined as the risk of loss due to uncertainty in a third party’s ability to meet its
obligation to the Group. The Group trades only with recognized, creditworthy third parties. It is
the Group’s policy that all customers who wish to trade on credit terms are being subjected to
credit verification procedures. In addition, receivable balances are monitored on a continuous
basis resulting in an insignificant exposure in bad debts.

With respect to credit risk arising from the other financial assets of the Group, which comprise
cash in bank and cash equivalents and certain derivative instruments, the Group’s exposure to
credit risk arises from default of the counterparty with a maximum exposure equal to the carrying
amount of these instruments.

Maximum exposure to credit risk without taking account of any credit enhancement
The table below shows the gross to credit risk (including derivative assets) of the Group as of
December 31, 2014 and 2013, without considering the effects of collaterals and other credit risk
mitigation techniques.

2014 2013
Financial assets at FVPL
Derivative financial instruments
not designated as accounting hedges P
=– =166,456,897
P
Loans and receivables
Cash and cash equivalents* 3,936,341,214 6,031,996,266
Receivables
Trade receivables 1,302,342,302 944,473,732
Interest receivable 1,008,445 4,904,684
Due from related parties 134,424,754 556,591,334
Others** 731,774,481 547,284,872
2,169,549,982 2,053,254,622
Refundable deposits*** 123,486,187 228,857,751
P
=6,229,377,383 =8,480,565,536
P
***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.

115
The Group’s credit risk exposures, before taking into account any collateral held or other credit
enhancements are categorized by geographic location as follows:

2014
Asia
(excluding
Philippines Philippines) Europe Others Total
Loans and receivables
Cash and cash equivalents* P
= 3,476,501,003 P
= 447,656,601 P
= 12,183,610 P
=– P
= 3,936,341,214
Receivables
Trade receivables 946,188,709 345,891,943 10,261,650 – 1,302,342,302
Interest receivable 1,008,445 – – – 1,008,445
Due from related parties 134,424,754 – – – 134,424,754
Others** 63,998,817 433,133,826 234,641,838 – 731,774,481
Refundable deposits*** – – 123,486,187 – 123,486,187
P
= 4,622,121,728 P
= 1,226,682,370 P
= 380,573,285 P
=– P
= 6,229,377,383
***Excluding cash on hand
***Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

2013
Asia
(excluding
Philippines Philippines) Europe Others Total
Financial assets at FVPL
Derivative financial instruments
not designated as accounting hedges =P– =P– P
=166,456,897 P
=– =
P166,456,897
Loans and receivables
Cash and cash equivalents* 5,687,633,019 344,363,247 – – 6,031,996,266
Receivables
Trade receivables 697,072,860 240,484,830 6,916,042 – 944,473,732
Interest receivable 4,904,684 – – – 4,904,684
Due from related parties 556,591,334 – – – 556,591,334
Others** 345,504,161 12,602,088 189,178,623 – 547,284,872
Refundable deposits*** – – 228,857,751 – 228,857,751
P
=7,291,706,058 P
=597,450,165 P
=591,409,313 P
=– =
P8,480,565,536
***Excluding cash on hand
***Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

The Group has no concentration of risk with regard to various industry sectors. The 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, 2014 and 2013.

2014
Neither Past Due Nor Specifically Impaired Past Due
High Standard Substandard or Individually
Grade Grade Grade Impaired Total
Cash and cash equivalents* P
= 3,908,568,317 P
= 27,772,897 =–
P P
=– P
= 3,936,341,214
Receivables
Trade receivables 1,034,026,029 268,316,273 – – 1,302,342,302
Interest receivable 1,008,445 – – – 1,008,445
Due from related parties 134,424,754 – – – 134,424,754
Others** 321,787,171 409,987,310 – – 731,774,481
Refundable deposits*** 123,486,187 – – – 123,486,187
P
= 5,523,300,903 P
= 706,076,480 =–
P P
=– P
= 6,229,377,383
***Excluding cash on hand
***Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

116
 2013
Neither Past Due Nor Specifically Impaired Past Due
High Standard Substandard or Individually
Grade Grade Grade Impaired Total
Financial assets at FVPL
Derivative financial instruments
not designated as accounting
hedges P
=166,456,897 =P– =P– =P– P
=166,456,897
Loans and receivables:
Cash and cash equivalents* 6,031,996,266 – – – 6,031,996,266
Receivables
Trade receivables 665,456,882 273,151,798 – 5,865,052 944,473,732
Interest receivable 4,904,684 – – – 4,904,684
Due from related parties 556,591,334 – – – 556,591,334
Others** 312,992,504 234,292,368 – – 547,284,872
Refundable deposits*** 228,857,751 – – – 228,857,751
P
=7,967,256,318 P
=507,444,166 =P– P
=5,865,052 P
=8,480,565,536
***Excluding cash on hand
***Include nontrade receivables from insurance, employees and counterparties
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.

High grade cash and cash equivalents are short-term placements and working cash fund placed,
invested, or deposited in foreign and local banks belonging to the top ten banks in terms of
resources and profitability.

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.

Past due or individually impaired accounts consist of past due but not impaired receivables
amounting to = P261.7 million and = P127.9 million as December 31, 2014 and 2013, respectively,
and past due and impaired receivables amounting = P306.8 million and =P235.4 million as of
December 31, 2014 and 2013, 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 statement of financial position. For the past due
and impaired receivables, specific allowance for impairment losses amounted to = P306.8 million
and =
P235.4 million as of December 31, 2014 and 2013, respectively (Note 10).

The following tables show the aging analysis of the Group’s receivables:

2014
Neither Past Past Due But Not Impaired Past
Due Nor Over Due and
Impaired 31-60 days 61-90 days 91-180 days 180 days Impaired Total
Trade receivables P
= 1,032,225,034 P
= 150,601,997 P
= 58,720 P
= 98,594,460 P
= 12,489,390 P
= 8,372,701 P
= 1,302,342,302
Interest receivable 1,008,445 – – – – – 1,008,445
Due from related parties 134,424,754 – – – – – 134,424,754
Others* 433,315,619 – – – – 298,458,862 731,774,481
P
= 1,600,973,852 P
= 150,601,997 P
= 58,720 P
= 98,594,460 P
= 12,489,390 P
= 306,831,563 P= 2,169,549,982
*Include nontrade receivables from insurance, employees and counterparties.

117
 2013
Neither Past Past Due But Not Impaired Past
Due Nor Over Due and
Impaired 31-60 days 61-90 days 91-180 days 180 days Impaired Total
Trade receivables =
P846,850,505 =
P51,227,598 =
P39,972,229 = –
P =
P92,525 P
=6,330,875 =
P944,473,732
Interest receivable 4,904,684 – – – – – 4,904,684
Due from related parties 556,591,334 – – – – – 556,591,334
Others* 281,542,897 3,387,531 8,692,153 10,550,405 14,004,719 229,107,167 547,284,872
P
=1,689,889,420 =
P54,615,129 =
P48,664,382 =
P10,550,405 =
P14,097,244 =
P235,438,042 =
P2,053,254,622
*Include nontrade receivables from insurance, employees and counterparties.

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 =P2.1 million depending
on the Group’s assessment of sales ticket offices and agents’ credit standing and volume of
transactions. As of December 31, 2014 and 2013, outstanding cash bonds (included under
‘Accounts payable and other accrued liabilities’ account in the consolidated statement of financial
position) amounted to = P293.9 million and =
P196.5 million, respectively (Note 17). There are no
collaterals for impaired receivables.

Impairment assessment
The Group recognizes impairment losses based on the results of its specific/individual and
collective assessment of its credit exposures. Impairment has taken place when there is a presence
of known difficulties in the servicing of cash flows by counterparties, infringement of the original
terms of the contract has happened, or when there is an inability to pay principal overdue beyond a
certain threshold. These and the other factors, either singly or in tandem, constitute observable
events and/or data that meet the definition of an objective evidence of impairment.

The two methodologies applied by the Group in assessing and measuring impairment include:
(1) specific/individual assessment; and (2) collective assessment.

Under specific/individual assessment, the Group assesses each individually significant credit
exposure for any objective evidence of impairment, and where such evidence exists, accordingly
calculates the required impairment. Among the items and factors considered by the Group when
assessing and measuring specific impairment allowances are: (a) the timing of the expected cash
flows; (b) the projected receipts or expected cash flows; (c) the going concern of the
counterparty’s business; (d) the ability of the counterparty to repay its obligations during financial
crises; (e) the availability of other sources of financial support; and (f) the existing realizable value
of collateral. The impairment allowances, if any, are evaluated as the need arises, in view of
favorable or unfavorable developments.

With regard to the collective assessment of impairment, allowances are assessed collectively for
losses on receivables that are not individually significant and for individually significant
receivables when there is no apparent nor objective evidence of individual impairment yet.
A particular portfolio is reviewed on a periodic basis in order to determine its corresponding
appropriate allowances. The collective assessment evaluates and estimates the impairment of the
portfolio in its entirety even though there is no objective evidence of impairment yet on an
individual assessment. Impairment losses are estimated by taking into consideration the following
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.

118
The Group’s liquidity management involves maintaining funding capacity to finance capital
expenditures and service maturing debts, and to accommodate any fluctuations in asset and
liability levels due to changes in the Group’s business operations or unanticipated events created
by customer behavior or capital market conditions. The Group maintains a level of cash and cash
equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the
Group regularly evaluates its projected and actual cash flows. It also continuously assesses
conditions in the financial markets for opportunities to pursue fund raising activities. Fund raising
activities may include obtaining bank loans and availing of export credit agency facilities.

Financial assets
The analysis of financial assets held for liquidity purposes into relevant maturity grouping is based
on the remaining period at the statement of financial position date to the contractual maturity date
or if earlier the expected date the assets will be realized.

Financial liabilities
The relevant maturity grouping is based on the remaining period at the statement of financial
position date to the contractual maturity date. When counterparty has a choice of when the amount
is paid, the liability is allocated to the earliest period in which the Group can be required to pay.
When an entity is committed to make amounts available in installments, each installment is
allocated to the earliest period in which the entity can be required to pay.

The tables below summarize the maturity profile of financial instruments based on remaining
contractual undiscounted cash flows as of December 31, 2014 and 2013:
2014
Less than one 1 to 3 3 to 12 1 to 5 More than
month months months years 5 years Total
Financial Assets
Loans and receivables
Cash and cash equivalents P
= 3,908,568,317 P
= 27,772,897 =–
P =–
P =–
P P
= 3,936,341,214
Receivables:
Trade receivables 1,034,732,682 150,660,717 98,905,506 12,178,345 5,865,052 1,302,342,302
Interest receivable 1,008,445 – – – – 1,008,445
Due from related
parties* 134,424,754 – – – – 134,424,754
Others ** 51,467,965 1,217,263 110,677,108 338,456,426 229,955,719 731,774,481
Refundable deposits – – – 123,486,187 – 123,486,187
P
= 5,130,202,163 P
= 179,650,877 P
= 209,582,614 P
= 474,120,958 P
= 235,820,771 P
= 6,229,377,383

Financial Liabilities
On-balance sheet
Derivative financial
instruments not
designated as accounting
hedges =–
P =–
P P
= 1,752,345,943 P
= 508,194,094 P
=– P
= 2,260,540,037
Accounts payable and other
accrued liabilities*** 2,856,393,747 1,694,895,508 2,792,557,873 1,864,583,261 175,573,639 9,384,004,028
Due to related parties* 44,653,215 – – – – 44,653,215
Long-term debt 655,766,281 725,769,177 3,330,929,833 20,055,408,320 9,081,789,054 33,849,662,665
P
= 3,556,813,243 P
= 2,420,664,685 P
= 7,875,833,649 P
= 22,428,185,675 P
= 9,257,362,693 P
= 44,538,879,804
***Receivable and payable on demand
***Include nontrade receivables from insurance, employees and counterparties
***Excluding government-related payables

119
 2013
Less than one 1 to 3 3 to 12 1 to 5 More than
month months months years 5 years Total
Financial Assets
Financial assets at FVPL
Derivative financial
instruments not
designated as accounting
hedges = –
P = –
P =
P166,456,897 = –
P = –
P =
P166,456,897
Loans and receivables
Cash and cash equivalents 6,029,897,773 2,098,493 – – – 6,031,996,266
Receivables:
Trade receivables 807,707,368 130,808,786 – – 5,957,578 944,473,732
Interest receivable 4,904,684 – – – – 4,904,684
Due from related
parties* 556,591,334 – – – – 556,591,334
Others ** 320,686,034 12,079,684 24,205,963 190,313,191 – 547,284,872
Refundable deposits – – 195,419,209 33,438,542 – 228,857,751
P
=7,719,787,193 =
P144,986,963 =
P386,082,069 =
P223,751,733 P
=5,957,578 =
P8,480,565,536

Financial Liabilities
On-balance sheet
Accounts payable and other
accrued liabilities*** P
=2,689,827,346 P
=3,680,189,707 P
=1,458,279,550 =
P664,033,684 P
=133,255,935 =
P8,625,586,222
Due to related parties* 44,653,215 – – – – 44,653,215
Long-term debt 487,593,326 667,975,544 2,599,572,827 17,206,108,217 8,445,215,758 29,406,465,672
P
=3,222,073,887 P
=4,348,165,251 P
=4,057,852,377 P
=17,870,141,901 P
=8,578,471,693 P
=38,076,705,109
***Receivable and payable on demand
***Include nontrade receivables from insurance, employees and counterparties
***Excluding government-related payables

Market risk
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may
result from changes in the price of a financial instrument. The value of a financial instrument may
change as a result of changes in foreign currency exchange rates, interest rates, commodity prices
or other market changes. The Group’s market risk originates from its holding of foreign exchange
instruments, interest-bearing instruments and derivatives.

Foreign currency risk

Foreign currency risk arises on financial instruments that are denominated in a foreign currency
other than the functional currency in which they are measured. It is the risk that the value of a
financial instrument will fluctuate due to changes in foreign exchange rates.

The Group 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, 2014, 2013 and 2012, approximately 29.0%, 27.2% and 25.0%, 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 US Dollar. As of
December 31, 2014, 2013 and 2012, 67.2%, 66.1% and 71.9%, respectively, of the Group’s
financial liabilities were denominated in US Dollar.

The Group does not have any foreign currency hedging arrangements as of December 31, 2014.

120
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.

2014
Hong Kong Singaporean Other
US Dollar Dollar Dollar Currencies* Total
Financial Assets
Cash and cash equivalents P
= 1,228,287,151 P
= 19,301,198 P
= 22,565,841 P
= 115,858,859 P
= 1,386,013,049
Receivables 1,068,922,069 27,994,197 15,263,811 243,160,131 1,355,340,208
Refundable deposits** 123,486,187 – – – 123,486,187
P
= 2,420,695,407 P
= 47,295,395 P
= 37,829,652 P
= 359,018,990 P
= 2,864,839,444

Financial Liabilities
Financial Liabilities at FVPL
Derivative financial
instruments not designated
as accounting hedges P
= 2,260,559,896 =–
P =–
P =–
P P
= 2,260,559,896
Accounts payable and other
accrued liabilities*** 4,245,034,312 39,691,447 47,236,945 227,073,939 4,559,036,643
Long-term debt 33,849,662,665 – – – 33,849,662,665
Others**** 224,413,504 – – – 224,413,504
P
= 40,579,670,377 P
= 39,691,447 P
= 47,236,945 P
= 227,073,939 P
= 40,893,672,708
****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro
****Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
****Excluding government-related payables
****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position

2013
Hong Kong Singaporean Other
US Dollar Dollar Dollar Currencies* Total
Financial Assets
Financial Assets at FVPL
Derivative financial
instruments not designated
as accounting hedges P
=166,456,897 =P– =P– =P– P
=166,456,897
Cash and cash equivalents 3,491,794,170 71,186,277 21,359,942 231,190,616 3,815,531,005
Receivables 490,561,624 24,576,978 22,917,253 171,437,995 709,493,850
Refundable deposits** 228,857,751 – – – 228,857,751
P
=4,377,670,442 P
=95,763,255 P
=44,277,195 P
=402,628,611 P
=4,920,339,503

Financial Liabilities
Accounts payable and other
accrued liabilities*** P
=5,437,471,317 P
=51,217,555 P
=60,528,788 P
=200,087,910 P
=5,749,305,570
Long-term debt 29,406,465,672 – – – 29,406,465,672
Others**** 280,516,880 – – – 280,516,880
P
=35,124,453,869 P
=51,217,555 P
=60,528,788 P
=200,087,910 P
=35,436,288,122
****Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro
****Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
****Excluding government-related payables
****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities
as of December 31, 2014 and 2013 follow:

2014 2013
US dollar P
=44.720 to US$1.00 P44.395 to US$1.00
=
Singapore dollar P
=33.696 to SGD1.00 =35.000 to SGD1.00
P
Hong Kong dollar P
=5.749 to HKD1.00 =5.727 to HKD1.00
P

121
The following table sets forth the impact of the range of reasonably possible changes in the
US dollar - Philippine peso exchange value on the Group’s pre-tax income for the years ended
December 31, 2014, 2013 and 2012 (in thousands).
2014 2013 2012
Changes in foreign exchange value P2
= (P
= 2) =P2 (P
= 2) =P2 (P
= 2)
Change in pre-tax income (P
= 1,687,711) = 1,687,711
P (P
= 1,371,102) P
=1,371,102 (P
= 1,086,164) P
=1,086,164

Other than the potential impact on the Group’s pre-tax income, there is no other effect on equity.

The Group does not expect the impact of the volatility on other currencies to be material.

Commodity price 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
=1,778.5 million, =P1,414.3 million and =P1,258.9 million as of December 31, 2014, 2013 and 2012,
respectively, in each of the covered periods, assuming no change in volume of fuel is consumed.

Interest rate risk

Interest rate risk arises on interest-bearing financial instruments recognized in the consolidated
statement of financial position and on some financial instruments not recognized in the
consolidated statement of financial position (i.e., some loan commitments, if any). The Group’s
policy is to manage its interest cost using a mix of fixed and variable rate debt (Note 18).

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 The following tables show information about the Group’s long-term debt that are exposed to interest rate risk and are presented by maturity profile (Note 18):

December 31, 2014

Total
Total (in Philippine
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years (In US Dollar) Peso) Fair Value
ECA-backed loans from banks
(Note 18) Floating rate
US Dollar London Interbank Offering
Rate (LIBOR) US$15,686,883 US$15,795,544 US$16,013,071 US$16,231,494 US$16,360,413 US$69,634,380 US$149,721,785 = 6,695,558,231
P P
= 6,663,889,880
Commercial loans from banks
(Note 18) Floating rate 19,512,191 19,684,945 19,871,456 20,058,749 20,251,300 93,111,562 192,490,203 8,608,161,855 8,950,548,249
US$35,199,074 US$35,480,489 US$35,884,527 US$36,290,243 US$36,611,713 US$162,745,942 US$342,211,988 = 15,303,720,086
P = 15,614,438,129
P

December 31, 2013

Total
Total (in Philippine
<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years (In US Dollar) Peso) Fair Value
ECA-backed loans from banks

123
(Note 18) Floating rate
US Dollar LIBOR US$15,480,117 US$15,569,043 US$15,770,998 US$15,987,187 US$16,204,179 US$86,333,584 US$165,345,108 =
P7,340,496,051 =
P7,819,322,263
Commercial loans from banks
(Note 18) Floating rate 4,441,696 3,166,512 3,253,328 3,347,064 3,441,197 18,712,007 36,361,804 1,614,282,285 1,928,062,139
US$19,921,813 US$18,735,555 US$19,024,326 US$19,334,251 US$19,645,376 US$105,045,591 US$201,706,912 =8,954,778,336
P =9,747,384,402
P
 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, 2014, 2013 and 2012.

2014 2013 2012

Changes in interest rates 1.50% (1.50%) 1.50% (1.50%) 1.50% (1.50%)
Changes in pre-tax income (P
= 183,855,223) P = 183,855,223 (P
=113,939,099) P =113,939,099 (P
=91,088,144) P
=91,088,144

Fair value interest rate risk

Fair value interest rate risk is the risk that the value/future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate
risk relates primarily to the Group’s financial assets designated at FVPL.

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 asset and other financial liabilities as
of December 31, 2014 and 2013:

2014 2013
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Loans and receivables
Refundable deposits*
(Note 16) P
=123,486,187 P
=121,309,197 P
=228,857,751 P
=224,791,228
Financial Liabilities
Other financial liability
Long-term debt**
(Note 18) P
=33,849,662,665 P
=35,500,074,733 P
=29,406,465,672 =31,059,100,382
P
**Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position.
**Includes current portion.

The methods and assumptions used by the Group in estimating the fair value of financial asset 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 2014 and 2013.

Long-term debt
The fair value of long-term debt is determined using the discounted cash flow methodology, with
reference to the Group’s current incremental lending rates for similar types of loans. The discount
curve used range from 2% to 6% as of December 31, 2014 and 2013.

The Group uses the following hierarchy for determining and disclosing the fair value of financial
assets designated at FVPL, derivative financial instruments and AFS investments 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.

124
 The table below shows the Group’s financial instruments carried at fair value hierarchy
classification:

2014 2013
Level 1 Level 2 Level 1 Level 2
Financial Assets
Financial assets at FVPL
(Note 9)
Derivative financial
instruments not
designated as accounting
hedges P
=– P
=– = –
P P
=166,456,897
Financial Liabilities
Financial liabilities at FVPL
(Note 9)
Derivative financial
instruments not
designated as accounting
hedges P
=– P
=2,260,559,896 = –
P = –
P

There are no financial instruments measured at Level 3. There were no transfers within any
hierarchy level of fair value measurements for the years ended December 31, 2014 and 2013,
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:

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 1 October 2016
(Inishcrean)
March 2008 GY Aviation Lease 0905 Co. Limited 2 January 2017
March 2008 APTREE Aviation Trading 2 Co. Ltd 1 October 2019
Wells Fargo Bank Northwest 1 October 2019
National Assoc.
July 2011 SMBC Aviation Capital Limited 2 February 2018
Note: The lease agreements were amended, when applicable, to effect the novation of lease rights by the original lessors
to new lessors as allowed under the lease agreements.

In 2007, the Group entered into operating lease agreement with Inishcrean for the lease of one
Airbus A320, which was delivered in 2007, and with CIT Aerospace International for the lease of
four Airbus A320 aircraft, which were delivered in 2008.

125
In March 2008, the Group entered into operating lease agreements for the lease of two Airbus
A320 aircraft, which were delivered in 2009, and two Airbus A320 aircraft which were received in
2012. In November 2010, the Group signed an amendment to the operating lease agreements,
advancing the delivery of the two Airbus A320 aircraft to 2011 from 2012.

In July 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd.
(RBS) for the lease of two Airbus A320 aircraft, which were delivered in March 2012. The lease
agreement with RBS was amended to effect the novation of lease rights by the original lessors to
new lessors as allowed under the existing lease agreements.

A330 aircraft
The following table summarizes the specific lease agreements on the Group’s Airbus A330
aircraft:

Date of Lease Agreement Lessors No. of Units Lease Term

February 2012 CIT Aerospace International 4 12 years with pre-termination
option
July 2013 Intrepid Aviation 2 12 years with pre-termination
option

On February 21, 2012, the Group entered into a lease agreement with CIT Aerospace International
for four Airbus A330-300 aircraft. The lease term of the aircraft is 12 years with an early pre-
termination option.

On July 19, 2013, the Group entered into an aircraft operating lease agreements with Intrepid
Aviation for the lease of two Airbus A330-300 aircraft, which are scheduled to be delivered from
2014 to 2015. In 2014, the Group received

As of December 31, 2014, the Group has five (5) Airbus A330 aircraft under operating lease
(Note 13), wherein three Airbus were delivered in 2014.

The first two A330 aircraft were delivered in June 2013 and September 2013. Three A330 aircraft
were delivered in February 2014, May 2014 and September 2014.

Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in the
consolidated statements of comprehensive income) amounted to P =3,503.5 million,
P
=2,314.9 million and =
P2,034.0 million in 2014, 2013 and 2012, respectively.

Future minimum lease payments under the above-indicated operating aircraft leases follow:
2014 2013 2012
Philippine peso Philippine peso Philippine peso
US dollar equivalent US dollar equivalent US dollar equivalent
Within one year US$88,551,265 P
= 3,960,012,577 US$73,094,439 =
P3,245,027,618 US$54,171,098 =
P2,223,723,588
After one year but not more
than five years 314,017,649 14,042,869,274 307,184,942 13,637,475,503 258,475,371 10,610,413,991
Over five years 395,380,828 17,681,430,645 463,829,248 20,591,699,480 333,453,833 13,688,279,865
US$797,949,742 P
= 35,684,312,496 US$844,108,629 =
P37,474,202,601 US$646,100,302 =
P26,522,417,444

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%.

126
Future minimum lease payments under these noncancellable operating leases follow:

2014 2013 2012

Within one year P
=127,970,825 =114,110,716
P =108,795,795
P
After one year but not more than
five years 539,700,300 665,809,830 487,021,206
Over five years 2,065,948,495 799,242,568 266,875,198
P
=2,733,619,620 =1,579,163,114
P =862,692,199
P

Lease expenses relating to both cancellable and non-cancellable non-aircraft leases (allocated
under different expense accounts in the consolidated statements of comprehensive income)
amounted to = P337.1 million, =
P304.8 million and =
P263.7 million in 2014, 2013 and 2012,
respectively.

Service Maintenance Commitments

On June 21, 2012, the Company has entered into an agreement with Messier-Bugatti-Dowty
(Safran group) to purchase wheels and brakes for its fleet of Airbus A319 and A320 aircraft. The
contract covers the current fleet, as well as future aircraft to be acquired.

On June 22, 2012, the Group has entered into service contract with Rolls-Royce Total Care
Services Limited (Rolls-Royce) for service support for the engines of the A330 aircraft. Rolls-
Royce will provide long-term Total Care service support for the Trent 700 engines on up to eight
A330 aircraft.

On July 12, 2012, the Company has entered into a maintenance service contract with SIA
Engineering Co. Ltd. for the maintenance, repair and overhaul services of its A319 and A320
aircraft.

These agreements remained in effect as of December 31, 2014.

Aircraft and Spare Engine Purchase Commitments

In 2007, the Group entered into a purchase agreement with Airbus S.A.S covering the purchase of
ten A320 aircraft and the right to purchase five option aircraft.

In 2009, the Group exercised its option to purchase the five additional aircraft. Further, an
amendment to the purchase agreement was executed, which provided the Group the right to
purchase up to five additional option aircraft.

In 2010, the Group exercised its option to purchase five additional option Airbus A320 aircraft
and entered into a new commitment to purchase two Airbus A320 aircraft to be delivered between
2011 and 2014. Six of these aircraft were delivered between September 2011 and
December 2013.

On May 2011, the Group turned into firm orders its existing options for the seven Airbus A320
aircraft which are scheduled to be delivered in 2015 to 2016.

On August 2011, the Group entered in a new commitment to purchase firm orders of thirty new
A321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to be delivered
from 2017 to 2021.

127
 On June 28, 2012, the Group has entered into an agreement with United Technologies
International Corporation Pratt & Whitney Division to purchase new PurePower® PW1100G-JM
engines for its 30 firm and ten options A321 NEO aircraft to be delivered beginning 2017. The
agreement also includes an engine maintenance services program for a period of ten years from
the date of entry into service of each engine.

As of December 31, 2014, the Group will take delivery of 9 more Airbus A320, 1 Airbus A330
and 30 Airbus A321 NEO aircraft.

The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.
These agreements remained in effect as of December 31, 2014.

Capital Expenditure Commitments

The Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,
aggregating to P
=70.07 billion and =
P68.23 billion as of December 31, 2014 and 2013, respectively.

2014
Philippine peso
US dollar equivalent
Within one year US$260,795,946 P
=11,662,794,707
After one year but not more than
five years 1,458,101,728 65,206,309,259
US$1,718,897,674 P
=76,869,103,966

2013
Philippine peso
US dollar equivalent
Within one year US$247,380,188 =10,982,443,447
P
After one year but not more than
five years 1,400,472,358 62,173,970,322
US$1,647,852,546 =73,156,413,769
P

Contingencies
The Group has pending suits, claims and contingencies which are either pending decisions by the
courts or being contested or under evaluation, the outcome of which are not presently
determinable. The information required by PAS 37, Provisions, Contingent Liabilities and
Contingent Assets, is not disclosed until final settlement, on the ground that it might prejudice the
Group’s position (Notes 7 and 17).

The CAB assessed the Group with the amount of =P52.1 million recognized mainly in the operating
and general and administrative expenses. The amount was settled in January 29, 2015 (Notes 22
and 23).

31. Supplemental Disclosures to the Consolidated Statements of Cash Flows

The principal noncash investing activities of the Group were as follows:

a. On December 31, 2013 and 2012, the Group recognized a liability based on the schedule of
pre-delivery payments amounting P
=514.4 million and =
P34.1 million. These incurred costs are

128
 recognized under the ‘Construction-in progress’ account. The liability was paid the following
year.
b. The Parent Company paid = P488.6 million for the acquisition of TAP (Note 7). Cash flows
used to acquire TAP after the cash attributable to the business combination of =
P256.7 million,
amounted to =P231.8 million.

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 one (1) ATR72-500 and sixteen (16) A320 and non-pioneer status for six (6) 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 2011-240 Nov 2011 - Nov 2015
November 16, 2011 2011-241 Nov 2011 - Nov 2017
November 16, 2011 2011-242 Nov 2011 - Nov 2015
November 16, 2011 2011-243 Dec 2011 - Jun 2014
January 17, 2012 2012-012 Jan 2012 - Nov 2014
January 17, 2012 2012-013 Mar 2012 - Feb 2016
January 17, 2012 2012-014 Mar 2012 - Feb 2016
October 4, 2012 2012-208 Oct 2012 - Jul 2014
December 6, 2012 2012-261 Dec 2012 - Mar 2014
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

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. The president, general manager and
treasurer of foreign-owned registered firms or their equivalent shall be subject to the foregoing
limitations.

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.

129
d. Avail of a bonus year in each of the following cases but the aggregated ITH availment (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; or
· The net foreign exchange savings or earnings amount to at least US$500,000 annually
during the first three (3) years of operation.
· The indigenous raw materials used in the manufacture of the registered product must at
least be fifty percent (50%) of the total cost of raw materials for the preceding years 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
availment as against the previous year, if the project meets the prescribed ration 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 10-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 (10) 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.

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 quarterly 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 quarter.

As of December 31, 2014 and 2013, 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.

130
33. Events After the Statement of Financial Position Date

On February 23, 2015, the Group signed a forward sale agreement with a subsidiary of Allegiant
Travel Company (collectively known as “Allegiant”), covering the Group’s sale of six (6) Airbus
A319 aircraft. The delivery of the aircraft to Allegiant is scheduled to start on various dates in
2015 until 2016.

34. Approval of the Consolidated Financial Statements

The accompanying consolidated financial statements were approved and authorized for issue by
the BOD on March 24, 2015.

131
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 December 28, 2012, valid until December 31, 2015
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-3 (Group A),
Philippines November 15, 2012, valid until November 16, 2015

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, 2014 and 2013 for
each of the three years in the period ended December 31, 2014, included in this Form 17-A and have
issued our report thereon dated March 24, 2015. 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 purposes 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.

Michael C. Sabado
Partner
CPA Certificate No. 89336
SEC Accreditation No. 0664-AR-2 (Group A),
March 26, 2014, valid until March 25, 2017
Tax Identification No. 160-302-865
BIR Accreditation No. 08-001998-73-2012,
April 11, 2012, valid until April 10, 2015
PTR No. 4751320, January 5, 2015, Makati City

March 24, 2015

132
 CEBU AIR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED COMPANY FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES

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, 2014 and 2013

Consolidated Company Statements of Comprehensive Income for the Years Ended

December 31, 2014 and 2013

Consolidated Company Statements of Changes in Equity for the Years Ended December 31, 2014
and 2013

Consolidated Company Statements of Cash flows for the Years Ended December 31, 2014 and 2013

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.

*SGVFS011188*
133
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

*SGVFS011188*
134
 CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE A - FINANCIAL ASSETS
(CURRENT MARKETABLE EQUITYAND DEBT SECURITIES AND OTHER SHORT-TERM CASH INVESTMENTS)
DECEMBER 31, 2014

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 = 712,909,518

P = 712,909,518
P =
P37,909,019
Various / PHP Short-term cash investments 2,212,145,333 2,212,145,333 37,443,946
=
P2,925,054,851 =
P2,925,054,851 =
P75,352,965

135
Various / Private Bonds – – –
Various / Government Bonds – – –
Various / Equity Securities – – –

Derivative Assets (Fuel Hedge) = –

P = –
P = –
P

See Notes 8 and 9 of the Consolidated Financial Statements.

 CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE B
AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN
RELATED PARTIES)
DECEMBER 31, 2014

Balance Balance at End of Period

Name and Designation at Beginning
of Debtor of Period Additions Collections Write Offs Current Noncurrent Total

Various employees =
P20,562,667 =
P118,598,980 =
P97,438,951 =P– =P– =P– =
P41,722,696

136
 CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE E - PROPERTY AND EQUIPMENT
DECEMBER 31, 2014

Balance Additions Balance

at Beginning Additions through Disposals and at End
Business Reclassification
Classification of Period at Cost Combination Others of Period

Passenger Aircraft =
P55,467,053,217 =
P7,575,750,090 P–
= =
P2,612,552,125 (P
=24,455,634) =
P65,630,899,798
Engines 4,766,121,255 1,389,833,886 – – – 6,155,955,141
Rotables 1,925,128,767 978,819,967 – (1,988,214) (239,771,253) 2,662,189,267

137
EDP Equipment, Mainframe and
Peripherals 675,411,191 107,933,586 102,400 (16,745,162) 766,702,015
Ground Support Equipment 439,233,908 54,482,887 – (16,516,103) (1,991,398) 475,209,294
Leasehold Improvements 474,091,618 876,522 13,500 628,748,003 (140,614,589) 963,115,054
Transportation Equipment 187,315,198 22,594,748 – – – 209,909,946
Furniture, Fixtures and Office
Equipment 98,788,650 53,913,030 350,215 (237,053) (198,293) 152,616,549
Special Tools 12,930,393 1,217,339 – (42,411) – 14,105,321
Communication Equipment 11,166,616 1,569,885 – – – 12,736,501
Maintenance and Test Equipment 6,681,631 – – – – 6,681,631
Other Equipment 81,210,161 6,258,504 3,037,878 241,071 (222,785) 90,524,829
Construction In-progress 8,630,598,676 3,123,469,412 – (3,241,300,128) 116,240,979 8,629,008,939
=
P72,775,731,281 =
P13,316,719,856 =3,503,993
P (P
=18,542,710) (P
=307,758,135) =
P85,769,654,285

See Note 13 of the Consolidated Financial Statements.

 CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE F - ACCUMULATED DEPRECIATION
DECEMBER 31, 2014

Balance Additions Charged Additions Charged Balance

at Beginning to Costs and through Disposals and at End
Business Reclassification
Description of Period Expenses Combination Others of Period

Passenger Aircraft =
P13,551,101,649 =
P3,435,623,376 P–
= =
P343,794 (P
=2,547,271) =
P16,984,521,548
Engines 1,109,029,422 451,070,072 – – – 1,560,099,494
Rotables 374,366,431 169,390,376 – (39,098) (69,803,584) 473,914,125
EDP Equipment, Mainframe and –

138
Peripherals 566,371,255 69,194,140 104,172 (16,743,513) 618,926,054
Ground Support Equipment 305,646,442 50,986,591 – (11,146,793) (1,991,398) 343,494,842
Leasehold Improvements 167,895,720 62,836,060 – 6,277 – 230,738,057
Transportation Equipment 129,225,704 21,074,474 – – – 150,300,178
Furniture, Fixtures and Office –
Equipment 69,503,656 11,999,988 (319,042) (175,337) 81,009,265
Special Tools 11,782,318 438,466 – (1,414) – 12,219,370
Communication Equipment 7,980,577 1,276,855 – – – 9,257,432
Maintenance and Test Equipment 6,290,564 207,649 – – – 6,498,213
Other Equipment 64,071,259 7,423,319 – 278,546 (222,785) 71,550,339
Construction in-progress – 3,652 – (3,652) – –
=
P16,363,264,997 =
P4,281,525,018 =–
P (P
=10,777,210) (P
=91,483,888) =
P20,542,528,917

See Note 13 of the Consolidated Financial Statements.

 CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE H - LONG-TERM DEBT
DECEMBER 31, 2014

Amount Shown under Caption

Amount Shown under Caption "
"Current Portion of Finance
Finance Lease Obligation" in
Title of Issue and Lease Obligation" in Related
Related Balance Sheet
Balance Sheet
Type of Obligation Interest Rates Maturity Dates

2.00% to 6.00% Various dates

Export Credit Agency-Backed Loans through 2023 =
P2,784,927,354 =
P8,847,836,314

139
1.00% to 2.00%
(US Dollar LIBOR)
– 5,994,040,842

4.00% to 6.00% Various dates

Commercial Loans from banks through 2017 1,927,537,937 6,559,743,563
1.00% to 2.00%
(US Dollar LIBOR) – 7,735,576,655
Total =
P4,712,465,291 =
P29,137,197,374

See Note 18 of the Consolidated Financial Statements.

 CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE K
CAPITAL STOCK
DECEMBER 31, 2014

Number of Shares Issued Number of Shares Reserved Number of Shares Held by

Number of Shares and Outstanding as for Options, Warrants,
Authorized Shown under Related Conversion and Other Directors,
Rights Officers and
Title of Issue Balance Sheet Caption Affiliates Employees Others

140
Common Stock 1,340,000,000 605,953,330 – 407,412,031 10,009 198,531,290

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, 2014

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

Not Not
INTERPRETATIONS Adopted
Adopted Applicable
Effective as of December 31, 2014
Framework for the Preparation and Presentation of Financial
Statements
P
Conceptual Framework Phase A: Objectives and qualitative
characteristics
PFRSs Practice Statement Management Commentary P
Philippine Financial Reporting Standards P
PFRS 1 First-time Adoption of Philippine Financial Reporting
P
(Revised) Standards
Amendments to PFRS 1 and PAS 27: Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or P
Associate
Amendments to PFRS 1: Additional Exemptions for First- P
time Adopters
Amendment to PFRS 1: Limited Exemption from P
Comparative PFRS 7 Disclosures for First-time Adopters
Amendments to PFRS 1: Severe Hyperinflation and P
Removal of Fixed Date for First-time Adopters
Amendments to PFRS 1: Government Loans P
PFRS 2 Share-based Payment P
Amendments to PFRS 2: Vesting Conditions and P
Cancellations
Amendments to PFRS 2: Group Cash-settled Share-based P
Payment Transactions
PFRS 3 Business Combinations
P
(Revised)
PFRS 4 Insurance Contracts P
Amendments to PAS 39 and PFRS 4: Financial Guarantee
P
Contracts
PFRS 5 Non-current Assets Held for Sale and Discontinued
P
Operations
PFRS 6 Exploration for and Evaluation of Mineral Resources P
PFRS 7 Financial Instruments: Disclosures P
Amendments to PFRS 7: Transition P
Amendments to PAS 39 and PFRS 7: Reclassification of P
Financial Assets

141
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
Not Not
INTERPRETATIONS Adopted
Adopted Applicable
Effective as of December 31, 2014
Amendments to PAS 39 and PFRS 7: Reclassification of
P
Financial Assets - Effective Date and Transition
Amendments to PFRS 7: Improving Disclosures about P
Financial Instruments
Amendments to PFRS 7: Disclosures - Transfers of P
Financial Assets
Amendments to PFRS 7: Disclosures – Offsetting Financial P
Assets and Financial Liabilities
Amendments to PFRS 7: Mandatory Effective Date of P
PFRS 9 and Transition Disclosures
PFRS 8 Operating Segments P
PFRS 9 Financial Instruments P
Amendments to PFRS 9: Mandatory Effective Date of P
PFRS 9 and Transition Disclosures
PFRS 10 Consolidated Financial Statements P
PFRS 11 Joint Arrangements P
PFRS 12 Disclosure of Interests in Other Entities P
PFRS 13 Fair Value Measurement P
Philippine Accounting Standards
PAS 1 Presentation of Financial Statements P
(Revised)
Amendment to PAS 1: Capital Disclosures P
Amendments to PAS 32 and PAS 1: Puttable Financial P
Instruments and Obligations Arising on Liquidation
P
Amendments to PAS 1: Presentation of Items of Other
Comprehensive Income
PAS 2 Inventories P
PAS 7 Statement of Cash Flows P
PAS 8 Accounting Policies, Changes in Accounting Estimates and P
Errors
PAS 10 Events after the Balance Sheet Date P
PAS 11 Construction Contracts P
PAS 12 Income Taxes P
Amendment to PAS 12 - Deferred Tax: Recovery of P
Underlying Assets
PAS 16 Property, Plant and Equipment P
PAS 17 Leases P
PAS 18 Revenue P
PAS 19 Employee Benefits P

142
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
Not Not
INTERPRETATIONS Adopted
Adopted Applicable
Effective as of December 31, 2014
Amendments to PAS 19: Actuarial Gains and Losses, P
Group Plans and Disclosures
PAS 19 Employee Benefits P
(Amended)
PAS 20 Accounting for Government Grants and Disclosure of
P
Government Assistance
PAS 21 The Effects of Changes in Foreign Exchange Rates P
Amendment: Net Investment in a Foreign Operation P
PAS 23 Borrowing Costs
P
(Revised)
PAS 24 Related Party Disclosures
P
(Revised)
PAS 26 Accounting and Reporting by Retirement Benefit Plans P
PAS 27 Separate Financial Statements
P
(Amended)
PAS 28 Investments in Associates and Joint Ventures
P
(Amended)
PAS 29 Financial Reporting in Hyperinflationary Economies P
PAS 31 Interests in Joint Ventures P
PAS 32 Financial Instruments: Disclosure and Presentation P
Amendments to PAS 32 and PAS 1: Puttable Financial P
Instruments and Obligations Arising on Liquidation
Amendment to PAS 32: Classification of Rights Issues P
Amendments to PAS 32: Offsetting Financial Assets and P
Financial Liabilities
PAS 33 Earnings per Share P
PAS 34 Interim Financial Reporting P
PAS 36 Impairment of Assets P
PAS 37 Provisions, Contingent Liabilities and Contingent Assets P
PAS 38 Intangible Assets P
PAS 39 Financial Instruments: Recognition and Measurement P
Amendments to PAS 39: Transition and Initial Recognition
P
of Financial Assets and Financial Liabilities
Amendments to PAS 39: Cash Flow Hedge Accounting of
P
Forecast Intragroup Transactions
Amendments to PAS 39: The Fair Value Option P
Amendments to PAS 39 and PFRS 4: Financial Guarantee
P
Contracts
Amendments to PAS 39 and PFRS 7: Reclassification of P

143
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
Not Not
INTERPRETATIONS Adopted
Adopted Applicable
Effective as of December 31, 2014
Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification of P
Financial Assets – Effective Date and Transition
Amendments to Philippine Interpretation IFRIC–9 and PAS P
39: Embedded Derivatives
Amendment to PAS 39: Eligible Hedged Items P
PAS 40 Investment Property P
PAS 41 Agriculture P
Philippine Interpretations
IFRIC 1 Changes in Existing Decommissioning, Restoration and
P
Similar Liabilities
IFRIC 2 Members' Share in Co-operative Entities and Similar P
Instruments
IFRIC 4 Determining Whether an Arrangement Contains a Lease P
IFRIC 5 Rights to Interests arising from Decommissioning, P
Restoration and Environmental Rehabilitation Funds
IFRIC 6 Liabilities arising from Participating in a Specific Market - P
Waste Electrical and Electronic Equipment
IFRIC 7 Applying the Restatement Approach under PAS 29 P
Financial Reporting in Hyperinflationary Economies
IFRIC 8 Scope of PFRS 2 P
IFRIC 9 Reassessment of Embedded Derivatives P
Amendments to Philippine Interpretation IFRIC–9 and PAS
P
39: Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment P
IFRIC 11 PFRS 2- Group and Treasury Share Transactions P
IFRIC 12 Service Concession Arrangements P
IFRIC 13 Customer Loyalty Programmes P
IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding P
Requirements and their Interaction
Amendments to Philippine Interpretations IFRIC- 14, P
Prepayments of a Minimum Funding Requirement
IFRIC 16 Hedges of a Net Investment in a Foreign Operation P
IFRIC 17 Distributions of Non-cash Assets to Owners P
IFRIC 18 Transfers of Assets from Customers P
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments P
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine P
SIC-7 Introduction of the Euro P

144
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
Not Not
INTERPRETATIONS Adopted
Adopted Applicable
Effective as of December 31, 2014
SIC-10 Government Assistance - No Specific Relation to
P
Operating Activities
SIC-12 Consolidation - Special Purpose Entities P
Amendment to SIC - 12: Scope of SIC 12 P
SIC-13 Jointly Controlled Entities - Non-Monetary Contributions P
by Venturers
SIC-15 Operating Leases - Incentives P
SIC-21 Income Taxes - Recovery of Revalued Non-Depreciable P
Assets
SIC-25 Income Taxes - Changes in the Tax Status of an Entity or P
its Shareholders
SIC-27 Evaluating the Substance of Transactions Involving the P
Legal Form of a Lease
SIC-29 Service Concession Arrangements: Disclosures. P
SIC-31 Revenue - Barter Transactions Involving Advertising P
Services
SIC-32 Intangible Assets - Web Site Costs P
Not applicable standards have been adopted but the Group has no significant covered transactions as of and for the years
ended December 31, 2014, 2013 and 2012.

145
CEBU AIR, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION
FOR THE YEAR ENDED DECEMBER 31, 2014

The table below presents the retained earnings available for dividend declaration as of
December 31, 2014:

Unappropriated Retained Earnings, beginning =8,964,805,908

P
Adjustments:
Fair value adjustment arising from fuel hedging gains (P
=393,007,855)
Unrealized foreign exchange gain (1,157,619,451)
Recognized deferred tax assets (1,522,931,759)
Treasury stock (529,319,321) (3,602,878,386)
Unappropriated Retained Earnings, as adjusted to available for
dividend distribution, beginning 5,361,927,522

Add: Net income actually earned/realized during the year:

Net income during the period closed to Retained Earnings 1,000,790,091
Less: Non-actual/unrealized income net of tax:
Recognized deferred tax asset 447,544,102 553,245,989

Less:
Dividend declaration during the year 605,953,330
Appropriations of Retained Earnings during the year 3,000,000,000 (3,605,953,330)
Total Retained Earnings available for dividend declaration
as of December 31, 2014 P
=2,309,220,181

146
 CEBU AIR, INC. AND SUBSIDIARIES
MAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP

147
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE OF FINANCIAL RATIOS
FOR THE YEARS ENDED December 31, 2014 and 2013

The following are the financial ratios that the Group monitors in measuring and analyzing its financial
soundness:

Financial Ratios 2014 2013

Liquidity Ratios
Current Ratio 35% 55%
Quick Ratio 24% 44%

Capital Structure Ratios

Debt-to-Equity Ratio (x) 1.57 1.39
Net Debt-to Equity Ratio (x) 1.39 1.11
Adjusted Net Debt-to Equity Ratio (x) 2.58 1.99
Asset to Equity Ratio (x) 3.53 3.20
Interest Coverage Ratio (x) 4.10 2.78

Profitability Ratios
EBITDAR Margin 24% 21%
EBIT Margin 8% 6%
Pre-tax core net income margin 6% 5%
Return on asset 1% 1%
Return on equity 4% 2%

148
WEBSITE
& CALL CENTER
Reservation Hotline (Philippines)
Manila: (+632) 702-0888
Cebu: (+6332) 230-8888

Group Bookings
groupbookings@cebupacificair.com

Website
www.cebupacificair.com

Follow us on:
@cebupacificair
Cebu Pacific Air official page
Cebupacificair Channel
cebupacificair

Independent Public Accountants

SGV & Co.
SGV Building, 6760 Ayala Avenue
1226 Makati City, Philippines

Legal Counsel
Romulo, Mabanta, Buenaventura,
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21/F Philamlife Tower,
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1226 Makati City, Philippines

Stock Transfer and Dividend Paying Agent

Banco de Oro Unibank, Inc.
15th Floor, South Tower
BDO Corporate Center
7899 Makati Avenue, Makati City 0726

Investor Relations
investor.relations@cebupacificair.com